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Income Tax Appellate Tribunal, DELHI BENCH : E : NEW DELHI
Before: SHRI R.K. PANDA & SHRI KULDIP SINGH
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER Assessment Year: 2012-13 ACIT, Vs Ferrous Infrastructure Pvt. Ltd., 1st Floor, Block-B, Golf Course Road, Circle-9(1), New Delhi. Sector-54, Vatika Towers, Gurgaon. PAN: AAACF9776H (Appellant) (Respondent) Assessee by : None Revenue by : Ms Rinku Singh, Sr. DR Date of Hearing : 12.03.2019 Date of Pronouncement : 16.04.2019 ORDER
PER R.K. PANDA, AM:
This appeal filed by the Revenue is directed against the order dated 9th October, 2015 of the CIT(A)-3, New Delhi, relating to assessment year 2012-13.
Despite service of notice, none appeared on behalf of the assessee. It was further seen that on the previous occasions also nobody was appearing on behalf of the assessee. Therefore, this appeal is being decided on the basis of the material available on record and after hearing the ld. DR.
Ground of appeal No.1 by the Revenue reads as under:-
“1. Ld. CIT(A) erred in law and on facts of the case in deleting the disallowance of interest expenses of Rs.22,21,526/-.”
Facts of the case, in brief, are that the assessee is a company engaged in the business of real-estate development. It filed its return of income on 24th September, 2012 declaring total income of Rs.1,47,74,910/-. The Assessing Officer, during the course of assessment proceedings observed that the assessee company has raised unsecured loan/other credits from various parties aggregating to Rs.12,74,14,410/-.
The above amount included a sum of Rs.1,95,50,000/- from Shakun Chandhok and Rs.2,25,00,000/- from Shri Surender Seth on which the assessee has paid interest of Rs.21,44,988/- and Rs.55,50,167/- respectively which aggregates to Rs.76,95,155/-.
Despite being asked by the Assessing Officer, the assessee did not explain the purpose for taking the loan from these two parties. The Assessing Officer further noted that the assessee has given interest free advance of Rs.8,80,92,500/- to various parties and claimed the same as advance given for land procurement. On being asked by the Assessing Officer to explain the purpose for which the advance has been given to the parties and the source of payment made to these parties and to furnish the copy of agreements entered into with the respective parties, it was simply stated that the advance was given for purchase of land. It was argued that purchase of land is part of its core activity of real-estate development business. These advances were given to acquire land for development and sale purpose which is the only business of the assessee company. It was further argued that the unsecured loans were received much before the advances for purchases of land.
However, the Assessing Officer was not satisfied with the explanation given by the assessee. In absence of furnishing of any agreement for purchase of land or acquisition of land from these parties, the Assessing Officer disbelieved the arguments advanced by the assessee. Since the assessee did not furnish the copy of agreement or sale deed or any other evidence to justify that the payments have been made for the purpose of business to different companies who are also engaged in similar line of business, the Assessing Officer, invoking the provisions of section 36(1)(iii), made addition of Rs.22,21,526/- being the proportionate interest on diversion of borrowed funds for non-business purpose.
In appeal, the ld.CIT(A), following the decision of the Hon'ble Supreme Court in the case of M/s Taparia Tools Pvt. Ltd., deleted the disallowance made by the Assessing Officer on the ground that the advances have been given by the company purely for the purpose of business needs and the advances have not been given to any sister/associated concern.
Aggrieved with such order of the CIT(A), the Revenue is in appeal.
The ld. DR strongly challenged the order of the CIT(A) in deleting the disallowance made by the Assessing Officer. She submitted that when the assessee did not furnish any documentary evidence to support its contention that the advances were given to different non-related parties as advance for procurement of land which were also engaged in similar line of business, the ld. CIT(A) should not have deleted the disallowance without verifying the facts properly. She also relied on the following decisions:- (i) Punjab Stainless Steel Inds. Vs. CIT (2011) 196 Taxman 404 (Del); (ii) Thukral Regal Shoes vs. CIT (2016) 72 taxmann.com 192 (P&H); (iii) Abhishek Industries Ltd. vs. CIT (2006) 156 Taxman 257 (P&H); (iv) CIT vs. R Mohan (2011-TIOL-687-HC-MAD-IT); and (v) CIT vs. Cornerstone Exports (P) Ltd. (2016) 67 taxmann.com 345 (Guj).
We have considered the arguments advanced by the ld. DR and perused the material available on record. We find the Assessing Officer disallowed an amount of Rs.22,21,526/- u/s 36(1)(iii) of the Act being the proportionate interest on borrowed capital diverted for non-business purpose on the ground that the assessee could not substantiate with evidence that such advance were made to different parties engaged in similar line of business as that of the assessee for procurement of land. We find the ld.CIT(A), following the decision of M/s Taparia Tools Pvt. Ltd., deleted the disallowance on the ground that the advances have been given by the company purely for business needs and have not been given to any sister or associated concern. The same have been given to companies engaged in the business of real-estate and was no way connected with the company or its promoters. While we accept the proposition as laid down by the ld.CIT(A) in principle, however, the fact remains that no evidence was filed either before the Assessing Officer or before the CIT(A) to suggest that such advances were given to companies/parties engaged in the business of real-estate and, in fact, the assessee has either purchased land from the said parties or has entered into any agreement with the same parties. The assessment order clearly reveals that despite opportunities granted by the Assessing Officer, the assessee failed to produce any documentary evidence to support its claim that the advances were given for purchase of land. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction that the assessee has given advances for procurement of land which is the business of the company. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The ground raised by the Revenue on this issue is accordingly allowed for statistical purposes.
Ground of appeal Nos.2, 3 and 4 of the Revenue read as under:-
“2. Ld. CIT(A) erred in law and on facts of the case in deleting the disallowance of Foreign Travel expenses of Rs.30,08,000/-. 3. Ld. CIT(A) erred in law and on facts of the case in deleting the disallowance of Business Promotion expenses of Rs.32,10,556/-. 4. Ld. CIT(A) erred in law and on facts of the case in deleting the disallowance of rebate of Rs.19,14,551/-”
Facts of the case, in brief, are that the Assessing Officer, during the course of assessment proceedings, observed that the assessee has claimed an amount of Rs.52,08,210/- towards foreign travel expenses. From the various details furnished by the assessee, he noted that the above amount includes a sum of Rs.30,08,000/- towards foreign travel made by the directors of the assessee company. The Assessing Officer, therefore, asked the assessee to furnish the details of places visited, period of visit, amount incurred on each visit along with copy of invoices/bills and justification of expenses with regard to the business requirement. The assessee in its submission stated that the foreign travel expenses have been incurred by the directors for visiting foreign countries in order to study property trends and look for overseas financial tie- ups for the projects of the company. However, in absence of any supporting documents to support the above submission, the Assessing Officer rejected the claim of the assessee and made disallowance of Rs.30,08,000/- which was added to the total income of the assessee.
The Assessing Officer similarly disallowed an amount of Rs.32,10,556/- out of business promotion expenses on the ground that the payments were made by the credit card being used by the directors of the assessee company and the assessee failed to furnish the details as asked for such as copy of invoices/bills of expenses and the statement of credit card.
So far as the disallowance of rebate is concerned, the Assessing Officer during the course of assessment proceedings observed that the assessee has claimed a sum of Rs.19,14,551/- on account of rebate being allowed to customers through broker. The Assessing Officer asked the assessee to justify the same by furnishing the requisite details and substantiate that such rebate was wholly and exclusively for the purpose of business. The assessee filed the requisite details giving the break-up of the rebate allowed totaling to Rs.19,14,551/-. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee on the ground that the rebate claimed in the books is on account of M/s Ooma Dreamhomez Pvt. Ltd. and the amount being not recoverable from it was debited to rebate account. He, therefore, made addition of Rs.19,14,551/-.
In appeal, the ld.CIT(A) deleted all the three additions by observing as under:-
“4.1 Having gone through the submissions, the order of assessment passed by the Assessing Officer and the facts available on the record, it emerges that the Assessing Officer has disallowed an amount of Rs. 30,08,000 out of the travelling expenses on account of foreign travel and the entire expenditure of Rs. 32,10,556 out of business promotion expenses. It is pertinent to note here that during the assessment proceedings the attention of the Assessing Officer was drawn to the fact that the assessee during the course of survey u/s 133 of the Act on 07.10.2011 has voluntarily surrendered an amount of Rs. 461.15 lacs towards disallowances u/s 40A(3)/ 40(a)(ia) and u/s 68 and 69C of the Act and other unexplainable documents/ entries and therefore no addition should be made on account of disallowance of any expenditure as the amount of surrender made has already been added to the income of the assessee. It was to cover possible disallowances out of expenses like travelling and business promotion that the voluntary surrender was made by the assessee during the survey. In spite of the same, the Assessing Officer has gone ahead to make disallowances on account of foreign travel and business promotion even though complete account of the same was submitted to him during the assessment proceedings. The Assessing Officer has completely ignored the fact that the business of selling the real estate properties may involve essential expenditure in the form of business promotion for meeting and entertaining the various stake holders like prominent brokers, advertisement personnel, high net worth individuals etc. and they have essentially to be entertained in order to attract investment in the projects. He has disallowed the entire expenditure on business promotion without considering that the same was essential for the business of the assessee and the company itself had surrendered the expenditure much more than that during the course of the survey. The additions made by the Assessing Officer amounts to double addition and accordingly the Assessing Officer is directed to delete such additions and modify the order of assessment accordingly.”
Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal.
We have considered the arguments advanced by the ld. DR and perused the material available on record. It is an admitted fact that during the course of assessment proceedings, the assessee did not furnish the details as called for by the Assessing Officer for which he disallowed foreign travelling expenses of Rs.30,08,000/- and business promotion expenses of Rs.32,10,556/-. Although the ld.CIT(A) deleted the addition/disallowance on the ground that the assessee has surrendered an amount of Rs.461.15 lakh towards disallowance u/s 40A(3)/40(a)(ia) and u/s 68 and 69C of the Act and other unexplainable documents/entries for which no addition is called for, however, it is a fact that the assessee has claimed deduction u/s 80IB(10) on the additional income so declared. Therefore, it cannot be said that the additional income surrendered by the assessee will cover the disallowance of the above expenditure for want of bills and vouchers and the expenditure which is being claimed by the assessee.
We, therefore, reverse the order of the CIT(A) and restore the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate with evidence to his satisfaction regarding the allowability of the above expenditure. Ground of appeal Nos.2, 3 and 4 raised by the Revenue are accordingly allowed for statistical purposes. 8
Ground of appeal No.5 being general in nature is dismissed as such.
In the result, the appeal filed by the Revenue is allowed for statistical purposes. The decision was pronounced in the open court on 16.04.2019.