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TMI Blog2022 (2) TMI 425X X X X Extracts X X X X X X X X Extracts X X X X ..... facts relating to ground 1 are, during assessment proceedings the assessing officer observed that assessee had paid interest to two persons, i.e. Dura Tech and Hemali Gada @17% p.a. and 15% p.a., respectively. The assessing officer observed that the above two persons are specified persons as per section 40(A)(2)(b) of the Act and the interest paid to those persons were excessive. Accordingly, assessing officer restricted the interest payment @12% p.a. and made the disallowance of Rs. 26,88,640/-. 4. Aggrieved, assessee preferred appeal before CIT(A) and before Ld.CIT(A) assessee filed the following submissions:- "The Appellant has debited Rs, 88,51,806/- & Rs. 4,25,833/- as interest paid to the loan party covered u/s 40A(2)(b) @ 17% & 15% respectively to the Profit & loss account for the year under consideration. The Learned Assessing officer has disallowed the interest paid in excess of 12% u/s 40A(2)(b) stating that they are out of the ambit of scope of Section 37(1) of the Income Ta\ Act, 1961 since they are not incurred for wholly and exclusively for the business purpose. Section 37(1) of the Income Tax Act, 1961 states that "Any expenditure (not being expenditure of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness and genuineness of the expenditure incurred by the assessee and his business and genuineness of the business was not disputed, the Assessing Officer could not sit in the arm chair of the businessman to determine as to what amount of the expenses he ought to incur for doing his business." CIT v. Padmini Packaging P. Ltd (2006) 193 Taxation 558 (Bom.) (High Court) 3. "Whenever a claim is made by the assessee before the Income Tax Officer for allowing an expenditure as a legitimate business expenditure, ITO must try to put himself in shoes of a prudent businessman and try to look at the matter from that point of view. A businessman may make an expenditure which he is under no legal obligation to make, but if he does so as a measure of commercial expediency it must be allowed under section 37 as legitimate business expenditure. (A, Y. 1978-79} " Abbas Wazir P. Ltd v, CIT (2003) 133 Taxman 702/185 CTR152 / (2004) 265ITR 77 (AIL) (High Court) Based on the above facts, we pray your honor to delete the disallowance of the interest paid to persons specified u/s 40A(2)(b) in excess of 12% amounting to Rs. 26,88,640/-." 5. After considering the detailed submissions of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le assessment year, it will be more or less 15%. Therefore, we do not see any reason to disturb the findings of Ld.CIT(A). Accordingly, ground raised by the assessee is dismissed. 10. With regard to ground 2, the relevant facts are during assessment proceedings, assessing officer observed that assessee did not deduct tax at source in respect of interest payment of Rs. 7,64,567/-. The assessee submitted that the tax was not deducted at source because parties had stated that their income was below the taxable limit. The assessing officer rejected the contentions of the assessee and observed that assessee has not filed form 15G / 15H from those parties, who stated that their income is less than taxable limit. When enquired, assessee filed details before the assessing officer and assessing officer observed that assessee has not filed party-wise details and amount of interest. Since assessee has not complied with the above conditions, he disallowed the amount of Rs. 7,64,567/- under section 40(a)(ia) of the Act. Aggrieved, assessee preferred appeal before CIT(A) and before CIT(A), assessee filed form 15G / 15H in respect of six recipients of interest. After considering the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Site Expenses from the beginning of the project. The Appellant has debited Rs. 3,12,50,61s/- as purchases to the Profit & loss account for the year under consideration. The details and evidence for the verification of the same is submitted vide Pt.4 of letter dated 26/12/2016. Out of balance expenses, major expenses are pertains to the earlier years. The same were also subject to scrutiny. The Assessment Orders for A. Y, 2012-13 & A,Y. 2013-14 is enclosed herewith. Enclosing herewith the relevant Audited Profit & Loss Account highlighting the purchases of Rs. 3,12,50,618 included during the year for your reference. The Learned Assessing officer has added back the 25% of differential expenditure of Rs, 2,04,92,992/- (Rs. 5,17,43,610 - Rs. 3,12,50,618) stating they are unverifiable expenses. Expenses have been incurred exclusively and directly for the Appellant's business. The above expense is the normal business expenditure Incurred in the course of running the business. No particular expenses has been pointed out which does not relate to the business of the appellant, Merely expenses are not verifiable cannot be a ground for disallowance or additions. Further it was he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, without prejudice to his claim that the provision for site expenses were allowable, that the provision for site expenses were taken into consideration of Total Project Cost and consequently in computation of closing stock. He submitted that in case the provision for site expenses are disallowed, the closing stock should be recomputed. 7.4.7 After considering all the facts, I hold that the expenditure of Rs. 54.22,325/- for which bills were raised in the subsequent year are not allowable. However, I accept the appellant's contention that the closing stock needs to be recomputed in view of the disallowance of site expenses because part of those expenses forms part of the closing stock. The value of the closing stock (unsold area of 7,696 sq, ft,) is reworked below in view of the disallowance of site expenses of Rs, 54,22,325/-." 16. At the time of hearing, learned AR brought to our notice the facts on record. He brought to our notice the submissions made before learned CIT(A) which is placed on record at page 56 of the paper book. He brought to our notice pages 61 to 64 of the paper book and other bills filed in the paper book. He prayed that the expenses incurred for t ..... 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