Tax authority partly allows appeal on housing loan s24(b), 80C, s43B GST, unsecured loans s68 issues

ITAT Pune partly allowed the assessee's appeal. Disallowance of interest on housing loan under s.24(b) and deduction of principal repayment under s.80C was upheld as the assessee failed to produce a bank certificate or loan sanction letter proving existence and nature of a housing loan. Disallowances on sales promotion, travelling expenses, accounting charges, consultancy charges, and bonus/ex gratia were confirmed for lack of satisfactory evidence and failure to prove that expenditures were incurred wholly and exclusively for business. The addition of capital introduction treated as income from other sources was also sustained. However, disallowances of consultancy charges, GST payable under s.43B, and unsecured loans u/s 68 were set aside to the AO for denovo adjudication and verification.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether deduction of interest on borrowed capital under section 24(b) was allowable in absence of a housing loan interest certificate and sanction letter.

1.2 Whether consultancy charges of Rs. 5,00,000 for A.Y. 2019-20 were genuine and allowable as business expenditure.

1.3 Whether disallowance of Rs. 5,70,774 out of sales promotion and travelling expenses for A.Y. 2019-20 was justified.

1.4 Whether disallowance under section 43B of GST payable of Rs. 11,84,777 for A.Y. 2019-20 was warranted.

1.5 Whether addition of unsecured loans of Rs. 64,81,702 under section 68 for A.Y. 2019-20 was sustainable.

1.6 Whether deduction under section 80C of Rs. 1,50,000 towards principal repayment of housing loan was allowable without proper housing loan evidence.

1.7 For A.Y. 2020-21, whether addition of Rs. 4,70,316 being difference between contract receipts as per Form 26AS and receipts shown in the profit and loss account was justified.

1.8 Whether disallowance of Rs. 6,75,012 under section 36(1)(va) on account of ESIC contribution (linked to A.Y. 2019-20) was permissible or resulted in double disallowance.

1.9 Whether consultancy charges of Rs. 60,000 for A.Y. 2020-21 were substantiated and allowable.

1.10 Whether disallowance of Rs. 3,03,218 out of sales promotion and travelling expenses for A.Y. 2020-21 was justified.

1.11 Whether disallowance of Rs. 1,98,089 on account of bonus and ex-gratia payable for A.Y. 2020-21 was correct.

1.12 Whether disallowance under section 43B of GST payable of Rs. 90,000 for A.Y. 2020-21 was warranted.

1.13 Whether addition of Rs. 1,165 towards interest from a co-operative bank for A.Y. 2020-21 was warranted when assessee claimed it was already included in returned income.

1.14 Whether capital introduction of Rs. 3,50,000 during A.Y. 2020-21 was satisfactorily explained as arising from sale proceeds of agricultural land.

1.15 Whether unsecured loan of Rs. 3,75,000 from M.P. Enterprises for A.Y. 2020-21 was liable to addition under section 68.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deduction of interest on housing loan under section 24(b) (A.Y. 2019-20)

Legal framework

2.1 The Tribunal reproduced section 24(b) and its provisos, especially the proviso stipulating that no enhanced deduction shall be allowed unless the assessee furnishes a certificate from the lender specifying the amount of interest payable for acquisition or construction of the property.

Interpretation and reasoning

2.2 The claim of Rs. 55,292 as interest on borrowed capital for a self-occupied property was supported only by an SBI "loan statement".

2.3 The loan statement did not indicate that it related to a home loan, nor did it specify the property for which the loan was taken.

2.4 No interest certificate or loan sanction letter from the bank was produced either before the Assessing Officer, first appellate authority, or the Tribunal.

2.5 The Tribunal noted that the statutory proviso requires a certificate from the lender; in absence of such certificate, the conditions for allowance were not met.

Conclusion

2.6 Deduction of Rs. 55,292 under section 24(b) was rightly disallowed and the disallowance was upheld.

Issue 2: Allowability and genuineness of consultancy charges of Rs. 5,00,000 (A.Y. 2019-20)

Interpretation and reasoning

2.7 The assessee claimed consultancy expenses of Rs. 5,00,000 allegedly paid to one consultant for liaison with Government Departments, supported by five invoices and ledger account.

2.8 The first appellate authority doubted genuineness due to: invoices being simple computer printouts, absence of GST number, serial numbering 1-5 all in favour of the assessee only, no TDS deduction, absence of written agreement, and the fact that almost all receipts were from a private company, making "government liaison" inexplicable.

2.9 The Tribunal noted that the invoices carried a PAN of the consultant and once such documents were produced, the Assessing Officer ought to have conducted further enquiry, including verification from the consultant.

2.10 The Tribunal found that no such enquiry had been carried out, though the onus was initially on the assessee; in the given circumstances, further factual verification was necessary.

Conclusion

2.11 The disallowance of Rs. 5,00,000 was set aside and remanded to the Assessing Officer for de novo adjudication after proper enquiry, including possible summons under section 131. The ground was allowed for statistical purposes.

Issue 3: Disallowance of sales promotion and travelling expenses (Rs. 5,70,774) - A.Y. 2019-20

Interpretation and reasoning

2.12 The assessee debited Rs. 3,07,352 as sales promotion and Rs. 8,34,195 as travelling expenses. The Assessing Officer disallowed 50% (Rs. 5,70,774) due to failure to establish that expenses were wholly and exclusively for business, particularly when almost all receipts were from a single company with a labour-supply / job-work arrangement.

2.13 Sample invoices submitted were deficient: absence of GST and PAN, incomplete or vague addresses (e.g., only partial address for one payee), and no substantive supporting detail.

2.14 Even before the Tribunal, no improved or concrete evidence was furnished beyond the assertion that payments were through banking channels, which was held insufficient to establish business nexus or genuineness.

Conclusion

2.15 The onus to prove business purpose and genuineness was not discharged; the disallowance of Rs. 5,70,774 was upheld.

Issue 4: Disallowance of GST payable of Rs. 11,84,777 under section 43B (A.Y. 2019-20)

Legal framework

2.16 Section 43B allows deduction for certain statutory dues, including taxes, only on actual payment, with allowance if payment is made up to the due date for filing the return of income.

Interpretation and reasoning

2.17 The assessee had shown GST payable of Rs. 11,84,777. No proof of payment was produced before the Assessing Officer, leading to disallowance under section 43B.

2.18 Before the first appellate authority, GSTR-3B returns for December 2018 to March 2019 were furnished. A tabulation of these returns showed that the GST liability was largely discharged in cash, not via input tax credit, contradicting the assessee's claim.

2.19 As no tax payment challans were produced to substantiate cash payments, the first appellate authority confirmed the disallowance.

2.20 The Tribunal observed that GSTR-3B data indicated apparent payment of GST on specified dates. Given the nature of section 43B, the decisive factor was whether payment was made before the due date of filing the return.

Conclusion

2.21 The matter was remanded to the Assessing Officer to verify, including from GST authorities if necessary, whether the GST amount was actually paid before the due date of filing the return. Disallowance was set aside for this limited verification; ground allowed for statistical purposes.

Issue 5: Addition of unsecured loans of Rs. 64,81,702 under section 68 (A.Y. 2019-20)

Interpretation and reasoning

2.22 Unsecured loans from four creditors aggregating to Rs. 64,81,702 were credited. The assessee failed before the Assessing Officer to furnish confirmations, income-tax returns or bank statements of creditors and the addition was made under section 68.

2.23 Before the first appellate authority, confirmations and returns for some creditors (M.P. Enterprises and Tip Top Services) and confirmation of one individual creditor were filed, though one creditor's return of income remained unfiled.

2.24 The first appellate authority sustained the addition, holding that the assessee had not satisfactorily discharged the burden regarding identity, creditworthiness and genuineness.

2.25 Before the Tribunal, the assessee claimed that all unsecured loans had been repaid in subsequent years, but this fact had not been placed on record earlier.

Conclusion

2.26 In the interest of justice and considering new assertions regarding repayment, the entire addition of Rs. 64,81,702 under section 68 was set aside and remanded to the Assessing Officer for de novo adjudication after full verification. Ground allowed for statistical purposes.

Issue 6: Deduction under section 80C of Rs. 1,50,000 for principal repayment of housing loan (A.Y. 2019-20)

Interpretation and reasoning

2.27 The assessee claimed deduction under section 80C on account of principal repayment, relying only on an SBI loan statement.

2.28 The statement did not indicate that the loan was a housing loan nor identify the property acquired.

2.29 No loan sanction letter or bank certificate was produced at any stage, including before the Tribunal, to establish that the borrowing was specifically for acquisition of a residential house.

Conclusion

2.30 The requirement to establish that the repayment related to a qualifying housing loan was not met; disallowance of Rs. 1,50,000 was upheld.

Issue 7: Difference in contract receipts vis-à-vis Form 26AS (Rs. 4,70,316) - A.Y. 2020-21

Interpretation and reasoning

2.31 There was a difference between contract receipts as per Form 26AS and revenue from operations in the profit and loss account, leading to an addition of Rs. 4,70,316.

2.32 The assessee contended before the Tribunal, with reference to computation of income, that the differential amount had already been considered in taxable income under other heads.

Conclusion

2.33 As this assertion required factual verification, the issue was remanded to the Assessing Officer for de novo adjudication after providing opportunity to the assessee. Ground allowed for statistical purposes.

Issue 8: Disallowance of ESIC contribution under section 36(1)(va) - Rs. 6,75,012 (A.Y. 2020-21)

Interpretation and reasoning

2.34 The assessee claimed that the amount represented ESIC contribution of A.Y. 2019-20, already disallowed earlier, and that allowing disallowance again would be duplicative.

2.35 The first appellate authority examined the earlier year's assessment and appellate proceedings and recorded that the originally disallowed employer's ESIC contribution of Rs. 5,71,290 for A.Y. 2019-20 had been fully allowed in appeal, as payments were made in April 2019.

2.36 It was thus found that there was no subsisting disallowance for A.Y. 2019-20 which could justify a corresponding allowance in A.Y. 2020-21; allowing the assessee's claim would result in double deduction.

2.37 The assessee failed to substantiate that Rs. 6,75,012 had been taxed in earlier year and corresponded to employer's ESIC contribution.

Conclusion

2.38 The disallowance of Rs. 6,75,012 under section 36(1)(va) was confirmed; the claim was rejected as it would otherwise amount to double deduction.

Issue 9: Consultancy charges of Rs. 60,000 (A.Y. 2020-21)

Interpretation and reasoning

2.39 The assessee described consultancy expenses as cash payments for PF/ESIC return filing, accounting charges, GST filing through bank, and income-tax return filing charges, aggregating to Rs. 60,000.

2.40 The particulars furnished only indicated general nature of expenses, with no names, addresses or PAN of recipients (except one item indicating a name but without further particulars), and no supporting invoices, despite specific requisition by the Assessing Officer.

2.41 The Tribunal agreed that mere ledger entries and generic descriptions without supporting evidence do not satisfy the onus under section 37 to prove genuineness and business purpose.

Conclusion

2.42 The disallowance of Rs. 60,000 was upheld.

Issue 10: Disallowance of sales promotion and travelling expenses (Rs. 3,03,218) - A.Y. 2020-21

Interpretation and reasoning

2.43 The nature of this disallowance and the assessee's failure to substantiate business nexus paralleled the disallowance examined for A.Y. 2019-20.

2.44 The Tribunal applied its reasoning for A.Y. 2019-20 mutatis mutandis, noting absence of sufficient supporting evidence and failure to discharge the onus of proving that the expenditure was incurred wholly and exclusively for business.

Conclusion

2.45 The disallowance of Rs. 3,03,218 was upheld.

Issue 11: Disallowance of bonus and ex-gratia payable - Rs. 1,98,089 (A.Y. 2020-21)

Interpretation and reasoning

2.46 The assessee contended that this liability had already been disallowed in A.Y. 2019-20.

2.47 The first appellate authority found that no such self-disallowance had been made in the return for A.Y. 2019-20; instead, an addition of Rs. 1,98,089 made by the Assessing Officer in that year had been deleted in appeal because payment was made on 23.04.2019.

2.48 For A.Y. 2020-21, the amount of Rs. 1,98,089 was reflected as outstanding as on 31.03.2020, indicating that a liability was recorded in F.Y. 2019-20 which remained unpaid till the date of filing the return.

2.49 In absence of evidence of payment or justification for deduction on any other basis, the disallowance was considered appropriate.

Conclusion

2.50 The disallowance of Rs. 1,98,089 was upheld.

Issue 12: Disallowance of GST payable of Rs. 90,000 under section 43B (A.Y. 2020-21)

Interpretation and reasoning

2.51 The disallowance was made for GST shown as payable, for which no proof of payment was furnished.

2.52 The Tribunal held that its reasoning in relation to the larger GST disallowance for A.Y. 2019-20 should apply mutatis mutandis, focusing on whether actual payment had been made before the due date of filing the return.

Conclusion

2.53 The matter was remanded to the Assessing Officer to verify actual payment (including, if necessary, by obtaining information from GST authorities). Ground allowed for statistical purposes.

Issue 13: Addition of interest income of Rs. 1,165 from co-operative bank (A.Y. 2020-21)

Interpretation and reasoning

2.54 The addition was made for interest of Rs. 1,165 from a co-operative bank not specifically identified as included in the declared income.

2.55 The assessee claimed before the Tribunal that total interest income of Rs. 32,195 in the return already included this amount, but no supporting break-up had been given earlier to the Assessing Officer.

Conclusion

2.56 The issue was remanded to the Assessing Officer for de novo verification whether the amount of Rs. 1,165 formed part of the interest income already offered. Ground allowed for statistical purposes.

Issue 14: Capital introduction of Rs. 3,50,000 during A.Y. 2020-21

Interpretation and reasoning

2.57 The Assessing Officer noticed that the capital account disclosed income from other sources of Rs. 8,07,195, whereas the computation reflected only Rs. 4,57,195 under that head, leading to an unexplained difference of Rs. 3,50,000 treated as unexplained capital introduction.

2.58 The assessee claimed that this represented part of sale proceeds of land transferred to a purchaser by a registered sale deed.

2.59 The Tribunal examined the sale deed: it recorded total consideration of Rs. 11,55,000, stated to have been paid on various dates, but did not specify individual dates or modes of payment. The deed was dated and registered on 25.06.2018 (relevant to an earlier financial year).

2.60 On this basis, the Tribunal inferred that the consideration must have been received on or before 25.06.2018 and not during the financial year corresponding to A.Y. 2020-21. No other evidence linked the alleged receipt to the capital introduced in the later year.

Conclusion

2.61 The assessee failed to substantiate the source of capital introduction of Rs. 3,50,000 in A.Y. 2020-21. The addition was confirmed.

Issue 15: Unsecured loan of Rs. 3,75,000 from M.P. Enterprises under section 68 (A.Y. 2020-21)

Interpretation and reasoning

2.62 The auditor reported unsecured loan of Rs. 3,75,000 from M.P. Enterprises. The addition under section 68 was made for failure to substantiate identity, creditworthiness and genuineness.

2.63 The Tribunal had already remanded the broader unsecured loan issue involving M.P. Enterprises for A.Y. 2019-20 for de novo adjudication.

Conclusion

2.64 Consistently, the Tribunal set aside the addition of Rs. 3,75,000 for A.Y. 2020-21 and remanded the matter to the Assessing Officer for fresh examination along with the related issue in the earlier year.

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