ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -4, PUNE vs. PRASANNA PURPLE MOBILITY SOLUTIONS PVT.LTD, PUNE

आदेश / ORDER

PER ANIL CHATURVEDI, AM :

of the order of Commissioner of Income-Tax (A) – Pune – 3, dated

24.11.2017 for A.Y. 2013-14.

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.

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.”

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.”

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.

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.

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.

for A.Y. 2013-14.

9.1. Both the grounds raised by the Revenue are inter-connected and

therefore considered together.

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.

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).

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.

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