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TMI Blog2023 (9) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain Pvt. Ltd. companies from whom assessee has taken loans. However, it is submitted that the said companies are NBFCs and hence their purpose of the business itself is granting of loans and hence the creditworthiness is proved even if the NBFCs may be having lower income. This is because the basic criteria for NBFCs is to have minimum net worth of Rs. 2 crore, which is fulfilled and the source of these credits is already certified while making an application to RBI while forming NBFCs and the Companies have obtained the certificate of registration after fulfilling requirement of Section 45- IA of the RBI Act, 1934. On perusal of the Audit Report of these companies, it can be seen that they have followed all the RBI guidelines and prudential norms issued by RBI as certified by the auditors in the notes to accounts. It is to be appreciated that the status is Active-Compliant and not just Active which means that the Companies have filled the latest Form INC- 22A which was introduced to track down inactive companies or companies with dummy address. Thus, the status of NBFC being Active Compliant very much proves the existence of address of party. It is submitted that all the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Year (AY) 2012-13, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-3, Surat [in short the ld. CIT(A) ], in Appeal No. CIT(A),-3/10948/2015-16, dated 17.01.2020, which in turn arises out of an assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ), dated 31.03.2015. 2. The grounds of appeal raised by the Revenue are as follows: 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT-(A) is justified in deleting the disallowance made on account of general expenses claimed by the assessee and also restricted the disallowance of travelling expenses from 20% to 10%, without appreciating the fact that the assessee had not submitted necessary documentary evidence to substantiate its allowability in accordance with the provision of section 37(1) of the Income Tax Act, 1961. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT-(A) justified in restricting disallowance from 20% to 10% made on account of vehicle and telephonic expenses by A.O, without appreciating the fact that the assessee had failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured loan to the tune of Rs. 3,52,75,000/- claimed as received by the assessee from these parties should not be treated as unaccounted income of the assessee. Despite the specific query in questionnaire dated 26.11.2014 the assessee has not been able to furnish the details and supporting evidence i.e. Copies of ITRs, confirmation of loan givers, Bank account statement, copy of ledger account etc. to establish the genuineness of source and creditworthiness in respect of unsecured loans. Therefore, the assessing officer noted that very existence and the identity of the alleged loan giver are not established. It is prima facie construed that the creditworthiness of said lenders is not established. Under this circumstance, the assessing officer held that unsecured loan and the corresponding interest paid is unaccounted income of the assessee. Accordingly, a sum of Rs. 3,91,76,339/- was added to the total income of the assessee company. 6. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has allowed the appeal of the assessee, observing as follows: Ground No. 5 6 pertains to unsecured loan received from 19 parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mankunwar Devi Bajaj Yes Yes Yes Yes No Relative to Key management 8. Narayandas Bajaj Yes Yes Yes Yes No Director 9. Narayandas Jaikumar HUF Yes Yes Yes Yes No Relative to Key management 10 Narbadadevi Bajaj Yes Yes Yes Yes No Relative to Key management The AO has not conducted any independent inquiry which can prove that amount taken as loan represents any unaccounted income of the assessee. He has simply rejected the claim of the appellant without any verification being conducted. The appellant had filed all details during the assessment proceedings. In case of related concerns, the return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that, they have only meager income and not having sufficient bank balances and also no earning from business activities too. Hence, according to the Assessing Officer, the assessee has failed to establish the identity, genuineness and credit worthiness of the transactions beyond doubt under section 68 of the Act. Hence, the total unsecured loan along with its related interest expenses claimed by the assessee was disallowed and added to the income of the assessee u/s 68 of the Act. 9. On the other hand, Shri Mehul Shah, ld Counsel for the assessee, argued that account confirmation, contra confirmation, bank statement, copy of return of income, etc. were provided to the Assessing Officer along with the details of TDS deducted from the interest paid to Lenders. Each party is assessed to tax regularly. The Ld. CIT(A) has observed that without any independent enquiry or verification, the Assessing Officer has simply rejected the claim of the assessee. The Assessing Officer has no information regarding these parties that they were involved or connected with any entry providers. The return of income (ROI) of every party shows they have creditworthiness to advance such loan to assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basic criteria for NBFCs is to have minimum net worth of Rs. 2 crore, which is fulfilled and the source of these credits is already certified while making an application to RBI while forming NBFCs and the Companies have obtained the certificate of registration after fulfilling requirement of Section 45- IA of the RBI Act, 1934. Further, on perusal of the Audit Report of these companies, it can be seen that they have followed all the RBI guidelines and prudential norms issued by RBI as certified by the auditors in the notes to accounts. It is to be appreciated that the status is Active-Compliant and not just Active which means that the Companies have filled the latest Form INC- 22A which was introduced to track down inactive companies or companies with dummy address. Thus, the status of NBFC being Active Compliant very much proves the existence of address of party. It is submitted that all the loans are repaid through account payee cheques in subsequent years. The Chart of Repayment in subsequent years is filed by assessee at Pg no. 8 9 of Paper Book-I. In fact, in the subsequent year also, i.e., AY 2013-14, there was scrutiny assessment and bank statements were filed befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Repairs Maintenance Expense For Others 2,03,186 / - 3 Repairs Maintenance for Building 38,22,401/- 4 Travelling Expense 1,37,658/- 5 General Expense 94,497/- TOTAL 69,34,877/- During the assessment proceedings, assessee submitted ledger accounts and vouchers, however assessing officer observed that were furnishing of the copy of the ledger accounts and part submission of vouchers would not prove that the expenditure has been incurred wholly and exclusively for the purpose of the business. Accordingly, an amount of Rs. 13,86,975/- being 20% of the above mentioned expenses of Rs. 69,34,877/- was disallowed. 16. It was also observed by Assessing Officer that expenses of Rs. 4,32,973/- has been incurred in respect of vehicles used during the course of business of Assessee. These vehicles include cars which are used mainly by the directors of the company and are managed and maintained under their control. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred for the purpose of business and are allowed. The ground of appeal is partly allowed. The ground of appeal- Ground No. 3 pertains disallowance of Rs. 86,595/- on account of vehicle expenses. The appellant has placed reliance on the decision of Honourable Gujarat High Court in case of Sayaji Iron Engg. Co. v/s. CIT - 253 ITR 749 (Guj.). No such disallowance was made under scrutiny assessment in A.Y. 2010-11 2009-10. Further even scrutiny assessment of A.Y. 2011-12, disallowance of 20% was made in case of vehicle expenses which was reduced by the Id. CIT (A) to 10% only. Considering the same, disallowance of vehicle expenses is reduced to 10% and the same comes to Rs. 43,298/-. The ground of appeal is partly allowed. The ground of appeal- Ground No. 4 pertains disallowance of Rs. 34,335/-on account of telephone expenses. The appellant has placed reliance on the decision of Honourable Gujarat High Court in case of Sayaji Iron Engg. Co. v/s. CIT - 253 ITR 749 (Guj.). No such disallowance was made under scrutiny assessment in A.Y. 2010-11 2009-10.Further even in scrutiny assessment of A.Y. 2011-12, disallowance of 20% was made in case of telephone exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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