2019 (5) TMI 542 - AT - Income Tax

Addition of interest - diversion of interest bearing fund for giving interest free advance - HELD THAT - CIT(A) examined the record and found satisfied with the arguments of the assessee. Further he found that the immediate preceding assessment proceedings for Ay 2012-13 2013-14 no objection was raised by the AO in respect of alleged interest free loans and the CIT(A) accepted the submissions of the assessee and held that it was a trade account with the said both concerns on account of pure commercial expediency and in the case of S.A. Builders Ltd. 2006 (12) TMI 82 - SUPREME COURT and in the case of S.P. Jaiswal Estates Pvt.Ltd. 2012 (5) TMI 622 - ITAT KOLKATA deleted the addition made on account of interest free loans. Addition made on account of payment of commission - commission agents represent themselves as our sales managers - HELD THAT - According to CIT(A) on examination of the record found that the agents replied in response to the notices u/s 133(6) of the Act and found that they submitted fair amount of details and documentary evidences before the AO such as tax invoices of the commission proof of payment TDS certificate and P L A/c of the parties. The CIT(A) by placing reliance on the decision of Hon ble High Court of Calcutta in the case of Rajarani Exports Pvt. Ltd. 2013 (5) TMI 410 - CALCUTTA HIGH COURT and deleted the addition. We find no infirmity in the order of CIT(A) and it is justified. Addition under the head cutting charges - HELD THAT - Appellant s contentions made in the matter are on record and found to be correct. In any case the necessary TDS has been effected and the legality of the disallowance made by the AO gets questionable. On careful consideration of the appellant s submission along with the supporting details/evidences furnished perusing the facts of the case including the impugned Assessment order thereon and other materials available on record I find that the disallowance made by the AO was without any sustainable basis and therefore the grounds of appeal is allowed in favour of the appellant-assessee Addition of telephone and fax charges for personal use - CIT(A) deleted the said addition by observing that the AO failed to specifically pinpoint as to which the voucher for personal use and not for business use deleted the addition made under the head disallowance by holding not maintainable - HELD THAT - We find admittedly that there was no evidence before the AO and the CIT(A) explaining the said expenditure under the head telephone and fax charges were incurred wholly for the business purposes and the disallowance made by the AO in our opinion is reasonable not excessive. Addition made on account of motor car fuel expense and depreciation for personal use - CIT(A) deleted the said addition as it is made on the basis of estimation without specifying any pointing as to which vouchers was for personal use - HELD THAT - We find that no evidence whatsoever filed before the AO CIT(A) and even before this Tribunal. Therefore in the absence of any evidence showing that the car has been used for the purpose of business purpose only. Therefore the order of CIT(A) is not justified in deleting the addition made by the AO and the addition made by the AO in our opinion is reasonable and not excessive. Therefore the order of AO is restored. Ground raised by the Revenue is allowed. Addition made under the head carriage inward - HELD THAT - CIT(A) after examination of record found fault with the AO for observing that no evidence is filed in this respect and held that the assessee filed all relevant documents vide covering letter dated 21.12.2016 along with documentary evidences i.e. ledger copy of ledger inward bills vouchers services tax return etc. Therefore it is clear that the assessee submitted the relevant evidence before the AO but it was not considered by the AO in the assessment proceedings. Since the CIT(A) examined the record and found the same in support of the expenditure claimed under carriage inward. Therefore we find no infirmity in the order of CI(TA) and it is justified. Thus Ground No.6 raised by the Revenue is dismissed. Addition on account of undisclosed TDS - According to CIT(A) the said details of TDS is not reflected in 26AS and the addition is not maintainable when the assessee denies the transactions with the said parties - HELD THAT - Responsibility is upon the AO to conduct independent inquiry in respect of those parities regarding the information with the said transactions. We find no independent inquiry as rightly pointed out by the CIT(A). Therefore when there is no proper inquiry by the Assessing Officer in proper perspective and the addition deleted by the CIT(A) is justified. We find no infirmity in the order of CIT(A). - Ground raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of diversion of interest-bearing funds for giving interest-free advances.
2. Deletion of addition on account of payment of commission.
3. Deletion of addition under the head “cutting charges”.
4. Deletion of addition of telephone and fax charges for personal use.
5. Deletion of addition on account of motor car fuel expense and depreciation for personal use.
6. Deletion of addition under the head “carriage inward”.
7. Deletion of addition on account of undisclosed TDS.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Diversion of Interest-Bearing Funds for Giving Interest-Free Advances:
The Revenue raised concerns regarding the CIT(A)’s action in deleting the addition made by the AO due to the alleged diversion of interest-bearing funds for interest-free advances to two associate entities. The AO calculated interest at 9% on the alleged interest-free loan and added Rs. 71,70,707 to the total income. The CIT(A), however, found that these were trade advances for commercial expediency, referencing the Supreme Court’s judgment in S.A. Builders Ltd. and other relevant cases. The Tribunal found no infirmity in the CIT(A)’s order and dismissed the Revenue’s ground.

2. Deletion of Addition on Account of Payment of Commission:
The AO doubted the genuineness of commission expenses amounting to Rs. 41,28,331, treating them as bogus. However, the CIT(A) found that the assessee had provided sufficient evidence, including tax invoices, proof of payment, TDS certificates, and P&L accounts of the agents. Relying on the Calcutta High Court’s decision in Rajarani Exports Pvt. Ltd., the CIT(A) deleted the addition. The Tribunal upheld the CIT(A)’s order, finding no infirmity and dismissed the Revenue’s ground.

3. Deletion of Addition Under the Head “Cutting Charges”:
The AO added Rs. 7,01,459 to the total income citing the absence of details regarding job expenses for cutting charges. The CIT(A) noted that the assessee had submitted the required details, including TDS certificates, and found the addition unsustainable. The Tribunal found no infirmity in the CIT(A)’s order and dismissed the Revenue’s ground.

4. Deletion of Addition of Telephone and Fax Charges for Personal Use:
The AO added 10% of Rs. 1,36,145 under the head “telephone and fax charges” for personal use, citing a lack of suitable explanation. The CIT(A) deleted the addition, observing that the AO failed to pinpoint specific vouchers for personal use. The Tribunal, however, restored the AO’s order, finding the disallowance reasonable and not excessive.

5. Deletion of Addition on Account of Motor Car Fuel Expense and Depreciation for Personal Use:
The AO added 10% of Rs. 5,28,528 for motor car fuel and depreciation, suspecting personal use. The CIT(A) deleted the addition, noting the absence of specific evidence pointing to personal use. The Tribunal restored the AO’s order, finding the addition reasonable and not excessive.

6. Deletion of Addition Under the Head “Carriage Inward”:
The AO added 10% of Rs. 19,44,313 for carriage inward expenses due to a lack of supporting bills/vouchers. The CIT(A) found that the assessee had submitted relevant documents, including ledger copies and bills, and held the addition unsustainable. The Tribunal found no infirmity in the CIT(A)’s order and dismissed the Revenue’s ground.

7. Deletion of Addition on Account of Undisclosed TDS:
The AO added Rs. 10,70,117 based on ITS details, which the assessee denied. The CIT(A) noted that the AO later reduced the addition to Rs. 1,70,117 and found the addition unsustainable due to the lack of independent inquiry by the AO. The Tribunal upheld the CIT(A)’s order, finding no infirmity and dismissed the Revenue’s ground.

Conclusion:
The Tribunal dismissed the Revenue’s grounds on issues 1, 2, 3, 6, and 7, upholding the CIT(A)’s deletions. However, it restored the AO’s order on issues 4 and 5, finding the disallowances reasonable. The appeal of the Revenue was partly allowed.