ACIT, NEW DELHI vs. M/S FERROUS INFRASTRUCTURE PVT. LTD.,, GURGAON

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:-

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/-.

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:-

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:-

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.

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.