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TMI Blog2019 (4) TMI 1892X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the circumstances of the case, the ld. CIT(A) has erred in allowing the expenses on account of Travel Expenses, Staff Welfare Expenses, Repairs, Others and Sales promotion of Rs. 26,39,072/-. 4. Based on the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing the interest paid as an allowable expenditure. However, the same has not been utilized for purpose of the business. 3. Ground No. 1 raised by the Revenue relates to bogus expenses of Rs. 71,85,948/- as Business expenses instead of bogus expenses. 4. Brief facts qua the issue are that during the assessment proceedings, the assessing officer issued notices u/s 133(6) of the Act to various parties for the purpose of verification of business transactions of the assessee. The notices u/s 133(6) of the Act, addressed to the following parties could not be served by the postal authority: a) M/s Yashoda Distributors (P) Ltd. b) M/s Narmada Dealcom P Ltd. c) M/s Sagar Vintrade P Ltd. d) M/s Diven Trading Co. During the course of hearing, the assessee furnished new addresses of the parties at Sl. No. 1 to 3 above. Again, the notices were sent by AO to the new addresses of the parties, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abour job with these huge materials, as claimed in the bills of all these parties. Therefore, the AO was of the view that the assessee actually procured bills from the parties available in the market, who are engaged in giving entries to the business communities for the purpose of booking expenditures and to reduce profit. The assessee tried to furnish some documentary evidences in this regard but could not establish their physical existence. It is surprising to note that the assessee has claimed to have entered into such voluminous transactions with the said parties, but the parties could not be located physically either by the assessee or by the postal authority. The comments given by the postal authority also suggest that these parties never existed physically. Therefore, the AO treated bogus expenditure to the tune of Rs. 71,85,948/- and made addition to the income of the assessee. 5. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by assessing officer. 6.We have heard both the parties and perused the material available on record. Before us,ld DR for the Revenue has primarily r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O has disallowed the claim of purchases of the items by treating as bogus only for the reason that the notices U/s 133(6) of the Act could not beserved to the parties assuming the parties as non-existent and transactions made with them as bogus. In this regard, the ld Counsel contended that the assessee has produced all the reasonable evidences before the AO, which shows that assessee made genuine purchase from them by paying applicable VAT. All the parties are assessed to Income Tax, as well as VAT, hence it is not the case of the AO that on the enquiry conducted byhim from AO or Sales Tax Authority in respect of these parties any adverse material/Information was found. The payments of the purchase bills were made through banking channels. The three parties are Pvt. Ltd, Companies, whose master data as per MCA Website is also furnished in the Paper Book. Therefore , it is argued that the other allegation of the AO that "assessee procured bills from the parties available in the market who are engaged in giving entries to the business communities for the purpose of booking expenditure and reduce profit", is nothing but general in nature made on his own surmises and conjectures in di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicated this ground against the assessee and in favour of the revenue, therefore the ground raised by the revenue becomesinfructuous and hence we dismiss the same. 10. Ground No. 3 raised by the Revenue relates to disallowance of expenses on account of Travel expenses, Staff Welfare expenses, Repairs, others and Sales promotion of Rs. 26,39,072/-. 11. Brief facts qua the issue are that during the assessment proceedings, the Assessing Officer made addition in respect of Travelling Expenses of Rs. 12,37,500/-, Staff Welfare Expenses of Rs. 3,18,784/-, Repairs & Others of Rs. 14,37,705/- and Sales promotion expenses of Rs. 8,82,583/- due to mere belief that the said expenses were excessive as compared to the earlier year and not for the purpose of the business. 12. On appeal by assessee, the ld CIT(A) deleted the additions except addition on account of Travelling Expenses of Rs. 12,37,500/-. Aggrieved, the Revenue is in appeal before us. 13. We have heard both the parties and perused the material available on record. Before us, the ld. DR for the Revenue, has primarily reiterated the stand taken by the Assessing Officer which we have already discussed in our earlier para and the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs. 1.5 crores - all without having any business connections. So, loans taken during the year were actually utilized for advancing interest free loans and security deposit, which are unrelated to the business activity of the assessee. The loans were taken from the Banks and were utilized by the assessee not for business purposes. The interest paid by the assessee during the year was Rs. 77, 89,408/-, which is considered to be expended not for the assessee's business activity. Reliance is placed on the decisions of K. Somasundaram &. Brothers v. CIT (1999) 238 ITR 939,944-45 (Mad) and CIT v. Window Glass Ltd. (2003) 179 CTR (Cal) 602, 602-603 where it has been observed that interest paid on the capital borrowed by the assessee-firm and diverted the same as interest-free loans to the relatives of its partners is not deductible. In the decision of Tirupati Trading Co. v. CIT (2000) 242 ITR 13, 18 (Cal) it has been observed that where there was no evidence to prove that the amount had been borrowed for purposes of the business of the assessee, interest on such borrowings was held not deductible. Interest on borrowed capital used for advancing interest-free loans to subsidiary ..... X X X X Extracts X X X X X X X X Extracts X X X X
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