Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (5) TMI 146 - ITAT PUNE

2015 (5) TMI 146 - ITAT PUNE - TMI - Disallowance of interest u/s 36(1)(iii) - assessee had utilized interest bearing funds for making interest free advances to sister concerns and therefore, the interest attributable to such advances was to be disallowed while computing the business income of the assessee for this year. - Held that:- Where the investments / advances were made to sister concern for business purposes, then there is no question of any disallowance under section 36(1)(iii) of the A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o fringe benefit tax, the nature of expenditure stands established and the same is to be allowed as business expenditure. In view thereof, there is no merit in making any disallowance out of sales promotion expenditure. Similarly, no disallowance was warranted out of travelling and conveyance expenses, communication expenses as the assessee had paid FBT against the said expenses. We also find no merit in the order of Assessing Officer in disallowing any part of the said expenditure for personal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Officer had made disallowance @ 10% out of the said expenditure, which was restricted to 5% by CIT(A). The expenditure has been disallowed since certain evidences were in the form of self-made vouchers. We uphold the order of CIT(A) to restrict the disallowance to 5% of the total expenditure. - Decided partly in favour of assessee.

Order passed under section 143(3) r.w.s. 263 - Held that:- The order passed by the Commissioner under section 263 of the Act has been quashed by the Tribun .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

under section 143(3) r.w.s. 263 of the Act, does not survive and the same is hereby cancelled. - Decided in favour of assessee.

Unexplained investment in land - Held that:- The consideration agreed upon was ₹ 2,80,80,000/- by cheque and cash In the of 80:20 respectively and the amount was to be paid on or before the execution of the sale deed. In the absence of any corroborative evidences to the contrary, the self serving letter now filed by the appellant in support of its clai .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

trictions on a portion of the land and then only appellant agreed for the consideration of ₹ 52,00,000/- per acre. It is also interesting to note that it is only the cash component of 20% in the safe consideration that was claimed to have been withheld till the time the land is deforested and all the disputes are resolved. The assessee has failed to controvert the findings of the CIT(A) in this regard and consequently, we find no merit in the grounds of appeal raised by the assessee and di .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

manufacturing of construction machinery and equipment. The impugned expenditure under reference had been incurred by the assessee while carrying on its business. The Assessing Officer had accepted the plea of the assessee that the said expenditure was incurred in the course of business carried on by the assessee by allowing major portion of the expenditure. However, disallowance was made in the hands of the assessee because of increase in ratio of expenditure vis--vis turnover. We find no merit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sh Damor ORDER Per Sushma Chowla, JM: Two appeals filed by the assessee are against order of CIT(A)-III, Pune, dated 01.03.2013 relating to assessment year 2008-09 against order passed under sections 143(3) and 143(3) r.w.s. 263 r.w.s. 144 of the Income Tax Act, 1961. The assessee has also filed another appeal against order of CIT(A)-III, Pune, dated 31.10.2012 relating to assessment year 2009-10 against order passed under section 143(3) of the Income Tax Act, 1961. 2. All the appeals relating t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ncerns and therefore, the interest attributable to such advances was to be disallowed while computing the business income of the assessee for this year. 2] The learned CIT(A) erred in holding that once it is borne out that the assessee had borrowed certain funds and made certain interest free advances without any business purpose, the interest attributable to such advances was to be disallowed u/s 36(1)(iii) irrespective of the fact as to whether there were sufficient own funds with the assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

with the assessee were far more than the interest free advances made by the assessee and thus, the disallowance of interest u/s ought to have been deleted. 5] The learned CIT(A) erred in confirming the adhoc disallowance of ₹ 3,14,540/-, being 5% of the total sales promotion expenses without appreciating that the said expenses were incurred wholly and exclusively for the purposes of business and therefore, the adhoc disallowance made in respect of the same was not justified. 6] The learne .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

penses were incurred wholly and exclusively for the purposes of business and therefore, the adhoc disallowance made in respect of the same was not justified. 8] The learned CIT(A) erred in confirming the adhoc disallowance of ₹ 3,19,810/- being 5% of the total communication expenses without appreciating that the said expenses were incurred wholly and exclusively for the purposes of business and therefore, the adhoc disallowance made in respect of the same was not justified. 9] The learned .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

enses, communication expenses and other administrative expenses is very high and the same may be reduced substantially. 11] The learned CIT(A) erred in enhancing the income of the assessee company without giving any notice to the assessee and hence, the enhancement made by the learned CIT(A) was not justified in law. 11.1] The learned CIT(A) erred in enhancing the disallowance made in respect of DC fees to ₹ 4,50,000/- on the ground that the said expenditure was capital in nature and hence .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

unds of appeal No.1 to 4 is against the disallowance under section 36(1)(iii) of the Act at ₹ 7,20,452/-. 5. The issue in grounds of appeal No.5 to 10 is against the adhoc disallowance out of various heads of expenditure. 6. The grounds of appeal No.11 to 11.2 are not pressed and hence, the same are dismissed as not pressed. 7. The brief facts relating to the issue of disallowance under section 36(1)(iii) of the Act are that the Assessing Officer from the perusal of details submitted in Fo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

behalf of the said parties and it was further explained that the outstanding balance at the end of the year was ₹ 40,12,563/- It was further noted by the Assessing Officer that the assessee had also advanced ₹ 76,09,303/- to M/s. Universal Civil Infracon Pvt. Ltd. and ₹ 41,56,370/- to M/s. Universal Sales Corporation. The explanation of the assessee in this regard was that these were out of business transactions with the said parties. The Assessing Officer rejecting the explana .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s the manufacturer of the construction equipment and the said amount was advanced to a prospective customer, was not accepted by the CIT(A). The CIT(A) further observed that the amounts advanced to the said concern were for non-business purpose and the interest attributable to such advances could not be allowed as expenditure under section 36(1)(iii) of the Act. The CIT(A) re-worked the interest attributable to the advances on the basis of date(s) of advances made during the year and restricted .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

onship with the said party was rejected in the absence of any evidence filed by the assessee and consequently, the disallowance of interest expenditure of ₹ 4,98,764/- was upheld by the CIT(A). 11. The assessee is in appeal against the partial confirmation of disallowance under section 36(1)(iii) of the Act. 12. The learned Authorized Representative for the assessee pointed out that the advances had been made to the sister concern were out of own funds, which were interest free. Our attent .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e order dated 28.08.2013. 13. The learned Departmental Representative for the Revenue placed reliance on the order of CIT(A). 14. We have heard the rival contentions and perused the record. In the facts of the present case, admittedly, the assessee had made certain interest free advances to two of its concerns i.e. ₹ 40,12,563/- to M/s. Universal Construction Project and ₹ 41,56,370/- to M/s. Universal Sales Corporation. The assessee had made the said interest free advances to its si .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at in view of judgment of Hon ble Bombay High Court in CIT Vs. Reliance Utilities and Power Ltd. (supra), wherein it had been held that where the assessee had made interest free advances to its sister concern, presumption could be drawn that the funds advanced to the sister concern were out of interest free funds available with the assessee. In this regard, the assessee had pointed out that the total interest free funds available with it namely, the share capital and the reserves and surpluses w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iew of the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Reliance Utilities and Power Ltd. (supra), where the interest free funds available with the assessee were sufficient to cover interest free advances made to sister concern, then in cases where both the interest bearing and interest free funds are available with the assessee, the presumption is that the impugned interest free advances have been made to the sister concern out of interest free funds. In view thereof, there is no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e investments are made with a view to build long term business prospects and where the advances were made for investment in the related energy sector and were not made to sister concern. In such scenario, the finding of CIT(A) was that the Hon ble Bombay High Court held that there were interest free funds available with the said assessee to meet its investments and at the same time where the assessee has raised loan, it could be presumed that the investments were made from interest free funds av .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed the rival submissions. Ostensibly, in this case, it was found that assessee had advanced interest-free funds of ₹ 2,44,74,710/- to two sister-concerns as on 31.03.2008. The opening balance of such advances as on 01.04.2007 was ₹ 23,09,460/- and the balance of ₹ 2,21,65,250/- was advanced during the year under consideration. On the other hand, assessee incurred interest expenditure of ₹ 2,85,38,397/- on borrowings. The Revenue has disallowed the interest proportionate t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra) whereby it can be said that where an assessee has advanced interest-free funds to the sister concerns and the assessee has both interest bearing and interest free funds, and if the interest free funds are sufficient to cover the advances to sister concerns, a presumption can be drawn that funds advanced to the sister concerns are out of interest-free funds available with the assessee. In this connection, the appellant .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

gh to cover the said impugned interest-free advances to the sister concerns. In-fact, as per the Profit and Loss account for year ending 31.03.2008 the profit for the year after depreciation and tax is to the extent of ₹ 5,14,84002/-, which alone is enough to cover the impugned interest-free advances. In our considered opinion, the parity of reasoning laid down by the Hon ble Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra) is clearly applicable in the present c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Assessing Officer becomes untenable. 7. In-fact, the factual aspects of the said proposition have not been faulted by the CIT(A), though he has not found it fit to apply the said proposition to the assessee s case. As per the discussion made by the CIT(A) in para 5.3.2 it emerges that according to the CIT(A) the aforesaid proposition laid down by the Hon ble Bombay High Court is applicable only in a situation where the advances/investments are made for business purposes alone. As per the CIT(A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e are sufficient to cover the investment is a proposition which is available only in a situation where the investments are for business purposes, is wrong. We say so for the reason that if the investments/advances to the sister concerns were for business purposes then the question of disallowance under Section 36(1)(iii) would not arise at all, as Section 36(1)(iii) explicitly permits deduction for the amount of interest paid in respect of capital borrowed for the purposes of business or profess .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

und the order of the CIT(A) is set-aside and the Assessing Officer is directed to delete the addition of ₹ 29,36,965/- made under Section 36(1)(iii) of the Act. On this Ground assessee succeeds. 17. Following the same proposition laid down by the Tribunal, where the investments / advances were made to sister concern for business purposes, then there is no question of any disallowance under section 36(1)(iii) of the Act and there would be no necessity to see as to whether the advances made .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

yance expenses : Rs.8,26,814/- iv) Communication Expenses : Rs.3,19,810/- v) ROC Fees : Rs.3,74,920/- vi) Other administrative expenses : Rs.5,00,508/- 19. The Assessing Officer had made the said disallowances being excessive and also in some cases, expenditure having not been incurred exclusively for the purpose of business. In respect of the disallowance out of communication expenses, the said disallowance was made for personal use by the assessee. The Assessing Officer disallowed 5% of the ex .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

said expenditure and there was no merit in the said disallowance. We are of the view that where the expenditure has been subjected to fringe benefit tax, the nature of expenditure stands established and the same is to be allowed as business expenditure. In view thereof, there is no merit in making any disallowance out of sales promotion expenditure. Similarly, no disallowance was warranted out of travelling and conveyance expenses, communication expenses as the assessee had paid FBT against the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ministrative expenses which include office expenses and other miscellaneous expenses being routine business expenses. The Assessing Officer had made disallowance @ 10% out of the said expenditure, which was restricted to 5% by CIT(A). The expenditure has been disallowed since certain evidences were in the form of self-made vouchers. We uphold the order of CIT(A) to restrict the disallowance to 5% of the total expenditure. Accordingly, the grounds of appeal No.5 to 8 are allowed and grounds of ap .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n the impugned assessment order passed under section 143(3) r.w.s. 263 of the Act and the appeal filed by the assessee is against the order of CIT(A) in upholding the addition on merits should be allowed. We find merit in the said plea of the assessee as pursuant to quashing of 263 proceedings in the hands of the assessee by the Tribunal, the consequent order passed by the Assessing Officer under section 143(3) r.w.s. 263 of the Act, does not survive and the same is hereby cancelled. The appeal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rned CIT(A) erred in holding that the total consideration paid by the appellant to Shri Raju Tungatkar against purchase of land was ₹ 2,80,80,000/- as per the MOU and the seized paper found during the survey as against the actual consideration paid of ₹ 2,24,64,000/- as per the registered sale deed. 3] The learned CIT(A) failed to appreciate that - a. The appellant had not paid any consideration over and above the amount of ₹ 2,24,64,000/- which was recorded in the registered s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o reason to make any addition on account of unexplained investment in land. 4] The learned CIT(A) erred in confirming a total disallowance of ₹ 1,23,83,286/- out of the following items of expenditure - i. Travelling and conveyance expenses - Rs.43,98,650/- ii. Labour charges - Rs.61,47,485/- iii. Advertisement Expenses - Rs.14,17,312/- iv. Guest house expenses - Rs.4,19,839/- 5] The learned CIT(A) failed to appreciate that - a. The expenses were properly vouched and therefore, there was no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the course of appeal hearing. 7] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. 25. The issue in the grounds of appeal No.1 to 3 is against the addition of ₹ 56,16,000/- on account of unexplained investment in the land purchased by the assessee. 26. The brief facts relating to the issue are that during the course of Survey under section 133A of the Act on 14.10.2011 a document was found, under which the assessee had entered into an agreement .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r Shivare land was for ₹ 2.80 crores, as per MoU. However, since part of the said land was for private forestation, it was decided that balance amount would be paid only after the possession of clear land would be given. He promised to produce Shri R.N. Tungatkar before the Assessing Officer within 7 days, but he failed to produce the said person. In view thereof, the Assessing Officer treated sum of ₹ 56,16,000/- as unexplained investment under section 69 of the Act. 27. The CIT(A) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

jecting the explanation of the assessee, the CIT(A) upheld the order of Assessing Officer. 28. The assessee is in appeal against the order of CIT(A). 29. The learned Authorized Representative for the assessee pointed out that the said amount was withheld in view of the restriction on portion of land and the amount as per the sale deed was the amount paid to the seller. 30. The learned Departmental Representative for the Revenue placed reliance on the order of CIT(A). 31. We have heard the rival .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

08. However, against the said agreement of sale, the sale deed executed on 12.09.2009 reflected the consideration at ₹ 2,24,64,000/-. Another document was also found from the possession of the assessee for making the payment for purchase of the said land in cheque and cash in the ratio of 80:20. When confronted with the said evidence, the explanation of the assessee was that part of the consideration was withheld because of certain restrictions on a portion of land. The assessee failed to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r, referred to the contents of MoU executed on 09.06.2008 and the subsequent sale deed executed on 12.09.2008 and observed as under:- 4.4 The submissions of the learned counsel for the appellant are examined with reference to the contents of the MOU dated 09th June 2003 and subsequent sale deed dated 12/09/2008 and correction deed dated 18/02/2011. To resolve the issue, it Is essential to refer to the following clauses in the MOU, which have bearing on the issue:- "..The first party and the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

thousand only) and as per this MOU the terms and conditions agreed between the parties are as under- A) "The first party has agreed to sell and transfer the said property to the second part for the total consideration agreed between the parties is of ₹ 2,80,80,000/- (Rupees two crores, eighty lacs eighty thousand only) B) The second party has paid an amount of ₹ 70,00,000/- (Rupees seventy lacs) to the first party on the execution of this MOU vide two cheques No.276435 of ₹ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Deed. E) It is agreed between the parties as per this MOU that the second party shall pay there after deducting the amount paid as per Clause D hereinabove by cheque of sixth month to the first party at the time of the Sale Deed. F) The said property is absolutely free and marketable. The said property is not encumbered by way of mortgage with any bank or by way of gift. The first party will hand over 7/12 extracts, search report by advocate for last thirty years and all documents referred to a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t that the second party is ready to get executed Sale Deed within above referred stipulated time limit. The first party shall be personally liable to bear the cost of such suit. 4) It is agreed between the parties that after the execution of this MOU the first party shall show the boundaries of the said property as per this MOU. It is agreed between the parties as per this MOU that the second party at its own cost get the Government Demarcation done of die said property before Sale Deed. 5) The .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nce amount of ₹ 56,16,000/- was never paid to the vendor and in support of its contention, the appellant also filed a letter dated 25/10/2011 from the vendor, namely, Mr. Raju Tungatkar. In the letter, it was stated that there were few disputes regarding the measurement of land and classification of a part the area as private forestation land and therefore, they agreed to hold 20% of the contract value i.e. Rs,56,16,000/- till the time the land is deforested and all the disputes are resolv .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he appellant shall pay the final installment to the vendor at the time of execution of sale deed. It is also stated in paragraph 4 of the MOU that it was agreed between the parties that after the execution of the MOU, the first party would show the boundaries of the said property as per the said MOU. It was further agreed between the parties that the second party would at its own cost get the Government Demarcation done of the said property before the sale deed is executed. Clause 7 of the MOU a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

any, by the vendor received as a result of public notice published in respect of the said property. All these clauses in the MOU clearly indicate that the vendor had taken the complete responsibility for obtaining necessary permissions as per the provisions of the Bombay Tenancy and Agricultural Act, 1998 and the vendor shall execute the sale deed in favor of the appellant after forthwith clearing all the objections of any person if, any, by the vendor. Subsequently, as mentioned earlier the sal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

File impounded during the survey clearly gives the bifurcation of the payment to be made by cheque and cash in the ratio of 80:20. Accordingly, the cash portion of the consideration was ₹ 56,16,000/- and since the sale deed was already executed during the year, the appellant would have paid the cash component also before or at least at the time of execution of the sale deed. With regard to the letter furnished by vendor Shri R.N.Tungatkar, such letters and affidavits are only self serving .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

corroborative evidences to the contrary, the self serving letter now filed by the appellant in support of its claim that the part of the consideration agreed upon as per the MOU was not actually paid is only an afterthought and cannot be accepted. It is also common knowledge that no person would execute the sale deed without receiving the full sale consideration agreed upon as per the agreement or MOU. Moreover, from the details placed on record, it is also observed that the notification for pri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

see has failed to controvert the findings of the CIT(A) in this regard and consequently, we find no merit in the grounds of appeal Nos.1 to 3 raised by the assessee and dismissing the same, we uphold the addition of ₹ 56,16,000/-. 34. The issue in grounds of appeal No.4 and 5 is with regard to the disallowance of ₹ 1,23,83,286/- out of the following items of expenditure:- i. Travelling and conveyance expenses - Rs.43,98,650/- ii. Labour charges - Rs.61,47,485/- iii. Advertisement Exp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ase in disallowed (d-14%) Excess expenditure disallowed* a b c d e 1 travelling and conveyance expenses 2,32,52,401 40.60% 26.60% 43,98,650 2 Labour charges 4,96,97,347 30.10% 16.10% 61,47,485 3 Advertisement expenses 64,05,865 46.40% 32.40% 14,17,312 4 Guest House expenses 7,85,264 145% 131% 4,19,839 Total 1,23,83,286 * Over last year s corresponding expenditure. 36. The claim of the assessee before us was that the expenditure had been incurred in the course of carrying on the business and 90% .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version