2024 (3) TMI 722 - AT - Income Tax

Lumpsum disallowance of certain expenses to cover up the possible leakages of revenue in net profit - said expenses are inflated, non-business personal nature as per his convenience - assessee has paid the expenditure in cash and the same are merely self made kaccha bill and the genuiness of these bills are cannot be compared with the registered dealer when paid with cheque - HELD THAT - The bench noted that the expenses supported by self-made slips of employees and kaccha bills of local traders do not mean that these expenses are not genuine or could not be verified when there is no observation of a single instance in the order of the lower authority. In fact kachha bill itself suggest the necessity and urgency of the expenditure and therefore we are of the considered view that it is in correct perspective in as much as there is no qualification by the Chartered Accountant and during assessment proceedings ld. AO has not pointed out any single irregularity/ inaccuracy in the vouchers produced by the assessee. Thus there is no need to sustain the lumpsum disallowance of Rs. 5 lac. We derive support from the case of ACIT Vs. Ganpati Enterprises Ltd. 2013 (12) TMI 1097 - ITAT DELHI where in held that The findings extracted nowhere reveals what was the total amount of expenditure claimed by assessee, which specific voucher was not in accordance with law. In a just sweeping statement, AO observed that on verification, some of the expenses were found to be unverifiable, but what were those expenses, he should make out in the assessment order, only then he can disallow them. Therefore, the said disallowance was to be deleted. Ground no. 1 raised by the assessee is allowed. Addition of interest against interest free loans - as argued assessee has sufficient non-interest bearing fund available in the books of accounts - HELD THAT - Assessee has sufficient non-interest bearing funds to give advance to its members and the interest received is more than the interest paid. Thus, as respectfully following the finding recorded by Reliance Industries Ltd. 2019 (1) TMI 757 - SUPREME COURT wherein it has been held that Tribunal having found that the interest free funds available to the assessee were sufficient to meet its investment, it could be presumed that funds were given to subsidiaries out of interest free funds and therefore, interest referable to funds given to subsidiaries is allowable as deduction u/s 36(1)(iii). Considering that aspect of the matter and when it is very much clear that the assessee is having sufficient interest free fund no notional interest be disallowable. In terms of these observations ground no. 2 raised by the assessee is allowed.

Summary

Issues Involved:
1. Lump sum disallowance of Rs. 5,00,000/- for unverifiable expenses.
2. Disallowance of Rs. 9,66,212/- on account of interest against interest-free loans.

Summary:

Issue 1: Lump sum disallowance of Rs. 5,00,000/- for unverifiable expenses

The assessee, a Royalty & Toll Plaza contractor, filed a return declaring an income of Rs. 5,03,351/- for AY 2014-15. During the assessment, the AO observed that some expenses were supported only by self-made slips or "kachha bills" issued by local traders, which could not be verified. Consequently, the AO made a lump sum disallowance of Rs. 5,00,000/-. The CIT(A) upheld this disallowance, stating that the assessee's acceptance of using self-made slips justified the AO's decision. However, the Tribunal noted that there was no specific instance cited by the AO or CIT(A) to prove the expenses were not genuine. Citing various precedents, the Tribunal concluded that the lump sum disallowance was not warranted and deleted the addition.

Issue 2: Disallowance of Rs. 9,66,212/- on account of interest against interest-free loans

The AO disallowed Rs. 9,66,212/- out of the claimed bank interest and charges of Rs. 59,38,425/-, reasoning that the assessee had given interest-free advances to AOP members. The CIT(A) confirmed this disallowance, stating that the assessee did not provide evidence to prove the advances were for business purposes. However, the Tribunal found that the assessee had sufficient non-interest bearing funds amounting to Rs. 31.96 crores and had earned more interest income than the interest paid. Citing the Supreme Court's decision in CIT Vs. Reliance Industries Ltd., the Tribunal held that no notional interest should be disallowed when sufficient interest-free funds are available. Therefore, the disallowance was deleted.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting both the lump sum disallowance of Rs. 5,00,000/- and the interest disallowance of Rs. 9,66,212/-.