Income Tax Appellate Tribunal - Chandigarh
Bajaj Travels, Chandigarh vs Department Of Income Tax on 7 October, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI H.L.KARWA, VICE PRESIDENT
AND MS. RANO JAIN, ACCOUNTANT MEMBER
ITA No.154/Chd/2014
(Assessment Year : 2010-11)
The D.C.I.T., Vs. Bajaj Travels,
Circle (1), SCO 14-15,
Chandigarh. Sector 9,
Chandigarh.
PAN: AAACB9759J
(Appellant) (Respondent)
Appellant by : Shri Manjit Singh
Respondent by : Shri Harry Rikhy
Date of hearing : 21.09.2015
Date of Pronouncement : 07.10.2015
O R D E R
PER RANO JAIN, A.M. :
This appeal filed by the Revenue is directed against the order of learned Commissioner of Income Tax (Appeals), Chandigarh dated 14.11.2013 for assessment year 2010-11, raising the following grounds of appeal :
"1. The order of the learned CIT(A) is erroneous & contrary to facts & law.
2. The Ld. CIT(A) has erred on facts and Law in deleting the addition of Rs. 5,38,662/- made u/s 36(l)(iii) of the Act since the interest forgone on loans and advances is to 2 be disallowed because the requirement of loan to that extent is due to this loan and advance as the assessee has failed to prove the business expediency of these loans and advances.
3. The Ld. CIT(A) has erred on facts and Law in deleting the addition of Rs. 13,95,007/- since the assessee has failed to prove the reasons of decline in NP rate.
4. T he appel l ate cr aves to add or amend an y ground of grounds of appeal before the appeal is' heard or disposed of.
5. It is prayed that the order of the Ld. CIT(A) be set aside and that of A.O. may be restored."
2. The brief facts of the case are that the assessee had debited total interest of Rs.12,26,319/- to the Profit & Loss Account. It was noticed by the Assessing Officer that the assessee had given interest free advances amounting to Rs.1,34,56,600/- to M/s Uppal Housing (P) Ltd. and Rs.2,35,00,000/- to M/s Global Airways & Resorts (P) Ltd. On questioning about the business expediency of these advances, as regards advance given to M/s Global Airways & Resorts (P) Ltd., the submission of the assessee was that it was for purchase of some portion of premises of immovable property and was an old balance. Regarding the advance to M/s Uppal Housing (P) Ltd., it was submitted that this was also an old balance for purchase of property to be used for business purposes. The Assessing Officer did not find himself in agreement with the submissions of the assessee and made addition of an amount of Rs.12,26,319/- under section 36(1)(iii) of the 3 Income Tax Act, 1961 (in short 'the Act'), as the assessee could not prove the business expediency of interest free advances.
3 Before the learned CIT (Appeals), the assessee reiterated the submissions made before the Assessing Officer and it was submitted that the advances were made for business purposes only and as the project was delayed, the assessee could not get the possession of the property. In addition to these, it was also argued that the assessee had sufficient funds of its own and out of total interest of Rs.12,26,319/-, interest of Rs.5,38,662/- pertains to car loans, which was directly paid to the bank. The learned CIT (Appeals) after considering the submissions made by the assessee found that the Assessing Officer was right in making disallowance under section 36(1)(ii) of the Act as the assessee could not substantiate that the funds were used for business purposes. However, with regard to the argument of the assessee that the interest of Rs.5,38,662/- on car loan was directly paid to the bank and so no disallowance of this interest be made. He found it quite plausible and restricted the disallowance of interest to Rs.6,87,657/- (Rs.12,26,319/-
- Rs.5,38,662/-).
4. The Department has come up in appeal against the said finding of the learned CIT (Appeals).
4
5. The learned D.R. relied upon the order of the Assessing Officer, while the learned counsel for the assessee relied upon the order of the learned CIT (Appeals).
6. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. After hearing both the parties, we do not find any infirmity in the order of the learned CIT (Appeals) as it is quite evident that the interest on car loan raised by the assessee during the year is directly paid to the bank. This payment of interest on car loan amounting to Rs.5,38,662/- has a direct nexus with the loan taken for the purposes of car. Therefore, no part of this interest amount can be disallowed under section 36(1)(iii) of the Act. The learned CIT (Appeals) has given relief to the assessee to this extent only and the remaining portion of disallowance has been upheld by him. The assessee has not come up in appeal before us against the disallowance sustained by the learned Commissioner of Income Tax . In this view, we do not find any infirmity in the findings given by the learned CIT (Appeals) and uphold the findings given by him. The ground of appeal No.2 raised by the Revenue is dismissed.
7. The ground No.3 of appeal of the Revenue is with regard to addition on account of net profit.
8. The facts of the case are that a survey was carried out at the business premises of the assessee during the year 5 where the assessee disclosed an additional income of Rs.1.30 crores to cover up the discrepancies in the books of account. The Assessing Officer noticed that the net profit rate was 0.28% excluding the additional income declared during the course of survey in this year as against 0.37% in the preceding year. The explanation of the assessee was that the airlines had reduced the commission percentage and some airlines did not pay commission at all. It was also submitted that due to online booking by the customers, there was competition and to survive in the trade, the margin left with the assessee was very little. The Assessing Officer did not find the explanation given by the assessee plausible and did not accept the decrease in the net profit. The addition of Rs.13,95,000/- being net profit of 0.09%, the difference between assessment years 2009-10 and 2010-11 was made.
9. Before the learned CIT (Appeals), the assessee reiterated the submissions made before the Assessing Officer and submitted that the trend in net profit rate has not always been progressive. The learned CIT (Appeals) found himself in agreement with the contention of the assessee that there is tough competition to survive in this trade because the customers are buying tickets online, which has led to drop in margins. Further, pointing out that since the Assessing Officer has not given any specific instance of any defect in the books of account and having not rejected the books of account, he could not have disturbed the net profit rate 6 declared by the assessee. In this view, addition made by the Assessing Officer was deleted by the learned CIT (Appeals).
10. The learned D.R. while arguing before us relied upon the order of the Assessing Officer and submitted that the net profit rate of the assessee having declared from 0.37% in the last year to 0.28% in this year, the addition made by the Assessing Officer is called for.
11. The learned counsel for the assessee relied upon the order of the learned CIT (Appeals).
12. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The learned CIT (Appeals) in this case has given a very apt finding in his order at page 5 in paras 5.3 and 5.3.1, which reads as under :
"5.3 I have considered the submission of the Ld. Counsel. The appellant company is engaged in the business of travel agency and its main source of income is commission income received from various airlines on ticket bookings. The percentage of commission varies from year to year. It has been explained by the appellant that the airlines had reduced the commission rate during the year under consideration and some of the airlines did not even pay the commission. I am in agreement with the contention of the appellant that there is tough competition to survive in this trade because the customers are buying tickets online, which has led to drop in margins. The Ld. Counsel has also submitted that administrative expenses have tremendously increased by approximately Rs. 67,00,000/-. All these factors have obviously led to fall in N.P. rate in comparison to the earlier years.7
5.3.1 The reason given by the Assessing Officer for making addition is that there was no change in nature of business and the turnover had also increased. It is seen that the Assessing Officer has not pinpointed any defect in the books of accounts and has also not rejected the books of accounts before applying the rate. The accounts of the appellant are maintained in conformity with the past history and in the absence of any specific defect or irregularity, there was no ground to dispute the correctness of trading results and profit & loss account. The low gross profit or net profit may be a ground to carry out a detailed and thorough investigation/ verification, but it cannot, on standalone basis, be a ground for enhancing the N.P. rate. It has been observed by Hon'ble Punjab & Haryana High Court in the case of M/s Dua and Associates (P) Ltd. (316 ITR 224) that the books of accounts of an assessee cannot be rejected unless the Assessing Officer brings on record defects in the books of accounts. By applying the ratio of this judgement, it is held that since the Assessing Officer had not brought any material on record to point out defects in the books of accounts, he could not have disturbed the N.P. rate declared by the appellant. In view of this discussion, the addition made on this account is deleted. Ground of appeal No. 4 is allowed."
13. It is quite a known fact that the customers have started buying tickets online which is one of the reasons for drop in margins earned by the travel agencies. The Assessing Officer has not rejected the books of account of the assessee which were being constantly made on the basis of same concept. Without pinpointing any specific instance of over charging of expenses or non disclosure of certain incomes, the Assessing Officer cannot arbitrarily increase the amount of net profit shown by the assessee just on the basis that there is a decline in net profit of the assessee during the year 8 in comparison to the last year. We also see that the net profit in the last year was 0.37% which is declined to 0.28% during the year. Such an insignificant drop in the net profit is not very improbable in the given set of facts and circumstances. Therefore, we do not find any infirmity in the order of the learned CIT (Appeals). The ground of appeal is decided against the Department.
14. The ground Nos.4 and 5 are general, therefore, need no adjudication.
15. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on this 7th
day of October, 2015.
Sd/- Sd/-
(H.L.KARWA) (RANO JAIN)
VICE PRESIDENT ACOUNTANT MEMBER
Dated : 7 t h October, 2015
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh 9