TaxTMI 
TaxTMI 
2018 (6) TMI 1806
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....o arise due to utilization of the available funds for the said investment. 3. The Id. CIT(A) has erred in deleting the addition of Rs. 1,21,628/- made by the AO on account of interest paid in excess of bank rate u/s 40A(2)(b) of the Act by unduly emphasizing on the imputed costs of bank loans and without appreciating the fact that the interest payment was made to related-parties. 4. The Id. CIT(A) has erred in deleting the addition of Rs. 19,84,563/- made by the AO on account of diversion of funds by the assessee to its sister concern which was not related to its business activities. 5. The Id. CIT (A) has erred in deleting the addition of Rs. 10 lacs made on account of abnormal increase of freight and advertisement expenses, by holding that the AO has not given a single instance of expenditure, which was not incurred for business purposes without appreciating the approach of the AO in detecting the unreasonable increase in expenditure, whereby the onus fell on the assessee to fully justify the expenditure incurred on these heads. 6. The Id. CIT(A) has erred in directing the AO not to make an addition on account of subsidies received in earlier years amounting to Rs. 45....
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....ed in upholding disallowance of Rs. 17,46,331 out of the staff welfare expenses being expenses incurred on school building on the contention that these expenses are not incurred for the purposes of the business of the assessee. The disallowance be deleted. 5. As per facts and circumstances of the case and provisions of law, the learned COMMISSIONER OF INCOME TAX (APPEALS) has erred in upholding disallowance of interest u/s 36(1)(iii) on advance of Haryana State Agriculture Marketing Board for purchase of shop. The disallowance be deleted. 4. Ground No.2 of the Revenue's Appeal and Ground No. 1 of Assessee's appeal relate to disallowance under section 14A: 4.1 Brief facts of the issue are that as per balance sheet as on 31.03.2010, the assessee was having investments in equity shares of various companies and concerns, from where it was to earn exempt income. The Assessing Officer asked the assessee regarding disallowance of proportionate interest and administrative expenses u/s 14A of the Act. 4.2 It was submitted that besides other investments, the company had invested only Rs. 2,30,000/- as initial investment in Khandelia Mercantile LLP and rest of the amount was due to pr....
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....ximum rate of interest on unsecured loans should not be more than 11% and so he restricted the claim of interest to 11%. Disallowance of Rs. 1,21,628/- was made on this account. 5.2 The Ld. CIT(A) having considered the facts of the issue and held that some of the persons, in respect of whom interest has been restricted, are not covered by section 40A(2)(b) and the rate at which interest was paid cannot be considered excessive if one takes into account the conditions of borrowing as the borrowings are obtained without any collateral securities unlike banks. 5.3 Before us, the Ld. AR relied on the order of the Ld. CIT(A) and the Ld. DR relied on the order of the Assessing Officer. 5.4 The disallowance of 1% on account of interest paid the outside parties which the assessee categorically explains to be not related as per the Section 40A(2)(b) is against the provisions of the Act. Even so keeping in view the market condition since the monies have to be raised at a faster pace, payment of 1% excess interest cannot be said to be unreasonable and hence the addition made is hereby deleted. 5.5 As a result, appeal of the Revenue on this ground is dismissed. 6. Ground No. 4 of the Reven....
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....xpenses has increased from 0.63% to 0.96% because of the increase in diesel rates and advertisement to sales ratio has decreased from 0.27% to 0.21%. According to the assessee, all the expenses were incurred for the purposes of business. The Assessing Officer has made the disallowance on the ground that expenses have increased despite decrease in its profit and certain vouchers were not for business purposes in entirety, but the Assessing Officer has not given a single instance of expenditure, which was not incurred for business purposes. 7.5 It was argued that lump sum disallowance without giving any cogent reason for making disallowance and without pointing out that any claim of expenditure out of these expenses was not genuine. 7.6 Having gone through the issue and the assessment order we find that the Assessing Officer has not brought any material on record primarily to disallow the expenditure. Keeping in view the assessee's argument that the rise in expenditure is due to rise in diesel prices and the fact that advertisement expenses have come down with relation to the overall sales, we find no reason to confirm the disallowance made by the Assessing Officer in the absence o....
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....sing Officer has made addition of subsidy of Rs. 45,56,500/- on the ground that the relevant documents were not produced to prove that the amount of subsidy had been adjusted against value of fixed assets. 8.4 The Ld. CIT(A) further held that the assessment of the company has generally been done under scrutiny in the earlier years and there is little chance that Assessing Officer failed to consider subsidy as per relevant provisions of law and since the Assessing Officer must have certainly satisfied himself in the respective assessment years that the subsidy was treated as per the law, prevalent in the respective year(s). For the same reason, there is no substance in the observation of the Assessing Officer that the depreciation claimed was more than the amount of subsidy. 8.5 The Assessing Officer made addition as documents has not been submitted regarding the receipt of the subsidy. 8.6 The Ld. CIT(A) has also deleted the addition on assumption that the earlier Assessing Officers must have satisfied themselves about the correctness of the claim. 8.7 We hereby direct the assessee to produce the documents pertaining to receipt of subsidy and also calculation of depreciation. T....
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...., the Ld. CIT(A) directed the AO to restrict the disallowance and to re-compute the same for the period for which it remained with Haryana State Agriculture Market Board. 9.4 We have gone through the facts on record, placing reliance in the case of Bright Enterprises Pvt. Ltd. Vs. CIT 381 ITR 107-wherin Hon'ble P&H High Court has observed that if the interest free funds are available a presumption would arise that investment would be out of interest free funds. The commercial expediency is not in doubt as the advance was given for purchase of Shop for the business of the company in the Mandi Area to be set up by the Board. 10. Ground No. 9 of the Revenue's Appeal relates to disallowance of interest of Rs. 51,000/- 10.1 Brief facts are that the assessee had shown an amount of Rs. 51,000/- as advance to Rotary Club, Chandigarh Mid Town. The Assessing Officer has disallowed this amount. 10.2 The Ld. CIT(A) held that the assessee has submitted that this amount was not claimed as an expenditure and it is shown as advance only. An expenditure cannot be disallowed if it has not been debited to the profit & loss account. Therefore, the Assessing Officer is directed to verify as to whet....
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....matter on record and history of the case we are in total agreement with the observation of the Ld. CIT(A) that, the assessee has cited many cogent reasons like huge volume of sales to these concerns etc. to justify the sales to the sister concerns at lower rates. It may be clarified that while the addition for inflated purchases in respect of purchases made from sister concerns could be made u/s 40A(2)(a), but there is no corresponding provision in respect of sales made to sister concerns. The department cannot compel a person to make profit out of every transaction since the department does not have any authority to, ask a person to maximize its profits. If the assessee chooses to give discount to someone, he is free to do it. The only criteria/condition is that the transaction (sale) should not result in loss. 11.6 This principle was enumerated by the Hon'ble Supreme Court in the case of M/s Calcutta Discount Company Ltd. (91 ITR 8) in which Their Lordships have held that when a trader transfers his goods to another trader at a price which is less than the market price, so long as the transaction is bona fide, the revenue authorities cannot consider the market price ignoring....
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....er so as to make him eligible for allowance of this expenditure. 12.5 As a result, this ground of appeal of the Assessee is allowed for statistical purposes. 13. Ground No. 3 of the appeal of the Assessee relates to the disallowance of Travelling expenses: 13.1 Brief facts of the issue are that the assessee had claimed an expenditure of Rs. 2,49,613/- on account of foreign travelling. The Assessing Officer asked the assessee to provide details regarding foreign visits and the assessee had submitted that this expenditure was incurred for visit to USA towards stay and ticket to explore possibility of export of DOC and import of Soyabean oil and to explore the possibility of efficiencies of process and process improvements. The Assessing Officer was not satisfied with the explanation of the assessee and disallowed the entire amount with the following observations: "The above reply of the appellant is not acceptable. Except this submission, appellant has not submitted any documentary evidence regarding the business purpose of the appellant for taking the foreign visit. The appellant has not filed any copy of passport/ visa and detail regarding date of journey etc. Moreover, all t....