DCIT, CENTRAL CIRCLE - 2(2), KOLKATA, KOLKATA vs. M/S. RESTORE MACHINES INDIA PVT. LTD., KOLKATA

O R D E R

PER S.S.Godara, Judicial Member:

DCIT, CC-2(2), Kol. Vs. M/s Restore Machines India Pvt. Ltd. Page 2 ITAT 100/2014 GA No. 2122 of 2014 dated 11.06.2018 holds that the impugned disallowance provisions does not apply in absence of any exempt income derived in the relevant previous year. We therefore decline the Revenue’s instant former substantive ground on this count alone.

No. 3: Disallowance of ‘employee benefit expenses’ and ‘other expenses’ ₹73,55,524/-.

3. That on the facts and in the circumstances of the case, the Learned. A.O. erred in making disallowance of Rs.73,55,524/- towards alleged ‘unexplained expenses’ 7.1 Assessment order: Unexplained expenses: It is seen from the records that the assessee company belongs to the “Sonthalia Group of Companies: where search assessments u/s. 153A read with section 143(3) of the Income Tax Act, 1961, were completed on 31.-003.2014 by the undersigned. Thus having an in-depth knowledge about the business activities of the company, it is known that all the purchases and sales shown are mostly between group companies operating from the same common premises. The purchases and sales are made through book transactions and no actual business activity has taken place. All “Sonthalia Group of Companies” operate their activities from certain common premises and similar expenses are claimed in all the group companies. In view of the above and inability of the assessee to prove the genuineness of the expenses, the same are disallowed. Hence, “Employee benefit expenses” and “Other expenses” (excluding filing fees, bank charges and Auditor’s remuneration paid) to the tune of Rs.73,55,524/- is disallowed and added back to the total income of the assessee. 7.2 Discussion, and, Decision: The DCIT AO has based his reasons on sound factual reasoning. The Group is indulging in money-laundering/bogus accommodation entries. The fact had been proved by the search and seizure action carried out u/s. 132 on 20.10.2011. Thus in the facts and circumstances – disallowance is warranted. However, I have also gone through the pending appeals against the search assessment orders in the Group case of Enfield Industries Limited for the AYs 2006- 07 to 2012-13; and in all those assessments the disallowance had been at 5-0%. I have confirmed the disallowance at 50%. And in the similar appeal in that case for the same AY 2013-14 [supra], I have in the interest of consistency and fairness (though the appellant does not deserve), restricted the disallowance to 50%. Thus, like-wise here too I restrict the disallowance to 50%, i.e. 50% of 73,55,524/- = ₹36,77,762. This ground of appeal is partly allowed.”