2016 (3) TMI 1063 - AT - Income Tax

Addition u/s 50C - assessee submitted that the plots were held by the assessee as stock-in-trade of the business - Held that - We have perused the provisions of section 50C(1). It is very clear from the section itself that the provisions of section 50C(1) is attracted only in a case of a capital asset and not in the case where the asset is held as stock-in-trade. From the facts in the present case, and the paper book filed, it is very clear that all the properties sold by the assessee during the relevant year under consideration formed part of stock. Therefore, we are of the considered opinion that the provisions of section 50C are not applicable to the present facts of the case - Decided in favour of assessee Disallowance being excessive interest paid on unsecured loans to related parties above the presumptive rate of 12% - Held that - It is not the case of the Revenue that the assessee has not paid the interest at the said rate to the lender. It is also not the case that the borrowed funds have not been utilized by the assessee for the purposes of business. If a wrong or unwise decision has been taken by the assessee, it cannot be said that the decision is dubious or the assessee in such transaction has adopted method to evade the payment of tax. It is also not the case of the Revenue that the assessee has paid any dividend from such borrowed funds. In the instant case, there is no such evidence that has been brought on record by the ld. AO of any such method or practice adopted by the assessee. We are, therefore, inclined to allow this ground of appeal in favour of assessee. Ad hoc disallowance at 20% of travelling expenses - Held that - . In the present case it is noticed that neither the Assessing Officer nor the ld. CIT(A) has given any cogent reason while confirming/sustaining the disallowance out of travelling expenses. On the contrary the assessee paid the fringe benefit tax and incurring of expenses is not in dispute.- Decided in favour of assessee

Summary

Issues:
1. Application of Section 50C on land or building forming part of stock in trade.
2. Addition of share application money without proper consideration of evidence.
3. Disallowance of excessive interest paid on unsecured loans.
4. Disallowance of travelling expenses ignoring compliance with Fringe Benefit Tax.

Issue 1: Application of Section 50C on stock in trade
The appeal challenged the addition of Rs. 43,75,000 under Section 50C of the Income Tax Act, contending that the provision is not applicable to land or building forming part of the stock in trade. The assessee argued that all properties sold were stock in trade, not capital assets. The Tribunal agreed, stating that Section 50C applies only to capital assets, not stock in trade, and allowed the appeal.

Issue 2: Addition of share application money
The appeal contested the addition of Rs. 93,50,000 as unverified share application money. The assessee provided details and evidence to the AO, but some parties did not respond to summons. The Tribunal directed verification by the AO to confirm the genuineness of the share application money, allowing the appeal for further verification.

Issue 3: Disallowance of excessive interest on unsecured loans
The appeal challenged the addition of Rs. 2,23,692 as excessive interest paid on unsecured loans. The assessee justified the higher interest rate due to business exigency and commercial expediency. The Tribunal noted that the borrowed funds were used for business purposes and allowed the appeal, finding no evidence of tax evasion or malpractice.

Issue 4: Disallowance of travelling expenses
The appeal disputed the ad hoc disallowance of 20% of Rs. 1,04,441 as travelling expenses, which the AO had initially set at 40%. The Tribunal observed that the assessee had paid Fringe Benefit Tax on the expenses and found no valid reason for the disallowance. Consequently, the appeal was partly allowed for statistical purposes.

In summary, the Tribunal ruled in favor of the assessee on the application of Section 50C to stock in trade, directed further verification on share application money, allowed the appeal on excessive interest due to business exigency, and partially allowed the appeal on disallowance of travelling expenses due to compliance with Fringe Benefit Tax.