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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI G D PADMAHSHALI
आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-I, Raipur, dated 31.08.2016, which in turn arises from the order passed by the A.O u/s. 143(3) of the Income-tax Act, 1961 (for short ‘Act’), dated 01.03.2013 for A.Y. 2010-11. The assessee has assailed the impugned order on the following grounds of appeal before us:
“1] On the facts and circumstances of the case and material and evidence on record including records of earlier year, learned C.I.T.(A) erred in restricting the claim on account of commission payment of Rs.11,92,062/- at 30% thereof and disallowing the balance 70%. Said disallowance is arbitrary, unjust and not according to law. 2] Similarly on the facts and circumstances of the case and material and evidence on record including record of earlier year, learned C.I.T.(A) erred in restricting the claim on account of job work payment of Rs.36,95,000/- at 30% thereof and disallowing the balance of 70%. Said disallowance is arbitrary, unjust and not according to law. 3] On the facts and circumstances of the case learned C.I.T.(A) erred in not deleting fully the disallowance of Rs.4,71,000/- made by A.O. out of interest payment. He erred in maintaining disallowance of Rs.1,13,375/-. 4] Learned C.I.T.(A) erred in not allowing fully the car expenses and depreciation as claimed by the assessee. 5] Assessee craves leave to urge additional grounds at the time of hearing as may be necessary.”
Succinctly stated, the assessee who is engaged in the business of manufacturing of HDP Pipes & assembly of sprinkler systems had e-filed
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his return of income for the A.Y.2010-11 on 31.08.2010, declaring an income of Rs.12,85,579/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act.
Assessment was thereafter framed by the A.O vide his order passed u/s. 143(3) of the Act, dated 01.03.2013, determining the income of the assessee at Rs.67,14,940/- after, inter alia, making the following additions/disallowances:
Sr. No. Particulars Amount 1. Disallowance out of sales Rs.11,92,062/- commission expenses 2. Disallowance of job work Rs.36,95,000/- expenses 3. Disallowance of interest Rs.4,71,000/- expenses 4. Rs.37,913/- Disallowance of car expenses (20% out of assessee’s claim of depreciation) 5. Disallowance of car expenses Rs.21,625/- (20% out of assessee’s claim of depreciation)
Aggrieved the assesee carried the matter in appeal before the CIT(Appeals) who scaled down the aforesaid disallowance and partly allowed the appeal, as under:
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Sr. No. Particulars Amount 1. Disallowance out of commission (sales) Rs.8,34,443/- (sustained by the CIT(Appeals) (70% sustained by the CIT(A)) 2. Disallowance of job work expenses Rs.25,86,500/- (sustained by the CIT(Appeals) (70% sustained by the CIT(A) 3. Disallowance of interest expenses Rs.1,13,375/- (sustained by the CIT(Appeals) 4. Disallowance of car expenses Rs.37,913/- (sustained by the CIT(A)) 5. Disallowance of car expenses Rs.21,625/- (sustained by the CIT(A))
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.
We shall first deal with the grievance of the Ld. Authorized Representative (for short ‘AR’) for the assessee, that both the lower authorities had erred in making/partly sustaining the disallowance of the assessee’s claim for deduction of commission expenses (on sales). Shorn of unnecessary details, it was observed by the A.O that the assesee had claimed deduction of commission (on sales) of Rs.11,92,062/-, which as
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per record was paid to six individuals who were residents of Kolkata, as under : “1. Nikhil Patel:Payment was credited on 25.03.2010 of Rs. 2,06,796/-. The bill raised by the commission agent bears the name of the agent in block letters and below it, is the address "30/1" CIT Road Scheme 6M Kolkata-54". The bill shows that the agent has sold 27,210 Sprinkler Pipes in Mahasamund & Jagdalpur Block. The agent's return of income for AY 2010-11 shows total income of Rs. 1,95,137/- and out of TDS of Rs. 20,680/- refund of Rs. 17,061/- has been claimed. The balance sheet of the agent shows that his Dena Bank saving account is in Kolkata and also the fact that total withdrawal for the year is Rs.40,000/-. The facts point to the truth that this a bogus expenditure case as discussed below: a. The agent travels from Kolkata to Raipur 830 kms .and from Raipur, he travels to the blocks of Mahasamund which is 60 km east of Raipur & to Jagdalpur, which is 285 km south of Raipur. b.The TDS shown in his return is the entire TDS done by the assessee. Thus, he has not worked as commission agent for anyone else except the assessee during the year.This is also evident from the Income & Exp A/c and Computation of Income of the agent. c.There is no work taken from the agent in the past or later years. This was a onetime entry. d. The agent is a person of no means as evident from his balance sheet and is just a file to divert profits of the assessee. He has offered the entire commission income to tax and there is no expenditure incurred against it. The assessee has also not spent on his travel, lodging, fooding etc. Total withdrawals for the year is only Rs.40,000 /-. It is beyond imagination that the agent could support a family, spend on his himself and travel such long distances as discussed above to earn such a meager amount in a year by spending Rs.40,000 /-. e. The TDS shown in his return is the entire TDS done by the assessee and later he has claimed refund also out of the TDS. f. The address is same as that of the 6 other agents. The address given by the assessee is "22D Motilal Basak Garden Lane, Kolkata" in the case of all 6 agents, while the address as per their return of
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income is"30/1" CIT Road Scheme 6M Kolkata-54" in the case of all 6 agents. g. All the agents have their bank account in the same branch in Kolkata. All these facts prove that this is a device to reduce the profits of the assessee and no such person has ever worked as a commission agent for the assessee. 2. Vipul Patel: Commission was credited on Rs.1,99,120/- on 25.03.2010. The bill raised by the commission agent bears the name of the agent in block letters and below it, is the address "30/1" CIT Road Scheme 6M Kolkata-54". The bill shows that the agent has sold 26200 pipes in Kanker and Raigarh Block. The agent's return of income for AY 2010-11 shows total income of Rs.1,97,669/-and out of TDS of Rs.19,912/- refund of Rs.16,032/- has been claimed. The balance sheet of the agent shows that his Dena Bank saving account is in Kolkata and also the fact that total withdrawal for the year is Rs.50,000/-. The facts point to the truth that this a bogus expenditure case as discussed below: a. The agent travels from Kolkata to Raipur 830 krns .and from Raipur, he travels to the blocks of Raigarh which is 250 km northeast of Raipur & to Kanker, which is 130 km south of Raipur. b. The TDS shown in his return is the entire TDS done by the assessee. Thus, he has not worked as commission agent for anyone else except the assessee during the year. This is also evident from the Income & Exp A/c and Computation of Income of the agent. c. There is no work taken from the agent in the past or later years. This was a onetime entry. d. The agent is a person of no means as evident from his balance sheet and is not a person but just a file to divert profits of the assessee. He has offered the entire commission income to tax and there is no expenditure incurred against it. The assessee has also not spent on his travel, lodging, fooding etc. Total withdrawals for the year is only Rs.50,000/-. It is beyond imagination that the agent could support a family, spend on his himself and travel such long distances as discussed above to earn such a meager amount in a year by spending Rs.50,000/-. e. The TDS shown in his return is the entire TDS done by the assessee and later he has claimed refund also out of the TDS.
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f. The address is same as that of the 6 other agents. The address given by the assessee is "22D Motilal Basak Garden Lane, Kolkata" in the case of all 6 agents, while the a dress as per their return of income is"30/1" CIT Road Scheme 6M Kolkata-54" in the case all 6 agents. g. All the agents have their bank account in the same branch in Kolkata. All these facts prove that this is a device to reduce the profits of the assessee and no such person has ever worked as a commission agent for the assessee. 3. Rahul Patel: Commission was credited on Rs.2,03,482/- on 25.03.2010. The bill raised by the commission agent bears the name of the agent in block letters and below it, is the address "30/1" CIT Road Scheme 6M Kolkata-54". The bill shows that the agent has sold 26774 pipes in Kanker, Ambikapur Jashpur Block. The agent's return of income for AY 2010-11 shows total income of Rs. 2,03,518/- and out of TDS of Rs. 20,348/ refund of Rs. 15,865/-has been claimed. The balance sheet of the agent shows that hisDena Bank saving account is in Kolkata and also the fact that total withdrawal for the year is mere Rs.20,000/-. The facts point to the truth that this a bogus expenditure case as discussed below: a. The agent travels from Kolkata to Raipur 830 kms .and from Raipur, he travels to the blocks of Ambikapur & Jashpur Block which is 350 km north of Raipur & to Kanker, which is 130 km south of Raipur in the opposite direction. b. The TDS shown in his return is the entire TDS done by the assessee. Thus, he has not worked as commission agent for anyone else except the assessee during the year. This is also evident from the Income & Exp A/c and Computation of Income of the agent. c. There is no work taken from the agent in the past or later years. This was a onetime entry. d. The agent is a person of no means as evident from his balance sheet and is not a person but just a file to divert profits of the assessee. He has offered the entire commission income to tax and there is no expenditure incurred against it. The assessee has also not spent on his travel, lodging, fooding etc. Total withdrawals for the year is only Rs.20,000 /-. It is beyond imagination that the agent could support a family, spend on his himself and travel such
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long distances as discussed above to earn such a meager amount in a year by spending Rs.20,000 /-. e. The TDS shown in his return is the entire TDS done by the assessee and later he has claimed refund also out of the TDS. f. The address is same as that of the 6 other agents. The address given by the assessee is "22D Motilal Basak Garden Lane, Kolkata" in the case of all 6 agents, while the address as per their return of income is"30/1" CIT Road Scheme 6M Kolkata-54" in the case of all 6 agents. g. All the agents have their bank account in the same branch in Kolkata. All these facts prove that this is a device to reduce the profits of the assessee and no such person has ever worked as a commission agent for the assessee. 4. Vijay Patel: Commission was credited on Rs. 2,25,808/-on 25.03.2010. The bill raised by the commission agent bears the name of the agent in block letters and below it, is the address "22D Motilal Basak Garden Lane, Kolkata". The bill shows that the agent has sold 25660 pipes in Kanker, Dhamtari, Kawardha Block. The agent's return of income for AY 2010-11 shows total income of Rs. 2,00,107/-and out of TDS of Rs. 23,466/-refund of Rs. 19,335/-has been claimed. The balance sheet of the agent shows that his Dena Bank saving account is in Kolkata and also the fact that total withdrawal for the year is mere Rs.50,000/-. He has invested in only one company, which belongs to the family of the assessee. The facts point to the truth that this a bogus expenditure case as discussed below: a. The agent travels from Kolkata to Raipur 830 kms and from Raipur, he travels to theKawardha Block which is 120 km northwest of Raipur & to Kanker, which is 130 km south of Raipur. b. The TDS shown in his return is the entire TDS done by the assessee. Thus, he has not worked as commission agent for anyone else except the assessee during the year. This is also evident from the Income & Exp A/c and Computation of Income of the agent. c. There is no work taken from the agent in the past or later years. This was a onetime entry.
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d. The agent is a person of no means as evident from his balance sheet and is not a person but just a file to divert profits of the assessee. He has offered the entire commission income to tax and there is no expenditure incurred against it. The assessee has also notspent on his travel, lodging, food etc. Total withdrawals for the year is only Rs.50,000 /-. It is beyond imagination that the agent could support a family, spend on his himself and travel such long distances as discussed above to earn such a meager amount in a year by spending Rs.50,000 /-. e. The TDS shown in his return is the entire TDS done by the assessee and later he has claimed refund also out of the TDS. f. The address is same as that of the 6 other agents. The address given by the assessee is "22D Motilal Basak Garden Lane, Kolkata" in the case of all 6 agents. g. All the agents have their bank account in the same branch in Kolkata. All these facts prove that this is a device to reduce the profits of the assessee and no such person has ever worked as a commission agent for the assessee. 5.PurshottamMuljiPatel : Commission was credited at Rs. 1,53,672/-on 25.03.2010. The bill raised by the commission agent bears the name of the agent in block letters and below it, is the address "22D Motilal Basak Garden Lane, Kolkata". The bill shows that the agent has sold 20220 pipes in Mahasamund, kanker & Raigarh Block. The agent's return of income for AY 2010-11 shows total income of Rs. 2,56,499/-and out of TDS of Rs. 23,395/- refund of Rs.13,456/-has been claimed. The balance sheet of the agent shows that his Dena Bank saving account is in Kolkata and also the fact that total withdrawal for the year is mere Rs.56,000/-. He has invested in only one company, which belongs to the family of the assessee. The facts point to the truth that this a bogus expenditure case as discussed below: a. The agent travels from Kolkata to Raipur 830 kms .and from Raipur, he travels to the Mahasamund Block which is 60 km east of Raipur & to Kanker, which is 130 km south of Raipur and Raigarh which is 250 km northeast of Raipur, all in different directions.
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b. He has not worked as commission agent for anyone else except the assessee during the year This is also evident from the Income & Exp A/c and Computation of Income of the agent. c. There is no work taken from the agent in the past or later years. This was a onetime entry. d. The agent is not a person but just a file to divert profits of the assessee. He has offered the entire commission income to tax and there is no expenditure incurred against it The asessee has also not spent on his travel, lodging, fooding etc. Total withdrawals for the year is only Rs.56,000 /-. It is beyond imagination that the agent could support a family, spend on his himself and travel such long distances in different directions as discussed above to earn such a meager amount in a year by spending Rs.56,000 /-. e. Later he has claimed refund also out of the TDS. f. The address is same as that of the 6 other agents. The address given by the assessee is "22D Motilal Basak Garden Lane, Kolkata" in the case of all 6 agents. g. All the agents have their bank account in the same branch in Kolkata. All these facts prove that this is a device to reduce the profits of the assessee and no such person has ever worked as a commission agent for the assessee. 6. DhaniiMulji Patel: Commission was credited at Rs. 2,03,184/- on 25.03.2010. The bill raised by the commission agent bears the name of the agent in block letters and below it, is the address "22D Motilal Basak Garden Lane, Kolkata". The bill shows that the agent has sold 28220 pipes in Kanker & Raigarh Block. The agent's return of income for AY 2010-11 shows total income of Rs. 2,27,179/-and out of TDS of Rs. 27,681/- refund of Rs. 20761/-has been claimed. The balance sheet of the agent shows that his Dena Banksaving account is in Kolkata and also the fact that total withdrawal for the year is mere Rs.56,000/-. He has invested in only one company, which belongs to the family of the assessee. The facts point to the truth that this a bogus expenditure case as discussed below: a.The agent travels from Kolkata to Raipur 830 kms .and from Raipur, he travels to Kanker, which is 130 km south of Raipur and Raigarh which is 250 km northeast of Raipur, in different directions.
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b.He has not worked as commission agent for anyone else except the assessee during the year. This is also evident from the Income & Exp A/c and Computation of Income of the agent. c.The commission agent has invested in family concerns of the assessee. d.The agent is not a person but just a file to divert profits of the assessee. He has offered the entire commission income to tax and there is no expenditure incurred against it. The assessee has also not spent on his travel, lodging, fooding etc. Total withdrawals for the year is only Rs.56,000/-. It is beyond imagination that the agent could support a flat, a family, spend on his himself and travel such long distances in different directions as discussed above to earn such a meager amount in a year by spending Rs.56,000/-. e. Later he has claimed refund also out of the TDS. f. The address is same as that of the 6 other agents. The address given by the assessee is "22D Motilal Basak Garden Lane, Kolkata" in the case of all 6 agents. g. All the agents have their bank account in the same branch in Kolkata. All these facts prove that this is a device to reduce the profits of the assessee and no such person has ever worked as a commission agent for the assessee.”
Ostensibly, the aforesaid commission expenditure (on sales) which was subjected to deduction of tax at source was found outstanding in the books of account on the last date of financial year. On being queried about the aforesaid commission expenditure, the assessee produced before the A.O supporting documentary evidences, as under: “1. Shri Vivek Patel: The address of this contractor is same as that of the assessee. The total job work receipts from the assessee is Rs. 1045000/-. The computation shows that he has offered profit @10% on the Income from job work, which is a meager Rs. 1,04,500/-. His tax liability is NIL and Out of the TDS, refund of the entire amount has been claimed.
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Shri Navin Patel: The address of this contractor is close to that of the assessee. The total job work receipts from the assessee is Rs.1045000/-. The computation shows that he has offered profit @10% on the Income from job work, which is a meager Rs.1,04,500/-. His tax liability is NIL and Out of the TDS, refund of the entire amount has been claimed. 3. Shri Bharat Patel: The address of this contractor is same as that of the assessee. He is the assessee's brother. The total job work receipts from the assessee is Rs.16,00,000/-. The computation shows that he has offered profit of merely Rs.33,000/- out of Rs.16,00,000/-, the Income from job work. He has not offered even 2% of the receipts from sale and Income from job work.”
Considering the improbability to the fact that the aforesaid residents of Kolkata in order to promote the sales of the assessee company would have travelled to far-flung areas in the State of Chhattisgarh, i.e., Kanker, Ambikapur, Jashpur block etc., neither of which area was connected by railway route from Kolkata, the A.O called upon the assessee to substantiate his aforesaid claim of expenditure. Also, it was observed by the A.O that a perusal of the return(s) of income of the said respective persons revealed that they had during the year under consideration made miniscule withdrawals of Rs.20,000/- (approx), which, by no means would have justified the manifold expenses which would have incurred by them in the course of their business as that of a commission agent ,i.e, travelling expenses, expenses on food, boarding etc., and also those incurred towards maintaining of family etc. It was also observed by the A.O that not only the persons in question had no expertise in the field of selling of pipes, but even otherwise the assessee had not availed their so-called
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services except for during the year under consideration. It was observed by the A.O that there was no written agreement between the parties for rendering of the services as that of commission agents to the assessee. Considering the aforesaid facts the A.O disallowed the assessee’s claim for deduction of commission expenses (sales) of Rs.11,92,062/-.
On appeal, the CIT(Appeals) observed that the aforesaid persons to whom commission was stated to have been paid were either the family members or acquaintance of the assessee, and neither of them could establish the authenticity of his claim of having provided services to promote/facilitate the sales of the assessee on the basis of any supporting documentary evidence. Although, the CIT(Appeals) had observed that there was no evidence on record which would establish that the aforementioned persons had rendered any services to facilitate/promote the sales of the assessee, and as held by the Hon’ble Supreme Court in Lachminarayan Vs. CIT (1972) 86 ITR 439 (SC) a very heavy onus was cast upon the assessee to establish its claim of deduction u/s 37 of the Act, but despite so observing, he was of the view that as the assessee undeniably was carrying on the business of manufacturing of pipes, sprinkler system etc., therefore, he must have incurred certain expenses in the normal course of his said business, and thus, restricted the disallowance of commission expenses (on sales) to 70%.
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We have given a thoughtful consideration to the issue in hand, and are unable to persuade ourselves to subscribe to the claim of the Ld. AR that the CIT (Appeals) had erred in sustaining 70 % of the disallowance of commission expenses (on sales) that was made by the A.O. As the facts pertaining to the issue in hand unfold before us, we find that there can be no second thought that the assessee had absolutely failed to substantiate the rendering of any services by the aforementioned persons for promoting his sales which would have justified the payment of commission to them. In fact, as observed by the A.O, and, rightly so, going by the principle of preponderance of human probability as laid down by the Hon’ble Supreme Court in the case of Sumati Dayal Vs CIT [1995] 214 ITR 801 (SC), considering the fact that there was no evidence which would reveal that the aforesaid relatives of the assessee who were residents of Kolkata had traveled to the far-flung areas of the State of Chhattisgarh to facilitate /promote the sales of the assessee, as well as the fact that miniscule withdrawals so made by them during the year would by no means justify the manifold expenses that would in the normal course of rendering of such services indispensably been required to have been incurred by them, i.e, traveling expense, boarding expense, food expenses etc., and also their household expenses, we are of a strong conviction that it stands established beyond doubt that no services except for on paper were
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rendered by the said persons to facilitate/promote sales of the assessee during the year under consideration.
Be that as it may, as the CIT(Appeals) had scaled down the aforesaid disallowance to 70% of that made by the A.O, which we find had not been assailed by the department before us, therefore, we uphold his order to the said extent. Thus, the Ground of appeal No.1 raised by the assessee is dismissed in terms of our aforesaid observations.
Apropos, the assessee’s claim for deduction of job work charges of Rs.36.95 lacs (debited under the head manufacturing expenses), it was observed by the A.O that the same were claimed to have been paid to the following three persons:
Sr. No. Name of the persons Amount 1. Shri Vivek Patel Rs.10,45,000/- 2. Shri Navin Patel Rs.10,45,000/- 3. Shri Bharat Patel Rs.16,00,000/-
On a perusal of the details that were filed by the assessee in support of his aforesaid claim of expenses, it was observed by the A.O that the bills/vouchers that were produced in support thereof were found to be very sketchy. On being specifically queried and called upon to substantiate the details of the job work that was executed by the aforementioned persons
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by placing on record the requisite details, i.e., details of material movement, transportation bills, loading and unloading expenses etc., the assessee failed to place on record any material in support thereof. On a perusal of the details of the aforesaid job work, it was observed by the A.O that the addresses of all the three persons was the same as that of the assessee. As regards the job work charges which were paid to two of them, viz. (i). Shri Vivek Patel; and (ii). Shri Navin Patel, it was observed by the A.O that both of them had received an amount of Rs.10.45 lacs from the assessee had in their respective returns of income offered the income/profit arising/accruing there from @10% of the said receipt, which resulted to a tax liability of Nil and a claim of refund of the amount of tax deducted at source by the assessee. Apropos the so called third job worker, i.e., Shri Bharat Patel, it was observed by the A.O that he was assessee’s brother, who had against the impugned job work receipt of Rs. 16 lac had in his return of income offered profit/income of only an amount of Rs.33,000/-. Although the assessee in the course of subsequent proceeding submitted before the A.O that job work expenses were incurred for assembling sprinkler irrigation system which comprised of various parts, viz. HDPE Pipes, rubber rings, clamps, foot baten, GI Riser Pipes, sprinkler nozel and PCN nipples which was carried out by the aforementioned persons both at the factory and/or at the customer location, but on a field enquiry that was carried out by the A.O, it was
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noticed that neither any such job work was undertaken at the factory premises of the assessee nor at the address of the parties in question. On further being queried, the assessee took a shift in his earlier stand and claimed that the job work was undertaken at the site, i.e., agricultural land of the concerned farmers, for which payments were made by the Nodal agency, viz. CG Rajya Beej Evam Krishi Vikas Nigam Ltd. As the assessee failed to substantiate his aforesaid claim by producing any person or placing on record any documentary evidence in support thereof, therefore, the A.O was of the view that the assessee had booked bogus claim for deduction of expenses under the head “job work charges”. Also, it was noticed by the A.O that summons were issued u/s.131(1A) dated 06.02.2013 to each of the above persons, and in compliance thereto though they had appeared before him and filed a stereotype reply, but the fact that surfaced was that neither of them had any machinery or paraphernalia using which the job work in question would have executed by them. Interestingly, it was observed by the A.O that one of the so called job worker, viz. Shri Navin Patel (supra) was the accountant of the assesee who had appeared in the course of the proceedings before him. Considering the aforesaid facts, the A.O holding a conviction that the assessee had with an intent to siphon off his profit booked bogus expenses under the head “job work charges” thus, disallowed the entire amount for deduction of said expenditure of Rs.36.95 lacs (supra).
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On appeal, it was, inter alia, claimed by the assessee before the CIT(Appeals) that his claim for deduction of job work expenses of a much higher amount was allowed by the A.O while framing the assessments in his case for the immediately two preceding years, as under:
A.Y.2008-09 A.Y.2009-10 A.Y.2010-11 Gross Sales 6,96,07,368 10,56,54,942 7,92,79,712 Job work expenses 51,36,860 76,48,625 36,95,500 % to gross sales 7.38 7.24 4.66
Although, the CIT(Appeals) observed that the assessee neither in the course of the assessment proceeding nor before him had placed on record any supporting documentary evidence to substantiate his claim of having incurred job work expenses, but considering the fact that the assessee was undeniably carrying on the business of manufacturing of pipes sprinkler system, thus, restricted the disallowance of his claim of deduction of job work charges to 70% of that made by the A.O.
We have given a thoughtful consideration to the issue in hand, and would mince no words in observing that the assessee had absolutely failed to substantiate his claim of having incurred “job work expenses” on the basis of any irrefutable material. In fact, now when neither the assessee could lead any evidence in support of his aforesaid claim of having
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incurred the job work charges, nor the said fact could be gathered on the examination of the respective persons who had appeared before the A.O, therefore, no infirmity does emerge from the view taken by the A.O that the assessee had booked bogus expenditure in order to suppress his taxable income. Be that as it may, as the CIT(Appeals) had restricted the said disallowance to 70% of that made by the A.O, which we find had not been assailed by the department before us, therefore, we uphold his order to the said extent. Thus, the Ground of appeal No.2 raised by the assessee is dismissed in terms of our aforesaid observations.
Now we shall deal with the claim of the Ld. AR that both the lower authorities had erred in law and the facts of the case in making/sustaining the disallowance of interest expenditure of the assessee.
Observing, that though the assessee had incurred interest expenditure both in the course of his business as well as in his personal account, but had made person investments/interest free advances, viz. (i) investment towards share application money of M/s Ishwar Ispat Industries (made during the preceding year): Rs.12,25,000/- (investment of Rs. 12,25,000/- as on 31.03.2009); and (ii) Interest free loan advanced to Shri Chandulal Patel, Jalgaon (balance outstanding on 01.04.2010) : Rs.18,80,299/- (out of loan of Rs.35,22,674/- that was advanced in the preceding year and was scaled down to an amount of Rs.18,80,299/- as on
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31.03.2010), therefore, the A.O disallowed Rs.4.71 lacs @ 12% of the amount of the aforesaid advance/investment.
On appeal, the CIT(Appeals) taking cognizance of the assessee’s claim that interest was already charged from Shri Chandulal Patel (supra), therefore, directed the A.O to verify the said fact and reduce the disallowance by an amount of interest of Rs.3,57,625/- that was stated to have been charged from Shri Chandulal Patel. Apropos, the investment made by the assessee towards share application money, the CIT(Appeals) taking cognizance of the assessee’s claim that the said investment was made for earning of income thus, observed, that as the income was taxable under the head “other sources” and not as “business income”, therefore, the said disallowance was liable to be sustained.
Before us, it is the claim of the Ld. AR that as the assessee had substantial self-owned interest free funds available with him during the year under consideration, therefore, there was no justification on the part of the lower authorities to have made/partly sustained the disallowance of any part of the interest expenditure. Our attention was drawn towards the “balance Sheet” of the assessee for the year under consideration, which revealed the balance in the capital account of the assessee as on 31.03.2010 was Rs.2.18 crore (credit).
21 Shri Deepak Kumar Patel Vs. DCIT-1(1) ITA No. 336/RPR/2016
We have given a thoughtful consideration to the issue in hand, and found substance in the claim of the Ld. AR. As stated by the Ld. AR, and, rightly so, as the assessee during the year under consideration had sufficient self-owned funds available with him, therefore, the presumption that would flow therefrom would be that the investment in the interest free advance/investment etc. would have been sourced out of such self-owned funds. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of CIT (LTU) Vs. Reliance Industries Ltd. (2019) 307 CTR 0121 (SC). It was observed by the Hon’ble Apex Court that when interest free funds available with the assessee are sufficient to meet its investments then, it can be presumed that investments are made from the said interest free funds and no disallowance to the said extent would be called for u/s.36(1)(iii) of the Act. Question of law that was, inter alia, raised before the Hon'ble Apex Court for its kind consideration read as under: “1. Whether the High Court is correct in holding that interest amount being interest referable to funds given to subsidiaries is allowable as deduction under section 36(1)(iii) of the Income Tax Act, 1961 ( for short ‘the Act’) when the interest would not have been payable to banks, if funds were not provided to subsidiaries.”
Answering the aforesaid question of law, the Hon'ble Apex Court while approving the view taken by the Hon'ble High Court of Bombay had observed, as under:
22 Shri Deepak Kumar Patel Vs. DCIT-1(1) ITA No. 336/RPR/2016
"7. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03. 8. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question.” Considering the aforesaid settled position of law, we concur with the claim of the Ld. AR that now when the assessee had sufficient interest free funds available with him, which would justify the interest free advance /investment, it could safely be presumed that the same were made by the assessee from the interest free funds available with him. We, thus, in terms of our aforesaid observations vacate the disallowance u/s.36(1)(iii) of the Act to the extent the same was sustained by the CIT(Appeals). Thus, the Ground of appeal No.3 raised by the assessee is allowed in terms of our aforesaid observations.
WE shall now deal with the grievance of the assessee that the CIT(Appeals) had erred in sustaining disallowance out of car depreciation and vehicle expenses, viz. (i) 20% out of vehicles expenses of Rs.1,08,118/- : Rs.21,625/-; and (ii) 20% out of depreciation of vehicles(i.e. Santro, Innova) : Rs.37,913/-.
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Although the Ld. AR could not place on record any material which would substantiate his claim that no disallowance out of the aforesaid vehicles expenses/depreciation on vehicles was called for in the hands of the assessee, but at the same time, we are of the considered view that the disallowance so made/sustained by the lower authorities @20% is highly pitched. We, thus, in all fairness restrict the disallowance to 10% of the vehicles expenses/depreciation on vehicles. Thus, the Ground of appeal No.4 raised by the assessee is partly allowed in terms of our aforesaid observations.
The Ground of appeal No.5 being general in nature is dismissed as 22. not pressed.
In the result, appeal of the assessee is partly allowed in terms of our aforesaid observations. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board.
Sd/- Sd/- G D PADMAHSHALI RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 12th December, 2022 ***SB
24 Shri Deepak Kumar Patel Vs. DCIT-1(1) ITA No. 336/RPR/2016
आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals)-I, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.