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TMI Blog2020 (5) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... al purposes. Disallowance of travel expenses - whether such travel have been undertaken for the purposes of assessee s business or not? - HELD THAT:- In the instant case, we find that nothing has been brought on record in terms of any dealer s meeting invitation and related correspondence which can reasonably be relied upon in support of assessee s contention. In absence of appropriate documentary evidence in support of the foreign travel, the onus cast on the assessee is not satisfied and we see no infirmity in the action of the Assessing officer and the disallowance so made by the Assessing Officer is hereby confirmed and the Ground No. 3 of assessee s appeal is dismissed. Disallowance of rent expenses - Addition u/s 40A(2)(b) - assessee company was using the said premises just for address purposes and no business activities were being carried out and the said premises were actually residence of the directors - HELD THAT:- On perusal of the minute books of the assessee-company, it is noted the meetings of Board of Directors and also of the shareholders in terms of annual general meetings are regularly held at this place. Therefore, we find that the said office premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see did not furnish complete name and address or designation of the employees whom the salary was claimed to have been paid and the maximum salary is claimed to have been paid in cash. Per contra, the contention of the asseseee is that it maintains full record of salaries subject to regular scrutiny of labour department. Further, salary has been paid after deduction of ESI, PF etc and details are available on record showing month wise salary, PF, ESI and net payment to employees along with evidences. The question is whether such records were produced and available before the Assessing officer for his examination or not, however, we donot find any clear answer from the perusal of records. Given that such records are claimed to be maintained at the relevant point in time and already subject to scrutiny of labour department, we believe that the assessee deserve one more opportunity to produce such records for verification before the Assessing officer and the matter is accordingly set-aside to the file of the Assessing officer. In the result, the ground of appeal is allowed for statistical purposes. Disallowance @15% out of various expenditures - HELD THAT:- There are contradic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowing the payment of rent of ₹ 3,00,000/- without considering the submission of assessee, which is unjustified and liable to be quashed. 5. On the facts and in the circumstances of case ld. ACIT erred and ld. CIT (A) sustained, in adding ₹ 8,64,000/- by disallowing interest wrongly alleging that interest was not charged on some advances without considering the submission of assessee, which is illegal, grossly unjustified and liable to be deleted. 6. On the facts and in the circumstances of case ld. ACTT erred and ld. CIT (A) sustained, in adding ₹ 6,00,000/- by disallowing interest wrongly alleging that capital expenses were incurred out of interest bearing funds, which is illegal, grossly unjustified and liable to be deleted. 7. On the facts and in the circumstances of case ld. CIT (A) erred in partly disallowance of salary of ₹ 4,56,583/- out of total disallowance of ₹ 9,21,527/- made by AO, which is unjustified and liable to be deleted. 8. On the facts and in the circumstances of case ld. ACIT erred and ld. CIT (A) sustained, in adding ₹ 18,25,000/- u/s 68 out of share application money without considering evidences, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance of the prior period expenses have been rightly confirmed by the ld. CIT(A). It was accordingly submitted that no interference is called for in the findings of the ld. CIT(A). 5. We have heard the rival contentions and perused the material available on record. It is an admitted fact that the interest on unsecured loan relates to the last quarter of the preceding financial year. Therefore, where the assessee is following mercantile system of accounting, therefore, the interest expenses should have been charged to the profit/loss account in the preceding financial year and claimed in the return of income for the preceding assessment year. The explanation of the assessee as to why the interest on the unsecured loan could not be debited in the preceding financial year is that it was under a bona fide impression that the borrowing was initially without interest and since the lender made the claim of interest only in the year under consideration, the assessee was forced to pay the interest. In this regard, we find that there is nothing on record in terms of person from whom the amount has been taken on loan and for what period and under what terms and conditions. It is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vely for business purposes and the same should be allowed. 8. Per contra, the ld. DR submitted that the assessee did not file any supporting evidence including the name of the person performing the journey before the lower authorities. Therefore, the disallowance of foreign expenses have been rightly confirmed by the ld. CIT(A). 9. Having heard both the parties and on perusal of the records, we find that the assessee has submitted a copy of the invoice of M/s Sapient Tours Travels Pvt. Ltd. giving details of the foreign travel itinerary of Sh. Lal Chand Morani who travelled from Jaipur to Delhi, Hong Kong and Manila. Therefore, as far as the person who has undertaken the foreign travel, it is clear that the foreign travel was undertaken by Sh. Lal Chand Morani who happens to be the Managing Director of the assessee company. However the question that remains is whether such travel have been undertaken for the purposes of assessee s business or not. In this regard, the ld. AR has contended that he has travelled abroad to attend dealer s meeting organized by M/s Hero Motocorp. The contention however strong needs to be supported by appropriate evidence. However, in the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nant has to bear the additional expenses on electricity, water and maintenance expenses. The assessee-company has not brought on record any evidence in terms of electric bills water bills to prove its contention. It was accordingly held that the assessee-company has paid excess rent of ₹ 3,00,000/- which is not inclined to the business activities of the assessee-company and even otherwise, the said payment is covered under the provisions of 40A(2)(b) of the IT Act and accordingly, the said amount was disallowed and added to the total income of the assessee-company. 11. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) which has since sustained the said addition. As per the ld. CIT(A), the rent paid to the Director of the assessee was unreasonable as there was no separate electric and water connection in the name of the assessee-company and as per provision of Section 40A(2)(b) of the Act, any unreasonable expenditure is disallowable. Against the said findings, the assessee-company is in appeal before us. 12. During the course of hearing, the ld. AR submitted that the assessee-company is an authorized dealer of Hyundai Cars and engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector of the assessee-company is staying at the ground floor and the first floor has been for taken on rent by the assessee company which is clearly specified in the rent agreement. Further, it is an admitted fact and which has not been disputed by the Revenue that the said premises are used as the registered office of the assessee-company as the every company registered under the Company Act is statutorily required to have a registered office within the jurisdictional limit of the concerned Registrar of Companies where all statutory and other correspondence can be received on behalf of the company. Further, on perusal of the minute books of the assessee-company, it is noted the meetings of Board of Directors and also of the shareholders in terms of annual general meetings are regularly held at this place. Therefore, we find that the said office premises have been used for the purposes of assessee-company s business and it has established the necessary nexus of the rent expenses being incurred for the purpose of its business. Further, the AO has invoked the provisions of Section 40A(2)(b) of the Act, in this regard, it is admitted fact that the rent payments have been made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the assessee deserve an opportunity to place on record the additional evidence as technicality cannot override the substantial justice and recovery of just and due taxes. We hereby admit the additional evidence so filed by the assessee and the matter is set aside to the file of the AO to examine the same on merits. In the result, the Ground no. 1 of assessee s appeal is allowed and Ground No. 5 of the assessee s appeal is allowed for statistical purposes. 18. In Ground No. 6, the assessee has challenged the disallowance of interest of ₹ 6,00,000/- by the Assessing Officer. In this regard, the ld. AR submitted that the said amount was given as advance for purchase of land. It was submitted that the assessee has own net worth of ₹ 17.50 crores and the said advance was made from assessee s own funds and not out of borrowed fund. It was submitted that the addition was made by invoking section 36(1)(iii) of the Act whereas no loan was taken for purchase of land. It was further submitted that the ld. CIT(A) has allowed the assessee s appeal on same ground for A.Y 2012-13. It was accordingly submitted that where the advance has been made out of assessee s own fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val contentions and pursued the material available on record. In the instant case, we find that where the assessee was asked to show-cause to explain the interest-free transaction towards advance for purchase of land, it is incumbent upon the assessee to demonstrate through verifiable evidence that the advance so made is actually towards purchase of land and secondly, support its contention that such advance is out of its interest-free funds. We however find that the assessee has merely stating that it has net-worth of ₹ 17.50 crores which is sufficient to place such advances of ₹ 50 lacs. In our view, what is relevant is to demonstrate that such net-worth is represented by surplus funds which can be easily deployed. In other words, there are liquid funds which are not locked up in assets and inventory and which can be actually used for placing the advance towards the purchase of land. That is, availability of surplus deployable funds at the relevant point in time when the advances were placed towards the purchase of land. Secondly, whether such funds are arising out of operating revenues for the year and otherwise available as part of free reserves and doesn t ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment in next year which are placed at page no 90-134 of paper book. Disallowance out of salary is not based on even remote justification. 23. It was submitted that the AO disallowed the salary calculating average salary per month from April to January in wrong way which was further restricted by Ld.CIT(A). But Ld.CIT(A) erred in appreciating that the slight increment in salary is being justified by depositing higher ESI. 24. It was further submitted that on similar facts, the AO also made disallowance in M/s Morani Cars Pvt. Ltd., sister concern which has been deleted by the ld CIT(A). 25. Per contra, the ld. DR is heard who has relied on the findings of the Assessing Officer and submitted that the ld. CIT(A) has already allowed relief of ₹ 4,64,944/- to the assessee company and therefore, the balance disallowance has been rightly sustained by the ld. CIT(A) and our reference was drawn to the findings of the ld. CIT(A) which contained at Para 11.3 which reads as under:- 11.3 I have gone through the assessment order, grounds of appeal and written submission carefully. The contention of the appellant that the total salary debited by the appellant during the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary, PF, ESI and net payment to employees along with evidences. The question is whether such records were produced and available before the Assessing officer for his examination or not, however, we donot find any clear answer from the perusal of records. Given that such records are claimed to be maintained at the relevant point in time and already subject to scrutiny of labour department, we believe that the assessee deserve one more opportunity to produce such records for verification before the Assessing officer and the matter is accordingly set-aside to the file of the Assessing officer. In the result, the ground of appeal is allowed for statistical purposes. 27. In Ground No. 9, the assessee has challenged the sustenance of disallowance of ₹ 10,83,521/- out of various expenses. The ld AR submitted that the AO disallowed 15% out of various expenditures. Those expenditure are given on page no. 28 of the assessment order. The reasons behind the disallowance given by AO are vague. The AO mentioned that most of the payments were made in cash and supporting vouchers are internal vouchers and the expenses were not fully opened for verification as whether incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tunity to the assessee to produce the evidence in support of the expenses, however, the assessee could not furnish complete vouchers/ ledger accounts of these expenses. The payments were made in cash and given the facts and circumstances of the case. The AO has only disallowed 15% of this expense which is quite reasonable and fair. Accordingly, the disallowance made by the Assessing Officer should be sustained. 31. We have heard the rival contentions and perused the material available on record. The Assessing officer has recorded a finding that maximum number of vouchers were self-made, not supported by relevant bills and payments are made in cash; and there are other expenses in respect of which vouchers were not even produced for verification. It was accordingly held that expenses were not fully open for verification as to whether incurred in connection with business or not and element of personal nature cannot be ruled out. Thereafter, he has proceeded and disallowed 15% of all of the expenses under consideration ranging from sales promotion, advertisement, legal professional, travel, repair and maintenance, etc. Per contra, the contention of the assessee is that it has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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