2016 (3) TMI 1409 - AT - Income Tax

Addition on account of unconfirmed unsecured loans - Addition u/s 68 - HELD THAT - As assessee during the course of proceedings had filed necessary information in respect of companies and had filed confirmations also and therefore the additions sustained by learned CIT(A) is not as per provisions of law because of the fact that amount of 35, 00, 000/- was not found credited during the year as it is was only the opening balance carried forwarded from earlier years. In view of the judidical precedents relied upon by learned AR and in view of the facts and circumstances of the case we allow Ground No.2. As regards argument of learned DR that section 68 was not applicable and rather it was taxable u/s 41(1) of the Act we do no agree with the arguments of learned DR as even addition u/s 41(1) cannot be made as assessee had not written back the amount during the year and had declared the same as debt of the company in its balance sheet. Addition being an amount reimbursed to M/s Goetze (India) Ltd. M/s Gossini Fashions Ltd. and M/s Akme Projects Ltd.- HELD THAT - We find that this argument was taken before us and learned CIT(A) also had obtained remand report from AO and during remand proceedings the AO had made adverse comments in this respect and in response to remand report the assessee vide letter dated 21.02.2014 had again submitted that nature of expenses and details of cheques and bank account details of payee of each and every item of expenditure was submitted and as regards vouchers and nature of expenses the assessee had submitted that they were carried to Jammu but AO unfortunately was on tour therefore this could not be produced before him therefore in the interest of justice we restore this ground to the Office of Assessing Officer who on the basis of vouchers and nature of expenses should decide the issue afresh. The Assessing Officer should also examine the claim of the learned AR that a part of expenses was not debited to P L Account and was taken to balance sheet. In view of the Ground No.3 is allowed for statistical purposes. Disallowance of 75% of Foreign Traveling Expenses of Directors - HELD THAT - We find that there is no doubt about the proposition that foreign traveling expenses are allowable as a deduction if the expenses are incurred for the purposes of business. We also agree that expenditure on Foreign Travel may not result into increase in new agreements for business but the fact remains that the assessee has to first prove that expenses were incurred for the purposes of business. In respect of claim of such expenses the assessee could have filed some correspondence with the persons of visited country with whom they had explored further business opportunities or it could have filed the details of meetings and discussions with the persons with whom such business opportunity was discussed. No such details has been filed before the authorities below during original/or remand proceedings nor an argument has been made before us that the assessee can file these details before the authorities below. The assessee did not file any evidence to substantiate its claim other than break up of traveling expenses. Moreover the learned CIT(A) has made a finding of fact that there is no business of the company in the visited countries and expenditure also included expenses on personal attendants of Directors. Therefore we do not find force in the argument of learned AR that the expenses were incurred for the purposes of business. In view of the above Ground No.4 is dismissed. Disallowance of legal and profession - HELD THAT - As CIT(A) obtained remand report from Assessing Officer. In this respect the Assessing Officer could find evidence in respect of only 7, 60, 724/- during remand proceedings and for the remaining amount of 10, 61, 949/- no documents/evidence was provided during original as well as remand proceedings - AR in his submissions has submitted that when vouchers were carried to Jammu for verification by AO he was found to be on tour therefore in the interest of justice this ground is restored to the office of Assessing Officer who will consider the allowability of same after verification of vouchers. In view of the above Ground No.5 is allowed for statistical purpose. 100% disallowance of Telephone expenses and telegram expenses - HELD THAT - We find that there is no dispute that no bill was in the name of assessee s company or its employees however it is also a fact that no office can be run without incurrence of these expenses. The learned CIT(A) has upheld the addition in the absence of valid evidence in respect of these expense - AR during appellant proceedings before us had submitted that bills were in the name of M/s Goetze India and a part of expenses were charged to assessee company. Therefore we restore this ground of appeal to Assessing Officer who should decide the issue afresh after taking into account the basis of charging of these bills to the assessee. He can arrive at the decision after taking into account the practice of assessee in allocation of these expenses in earlier years. In view of the above Ground No.6 is allowed for statistical purposes. Deemed dividend u/s 2(22)(e) - ICD v/s loan - HELD THAT - As the amount of 18.75 crores received by it was a not an ICD but was a loan. We find that ICD means inter-corporate deposits which term is used for making or accepting deposits between two companies. ICD as the name also suggest that it is a part of broader term deposits and therefore it cannot be distinguished from the deposits as argued by learned AR. The case laws relied by AR relates to distinction between loans and deposits and none of the case laws relates to distinction between deposits and ICD therefore case laws as relied up by learned AR are not applicable to the facts and circumstances of the case. Therefore we hold that ICD is a part of deposits and is not different from broader definition of deposits and therefore we do not find any force in the argument of learned AR that ICD are different than loans or deposits and in fact it is part of deposits. Deemed dividend addition - HELD THAT - Provisions of section 2(22)(e) are not applicable to the assessee as it was not a shareholder in the lending company. In view of the above Ground No. 1 of Revenue s Appeal is dismissed. Notional interest on interest free advances - HELD THAT - We find that that AO in his remand report has reported that most of the amount represented charges receivable from parties and amount receivable were in the nature of debtors and did not represent cash advances. The Assessing Officer also mentioned that out of advances 60, 00, 000/- was for purchase of vehicles and 26, 40, 560/- was on account of amount embezzled by an employee therefore learned CIT(A) has rightly deleted the addition and we do not find any infirmity in the same therefore Ground No.4 is also dismissed.

Summary

Issues Involved:
1. Legality of the appellate order passed by CIT(A).
2. Addition of ?30,00,000 and ?5,00,000 on account of old ICDs.
3. Addition of ?22,54,758 for reimbursed business expenses.
4. Disallowance of ?1,16,64,875 for foreign traveling expenses.
5. Disallowance of ?10,61,949 for legal and professional expenses.
6. Disallowance of ?10,08,690 for telephone, postage, and telegram expenses.
7. Classification of ?18,75,00,000 received as ICD or loan under Section 2(22)(e).
8. Applicability of deemed dividend in the hands of Sh. Anil Nanda.
9. Relief granted by CIT(A) on various additions made by AO.

Detailed Analysis:

1. Legality of the Appellate Order:
The appellate order passed by CIT(A) was challenged as being against the principles of natural justice and the provisions of the IT Act, 1961. However, this ground was found to be general and was dismissed as it required no adjudication.

2. Addition of ?30,00,000 and ?5,00,000 on Account of Old ICDs:
The assessee argued that these amounts were received in earlier years and reflected as opening balances. The Tribunal agreed, stating that since the amounts were not received during the year under consideration, the addition was not sustainable. The Tribunal cited judicial precedents supporting that Section 68 applies only to credits generated during the specific year. Thus, the addition was deleted.

3. Addition of ?22,54,758 for Reimbursed Business Expenses:
The assessee claimed these were reimbursements to sister concerns for business expenses incurred on its behalf. The Tribunal noted that the assessee failed to provide supporting vouchers and details. Therefore, this ground was restored to the AO for fresh examination, directing the AO to verify the vouchers and the nature of the expenses.

4. Disallowance of ?1,16,64,875 for Foreign Traveling Expenses:
The Tribunal upheld the disallowance of 75% of the foreign traveling expenses, as the assessee could not substantiate that these expenses were incurred for business purposes. The Tribunal emphasized the lack of evidence such as correspondence or meeting details to support the business nature of the trips.

5. Disallowance of ?10,61,949 for Legal and Professional Expenses:
The Tribunal restored this ground to the AO for fresh verification of vouchers. The assessee had argued that the vouchers were carried to Jammu but could not be verified as the AO was on tour. The Tribunal directed the AO to reconsider the allowability of these expenses after verification.

6. Disallowance of ?10,08,690 for Telephone, Postage, and Telegram Expenses:
The Tribunal restored this ground to the AO, noting that while no bills were in the name of the assessee, it was also unreasonable to assume that no such expenses were incurred. The AO was directed to examine the allocation of these expenses and decide afresh.

7. Classification of ?18,75,00,000 Received as ICD or Loan under Section 2(22)(e):
The Tribunal held that ICDs (Inter-Corporate Deposits) are part of the broader definition of deposits and cannot be distinguished from loans or advances for the purposes of Section 2(22)(e). Hence, the Tribunal upheld the CIT(A)'s finding that the amount received was a loan and not an ICD.

8. Applicability of Deemed Dividend in the Hands of Sh. Anil Nanda:
The Tribunal found that the CIT(A) had overstepped his jurisdiction by directing the AO to consider the applicability of deemed dividend in the hands of Sh. Anil Nanda without providing him an opportunity of hearing. This direction was deleted, following the precedent set by the Hon'ble Allahabad High Court.

9. Relief Granted by CIT(A) on Various Additions Made by AO:
The Tribunal upheld the CIT(A)'s relief on several grounds based on remand reports and verification of vouchers. The Tribunal found no infirmity in the CIT(A)'s decision to grant relief where the AO had verified the expenses and found them to be genuine.

Conclusion:
The appeal filed by the assessee was partly allowed, partly dismissed, and partly allowed for statistical purposes, whereas the appeal of the Revenue was dismissed. The Tribunal's decision involved a detailed examination of each ground, with directions for fresh verification where necessary, and upheld the CIT(A)'s findings where appropriate.