TaxTMI 
TaxTMI 
2022 (3) TMI 891
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....purchases were made from genuine parties. 2. In law and in facts and circumstances of the appellant's case, the Learned C1T(A) has erred in confirming the disallowance of Rs. 6,04,326/- out of the total depreciation on adhoc basis as personal expenditure when no such disallowance is called for. 3. In law and in facts and circumstances of the appellant's case, the Learned C1T(A) has erred in confirming the disallowance of Rs. 2,62,053/- out of total petty cash expenditure on adhoc basis when no such disallowance is called for. 4. In law and in facts and circumstances of the appellant's case, the Learned CIT(A) has erred in confirming the disallowance of Rs. 4,80,278/- towards travelling expenditure when no such disallowance is called for. 5. In law and in and circumstances of the appellant's case, the Learned CIT(A) has erred in confirming the disallowance of Rs,18,53,888/- out of total interest expenditure calculated on proportionate basis when no such disallowance is called for. 6. The appellant craves leave to add, to alter, to amend and/or withdraw any of the grounds or grounds of appeal either before or at the time of....
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.... held be bogus purchases (grounds number 1 and 2 of Revenue appeal). 5.1 The brief facts in relation to this ground of appeal are that the assessee is engaged in construction and development of residential project namely "Unique Lake Square" and commercial project "Unique Metropolis" during the year under consideration. The assessee has shown income from sale of flats in the residential project and shops/offices in the commercial project. Apart from this, the assessee has also shown income from short term capital gain and income from other sources. The assessee filed return of income on 27-09-2011 declaring total income of Rs. 87,14,690/-. The case of the assessee was selected for scrutiny and on perusal of profit and loss account for the year under consideration, it was seen that a sum of Rs. 3,97,31,092/- has been debited under the head "construction and other expense" out of which an amount of Rs. 2,23,15,804/- has been claimed in respect of purchase of materials. To verify the genuineness of the purchase of material, notices u/s. 133(6) of the Act was issued to various parties and the inspector of the ld. Assessing Officer was also deputed to check the genuineness of the par....
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....ssessing Officer held that surrounding facts and circumstantial evidence clearly establish that purchases claimed to have been made from above parties are not genuine. The ld. Assessing Officer accordingly held that looking to the facts and circumstances, the assessee's claim for purchases amounting to Rs. 44,05,249/- is found to be non-genuine and bogus and was disallowed. 5.2. In appeal, ld. CIT(A) gave part relief to the assessee and restricted disallowance to 12.5% of the concerned purchases as against total purchases disallowed by the Assessing Officer. The ld. CIT(A) accepted the assessee's contention that sale of flat made by the appellant are not doubted, books of accounts are audited by chartered accountant who has not found any defect in purchases made by the assessee, the parties were duly registered with VAT/CST during the year under consideration, copies of PAN, confirmation of account signed by the parties, copy of invoices and delivery challan and bank statement etc. wherein payments made for purchases from these parties were through banking channel were furnished during the course of assessment proceedings. However, the submission made by the assessee was found t....
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....in person before the Assessing Officer. The Assessing Officer made a disallowance of 100% of purchases from parties of doubtful identity. However, the ld. CIT(A) considering the facts of the case restricted the disallowance to 12.5% of total purchases. In the appeal before ITAT Ahmedabad Bench, the Hon'ble Bench on the above facts modified the order of the ld. CIT(A) by restricting the disallowance to 5% from 12.5% out of total purchases. 5.5 We note that that facts in the instant case are similar to the judgment cited by the assessee above. In the present case, though the assessee filed various details / evidences in order to prove genuineness of the purchases, but the vendors could not be produced despite being afforded several opportunities. Therefore, looking into the entirety of facts especially the fact that the sale of flats has been accepted as being genuine and the books of accounts of the assessee are audited by chartered accountant who has not found any defect in purchases made by the appellant, we think it is fit to restrict the disallowance to 5% of the purchases, in the interest of justice. 5.6 Ground No. 1 of the assessee's appeal is partly allowed and Ground N....
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....entions. Regarding, disallowance of depreciation on motor vehicles, it would be useful to reproduce section 38 of the Act, which reads as below: 38. (2) Where any building, machinery, plant or furniture is not exclusively used for the purposes of the business or profession, the deductions under sub-clause (ii) of clause (a) and clause (c) of section 30, clauses (i) and (ii) of section 31 and clause (ii) of sub-section (1) of section 32 shall be restricted to a fair proportionate part thereof which the Assessing Officer may determine, having regard to the user of such building, machinery, plant or furniture for the purposes of the business or profession. 6.4 In the case of CIT v. K.L. Bhasin & Co. [1986] 158 ITR 623 (Patna High Court), the High Court on disallowance of depreciation on motor cars on account of personal use, observed as below: It is well established that the partners cannot be considered as a separate entity from the firm. Hence, the contention that the partners and not the assessee-firm were using the cars for private purposes and there could, therefore, be no disallowance of depreciation to the assessee could not be accepted. On reading....
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....assessment of the firm having held that 1/5th as the estimated proportion in respect of which the motorcars are not used exclusively for the purpose of business of the firm, following the same, we direct that 4/5ths of the claim for depreciation be allowed in the hands of both the appellants, the facts being the same. 6.6 We find that Mumbai ITAT in the case of SSK Engineering Works (supra) has restricted the disallowance of depreciation on motor vehicles to 10%, on similar set of facts, with the following observations:- "4. As regards ground Nos. 2 & 3 relating to the disallowance made out of motor-car expenses and depreciation on motor-car, it is observed that no record in the form of log book etc. was maintained by the assessee's to show that the said expenses were wholly and exclusively incurred for the purposes of its business. Since the use of motor cars of the assessee firm by its partners for personal purpose, could not be ruled out, the Assessing Officer made a disallowance of 20% out of motor-car expenses and depreciation on motor-car on motor-car on account of such personal use. On appeal, the learned CU(A) restricted the said disallowance to 10%. ....
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....supported by any bills/vouchers and thus the same are self-vouched. The ld. Assessing Officer looking into all these facts disallowed 10% of total cash expenses since the same is not supported by any bills/vouchers and thus the same are self-vouched. 7.1 In appeal before ld. CIT(A), the assessee submitted that the payment in cash is made towards petty expenses such as refreshment expenses, maintenance expenses, Diwali bonus, stationary expenses for which no vouchers are available and hence the same are supported by self-made vouchers. Further, the assessee submitted that the books of accounts are subject to independent audit by chartered accountant and hence no disallowance towards cash expenses on adhoc basis is justified. The ld. CIT(A) held that even during the course of appellate proceedings, the appellant has not provided any supporting evidences to controvert the observation of the Assessing Officer. Thus, in the absence of supporting evidences, genuineness of payment made in cash is not established. Accordingly, the ld. CIT(A) held that disallowance in respect of petty cash expenses made in the assessment order at 10% of total cash expenses is found reasonable and accordi....
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.... of any part of the aforementioned expenses for non business purposes. We are of the considered view that in the absence of irrefutable documentary evidence which could substantiate the claim of expense raised by an assessee, the assessing authority is left with no other option but in all fairness to disallow a part of such expenditure so claimed by the assessee. In the case before us, as the assessee had failed to maintain the log book/records, and had merely tried to support its claim of cash expenses on the basis of self made vouchers, thus we are of the considered view that the A.O not inspired by the said unsubstantiated claim of expenses by the assessee, had thus in all fairness disallowed 10% of such expenses leading to a consequential addition of Rs. 8,01,550/- in the hands of the assessee. We thus not finding any infirmity in the orders o the lower authorities, uphold the disallowed of 10% of the total expenses of Rs. 80,15,452/-. The Ground of Appeal No. 5 is dismissed. 7.6 The Cochin Tribunal in the case of Shalom Charitable Ministries of India v. ACIT [2018] 94 taxmann.com 266 (Cochin - Trib.) observed as below in respect of reasonable disallowance in respect of self....
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.... bills regarding visit of the partners to China and Dubai for the business purposes. In absence of exact details regarding invoice for purchase of furniture for which such travelling expenses are incurred, this ground of appeal of the assessee was dismissed. 8.2 Before us, the ld. Authorized Representative of the assessee reiterated the arguments which were submitted before the lower authorities. However, we are not convinced with the arguments of the assessee and we are of the view that in the instant facts, the assessee has not been able to substantiate the purpose of visit to Dubai and China and in absence of any details/ supporting evidences, we find no infirmity in the order of the ld. CIT(A) who dismissed the assessee's appeal due to lack of any supporting documents or evidences in support of the fact that the partner had travelled for official performances. 8.3 Accordingly, Ground No. 4 of assessee's appeal is dismissed. Ground No. 5 of assessee's appeal and Ground No. 3 of Department's Appeal : Disallowance of interest expenditure 9. This is a common ground for which both the assessee and the department are in appeal before us. The assessee is in appeal before u....
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....wance of 40% of total interest of Rs. 82,70,827/- and disallowance is not based on any formula vis-à-vis facts of the case. The ld. CIT(A) made a proportionate disallowance of interest free advances calculated as a proportion of average advances to average total assets and accordingly, restricted the disallowance to Rs. 14,54,580/-. 9.3 Before us, the ld. counsel for the assessee submitted that the assessee's interest free funds are much larger as compared to interest bearing funds and therefore it is incorrect to presume that interest free funds have been utilized for giving interest free advances. The assessee drew our attention to page 34 of CIT(A)'s order wherein the assessee submitted that assessee has a substantial pool of funds comprising of own funds, internal accruals and borrowed funds amounting to 8.51 crores comprising of partners capital (1.59 cores), interest free unsecured loans (Rs. 4.64 crores) and members collection (collection from members for booking of flats 2.27 crores). Further the assessee drew our attention to page 6 of the paper book in support of the fact that during the year it had interest free loans amounting to Rs. 4.73 cores at its disposal....
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.... a presumption would arise that investments would be out of the interest-free fund generated or available with the company , if inerest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT (Appeals) and ITAT." 9.6 In view of the above ruling and the facts brought to our notice, in our view, since the assessee had substantial interest free funds at its disposal, it would be incorrect to presume that interest bearing funds were used for giving interest free advances to parties. Therefore, no disallowance u/s. 36(1)(iii) is called for in the instant set of facts. In the result, ground no. 5 of the appeal of the assessee is allowed and ground no. 3 of the revenue's appeal is dismissed. Ground Nos. 4 to 6 of the Department's appeal: Deletion of the addition of Rs. 1,09,50,000/- made u/s. 68 of the Act 10. The brief facts of the case in relation to this ground are that during the year under consideration the assessee had received an amount of Rs. 1,00,00,000/- from one Mr. Jiten Amrutbhai Patel and a sum of Rs. 9,50,000/- from Mr. Natwarbhai Nai. The ld. Assessing Officer noted that the g....
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.... and the genuineness of the transactions remained unexplained. The ld. Departmental Representative argued that the onus was always on the assessee to adduce the evidence and to establish the bonafides of the transactions. Merely payment by account payee cheque would not make a non-genuine transaction genuine. The assessee was required to identify capacity of the depositor and genuineness of the transaction in order to ascertain whether the depositors appearing in the books of accounts of the assessee have to be accepted or rejected. The ld. counsel for the assessee, in response, submitted that the identity and genuineness of transaction has been proved and appreciated by ld. CIT(A) during the course of appellate proceedings. He drew our attention to page no. 97 of the paper book to show that this transaction was conducted through banking channels. The assessee further drew our attention to pages 94 to 96 of the paper book showing confirmation of parties. The assessee submitted that once the assessee has shown the source of income he is not required to prove the source of source. The assessee had given the identity of the parties and furnished the confirmation of the parties, the tr....