DCIT, NEW DELHI vs. SH. VIRENDER KUMAR BHATIA, NEW DELHI

The grounds of appeal are as follows:

At the first instance, we will adjudicate the appeal in for the A.Y. 2008-09. The assessee is a proprietor of M/s. Baani International. Notice u/s 143(2) and 142(1) was issued. In revised return of income the assessee claimed expenditure of interest paid to HDFC in profit and loss account of M/s. Baani International relating to receipts of interest from FDR, rental income from M/s Baani Facilities and M/s. XChanging Technology, New Delhi while computing the net profit. While computing the income, the assessee separately worked out income from house property. The Assessing Officer completed the assessment u/s 143(3) making the following addition/disallowances:-

The Ld. DR submitted that the loans borrowed from HDFC were for personal use and there is no satisfactory explanation furnished on this account. Thus, the Assessing Officer has rightly made disallowance u/s 37(1) of the Income Tax Act. The Ld. DR further submitted that as related to advance rent no confirmation was filed from the concerned tenant. Thus, the A.O rightly made an addition to that extent. As regard to expenditure incurred on foreign visits the Ld. DR submitted that these foreign visits are purely personal, therefore, rightly added. Thus, the Ld. DR relied on the order of the Assessing Officer.

The Ld. AR submitted that, as related to interest paid to HDFC Bank, the same is properly explained by the assessee during the assessment proceeding. The Assessing Officer over looked that the assessee has declared interest income of Rs.99,63,610/-. The loan outstanding for HDFC Bank was Rs.36.99 lac which was even less than the capital in the proprietorship concern at Rs.2.32 crores. The borrowed funds have been utilized only for the purpose of business and income derived thereon has been duly declared by the assessee. The Ld. AR relied on the order of the Hon’ble Bombay High Court in case of CIT Vs. Shristi Security Pvt. Ltd. 226 CTR (Bombay) 551 wherein it was held that if the funds are borrowed funds would be deductable u/s 36(1) (iii) irrespective of whether such shares are held as investment or as stock in trade or for the purpose of controlling interest in other companies. The Ld. AR submitted that it is not a case where the interest bearing fund have been utilized for making interest free advances. The assessee has earned interest income and has reduced there from the interest paid and the balance amount was declared as income. It was submitted that the advances to group companies are of Rs.9.04 crores where as interest free fund available with the assessee are of Rs.17.20 crores (13.18 crores + Rs.4.02 crores) and as such even the factum of advancement to sisters concern cannot be a ground to disallow the interest though the same were for business purposes. Thus, the Ld. AR submitted that the CIT(A) was right in deleting the additions made by the Assessing Officer on this account. As regards to the issue relating to advance rent, the Ld. AR submitted that the entire details were filed before the Assessing Officer during the assessment proceedings and the rent was assessed to tax in the priod relevant to the Assessment Year 2009-10 & 2010-11. Therefore, the CIT (A) has rightly deleted this addition.

As regards to unexplained expenditure on foreign visits, the Ld. AR submitted that the assessee had undertaken the travel on behalf of the two companies who had incurred the expenditure and the said fact was duly confirmed by the respective companies that M/s Bani Technologies Services Pvt. Ltd. had incurred the expenditure of Rs.1,67,500/-. Likewise, expenses had also been incurred by M/s Mandakni Build and Investment Pvt. Ltd for the travel undertaken by the assessee on behalf of such companies. The Ld. AR submitted that the details of such expenditure were given during the assessment proceedings and, therefore, the finding of the Assessing Officer that no particulars were filed during the assessment proceedings is incorrect. The CIT (A) has taken cognizance to that fact.

We have heard both the parties and perused the material available on the record. In the present case, it is noticed that similar disallowance was made in the earlier year which was deleted by the Ld.CIT(A) vide order dated 30/3/2013 by following judgment of the Hon’ble Jurisdictional High Court in the case of CIT VS. Shridevi Enterprises reported at (1991) 192 ITR 165 wherein it has been held that once an expenditure has been allowed in the initial years, when it was first incurred, the A.O was not permitted to change his stand. In the instant case, the assessee had made the advances to group companies for a sum of Rs.9.04 crores out of which Rs.8.05 crorees was given to the 4 companies detail of which has been given at Page No. 176 of the assessee’s paper book. The assessee had earned interest of Rs.99.63 lacs on the said advances, which was assessed to tax, the remaining advances were only of Rs.99.46 lacs whereas the assessee was having its capital of Rs. 13.18 crores which was sufficient for giving the said advance. In the present case, the assessee had not taken any loan for personal purposes and the loans raised from the HDFC Bank were for the business purposes, in the year under consideration, the loan outstanding from HDFC Bank was of Rs.36.99 lacs which was less than the capital of the assessee. In the instant case, there was no divergence of funds for non business or personal purposes, the borrowed funds were used for the business purposes and income derived from the advances was duly declared as an interest income of Rs.99,63,710/-. We, therefore, considering the totality of the facts as discussed hereinabove are of the considered view that the Ld.CIT(A) rightly deleted the impugned addition.

We are also of the view that it would not be equitable to permit the Reveneu to take a different stand in respect of expenses which were the subject matter of previous year’s assessments. In our opinion, consistency and definiteness of approach by the Revenue is necessary in the matter of recognizing the nature of an account maintained by the assessee so that the basis of a concluded assessment is not ignored without actually reopening the assessment.”

As regards to the addition on account of advance rent, it appears that the A.O made the addition for the reason that the assessee failed to give particulars of receipt of advance rent and as to how it was adjustable against future rent. In the present case, the A.O brought to tax the rent which was accruing to the assessee in the succeeding Assessment Years 2009-10 & 2010-11. The Ld. CIT(A) on perusing the details furnished by the assessee (which had been reproduced in para 3.4.4 of the impugned order) came to the conclusion that the assessee filed complete details before the A.O including the name of the tenant and that the amount had been offered to tax under the head income house property in the Assessment Year 2009-10 & 2010-11. Nothing contrary to the above observation of the Ld.CIT(A) is brought on record. We, therefore, are of the view that the Ld.CIT(A) rightly deleted the addition made by the A.O.

As regards to the other issue relating to foreign trip expenses, it is noticed that those expenses were incurred on behalf of other Companies namely M/s Mandakini Build & Investments Pvt. Ltd. and M/s Bani Technology Services Pvt. Ltd, those companies duly confirmed the said fact and the assessee furnished all the necessary evidence of his foreign visits on behalf of the companies. In our opinion, when the assessee had not incurred any expenditure, the notional addition made by the A.O was not justified. Moreover, when the assessee had not claimed any deduction of expenditure on foreign visit out of his business income then the disallowance made by the A.O was arbitrary. If the A.O had any reason to hold that such foreign visits were without any business expediency, he should have taken up the issue in the assessment proceedings of the other concerned companies who presented the bill. The assessee did not claim any deduction of expenditure on foreign visits out of his business income. It is also not a case of the Assessing Officer that there was any expenditure incurred out of the books of accounts. Therefore, the CIT(A) rightly deleted this addition. We do not see any valid ground to interfere with the findings of the Ld.CIT(A).

In the other appeals of the Department in & 3412/Del/2013 the facts are similar as were involved in ITA No. 3409/Del/2013 (Supra). Therefore, our findings given in the former parts of his order shall apply mutatis mutandis for those appeals.

In the result, the appeals of the revenue are dismissed.