2017 (11) TMI 561 - AT - Income Tax

Addition u/s 68 - amount credited in the Clients account maintained by the assessee with the bank - Held that - When the amounts aggregating to Rs. 29, 91, 792/- credited in the Clients account maintained by the assessee with the bank could safely be held to be the clients money which were held by the assessee in a fiduciary capacity therefore the same could not be assessed as the unexplained credit in its hands under Sec. 68 of the Act . We are of the considered view that in the backdrop of our aforesaid observations the amount of Rs. 29, 91, 792/- (supra) could not have been assessed as the unexplained cash credit of the assessee under Sec. 68. We are also of the view that now when the revenue had been accepting the aforesaid practice of the assessee in offering the unidentified amounts received from the clients and forming part of the Clients account for tax after a lapse of a period of three years and on the said basis had assessed the amounts of Rs. 2, 51, 576/-(supra) and Rs. 3, 50, 554/-(supra) offered by the assessee for tax after a lapse of a period of three years in AY 2006-07 and AY 2007-08 respectively therefore a different yardstick and an inconsistent approach would not be permissible on its part for the year under consideration. We are of the considered view that as we have set aside the entire addition of Rs. 29, 91792/-(supra) therefore the contention of the assessee that the taxing of the amount of Rs. 9, 49, 687.96 (supra) during the year under consideration would lead to double taxation in its hands is rendered as academic. Disallowance of the interest on borrowed capital in respect of the short term interest free funds which were made available by the assessee to its subsidiary company - Held that - We find from a perusal of the records that though it is contended by the A.O that advances were made by the assessee out of its interest bearing funds however a claim to the contrary was raised by the assessee therein claiming that the advances to the Sister concern were made out of the share capital reserves and surplus which were available with the assessee. We are of the considered view that in the backdrop of the aforesaid facts read with the settled position of law the matter in all fairness needs to be restored to the file of the A.O. We thus restore the matter to the file of the A.O with a directon to re-adjudicate the issue keeping in view the aforesaid judgments of the Hon ble Supreme Court in the case of S.A. Builders Ltd. (2006 (12) TMI 76 - SUPREME COURT OF INDIA) - Decided in favour of assessee for statistical purposes. Disallowance in respect of the foreign travelling expenditure - Held that - We are persuaded to be in agreement with the contentions of the ld. A.R that there was an impeccable procedure for sanctioning by the assessee company of the foreign travelling undertaken by its employees/directors as well as approval of the expenses incurred therein. We have given a thoughtful consideration to the issue before us and after deliberating on the material available on record in the backdrop of the contentions raised by the authorized representatives for both the parties are unable to persuade ourselves to be in agreement with the view arrived at by the lower authorities in respect of the proportionate disallowance of the foreign travelling expenses in the hands of the assessee. We thus being of the considered view that the foreign travelling expenses which are irrebutably found to have been incurred by the assessee wholly and exclusively for the purpose of its business therefore find no justification for any proportionate disallowance of the said expenditure in the hands of the assessee. We thus delete the disallowance in respect of the foreign travelling expenses. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of unexplained deposits under Section 68.
2. Disallowance of interest on borrowed capital.
3. Disallowance of foreign traveling expenses.
4. Enhancement of income on sale of shares of Bombay Stock Exchange (BSE).

Detailed Analysis:

1. Addition of Unexplained Deposits under Section 68:
The assessee challenged the addition of Rs. 29,91,792/- made by the CIT(A) on account of unexplained deposits. The assessee argued that the deposits were clients' money, held in a fiduciary capacity, and could not be utilized for any other purpose. The assessee maintained an account for temporary deposits and reconciled them upon receiving communication from clients. Unreconciled amounts were offered for tax after three years. The tribunal found that the amounts were indeed clients' money and could not be treated as unexplained credits under Section 68. The tribunal also noted that the revenue had accepted this practice in previous years. Consequently, the addition was set aside.

2. Disallowance of Interest on Borrowed Capital:
The A.O. disallowed Rs. 3,28,767/- of interest on borrowed funds, which were advanced interest-free to the assessee's subsidiary. The assessee argued that the funds were advanced for commercial expediency. The tribunal referred to the Supreme Court judgment in S.A. Builders Ltd. and the Bombay High Court judgment in Reliance Utilities and Power Ltd., which held that interest-free advances made for commercial purposes should not lead to disallowance of interest. The tribunal restored the matter to the A.O. to re-adjudicate, considering whether the advances were made out of interest-free funds or for commercial expediency.

3. Disallowance of Foreign Traveling Expenses:
The A.O. disallowed 50% of the foreign traveling expenses amounting to Rs. 45,97,216/-, questioning their business purpose. The assessee contended that the expenses were incurred for client meetings, visiting regional offices, and meeting NRI and FII clients. The tribunal found that the assessee provided detailed records of the expenses, which were incurred wholly and exclusively for business purposes. The tribunal noted that the assessee had a rigorous approval process for such expenses and that the business nature required frequent foreign travel. The tribunal deleted the disallowance, finding no justification for the A.O.'s proportionate disallowance.

4. Enhancement of Income on Sale of BSE Shares:
The assessee did not press this ground of appeal. Consequently, the tribunal dismissed this ground as not pressed.

Conclusion:
The tribunal partly allowed the appeal, setting aside the additions and disallowances related to unexplained deposits, interest on borrowed capital, and foreign traveling expenses, while dismissing the ground related to the enhancement of income on the sale of BSE shares as not pressed.