IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI `B' BENCH,
NEW DELHI
BEFORE MS SUCHITRA KAMBLE, JUDICIAL MEMBER, AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
ITA No.3317/DEL/2017
[Assessment Year: 2013-14]
M/s Design Forum International, ACIT,
K-47, Kailash Colony, Circle-63(1),
New Delhi-110048 New Delhi
PAN-AAEFD8417C
Appellant Respondent
Appellant by Shri Ved Jain, Adv.
Respondent by Shri Surendra Meena Sr. DR
Date of Hearing 08/08/2019
Date of Pronouncement 30/10/2019
ORDER
PER SUCHITRA KAMBLE, JUDICIAL MEMBER
This appeal is filed by the assessee against the order dated
28/02/2017 passed by the CIT(A)-20, New Delhi, for Assessment Year-
2013-14.
2. The grounds of appeal are as under:-
1. On the facts and circumstances of the case, the order passed by the
learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye
of law and on facts.
2(i) On the facts and circumstances of the case, the learned CIT(A) has erred,
both on facts and in law, in confirming the disallowance of Rs. 19,43,548/- on
account of interest on borrowings paid by the assessee.
(ii) On the facts and circumstances of the case, the learned CIT(A) has erred,
both on facts and in laws in ignoring the fact that the alleged loans and
advances extended to the various parties on account of business expediency,
hence no disallowance of interest is called for.
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(iii) That the above disallowance was made rejecting the contention of the
assessee that the borrowed funds were used for business activities only and
hence the interest paid is a deductible expenditure.
3(i) On the facts and circumstances of the case, the learned CIT(A) has erred
both on facts and in law in confirming the disallowance of Rs. 11,542/- being
10% of the expenses incurred on account of vehicle running & maintenance.
(ii) That the disallowance has been confirmed @ 10% arbitrarily without there
being any basis for the same.
(iii) The disallowance has been confirmed despite the fact that all the
expenses have been incurred wholly and exclusively for the purposes of
business only."
3. The assessee firm is engaged in the business of providing
architectural services for housing and commercial projects. During the
year under consideration, the assessee derived income from business or
profession. The assessee filed its return of income on 28/09/2013,
declaring total income at Rs.2,37,36,341/-. Subsequently, the case was
selected for scrutiny under CASS. Notice u/s 143(2) was issued and
served upon the assessee within the stipulated period. Again notice u/s
142(1) along with detailed questionnaire was issued to the assessee. In
response to the notices, Chartered Accountant/Authorised
Representative of the assessee attended the assessment proceedings from
time to time and filed necessary details, information/documents etc as
required. Books of accounts and vouchers were produced during the
course of assessment proceedings which were examined on test check
basis. The income of the assessee is recomputed as under:-
S. No. Particulars (Amount in 7)
Income as per computation tiled by the 72,37,36,341/
assessee -
i. Disallowance of expenses which have not been 713,84,498/-
paid in the relevant financial year
II. Non grant of TDS Claims 15,88,890/-) NIL
III. Disallowance of Interest 729,28,540/-
IV. Disallowance on account of unverifiable 71,57,088/-
bills/vouchers Expenses
Total disallowance 744,70,126/-
Total Income 72,82,06,467/
Rounded off 72,82,06,467/
-
Thus, the income of the assessee is assessed at Rs.2,82,06,467/-
by the Assessing Officer.
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5. Being aggrieved by the order of the Assessing Officer, the assessee
is in appeal before the CIT(A). The CIT(A) partly allowed the appeal of the
assessee.
6. As regards Ground No. 2 (ii), the Ld. AR submitted that the same is
not pressed, hence Ground No. 2(ii) is dismissed.
7. As regards to Ground No. 2 (i) and (iii), the Ld. AR submitted that
no disallowance can be made in respect of the amount paid to such
parties in the earlier years which is standing under the head `loans and
advances' as opening balance. In this regard, the Ld. AR pointed out that
the interest on account of payment made in earlier year to such parties
aggregates to Rs. 14,16,000/- (12,00,000 pertains to amount paid to M/s
Chintel India Ltd. in earlier years). The Ld. AR further pointed out that
no addition was made on account of interest in earlier years that are A.Y.
2011-12 and A.Y. 2012-13. In such circumstances, considering the
interest on account of opening balance is bad in law and as well as on
facts. The Ld. AR further submitted that payment was made from the
current account held with ABN Amro Bank which became the Royal
Bank of Scotland which are reflected in the ledger accounts. The party
wise interest paid listing placed in the paper book also reveals that no
interest was paid to such bank. The Ld. AR further submitted that the
said bank account is reflecting under the head current assets in the
balance sheet. The Ld. AR submitted that it is not a case of the assessee
that it had not applied for the flat itself. It is the case of the assessee that
the assessee had to apply for the flat as a measure of commercial
expediency in order to recover the fees amount. It was mutually agreed
between the assessee and the respective parties that the payment for fees
will be made subject to the condition that the assessee applies for
allotment of flat. Thus, assessee had to apply for allotment of flat as a
measure of commercial expediency. The ledger account of such parties
where in the receipt of money is reflecting was also placed on record.
Further, a summary sheet reflecting the date of receipt of amount and
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the date of payment for flat is also submitted by the assessee. The Ld. AR
submitted that perusal of the same reveals that the assessee had applied
the fees amount towards the purchase of flat as per the terms agreed
upon. The Ld. AR further submits that had the assessee not applied
towards the flat, it would not have been able to recover the fees amount.
The Ld. AR pointed out that the assessee had duly offered such receipt
amount to its income on cash basis in accordance with its method of
accounting as evident from the ledger accounts of such parties. The Ld.
AR submitted that the CIT(A)'s allegation that under the cash system of
accounting, there is no debtor that exists in the books of accounts and
no amount ought to be standing under the head current assets is
incorrect appreciation of facts and has no relevance to the case. The Ld.
AR submitted that the amount standing is not as debtor, but as advance
towards flat. Further, with regard to allegation of the CIT(A) that the
business of the assessee is to provide architectural services and amount
advances to purchase flat cannot be considered to be business of the
assessee, the Ld. AR submitted that it is not the case of the assessee that
it is the business of the assessee to buy and sell flats. It is the case of the
assessee that the money was advanced to the parties as a measure of
commercial expediency i.e. to safeguard its interest and recover the fees
due from the said parties. The Ld. AR submitted that it is a settled law
that no disallowance can be made under Section 36(1)(iii) in respect of
the money advanced as a measure of commercial expediency.
"Commercial Expediency" is the prerogative of the businessman and that
the Revenue cannot justifiably claim to put itself in the armchair of the
businessman and dictate as to what is "commercial expediency". The Ld.
AR relied upon the following decisions:
1. S. A. Builders Ltd. vs. CIT (2007) 288 ITR 1 (SC)
2. Hero Cycles (P.) Ltd. vs. CIT (2015) 379 ITR 347 (SC)
3. PCIT vs. Basti Sugar Mills Co. Ltd. (Del. HC) (ITA No. 205 order
dated 28.09.2018)
4. DCIT vs. M/s Jetair Pvt. Ltd. (Tri. Del.) (ITA Nos. 2712, 2713 and
6884/Del/2015 order dated 19.09.2018)
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5. Chemical Sales and Services 3N vs. ITO (Tri. Del.) (ITA No.
4146/Del/2015 order dated 26.09.2018)
6. PCIT vs. DLF Holding Ltd. (Del. HC) (ITA No. 1012/2018 order
dated 28.09.2018)
Thus, the Ld. AR submitted that the disallowance made, deserves to
be deleted. The Ld. AR further submitted that the balance sheet of the
assessee reveals that it has its own funds to the tune of Rs. 56,73,773.
Thus, no disallowance can be made to the extent of such amount
advanced (Interest of Rs. 6,80,853) in view of the recent judgement of the
Hon'ble Supreme Court in case of CIT vs. Reliance Industries Ltd. (2019)
410 ITR 466 (SC) wherein it has been held that where the interest free
funds are available with the assessee, it could be presumed that the
investments were first made from the interest free funds available with
the assessee. The Ld. AR relied upon the following decisions:
1. Punjab Stainless Steel Inds. Vs. ACIT (2019) (6) TMI 427 Tri. Del.
2. CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom. HC)
3. CIT vs. Amod Stamping (P.) Ltd. (2014) 223 Taxman 256 (Guj. HC)
4. PCIT vs. Consumer Marketing (India)(P.) Ltd. (ITA No. 646 of 2015
Guj. HC)
5. M/s R. N. Gupta & Co. Ltd. vs. Addl.CIT (ITA No. 848/Chd/2015
dated 12.04.2016 Tri. Chandigarh)
In view of the above, the Ld. AR prayed that the addition made be
deleted as the same is injudicious both on law and on facts.
8. The Ld. DR relied upon the Assessment Order and the order of the
CIT(A).
9. We have heard both the parties and perused all the relevant
material available on record. From the perusal of records, it can be seen
that payment was made from the current account held with the bank,
are duly reflected in the ledger accounts. The details of party wise
interest paid also reveals that no interest was paid to such bank. The
said bank account is reflecting under the head current assets in the
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balance sheet. It is the case of the assessee that the assessee had to
apply for the flat as a measure of commercial expediency in order to
recover the fees amount. It was mutually agreed between the assessee
and the respective parties that the payment for fees will be made subject
to the condition that the assessee applies for allotment of flat. Thus,
assessee had to apply for allotment of flat as a measure of commercial
expediency. The ledger account of such parties where in the receipt of
money is reflecting was also placed on record. Further, a summary sheet
reflecting the date of receipt of amount and the date of payment for flat is
also submitted by the assessee. From the records it can be seen that the
assessee had applied the fees amount towards the purchase of flat as per
the terms agreed upon. It can further emerges from the records that the
assessee had duly offered such receipt amount to its income on cash
basis in accordance with its method of accounting which is also evident
from the ledger accounts of such parties. Thus, the CIT(A) was not right
in sustaining the addition in respect of interest incurred on account of
amount standing as advance in respect of interest incurred on account of
amount standing as advance in respect of such parties. Therefore, the
order of the CIT(A) is set aside. Ground No. 2(i) and 2(iii) are allowed.
10. As regards to Ground No. 3 relating to disallowance of Rs.
11,542/- on account of Vehicle Repair and maintenance, the Ld. AR
submitted that it is settled law that if the Assessing Officer has not
pointed out any specific defect in the books of the assessee, and has not
even pointed out the specific instances where the expenses have been
incurred by the assessee for personal purposes, ad-hoc disallowance
made by the Assessing Officer without any basis could not be upheld.
The Ld. AR relied upon the following decisions:
1. DCIT vs. Grintex India Ltd. (ITA No. 4622/Del/2016 Del. Tri.)
2. ACIT vs. Amtek Auto Ltd. (2006) 112 TTJ 455
3. M/s Nine Dot Nine Mediawork Pvt. Ltd. vs. ITO (ITA No. 1262 &
863/Del/2016 dated 30.07.2018 Del. Tri.)
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4. Dhir & Dhir Associates vs. ACIT (ITA No. 2169/Del/2014 dated
16.06.2017 Del. Tri.)
5. Sh. Gagan Goyal vs. JCIT (ITA No. 1514/Del/2015 dated
02.08.2016 Del. Tri.)
6. ACIT vs. Precision Pipes & Profiles Co. Ltd. (ITA No. 4257 &
4258/Del/2012 dated 12.10.2012 Del. Tri.)
7. DCIT vs. FCB Ulka Advertising Pvt. Ltd. (ITA No. 5404/Mum/2007
dated 21.05.2014 Mum. Tri.)
Thus, the Ld. AR prayed that the addition deserves to be deleted.
11. The Ld. DR relied upon the Assessment Order and the order of the
CIT(A).
12. We have heard both the parties and perused all the relevant
material available on record. From the perusal of records it can be seen
that the assessee duly furnished the bills/vouchers in respect of the
expenses related to vehicle repairs and maintenance. The Assessing
Officer as well as the CIT(A) could not point out any discrepancy in the
books of account of the assessee. Therefore, the CIT(A) is not right in
confirming this addition. Ground No. 3 is allowed.
13. In result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 30/10/2019.
SDsSDSDSDddd
Sd/- Sd/-
d [PRASHANT MAHARISHI] [SUCHITRA KAMBLE]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Delhi; Dated: 30/10/2019.
f{x~{tÜ? fÜA P.S
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
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5. DR
Asst. Registrar,
ITAT, New Delhi
Date of dictation 16/10/2019
Date on which the typed draft is placed before the 16/10/2019
dictating Member
Date on which the typed draft is placed before the Other
Member
Date on which the approved draft comes to the Sr.PS/PS
Date on which the fair order is placed before the
Dictating Member for pronouncement
Date on which the fair order comes back to the Sr.PS/PS
Date on which the final order is uploaded on the website
of ITAT
Date on which the file goes to the Bench Clerk
Date on which the file goes to the Head Clerk
The date on which the file goes to the Assistant Registrar
for signature on the order
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