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TMI Blog2021 (3) TMI 1149X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision 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 Rs. 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 Rs. 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 that the Ld. CIT(A) failed to afford full and proper opportunity before proceeding to make huge and unjustified enhancement of Rs. 20,35,94,402/-. 3. As far as ground no. 1(a) is concerned, the Ld. AR Shri Subhas Agarwal drew our attention to page no.2 of the assessment order, from which it is seen that AO has made a chart wherein he has noted that the assessee company failed to deduct tax at source in respect of sixteen (16) items of expenses to the tune of Rs. 50,41,915/- and, therefore, he disallowed 30% of it u/s. 40(a)(ia) of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 20,65,713/- because at the first place the AO had made the disallowance only to the tune of Rs. 15,12,574/-. It is noted that the Ld. CIT(A) had given partial relief to the assessee by taking note of the fact that expenditure in respect of items amounting to Rs. 29,76,202/- was not liable for deduction of taxes for various reasons stated in the chart prepared by him at pages 6 and 7 of the impugned order. However, when he gave the final direction, he erroneously directed that the addition may be restricted to Rs. 20,65,713/- (Rs. 50,41,915 - Rs. 29,76,202). So, there is an error apparent on the face of the record. The Ld. CIT(A) after giving partial relief to the expenditure to the tune of Rs. 29,76,202/- could have only directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Rs. 4,02,837/- was disallowed u/s. 36(1)(iii) of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who notes that the office was taken on the fixed asset of the company for the Financial year 2016-17 and office got registered in FY 2016- 17 and according to Ld. CIT(A) this expenses of Rs. 4,02,837/- cannot be allowed in this year (F.Y. 2015-16). However, according to Ld. CIT(A), the same can be capitalized in the year of acquisition. The Ld. AR assailing the action of the Ld. CIT(A) submitted that the assessee has borrowed an amount of Rs. 1,36,65,535/- from the Axis Bank which is discernible from a perusal of page 5 of the paper book. According to Ld. AR, no disallowance could have been made when the assessee possessed mixed fund which includes its own fund in suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [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 in Mutual Benefit Societies which fulfill such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;" 9. It is noted that the AO has disallowed the interest applying the proviso to clause (iii) of sub-section (1) of section 36 of the Act. The AO has found that the office which has been acquired by loan of Rs. 1.3 cr. from Axis Bank has not been utilized/put to use, so he disallowed the interest expenditure. The Ld. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... niak 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 hands of the assessee company by an amount of Rs. 20,35,94,402/-. It is to be noted that at no point of time, the assessee is denying the same, however, it is taking frivolous explanations to justify its act. In no circumstances bona fides of the assessee company can be established as it was a pre-planned action undertaken by the assessee company. In these circumstances, I do hereby add an amount of Rs. 20,35,94,402/- to the income of the assessee. In this case, notice of enhancement has already been given as per Section 251 (2) of the Income Tax Act, 1961 vide letter dated 24.12.2019. Therefore, a total addition of Rs. 20,35,94,402/- is hereby made to the income of the assessee." 13. Assailing the aforesaid action of the Ld. CIT(A) enhancing the addition, the Ld. AR brought to our notice the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 17,51,945.00 ii. Mise Expenses- Clearing Agent Rs. 70,18,459.00 iii. Clearing Agent Commission Rs. 8,04,676.00 Total Rs. 95,75,080.00 You are requested not to added back the aforesaid matter, we would not be bear the tax burden, our company business already way of shutdown due to financial crisis. Gionee Mobile Chief has been closed the business in chaina , Our Company had been claimed more than Rs. 35 crores regarding expenses which we already paid towards RSP salary, share of marketing expenses, share of tax portion, distributors claimed. They have not given any single amount to our company against claimed. We have Income Tax filed loss of Rs. 6,66,29,797.00 for the financial year 2018-2019 and loss booked for the current financial year of Rs. ........." 16. Further we note that the assessee has brought to the notice of the Ld. CIT(A) the following more facts: "This is to inform you that the aforesaid inflated purchases has come only for value added with purchase price as per WB VAT Act 2003. Zeniak Innovation India imited is a registered dealer under WB VAT Act 2003 . The registered dealer can not be sold any goods without charged VAT. This is the main re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the sister concern which is as under: 18. We have heard both the parties and perused the records. We note that the assessee is into the sales of Gionee Mobiles (China) and it has several dealers and agencies in India for the sale of these mobiles which is manufactured in China. According to assessee, the reason for doing re-purchase of goods was due to deselection of the assessee in the e-way bill system because of certain issues with the VAT Authorities [relating to payment of VAT and non-filing of VAT returns.] According to assessee, though it paid all the outstanding taxes and returns were filed in respect of VAT and which fact was brought to the notice of the VAT authorities vide letter dated 18.08.2015 and 11.02.2016 (refer to pages 30 and 31 of paper book), however, the request made to re-select the assessee on the on line e-way bill system was not done and, therefore, the assessee had no option but to re-route the transactions through its sister concerns M/s. Zeniac Innovation India Ltd. which was registered dealer with the Commercial Department. It is noted that assessee made purchases of Gionee Cell Phones of China at the cost of Rs. 102.53 cr. (details refer to pag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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