9911796707
TMI Blog2019 (9) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 2. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming addition of Rs. 33,594/- in respect of bad debts written-off. 3. The Ld. CIT(A) has erred, both in law and on the facts of the case, in partly confirming the ad hoc disallowance in respect of sales promotion expenses up to Rs. 1,38,014/-being 20% of total expenses out of total disallowance of Rs. 3,45,033/- being 50% of total expenses. 4. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming ad hoc disallowance of Rs. 18,318/ being 20% of total vehicle & telephone expenses. 5. The Ld. CIT(A) has erred, both in law and on the facts of the case, in partly confirming the ad hoc disallowance in respect of travelling and conveyance expenses up to Rs. 7,465/- being 10% of total expenses out of total disallowance of Rs. 14,930/- being 20% of total expenses. 6. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming action of AO in treating trademark expenses of Rs. 52,000/- as capital expenditure. 7. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming disallowance of interest expenses of Rs. 17,404/- unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the assessee. 5. Aggrieved assessee preferred an appeal to Ld.CIT (A). The assessee before Ld.CIT (A) submitted that it had filed confirmations, PAN of the lenders and copies of cheques issued by the lenders. In case of any doubt, the AO could have taken confirmation from the bank. The copies of the cheques issued by the lenders were available with the AO. 5.1 The assessee also submitted that both the lenders are non-resident Indian and this fact was very much brought to the notice of the AO during the assessment proceedings. Therefore these non-residents Indian maintained NRE account which was used for advancing loans to the assessee. 5.2 The books of accounts of the assessee were duly audited, and no adverse remark was pointed out by the Auditors regarding the Financial Statements. Therefore there cannot be any question of treating the loan as an unexplained cash credit under section 68 of the Act. 5.3 The Ld.CIT (A) called for the remand report from the AO who rejected the confirmations letters filed by the assessee vide letter dated 19/03/2013. Ld.CIT (A) after considering the submission of the assessee and remand report of the AO held that the assessee failed to just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein there were sufficient funds prior to the amount being lent to the assessee. Thus all the three ingredients as prescribed u/s 68 are proved by the assessee. 7.7 Ld.AR, stated that section 68 of the Act cast an initial burden on the assessee to prove identity, genuineness, and creditworthiness of lenders which has been discharged by placing on record documentary evidence. Having discharged the initial onus with a satisfactory explanation, onus shifts on the Revenue. 7.8 It transpires that objection of AO & CIT(A) was also that assessee had not proved a source of such persons to provide loans to the assessee. 7.9 The Ld.AR further submitted that section 68 of the Act, doesn't require an assessee to prove the source of the source of deposits. Hence no addition is called for u/s.68 of the Act. The Ld.AR also placed reliance upon the judgment as follows: DCIT Vs. Rohini Builders 256 ITR360(Guj) Murlidhar Lahorimal Vs. CIT 280 ITR 512 (Guj.) CIT Vs. Pragati Co. Op. Bank Ltd. 278 ITR 170 (Guj.) 7.10 Having furnished the aforesaid details, the concerned credits, by no stretch of imagination, remain unexplained any further in the assessee's hands. In the light of the above, Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmation letters from both the lenders on the plain papers dated 17-2-2004 and 5-3-2004. iii. Copy of cheque issued to the assessee by both the lenders. iv. PAN of one lender namely Sushibhai Patel, the PAN of the other lender namely P.R. Pankhania was not furnished. v. Confirmation of the accounts maintained by the assessee in his books. 9.3 Regarding the identity of both the lenders, we note that the PAN of Shri Sushibhai Patel was furnished to the AO during the assessment proceedings. Therefore the identity of Sushibhai Patel cannot be doubted. 9.4 As regards the identity of Shri P.R. Pankhania, we note that there was the bank statement furnished by the assessee to the AO. The AO also obtained the copy of the bank statement from the bank of the lender which is available on record. A bank account is opened after due verification of the KYC documents of the customer. Therefore we can safely presume that the lender has furnished his identity to the banker at the time of opening the bank account. Thus we are of the view the identity of the lender Shri P.R. Pankhania cannot be doubted in the given facts & circumstances. 9.5 In view of above we hold that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in 256 ITR 360 wherein it was held as under: "It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723. The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques." 9.9 In view of the above we hold that the assessee has discharged his duties imposed under section 68 of the Act by establishing the identity of the lenders, the genuineness of the transactions and creditworthiness of the lenders. 9.10 We also note that the assessee has taken a loan of Rs. 5,80000/- in the assessment year 2005- 06 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from such parties. The assessee furnished the details of advances as reproduced below: Sr.No. Name of Party Nature of Advance Amount in Rs. 1. American Quality Assessor India Pvt Ltd Professional Fees paid to obtain ISO 9001 certification work 8500 2. Kanubhai B Mali Paid for building Renovation 8626 3 Kanaram T Mistry Paid for Furniture Repairing 14280 4. Kancharabhai S Mali Paid for Furniture Repairing 2188 Total 33594 12.1 The assessee further submitted that the advances were given in the course of business. Therefore the same are liable for deduction u/s 37(1) of the Act. 12.2 The remand report was called upon by the Ld. CIT (A) from the AO who submitted that the assessee had not filed any documentary evidence suggesting that these advances were given in the course of business. Accordingly, the AO crave to sustain the addition. 12.3 The Ld.CIT (A) after considering the remand report confirmed the order of AO by observing that the assessee filed no supporting evidence justifying that the advances were given in the course of business. 13. Being aggrieved by the order of Ld.CIT (A) assessee is in appeal before us. 14. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the claim of the assessee was denied due to non-furnishing of supporting evidence by the assessee. Though, the assessee claimed in the submission before the Ld. CIT(A) that the copies of the ledgers of the parties were filed vide letter dated 13 January 2012. 16.4 From the preceding discussion, we find a contradiction in the submission of the assessee before the Ld. CIT(A) vis a vis the finding of the Ld. CIT(A). We also find that the Ld. Counsel for the assessee had not furnished the copies of the ledgers of the parties in the paper book filed before us to whom the assessee provided the trade advances. 16.5 Thus we hold that the facts of the dispute are not clear as discussed above from the order of authorities below. But we note that the onus lies on the assessee to justify its claim by the documentary pieces of evidence that these advances were in the course of the business. However, the assessee failed to do so. Accordingly, we are inclined to hold that there is no infirmity in the order of authorities below. Hence the ground of appeal of the assessee is dismissed. 17. The third ground raised by the assessee is that Ld.CIT (A) partly confirmed the ad-hoc disallowances f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Ld.DR vehemently supported the order of authorities below. 23. We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has claimed sales promotion expenses amounting to Rs. 6,90,065/-only. However, the AO was of the view that the expenses claimed by the assessee under the head sales promotion expenses are exorbitant considering the nature of the business of the assessee. However the Ld. CIT (A) restricted the disallowance to the tune of 20% of such expenses by observing that the expenses were not verifiable as these were incurred in cash. 23.1 The scheme of the income tax Act mandates that the expenses incurred wholly and exclusively for the purpose of the business are eligible for deduction under section 37(1) of the Act, provided these should not be in the nature of capital expenditure. There was no allegation of the AO that the expenditures were not incurred for the purpose of the business. Therefore in our considered view, the expenses which in the opinion of the AO are exorbitant cannot be the basis for the disallowance. 23.2 The AO cannot enter into the shoe of the assessee to decide the quantum of the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing channel. Therefore we are of the view that the gift expenses incurred by the assessee cannot be disallowed merely on the ground that these were incurred in cash and without establishing the fact that these were not incurred wholly for the purpose of the business. 24.8 We also find that the Hon'ble Calcutta High Court in the case of Cheviot Co Ltd versus CIT reported in 11 taxmann.com 276 has held that the disallowance of the expenses cannot be made on the basis of the guesswork and without pointing out the specific defects in the expenses claimed by the assessee. The relevant extract of the order is reproduced below: "The assessee produced details of vouchers and other documents in support of the claim in respect of those expenses. It appeared that the Assessing Officer did not at all consider those documents nor did he find those documents to be manufactured or otherwise not relevant and on the basis of a mere guesswork, reduced the deduction claimed. Similarly, the Commissioner (Appeals), after finding that the approach of the Assessing Officer was erroneous, allowed the entire claim of the assessee without verifying those documents and the Tribunal took a midway by modify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and call details of the telephone expenses. Therefore he confirmed the disallowance made by the AO. 28. Being aggrieved by the order of the Ld.CIT (A) the assessee is in appeal before us. 29. The Ld.AR before us submitted that these expenses comprise of car insurance, vehicle repairs, depreciation on vehicles and telephone expenses which has been incurred wholly and exclusively for the business. Such expenses appear in audited books of the account running from page 21 to 40 of the paper book. Under such circumstances the Ld.CIT (A) ought to have deleted impugned additions. 30. The ld. DR vehemently supported the order of authorities below. 31. We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has claimed vehicle and telephone expenses amounting to Rs. 2,37,540/-only. As per the AO, the personal use of the vehicle & telephone cannot be denied. Therefore the AO worked out the personal expenses at Rs. 47,508/- being 20 % of Rs. 2,37,540.00 and disallowed the sum of Rs. 18,318.00 (Rs. 47,508 - Rs. 29,190 amount already disallowed). 31.2 The Ld. CIT (A) confirm the same by observing that the assessee failed to fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us, submitted that such expenses had been incurred wholly and exclusively for the business, and also such expenses appear in audited books o accounts running from pages 21 to 40 of the paper book. Under such circumstances the Ld.CIT (A) ought to have deleted the impugned addition in toto. Alternatively, some token disallowance may be confirmed. 38. On the other hand Ld. DR vehemently supported the order of the authorities below. 39. We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has claimed Travelling & conveyance expenses amounting to Rs. 74,648/-only. As per the AO, the element of the personal expenses cannot be ruled out. Therefore the AO worked out the personal expenses at Rs. 14,930/- being 20% of Rs. 74,648/- and disallowed the sum of Rs. 14,930/-and added back to the total income of the assessee. 39.1 However the Ld. CIT (A) restricted the disallowance to the tune of 10% of such expenses by observing that the disallowance @ 20 % is excessive and unreasonable. 39.2 From the preceding discussion we note that the AO made the disallowance on ad hoc basis by observing that the assessee failed to prove whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival contentions and perused the materials available on record. The assessee has incurred expenses for the registration of the trademark of its product amounting to Rs. 52,000/- Only. The assessee claimed such expenses as in the nature of revenue and accordingly debited the same in the profit and loss account. However, the AO was of the view such expenses represents the intangible assets within the meaning of section 32 of the Act. Therefore the AO disallowed the same after allowing the depreciation on such expenses treating the same as intangible assets. The Ld. CIT-A subsequently confirmed the view of the AO. 46.1 It is an undisputed fact that the trademark represents the intangible assets of the company and duly covered within the definition of assets as provided under section 32 of the Act. Therefore we are of the view that the expenditure incurred on the registration of the trademark cannot be treated as revenue in nature. In this connection, we place our reliance on the order of Hon'ble Mumbai ITAT in case of L&T Demag plastic machinery (P) Ltd. Vs. ITO reported in 123 ITD 391 wherein it was held as under: "Clauses of the agreement between the assessee and L&T clearly sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee in respect to such loans has not charged any interest. However, the assessee claimed that the advances were given during the normal business transaction, out of internal accruals and it was for a very short period. Therefore no interest was charged on such advances. 48.2 However, the AO observed that the assessee has been showing losses since the assessment year 1997-98 onwards and there was no own fund available with it. 48.3 However, the AO also observed that the assessee had claimed interest expenses in the profit and loss account amounting to Rs. 21,42,710 which justify that the borrowed fund has been used as advance to the aforesaid parties. 48.4 The assessee has not proved that the impugned advance was given in the course of business. In view of the above, the AO held that the borrowed fund had been advanced to interest-free loan & advance. Thus the AO worked out amount proportionate interest amount of Rs. 17404/- and added to the total income of the assessee. 49. Aggrieved assessee preferred an appeal to Ld.CIT (A). The assessee before the Ld. CIT (A) submitted that the advances were given in the course of business. Therefore the same cannot be disallowed. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out. Therefore he made the disallowance of Rs. 46,483/- being 20% of Rs. 2,32,426/- and added to the total income of the assessee. 56. The aggrieved assessee preferred an appeal to Ld.CIT (A). The assessee before Ld. CIT (A) submitted that the disallowance had been made on an ad-hoc basis and without pointing out any specific instance to justify that the assessee has incurred such expenses for its personal use. 56.1 However, Ld.CIT (A) disagreed with the contentions of the assessee by observing that element of the personal expenditure cannot be ruled out. However, Ld.CIT (A) was of the view that disallowance at the rate of 20% is excessive and accordingly he restricted the disallowance to the tune of @ 10% only. 57. Being aggrieved by the order of the Ld.CIT (A) the assessee is in appeal before us. 58. The Ld.AR before us submitted that the impugned expenses had been incurred wholly and exclusively for the business. 59. On the other hand Ld. DR vehemently supported the order of the authorities below. 60. We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has claimed factory expenses amounting to Rs. 76,771/- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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