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2020 (1) TMI 1028 - AT - Income TaxUnexplained cash credit under section 68 - unsecured loan received by the assessee in the year under consideration from certain parties which was treated as unexplained cash credit u/s 68 - HELD THAT - The provision of section 68 of the Act fastens the liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the assessee were imposed to justify the cash credit entries under section 68 of the Act by the Hon ble Calcutta High Court in the case of CIT Vs. Precision Finance (P) Ltd 1993 (6) TMI 17 - CALCUTTA HIGH COURT The amount of loan for ₹ 4,48,03,196.00 represents the loan which were outstanding in the books of the assessee as on 31 March 2003. This fact can be verified from the financial statements of the assessee available on record. Thus the loans which were squared up in the year under consideration were not part of the amount of loan appearing in the financial statements of the assessee as on 31 March 2003. It is also a fact on records that the assessee has duly furnished the details of the loans which were squared up in the year under consideration in its tax audit report available on record. But the AO either in the assessment proceedings or remand proceedings required the assessee to furnish detailsof such loans squared up during the year. Thus the assessee never got the occasion to furnish the details about such squared up loans. From the above letter dated 26 October 2012, it is transpired that the learned CIT (A) never enquired about the loans which were squared up in the year under consideration. Thus, the controversy arises whether the AO can extend the scope of dispute beyond the direction provided by the learned CIT (A). The answer stand negative in view of the judgement of Hon ble Gujarat High Court in the case of Saheli Synthetics Pvt. Ltd Vs. CIT 2008 (2) TMI 182 - GUJARAT HIGH COURT We hold that the allegation of the AO in the remand proceedings that the assessee failed to furnish the details of the loans which were squared up in the year under consideration is not sustainable in the present facts and circumstances. Accordingly, we do not find any resentment affair in the order of the learned CIT (A). Hence the ground of appeal of the Revenue is dismissed. Disallowance of interest expenses on account of diversion of borrowed fund - borrowed fund has been diverted to the interest free loans and advances - HELD THAT - Own fund including non-interest bearing fund exceeds the amount of loans and advances. Own fund of the assessee exceeds the interest free loans and advances as discussed in the assessment order - presumption can be drawn that the loans has been provided out of the owned funds of the assessee. See Reliance Utilities and Power Ltd. . 2009 (1) TMI 4 - BOMBAY HIGH COURT No disallowance of interest expense claimed by the assessee can be made under the provision of Section 36(1)(iii) of the Act on account of diversion of interest bearing fund. Hence, we confirm the order of Ld. CIT-A. Accordingly, the AO is directed to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed. Addition on account of foreign travelling expenses - expense not incurred for the business purposes and the personal nature cannot be overruled - HELD THAT - Assessee has not provided any documentary evidences to prove that the expenditure on foreign travelling was for the business purpose. Admittedly there is no doubt that the expense has been incurred on foreign travelling. But such expenses incurred for the business needs to be justified by furnishing the details of the person travelled, email correspondence, any business expansion from such foreign tour. Assessee has furnished before us detail of foreign exchange, ticket but these are not sufficient to establish the business purpose of such expenses. Therefore we are of the view that the expenditure on foreign tour was not for Business purpose. In this regard we draw support guidance from the judgment of Hon ble ITAT Ahmedabad in case of Genesis Organic (P) Ltd. 2014 (7) TMI 1101 - ITAT AHMEDABAD wherein held Mere mentioning the name of the country visited along with mentioning of the total amount of expenditure under various heads of the expenses like, hotel bills, air-ticket, etc., does not indicate or establish the business purpose of the foreign travel expenses incurred by the assessee-company. In the facts and circumstances of the case of the assessee, we hold that in the absence of even elementary evidence to prove the business purpose of the foreign travel undertaken by the directors of the assessee private limited company, the expenditure was rightly disallowed - Decided against assessee.
Issues Involved:
1. Deletion of addition on account of unexplained loans under section 68 of the Income Tax Act. 2. Disallowance of interest expenses under section 36(1)(iii) due to diversion of borrowed funds. 3. Disallowance of foreign travel expenses. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Unexplained Loans under Section 68: The Revenue contested the deletion of an addition of ?4,48,03,196/- made by the Assessing Officer (AO) for unexplained loans. The assessee, a limited company, had shown unsecured loans in its financial statements. The AO treated these as unexplained cash credits under section 68 due to the assessee's failure to provide necessary details. However, the CIT(A) deleted the addition after considering the assessee's submission and a remand report from the AO. The assessee provided confirmations, PAN details, and income tax returns of the lenders, including Rampion Eyetech Pvt. Ltd., Sunil Kumar K Jain HUF, and Anuj R Mehta. The CIT(A) concluded that the loans were genuine and supported by sufficient documentary evidence, noting that the AO did not conduct further inquiries despite having the necessary information. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had discharged its onus under section 68 by proving the identity, genuineness, and creditworthiness of the lenders. 2. Disallowance of Interest Expenses under Section 36(1)(iii): The AO disallowed ?11,23,686/- of interest expenses, asserting that the assessee diverted borrowed funds to interest-free loans and advances to its subsidiary. The CIT(A) deleted the disallowance, noting that the loans were given for business purposes as a measure of commercial expediency and that the assessee's own funds exceeded the interest-free loans and advances. The Tribunal upheld the CIT(A)'s decision, referencing the judgment in Reliance Utilities and Power Ltd., which established that if own funds exceed the amount of loans and advances, a presumption arises that the investments were made from interest-free funds. 3. Disallowance of Foreign Travel Expenses: The AO disallowed ?2,21,082/- of foreign travel expenses, stating that the business purpose of the expenses was not established. The CIT(A) deleted the disallowance, noting that the AO did not substantiate the claim that the expenses were personal. However, the Tribunal reversed the CIT(A)'s decision, stating that the assessee failed to provide sufficient evidence to prove that the foreign travel expenses were for business purposes. The Tribunal referenced the judgment in Genesis Organic (P) Ltd., emphasizing that the assessee must establish the business purpose of foreign travel expenses, which was not done in this case. Conclusion: The Tribunal partly allowed the Revenue's appeal, confirming the deletion of the addition under section 68 and the disallowance of interest expenses under section 36(1)(iii), but reinstating the disallowance of foreign travel expenses.
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