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2020 (11) TMI 692 - AT - Income TaxDisallowance of interest paid - CIT(A) had deleted the same by appreciating the fact that assessee had sufficient interest free funds - HELD THAT - It could be safely presumed that assessee had sufficient own funds to make interest free advances to its sister concerns and to its outsiders. By placing reliance on the decision of the Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT and HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT we hold that no disallowance of interest paid by the assessee could be made in the facts of the instant case. Accordingly, the ground No.1 raised by the revenue is dismissed. Disallowance of remuneration paid to the Director u/s 40A(2) - CIT-A restricted addition at 20% as against 50% made by the ld. AO - HELD THAT - Disallowance has been made @ 20% by the lower authorities by applying the provisions of Section 40A(2)(a) of the Act without bringing any comparable instances to drive home the point as to why the salary paid to the Director Mr. Pankaj Dayal was excessive or unreasonable. There is no finding by the lower authorities that the said Director is not competent or not technically qualified to receive such remuneration. In any case, the disallowance has been made only on an adhoc basis by the lower authorities. Since, the assessee has not preferred any appeal against the order of the ld. CIT(A) before us, we do not deem this as a fit case to interfere with the finding recorded by the ld. CIT(A). Accordingly, we direct the ld. AO to restrict the disallowance at 20% of total salary paid to the Director - Ground No.2 raised by the revenue is dismissed. Disallowance of 50% of total advertising and publicity expenses - HELD THAT - GMR Sports Pvt. Ltd., possessed the sponsorship of IPL team of Delhi Dare Devils and this sum paid for purchase of 32 tickets in corporate tax for watching IPL matches enabled the assessee company to advertise its real estate projects by way of display boards in all the matches at Feroz Shah Kotla Cricket Stadium, New Delhi. This obviously improved the performance of the functioning of the assessee company and hence, the same would be wholly and exclusively for the purpose of business. But since the assessee has not preferred any appeal before us, against the order of the ld. CIT(A) granting relief only to the extent of 50% of the said expenditure, we do not deem it fit to interfere with the said finding of the ld. CIT(A). Accordingly, ground No.3 raised by the revenue is dismissed. Disallowance of rent expenses - CIT-A restricted addition @ 10% as against 60% done by AO - HELD THAT - CIT(A) had given proper finding with regard to apportionment of rent not being done by the assessee to its group companies and had restricted the disallowance to 10% of the total rent paid. When a particular premises is occupied by the assessee and others (whether it is a group company or not), the rental payment and other maintenance expenses included therein are to be apportioned in a just and fair manner. When this is not done by the assessee, disallowance of expenses had to be made in the hands of the assessee. In the instant case, the ld. CIT(A) had restricted the disallowance to 10% of the total rent paid in the hands of the assessee. Ground No.4 raised by the revenue is dismissed. Disallowance of business promotion, electricity, legal and professional charges, repairs maintenance, travelling and conveyance and miscellaneous expenses - CIT-A restricted addition to 10% as against 40% disallowed by the ld. AO - HELD THAT - Assessee had not preferred any appeal against this order of the ld. CIT(A) before us. Since the same premises has been occupied by various concerns of the assessee, the entire expenses has to be apportioned in a just and fair manner based on the usage and the ld. CIT(A) had restricted the disallowance to 10% thereon - since no appeal has been preferred by the assessee before us against the order of ld. CIT(A), we do not deem it fit to interfere with the finding of the ld. CIT(A) especially when assessee was not categorically able to prove even before us that the subject mentioned expenditure were incurred only for the business purpose of the assessee. Hence, the disallowance restricted to 10% on adhoc basis by the ld. CIT(A) does not require any interference. Accordingly, the ground No.5 raised by the revenue is dismissed. Addition on account of disallowance with respect to cost of goods sold - HELD THAT - CIT(A) had given a categorical finding that the ld.AO had grossly erred in rejecting the book results of the assessee without pointing out any discrepancy in the books of accounts produced before him during the course of assessment proceedings. We also find that the entire details of opening stock, purchases and project expenses and closing stock were also filed before the AO as narrated hereinabove and the same were duly reproduced in the order of the ld. CIT(A). The said facts as reproduced in the order of ld. CIT(A) has not been controverted by the ld. DR before us. The law is now very well settled that without pointing out any discrepancy in the books of accounts produced by the assessee, the ld. AO cannot reject the book results as per his whims and fancy. See POONAM RANI 2010 (5) TMI 57 - DELHI HIGH COURT and M/S JAS JACK ELEGANCE EXPORTS. 2010 (4) TMI 84 - DELHI HIGH COURT . No infirmity in the order of the ld. CIT(A) deleting the addition made on account of cost of goods sold - Ground No.6 raised by the revenue is dismissed.
Issues Involved:
1. Disallowance of interest paid. 2. Disallowance of remuneration paid to the Director. 3. Disallowance of advertising and publicity expenses. 4. Disallowance of rent expenses. 5. Disallowance of various business expenses. 6. Disallowance related to cost of goods sold. Detailed Analysis: 1. Disallowance of Interest Paid: The primary issue was whether the CIT(A) was justified in deleting the disallowance of ?1,32,79,515/- as interest paid. The AO disallowed the interest payment, presuming that interest-free advances given to sister concerns and outsiders were made from interest-bearing funds. However, the CIT(A) found that the assessee had sufficient interest-free funds amounting to ?176,82,74,751/- compared to interest-bearing liabilities of ?13,27,95,150/-. Relying on the decisions of the Bombay High Court in Reliance Utilities and Power Ltd. and HDFC Bank Ltd., the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. 2. Disallowance of Remuneration Paid to the Director: The issue was whether the CIT(A) was justified in restricting the disallowance of remuneration paid to the Director at 20% instead of 50% as made by the AO. The AO disallowed 50% of the salary paid to the Director on the grounds that he could not devote full time to the company. The CIT(A) reduced this disallowance to 20%. The Tribunal noted the lack of comparable instances or findings regarding the Director's competence and upheld the CIT(A)'s decision, dismissing the revenue's appeal. 3. Disallowance of Advertising and Publicity Expenses: The issue was whether the CIT(A) was justified in restricting the disallowance of 50% of total advertising and publicity expenses. The AO disallowed the expenses, questioning their necessity for business purposes. The CIT(A) restricted this disallowance to 50%. The Tribunal found that the expenditure was incurred for business purposes, but since the assessee did not appeal against the CIT(A)'s partial relief, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. 4. Disallowance of Rent Expenses: The issue was whether the CIT(A) was justified in restricting the disallowance of rent expenses to 10% instead of 60% as disallowed by the AO. The AO disallowed 60% of the rent, arguing that the premises were shared with other group companies. The CIT(A) reduced this disallowance to 10%. The Tribunal found that the rent and maintenance expenses should be fairly apportioned among the companies and upheld the CIT(A)'s decision, dismissing the revenue's appeal. 5. Disallowance of Various Business Expenses: The issue was whether the CIT(A) was justified in restricting the disallowance of various business expenses to 10% instead of 40% disallowed by the AO. The AO made an ad-hoc disallowance of 40% due to the expenses being billed to the Realtech Group rather than the assessee company. The CIT(A) reduced this disallowance to 10%. The Tribunal upheld the CIT(A)'s decision, noting the lack of specific evidence that the expenses were solely for the assessee's business, and dismissed the revenue's appeal. 6. Disallowance Related to Cost of Goods Sold: The issue was whether the CIT(A) was justified in deleting the addition of ?4,14,39,084/- made on account of disallowance with respect to the cost of goods sold. The AO estimated the cost of goods sold at 92% of sales income, rejecting the book results without pointing out discrepancies. The CIT(A) found that the assessee had provided detailed documentary evidence for the cost of goods sold and that the AO's rejection of book results was unwarranted. The Tribunal upheld the CIT(A)'s decision, citing the settled law that book results cannot be rejected without pointing out discrepancies, and dismissed the revenue's appeal. Conclusion: The Tribunal dismissed all grounds raised by the revenue, upholding the CIT(A)'s decisions on all issues. The appeal of the revenue was dismissed in its entirety.
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