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Facts
The assessee company, Privi Life Sciences P. Ltd., filed its return of income reporting a total loss. The assessment was completed with additions and disallowances. The assessee is in appeal against the order of the CIT(A) which confirmed certain additions made by the Assessing Officer.
Held
The Tribunal held that the addition on account of unsecured loan under Section 68 was unjustified due to an inadvertent mistake in recording the lender's name. The disallowance of stamp duty and registration charges for a technology agreement was also deleted, holding it as revenue expenditure. However, the disallowance of travel expenses was sustained due to lack of evidence.
Key Issues
Whether the unsecured loan was unexplained cash credit, whether stamp duty and registration charges for a technology agreement were capital or revenue expenditure, and whether travel expenses were substantiated for business purposes.
Sections Cited
143(3), 68, 37(1)
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Income Tax Appellate Tribunal, “C” BENCH MUMBAI
Before: SMT. BEENA PILLAI & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by assessee is against the order of Ld. CIT(A)-24, Mumbai, vide order no. CIT(A)-22/DCIT-10(3)/IT-355/13-14, dated 24.08.2015, passed against the assessment order by Deputy Commissioner of Income Tax – 10(3), Mumbai, u/s. 143(3)(ii) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 28.02.2014 for Assessment Year 2011-12.
2. Grounds taken by the assessee are reproduced as under:
“I. Addition under section 68 of the Act: Rs. 12,00,000/-
1.1. The learned CIT(A) erred in confirming the addition under section 68 of the Act on the ground of it being unexplained loan.
1.2. The learned CIT(A) failed to appreciate that the Appellant has discharged the burden of proof by giving all the details and explanations with respect to the aforesaid loan and hence the addition was not sustainable.
1.3. The learned CIT(A) failed to appreciate that the Assessing officer did not consider its submissions filed on 28 February 2014 and further erred in upholding the reasons for non-consideration of the same.
1.4. The learned CIT(A) erred in not giving any opportunity to show cause the non- payment of interest and further erred in confirming the addition on the said basis.
II Disallowance of revenue expenditure on account of stamp duty and registration of technology agreement: Rs. 1,90,000/-
2.1. The learned CIT(A) erred in upholding the disallowance of Rs 1,90,000/- being expenditure incurred for stamping and registration of technology agreement on the ground that same constitutes capital expenditure.
2.2. The learned CIT(A) failed to appreciate that franking is a mode of making stamp duty payment and further erred in treating the same as capital expenditure solely on the ground that it will enduring benefit.
2.3. The learned CIT(A) ought to have held that test of enduring benefit fails if the expenditure is revenue field and therefore ought to have allowed the same as revenue expenditure.
III Disallowance of Travelling expenses: Rs. 78,000/-
3.1. The learned CIT(A) erred in confirming the travelling expenditure incurred for business purpose on the ground that the Appellant has failed to prove by documentary evidence that same were for business purpose.
3.2. The learned CIT(A) failed to appreciate that the name and designation of person travelling and the purpose of the visit was filed and hence the Appellant had proved its claim and no further details were sought on the said issue.
3.3. The learned CIT(A) failed to appreciate that basis of disallowance by the AO was only wrong classification of head and therefore the details were not called for by the AO and the Appellant did not file the same although all the basic details were filed.”
Brief facts of the case are that assessee filed its return of income on 13.09.2011, reporting total loss of Rs. 39,81,870/-. Assessee (earlier known as, Privi Bio Enhancers Pvt. Ltd), in technical collaboration with Ultima International SARL of Luxembourg, is a marketing company and marketing the various products in India manufactured by its parent company Privi Pharma Pvt Ltd. Assessment was completed determining total loss at Rs.18,96,775/- on account of various addition/disallowances which includes the three addition/disallowance for which assessee is in appeal before Tribunal.
Ground No.1 along with its sub grounds relates to addition of Rs.12 lakhs on account of unsecured loan taken by the assessee during the year which has been added as unexplained cash credit u/s.68 of the Act. In this respect, ld. Assessing Officer noted from the balance sheet of the assessee that assessee is in receipt of unsecured loan of Rs.12 lakhs from Shri I.S.R. Prasad. Details pertaining to this transaction were called for to establish the identity and credit worthiness of the lender and genuineness of the transaction. After considering the submission made by the assessee, ld. Assessing Officer concluded to make the addition of this amount in hands of the assessee u/s.68.
3.1. Before the first appellate authority, assessee claimed that it had borrowed a sum of Rs.12,00,000/- from Ms. Jaya Lakshmi Inturi by DD No. 068894, dated 25.02.2011 of State Bank of India. Assessee contended that the lender, Ms. Jaya Lakshmi Inturi received funds on her retirement which she lent to the assessee through her brother, Shri Shivam Prasad Inturi, to earn some income. A confirmation letter dated Privi Life Sciences P. Ltd., AY 2011-12 20.07.2015 of Ms. Jaya Lakshmi Inturi was enclosed stating that she was a retired school teacher who had invested a sum of 12,00,000/- out of her savings with the assessee in order to earn interest. A copy of the bank extract furnished by the assessee in State Bank of India, Kopar Khairane Branch (A/c No 31647525161) indicated a credit entry of ₹12,00,000/-on 28.02.2011 as "Own Chq Xfer DP". Assessee, further claimed that Ms Jaya Lakshmi Inturi's brother, Shri Shivam Prasad Inturi, forwarded the said DD to the assessee which was duly recorded in its books of account as a loan received from Shri Shivam Prasad Inturi instead of Ms. Jaya Lakshmi Inturi. Assessee, finally contended that Shri D.B. Rao, Managing Director of the company and Ms. Jaya Lakshmi Inturi's brother, Shri Shivam Prasad Inturi were family friends as they hailed from the same place and it was due to this association that Ms. Jaya Lakshmi Inturi advanced an amount of ₹ 12,00,000/- to the assessee company. It was reiterated that ld. Assessing Officer did not take on record its final submissions filed on 28.02.2014 along with the documentary evidence on the ground that he had already completed the assessment proceedings.
3.2. Ld. CIT(A) disregarded these submissions made by the assessee and sustained the addition so made. Before us, ld. Counsel for the assessee reiterated the factual position and corroborated the same by referring to the documentary evidences which forms part of the paper book. From the perusal of the submissions made and documentary evidences on record, assessee has been able to establish the identity of the lender which in fact is Ms. Jaya Lakshmi Inturi. Assessee has also established the source of source in the hands of the lender by evidently demonstrating that she received the funds on her retirement which has been lent to the assessee. Entire transaction is through banking Privi Life Sciences P. Ltd., AY 2011-12 channel for which lender issued a demand draft and was handed over to her brother, Shri Shivam Prasad Inturi and which ultimately reached the assessee. Entries in the book of accounts and bank statements corroborate the said transaction. However, inadvertently the transaction was recorded in the books of the assessee in the name of Shri Shivam Prasad Inturi instead of Ms. Jaya Lakshmi Inturi. Assessee had brought on record this factual position even before the ld. Assessing Officer vide his submission dated 28.02.2014 but was not considered. The impugned assessment order was passed on the same date, i.e., 28.02.2014.
3.3 We find that all the three essential ingredients of section 68 having duly complied with by the assessee with corroborative evidences placed on record which remains to be disproved. It is only an inadvertent mistake of recording a transaction in a different name instead of the correct lender, i.e., Ms. Jaya Lakshmi Inturi, which cannot lead to taint the transaction as unexplained cash credit for making addition u/s.68. In the given set of facts and explanations along with documentary evidences furnished by the assessee, we delete the addition of Rs.12 lakhs made in the hands of the assessee towards unsecured loan. Ground No.1 raised by the assessee is allowed.
Ground No.2 relates to disallowance of Rs.1,90,000/- on account of stamp duty and registration charges for registration of technology agreement by holding it as capital expenditure. From the perusal of profit and loss account, ld. Assessing Officer noted that assessee had debited a sum of Rs.3,01,455/- by way of registration and documentation charges. This included the amount of Rs.1,90,000/- towards franking charges. According to the ld. Assessing Officer, Privi Life Sciences P. Ltd., AY 2011-12 assessee did not substantiate the nature of the expenditure. He thus, held that the expenditure cannot be considered as revenue, owing to its enduring benefit entailed to the assessee in the long run and thus made a disallowance u/s.37(1) of the Act. Contention of the assessee is that it had entered into a technology agreement on 14.06.2010 with foreign JV Ultima International SARL of Luxembourg. Under this agreement, Ultima International SARL agreed to provide technology and know how as well as technical assistance for the purpose of developing and manufacturing of products to be used on various crops including horticulture and plantation crops and to commercially exploit, promote, market, sell and distribute the products in the territory. Assessee had no manufacturing facilities of its own and the holding company had spare capacity for manufacturing. Stamp duty of Rs.1,84,500/- and registration and notary charges of Rs.5,500/-, totalling to Rs.1,90,000/- were paid by the assessee for this technology agreement and was claimed as revenue expenditure u/s.37 of the Act. According to the assessee, it was a business agreement effective for a period of 10 years unless terminated earlier. Thus, this expenses for registering the agreement are revenue in nature allowable u/s.37(1) of the Act. Ld. CIT(A) has sustained the disallowance made by the ld. Assessing Officer.
We have perused the said agreement placed in the paper book which defines the scope of both the parties including that of the assessee and is for the purpose of business of developing and manufacturing of products dealt by the assessee including their commercial exploitation, promotion and selling and distribution. Considering these facts on record and the explanation furnished by the assessee, we hold that the expenses incurred towards franking charges and registration and notarisation for registration of technology agreement are revenue in nature, allowable u/s.37(1) of the Act. Accordingly, disallowance made is deleted. Ground No.2 raised by the assessee is allowed.
Ground No.3 relates to disallowance of Rs.78,000/- towards travel expenses which according to the assessee were incurred for the purpose of business and are allowable u/s.37(1) of the Act. It was only on wrong classification of head under which these expenses were accounted for which led to an adverse view by the ld. Assessing Officer. According to the assessee, amount of Rs.60,000/- and Rs.18,000/- were accounted under the head ‘Registration and Filing Fees’ which in fact were incurred by the assessee for the purpose of travelling to China for attending a conference and for the registration of assessee’s products. Travel to China was by Mr. Sandip Kumar Singh who is an employee of assessee and by Mr. Kailash Bhargava, a professional consultant providing professional services to the assessee. According to the assessee, mere wrong classification of expenses under a different head of account does not affect profit or loss and therefore does not call for disallowance.
In this respect, ld. CIT(A) notes that no documentary evidence whatsoever has been brought on record to establish the submission made by the assessee that the concerned persons were indeed employee/consultant or that the expenses were incurred towards China trip for the purpose of business. Even before us, there is no material placed on record in the paper book to substantiate the claim so made Privi Life Sciences P. Ltd., AY 2011-12 by the assessee. In view of these facts, we do not find any reason to interfere with the finding arrived at by the ld. CIT(A) in sustaining the disallowance so made. Accordingly, ground No.3 is dismissed.
In the result, appeal of the assessee is partly allowed.
Order is pronounced in the open court on 23rd May, 2025