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TMI Blog2015 (5) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure. In view thereof, there is no merit in making any disallowance out of sales promotion expenditure. Similarly, no disallowance was warranted out of travelling and conveyance expenses, communication expenses as the assessee had paid FBT against the said expenses. We also find no merit in the order of Assessing Officer in disallowing any part of the said expenditure for personal use in the hands of the assessee company being a private limited concern. Further disallowance of 10% out of legal and professional fees paid by the assessee in the absence of any finding that the expenditure has not been incurred for the purpose of business, there is no merit in the said disallowance and the same is deleted. The last head of expenditure is other administrative expenses which include office expenses and other miscellaneous expenses being routine business expenses. The Assessing Officer had made disallowance @ 10% out of the said expenditure, which was restricted to 5% by CIT(A). The expenditure has been disallowed since certain evidences were in the form of self-made vouchers. We uphold the order of CIT(A) to restrict the disallowance to 5% of the total expenditure. - Decided part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the payments in respect thereof were made by cheque. Further, complete vouchers were maintained by the assessee in this regard and there was no merit in disallowing 25% out of the said expenditure. The assessee before us is a private limited company and was engaged in manufacturing of construction machinery and equipment. The impugned expenditure under reference had been incurred by the assessee while carrying on its business. The Assessing Officer had accepted the plea of the assessee that the said expenditure was incurred in the course of business carried on by the assessee by allowing major portion of the expenditure. However, disallowance was made in the hands of the assessee because of increase in ratio of expenditure vis-à-vis turnover. We find no merit in the said stand of the Assessing Officer in the absence of any evidence found to prove that the expenditure is not relatable to the business of assessee. Merely because there is an increase in the quantum of expenditure does not merit the disallowance in the hands of the assessee. - Decided in favour of assessee. - ITA Nos.1465 & 1466/PN/2013, ITA No.975/PN/2013 - - - Dated:- 10-4-2015 - Shri G.S. Pannu And Ms Sushma C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promotion expenses without appreciating that the said expenses were incurred wholly and exclusively for the purposes of business and therefore, the adhoc disallowance made in respect of the same was not justified. 6] The learned CIT(A) erred in confirming the adhoc disallowance of ₹ 4,23,768/- being 5% of the total legal and professional fees without appreciating that the said expenses were incurred wholly and exclusively for the purposes of business and therefore, the adhoc disallowance made in respect of the same was not justified. 7] The learned CIT(A) erred in confirming the adhoc disallowance of ₹ 8,26,814/- being 5% of the total travelling and conveyance expenses without appreciating that the said expenses were incurred wholly and exclusively for the purposes of business and therefore, the adhoc disallowance made in respect of the same was not justified. 8] The learned CIT(A) erred in confirming the adhoc disallowance of ₹ 3,19,810/- being 5% of the total communication expenses without appreciating that the said expenses were incurred wholly and exclusively for the purposes of business and therefore, the adhoc disallowance made in respect of the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 36(1)(iii) of the Act. In reply, the assessee submitted that the said amount was not in terms of loans perse, but were just payments made on behalf of the said parties and it was further explained that the outstanding balance at the end of the year was ₹ 40,12,563/- It was further noted by the Assessing Officer that the assessee had also advanced ₹ 76,09,303/- to M/s. Universal Civil Infracon Pvt. Ltd. and ₹ 41,56,370/- to M/s. Universal Sales Corporation. The explanation of the assessee in this regard was that these were out of business transactions with the said parties. The Assessing Officer rejecting the explanation of the assessee observed that where interest bearing funds were diverted as interest free loans to sister concern, interest @ 12% needs to be added on such loans / advances. The Assessing Officer worked out the disallowance under section 36(1)(iii) of the Act at ₹ 19,87,880/-. 8. The CIT(A) in respect of loan advanced to M/s. Universal Construction Project, observed that though the plea of the assessee was that the said concern was in the construction business, whereas the assessee was the manufacturer of the construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Sales Corporation. The assessee had made the said interest free advances to its sister concerns and on the other hand, had incurred interest expenditure of ₹ 4.03 crores during the year under consideration. The authorities below had disallowed part of the interest expenditure under section 36(1)(iii) of the Act on the proposition that the advances made to the sister concerns were for non-business purposes and interest attributable to such advances could not be allowed as expenditure under section 36(1)(iii) of the Act. However, the claim of the assessee before us was that in view of judgment of Hon ble Bombay High Court in CIT Vs. Reliance Utilities and Power Ltd. (supra), wherein it had been held that where the assessee had made interest free advances to its sister concern, presumption could be drawn that the funds advanced to the sister concern were out of interest free funds available with the assessee. In this regard, the assessee had pointed out that the total interest free funds available with it namely, the share capital and the reserves and surpluses were sufficient to cover impugned interest free funds made to the sister concern. The perusal of Balance Sheet placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions. Ostensibly, in this case, it was found that assessee had advanced interest-free funds of ₹ 2,44,74,710/- to two sister-concerns as on 31.03.2008. The opening balance of such advances as on 01.04.2007 was ₹ 23,09,460/- and the balance of ₹ 2,21,65,250/- was advanced during the year under consideration. On the other hand, assessee incurred interest expenditure of ₹ 2,85,38,397/- on borrowings. The Revenue has disallowed the interest proportionate to the impugned interest-free advances by invoking Section 36(1)(iii) of the Act professing that the same is for non-business purposes. That such advances are for non-business purposes is not an issue for consideration before us inasmuch as the assessee has not disputed the position arrived at by the CIT(A) that such advances are for non-business purposes. However, before us, the disallowance has been sought to be resisted on the basis of the proposition emerging from the judgement of the Hon ble Bombay High Court in the case of Reliance Utilities Power Ltd. (supra) whereby it can be said that where an assessee has advanced interest-free funds to the sister concerns and the assessee has both inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Bombay High Court is not applicable. In our considered opinion, the interpretation placed by the CIT(A) on the judgement of the Hon ble Bombay High Court is quite misplaced. In-fact, to say that the proposition that where there are funds available both interest-free and interest bearing, then a presumption would arise that investments are out of interest-free only if interest-free are sufficient to cover the investment is a proposition which is available only in a situation where the investments are for business purposes, is wrong. We say so for the reason that if the investments/advances to the sister concerns were for business purposes then the question of disallowance under Section 36(1)(iii) would not arise at all, as Section 36(1)(iii) explicitly permits deduction for the amount of interest paid in respect of capital borrowed for the purposes of business or profession. Once interest is paid in respect of funds used for purposes of business there is no question of its disallowance under Section 36(1)(iii) of the Act and there would not be a necessity to see as to whether the funds advanced to sister concern are out of interest-bearing borrowings or not. In our view, the CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee that FBT has been paid on the said expenditure and there was no merit in the said disallowance. We are of the view that where the expenditure has been subjected to fringe benefit tax, the nature of expenditure stands established and the same is to be allowed as business expenditure. In view thereof, there is no merit in making any disallowance out of sales promotion expenditure. Similarly, no disallowance was warranted out of travelling and conveyance expenses, communication expenses as the assessee had paid FBT against the said expenses. We also find no merit in the order of Assessing Officer in disallowing any part of the said expenditure for personal use in the hands of the assessee company being a private limited concern. Further disallowance of 10% out of legal and professional fees paid by the assessee in the absence of any finding that the expenditure has not been incurred for the purpose of business, there is no merit in the said disallowance and the same is deleted. The last head of expenditure is other administrative expenses which include office expenses and other miscellaneous expenses being routine business expenses. The Assessing Officer had made disallowance @ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made was not justified. b. Subsequent to the MOU, the appellant and the vendor had agreed that a part of land which was found to be earmarked for private forestation and hence, the amount of ₹ 56,16,000/- was to be paid only after the vendor got the required clearance for this part of land and therefore, no such payment was made by the appellant to the vendor. c. The above understanding was duly confirmed by the vendor, Shri Tungatkar and hence, there was no reason to make any addition on account of unexplained investment in land. 4] The learned CIT(A) erred in confirming a total disallowance of ₹ 1,23,83,286/- out of the following items of expenditure - i. Travelling and conveyance expenses - Rs.43,98,650/- ii. Labour charges - Rs.61,47,485/- iii. Advertisement Expenses - Rs.14,17,312/- iv. Guest house expenses - Rs.4,19,839/- 5] The learned CIT(A) failed to appreciate that - a. The expenses were properly vouched and therefore, there was no reason for making any disallowance. b. The e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 20% in the sale consideration was claimed to have been withheld and rejecting the explanation of the assessee, the CIT(A) upheld the order of Assessing Officer. 28. The assessee is in appeal against the order of CIT(A). 29. The learned Authorized Representative for the assessee pointed out that the said amount was withheld in view of the restriction on portion of land and the amount as per the sale deed was the amount paid to the seller. 30. The learned Departmental Representative for the Revenue placed reliance on the order of CIT(A). 31. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in relation to the unexplained investment in the Shivare land purchased by the assessee from Shri Raju Tungatkar. During the course of survey at the premises of the assessee conducted on 14.10.2011 certain documents were found from the possession of assessee, under which it had entered into agreement with Shri Raju Tungatkar for purchase of land for sum of ₹ 2.80 crores through a Deed of Agreement dated 09.06.2008. However, against the said agreement of sale, the sale deed executed on 12.09.2009 reflected the consideration a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - and No. 276435 of ₹ 20,00,000/- dated 11106/2008 drawn on SBI. C) It is agreed between the parties that the second party shall pay an amount of ₹ 50,00,000/- (Rupees fifty lacs) to the first party at the time of the Sale Deed. D) It is agreed between the parties as per this MOU that the second party shall pay 50% of the remaining amount after deducting the amounts paid as per Clauses A, B, C hereinabove by cheque of third month to the first party at the time of the Sale Deed. E) It is agreed between the parties as per this MOU that the second party shall pay there after deducting the amount paid as per Clause D hereinabove by cheque of sixth month to the first party at the time of the Sale Deed. F) The said property is absolutely free and marketable. The said property is not encumbered by way of mortgage with any bank or by way of gift. The first party will hand over 7/12 extracts, search report by advocate for last thirty years and all documents referred to above essential for registered indenture prior to Sale Deed. G) The first party has given permission by this MOU to publish public notice in the local news paper in respect of the said property and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cution of sale deed. It is also stated in paragraph 4 of the MOU that it was agreed between the parties that after the execution of the MOU, the first party would show the boundaries of the said property as per the said MOU. It was further agreed between the parties that the second party would at its own cost get the Government Demarcation done of the said property before the sale deed is executed. Clause 7 of the MOU also states that the vendor has taken all the f responsibility as per the MOU of giving signatures, consents, affidavits required for obtaining necessary permission as per provision of 63(1)(a) of Bombay Tenancy Agricultural Lands Act, 1948 as the buyer is purchasing the said property in the name of the company, It is also mentioned thereafter that the vendor shall execute the sale deed of the property in favor of the buyer after forthwith clearing up the legal objections of any person, if any, by the vendor received as a result of public notice published in respect of the said property. All these clauses in the MOU clearly indicate that the vendor had taken the complete responsibility for obtaining necessary permissions as per the provisions of the Bombay Tenancy a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the consideration of ₹ 52,00,000/- per acre. It is also interesting to note that it is only the cash component of 20% in the safe consideration that was claimed to have been withheld till the time the land is deforested and all the disputes are resolved. 33. The learned Authorized Representative for the assessee has failed to controvert the findings of the CIT(A) in this regard and consequently, we find no merit in the grounds of appeal Nos.1 to 3 raised by the assessee and dismissing the same, we uphold the addition of ₹ 56,16,000/-. 34. The issue in grounds of appeal No.4 and 5 is with regard to the disallowance of ₹ 1,23,83,286/- out of the following items of expenditure:- i. Travelling and conveyance expenses - Rs.43,98,650/- ii. Labour charges - Rs.61,47,485/- iii. Advertisement Expenses - Rs.14,17,312/- iv. Guest house expenses - Rs.4,19,839/- 35. The Assessing Officer had disallowed the above said expenditure in view of the disproportionate increase in overall expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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