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आदेश/Order
Per Sanjay Garg, Judicial Member:
The captioned are the appeal preferred by the Revenue and Cross Objections by the assessee against the order dated 8.7.2016 of the Commissioner of Income Tax (Appeals)-3, Ludhiana [hereinafter referred to as CIT(A)].
The Revenue has taken following grounds of appeal:-
ITA No. 1018/Chd/2016 & C.O.No.38/Chd/2016- M/s Public Clothing (P) Ltd, Ludhiana 2
Whether on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) was justified in deleting the addition of Rs. 2,40,671/- by ignoring the fact that the case of assessee is neither covered by the exceptions given in Rule 6DD of the Income Tax Rules, 1962 nor it could have made a case of business expediency before the Assessing Officer 2. Whether on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) was justified in deleting the addition of Rs. 8,20,000/- made by the Assessing Officer under section 68 of the Income-tax Act, 1961 by ignoring the fact that the source, genuineness and creditworthiness of the lender was never proved before the Assessing Officer; especially when the amount of loan given to the assessee company did not belong to the lender and this fact is clearly admitted by the assessee
Whether on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) was justified in deleting the addition of Rs. 38,000/- in the absence of the any documentary evidence from M/s. City Leaves Media Event Pvt. Ltd. which could prove that the expenditure claimed by the assessee of Rs. 38,000/- has actually belonged to the assessee company.
Whether on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) was justified in deleting the disallowance of Rs. 17,22,359/- made by the Assessing Officer u/s 36(l)(iii) w.r.t investment made in Parsvanath Developers Limited
Whether on the facts & circumstances of the case, the Ld. CIT(A) was justified in restricting the disallowance to 4% after excluding financial expenditure, instead of 10% made by the Assessing Officer especially when the assessee has not produced books of accounts before the Assessing Officer.
That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off
Ground No.1 : Ground 1 is regarding the action of the CIT(A) in
deleting the disallowance made by the Assessing officer u/s 40A(3) of the
Income-tax Act, 1961 (in short 'the Act'). Brief facts are that during the
assessment proceedings the Assessing officer noticed that assessee had
ITA No. 1018/Chd/2016 & C.O.No.38/Chd/2016- M/s Public Clothing (P) Ltd, Ludhiana 3
made certain payments in cash exceeding the prescribed limit of Rs.
20,000/- . He, therefore, invoked the provisions of section 40A(3) of the
Act and made the impugned disallowance. Before the CIT(A), the assessee
pleaded that the aforesaid payments were made out of business expediency
and further that genuineness of the expenditure was not doubted by the
Assessing officer. The Ld. CIT(A) while relying upon the decision of the
Hon'ble Jurisdictional High Court in the case of ‘Gurdas Garg vs CIT’
reported in 63 Taxman.com 289 deleted the impugned additions and
observed that since there was no doubt as to the genuineness of the
payments and payments were made during the regular course of business,
and further that the purpose of the provisions of section 40A(3) was to
check the unaccounted / non-genuine payments, he accordingly deleted the
impugned disallowance.
Before us, the Ld. DR has submitted that the judgement arrived at in
the case of Jurisdictional High Court in ‘Gurdas Garg vs CIT’ (supra) has
now been recalled by the Hon'ble High Court and the matter has been fixed
for adjudication afresh. However, the Ld. Counsel for the assessee has
submitted that, even otherwise, the payments were made out of business
expediency and, hence, considering the exceptions as provided under Rule
6DD of the Income Tax Rules, no disallowance was warranted. He has
invited our attention to the para 3.2 of the impugned order of the CIT(A),
wherein, all the payments have been mentioned in a chart and eight
instances of payments in cash amounting to more than Rs. 20,000/- has
been mentioned from serial number (a) to (h).
ITA No. 1018/Chd/2016 & C.O.No.38/Chd/2016- M/s Public Clothing (P) Ltd, Ludhiana 4
The Ld. Counsel for the assessee has further submitted that so far as
payment mentioned at S.No. (b) and (d) are concerned, these were directly
deposited into the bank account of the parties. He has, further invited our
attention to the payment mentioned at Sr. Nos. (a), (b) and (c) to show
that these payments were on account of electric repair expenses / computer
repair expenses and further pleaded that these type of repairs are needed on
urgent basis and generally the mechanics / service providers insisted on
immediate cash payments. However, no specific details have been
provided to us so far the payments mentioned at Sr. Nos. (e) to (h) are
concerned. Though, the payments mentioned at Sr. Nos. (g) & (h) are also
on account of repairs but the specific details as to what type of repairs
were got done for which the aforesaid payments were incurred has not been
given. In view our discussion made above, we are of the view that since
the payments mentioned at Sr. Nos. (b) and (d) were in the bank account
of the respective parties and further the payments from mentioned at
Nos. (a), (b) and (c) were on account of business expediency, hence, the
disallowance u/s 40A(3) of the Act in respects of payments mentioned at
S. Nos. (a), (b), (c) & (d), we find no infirmity in the order of the CIT(A).
However, in respect of payments mentioned at Sr.Nos. (e), (f), (g) and (h),
since business expediency in respect of these payment has not been proved,
the order of the CIT(A) in respect of these payments is set aside and the
disallowance made by the Assessing officer is confirmed.
ITA No. 1018/Chd/2016 & C.O.No.38/Chd/2016- M/s Public Clothing (P) Ltd, Ludhiana 5
Ground No.2 Vide ground No.2, the Revenue has agitated the
action of the CIT(A) in deleting the addition of Rs. 8,20,000/- made by the
Assessing officer u/s 68 of the Act.
The Assessing officer observed that during the year under
consideration, an amount of Rs. 8,20,000/- shown to have been received by
the assessee from Ms. Bhavini Modi. Since the assessee could not prove
the creditworthiness of the Ms. Bhavini Modi, hence, the Assessing officer
made the impugned disallowance. Before the Ld. CIT(A), it was
submitted that Ms. Bhavini Modi was minor. The aforesaid payment was
deposited through banking channel in her account by her family members
namely Mr. K.K. Modi, Mr. Harsh Modi and Ms. Anuradha Modi. The
assessee also submitted the ITRs of the aforesaid family members of the
Ms. Bhavini Modi and also the bank account Ms Bhavini Modi , wherein,
the payments found deposited through banking channel. The Ld. CIT(A)
called upon the remand report from the Assessing officer in this respect
and after considering the remand report as well as submissions of the
assessee, he observed that the assessee had proved the creditworthiness of
the payee Ms. Bhavini Modi, and accordingly made the impugned
addition.
After considering the rival submissions of the parties, we do not find
any reason to interfere in the order of the CIT(A) and the order of the
CIT(A) on ground No.2 is upheld.
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Ground No.3 : This ground is in relation to the disallowance of Rs.
38,000/- on account of business promotion expenses. The aforesaid
payment of Rs. 38,000/- was allegedly paid by the assessee to M/s Citi
Leaves Media Events (P) Ltd for business promotion expenses. The Ld.
CIT(A) after considering the submissions of the assessee and looking at the
meager sum of the amount claimed as business promotion expenses, has
deleted the additions made by the Assessing officer.
After hearing the Ld. reprehensive of the parties, we do not find any
infirmity in the order of the CIT(A) on this issue also.
Ground No.4 : Vide this ground the Revenue has agitated the action
of the CIT(A) in deleting the disallowance of Rs. 17,22,359/- made by the
Assessing officer u/s 36(1)(iii)of the Act.
At the outset, Ld. Counsel for the assessee has submitted that
admittedly the assessee had raised loans from Axis bank and had paid the
interest upon the said amount but the said interest expenditure had never
been claimed by the assessee as ‘business expenditure,’ rather, the same
was capitalized. The Ld. DR has also admitted this fact.
In view of this, since the assessee himself has not claimed the
aforesaid amount as Revenue expenditure , hence, there was no question of
any disallowance of the same. There is no infirmity in the order of the
CIT(A) in respect of this issue also.
ITA No. 1018/Chd/2016 & C.O.No.38/Chd/2016- M/s Public Clothing (P) Ltd, Ludhiana 7
Ground No.5. In ground No.5, the Revenue has agitated the action
of the CIT(A) in restricting the disallowance to 4% of the overall
expenditure on adhoc basis as against 10% made by the Assessing officer,
whereas, the assessee in ground No.3 of its Cross objections has agitated
the action of the CIT(A) in confirming the disallowance to 4%. The plea
of the assessee is that no disallowance is warranted on this issue. The
Assessing officer made the impugned disallowance observing that the
assessee had failed to produce the books of account, bills and documents
to substantiate the expenditure claimed. The Ld. CIT(A) considering the
submissions of the assessee restricted the disallowance on adhoc basis @
4% as against 10% made by the Assessing officer.
Before us, Ld. Counsel for the assessee has submitted that the
genuineness of each of the expenditure was otherwise examined by the
Assessing officer specifically and certain disallowances were made out of
expenses claimed. That once Assessing officer had examined the individual
details and made specific disallowances, there was no question of further
making the disallowance on adhoc basis. He has further submitted that
even otherwise certain expenditure was in the nature of statutory
expenditure and need not any production of bills / vouchers such as
depreciation etc. He has further submitted that even in respect of certain
items of administrative and other expenditure, disallowance of interest
expenditure and of foreign travelling expenditure were specifically made
by the Assessing officer. Even the book results declared by the assessee
were accepted by the Assessing officer, therefore, no adhoc disallowance
ITA No. 1018/Chd/2016 & C.O.No.38/Chd/2016- M/s Public Clothing (P) Ltd, Ludhiana 8
was warranted in respect of purchase and sales etc. It has been further
pointed out that in respect of financial expenses, since the same were paid
directly to the bank and there was no question of any bogus claim, the
claim regarding to which has already been allowed by the CIT(A),
therefore, the amount claimed on financial expenditure has already been
excluded from adhoc disallowance.
The Ld. DR On the other hand has relied upon the findings of the
Assessing officer.
Considering the submission of both the Ld. Representatives of the
parties, we are of the view, that no disallowance is to be made in respect of
the depreciation and financial expenses. So far as the remaining
expenditure is concerned, the Ld. Counsel for the assessee has submitted
that the Assessing officer had made disallowance of certain specific
expenditure, therefore, further adhoc disallowance was not warranted.
However, the Ld. DR, on the other hand, has submitted that even many
items could not be scrutinized by the Assessing officer for want of bills /
vouchers.
Considering the above facts on the file and also considering that the
Assessing officer has examined the items of the expenditure separately and
had made certain disallowance item wise, we do not find any justification
on the part of the lower authorities in making the further disallowance on
adhoc basis.
ITA No. 1018/Chd/2016 & C.O.No.38/Chd/2016- M/s Public Clothing (P) Ltd, Ludhiana 9
In view of this, we do not find any justification on the part of the
lower authorities on making the adhoc disallowance on this issue. Ground
No.5 of the appeal of the Revenue is, therefore, dismissed, whereas, the
Ground No. 3 of the assessee Cross objections on this issue is allowed.
Now coming to the remaining grounds of the Cross Objections
(C.O. No. 38/Chd/2016)of the assessee.
Ground No.1 is regarding disallowance on foreign travel expenditure 18.
amounting to Rs. 7,01,080/- The Ld. CIT(A) confirmed the disallowance
observing that the assessee had failed to show business expediency for trip
to USA and Indonasia.
Before us, Ld. Counsel for the assessee could not furnish the
relevant evidence showing any business expediency for the aforesaid
foreign travel.
In view of this, we do not find any infirmity in the order of the
CIT(A) on this issue. This ground of the Cross objection is accordingly
dismissed.
Ground No. 2 : In ground No.2, the assessee has agitated the action
of the CIT(A) in confirming the addition of proportionate interest @ 12%
on the interest free advances made by the assessee to M/s Rai Packaging
(P) Ltd. There are twofold submissions of the Ld. Counsel for the
assessee. Firstly, that the aforesaid advance were made out of the business
ITA No. 1018/Chd/2016 & C.O.No.38/Chd/2016- M/s Public Clothing (P) Ltd, Ludhiana 10
expediency and further that there was a running account of the assessee
with the aforesaid company M/s Rai Packaging (P) Ltd. The second limb
of the submissions is that, even otherwise, if it is assumed that there was
no business expediency for making the aforesaid advances, the assessee
was possessed of sufficient own funds to meet the aforesaid advances. The
Ld. Counsel has demonstrated before us that the share capital of the
assessee was to the tune of Rs. 2.36 crores and reserves to the tune of Rs.
2.43 cores and the assessee even earned profits during the year of Rs. 42
lacs which shows that the assessee during the year was possessed of
sufficient funds to meet the investment of Rs. 39 lacs.
In view of this, there is no justification in making the impugned
disallowance. This ground of the Cross objection is thereby is allowed and
disallowance made on this issue is ordered to be deleted.
No other ground is taken or pressed. In view of this, the cross
objections of the assessee are also treated as partly allowed.
In the result, the appeal of the Revenue as well as cross objections of
the assessee are treated as partly allowed.
Order dictated and pronounced on completion of hearing in the Open Court on 10.12.2018.
Sd/- Sd/-
(अ�नपूणा� गु�ता / ANNAPURNA GUPTA) (संजय गग� / SANJAY GARG) लेखा सद�य/ Accountant Member �या�यक सद�य/ Judicial Member Dated 10.12.2018 “आर.के.”
ITA No. 1018/Chd/2016 & C.O.No.38/Chd/2016- M/s Public Clothing (P) Ltd, Ludhiana 11
आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File
आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar