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2004 (3) TMI 355 - AT - Income TaxDisallowance out of hamali miscellaneous and office expenses - Addition under s. 40A(2)(b) - Interest income - Income from other sources - Disallowance in respect of the fee paid to the Registrar of Companies HELD THAT - On perusal of copy of account of the aforesaid party it would be clear that it was the first transaction. Therefore there is some force in the contention of the learned counsel for the assessee that the party was new to the assessee and insisted for cash payment. This explanation of the assessee that there was no bank account where the supplier was located had not been doubted. Therefore these payments were covered under r. 6DD(j). As regards the payment of Rs. 18, 000 it was the claim of the assessee that this payment was against the contract which subsequently was cancelled and the amount received back. Therefore this payment cannot be said to be covered under the provisions of s. 40A(3). In view of the above discussion we delete the addition of Rs. 60, 500 made by the AO and confirmed by the learned CIT(A) by invoking the provisions of s. 40A(3) of the IT Act. Addition under s. 40A(2)(b) - In the instant case the AO disallowed the whole of the claim. However he has not pointed out excessiveness of the payment. The learned CIT(A) also confirmed the action of the AO in slipshod manner. He has not given any concrete finding in respect of his action. In view of the aforesaid facts we are of the view that the disallowance made by the AO and confirmed by the CIT(A) are without any basis. We therefore delete the same. Income from other sources - Interest income - In the instant case as regards to the facts there is no controversy. The assessee had gone for public issue to collect shares so as to finance the expansion of its existing business. For that purpose the assessee incurred certain expenses on public issue and received share application money which was kept in banks on which interest was earned. The assessee set off that interest income against the public issue expenses incurred. It is relevant to point out that the Hon ble Supreme Court while deciding the case of Coromandal Cements Ltd. 1997 (12) TMI 107 - SC ORDER followed its own judgment in the case of Tuticorin Alkali Chemicals Fertilisers Ltd. had also been made in the case of Bokaro Steel Ltd. 1998 (12) TMI 4 - SUPREME COURT . We therefore keeping in view the ratio laid down by the Hon ble Supreme Court in the case of Bokaro Steel Ltd. are of the opinion that the assessee is entitled to set off interest earned on deposits out of the public issue money against the expenses incurred for the public issue. In that view of the matter we reverse the finding of the CIT(A) and direct the AO to set off the interest earned by the assessee against the public issue expenses. Disallowance in respect of the fee paid to the Registrar of Companies - It is noticed that full details of the expenses had not been discussed either by the AO or the CIT(A). From the orders of the authorities below it is not clear as to what was the nature of the payments made to the Registrar of Companies. The claim of the assessee is that the payments had been made for normal filing fee of various Company Law returns and documents except the payment of Rs. 1, 91, 820 which was related to the increase of capital. Since the clear facts are not available on record. We therefore to meet the ends of justice deem it appropriate to remand the issue to the file of the AO and direct him to decide the same afresh in accordance with law after affording due and reasonable opportunity of being heard to the assessee. In the result the appeal is partly allowed.
Issues Involved:
1. Disallowance of Rs. 47,712 out of hamali, miscellaneous, and office expenses. 2. Addition of Rs. 60,500 u/s 40A(3) of the IT Act. 3. Addition of Rs. 2,83,224 u/s 40A(2)(b) of the IT Act. 4. Treatment of interest received amounting to Rs. 12,10,286 as income from other sources. 5. Disallowance of Rs. 4,05,878 in respect of the fee paid to the Registrar of Companies. Summary: 1. Disallowance of Rs. 47,712 out of hamali, miscellaneous, and office expenses: The AO disallowed 1/10th of the expenses due to partial vouching. The CIT(A) confirmed this action. The Tribunal noted the increase in sales and the nominal increase in expenses. The AO did not point out any specific unvouched expenses. The Tribunal found the disallowance based on surmises and conjectures and deleted the addition. 2. Addition of Rs. 60,500 u/s 40A(3) of the IT Act: The AO added Rs. 60,500 for payments made in violation of s. 40A(3). The assessee argued that the payments were covered under r. 6DD(j) due to exceptional circumstances. The Tribunal found merit in the assessee's explanation regarding the new supplier and the lack of a bank account. The Tribunal deleted the addition, finding the payments covered under r. 6DD(j). 3. Addition of Rs. 2,83,224 u/s 40A(2)(b) of the IT Act: The AO disallowed 10% of water charges, 1% of purchases from sister concerns, and the total salary paid to certain individuals. The CIT(A) confirmed the disallowance. The Tribunal found no basis for the disallowances, noting the lack of evidence for excessive payments. The Tribunal deleted the disallowances, stating they were made on assumptions and presumptions. 4. Treatment of interest received amounting to Rs. 12,10,286 as income from other sources: The AO treated the interest from share collection money as income from other sources, relying on the decision in Tuticorin Alkali Chemicals & Fertilisers Ltd. The CIT(A) confirmed this. The Tribunal, referencing the Supreme Court's decision in Bokaro Steel Ltd., found that the interest had a direct nexus with the public issue expenses and allowed the set-off against these expenses. 5. Disallowance of Rs. 4,05,878 in respect of the fee paid to the Registrar of Companies: The AO treated the fee as capital expenditure. The CIT(A) confirmed this. The Tribunal noted the lack of detailed discussion on the nature of the payments. The Tribunal remanded the issue to the AO for a fresh decision, directing a clear distinction between capital and revenue expenses. Conclusion: The appeal is partly allowed, with specific deletions and remands for fresh consideration.
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