UL INDIA PRIVATE LIMITED ,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(1), BENGALURU

Thus, in this appeal, only 2 issues are remaining:-

The assessee challenged the same before the ld. DRP. It was contested that the outstanding capital creditors as on 31.3.2020 has been added as unexplained credit u/s. 68 of the Act. It was submitted that the assessee has provided the details of parties along with copies of the invoices. Invoices have been found to be genuine. Assessee also submitted that that provisions of section 68 of the Act cannot apply to the same. During the course of objection, the assessee also submitted that assessee has submitted copy of invoices, statement of account provided by the capital creditors and therefore when the debit of the expenditure from the capital expenditure is accepted, the addition could not have been made. It was the further claim that in fact capital additions were made in the earlier year. Therefore the credit appears in the books of account was originally credited in the earlier year and therefore no addition can be made u/s. 68 of the Act as no sum is found credited during this year. The ld. DRP considered the explanation of the assessee and decided the issue against the assessee. The ld. DRP at page 22 of the direction has categorically noted that assessee had furnished additional evidences on 13.3.2024 in the form of invoices, ledger account of the parties. Thus additional evidences were not considered and the ld. DRP did not interfere with the findings of the ld. AO.

After hearing the ld. AR, Shri Ketan Ved, CA and the ld. CIT(DR), Dr. Divya K J, we find that if the amount of closing balance of the creditor is not found credited during the impugned previous year, no addition could have been made u/s. 68 of the Act for this assessment year. The provisions of section 68 applies only when any sum found credited in the books of account insofar as its nature and source of credit is concerned was not explained to the satisfaction of the AO. Further, if the purchase of fixed assets is not doubted, the consequent credit arose in the books of account of the assessee of those capital creditors, it cannot be said that the nature and source of such credit is not explained, the nature of such expenditure is acquisition of capital asset and source is the liability to pay such amount for acquisition of that capital asset to those creditors. When the assessee has placed before the ld. AO necessary invoices, same contains adequate details of the nature and source of the transaction. Unless that invoices are doubted as non-genuine, then only addition u/s. 68 possibly could have been made. However as before us the assessee has also stated that credit has not appeared in the books of account during the previous year, we restore the whole issue back to the file of the ld. AO with a direction to the assessee to show before the ld. AO that credit is not appearing in the books of account for the impugned previous year. The assessee is also at liberty at this stage to reiterate all the additional evidences filed before the ld. DRP before the ld. AO or any such evidence to show that the addition is not correctly made. Accordingly, this ground of appeal is allowed with above directions.

The 2nd ground is with respect to disallowance of travel & conveyance expenses amounting to Rs.209,85,092. The facts show that assessee was asked to furnish the details and documentary evidences with respect to the travel & conveyance expenses. The assessee initially furnished the list of names & amounts and nexus of expenses claimed. The assessee was directed to furnish further reply where expenses claimed is Rs.5 lakhs or more. The assessee failed to furnish the details and therefore assessee was issued a show cause notice that why 20% of the total expenses of Rs.11,85,93,281 shall not be disallowed as assessee has failed to establish allowability of such expenses. The assessee could not furnish the details completely and therefore for the expenses amounting to Rs.10,49,25,458 where assessee could not submit a single invoice or bank statement, the AO disallowed 20% of the same amounting to Rs.2,09,85,092.

The assessee filed objections before the ld. DRP. The claim was that assessee has submitted the complete details, but disallowance was made on adhoc basis. The assessee also stated that submission dated 30.5.2023, 10.7.2023 and 28.8.2023 clearly provides the details. The assessee also submitted that assessee has furnished approx. 3000 pages of invoices, but the ld. AO did not appreciate the same and made the disallowance. It was further contested that the disallowance is made on adhoc basis.

The ld. DRP stated that as the assessee failed to submit the invoices, the ld. AO is correct in making the disallowance.

On hearing the parties, we find that the disallowance has been made by the ld. AO on account of not providing the adequate details to the AO for verification. We understand that nature of expenses is voluminous as it amounts to Rs.11,85,93,281. These are in the nature of expenditure of travelling where the employees of the assessee are travelling for the purpose of testing etc. No doubt, when the claim of the asse is that expenditure is wholly & exclusively incurred for the purpose of business of the assessee, however, it is also a fact that complete details were not provided to the AO. It is also surprising that the ld. AO made an adhoc disallowance of 20% of such expenditure and allowed 80% of such expenditure as business expenditure. If that would have been the case that the expenditure incurred by the assessee is not allowable as business expenditure, instead of disallowing the adhoc percentage of such expenditure, the ld. AO should have disallowed the complete expenditure. Further it is also not feasible for the AO as well as for the assessee for the assessee to furnish the minutest and exhaustive details of travelling & conveyance expenditure amounting to Rs.11.86 crores. In view of this, we restore the whole issue back to the ld. AO with a direction to the assessee to compile the complete details in a presentable manner explaining the nature of expenditure and also as desired by the ld. AO to produce the necessary details so that the allowability of this expenditure can be decided reasonably. Accordingly this issue is also restored back to the file of the ld. AO.

In the result, the appeal of the assessee is partly allowed for statistical purposes.

Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore.