2024 (12) TMI 1422

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....aring a total income of Rs. 2,22,72,640/-. The return was processed under Section 143(1) on 01.10.2016 and the case was selected for scrutiny under CASS. The AO completed the scrutiny after making following additions: * Disallowance of Travel Expenses - Rs. 35,60,621/- * Disallowance of Prior Period Expenses - Rs. 1,20,95,071/- * Addition under Section 68 - Rs. 9,06,000/- * Disallowance under Section 36(1)(va) - Rs. 1,03,440/- * Disallowance of Interest Expenses under Section 36(1)(iii) - Rs. 27,73,725/- * Discrepancy in Form 26AS and P&L Account - Rs. 52,860/- 3. The assessee preferred an appeal before the CIT(A), who partly allowed the appeal by allowing a relief on account of prior period expenses. 4. Aggrieved by the order of the CIT(A), the assessee is in appeal before us with following grounds of appeal: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition made by Assessing Officer for Rs. 35,60,621/- on account of travel expenses u/s 37. The Ld. CIT(A)ought to have appreciated the fact that the such expenditure was incurred for the purpose of appellant's ....

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....emails, contracts, or correspondence showing the purpose of travel was wholly and exclusively for the assessee's business. The AO also observed that the assessee did not have any branch, office, or operational activities outside India, which could justify the expenditure. 6.1. The CIT(A) upheld the AO's disallowance. The CIT(A) noted that the assessee failed to submit supporting documents such as agreements, contracts, or communications to establish that the foreign travel was undertaken for business purposes. The CIT(A) also noted that mere statements claiming that the expenses were for negotiating business deals are insufficient to meet the requirements of Section 37(1). The CIT(A) observed that there was no evidence to substantiate that the assessee engaged in negotiations or entered into contracts with specific entities during the foreign visits especially when the assessee did not have any operational business presence or branch office in Dubai or other foreign locations. CIT(A) also placed reliance on some judicial precedents. 7. During the course of hearing before us, the AR stated that the statement of expenses submitted before lower authorities explains that ....

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....l. Ground No. 2 - Addition of Rs. 9,06,000/- u/s 68 of the Act 8. During the course of assessment proceedings, the AO observed that amount of Rs. 9,06,000/- was recorded in the head "Dev Aurum Booking Account" in the books of the assessee and represented cash received during the financial year under consideration. The assessee claimed that this amount was received as an advance for booking Unit No. B-403 in the "Dev Aurum Scheme" from a party, Mr. Utpal Gajjar. The assessee explained that the booking advance was subsequently repaid in the next financial year upon the cancellation of the booking. 8.1. The AO concluded that the assessee failed to furnish supporting documents to establish the identity, creditworthiness, and genuineness of the transaction with Mr. Utpal Gajjar. The AO observed that the entry was recorded in the books under the head "Dev Aurum Booking Account" without specifying the name of the depositor initially. Regarding the repayment of booking advance, the AO concluded that no evidence such as bank statements, repayment confirmations, or correspondence with the party was submitted to substantiate this claim. Consequently, the AO treated the amount of Rs. ....

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....he source of funds. The onus is squarely on the assessee to prove the identity, creditworthiness, and genuineness of the transaction, which remains unfulfilled in this case. 101. Further, the tax auditor's comment that the transaction was "subject to reconciliation" indicates a lack of clarity and proper documentation regarding the nature and source of the cash credit. This strengthens the view that the assessee failed to maintain proper records and reconcile the transaction adequately. 10.2. In view of the above facts and the failure of the assessee to discharge its onus under Section 68, we find no infirmity in the findings of the AO and the CIT(A). Accordingly, the addition of Rs. 9,06,000/- under Section 68 is confirmed, and this ground of appeal is dismissed. Ground 3 - Addition made by AO u/s 36(1)(va) on account of delay in depositing PF/ESIC contributions. 11. During assessment proceedings, the AO observed that the assessee had delayed depositing employees' contributions toward PF/ESI beyond the statutory due dates specified under the respective Acts. However, these contributions were deposited before the due date of filing the return of income under Section....

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.... "wholly and exclusively" for the purposes of the business. 14. The CIT(A) observed that the assessee failed to demonstrate the business purpose or commercial expediency for the advances given to related parties or cash withdrawals. It was noted that the advances were interest-free, while the assessee was incurring significant interest expenses on borrowed funds, indicating a diversion of funds for non-business purposes. The assessee claimed that the advances were made for business purposes. However, the CIT(A) noted that the assessee did not have sufficient interest-free funds to grant such advances. The CIT(A) also noted that there was a clear nexus between the borrowed funds and the advances given, as the assessee was paying interest on loans while giving interest-free advances. The CIT(A) referred to disallowances made in the case of group entities such as Sanjay Hiralal Thakkar, where interest disallowances were upheld on similar grounds. This reinforced the decision that the funds were not used for business purposes. The CIT(A) upheld the disallowance of Rs. 27,83,725/- under Section 36(1)(iii) made by the AO. 15. During the course of hearing before us, the AR reiterate....