TMI Blog2017 (11) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2,51,576/-(supra) and ₹ 3,50,554/-(supra) offered by the assessee for tax after a lapse of a period of three years in AY: 2006-07 and AY: 2007-08, respectively, therefore, a different yardstick and an inconsistent approach would not be permissible on its part for the year under consideration. We are of the considered view that as we have set aside the entire addition of ₹ 29,91792/-(supra), therefore, the contention of the assessee that the taxing of the amount of ₹ 9,49,687.96 (supra) during the year under consideration would lead to ‘double taxation’ in its hands is rendered as academic. Disallowance of the interest on borrowed capital in respect of the short term interest free funds which were made available by the assessee to its subsidiary company - Held that:- We find from a perusal of the records that though it is contended by the A.O that advances were made by the assessee out of its interest bearing funds, however, a claim to the contrary was raised by the assessee, therein claiming that the advances to the ‘Sister concern’ were made out of the share capital, reserves and surplus which were available with the assessee. We are of the consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax (Appeals) (hereunder after referred to as CIT(A) erred in; 1. The CIT (A) has erred in law and on the facts, in adding a sum of ₹ 29,91,792/- on account of 'Unexplained Deposits' collected from various clients, relying on the provisions of section 68 of the Income-tax Act, 1961 ('the Act') without appreciating the efforts that your assessee had made to provide sufficient available details for each and every such credit in its account. 2. Without prejudice to the Ground No. 1, the CIT(A) has erred in law and on the facts in not granting credit for a sum of ₹ 51,68,195/- being added to the total income during the course of assessments of earlier years and identified subsequently. without appreciating the efforts that your assessee had made to pass on this credits along with credits received and unidentified in earlier years after having sufficient details like Identity of the creditors, PAN No. of depositors, their bank account and more importantly the creditworthiness by way of proving that these are the depositors in normal course of business to trade with clients with your assessee. 3. The CIT(A) has erred in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of Interest on borrowed funds. ₹ 3,28,767/- 3. Disallowance of Foreign travelling expenses. ₹ 45,97,216/- The A.O after deliberating on certain other issues assessed the income of the assessee at ₹ 90,72,28,740/-. 3. The assessee being aggrieved with the assessment framed by the A.O, therein carried the matter in appeal before the CIT(A). The CIT(A) though partly allowed the appeal of the assessee, however, the aforesaid additions/disallowances were upheld. 4. The assessee being aggrieved with the order of the CIT(A) to the extent the latter had sustained the aforesaid additions/disallowances, had therein carried the matter in appeal before us. The contentions raised by the authorised representatives for both the parties, and our adjudication as regards the respective issues assailed before us, is as under:- ADDITION OF UNEXPLAINED DEPOSITS U/S 68 : ₹ 29,91,792/- 5 . The ld. Authorised Representative (for short A.R ) for the assessee taking us to the genesis of the issue under consideration, submitted that the A.O had during the course of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount , which clearly provided an embargo as regards utilization of the amounts credited in the Clients account for any other purpose, except for those permitted therein. The ld. A.R had thus tried to impress upon us that the amounts received in the Clients account exclusively belonged to the respective clients, and the utilization of he same being strictly regulated by the specific purposes for which those could be appropriated for the benefit of the client, were thus at no stage available at the disposal of the assessee. The assessee in order to fortify his contention that the unclaimed amounts received from the clients were consistently offered by it for tax after a lapse of a period of three years, therein took us through Page 147 of his APB , which revealed that the assessee in the preceding years, viz. A.Y.2006-07 and A.Y. 2007-08 had on his own offered such unidentified amounts lying in the Clients account of ₹ 2,51,576/- and ₹ 3,50,554/-, respectively, for tax. The ld. A.R further averred that the amounts lying in the Clients account were held by the assessee only in a fiduciary capacity, and it could at no stage be held to be the owner of the said amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n benefit and be assessed as the latters income, relied on the judgment of the Hon ble High Court of Bombay in the case of CIT Vs. Tanubhai D. Desai (1972) 84 ITR 713 (Bom) . The ld. A.R further in support of the settled position of law that merely because an assessee does not offer any explanation for the cash credit entries, the amount solely for the said reason cannot be assessed as his income under Sec. 68, relied on the judgment of the Hon ble High Court of Gujarat in the case of Mitesh Rolling Mills (P) ltd. Vs. CIT (2002) 258 ITR 278 (Guj). 6. Per Contra, the ld. Departmental representative (for short D.R ) averred that as the assessee had failed to identify the depositor, therefore, the genuineness of the transaction could not be established. The ld. D.R referring to S.No. 17 Page 5 of the Synopsis , averred that the amount of ₹ 58,162/- mentioned therein stood reflected as a cash receipt. The ld. D.R thus taking support of the aforesaid fact, submitted that on various occasions such cash deposits were received by the assessee, therefore, the fact that the said amount was as a matter of fact the unexplained cash owned by the assessee, could not be rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained with the banks, would by no means loose the color and character as that of being the money of the clients. That still further, the strict regulations monitoring the withdrawal of the amounts from the Clients account , which clearly provided an embargo as regards utilization of the amounts credited in the Clients account for any other purpose, except for those contemplated therein, thus duly established that the amounts received in the Clients account exclusively belonged to the respective clients and would in no way be available to the assessee for being utilised for a purpose other than for the benefit of the client, which too had to be in strict compliance of the parameters laid down by SEBI. We thus in the backdrop of our aforesaid observations are thus of the considered view that it can safely be concluded that the assessee was holding the amounts lying in the Clients account only in a fiduciary capacity. We find that the issue that an amount held by a person in a fiduciary capacity cannot be brought to tax as an unexplained credit u/s 68, is no more res integra in light of the judgment of the Hon ble High Court of Bombay in the case of CIT Vs. Tanubhai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid judgment of the Hon ble High Court, now when the amounts aggregating to ₹ 29,91,792/-(supra) credited in the Clients account maintained by the assessee with the bank, could safely be held to be the clients money which were held by the assessee in a fiduciary capacity, therefore, the same could not be assessed as the unexplained credit in its hands under Sec. 68 of the Act . We are of the considered view that in the backdrop of our aforesaid observations, the amount of ₹ 29,91,792/- (supra) could not have been assessed as the unexplained cash credit of the assessee under Sec. 68. We are also of the view that now when the revenue had been accepting the aforesaid practice of the assessee in offering the unidentified amounts received from the clients and forming part of the Clients account for tax, after a lapse of a period of three years, and on the said basis had assessed the amounts of ₹ 2,51,576/-(supra) and ₹ 3,50,554/-(supra) offered by the assessee for tax after a lapse of a period of three years in AY: 2006-07 and AY: 2007-08, respectively, therefore, a different yardstick and an inconsistent approach would not be permissible on its part for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest free advances of ₹ 10 crore which were diverted by the assessee to its subsidiary company for a period of 10 days during the year under consideration. 11. That during the course of the hearing of the appeal, it was submitted by the ld. A.R. that the judgment of the Hon ble High Court of Bombay in the case of Phalton Sugar Works Ltd. (supra) relied upon by the A.O had been overruled by the Hon ble Supreme Court while adjudicating the case of S.A. Builders Ltd. Vs. CIT(A) Anr. (2007) 288 ITR 1 (SC). It was further submitted by the ld. A.R that the Hon ble High Court in its aforesaid judgment had clearly held that where a Holding company being prompted by commercial expediency had made available an interest free advance to its Wholly owned subsidiary company ( WOS ), then no disallowance of any part of the interest paid by the holding company on the borrowed funds advanced to the WOS would be called for. It was thus submitted by the ld. A.R that the judgment of the Hon ble Supreme Court in the case of S.A. Builders Ltd. (supra) had not been appreciated by either of the lower authorities. Per contra, the ld. Departmental representative relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be disallowed on the ground that the said investments were made out of the interest bearing funds. We find from a perusal of the records that though it is contended by the A.O that advances were made by the assessee out of its interest bearing funds, however, a claim to the contrary was raised by the assessee, therein claiming that the advances to the Sister concern were made out of the share capital, reserves and surplus which were available with the assessee. We are of the considered view that in the backdrop of the aforesaid facts read with the settled position of law, the matter in all fairness needs to be restored to the file of the A.O. We thus restore the matter to the file of the A.O, with a directon to re-adjudicate the issue keeping in view the aforesaid judgments of the Hon ble Supreme Court in the case of S.A. Builders Ltd. (supra) and the judgment of the Hon ble High Court of Bombay in the case of Reliance Utilities Ltd (supra). That in case if it emerges from the records that sufficient interest free funds were available with the assessee at the relevant point of time when the interest free amounts were advanced to the subsidiary company, or it is proved b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O that the assessee had neither substantiated as to how the visits to the foreign countries had helped in its business, nor had furnished the details of the meetings as well as the clients with whom the same had taken place. The A.O not finding favour with the unsubstantiated contention of the assessee that the meetings were undertaken to meet the high networth clients by the sales personnel, thus concluded that the assessee had failed to prove that the said expenditure was incurred wholly and exclusively for the purpose of its business. The A.O thus holding a conviction that the assessee had failed to give the details of the meetings that took place with the clients, and also had not brought on record the real benefits that had accrued to it from such foreign travelling, however being of the view that the assessee had some business of foreign clients, therefore, made an adhoc disallowance of 50% of the foreign travel expenditure and made an addition of ₹ 45,97,216/- on the said count in the hands of the assessee. 14. The assessee being aggrieved with the order of the A.O assailed the disallowance of the foreign travelling expenses before the CIT(A). The assessee subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be ruled out, therefore, concluded that no infirmity as regards disallowance of 50% of the foreign travelling expenses by the A.O emerged from the record. The CIT(A) thus on the basis of his aforesaid view upheld the disallowance of ₹ 45,97,216/- made by the A.O. 15. The assessee being aggrieved with the aforesaid proportionate disallowance of the foreign travelling expenses, had assailed the same in appeal before us. The ld. A.R at the very outset submitted that as it was a case of a company and the foreign travelling expenses during the year under consideration had been subjected to Fringe benefit tax (FBT), therefore, the lower authorities could not have characterized any part of the foreign travelling expenses as having been incurred for non business purposes. The ld. A.R submitted that if the foreign travelling expenses are pitted against the total brokerage receipts of the assessee, the same hardly works out to 0.5% of the said brokerage income. It was submitted by the ld. A.R that the assessee is a Joint venture and its counterpart was a foreign company based in U.K. The ld. A.R submitted that the clientele of the assessee is present in almost 12 count ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in respect of foreign travelling carried out by the employees/directors of the assessee company, by referring to the exhaustive in house documentary evidence placed at Page 220-261 of the APB . The ld. A.R had further taken support of the Affidavit furnished by the director of the assessee company, viz. Mr. Vineet Bhatnagar, wherein the deponent had clearly deposed that the foreign travelling expenditure was incurred wholly and exclusively for the purpose of the assessee company (Page 31-33) of the Synopsis . The ld. A.R strongly objected to the adhoc disallowance carried out by the A.O and submitted that the same was not permissible. Per contra, the ld. D.R relied on the order of the CIT(A) and took us through the observations of the CIT(A) recorded at Page 24 - Para 7.6.5 of his order. It was submitted by the ld. D.R that in the absence of complete details in respect of the nature of the foreign travelling expenses incurred by the assessee, the lower authorities had fairly carried out a proportionate disallowance of the said expenditure. It was thus submitted by the ld. D.R that no infirmity did emerge from the order of the CIT(A) and the appeal of the assessee in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the authorized representatives for both the parties, are unable to persuade ourselves to be in agreement with the view arrived at by the lower authorities in respect of the proportionate disallowance of the foreign travelling expenses in the hands of the assessee. We thus being of the considered view that the foreign travelling expenses which are irrebutably found to have been incurred by the assessee wholly and exclusively for the purpose of its business, therefore, find no justification for any proportionate disallowance of the said expenditure in the hands of the assessee. We thus delete the disallowance of ₹ 45,97,216/-(supra) made by the A.O in respect of the foreign travelling expenses. The order of the CIT(A) confirming the aforesaid disallowance is thus set aside on the issue under consideration. The Ground of appeal No. 4 raised by the assessee before us is allowed. 17. The ld. A.R for the assessee had during the course of hearing of the appeal submitted that the Ground of appeal No. 5 is not being pressed. That in light of the concession of the ld. A.R. the Ground of appeal No. 5 is dismissed as not pressed. 18. The appeal of the assessee is part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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