M/S PEARL DEINKS LTD.,NEW DELHI vs. ITO, NEW DELHI

The Ld. Counsel also drawn our attention to operative Para 2-4 of the impugned order of CIT(A) and contended that merely because notice u/s 133(6) was not responded on account of shifting of page from earlier place is not a legally tenable ground for making disallowance. The Ld. Counsel vehemently pointed out that lack of funds for business purpose and income of very low amount in the hands of the assessee cannot be a basis for making disallowance and addition in regard to advertisement and publicity expenses genuinely incurred on the assessee by making payment through banking channels thus claim should be allowed and addition may finding by deleted. To support above contentions the Ld. Counsel has placed reliance on the following orders of the Tribunal & Hon’ble Gujrat High Court:-

Replying to the above, the Ld. Departmental Representative (DR) strongly supported the action of the A.O and contended that the CIT(A) after proper appreciation of facts upheld the order of the A.O on this issue which requires no interference.

On careful consideration of above in the present case the A.O dismissed claim of the assessee by merely observing that the notice issued u/s 133 (6) of the Act could not be served on the payee (M/s Images) as it left the premises. The CIT(A) proceeded to confirm the same by observing that no payment has been made up to 3rd July 2006 and all the payments have been made on two dates i.e on 5/8/2006 through 13 cheques of around figure of Rs.4,00,000/- each. The CIT(A) further observed, from the copy of the FIR of payee, that a sum of Rs.137,391/- has been shown as income from 7 firms. The CIT(A) also alleged that the balance sheet and P & L A/c of payee have been submitted and only Rs.25,224/- has been shown as income from the Firm Vision and M/s Images. The CIT(A) also alleged that only a small sum of Rs.43,557/- has been shown undue the head cash and bank balances which clearly shown that it did not have any source for incurring huge expenses on salary material consumed etc from its own pocket and there are discrepancies in the TDS claim placed by Shri Rajender Kumar, the proprietor of payee firm. After observing above, the CIT(A) upheld the disallowance by concluding that Mr. Rajendera Kumar has been used as a conduit for providing fake bills of various expenses in the various fields.

In our considered view the allegations labeled against the payee cannot be held as sustainable and acceptable for making do allowance without bringing on any cogent evidence or allegation to show that the assessee shifted funds in the garb of fake bills by using Mr. Rajendra Kumar as conduit for making false claim. It is also not case of the CIT(A) that Mr. Rajendra Kumar and his payee firm is not in the business of advertisement and publicity and these bills are bogus and the assessee received the impugned amount of payment make from Mr. Rajendra Kumar and thus it is not allowable. We may point out that the lack of financial resources for conduct of business and major income or low income by the payee cannot be a basis for making disallowance as to basis of doubt only. The payee is a tax payer and if he left the earlier place of business then he may be called from new address to explain his position and in the extent of return of notice unserved on the old address can be obtained from the payer assessee to establish its claim. We are of the considered opinion that the CIT(A) upheld the addition on wrong premise and by considering the irrelevant facts and thus we decline to accept conclusion drawn in the first appellate order. At the same time, from the explanation and documents filed by the assessee we clearly observe that the assessee submitted all relevant documents, evidence and explanation within his control to establish its claim and by showing that the payee M/s Vision and Images received payment through banking channels towards bills raised for logo and wall painting which is nothing but actual advertisement and publics expenses. The DR did not take the assessee to submit new address of the payee thus addition cannot be made only because notice u/s 133(b) of the Act could not be served upon the assessee due the reasons beyond control. We may also point out that 10 years have been elapsed after transaction thus at this stage we cannot expect the assessee to submit more evidence s to support its claim which is suffice to establish genuineness of the claim which was incorrectly disallowed by the authorities , in view of above discussion, we demolish the conclusion of the CIT(A) and we direct the A.O to allow the claim of the assessee. Accordingly, Ground No. 2(a) is allowed.

We have heard arguments of both sides on the issue of disallowance of Rs.25,136/- representing the amount of interest paid by the assessee to M/s GE Capital TFL (H on hire purchase.

On careful consideration of the same we are of the considered opinion that as per CBDT, vide Instruction NO. 1425/CBDT dated 16/11/87 the amount of payment of interest are hire purchases cannot be characterized as interest payable and this provisions of Section 194A of the Act are not attracted in such transactions. Accordingly, we accept contentions of the Ld. Counsel of the assessee and there from, Ground No. 3 of the assessee is also allowed.

In the result, appeal of the assessee is allowed on both the counts.