2019 (4) TMI 1892 - AT - Income Tax

Bogus expenses - AO issued notices u/s 133(6) to various parties for the purpose of verification of business transactions of the assessee which could not be served to the parties - HELD THAT - A.O. is not justified in making the impugned disallowance claimed under the head Repairs of plant machinery and power fuel treating the same as bogus merely on the ground that the notices u/s 133(6) returned back unserved giving rise the character of the transactions as the bogus liability. That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid additions. Non-deduction of TDS on brokerage and commission - HELD THAT - CIT(A) has already adjudicated this ground against the assessee and in favour of the revenue, therefore the ground raised by the revenue becomes infructuous and hence we dismiss the same. Disallowance of expenses on account of Travel expenses, Staff Welfare expenses, Repairs, others and Sales promotion - HELD THAT - We note that assessee has paid FBT on these expenses. For this reason also, the AO was not justified in disallowing the expense. We note that having gone through the order of the ld. CIT(A), we do not find any infirmity in the order passed by the ld. CIT(A), therefore we uphold the order of the ld. CIT(A) and dismiss the grounds of appeal raised by the revenue. Disallowance on account of interest paid which were not utilized for the purpose of business - HELD THAT - Interest was paid on loan taken for purchase of vehicle hence the interest payment is an allowable expense. So far as interest paid on packing credit loan and interest paid on over draft and cash paid accounts, we are of the view that the interest on amount which is used for the purpose of giving interest free loan to sister concern can at most be disallowed. As per the working given by the Counsel, the assessee has paid interest on the amount utilized for the purpose of giving interest free loan to sister concern. Hence, at the most interest to the tune can be disallowed. Since, the working given by the Counsel requires verification, hence the A.O. is directed to verify this working given by the ld Counsel in his submission. Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Disallowance of ?71,85,948/- as bogus expenses.
2. Disallowance of ?4,01,478/- for non-deduction of TDS on brokerage and commission.
3. Disallowance of ?26,39,072/- on account of Travel expenses, Staff Welfare expenses, Repairs, and Sales promotion.
4. Disallowance of interest paid amounting to ?77,89,408/- not utilized for business purposes.

Issue-wise Detailed Analysis:

1. Disallowance of ?71,85,948/- as bogus expenses:
The Revenue raised the issue that the CIT(A) erred in allowing expenses of ?71,85,948/- as business expenses instead of treating them as bogus. During the assessment, the AO issued notices u/s 133(6) to various parties for verification, which were returned unserved. The assessee provided new addresses and documentary evidence but could not establish the physical existence of the parties. The AO treated these expenses as bogus and made additions to the income. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the assessee provided sufficient evidence, including PAN cards, VAT registration, and payment through banking channels. The Tribunal found no material evidence from the AO to prove the transactions were bogus and thus upheld the CIT(A)’s order.

2. Disallowance of ?4,01,478/- for non-deduction of TDS on brokerage and commission:
The CIT(A) had already adjudicated this issue against the assessee. The Revenue acknowledged that this ground was infructuous and did not require further adjudication. Consequently, the Tribunal dismissed this ground of appeal.

3. Disallowance of ?26,39,072/- on account of Travel expenses, Staff Welfare expenses, Repairs, and Sales promotion:
The AO made additions due to the belief that these expenses were excessive compared to the previous year and not for business purposes. The CIT(A) deleted the additions except for ?12,37,500/- on account of travel expenses. The Tribunal noted that the AO’s disallowance was based on vague reasons without specific evidence. The Tribunal upheld the CIT(A)’s order, citing precedents that disallowances should not be made based on mere belief without concrete evidence.

4. Disallowance of interest paid amounting to ?77,89,408/- not utilized for business purposes:
The AO observed that the assessee had advanced interest-free loans and security deposits unrelated to business activities, leading to disallowance of interest expenses. The CIT(A) deleted the addition. The Tribunal noted that the allowability of interest expenses is governed by section 36(1)(iii) of the Income Tax Act, which requires examining the utilization of borrowings. The Tribunal found that the term loan was used for acquiring a factory, and interest on auto loans was for business purposes. However, the interest on amounts used for interest-free loans to sister concerns could be disallowed. The Tribunal directed the AO to verify the working of ?3,18,525/- provided by the assessee’s counsel. The Tribunal upheld the CIT(A)’s order, allowing the interest expenses except for the portion related to interest-free loans.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)’s decisions on all grounds. The Tribunal emphasized the importance of concrete evidence and proper verification in disallowing expenses and interest claims. The order was pronounced on 30.04.2019.