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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)
The appeal of the assessee is directed against the order dated 15.12.2016 passed by Ld CIT(A)-14, Mumbai and it relates to the assessment year 2012-13.
The assessee is engaged in the business of processing and marketing of inorganic non-metallic minerals. The AO completed the assessment of the year under consideration by making various additions and they were all confirmed by Ld CIT(A). Hence the assessee has filed this appeal challenging the order passed by Ld CIT(A).
The first issue relates to the disallowance of interest expenditure u/s 40A(2)(b) of the Act. The AO noticed that the assessee has paid interest to outsiders @ 10.50%, whereas it has paid interest @ 12% and 15% to persons specified in sec. 40A(2)(b). Hence the AO disallowed interest paid in excess of 10.50% and the same was also confirmed by Ld CIT(A).
The Ld A.R submitted that the regulations relating to acceptance of deposits prescribed under the Companies Act permits payment of interest upto
2 The Hindustan Mineral Products Co. Ltd.
12.50%. He also submitted that the rate of interest paid was less than the rate prescribed by State Bank of India on secured term loans. On the contrary, the Ld D.R supported the order passed by Ld CIT(A).
Since it is stated that the Companies (Acceptance of Deposit) rules, 1975 prescribed under the Companies Act authorises payment of interest upto 12.50% during the year under consideration, I am of the view that the payment made by the assessee in excess of 12.50% alone can be treated as excess interest. Accordingly I modify the order passed by Ld CIT(A) on this issue and direct the AO to disallow interest paid in excess of 12.50%.
The next issue relates to the disallowance of membership fee of Rs.9,12,700/- to an association called Young President Organisation. The AO noticed that the assessee has paid 50% of the entrance fees and 100% of annual subscription of the association. The remaining 50% was borne by another group company named M/s Colortek India Ltd. The AO noticed from the application form was given in the name of Shri Prashanth and he has given the name of other companies and did not given the name of assessee company in the said application form. Hence the AO took the view that the expenditure claimed by the assessee pertains to other companies or it may be a personal expenditure. Accordingly he disallowed the above said expenditure. The Ld CIT(A) also confirmed the same.
I heard the parties on this issue. There is no dispute with regard to the fact that Shri Prashanth Girish Choksi is the joint MD of the assessee company. The membership obtained by him would help to expand contacts, enrich knowledge of business, which would facilitate the business of the assessee, since Shri Prashanth is joint MD of the assessee company. Hence I am of the view that the tax authorities are not justified in disallowing the expenses only for the reason that the name of the assessee company is not mentioned in the application form. Since the admission fee was borne by the assessee company @ 50%, I am of the view that the annual membership
3 The Hindustan Mineral Products Co. Ltd. should also be borne at that rate only. Accordingly, I modify the order passed by Ld CIT(A) on this issue and direct the AO to disallow only 50% of the annual membership fee and accordingly allow the remaining amount.
The next issue relates to the disallowance of Rs.24,900/- u/s 40(a)(ia) of the Act. The assessee deducted tax at source at 10% from an interest payment, but did not mention the PAN number in the Annual return. In the absence of PAN, the TDS is required to be deducted at 20%. Since the assessee has deducted tax at a lower rate, the AO disallowed the interest expenditure u/s 40(a)(ia) of the Act. The Ld CIT(A) also confirmed the same.
The Ld A.R submitted that the assessee has since revised the annual return by incorporating the PAN of the payee. In that case, the impugned disallowance is not called for. Hence I set aside this issue to the file of the AO to decide the same afresh by considering the revised annual return filed by the assessee. In any case, the short deduction of TDS would not call for disallowance u/s 40(a)(ia) as per the decision rendered by Hon’ble Kolkatta High Court in the case of CIT Vs. S.K.Tekriwal (361 ITR 432).
The next issue relates to the disallowance of retainership fee of Rs.7,76,981/- paid by the assessee to its ex-employees. The AO disallowed the same for want of evidences to prove the services rendered by them. The Ld CIT(A) also confirmed the same. The contention of the assessee is that the AO did not ask for the relevant details. The Ld A.R submitted that the assessee has deducted TDS u/s 194J of the Act on the payments made.
I heard ld D.R and perused the record. There should not be any doubt that the onus to prove the expenditure claim is placed upon the assessee. There is also merit in the contentions of the assessee that the AO should not have disallowed the claim without calling for relevant details. Accordingly I am of the view that the assessee should be given an opportunity to prove its claim. Accordingly I set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of AO for examining it afresh.
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The next issue relates to the disallowance of legal fee of Rs.50,000/-. The AO noticed that the assessee has paid a sum of Rs.50,000/- as legal fee to M/s Hariani & Co. on 25.02.2011, but claimed the same as deduction during this year. Since the assessee was following mercantile system of accounting and since the assessee could not furnish the details of services rendered by the above said firm, the AO disallowed the above said claim. The Ld CIT(A) also confirmed the same.
The Ld A.R submitted that the assessee had paid the fee in advance in the immediately preceding year, but availed the service only during the year under consideration. However, the submission of the assessee requires verification. Accordingly I set aside the order passed by Ld CIT(A) on this issue and restore this matter to the file of the AO for examining it afresh.
The next issue relates to the disallowance of vehicle expenses and depreciation. The AO disallowed the same for want of evidences, whereas the case of the assessee is that the AO did not call for the same. Under these set of facts, I am of the view that this issue also requires fresh examination. Accordingly I set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of AO for examining it afresh.
The next issue relates to the addition of Rs.63,262/- relating to unreconciled sales with M/s Asian paints ltd. The AO noticed that there is difference between the sales made to M/s Asian Paints ltd and that was confirmed by that party. Hence the AO added the difference and the Ld CIT(A) also confirmed the same. The Ld A.R submitted that the assessee has shown higher sale of Rs.10,57,84,198/- to M/s Asian paints Ltd as against the amount of Rs.10.56,35,377/- confirmed by that party. Since the assessee has shown higher sales, I am of the view that there is merit in the contentions of the assessee that the impugned addition is not called for. Accordingly I set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this disallowance.
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In the result, the appeal of the assessee is treated as partly allowed.
Order has been pronounced in the Court on 27.9.2017.