2018 (4) TMI 323 - AT - Income Tax

Disallowance of Repairs and Maintenance, Sales promotion, travelling expenses, Conveyance Expenses and Other Expenses - Held that - As gone through the schedule 11 and noted that there is no such expenses as other expensed noted by AO amounting to ₹ 251.96 lakhs. Hence, on this amount no disallowance can be attributed. As regards to these expenses i.e. repair and maintenance, sales permission, travelling conveyance and motor car expenses and postage and telephone expenses the AO has disallowed 10% of the expenses. We are of the view that a reasonable disallowance should be made on account of personal element because 10% is on higher side. Accordingly, we direct the AO to make a reasonable disallowance of 5%. Addition u/s 69C - Held that - We find that the Assessee has obtained this loan of ₹ 4 crores from GIC Housing Finance Ltd. and GIC Ltd., each containing ₹ 2 crores. We find that the CIT(A) has already deleted the addition but subject to verification of record by the AO. Now, before us the learned Counsel stated that the AO has not given any appeal effect to the order of the CIT(A). We direct the AO to give appeal effect to the order of CIT(A) and after verification of records compute the income accordingly. As regards to the interest towards loans, as contended by the learned Counsel for the assessee that this interest has never been claimed and for which bifurcation was filed before us at page 12 of the assessee s paper book. The learned Counsel also pointed out from the accounts that no such claim of deduction was made and it is only capitalized in the loan account. It seems that the claim of the assessee seems to be correct but let the AO verify the same from records, whether the assessee has made any claim of deduction in respect to this interest of ₹ 190.14 lakhs. The AO will decide after verification

Summary

Issues:
1. Disallowance of expenses on an ad-hoc basis.
2. Disallowance of expenses for non-deduction of TDS under section 40(a)(ia) of the IT Act.
3. Disallowance of unexplained cash credit under section 69C of the IT Act.

Issue 1: Disallowance of Expenses on an Ad-hoc Basis:
The appeal concerns the disallowance of expenses by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)) on an ad-hoc basis. The AO disallowed 10% of the expenses amounting to ?28 lakhs due to a lack of substantiation for business and non-business purposes. The Tribunal found that the disallowance lacked proper justification and directed a reasonable disallowance of 5% instead of 10%. It was noted that the AO's disallowance was based on incorrect figures, and after thorough examination of the accounts, the Tribunal concluded that no disallowance could be attributed to the disputed amount of ?251.96 lakhs. The appeal was partly allowed on this issue.

Issue 2: Disallowance of Expenses for Non-Deduction of TDS:
The next issue pertained to the disallowance of expenses under section 40(a)(ia) of the IT Act for non-deduction of TDS. The assessee chose not to press this ground, leading to its dismissal as not pressed.

Issue 3: Disallowance of Unexplained Cash Credit:
The final issue revolved around the disallowance of an unexplained cash credit amounting to ?1,90,14,441 under section 69C of the IT Act. The AO observed an unsecured loan in the balance sheet and raised concerns. The CIT(A) deleted the addition related to loans from certain entities but directed the AO to verify the interest provision claims. The Tribunal directed the AO to give effect to the CIT(A)'s order and further investigate the interest claims made by the assessee, setting aside this issue to the AO's file for verification. The appeal was partly allowed for statistical purposes.

In conclusion, the judgment addressed multiple issues related to the disallowance of expenses and unexplained cash credit, providing detailed analysis and directions for further verification by the Assessing Officer.