Income Tax Appellate Tribunal - Lucknow
Rakesh Kumar Agarwal, Kanpur vs Astt. Commissioner Of Income Tax-3, ... on 22 February, 2018
I.T.A. No.41/Lkw/2017
1
Assessment Year:2012-13
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH 'B', LUCKNOW
BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER AND
SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER
I.T.A. No.41/Lkw/2017
Assessment Year:2012-13
Shri Rakesh Kumar Agarwal, Vs. A.C.I.T.-3,
14/145-A, Chunni Ganj, Kanpur.
Kanpur.
PAN:ABTPA 6652 J
(Appellant) (Respondent)
Appellant by Shri R. R. Jain, F.C.A.
Shri Sameer Jain, F.C.A.
Respondent by Shri Yashvendra Singh, D.R.
Date of hearing 19/02/2018
Date of pronouncement 22/02/2018
ORDER
PER T. S. KAPOOR, A.M.
This is an appeal filed by the assessee against the order of learned CIT(A) dated 24/10/2016. The grounds of appeal taken by the assessee are reproduced below:
"1. Learned CIT (A) erred on facts & in law in confirming the disallowance of Rs.2,02,057/- being notional interest on alleged interest free loans given by the assessee without appearing the facts on record in as much as he has failed to appreciate that the advances given were covered by own funds and there was no nexus between the advances given and the borrowed funds.
I.T.A. No.41/Lkw/2017 2 Assessment Year:2012-13
2. That the Learned CIT(A) erred on facts & in law in confirming 15% disallowance amounting to Rs.57,463/- out of conveyance & telephone expenses in a routine manner on ad hoc basis.
3. That the Learned CIT (A) erred on facts & in law in confirming ad hoc addition of Rs.30000/- out of Staff Welfare, Miscellaneous Expenses and Travelling Expenses.
4. That the Learned CIT (A) erred on facts in law in confirming adhoc addition and disallowances made arbitrarily and excessively."
2. At the outset, Learned A. R. submitted that learned CIT(A) had confirmed an addition of Rs.2,02,057/- being notional interest on alleged interest free advances given by the assessee without appreciating that the advances were given out of own funds of the assessee. It was submitted that the assessee had advanced a loan of Rs.21,45,078/- to his daughter and further amount of Rs.1,00,000/- was advanced to the HUF of the assessee. It was submitted that there was no nexus between the borrowed funds and the advances given to the above persons as the assessee's own funds were sufficient to cover the above interest free advances. Our attention was invited to page No. 17 of the paper book where a copy of account of proprietor's capital account was placed and it was submitted that the assessee had a capital of Rs.1,68,25,925/- whereas the interest free advances given by the assessee were quite insignificant as compared to assessee's own capital. It was submitted that during the year itself the assessee had earned a net profit of Rs.21,95,000/- as is apparent from the copy of capital account itself. Reliance in this respect was placed on the case of Smt. Chanchal Katyal vs. CIT 298 ITR 182 (All) and in the case of CIT vs. Kapsons Associates 381 ITR 204 (P&H) for the proposition that I.T.A. No.41/Lkw/2017 3 Assessment Year:2012-13 where the own funds exceed the non interest bearing advances, no disallowance can be made u/s 36(1)(iii) of the Act.
2.1 As regards the other disallowance sustained by learned CIT(A), Learned A. R. submitted that the Assessing Officer had made ad hoc disallowance without pointing out any defect in the vouchers or pointing out any specific instance. It was submitted that the Assessing Officer has merely acted on presumptions. As regards the expenses on vehicle maintenance, Learned A. R. submitted that the entire expenses were incurred for repair and maintenance and were fully vouched and therefore, the disallowance was not warranted. Similarly, in respect of ad hoc addition of Rs.30,000/- out of staff welfare, misc. expenses and travelling expenses, Learned A. R. submitted that the entire expenditure was open to strict verification and Assessing Officer has merely acted on presumptions while recording the charge of alleged personal use. Reliance in this respect was placed on the following case laws:
(i) Ashok Surana vs. CIT 384 ITR 267 (Del)
(ii) Friends Clearing Agency (P) Ltd. vs. CIT 58 DTR 109 (Del)
(iii) ACIT vs. Allied Construction 106 TTJ 616 (I.T.A.T. Delhi)
3. Learned D. R., on the other hand, heavily placed his reliance on the order of the authorities below.
4. We have heard the rival parties and have gone through the material placed on record. As regards the first issue of disallowance u/s 36(1)(iii) of the Act, we find that the assessee is having a capital of Rs.1,68,25,925/- which is apparent from the copy of capital account of the assessee placed at page No. 17 of the paper book. Against this interest free capital of the assessee, the amount of interest free advances are only to the extent of Rs.22,45,078/-. Since the interest free own funds of the assessee far I.T.A. No.41/Lkw/2017 4 Assessment Year:2012-13 exceed the interest free advances, the disallowance u/s 36(1)(iii) was not warranted in view of various judicial pronouncements relied on by Learned A. R. Hon'ble Allahabad High Court in the case of Smt. Chanchal Katyal vs. CIT [2008] 298 ITR 182 (All) has held as under:
"That the borrowed money on which the assessee was liable to pay interest to its creditors had not been diverted towards interest-free loans to the two firms. It was not the case of the Revenue that the assessee was following the mercantile system of accounting and under the agreements, the interest even though not actually charged had accrued as income and therefore was liable to pay tax. The Revenue took a specific stand that as the assessee had not taken any interest on the advances made by her to MG and M, proportionate interest which the assessee could have realised from these two firms and which had not been realised should not be allowed under section 36(1)(iii) . If the assessee had sufficient funds other than the borrowed money for giving the amount as loan to any other concern, the conditions of section 36(1)(iii) of the Act had been complied with and the assessee was entitled to full allowance of the amount of interest paid by it on borrowed capital. Therefore the Tribunal was not justified in confirming the disallowance for the assessment year 1980-81."
4.1 We accordingly, set aside the order of the CIT(A) on this issue and direct the Assessing Officer to allow deduction to the assessee.
4.2 As regards the other disallowances, it is noticed that Assessing Officer had made ad hoc disallowance without pointing out any specific defect in the vouchers or pointing out any specific instance. It was submitted that the Assessing Officer has merely acted on presumption. As regards the expenses on vehicle maintenance, Learned A. R. submitted that the entire expenses were incurred for repair and maintenance and were fully vouched and therefore, the disallowance was not warranted. Similarly, in respect of ad hoc addition of Rs.30,000/- out of staff welfare, misc. expenses and travelling expenses, Learned A. R. submitted that the entire expenditure I.T.A. No.41/Lkw/2017 5 Assessment Year:2012-13 was open to verification and Assessing Officer has merely acted on presumption. In our opinion, the Assessing Officer cannot make ad hoc disallowance specifically in view of the case laws relied on by Learned A. R. Hon'ble Calcutta High Court in the case of Ashok Surana vs. CIT [2016] 384 ITR 267 (Cal) has held as under:
"The assessee was an individual engaged in the business of producing television serials and had offices at Calcutta, Bangalore, Delhi and Mumbai. For the assessment year 2001- 02, the assessee had shown to have incurred expenses on account of telephone. The Assessing Officer disallowed 20 per cent. of the expenditure on the ground that the assessee failed to maintain A call book for monitoring calls and that a part of such calls were for personal and non-business use. The assessee also claimed expenses of the Mumbai office, part of which were supported by internal debit vouchers and claimed general expenses and expenses towards tea and tiffin, supported by debit vouchers. The Assessing Officer, disallowed 20 per cent. of expenses on the ground that they were not verifiable. The Commissioner (Appeals) confirmed this. The Tribunal restricted the disallowance. On appeal:
Held, that it was not the case of the Assessing Officer that the assessee was unable to adduce satisfactory evidence that the expenditure was incurred for the purpose of his business. When appropriate evidence was adduced, it was not in the power of the Assessing Officer to arbitrarily disallow any item of expenditure on the ground that the sums were not verifiable. There was no indication as to what step was taken by the Assessing Officer to have those expenses verified. If the Assessing Officer had not taken pains to have the expenses verified, he could not disallow any portion of the expenditure on the ground that it was not verifiable. The expenses were to be allowed."
Similar findings have been made in other case laws relied on by Learned A. R. I.T.A. No.41/Lkw/2017 6 Assessment Year:2012-13 4.3 In view of the above, the disallowances sustained by learned CIT(A) are not in order and therefore, we delete the ad hoc disallowance confirmed by learned CIT(A).
5. In the result, the appeal of the assessee is allowed.
(Order pronounced in the open court on 22/02/2018) Sd/. Sd/.
(PARTHA SARATHI CHAUDHURY) ( T. S. KAPOOR )
Judicial Member Accountant Member
Dated:22/02/2018
*Singh
Copy of the order forwarded to :
1. The Appellant
2. The Respondent.
3. Concerned CIT
4. The CIT(A)
5. D.R., I.T.A.T., Lucknow