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Income Tax Appellate Tribunal, DELHI BENCH “A”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the assessee, an individual against the order of Commissioner of income tax appeals, Ghaziabad dated 15/12/2015. 2. The assessee has raised the following grounds of appeal:- “1. Because, the order of learned lower authority is bad in law and against the facts and circumstances of the case and hence is unsustainable.
2. Because, the learned lower authority erred in sustaining addition of Rs. 15.78.500/- u/s 36(iii), being interest on loan from certain trusts, ignoring the fact that except Rs. 10 Lakhs from said trusts in AY 2010- 11, other loans are accepted in earlier years and even interest on said rejected loans is also allowed in some cases of trusts under scrutiny while payment of interest and utilization for business purpose was not doubted by A.O.
3. Because, without prejudice to above , as an alternative learned lower authority grossly erred in sustaining the interest Rs- 1447444/- with the above undisputed facts on record. Hence order is illegal at least on on this issue.
4. Because, the learned lower authority has erred in sustaining addition of Rs. 30,00,000/- being ad- has disallowance out of repair and maintenance exp. Rs. 11,58,509/- merely on the basis of cash payment Page | 1 the. Vouchers, without appreciating the facts on the record that book of accounts are accepted, payments are supported and not a single item is found not related to business or defective etc. Therefore, it is prayed that addition sustained may kindly be quashed.”
Brief facts of the case shows that assessee is an individual who is running a proprietary firm National steel suppliers having the main business of trading of Ireland and steel and handling contract of Rashtriya Ispat Nigam and other contracts. He filed his return of income on 26/9/2011 declaring income of INR 2 069370/–. Assessment u/s 143 (3) of the act was passed on 21/2/2014. Learned assessing officer disallowed interest on unsecured loan of INR 1 578500/– and a sum of further INR 500,000 on account of unverifiable expenses determining total income of the assessee at Rs. 4147871/–.
The assessee aggrieved with the order of the learned AO preferred an appeal before the learned CIT – A, Ghaziabad. He passed an order on 15/12/2015 confirming the disallowance of the interest and restricting the total addition of INR 500,000 to INR 300,000 out of various expenditure. Therefore, assessee is in appeal before us.
The first ground of appeal
is general in nature, no arguments were advanced before us, and therefore it is dismissed.
6. The second ground relates to the disallowance confirmed by the learned CIT – A of INR 1 578500/– u/s 36 (1) (iii) being interest on loan from certain trust. The brief facts of the case shows that the learned assessing officer has dealt with the above issue in paragraph number three of his order. The learned AO noted that assessee is a common trustee of nine trusts who are filing the return of income from the residential address of the assessee. For past many years, the assessee’s proprietary concern has been receiving unsecured loan of substantial amount from these trusts and using it for the purposes of the business and property investments. AO further noted that these trust do not have any independent genuine source of earning and are managed by the common managing trustee being assessee. He further alleged that the assessee is introducing undisclosed income into these trust for ultimate deployment in the business and paying 15% interest to these trusts and claiming it as a deduction. The AO asked the assessee to produce the trustees and to justify why the alleged trust are not paying any Page | 2 tax with maximum marginal rate as stipulated in the law. The assessee explained that these trusts are separate identity and our filing the return of income and they are assessed u/s 143 (3) of the income tax act. The learned AO disregarded the explanation of the assessee and held that the contention of the assessee is devoid of any merit and the entire exercise is exposed for introducing undisclosed and untaxed income through the conduits of nine alleged trust. No evidence with regard to the collection from public on its utilization for charitable purposes and the absence of independent trustees demolishes the theory propounded by the Counsel of the assessee. Resultantly, the learned AO held that these trusts are treated to be bogus entities and the interest amount on these loans of INR 1 578500/– ostensibly coming through these trusts is disallowed and added to the income of the assessee under section 36 (1) (I) of the act.
7. The issue was challenged by assessee before the learned CIT – A who confirmed the above addition as the identical issue is decided against the assessee in earlier year by the CIT A, was offered for vide order number 132/2013 – 14 dated 08/09/2015. Therefore, assessee is in appeal before us.
The learned authorised representative submitted that identical issue arose in the case of the assessee for assessment year 2009 – 10 and 2010 – 11 wherein the coordinate bench as per order dated 19/4/2018 as per para number 6.1 of the appeal has allowed the claim of the assessee. Therefore, this issue is covered in favour of the assessee.
The learned departmental representative vehemently supported the order of the learned lower authorities.
We have carefully considered the rival contention and perused the order of the coordinate bench in assessee’s own case for assessment year 2009 – 10 and 2010 – 11 wherein as per para number 6.1 of the order the identical disallowance of the interest has been deleted. The learned departmental representative could not show us any reason to deviate from the decision of the coordinate bench. Further, judicial discipline also demands that we follow that decision. Even otherwise the reasons given by the learned assessing officer that the income of these trust are required to be taxed at maximum marginal rate is required to be tested in the hands of those trusts. The learned assessing officer has also misguided himself and did not notice the distinction between the public charitable trust and private discretionary trust. Further in the case of the assessee for assessment year 2010 – 11 the coordinate bench as per para number 8.4 of the order has held that assessee could not substantiate with any evidence to the satisfaction that the loan from the various trust having the common address with the assessee being the managing trustee as genuine. He also could not substantiate with any evidence regarding the Independent source of income of this trust. When the assessee is managing the affairs of all these trust having common address with no verifiable source of income, therefore the coordinate bench did not find any infirmity in the order of the learned CIT (A) on the issue and sustained the addition of INR 1,000,000/- which was received during that year( AY 2010-11) . Therefore, it is apparent that the loan of INR 1,000,000 received from one of the trust in assessment year 2010 – 11 was found to be not genuine and therefore to the extent of INR 1,000,000 the interest expenditure cannot be allowed. However, as in earlier years the receipt of loan from these trusts was not added u/s 68 of the income tax act, they cannot be doubted during the year, for the purpose of disallowance of interest paid to them. Therefore, respectfully following the decision of the coordinate bench in case of the assessee for earlier years, on identical facts and circumstances, we partly allow ground number 2 and 3 of the appeal of the assessee and direct the learned assessing officer to delete the disallowance of interest on loan except to the extent of loan of INR 1,000,000/- received in assessment year 2010 – 11 which is held by the ITAT as ingenuine. . Therefore, for the limited purpose of computing the disallowance the issue is set aside to the file of the learned assessing officer with a direction to allow the interest expenditure on all other loans from these trusts accept INR 1,000,000/–.
Ground number 3 is with relation to the sustenance of disallowance of INR 200,000/- out of the repair and maintenance expenses. The learned authorised representative submitted that learned assessing officer disallowed the above sum on the basis that most of the payment of expenses are in cash out of total expenses of INR 1,158,000. The learned CIT – A restricted the above disallowances holding that as most of the payments in cash they are not verifiable fully. He submitted that all the expenditure incurred by the assessee are fully verifiable and has complete details of this expenditure. He further stated that if the expenditure incurred in cash, the disallowance could have been made under section 40A (3) of the income tax act which has not been made by the assessing officer. He further stated that payment of cash within the prescribed limit of the expenditure is not prohibited under the income tax act and therefore it cannot be disallowed.
The learned departmental representative supported the order of the learned CIT – A.
We have carefully considered the rival contention and perused the order of the learned CIT – A, who has restricted the disallowance to the extent of INR 200,000 out of the total disallowance made by the learned assessing officer of INR 500,000. The learned CIT – A has categorically noted that as far as strengthening expenses are concerned the payments are through cheque except one payment of INR 8 465/– whereas the assessing officer has disallowed holding that these payments were in cash and hence not verifiable. He found that the findings of the learned assessing officer are factually incorrect. With respect to the payment of repairs and payment being in cash through vouchers is not denied, therefore he held that they are not amenable to verification fully. He further held that disallowance of INR 300,000 out of the total expenditure of repairs of INR 1 4 Lacs is approximately 20% and is not unreasonable therefore he sustained the disallowance of INR 300,000. We do not find any reason supported by the law that there can be such an ad hoc disallowance sustained by the learned CIT – A. If the assessee has made cash payment, and if they have exceeded the prescribed limit, there are provisions in the law to disallow such expenses specifically. Further, the expenses below the prescribed limit cannot be disallowed for the only reason that they are paid in cash. In fact, the law itself provides that they can be paid in cash. None of the expenses incurred by the assessee was found by the learned assessing officer or by learned CIT – A incurred by the assessee not for the purposes of the business. No instances have also been brought on record by any of the lower authorities about the non-verifiability of any of the expenses. In view of this we reverse the finding of the learned CIT – A in confirming the