BABA PURANMAL CHIT FUND PRIVATE LIMITED,HYDERABAD vs. INCOME TAX OFFICER, WARD-1(3), HYDERABAD

Briefly stated facts of the case are the assessee is in the business of Chit Funds. In the course of assessment proceedings, A.O. noticed that the assessee has incurred an amount of Rs. 4,80,800/- towards ‘business promotion expenditure’ in A.Y. 2012-13 and an amount of Rs. 7,10,500/- in A.Y. 2013-14. When enquired about the said expenditure claimed under business promotions expenditure, it was the submission of the assessee that in the A.Y. 2012-13 it has organised a business meet of its customers in hotel M/s. Green Park (Marigold) and in A.Y. 2013-14 it has organised another meet in M/s. Novatel Hyderabad

Learned CIT (A) confirmed both the additions inspite of giving necessary evidence and hence the present appeals.

It was the submission of the Learned Counsel that assessee has indeed conducted customers meet and the expenditure was incurred at M/s. Green Park Hotels & Resorts Ltd., Begumpet in the year 2012-13, the evidence of which was not only furnished to the Assessing Officer but also to the Ld. CIT(A). He referred to the submissions made before the CIT(A). In A.Y. 2013-14, it was a bigger meet and the assessee has organised customer’s meet in M/s. Novatel Hyderabad Convention Centre, the evidence of which was also furnished to both the Authorities.

Learned Departmental Representative relied on the orders of the A.O. and the CIT (A).

I have considered the rival contentions and perused the evidence placed on record. Assessee is engaged in the business of Chit Funds and had to necessarily organise customer’s meet. The two occasions on

Before the Ld. CIT(A), assessee not only gave the details of deposits with dates but also stated that an amount of Rs. 4 lakhs was ‘accrued interest’ in earlier years which was not received and shown as such in the balance sheet and the balance has been accrued during the year which was offered to tax but has not been received. The assessee also furnished reconciliation before the CIT(A). However, the Ld. CIT(A) without noticing the dates of deposits has calculated the interest on the FDs for whole the year and arrived at the interest to be offered at an

After considering the rival contentions, I am satisfied that assessee has offered interest. As seen from the order of the A.O., the ‘accrued interest’ reflected in the balance sheet has been brought to tax without understanding that an amount of Rs. 4 lakhs as accrued interest in the balance sheet which was not received but offered to tax in earlier years. The Accounting Principles are not understood by the Assessing Officer, before considering the accrued interest shown in balance sheet to tax separately. If the amount has accrued but not received, it will be shown separately in the balance sheet, as accrued interest after crediting the same in P&L account. This year also whatever interest has accrued (but not received) has been offered to tax in the P & L Account and in the computation also, therefore the action of the A.O. cannot be justified. It is also to be noted that the Ld. CIT(A) calculated the interest for the whole period. In para 6.3, the period of deposits were clearly stated. Without considering the period of deposits, calculation of interest for whole year certainly results in mis-match of the amounts. As I am satisfied that the reconciliation furnished by the assessee before the Authorities is correct, I direct the A.O. to delete the addition forthwith. The grounds are allowed.

In the result, both the appeals are allowed. Order pronounced in the open court on 27th July, 2018.