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TMI Blog2024 (12) TMI 1422X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of fairness, we deem it reasonable to disallow 30% of the foreign travel expenses to account for the personal element, while allowing the balance 70% as business expenses. Accordingly, we partly allow this ground of appeal. Addition u/s 68 - unexplained cash credit - AO observed that amount was recorded in the head Dev Aurum Booking Account in the books of the assessee and represented cash received during the financial year under consideration - assessee failed to discharge its burden of proving the nature and source of the cash credited in the books of accounts and the explanation provided was inadequate and lacked documentary support - HELD THAT:- The onus is squarely on the assessee to prove the identity, creditworthiness, and genuineness of the transaction, which remains unfulfilled in this case. Tax auditor s comment that the transaction was subject to reconciliation indicates a lack of clarity and proper documentation regarding the nature and source of the cash credit. This strengthens the view that the assessee failed to maintain proper records and reconcile the transaction adequately. Thus, on failure of the assessee to discharge its onus under Section 68, we f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of Prior Period Expenses Rs. 1,20,95,071/- Addition under Section 68 Rs. 9,06,000/- Disallowance under Section 36(1)(va) Rs. 1,03,440/- Disallowance of Interest Expenses under Section 36(1)(iii) Rs. 27,73,725/- Discrepancy in Form 26AS and P L Account Rs. 52,860/- 3. The assessee preferred an appeal before the CIT(A), who partly allowed the appeal by allowing a relief on account of prior period expenses. 4. Aggrieved by the order of the CIT(A), the assessee is in appeal before us with following grounds of appeal: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition made by Assessing Officer for Rs. 35,60,621/- on account of travel expenses u/s 37. The Ld. CIT(A)ought to have appreciated the fact that the such expenditure was incurred for the purpose of appellant's business. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition made by Assessing Officer for Rs. 9,06,000/- u/s. 68. The Ld. CIT(A) ought to have appreciated that members collection received during the year cannot be subject matter of addition u/s 68 of the Act and such amount is already repaid in subsequent year o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements, contracts, or communications to establish that the foreign travel was undertaken for business purposes. The CIT(A) also noted that mere statements claiming that the expenses were for negotiating business deals are insufficient to meet the requirements of Section 37(1). The CIT(A) observed that there was no evidence to substantiate that the assessee engaged in negotiations or entered into contracts with specific entities during the foreign visits especially when the assessee did not have any operational business presence or branch office in Dubai or other foreign locations. CIT(A) also placed reliance on some judicial precedents. 7. During the course of hearing before us, the AR stated that the statement of expenses submitted before lower authorities explains that the Dev Thakkar, Director of the company has travelled frequently to Dubai and such frequent travel is for establishing business in Dubai and to have insight into the business practices of Dubai. The AR also explained that consultants have also travelled to foreign countries along with the directors. The AR also stated that considering the total revenue from the operations the travel expenses is negligible (0.56% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a party, Mr. Utpal Gajjar. The assessee explained that the booking advance was subsequently repaid in the next financial year upon the cancellation of the booking. 8.1. The AO concluded that the assessee failed to furnish supporting documents to establish the identity, creditworthiness, and genuineness of the transaction with Mr. Utpal Gajjar. The AO observed that the entry was recorded in the books under the head Dev Aurum Booking Account without specifying the name of the depositor initially. Regarding the repayment of booking advance, the AO concluded that no evidence such as bank statements, repayment confirmations, or correspondence with the party was submitted to substantiate this claim. Consequently, the AO treated the amount of Rs. 9,06,000/- as unexplained cash credit under Section 68 of the Act. 8.2. The CIT(A) confirmed the addition of Rs. 9,06,000/- made by the AO under Section 68, holding that the assessee failed to discharge its burden of proving the nature and source of the cash credited in the books of accounts and the explanation provided was inadequate and lacked documentary support. The CIT(A) also noted that the tax auditor flagged this transaction in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile the transaction adequately. 10.2. In view of the above facts and the failure of the assessee to discharge its onus under Section 68, we find no infirmity in the findings of the AO and the CIT(A). Accordingly, the addition of Rs. 9,06,000/- under Section 68 is confirmed, and this ground of appeal is dismissed. Ground 3 Addition made by AO u/s 36(1)(va) on account of delay in depositing PF/ESIC contributions. 11. During assessment proceedings, the AO observed that the assessee had delayed depositing employees' contributions toward PF/ESI beyond the statutory due dates specified under the respective Acts. However, these contributions were deposited before the due date of filing the return of income under Section 139(1) of the Act. Under Section 36(1)(va) read with Section 2(24)(x), employees' contributions to PF/ESI must be deposited within the due dates prescribed under the relevant Acts for such contributions to be allowed as a deduction. The AO relied on the Hon ble Gujarat High Court s decision in CIT vs. Gujarat State Road Transport Corporation [2014] 41 taxmann.com 100 , which held that employees' contributions deposited after the statutory due dates but before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes. However, the CIT(A) noted that the assessee did not have sufficient interest-free funds to grant such advances. The CIT(A) also noted that there was a clear nexus between the borrowed funds and the advances given, as the assessee was paying interest on loans while giving interest-free advances. The CIT(A) referred to disallowances made in the case of group entities such as Sanjay Hiralal Thakkar, where interest disallowances were upheld on similar grounds. This reinforced the decision that the funds were not used for business purposes. The CIT(A) upheld the disallowance of Rs. 27,83,725/- under Section 36(1)(iii) made by the AO. 15. During the course of hearing before us, the AR reiterated the facts and stated that the assessee has also received Rs. 41.92 Crore as interest free loans. The AR explained these amounts from Note No. 4 Short Term Borrowings. As per this note the Interest Free Advance amount borrowed during the year is calculated as: Balance as on 31-03-2015 - Rs. 1,12,16,92,214/- Less: Balance as on 31-03-2014 - Rs. 70,24,49,610/- Interest Free Advance borrowed during the year - Rs. 41,92,24,604/- 16. The AR also stated that the Loans and Advances given to Relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s computed arbitrarily without a clear linkage between the borrowed funds and the advances. The AR s contention that two parties (Jyotsnaben Pravinbhai and Bhavin Parinbhai) were not even included in the list of related party advances was not rebutted by the Revenue. We also noted that the advance to Devdip Builders Pvt. Ltd. was partly repaid during the year. The decisions relied upon by the AR, which relied on the Hon ble Supreme Court s judgment in Reliance Industries Ltd., clearly establish that no disallowance can be made under Section 36(1)(iii) when sufficient interest-free funds are available to cover the advances. 17.3. In view of the above findings and considering the judicial precedents, we hold that the disallowance of Rs. 27,83,725/- made by the AO and upheld by the CIT(A) is not sustainable. The assessee has demonstrated the availability of sufficient interest-free funds and the lack of a direct nexus between borrowed funds and the advances. Accordingly, we delete the addition of Rs. 27,83,725/- made under Section 36(1)(iii) of the Act. This ground of appeal is allowed. 18. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Open Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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