ACIT, LUDHIANA vs. M/S PUBLIC CLOTHING (P) LTD., NEW DELHI

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)].

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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.

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).

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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.

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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.

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.

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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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.

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.

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.

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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.

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

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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.

Assessing officer.

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.

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.

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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.

(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.

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.

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

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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.

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