2024 (5) TMI 485 - AT - Income Tax

Disallowance of various expenses debited in the P L account either in full or on ad hoc basis by the learned CIT(A) - non rejection of books of accounts - HELD THAT - When the books of account and the book results had not been rejected by the Revenue by pointing out specific defects therein there is no scope for making disallowance of expenses on ad hoc basis or in full. In the instant case the books of account have been duly subjected to audit by a Chartered Accountant and the audited books of account together with audited financial statements were also duly placed on record before the learned AO. It is not the case of the Revenue that the said expenditures were not incurred by the assessee wholly and exclusively for the purpose of business. These expenses were subjected to disallowance only on flimsy grounds that on the vouchers revenue stamps are not affixed. In this case it is pertinent to note that the turnover of the assessee is Rs. 160.46 crores and the total administrative expenses debited by the assessee is hardly Rs. 58.64 lakhs. Hence we have no hesitation to delete the entire disallowance of expenses debited in the P L A/c. - Decided in favour of assessee. Disallowance of interest paid on unsecured loans - HELD THAT - No addition has been made by the learned AO for the receipt of unsecured loans - unsecured loans received by the assessee have been accepted as genuine by the learned AO. Assessee had duly furnished the confirmations from the unsecured loan creditors which fact is also confirmed by the CIT(A) in his order. It is not the case of the Revenue that the said loans were not utilized by the assessee for the purpose of his business. Absent such findings interest paid on unsecured loans which were considered as genuine cannot be subjected to any disallowance. Hence we direct the Ld. AO to grant deduction for interest - ground raised by the assessee is allowed. Disallowance on account of difference in purchases debited by the assessee vis a vis corresponding value shown by the suppliers in their response to notice issued u/s 133(6) - HELD THAT - Though there are certain differences in terms of accounting policies/ deficiencies carried out by the suppliers in their respective books still the closing balance outstanding as on 31.03.2010 reflected by the said supplier duly matches in both the parties books. This clearly goes to prove that the reconciliation submitted by the assessee hereinabove is factually correct and no adverse inference could be drawn thereon. Hence the disallowance made by the Ld. CIT(A) based on the remand report of the Ld. AO with regard to Thiru Arooran Sugar Ltd. deserves to be deleted and is hereby deleted. With regard to difference in balance in the case of Dwarikesh Sugar Industries Ltd. we find that the assessee had duly explained the same by way of proper reconciliation that the purchases has been duly accounted by the assessee after 01.04.2009 on the date on which the goods were actually received by him whereas the supplier had shown it as sales in the month of March 2009 itself. This had admittedly led to the difference. We find the assessee had clearly explained the difference in the value and hence no addition is required to be made. Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Validity of reopening u/s 147.
2. Disallowance of various expenses debited in the Profit & Loss account.
3. Disallowance of interest paid on unsecured loans.
4. Disallowance on account of difference in purchases.

Summary:

1. Validity of Reopening u/s 147:
Ground nos. 1 to 7 challenging the validity of reopening were not pressed by the assessee and hence dismissed as not pressed.

2. Disallowance of Various Expenses Debited in the Profit & Loss Account:
The assessee challenged the confirmation of disallowance of various expenses by the CIT(A). The Tribunal noted that the assessee provided detailed replies and documents justifying the expenses incurred, including month-wise details, salary paid, and unsecured loans. Despite this, the AO disallowed Rs. 58,64,773/- alleging lack of proof. The CIT(A) partially deleted the additions but confirmed Rs. 46,95,728/- by applying an ad hoc disallowance rate of 80% to certain expenses. The Tribunal found that the books of accounts were duly audited, and no specific irregularity was pointed out by the AO. Hence, the Tribunal deleted the entire disallowance of Rs. 37,03,875/- and allowed ground nos. 8 & 10.

3. Disallowance of Interest Paid on Unsecured Loans:
The AO accepted the unsecured loans as genuine and the assessee furnished confirmations from the creditors. The Tribunal found that the interest paid on these loans, considered genuine, cannot be disallowed. Thus, the Tribunal directed the AO to grant deduction for interest of Rs. 9,91,853/- and allowed ground no. 9.

4. Disallowance on Account of Difference in Purchases:
The AO disallowed Rs. 3,25,95,920/- based on differences in purchases from Thiru Arooran Sugar Ltd and Dwarikesh Sugar Industries Ltd. The assessee explained the differences through reconciliations, attributing them to accounting treatments and timing differences. The CIT(A) sustained Rs. 68,02,880/- for Thiru Arooran Sugar Ltd and Rs. 5,41,875/- for Dwarikesh Sugar Industries Ltd. The Tribunal found the reconciliation submitted by the assessee to be factually correct and deleted the disallowances of Rs. 68,02,880/- and Rs. 5,41,875/-. Hence, ground no. 11 was allowed.

Conclusion:
The appeal of the assessee was partly allowed. Order pronounced in open court on 06.05.2024.