TMI Blog2013 (2) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... hands. The claim of the expenditure as business expenditure cannot be allowed on the facts of the case. In favour of revenue Addition on account of personal drawings - Assessee is living with his father in tenanted premises and most of the expenditure was borne by the father – Held that:- There is no need for making any addition on this account. The personal drawings debited to capital accounts are to the extent of Rs.6,46,763/- which comprises of cash withdrawals to an extent of Rs.4,76,177/- and credit expenses of Rs.1,70,586/-. Considering the fact that no estimation was made on account of drawings in previous years or in subsequent years and on considering that the amount claimed is a reasonable. In favour of assessee Addition for non-receipt of confirmation from various suppliers – Held that:- As seen from the orders, just because some confirmations have not been received from the parties, AO disallowed the entire amount under various heads. Assessee furnished lot of details to both AO as well as to the CIT (A) and CIT (A) did not admit any additional evidence on the reason that sufficient opportunity was given to assessee. This issue requires examination by AO afresh. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that interest free advances have come down from Rs.98.65 lakhs as on 31.3.2002 to Rs.72.76 lakhs in this year, whereas the unsecured loan received have increased from Rs.12.35 lakhs to Rs.20.96 lakhs in addition to assessee s own capital. The CIT (A) however, following the rationale of the decision in the case of K. Somasundaram vs. CIT, 233 ITR 939 (Mad.) and Phalton Sugar Works Ltd vs. CIT, 208 ITR 989 (Bom.) confirmed the proportionate disallowances and advances given stating that the same was not incurred for the purpose of business. 6. The learned Counsel referring to the paper book, more particularly to the interest details placed from page Nos.3 to 6 submitted that the entire amount of interest claimed to the tune of Rs.22,46,118/- was on account of moneys borrowed from Banks in the form of packing credit, bill discounting and overdraft used for working capital requirements. He referred to the statement of the Bank interest to submit that most of the amounts are towards packing credit, margin moneys and bills discounting. It was further submitted that overdraft was used exclusively for the purpose of business. The margin money deposited was for availing export cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finances. Moreover the advances were made in earlier years. Since the interest claimed is only on OD and packing credit and bill discounting, we are of the opinion that there is no need for disallowing any amount just because assessee in the balance sheet has shown some advances to some family members/ concerns. AO has not examined the nexus of the borrowed funds with that of advance given for non business purpose and in our view certainly not examined the interest statement which clearly indicate that the Bank interest paid and claimed by assessee is only towards business purpose in the business of export undertaken by assessee. In view of this as there is no nexus between the borrowed funds used in the business to the interest free advances paid by assessee, we are of the opinion that no disallowance is called for on the facts. Moreover, there is no such disallowance either in the earlier years or in the later year on similar facts. Considering these aspects, we allow assessee s grounds and direct AO to delete the disallowance of interest so made. Grounds are allowed. 9. Ground Nos. 5 to 7 pertains to the claim of education expenses of assessee s son. AO disallowed the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has relied upon the ITAT decision in the ease of Argade Shyam Co., in which the educational expenditure on the partner of the firm has been treated as allowable by the ITA T. However, the facts of that case is that the person on whom the educational expenses have been made was a partner of the firm and there existed an agreement in the partnership that an educational expenses of partner would be met by the firm. Moreover, there was a clause in the agreement that the partner would serve the firm for five years after completion of the course and in case of non-fulfillment of the terms, monetary compensation would have to be made by the partner. In the assessee's case none of these facts are in existence and the assessee has sent his son for post graduate studies, as any father would have been opted to in the normal course as an Obligation of a father to a son. The expenditure incurred on studies of the son of the proprietor of the firm cannot be treated as incurred wholly and exclusively for the purpose of business, though for the sake of sanctity, the son might have been enrolled as an employee. Under the circumstances educational expenses of Rs. 8,25,375/- claimed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accessories along with senior merchandisers, attend buyer meetings. Date of commencement of MBA September, 2002 Date of completion of MBA September, 2003 Date of joining signature Brands PLC 23rd June, 2003 to 30th September, 2003 Date of return to India October, 2003 Date of rejoining Bhavin International November 2003 to date Nature of work Fund flow and cash flow planning, internal audits, statutory audits, production planning and execution, overseeing work of merchandisers, buyer communication to develop season and grow business etc. Amount of salary drawn Rs.7500/- p.m. (till Jan 2007) Amount of salary drawn Rs.10,000/- (From February 2007 to till date) 12. On a specific query whether any other persons were sponsored by assessee for higher education, it was submitted that no other person was sponsored. On seeing that Shri Bhavin Savani served in a foreign company between June 2003 to September, 2003, whether any amounts received thereon have been accounted as income of assessee, it was submitted that no such amounts were accounted as income eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that there is no nexus between the business of assessee and the expenditure incurred. The Tribunal allowed the claim of assessee and on a reference reversing the decision of the Tribunal, the Hon'ble Bombay High Court held that the expenditure incurred by assessee had no nexus with the business of assessee and was not allowable as business expenditure. The facts are similar to the present case. There are number of cases in which the expenditure was not allowed as a business expenditure mainly on the reason that there is no nexus with assessee s business or claimed expenses of close relative for training abroad without there being a general policy for all the employees. In this case also, no other person was sponsored for education and as rightly held by the CIT (A) this expenditure is person expenditure of assessee which he is claiming as business expenditure. We further notice that the stipend received abroad during his stay was not offered as income in assessee s hands. The claim of the expenditure as business expenditure cannot be allowed on the facts of the case. We uphold the findings given by AO and the CIT (A) and reject the grounds accordingly. 14. Ground Nos. 8 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived. Ground Nos. 12 to 14 is with reference to the addition on account of AIR information of Rs.11,40,289/-. 20. AO made verification of the suppliers and account balances. On the reason that assessee has not reconciled various amounts nor under inquiry made under section 133(6) suppliers or creditors have not confirmed the transactions, the addition of first two amounts were made. The addition of Rs11,40,289/- was on the basis of the information received through AIR that assessee made sales to Discovery Communications of India and HSBC and Standard Chart. Inspite of assessee s explanation, AO and the CIT (A) confirmed the addition. 21. Before us the learned Counsel, referring to the paper book filed running to pages 139, submitted that assessee has furnished the various reconciliation statements/confirmations of party accounts in Annexure-A which was not considered. Further assessee also reconciled the statement/confirmation of party accounts in Annexure-B from pages 92 to 134. It was submitted that even though the necessary details were placed on record, neither AO nor the CIT (A) went into reconciling the same and confirmed the amounts. It was further submitted that with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty of Rs.57,600/- which the CIT (A) confirmed on the reason that assessee has no sufficient reasons not to comply with the tax demand. 25. It was the submission that the tax demand raised was three times the tax on income offered by assessee and after adjustment of tax refund the 50% of the demand was stayed. Therefore, there is no need of levy of penalty and request for deleting the penalty. 26. We have considered the issues and facts of the case. In ITA No.2445/Mum/2009, we have considered the additions made by AO and to the extent of disallowance of interest and on addition being less personal drawings we have given relief. If this order is implemented, we do not see any further demand raised from assessee over and above the amount due/ paid/ adjusted so far. Since the penalty was prematurely levied when the demand has not yet been crystallized, we are of the opinion that levy of penalty under section 221(1) is little premature and also harsh. Therefore, the penalty is hereby cancelled. AO is free to consider levy of penalty if any, after giving effect to the ITAT order considering the facts of the case afresh. With these observations, the penalty levied under section 221 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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