2022 (9) TMI 473 - AT - Income Tax

Addition of accrued interest on delayed Payment - accrued interest not recoverable - assessee was following the mercantile system of accounting and the assessee did not actually written off or reversed the interest credit entry in its accounts - CIT-A deleted the addition - HELD THAT - We find that CIT(A) after considering the submissions of the assessee has given a finding that the aforesaid amount was not taxable in the year under consideration in view of real income theory. Before us, AR has also placed on record the copy of the computation of income for the A.Y. 2016-17 demonstrating that the aforesaid amount has been offered to tax in the year under consideration. In absence of any fallacy pointed by the Revenue in the findings of the Ld. CIT(A), we find no reason to interfere with the order of the CIT(A) on this ground. We, therefore, dismiss grounds of appeal nos.1 and 2 of the Revenue. Addition u/s 68 - Unexplained cash deposits - HELD THAT - We find that before both the authorities the assessee had explained the source of cash deposits in the bank account of Mr. Pawan Goyal, from whom the assessee had received the share application money, to be out of the income surrendered on account of unaccounted sale during the course of search. Before us, the Revenue has not placed any material on record to demonstrate that the income surrendered in the case of share application money has not been accepted by the Revenue. In absence of any fallacy pointed to in the findings of the CIT(A), we find no reason to interfere with the order of CIT(A) and thus, ground of appeal of the Revenue is dismissed. Addition on account of business promotion expenses and on account of Diwali expenses - HELD THAT - We find that CIT(A) after considering the detailed submissions made by the assessee before him has given a finding that there is no doubt about the genuineness of the expenditure and there is no finding in the assessment order that the business promotion expenses and Diwali expenses were incurred for the personal purpose / extraneous nature of expenses in the hands of Directors. CIT(A) after considering that since the assessee could not give the full details, restricted the disallowance to the extent of 10% on business promotion expenses after considering the business and turnover of the assessee and similarly granted partial relief on account of Diwali expenses against a sum claimed by the assessee on account of Diwali expenses . Before us, the Revenue has not pointed out any fallacy in the finding of the CIT(A). We, therefore, find no reason to interfere with the order of the Ld. CIT(A) and thus, the grounds of appeal of Revenue are dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of accrued interest.
2. Deletion of addition under section 68 of the Income Tax Act.
3. Restriction of addition on account of business promotion expenses.
4. Deletion of addition on account of Diwali expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Accrued Interest:
The Revenue contested the deletion of an addition of Rs.2,43,90,691/- made on account of accrued interest. The Assessing Officer (A.O.) had added this amount because the assessee, following the mercantile system of accounting, had not written off the interest in its books. The A.O. also noted that the deduction was not claimed in the original or revised return of income and was thus not in line with the Supreme Court decision in Goetze India Ltd. vs. CIT. The CIT(A) deleted the addition, stating that the interest was not accepted by the debtor and was thus not taxable under the real income theory. The Tribunal upheld the CIT(A)'s decision, noting that the amount was offered to tax in a subsequent year and finding no reason to interfere with the CIT(A)'s order.

2. Deletion of Addition under Section 68 of the Income Tax Act:
The Revenue challenged the deletion of an addition of Rs.2,74,42,000/- made under section 68. The A.O. had added this amount, suspecting it to be unexplained cash deposits by the Director, Mr. Pawan Goyal. The CIT(A) deleted the addition, noting that the identity, creditworthiness, and genuineness of the transaction were established, and the source of the cash deposits was explained as income surrendered during a search operation. The Tribunal found no reason to interfere with the CIT(A)'s order, as the Revenue did not provide any material to counter the CIT(A)'s findings.

3. Restriction of Addition on Account of Business Promotion Expenses:
The Revenue disputed the CIT(A)'s decision to restrict the disallowance of business promotion expenses from Rs.42,88,787/- to Rs.4,28,787/-. The A.O. had disallowed these expenses, suspecting them to be personal in nature. The CIT(A) noted the lack of evidence that the expenses were personal and considered the large turnover of the assessee, thus restricting the disallowance to 10%. The Tribunal upheld the CIT(A)'s decision, finding no fallacy in the CIT(A)'s reasoning.

4. Deletion of Addition on Account of Diwali Expenses:
The Revenue also contested the deletion of Rs.26,09,082/- out of Rs.56,68,240/- claimed as Diwali expenses. The A.O. had disallowed these expenses, suspecting them to be personal. The CIT(A) granted partial relief, noting the lack of evidence that the expenses were personal and considering the business turnover. The Tribunal upheld the CIT(A)'s decision, again finding no reason to interfere.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all contested issues, including the deletion and restriction of various additions. The Tribunal found the CIT(A)'s reasoning sound and noted the lack of counter-evidence from the Revenue.