2018 (5) TMI 145 - AT - Income Tax

Revenue appeal dismissed, assessee partially successful in challenging disallowances and additions.

The Tribunal dismissed the revenue's appeal and partially allowed the assessee's appeal, providing relief on several disallowances and additions while ... TDS u/s 194H - non deduction of tds discount given to the purchaser of the flat - Disallowance u/s 40(a)(ia) - Held that:- As in assessee’s own case for the Asstt. Year 2008-09 [2012 (7) TMI 424 - ITAT, DELHI] wherein this very issue was dealt with by the Tribunal and was answered in favour of the assessee holding that for this particular discount amount, the provisions u/s 194H are not attracted. - Decided in favour of assessee Disallowance u/s 40A(2)(b) - disallowance of commission paid to sub brokers - Held that:- No abnormality in this submission on behalf of the assessee because to boost the morale of the prospective purchasers and to induce them to invest in the pre launched projects, would definitely serve the purpose of the assessee. When the learned CIT(A) found that the AO made the disallowance at 25% without quantifying the exact amount of advertisement expenditure which did not pertain to the assessee, it equally applies to sustaining such disallowance to 10% of the expenditure. In the absence of any basis for disallowance or the yardstick for its quantification, we do not see any reason to sustain 10% disallowance also. This was more particularly in view of the fact that the insertion of the name of the sister concern, namely, Surendra Buildtech P. Ltd., was for the purpose of inviting more investment in the pre launched projects, which is certainly in furtherance of the business interest of the assessee. Delete the disallowance on this count. - Decided in favour of assessee Deemed dividend addition u/s 2(22)(e) - Held that:- in view of peculiarities involved in this line of business depending upon the need, there is exchange of money between different sister concerns for the purpose of business and not for any personal benefits. Since the finding of the learned CIT(A) is that this particular type of transactions are carried out in the regular course of business and do not fall within the ambit of Section 2(22)(e) of the Act, we find no material whatsoever to disturb the findings of the learned CIT(A) in this respect. So also in respect of the amounts advanced to Shri S.M. Mukhija(HUF), we also found that they cannot bring to tax in the hands of the assessee, who is a different taxable entity. For these reasons while agreeing with the learned CIT (A) on this aspect, we dismiss the fourth ground of appeal of the revenue. Addition of interest on loan - AO disallowed the interest stating that the loan actually represents the home loan as it is in the name of the assessee and his wife, as such, any interest paid on the same cannot be allowed as business expenditure - Held that:- In this case, there is no fact finding of the authorities below to the effect that the loan was not utilized for business. No concur with learned CIT(A) that merely because the letter does not appear to be reliable one coupled with the fact that the interest rate for home loan and business loan are different as well as ICICI is being governed by the RBI Regulations, cannot advance a business loan under the pretext of home loan. We cannot ignore the fact that in the Asstt. Year 2005-06 and 2006-07, interest paid on the loan was allowed. In fact, assessment for the Asstt. Year 2006-07 is a scrutiny assessment u/s 143(3). The interest on business loan is allowable as business expenditure. - Decided in favour of assessee Disallowance of business promotion expenses and car and telephone expenses - Held that:- CIT(A) gave relief to the extent of ₹ 50,000/- to the assessee and restricted the disallowance to ₹ 50,000/-. It does not appear to be an unreasoned one. Further, for the earlier assessment years also, there was disallowance of 10% of the car and telephone expenses. It is not brought to our notice that this disallowance was deleted subsequently. Fact remains that the assessee has not been maintaining any log book and is unable to justify the entire expenditure. In these circumstances, we find it difficult not to sustain 10% disallowance of the expenses on account of car and telephone maintained. - Decided against assessee. Addition on low withdrawals - Held that:- Having regard to the cost of living in the society and other relevant factors, we are not in agreement with the assessee that a sum of ₹ 60,000/- would be sufficient on account of household expenses. Taking on record that no rent payment is required and electricity charges are shown separately and also that one of the children is already in the business, we take a pragmatic view that a sum of ₹ 10,000/- per month would be the minimum requirement way back in the Financial Year 2006-07 and estimate the annual household expenses at ₹ 1,20,000/-, as such, after reducing the same by ₹ 60,000/- declared by the assessee, we restrict the addition to a sum of ₹ 60,000/- - Decided partly in favour of assessee. Issues Involved:1. Disallowance under Section 40(a)(ia) of the Income Tax Act.2. Disallowance under Section 40A(2)(b) of the Income Tax Act.3. Disallowance of advertisement expenses.4. Addition under Section 2(22)(e) of the Income Tax Act.5. Disallowance of interest expense.6. Disallowance of business promotion expenses.7. Disallowance of car and telephone expenses.8. Disallowance on account of low withdrawal for household expenses.Issue-wise Detailed Analysis:1. Disallowance under Section 40(a)(ia):The assessee, a real estate agent, claimed marketing expenses which were disallowed by the AO under Section 40(a)(ia) for non-deduction of TDS. The CIT(A) found that the payments did not constitute commission as there was no principal-agent relationship and the recipients did not render services to the assessee. The Tribunal upheld the CIT(A)'s findings, referencing previous Tribunal and High Court decisions favoring the assessee.2. Disallowance under Section 40A(2)(b):The AO disallowed commission payments to sub-brokers under Section 40A(2)(b), suspecting excessive payments. The CIT(A) found that the AO did not verify the services rendered by the sub-brokers and relied on assumptions. The Tribunal agreed with the CIT(A) that the AO's disallowance was based on conjectures and upheld the deletion of this disallowance.3. Disallowance of Advertisement Expenses:The AO disallowed 25% of advertisement expenses, which the CIT(A) reduced to 10%. The Tribunal found no basis for any disallowance as the assessee provided sufficient evidence of the expenses, including TDS deductions and newspaper clippings. The Tribunal deleted the disallowance entirely, emphasizing the business purpose of the expenses.4. Addition under Section 2(22)(e):The AO added amounts received from a company as deemed dividends under Section 2(22)(e). The CIT(A) found that the transactions were in the regular course of business and did not fall under deemed dividends. The Tribunal upheld the CIT(A)'s findings, noting that the transactions were business-related and not for personal benefit.5. Disallowance of Interest Expense:The AO disallowed interest on a loan, suspecting it was a home loan. The CIT(A) upheld this, doubting the business purpose of the loan. The Tribunal found that the authorities did not verify the loan's purpose with the bank and noted that interest was allowed in previous years. The Tribunal allowed the interest expense as a business expenditure.6. Disallowance of Business Promotion Expenses:The CIT(A) partially allowed the business promotion expenses, reducing the disallowance to Rs. 50,000. The Tribunal found no reason to interfere with this partial relief, as the assessee did not maintain a log book or justify the entire expenditure.7. Disallowance of Car and Telephone Expenses:The CIT(A) sustained a 10% disallowance of car and telephone expenses, which the Tribunal upheld, noting the lack of a log book and justification for the expenses.8. Disallowance on Account of Low Withdrawal for Household Expenses:The AO added Rs. 1,20,000 for low household withdrawals, which the CIT(A) found reasonable. The Tribunal, considering the cost of living and other factors, reduced the addition to Rs. 60,000, deeming it a pragmatic estimate.Conclusion:The Tribunal dismissed the revenue's appeal and partially allowed the assessee's appeal, providing relief on several disallowances and additions while sustaining some based on the evidence and reasoning provided. The order was pronounced in the open court on April 27, 2018.