2016 (7) TMI 1669 - AT - Income Tax

Disallowing the notional interest paid by the assessee attributable on the non interest bearing advances out of interest bearing funds - HELD THAT - It is seen that the Ld. CIT (Appeals) has examined the issue in detail in his order for AY 2006-07 and has agreed with the aforesaid contentions of the assessee. The copies of FIRs have also been placed on record and the contention of the assessee about having surplus funds as on 31.03.2002 is also correct. Hence, we find no reason to interfere with the order of the Ld. CIT (Appeals) and uphold the same. Disallowance u/s 14A - contention of the assessee before the AO that the provisions of sec. 14A did not apply in the relevant asstt year as no exempt income had been earned on the bonds/investments - HELD THAT - If there were funds available both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company if the interest-free funds were sufficient to meet the investment. In this case this presumption is established considering the finding of fact by the Commissioner of Income-tax (Appeals) - Thus following the ratio laid down by the Hon ble Bombay High Court in the case of Reliance Utilities 2009 (1) TMI 4 - BOMBAY HIGH COURT we confirm the order of the Ld. CIT (A). Disallowances of expenses on the ground as incurred in cash and remained un-vouched - HELD THAT - CIT (Appeals) has opined that he agrees with the submission of the assessee that maintenance of proper vouchers for petty expenses is not possible and that producing all the vouchers procured from various locations before the AO after a long period is in onerous task. The ld. CIT (A) also held that no comments have been made in the tax audit report regarding the genuineness of the expenditure claims. Having perused the records and also the reasoning adopted by the Ld. CIT (A) on this issue as well as the fact that the Ld. DR could not successfully controvert the observations of the Ld. CIT (A), we find no reason to differ from the conclusion arrived at by the ld. CIT (Appeals) and while upholding his finding on the issue, we dismiss ground of the Department s appeal. Disallowance under the sub-head sales promotion dealer expenses under the head advertisement and sales promotion expenses - HELD THAT - It is seen that section 40A(3) provides that where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds Rs. 20,000/- a disallowance shall be made. However, it is apparent from the assessment order that this disallowance has been made without bringing out the fact on record as to whether these cash expenses of Rs. 40,000/- pertained to one single payment or comprised of a bundle of small payments made for different purposes. Hence, in absence of any specific recording of fact by the AO, we are unable to uphold this disallowance and set aside the order of the ld. CIT (Appeals) on this issue and direct the AO to delete this addition. Accordingly, ground of the assessee s appeal is allowed. Disallowance of club expenses - CIT(A) deleted this disallowance by holding that the assessee has paid fringe benefit tax (FBT) on the entire amount and on the principle of equity, no amount can be taxed twiceHELD THAT - DR has not disputed the fact that FBT has been paid on the impugned additions and the Ld. CIT (A) has also given a concrete finding on the issue. Hence, drawing strength from the decision of Micro Turners 2013 (3) TMI 466 - ITAT DELHI we find no reason to interfere with the finding of the ld. CIT (A) on this issue and accordingly, uphold the adjudication by the ld. CIT (A). Hence, ground of the Department s appeal is dismissed. Addition on account of alleged penal expenditure - HELD THAT - On appeal the ld. CIT (Appeals) gave a categorical finding that out of the total amounts disallowed, only Rs. 533/- pertained to late fee penalty and the balance pertained to tax and interest on late deposit which had wrongly been shown under the head miscellaneous expenses . In view of the specific finding of the ld. CIT (A), we find no reason to interfere with the adjudication of the ld. CIT (A) on this issue. Ground of the Department s appeal is accordingly dismissed. Addition of personal marriage gift expenses of the Directors of the assessee - HELD THAT - AO held that the marriage gifts were made by the individuals and as such they were personal expenses not related to the business of the company and they were accordingly disallowed. The ld. CIT (A) held that since the assessee has already declared the amount and paid tax under FBT, the disallowance merited deletion. Considering the factual matrix as well as drawing strength from the decision of the co-ordinate Bench of ITAT Delhi in ACIT vs Micro Turners 2013 (3) TMI 466 - ITAT DELHI we find no reason to disturb this finding of the ld. CIT (A) on this issue. In the result, ground of the Department s appeal is dismissed. Addition of non-business expenditure - HELD THAT - CIT (A) held that since FBT had already been paid, no disallowance was called for. Having heard the rival submissions and perused the material on record and also the decision rendered by the coordinate bench in own case we are of the opinion that the matter stands covered by the said decision of the Tribunal in favour of the assessee. Excessive expenditure on horticulture - HELD THAT - Having considered the rival submissions and the findings in the impugned order, we are of the considered opinion that the ld. CIT (A) has not dealt with this issue in an appropriate manner. On one hand, he has accepted the contention of the assessee that the evidences were furnished before the AO and on the other hand, he also mentions the fact that the AO has mentioned in his remand report that these were fresh evidences. Hence, in the interest of justice, we restore the issue to the file of the AO for fresh adjudication after giving assessee due opportunity to present its case. Ground is allowed for statistical purposes. Addition of expenses incurred by the assessee on account of publishing the photo of its founder Sh. Jankidas Kapoor on his death anniversary - HELD THAT - It is seen that this issue/identical issue of advertisement was not before the coordinate Bench of the Tribunal in AY 2000-01 and hence the Ld. CIT (A) has allowed the assessee s ground on a wrong appreciation of facts. Hence we have no option but to restore the issue to the file of the Ld. CIT (A) for de novo adjudication after giving due opportunity of being heard to the assessee. Ground of the department s appeal is allowed for statistical purposes. Disallowance under prize and rewards - HELD THAT - CIT (A) has stated in the impugned order that the AO has not given any factual finding regarding the genuineness of the payments. CIT (A) has noted that giving prizes and rewards is a policy of the Company and the prize money is included in the salary of the employee on which TDS is also duly deducted. Considering the finding of fact recorded by the ld. CIT (A) which could not be controverted by the Department, we find no reason to interfere on this issue as well. Ground of the department s appeal is accordingly dismissed. Penalty u/s 271(1)(c) - HELD THAT - No case can be made out for furnishing inaccurate particulars for both the years under appeal. Respectfully following the dicta of the Hon ble Apex Court in the case of CIT vs Reliance Petro Products Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT , we find no reason to disturb the findings of the Ld. CIT (A) for both the years under appeal and we uphold the same.

Summary

Issues Involved:
1. Deletion of notional interest disallowance.
2. Disallowance under Section 14A.
3. Disallowance of various expenses.
4. Penalty under Section 271(1)(c).

Detailed Analysis:

1. Deletion of Notional Interest Disallowance:
ITA No. 2490/Del/2011 (AY 2003-04):
- The Department contested the deletion of an addition of Rs. 16,795,247/- made by the AO by disallowing notional interest on non-interest bearing advances to Sh. Arun Kapoor. The AO argued that the assessee gave interest-free loans to Sh. Arun Kapoor from interest-bearing funds.
- The assessee contended that Sh. Arun Kapoor embezzled the funds, and FIRs were lodged. The CIT (Appeals) found that the amounts were embezzled and not advances, thus no interest should be charged.
- The Tribunal upheld the CIT (Appeals)'s decision, finding no reason to interfere.

Subsequent Years (AY 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11):
- Similar issues were raised in subsequent years, and the Tribunal consistently upheld the CIT (Appeals)'s decisions, dismissing the Department's appeals.

2. Disallowance under Section 14A:
ITA No. 2491/Del/2011 (AY 2004-05):
- The Department contested the deletion of Rs. 5,614,948/- disallowed under Section 14A.
- The assessee argued that no exempt income was earned, and investments were made from free reserves.
- The CIT (Appeals) found that the assessee had sufficient interest-free funds and deleted the disallowance.
- The Tribunal upheld the CIT (Appeals)'s decision, citing similar judgments from higher courts.

Subsequent Years (AY 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11):
- Similar issues were raised, and the Tribunal consistently upheld the CIT (Appeals)'s decisions, dismissing the Department's appeals.

3. Disallowance of Various Expenses:
ITA No. 3472/Del/2011 (AY 2005-06):
- The Department contested the deletion of various expenses disallowed by the AO, including refreshment, business presents, wine & beer, club expenses, traveling expenses, advertisement/sales promotion, foreign tours, and other repairs.
- The CIT (Appeals) found the disallowances meager compared to the assessee's turnover and deleted them.
- The Tribunal upheld the CIT (Appeals)'s decision, finding no reason to interfere.

Subsequent Years (AY 2006-07, 2007-08, 2008-09, 2009-10, 2010-11):
- Similar issues were raised, and the Tribunal consistently upheld the CIT (Appeals)'s decisions, dismissing the Department's appeals.

4. Penalty under Section 271(1)(c):
ITA Nos. 2489/Del/2011 (AY 2006-07) and 4049/Del/2013 (AY 2008-09):
- The Department appealed against the deletion of penalties imposed under Section 271(1)(c) related to disallowances under Section 14A.
- The CIT (Appeals) deleted the penalties, finding no concealment or furnishing of inaccurate particulars by the assessee.
- The Tribunal upheld the CIT (Appeals)'s decision, citing the Supreme Court's judgment in CIT vs. Reliance Petro Products Pvt. Ltd., which held that merely making an unsustainable claim does not attract penalty under Section 271(1)(c).

Conclusion:
The Tribunal consistently upheld the CIT (Appeals)'s decisions across multiple assessment years, dismissing the Department's appeals on issues related to the deletion of notional interest disallowance, disallowance under Section 14A, disallowance of various expenses, and penalties under Section 271(1)(c). The judgments emphasized the principles of consistency, proper verification of facts, and the necessity of clear evidence for disallowances and penalties.