2021 (6) TMI 1020 - AT - Income Tax

Disallowance of 10% out of total expenses incurred - HELD THAT - We see no reason to discredit the findings given by the CIT(A) and restore the action of the AO as demanded by Revenue. The reasons given by the CIT(A) are that the expenses incurred are comparable and there is no allegation that expenses are bogus from the AO. Having regard to past history and in the absence of any specific defect, the CIT(A) rightly concluded that the action of the AO is unsustainable on facts. Merely because the expenses incurred appears excessive qua the corresponding business activities, it cannot be a ground for ad hoc disallowance as long as the expenses incurred are commercially expedient. We thus see not merit in the grievance of the Revenue in this regard. Addition being 10% out of sundry credits - HELD THAT - CIT(A) found force in the claim of assessee for reversal of additions on the ground that there is no mismatch or non-tallying with figures of sundry creditors. Revenue could not point out any specific defect in the order of the CIT(A) in its rebuttal before us. We totally fail to understand the rationale for disallowance of ad-hoc sum out of existing sundry creditors in this manner. Hence, we decline to interfere. Estimation of interest income towards notional interest @12% on loans and advances - HELD THAT - We notice from the order of the CIT(A) that the AO has not found any justification in low income in comparison to corresponding high loans/advances/investment in shares. CIT(A) reversed the action of the AO towards addition of notional interest income on the ground that income arising from advances are duly recorded in the books and the position is to be viewed in the peculiar facts of the case i.e. the cancellation of banking license of the assessee and settlement of the advances is under one time settlement Scheme (OTS) etc. The ad-hoc estimation of income on OTS of doubtful advances, in any case, is against the doctrine of real income and thus cannot be countenanced. We thus see no perceptible reason to dislodge the conclusion drawn by the CIT(A) in favour of the assessee.

Summary

Issues:
1. Appeal against CIT(A)'s order concerning additions made by AO.
2. Disallowance of expenses claimed by the assessee.
3. Addition of sundry creditors without proper examination.
4. Addition of notional interest on loans and advances.

Analysis:

Issue 1:
The Revenue appealed against the CIT(A)'s order concerning additions made by the Assessing Officer (AO). The grounds of appeal included contentions about the CIT(A) deleting additions without proper inquiry as per the Jansampark Advertising & Marketing case. The CIT(A) reversed various disallowances and additions made by the AO, citing past history, nature of business, and lack of specific defects in the books of accounts as reasons for deletion. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO conducted due diligence and the CIT(A) correctly evaluated the expenses and additions, dismissing the Revenue's appeal.

Issue 2:
Regarding the disallowance of expenses claimed by the assessee, the AO disallowed a specific amount, which the CIT(A) reversed. The CIT(A) considered past claims, the absence of specific defects, and the commercial expediency of the expenses to justify the reversal. The Tribunal agreed with the CIT(A), stating that as long as expenses are commercially justified and not proven to be bogus, ad hoc disallowance is unwarranted. The Tribunal found no merit in the Revenue's challenge to this decision.

Issue 3:
The addition of a significant amount towards sundry creditors was reversed by the CIT(A) based on the lack of mismatch or non-tallying with the figures provided by the assessee. The Tribunal noted the absence of any specific defect pointed out by the Revenue and declined to interfere with the CIT(A)'s decision. The rationale for the disallowance of an ad-hoc sum from existing sundry creditors was not substantiated, leading the Tribunal to uphold the CIT(A)'s decision.

Issue 4:
The AO added notional interest on loans and advances, which the CIT(A) reversed considering the peculiar facts of the case, such as the cancellation of the banking license and settlement of advances under a one-time settlement scheme. The Tribunal concurred with the CIT(A), highlighting that the estimation of income on doubtful advances contradicted the doctrine of real income. Consequently, the Tribunal dismissed the Revenue's appeal on this issue.

In conclusion, the Tribunal upheld the CIT(A)'s order, dismissing all grounds raised in the Revenue's appeal. The detailed analysis for each issue highlighted the reasons behind the CIT(A)'s decisions and the Tribunal's agreement with those decisions based on legal principles and factual considerations.