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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
आदेश / O R D E R
PER KUL BHARAT, J.M: This appeal by the assessee is directed against order of the CIT(A)-2, Indore dated 27.10.2013 pertaining to the
[ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore] assessment year 2007-08. The assessee has raised following grounds of appeal:
1. For that the Learned CIT (A) erred in issuing the direction u/s 250 (4) r.w.s. 251(1) & 251(2) of the I.T. Act for verification of expenses claimed & allowed by A.O.
For that the Learned CIT(A) has erred in enhancing the income by Rs.8,28,285/- on account of various expenses claimed which is arbitrary, unjustified & unlawful. The appellant craves, leaves to add, amend or withdraw any of the above grounds of appeal
before or at the time of final haring.
2. Briefly stated facts are that case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) was framed vide order dated 29.12.2009. The A.O. observed that the assessee firm is engaged in the wholesale trading of iron and steel and also transportation.
The A.O. found that while valuating the closing stock, the assessee did not include VAT, therefore, a show cause notice was issued as to why provisions of section 145A of the Act could not be invoked. The A.O. relying on the explanation of the section 145A of the Act included VAT @
[ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore] 4% in the closing stock and made addition of Rs.9,57,695/- in the return of income. The A.O. thus, assessed income at Rs.20,95,665/- against the total income as per return of Rs.11,37,970/-. Aggrieved against this order, the assessee preferred an appeal before Ld. CIT(A). The Ld. CIT(A) reversed the finding of the A.O. in respect of inclusion of the VAT in the closing stock.
However, the Ld. CIT(A) made addition by making disallowance of commission, interest and administrative expenses amounting to Rs.8,28,285/-. Thus, the income of the assessee enhanced. Aggrieved by this action of the Ld. CIT(A), the assessee is in present appeal.
Ground No.1 is against direction of the Ld. CIT(A) as issued u/s 250(4) r.w.s. 251(1) and 241(2) of the Act, thereby enhancing the income of the assessee by disallowing expenditure related to commission, interest and administration. Ld. Counsel for the assessee reiterated the [ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore] submissions as made in the written synopsis. Ld. Counsel for the assessee relied on the decision of the coordinate bench of this Tribunal rendered in the case of Juberi Engineering Company Vs. DCIT Circle(2), Jaipur in to 979 & 1122/Jaipur/2018 to buttress the contention that the power of enhancement cannot be exercised in respect of the issue which is not subject matter of the assessment.
Ld. D.R. opposed these submissions and supported the order of the Ld. CIT(A). He submitted that the Ld. CIT(A) has not crossed the boundary line of jurisdiction as conferred under the law.
We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. In the present case, the A.O. had [ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore] made addition solely on the ground that valuation of closing stock did not include VAT. However, the Ld. CIT(A) allowed the appeal on the issue of VAT but enhanced the income by disallowing expenditure in respect of commission payment, interest and administrative expenses. The contention of the Ld. Counsel for the assessee is that enhancement of income is ex-facie illegal and contrary to the judicial pronouncements. We have perused the material available before us. There is no dispute with regard to the fact that the A.O. had issued a questionnaire u/s 142(1) of the Act, which is enclosed at paper book pages 14 to 17. For the sake of clarity, same is reproduced herein below.
[ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore] [ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore] [ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore] [ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore]
[ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore] 6. From the above questionnaire, it is clear that the A.O. had sought information from the assessee in respect of interest payment, commission payment and other administrative expenses. Therefore, it cannot be concluded that the issue of allowance of these expenses came up first time before the Ld. CIT(A). In view of this fact, we do not see any merit in this contention of the Ld. Counsel for the assessee. The action of the Ld. CIT(A) before examining the issue of allowance of the expenses is upheld. Ground raised by the assessee is dismissed.
Ground No.2 is against the income enhanced by disallowing the various expenses. Ld. Counsel for the assessee has taken us through the impugned order. He submitted that all these issues were duly examined by the A.O. by issuing a questionnaire. The A.O. was satisfied on all these issues. Therefore, re-examining the concluded issue is merely change of opinion. Furthermore, the [ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore] disallowance is purely on adhoc basis without any material on record.
Ld. D.R. opposed these submissions and supported the order of the Ld. CIT(A).
We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. We find that the Ld. CIT(A) has decided the issue in para Nos. 2.6 to 2.6.6 of his order, which is reproduced herein below:
[ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore]
[ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore]
[ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore] 10. From the above, it is clear that the Ld. CIT(A) has in respect of commission expenses disallowed the expenditure on the basis that the commission is paid to a person who is not connected with the iron trading. This finding of fact of the Ld. CIT(A) is not controverted by bringing any contrary material on record. We therefore, sustain the addition made in respect of disallowance of commission.
Now coming to the disallowance of the interest expenditure, contention of the assessee was that it was having sufficient own funds in the form of unsecured loans and partner’s capital.
We have perused the balance sheet. As per this, the assessee is having unsecured loans. It is stated that the unsecured loans during the year is Rs.73,29,629/- and the interest paid against unsecured loans is Rs.2,55,995/- and as such no interest has been paid to major loan creditors.
Therefore, no interest has been charged on loans and [ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore] advances. We have given our thoughtful consideration to the contention of the assessee. It is not the case whether advances have been given for business expediency. It is also admitted that the assessee has paid interest to some of the creditors. Therefore, we do not see any reason to interfere in the finding of the Ld. CIT(A) as it was upon the assessee to demonstrate that the loans were given for business expediency or otherwise. The reason for not charging interest to the assessee himself is claiming payment of interest in his profit & loss account. Thus, the addition on disallowance of interest expenditure is sustained.
Administrative expenses include the legal expenses and other expenses. From the order of the Ld. CIT(A), it is clear that the addition is made on the basis of adhoc disallowance and no material is placed that why this expenditure were required to be disallowed, therefore, we
[ITA 41/Ind/2017] [M/s. Sahani Trading Co., Indore] direct the A.O. to delete these disallowances. Ground of the assessee is partly allowed.
In the result, the appeal filed by the assessee is partly allowed.
Order was pronounced in the open court on 08.05.2019.