TMI Blog2019 (9) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... om India. No allegation of the Revenue that the assessee has provided funds from his unaccounted fund to the lenders to get its unaccounted fund in the accounting form. In the absence of any adverse remarks by the Revenue on this issue lenders have provided funds to the assessee out of their sources generated by them. Loan taken by the assessee in the instant case as discussed above cannot be treated as unexplained cash credit under section 68 - Decided in favour of assessee Addition in respect of bad debts written-off - no ambiguity that any advance given by the assessee in the course of the business can be written off in the books of accounts and the assessee is entitled to the deduction either under section 37(1) or section 28 - claim of the assessee was denied due to non-furnishing of supporting evidence by the assessee - HELD THAT:- From the preceding discussion, we find a contradiction in the submission of the assessee before the Ld. CIT(A) vis a vis the finding of the Ld. CIT(A). We also find that the Ld. Counsel for the assessee had not furnished the copies of the ledgers of the parties in the paper book filed before us to whom the assessee provided the trade adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure incurred on the registration of the trademark cannot be treated as revenue in nature. See L T DEMAG PLASTICS MACHINERY (P) LIMITED. VERSUS INCOME TAX OFFICER. [ 2009 (1) TMI 299 - ITAT BOMBAY-J] - thus we hold that the expenditure incurred in connection with the registration of trademark represents the intangible assets. - decided against assessee. Disallowance of interest expenses u/s.36(1)(iii) - assessee claimed that the advances were given during the normal business transaction, out of internal accruals and it was for a very short period, therefore no interest was charged on such advances - HELD THAT:- The assessee has not produced any documentary of evidence suggesting that these advances made to the parties are representing the business transactions. Therefore in the absence of any documentary evidence, we concur with the finding of the lower authorities and justify the disallowance. There was not sufficient own fund available with the assessee to make such interest-free advance. Thus it is clear that interest-bearing fund has been diverted by the assessee for interest-free advances. Therefore in our considered view the interest claimed as a deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d concise grounds of appeal as follows in line with Rule 8 of the Income-tax (Appellate Tribunal) Rules, 1963: 1. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming the addition of ₹ 13,70,000/-made under section 68 of the Act. 2. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming addition of ₹ 33,594/- in respect of bad debts written-off. 3. The Ld. CIT(A) has erred, both in law and on the facts of the case, in partly confirming the ad hoc disallowance in respect of sales promotion expenses up to ₹ 1,38,014/-being 20% of total expenses out of total disallowance of ₹ 3,45,033/- being 50% of total expenses. 4. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming ad hoc disallowance of ₹ 18,318/ being 20% of total vehicle telephone expenses. 5. The Ld. CIT(A) has erred, both in law and on the facts of the case, in partly confirming the ad hoc disallowance in respect of travelling and conveyance expenses up to ₹ 7,465/- being 10% of total expenses out of total disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sushilbhai Patel 10,75,000/- 4.1 The assessee claimed that both the parties are non-resident Indians and therefore they do not have any source of income in India. 4.2 The assessee in support of above loans filed the Xerox copies of the confirmation letters from both the lenders bearing dated 05/03/2004 and 17/02/2004. 4.3 However, the AO observed that the confirmation letters given by the lenders are hand-written by the single person. Accordingly, the AO did not believe the confirmations filed by the assessee. The AO also observed that the assessee failed to furnish the identity, genuineness, and creditworthiness of the lenders. Therefore the AO treated the amount of loan of ₹ 13,70,000/- as unexplained cash credit u/s 68 of the Act and added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to Ld.CIT (A). The assessee before Ld.CIT (A) submitted that it had filed confirmations, PAN of the lenders and copies of cheques issued by the lenders. In case of any doubt, the AO could have taken confirmation from the bank. The cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re furnished, Ld.CIT (A) called for a remand report from AO under which, AO furnished a remand report dated 19/03/2012 which is placed at pages 55 to 58 of the paper book. In such a remand report, the AO has not stated anything worth substance in rebuttal to evidence furnished by the assessee. 7.5 However, Ld.CIT (A) wrote a letter dated 15/05/2012 to AO stating that it is not good on the part of AO to send a report on the basis of his personal opinion when there are means to verify the correctness of the claim of the assessee. Accordingly, Ld.CIT(A) requested AO to furnish a supplementary report. However, no such report has been furnished by AO. 7.6 As regards to Identity of the lender, the ''Ld.AR submitted that same stands proved from confirmation, cheque and relevant extract of NRE account. With regard to the genuineness of transactions the ''Ld.AR submitted that stands proved from the fact that funds have been received by cheque and also creditworthiness of lender, the same stands proved from bank statement wherein there were sufficient funds prior to the amount being lent to the assessee. Thus all the three in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, their creditworthiness and the genuineness of the transactions. On the facts of this case, the Tribunal did not take into account all these ingredients which had to be satisfied by the assessee. Mere furnishing of the particulars was not enough. The enquiry of the ITO revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently, the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, it was to be presumed that the transactions were genuine. It was not for the ITO to find out by making investigation from the bank accounts unless the assessee proved the identity of the creditors and their creditworthiness. Mere payment by account payee cheque was not sacrosanct nor could it make a non-genuine transaction genuine. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire transaction is recorded in the books of account and reflected in the financial statements of the assessee since the subscription was done through the banking channels as evidenced by bank statements which were examined by the Tribunal. With regard to the capacity of the subscribers the impugned order records a finding that 98 per cent of the shares is held by IDFC Private Equity Fund-II which is a Fund Manager of IDFC Ltd. Moreover, the contributions in IDFC Private Equity Fund-II are all by public sector undertakings. The Tribunal has examined the case of the revenue on the parameters of section 68 and found on facts that it is not so hit. Therefore, section 68 cannot be invoked. The revenue has not been able to show in any manner the factual finding recorded by Tribunal is perverse in any manner. 9.7 In view of the above we hold that the assessee has duly discharged his duty by establishing the genuineness of the transactions. 9.8 Now the 3rd requirement of the assessee is to prove the creditworthiness of the lenders, as there was sufficient balance in both the accounts of the lenders before transferrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income in an NRE account can be deposited only from the foreign countries. The fund cannot be deposited in NRE accounts from India. 9.12 There was no allegation of the Revenue that the assessee has provided funds from his unaccounted fund to the lenders to get its unaccounted fund in the accounting form. In the absence of any adverse remarks by the Revenue on this issue, we are of the view that the lenders have provided funds to the assessee out of their sources generated by them. 9.13 In view of the above we are of the view that the loan taken by the assessee in the instant case as discussed above cannot be treated as unexplained cash credit under section 68 of the Act. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 10. The second ground raised by the assessee is that Ld.CIT (A) erred in confirming the addition of ₹ 33,594 in respect of bad debts written-off. 11. The assessee during the year has written-off bad debts amounting to ₹ 33,594/- only. However, on the question by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of AO by observing that the assessee filed no supporting evidence justifying that the advances were given in the course of business. 13. Being aggrieved by the order of Ld.CIT (A) assessee is in appeal before us. 14. The Ld.AR submitted that such advances were given in the course of business of the assessee and hence if the amount so written-off is not allowed as bad-debts, then the same must be allowed as business loss u/s 28 or u/s 37 of the Act. 15. On the other hand Ld.DR vehemently supported the order of the authorities below: 16. We have heard the rival contentions and perused the materials available on record. The assessee, in this case, has claimed bad debts amounting to ₹ 33,594/-. But no detail submitted by the assessee before the AO to substantiate its claim of bad debts. Therefore the AO had no alternative but to disallow the claim of the assessee of bad debts. 16.1 However the assessee before the Ld. CIT(A) has changed his stand and submitted that it has wrongly claimed as bad debts in the books of accounts. As such these were representing the trade advances gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to justify its claim by the documentary pieces of evidence that these advances were in the course of the business. However, the assessee failed to do so. Accordingly, we are inclined to hold that there is no infirmity in the order of authorities below. Hence the ground of appeal of the assessee is dismissed. 17. The third ground raised by the assessee is that Ld.CIT (A) partly confirmed the ad-hoc disallowances for ₹ 1,38,014/- incurred for sales promotion expenses. 18. The assessee during the year has claimed sales promotion expenses amounting to ₹ 6,90,065/- only. The assessee submitted that these expenses were necessary to increase the sales in the competitive environment. 18.1 However, the AO found that these expenditures were incurred on the purchase of gift articles in cash. He also found that the expenses are exorbitant comparing to the business of the assessee. Accordingly, he made the disallowance of such expenses to the tune of ₹ 3,45,033/- being 50% of the sales promotion expenses. The amount was disallowed and added to the total income of the assessee. 19. The aggrieved assessee pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not verifiable as these were incurred in cash. 23.1 The scheme of the income tax Act mandates that the expenses incurred wholly and exclusively for the purpose of the business are eligible for deduction under section 37(1) of the Act, provided these should not be in the nature of capital expenditure. There was no allegation of the AO that the expenditures were not incurred for the purpose of the business. Therefore in our considered view, the expenses which in the opinion of the AO are exorbitant cannot be the basis for the disallowance. 23.2 The AO cannot enter into the shoe of the assessee to decide the quantum of the expenses to be incurred in connection with the sales promotion activities. The assessee decides the expenses to be incurred for the purpose of the business. There is no role of the AO in the decision-making process of the assessee. 23.3 We also note that there is no prohibition for incurring the expenses in cash under the income tax Act subject to the exception such as specified under section 40A(3) of the Act. But in the case on hand, there is no dispute concerning the provisions of section 40A(3) of the Act. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses cannot be made on the basis of the guesswork and without pointing out the specific defects in the expenses claimed by the assessee. The relevant extract of the order is reproduced below: The assessee produced details of vouchers and other documents in support of the claim in respect of those expenses. It appeared that the Assessing Officer did not at all consider those documents nor did he find those documents to be manufactured or otherwise not relevant and on the basis of a mere guesswork, reduced the deduction claimed. Similarly, the Commissioner (Appeals), after finding that the approach of the Assessing Officer was erroneous, allowed the entire claim of the assessee without verifying those documents and the Tribunal took a midway by modifying both the orders without, however, any reference to any of the materials produced by the assessee All the three authorities assessed the amount without reference to the evidence produced by the assessee but on the basis of guesswork and, as such, assessment was perverse. It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance at the rate of 20%. 27.1 It has already made disallowance in the computation of income and therefore no further disallowance on ad-hoc basis can be made. However, the Ld.CIT (A) did not agree with the submission of the assessee on the ground that the assessee failed to furnish evidence in the form of the logbook for the vehicle and call details of the telephone expenses. Therefore he confirmed the disallowance made by the AO. 28. Being aggrieved by the order of the Ld.CIT (A) the assessee is in appeal before us. 29. The Ld.AR before us submitted that these expenses comprise of car insurance, vehicle repairs, depreciation on vehicles and telephone expenses which has been incurred wholly and exclusively for the business. Such expenses appear in audited books of the account running from page 21 to 40 of the paper book. Under such circumstances the Ld.CIT (A) ought to have deleted impugned additions. 30. The ld. DR vehemently supported the order of authorities below. 31. We have heard the rival contentions and perused the materials available on record. The assessee in the instant case h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before Ld.CIT (A) submitted that it had furnished all the relevant supporting evidence to the AO during the assessment proceedings. The AO without pointing out any defect in the details filed by it has made ad-hoc disallowance. 35.1 The books of accounts of the assessee were duly audited, and no defect whatsoever was pointed out by the Auditor. 35.2 The Ld.CIT (A) after considering the submission of the assessee restricted the addition to 10% by observing that the element of personal used cannot be denied. 36. Being aggrieved by the order of Ld.CIT (A) the assessee is in appeal before us. 37. The Ld.AR, before us, submitted that such expenses had been incurred wholly and exclusively for the business, and also such expenses appear in audited books o accounts running from pages 21 to 40 of the paper book. Under such circumstances the Ld.CIT (A) ought to have deleted the impugned addition in toto. Alternatively, some token disallowance may be confirmed. 38. On the other hand Ld. DR vehemently supported the order of the authorities below. 39. We have heard the rival co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing benefit. Therefore, the same should be treated as revenue expenses. 42.1 However, the Ld.CIT (A) disregarded the contentions of the assessee by observing that the trademark expenditure is creating an intangible asset and therefore the same is treated as capital in nature. 43. Being aggrieved by the order of Ld. CIT (A) assessee is in appeal before us. 44. The Ld.AR, before us, submitted that it is mandatory to get the products registered under trademark laws. Such expenses have neither resulted into any capital asset, not any enduring benefit to the assessee to hold that such expenses are capital in nature. Such expense has been incurred wholly and exclusively for the business. Under such circumstances, Ld.CIT (A) ought to have deleted impugned addition. 45. On the other hand the Ld.DR vehemently supported the order of the authorities below. 46. We have heard the rival contentions and perused the materials available on record. The assessee has incurred expenses for the registration of the trademark of its product amounting to ₹ 52,000/- Only. The assessee claimed such expenses as in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee having obtained registration of a new trademark using a combination of trademark of two companies and such new trademarks being the sole asset of the company, all expenses incurred in relation to acquiring such assets could only be considered as capital in nature. Therefore, the order of the Commissioner (Appeals) was to be confirmed 46.2 In view of the above we hold that the expenditure incurred in connection with the registration of trademark represents the intangible assets. Accordingly, such expenses need to be capitalized. Therefore we do not find any infirmity in the order of authorities below. Hence the ground of appeal of the assessee is dismissed. 47. The seventh ground raised by the assessee is that Ld.CIT (A) erred in confirming disallowance of interest expenses of ₹ 17,404/- u/s.36(1)(iii) of the Act. 48. The assessee during the year has given advance to the following parties: Sr. No. Name of party Amount 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee as on 31 March 2004 stands in negative as evident from the balance sheet of the assessee placed on page no. 46 of the paper book. 53.1 The assessee has not produced any documentary of evidence suggesting that these advances made to the parties are representing the business transactions. Therefore in the absence of any documentary evidence, we concur with the finding of the lower authorities and justify the disallowance. 53.2 We also note that there was not sufficient own fund available with the assessee to make such interest-free advance. Thus it is clear that interestbearing fund has been diverted by the assessee for interest-free advances. Therefore in our considered view the interest claimed as a deduction to the extent of the funds diverted for interest-free advances will be disallowed under the provisions of section 36(1)(iii) of the Act. In view of the above we do not find any infirmity in the order of Ld. CIT(A). Hence the ground of appeal of the assessee is dismissed. 54. The eight ground raised by the assessee is that Ld.CIT (A) erred in partly confirming the ad-hoc disallowance of ₹ 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO representing personal expense. 60.2 The AO in his assessment order has noticed that these expenditures were incurred on lunch, biscuits, snacks, tea, etc. The nature of the expenses suggest that the assessee incurred these for the staff welfare and to keep the conducive working environment in the company. Thus in such a case, we are of the view that even if the staff or the partners obtain some personal advantage, then also it will be in nature of maintaining good relations with officers and in nature of staff welfare expenses. These expenses were incurred to keep the staff happy and active so that there should be better performance of the staff. However, the assessee must maintain supporting evidence to justify that these expenses do not fall in the category of personal expenses. In this regard, we also note that the assessee has claimed almost similar expenses in the immediately preceding and succeeding assessment year. There can be negligible difference in the quantum of the expenses comparing to the turnover of the business of the assessee in all the years. 60.3 We also note that there was no specific ..... X X X X Extracts X X X X X X X X Extracts X X X X
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