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2021 (4) TMI 708 - AT - Income TaxAdditions under section 40A(2) - Interest expenses paid the related parties in excess of interest @15% per annum - AO noted that assessee has paid interest to certain related parties @18% per annum and treated the interest rate @15% as reasonable based on rate of interest on other loans i.e. to non related parties and accordingly worked out disallowance under section 40A(2) - HELD THAT - Before us the Ld. AR for the assessee vehemently argued that interest @18% per annum to related parties is reasonable as funds obtained from related parties are without any security; such funds are not to be repaid in the near future and since the loans are without any security and are not to be repaid short the same falls within the high risk category thus on account of the above factors loans obtained from related parties deserve some premium as compared to loans obtained from outsiders which are usually against any security need to be repaid in the specified time and do not fall within the high risk category. We find convincing force in the above submissions of the Ld. AR for the assessee. The Hon ble Gujarat High Court in CIT Vs Sarjan Realities Ltd 2014 (8) TMI 206 - GUJARAT HIGH COURT held that unless payment of interest was in excess of market rate merely because the assessee has paid interest at the different rate to different companies payments of interest could not be held to be excessive or unreasonable. In view of the above factual and legal discussions ground No. 2 of the appeal is allowed. TDS u/s 194J OR 194C - Disallowance of exhibition expenses u/s 40(a)(ia) - no tax was deducted at sources while making payment made to Focus Trade Fairs Pvt. Ltd -assessee submits that it is not a case of non-deduction of tax at source rather it is a case of short deduction of tax at source - HELD THAT - The Hon ble Calcutta High Court in CIT Vs SK Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT and CIT Vs Prayas Engineering Ltd. 2014 (11) TMI 1086 - GUJARAT HIGH COURT held that there is nothing in this section to treat the assessee as a defaulter where there is a shortfall of the deduction. It was also held that section 40(a)(ia) of the Act refer only to the duty to deduct tax and pay to Government account. If there is any shortfall due to any difference of opinion as to taxability of any item or the nature of payments falling under the TDS provisions the assessee can be declared in default under section 201 of the Act no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act. In view of the aforesaid factual ground No. 3 of the appeal is allowed. Disallowance in respect of foreign tour expenses - CIT(A) has upheld the ad hoc disallowance - assessee submits that the books of accounts are duly audited under section 44AB and the expenses in question are supported by documentary evidences - HELD THAT - Before us the assessee has filed certain documentary evidences with regards to foreign travel expenses consisting of ledger of foreign expenses receipt of travel agencies insurance receipts and foreign exchange receipts only. No documents with regard to purpose and place of visits or meetings details in overseas countries if place on record to substantiate the expenses. We have further noted that the assessing officer has already allowed substantial part of the foreign tour expenses and disallowed only 1.00 lakhs. In absence of sufficient evidence we do not find any merit in the ground of appeal raised by the assessee. In the result this ground of appeal is dismissed. Disallowance of job-work expenses - Addition for the want of verification of bills and vouchers and non-maintenance of karigar register containing the details of job work and charges thereof - HELD THAT - Before us the Ld. AR for the assessee vehemently argued that job-work done from outsiders and not from in-house labourers. Hence there is no requirement to maintain any such karigar register. No such plea was raised before the lower authorities. Now the assessee has come with new pleas which was not raised before lower authorities. The new explanation given by the assessee does not inspire confidence. Further we have noted that the assessing officer have made ad hock disallowance of 2.00 lakhs only out of the total job work expenses of 34 Lakhs claimed by the assessee. Considering the above discussions we do not find any merit in the ground of appeal raised by the assessee. In the result this ground of appeal is dismissed.
Issues Involved:
1. Assessment of income at ?33,67,563/- against returned income of ?25,73,040/-. 2. Disallowance of ?3,50,030/- out of interest expenses under section 40A(2)(b). 3. Disallowance of ?1,44,493/- out of Exhibition Expenses under section 40(a)(ia). 4. Partial disallowance of ?1,00,000/- out of Foreign Tour Expenses. 5. Partial disallowance of ?2,00,000/- out of Job Work Expenses. 6. Aggregate addition of ?7,94,523/-. Issue-wise Detailed Analysis: 1. Assessment of Income: The Assessee challenged the assessment of income at ?33,67,563/- as opposed to the returned income of ?25,73,040/-. This issue was not separately adjudicated as it was a general ground. 2. Disallowance of ?3,50,030/- out of Interest Expenses: The Assessing Officer (AO) disallowed ?3,50,030/- under section 40A(2)(b) on the grounds that the assessee paid interest at 18% per annum to related parties, while only 12% to non-related parties. The AO allowed interest at 15% and disallowed the excess. The Tribunal found merit in the assessee's argument that the higher interest rate was justified due to the unsecured nature and high-risk category of loans from related parties. Citing the Gujarat High Court decision in CIT Vs Sarjan Realities Ltd., the Tribunal allowed this ground, emphasizing that the AO did not establish the Fair Market Value (FMV) for similar services. 3. Disallowance of ?1,44,493/- out of Exhibition Expenses: The AO disallowed ?1,44,493/- under section 40(a)(ia) for non-deduction of tax at source under section 194J. The assessee argued it was a case of short deduction, not non-deduction, having deducted ?2,890/- under section 194C. The Tribunal, referencing CIT Vs S.K. Tekriwal and CIT Vs Prayas Engineering Ltd., held that shortfall due to difference in opinion on taxability does not warrant disallowance under section 40(a)(ia). This ground was allowed. 4. Partial Disallowance of ?1,00,000/- out of Foreign Tour Expenses: The AO made an ad hoc disallowance of ?1,00,000/- from the total foreign tour expenses of ?5,53,517/- due to lack of detailed evidence. The assessee claimed the expenses were for business purposes and provided some documentation. However, the Tribunal upheld the disallowance due to insufficient evidence regarding the purpose and details of the foreign visits. This ground was dismissed. 5. Partial Disallowance of ?2,00,000/- out of Job Work Expenses: The AO disallowed ?2,00,000/- out of ?33,83,143/- in job work expenses due to incomplete details in bills and absence of a karigar register. The Tribunal noted the assessee's argument that job work was done by third parties and not in-house labor, thus no karigar register was maintained. However, since this plea was not raised before lower authorities and given the reasonable nature of the disallowance, the Tribunal dismissed this ground. 6. Aggregate Addition of ?7,94,523/-: This ground was a summation of the previous issues and did not require separate adjudication as each component had been addressed individually. General Grounds: Grounds 7 and 8 were general in nature and dismissed without specific adjudication. Conclusion: The appeal was partly allowed, with the Tribunal granting relief on the disallowance of interest expenses and exhibition expenses, while upholding the disallowances related to foreign tour and job work expenses.
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