TMI Blog2021 (3) TMI 1149X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of other items confirmed by the Ld. CIT(A), the Ld. AR does not want to press taking into account the smallness of the amount and, therefore, those expenses to be disallowed u/s. 40(a)(ia) of the Act. So, this ground is partly allowed for statistical purposes. Disallowance on account of interest on office loan - AO disallowed it since this office was not utilized/put to use - as demonstrated that assessee has its own fund to the tune of ₹ 8,28,88,111/- and the loan amount is only to the tune of ₹ 1.3 cr. and, therefore, according to the Ld. AR, the assessee possessed mixed fund which includes its own fund in sufficient quantity - HELD THAT:- CIT(A) has found that the assessee has got the office in question registered next year i.e. F.Y 2016-17 i.e. AY 2017-18, which fact corroborates the finding of AO and therefore, the proviso to section 36(1)(iii) of the Act is attracted. And in this case, the presumption as per the ratio of the decision rendered by Hon ble Bombay High Court in Reliance Utilities [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] and HDFC [ 2014 (8) TMI 119 - BOMBAY HIGH COURT] cannot be applied because in those cases, there was mixed funds in the han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case, the Ld. CIT(A) was not justified in holding that the addition made by the A.O. on account of business promotion expenses u/s. 40(a)(ia) is restricted to ₹ 20,65,713/- when the total addition made by the A.O. itself was ₹ 15,12,574/-. (b) For that on the facts and in the circumstances of the case, the Ld. CIT(A) ought to have deleted the disallowance of ₹ 15,12,574/- being 30% of ₹ 50,41,915/- on account of business promotion expenses made by the A.G. by wrongly invoking the provision of section 40(a)(ia). 2. For that on the facts and in the circumstances of the case, the Ld. CIT(A) ought to have allowed ₹ 4,02,837/- on account of interest on office loan disallowed by the A.O. 3, (a) For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred in making an enhancement of ₹ 20,35,95,402/- in the hands of the assessee on account of alleged inflated purchases. (b) For that the Ld. CIT(A) was not justified in introducing in the assessment, a new source of income and failing to confine himself to those items of income which were the subject matter of the original assessment. (c) For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion to page 22 and 23 of the paper book which are the bill of M/s. Rakshit Company; and thereafter he drew our attention to page no. 27 wherein the bill of M/s. Choicest Enterprise Ltd. has been found placed. According to the Ld. AR payments made to these two concerns must have been reflected in their respective turnovers and in their ROI, and they ought to have paid the taxes on it, so, he pleaded that no disallowance u/s. 40(a)(ia) of the Act is warranted for these two expenses. Per contra, the Ld. DR did not object to the correction raised in ground no. (1)(a), which is per-se evident. However, in respect to the relief claimed in respect of expenditures in respect of two concerns are concerned, according to Ld. DR, factual verification is necessary, therefore, he pleaded that these two expenses may be remanded for verification back to AO. 5. Having heard both the parties we are not repeating the facts narrated above for the sake of brevity. In respect of ground no. 1(a), we find that the Ld. CIT(A) erred while giving direction to restrict the addition to ₹ 20,65,713/- because at the first place the AO had made the disallowance only to the tune of ₹ 15,12,574/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not want to press taking into account the smallness of the amount and, therefore, those expenses to be disallowed u/s. 40(a)(ia) of the Act. So, this ground is partly allowed for statistical purposes. 6. Ground no. 2 is against the action of Ld. CIT(A) in confirming the disallowance of ₹ 4,02,837/- on account of interest on office loan. 7. Brief facts of the case as noted by the AO are that it has come to his notice that expenditure claimed on account of interest on borrowed fund utilized for purchase of office was to the tune of ₹ 4,02,837/-. According to the AO, no depreciation was claimed in respect of this office since it does not appear as an item in the fixed asset. According to him, the office was not utilized/put to use in this year for the purpose of business. Thereafter, he applied section 43(1) and section 36(1)(iii) of the Act and held that since the office was not utilized or put to use in the year for the purpose of business interest paid on the capital borrowed for acquisition of the office cannot be allowed and therefore, the sum of ₹ 4,02,837/- was disallowed u/s. 36(1)(iii) of the Act. Aggrieved, the assessee preferred an appeal before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Utilities Power (supra). However, we do not agree to the said contention of Ld. AR for the reason that assessee has shown in its books that the loan of ₹ 1.3 cr. has been taken from the Axis Bank for office and claimed deduction in respect of the interest expenditure incurred on this loan. And the AO/Ld. CIT(A) has disallowed the interest expenditure citing sec. 36(1)(iii) of the Act which reads as under: 36(1) The deductions provided for in the following clauses shall be allowed in the matter dealt with therein, in computing the income referred to in section 28: (i) (ii) (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession; [Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset t'**] (whether capitalised in the books of account or not); for any period beginning from tile date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.] Explanation.-Recurring subscriptions paid periodically by shareholders, or subscribers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales made by you to your sister concerns, ii) Purchases made by you through your sister concerns, iii) Whether the same goods which were sold by you to your sister concerns have been purchased by you using another sister concern. If so please give these details along with the following : a) Amount at which sales were made by you to your sister concerns, b) Amount at which same goods were purchased by you from these sister concerns. Your reply on the above must reach this office on or before 24.12.2019 positively. 12. The Ld. CIT(A) has reproduced the Replies of the assessee at page 8 to 13 of his impugned order. Thereafter, the Ld. CIT(A) has held as under: From the above, circular movement of goods between United Teleservices Limited and Zeniak Innovation India Limited Infobitz India can be explained as under : Circular Movement of Goods: From the above, it is clear that the assessee has accepted that it purchased the same goods which were sold by it. The above discussion in the appellate order has already revealed that the circular transactions of purchase and sales have resulted into inflated purchases in the ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come tax is more than ₹ 1.58 cr. for the financial year 2015-2016, net profit had been arrived near about ₹ 5 crores because only for circulated of goods. We, everybody know about West Bengal Value Added Tax Act 2003, when we sale goods to the customer then we are adding value ( Profit) with actual purchase price and harged Tax. Sale Price = Purchase Price + Value ( Profit) Billing Price = Sale Price + Tax (Value Added Tax) This is the main reason to increase the purchase price from Infobitz India. Further we inform you that you have verbally committed to us during the hearing that you will not be added with our income for the aforesaid financial year. We have not intentionally done the circular movement of goods, we are unable to run the business in absence of materials because we could not import the materials due to online waybill benefit, The Joint Commissioner of Commercial Tax officer stop the online way bill system due to tax default. Further we inform you that M/s. Zeniak Innovation India Limited also have paid direct expenses of Rs, 95,75, 080. regarding i. Airport Authority of India & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, we inform you that the company M/ s Zeniak Innovation India Limited has paid Income Tax on the profit which was arrived for sale of high sea goods. The company already paid Income Tax on the aforesaid inflated purchase . So, if you added the aforesaid inflated purchase with taxable income then it will double taxation charged because our sister concern already paid Income Tax and filed Income Tax return and also done tax audit for the aforesaid period. CBDT can not be denied state tax because the Constitution of India establishes a federal structure to the Indian Government, declaring it to be a Union of States Part XI of the Indian constitution specifies the distribution of legislative, administrative and executive powers between the central government and the State of Indict . You are request not to added back the aforesaid matter, because our company business already way of shutdown due to financial crisis. We could not recover the money from Syntech Technology (HK) Limited, mother Company of Gionee mobile which we were claimed against expenses and also not recover money from sundry debtors against mobile sale due to unavailable market support finally they have not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal ₹ 32,61,01,441/- 19. Thus the total expenses as above to the tune of ₹ 32,61,01,441/- was additionally incurred on the goods. According to him, the sister concerns (M/s. Zeniac Innovation India Ltd.) have purchased from the assessee at high seas at ₹ 103.52 cr. and incurred additional cost of ₹ 32.61 cr resultant cost comes to around ₹ 136 cr. Whereas the repurchase cost of the assessee from M/s Infobitz India Ltd was at Rs,123.88 cr. as noted by the Ld. CIT(A) at page 13 of the impugned order. So, according to the Ld. AR, there is no inflated purchase as alleged by the Ld. CIT(A). 20. Further, according to the Ld. AR, the M/s. Zeniak Innovation India Ltd is a registered dealer under the West Bengal VAT Act, 2003 and has paid VAT of ₹ 19,12,20,325/- which includes ₹ 16,28,89,436/-. VAT paid for the high sea purchase from the assessee the mobiles for FY 2015-16 and also VAT paid of ₹ 6,08,77,316/- for the FY 2014-15. According to the Ld. AR, promoter and directors of both the companies were same during that period and the entire business of both the companies were run by the same directors a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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