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Facts
The assessee appealed against additions made by the ACIT and sustained by the CIT(A) for AY 2016-17. The primary issues were the disallowance of brokerage expenses of Rs. 26 lakhs under section 69C, disallowance of sundry balances written off of Rs. 55.99 lakhs, and disallowance of interest payments of Rs. 4.98 lakhs and Rs. 14.95 lakhs on loans, which the AO deemed bogus based on past assessment years.
Held
The Tribunal remanded the issue of brokerage expenses to the AO for fresh adjudication, instructing to admit additional evidence. It deleted the disallowance of sundry balances written off, noting that the assessee had already disallowed it in the income tax return, preventing double taxation. The disallowance of interest payment to Kriti Trackon Pvt. Ltd. was deleted as the AO's basis for finding the loan bogus in a previous AY was factually incorrect. Similarly, disallowance of interest payments to Glorious Holdings, Kallol Kutir, and New KMS Finance was deleted as prior ITAT orders had reversed the underlying loan disallowances for AY 2013-14.
Key Issues
1. Whether disallowance of brokerage expenses under section 69C was justified without proper inquiry or admission of evidence. 2. Whether disallowance of sundry balances written off amounted to double taxation when already self-disallowed by the assessee. 3. Whether disallowance of interest expenses was valid if the underlying loans were not bogus or had been accepted by ITAT in prior assessment years.
Sections Cited
143(3), 69C, 115BBE, 194J, 194H, 133(6), 131, 37, 139, 68
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Income Tax Appellate Tribunal, DELHI BENCHES : H : NEW DELHI
Before: SHRI G.S. PANNU, HON’BLE & SHRI ANUBHAV SHARMA
ORDER
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 09.09.2019 of the Commissioner of Income Tax (Appeals)-9, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in Appeal No.10446/18-19, A.Y.2016-17 arising out of the appeal before it against the order dated 29.12.2018 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), by the ACIT, Circle-27(2), Delhi (hereinafter referred to as the Ld. AO).
Heard and perused the record. At the time of hearing Ld. AR has submitted that ground no. 3.3 to 5 are not pressed. The same also stands mentioned in the written submissions filed at conclusion of hearing. The ground no. 1 to 3.1 are primarily arising out of part relief given to appellant by the CIT(A), while sustaining following addition; (i) Sundry balances written off of Rs. 55,99,628/- (ii) Brokerage expenses of Rs. 26,00,000/- (iii) Interest of Rs. 19,94,520/-
As with regard to Brokerage expenses of Rs. 26,00,000/- it is submitted that during the year under consideration, the appellant company has sold an immovable property located at The Capital Court, Plot No. M.S. 1, LSC Munirka Phase III, New Delhi for a total consideration of Rs. 12,30,00,000/. Against the said sale of immovable property, the appellant company has booked commission expense of Rs. 26,00,000/- against following parties:
Name of the Party PAN Amount (In Rs.) Shweta Garg BTFPG4554M Rs. 9,00,000/- Sumitra Garg AAFPD9440E Rs. 8,00,000/- Anushka Garg BPGPG8047F Rs. 9,00,000/- Total Rs. 26,00,000/- 2 3.1 Ld. AR has submitted that during the course of assessment proceedings, the appellant company has filed following documents before the Ld. AO i.e. * Details of parties to whom commission expense has been paid; * Copy of Ledger account of Brokerage Expenses; * Copy of invoices raised by respective parties; * Copy of Challan of TDS w.r.t. TDS deduction on Brokerage Expenses.
3.2 Ld. AR has submitted that apart from the above, the appellant company has also tried to make submission of the bank statement evidencing the payment made to above mentioned parties vide submission dated 25.12.2019 however, since the E-filing portal was closed by AO, appellant could not submit such document to the file of Ld. AO. Further, the appellant tried to submit such document before Ld. CIT(A) during appellate proceedings as additional evidence, however, Ld. CIT(A) rejected the same, hence such document could not be filed.
3.3 As we appreciate the facts and submissions we find that LTCG claim is allowed but the AO has considered the said commission expenses of Rs.26,00,000/- as Bogus and disallowed the same u/s 69C of Income Tax Act, 1961 stating as under: "4.3.2 Vide reply dated 20.12.2018 the assessee has submitted a copy of the invoices raised by the parties and a copy of challan of Rs. 4,93,750/- for payment made under 194J. However, the assessee has not filed copies of ITR or confirmation from the parties. Regarding proof of payment no documentary evidence in the form of bank 3 statement etc has been filed. Further, on perusal of the challan filed by the assessee it is seen that payment has been made u/s 194J for technical services and not 194H for brokerage and commission. Even the amount does not correspond to the amount claimed to have been deducted. Further, the name of the deductee is not reflected in the challan and no other document have been filed to show that payments have been actually made. In view of this, vide show cause dated 21.12.2018 the assessee was requested to show cause why the brokerage paid amounting to Rs. 26,00,000/- should not be added back to the income of the assessee company u/s 69C r.w.s 115BBE of the Income Tax Act, 1961." 3.4 Here there is substance in the contention of Ld. AR that deduction of TDS u/s 194.J instead of 194H makes no difference as the rate of TDS u/s 194J is 10% whereas rate of TDS u/s 194H is 5%, hence deducting TDS u/s 194J of the Act cannot be considered adverse against the appellant company.
3.5 Further, we find that the AO has made addition of Rs. 26,00,000/- mainly on ground that the appellant company could not file certain documents. AO has not justified as to why to rebut the evidences of asseesse he was not inclined to send notices u/s 133(6) or summon u/s 131 of the ACT to the respective parties for obtaining the required details / confirmations/ITR etc as may be required by the Ld. AO 3.6 It then comes up that when assessee had tried to file the same before the CIT(A) same as additional evidences, the same was rejected. We have gone through the reasons recorded for rejecting the additional evidence and are of view that CTI(A) has failed to appreciate the nature of additions and the fact that assessee did file relevant evidences due to less time given in show cause 4 other evidences could not be filed. This deficit found by the AO, was attempted to be made good by assessee before CIT(A), but was denied. We consider it an appropriate case to let assessee make good the deficit. The additional evidence filed by the assessee shall be admitted by the AO and after taking same into consideration or any further enquiry at his discretion, make a fresh adjudication on this issue.
Next issue concerns that addition sustained by him of Rs.55,99,628/- on account of Sundry Balances Written Off. Ld. AR has submitted that during the year under consideration, the appellant company has written off balances of various parties to the extent of Rs. 55,99,628/- which were outstanding in books of accounts of the appellant company since many year. As per Ld. AR the appellant company has duly recorded such writing off in its audited books of accounts under "Note 22 - Administrative and Other Expenses" as "Sundry Balances Written Off". Further, the appellant company has duly disallowed the said sum of Rs.55,99,628/- u/s 37 of the Act and added back to its income for the year under consideration. Copy of computation of Income and Income tax return for AY 2016-17 is filed in the PB. Same could not be disputed by Ld. DR. 4.1 We are of considered view that since the amount has already been disallowed by the appellant company in its return of income filed u/s 139 of of the Act, further disallowance of same amount by AO leads to double taxation. 5 CIT(A) during appellate proceedings has failed to not considered the same citing the reason that additional evidence has already been rejected. We are of agreement with Ld. AR that the computation of income along with return of income cannot be said to be "Additional evidence". The same was submitted by the appellant company to the AO in its submission dated 28th Oct 2018. Thus for the purpose of verification of the "Sundry Balances Written Off", the issue is restored to files of AO.
In regard to the third issue it can be seen that during the year under consideration, the appellant company has made an interest payment of Rs.4,98,630/- to M/s Kriti Trackon Private Limited. The AO has disallowed the expense of interest payment by stating as under: "4.4.3 In the course of assessment proceedings u/s 143(3) for A.Y 2013-14, the loans from the above mentioned parties have been found to be bogus and were added back to the income of the assessee u/s 68 of the income tax Act. The addition made in the assessment order for A.Y 2013-14 has been confirmed by the Ld. CIT(A) vide order dated 20.09.2018."
5.1 Ld. AR has submitted that the AO had failed to appreciate that AO had not disputed the genuineness of the sums borrowed by the assessee in the preceding year from M/s Kriti Trackon Private Limited of Rs.1,50,00,000/-, on which Rs.4,98,630/- had been paid as interest. The genuineness of loans having not been disputed and as such the AO could not have disallowed the interest paid of Rs.4,98,630/-.
5.2 It comes up that the amount of Loan of Rs.1,50,00,000/- was taken from M/s Kriti Trackon Private Limited in AY 2014-15 and not in AY 2013-14. The interest paid during AY 2014-15 was Rs.23,27,671/- was duly allowed by the Ld. AO as established by the assessment order AY 2014-15 made available at page no 139 of the PB. In fact no disallowance has been made in Y 2013-14 by concerned AO against the loan taken from above mentioned party i.e. M/s Kriti Trackon Private Limited as per the Assessment order for AY 2013-14. The copy of same available at page no. 145 of the PB shows there was dispute of loans received from three different parties and not from M/s Kriti Trackon Private Limited. Thus we are of the view that the observation of the AO that loan from M/s Kriti Trackon Private Limited have been found to be bogus in assessment of A Y 2013-14 is factually incorrect. Accordingly addition made of Rs.4,98,630/- deserves to be deleted.
5.3 Accordingly ground no. 1 to 3.1 stand allowed with consequences to follow as per the directions above.
Ground no. 3.2 arises out of disallowance of interest of Rs.14,95,890/, paid on loans disallowed in earlier years. Ld. AR has submitted that CIT(A) has failed to appreciate that the aforesaid sum of interest had been paid on the sums borrowed in the preceding year which loan though had been disallowed by the AO, but were allowed by the ITAT.
6.1 In this regard it comes up that during the year under consideration, the appellant company has made an interest payment of Rs.14,95,890/- to various parties, details of which is as under:
Party Name Initial Loan Year in which Interest Paid Amount Loan Taken during AY 2016 - 17 Glorious Holdings Pvt Ltd. 1,50,00,000/- AY 2013-14 Rs. 4,98,630/- Kallol Kutir Pvt Ltd 1,50,00,000/- AY 2013-14 Rs. 4,98,630/- New KMS Finance Pvt Ltd 1,50,00,000/- AY 2013-14 Rs. 4,98,630/- Total 4,50,00,000/- Rs. 14,95,890/- 6.2 The AO has made the disallowed the expense of interest payment of Rs. 14,95,890/- stating as under: "4.4.3 In the course of assessment proceedings u/s 143(3) for A.Y 2013-14, the loans from the above mentioned parties have been found to be bogus and were added back to the income of the assessee u/s 68 of the income tax Act. The addition made in the assessment order for A.Y 2013-14 has been confirmed by the Ld. CIT(A) vide order dated 20.09.2018."
6.3 Now as a matter of fact the amount of Rs.4,50,00,000/- w.r.t. loan taken from above mentioned 3 parties was disallowed during the assessment proceedings for AY 2013-14 but ITAT, Delhi Bench vide order dated 03 June 2019, in has deleted the addition of Rs. 4,50,00,000/- w.r.t. above mentioned parties u/s 68 of the Act. In fact he similar disallowance of interest expense w.r.t. above three parties have also been made in AY 2014- 15 wherein interest expense of Rs.71,80,275/- has been booked by the appellant company on the same basis that the loan taken in AY 2013-14 has been considered as bogus. The Co-ordinate Bench vide order dated 03.06.2019 in ITA No:-7168/Del/2018 has reversed the order of AO.
6.4 This fact has been duly brought to the knowledge of CIT (A) during the appellate proceedings but for no justification CIT (A) ignored the submission. In view of the above, as the only basis for disallowing the interest expense of Rs.14,95,890/- by Ld. AO was that the loan taken from such parties has already been disallowed in assessment of AY 2013-14 does not stand good after order of ITAT, Delhi vide order dated 03rd June 2019. The ground no. 3.1 is allowed and the addition is deleted.