TMI Blog2018 (6) TMI 1806X X X X Extracts X X X X X X X X Extracts X X X X ..... parties which the assessee categorically explains to be not related as per the Section 40A(2)(b) is against the provisions of the Act. Even so keeping in view the market condition since the monies have to be raised at a faster pace, payment of 1% excess interest cannot be said to be unreasonable and hence the addition made is hereby deleted. - Decided against revenue. Disallowance of interest on account of diversion of funds to the sister concern - AO questioned the assessee regarding disallowance of interest on diversion of funds to sister concern and the assessee had submitted that it has the same stand on the issue as in the A.Y. 2010-11 - HELD THAT:- On perusal of the fact on record we find that there is no evidence on record except a presumption that interest bearing funds were used for giving loan to the sister concerns. The similar issue has been adjudicated in the case of the assessee for the A.Y s 2006-07, 2008-09, 2009-10 and 2010-11 on similar facts. We therefore uphold the order of the Ld. CIT(A) and deleting the disallowance. Disallowance on adhoc lump sum basis - HELD THAT:- As we find that the Assessing Officer has not brought any material on record primari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons like huge volume of sales to these concerns etc. to justify the sales to the sister concerns at lower rates. It may be clarified that while the addition for inflated purchases in respect of purchases made from sister concerns could be made u/s 40A(2)(a), but there is no corresponding provision in respect of sales made to sister concerns. The department cannot compel a person to make profit out of every transaction since the department does not have any authority to, ask a person to maximize its profits. If the assessee chooses to give discount to someone, he is free to do it. The only criteria/condition is that the transaction (sale) should not result in loss. This principle was enumerated by the Hon'ble Supreme Court in the case of M/s Calcutta Discount Company Ltd. [ 1973 (4) TMI 6 - SUPREME COURT] in which Their Lordships have held that when a trader transfers his goods to another trader at a price which is less than the market price, so long as the transaction is bona fide , the revenue authorities cannot consider the market price ignoring the real price fetched to compute profits from the transaction. It was also held by the Apex Court in this case that an assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . B.R.R. Kumar, Accountant Member For the Assessee : Shri Anil Khanna. For the Department : Shri Manjit Singh. ORDER PER DR. B.R.R. KUMAR, A.M. : The present appeal has been filed by the Revenue and Cross appeal filed by the Assessee against the order of the Ld. CIT(A), Chandigarh dt. 05/03/2015. 2. The Revenue has raised the following grounds of appeal: 1. The order of the learned CIT(A)is erroneous contrary to facts law. 2. The Ld. CIT(A) has erred in reducing the disallowance made u/s 14-A by holding that the interest expenditure incurred on specific heads is to be excluded for the purposes of Rule 8D, when the formula laid down therein is intended to arrive at an estimation of the indirect expenditure relatable to an investment and when the borrowing on the said specific head can be said to arise due to utilization of the available funds for the said investment. 3. The Id. CIT(A) has erred in deleting the addition of Rs. 1,21,628/- made by the AO on account of interest paid in excess of bank rate u/s 40A(2)(b) of the Act by unduly emphasizing on the imputed costs of bank loans and without appreciating the fact that the interest p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing grounds of appeal: 1. As per the facts and circumstance of the case and as per the provisions of law, the learned COMMISSIONER OF INCOME TAX (APPEALS) has erred in partly upholding the addition made by the assessing officer u/s 14A. The disallowance made be deleted. 2. As per facts and circumstances of the case and provisions of law, the learned COMMISSIONER OF INCOME TAX (APPEALS) has erred in upholding disallowance of Rs. 3,66,536/- out of the commission expenses u/s 37(1). The disallowance be deleted. 3. As per facts and circumstances of the case and provisions of law, the learned COMMISSIONER OF TAX (APPEALS) has erred in upholding disallowance of Rs.2,49,613/- being the travelling expenses. The disallowance be deleted. 4. As per facts and circumstances of the case and provisions of law, the learned COMMISSIONER OF INCOME TAX-(APPEALS) has erred in upholding disallowance of Rs. 17,46,331 out of the staff welfare expenses being expenses incurred on school building on the contention that these expenses are not incurred for the purposes of the business of the assessee. The disallowance be deleted. 5. As per facts and circumstances of the case and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to indirect expenditure. Keeping in view the facts specific to the instant case and action of the Assessing Officer we direct the Assessing Officer to restrict the disallowance to Rs. 29,000/-. 4.7 As a result the appeal of the Revenue on this ground is dismissed and that of the Assesee is allowed for statistical purposes. 5. Ground No. 3 of the Revenue s Appeal relates to disallowance under section 40A(2)(b) : 5.1 Brief facts of the issue are that out of total interest on loan, the assessee had paid interest of Rs. 12,60,531/- on unsecured loans to persons covered u/s 40A(2)(b). The rate of interest paid was @ 12% per annum. The Assessing Officer required the assessee to justify the reasonableness of interest payment @ 12%, but was not satisfied with the explanation of the assessee in this regard. The Assessing Officer has referred to the assessment order of the preceding year and observed that the maximum rate of interest on unsecured loans should not be more than 11% and so he restricted the claim of interest to 11%. Disallowance of Rs. 1,21,628/- was made on this account. 5.2 The Ld. CIT(A) having considered the facts of the issue and held that some of the perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the perusal of profit and loss account it was seen that expenses under the following heads has gone up despite the decrease in net profit by about 45% as compared to last year. The details of expenses are as under: Head/Particulars A.Y. 2010-11 A.Y. 2011-12 Freight outward Rs. 89,47,796/- Rs. 1,89,09,981/- Advertisement expenses Rs. 39,00,726/- Rs. 40,74,136/- 6.1 The above chart shows that there is increase in expenses under these heads. The appellant was asked to explain the reason for the same. The relative bills/ vouchers were produced. It was seen that in certain vouchers the details of expenses were not on account of business purpose in entirety. Therefore, lumpsum adhoc addition amounting to Rs. 10 lacs is being made to cover the leakage of revenue loss. 7.2 The Ld. CIT(A) deleted the addition. 7.3 Before us Ld. DR relied on the assessment order. 7.4 Ld. DR argued that the ratio of freight outward to sales expenses has increased from 0.63% to 0.96% because o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cs respectively were reduced from the assets while claiming depreciation. The assessee had not filed any such evidence regarding rest of the amount of subsidy of Rs. 45,56,500/- (1,06,81,500 - 61,25,000). The Assessing Officer disallowed this amount with the following observations: Since no documentary evidence was not provided by the appellant at the time of assessment proceedings it is not clear whether the balance amount of. Rs. 45,56,500/- has been adjusted against fixed assets or not. From the depreciation chart it has seen that appellant has claimed depreciation from its block of assets much more than the amount of subsidy received from the Government. The excess depreciation as shown above may also be due to the reasons that additions to the fixed assets might have been made during the period after report of subsidy and depreciation claimed. The appellant was required to adjust the subsidy against the block of assets and claim less depreciation, which did not happen with the appellant to the extent of Rs. 45,56,500/-. In view of this fact as well as the ratio lay down by the Hon'ble Supreme Court in the case of M/s Saharanpur Electric Supply Co. Ltd. Vs. CIT [1992] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account. The Assessee explained that advance to Haryana State Agriculture Board was for purchase of shop and to Sh. Nikhil Gupta was for construction of prefabricated shed in the end of February, 2011, which did not materialize, since the company decided to install silos and so the amount was returned by him in May, 2011. It was also submitted that advance to Sh. Ganga Ram was a sundry advance. The Assessing Officer was of the view that these advances were not for business purposes and the asset (fabricated shed) had also not been put to use during the year under consideration. He accordingly disallowed proportionate interest of Rs. 5,88,977/- u/s 36(l)(iii) of the Act on these advances. 9.3 The Ld. CIT(A) deleted the addition on the grounds that the (i) Advance to Haryana State Agriculture Market Board was for purchase of shop, which is to be used for the purpose of business of the company. (ii) Advance to Sh. Nikhil Gupta was made for construction of prefabricated shed in the end of February, 2011 for storage, which did not materialize, since the company decided to install silos and so the money was returned by him in the month of May, 2011. Sh. Nikhil Gupta is not a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d parties/associated concerns. The Assessing Officer noticed that the sales to the sister/associated concern had been made at a lower rate as compared to sales made to independent parties. The Assessing Officer identified a few instances and questioned the assessee on the issue. The Assessing Officer was not satisfied with the explanation of the assessee and worked out the suppression in sale at Rs. 22,35,446/- and added this amount. 11.2 Ld. CIT(A) while deleting the addition held that an assessee cannot be expected, much less be compelled, to make profit in every transaction of sale he makes. However, if the transaction is with a related party and the transaction results in a loss, the onus will be on the assessee to establish that it was a bona fide transaction and was not entered into with the motive of benefitting the related party. In the absence of such evidence being led by the assessee, the revenue will be entitled to disallow/ignore the loss while computing the taxable income. However, if the sales to the related party result in a profit to the assessee, even though the sales are made at a rate, lower than at which the sales are made to other parties, the revenue can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 2 of the appeal of the Assessee relates to disallowance of commission : 12.1 Brief facts of the issue are that the assessee had paid commission to the following persons: (i) Manoj Joshi Rs. 41,840/- (ii) Babu Ram Singhal Rs. 2,888/- (iii) Dinesh Rastogi Rs. 2,53,661/- (iv) Kolkatta Unit (cash payments) Rs. 68,207/- Total Rs. 3.66,536/- 12.2 As per assessment order, the assessee had not furnished any details of the services rendered and confirmations from these persons which were specifically asked for in the assessment proceedings. The Assessing Officer has also noticed that all the payments of brokerage have been made in cash in Kolkatta unit. The Assessing Officer finally disallowed the entire amount of commission paid of Rs. 3,66,536/-. 12.3 Ld. CIT(A) confirmed the addition holding that the assessee has merely submitted that the confirmation can be asked for from the respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). 13.2 Ld. CIT(A) has confirmed the disallowance as the assessee has not filed any such particulars before the Ld. CIT(A) or before the A.O. 13.3 We have heard the argument of both the parties and perused the material available on record, and consider it fit in the interest of justice to restore the matter back to the file of the Assessing Officer with directions to the assessee to produce relevant documents and evidences before the Assessing Officer so as to make him eligible for allowance of this expenditure. 13.4 As a result, this ground of appeal of the Assessee is allowed for statistical purposes. 14. Ground No. 4 of the appeal of the Assessee relates to disallowance of Staff Welfare Expenses : 14.1 Brief facts of the case are that the assessee company constructed a school building by spending Rs. 17,46,331/- in the vicinity of its factory in Sri Ganganagar and had claimed this amount under the head 'staff and labour expenses'. The Assessing Officer disallowed this expenditure on the ground that it was not for the purposes of business of the assessee company. 14.2 Ld. CIT(A) after going through the correspondence between the assessee and the Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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