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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-9, Mumbai [in short CIT(A)], in appeal No. CIT(A)-9/Cir.4/205/2014-15 dated 30.12.2015. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle- 4(1), Mumbai (in short ‘DCIT’) for the A.Y. 2010-11 vide order dated 28.02.2014 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The first issue in this appeal of assessee is as regards to the order of CIT(A) confirming the disallowance made by AO of expenses on adhoc basis. For this assessee has raised the following ground No. 1: -
“1. On the facts and circumstances of the case and in law, the authorities below have erred in disallowing/confirming a sum of Rs. 28,00,000/- from. out of Repairs and Maintenance, Sales promotion, travelling expenses, Conveyance Expenses and Other Expenses aggregating to Rs. 2,80,19,965/- on ad-hoc basis, and the reasons assigned by them were wholly wrong and not in accordance with the provisions of Income Tax Act, 1961 and rules made thereunder.”
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the AO has noted that the assessee has claimed expenses in the profit and loss account on account of the following: -
1) Repairs and maintenance ₹ 12.85 lacs 2) Sales Promotion Exp. ₹ 1.42 lacs 3) Travelling conveyance Motor car exp. ₹ 11.65 lacs 4) Postage and telephone exp. ₹ 2.90 lacs 5) Other expenses ₹ 251.96 lacs
Total ₹ 280.78 lacs The assessee was asked to justify its claim of expenses but assessee could not furnish any details of substantiate its claim of expenses incurred for business and non-business purposes separately. According to AO, there is personal element involved in these expenses and hence, he disallowed on ad hoc basis 10% of the expenses at ₹ 28 lakhs. The CIT(A) also confirmed the action of the AO exactly on similar reasoning. Aggrieved, assessee is in second appeal before Tribunal.
We find from the facts and circumstances of the case that the assessee is engaged in the business of processing of textile fabrics on job work basis. The learned Counsel for the assessee only pointed out that the AO has pointed other expenses of ₹ 251.96 lakhs but according to him, the assessee has never made such claim. He referred to the accounts of the assessee filed in assessee’s paper book containing pages 1 to 14. He particularly referred to the profit and loss account and schedule 11 at page 11 of its paper book and stated that there is no other expense head whereby AO has taken the figure of 251.96 lakhs for making this disallowance. The learned Counsel for the assessee stated that reasonable disallowance can be made. When this fact was pointed out to the learned Sr. Departmental Representative, he after going through the schedule 11 could not point out which is the item that included as other expenses by the AO amounting to ₹ 251.96 lakhs.
We have also gone through the schedule 11 and noted that there is no such expenses as other expensed noted by AO amounting to ₹ 251.96 lakhs. Hence, on this amount no disallowance can be attributed. As regards to these expenses i.e. repair and maintenance, sales permission, travelling conveyance and motor car expenses and postage and telephone expenses the AO has disallowed 10% of the expenses. We are of the view that a reasonable disallowance should be made on account of personal element because 10% is on higher side. Accordingly, we direct the AO to make a reasonable disallowance of 5%. We direct the AO accordingly.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance made by AO of expenses for non- deduction of TDS by invoking the provisions of section 40(a)(ia) of the Act. For this assessee has raised the following ground No. 2:-
“2) On the facts and circumstances of the case and in law, the authorities below have erred in disallowing/confirming a sum of Rs. 2,68,063/- u/s 40(a)(ia) of the IT Act from out of Commission paid and the reasons assigned by them, for doing so, were wholly wrong, irrelevant, and not in accordance with the facts and circumstances of the case and provisions of I T Act and rules made there under.”
At the outset, the learned Counsel for the assessee stated that he has instructions from assessee not to press this ground and accordingly, the same is dismisses as not pressed.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of unexplained cash credit of ₹ 1,90,14,441/- under section 69C of the Act. For this assessee has raised the following ground No. 3:-
“3) On the facts and circumstances of the case and in law, the authorities below have erred in disallowing/confirming a sum of Rs. 1, 90,14,441/- u/s 69C of the I T Act being unexplained cash credit from out of unsecured loans and the reasons assigned by them were wholly wrong and are vehemently denied which are not in accordance with the facts of the case and against the provisions of Income Tax Act and rules made thereunder.”
Brief facts are that the AO noted from the balance sheet of the assessee that the assessee has taken unsecured loan of ₹ 5,90,14,441/-. Before CIT(A), the assessee has contended that the said amount of ₹ 5,90,14,000/- is coming from previous years continuously under the head inter corporate deposits and loans in the balance sheet since 2002. The assessee before CIT(A) filed the details of the same which are as under:-
1) GIC Housing Finance Ltd ₹ 200.00 lacs 2) GIC Ltd ₹200.00 Lacs 3) Interest accrued thereon upto 2002 ₹ 190.14 lacs Total ₹ 590.14 Lacs
The assessee also filed copy of sanctioned letter of GIC housing Finance Ltd and GIC limited to prove its claim. The assessee also filed bifurcation of principal outstanding and interest outstanding. This was also filed before us in assessee’s paper book at pages 12 to 14. The CIT(A) deleted the addition of loan from GIC housing finance Ltd and GIC Limited, subject to verification by observing in Para 4.3 and the relevant Para at pages 29 reads as under:-
“However, as regards Rs.190.14 lacs, it may be seen that this amount is not actual payment by the appellant to the GIC Companies rather as per the letter of Id. AR dated 14/12/2015, the appellant provided interest thereupon upto a certain period. Therefore, these are to be treated as provision of interest towards loan and unless interest are paid in actuality within the relevant Financial Years, the same cannot be allowed as allowable deduction / expenses u/s.37(l). Therefore, in my opinion although this amount of Rs.190.14 lacs may not added u/s.69C of the I T Act, 1961 but this can definitely be disallowed or added back in the relevant assessment years in which appellant provided these interests. Accordingly the AO is directed to verify from the record as to whether this amount was debited in the present assessment year 2011-12 or has been continuously been debited in various assessment years in different installment / different amounts and if the appellant has been debiting the amount of interest provision by spreading in various assessment years, the same will required to be re-opened as per the time limit prescribed by IT Act, 1961. As of now, in the absence of an break up figures regarding R.190.14 lacs, I am constrained to confirm the additions in the form of disallowances as indicated above.”
Further, as regards to the interest on loan amounting to ₹ 190.14 lakhs, the CIT(A) directed the AO to verify from records as to whether this amount has been debited to the present AY or has been continuously debited in various different AYrs. He directed the AO as under:-
“From the details filed by the appellant, it is seen that loan of Rs.2 crores were received from GIC Housing Finance Ltd. and GIC Ltd. each. The AO is directed to go through the old assessment records of the appellant company and verify the truthfulness of the contention of the appellant and unless the same is found to be incorrect, the loan amount of RsA crores (2 crores + 2 crores) cannot be added under the heading 69C because GIC Housing Finance Ltd. and GIC Ltd. are Public Limited Companies and well within Public domain. Therefore, they cannot he labeled as bogus parties. Therefore, subject to verification of the records by the AO, the amount of Rs.4 crores is hereby directed to be deleted.”
Aggrieved, now assessee is in appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the Assessee has obtained this loan of ₹ 4 crores from GIC Housing Finance Ltd. and GIC Ltd., each containing ₹ 2 crores. We find that the CIT(A) has already deleted the addition but subject to verification of record by the AO. Now, before us the learned Counsel stated that the AO has not given any appeal effect to the order of the CIT(A). We direct the AO to give appeal effect to the order of CIT(A) and after verification of records compute the income accordingly. As regards to the interest towards loans, as contended by the learned Counsel for the assessee that this interest has never been claimed and for which bifurcation was filed before us at page 12 of the assessee’s paper book. The learned Counsel also pointed out from the accounts that no such claim of deduction was made and it is only capitalized in the loan account. It seems that the claim of the assessee seems to be correct but let the AO verify the same from records, whether the assessee has made any claim of deduction in respect to this interest of ₹ 190.14 lakhs. The AO will decide after verification. This issue of assessee’s appeal is set aside to the file of the AO.
In the result, the appeal assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 04-04-2018.