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TMI Blog2012 (6) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... eveal that requisite TDS has been deducted and paid wherever required. Dis-allowance stand deleted. Dis-allowance u/s 40A(3) - Held that:- Provisions of Sec.40A(3) were also not applicable as the payments were made by the assessee by cheques - Decided in favor of assessee - ITA No.7390/Mum/2010 - - - Dated:- 2-5-2012 - N V Vasudevan, Rajendra, JJ. For Appellant: Shri V Saxena For Respondent: Shri Vipul B Joshi ORDER Per: N V Vasudevan: This is an appeal by the revenue against the order dated 20/8/2010 of CIT(A) 19, Mumbai relating to assessment year 2007-08. The grounds of appeal raised by the revenue read as follows: 1. Whether on the facts and in the circumstances of the case, the ld. CIT(A) erred is justified in law in deleting the addition of Rs. 31,09,281/- made under section 69C or the Act being the unexplained expenditure. 2. Whether on the facts and in the circumstances of the case, the ld. CIT(A) is justified in law in holding that, provisions of section 40(a)(ia) and 40A(3) are not applicable to pre-commencement expenses of the business. 2. The assessee was incorporated on 12/12/2006 with the main object of carrying on business as cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee has not made TDS on reimbursement to M/s. Takshila Builders Pvt. Ltd. He was also of the view that even where sums are reimbursed such reimbursement in a business transaction always will have profit element in them and therefore provisions of section 194C of the Act for the purpose of TDS would be applicable. He therefore held that the amounts paid to M/s. Takshila Builders Pvt. Ltd. are not admissible within the meaning of provisions of section 40(a)(ia) of the Income Tax Act, 1961 (the Act). Without prejudice to the above, the AO held that the amounts paid to M/s. Takshila Builders Pvt. Ltd. have been set off against share application money by passing journal entry in assessee s book. This amounts to payment of expenses in violation of provisions of section 40A(3) of the Act r.w.r. 6D of I. T. Rules, 1962. On this account also, the AO held that the amounts paid to M/s.Takshila Builders Pvt. Ltd. are inadmissible. The AO also held that without prejudice to any of the above, in absence of proper explanation and justification for the expenses incurred given by the assessee the amount of expenditure incurred of Rs.31,09,281/- were to be treated as unexplained expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses have been incurred for the purpose of business, the question as to whether such expenditure were necessary, is totally extraneous. In this connection the Assessee placed strong reliance on the decision of the Hon ble Supreme Court in the case of Sasoon J. David Co. P. Ltd. v/s CIT reported in 118 ITR 261 . It was submitted that under the Act, except in the case where the payments are made to the persons specified u/s 40A(2)(b), the Assessing Officer is not entitled to question the reasonableness of the expenditure. (iv) As regards reimbursement of expenses made to Takshila Enterprises Company Pvt. Ltd., the Assessee pointed out that the said reimbursements were made on actual basis and there was no element of profit. It was submitted that this fact was clearly evident from the statement of account of M/s SG Takshila Enterprises Company Pvt. Ltd. for the year ended 31 March, 2007 which were filed at the request of the Assessing Officer. Therefore, the observation to the effect that there is a profit element in reimbursement is contrary to the facts on record. It was also argued that since the various payments were made by M/s SG Takshila Enterprises Company Pvt. Ltd. in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the A.O. and implying thereby that the source of spending is not in doubt. The A.O. himself states that details of share application money were sought for which had been examined and no adverse inferences have been drawn. The appellant had incurred preoperative expenses under various heads such as business promotion, foreign travel, miscellaneous, professional fees, rent, traveling. The ledger copies of the said accounts have been examined along with bills. The A.O. himself states that the bills relating to the said heads of expenses have been verified. Thus, the genuineness of the expenses are not doubted. It is not as though bogus claims have been made. The expenditure incurred is genuine and the source of meeting the said expenditure stands explained However, the expenses have been brought to tax under section 69C solely on the ground that the explanation of the appellant company is lacking in that the need or justification for incurring such expenses for the purpose of setting up the impugned business has not been explained to the satisfaction of the A.O. It is must be stated that the lack of justification does not render an expenditure as unexplained especially when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of the expenditure in question is concerned, during the course of assessment proceedings the assessee had produced all the bills for verification. The Assessing Officer, after verifying the said bills has failed to bring on record any material to suggest that any of such expenditure was bogus or not for the purpose of setting up of the business. The AO has made a passing reference that in the write up given by the Assessee the nature of expenses and its connection to the business was not clear. This approach of the AO in our view was arbitrary. In the event of any doubt in his mind he ought to have confronted the same to the Assessee. He could not unilaterally come to a conclusion that the expenditure were unrelated to the Assessee s business. The assessee had clearly explained that the services of the persons to whom the professional fees were paid, were availed for setting up of the business. Similar explanation was also given for foreign traveling expense. The Assessee also explained that the foreign traveling expenses had been incurred for the tour to China by the group of professionals (including Mr. Rajeev Goyal-Director) for the purpose of study of operation of a Contai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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