2020 (12) TMI 1155 - AT - Income Tax

Additional ground be admitted in the interest of advancement of natural justice - HELD THAT - There is no necessity of investigation of any fresh facts on this issue and there is good and sufficient reason for not raising this ground in earlier occasion. Accordingly, by placing reliance on the judgment of Supreme Court in the case of NTPC 1996 (12) TMI 7 - SUPREME COURT we admit the additional ground for adjudication. Disallowance of travelling expenditure - Major portion of payments relating to Director s credit card payment - According to the AO, there was personal element involved in this expenditure incurred by the Director - HELD THAT - The assessee has not substantiated the travel expenditure as it is wholly and exclusively made out for business. There is every chance of personal element attached to this expenditure. It is the duty of the assessee that the expenditure is wholly and exclusively incurred for the purpose of business. Though the AO disallowed expenditure on adhoc basis, the CIT(A) confirmed the same without passing speaking order. In our opinion, it is appropriate to remit the issue back to the file of AO to pin point the exact expenditure which is personal in nature and where the Directors are benefitted by such expenditure. Accordingly, this issue is remitted to the AO for a fresh consideration. Disallowance of business development expenditure AND Club expenses - HELD THAT - As discussed in the earlier para, the assessee has to establish that this expenditure was incurred only exclusively for the purpose of business by placing necessary evidence so as to entertain the foreign buyers. Accordingly, this issue is remitted to the file of AO for fresh consideration. Suppressed income of assessee - Sale receipts from sale of scrap silk yarn - difference between the value determined by AO and the value declared by assessee - HELD THAT - There are various scraps like sale of acrylic yarn, sale of noil yarn, sale of silk yarn, sale of sleever, sale of spun silk yarn, sale of viscose yarn. Each one s value is different and the AO uniformly taken the value of each item per kg. at ₹ 1200/- per kg. which is not proper. Accordingly, we direct the AO to consider each type of item separately to determine the value of it and then there is difference between value adopted by the assessee and to the value computed by the AO, he can sustain the addition on this count. With this observation, we remit this issue to the file of AO for fresh consideration. Addition of interest income from other sources - contention here is that there is a brought forward loss and depreciation in the return of income and this interest income should be set off out of the brought forward loss and depreciation and the net result will be considered to determine the income of the assessee - HELD THAT - The order of the CIT(A) on this issue is very cryptic. She has not dealt the issue in proper prospective. The AO is not correct in not considering the set off of brought forward loss and depreciation while computing the income of the assessee. Hence, we remit this issue to the file of CIT(A) to pass a speaking order on this issue and decide accordingly.

Summary

Issues Involved:
1. Disallowance of travelling expenditure.
2. Disallowance of business development expenditure.
3. Disallowance of club expenses.
4. Addition of income from sale of scrap silk yarn.
5. Disallowance under section 14A of the Income Tax Act.
6. Non-consideration of exempted capital gain for determining loss.
7. Addition of interest income from other sources.

Detailed Analysis:

1. Disallowance of Travelling Expenditure:
The assessee claimed ?41,74,722 as travelling expenses, majorly through the Director’s credit card. The AO disallowed ?10,43,680, suspecting personal use. The CIT(A) confirmed without a speaking order. The Tribunal noted the lack of substantiation by the assessee and remitted the issue back to the AO to identify personal expenses precisely.

2. Disallowance of Business Development Expenditure:
The AO disallowed 25% of ?14,01,167, amounting to ?3,50,291, from the total business development expenditure of ?40,01,169, suspecting personal use. The CIT(A) upheld this disallowance. The Tribunal found the disallowance on an ad-hoc basis improper and directed the AO to re-examine the evidence provided by the assessee.

3. Disallowance of Club Expenses:
The assessee incurred ?89,592 under the head ‘clubs’, and the AO disallowed 50%, i.e., ?44,796, due to lack of specific details. The Tribunal remitted the issue back to the AO, directing the assessee to provide evidence that the expenses were exclusively for business purposes.

4. Addition of Income from Sale of Scrap Silk Yarn:
The AO valued the scrap silk yarn at ?1,200 per kg, totaling ?42,56,400, against the assessee’s declared value of ?18,30,350, resulting in an addition of ?24,26,050. The Tribunal observed that different types of scrap yarn have different values and directed the AO to re-evaluate each type separately before making any additions.

5. Disallowance under Section 14A of the Income Tax Act:
The additional ground raised by the assessee regarding disallowance under section 14A was admitted. The Tribunal noted that both the AO and CIT(A) were silent on this issue and remitted it back to the AO to record satisfaction and pass a speaking order.

6. Non-Consideration of Exempted Capital Gain for Determining Loss:
The assessee inadvertently included exempt long-term capital gains of ?59,94,346 in the income, reducing the loss. The Tribunal remitted the issue back to the CIT(A) for proper adjudication, emphasizing that exempt income should not be included in the computation of income or loss.

7. Addition of Interest Income from Other Sources:
The AO added ?11,57,408 as interest income from other sources without considering set-off against brought forward losses and depreciation. The Tribunal found the CIT(A)'s order cryptic and remitted the issue back to the CIT(A) for a detailed and speaking order, ensuring proper set-off of brought forward losses and depreciation.

Conclusion:
The appeals of the assessee were partly allowed for statistical purposes, with multiple issues remitted back to the AO and CIT(A) for fresh consideration and proper adjudication. The Tribunal emphasized the need for detailed examination and proper substantiation of expenses and income, ensuring adherence to legal provisions and principles of natural justice.