2018 (12) TMI 1505 - AT - Income Tax

Addition on account of sale of shares - auditors have given a remark that payment has not been made by the company on the sale of the shares and Demat account has not been provided for verification - Held that - From the perusal of the material placed it cannot be disputed that amount of ₹ 1,20,56,085/- on account of sale of shares have been duly reflected in the P&L account which is fairly evident from the break up given by the learned counsel as incorporated above. The profit on the sale of shares amounting to ₹ 28,88,975/- had already been disclosed in the accounts. Even from the bare perusal of the auditor s note it is seen that the amount has been shown by the assessee from sale of shares albeit it has been noted that there is some dispute against the broker for recovery of the amount. Once there is no dispute regarding sale of shares and profit on such shares duly disclosed, then to treat that the whole amount of sale separately as income of the assessee once again would be absurd. It is not the case of the Assessing Officer and ld. CIT(A) that the transaction of sale of shares is not genuine. Whence, neither the auditor has disputed the sale nor the accounts otherwise show that the sale of shares has not been reflected, then to hold that the entire sale of shares should be added would be erroneous. Thus, the addition of this amount in wake of aforesaid documents can be upheld and same is directed to be deleted. Disallowance being 4/5th of the expenditure claimed - amount incurred in respect of Bus Queue Shelters which has been treated as Deferred Revenue Expenditure by the AO - whether Department can treat a revenue expenditure claimed by the assessee as deferred revenue expenditure to be allowable over a period of time - Held that - As decided in TAPARIA TOOLS LIMITED VERSUS JOINT COMMISSIONER OF INCOME TAX 2015 (3) TMI 853 - SUPREME COURT once the assessee has shown it as revenue expenditure, then revenue cannot disallow the same by spreading it over the years and allow only part of it. In any case, this issue stands decided in favour of the assessee in the succeeding years, therefore, respectfully following the order of the Tribunal,we decide this issue in favour of the assessee. Accordingly, this ground of the assessee is allowed. Disallowance of expenditure in respect of charges for late filing of Service Tax return - Held that - After hearing both the parties and looking to the nature of disallowance made, it is seen that the payment has been made for delay in filing of return which is mere compensatory in nature and is not on account of any offence prohibited under any law. Hence such a payment cannot be disallowed by invoking Explanation to Section 371 and the same is hereby directed to be deleted. Addition of expenditure in respect of Bihar Project Expense - AO Denied the claim on the ground that assessee could not prove the expenses nor any nexus with business activity was submitted - Held that - Even before us, the assessee has only furnished details and ledger account but no evidences of such expenses have been filed to show that the same has been incurred for the purpose of business. Accordingly, the action of the authorities below is upheld. Thus, this ground is dismissed. Addition on account of notional interest on the amount of loans and advances - Held that - From the perusal of the financial statements it is quite evident that the assessee has huge surplus funds aggregating to ₹ 15.75 crore and thus, when assessee has such huge interest free surplus funds then presumption is always there that these funds must have given out of surplus funds This proposition has been upheld by catena of judgment like, CIT vs. Bharti Televentures Ltd. 2011 (1) TMI 326 - DELHI HIGH COURT . No reason to sustain such a disallowance of notional interest and same is directed to be deleted. Disallowance of sum on account of notional interest on investment in a joint venture with a purpose to develop a residential plot belonging to Director the company - Held that - Assessee has made investment in a joint venture for the purpose of developing a residential plot and disallowance of interest has been made on notional basis on the ground that the Director has more than 20% of interest in the company and interest-bearing funds have been diverted. Once assessee s interest free surplus funds far exceeds the funds given to sister concern or to any joint venture company, then to hold that the said amount must have been given free interest-bearing funds would be farfetched so as to make any kind of disallowance of notional interest. Accordingly, following the same reasoning and the finding given in the foregoing paragraph, we direct the Assessing Officer to delete the said addition. Addition on account of share capital/share premium raised by the assessee during the year from two shareholder companies - Held that - The assessee cannot prove the source of the source and if there was any dubious nature of transaction for routing any unaccounted money then onus was upon the revenue to prove it. Even at the remand stage also, no inquiry whatsoever has been made by the Assessing Officer to prove that assessee s own accounted money has been routed through these companies. Even if during the year, these companies did not have any revenue from operations, but if it is an investment company which has funds available with it in the form of share capital and share application money which has been made for the purpose of investment in other group companies, then it cannot be held that their source is not proved or these companies did not have any creditworthiness. Thus, in this case, nature and the source of the credit has been fully explained and without there being any contrary material brought on record by the department the addition cannot be sustained u/s 68; and consequently, same is directed to be deleted. Disallowance u/s.40a(ia) - assessee has raised loan from NBFC and has paid interest as claimed as an expenditure but the assessee has not deducted TDS on such a payment - scope of amended provision - Held that - efore us the ld. counsel though admitted that TDS has not been deducted but now in view of 3rd proviso to section 40(a)(ia), brought by the Finance Act, 2014, w.e.f. 2014-2015, the disallowance if at all which could be made, would be 30% of the expenditure claimed, and therefore, the disallowance if at all should be restricted to 30%. Such a proviso has to be given retrospective effect in view of various decisions, like in the case of CIT vs. Ansal Land Mark Township which was in respect of 2nd proviso to Section 40a(ia). He submitted that same principle would apply here also. Accordingly, we direct the Assessing Officer that disallowance should be restricted to 30% in view of the newly inserted proviso. Thus, this ground is partly allowed.

Summary

Issues Involved:
1. Addition on account of sale of shares.
2. Disallowance of expenditure in respect of Bus Queue Shelters (BQS).
3. Disallowance of expenditure for late filing of Service Tax return.
4. Disallowance of Bihar Project Expenses.
5. Addition on account of notional interest on loans and advances.
6. Addition on account of notional interest on investment in a joint venture.
7. Addition on account of share capital/share application money/share premium.
8. Disallowance under section 40(a)(ia).

Issue-wise Detailed Analysis:

1. Addition on Account of Sale of Shares:
The Assessing Officer (AO) added ?1,20,56,085/- for the sale of shares, citing that neither the sale amount nor the profit was shown in the Profit and Loss (P&L) account. The assessee contended that the sale value was declared in the P&L account and provided various evidences. The Tribunal found that the amount of ?1,20,56,085/- was duly reflected in the P&L account, and the profit on the sale of shares was disclosed. Since there was no dispute regarding the sale of shares and profit, the addition was deemed erroneous and directed to be deleted.

2. Disallowance of Expenditure in Respect of Bus Queue Shelters (BQS):
The AO treated 4/5th of the expenditure of ?1,62,39,484/- as deferred revenue expenditure. The Tribunal referred to the Supreme Court's decision in Taparia Tools Ltd. vs. JCIT, which states that revenue expenditure incurred in a particular year should be allowed in that year. Since the assessee claimed it as revenue expenditure, the Tribunal ruled that the revenue could not disallow it by spreading it over years and directed the deletion of the disallowance.

3. Disallowance of Expenditure for Late Filing of Service Tax Return:
The AO disallowed ?27,297/- for late filing of the service tax return, treating it as an offence. The Tribunal held that the payment was compensatory and not an offence, thus not disallowable under Explanation to Section 37(1). The disallowance was directed to be deleted.

4. Disallowance of Bihar Project Expenses:
The AO disallowed ?1,47,647/- for Bihar Project Expenses due to lack of evidence. The Tribunal upheld this disallowance as the assessee failed to provide proof of expenses incurred for business purposes.

5. Addition on Account of Notional Interest on Loans and Advances:
The AO added ?28,94,472/- as notional interest on loans and advances of ?4,82,41,209/- given to various parties, citing diversion of interest-bearing funds. The Tribunal found that the assessee had surplus funds of ?15.75 crore, and no disallowance could be made on advances given to related concerns. The addition was directed to be deleted.

6. Addition on Account of Notional Interest on Investment in a Joint Venture:
The AO added ?16,65,000/- as notional interest on investment of ?1,38,75,013/- in a joint venture. The Tribunal ruled that since the assessee had sufficient surplus funds, no disallowance should be made. The addition was directed to be deleted.

7. Addition on Account of Share Capital/Share Application Money/Share Premium:
The AO added ?5,09,74,000/- for share capital/share application money/share premium, citing lack of confirmation and bank statements. The Tribunal found that the assessee provided sufficient evidence, including confirmations, bank statements, and financial statements of the subscriber companies. The Tribunal ruled that the identity, genuineness, and creditworthiness of the transactions were established, and the addition was directed to be deleted.

8. Disallowance under Section 40(a)(ia):
The AO disallowed ?27,57,000/- for non-deduction of TDS on interest paid to NBFC. The Tribunal directed that, in view of the third proviso to Section 40(a)(ia) brought by the Finance Act, 2014, the disallowance should be restricted to 30% of the expenditure claimed.

Conclusion:
The appeal was partly allowed with specific directions for each issue. The Tribunal provided a detailed analysis and justification for each decision, ensuring adherence to legal principles and precedents.