Referred Sections:
Section 143(2) of the Income Tax Act, 1961
Section 142(1) of the Act
Section 36(1)(iii) of the Income-tax Act, 1961,
Referred Cases / Judgments:
CIT Vs. M/s Abhishek Industries Ltd.
IN THE INCOME TAX APPELATE TRIBUNAL
DELHI BENCH "SMC": NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
ITA No. 94/DEL/2019
A.Y.: 2015-16
Reed & Pick Impex (P) Ltd., VS. ITO, Ward-5,
Opposite ITI, GT Road, Panipat
Panipat
Haryana 132103
(PAN: AADCR7101D)
(Appellant) (Respondent)
Assessee by : SH. C. AGGARWAL, A.R.
Department by : MS. Ekta Vishnoi, Sr. DR.
ORDER
This appeal filed by the Assessee is directed against the Order
dated 20.11.2018 of the Ld. CIT(A), Karnal pertaining to assessment
year 2015-16 on the following grounds:-
1. That on the facts and in the circumstances of the
case the Ld. CIT(A) has eroded in confirming the
addition of Rs. 287000/- P. out of an addition of Rs.
700828/- P. made by the Ld. AO u/s. 36(1)(iii) of the
Income Tax Act, 1961. The same may kindly deleted.
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2. That on the facts and in the circumstances of the
case the Ld. CIT(A) has eroded in confirming the
addition of Rs. 124342/- P. out of an addition of Rs.
268684/- P. out of travelling / telephone and other
expenses made by the AO. The same may kindly be
deleted.
3. That the appellant craves the permission to add/
modify/ amend the grounds of appeal before the
appeal is heard and disposed off.
2. The brief facts of the case are that the assessee filed its return
declaring net income of Rs. 14,28,010/- on 06.10.2015 as e-return.
Some defects were noticed by the CPC and intimated the assesse
about the defects and the assessee removed the defects and return
was finally filed by the assessee on 26.3.2017. The case of the
assessee was selected for scrutiny and notice under section 143(2) of
the Income Tax Act, 1961 (in short "Act") was issued on 26.9.2016
and served on the assessee on 29.9.2016. The assessee was asked
to furnish copy of audit report and balance sheet with its annexure.
Notice under section 142(1) of the Act was issued and compliance
thereof has been made. The assessee furnished details as required
and also produced books of accounts and vouchers. Details furnished
were examined, books of accounts and vouchers were checked by the
AO. The AR of the assessee attended the proceedings from time to
time. During assessment proceedings, it was noticed by the AO that
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the assessee has taken loan from Religare Finvest Ltd. and paid
interest @ 9%. Further, balance sheet of the company reveals that
the assessee has shown short term loans and advances to the various
parties amounting to Rs.81,54,561/- with following noting in the
annexure to balance sheet:-
"Advance recoverable in cash of kind for value to be
received unsecured considered good for recovery (including
Rs.36.44 Lacs (Last year Rs.45.98 Lacs) to persons/
concerns in which directors are interested."
2.1 The assessee was further asked to explain as to why interest on
advances utilized other than business purposes may not be
considered u/s. 36(1)(iii) of the Income-tax Act, 1961 and expenses
on account of interest may be restricted up to the extent of funds
utilized for business purposes and rest of the amount may not be
disallowed. The assessee vide its reply dated 19.12.2017 has
explained as under:-
"Detail of loan and advances to related parties has already
been filed. It is further submitted that company has got
interest free deposits from its directors of an amount much
higher than the loans/advances and no action u/s 36(l)(iii)
is called for."
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2.2 Reply of the assessee was considered by the AO and it was
found that the unsecured loans accepted from the Directors of the
Company are mainly credit of salary, rent etc which the assessee has
already claimed as expense and no interest on these funds are
allowable. For claim of deduction of interest on borrowed capital under
section 36(1)(iii) of the Income-tax Act, 1961, the assessee has
satisfied that money should be borrowed, the money so borrowed
must have been used for the purpose of business and interest is paid
or payable. The assessee does not satisfy all the conditions for claim
of deduction as he has not utilized an amount of Rs. 81,54,561/- as
this amount was given to the related persons of the Directors of the
company and no nexus of business is established by the assessee
during the course of assessment proceedings with the said loans and
advances. The assessee has taken loan from the Religare Finvest Ltd
and given to the persons related to the Directors of the company
without charging any interest. AO observed that that the funds to the
tune of Rs.81,54,561/- are not utilized for the business purposes and
interest on this amount, paid by the assessee to Religare Finvest Ltd
is not an allowable expense in view of section 36(1)(iii) of the
Income-tax Act, 1961. It was also admitted that an amount of
Rs.45.98 Lakh pertains to the preceding year and such interest on this
amount comes to Rs.4,13,828/-. Regarding rest of the persons an
amount of Rs.36.44 lakh was given as loan or advance on monthly
basis except the amount advanced to Smt. Neelam Garg and Sh.
Ratvik Aggarwal. After taking into consideration the opening balance
and advanced during the year under consideration interest amount
comes to Rs.2,87,OOO/-. Thus the total of interest comes to
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Rs.7,OO,828/- and the same was required to be disallowed. AO
placed the reliance of the Hon'ble Punjab & Haryana High Court
decision in the case of CIT Vs. M/s Abhishek Industries Ltd. and added
the addition of Rs.7,OO,828/- to the income returned by the
assessee.
2.3 Further, the assessee has shown and claimed expenses
amounting to RS. 4,46,886/- on account telephone expenses,
Rs.13,08,633/- on account of travelling expenses, RS.2,27,604/- on
account of s: reign travelling expenses, RS. 4,89,160/- on account of
vehicle running and maintenance expenses and Rs.4,14,564/- as misc
expenses. Thus the assessee has debited an amount of
RS.28,86,847/- to the profit & loss account under these heads of
expenses. As per AO these expenses cannot be accepted as
completely for the purpose of business and profession of the company
and have some expenses of personal nature. During the course of
verification of books of accounts and vouchers, it was observed that
these expenses include some of the expenses of personal nature of
the directors of the company. After discussion 1/10 of the expenses
were disallowed on account of expenses of personal nature and are
disallowed, which comes to RS.2,88,684/- out of the total expenses
of RS.28,86,847/-. The assessee has itself disallowed Rs.20,OOO/- in
the computation of income and credit of this was being allowed and
rest of the amount of Rs.2,68,684/-(Rs.2,88,684/- minus
Rs.20,OOO/-) was added to the income of the assessee and addition
of Rs.2,68,684/- was made to the income of the assessee by
completing the assessment at Rs. 23,97,520/- u/s. 143(3) of the Act
vide order dated 26.12.2017. Against the said assessment order,
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assessee appealed before the Ld. CIT(A), who vide his impugned
order dated 20.11.2018 has partly allowed the appeal of the
assessee. Aggrieved with the order of the Ld. CIT(A), assessee is in
appeal before the Tribunal.
3. At the time of hearing Ld. Counsel for the assessee reiterated
the contentions raised in the grounds of appeal and requested to
delete the addition in dispute by accepting the appeal of the assessee.
4. On the contrary, Ld. DR relied upon the orders of the authorities
below and stated that Ld. CIT(A) has passed the well reasoned
order, which does not need any interference on our part.
5. I have heard both the parties and perused the records
especially the order of the ld. CIT(A). I note that assessee has stated
that the loan raised was primarily utilized to repay the loan earlier
taken from Bank of Baroda. It was also stated that the company has
raised interest free unsecured loans amounting to Rs. 79,37,414/-. It
is noted that the AO has calculated the interest on both the opening
balance of RS. 45,97,767/- and the closing balance of Rs. 36,44,161/-
The correct calculations of disallowance should be on the closing
balance only. Therefore, the addition was rightly confirmed by the
Ld. CIT(A) to the extent of Rs. 2,87,000/- only and accordingly, the
assessee gets a relief of Rs. 4,13,828/-, which does not need any
interference on my part, hence, I uphold the action of the Ld. CIT(A)
on the issue in dispute and reject the ground raised by the Assessee.
5.1 As regards addition on account of travelling, foreign travelling,
telephone, vehicle running and maintenance and misc. expenses is
concerned, I note that during the assessment proceedings some of
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the expenses were of personal nature in respect of the Directors of
the Company and the addition was correctly been made by the AO.
But Ld. CIT(A) has observed that the rate of disallowance @10% is a
little high and therefore, restricted the same to 5% and directed the
AO to re-compute the same, which does not need any interference on
my part, hence, I uphold the action of the Ld. CIT(A) on the issue in
dispute and reject the ground raised by the assessee.
6. In the result, the Appeal of the assessee is dismissed.
Order pronounced on 18-10-2019.
Sd/-
[H.S. SIDHU]
JUDICIAL MEMBER
Date:18/10/2019
SRB
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4.CIT (A) 5. DR, ITAT
TRUE COPY By Order,
Assistant Registrar, ITAT, Delhi Benches
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