TMI Blog2019 (11) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. Thus, the genuineness, creditworthiness and identity of the customers in fact was proved by the assessee. Therefore, this disallowance was not proper on part of the Assessing Officer as well as the CIT(A). Disallowance on the account of excess interest paid on loan - HELD THAT:- The expenses were recorded in the books of accounts of the assessee and were offered to tax as income as interest received by M/s. KLJ Resources Ltd. and Prayag Polymers Pvt. Ltd. The assessee does not appear in the list of related party disclosure of M/s. KLJ Resources Ltd. and Prayag Polymers Pvt. Ltd. It is interesting to note that the AO neither questioned genuineness of loan nor alleged that the expenses are not incurred for business purpose. In fact, from the perusal of documents it can be seen that these expenses were incurred for business purpose only. Therefore, Ground No.4 is allowed. Disallowance on the account of Diwali expenses - HELD THAT:- It is pertinent to note that these expenses were documentarily proved before the Assessing Officer, which was not questioned at the time of assessment proceedings by the Revenue authorities. Thus, these expenses are genuine and were properly c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19,13,000/- 14,12,250/- 5,00,750/- 6. Commission and Brokerage 2,00,07,000/- 1,59,76,800/- 40,30,200/- 7. Discount on sales 2,81,35,000/- 2,49,90,000/- 31,45,000/- 8. Vehicle repair and maintenance 46,57,000/- 34,66,050/- 11,90,950/- Total 21,32,40,000/- 17,58,89,700/- 3,73,50,300/- (ii) That the above disallowances have been confirmed despite the fact these expenses have been incurred wholly and exclusively for the purpose of the business of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere issued on 12.01.2018, 14.09.2018, 19.11.2018 and 13.12.2018 which were properly served. In response to the notices, advocate of the assessee attended and filed the replies from time to time. The Assessing Officer made addition on account of excess interest loan at ₹ 5,67,633/-, addition on account of unexplained expenses amounting to ₹ 3,73,50,300/-, addition on account of unexplained Diwali expenses amounting to ₹ 5,13,810/- and addition on account of unexplained liability amounting to ₹ 1,06,20,125/-. 4. Being aggrieved by the assessment order, assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 5. The Ld. AR submitted that ground no.1 and 6 are general in nature, therefore, Ground Nos. 1 and 6 are dismissed. 6. As regards Ground no.2, relating to the disallowance of ₹ 3,73,50,300/- on ad-hoc basis on account of various expenses incurred during the year, the Ld. AR submitted that the Assessing Officer disallowed expenses on the assumption that expenses increased/decreased in proportion to sales. The Ld. AR further submitted that the Assessing Officer has obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. Thus, the Ld. DR relied upon the assessment order and the order of the CIT(A). 8. We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the books of accounts produced by the assessee during the course of assessment proceeding were never doubted and were not rejected. The addition is only on the basis of presumption and assumption that decrease in sales amounts to decrease in expenses. The ledger accounts were very much produced before the Assessing Officer and the same was before the CIT(A). Merely on the basis of conjecture, the ad-hoc addition cannot be made without any tangible reason to do so. Therefore, Ground no.2 is allowed. 9. As regard Ground No.3, relating addition of ₹ 1,06,20,125/- on account of advances from the customers, the Ld. AR submitted that the assessee duly filed the details of advances received from customers alongwith the details of current liabilities. The documents were not doubted. The Ld. AR further submitted that these advances have been cleared in the subsequent years. The sales invoices have been raised in the subsequent yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. and M/s. Prayag Polymers Pvt. Ltd. The Ld. AR further submitted that the Assessing Officer did not question the genuineness of the loan and also did not alleged that the expense are not incurred for business purpose. The expenditure recorded in the books of the assessee were offered to Tax as income as interest received by KLJ Resources Ltd. and Prayag Polymers Pvt. Ltd. Hence, the Ld. AR submitted that the effect of disallowance would be tax neutral, and lead to double taxation of the same income. The Ld. AR further pointed out that the fair market value has to be determined having regards to the terms of the contract, which are decided keeping in view the business expediency. The Ld. AR further submitted that the additions made by the Assessing Officer are merely on the surmises and conjecture without considering the business expediency behind such expenses. The Ld. AR relied upon the following decisions: a) S.A. Builders Ltd. vs. CIT(A), Civil appeal No.5811 of 2005 with 5812 of 2006, (2007) 288 ITR 1 (SC). b) CIT vs. Panipat Woollen General Mills Co. Ltd. [1976] 103 ITR 66 (SC). c) CIT vs. Walchand Co. P. Ltd. (1967) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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