2016 (4) TMI 664 - AT - Income Tax

Unsecured loans u/s 68 - Held that - The assessee has furnished only one confirmation of Shri Deoki Nandan Jhunjhunwala in respect of fresh loan of ₹ 2.40 lac from Ms. Anita Jhunjhunwala but for this loan also, apart from furnishing confirmation, the assessee has furnished nothing else before us also about creditworthiness of this loan creditor. Hence, it is seen that for none of the loan creditors, the assessee has furnished any evidence regarding the creditworthiness of the loan creditor and except one loan creditor, no confirmation has been filed by the assessee. Under these facts, we find no infirmity in the order of learned CIT(A) in making The addition - Decided against assessee Addition in respect of interest on FDRs - Held that - On the actual amount of FDR of ₹ 21,51,446/-, the estimate by Assessing Officer stands at ₹ 2,15,000/- and since the assessee has already accounted for FDR interest as income to the extent of ₹ 1,87,983/-, CIT(A) has confirmed the addition of ₹ 27,107/- being the difference in 10% of closing FDR balance and FDR interest shown by the assessee as income. In our considered opinion, since the amount of FDR interest shown by the assessee as income is very much close to even the estimation by the Assessing Officer and CIT(A) in the absence of details and this is the claim of the assessee that interest income was accounted for by the assessee on actual basis, we hold that in the facts of the present case, the addition upheld by CIT(A) is not justified. We, therefore, delete the same - Decided in favour of assessee Addition being increase in Security Deposits under the head Current Liabilities over the last year - Held that - In the copy of ledger account of Shiva Steel, Lucknow customers with opening debit balance of ₹ 1,25,939/- and there is no corresponding credit entry available in its customer account on account of transfer from Shiva Steel security deposit on 16/04/2007. Hence, it is noted that this contention that security deposit is transferred to the customer account is not being supported by the copy of ledger account of Shiva Steel, Lucknow customer. Regarding the second party i.e. Madhyeshiya Traders, the copy of ledger account of Madhyeshiya Traders of the customers is available on page No. 166 of the paper book and in this amount a credit of ₹ 50,000/- is on 05/05/2007 on account of transfer from security deposit account. We also find that in the customer account also, there is opening balance of ₹ 1 lac for this party. Under these facts, we are of the considered opinion that the addition made by the Assessing Officer in respect of this security deposit from Madhyeshiya Traders is not justified because the assessee could show that the security deposit of the present year was adjusted in the customer account of next year. Therefore, this addition of ₹ 50,000/- is deleted. In respect of third party i.e. Anil Kumar Mishra, we feel that for this small amount of ₹ 2,000/-, it cannot be said that the assessee could not establish the creditworthiness etc. of the person from whom this security deposit has been received and therefore, we delete this amount also. In this manner, the assessee gets part relief of ₹ 52,000/- and balance addition is confirmed.- Decided in favour of assessee in part Addition being interest and finance charges - Held that - We find that out of interest claimed by the assessee, there is no outstanding amount except interest on ICD ₹ 1,18,588/- but for interest on ICD, section 43B is not applicable. Similarly, regarding discounting charges paid to various parties, there is some outstanding amount also. For instance ₹ 33,534/- being discounting charges of Ketan Mehta available on page No. 105 of the paper book and ₹ 20,726/- being discounting charges payable to Jitendra M. Shah HUF available on page No. 104 of the paper book but for discounting charges also, section 43B is not applicable and hence, this is noted that to all those claims regarding interest expenditure to which section 43B is applicable, there is no outstanding amount and for the remaining amount of interest and discounting charges, section 43B is not applicable and therefore, disallowance made by Assessing Officer is not justified. We, therefore, delete the same - Decided in favour of assessee Disallowance being 25% of the expenses on repair & maintenance of plant & machinery, building and others - Held that - Incurring of expenses for repairing of plant & machinery has no direct correlation with the increase or decrease in sales and therefore, merely on this basis that the turnover has gone down, the repairing expenses cannot be disallowed. Regarding this objection that the details and evidences are not produced, it has been submitted before CIT(A) as per written submissions dated 25/03/203 that the ledger accounts of expenses under this head are being produced and in the earlier year, there was no disallowance under this head and all the expenses are vouched but there is no finding given by CIT(A) that these assertions of the assessee in the written submissions are incorrect. Hence, ad hoc disallowance under this head is not justified. We, therefore, delete the same - Decided in favour of assessee Disallowance being 40% of the expenses under the head salary, wages and bonus - Held that - As per the audited accounts available , the details of employees remuneration and benefits of the current years and preceding years are available on page 30 of the paper book and as per the same, in the present year, the amount claimed is ₹ 448.55 lac as against the claim of ₹ 439.38 lac in the preceding year. As per the Assessing Officer in the assessment order, the claim under this head was ₹ 609.08 lac but this is the explanation of the assessee before CIT(A) that this amount included the amount of provision of gratuity which has been separately disallowed by Assessing Officer as per Para 5 of the assessment order and after excluding this amount, the claim under this head is almost equal to the claim under this head in the preceding year. There is no other reasoning given by the Assessing Officer for making these disallowances except stating that the claim in the present year is almost double. But when this is not factually correct after excluding the amount of gratuity of ₹ 247.08 lac separately disallowed by the Assessing Officer, no disallowance is justified - Decided in favour of assessee Disallowance of expenses claimed under various heads, such as power & fuel, effluent treatment expenses, misc. expenses, freight, transport & handling charges etc. - Held that - From the chart of these expenses in the present year and preceding year, it is seen that these expenses have gone down to ₹ 614.58 lac as against ₹ 704.98 lac in the preceding year. Therefore, we feel that no disallowance under these heads is called for in the facts of the present case. We, therefore, delete the same.- Decided in favour of assessee Inclusion of Extraordinary income to the total income of the assessee - Held that - No reason to interfere with the order of CIT(A) because when an income is included by the assessee itself in the computation of income filed by the assessee along with the return of income, if the assessee pleads that such amount is not be included in the total income then supporting evidence has to be brought on record by the assessee in support of this contention but since the assessee has not done so, we decline to interfere in the order of CIT(A). - Decided against assessee

Summary

Issues Involved:
1. Addition of Rs. 15,23,787/- in respect of unsecured loans under Section 68 of the Income Tax Act, 1961.
2. Addition of Rs. 27,107/- in respect of interest on FDRs.
3. Addition of Rs. 1,72,444/- in respect of unpaid bonus.
4. Addition of Rs. 2,40,47,000/- under the head 'Gratuity'.
5. Addition of Rs. 3,39,700/- being increase in Security Deposits under the head "Current Liabilities".
6. Addition of Rs. 1,15,52,163/- being interest and finance charges.
7. Ad hoc disallowance of Rs. 18,33,669/- being 25% of the expenses on repair & maintenance of plant & machinery, building, and others.
8. Ad hoc disallowance of Rs. 2,43,63,252/- being 40% of the expenses under the head "Salary, wages and Bonus".
9. Ad hoc disallowance of Rs. 2,00,00,000/- out of various heads of expenses.
10. Disallowance of Rs. 20,81,631/- being the expenditure under the head "Contribution to Provident and Other Funds".
11. Addition of Rs. 1,21,52,262/-.
12. Inclusion of Rs. 49,30,942/- being extraordinary income to the total income of the assessee.

Detailed Analysis:

1. Addition of Rs. 15,23,787/- in respect of unsecured loans under Section 68:
The assessee contested the addition of Rs. 15,23,787/- made by the Assessing Officer (AO) for unsecured loans, arguing that a confirmation from one lender was provided. However, the Tribunal found that the assessee failed to provide comprehensive details or evidence regarding the creditworthiness of the loan creditors. The assessee only provided one confirmation without further substantiation. Consequently, the Tribunal upheld the addition, finding no infirmity in the order of the CIT(A).

2. Addition of Rs. 27,107/- in respect of interest on FDRs:
The AO estimated interest on FDRs at 10% of the closing balance, leading to an addition of Rs. 27,107/-. The assessee argued that interest was accounted for on an actual basis, and the difference was minor. The Tribunal found that the interest income shown by the assessee was close to the estimated amount and held that the addition was not justified. Therefore, the Tribunal deleted the addition.

3. Addition of Rs. 1,72,444/- in respect of unpaid bonus:
This ground was not pressed by the assessee's representative and was dismissed as not pressed.

4. Addition of Rs. 2,40,47,000/- under the head 'Gratuity':
This ground was also not pressed by the assessee's representative and was dismissed as not pressed.

5. Addition of Rs. 3,39,700/- being increase in Security Deposits:
The assessee provided details showing that the security deposits were adjusted in the customer account in the next financial year. The Tribunal found that the assessee could substantiate the adjustment for Rs. 50,000/- from Madhyeshiya Traders and Rs. 2,000/- from Anil Kumar Mishra, but not for Rs. 5,00,000/- from Shiva Steel. Thus, the Tribunal granted partial relief by deleting Rs. 52,000/- and confirming the balance addition.

6. Addition of Rs. 1,15,52,163/- being interest and finance charges:
The assessee provided evidence that the interest and finance charges were paid and that section 43B was not applicable to unpaid discounting charges and interest on ICD. The Tribunal found that the disallowance was not justified as the assessee had provided sufficient evidence. Therefore, the Tribunal deleted the disallowance.

7. Ad hoc disallowance of Rs. 18,33,669/- on repair & maintenance:
The AO disallowed 25% of the repair expenses due to lack of details and increased expenses despite decreased sales. The Tribunal found that the repair expenses were vouched and that the correlation with sales was not justified. Therefore, the Tribunal deleted the ad hoc disallowance.

8. Ad hoc disallowance of Rs. 2,43,63,252/- on salary, wages, and bonus:
The AO disallowed 40% of the expenses, arguing that the claim was almost double compared to the preceding year. The assessee explained that the amount included gratuity, which was separately disallowed. The Tribunal found the explanation reasonable and deleted the disallowance.

9. Ad hoc disallowance of Rs. 2,00,00,000/- out of various heads of expenses:
The assessee showed that the total claim under various heads was less than the preceding year. The Tribunal found that no disallowance was called for and deleted the ad hoc disallowance.

10. Disallowance of Rs. 20,81,631/- being expenditure under "Contribution to Provident and Other Funds":
This ground was not pressed by the assessee's representative and was dismissed as not pressed.

11. Addition of Rs. 1,21,52,262/-:
This ground was not pressed by the assessee's representative and was dismissed as not pressed.

12. Inclusion of Rs. 49,30,942/- being extraordinary income:
The assessee argued that this amount was shown in the provisional account but not in the audited account. The Tribunal found that the assessee had included the amount in the computation of income filed with the return and had not provided satisfactory evidence for its exclusion. Therefore, the Tribunal upheld the inclusion of the amount.

Conclusion:
The appeal of the assessee was partly allowed, with specific additions and disallowances being deleted or upheld based on the evidence and arguments presented.