ADDL. CIT, NEW DELHI vs. M/S. GOYAL ENGINEERING POLYMER (P) LTD., NEW DELHI

Briefly stated facts of the case are that the assessee company is a Private Limited Company engaged in the business of trading of Plastic Granules. The assessee company filed its return of income for the A.Y. 2012-13 on 25.01.2013 electronically declaring total income of Rs.1,88,80,180/-. The case of the assessee company was selected for scrutiny and thereafter, assessment was framed under section 143(3) of the I.T. Act, 1961 vide order dated 26.02.2015 and the total income of the assessee company was determined at Rs.8,14,10,824/-.

Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal and has raised the following grounds :

Grounds of appeal Nos.1 and 2 of the Revenue are inter-connected and are with respect to addition of Rs.2,43,90,691/- made on account of accrued interest. During the assessment proceedings A.O. on perusing the computation of income noticed that assessee had deducted Rs.2,43,90,691/- on account of “accrued interest not recoverable” from the total income. The assessee was asked to explain the reason for deducting the amount more so when the assessee has accounted for it in the books of 5 I.T.A.No.5023/Del./2016 M/s. Goyal Engineering Polymer (P) Ltd., New Delhi. account and was following the mercantile system of accounting. In response to the query of AO the assessee, inter alia, submitted that assessee had charged the aforesaid interest to M/s. Polyplastics Automotive (India) Pvt. Ltd., on account of delay payment of outstanding sales payment, for which a debit note was raised, but the same was not accepted by M/s. Polyplastics Automotive (India) Pvt. Ltd., It was further submitted that due to uncertainty regarding its realisation, the aforesaid amount was not considered as part of income. It was thereafter submitted that in F.Y. 2012-13 the debit note was accepted by M/s. Polyplastics Automotive (India) Pvt. Ltd., and it had also deducted TDS and the same amount has been offered to tax in subsequent years. The submissions of the assessee was not found acceptable to A.O. The A.O. was of the view that deduction cannot be allowed as debts written off because for claiming deduction the primary condition is that debt should be written off in the books of account, but according to the assessee it had not written off the amount in the books of account. He further noted that assessee is 6 I.T.A.No.5023/Del./2016 M/s. Goyal Engineering Polymer (P) Ltd., New Delhi. following the mercantile system of accounting and that no claim of deduction on account of accrued interest has been made in the return of income nor assessee has filed any revised return under section 139(5) of the I.T. Act, 1961 and the deduction has been claimed during the course of assessment proceedings which was not in line with the ratio of decision of Hon’ble Supreme Court in the case of Goetze India Ltd., vs., CIT reported in 284 ITR 323 (SC). He accordingly denied the claim of deduction and made the addition.

Before us, the Ld. D.R. took us through the findings of the A.O. and supported the order of A.O.

The Learned Authorised Representative, on the other hand, reiterated the submissions made before the authorities below and further submitted that the aforesaid amount which was not realised in A.Y. 2012-13 was realised by the assessee in A.Y. 2016-17 and was offered to tax in A.Y. 2016-17. In support of his contention, he has placed on record copy of the computation and the copy of acknowledgment of return of income for A.Y. 2016-17. He 8 I.T.A.No.5023/Del./2016 M/s. Goyal Engineering Polymer (P) Ltd., New Delhi. also submitted that the contention of assessee that the ratio of decision in the case of Goetze India Ltd., vs., CIT (supra) is not applicable to the facts of the present case has been accepted by the Ld. CIT(A). He, therefore, submitted that considering the aforesaid facts, no interference is called for to the order of the Ld. CIT(A).

We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to an addition of Rs.2,43,90,691/- made on account of accrued interest on delayed payment. We find that Ld. CIT(A) after considering the submissions of the assessee has given a finding that the aforesaid amount was not taxable in the year under consideration in view of real income theory. Before us, the Learned Authorised Representative has also placed on record the copy of the computation of income for the A.Y. 2016-17 demonstrating that the aforesaid amount has been offered to tax in the year under consideration. Considering the totality of the facts and circumstances of the case and in absence of any fallacy pointed by the Revenue in the findings of the Ld.

During the course of assessment proceedings A.O. noticed that the Director of the Company Mr. Pawan Goyal deposited a sum of Rs.2,74,42,000/- as share capital. The assessee was asked to prove the identity, creditworthiness and genuineness of the transaction and identity of the deposits as per the provisions of Section 68 of the I.T. Act, 1961. The assessee, inter alia, filed copy of return of income of Mr. Pawan Goyal, copy of his bank statements. The A.O. on perusing the details furnished by the assessee noted that Mr. Pawan Goyal had introduced his income from undisclosed sources by depositing cash in his own bank account. The assessee was, therefore, asked to prove genuineness of the cash deposits, to which,

Aggrieved by the order of A.O. assessee carried the matter in appeal before the Ld. CIT(A). Before the Ld. CIT(A), assessee furnished detailed submissions and it was, inter alia, submitted that Mr. Pawan Goyal had explained the cash deposits as being out of the income surrendered during the course of search and in the assessment of Mr. Pawan Goyal the return of income has been accepted under section 143(3) of the I.T. Act, 1961 and no addition has been made on account of cash deposits from undisclosed income. The Ld. CIT(A) after considering the submissions of the assessee, deleted the addition made by A.O. by noting that assessee had established the identity of the share applicant, genuineness of the transaction of share application money and the addition has been made only for the reason that the 12 I.T.A.No.5023/Del./2016 M/s. Goyal Engineering Polymer (P) Ltd., New Delhi. assessee could not explain the source of source of the deposits. The Ld. CIT(A) while deleting the addition has also noted that assessee is not required to explain the source of source. He accepted the genuineness of the source of cash deposits from unaccounted sales to be out of the income surrendered by Mr. Pawan Goyal and which has also been accepted by the jurisdictional A.O. of Mr. Pawan Goyal. He accordingly held that the creditworthiness of share application money has been proved. The Ld. CIT(A) accordingly directed the A.O. to delete the addition.

Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal.

The Ld. D.R. took us through the findings of A.O. and supported the order of A.O.

The Learned Authorised Representative for the Assessee reiterated the submissions made before the authorities below and supported the order of Ld. CIT(A).

We have heard the Learned Representative of both the parties and perused the material available on 13 I.T.A.No.5023/Del./2016 M/s. Goyal Engineering Polymer (P) Ltd., New Delhi. record. The issue in the present ground is with respect to deletion of addition of Rs.2,74,42,000/- under section 68 of the I.T. Act, 1961. We find that before both the authorities the assessee had explained the source of cash deposits in the bank account of Mr. Pawan Goyal, from whom the assessee had received the share application money, to be out of the income surrendered on account of unaccounted sale during the course of search. Before us, the Revenue has not placed any material on record to demonstrate that the income surrendered in the case of share application money has not been accepted by the Revenue. Considering the totality of the facts and circumstances of the case and in absence of any fallacy pointed to in the findings of the Ld. CIT(A), we find no reason to interfere with the order of Ld. CIT(A) and thus, ground of appeal No.3 of the Revenue is dismissed.

Grounds of appeal Nos.4 and 5 of the Revenue is with respect to restricting the addition of Rs.42,88,787/- on account of ‘business promotion expenses’ and deleting

During the course of assessment proceedings A.O. noted that assessee had debited a sum of Rs.47,88,165/- and a sum of Rs.56,68,240/- on account of business promotion expenses and Diwali expenses respectively. The assessee was asked to explain and justify the expenses, to which, assessee furnished details. The A.O. on examining the details noted that the expenses on account of purchase of gold coins, silver items, luxury holiday hotels, credit cards bills in the name of Directors of the company, which according to the A.O. was not incurred wholly and exclusively for assessee’s business, inter alia, included purchase of gold coins and silver items. The assessee, inter alia, submitted that it was on account of gift distributed to its customers, suppliers etc., for promotion of the business. The A.O. did not accept the contention of assessee. He was of the view that the purchase of gold was for personal purpose and donated amounts were for other than business purposes and, therefore, the expenses cannot

Aggrieved by the order of the A.O. assessee carried the matter in appeal before the Ld. CIT(A) . The Ld. CIT(A) while granting partial relief to the assessee noted that there was no finding in the assessment order that the business promotion expenses were actually incurred for the personal purpose of the Directors. He was also of the view that since assessee could not prove identity to whom the business/gifts promotion expenses were expended, but, since the disallowance made by the A.O. was on higher side, keeping in view of the large turnover of the assessee, the Ld. CIT(A) restricted the disallowance on account of business

Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.

Before us, the Ld. D.R. supported the order of the A.O.

On the other hand, the Learned Authorised Representative for the assessee reiterated the submissions made before the authorities below and further submitted that no evidence has been placed on record by the Revenue to demonstrate that the purchase of gold was for personal purpose and that the donated amounts was for purposes other than business purposes and the aforesaid conclusion of the A.O. is without any evidence on record. He, thus, supported the order of the Ld. CIT(A).

We have heard the Learned Representative of both the parties and perused the material available on record. We find that the Ld. CIT(A) after considering the detailed submissions made by the assessee before him has given a finding that there is no doubt about the genuineness of the expenditure and there is no finding in the assessment order that the business promotion expenses and Diwali expenses were incurred for the personal purpose / extraneous nature of expenses in the hands of Directors. The Ld. CIT(A), however, after considering that since the assessee could not give the full details, restricted the disallowance to the extent of 10% on business promotion expenses after considering the business and turnover of the assessee and similarly granted partial relief of Rs.26,09,082/- on account of ‘Diwali expenses’ against a sum of Rs.56,62,840/- claimed by the assessee on account of ‘Diwali expenses’. Before us, the Revenue has not pointed out any fallacy in the finding of the Ld. CIT(A). We, therefore, find no reason to interfere with the order of the 18 I.T.A.No.5023/Del./2016 M/s. Goyal Engineering Polymer (P) Ltd., New Delhi. Ld. CIT(A) and thus, the grounds of appeal Nos.4 and 5 of Revenue are dismissed.