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TMI Blog2015 (2) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... are in agreement with the conclusion of the CIT(A) that even after adjusting the loan amount against the sundry debtor, the assessee company is still to receive ₹ 2,73,72,010 from FOPL, therefore, interest on such loan cannot be allowed and expenditure claimed by the assessee company on interest is not allowable. If interest so paid is allowed, then it would be indirect benefit given by the assessee company to the FOPL and the same amounts to diversion of income of the assessee company which is not permissible. In view of above and on the basis of foregoing discussion, we uphold the action of the AO and we are unable to see any ambiguity, perversity or any other valid reason to interfere with the findings of the CIT(A) on the impugned addition on this point. - Decided against assessee. Disallowance of rent paid to M/s Fabindia Overseas Pvt. Ltd. - CIT(A) deleted disallowance - Held that:- AO made disallowance of 2/3 amount of rent by holding that the assessee do not have documentary evidence to prove that the premises was even hired on rent from the owner of the buildings or from its own group company M/s Fabindia Overseas Pvt. Ltd. The CIT(A) granted relief by observing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, the AO has held that the assessee is subsidiary of FabIndia Overseas Pvt. Ltd. which deals in artisans based products of designer quality and the assessee company is doing the role of coordinator between artisans and Fab India Overseas Pvt. Ltd. (FOPL). Thus, the assessee company neither carried out any manufacturing activity nor any trading activity during the relevant period under consideration. The AO disallowed ₹ 1,25,70,364/- out of total rent paid by the assessee company, also disallowed ₹ 22,43,080 out of professional charges paid by the assessee company and further disallowed interest payment of ₹ 6,57,669/- paid by the assessee company. The AO finalised the assessment at ₹ 3,03,70,867 as against the returned income of the assessee of ₹ 1,48,99,754. Being aggrieved by the above assessment order, the assesse company preferred appeal before the CIT(A) which was partly disallowed on the issue of disallowance of interest payment to the group companies but partly allowed on the issue of rent payment and professional charges. Now, the aggrieved assessee as well as the revenue has preferred these appeals before this Tribunal. Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tead of taking loans from the same company as unsecured loan on interest. The DR has also drawn our attention towards the fact that the amount of sundry debtors is huge and it may be pertaining to the sales of more than one month, therefore, low unsecured loan transaction from the assessee company FOPL cannot be isolated with the amount of debt lying with FOPL. The DR finally submitted that the accounting principle makes it clear that credit and debit entry should go side by side and the only impact ultimately has to be seen for calculating interest and since amount of debt is higher than the amount of loan, therefore, interest on such loan cannot be allowed. 6. On careful consideration of above submissions, we observe that the CIT(A) upheld the action of the AO confirming the disallowance with following observations and conclusion:- Decision I have considered the submission of the appellant and observation of the Assessing Officer. It is seen that appellant company has received a sum of ₹ 59,149/-from M/s Fabindia Overseas Pvt. Ltd. It is also seen that appellant company has shown FOPL as debtor of ₹ 5,26,61,159/-in its balance sheet. The appellant compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company received loan of ₹ 2,52,89,149 from FOPL and at the same time FOPL was a debtor of ₹ 5,26,61,151 as per balance sheet of the assessee submitted before the AO. Although the assessee company has explained that the unsecured loan was necessary for the smooth operation of the assessee company which was also taken on lower rate of interest, but when the amount of sales is more than double of unsecured loan, then the transaction of unsecured loan and transaction of sale with the same company may be seen by the intention of the parties but ultimate purchaser of the product of the company is a debtor to the extent of ₹ 5.26 crore as against the loan amount of ₹ 5.52 crore, then interest on such loan cannot be allowed. We are in agreement with the conclusion of the CIT(A) that even after adjusting the loan amount against the sundry debtor, the assessee company is still to receive ₹ 2,73,72,010 from FOPL, therefore, interest on such loan cannot be allowed and expenditure claimed by the assessee company on interest is not allowable. If interest so paid is allowed, then it would be indirect benefit given by the assessee company to the FOPL an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sq ft for running of its office and for storing of inventory and, therefore, the expenditure on rent incurred by the assessee cannot be said to be wholly and exclusively for the business purpose of the assessee company. 12. Replying to the above, ld. AR reiterating its submissions before the authorities below, as reproduced by the CIT(A) in para 2.6 of the impugned order, submitted that all the grounds on the basis of which 2/3rd expenses on rent has been disallowed by the AO are factually incorrect. The AR contended that the entire expenditure has been incurred wholly for the purpose of business and the AO arbitrarily disallowed 2/3rd of the expenses without any reason and basis. Ld. AR further contended that the assessee company had made purchases of ₹ 4612.01 lakh and spent ₹ 1241.19 lakh towards job work and ₹ 40.79 lakh towards packing material and consumables and at the same time, the assessee company was maintaining inventory of various items which was valued as on 31.3.2009 at ₹ 11.88 crore, therefore, for stocking of items of inventory the assessee company needed huge facilities, therefore, amount so paid by the assessee after deducting TDS was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of area occupied by the appellant company as well as FOPL. The appellant company had occupied 282S01-sq. feet out of which 39901-sq. feet was airconditioned area and 24260/-sq. feet was non-air conditioned area. The rent paid by the appellant company includes security cover charges, maintenance charges, electricity charges and housekeeping charges. It is also seen from annexure-12 filed with the submission that appellant company has registered itself with the Sales Tax Department for warehouse purposes. The company was also registered with PF ES1 on the said address. These facts prove that appellant company was operating from the said premises. In view of the facts discussed above, it is established that appellant company has paid rent to M/s FOPL for the area of 28250/- sq. feet occupied by it for running its office and for storing the inventory. Therefore, the expenditure incurred by the appellant was incurred wholly and exclusively for the business purposes of the appellant company. The disallowance of 2/3 I'd rent by the Assessing Officer was justified and the same is deleted. 14. On careful reading of above conclusion of the CIT(A) in the light of rival co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain documents. At the same time we also note that theses documents require proper examination and verification at the end of the AO to evaluate the issue as to whether the assessee incurred expenditure on rent wholly and exclusively for the purpose of its business . Hence we deem it just and proper to restore the matter to the file of the AO with this direction that the AO shall adjudicate the issue afresh by affording due opportunity of hearing for the assessee. The assessee is at liberty to submit explanation and documentary evidence before AO to support its stand with these directions ground No. 1 of the Revenue is deemed to be allowed for statistical purposes. Ground no. 2 of the revenue 15. Apropos this ground, we have heard arguments of both the sides and carefully perused the relevant material placed before us on record. The AR submitted that the AO has disallowed amount of professional charges paid to Artisan Micro Finance Ltd. (AMFPL) amounting to ₹ 22,43,080/- by wrongly observing that there needs to be concrete evidence in the shape of actual requirement and the practical work done and the act does not permit transfer of profit without any plausible reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal and professional charges paid during the year. It is clarified by the appellant that the legal and professional charges in the previous year were ₹ 13,26,0 13/-only for four months as appellant company started its business in December 2007 whereas the legal and professional charge of ₹ 36,90,967/-is for twelve months during the year, therefore, the same cannot be compared and there is no abrupt increase. The appellant has filed agreement with Artisans Micro Finance Pvt. Ltd as annexure-15 with submission and the payment of legal and professional charges have been paid as per this agreement. It is also claimed by the appellant that M/s Artisans Micro Finance Pvt. Ltd. is supply resourcing company and providing services to eighteen companies. It is also seen from the annexure-17 filed with the submission that M/s Artisans' Micro Finance Pvt. Ltd. derives its income from professional fees received from various companies. During the course of assessment proceedings the memorandum of understanding with M/s AMFPL was filed before Assessing Officer on 07.10.2011, as per that MOU the AMFPL would provide various professional services to the appellant which are as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation of the assessee at the threshold and concluded that there needs to be concrete evidence in the shape of actual requirement of the assessee company and the practical work done by AMFPL for the assessee company. Ld. DR has not disputed the fact that the AMFPL was providing legal and professional and technical services to 18 companies including the assessee company and the professional services of the AMFPL was required for the assessee company for effective operation of assessee company s business. In this situation, when demand was also made on the same head in the earlier year and accepted by the revenue, then in the subsequent year, the claim of the assessee on the same head with the same set of facts and circumstances cannot be disallowed merely on the basis that the amount has increased without bringing out any justified reason or basis to take a different view point or stand on the same issue. The revenue authorities are not allowed to take an arbitrary approach to disallow the expenditure which was allowed during the earlier financial years merely because the amount has substantially increased during the relevant period under consideration. The AO is obviously empowe ..... 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