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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
आदेश / ORDER
PER ANIL CHATURVEDI, AM :
These cross-appeals filed by assessee and Revenue emanate out
of the order of Commissioner of Income-Tax (A) – Pune – 3, dated
24.11.2017 for A.Y. 2013-14.
The relevant facts as culled out from the material on record are
as under :-
Assessee is a Private Limited Company stated to be engaged in
the business of running, operating, managing, maintaining and letting
on hire various fleet of buses and other vehicles. Assessee
electronically filed its return of income for A.Y. 2013-14 on 30.09.2013
declaring total loss of Rs.2,71,97,713/-. The case was selected for
scrutiny and thereafter assessment was framed u/s 143(3) of the Act
vide order dt.26.02.2016 and the total loss was determined at
Rs.1,60,85,130/-. Aggrieved by the order of AO, assessee carried the
matter before Ld.CIT(A), who vide order dt.24.11.2017 (in appeal
No.CIT(A), Pune-3/10121/2016-17) granted partial relief to the
assessee. Aggrieved by the order of Ld.CIT(A), assessee and Revenue
are now in appeal before us.
The ground raised by the assessee in ITA No.62/PUN/2018 for
A.Y. 2013-14 reads as under :
“On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) has erred in upholding the disallowance of INR 22,15,000 at an ad-hoc rate of 2% of certain expenses under section 37(1) of the Act without appreciating the same were incurred for the purpose of business.”
On the other hand, the grounds raised by the Revenue in ITA
No.367/PUN/2018 reads as under :
“1. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the entire addition of Rs. 88,97,580/- made on account of disallowance of interest expenses u/s 36(1)(iii) of the IT Act, ignoring the fact that the assessee did not submit any documentary evidence to prove that interest free funds were available with it at the time (date) when the amounts were advanced to its sister concerns. 2. On the facts and circumstances of the case, the ld. CIT(A) erred in not appreciating the fact that the assessee had already made investments in fixed assets, other loans and advances and certain other investments as evidenced from the balance sheet and thus, the assessee was not having any owned/interest free funds to be given as loan to its 3 subsidiaries and to a partnership firm 'Ramjyoti Travels' to the extent of Rs. 4,89,73,646/- and Rs. 1,19,07,769/- respectively.”
We first proceed to decide the assessee’s appeal in ITA
No.62/PUN/2018 for A.Y. 2013-14.
5.1. During the course of assessment proceedings on perusing the
Profit & loss account, AO noticed that assessee has debited expenses
on various accounts aggregating to Rs.11,07,50,032/-, the details of
which are tabulated at Para 5 of the assessment order. The assessee
was asked to justify the expenses by producing the relevant
documentary evidence. The assessee has filed the copies of bills and
vouchers. On perusing the bills and vouchers furnished by the
assessee, AO noted that the expenses were not fully verifiable by bills
and vouchers and few of the vouchers were not having the name and
signature of the recipients. AO was therefore of the view that the
probability of non-business expenses cannot be ruled out. He
accordingly, on adhoc basis, disallowed 2% on aggregate expenses and
thus made disallowance of Rs.22,15,000/-. Aggrieved by the order of
AO, assessee carried the matter before Ld.CIT(A), who upheld the order
of AO.
Aggrieved by the order of Ld.CIT(A), assessee is now before us.
Before us, Ld.A.R. reiterated the submissions made before AO
and Ld.CIT(A) and further submitted that assessee had produced all the
bills and vouchers and the other relevant documents. He submitted
that AO has proceeded to disallow the expenses on adhoc basis and
has not pointed out the single instance where the expenses are not for
the purpose of business. He further submitted that the disallowance
was made only on the basis of surmises by concluding that probability
of non-business use of expenses cannot be ruled out. He further
submitted similar disallowance was made by the AO in A.Y. 2012-13
but when the matter was carried before Ld.CIT(A), the disallowance was
deleted by Ld.CIT(A). He further submitted that no disallowance has
been made in subsequent years in the assessment framed u/s 143(3) of
the Act and in support of which he pointed to the copy of the
assessment order for A.Y. 2014-15 dt.30.12.2016 which is placed at
Pages 104 & 105 of the Paper Book. He further submitted that on
identical facts in subsequent years no disallowance has been made
and the disallowance only for the year under consideration was not
justified. Ld. D.R. on the other hand, supported the order of lower
authorities.
We have heard the rival submissions and perused the material on
record. The issue in the present ground is with respect to disallowance
of expenses on ad-hoc basis. It is an undisputed fact that the assessee
had furnished the requisite documents before the AO and produced
the books of accounts. AO has proceeded to make a general statement
about the expenses being not verifiable as some of the vouchers are
self-made and they do not bear name and signature of the recipients.
He on the basis of such surmises had concluded that the probability of
the expenses for non-business purpose cannot be ruled out and
accordingly, he disallowed Rs.2% on aggregate amount on ad-hoc basis.
We find that no instance of the expenses being for non-business
purpose has been pointed out by the AO in the assessment order.
Further, before us, Ld.A.R. has contended that no disallowance of
expenses has been made either in subsequent years nor in earlier
years. Considering the totality of the aforesaid facts, we are of the view
that in the present case, no disallowance of expenses is called for. We
therefore direct the deletion of addition made by the AO. Thus, the
ground of the assessee is allowed.
In the result, the appeal of assessee is allowed.
Now we take up the appeal of Revenue in ITA No.367/PUN/2018
for A.Y. 2013-14.
9.1. Both the grounds raised by the Revenue are inter-connected and
therefore considered together.
During the course of assessment proceedings, AO noticed that
assessee had given interest free of loan at Rs.4,89,73,646/- to three of
its subsidiaries and Rs.1,19,07,769/- to a partnership firm “Ramajyoti
Travels” in which assessee is a Partner and thus having lent aggregate
amount of Rs.6,08,81,415/-. He also noticed that assessee had
borrowed funds and paid interest to an extent of Rs.2,20,79,653/- The
assessee was asked to establish the business expediency and purpose
of loans and also to show cause as to why equivalent interest should
not be disallowed. The submissions made by the assessee were not
found acceptable to the AO. AO was of the view that assessee has
failed to establish that the funds were utilized for the purpose of
business and accordingly disallowance of proportionate amount of
interest has to be made u/s 36(1)(iii) of the Act. He thereafter worked
out the proportionate interest disallowance at Rs.88,97,580/- as per
the details tabulated at Para 4.3 of the assessment order and made its
disallowance. Aggrieved by the order of AO, assessee carried the matter
before Ld.CIT(A), who after considering the submissions of the assessee
deleted the addition made by the AO at Para 6.3.1 of his order and
while deleting the addition he has also given a finding that assessee has
sufficient interest free funds to advance to its sister concerns and it is
not a case of diversion of interest bearing funds to the sister concerns.
Aggrieved by the order of Ld.CIT(A), Revenue is now before us.
Before us, Ld. D.R. supported the order of AO and Ld. A.R. on the
other hand, reiterated the submissions made before AO and Ld.CIT(A)
and further submitted that on identical facts in A.Y. 2012-13, Revenue
had carried the matter before the Tribunal and the Tribunal had
dismissed the appeal of Revenue vide order dt.23.01.2019 in ITA
No.158/PUN/2017. He placed on record the copy of the order at Pages
106 to 113 of the Paper Book. He further submitted that no
disallowance of interest has been made in subsequent years and
further when the assessee has adequate interest free funds then a
presumption is made that the borrowed funds are not diverted for the
purpose of business and for this proposition, he relied on the decision
of the Hon’ble Bombay High Court in the case of CIT Vs. Reliance
Industries Ltd., reported in (2017) 86 taxmann.com 24 (Bom). He
further submitted that against the order of Reliance Industries Ltd.,
(supra), Revenue had filed SLP before the Hon’ble Apex Court and the
Hon’ble Apex Court has upheld the order of Hon’ble High Court. He
placed on record the copy of the order which was reported in (2019)
410 ITR 466 (SC) at Pages 114 to 116 of the Paper Book. He thus
supported the order of Ld.CIT(A).
We have heard the rival submissions and perused the material on
record. The issue in the present ground is with respect to
proportionate disallowance u/s 36(1)(iii) of the Act. It is Revenue’s case
that assessee has diverted borrowed funds to its sister concerns and for
which no interest has been charged. We find that Ld.CIT(A) after
considering the factual position has given a finding that assessee had
sufficient interest free funds and it was not the case of diversion of
funds to its sister concerns. To arrive at the aforesaid conclusion,
Ld.CIT(A) also relied on the submissions of the assessee in the case of
Reliance Utilities (supra). Before us, no fallacy in the findings of
Ld.CIT(A) has been pointed out. We therefore find no reason to
interfere with the order of Ld.CIT(A). Thus, the grounds of Revenue
are dismissed.
In the result, the appeal of Revenue is dismissed.
To sum up, the appeal of assessee is allowed and the appeal
of Revenue is dismissed.
Order pronounced on 16th day of October, 2019.
Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER
पुणे Pune; �दनांक Dated : 16th October, 2019. Yamini
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-3, Pune. 4. Pr.CIT-2, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” / DR, 5. ITAT, “B” Pune; गाड� फाईल / Guard file. 6.
आदेशानुसार/ BY ORDER,स �या // True Copy //
व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune