Case Law Details
CA Isha Seth
Brief Facts:
1. The respondent filed his income tax return for the Assessment Year 2009-2010. On scrutiny, the Assessing Officer added the following back to income of the assessee:-
- 76,58,226/- on account of unsecured loans raised by the assessee u/s 68 of the Income Tax Act, 1961 as the assessee could not prove the genuineness of the transactions and credit worthiness of the persons concerned.
- 32,82,000/- on account of sundry creditors as the assessee could not substantiate the aforementioned credits.
- 4,25,000/- on account of expenses incurred, on the ground that the assessee was unable to substantiate his claim in respect of these expenses.
2. The Assessing Officer, consequently passed an order u/s 144 of the Income Tax Act. 1961 to the best of his judgment. Against this order of Assessing Officer, the assessee filed an appeal to CIT(Appeals).
CIT(Appeals) Order:
In respect of addition of Rs. 76,58,226/- on account of unsecured loans
1. The CIT(Appeals) held that no cash credit was received during the Assessment Year 2009-10. Most of the unsecured loans were appearing in the Audited Balance Sheets as on 31st March 2002 to 31st March 2005 and have been considered in the regular assessment proceedings. The loan transactions after 31.03.2005 have been done through the banking channels and supporting evidences have been given.
2. The explanation of the appellant in the matter of different signature of Sri Mohan Lal at the affidavit and receipt of notice is found satisfactory.The appellant has also furnished the PAN of Meena Kesarwani which is confirmed from site of NSDL. The explanation of the appellant with regard to above 18 cash credit accounts is found satisfactory.
3. Another contention of the assessee that the loans relating to the period prior to Assessment Year 2009-10 cannot be taxed in the Assessment Year 2009-10 as held by Hon’ble Delhi High Court in CIT v. Usha Stud Agricultural Farms Ltd (2008) 301 ITR 384 and by Hon’ble Rajasthan High Court in case of CIT v. PrameshwarBohra(2007) 301 ITR 404.
In respect of addition of Rs. 32,82,000/- on account of sundry creditors
1. The assessee had advanced loan to Sh. Ajay Kumar Gupta worth Rs. 12,51,000/- from September to November 2006 for land purchase from his personal amount, which was returned by him in May 2008. The proceeds so received were credited to the proprietorship concern of Mr. Kamal Raheja, called as M/s Kamal Kumar Dinesh Kumar. Same was the case with Sh. Dinesh Kumar Gupta who was advanced Rs. 17,51,000/- from assessee’s personal account, repaid to him in May 2008 and credited in the books of proprietorship concern.
2. All the aforementioned transactions are through proper banking channels and the bank statements are the relevant documentary evidences supporting the same. The abovementioned transactions are neither in the nature of extinguishment of trade liabilities nor receipts in the course of business. The transactions with these parties are not related with the business of the appellant. The liability of Smt. Priya Raheja is duly confirmed by her.
3. Thus, there is nothing under the head “Sundry Creditors” in the balance sheet pertaining to the relevant assessment year for invoking the provisions of section 41(1) of the Act against the assessee.
In respect of addition of Rs. 4,25,000/- on account of expenses disallowance
1. The assessee has claimed total expenses of Rs. 9,96,429/- out of which the Assessing Officer has disallowed a sum of Rs. 4,98,215/- on the ground of the same being excessive and unverifiable, in order to cover the possible leakage. The assessee had taken a plea before the Assessing Officer that all the expenses incurred have been wholly, necessarily and exclusively incurred in relation to assessee’s polyester and materialized film business as well as in relation to shares and securities transactions. All the records, vouchers and ledgers had been placed before the A.O. to satisfy the genuineness of the transactions.
2. The assessee has satisfactorily proved the payment of separate audit fees for both M/s Kamal Kumar Dinesh Kumar as well as share transaction business, by the way of bank statements and by giving the details of the payee auditor. Thus, the addition on account of audit fees is deleted.
3. The advertisement expenses incurred on public notices published in the local newspaper in the assessee’s area have been claimed to protect assessee’s interest in property which is generating the income that is offered for tax in the return of income of the assessee himself. This expense is directly related with the income and is allowable expense in computation of income.
4. Bank charges claimed by the assessee are duly evidenced by the Bank Statements of various bank accounts operated by the assessee. Thus, this addition stands deleted, bank charges being an expense of bona fide nature. Depreciation on fixed assets is duly visible from the Annexure to Form 3CD Audit Report and the same has been computed as per the provisions of Income Tax Act, 1961. The disallowance of 1/5th of depreciation on car has been taken into account as the personal use of car cannot be ruled out. Thus, all other additions in relation to these expenses are deleted.
5. Car Insurance expense is disallowed only to the extent of 1/5th of the total expense claimed even in the absence of insurance policy documents but in presence of bank statement, evidencing such payment. The legal expenses are also fully allowable as deduction on the same ground as in the case of allowance of advertisement expenses.
6. Regarding loading expenses it is submitted that the expenses are related with loading of goods. This is in the nature of palledars charges paid to workers in cash. The expense is fully relatable to the loading of goods. This is neither mechanical nor out of practice.The payment of palledaries in cash is usual market practice and there is no restriction in this regard. In the market the rates of palledaries are settled per bag, weight, container etc. This expense is in the nature of wages, for the business and if paid at a particular rate with goods, the same cannot be adversely viewed merely for the reason that these are paid in cash. There is no specific material brought on record against allow ability of loading expenses.Case Law Referred: CIT Ajmer v. Jai Kumar Bakliwal (Rajasthan High Court)
7. Miscellaneous expenses are the interest for late payment of VAT. Being non-penal in nature, it is allowed as a business expense. Postage and Telegram are in relation to courier charges incurred by the assessee that are fully allowed as business expenses. The payment in cash cannot come in the way of allow ability of the expenses. Similar is the case with Printing & Stationery Charges incurred as is the case with Postage & Telegram. The Repair & Maintenance expenses are directly related to the regular maintenance and upkeep of fixed assets, hence allowed as deduction. The salary paid by the assessee to four people, whether by the way of cheque or cash were solely for the purpose of business expediency of the assessee and thus, allowable as deduction from the total income.
8. Sales Promotion expense is in the nature of expense for entertaining customer. The expense in verifiable in the presence of the bill and payment of such expense in cash is a normal feature and thus, the expense is allowed for business purposes. The landline & mobile bills claimed as normal business expenditure is also allowed subject to a nominal estimated addition on account of personal use. In respect of travelling expenses, the appellant has submitted that these were purely business trips and no family members were accompanied. The same has been accepted by CIT(Appeals) and hence, allowed as deduction.
9. Regarding Vehicle Running and Maintenance Expenses, there is regular requirement in the business to visit office, godown, banks and to our customers, service providers, Income Tax, Vat Tax,Counsels, to the court and Civil Counsels etc. Thus, the expense was allowed by CIT(Appeals) on the ground of the same being business expenditure after disallowing Rs. 50,000/- for personal use. Brokerage Expenses, DP Charges and Securities Transaction Tax related to share transactions, the payment of which being evident from contract note and STT certificate, are fully allowed as deductions.
Assessee’s Contentions:
The Ld. Authorized Representative for the assessee supported the order of the Commissioner of Income Tax (Appeals) contending the order to be correct.
Revenue’s Contentions:
The Ld. Department Representative supported the order of the Assessing Officer and contended that the additions are justified and reasonable.
Income Tax Appellate Tribunal’s Judgment:
a) In respect of addition of Rs. 76,58,226/- on account of unsecured loans raised by the assessee, it is held that a categorical finding has been given by CIT(A) that there is no cash credit received during the present year and all the loans were received prior to 01/04/2008. This finding of CIT(A) could not be controverted by Learned D.R. of the Revenue. Thus, there is no reason to interfere in CIT(Appeals) order and the addition stands deleted. No addition can be made u/s 68 in respect of any loan received prior to start of previous year relevant to the present assessment year.
b) In respect of addition of Rs. 32,82,000/- on account of sundry creditors being not genuine, it is held that a categorical finding has been given by CIT(A) that there is nothing to attract the provisions of section 41(1) of the Act. Under the given facts and circumstances of the case, it cannot be said that there is any liability which has ceased to exist. Thus, the order of the CIT(Appeals) in respect of this ground is also upheld.
c) In respect of addition of Rs. 4,25,000/- on account of expenses disallowed, it is held that the CIT(Appeals) has examined each and every item of expense in detail and the disallowance was deleted by him on the basis of his categorical finding that all the expenses are fully, necessarily and exclusively related to assessee’s business and the same are allowable expenses except small portion which is already disallowed by him and these findings of CIT(Appeals) could not be controverted by Learned D. R. of the Revenue.
Thus, the appeal of the Revenue is dismissed
