M/S GREEN LEAVES ESTATES AND HOTELS,CHENNAI vs. THE INCOME TAX OFFICER, NON CORPORATE WARD -13(4), CHENNAI

आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of the

Commissioner of Income Tax (Appeals), National Faceless Appeal Centre,

Delhi, dated 18.05.2022 and pertains to assessment year 2014-15.

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engaged in the business of civil construction, e-filed its return of income for

the AY 2014-15 on 30.11.2014 admitting total income of Rs.5,61,400/-.

The assessment has been completed u/s.143(3) of the Act, on 21.12.2016

and determined total income of Rs.18,99,910/- after making addition

towards disallowance of 5% of project expenses amounting to

Rs.7,01,884/-, disallowance of unexplained expenditure towards audit fees

amounting to Rs.1,25,300/-, addition towards interest on excess drawings

by partners amounting to Rs.1,77,608/- and disallowance of excess interest

paid to partners over and above 12% as specified in the Partnership Deed

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amounting to Rs.2,58,719/-. The assessee carried the matter in appeal

before the First Appellate Authority, but could not succeeded. The Ld.CIT(A)

for the reasons stated in their appellate order, sustained the additions made

by the AO. Aggrieved by the order of the Ld.CIT(A), the assessee is in

appeal before me.

of the assessee’s appeal is adhoc disallowance of 5% of net project

expenses amounting to Rs.7,01,884/-. The assessee has debited project

expenses of Rs.4,47,98,390/- which includes the expenses of work in

progress, labour contract and purchase of land, etc. Out of the above, an

amount of Rs.1,40,37,687/- represents purchase of materials. The

assessee could not file necessary supporting evidences for purchase of

materials. Therefore, the AO made 5% adhoc disallowance and made

addition of Rs.7,01,884/-

record and gone through orders of the authorities below. It was the

explanation of the Ld.Counsel for the assessee that total expenditure

incurred towards materials purchased is paid through proper banking

channel and also the assessee has filed necessary supporting evidences.

However, the AO has made adhoc disallowance without any basis.

Therefore, the issue may be set aside to the file of the AO to give one more

opportunity to the assessee to explain its case. I find that although the

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assessee claims to have incurred expenses for materials purchased through

proper banking channel, but on perusal of the assessment order, no such

details are forthcoming. The assessee explained that total expenditure

incurred towards materials purchased is supported by evidences, whereas,

the AO claims that the assessee could not file any bills and vouchers. Facts

are contradictory. Therefore, I set aside the issue to the file of the AO and

direct the AO to re-examine the claim of the assessee in light of arguments

of the assessee that expenditure incurred through bank and also the same

is supported by necessary evidences.

of the assessee’s appeal is disallowance of unexplained expenditure of

Rs.1,25,300/-. The assessee has debited a sum of Rs.1,84,570/- towards

audit fees. However, assessee could explain with necessary evidences to

the extent of Rs.59,270/-, and thus, the balance amount of Rs.1,25,300/-

was unexplained.

record and gone through orders of the authorities below. Although, the

assessee explained before the AO that the balance amount of Rs.1,25,300/-

is not audit fees, but a wrong entry has been passed to some other

expenses and debited to audit fees, but the explanation of the assessee is

unsubstantiated. No evidence has been placed before me to justify its

arguments. In my considered view, there is no error in the reasons given

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by the AO to make addition towards unexplained expenditure towards audit

fees and confirmed by the Ld.CIT(A) and hence, I inclined to uphold the

findings of the Ld.CIT(A) and reject the ground taken by the assessee.

& 5 of the assessee’s appeal is addition towards interest on excess drawings

by partners and disallowance of excess interest paid over and above 12%

as specified in the Partnership Deed towards partners’ capital account. The

AO has made addition towards 12% interest on partners drawing account

on the ground that when the assessee has paid interest on partners’ capital

account, the assessee ought to have recovered interest from partners

current account when such current account is overdrawn and thus, imputed

12% interest on partners current account. Similarly, the AO has disallowed

excess interest paid towards partners’ capital account over and above the

rate specified in the Partnership Deed in terms of Sec.40b(iv) of the Act.

record and gone through orders of the authorities below. The only

argument of the Ld.Counsel for the assessee is that while computing

interest on capital account and interest on current account, the AO should

have aggregated both capital and current accounts and in case, any over

drawings by the partner, then, interest can be computed. Similarly, while

computing interest on capital account in excess of 12%, the AO should

aggregate the balance appearing in the current account. I find that the

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arguments of the Ld.Counsel for the assessee appears to be correct. Because, while computing interest on partners’ capital and current accounts, the AO should aggregate the capital and current account to ascertain any overdrawing’s by partner. Therefore, in my considered view, the issue needs to go back to the file of the AO for further verification and thus, I set aside the issue to the AO and direct the AO to reconsider the issue in light of my discussions given herein above.

Order pronounced on the 14th day of October, 2022, in Chennai.

Sd/- (जी. मंजूनाथा) (G. MANJUNATHA) लेखा सद(/ACCOUNTANT MEMBER चे%ई/Chennai, िदनांक/Dated: 14th October, 2022. TLN आदेश की �ितिलिप अ)ेिषत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु*/CIT 2. ��थ�/Respondent 5. िवभागीय �ितिनिध/DR 3. आयकर आयु* (अपील)/CIT(A) 6. गाड� फाईल/GF