2016 (5) TMI 492 - HC - Income Tax

Disallowance of miscellaneous expenses and depreciation - ITAT confirmed CIT(A) order deleting the addition - Held that - CIT(A) has examined the record and the accounts produced by the assessee and after scrutiny of the same returned findings of fact that the expenditure was justified. No rationale has been given by the AO for disallowing 50% of the expenses incurred. Neither is there a finding that the expenditure is not genuine nor have the books of accounts been rejected by the AO. There is no perversity in the findings of fact returned by the CIT(A) and affirmed by the Tribunal. - Decided against revenue Disallowance of interest income accrued on time deposits - ITAT confirmed CIT(A) order deleting the addition - Held that - Find merit in the submission of the learned counsel for the assessee that the credit journal entries made as accrual of interest were made for the purpose of closing of quarterly results. The entries have been reversed and the interest actually received has been offered to tax. It is not the case of the appellant that the actual interest income received has not been offered to tax. The AO has only taken into account the Journal entries credited in the account. The AO has not taken into account the corresponding Journal entries debited. The CIT(A) as well as the Tribunal on perusal of the account statement have returned findings of fact that there is no suppression of interest income and the entire interest income has been offered to tax. - Decided against revenue

Summary

Issues:
- Disallowance of expenditure and depreciation by AO
- Addition of interest income accrued on time deposits

Analysis:
1. Disallowed Expenditure and Depreciation:
- The AO disallowed &8377; 1,30,01,214/- stating that the assessee was not engaged in business activities. However, the CIT(A) found that the assessee provided hospitality services and project management services, justifying the expenses incurred. The CIT(A) noted that the expenses were necessary for running the business and were genuine. The Tribunal upheld the CIT(A)'s decision.
- The CIT(A) found no rationale for the AO's 50% disallowance of expenses and depreciation, as no defects were pointed out in the books of account. The disallowance was deemed unjustified and deleted. The Tribunal affirmed this decision, stating that the findings were factual and not perverse.

2. Addition of Interest Income:
- The AO added &8377; 1,27,21,738/- as undisclosed income, claiming it was interest income not offered for tax. However, the CIT(A) found that these were memorandum entries for closing quarterly results and were subsequently reversed. The actual interest income was accounted for and offered to tax.
- The CIT(A) held that there was no suppression of income, as all earned interest was taxed. The Tribunal confirmed this decision after examining the account statements and finding no discrepancy in the income offered for tax.
- The appellant's argument that only the 'Journal' entries were considered by the AO was rejected, as the corresponding debit entries were also made and accounted for. The findings of the CIT(A) and Tribunal were factual and not erroneous.

3. Conclusion:
- The appeal was dismissed, with each party bearing its own costs. The judgment emphasized that no substantial questions of law arose from the facts presented, and the decisions of the CIT(A) and Tribunal were upheld as they were based on factual analysis and not arbitrary reasoning.