ROHAN AQUA LTD.,KOLKATA vs. ITO, WD-2(1), KOLKATA, KOLKATA

The issue raised in Ground No. 1 relates to the addition of Rs.1,12,500/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of disallowance of rent.

The assessee in the present case is a Company, which is engaged in the business of Aqua Culture. The return of income for the year under consideration was filed by it ./2015 Assessment year: 2004-2005 Page 2 of 5 on 15.10.2004 declaring a loss of Rs.2,74,930/-. In the Profit & Loss Account filed along with the said return, a sum of Rs.2,25,000/- was debited by the assessee on account of rent paid for its registered office. During the course of assessment proceedings, it was noticed by the Assessing Officer that the said rent was paid by the assessee for two flats at Salt Lake stated to be used as the registered office of the assessee-company. It was also noticed by the Assessing Officer that the assessee-company during the year under consideration had hired only one employee. According to the Assessing Officer, there was no requirement of having two flats for the registered office of the assessee when only single staff was working there. He, therefore, held that only one flat was used by the assessee-company for the purpose of its business and expenditure incurred on account of rent only to the extent of Rs.1,12,500/- was allowed by him disallowing the balance amount of Rs.1,12,500/-. On appeal, the ld. CIT(Appeals) confirmed the disallowance made by the Assessing Officer on this issue for the same reasons as given by the Assessing Officer.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As rightly contended by the ld. Counsel for the assessee, there is nothing brought on record by the Assessing Officer to show that only one flat was being used as registered office and not both. The inference drawn by the Assessing Officer merely on the basis of one staff member employed by the assessee that only one flat was being used for the purpose of registered office thus is based on surmises and conjectures and there is nothing brought on record by him to show that the other flat was not used by the assessee-company as its registered office. When the assessee-company in its address had shown both the flats as its registered office, I am of the view that the rent paid for both the flats is liable to be allowed as business expenditure as claimed by the assessee and there is no justification on the part of the authorities below to allow the rent paid by the assessee only in respect of one flat. I, therefore, delete the disallowance made by the Assessing Officer on this issue and allow Ground No. 1 of the assessee’s appeal. ./2015 Assessment year: 2004-2005 Page 3 of 5

The issue raised in Ground No. 2 relates to the disallowance of 80% of the telephone expenses made by the Assessing Officer, which is restricted by the ld CIT(Appeals) to 20%.

The expenditure of Rs.56,813/- claimed by the assessee on account of telephone charges was disallowed by the Assessing Officer to the extent of 80% after having noticed that the concerned telephone connections were taken in the name of father of one of the Directors of the assessee-company. He held that the said telephones thus were mainly used for personal purposes and allowed only 20% of the telephone expenses claimed by the assessee. On appeal, the ld. CIT(Appeals) found that although the telephones were in the individual name of father of one of the Directors of the assessee-company, the same were installed at the registered office of the assessee- company. He, therefore, held that the said telephones were mainly used by the asseessee-company for its business and restricted the disallowance out of telephone expenses to 20% on the ground that in the absence of relevant record maintained by the assessee in the form of Call Register, etc. the element of personal use could not be ruled out.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Admittedly, the assessee-company has not maintained any record in the form of Call Register, etc. to show that the telephones were wholly and exclusively used for the purpose of business. In the absence of such record, the personal use of the telephones cannot be ruled out and this position is not disputed even by the ld. Counsel for the assessee. He, however, has contended that the disallowance of 20% out of telephone expenses made by the ld. CIT(Appeals) for such personal use is excessive and unreasonable and appropriate relief may be given to the assessee. I am unable to accept this contention of the ld. Counsel for the assessee. Having regard to all the facts and circumstances of the case, I am of the view that the disallowance of 20% out of telephone expenses sustained by the ld. CIT(Appeals) is quite fair and reasonable and there is no justifiable reason to interfere with the same. I, therefore, uphold the impugned order of the ld. CIT(Appeals) on this issue and dismiss Ground No. 2. ./2015 Assessment year: 2004-2005 Page 4 of 5

The issue raised in Ground No. 3 relates to the addition of Rs.8,23,177/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of peak credit under section 68 of the Act.

During the course of assessment proceedings, the Assessing Officer found that there were multiple cash deposits and withdrawals made from one Current Account maintained by the assessee with Citi Bank. In this regard, it was explained by the assessee that cash was withdrawn in anticipation of starting earth and civil work in remote areas where banking facilities were not available and when it did not receive clearance from the Government Department to start such work, cash was again deposited in the Bank account. It was contended that there were such cash withdrawals and deposits appearing in the Bank account with Citi Bank and the same were duly reflected in the books of account of the assessee. This explanation of the assessee was not found acceptable by the Assessing Officer keeping in view the high frequency of withdrawals and deposits found in the relevant Bank account and peak credit of such cash withdrawals and deposits as worked out by him at Rs.8,23,177/- was added by him to the total income of the assessee under section 68 treating the same as unexplained cash credit. On appeal, the ld. CIT(Appeals) confirmed the addition made by the Assessing Officer under section 68 observing that the assessee could not satisfactorily explain the huge withdrawals and deposits made in its Bank account with Citi Bank..

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As rightly contended by the ld. Counsel for the assessee, when all the withdrawals and deposits appearing in the Bank account of the assessee with Citi Bank were duly reflected in the books of account of the assessee regularly maintained and there was not even a single instance pointed out by the Assessing Officer to show that sufficient cash was not available in the cash book while making any deposit in the Bank account, no addition under section 68 can be made on peak credit basis. The provision of section 68 cannot be invoked when the corresponding cash deposits in the Bank account were made by the assessee from the cash available as per the cash book and it appears that neither the Assessing Officer nor the ld. CIT(Appeals) has appreciated this position in the right perspective. They have clearly proceeded on a wrong line while invoking the provision of section 68 and ./2015 Assessment year: 2004-2005 Page 5 of 5 the addition made by them on this issue, in my opinion, is not sustainable either in law or in the facts of the case. I, therefore, delete the said addition and allow Ground No. 3.

In the result, the appeal of the assessee is partly allowed.