TaxTMI 
TaxTMI 
2017 (2) TMI 850
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....hat the facts and circumstances of the case of the appellant for A.Y. 2009-10 and 2010-11 are not identical, hence G.P. additions deserves to be deleted. 3. That the appellant has borrowed loan from financial institutions for the purpose of the business arid as such interest expenses of Rs. 5,87,769/- and Rs. 1,29,509/- being processing charges claimed which is admissible expenditure U/s 36 of the I.T.Act 1961 4. Having regard to the facts and circumstances of the case of the appellant, both the expenditures claimed in Ground no.(3) is missible deduction U/s 30 to 36 of the I.T.Act 1961., 5. That the association expenses of Rs. 79,000/- claimed by the appellant is for the purpose of business of the appellant and on the principle of commercial expediency the said expenditure is admissible deduction U/s 30 to 37 of the I.T. Act 1961 which learned CIT(A), ought to ha\/e allowed. 6. That the learned A.O. has disallowed lump sum expenses of Rs. 50,000/- out of transport expenditure of Rs. 2,26,464/- and confirmed by learned CIT(A) which is admissible expense considering the facts and circumstances of the case /the same requires to be allowed. 7. That the denial of claim U....
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....ver, rejection of material including purchases, earing of profits @ 22.92% on substantial sale to associate concern and over all holistic consideration rejected the book results and estimated the GP at 12% and made trading addition of Rs. 11,24,013/-. Apart from making trading addition ld. Assessing Officer also observed that assessee has paid interest of Rs. 5,87,769/- to various parties like ABM Amro, Berclays, G. Money, HDFC personal loan, ICICI personal loan, ICICI loan & Reliance capital personal loan and the processing charges of Rs. 1,29,509/-, but disallowed the same as assessee was unable to prove that the same were utilized for the business purposes. Ld. Assessing Officer also disallowed Rs. 79,000/- paid as association expenses due to lack of evidence to prove the genuineness. Lump sum disallowance of Rs. 50,000/- was made out of the total transportation expenses, deduction u/s 80GGC of the Act at Rs. 3,51,000/- was denied as no proof was placed on record for verification. Ld. Assessing Officer also disallowed Rs. 1,08,200/- towards purchases made at Rs. 20,000/- and less with the view that they have been kept below Rs. 20,000/- intentionally. In all after making additio....
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....ks of account and entering realm of estimate and guess work where lower GP Rate shown in the Books of account. The rejection of the Books of Account was therefore, not justified nor resort to substitution of estimated GP by rule of thumb merely for making certain additions. The audited trading account shows opening stock, purchase, sales and closing stock The quantum and value of purchase and sales had not been in dispute in as much as they were held to be fully vouched. Value of opening stock also can not be disputed as it came from closing stock of previous year The inventories of closing stock was also not found to be incorrect That is to say actual stock position was not in dispute. In the previous year the books of account were not found to be incorrect. The gross profit rate is primarily result of excess of sales and closing stock over purchases/ opening stock. Admittedly out of these four components of trading result, there could not have been any ground for the assessing officer to arrive at different result so far as closing stock is concerned as inventories of existing stock were found to be correct and there being no dispute about the sales and purchases. 4.1 Ld. Auth....
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.... sold to Associate concern P.N. Reasources. INC @Rs. 3800/- per piece and sold to other client / customer by further increase in the cost The Profit Ratio within the inside transaction was @22.92%. In order to invoke section 40A(2)(B) there must be a payment in regards to an expenditure. In a given case even if the Assessee bona fide sells goods at a price lower then market price there is no expenditure incurred by him and section 40A(2)(b) can not be invoke In view of the following decisions. CIT v. A. K. Subbaraya Chetty & Sons (1980) 123 ITR 592 (Mad); CIJ v. Udhoji Shrikrishnadas (1983) 139 ITR 827 (MP). 4.4 On facts of the case, books of account could not be rejected only on the ground of Gross Profit rate and non verification of only single item of purchase where trading account Purchase, sales and Closing stock was verifiable and income of Assessee as well as of its sister concern could not be clubbed to arrive at Gross Profit rate by averaging the turn over. The completeness & correctness of the books of Account maintained by the address company are in no way in dispute or doubts by Assessing Officer and hence the provision of section 145 have been incorrectly & indiscre....
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.... 5. On the other hand, ld. DR supported the orders of lower authorities. 6. We have heard the rival contentions and perused the material placed on record and gone through the written submissions filed by the assessee. The issues raised in these ground nos.1 & 2 are challenging ld. CIT(A)'s order confirming the action of ld. Assessing Officer in rejecting the books of account u/s 145(3) of the Act and estimating GP @ 12% resulting into trading addition of Rs. 11,24,013/-. 7. We observe that ld. Assessing Officer rejected books of accounts u/s 145(3) of the Act as the assessee was unable to produce quantity-wise stock register, supporting evidences in respect of rejection of material added in the purchases, no justification in respect of bills corrected and accounted as purchases, earning of profits @ 22.92% on substantial sales with associate concerns, no justification for adoption of higher value for closing stock even when the method of valuing closing stock conducted by assessee is at "cost price or market price whichever is less". We further observe that ld. CIT(A) confirmed the Assessing Officer's action rejecting books of account u/s 145(3) of the Act and also confirm....
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....corroborating evidence was justified Further, in the cases of CIT vs Pareck Brothers 167 ITR 344 (Patna), Ratanlal Omprakash vs CIT 132 ITR 640 (Orissa) and Chhabildas Tnbhuvandas Shah & Others vs CIT 59 ITR 733 (SC) it has been held that rejection of books of accounts are justified if no day to day stock account is maintained. In this case, the appellant has not been able to prove with demonstrative evidences that the mistakes identified by the A O were non maintainable To illustrate in the remand report dated 10-1-2013 supra, the A O has stated that the entry of Rs. 22,636/- pertaining to one M/s Smghal Sons International in respect of bill dated 19-11- 2008 is not reflected in the books of accounts The appellant has argued that goods worth 4407 were received back from the-party which has been included in the rejection material account on 3-1-2009 The appellant has by way of additional evidences attempted to get admitted a copy of the bill dated 19-11- 2008 for 22636/ and a debit note of a party dated 1-1-2009 Without prejudice to the above decision of rejection of impugned additional evidences, it is seen that even on merits the said evidence do not support appellants case. The ....
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....ly accepted by the Revenue which are that assessee's books of accounts are audited u/s 44AB of the Act and as per Tax Audit Report assessee is maintaining register for purchase and sale, bank book, cash book, VAT register, journal register. Tax Audit Report also shows the quantitative details of goods traded by the assessee. Assessee also demonstrated with the copy of accounts of M/s Siddharth Enterprise, Chennai that rejection of material was genuine. The quantum of value of purchase and sale has not been disputed as they were fully vouched. 9. We further observe that ld. Assessing Officer's main reason of rejecting books of account was lower GP rate which as per his observation came down to 8.65% from 13.92% in preceding financial year. However, on perusal of trading account for Financial Year 2007- 08 and Financial Year 2008-09 we observe that assessee has been showing commission income in trading account which stood at Rs. 18,94,598/- and Rs. 5,92,562/- respectively. As per the written submissions of ld. Authorised Representative this commission income has been earned from Cadila Healthcare, Cadila pharma Acme, Nirma etc. for rendering services which has no connection with t....
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....ting to funds borrowed from financial institutions 11. Brief facts relating to these grounds are that during the course of assessment proceedings ld. Assessing Officer observed that assessee paid interest of Rs. 5,87,769/- on various personal loans obtained from non-banking financial institutions and processing charges of Rs. 1,29,509/- were paid for getting these loans. However, as the assessee was unable to prove with supporting evidence that all the borrowed funds were utilised for business purposes and no TDS has been deducted on such payments as well as processing charges the impugned interest payment of Rs. 5,87,769/- and processing charges of Rs. 1,29,509/- were disallowed. When the matter came up before ld. Commissioner of Income Tax(A) the ground of assessee was dismissed by ld. Commissioner of Income Tax(A) by observing as follows :- b) The action of the A.O. in making addition of Rs. 5,87,769/- on account of interest expenses and 1,29,509/- on account of processing charges. The appellant has claimed interest expenses of Rs. 5,87.769/- on the plea of same being relatable to capital borrowed from NBFCs utilised for the purposes of business. Further an amount of Rs....
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....t day of the financial year. The appellant has argued that the addition u/s. 40(a)(ia) is also unwarranted as the entire amount of interest was paid during the year and nothing was outstanding. The appellant has thus admitted that TDS was not deducted on the impugned amount of interest. As far as the decision of Hon'ble ITAT. Vishakhapatannam is concerned, the same has been, at the behest of the department made in operational by Hon ble Andhra Pradesh High Court and the decision has been temporarily suspended (I1TAMP No 908 of 2012 in ITTA No 384 of 2012} Consequently there is no force in the argument of the appellant on the controversy of paid and payable' which solely has arisen from the decision of the Hon ble ITAT Vishakhapatannam in the case of Merlyne Finance supra The addition of Rs. 1.29 509/- pertaining to processing charges paid for the above loans taken from NBFCs has also been examined As discussed above, as clear nexus between borrowings' and its utilisation with business remains un-established in this case Consequently, the processing charges which are connected with these loans cannot be taken as genuine business expenses. In view of the discussions....
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.... liable for disallowance, its TDS not deducted. Section 40(a)(ia) has to be subjected to strict interpretation. Going by the rule of strict interpretation the default with reference to actual payment of expenditure would not entail disallowance. This is because the language used in the section 40(a)(ia) is very simple, clear and unambiguous. As such the provisions of section 40(a)(ia) are not applicable in the present facts of the case. The disallowance, if any required to be made shall be restricted to the extent of payable shown in the balance sheet end of the year. Without prejudice to the above, based on the reliance on the same books for the purpose of invoking the provision of section 40(a)(ia) is improper. The estimation of income takes care of the irregularities committed by the assessee Further addition by invoking section 40(a)(ia) amounts to punishing the assessee for a same offence on double occasions which is not permitted by law there is a connection between expenditure claimed by the Assessee and making non deduction of TDS Processing Charge claim Rs. 1,29,509/~U/s.37(1) Financial Charges. Legal Charges and Professional Charges and Upfront fee paid for ob....
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....e case of Jigar Palates ld. Commissioner of Income Tax(A) did not accept the utilization of HDFC loan towards purchases which happened to be on the same date but there was a overwriting on the date of payment. Apart from these two observations nothing else has been brought on record. 16. We further observe that assessee in its audited balance sheet placed as on 31.3.2009 at page 28 of the paper book along with schedule -B of unsecured loan at page 31 shows a list of unsecured loan of Rs. 44,60,171/- which inter alia includes alleged business loans from ABN Amro, Babaa Chem, Barclays, DCB Bank, GE Money, HDFC, ICICI Bank PL, ICICI loan a/c., Reliance Capital PL. When we further perused the audited balance sheet as on 31.3.2008 at page 78 of paper book dated 13.7.2016, we came across list of unsecured loan of Rs. 3,140,467/- which includes loan from ABN Amro, Babaa Chem, Barclays, DCB Bank, GE Money, HDFC, ICICI Bank PL. These two details show that most of the personal loans are being brought forward from previous year and some are taken fresh during Financial Year 2008-09. On further perusal of the balance sheet and more particularly the fixed assets chart at page 33 of the paper....
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....gard to disallowance u/s 40(a)(ia) of the Act for non-deduction of TDS. Issue is now well settled by the judgment of Hon. Delhi High Court in the case of in the case of CIT vs. Ansal Landmark Townships Pvt. Ltd. (ITA No.160/2015 dtd.26.8.2015) observing that the insertion of second proviso inserted by the Finance (No. 2) Act, 2004.to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005,and to be given retrospective effect and to be applied in the cases where TDS has not been deducted on the payments but expenses should be allowed if assessee is able to prove that the payee also has included the receipt from assessee in the return of income and paid due taxes. Accordingly ld. Assessing Officer may ask the assessee to furnish a certificate of Chartered Accountant as well as copies of income-tax returns of the alleged financial institutions which can prove that interest paid by the assessee has been included in their income. Needless to mention that proper opportunity of being heard may be given to the assessee to provide all the details and assessee has to adhere to and comply with the instructions and details called for by the ....
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....utstanding expenses as on the date of sale shall be that of the seller. The receipts available on records indicate that the payments demanded by the society pertain to the period prior to the date of sale agreement Now when the agreement stipulated that the outstanding expenses shall be borne by the seller , the appellant cannot be allowed any deduction therefrom. Accordingly it is held that the addition of Rs. 79,000- made by the A O is based upon correct understanding of the facts of the case and hence the same is confirmed and the connected ground of appeal stands dismissed. 20. Aggrieved, assessee is now in appeal before the Tribunal. 21. Ld. Authorised Representative submitted that it has purchased the property vide purchase deed dated 4.3.2008 for a total consideration of Rs. 10,35,000/- in Arsi Co-op. Housing Society Ltd, Opposite Gujarat College, Ahmedabad and maintenance charges of Rs. 79,000/- for Financial Year 2008-09 towards common electric expenses, lift, sweeper and water charges was paid. Payments have been made for office purposes but receipts have been issued in the name of family members who have paid the amount. The office was purchase on 4.3.2008. However....
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....Shri Ramsinghbhai and payments are in the nature of cash. Assessee could not produce any voucher in respect of such payment and accordingly the addition of Rs. 50,000/- was made. When the matter travelled to the first appellate authority addition of Rs. 50,000/- was confirmed by ld. Commissioner of Income Tax(A) by observing as under :- e) Action of A O in making addition of Rs. 50.000 on account of transportation charges During the assessment proceedings, the A O noted that appellant has debited an amount of Rs. 2.20.464/- under the head transport expenses and that majority of these were made to one Ramsmgbhai Before the A O the said Ramsinghbhai was stated to be a labourer Since no vouchers were produced the A O added back an amount of Rs. 50.000A on estimate basis It is the case of the appellant that the said Ramsmgbhai is proprietor of M/s. Akshar Cargo Movers and has provided the services of a transporter to him During the course of appellate proceedings, the appellant has attempted to introduce a copy of a transport account and copies of bills raised by said M/s Akshar Cargo Movers as additional evidences In his remand report dated 10-1-13 supra, the Id A O has stated t....
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..... were available matching with the sales made by the assessee no ad hoc disallowance should have been made. 28. On the other hand, ld. Departmental Representative supported the orders of lower authorities. 29. We have heard the rival contentions and perused the material placed before us. Through this ground assessee has challenged the lump sum disallowance of Rs. 50,000/- out of transport allowance of Rs. 2,26,464/-. We observe that the assessee was unable to produce proper documents and vouchers during assessment proceedings majority of the expenses were paid to one Mr. Ramsinghbhai who is stated to be a labourer but actually he is the proprietor of Akshar Cargo Motors. During the course of proceedings before ld. Commissioner of Income Tax(A) assessee admitted the entries to transport account and copies of bills as additional evidence. In the remand report dated 10.1.13 wherein it was observed that provisions of section 40(a)(ia) are attracted since no TDS was deducted against the payment made to the transport contractor. However, ld. Commissioner of Income Tax(A) disregarded the provisions of section 40(a)(ia) of the Act which was not taken up during assessment proceedings ....
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.... remand report this claim was not admitted as only photocopy was placed. Ld. Commissioner of Income Tax(A) confirmed the action of ld. Assessing Officer of denying deduction u/s 80GGC of the Act of Rs. 3,51,000/- by observing as under :- 1) Addition on a/c of denial of claimed of deduction U/s. 8QGGC of Rs. 3,51,000/- The A O had noted that the appellant had passed a cash entry of Rs. 3 51.000/- towards donation u/s 80GGC, however no proof was given for establishing genuineness thereof The A O therefore made the impugned addition It is the case of the appellant that it has made a donation of Rs. 3 51.000/- to one Lok Janshakti Party on 31-3-2009 vide receipt No 507C The appellant attempted to introduce additional evidences by way of receipt issued by the said party In the remand report dated 10-1-2013 supra, the A O has indicated that the appellant has filed only a photo copy and no original or any eligibility certificate issued by any competent authority was provided him for verification It has been held in the preceding paras that the additional evidences produced by the appellant cannot be admitted since appellant has failed to provide with any cogent and justified reasons....