2017 (6) TMI 1079 - AT - Income Tax

Addition on account of deemed rental income - Held that - Considering the decision of Tribunal in assessee s own case for AY 2009-10, when the facts for the year under consideration are also similar wherein held that once the assessee had produced the bills of repairs and renovation of the flats and the AO had treated the said expenditure as capital expenditure, there was no justification for making any addition under the head house property income. Both the authorities have not proved that the flats were rented out during the year under Appeal. As per the settled principles of taxation if any sum has to be taxed the AO has to bring on record the necessary facts for taxing the same. In our opinion, the AO has not discharged the onus in that regard. Therefore, keeping in view the principal of consistency this ground of appeal is allow in favour of assessee Addition under Section 14A read with Rule 8D - Held that - Considering the findings of the Tribunal in Assessee s own case for assessment year 2009-10 that the assessee had not incurred any expenditure nor had it claimed any expenditure with regard to the tax-free income during the year under consideration. Therefore, there was no justification of any kind to make any disallowance invoking the provisions of Section 14A of the Act, we find that the ground of appeal raised by assessee in the present appeal is squarely covered in favour of assessee as the facts of this year are also not at variance, hence this ground of appeal is allow in favour of the assessee. Addition on account of payment to Traffic Police for Police arrangements (Bandobast) - Held that - The contention of assessee are vague even during the submission of the Ld. AR of the assessee could not substantiate under which provision the said expenses were paid to the traffic police. It is not the contention of Ld. AR of the assessee that the said expenses were deposited with the account of traffic police for making the necessary arrangements at the Water Park or the payment was made as statutory expanses. The assessee has failed to substantiate its contention that the expenses were paid wholly and exclusively for the purpose of business. The Hon ble Karnataka High Court in CIT Vs Neelavathi & others (2010 (2) TMI 176 - KARNATAKA HIGH COURT ) held that payments made to police or rowdies to keep away from the business premises is not allowable as business expenses. Thus, we did not find any illegality or infirmity in the order of Ld. CIT(A) hence, this ground of appeal is dismissed. Non-deduction of TDS on interest paid on car loan - Held that - We have seen that similar disallowance was made against the assessee for assessment year 2009-10 and on appeal before Tribunal the identical ground was restored to the file of Assessing Officer for making verification, that the recipient of the income had paid tax on the disputed amount. The assessee would produce relevant documents before the Assessing Officer. Disallowance u/s 40A(3)for purchase of diesel in cash - Held that - We have seen that though none of the receipt is exceeded ₹ 20,000/- at one time, yet the assessee made aggregate purchases of more than ₹ 20,000/- in cash in a day, on four occasions which is prohibited by Section 40A(3) of the Act. Though, the identity and the payments made to the party are not in dispute. After the amendment in section 40A(3) w.e.f. 01.04.2009, such expenses are allowable only if covered by the exception otherwise provided under Rule 6DD of Income Tax Rule 1962. The assessee has not pleaded any of the exceptions provided under Rule 6DD. On careful reading of Rule 6DD we do not find any exception which may come in rescue of the assessee. Thus, this ground of appeal raised by assessee is dismissed. Disallowance for business promotion expenses - Held that - Considering the decision of earlier year in the assessee own case stating that in case of corporate assessee disallowance on account of personal element can be made only if the expenditure incurred was for the personal use of any of the directors / employee and that expenditure did not have any relation with the carrying out of the business. We don t find that AO / FAA had carried out any such exercise. If the AO had any doubt, it was his duty to make further investigation and pinpoint the actual expenditure not incurred for the business of the assessee. In the circumstances, we are of the opinion that making and upholding the disallowance was not justifiable. Thus, respectfully following the decision of coordinate bench in earlier year this ground of appeal is allowed in favour of assessee.

Issues Involved:
1. Addition of ?5,77,953/- as deemed rent income.
2. Addition of ?12,500/- under Section 14A read with Rule 8D.
3. Addition of ?17,500/- on account of payments to traffic police.
4. Addition of ?45,411/- for non-deduction of TDS on interest paid on car loan.
5. Disallowance of ?1,17,160/- for purchase of fuel (diesel) in cash.
6. Disallowance of ?1,23,517/- out of business promotion expenses.

Detailed Analysis:

1. Addition of ?5,77,953/- as deemed rent income:
The Tribunal referenced a similar case from the previous assessment year (2009-10) where the addition was made under the same circumstances. The Tribunal had ruled in favor of the assessee, noting that the flats were under repair and renovation and were not rented out during the year. The AO had not provided sufficient evidence to justify the addition. Based on the principle of consistency, the Tribunal allowed this ground in favor of the assessee for the current assessment year as well.

2. Addition of ?12,500/- under Section 14A read with Rule 8D:
The Tribunal found that the assessee had not incurred or claimed any expenditure related to tax-free income during the year under consideration. Citing the previous year's ruling, where both the preconditions for disallowance under Section 14A (earning of tax-free income and incurring of expenditure) were absent, the Tribunal allowed this ground in favor of the assessee.

3. Addition of ?17,500/- on account of payments to traffic police:
The assessee argued that the payments to traffic police were made for business purposes, specifically for managing public functions at their water park. However, the Tribunal noted that the assessee failed to provide adequate evidence to substantiate this claim. The Karnataka High Court's ruling in CIT Vs Neelavathi & others was cited, which held that payments to police or rowdies are not allowable as business expenses. Consequently, the Tribunal upheld the addition and dismissed this ground of appeal.

4. Addition of ?45,411/- for non-deduction of TDS on interest paid on car loan:
The Tribunal referred to the previous year's ruling, where a similar issue was restored to the AO for verification. The Tribunal directed the AO to verify whether the recipient of the income had paid tax on the disputed amount. This ground was restored to the AO for fresh verification, and the appeal was allowed for statistical purposes.

5. Disallowance of ?1,17,160/- for purchase of fuel (diesel) in cash:
The Tribunal observed that the assessee made aggregate purchases exceeding ?20,000/- in cash on multiple occasions, which is prohibited under Section 40A(3) of the Act. Despite the identity and payments not being disputed, the Tribunal noted that the assessee did not plead any exceptions under Rule 6DD. Thus, the Tribunal upheld the disallowance and dismissed this ground of appeal.

6. Disallowance of ?1,23,517/- out of business promotion expenses:
The Tribunal referenced the previous year's ruling where an ad hoc disallowance of business promotion expenses was deleted. The AO had not conducted a detailed investigation to pinpoint non-business-related expenses. Following the principle from the previous year, the Tribunal allowed this ground in favor of the assessee.

Conclusion:
The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on issues 1, 2, 4, and 6, while dismissing issues 3 and 5. The Tribunal emphasized consistency with previous rulings and the necessity for the AO to provide substantial evidence for additions and disallowances.

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