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TMI Blog2022 (3) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... usively for the purpose of business of the appellant. Thus for the sake of consistency, we restrict the disallowance to 10% of depreciation on motor vehicles for personal use as being fair and reasonable. Disallowance of petty cash expenses on adhoc basis - HELD THAT:- In our view in the absence of supporting evidences, genuineness of payment made in cash is not established and therefore disallowance upheld by the ld. CIT(A) at 10% of total cash expenses is found to be quite reasonable and justified. In our view the ld. CIT(A) has not erred in disallowing a sum of 10% of total cash expenses. Disallowance towards travelling expenses - assessee has not provided any supporting bills regarding visit of the partners to China and Dubai for the business purposes - HELD THAT:- Before us assessee reiterated the arguments which were submitted before the lower authorities. However, we are not convinced with the arguments of the assessee and we are of the view that in the instant facts, the assessee has not been able to substantiate the purpose of visit to Dubai and China and in absence of any details/ supporting evidences, we find no infirmity in the order of the ld. CIT(A) who dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent case, we are of the view that the Ld. CIT(Appeals) has not erred in deleting the addition made u/s. 68 of the Act - Decided against revenue. - ITA No. 3140/Ahd/2015 And ITA No. 3093/Ahd/2015 - - - Dated:- 16-3-2022 - Shri P.M. Jagtap, Vice President And Shri Siddhartha Nautiyal, Judicial Member For the Assessee : Shri Bandish Soparkar, A.R. For the Revenue : Shri C.S. Sharma, Sr. D.R. ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- Both the assessee and revenue are in appeal against order dated 19th August, 2015, passed by the Commissioner of Income Tax (Appeals)-3, Ahmedabad, in Appeal No. CIT(A)-3/ITO Wd. 3(3)(5)/106/14-15. ITA No. 3093/Ahd/2015 filed by Assessee for A.Y. 2011-12: 2. The assessee has raised following grounds of appeal:- 1. In law and in facts and circumstances of the appellant's case, the learned CIT(A) has erred in confirming the addition of ₹ 5,50,656/- as bogus purchases calculated at l2.5% of the Gross Profit when no such disallowance is called for. Further Ld. CIT(A) has failed to appreciate that the purchases were made from genuine parties. 2. In law and in facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 56 TAXMAN 17. 7. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer. 8. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored. 4. We shall first deal with the grounds of appeal raised by the assessee. Ground No. 1 of assessee s appeal and Ground Nos. 1 and 2 of Department s appeal: Addition of ₹ 5,50,656/- as bogus purchases calculated at 12.5% of gross profit 5. This is a common ground for which both the assessee and the department are in appeal before us. The assessee is in appeal before us on the ground that the ld. CIT(A) has erred in confirming addition of ₹ 5,50,656/- as bogus purchases calculated at 12.5% of the gross profit when no such disallowance is called for (Ground No. 1 of assessee s appeal). The Department is in appeal before us on the ground that Ld. CIT(A) has erred in restricting the addition on account of bogus purchases from 44,05,259/- to 5,50,66/- whereas the entire amount should have been held be bogus purchases (grounds number 1 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned above that immediately after depositing, approximately all amounts which are immediately withdrawn by party in cash. The Assessing Officer accordingly held that from the above it is clear that the assessee arranged bogus bills of materials from these parties so that it can inflate expenses and lower the actual profit and avoid the due tax liability arising from its business. In this process, banking channels have been used to give colour of genuineness to the bogus transaction. The ld. Assessing Officer relied upon the decision of Hon ble Supreme Court in the case of CIT vs. Kolkata Agency Ltd. 19 ITR 191 and Laxmi Ratan Cotton Mills Company 73 ITR 634 that in order to claim that an expenditure falls u/s. 37(1) of the Act, the burden of proving the necessary facts in that connection is entirely on the assessee. Further, the ld. Assessing Officer placed reliance on the case of ACIT vs. Brijvasi Udhyog Ltd. by ITAT Agra Bench 31 taxmann.com 271 Agra in which it was held that mere payment would not entitle deduction unless the same is proved to be paid for commercial construction and expended wholly and exclusively for the purpose of business. The Assessing Officer held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce made are highly excessive and should be restricted to 5%. The ld. Departmental Representative on the other hand contended that the genuineness of the parties could not be proved by the assessee and hence the onus which lay on the assessee to prove genuineness of parties has not been discharged hence the ld. CIT(A) erred in restricting the disallowance to ₹ 5,50,660/-. 5.4. We have heard the rival contentions and perused the material on record. We have also gone through the case laws relied upon by the assessee. We note that in the case of ITO vs. Balaji Builders ITA No. 593/Ahd/2016 , the assessee who was engaged in the construction business had made certain payments to parties towards purchase of materials for construction work through account payee cheques. During the course of assessment, the assessee was requisitioned to prove the genuineness of certain suppliers. Though the assessee provided details of those suppliers including PAN, copy of bills for purchase, copy of audited account along with balance sheet, profit and loss account, details of professional receipt during the course of assessment proceedings but the assessee could not produce the suppliers in pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.1 In the appeal before the ld. CIT(A), the ld. CIT(A) held that in the absence of any log book/register maintained by the appellant showing movement of vehicle from one place to another, it is not established that the car was used exclusively for the purpose of business of the appellant and hence disallowance made in the assessment order towards 1/5th of depreciation on motor car is in consonance with various ITAT decisions and this ground of appeal was decided against the assessee. 6.2. Before us, the ld. counsel for the assessee submitted that disallowance of 1/5 i.e. 20% of depreciation on vehicles on account of personal purposes is highly excessive and cited the case of ITAT Mumbai in the case of SSK Engineering Works ITA No. 1947/Mum/2019 wherein the assessee submitted that on similar set of facts, the Hon ble Mumbai ITAT restricted the disallowance to 10% of total expenses incurred by the assessee on account of depreciation. The ld. Departmental Representative on the other hand contended that since the element of personal use in the instant set of facts cannot be ruled out, the ld. CIT(A) was right in disallowing a sum of 20% of depreciation on motor vehicles. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 437 (Mumbai) , the Mumbai Tribunal made the following observations on disallowance of depreciation account of personal use of motor vehicles: It is a fact that in the assessment of the firm, Assessing Officer had held that 1/5th of the expenditure on motorcar is to be treated as personal in nature in the hands of the appellant i.e., the partner of the said firm. According to us, it is a case that the motorcars owned by the appellant and used for the business of the firm in which he is a partner have also partially been used for personal purpose, when an addition has been made on this ground in the hands of the firm. With this view, we hold that it would be reasonable to disallow 1/5th of the depreciation on the motorcars owned by the assessee in respect of which depreciation has been claimed and which have been used by the firm in which the appellant is a partner. For this position, there is a specific provision under section38(2), as per which when an asset is not exclusively used for the purpose of business, the Assessing Officer shall restrict the claim for depreciation to a fair proportion of the purpose for which the asset is used for the purpose of business or professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The brief facts relating to this ground of appeal of the assessee are that on verification of details/cash book during the course of assessment proceedings it was noticed that the assessee had incurred substantial expenses in cash under various heads. The assessee was asked to furnish original bills/vouchers for expenses incurred in cash under various heads for verification as well as also asked to furnish head wise details of cash expenses incurred during the year. The assessee produced certain bills/vouchers/other supporting evidences for cash expenses. However, on perusal of the same, the ld. Assessing Officer noticed that bills/vouchers produced in respect of cash expenses are mostly self-vouched. In this connection, the assessee vide its letter dated 02-01-2014, furnished a chart showing head wise details of expenses which have been incurred in cash amounting to ₹ 26,20,526/-. The assessee submitted that these cash expenses are daily routine expenses incurred to carry out normal business transactions. Further, only those expenses for which vouchers were not available have been self-vouched. The petty expenses were towards refreshment expenses, maintenance expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,530/- in cash towards petty cash expenses in respect of which either vouchers could not be produced or the assessee produced the self made vouchers. Before, deciding the issue, it would be useful to refer to some judicial precedents in respect of self-vouched expenses, to take a fair view in the matter. 7.4 In the case of Swastik Industries v ITO [2015] 61 taxmann.com 296 (Ahmedabad - Trib.), the Ahmedabad Trinual held that where expenses claimed by assessee were not fully supported by vouchers and bills and some of bills/vouchers were self-made and not in chronological order, disallowance of one-fifth of expenses was proper. 7.5 The Mumbai Tribunal in the case of Parsoli Corporation Ltd. v ACIT [2019] 101 taxmann.com 121 (Mumbai - Trib.) observed as below: 13. We have deliberated on the issue under consideration and are unable to find any force in the contention of the Ld. A.R that the lower authorities had erred in disallowing 10% of the aforesaid expenses. We are of the considered view that the aforementioned disallowance was carried out by the A.O not only for the reason that certain vouchers were not verifiable, but also for the reason that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .8 In the result, Ground No. 3 of assessee s appeal is dismissed. Ground No. 4: Disallowance of ₹ 4,80,278/- towards travelling expenses 8. During the year under consideration, the assessee had incurred total travelling expenses of ₹ 7,13,700/-. The ld. Assessing Officer on verification of details noticed that some of the travelling expenses are not for purpose of business and are personal in nature. On being requisitioned, the assessee submitted that some of travelling expenses were on account of travel by one of the partners to China and Dubai for purchase of furniture and electronics to be installed in corporate office. The ld. Assessing Officer held that the above argument was not substantiated by any supporting evidence and the assessee did not furnish details of furniture and electronic items for which partner travelled to China and Dubai. The assessee also did not give documents on merit on such purchases and also did not give any details that these assets have been reflected in the fixed assets schedule. Accordingly, the ld. Assessing Officer disallowed a sum of ₹ 4,80,278/- out of travelling expenses, being personal in nature. 8.1 The ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll date assessee has not purchased any land from this borrowed fund and the so called advances have been received back and no land has been purchased from these parties meaning thereby that assessee has given its interest bearing fund to these parties as interest free advances. The ld. Assessing Officer held that some part of the funds have been utilized for business purposes and some part of interest bearing fund have been utilized in giving interest free advance to others. Accordingly, the Assessing Officer disallowed 40% of interest expenses on the ground that interest bearing funds have been diverted for giving interest free advances for non-business purposes. 9.2 In appeal before the ld. CIT(A), the assessee submitted that it had sufficient interest free funds and the lower appellate order Assessing Officer has not provided any nexus of interest bearing funds utilized for interest free advances. The ld. CIT(A) however did not agree with the contention of the assessee and observed that assessee had borrowed interest bearing funds from Mehsana Urban Co-operative Bank on which interest of ₹ 82,70,827/- is paid. The ld. CIT(A) held that assessee has not established that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advances. Accordingly, the ld. Departmental Representative argued that ld. CIT(A) had erred in restricting the disallowance to ₹ 14,54,500/- and the order of ld. Assessing Officer should be followed and interest expense to the tune of 40% should be disallowed. 9.5 We have heard rival contentions and perused the material on record. We are in agreement with the contentions of the ld. counsel for the assessee that where the assessee was having substantial interest free funds at its disposal, there is no reason to hold that the borrowed money was utilized for purposes of giving interest free advances and no disallowance of interest was warranted. The Gujarat High Court in the case of CIT vs. Raghuvir Synthetics Ltd. 354 ITR 222 (Guj) held that where huge funds were available without any interest liability with assessee and there was no evidence to hold that borrowed money was utilized for purpose of advance to sister concerns, no disallowance of interest was warranted. Again the Mumbai High Court in the case of CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340 Mumbai made following observations:- It noted that to raise the presumption, there was sufficient mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the decision of Rohni Builders 256 ITR 36 and disallowance made in assessment order towards unexplained cash u/s. 68 of ₹ 1,00,00,000/- is unsustainable. Regarding addition of unsecured loan of ₹ 9,50,000/- received from Natwarbhai Nai, the assessee provided confirmation of party and registration as overseas citizen of India and submitted that it has proved the identity of the party and the fact that the loan is received through banking channel which proved genuineness of transaction. The ld. CIT(A) granted relief by observing that the assessee has continuous financial transaction with the creditor. The creditor is an NRI (confirmation of party and certificate of registration as overseas citizen of India has been submitted). There is no evidence on record that assessee s unaccounted money has come back in its books of account and thus the assessee has discharged the primary onus cast u/s. 68 of the Act and ld. CIT(A) deleted addition of ₹ 9,50,000/- made towards unexplained cash credit. 10.2 Before us, the ld. Departmental Representative argued that the assessee has not been able to prove the creditworthiness of both the parties from whom interest fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties, the transactions were made through banking channels and hence in our view the assessee has discharged the primary onus which was cast upon it u/s. 68 of the Act. In the case of CIT v. Ranchhod Jivabhai Nakhava [2012] 21 taxmann.com 159 (Gujarat ), the Gujarat High Court has held that where lenders of assessee are income-tax assessees whose PAN have been disclosed, Assessing Officer cannot ask assessee to further prove genuineness of transactions without first verifying such fact from income-tax returns of lenders. Further, in the case of CIT v. Chanakya Developers [2014] 43 taxmann.com 91 (Gujarat) , the Gujarat High Court held that where assessee in order to prove genuineness of transactions relating to receipt of booking amount of flats, supplied address and PAN of concerned persons, it had discharged its primary onus and, therefore, Assessing Officer could not make addition of said amount to assessee's taxable income without making proper inquiries under section 133(6). In view of the above Rulings, and the totality of facts of the present case, we are of the view that the Ld. CIT(Appeals) has not erred in deleting the addition of Rs. 1,09,50,000/- made u/s. 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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