ACIT CIR -4(2) (1) , THANE vs. M/S. MUKTI GOLD PVT. LTD, MUMBAI

आदेश / O R D E R Per B.M. Biyani, A.M.:

CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. Delhi [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 25.12.2019 passed by Ld. ACIT, Circle-4(2)(2), Mumbai [“Ld. AO”] u/s 143(3) of the Income Tax Act, 1961 [“the Act”], the Revenue has filed captioned appeal and the assessee has filed captioned Cross-Objection.

Revenue’s Appeal:

“1. Whether on facts and circumstances of the case and in law, the Ld. NFAC is justified in restricting the ad-hoc disallowance of Rs.50,25,004 (20% of Rs. 2,52,60,012/-) to Rs. 2,50,000/- without examining the reliable documentary evidences in order to prove the genuineness of various expenses claimed.

2. Whether on facts and circumstances of the case and in law, the Ld. NFAC is justified in deleting the disallowance of Rs. 21,60,000/- made in respect of Rent Payment paid for the use of Business premises even though the assessee failed to submit any document to prove the genuineness of rent paid to the parties.

3. Whether on facts and circumstances of the case and in law, the Ld. NFAC is erred in deleting the addition amounting to Rs. 10,58,78,667/- made u/s.68 of the I.T. Act, 1961 without appreciating the facts that the assessee has failed to prove the genuineness and creditworthiness of the transactions entered into.

4. Whether on facts and circumstances of the case and in law, the Ld. NFAC is erred in deleting the addition amounting to Rs. 10,58,78,667/ made u/s.68 of the I.T. Act, 1961 without appreciating the facts that certain points (Page No.44) of the order is itself contradictory in nature wherein amount received from 9 parties are treated as advance received against supply of gold jewellery and are termed as Trade Creditors and on the other hand TDS is also deducted at the time of payment to these parties.

2. On the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) without bringing out any defects in the voluminous details submitted in respect of expenses under the various heads confirmed the ad hoc disallowance of Rs. 2,50,000/-.”

Ground No. 1 of Revenue’s Appeal and Ground No 1 and 2 of Assessee’s Cross-Objection:

5. These Grounds relate to the adhoc disallowance of Rs. 50,25,004/- made by Ld. AO out of certain expenses. During first-appeal, the Ld. CIT(A) granted substantial relief to assessee and restricted disallowance to Rs. 2,50,000/-. Presently, both sides are aggrieved by the action of first- appellate authority i.e. while the Revenue is aggrieved by part-relief granted to assessee; the assessee is aggrieved by part-disallowance sustained. Hence both sides have raised their respective grievances in appeal/cross-objection.

Business Promotion Expenses 18,54,229 Exhibition Expenses 21,91,765 Commission Paid 1,12,63,000

CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. Interest Paid 79,25,408 Membership Fee 20,25,610 Total 2,52,60,012 During assessment-proceeding, when the Ld. AO confronted the assessee for verification of these expenses, the assessee filed details of expenses, TDS out of those expenses, ledger accounts of expenses, etc. But, however, the Ld. AO observed that the assessee had not filed complete bills in support of the expenses. The Ld. AO also made a categorical observation that the bills appeared to be self-made vouchers. To take an example, the Ld. AO has also scanned a copy of the invoice of “Exhibition expenses” issued by M/s Gem and Jewellery Export Promotion Council (GJEPC) and observed that the said invoice is unsigned by the payee. Ld. DR submits that the assessee has claimed expenses as high as Rs. 2,52,60,012/- and therefore, it was a duty of assessee to explain and prove the business expediency as well as genuineness of expenses but since the assessee has miserably failed to do so, the Ld. AO was constrained to make an ad-hoc disallowance @ 20% of Rs. 2,52,60,012/- amounting to Rs. 50,52,004/-. Placing reliance on the decision of Hon’ble Bombay High Court in the case of Umakant B. Agarwal Vs. DCIT (2014) 46 taxmann.com 338 (Bom) and Hon’ble Gujrat High Court in the case of Gujrat Insecticides Ltd. Vs. DCIT (2013) 40 taxmann.com 166 (Guj), the Ld. DR submitted that disallowance of commission-payment where the assessee could not prove the services rendered by brokers with supporting evidences, has been upheld. Ld. DR submitted that the Ld. CIT(A) has wrongly given relief to assessee and reduced the quantum of disallowance to just Rs. 2,50,000/-. Ld. DR strongly argued that the entire disallowance of Rs. 50,52,004/- made by Ld. AO was in order and the same must be upheld.

“4.2 I have considered the facts of the case, assessment order and appellant's written submissions. The AO noted that the assessee company claimed under various expenses, aggregated to Rs. 2,52,60,012/-. The AO after citing various irregularities as discussed above, disallowed Rs. 50,52,004/- being 20% of Rs. 2,52,60,012/-. The appellant has submitted that it had incurred these expenses wholly and exclusively for the business purpose and furnished all the relevant details before the AO. The appellant has claimed that all these expenses are subject to TDS and details of recipient parties were furnished before the AO. The appellant stated wherever, the TDS was required to be made, it had duly deducted the TDS and name and details were furnished before the AO. The appellant has contended that the AO without pointing out any specific defects and without rejecting the books of accounts u/s. 145(3), made the adhoc disallowance which is unlawful. Thus, the appellant prayed that the addition made by the AO on account of making adhoc disallowance may kindly be deleted. After considering the justification given by the appellant and details brought on record by the appellant, it is observed that these expenses as claimed by the appellant are incurred in relation to the business. In fact, the AO in his order himself has not doubted incurrence of these expenses. However, upon appellant's failure in explaining each and every expenses with supporting bills and vouchers, the AO disallowed Rs. 50,52,004/- being 20% of total claim of expenses of Rs. 2,52,60,012/-. I find that the AO making the adhoc disallowance failed to consider the nature of appellant's business. The appellant has explained the necessity of incurring of these expenses. Business promotion expenses: Every business requires promotion to increase its sales or be competitive in market. Since the assessee company is in business of selling of gold items/jewellery, it was necessary for it to incur these expenses. The payments made by the assessee are subject to TDS. In fact, the AO has not doubted incurring of these expenses. If the AO had any doubts regarding genuineness of this expense, he could have enquired with the recipient parties. But no such exercise was done by the AO. The Hon'ble ITAT Delhi Bench in the case of PCIT Vs Mail Today Newspapers Pvt. Ltd TAX DES (ITAT Delhi) Appeal Number Date of Judgement/Order: 11/06/2020 AY: 2013-14 held that the advertisement and sales promotion expenses incurred by the assessee are merely for the purpose of publicity of CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. trade name/brand name which results into enhancement of sales. Therefore, the CIT(A) was right in allowing the appeal of the assessee as the issue is already covered in earlier years, hence, the appeal of the Revenue was dismissed. Exhibition Expense: The appellant's nature of business is such that wherein it needs to participates in various exhibitions to market their products, it participated in various exhibition organized by different institutions mainly through Gem and Jewellery Export Promotion Council (GJEPC). The payments made by the assessee are subject to TDS. In fact, the AO has not doubted incurring of these expenses. If the AO had any doubts regarding genuineness of these expenses, he could have enquired with the recipient parties. But no such exercise was done by the AO. It is just similar like business or sales promotion expenses. The Hon'ble ITAT Delhi Bench in the case of DCIT Vs Mail Today Newspapers Pvt. Ltd (ITAT Delhi) Appeal Number: Date of Judgment/Order: 11/06/2020 AY: 2013-14 held that the advertisement and sales promotion expenses incurred by the assessee are merely for the purpose of publicity of trade name/brand name which results into enhancement of sales. Therefore, the CIT(A) was right in allowing the appeal of the assessee as the issue is already covered in earlier years, hence, the appeal of the Revenue was dismissed. Commission paid: Like various businesses, the assessee has to hire services various gents who secures orders for assessee in lieu of commission. In a business that of the assessee one cannot deny the service of agents, the services of these agents benefited the assessee in achieved better turnover. The appellant has furnished copy of Ledger of Commission paid, Debit Notes from parties for commission charged, Party wise Confirmation, ITR Ack Computation of Income & Form 16A evidencing TDS deduction. In fact, the AO has not doubted incurring of these expenses. If the AO had any doubts regarding genuineness of this expense, he could have enquired with the recipient parties. But no such exercise was done by the AO. The Hon'ble Patna High Court in the case of CIT vs. Bharat Collieries Ltd. (68 ITR 42) Commission was normal practice in the commercial world and was conceded with a view to improving clientele-Amount and extent of expenditure has no bearing on character of expenditure-Expenditure an integral part of profit earning process. Finding by Tribunal that high rate of commission was a normal Commercial transaction- Hence allowable expenditure. In the case of Supreme Rayons (P) Ltd. v. Dy.CIT (2006)104 TTJ 896 wherein ITAT Jodhpur Bench it is observed as under. "Business expenditure Commission -Genuineness Appellant company claimed deduction of expenditure in relation to payment of commission and filed confirmation with regard to payment from recipient however, the same was not accepted by AO and addition representing commission amount was made. Held: Not justified. Similarly, the Hon'ble Delhi High Court in the case of CIT vs. Siddartha Trade Links (P) Ltd. [2012] 19 taxmann.com 199 (Delhi) held that where the appellant had adduced sufficient evidence to prove the payment of commission, there, cannot be disallowance u/s. 37 of the Act. The head note is reproduced as under-

CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. "II. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of Assessee-company effected sales Officer through sales representatives/agents Commission or brokerage was being paid to agents - Assessing disallowed commission payment on ground that addresses of some of recipients were same though persons/individuals were different-In assessment order it was also mentioned that in some cases PAN or addresses were not finished - On appeal, Tribunal. Highlighted that out of 16 parties, PAN of 14 parties were submitted to Assessing Officer Moreover, assessee had also deducted TDS at rate of 5 per cent and TDS returns was filed - Tribunal, thus, allowed claim of assessee holding that assessee had duly established that sufficient services were rendered for payment of commission - On revenue's appeal, it was noted that Assessing Officer did not issue any summons or call upon assessee to produce said agents for examination Moreover, agreements with agents and actual payments were established - Whether in view of aforesaid, impugned order passed by Tribunal was to be upheld-Held, yes [In favor of assessee]" The following decisions held that where the commission payment was made to commission agents against services rendered and there were sufficient proof of payment and receipts of the same and due taxes thereon were paid, the same cannot be denied on mere suspicions:- 1. Schneider Electric India Ltd Vs. CIT (304 ITR 360) Delhi High Court: 2. Lachminarayan Madan Lal V/S CIT (85 ITR 49 SC) 3. M/s Sun Infra and M/s. Sun Minerals in and ITA No. 2116/Hyd/2011 4. Roger Enterprises (P) Ltd vs DCIT (2004) (ITAT-Delhi) (88 ITD 95) 5. M/s K.V. Minerals, Hyderabad vs Assessee on 15.07.2013 (ITAT No. 1996/Hyd/2011) 6. Davinder Singh v ACIT (104 ITD 325) (ITAT, Amritsar) 7. CIT vs. Calcutta Agency Ltd 1951 AIR 108 (19 ITR 191) (SC) 8. Lakshmiratan Cotton Mills Co. Ltd v/s CIT(1969) (73 ITR 634) (SC) 9. L.B. Sugar Factory & Oil Mills (P) Ltd v/s CIT (19 CTR) 185: (1980) 125 ITR 293 (SC) 10. CIT V. Durga Prasad More (1971) 82 ITR 540 (S.C) 11. CIT V/S Motor & General Stores Pvt. Ltd. 66 ITR 692 (S.C In the appellant's case, all commission agents confirmed having rendered services to the appellant company and receipt of payment against their service and TDS were also deducted thereon.

CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. Interest paid: Every growing business needs funds, which are raised through various sources. In the case of instant appellant, it had taken obtained unsecured loans from relative parties and paid interest to them. The details of person from whom were duly furnished before the AO. However, the AO treated interest paid as general expenses disallowed out of the interest paid. Subsequently, the AO again disallowed the entire interest payment. One side the AO accepted major part of this interest as genuine and on other part, he disbelieved the entire interest expenses. In my view, this action of the AO cannot be said to be justifiable. Here I may quote the decision of the Hon'ble Apex Court in the case of S. A. Builders vs. CIT [2007] 158 Taxman 74 (SC) and the Court held that the expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business, the expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency. Membership fees: The appellant has submitted that the said Membership fees of Rs. 20,25,610 were duly paid for getting membership of different trade organizations & councils wherein economic advancement vis a vis marketing can be achieved by meeting various business houses. I find that trade organizations & councils are a platform to meet people whereby organizing meeting enhances the chances of new contacts. Further, the appellant submitted that the membership of the trade organizations & councils were taken for the furtherance of the business of the company. The Hon'ble Madras high Court in the case of CIT VS. Sundaram Industries Ltd. (40 ITR335 (MAD) held as under. "Section 37 postulates that any expenditure laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income of the assessee. The essential requirement for claiming the deduction of the expenditure is that the expenditure should have been incurred wholly and exclusively for the purposes of business of the assessee in the instant case, the assessee was a company and it was found by the Appellate Tribunal that the expenditure by way of subscription to the clubs was incurred for the purpose of promoting the business of the company and in view of the finding of the Tribunal, it must be held that the expenditure incurred was an allowable business expenditure. In the case of subscription to clubs, in so far as the assessee was concerned, the expenditure was incurred to promote and foster its business relationship. The object of the assessee was that its directors by remaining as members in some of the city clubs would give them certain social status, and it was obvious that by being members of the club, they would be able to meet various kinds of people in a calm and cool atmosphere of the club and because of the meeting they would develop business relationship, benefiting the assessee. Therefore, it could not be said that the possible advantage to the assessee was remote and far fetched. No doubt, there might be a personal benefit enjoyed by the director by the various types of amenities afforded at the club. But the personal benefit that went to the director was incidental to the membership of the club. The question

CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. whether a particular expenditure is allowable or not has to be tested from the point of view of the person expending the same and the object with which he incurred the expenditure. The assessee had not spent the money with the object of providing a personal relaxation to the director, but it was incurred to promote its business. In the commercial world, the contact with the right person is vital for an efficient business organisation. The expenditure incurred could not be regarded as having been incurred for the personal benefit of the director. In each case, it has to be seen whether the object of the expenditure was to promote the business of the assessee. In view of the finding by the Tribunal, the assessee-company had incurred the expenditure wholly and exclusively for the purpose of its business and therefore the expenditure incurred by way of subscription to the club was an allowable expenditure." Further, on a similar issue, the Hon'ble Apex Court in the case of CIT Vs. United Glass Mfg. held as under. "3.3 As far as Question No. 1 is concerned, the issue is answered in favour of the assessee in the order passed today in civil appeal arising out S.L.P.(C) No. 20791 of 2009. As far as Question No. 2 is concerned, we find that a series of judgements have been passed by High Courts holding that club membership fees for employees incurred by the assessee is business expense under Section 37 of the Income Tax Act, 1961. We also find that none of the decisions have been challenged in this Court. Even otherwise, we are of the view that it is a pure business expense." Further, the Apex Court in the case of CIT v. Walchand & Co. (P.) Ltd. [1967] 65 ITR 381; J.K. Woollen Mfg. v. CIT [1969] 72 ITR 612 (SC) ; Aluminium Corporation of India Ltd. v. CIT [1972] 86 ITR 11 (SC) and S.A. Builders Ltd. v. CIT (Appeals) [2007] 158 Taxman 74/288 ITR 1 (SC) has held that any expenditure incurred out of commercial expediency, the same is an allowable deduction. The commercial expediency is to be considered from the angle of businessman and not from the angle of Revenue. The Revenue cannot sit in the arm chair of businessman and dictate the terms to the assessee as to how one is required to conduct its business or incur an expenditure and how it is to be allowed. It is a settled position of law that no lump sum disallowances is permissible on assumption and presumption alone, until and unless there are some material or evidence is available on record but instead of doing the same the Id. A.O. simply by stating that expenses were not supported by proper bills and vouchers. This is a bald and non-speaking and un-cognizable reason which the law does not support. The AO failed to consider the nature of these expenses, as these expenses purely related to assessee's business where there is no chance of personal or other than business purpose. The disallowances made on estimate basis is not justified as no basis for making adhoc disallowance was given. In the absence of such, no disallowance or addition is permissible in law

CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. to make in lump sum, ad-hoc, on arbitrary, assumption and presumption bases. My view gets support from the following judicial precedents:- 1. (2014) 41 CCH 0086 (Jodh)- ITO Vs. Adhunik Khanawva Parivahan ThekaSahakari Samiti 2. (2014) 41 CCH 0090 (Jodh)-ACIT Vs. Meena Singh Shekhawat Further, it is well established law that addition cannot be made only on basis of assumption. There must be some material on record as evidence for addition. Addition made on the basis of presumption cannot be sustained in law. My view further gets support from the following judicial precedents:- 1. CIT v. Roman & Co., (1968): 67 ITR 11 (SC) 2. CIT v. Calcutta Discount Co. Ltd. (1973) 91 ITR 8 (SC) 3. Omar Salay Mohamed Sait V/S CIT 1959 37 ITR 151 (SC) 4. Dhirajlal Girdharilal V/S CIT (26 ITR 734) (SC) 5. Dr. Anita Sahai V/S DIT (266 ITR 597) (All) 6. MODI Creations Pvt. Ltd. V/S ITO [2011] 13 taxmann.com 114 (Delhi)- CIT- IV v. Shree Rama Multi Tech Ltd [2013] 34 taxmann.com 32 (Gujarat):- In the instant case, the AO simply made on ad-hoc basis whereas it is well settled law that addition cannot be made on ad-hoc/ estimation basis. On the Similar facts also the Mumbai Tribunal in case of Ramesh Buswal v/s ITO vide order dated 16/02/2016 held that ad-hoc addition cannot be made. The relevant findings of the Tribunal are reproduced as under:- “I have considered the rival submissions. Ostensibly, the entire addition is based on the perception of the Assessing Officer that certain expenses must have been incurred by the assessee for personal and/or for non business purposes. However, the relevant discussion in the assessment order does not show any specific instance of such nature being brought out by the Assessing Officer in spite of the fact that assessee had filed his return of income based on audited financial statements, which were very much available with the Assessing Officer. Therefore, such adhoc disallowance in my view does not merit any sustenance.” In the case of CIT vis Consulting engineering Group Ltd. [2014] 44 taxmann.com 232, the Hon'ble Rajasthan HC held as under- “14. In so far as the disallowance out of the Soil testing and surveying expenses is concerned, both the ITAT as well as CIT(A) have correctly disallowed the deletion and there was no occasion for any adhoc disallowance out of the said expenditure at the rate of 10%. The CIT(A) so also the ITAT had considered the matter after analyzing the details

CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. submitted before them and it has been observed by the CIT (A) and approved by the ITAT that the receipts by the assessee were to the extent of Rs.85,75,162/- as against the expenditure of Rs.50,18,663/-. Therefore, even the receipts are substantially higher than the expenditure and in our view, the disallowance deleted by the CIT(A) and approved by the ITAT cannot be faulted with. Whether if AO is not satisfied either about maintenance of vouchers or verifiable nature of vouchers, he should identify them and disallow entire amount u/s 37(1), rather than resorting to ad hoc disallowance - Held, yes AO disallowed 15 per cent of repairs and maintenance and 20 per cent of vehicle expenses on reason that supporting evidence furnished was not verifiable as they were self-serving vouchers -Whether since reasons for disallowance were very general in nature without any specific mistakes being pointed out by AO, ad hoc disallowances were to be deleted - Held, yes. Moreover, it is seen from the assessment order that the quantum of disallowance is quite substantial however while making such huge disallowance, the AO did not compare the quantum of expenses with immediate preceding years nor stated any reasonable basis justifying disallowance @20%. The quantum lof expenditure depends on so many factors such as business/prudence of the businessman and his perception of business exigencies. The Assessing Officer can disallow such expenses only if he finds that these expenses are not relatable to business and/ or are not genuine. I find that the Assessing Officer has not given any finding to the effect that these expenses were not incurred wholly & exclusively for the business purpose. Though it may be the case that bills and vouchers were not kept properly, still there has to be clear finding that these expenses were not incidental to the business of the assessee or were bogus. This finding is totally lacking in the assessment order. The Hon'ble Supreme Court in the case of J. K. Woollen (72 ITR 612) had observed that the question as to whether an amount claimed as expenditure was laid out or expended wholly or exclusively for the purpose of business, profession or vocation as required under s. 10(2)(xv) of 1922 Act has to be decided on the facts and in the light of the circumstances of each particular case, but the final conclusion on the admissibility of an allowance is one of law. In the case of Amarjothi Pictures vs. CIT [1968] 69 ITR 755 (mad) and CIT vs. Gobald Motor Service (P) Ltd [1975] 100 ITR 240 (Mad) it was observed that Department cannot consider expediency factor, but must confine its examination to the reality aspect, the expediency of the expenditure is not for the revenue to consider, that is a matter entirely left to the judgment of the assessee concerned, in allowing or disallowing a deduction the revenue has, of course, to have regard to the requisites of section 10(2)(xv) of 1922 Act [corresponding to section 37 (1) of 1961 Act]. I find that as per the provisions of sec. 37 of the Act any expenditure incurred wholly and exclusively for the purpose of business and not being in nature of capital expenditure or personal expenses is allowable in computing the income chargeable under the head "profits and gains" of business or profession. The onus lies on the appellant to substantiate with documentary evidences when called upon to the effect that all expenditures claimed in the P&L accounts are laid out or expended wholly and exclusively CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. for the purpose. of business. Thus, genuineness of the appellant's claim of expenses cannot be fully established. Hence, the claim of the appellant regarding expenses cannot be accepted as it is. However it is made clear that the interest expenses of Rs. 76,08,730/- being interest paid to creditors shall not be considered for the purpose of disallowance u/s 37(1) of the Act, subject to my findings given in succeeding para while dealing with ground nos 4 & 5. Under these facts and circumstances and looking to the nature of business, the disallowance at the rate of 20% appears to be quite excessive. In the interest of natural justice, I find it would be appropriate to restrict the disallowance to Rs. 2,50,000/- which would be sufficient to meet any revenue leakages on this account. The appellant gets partial relief. The ground nos 1 & 2 raised by the appellant regarding this issue are partly allowed.”

Ground No. 2 of Revenue’s Appeal:

CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. assertion that the Hyderabad rent, Chennai rent and Bangalore rent have been separately allowed by Ld. AO as deduction.

“5.2 I have considered the facts of the case, assessment order and appellant's submissions. The AO disallowed the assessee's claim of rent payment of Rs. 21,60,000/- mainly on the ground no rent agreements were filed by the assessee before him and confirmations submitted by it were on plain papers. On the contrary, the appellant claimed that it had duly furnished rent agreement vide its submission dated 19.12.2019 made before the AO. To support its case, the appellant has referred to page 20 to 21 of paper book furnished before the AO. Considering the facts of the case and appellant's submissions, I am inclined to agree with appellant's claim. The appellant has furnished details of office/premises which were taken on rent and from where it has been running its business/office. Obliviously, these premises do not belong to the appellant company. Moreover, the AO's claim that the assessee did not furnish rent agreement is also not found to be correct. The appellant has drawn my attention towards page 20 to 21 of paper book furnished before the AO which contained rent agreements executed with aforesaid persons. Thus, it is wrong on the part of the AO to allege that no rent agreements were filed. Furthermore, the appellant has furnished confirmations from these parties. If the AO had doubted regarding the genuineness of rent payments, he could have enquired with these parties or sent summons on the premises which have been shown to be taken on rent. Besides, it is not the case of the AO that rent payment was over and above market rates. The rent payment was subject to the TDS, the assessee duly deducted TDS on these rent payments. The AO has not doubted this fact at all. The Hon'ble Calcutta High Court in the case of Balmer Lawrie & Co. Ltd. vs. Commissioner of Income Tax [2019] 111 taxmann.com 316 (Calcutta) held that where assessee made advance payment of rent in respect of leasehold premises, since advance rent i.e. rent reserved by assessee corresponding to market rate of rent was in nature of depressed rent, payment made in respect of same was rightly treated as revenue expenditure eligible for deduction under section 37(1). Here I may also refer to the decision of the Hon'ble Amritsar ITAT in the case of Kaiser Industries Ltd. v/s JCIT [2017] 83 taxmann.com 324 (Amritsar - Trib.) wherein the Hon'ble Tribunal held that when expenditure on account of rent payment was allowed to assessee in subsequent year by Commissioner in revision proceedings under section 264, said expenditure for relevant year should be accordingly decided. In view of the facts discussed above and judicial precedents cited supra, it is held that the AO was not justified in denying the assessee's claim of rent payment. The addition made on this account at Rs. 21,60,000/- is directed to CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. be deleted. The ground of appeal raised by the appellant regarding this is allowed.”

14. Thus, on perusal of the documents placed in the Paper-Book to which our attention has been drawn and the order of first-appellate authority, we find merit in the twin-submissions of Ld. AR. We find that the impugned rent payment was related to Mumbai premises for which the assessee has filed relevant details as well as rent-agreements during assessment- proceeding. Before us, Ld. DR representing the revenue could not rebut these submissions of Ld. AR. Faced with such a situation, we find no infirmity in the relief granted by Ld. CIT(A). Hence, we uphold his action and dismiss ground No. 2 of revenue.

Ground No. 3, 4 and 5 of Revenue’s Appeal:

“6.4 The submission of the assessee is considered but untenable. Mere filing of copy of return income, statement of income, capital account doesn't prove the creditworthiness, of the loan parties. In the show cause letter issued it was clearly asked to file bank statements in support of confirmation filed. However, assessee has failed to furnish the bank statements even after asking repeatedly. From the facts and few incomplete bank statements submitted by the assessee, it is also noticed that the loan parties do not have creditworthiness to advance huge loans and as per the few bank statements submitted, it shows that the loan parties have received amount from assessee

CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. and again giving unsecured loans to assessee. It means the assessee is routing its own money through loan parties and showing it as unsecured loans taken and paying interest on it. It is also relevant to mention here that in the confirmation of parties submitted by the assessee, the assessee has shown transactions of purchases, rent and commission from the same parties. However, in case of parties such as Suresh Kumar Babulal Pomani HUF, Babulal Valchand Pomani HUF, Gautam Babulal Pomani HUF, Nikhil D Jain, only purchases are shown in the confirmation and no loans. On the contrary as stated in the above table of loan submitted by the assessee, it can be seen that these parties are shown to have advanced huge loans to the assessee. Therefore, it seems that the assessee has tried to misreport the transactions of loans in the guise of purchases, rent commission,.etc. Therefore, genuineness of the loans is not established at all because of suspicious nature and purpose of transaction of assessee with these parties. Though the assessee has shown these parties as loan parties, the assessee has also shown to have entered into transactions of purchases, commissions, rent etc. However, when assessee was asked to provide the details of party wise purchases, the name of the above stated parties did not appear in the list of purchases, creditors etc.. Therefore, the assessee has provided no explanation to the loan received during the year even after multiple opportunities. 6.5 The assessee was specifically given the opportunity to prove the genuineness and creditworthiness of the loan parties. However, assessee has failed to do so. From the return of income filed in respect of some parties, the creditworthiness of the loan parties is not proved. The onus is placed on the assessee to prove the genuineness and creditworthiness of the parties from whom loan was obtained. However assessee has failed to discharge the onus placed on it. In view of these facts, the unsecured loans amounting to Rs.10,58,78,667/- is added to the total income of the assessee u/s 68 of the Act. Separately, penalty/s 271AAC of the Act is initiated.” Further, the Ld. AO also disallowed interest-payment of Rs. 76,08,730/- relatable to those loans.

(i) Ld. AR made a preliminary contention that the AO has simply taken a difference of opening balance and closing balance of creditors and thereby made addition u/s 68. He submitted that while in some creditors, such difference may be a credit item and in others, it may be a debit item; the Ld. AO has just taken a difference of aggregate of all and thereby made addition which is not only absurd but also beyond the scheme of section 68 itself. According to Ld. AR, section 68 taxes “sum credited in the books” and therefore, if at all, any addition was required to be made, the Ld. AO must have verified the “sum credited” and made addition accordingly. Ld. AR submitted that the approach adopted by Ld. AO shows total in-application of mind.

(ii) Ld. AR submitted that the assessee has filed documentary evidences of the creditors during assessment-proceeding. Drawing our attention to a sample case of Anita Mahendra Jain, Ld. AR pointed out that the assessee had filed Copy of Ledger A/c, ITR, Statement of Total Incomed, Capital A/c, Balance-Sheet (Page No. 348 to 352 of Paper- Book) of the creditor, which clearly show the transactions entered into

CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. by assessee with the creditor in the form of purchase of goods, rent payment, interest payment, TDS etc. Ld. AR submitted that almost all creditors are family persons and their cases are alike this sample case. He further submitted that the assessee is engaged in gold business and the purchase of gold was made from those persons on credit basis. He submitted that such purchase and other commercial transactions are duly reflected in the Ledger accounts and the outstanding balance at the year-end was shown as “unsecured loans”. He further submitted that interest was also calculated and credited/paid after deducting TDS. Regarding bank-statements, Ld. AR submitted that they were irrelevant because majority of transactions were commercial transactions of purchase, rent, interest, etc. and not of transfer of funds.

CO. No. 116/Mum/2022 M/s Mukti Gold Pvt. Ltd. “From the facts as mentioned by the Assessing Officer in the assessment order, I find that there is no rebuttal of the evidences produced by the assessee in support of genuineness of the credit appearing in his books of accounts. The creditors, by issuing confirmations of the transaction undertaken by them with the assessee have impliedly owned up the cash deposited by them in their bank account from which cheque of identical amount were issued to the assessee. It is not the case of the Assessing Officer that the assessee had not furnished confirmations from the creditors or that such confirmations were false or suffered from any lacuna. In the event of confirmations of the creditors having been filed by the assessee and other materials on record such as deposit of amounts in cash in the bank account of the creditors on the same day or next on which cheque was issued to the assessee, further inquiry could have been carried out to ascertain the real ownership of the cash deposited. However, no such inquiry was conducted to ascertain the relevant facts as regards the source of cash deposited by the creditors in his bank account. Without such inquiry, it is obvious that there was no material to form the basis for any legitimate inference that the cash deposited by the creditors in their bank account represented concealed or secreted income of the assessee. Similarly, no inquiry has been conducted to ascertain the capacity of the creditors. The Assessing Officer has conveniently sought to draw an inference that the creditors did not have the capacity to deposit respective amounts for the reason that the returned incomes of the creditors were commensurate with the deposits in the bank. I find that such inference is without any basis. The Assessing Officer has not been able to bring any material on record to establish that the creditors did not have the capacity and did not have the fund on the day of deposit to make the deposits of the respective sum in the bank account.”

Order pronounced in the open court on 17/02/2023.