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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the revenue against the order of the ld CIT (A)- 23, New Delhi dated 04.02.2016 for the Assessment Year 2007-08 passed in the order of the Ld. Assessing Officer under section 254/153A/143 (3)
3 of the income tax act 1961 dated 31st of December 2008 wherein he has deleted the addition of Rs. 10247738/– made by the Ld. AO on unaccounted sale of scrap. He further deleted the addition of Rs. 1,12, 00000/– on account of payment of loan processing fees. The Ld. AO aggrieved with the order of the Ld. CIT appeal has raised the following grounds of appeal. Page | 1
1. The order of the ld CIT(A) is not correct in law and on facts.
2. On the facts and circumstances of the case, the ld CIT(A) erred in law in directing the AO to examine whether there was sufficient
WDV of the said block of assets after considering the order recorded sales of scrap of Rs. 1.50 croes, Rs. 79.23 lakh and Rs. 47.38 lakh and thereafter reduce Rs. 10247738/- from WDV of the block of assets and allow depreciation accordingly.
On the facts and circumstances of the case, the ld CIT(A) erred in law in deleting the addition of Rs. 11200000/- made by the AO on account of payment of loan processing fee.
4. On the facts and circumstances of the case, the ld CIT(A) erred in law in deleting the addition of Rs. 1053863/- made by AO u/s 14A
of the Income Tax Act, 1961.”
The brief facts of the case shows that search was conducted in the group cases of Suresh Nanda on 28/2/2007 and it included the premises of the assessee also. Further search was also conducted in the office and business premises of Mr. Bipin Shah on the same date. During the course of search, statement had been recorded of Mr. Bipin Shah in his individual capacity. Impugned addition has been made on basis of that statement in the hands of the Assessee. The original assessment was passed on 31/12/2008 by the Ld. assessing officer wherein the sum of Rs. 25 crore was added as unexplained cash under section 69 of the income tax act, which included a scrap sale of Rs. 1.5 crores. The matter reached before the Ld. CIT – A who gave credit for cash sales recorded in the books of accounts of Rs. 47.52 Lacs on the date of search and held that remaining amount of Rs. 1.02 crores out of Rs. 1.5 crores would be treated as unexplained income of the assessee. The Ld. CIT – A denied the credit of Rs. 7 9.3 Lacs recorded subsequent to search holding that the same could not be co related to the sale of scrap mentioned in the evidence found during the course of search of Mr. Bipin Shah. On appeal before ITAT, it was set aside to the file of the Ld. AO with direction contained in page No. 110 of the order. According to that coordinate bench directed the AO to grant opportunity to cross-examine of Shri Bipin Shah. Thereby the coordinate bench set aside the issue of the addition of Rs. 1 024 7738/– back to the file of the Ld. AO. Before the coordinate bench, the assessee raised an alternative pleading that sale of scrap if any will go to reduce the block of assets and shall not be eligible to tax under section 69C of the act. The coordinate bench also directed the AO to consider the argument of the assessee after affording reasonable opportunity of hearing.
3. Consequently, the Ld. assessing officer passed an assessment order on 30/3/2014 wherein in the addition of Rs. 1, 02, 47, 738/- on account of unaccounted sale of scrap was made. He further made disallowance of loan processing fee of fees Rs. 1, 12, 00, 000/–. The last disallowance was under section 14 A of the income tax act of Rs. 10,55,863/-. The Ld. assessing officer noted that the assessee has not disallowed any expenditure under section 14 A of the income tax act 1961 in the original return of income. However in the revised return a sum of Rs. 3, 95, 682/– has been considered as an expenditure attributable to the income with respect to mutual fund that dividend and therefore disallowable under section 14 A of the income tax act. The Ld. assessing officer estimated 2% of the other expenses incurred in relation with the investment made and therefore he disallowed a sum of Rs. 1 0, 55, 863/– being 2% of the other expenses of Rs. 5, 27, 93, 192/–. Consequently the total loss was assessed at Rs. 7,15,81,109.
The assessee preferred an appeal before the Ld. CIT – A who confirmed the addition of Rs. 1 02 47738/- on account of undisclosed sale of scrap.
However, he held that the above sum shall be reduced from the part of the block of fixed assets and depreciation on the balance written down value of the block would be allowable to the appellant. Further with respect to the loan processing fee of Rs. 1.12 crore paid by the assessee to the state bank of India , he held that coordinate bench has set aside the matter for the purpose of verification that assessee paid it in respect of disbursement of loan of state bank of India. He held that as assessee established that, same to be allowed. Therefore he held that as the Ld. assessing officer has not brought on record any adverse material so as to suggest that the loan was not utilized for the purpose of the business contrary to the finding of the Ld. CIT in his earlier order as well as the order of the coordinate bench that the utilization of loan was for the purpose of the business of the appellant, therefore he deleted the disallowance of the above sum. He also deleted the disallowance u/s 14A of the act, as the assessee has not recorded any satisfaction with respect to the provisions of subsection to of section 14A of the income tax act with respect to the disallowance made by assessee. Therefore revenue aggrieved with the order of the Ld. CIT – A has preferred an appeal before us.
The Ld. departmental representative relied upon the order of the Ld. assessing officer and submitted that claim of the assessee that the sale of the scrap is required to be adjusted against the written down value of the block of the asset is not acceptable as there is no correlation between the assets as well as the sale of the scrap. Further, with respect to the disallowance of the loan-processing fee he submitted that loan-processing fee could not be allowed as business expenditure unless the assessee proves that the loan was used for the purposes of the business. With respect to the disallowance under section 14 A of the income tax act he submitted that the Ld. AO has recorded proper satisfaction before making any disallowance. He further stated that the assessee has not disallowed any sum in the original return of income. He therefore submitted that the disallowance made by the Ld. assessing officer is correct and the Ld. CIT – A has committed an error in deleting the above disallowance.
The Ld. authorized representative vehemently supported the order of the Ld. CIT – A and submitted that the direction of the coordinate bench has not been considered by the AO. He further referred that when the Ld. AO himself has noted that there was a huge repair going on in a hotel the scrap was related to that only and the claim of the assessee was to adjust the above sale of scrap against the written down value of the block of the asset. He submitted that Revenue could not point out that why it should not be adjusted as it is has sale of scrap against the block of land and building. With respect to the claim of the expenditure of Rs. 1.12 crores towards loan processing Charges he submitted that the assessee has given the complete detail about the loan processing fees. He stated that the assessee has opted the loan of Rs. 90 crores, which was utilized for the purposes of the business, and therefore the loan processing fees expenditure incurred by the assessee is business expenditure. He further referred to the decision of the coordinate bench wherein the specific direction was given that if the assessee proves that the above expenditure has been incurred by the assessee with evidence that same should be allowed . He stated that assessee has fulfilled the direction of the coordinate bench and based on that the Ld. CIT – A has allowed the above claim. With respect to the disallowance under section 14 A of the income tax act he submitted that when the AO has not recorded any satisfaction with respect to the claim of the assessee the disallowance under section 14 A cannot be made. In view of this he submitted that the order of the Ld. CIT – A may be found.
We have carefully considered the rival contentions as well as perused the orders of the lower authorities. We have also perused the order of the coordinate bench.
Ground No. 1 of the appeal of the revenue is general in nature and therefore it is dismissed.
Coming to the 2nd ground of appeal wherein the revenue is aggrieved with 9. the direction of the Ld. CIT that the sale of scrap should be adjusted against the written down value of the block of asset is concerned, assessee has submitted that scrap sale of these 1.50 crore is sale of scrap M/s IB enterprises which is only a sale of scrap and reduced from the written down value of respective block of assets and accordingly claimed lower depreciation as per the income tax act. The assessee’s claim before the Ld. AO that there was a hotel under massive repairs at that time and some of the scrap sale is related to the building. It was further mentioned that assessee itself has shown scrap sale and reduced it from the written down value of the assets. However, the Ld. assessing officer noted that in some of the scrap is sold by the assessee to un organized sector is shown as miscellaneous income. This scrap is also related to the same activity and therefore it should be considered as income of the assessee separately. In fact, the scrap was sold by the assessee to M/s IB enterprises and not to on organized sector. There is no evidence available with the revenue that the scrap sold by the assessee which is credited to the miscellaneous income account in the profit and loss and this scrap are related to the same transaction or similar transaction. The Ld. AO did not even examine the person who bought the scrap. The Ld. CIT – A has held that the above sale of scrap is related to the building, which is accepted by the Ld. assessing officer therefore, there is no reason in absence of any other evidence not to grant the same as credit against the returned down value of the assets.
Even otherwise, the assessee has been granted less depreciation with respect to the above addition. The Ld. departmental representative could not controvert the fact that during the year the major repairs and renovation work was going on in the hotel of which the scrap is stated to be by the assessee. In view of this we do not find any infirmity in the order of the Ld. CIT – A in considering that the scrap sale of Rs. 1.02 crores to be adjusted against the written down value of the assets. In the result ground No. 2 of the appeal of the revenue is dismissed.
Coming to the third ground of appeal with respect to the deletion of disallowance of Rs. 1.12 crores on account of loan processing fees.
Assessee submitted before the assessing officer that the loan of Rs. 8 9.5 crores was taken for the business purposes in an ongoing business as huge room nights were operational during the impugned period. The Ld. assessing officer issued notice under section 133 (6) of the income tax act to the branch manager of state bank of India, corporate accounts group branch, New Delhi asking it to furnish the amount of loan processing fees charged by them for term loan. In response, The bank also confirmed that assessee has paid on 27/11/2006 loan processing fee toward sanction of loan of Rs. 90 crores and the processing fee was charged of Rs. 1.12 crores. However, the Ld. assessing officer was of the view that assessee failed to correlate the use of loan for which this loan- processing fee below was paid, therefore he disallowed the same. On appeal before the Ld. CIT – A he deleted the disallowance.
The Ld. departmental representative relied upon the order of the Ld. assessing officer whereas the Ld. authorized representative relied upon the order of the Ld. CIT – A.
We have carefully considered the rival contentions and perused the order of the lower authorities. In the present case, the assessee has undisputedly paid the amount of Rs. 1.12 crores as a loan-processing fee to state bank of India for obtaining a term loan of Rs. 90 crores for the purpose of the business of the appellant. The revenue did not show it at any time that this sum of Rs. 90 crores has not been used for the purposes of the business by the assessee. The assessee produced the enough evidence before the Ld. assessing officer about the claim of the above expenditure. The Ld. AO further enquired under section 133 (6) of the income tax act with the bankers who also confirmed the payment of the above sum. The bank has also confirmed that the loan has been paid to the assessee as term loan. In view of this we do not find any infirmity in the order of the Ld. CIT – A in deleting the disallowance of Rs. 1.12 crores on account of loan processing fees. Accordingly, ground No. 3 of the appeal of the revenue is dismissed.
Ground No. 4 is with respect to the disallowance under section 14 A of the income tax act. In the original assessment order the AO disallowed 5% of other expenditure on estimate basis after observing that no disallowance towards interest is called for since he did not claim any interest on borrowed capital utilized for such investment as against Rs. 7, 74, 813/– worked out is disallowable by the appellant. In the revised return assessee restricted it to Rs. 3, 95, 682/–. The Ld. assessing officer estimated 2% of other expenditure and made a disallowance of Rs. 1 0, 55, 863/–. The Ld. CIT appeal deleted the above addition as Ld. AO failed to record any satisfaction with respect to the claim of the assessee for on the disallowance made by assessee Suo Moto.
The Ld. departmental representative relied upon the order of the Ld. assessing officer and the Ld. authorized representative submitted that in absence of any satisfaction recorded by the Ld. C AO the disallowance under section 14 A of the income tax act cannot be made.
We have carefully considered the rival contention and the orders of the lower authorities. Apparently in this case the assessee has offered certain disallowances under section 14 A of the income tax act. The AO did not recorded any satisfaction with respect to the correctness of the claim of the assessee after examining the books of accounts but straightway proceeded to disallow 2% of the other expenditure without any basis. The Ld. departmental representative could not controvert the order of the Ld. CIT – A about the non-recording of satisfaction by the Ld. AO. In absence of any satisfaction recorded by the AO, we do not find any infirmity in the order of the Ld. CIT – A in deleting the disallowance under section 14 A of the income tax act of Rs. 1055863/-. In the result ground No. 4 of the appeal of the revenue is dismissed.
In the result, appeal of the revenue is dismissed.
Order pronounced in the open court on 20/06/2018.