TaxTMI 
TaxTMI 
2019 (9) TMI 599
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....he addition of Rs. 13,70,000/-made under section 68 of the Act. 2. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming addition of Rs. 33,594/- in respect of bad debts written-off. 3. The Ld. CIT(A) has erred, both in law and on the facts of the case, in partly confirming the ad hoc disallowance in respect of sales promotion expenses up to Rs. 1,38,014/-being 20% of total expenses out of total disallowance of Rs. 3,45,033/- being 50% of total expenses. 4. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming ad hoc disallowance of Rs. 18,318/ being 20% of total vehicle & telephone expenses. 5. The Ld. CIT(A) has erred, both in law and on the facts of the case, in partly confirming the ad hoc disallowance in respect of travelling and conveyance expenses up to Rs. 7,465/- being 10% of total expenses out of total disallowance of Rs. 14,930/- being 20% of total expenses. 6. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming action of AO in treating trademark expenses of Rs. 52,000/- as capital expenditure. 7. The Ld. CIT(A) has erred, both in la....
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....iness of the lenders. Therefore the AO treated the amount of loan of Rs. 13,70,000/- as unexplained cash credit u/s 68 of the Act and added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to Ld.CIT (A). The assessee before Ld.CIT (A) submitted that it had filed confirmations, PAN of the lenders and copies of cheques issued by the lenders. In case of any doubt, the AO could have taken confirmation from the bank. The copies of the cheques issued by the lenders were available with the AO. 5.1 The assessee also submitted that both the lenders are non-resident Indian and this fact was very much brought to the notice of the AO during the assessment proceedings. Therefore these non-residents Indian maintained NRE account which was used for advancing loans to the assessee. 5.2 The books of accounts of the assessee were duly audited, and no adverse remark was pointed out by the Auditors regarding the Financial Statements. Therefore there cannot be any question of treating the loan as an unexplained cash credit under section 68 of the Act. 5.3 The Ld.CIT (A) called for the remand report from the AO who rejected the confirmations letters filed by the....
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....''Ld.AR submitted that stands proved from the fact that funds have been received by cheque and also creditworthiness of lender, the same stands proved from bank statement wherein there were sufficient funds prior to the amount being lent to the assessee. Thus all the three ingredients as prescribed u/s 68 are proved by the assessee. 7.7 Ld.AR, stated that section 68 of the Act cast an initial burden on the assessee to prove identity, genuineness, and creditworthiness of lenders which has been discharged by placing on record documentary evidence. Having discharged the initial onus with a satisfactory explanation, onus shifts on the Revenue. 7.8 It transpires that objection of AO & CIT(A) was also that assessee had not proved a source of such persons to provide loans to the assessee. 7.9 The Ld.AR further submitted that section 68 of the Act, doesn't require an assessee to prove the source of the source of deposits. Hence no addition is called for u/s.68 of the Act. The Ld.AR also placed reliance upon the judgment as follows: DCIT Vs. Rohini Builders 256 ITR360(Guj) Murlidhar Lahorimal Vs. CIT 280 ITR 512 (Guj.) CIT Vs. Pragati Co. Op. Bank....
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....count payee cheque was not sacrosanct nor could it make a non-genuine transaction genuine." 9.2 In the case on hand, we find that the assessee has provided the following documents: i. Bank statement of NRE accounts of both the lenders. ii. Confirmation letters from both the lenders on the plain papers dated 17-2-2004 and 5-3-2004. iii. Copy of cheque issued to the assessee by both the lenders. iv. PAN of one lender namely Sushibhai Patel, the PAN of the other lender namely P.R. Pankhania was not furnished. v. Confirmation of the accounts maintained by the assessee in his books. 9.3 Regarding the identity of both the lenders, we note that the PAN of Shri Sushibhai Patel was furnished to the AO during the assessment proceedings. Therefore the identity of Sushibhai Patel cannot be doubted. 9.4 As regards the identity of Shri P.R. Pankhania, we note that there was the bank statement furnished by the assessee to the AO. The AO also obtained the copy of the bank statement from the bank of the lender which is available on record. A bank account is opened after due verification of the KYC documents of the customer. Therefore we can s....
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.... questioned. As such the assessee is liable to justify the source of money in his bank accounts. The assessee is not expected to justify the source of funds in the hands of the lenders. In this connection, we place our reliance on the judgment of Hon'ble Gujarat High Court in the case of DCIT Vs. Rohini builders reported in 256 ITR 360 wherein it was held as under: "It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723. The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques." 9.....
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..... Aggrieved assessee preferred an appeal to the Ld.CIT (A). The assessee before the Ld.CIT (A) submitted that it has wrongly claimed the deduction of Rs. 33,594/- under the head ''bad debts''. As such the amount represents advance given to the parties which were written-off in the year under consideration on the ground that there was nothing recoverable from such parties. The assessee furnished the details of advances as reproduced below: Sr.No. Name of Party Nature of Advance Amount in Rs. 1. American Quality Assessor India Pvt Ltd Professional Fees paid to obtain ISO 9001 certification work 8500 2. Kanubhai B Mali Paid for building Renovation 8626 3 Kanaram T Mistry Paid for Furniture Repairing 14280 4. Kancharabhai S Mali Paid for Furniture Repairing 2188 Total 33594 12.1 The assessee further submitted that the advances were given in the course of business. Therefore the same are liable for deduction u/s 37(1) of the Act. 12.2 The remand report was called upon by the Ld. CIT (A) from the AO who submitted that the assessee had not filed any documentary evidence suggesting that these advanc....
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....by the assessee for recovery of these advances and consequential write off thereon are enclosed. The issue under dispute is squarely covered by the Co-ordinate Bench decision of this Tribunal in favour of the assessee in assessee's own case for the assessment year 2009-10 in Dy. CIT v. J. Thomas & Co. (P.) Ltd. [I.T. Appeal No. 275/Kol/2014, dated 28-2-2017] 16.3 However, on the perusal of Ld. CIT(A) order we find that the claim of the assessee was denied due to non-furnishing of supporting evidence by the assessee. Though, the assessee claimed in the submission before the Ld. CIT(A) that the copies of the ledgers of the parties were filed vide letter dated 13 January 2012. 16.4 From the preceding discussion, we find a contradiction in the submission of the assessee before the Ld. CIT(A) vis a vis the finding of the Ld. CIT(A). We also find that the Ld. Counsel for the assessee had not furnished the copies of the ledgers of the parties in the paper book filed before us to whom the assessee provided the trade advances. 16.5 Thus we hold that the facts of the dispute are not clear as discussed above from the order of authorities below. But we note that the onus lies on t....
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....tion. Such expenses have been incurred wholly and exclusively for the business. Ld.AR further submitted that AO and Ld.CIT (A) cannot sit in the chair of the businessman and decide the reasonableness of any business expense. The details of such expense appear in the audited books of account running from pages 21 to 40 of a paper book. Under such circumstances, Ld.CIT (A) ought to have deleted the impugned addition in toto. 22. On the other hand the Ld.DR vehemently supported the order of authorities below. 23. We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has claimed sales promotion expenses amounting to Rs. 6,90,065/-only. However, the AO was of the view that the expenses claimed by the assessee under the head sales promotion expenses are exorbitant considering the nature of the business of the assessee. However the Ld. CIT (A) restricted the disallowance to the tune of 20% of such expenses by observing that the expenses were not verifiable as these were incurred in cash. 23.1 The scheme of the income tax Act mandates that the expenses incurred wholly and exclusively for the purpose of the business a....
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.... because there can be a possibility that the assessee and the party are unknown to each other. Thus the party will not supply the gift items to the assessee without receiving the payment at the time of delivery of the gift items. Thus the assessee has no option except to make the payment in cash against the purchases of the gift items. So we are of the view that there prevail certain situations and circumstances where assessee cannot make the payment through banking channel. Therefore we are of the view that the gift expenses incurred by the assessee cannot be disallowed merely on the ground that these were incurred in cash and without establishing the fact that these were not incurred wholly for the purpose of the business. 24.8 We also find that the Hon'ble Calcutta High Court in the case of Cheviot Co Ltd versus CIT reported in 11 taxmann.com 276 has held that the disallowance of the expenses cannot be made on the basis of the guesswork and without pointing out the specific defects in the expenses claimed by the assessee. The relevant extract of the order is reproduced below: "The assessee produced details of vouchers and other documents in support of the claim in re....
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....(A). The assessee before Ld.CIT (A) submitted that there could not be any personal element in the car insurance and depreciation allowance. Therefore this cannot be considered for the disallowance at the rate of 20%. 27.1 It has already made disallowance in the computation of income and therefore no further disallowance on ad-hoc basis can be made. However, the Ld.CIT (A) did not agree with the submission of the assessee on the ground that the assessee failed to furnish evidence in the form of the logbook for the vehicle and call details of the telephone expenses. Therefore he confirmed the disallowance made by the AO. 28. Being aggrieved by the order of the Ld.CIT (A) the assessee is in appeal before us. 29. The Ld.AR before us submitted that these expenses comprise of car insurance, vehicle repairs, depreciation on vehicles and telephone expenses which has been incurred wholly and exclusively for the business. Such expenses appear in audited books of the account running from page 21 to 40 of the paper book. Under such circumstances the Ld.CIT (A) ought to have deleted impugned additions. 30. The ld. DR vehemently supported the order of authorities below. 31. We hav....
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....supporting evidence to the AO during the assessment proceedings. The AO without pointing out any defect in the details filed by it has made ad-hoc disallowance. 35.1 The books of accounts of the assessee were duly audited, and no defect whatsoever was pointed out by the Auditor. 35.2 The Ld.CIT (A) after considering the submission of the assessee restricted the addition to 10% by observing that the element of personal used cannot be denied. 36. Being aggrieved by the order of Ld.CIT (A) the assessee is in appeal before us. 37. The Ld.AR, before us, submitted that such expenses had been incurred wholly and exclusively for the business, and also such expenses appear in audited books o accounts running from pages 21 to 40 of the paper book. Under such circumstances the Ld.CIT (A) ought to have deleted the impugned addition in toto. Alternatively, some token disallowance may be confirmed. 38. On the other hand Ld. DR vehemently supported the order of the authorities below. 39. We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has claimed Travelling & conveyance expenses amounting to Rs. 74,648/-only.....
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....d by the order of Ld. CIT (A) assessee is in appeal before us. 44. The Ld.AR, before us, submitted that it is mandatory to get the products registered under trademark laws. Such expenses have neither resulted into any capital asset, not any enduring benefit to the assessee to hold that such expenses are capital in nature. Such expense has been incurred wholly and exclusively for the business. Under such circumstances, Ld.CIT (A) ought to have deleted impugned addition. 45. On the other hand the Ld.DR vehemently supported the order of the authorities below. 46. We have heard the rival contentions and perused the materials available on record. The assessee has incurred expenses for the registration of the trademark of its product amounting to Rs. 52,000/- Only. The assessee claimed such expenses as in the nature of revenue and accordingly debited the same in the profit and loss account. However, the AO was of the view such expenses represents the intangible assets within the meaning of section 32 of the Act. Therefore the AO disallowed the same after allowing the depreciation on such expenses treating the same as intangible assets. The Ld. CIT-A subsequently confirmed the vi....
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.... connection with the registration of trademark represents the intangible assets. Accordingly, such expenses need to be capitalized. Therefore we do not find any infirmity in the order of authorities below. Hence the ground of appeal of the assessee is dismissed. 47. The seventh ground raised by the assessee is that Ld.CIT (A) erred in confirming disallowance of interest expenses of Rs. 17,404/- u/s.36(1)(iii) of the Act. 48. The assessee during the year has given advance to the following parties: Sr. No. Name of party Amount 1. Shalini D Patel 1,00,000/- 2. V.M. Ganatara 16024/- 48.1 The assessee in respect to such loans has not charged any interest. However, the assessee claimed that the advances were given during the normal business transaction, out of internal accruals and it was for a very short period. Therefore no interest was charged on such advances. 48.2 However, the AO observed that the assessee has been showing losses since the assessment year 1997-98 onwards and there was no own fund available with it. 48.3 However, the AO also observed that the assessee had claimed interest expenses in the profit and loss account amountin....
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.... in the order of Ld. CIT(A). Hence the ground of appeal of the assessee is dismissed. 54. The eight ground raised by the assessee is that Ld.CIT (A) erred in partly confirming the ad-hoc disallowance of Rs. 23,241/- for factory and welfare expenses. 55. During the year assessee has claimed expenses of Rs. 76,771.00 and 1,55,645/- for factory and welfare expenses. The assessee claimed that these expenses were incurred for providing lunch, biscuits, snacks, etc. As per the assessee, these expenses were incurred exclusively for the purpose of the business. 55.1 However, the AO was of the view that the personal element out of these expenses cannot be ruled out. Therefore he made the disallowance of Rs. 46,483/- being 20% of Rs. 2,32,426/- and added to the total income of the assessee. 56. The aggrieved assessee preferred an appeal to Ld.CIT (A). The assessee before Ld. CIT (A) submitted that the disallowance had been made on an ad-hoc basis and without pointing out any specific instance to justify that the assessee has incurred such expenses for its personal use. 56.1 However, Ld.CIT (A) disagreed with the contentions of the assessee by observing that element of the pers....