M/S SWAN SILKS ,BANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-6(1)(2), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER 1596/Bang/2018 Assessment Year : 2012-13, 2014-15 M/s. Swan Silk Pvt. Ltd., The Deputy Commissioner of Income Tax, No.40, 4th Cross, Swan House, Circle – 6(1)(2), Richmond Road, Vs. Bangalore. Bangalore – 560 025. PAN : AACCS 4515 R APPELLANT RESPONDENT Assessee by : Shri. S. V. Ravishankar, Advocate Revenue by : Shri. Priyadarshi Mishra, JCIT (DR)(ITAT), Bengaluru Date of hearing : 14.12.2020 Date of Pronouncement : 22.12.2020 O R D E R Per Chandra Poojari, Accountant Member

These 2 appeals by the assessee directed against the different orders of CIT(A) for the Assessment Years 2012-13 and 2014-15. The assessee raised following grounds of appeal. These appeals are heard together and disposed off by way of this common order for the sake of convenience, as it belongs to the same assessee. weight of evidence, natural justice, facts and circumstances of the case.

2. The appellant denies itself liable to be assessed to total loss of Rs. (-)79,85,450/-as against the returned income of Rs. (-)2,06,89,572/- on the facts and circumstances of the case.

5. The learned CIT(A) was not justified in confirming the disallowance of Rs.3,50,291/- being business development expenditure, incurred for the purpose of business on the facts and circumstances of the case.

6. The learned CIT(A) was not justified in confirming the disallowance of Rs. 44,796/- being expenditure on clubs, which were necessary for hosting visiting clients etc, on the facts and circumstances of the case.

7. The learned CIT(A) was not justified in confirming the additions of Rs. 24,26,050/- being estimated sale of scrap silk yarn, by accepting the premise the AO that the scrap was also to be valued at the market rates, when(the appellant has detailed the reasons for sale of scrap, thus arriving at the erroneous finding that the additions made were to be sustained, on the facts and circumstances of the case.

9. The learned authorities below erred in not appreciating the documents filed before the lower authorities to arrive at the perverse finding that the various scrap yarn sold were of the same quality as new goods, on the basis of conjectures, surmises and presumptions and without establishing the same with cogent material and completely disregarding the material placed on record by the appellant by estimating the cost of the goods, on the facts and circumstances of the case.

10. The authorities below were both in error in not appreciating that the estimation of income could be resorted to only when the books of the appellant were rejected, which in the instant case has not been done and the authorities below have not indicated that there were infirmity or complexity in the accounts to resort to estimation of expenses, and the entire estimated disallowances are required to be deleted, on the facts and circumstances of the case. 11. The appellant craves leave of this Hon'ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal

as may be necessary at the time of hearing.

12. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.

3. The assessee raised the additional grounds as follows:

1. The learned CIT(A) was not justified in appreciating that the AO has not recorded proper satisfaction before proceeding to compute the disallowance in relation to exempt income on the facts and circumstances of the case.

2. Without prejudice and not conceding that no disallowance was called for, the disallowance if any ought to be restricted to 0.5% of the value of investment which have earned dividend during the year, on the fact and circumstances of the case. 3. The appellant craves leave of this Hon'ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal

as may be necessary at the time of hearing.

4. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.

4. The assessee prayed that additional ground be admitted in the interest of advancement of natural justice and these grounds were inadvertently not raised on earlier occasion and there is no necessity of investigation of any fresh facts on this issue and also placed reliance on the judgment of Supreme Court in the case of NTPC Vs. CIT 229 ITR 383. The DR did not put any strong objection for admission of additional grounds.

6.1 Ground Nos.2 and 3 with regard to disallowance of travelling expenditure. The facts are that the assessee claimed an expenditure of Rs.41,74,722/- as travelling expenses. Major portion of payments relating to Director’s credit card payment. According to the AO, there was personal element involved in this expenditure incurred by the Director of Rs.10,43,680/- out of Rs.41,74,722/-. On appeal, CIT(A) confirmed the disallowance without any speaking order. Against this, assessee is in appeal before us.

6.2 We have heard both the parties and perused the material on record. The contention of the AR is that the assessee placed all bills and vouchers and receipts with regard to this expenditure. The assessee being a limited company, there is no question of any personal element in incurring this expenditure. This expenditure was incurred on account of business expediency for the purpose of business. We have gone through the case records. The assessee incurred an expenditure of Rs.41,74,722/-, most of the payments are made by Director’s credit card. The assessee has not substantiated the travel expenditure as it is wholly and exclusively made out for business. There is every chance of personal element attached to this expenditure. It is the duty of the assessee that the expenditure is wholly and exclusively incurred for the purpose of business. Though the AO disallowed expenditure on adhoc basis, the CIT(A) confirmed the same without passing speaking order. In our opinion, it is appropriate to remit the issue back to the file of AO to pin point the exact expenditure which is personal in nature and where the Directors are benefitted by such expenditure. Accordingly, this issue is remitted to the AO for a fresh consideration.

7.1 We have heard both the parties and perused the material on record. As discussed in earlier para, this expenditure was also disallowed by AO on adhoc basis which is not proper. He should specify which part of the expenditure is personal in nature incurred by the Director. Accordingly, we remit the issue back to the file of AO and direct the assessee to produce all details of this expenditure and thereafter AO has to re-examine the issue afresh.

8. Next ground is with regard to disallowance of club expenses at Rs.44,796/-. The assessee incurred an expenditure of Rs.89,592/- under the head ‘clubs’. Assessee not furnished the details of expenditure on behalf of whom this expenditure is incurred though it was treated that this was incurred towards foreign buyers. The AO disallowed 50% of Rs.89,592/-, at Rs.44,796/-.

8.1 We have heard both the parties and perused the material on record. As discussed in the earlier para, the assessee has to establish that this expenditure was incurred only exclusively for the purpose of business by placing necessary evidence so as to entertain the foreign buyers. Accordingly, this issue is remitted to the file of AO for fresh consideration.

4. The learned CIT(A) was not justified in appreciating that the sale of the TDR, were not exigible to capital gains as held by various authorities and the same ought to have been deleted in the order passed, on the facts and circumstances of the case.

5. The learned CIT(A) has erred in law in appreciating that it is settled position of law that "consent does not confer jurisdiction" and the income of Rs.59,94,346/ - not deleted by the AO, ought to have been deleted by the CIT(A), on the facts and circumstances of the case. 6. The learned CIT(A) was not justified in law in appreciating that the AO ought to have granted the benefit accruing to the appellant, by deleting the capital gains offered to tax inadvertently, in consonance with Circular No. 14 [XL-35] of 1955, dated April 11, 1955, on the facts and circumstances of the case. The learned CIT(A) was not justified in law in appreciating that the Appellant had an inherent right to make fresh claim before the Appellate authority which was not made by way of revised return in respect of an item of income that was not taxable under the law but offered wrongly / inadvertently in the original return of income. 8. The learned CIT(A) ought to have deleted the addition of Rs. 11,57,408/- from various sources which has been properly accounted and explanation offered during assessment proceedings, while the CIT(A) has stopped short of deleting the addition and directed the AO to set off the interest against the brought forward loss, on the facts and circumstances of the case. 9. The appellant craves leave of this Hon'ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal

as may be necessary at the time of hearing.

10. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.

15. The assessee raised the additional grounds as follows:

1. 1. The appellant denies the liability to pay interest under section 234B of the Act in view of the fact that there is no liability to additional tax as determined by the assessing officer. Without prejudice, the rate, period and on what quantum the interest has been levied are not in accordance with the law and are not discernable from the order and hence deserves to be cancelled on the facts and circumstances of the case.

2. The appellant craves leave of this Hon'ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be necessary at the time of hearing.

3. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.

16. Ground Nos.1 and 2 are general, does not require adjudication. Ground Nos.3 to 7 is with regard to non-consideration of exempted capital gain of 59,94,346/- for the purpose of determining loss. In this case, there was income from capital gain of Rs.59,94,346/-. This capital gain is exempted under section 10(38) of the Income Tax Act, 1961. However, the same was included by assessee as income while filing return of income and accordingly computed loss. By this action of the assessee, loss is reduced by 59,94,346/-. This capital gain is long term which is exempted from tax and it cannot be considering for computing the income or loss of the assessee and it should go out of the computation of income. This plea of the assessee not considered by the CIT(A). Hence, in the interest of justice, we remit this issue back to the file of CIT(A) for proper adjudication instead of dismissing the issue as infructuous by CIT(A).

17. Next ground is with regard to addition of Rs.11,57,408/- as interest income from other sources. The AO brought into tax an amount of Rs.11,57,408/- under head “interest income”. According to AO, the assessee received interest from following parties: 1. Kotak Mahindra Bank Ltd., - 22,77039/- 2. SBI - 34,295/- 3. BESCOM - 39,875/- Total 23,49,209/-

18. The AO observed that assesse declared interest income of Rs.12,73,688/- and there was under statement of interest income on this ground at Rs.10,75,521/-. Similarly, there was an receipt of income of Rs.81,887/- from the Executive Engineer. This was not offered to tax. The AO brought these two amounts totaling Rs.11,57,408/- under head “Income from Other Sources”. The contention here is that there is a brought forward loss and depreciation in the return of income and this interest income should be set off out of the brought forward loss and depreciation and the net result will be considered to determine the income of the assessee.

19.1 The additional grounds raised by the assessee is omitted as discussed in para 5 of this order.

19.2 The additional ground is with regard to charging of interest under section 234B which is consequential and mandatory in nature and so shall compute it as per law while passing giving effect order to CIT(A).