2022 (8) TMI 909 - AT - Income Tax

Disallowance of Finance Cost - CIT-A held that appellant could not prove the nexus between the Sundry Debtors and Long Term Advances as per accounts and thereby confirming disallowance of Finance Cost - HELD THAT - By referring to the audited financial statements as pointed out by the Ld. Counsel, we find force in the submission and explanation given by him. In the course of hearing, a chart has been submitted explaining the long term borrowing utilization which very clearly depicts the treatment of the long term borrowing and its utilization. Thus with all its proper reporting and disclosure, we are inclined to accept the submissions of the Ld. Counsel and direct the Ld. AO to delete the addition made - Accordingly, the grounds of appeal in this respect are allowed. Disallowance of sales promotion and advertisement expenses - HELD THAT - Despite several queries and opportunities made available by the authorities below, the assessee has not been able to establish the nexus between the expenses incurred and the business of the assessee. Assessee has all along submitted only the ledger account copy, which are not sufficient to understand the nature and the purpose of expenses incurred as well as its nexus with the benefits accruing to the business of the assessee - we find it proper to remit the matter back to the file of Ld. AO on this issue and direct the assessee to submit necessary documentary evidences required by the authorities below for substantiating its claim for the deductibility of the expenses. Accordingly, this ground of appeal is allowed for statistical purposes. Disallowance being depreciation on Motor Car inspite of Purchase Bills, Bank loan for car, Tax Token and other evidences - Assessee has claimed that all the payments in respect of purchase of motor cars have been made through banking channel. In the interest of justice and fair play, we find it proper to remit the matter back to the file of Ld. AO and direct the assessee to furnish all the required documents towards the purchase of motor cars as reported in its audited financial statements on which depreciation has been claimed. Ld. AO is also directed to provide reasonable opportunity of being heard in this respect so as to enable the assessee to substantiate its claim. Accordingly, this ground of appeal is allowed for statistical purposes. Appeal of the assessee is partly allowed.

Summary

Issues:
1. Disallowance of finance cost
2. Disallowance of depreciation on motor car
3. Disallowance of sales promotion expenses

Issue 1: Disallowance of Finance Cost
The appellant contested the disallowance of Rs.4,05,22,204 from finance cost, arguing that long term advances were not new loans but a restructuring of existing borrowings. The appellant provided detailed financial statements and audit reports to support their claim. The tribunal accepted the appellant's explanation, noting the proper reporting and disclosure of the restructuring. Consequently, the tribunal directed the assessing officer to delete the disallowance.

Issue 2: Disallowance of Depreciation on Motor Car
Regarding the disallowance of depreciation on motor cars, the appellant failed to provide purchase bills for three out of four cars, despite claiming that all payments were made through the banking channel. The tribunal decided to remit the matter back to the assessing officer, instructing the appellant to furnish all necessary documents related to the purchase of motor cars. The assessing officer was directed to provide a reasonable opportunity for the appellant to substantiate their claim.

Issue 3: Disallowance of Sales Promotion Expenses
The tribunal observed that the appellant could not establish a nexus between the sales promotion and advertisement expenses incurred and the business operations. As the appellant only submitted ledger account copies without sufficient details, the tribunal decided to remit the matter back to the assessing officer. The appellant was directed to provide necessary documentary evidence to substantiate the deductibility of the expenses. The assessing officer was instructed to offer a reasonable opportunity for the appellant to present their case.

In conclusion, the tribunal partly allowed the appellant's appeal, directing the assessing officer to delete the disallowance of finance cost and providing opportunities for the appellant to substantiate claims related to depreciation on motor cars and sales promotion expenses.

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