2023 (9) TMI 537 - AT - Income Tax

Tribunal reduces disallowed expenses, upholds deletion of unsecured loan additions.

Income Tax Officer, Ward-1 (1) (3) Versus M/s. Hi-Choice Processors Pvt. Ltd. Surat

Income Tax Officer, Ward-1 (1) (3) Versus M/s. Hi-Choice Processors Pvt. Ltd. Surat - TMI Issues Involved:1. Deletion of disallowance of general expenses and restriction of disallowance of traveling expenses.2. Restriction of disallowance of vehicle and telephonic expenses.3. Deletion of addition on account of unsecured loans.4. Deletion of disallowance of interest on unsecured loans.Summary:Issue 1: Deletion of Disallowance of General Expenses and Restriction of Disallowance of Traveling ExpensesThe Revenue challenged the deletion of disallowance made on general expenses and the restriction of disallowance of traveling expenses from 20% to 10% by the CIT(A). The Assessing Officer (AO) had disallowed 20% of these expenses due to insufficient documentary evidence and the fact that many expenses were incurred in cash. The CIT(A) reduced the disallowance to 10%, noting that similar reductions were made in previous years and the expenses were reasonable compared to the turnover. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the reasoned and speaking order.Issue 2: Restriction of Disallowance of Vehicle and Telephonic ExpensesThe AO disallowed 20% of vehicle and telephonic expenses, suspecting personal use by directors. The CIT(A) reduced this disallowance to 10%, referencing past assessments where similar reductions were made. The Tribunal agreed with the CIT(A), noting that the expenses were reasonable and supported by necessary evidence, thus upholding the CIT(A)'s decision.Issue 3: Deletion of Addition on Account of Unsecured LoansThe AO added Rs. 3,52,75,000/- as unsecured loans and Rs. 39,01,339/- as related interest to the assessee's income, citing failure to establish the identity, genuineness, and creditworthiness of the lenders. The CIT(A) deleted this addition, stating that the loans were received through account payee cheques, interest was paid with TDS deducted, and all lenders were assessed to tax. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not conduct independent inquiries and the lenders' creditworthiness was established through various documents and assessments in previous years.Issue 4: Deletion of Disallowance of Interest on Unsecured LoansThe AO disallowed interest of Rs. 39,01,339/- on the unsecured loans, questioning the genuineness and creditworthiness of the loans. The CIT(A) deleted this disallowance, supporting the assessee's claim with evidence of TDS deduction, bank statements, and regular tax assessments of the lenders. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's doubts were not substantiated by independent verification and the loans were repaid through banking channels.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues, and confirmed that the expenses and loans were genuine and adequately substantiated by the assessee.