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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI VIKAS AWASTHY, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLEShri Narayan Atal Shri Suresh Periasamy
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 17.09.2021 for the A.Y.2015-16.
(A.Y. 2015-16) M/s. Nitin Corporation 2. Aggrieved with the order of the National Faceless Appeal Centre, Delhi, assessee raised following grounds in its appeal: - “1. The Learned Commissioner of Income Tax (Appeals) - National Faceless Appeal Centre, Delhi (hereinafter referred to as Ld. CIT(A)) erred in confirming the disallowance of Rs.1,78,352/- out of the interest paid Rs.5,84,472/-. Your appellant submits that the basis of disallowance of interest is not justified on the facts and circumstances of the case and in law, and therefore no disallowance is called for.
2. The Ld. CIT(A) erred in confirming the adhoc disallowance of Rs.1,09,578/- being 20% of the total expenses of Rs.5,47,889/- incurred on Travelling Expenses. Your appellant submits that entire expenses have been wholly and exclusively incurred for business purpose and no disallowance can be made on an adhoc basis.”
Brief facts relating to the first ground of appeal are, during the assessment proceedings Assessing Officer observed that assessee has debited to the Profit and Loss Account interest of ₹.5,84,472/-. He observed that assessee has given interest free advances of ₹.6,15,693/- to the friends and relatives of the partners. Further, one of the partner Shri Aditya Gandhi has debit balance of ₹ 8,70,572/-. He observed that the interest bearing funds were utilized to give interest free advances and for partners personal use. Since the interest bearing funds were diverted and assessee has not furnished any supporting documentary evidences on the above queries raised by the Assessing Officer, he sustained the (A.Y. 2015-16) M/s. Nitin Corporation interest @12% on ₹.14,86,265/- and accordingly, disallowed an amount of ₹.1,78,352/- and the same was added to the income of the assessee.
4. Aggrieved assessee preferred an appeal before National Faceless Appeal Centre, Delhi. After considering the submissions of the assessee the Ld.CIT(A) sustained the additions made by the assessee with the following observations: - “5.3. In the written submission, the appellant stated that the firm has net credit balance of Rs.22,79,284/- in the account of the three partners taken together and the firm has borrowed interest free amount from Pushpa Gandhi (Mother of the partner). However, the appellant did not furnish any cash/fund flow statement to show that the interest free fund was availe withhe assessee to give interest free advances of ₹.6,15,693/- to friends and relatives of the partners. 5.4 In [2017] 86 taxmann.com 9 (Ahmedabad - Trib.) Bombay Sales Corporation vs Joint Commissioner of Income-tax, Anmedabad, Hon’ble ITAT Ahmedabad Bench ‘A’ held - Assessee, a partnership firm, claimed deduction of interest paid on borrowed capital. Assessing Officer having noticed that assessee had given interest free loans and advances to two parties, which were connected to partners of firm, and it had not discharged onus to prove that claim towards interest expenditure incurred was for business purposes in terms of section 36(1)(iii), disallowed proportionate interest expenses. Since assessee had not furnished any fund flow statement and material on record showed that no interest free own funds were available at disposal of assessee, disallowance of proportionate interest expenses was justified.”
(A.Y. 2015-16) M/s. Nitin Corporation 5. Aggrieved assessee is in appeal before us and at the time of hearing Ld. AR submitted that assessee has not diverted any interest bearing funds and he objected to the findings of the Assessing Officer and Ld.CIT(A). He further brought to our notice Page No 1 to 7 of the Paper Book filed before us, as per the information submitted before us the capital accounts of the three partners at the end of the Financial Year are having a net credit balance i.e. Aditya N. Gandhi has drawn more than his capital to the extent of ₹.8,70,000/- whereas other partners Mihir Gandhi and Nitin Gandhi has credit balance of 25.19 lacs and ₹.6.31 lacs respectively. Therefore, partners has not drawn more than net capital available in the business. Further, he brought to our notice mother of the partner Shri Nitin Gandhi has given loan to the extent of ₹.36.75 lacs which is not interest bearing funds. Further, he brought to our notice the loans and advances given to others consists of advances given to Power Plant Exim Corporation which is relating to the business of the assessee. Therefore, he submitted that all the above information summarizes that none of the interest bearing funds were diverted outside the business. Therefore, he prayed that the notional interest disallowed by the Assessing Officer may be deleted.
(A.Y. 2015-16) M/s. Nitin Corporation 6. On the other hand, Ld. DR relied on the orders passed by the Authorities below.
Considered the rival submissions and material placed on record, we observe that the Assessing Officer has disallowed the notional interest considering the information available on record that assessee has given loans and advances to the extent of ₹.6,15,693/- and one of the partner has drawn more than his capital to the extent of ₹.8,70,571/-. The Assessing Officer has disallowed proportional interest @12% on the above amount. The Assessing Officer alleged that assessee has diverted interest bearing funds other than for the business purpose. On careful evaluation of the informations submitted by the assessee it clearly indicates that the partners net capital account shows credit balance of capital account, the balance outstanding as on 31.03.2015 is 31.05 lacs and also assessee has taken loan from the relative to the extent of ₹.36.76 lacs, it clearly indicates that assessee has sufficient interest free funds and out of the above funds certain funds were utilized for other than business purpose. Therefore, it clearly indicates that assessee has not diverted any interest bearing funds other than business purpose. Therefore, the action of the (A.Y. 2015-16) M/s. Nitin Corporation Assessing Officer is excessive and the notional interest charged by the Assessing Officer is accordingly, deleted.
The brief facts relating to Ground No. 2 are, Assessing Officer observed that assessee has claimed travelling expenses of ₹.5,47,889/- and he observed that these expenses were paid in cash and supported by self-made vouchers, the amount spent for lodging and boarding were also included in the expenses. Therefore, he concluded that the genuineness of these expenses cannot be verified and hence 20% of the expenses were disallowed to the extent of ₹.1,09,578/-. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and Ld.CIT(A) observed that assessee did not furnish any evidences to prove the genuineness of the travelling expenses and to establish that the said expenditure was wholly and exclusively incurred for the purpose of business, accordingly, he sustained the additions made by the Assessing Officer.
Aggrieved assessee is in appeal before us. At the time of hearing Ld. AR submitted a breakup of the travelling expenses incurred during the year which consists of expenses incurred on purchasing tickets to the extent of ₹.1,85,261/-, lodging and boarding expenses to the extent of (A.Y. 2015-16) M/s. Nitin Corporation ₹.1,24,235/- and other expenses including local transportations to the extent of ₹.1,31,562/-. Further, he brought to our notice assessee has incurred certain expenditure during the dismantling of steam boiler to the extent of ₹.1,06,830/-. He submitted that all these expenses are incurred for the purpose of business only and has given a detailed chart giving reasons and narrations of each travelling expenditure.
On the other hand, Ld. DR relied on the orders of the authorities below.
Considered the rival submissions and material placed on record, we observe that assessee has submitted a detailed statement of each transaction and each claim of the partners and staff travelled during the year. It clearly indicates that these expenses were incurred for the purpose of business and expenses involved are small and petty and wherever tickets and lodging bills are available it was submitted and only other expenditure claimed by the employees were claimed in self-made vouchers and there may be certain amount of personal expenditure, this cannot be avoided in the business. Therefore, this cannot be the reason to make the adhoc disallowance. Therefore, we do not find any reason
(A.Y. 2015-16) M/s. Nitin Corporation to sustain the additions made by the Assessing Officer, the details submitted by the assessee are clearly indicates that assessee has incurred these expenditures for the purpose of business. Therefore, the disallowance made by the Assessing Officer is accordingly, deleted.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 21st June, 2022.