2021 (8) TMI 603 - AT - Income Tax

Disallowance u/s.68 - addition made towards unsecured loan taken from Shri R.D. Sukumar Babu - assessee could not prove the credit worthiness of the said loan with evidences - HELD THAT - We find from the order of the ld.CIT(A) that the loan has been taken from shareholder of the company, that means the identity of the creditor is not disputed by the AO. As regards, genuineness of the transaction, loan has been taken through bank and part of loan has been repaid through cheque. The assessee had also paid interest after deducting applicable TDS. Therefore, there is no reason for doubting the genuineness of transaction. As regards, creditworthiness of the creditor, the assessee has filed necessary evidences to discharge creditworthiness including financial statements filed for the relevant assessment year. The CIT(A) after considering relevant facts has deleted addition made by the AO towards unsecured loan u/s.68 of the Act. Facts remain unchanged. Revenue has failed to bring on record further evidences to counter the findings of the facts recorded by the ld.CIT(A). Hence, we are inclined to uphold the findings of ld.CIT(A) and reject the ground taken by the Revenue. Disallowance of commission expenses u/s.37 - HELD THAT - Assessee has paid commission to M/s. Credila Financial Services Pvt. Ltd., which is in commensurate with volume of business generated from them. The assessee has also filed necessary evidences to prove genuineness of payment and nexus between expenditure and business of the assessee by filing various evidences including Form 16 issued to the party for deduction of TDS on said payment. CIT(A) after considering relevant facts has rightly deleted addition made by the AO towards disallowance of commission expenditure. The Revenue neither bring on record any evidence to prove that expenditure incurred under the head commission expenditure is not genuine nor counter the findings of fact recorded by the ld.CIT(A). Therefore, we are of the considered view that there is no error in the findings recorded by the CIT(A) and hence, we are inclined to uphold the order of the CIT(A) and reject the ground taken by the Revenue. Adhoc disallowance of miscellaneous expenses - AO has disallowed 20% of various expenses including printing stationery, office maintenance and electricity charges, on the ground that the assessee has not filed any evidences to prove that said expenses are normal business expenses which had to be incurred wholly and exclusively for the business of the assessee - CIT-A deleted the addition - HELD THAT - No reason to interfere with the findings recorded by the CIT(A) to delete adhoc disallowance of miscellaneous expenses for the simple reason that AO has made ad-hoc disallowance of expenses without pointing out any discrepancy in expenditure debited in the profit loss account. It is an admitted fact that in order to disallow any expenditure, there should be some finding of fact that either the expenditure was not incurred wholly and exclusively for the purpose of business or the assessee is not able to substantiate the expenditure with necessary evidences. In this case, no such finding is recorded by the AO before making any adhoc disallowance. The CIT(A) after considering relevant facts has rightly deleted addition. - Decided against revenue.

Summary

Issues:
1. Unsecured loan disallowance u/s.68 of the Act
2. Disallowance of commission expenses u/s.37 of the Act
3. Adhoc disallowance of miscellaneous expenses

Unsecured Loan Disallowance u/s.68 of the Act:
The appeal addressed the addition towards an unsecured loan taken from a shareholder, challenged by the Revenue for lack of proof of genuineness. The assessee received and repaid a loan, with a balance outstanding. The CIT(A) ruled in favor of the assessee, emphasizing the creditor's identity was established, and the transaction's genuineness was supported by bank transactions and interest payments. The Revenue failed to provide counter evidence, leading to upholding of the CIT(A)'s decision.

Disallowance of Commission Expenses u/s.37 of the Act:
The dispute involved disallowance of commission expenses by the AO due to insufficient evidence linking the expenditure to the business. The CIT(A) overturned this decision, noting the genuine payment made through proper channels and TDS deductions. The Revenue argued against the CIT(A)'s decision, but the Tribunal upheld it, citing the established nexus between the commission expenditure and the business, supported by filed evidence and TDS details.

Adhoc Disallowance of Miscellaneous Expenses:
The AO disallowed a percentage of miscellaneous expenses without specific queries or discrepancies, which the assessee contested, providing evidence of business necessity. The CIT(A) agreed with the assessee, emphasizing the lack of findings by the AO to justify the adhoc disallowance. The Tribunal upheld the CIT(A)'s decision, highlighting the necessity for factual basis before disallowing expenses, ultimately dismissing the Revenue's appeal.

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