TMI Blog2019 (5) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... est bearing borrowed funds, therefore, the disallowance made by the Assessing officer out of the interest paid by the assessee and sustained by the CIT(A) was not justified. Accordingly the same is deleted. - Decided in favour of assessee. Disallowance of car expenses - AO was of the view that 1/5th of the expenses were personal in nature - assessee submitted that the disallowance made by the Assessing Officer and sustained by the Ld. CIT(A) was highly excessive - HELD THAT:- Major disallowance was worked out on account of depreciation amounting to ₹ 2,79,870/- which is a statutory deduction. If such figure is reduced from the figure worked out by the Assessing Officer the remaining amount comes at ₹ 1,38,995/- while the assessee has already disallowed suo motu a sum of ₹ 1,92,230/-. Therefore the disallowance made by the Assessing Officer and sustained by the CIT(A) at ₹ 2,26,635/- (₹ 4,18,665 ₹ 1,92,230/ ) appears to be excessive.Therefore, to meet the ends of justice restrict the addition made by the Assessing Officer and sustained by the Ld. CIT(A) at ₹ 50,000/- instead of ₹ 2,26,635/-. - Decided in favour of assessee partly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount 1 Vaishali Aggarwal ₹ 4,05,000/- 2 Dev Bhoomi Angora Spng Allied Ind. ₹ 5,00,000/- 3 Fab Texre India P Ltd. ₹ 44,60,000/- 4 Shakti Alpha Securities Pvt. Ltd. ₹ 91,13,000/- 5 Amit Aggarwal ₹ 77,402/- 6 Deepak Bakshi Loan ₹ 1,00,000/- 7 Sushma Aggarwal ₹ 1,000/- 8 S.P. Bansal ₹ 60,00,000/- 9 Tirupati Balaji Exim P. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee observed that the advances were out of the OD facility on which interest had been received were having the direct nexus, therefore interest expenditure of ₹ 7,17,875/- was allowable. On the remaining advances the Assessing Officer worked out the interest at ₹ 31,65,778/- and observed that the assessee had claimed the interest expenditure of ₹ 26,62,621/- out of which ₹ 7,17,875/- was allowable as the assessee had established direct nexus between the interest bearing borrowed funds and the interest income earned. He also observed that the interest amounting to ₹ 5,67,016/- was on the car loans which was allowable. He therefore restricted the disallowance to ₹ 13,77,730/- ( ₹ 26,62,621.00 ₹ 7,17,875.00 ₹ 5,67,016/-). 6. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: During the relevant assessment year under consideration, the appellant had claimed an interest expenditure of ₹ 23,88,993.89 in its Profit and Loss Account. The appellant had also claimed in its return o f income a deduction of interest expenditure of ₹ 2.73.628/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed. 6.1 The reliance was placed on the following case laws: CIT Vs. Abhishek Industries Ltd. 286 ITR 1(P H) Judgment of Hon ble Punjab Haryana High Court in case of CIT Vs. Rakesh Gupta in ITA No. 37/2014 order dt. 02/07/2015 6.2 It was further submitted as under : From the perusal o f the Balance Sheet o f M/s Shakti International [a proprietary concern of the appellant], drawings/withdrawals were made amounting to ₹ 5,93,52,025.44 from the Capital A/c of Sh. Dharam Pal Aggarwal. Simultaneously, the same got transferred to the personal Capital A/c o f Sh. Dharam Pal Aggarwal. The transfer o f the funds to and from [or vice-versa]the Capital A/c o f Sh. Dharam Pal Aggarwal appearing in the books o f M/s Shakti International and the personal Capital A/c o f Sh. Dharam Pal Aggarwal took place as and when the need for the same arose. The advances o f ₹ 2,79.01,598/had been made out of internal accruals and non-interest bearing funds being Capital and Unsecured Loans to the tune of ₹ 5.73 crores in the books of M/s Shakti International [a proprietary concern o f the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se on account of disallowance out of interest expenses by invoking provisions of section 36(l)(iii) of the Act as the assessee has given interest free advance to related/unrelated parties allegedly out of borrowed funds which according to the Assessing Officer is for non business purposes cannot be said to be unjustified. 5.3 In view of the above stated facts and in the circumstances of the case, I am of the opinion that the Assessing Officer is fully justified in making an addition of ₹ 13,77,730/- in this case on account of disallowance out of interest expenses by invoking provisions of section 36(l)(iii) of the Act as the assessee has given interest free advance to related/unrelated parties allegedly out of borrowed funds which according to the Assessing Officer is for non business purposes. The addition of ₹ 13,77,730/- made by the Assessing Officer in this case on account of disallowance out of interest expenses by invoking provisions of section 36(l)(iii) of the Act is, therefore, upheld. In the result, the ground No. 1 of appeal taken by the assessee is dismissed. 8. Now the assessee is in appeal. 9. The Ld. Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free advances were made out of the interest bearing funds, therefore the disallowance made by the Assessing Officer and sustained by the Ld. CIT(A) was fully justified. 11. I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case it is noticed that the Assessing Officer himself admitted that on the loans and advances given by the assessee out of the borrowed funds by using the OD facility the interest was earned, he therefore allowed the interest expenditure to the extent of ₹ 7,17,875/-. As regards to the other interest free advances, the bank statement of the assessee placed at page no. 16 of the assessee s compilation reveals that the capital of the assessee as on 31.3.2012 was at ₹ 3,48,04,747/- and the Assessing Officer pointed out in the assessment order that the assessee had given interest free advances to the family and relatives for a sum of ₹ 2,79,00,000/- which shows that the interest free funds in the form of capital were more than the interest free loans given to the family and relatives. In the present case, no nexus had been established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration, the said expenses were claimed after effecting realistic disallowances, no further disallowances of the said expenses could be warranted. Further, the disallowances made by the Assessing Officer were based on mere suspicion and surmises, and, had not been supported by any material brought on record. Accordingly, the disallowances made by the Assessing Officer were purely on guesswork, and, are not sustainable in law. Thus, merely on estimate or on adhoc basis, a disallowance made was not justified, and, deserves to be deleted. 14.1. The Ld. CIT(A) however did not find merit in the submissions of the assessee and sustained the addition by observing in para 6.2 and 6.3 as under: 6.2 I have considered the observations of the Assessing Officer as made by her in the assessment order while making the impugned addition. I have also considered written submissions filed by the assessee through his learned AR vide letter dated 23.01.2017 on the issue under reference. On careful consideration of the rival contentions, I am of the opinion that the personal use of car and telephone cannot be ruled out in the case of the assessee in the absence of any d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particulars Amount 1/5th addition 1 Telephone expenses 195465 39093 2 Travelling expenses 178288 35658 3 Car Depreciation 1399350 279870 4 Car Insurance 181208 36242 5 Car expenses 139008 27802 Grand Total 2093319 418665 18.1 From the above details it is noticed that the major disallowance was worked out on account of depreciation amounting to ₹ 2,79,870/- which is a statutory deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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