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TMI Blog2012 (6) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings, the AO obtained details regarding preoperative expenses shown under the head Current Liabilities. The AO noticed from the details of preoperative expenses pending allocation that that an amount of Rs.31,09,281/- has been shown as Current Liabilities. The break-up of those expenses revealed that several expenses under the head Business Promotion, Foreign Travel, Miscellaneous Expenses, Professional fees, Rent and Traveling Expenses had been incurred. The AO called for supporting evidences and justification for such expenses and show that these expenses were incurred for the purpose of business of the Assessee. The assessee submitted the ledger copies of these expenses and produced bill for verification. The AO was of the view from the write up submitted by the Assessee the expenditure could not be said to be related to business / pre-operative expenses for setting up the proposed business of the assessee. The Assessee also explained that traveling expenses including foreign traveling, professional and technical fee were also paid to professional and there is no personal elements in these expenses. The Assessee also submitted that major part of the expenses w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 69C of the Act and taxed in the hands of assessee under the head 'Income From Other Source. 3. Before CIT(A), the Assessee submitted (i) that the addition u/s.69C of the Act was unwarranted because the Assessee has satisfactorily explained the source of the expenditure incurred (i.e. share capital and share application money) and that the same was accepted by the Assessing Officer in the Paragraph 3 of the order. It was argued that under the provisions of section 69C of the Act, the addition on account of unexplained expenditure can be made if and only if the assessee fails to offer explanation about the source of any expenditure and not on account of failure to justify the necessity of such expenditure. Considering that the source of expenditure has been explained any addition u/s 69C on account of unexplained expenditure is totally illegal and unjustified. (ii) On the action the AO in denying the benefit of capitalization of revenue expenses incurred prior to commencement of business, the Assessee pointed out that during the course of assessment proceedings the assessee had produced all the bills for verification. The Assessing Officer, after verifying the said bills has fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that at the request of the Assessing Officer, the copies of the quarterly TDS returns submitted by M/s SG Takshila Enterprises Company Pvt. Ltd. were also filed. The Assessing Officer did not find any instance of omission of deduction of tax at source. (v) It was again highlighted that the amount reimbursed to M/s SG Takshila Enterprises Company Pvt. Ltd. was treated as share application money with mutual consent and therefore, the assessee was not required to make actual payment (through bank). It was brought to the notice of CIT(A) that Section 40A(3) of the Act, applies only in the case of actual payments and not in the case of constructive payment like barter, etc. Even otherwise, the purpose of section 40A(3) is to discourage cash payment and thereby, to loose the trail of the recipient. In the instant case the trail of the transaction is not only clearly known but confirmed by the counter party. Therefore, the reference of the provisions of section 40A (3) is totally out of place. (vi) In any case, but without prejudice to the above submission, it was submitted that the provisions of section 40A(3) and 40(a)(ia) apply only when any expenditure has been claimed as revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the question of applying the provisions of s. 40A(3) or 40(a)(ia) do not arise. Further, there Is no case that the expenses are in the nature of personal. There is no such finding by the A.O. The pre-operative expenses have been carried to the Balance Sheet pending capitalization treating the same as current assets and not current liabilities as erroneously stated by the A.O. When books have been maintained, expenditure recorded and expenses supported by bills/vouchers, and the source of the expenditure is not in doubt, conditions precedent for invoking section 69C do not exist. When the A.O. is satisfied with the correctness and completeness of accounts, the A.O. is not justified in invoking section 69C. on the ground that the need for incurring expenditure has not been justified. As laid down in the case of J.S. Parkar Vs. V.B. Palekar (1974) 94 ITR 616 (Bom) the phraseology used in section 69C shown that for invoking provisions of this section, the condition precedent is to establish the existence of expenditure not explained satisfactorily by evidence or material on record. In this case, the facts, as evident from the assessment order is that, the books of accounts and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al rule be enquired into by the AO. Consequently the same is dismissed. As regards reimbursement of expenses made to Takshila Enterprises Company Pvt. Ltd., once it is accepted that the payments were reimbursements then the question of deduction of tax at source will not arise. Further the fact that the reimbursements were at actuals were also not disputed. In such circumstances, there was no obligation to deduct tax at source. Besides the above, from the statement of account of M/s SG Takshila Enterprises Company Pvt. Ltd. for the year ended 31 March, 2007 which were filed at the request of the Assessing Officer, it was found that there was no profit element. From the details of payments made by M/s SG Takshila Enterprises Company Pvt. Ltd., it was clear that in accordance with the provisions of Chapter XVII-B of the Income Tax Act, they had deducted tax at source. The copies of the quarterly TDS returns submitted by M/s SG Takshila Enterprises Company Pvt. Ltd. were also filed before AO who did not find any instance of omission of deduction of tax at source. The provisions of Sec.40A(3) of the Act were also not applicable as the payments were made by the Assessee by cheques. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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