TaxTMI 
TaxTMI 
2025 (3) TMI 1827
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....inciple of natural justice and deserves to be quashed. 2. On the facts and in the circumstances of the case and in law, ld.CIT(A) has erred in passing the order without considering the evidences adduced and solely on the basis of observations made by ld.AO in assessment order, arbitrarily. 3. On the facts and in the circumstances of the case and in law, ld.CIT(A) has erred in confirming the disallowance of Rs. 47,74,320/- made by ld.AO, out of interest expenses claimed by assessee, arbitrarily. 3.1 That, ld.CIT(A) has further erred in confirming the disallowance of interest expenses made by ld.AO, on his own presumptions that part of the loans were utilised for making investment in personal assets and without considering the fact that loans taken by assessee were wholly and exclusively utilised for the purpose of business and interest paid thereon was allowable business expenditure. 4. On the facts and in the circumstances of the case and in law, ld.CIT(A) has erred in confirming the addition of Rs. 82,00,000/- made by ld.AO u/s 68 of the Income Tax Act, arbitrarily. 4.1 That, ld.CIT(A) has further erred in confirming the addition of Rs.....
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....tion service etc. Along with the details, the assessee submitted profit & loss account by the heading 'Kapil Taneja' and other P&L account of "Pinc Freight Movers". 3.2 On perusal of the audit report ld. AO observed that assessee has taken huge unsecured loans during the year under consideration. As per the details available in col. 31(a) of the audit report and as it is evident that he has taken loan from 259 persons. The closing balance of these unsecured loans as per balance sheet filed was Rs. 28,60,02,040/-, he also observed that in the details given in the audit report regarding unsecured loans, PAN No. of lenders were not given. In the query letter issued on 06.08.2018, the assessee was required to furnish confirmation of all unsecured loans, whether squared up or not. As is evident from the order of the assessment that the assessee was given an opportunity in the matter vide notice dated 12.09.2018, 25.10.2018, 01.11.2018, 12.11.2018, 06.12.2018 and on 20.12.2018. Thus ld. AO noted that despite various notices given for furnishing the details, on two occasions the assessee furnished confirmation of unsecured loans from some of the lenders, which are placed on rec....
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....ses under the head indirect expenses has been shown in debit side, including interest payment of Rs. 3,60,43,574/-. 3.4 On perusal of P&L account ld. AO observed that maintenance charges of Rs. 20,000/- has been debited in the P&L account. As no details have been furnished it is not clear for what purpose these expenses have been claimed. The nature of these expenses cannot be known in absence of any clarification/justification by the assessee. As no justification for the claim of these expenses has been furnished and even the nature of expenses cannot be explored suo moto, the claim of these expenses cannot be allowed. In view of these facts, the claim of maintenance expenses of Rs. 20,000/- was disallowed and added back to the income of the assessee. 3.5 In the P&L account the assessee has shown trading loss of Rs. 1,50,529/-, The assessee was required to furnish separate details of each business, but no such details were filed by the assessee. On perusal of P&L account it is observed that on the trading account part, total purchases and sales and direct expenses of share trading were given by the assessee. Therefore, if the trading loss would have been related to share tra....
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....he assessee. 3.9 On perusal of P&L account in the name of 'Kapil Taneja' it was observed by the ld. AO that in this P&L account assessee has credited interest income of Rs. 3,31,86,010/- and debited interest payment of Rs. 3,60,43,574/-. In the query letter issued on 06.08.2018 the assessee was required to furnish justification for claim of interest payment of Rs. 3,60,43,574/- giving details of use of unsecured loan amount. No such details were furnished by the assessee. On 16.11.2018 the assessee submitted that main purpose and justification of accepting and use of loan for business purposes only where they claimed interest of R.s 3,60,43,574/- in P & L Account for business purposes and for justification of the claim the copy of the ledger of interest paid was placed on record. On 20.12.2018 the assessee was again requested to furnish specific justification for claim of interest expenditure specifying the details where the unsecured loan has been invested. He was also requested to give specific details of each business and the amount invested therein. In response the assessee vide submission dated 25.12.2018 submitted that all the unsecured are of general use of the bu....
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....sessing Officer the assessee preferred an appeal before the ld. CIT(A). After perusing the submissions of the assessee, the ld. CIT(A) has dismissed the appeal of the assessee. The relevant finding of the ld. CIT(A) is as under:- "4. Decision: I have carefully considered the relevant and material facts on record, in respect of this ground of appeal, as brought out in the assessment order. On perusal of the audit report it was noticed by the Assessing Officer that the assessee took huge unsecured loans. The assessee during the assessment proceedings furnished confirmation of unsecured loans from some of the lenders but on perusal on the details provided by the assessee it was found that no confirmation of unsecured loan from T.K Films was filed by the assessee. It was also noticed that PAN No of the lenders was not provided in the confirmation filed by the assessee. Further, on perusal of the P & L account the Assessing Officer found a total of five discrepancies namely false claim of the maintenance expenses of Rs. 20,000/-, false trading loss of Rs. 1,50,529/-, false claim of locker rent and NSC charges, false claim of Interest on TDS of Rs. 1,44,519/- as expendi....
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.... 54,30,550/-. The case of assessee was selected for complete scrutiny under CASS. Various details and information as sought by ld.AO were furnished and assessment was concluded after making following additions: S. No Addition Made on account of Amount (Rs. ) 1. Interest Expenses Rs. 47,74,320/- 2. Addition u/s 68 of unsecured loans Rs. 82,00,000/- 3. Interest on TDS Rs. 1,44,519/- 4. Trading loss Rs. 1,50,529/- 5. Locker Rent and NSC charges Rs. 76,127/- 6. House Property Tax Rs. 21,725/- 7. Maintenance expenses Rs. 20,000/- Aggrieved of the additions made by ld.AO, (except enumerated at serial no. 5 and 6), assessee preferred appeal before ld.CIT(A), which stood dismissed vide order dated 13.12.2024. Present appeal has been filed by assessee against the order so passed by ld. CIT(A). With this background, ground-wise submission is made as under: Grounds of Appeal No. 1 & 2: In these grounds of appeal, assessee has challenged the action of ld. CIT(A) in deciding the appeal solely on the basis of observations drawn by ld.AO during the assessment proceedings and without appreci....
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....ed form part of common pool and thus are parked in a number of assets, which may be in the shape of current assts, i.e. stock/debtors/ TDS/ cash/bank balance etc. and in fixed assets as well and which also keep changing due to realization/sale of assets and it is thus not possible to show direct nexus between funds borrowed and utilized. Your honours would appreciate that gross profit of assessee is Rs 1,93,069.82/- whereas assessee has eventually earned net profit to the tune of Rs 15,71,139.83/-and it is not the case that assessee has debited interest to reduce his income. Ld.AO has further observed that assessee has personal assets worth Rs. 6,50,49,551/- and investment of Rs. 2,98,66,450/- in shares of various companies. In this regard, kind attention of your honours is invited to Balance sheet, from perusal of which it is evident that assets worth Rs. 6,50,49,551/- includes property situated at "B 62, Hanuman Nagar, Vaishali Nagar" shown at Rs. 2,52,34,120/-, which was acquired by assessee by obtaining loan worth Rs. 1.4 Crores from Financial Institution appearing in Financial Statement of assessee. Also, Fixed assets include "Office premises at Time Square" shown at Rs. 1,04,....
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....ge." In view of above, it is submitted that interest expenditure incurred by assessee during the course of business deserves to be allowed as claimed. Grounds of Appeal No. 4 & 4.1: In these grounds of appeal, assessee has challenged the action of ld.AO in making addition of Rs. 82,00,000/- u/s 68 of the Income Tax Act. Facts pertaining to the grounds of appeal are that during the year under consideration, assessee had taken certain unsecured loans from various parties. During assessment proceedings, ld.AO directed to furnish details including confirmations etc. of such loans, which were duly furnished by assessee except in one case, i.e. T K Films from whom assessee had taken unsecured loan worth Rs. 3,00,000/-. Accordingly, ld.AO issued show cause notice dated 20.12.2018 (page 12-13 of WS), whereby it was proposed that:" As substantial time has passed still confirmation of all unsecured loans have not been filed. You are therefore, showcaused as to why the amount of unsecured loans shown by you, for which no confirmation has been filed, may not be treated as your undisclosed income for the year under consideration." Apart from this, no further ....
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....11.2018 (Page 14 of WS), assessee was directed to furnish details of expenses on which TDSs deducted, which was duly furnished by assessee vide letter dated 03.12.2018 (Page 15 of WS), wherein complete details of tax deducted and deposited (Page 16 of WS) was furnished. In fact, in Tax audit report also (Page 19 - 34 of WS), at clause 34(a) and 34(b), complete details of TDS alongwith details of TDS Returns filed by assessee were duly reported, however ld.AO has not even considered the same and has drawn adverse inference from list of loans mentioned, and confirmations, wherein PANs were omitted to be mentioned inadvertently. Moreover, as stated above, in final show cause notice dated 20.12.2018, no doubt was raised w.r.t. unsecured loans worth Rs. 79,00,000/- for which assessee had already furnished confirmations (Page 35 - 39 of WS), which also implied that loans worth Rs. 79,00,000/- were treated as explained. In view of above, it is submitted that addition made in respect of loans to the tune of Rs. 79,00,000/- are fully explained and deserve to be deleted outrightly. Similarly, w.r.t. addition of Rs. 3,00,000/- made in respect of loan taken from M/s T.K. Films, it is submitted....
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.... any assessee- (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. [Explanation 1.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.] [Explanation 2.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;] A bare perusal of above makes it amply clear that any rate or tax on profit or gains of business or profession, shall not be allowable under section 40(a)(ii) of the Income Tax Act. Further, explanations have been inserted to clarify that any taxes paid by assessee abroad in respect of income taxable out of India also shall also be construed as "tax or levy" in accordance with ....
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....hether since interest paid on late payment of TDS being compensatory in nature was an allowable deduction under section 37(1) and therefore, impugned disallowance was to be deleted - Held, yes [Paras 8 and 9] [In favour of assessee] D.V. Properties (P.) Ltd. vs. Principal Commissioner of Income-tax [2023] 155 taxmann.com 119 (Surat-Trib.)/[2023] 203 ITD 283 (Surat-Trib.)[29-08-2023] IV. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Late payment of TDS) - Whether amount of TDS is not income tax for assessee but it is amount of income tax deducted and paid by assessee on behalf of third party - Held, yes - Whether thus, said expenditure incurred by assessee is wholly and exclusively for purpose of business and delay in making payment of TDS late, is not like a penalty, and it does not amount to payment for breach of law or illegal act or prohibited act, thus interest on late payment of TDS is allowable - Held, yes [Para 18] [In favour of assessee] Ground of Appeal No.7: In this ground of appeal, assessee has challenged the action of ld.AO in making disallowance of Rs. 1,50,529/- on account of Trading loss decla....
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....t income claim of Rs. 3,60,43,574/- remains justified when the same is appearing the profit and loss account which are audited. As regards the addition of Rs. 1,50,529/- there is no whisper in the show cause notice (SCN) and therefore, the same remain beyond the scope of SCN not addition can be sustained. As regards interest on TDS ld. AR relied upon the decision cited in the written submission and prayed to allow the same being compensatory in nature. 7. Per contra, ld. DR supported the order of the ld. CIT(A) and submitted that the interest has rightly been disallowed after giving detailed reasoning and as regards the addition made for unsecured loans same being made based on the reasons given in the orders of the lower authorities. As regards the interest on TDS same being related to tax payment same is not allowable. 8. We have heard both the parties and perused the materials available on record. The bench noted that ground no 1 & 2 being general in nature and therefore the same is not required to be adjudicated. Ground no. 5 raised by the assessee was not pressed and therefore, the same is treated as dismissed. Ground no. 8 is also general and does not require our adjudi....
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....lowed and the remaining amount of Rs. 47,74,320/- was disallowed and added back to the income of the assessee. When the matter was taken up before the ld. CIT(A) he has not specific dealt with the issue and simply given the following finding; In absence of any substantial documentary evidence in support of its grounds of appeal, I have no basis to take a contrary view in the appellate proceedings as I have no reason to interfere with the assessment order As such, I do not find any infirmity in the order of Assessing Officer. Therefore, Addition of Rs. 1,88,17,780/- is hereby sustained on merits. Accordingly, Grounds No.1 to 4 are dismissed. In support of the ground taken before this tribunal the ld. AR of the assessee argued that the challenged the action of ld.CIT(A) in confirming disallowance of interest to the tune of Rs. 47,74,320/- out of interest expenses claimed by assessee. He stated that it was explained by assessee throughout the assessment proceedings that borrowed funds were utilized for common business purposes and for making advances, however submission of assessee was not accepted by ld.AO. He drawn our attention to profit & loss account of assessee (page....
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.... as there is no diversion of funds proved by the ld. AO and ld. CIT(A) has not dealt this issue with the merits of the case. As it is also evident that the ld. AO has allowed the part of the interest and part of the same was disallowed while doing so he has not considered it under provision of the Act i.e. 36(1)(iii), 37(1) or 57(iii) of the Act. As submitted by the assessee that ld.AO has simply compared loans taken and loans given and has completely ignored other current/ fixed assets generated in the course of business and it appears that disallowance has been made as per section 57(iii), though provisions of section 57(iii) have not been invoked specifically. The assessee in support of the claim relied upon the decision of the apex court in the case of CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 wherein the Court held that: "the plain natural construction of the language of section 57(iii) of the Act irresistibly leads to the conclusion that to bring a case within that section it is not necessary that any income should in fact have been earned as a result of the expenditure. What section 57(iii) of the Act requires is that the expenditure must be laid out or expend....
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....ld. AO noted that, no confirmation for the unsecured loan taken from TK Films has been filed. After issue of show cause further time was allowed to the assessee. Inspite of providing time beyond the show cause date, confirmation of unsecured loans claimed to have been taken from M/s TK Films has not been filed. As the assessee has failed to discharge his basic onus of furnishing the confirmation from the lender, therefore, the genuineness of the transaction, identity of the person lending the money and creditworthiness of the lender was not proved. It is also pertinent to mention that even in the details given in the audit report regarding unsecured loans, PAN No. and address of lenders is not given. Therefore, the amount of Rs. 3,00,000/- shown to have received from M/s T K Films was treated as income of the assessee from undisclosed sources with the meaning of section 68 of the IT Act. Ld. AR of the assessee submitted that as is evident that there were 259 parties and only in case it was left attention to file the confirmation and other related details and therefore, the assessee be given on chance to represent the facts related to this depositor before the ld. AO in the interest....
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....which was duly furnished by assessee vide letter dated 03.12.2018 (Page 15 of WS), wherein complete details of tax deducted and deposited (Page 16 of WS) was furnished. In fact, in Tax audit report also (Page 19 - 34 of WS), at clause 34(a) and 34(b), complete details of TDS along with details of TDS Returns filed by assessee were duly reported, however ld.AO has not even considered the same and has drawn adverse inference from list of loans mentioned, and confirmations, wherein PANs were omitted to be mentioned inadvertently. Moreover, as stated above, in final show cause notice dated 20.12.2018, no doubt was raised w.r.t. unsecured loans worth Rs. 79,00,000/- for which assessee had already furnished confirmations (Page 35 - 39 of WS), which also implied that loans worth Rs. 79,00,000/- were treated as explained. The bench noted that the assessee filed the copy of confirmation in the paper book wherein the details of the TDS deducted has already been recorded this shows that since the assessee has submitted 258 confirmation out of 259 the mistake is inadvertent and therefore, addition made in respect of loans to the tune of Rs. 79,00,000/- stands fully explained and directed to be....