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TMI Blog2013 (9) TMI 488X X X X Extracts X X X X X X X X Extracts X X X X ..... e reason to interfere with the impugned order of the ld. CIT(A) confirming the addition made by the AO on account of said difference - Decided in against assessee. Unexplained expenditure u/s 69C - Expenditure on marriage - CIT confirmed addition - Held that:- It is not in dispute that the hotel booking for the wedding guests was done in the name of the assessee company and the expenses were incurred on payment made to concerned hotels against the said bookings - if the said expenses on payment made against hotel booking done in the name of the assessee company were incurred by somebody else and not by the assessee as claimed the burden is on the assessee to prove its claim by producing the relevant documentary evidence on record - Since the hotel booking was done in the name of the assessee company, there was a presumption that expenses on payment against said hotel booking were incurred by it and the assessee having failed to rebut the said presumption by bringing any documentary evidence on record - CIT was justified in invoking section 69C - Decided against assessee. Disallowance of business income - CIT marked up the cost by 20% - Held that:- In the earlier years, the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- made by the AO on account of expenses which has been deleted by the ld. CIT(A). 5. The assessee in the present case is a company which is engaged in the business of providing various services in a centralized manner to other companies of the group which are mainly engaged in manufacturing of automobile accessories. The services rendered by the assessee company consist of liaison, market survey and management consultancy. It also operates business centers at various places and is also running transit house cum guest house for its group companies. The return of income for the year under consideration i.e. A.Y. 2006-07 was filed by the assessee on 30.11.2006 declaring total income of Rs.2,23,71,311/-. On perusal of the Profit Loss Account filed by the assessee along with said return of income, it was noticed by the AO that the assessee has earned a gross profit of just 2% of the total receipts from the various services provided to its other group companies. According to the AO, the lower gross profit margin was a result of inadequate expenditure charged by the assessee company to its group companies in as much as the assessee had not recovered the entire expenses which were inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3- 04 and 2005-06 and uphold the order in the ld. CIT(A) deleting the disallowance made by the AO on account of alleged non-recovery of expenses by the assessee from the other group companies. Ground no. 2 of the revenue's appeal for A.Y. 2006-07 is accordingly dismissed. 8. In Ground no. 3 of its appeal for A.Y. 2006.07, the revenue has challenged the action of the ld. CIT(A) in deleting the disallowance of Rs.50,02,226/- made by the AO on account of repairs and maintenance expenses. 9. In the P L Account filed along-with its return of income a sum of Rs.2,50,11,134/- was debited by the assessee on account of repairs and maintenance expenses. Since the assessee failed to produce any bills and vouchers to support its claim for the said expenses, the AO made a disallowance of Rs.50,02,226/- being 20% of the total repairs and maintenance expenses claimed by the assessee for the involvement of unverifiable element. Before ld. CIT(A), it was submitted on behalf of the assessee that all the vouchers and bills for repairs and maintenance expenses were filed by the assessee before the AO vide letter dated 18.11.2008. It was submitted that the said expenses were mainly inclusive of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income accrued to the assessee in the year under consideration. On appeal, ld. CIT(A) confirmed the addition made by the AO on this issue holding that the assessee could not explain and reconcile the difference as pointed out by the AO on the basis of annual information report . 13. We have heard the arguments of both sides and also the perused the material on record. The ld. Counsel for the assessee has submitted that the relevant details were furnished by the assessee before the AO in order to explain and reconcile the difference pointed out on the basis of annual information report. He has invited our attention to the said details placed on page no. 82 of his paper book and a perusal of the same shows that even though the difference was identified and acknowledged by the assessee, it was mentioned at the end of page no. 82 in his paper-book that said difference was being reconciled and would be submitted in the next hearing. At the time of hearing before us the ld. Counsel for the assessee has not been able to prove that such reconciliation was actually pre-paid and submitted before the AO. In our opinion, the assessee thus has failed to reconcile the difference pointed out b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hotels in the name of the company. However, the assessee has not shown the expenditure in the books of accounts of the company. Hence, the A.O. is justified in treating the expenditure as unexplained expenditure u/s 69C. The provision of Section 69C is reproduced for convenience as under: "Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the A.O., satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year." The assessee has not shown the expenditure in the books of account and not explained satisfactorily the expenditure incurred by the assessee. Hence, the A.O. is justified in adding the amount to the total income of the assessee. The addition made by the A.O. is confirmed and appeal on this ground is dismissed." 17. The ld. Counsel for the assessee reiterated before us that the hotel booking was made in the name of the assessee company to avail the corporate discount but the payment against the said booki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew that the addition made by the AO on this issue was rightly confirmed by the ld. CIT(A) by invoking section 69C. The decision of the Hon'ble Delhi High Court in the case of Lubtec India Ltd (supra) cited by the ld. Counsel for the assessee is distinguishable on facts as in the said case, there was nothing brought on record to show that the expenditure was incurred by the assessee whereas the enquiries made in the present case revealed that the hotel booking was done in the name of the assessee company. We therefore uphold the impugned order of the ld. CIT(A) on this issue and dismiss the appeal of the assessee for A.Y. 2007-08. 20. As regards the appeal of the revenue for A.Y. 2007-08, it is observed that the solitary issue involved therein relating to the disallowance of Rs.1,58,61,009/- made by the AO and deleted by the ld. CIT(A) on account of alleged under recovery of expenses by the assessee from the other group companies is similar to the one involved in Ground no. 2 of the revenue's appeal for A.Y.2006-07 which has already been decided by us in the forgoing portion of this order. As the issue involved in the year under consideration i.e. 2007-08 as well as all the materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 20% of cost i.e. Rs.28,35,04,176/- is treated as business income of the assessee for the year under consideration." 24. Although the ld. DR has submitted by referring to the above portion of the assessment order that the addition on account of low profit/loss earned by the assessee from the services provided to the other group companies was worked out the AO by following a different method, we find ourselves in agreement with the ld. Counsel for the assessee that the basis of the said addition was the same as adopted in the earlier orders i.e. under recovery of expenses from the other group companies. In the earlier years, the AO worked out the addition by applying a net profit ret of 5% while in the year under consideration, he has applied a 20% mark-up on the total cost incurred by the assessee. In our opinion, the issue involved in the Ground no. 1 of the assessee company for A.Y.2008-09 thus is materially similar to the one involved in the appeal for the A.Y.2006-07 and 2007-08, which has already been decided by us in the forgoing portion of this order. Accordingly, following our conclusion drawn in A.Y.2006-07 and 2007-08, we delete the addition made by the AO and confirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely Mr. Nitin Jain, an eminent Charted Accountant was appointed. The arbitrator vide its letter dated February 8, 2008, settled the dispute as follows. He allowed Purolator to give clear and peaceful possession of the premises to assessee. It order Puralator to forgo the security deposit to the tune of Rs.5.80 Crores as damages for early termination of the agreement. it also order the assessee to refund the balance security deposit of Rs.4.78 crores. The aforesaid receipt is in the nature of capital receipt as it is not a trade receipt but confiscation of the deposit and hence is not taxable. Similar view has been taken by the Tax Auditor in Form 3CD." 27. The above submission of the assessee was not found tenable by the AO on the following grounds:- The deposit was received from an associate company and the reason for cancellation of the rent agreement is not found appealing. In the case forfeiture of the deposit was in the nature of damages for the compensation which would have otherwise received by the assessee had the rent agreement not been cancelled. Further the amount forfeited is definitely an income in the hand of the assessee not specifically excluded or exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as taxable business income of the assessee and the ground of appeal is rejected." 29. The ld. Counsel for the assessee submitted that the amount of security deposit to the extent of Rs.5.80 crores was forfeited on cancelation of the rent agreement as per the order of the arbitrator. He invited our attention to the copy of the arbitrator's order placed at page no. 80 to 83 of his paper-book to show that said amount of security deposit was forgone by tenant being damages for early termination of the agreement. He contended that the amount in question thus was received by the assessee as compensation for early termination of the license agreement by the tenant and the same was capital receipt not chargeable to tax as held by the Mumbai bench of ITAT in the case of CIT vs. Das company 113 TTJ 542. He invited our attention to the relevant portion of the said order placed at page no. 105 of his paper-book and submitted that the similar forfeiture of security deposit in that case was held to be capital receipt by the Tribunal not chargeable to the tax. 30. The ld. DR on the other hand invited out attention to the relevant portion of the arbitrator's order at page no. 82 of the pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffected their cash flow position and now it is difficult for them to honour their commitment to repay deposit of Rs.8.83 crores by March 2011. PIL has no right for early termination of agreement and stoppage of rent is clearly the breach of conditions of agreement. However due to sealing of property PIL is also not able to use the said property and since they are also in need of funds for their future expansion plans it is justified to resolve the dispute by setting out of the court. Therefore as settlement of dispute I order as follows: PIL to give clear and peaceful possession of the premises to AAS. PIL to forgo Rs.5.80 crores out of the Security Deposit as damages for early termination of the agreement. AAS to refund balance Security deposit of Rs.4.78 crores to PIL latest by March 31, 2010 with the balance amount of Security Deposit of Rs.5.80 Crores being adjusted by AAS as compensation for early termination of the license agreement by PIL and for AAS not insisting on withholding of entire Security Deposit as per the terms of the license agreement." 32. It is manifest from the operative portion of the arbitrator's order reproduced above that the property of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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