Appeal details
Counselvise Citation
[2022] 105 COUNSELVISE.COM (IT) 6759 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 year(s) 4 month(s) 13 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
15-03-2022
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
B
Assessment Year
2011-2012
Appeal Filed On
02-11-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH (Conducted Through Virtual Court) Before: Shri P.M. Jagtap, Vice President And Shri Siddhartha Nautiyal, Judicial Member Th e DCIT, Circle-3 (3 ), Ah medabad (Appellant) Vs M/s. Unique Metropo lis, Av adh -3 Alok Bung lo ws, Op p. Sun N Step Club , Thaltej, Ahmedab ad PAN: AACF U3 261H (Resp ondent) M/s. Unique Metropolis, Avadh-3 Alo k Bu nglows, Opp . Sun N Step Club, Th altej, Ahmedab ad Vs The DCIT, Circle-3(3), Ah med abad (Resp ondent) ITA No. 3140 /Ahd/2015 Assessment Year 2011-12 ITA No. 3093 /Ahd/2015 Assessment Year 2011-12 I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 2 PAN: AACF U326 1H (Appellant) Asses see b y : Shri Bandish Sopa rkar, A. R. Revenue by : Shri C. S. Sharma, Sr. D. R. Date of hearing : 16-02 -2022 Date of pronouncement : 16-03 -2022 आदेश /ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- Both the assessee and revenue are in appeal against order dated 19 th 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 Rs 5,50,656/- as bogus purchases calculated at l2.5% of the Gross Profit when no such disallowance is called for. I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 3 Further Ld. CIT(A) has failed to appreciate that the purchases were made from genuine parties. 2. In law and in facts and circumstances of the appellant's case, the Learned C1T(A) has erred in confirming the disallowance of Rs. 6,04,326/- out of the total depreciation on adhoc basis as personal expenditure when no such disallowance is called for. 3. In law and in facts and circumstances of the appellant's case, the Learned C1T(A) has erred in confirming the disallowance of Rs. 2,62,053/- out of total petty cash expenditure on adhoc basis when no such disallowance is called for. 4. In law and in facts and circumstances of the appellant's case, the Learned CIT(A) has erred in confirming the disallowance of Rs. 4,80,278/- towards travelling expenditure when no such disallowance is called for. 5. In law and in and circumstances of the appellant's case, the Learned CIT(A) has erred in confirming the disallowance of Rs,18,53,888/- out of total interest expenditure calculated on proportionate basis when no such disallowance is called for. 6. The appellant craves leave to add, to alter, to amend and/or withdraw any of the grounds or grounds of appeal either before or at the time of hearing.” ITA No. 3140/Ahd/2013 filed by Revenue A.Y. 2011-12: 3. The revenue has raised following grounds of appeal:- I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 4 “1. The Ld. CIT(A) has erred in law and on facts in restricting the addition made on account of bogus purchases from Rs.44,05,259/- to Rs.5,50,660/-. 2. The Ld. CIT(A) has erred in law and circumstances of the case by not appreciating the facts that the assessee had inflated only purchases and no corresponding sales were shown in the books and hence entire bogus purchases be added instead of taking G P on such purchases. 3. The Ld. CIT(A) has erred in law and on facts in restricting disallowance of interest expenses made u/s 36(1)(iii) of the Act form Rs.33,08,330/- to Rs. 14,54,500/-. 4. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,09,50,000/- made u/s. 68 of the Act. 5. The Ld. CIT(A) has erred in law and circumstances of the case by not appreciating the facts that the assessee failed to prove the genuineness of the transactions and creditworthiness of the depositors. 6. The Ld. CIT(A) has erred in law and on facts by not applying the ratio laid down by the Hon'ble Supreme Court in the case of Y M Singhla vs. CIT reported 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. I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 5 Ground No. 1 of assessee’s appeal and Ground Nos. 1 and 2 of Department’s appeal: Addition of Rs. 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 Rs. 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 and 2 of Revenue appeal). 5.1 The brief facts in relation to this ground of appeal are that the assessee is engaged in construction and development of residential project namely “Unique Lake Square” and commercial project “Unique Metropolis” during the year under consideration. The assessee has shown income from sale of flats in the residential project and shops/offices in the commercial project. Apart from this, the assessee has also shown income from short term capital gain and income from other sources. The assessee filed return of income on 27-09-2011 declaring total income of Rs. 87,14,690/-. The case of the assessee was selected for scrutiny and on perusal of profit and loss account for the year under consideration, it was seen that a sum of Rs. 3,97,31,092/- has been debited under the head “construction and other expense” out of which an amount of Rs. 2,23,15,804/- has been claimed in respect of purchase of materials. To verify the genuineness of the purchase of I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 6 material, notices u/s. 133(6) of the Act was issued to various parties and the inspector of the ld. Assessing Officer was also deputed to check the genuineness of the parties. After making necessary enquires, it came to light that four parties M/s C. R. Marketing, M/s. Radhe Electricals, M/s. Shree Sai Enterprises and M/s. Madhur Enterprise were found to be non- existent. Apart from this, no business activity was noticed in the premises of another supplier M/s Archita Enterprises. On being requisitioned, the assessee vide letter dated 24-02-2014 filed copies of confirmation of ledger account signed by parties, copy of PAN card of the parties, copy of invoices and delivery challan in support of the genuineness of parties. However, the ld. Assessing Officer disregarded the evidence placed on record by observing that none of the parties are traceable and could not be produced for verification and genuineness of expense. He further noted that four out of five of the parties have not filed return of income for the relevant assessment year which raises further suspicion on the genuineness of the expense. Another thing which the ld. Assessing Officer observed was that in cases on these parties amounts were credited in their bank accounts and almost immediately the entire amount was withdrawn in cash through bearer cheques. This was a common phenomenon in respect of all the parties mentioned 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 I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 7 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 that surrounding facts and circumstantial evidence clearly establish that purchases claimed to have been made from above parties are not genuine. The ld. Assessing Officer accordingly held that looking to the facts and circumstances, the assessee’s claim for purchases amounting to Rs. 44,05,249/- is found to be non-genuine and bogus and was disallowed. 5.2. In appeal, ld. CIT(A) gave part relief to the assessee and restricted disallowance to 12.5% of the concerned purchases as against total purchases disallowed by the Assessing Officer. The ld. CIT(A) accepted the assessee’s contention that sale of flat made by the appellant are not doubted, books of accounts are audited by chartered accountant who has not found any defect in purchases made by the assessee, the parties were duly registered with VAT/CST during the year under consideration, copies of PAN, confirmation of account signed by the parties, copy of invoices and delivery challan and bank statement etc. wherein payments made for purchases from these parties were through banking channel were furnished I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 8 during the course of assessment proceedings. However, the submission made by the assessee was found to be not fully acceptable, since the parties were not in existence at the given addresses and the ld. Assessing Officer has given a finding that amount deposited in the bank account of supplier were withdrawn in the next day and hence genuineness of payment made for purchase is doubtful. Accordingly, the ld. CIT(A) partly allowed the appeal of the assessee by restricting the disallowance to 12.5% of the purchases. 5.3. Before us, the assessee’s counsel argued that the ld. CIT(A) has erred in confirming the addition of Rs. 5,50,685/- as bogus purchases calculated at 12.5% of the purchases which is excessive when no such disallowance is called. The ld. Authorized Representative of the assessee reiterated that assessee had provided all details and evidences and vide reply dated 24-02- 2014, copy of PAN card of parties, confirmation of ledger account duly signed by parties, copies of invoices and delivery challan acknowledging delivery and payment etc. had been filed before the ld. Assessing Officer. The appellant had thus discharged its onus so as to justify the expenditure in question was genuine. He further submitted that all the payments were made through banking channel and hence disallowance 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 Rs. 5,50,660/-. I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 9 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 person before the Assessing Officer. The Assessing Officer made a disallowance of 100% of purchases from parties of doubtful identity. However, the ld. CIT(A) considering the facts of the case restricted the disallowance to 12.5% of total purchases. In the appeal before ITAT Ahmedabad Bench, the Hon’ble Bench on the above facts modified the order of the ld. CIT(A) by restricting the disallowance to 5% from 12.5% out of total purchases. 5.5 We note that that facts in the instant case are similar to the judgment cited by the assessee above. In the present case, though the assessee filed various details / evidences in order to prove genuineness of the purchases, but the vendors could not be produced despite being afforded several opportunities. Therefore, looking into the entirety of facts especially the fact that the sale of flats has been accepted as being genuine and the books of accounts of the assessee are audited by chartered accountant who has not I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 10 found any defect in purchases made by the appellant, we think it is fit to restrict the disallowance to 5% of the purchases, in the interest of justice. 5.6 Ground No. 1 of the assessee’s appeal is partly allowed and Ground Nos. 1 & 2 of Department’s appeal are dismissed. Ground No. 2: Disallowance of Rs. 6,04,326/- out of total depreciation on adhoc basis as personal expenditure 6. The brief facts in relation to this ground of appeal are that the assessee claimed depreciation amounting to Rs. 30,21,632/- on motor cars. During the course of assessment proceedings, the assessee was asked to furnish details of such vehicles as well as evidence in support of claim that vehicles have been used wholly and exclusively for the purpose of business. The assessee filed certain details, however, the ld. Assessing Officer noticed that the assessee failed to produce any log book/daily register or any other evidences to substantiate its claim that the motor cars are wholly and exclusively being used for the purpose of business only. The ld. Assessing Officer in these facts held that in absence of such supporting evidences viz. daily register/log book etc. involvement of personal element in use of these vehicles cannot be denied completely and he disallowed a sum of Rs. 6,04,326/- being 20% depreciation claimed of Rs. 30,21,632/- on motor cars on account of personal use by the assessee. 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 I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 11 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 1/5 th 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. 6.3 We have heard rival contentions. Regarding, disallowance of depreciation on motor vehicles, it would be useful to reproduce section 38 of the Act, which reads as below: 38. (2) Where any building, machinery, plant or furniture is not exclusively used for the purposes of the business or profession, the deductions under sub-clause (ii) of clause (a) and clause (c) of section 30, clauses (i) and (ii) of section 31 and clause (ii) of sub-section (1) of section 32 shall be restricted to a fair proportionate part thereof I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 12 which the Assessing Officer may determine, having regard to the user of such building, machinery, plant or furniture for the purposes of the business or profession. 6.4 In the case of CIT v. K.L. Bhasin & Co. [1986] 158 ITR 623 (Patna High Court), the High Court on disallowance of depreciation on motor cars on account of personal use, observed as below: It is well established that the partners cannot be considered as a separate entity from the firm. Hence, the contention that the partners and not the assessee-firm were using the cars for private purposes and there could, therefore, be no disallowance of depreciation to the assessee could not be accepted. On reading the provisions of section 38(2), it is clear that if a plant is partly used for the business purposes and partly used for non-business purposes then the disallowance in depreciation has to be made proportionately. In the instant case, the Tribunal had sustained a disallowance out of the car expenses to the extent of about one-fourth for personal use of the cars by the partners. However, no reference under section 256 had been made relating to the disallowance of car expenses. Hence, the order of the Tribunal disallowing about one-fourth of the expenses relating to the cars had become final under section 254(4). Under such circumstances, the fair proportion for disallowance of I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 13 depreciation should be one-fourth for use of the cars for private purposes. Again, it was undisputed that the Tribunal had held in its order that all the cars were used for the business purposes as well as for the private purposes. Therefore, the Tribunal was not justified in allowing the entire depreciation claimed by the assessee and it should have disallowed one-fourth of the depreciation claimed. 6.5 In the case of Virendra K. Mehta v ACIT [2007] 106 ITD 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 I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 14 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 profession. Assessing Officer in the assessment of the firm having held that 1/5th as the estimated proportion in respect of which the motorcars are not used exclusively for the purpose of business of the firm, following the same, we direct that 4/5ths of the claim for depreciation be allowed in the hands of both the appellants, the facts being the same. 6.6 We find that Mumbai ITAT in the case of SSK Engineering Works (supra) has restricted the disallowance of depreciation on motor vehicles to 10%, on similar set of facts, with the following observations:- “4. As regards ground Nos. 2 & 3 relating to the disallowance made out of motor-car expenses and depreciation on motor-car, it is observed that no record in the form of log book etc. was maintained by the assessee's to show that the said expenses were wholly and exclusively incurred for the purposes of its business. Since the use of motor cars of the assessee firm by its partners for personal purpose, could not be ruled out, the Assessing Officer made a disallowance of 20% out of motor-car expenses and depreciation on motor-car on motor-car on account of such personal use. On appeal, the learned CU(A) restricted the said disallowance to 10%. 5. After having considered all the facts of the case, we are of the view that the disallowance sustained by the learned CIT(A) at 10% of the I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 15 total expenses incurred by the assessee on motor-car and depreciation on motor-car for personal use is quite fair and reasonable and no further relief on this issue to the assessee is warranted. We, therefore, uphold the impugned order of the Learned CIT(A) on this issue and dismiss ground Nos. 2 & 3 of the assessee's appeal.” 6.7 In our view, considering the facts of the present case, 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. Respectfully following the above judgment in the case of SSK Engineering Works (supra) and for the sake of consistency, we restrict the disallowance to 10% of depreciation on motor vehicles for personal use as being fair and reasonable. 6.8 Ground No. 2 of the assessee’s appeal is allowed in part. Ground No. 3: Disallowance of Rs. 2,62,053/- out of petty cash expenses on adhoc basis 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 I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 16 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 Rs. 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 expenses, Diwali bonus, stationary expenses etc. are not supported by any bills/vouchers and thus the same are self-vouched. The ld. Assessing Officer looking into all these facts disallowed 10% of total cash expenses since the same is not supported by any bills/vouchers and thus the same are self-vouched. 7.1 In appeal before ld. CIT(A), the assessee submitted that the payment in cash is made towards petty expenses such as refreshment expenses, maintenance expenses, Diwali bonus, stationary expenses for which no vouchers are available and hence the same are supported by self-made vouchers. Further, the assessee submitted that the books of accounts are subject to independent audit by chartered accountant and hence no disallowance towards cash expenses on adhoc basis is justified. The ld. CIT(A) held that even during the course of appellate proceedings, the appellant has not provided any supporting evidences to controvert the observation of the Assessing Officer. Thus, in the absence of supporting I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 17 evidences, genuineness of payment made in cash is not established. Accordingly, the ld. CIT(A) held that disallowance in respect of petty cash expenses made in the assessment order at 10% of total cash expenses is found reasonable and accordingly disallowance of Rs. 12,62,053/- made out of cash expenses was upheld and thereby this ground of appeal of the appellant was dismissed. 7.2. Before us, the ld. Authorized Representative of the assessee reiterated the submissions made before the ld. CIT(A). The assessee contended that these are petty cash expenses incurred on routine basis in day to day working of the business and looking into the nature of expenses, being incurred wholly and exclusively for the purpose of business, no disallowance is called for in the instant set of facts. The assessee submitted that in case of petty expenses it is not possible to maintain all vouchers and in case when vouchers were not available the assessee has self-vouched the same. The ld. Departmental Representative on the other hand relied upon the observations of CIT(A)’s order and argued that the disallowance to the extent of 10% of expenses in the absence of any vouchers/self made vouchers is reasonable in the instant set of facts. 7.3. We have heard the rival contentions and perused the material on record. We find that the assessee have incurred a sum of Rs. 26,20,530/- 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. I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 18 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 had failed to maintain any log book/record which could rule out incurring of any part of the aforementioned expenses for non business purposes. We are of the considered view that in the absence of irrefutable documentary evidence which could substantiate the claim of expense raised by an assessee, the assessing authority is left with no other option but in all fairness to disallow a part of such expenditure so claimed by the assessee. In the case before us, as the assessee had failed to maintain the log book/records, and had merely tried to support its claim of cash expenses on the basis of self made vouchers, thus we are of the considered view that the A.O not I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 19 inspired by the said unsubstantiated claim of expenses by the assessee, had thus in all fairness disallowed 10% of such expenses leading to a consequential addition of Rs. 8,01,550/- in the hands of the assessee. We thus not finding any infirmity in the orders o the lower authorities, uphold the disallowed of 10% of the total expenses of Rs. 80,15,452/-. The Ground of Appeal No. 5 is dismissed. 7.6 The Cochin Tribunal in the case of Shalom Charitable Ministries of India v. ACIT [2018] 94 taxmann.com 266 (Cochin - Trib.) observed as below in respect of reasonable disallowance in respect of self- made vouchers: 23. We have heard the rival submissions and perused the record. The expenditure was disallowed on the basis of selfmade vouchers to the extent of Rs. 5 lakhs. In a normal trade practice, it is not possible to prove 100% bills and receipts from the recipients and there is every chance of making payments by way selfmade vouchers. However, there is every chance of inflating the expenditure by way of self- made vouchers. Hence, we direct the Assessing Officer to disallow only 20% of Rs. 5 lakhs, i.e. Rs. 1 lakh towards selfmade vouchers. Hence, this ground of appeal of the assessee is partly allowed. 7.7 In view of the facts in the instant case and the case laws cited in the preceding paragraphs, 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 I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 20 erred in disallowing a sum of 10% of total cash expenses amounting to Rs. 2,62,053/- 7.8 In the result, Ground No. 3 of assessee’s appeal is dismissed. Ground No. 4: Disallowance of Rs. 4,80,278/- towards travelling expenses 8. During the year under consideration, the assessee had incurred total travelling expenses of Rs. 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 Rs. 4,80,278/- out of travelling expenses, being personal in nature. 8.1 The ld. CIT(A) in appellate proceedings dismissed the appeal of the assessee for the reason that the assessee has not provided any supporting bills regarding visit of the partners to China and Dubai for the business I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 21 purposes. In absence of exact details regarding invoice for purchase of furniture for which such travelling expenses are incurred, this ground of appeal of the assessee was dismissed. 8.2 Before us, the ld. Authorized Representative of the 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 dismissed the assessee’s appeal due to lack of any supporting documents or evidences in support of the fact that the partner had travelled for official performances. 8.3 Accordingly, Ground No. 4 of assessee’s appeal is dismissed. Ground No. 5 of assessee’s appeal and Ground No. 3 of Department’s Appeal : Disallowance of interest expenditure 9. 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 disallowance of interest expenses made u/s. 36(1)(iii) of the Act of Rs. 18,53,888/- out of interest expenditure calculated on proportionate basis when no such disallowance is called for (Ground No. 5 of assessee’s appeal). The department’s ground of appeal is that the ld. CIT(A) has erred in restricting the disallowance of interest expenditure from Rs. 33,08,330/- to Rs. I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 22 14,54,500/-. (Ground No. 3 of Department’s appeal) We shall deal with both assessee’s and Revenue’s grounds of appeal together. 9.1 The brief facts relating to this ground of appeal are that during the year under consideration, the assessee claimed interest expenses of Rs. 82,70,827/- on secured loan taken from Mehsana Urban Co-operative Bank Ltd. On being enquired whether any interest bearing fund has been diverted for non-business purposes, the assessee submitted that some funds have been used for the purpose of giving advance towards purchase of land. The ld. Assessing Officer observed that till 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 Rs. I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 23 82,70,827/- is paid. The ld. CIT(A) held that assessee has not established that the advances are given for the business of the appellant. However, the ld. CIT(A) noted that the Assessing Officer while passing assessment order made adhoc disallowance of 40% of total interest of Rs. 82,70,827/- and disallowance is not based on any formula vis-à-vis facts of the case. The ld. CIT(A) made a proportionate disallowance of interest free advances calculated as a proportion of average advances to average total assets and accordingly, restricted the disallowance to Rs. 14,54,580/-. 9.3 Before us, the ld. counsel for the assessee submitted that the assessee’s interest free funds are much larger as compared to interest bearing funds and therefore it is incorrect to presume that interest free funds have been utilized for giving interest free advances. The assessee drew our attention to page 34 of CIT(A)’s order wherein the assessee submitted that assessee has a substantial pool of funds comprising of own funds, internal accruals and borrowed funds amounting to 8.51 crores comprising of partners capital (1.59 cores), interest free unsecured loans (Rs. 4.64 crores) and members collection (collection from members for booking of flats 2.27 crores). Further the assessee drew our attention to page 6 of the paper book in support of the fact that during the year it had interest free loans amounting to Rs. 4.73 cores at its disposal. The assessee further invited to our attention to page no. 22 and 23 of the paper book to point out that a total of Rs. 3.92 crores were given as interest free advances whereas the assessee has at its disposal Rs. 8.51 crores as interest free funds. The assessee placed reliance on the decision of Gujarat High Court in the case of Raghuveer Synthetics 354 ITR 222 which is to the effect that when huge funds were available I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 24 without any interest liability with the assessee and there was no evidence to hold that borrowed money was utilized for the purpose of advance to sister concern, no disallowance of interest were warranted. 9.4 The ld. Departmental Representative relied on the observation of the ld. Assessing Officer and drew our attention to page 39 of the assessment order wherein the ld. Assessing Officer had observed that in the present case there was clear-cut diversion of funds where borrowed amounts have been diverted for non-business purposes and given to various parties as interest free advances. Accordingly, the ld. Departmental Representative argued that ld. CIT(A) had erred in restricting the disallowance to Rs. 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:- I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 25 “It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company , if inerest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT (Appeals) and ITAT.” 9.6 In view of the above ruling and the facts brought to our notice, in our view, since the assessee had substantial interest free funds at its disposal, it would be incorrect to presume that interest bearing funds were used for giving interest free advances to parties. Therefore, no disallowance u/s. 36(1)(iii) is called for in the instant set of facts. In the result, ground no. 5 of the appeal of the assessee is allowed and ground no. 3 of the revenue’s appeal is dismissed. Ground Nos. 4 to 6 of the Department’s appeal: Deletion of the addition of Rs. 1,09,50,000/- made u/s. 68 of the Act 10. The brief facts of the case in relation to this ground are that during the year under consideration the assessee had received an amount of Rs. 1,00,00,000/- from one Mr. Jiten Amrutbhai Patel and a sum of Rs. 9,50,000/- from Mr. Natwarbhai Nai. The ld. Assessing Officer noted that I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 26 the genuineness of the transaction and creditworthiness of the parties could not be established and the unsecured loans from the above two parties remains totally unexplained. The ld. Assessing Officer accordingly added an amount of Rs. 1,09,50,000/- as unexplained cash credit u/s. 68 of the Act to the income of the assessee. 10.1 In appeal before the ld. CIT(A), he observed that regarding addition of unsecured loan of Rs. 1,00,00,000/- received from Jiten Amrutbhai Patel, the assessee provided various evidences such as confirmation of account, PAN number, bank statement of Jiten Amrutbhai Patel which sufficiently proves genuineness of the party. The ld. CIT(A) further observed that the loan was received through banking channel. The ld. CIT(A) noted that even after giving the loan Rs. 1,00,00,000/- to the assessee, he is left with the balance 9,32,784/- as on 31-03-2011 in his bank account. The ld. CIT(A) held that the case of the assessee is squarely covered by the decision of Rohni Builders 256 ITR 36 and disallowance made in assessment order towards unexplained cash u/s. 68 of Rs. 1,00,00,000/- is unsustainable. Regarding addition of unsecured loan of Rs. 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 I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 27 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 Rs. 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 free funds were received. He drew our attention to observations by ld. Assessing Officer at page no. 41 to 42 of the assessment order wherein the ld. Assessing Officer has made a categorical finding that both the creditworthiness of the above parties and the genuineness of the transactions remained unexplained. The ld. Departmental Representative argued that the onus was always on the assessee to adduce the evidence and to establish the bonafides of the transactions. Merely payment by account payee cheque would not make a non-genuine transaction genuine. The assessee was required to identify capacity of the depositor and genuineness of the transaction in order to ascertain whether the depositors appearing in the books of accounts of the assessee have to be accepted or rejected. The ld. counsel for the assessee, in response, submitted that the identity and genuineness of transaction has been proved and appreciated by ld. CIT(A) during the course of appellate proceedings. He drew our attention to page no. 97 of the paper book to show that this transaction was conducted through banking channels. The assessee further drew our attention to pages 94 to 96 of the paper book showing confirmation of parties. The assessee submitted that once the assessee has shown the source of income he is not required to prove the source of source. The assessee had given the identity of the parties and furnished the confirmation of the parties, the transaction has been I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 28 shown through banking channel, the PAN of the party and certificate of OCI evidencing the identity of parties has been furnished and thus the assessee had discharged the primary onus. The Department has not brought any evidence on record to suggest that it is assessee’s own unaccounted money which was received by it and the primary onus which was on the assessee has been discharged. The assessee placed reliance on the decisions of Gujarat High Court in the case of Rachhaod Jivabhai Nakhava 21 taxman.com 159 and in the case of Chanakya Developers 43 taxman.com 91, in support of its arguments. 11. We have heard the rival contentions and perused the material on record. We find that in the instant set of facts the assessee has discharged the primary onus cast upon it wherein he has identified the parties by furnishing their PAN details/certificates of OCI, the assessee has furnished confirmation of accounts of the 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, I.T.A Nos. 3140/Ahd/2015 & 3093/Ahd/2015 A.Y. 2011-12 Page No. DCIT vs. Unique Metropolis 29 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 of the Act. In the result, Ground Nos. 4 to 6 of Department’s appeal are dismissed. 12. In the result, the appeal of the assessee is partly allowed and the Department’s appeal is dismissed. Order pronounced in the open court on 16-03-2022 Sd/- Sd/- (P.M. JAGTAP) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 16/03/2022 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद
