SH. RAMESH CHAND GUPTA,NEW DELHI vs. ITO, MUZAFFARNAGAR

The brief facts of these additions are that the AO noted that the assessee has taken loan from Shri Brhm Prakash, Mamta Rajvanshi, Pushpa Garg, Rajdulari and Renu Garg as detailed hereunder and these parties have deposited in cash before issuing the cheque to the assessee:-

I heard the rival submission and carefully considered the same along with the orders of the tax authorities below. I noted that in this case, the assessee has taken loan of Rs.50,000/-, Rs.35,000/-, Rs.25,000/-, Rs.95,000/- and Rs.1,50,000/- from Brahm Prakash, Mamta Rajvanshi, Pushpa Garg, Rajdulari and Renu Garg respectively through cheques. All these parties have confirmed the transaction with the assessee and all these parties are income-tax assessee. The assessee has submitted confirmation, acknowledgement of their return and copy of bank account of respective parties to prove their identity, creditworthiness as well as genuineness of the transaction. So far loan taken from Rajdulari is concerned, the assessee has submitted the copy of the sale deed which is available at pages 7 to 19 of the paper book and this sale deed proves that Rajdulari has sold property to Smt. Sarla Devi through registered sale deed for a sum of Rs.1,96,000/-.

I may further add that it is a case where the addition has not been made on the sum credited in the books of the assessee but of a different amount that is the amount which has been deposited in cash by the respective lender in their respective bank account. This denotes that the AO made addition as he is not satisfied the source of sources of these respective parties. Section 68 while empowers the AO to make the addition in respect of sum credited in the books of accounts. Therefore, on this basis itself, the addition so made does not have any leg to stand. I, therefore, delete the said addition.

So far as the amount of Rs.13,000/- is concerned that relate to the interest paid on estimate basis. Since, I have already deleted the addition of Rs.2,10,000/-, therefore, the interest added on the said amount cannot survive. I accordingly delete the same. Thus, grounds no.1 & 2 stand allowed.

Ground No.3 relates to the disallowance of Rs.1,40,000/- under the various heads mentioned in the assessment order.

After hearing the rival submissions and going through the orders of the tax authorities below, I noted that the AO observed that the assessee has incurred a sum of Rs.13,92,688/- under different heads and claimed the same as deduction as expenses incurred wholly and exclusively for the purpose of business. The AO disallowed 10% of the same i.e. Rs.1,40,000/- for want of verifiability. The CIT (A) also confirmed the same. I noted that the AO has not disputed that the expenses have not been incurred for the purposes of the business or expenses are of personal nature or are of capital nature is just disallowed on ad hoc basis @ 10% of these expenses. In my opinion, the disallowance made by the AO is without any basis and material, once the expenditure has been incurred for the purpose of business and qualify the ingredients as stipulated under section 32 of the Act. The AO is bound to allow the same. I, therefore, set aside the order of the CIT (A) and delete the said disallowance.

Ground No.4 relates to the disallowance of Rs.34,400/- being the expenses debited under the head discounts on short of books and specimen books.

The AO noted that the assessee has incurred expenses of Rs.42,666/- in the head discount on short of books and Rs.94,938/- in the head specimen books. Considering the nature of these expenses, the AO disallowed 20% of these expenses amounting to Rs.34,400/-.

After hearing the rival submission and going through the orders of the tax authorities below, I noted that the assessee is a publisher and is engaged in the business of selling of the books to various traders. Distribution of specimen books activities are necessary to be carried on by the assessee to sell its books. Sometimes, the trader has to give the specimen books to the teachers. It is not a case where the expenses have not been incurred for the purpose of the business. The disallowance made by the AO, in my opinion, is ad hoc one as allowing the part of the expenses itself prove that the AO is satisfied that the expenses have been incurred wholly and exclusively for the purpose of business. The AO, in my opinion, is bound to pinpoint while disallowing the expenditure any specific expenditure which did not comply with the conditions as stipulated u/s 37 of the Act. I, therefore, delete the disallowance of Rs.34,400/-. Thus, this ground is allowed.

The fifth ground relate to the disallowance of Rs.74,595/-.

I heard the rival submissions on this issue. I noted that the disallowance has been made u/s 40A(3) of the Act when the AO found that the assessee has incurred a sum of Rs.31,595/- on vehicle repair and maintenance on 22.04.2009 and Rs.43,000/- on 14.10.2009 in cash. The ld. AR even though vehemently argued but could not satisfy me under which sub-rule of Rule 6DD, the claim of the assessee falls so that the assessee may come out of the clutches of the provision of Section 40A(3).