2015 (4) TMI 96 - AT - Income Tax

Disallowance of foreign travel and foreign exchange purchase - Held that - Assessee has not been able to improve its case even before the ITAT as the assessee has failed to meet out the objections raised by the Assessing Officer to justify the claimed expenses. We thus do not find reasons to interfere with the first appellate order upholding the disallowance. - Decided against assessee. Disallowance of consultancy expenses - Held that - There is no dispute on certain material facts that the assessee for the payment of consultancy charges to Shri Arvind Khanna against the services rendered by him, had complied with the provisions of sec. 314 of the Companies Act, 1956 as the assessee had taken due permission from the shareholder before appointing Shri Arvind Khanna as the consultant and the resolution was registered with the Office of the Registrar of the Company by filing Form No. 23. The copy of the agreement for consultancy services has been also made available. As per this, the consultant had to provide consultancy services to the company in the field of investment in shares, debentures and immoveable properties, management consultancy, business development and stratagistic alliance, overall business development and marketing assistance to the assessee while using his best business capability. Besides in the assessment years 2010-11 and 2011-12, the revenue had allowed similar claim of payment of consultancy fee to Shri Arvind Khanna. We, thus do not find any reason with the revenue to deviate from its stand taken in other assessment years under similar facts and circumstances. The disallowance in question is thus directed to be deleted - Decided in favour of assessee. Unsecured loan under sec. 68 - It was explained that both the companies i.e. Neelgiri Infra-structure Dev. Ltd. and Nobleese Obliged Estates Pvt. Ltd. had advanced the amount for purchasing shares of the assessee company - Held that - Assessing Officer had not denied the identity of the above two parties. Genuineness of the transaction is also established as the amount in question have been paid through account payee cheques. So far as creditworthiness of these parties are concerned, the Assessing Officer himself has mentioned that Neelgiri Ltd. had ₹ 110 crores of loan as on 31.3.2009 which itself proves the creditworthiness of Neelgiri to invest ₹ 7.5 crores with the assessee. Nobeleese Ltd. in response to the notice issued by the Assessing Officer had furnished its income tax return for the assessment year 2009-10, bank statement and confirmed copy of account with the A.O. There is no dispute that both the above companies are assessed to tax. Thus, we find that the assessee had discharged its primary onus by furnishing all the necessary documents and information to establish identity, creditworthiness of the creditors and genuineness of the transaction.We thus while setting aside the orders of the authorities below in this regard, direct the Assessing Officer to delete the addition of ₹ 12,20,00,500 made on account of unsecured loan under sec. 68 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of Rs. 24,02,062 on account of foreign travel and foreign exchange purchase.
2. Disallowance of Rs. 15,50,000 on account of consultancy expenses.
3. Addition of Rs. 12,00,20,500 on account of unsecured loan under Section 68 of the Income-tax Act, 1961.
4. Charging of interest under Sections 234B and 234D of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Disallowance of Rs. 24,02,062 on account of foreign travel and foreign exchange purchase:
The Assessing Officer (AO) disallowed Rs. 24,02,062 for foreign travel and foreign exchange purchases, which was upheld by the CIT(A). The assessee argued that the travel was for business purposes undertaken by the Directors. However, the AO and CIT(A) found that the assessee failed to establish the business necessity and provide detailed expenses. The ITAT found no reason to interfere with the first appellate order and upheld the disallowance, rejecting Ground No. 1.

2. Disallowance of Rs. 15,50,000 on account of consultancy expenses:
The assessee claimed Rs. 19,78,624 under consultancy expenses, of which Rs. 15,50,000 was paid to a Director. The authorities disallowed this amount as the assessee failed to provide evidence of services rendered. The assessee contended that due procedures under Section 314 of the Companies Act, 1956 were followed, including shareholder approval and registration with the Registrar of Companies. The ITAT noted that similar claims were allowed in previous years and found no reason for deviation. The disallowance was directed to be deleted, allowing Ground No. 2.

3. Addition of Rs. 12,00,20,500 on account of unsecured loan under Section 68 of the Income-tax Act, 1961:
The assessee received Rs. 7.5 crores from M/s. Neergiri Infrastructure Development Ltd. and Rs. 4.5 crores from M/s. Novlees Oblige State Pvt. Ltd., initially treated as share application money but later shown as unsecured loans due to pending premium finalization. The AO added the amount under Section 68, citing failure to prove identity, genuineness, and creditworthiness of the investors. The assessee provided confirmations, balance sheets, and tax particulars of the investors. The ITAT found that the assessee had discharged its onus by providing necessary documents, and the AO failed to disprove these. The ITAT directed the deletion of the addition, allowing Ground Nos. 3 and 4.

4. Charging of interest under Sections 234B and 234D of the Income-tax Act, 1961:
This issue was deemed consequential and did not require separate adjudication.

Conclusion:
The appeal was allowed, with the ITAT upholding the disallowance of foreign travel expenses, deleting the disallowance of consultancy expenses, and directing the deletion of the addition under Section 68. The charging of interest under Sections 234B and 234D was considered consequential.