M/S. DESIGN FORUM INTERNATIONAL,NEW DELHI vs. ACIT, NEW DELHI

This appeal is filed by the assessee against the order dated 28/02/2017 passed by the CIT(A)-20, New Delhi, for Assessment Year- 2013-14.

The grounds of appeal

The assessee firm is engaged in the business of providing architectural services for housing and commercial projects. During the year under consideration, the assessee derived income from business or profession. The assessee filed its return of income on 28/09/2013, declaring total income at Rs.2,37,36,341/-. Subsequently, the case was selected for scrutiny under CASS. Notice u/s 143(2) was issued and served upon the assessee within the stipulated period. Again notice u/s 142(1) along with detailed questionnaire was issued to the assessee. In response to the notices, Chartered Accountant/Authorised Representative of the assessee attended the assessment proceedings from time to time and filed necessary details, information/documents etc as required. Books of accounts and vouchers were produced during the course of assessment proceedings which were examined on test check basis. The income of the assessee is recomputed as under:- S. No. Particulars (Amount in 7) Income as per computation tiled by the 72,37,36,341/ assessee - i. Disallowance of expenses which have not been 713,84,498/- paid in the relevant financial year II. Non grant of TDS Claims 15,88,890/-) NIL III. Disallowance of Interest 729,28,540/- IV. Disallowance on account of unverifiable 71,57,088/- bills/vouchers Expenses Total disallowance 744,70,126/- Total Income 72,82,06,467/ Rounded off 72,82,06,467/ -

As regards Ground No. 2 (ii), the Ld. AR submitted that the same is not pressed, hence Ground No. 2(ii) is dismissed.

As regards to Ground No. 2 (i) and (iii), the Ld. AR submitted that no disallowance can be made in respect of the amount paid to such parties in the earlier years which is standing under the head ‘loans and advances’ as opening balance. In this regard, the Ld. AR pointed out that the interest on account of payment made in earlier year to such parties aggregates to Rs. 14,16,000/- (12,00,000 pertains to amount paid to M/s Chintel India Ltd. in earlier years). The Ld. AR further pointed out that no addition was made on account of interest in earlier years that are A.Y. 2011-12 and A.Y. 2012-13. In such circumstances, considering the interest on account of opening balance is bad in law and as well as on facts. The Ld. AR further submitted that payment was made from the current account held with ABN Amro Bank which became the Royal Bank of Scotland which are reflected in the ledger accounts. The party wise interest paid listing placed in the paper book also reveals that no interest was paid to such bank. The Ld. AR further submitted that the said bank account is reflecting under the head current assets in the balance sheet. The Ld. AR submitted that it is not a case of the assessee that it had not applied for the flat itself. It is the case of the assessee that the assessee had to apply for the flat as a measure of commercial expediency in order to recover the fees amount. It was mutually agreed between the assessee and the respective parties that the payment for fees will be made subject to the condition that the assessee applies for allotment of flat. Thus, assessee had to apply for allotment of flat as a measure of commercial expediency. The ledger account of such parties where in the receipt of money is reflecting was also placed on record. Further, a summary sheet reflecting the date of receipt of amount and the date of payment for flat is also submitted by the assessee. The Ld. AR submitted that perusal of the same reveals that the assessee had applied the fees amount towards the purchase of flat as per the terms agreed upon. The Ld. AR further submits that had the assessee not applied towards the flat, it would not have been able to recover the fees amount. The Ld. AR pointed out that the assessee had duly offered such receipt amount to its income on cash basis in accordance with its method of accounting as evident from the ledger accounts of such parties. The Ld. AR submitted that the CIT(A)’s allegation that under the cash system of accounting, there is no debtor that exists in the books of accounts and no amount ought to be standing under the head current assets is incorrect appreciation of facts and has no relevance to the case. The Ld. AR submitted that the amount standing is not as debtor, but as advance towards flat. Further, with regard to allegation of the CIT(A) that the business of the assessee is to provide architectural services and amount advances to purchase flat cannot be considered to be business of the assessee, the Ld. AR submitted that it is not the case of the assessee that it is the business of the assessee to buy and sell flats. It is the case of the assessee that the money was advanced to the parties as a measure of commercial expediency i.e. to safeguard its interest and recover the fees due from the said parties. The Ld. AR submitted that it is a settled law that no disallowance can be made under Section 36(1)(iii) in respect of the money advanced as a measure of commercial expediency. “Commercial Expediency” is the prerogative of the businessman and that the Revenue cannot justifiably claim to put itself in the armchair of the businessman and dictate as to what is “commercial expediency”. The Ld. AR relied upon the following decisions: 1. S. A. Builders Ltd. vs. CIT (2007) 288 ITR 1 (SC) 2. Hero Cycles (P.) Ltd. vs. CIT (2015) 379 ITR 347 (SC) 3. PCIT vs. Basti Sugar Mills Co. Ltd. (Del. HC) (ITA No. 205 order dated 28.09.2018) 4. DCIT vs. M/s Jetair Pvt. Ltd. (Tri. Del.) (ITA Nos. 2712, 2713 and 6884/Del/2015 order dated 19.09.2018)

The Ld. DR relied upon the Assessment Order and the order of the CIT(A).

We have heard both the parties and perused all the relevant material available on record. From the perusal of records, it can be seen that payment was made from the current account held with the bank, are duly reflected in the ledger accounts. The details of party wise interest paid also reveals that no interest was paid to such bank. The said bank account is reflecting under the head current assets in the balance sheet. It is the case of the assessee that the assessee had to apply for the flat as a measure of commercial expediency in order to recover the fees amount. It was mutually agreed between the assessee and the respective parties that the payment for fees will be made subject to the condition that the assessee applies for allotment of flat. Thus, assessee had to apply for allotment of flat as a measure of commercial expediency. The ledger account of such parties where in the receipt of money is reflecting was also placed on record. Further, a summary sheet reflecting the date of receipt of amount and the date of payment for flat is also submitted by the assessee. From the records it can be seen that the assessee had applied the fees amount towards the purchase of flat as per the terms agreed upon. It can further emerges from the records that the assessee had duly offered such receipt amount to its income on cash basis in accordance with its method of accounting which is also evident from the ledger accounts of such parties. Thus, the CIT(A) was not right in sustaining the addition in respect of interest incurred on account of amount standing as advance in respect of interest incurred on account of amount standing as advance in respect of such parties. Therefore, the order of the CIT(A) is set aside. Ground No. 2(i) and 2(iii) are allowed.

As regards to Ground No. 3 relating to disallowance of Rs. 11,542/- on account of Vehicle Repair and maintenance, the Ld. AR submitted that it is settled law that if the Assessing Officer has not pointed out any specific defect in the books of the assessee, and has not even pointed out the specific instances where the expenses have been incurred by the assessee for personal purposes, ad-hoc disallowance made by the Assessing Officer without any basis could not be upheld. The Ld. AR relied upon the following decisions: 1. DCIT vs. Grintex India Ltd. (ITA No. 4622/Del/2016 Del. Tri.) 2. ACIT vs. Amtek Auto Ltd. (2006) 112 TTJ 455 3. M/s Nine Dot Nine Mediawork Pvt. Ltd. vs. ITO (ITA No. 1262 & 863/Del/2016 dated 30.07.2018 Del. Tri.)

The Ld. DR relied upon the Assessment Order and the order of the CIT(A).

We have heard both the parties and perused all the relevant material available on record. From the perusal of records it can be seen that the assessee duly furnished the bills/vouchers in respect of the expenses related to vehicle repairs and maintenance. The Assessing Officer as well as the CIT(A) could not point out any discrepancy in the books of account of the assessee. Therefore, the CIT(A) is not right in confirming this addition. Ground No. 3 is allowed.

In result, appeal of the assessee is partly allowed. Order pronounced in the open court on 30/10/2019.