M/S. M.M. INDUSTRIES,NEW DELHI vs. ITO, FARIDABAD

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ITA 1302/DEL/2016Status: DisposedITAT Delhi03 January 2017AY 2007-086 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that additions made on account of notional interest and ad-hoc disallowances for expenses without pointing out discrepancies are not sustainable in law. Grounds related to income from undisclosed sources were not pressed.

What were the facts?

The assessee, engaged in manufacturing abrasive goods, filed its return of income. The Assessing Officer (AO) made additions to the returned income on account of interest on loans, alleged expenses, and income from undisclosed sources. The CIT(A) partly allowed the assessee's appeal.

What were the issues?

Whether additions made on account of notional interest and ad-hoc disallowances for expenses are valid without proper basis and evidence?

Which sections of the Income-tax Act were involved?

Section 143(2),Section 142(1),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH “SMC-3”, NEW DELHI

Before: SHRI H.S. SIDHU

For Appellant: Adv. & Sh

Assessee has filed this Appeal against the impugned Order dated 28.1.2016 passed by the Ld. CIT(A), Faridabad relevant to assessment year 2007-08 on the following grounds:-

1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. in making an addition of Rs.57,498/- out of the total disallowance made by Ld. A.O. of Rs. 2,28,000/- on account of income from interest on loans and advance.

2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action ofLd. AO in making an addition of Rs. 57,498/- is bad in law and against the facts and circumstances of the case.

3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. in making an addition of Rs.54,688/- out of the total disallowance made by Ld. A.O. of Rs.2,73,438/- on account of alleged expenses claimed. 4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making an addition of Rs. 54,688/- is bad in law and against the facts and circumstances of the case. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. in treating an amount of Rs. 8,400/- as income from undisclosed sources by stating incorrect facts and without any basis

6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. in treating an amount of Rs. 43,300/- as income from undisclosed sources by stating incorrect facts and without any basis.

7. That in any case and in any view of the matter action of Ld. CIT(A) in confirming the action of Ld. A.O in making the impugned additions are bad in law and against the facts and circumstances of the case.

8. That the appellant craves the leave to add, alter or amend the grounds of appeal at any stage and all the grounds are without prejudice to each other.

2.

The brief facts of the case are that assessee filed the return of income on 30.10.2007 declaring income of Rs. 1,40,030/-. The case was picked up for scrutiny and Notice u/s. 143(2) was issued and served upon the assessee on 29.9.2008. Thereafter fresh Notices u/s. 143(2) & 142(1) alongwith detailed questionnaire were issued on 13.5.2009. In response to the notice, Assessee’s A.R. attended the proceedings and filed the reply from time to time. The assessee was engaged in the business of manufacturing activities of abrasive goods, mainly coated abrasive. Various details were called which was furnished by the assessee.

Thereafter, the AO vide his order dated 29.12.2009 passed u/s. 143(3) of the I.T. Act, 1961 has assessed the income of the assessee at Rs. 17,43,860/- and made various additions.

3.

Against the order of the Ld. AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 28.1.2016 has partly allowed the appeal of the assessee.

4.

Aggrieved with the impugned order dated 28.1.2016 passed by the Ld. CIT(A), Assessee is in appeal before the Tribunal.

5.

At the threshold, Ld. Counsel of the Assessee stated that he is not pressing the Ground No. 5 & 6, hence, the same are dismissed as not pressed. With regard to other additions, Ld. Counsel of the assessee has stated that the additions in dispute are purely made on adhoc/estimation basis which are not sustainable in the eyes of law. Accordingly, he requested that the additions restricted by the ld. CIT(A) may be deleted.

6.

On the other hand, Ld. DR has heavily relied upon the order of the authorities below.

7.

We have heard both the parties and perused the records.

As regards ground no. 1 & 2 are concerned relating to confirmation of addition of Rs. 57,498/- on account of income from interest on loans and advance. The addition of Rs. 2,28,000/- made by the AO on account of interest free loans given to M/s MM Abrasives. On this issue Ld. CIT(A) has observed that AO has made the additions on account of notional interest. However, there is no provisions under the Income Tax Act wherein the notional interest can be taxed. The addition made by the AO and further restricted by the Ld. CIT(A) is adhoc and without any basis which is not permissible under the law. Hence, the disallowance restricted to Rs. 57,948/- by the Ld. CIT(A) is not sustainable in the eyes of law, therefore, the same is deleted and accordingly, the ground no. 1 & 2 are allowed.

7.1 As regards ground no. 3 & 4 are concerned relating upholding of addition of Rs. 54,688/- on account of alleged excess administrative and selling expenses claimed. The AO made this adhoc addition in the absence of any details being submitted by the assessee during the course of assessment proceedings and subsequently the required details were submitted during the course of appellate proceedings. But during the assessment proceedings, the AO has not pointed out any discrepancies in the books of accounts, bills and vouchers and made the adhoc disallowance which was further restricted by the Ld. CIT(A) to Rs. 54,688/- has no basis and is only based upon estimate basis which is not sustainable in the eyes of law, therefore, the same is deleted and accordingly, the ground no. 3 & 4 are allowed.

8.

In the result, the Appeal filed by the Assessee stands partly allowed.

Order pronounced in the Open Court on 03/1/2017.

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