MORANI MOTORAS PRIVATE LIMITED, JAIPUR V. ASSISTANT COMMISSIONER OF INCOME TAX, JAIPUR

ITA 434/JPR/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3754 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 03-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C GUPTA
• Assessee Lawyers: SUHANI MEHARVAL
• Keywords: Maximum Marginal Rate; Additional evidence; Corroborative evidences; TDS; Set aside
• Section: 194C; 44AB; 13; 22

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S A JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 434/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12 MORANI MOTORS PRIVATE LIMITED, 14, BAJAJ NAGAR ENCLAVE, BAJAJ NAGAR, JAIPUR CUKE VS. ACIT, CIRCLE-06, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AADCM5046N VIHYKFKHZ@ APPELLAN T IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : MS. SUHANI MEHARVAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI K.C. GUPTA (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 02/12/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 28/02/2020 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A), AJMER DATED 22.01.2018 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1. IN THE CIRCUMSTANCES OF CASE LD. CIT (A) ERRED IN REJECTING ADDITIONAL EVIDENCE UNDER RULE 46A, WHICH IS UNJUST IFIED AND TO BE ACCEPTED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE LD . ACIT ERRED AND LD. CIT (A) SUSTAINED, DISALLOWING RS. 46 ,875/- OF PRIOR ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 2 PERIOD EXPENSES WITHOUT CONSIDERING FACTS, WHICH IS UNJUSTIFIED AND LIABLE TO BE QUASHED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE LD . ACIT ERRED AND LD. CIT (A) SUSTAINED, DISALLOWING THE PA YMENT OF TRAVELLING EXPENSES RS. 55,040/- WITHOUT CONSIDERIN G FACTS, WHICH IS UNJUSTIFIED AND LIABLE TO BE QUASHED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE LD . ACIT ERRED AND LD. CIT (A) SUSTAINED DISALLOWING THE PAY MENT OF RENT OF RS. 3,00,000/- WITHOUT CONSIDERING THE SUBMISSION O F ASSESSEE, WHICH IS UNJUSTIFIED AND LIABLE TO BE QUASHED. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE LD . ACIT ERRED AND LD. CIT (A) SUSTAINED, IN ADDING RS. 8,64 ,000/- BY DISALLOWING INTEREST WRONGLY ALLEGING THAT INTEREST WAS NOT CHARGED ON SOME ADVANCES WITHOUT CONSIDERING THE SU BMISSION OF ASSESSEE, WHICH IS ILLEGAL, GROSSLY UNJUSTIFIED AND LIABLE TO BE DELETED. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE LD . ACTT ERRED AND LD. CIT (A) SUSTAINED, IN ADDING RS. 6,00 ,000/- BY DISALLOWING INTEREST WRONGLY ALLEGING THAT CAPITAL EXPENSES WERE INCURRED OUT OF INTEREST BEARING FUNDS, WHICH IS IL LEGAL, GROSSLY UNJUSTIFIED AND LIABLE TO BE DELETED. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE LD . CIT (A) ERRED IN PARTLY DISALLOWANCE OF SALARY OF RS. 4,56, 583/- OUT OF TOTAL DISALLOWANCE OF RS. 9,21,527/- MADE BY AO, WH ICH IS UNJUSTIFIED AND LIABLE TO BE DELETED. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE LD . ACIT ERRED AND LD. CIT (A) SUSTAINED, IN ADDING RS. 18,2 5,000/- U/S 68 ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 3 OUT OF SHARE APPLICATION MONEY WITHOUT CONSIDERING EVIDENCES, WHICH IS UNJUSTIFIED AND LIABLE TO BE QUASHED. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE LD . ACIT ERRED AND LD. CIT (A) SUSTAINED IN DISALLOWING RS. 10,83,521/- OUT OF VARIOUS EXPENSES BASED ON ASSUMPTIONS AND PRESUM PTIONS, WHICH IS ILLEGAL, GROSSLY UNJUSTIFIED AND LIABLE TO BE DELETED 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE I D. ACIT ERRED AND LD. CIT (A) SUSTAINED IN DISALLOWING RS. 21,378/- FOR WANT OF TDS IN SPITE OF EXPENSES BELOW THRESHOLD LI MIT, WHICH IS UNJUSTIFIED AND LIABLE TO BE DELETED. 2. THE ASSESSEE COMPANY IS A AUTHORIZED DEALER OF H ERO BRAND OF TWO WHEELERS AND ENGAGED IN THE SALE AND SERVICE OF TWO WHEELERS. IT FILED ITS RETURN OF INCOME ON 29.09.2011 DECLARING TOTAL INCOME OF RS 48,33,130 AND THE ASSESSMENT WAS COMPLETED U/S 1 43(3) AT ASSESSED INCOME OF RS 1,20,48,981/-. AGAINST VARIO US DISALLOWANCES MADE BY THE ASSESSING OFFICER WHICH HAVE BEEN SUSTA INED BY THE LD CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 3. FIRSTLY, WE TAKE UP GROUND NO. 2 OF ASSESSEES A PPEAL. IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE SUSTENANCE OF DISALLOWANCE OF PRIOR PERIOD EXPENSES AMOUNTING TO RS. 46,875/-BY T HE LD CIT(A). IN THIS REGARD, THE LD. AR SUBMITTED THAT THE ASSESSEE PAID INTEREST ON UNSECURED LOAN ON 24.04.2010 AND THE SAID INTEREST WAS RELATED TO THE LAST QUARTER OF PRECEDING FINANCIAL YEAR. THIS INTE REST COULD NOT BE DEBITED IN THE SAID YEAR UNDER BONAFIDE IMPRESSION THAT THE BORROWING WERE WITHOUT INTEREST. HOWEVER, THE CLAIM WAS MADE IN THE YEAR UNDER ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 4 CONSIDERATION AS THE ASSESSEE WAS FORCED TO PAY THE INTEREST. IN THESE CIRCUMSTANCES, THE INTEREST COULD NOT BE DEBITED IN EARLIER YEAR AND THE LIABILITY OF INTEREST AS WELL AS QUANTIFICATION OF INTEREST WAS MADE IN THE YEAR UNDER CONSIDERATION. IT WAS FURTHER SUBMITTED THAT NO REVENUE LOSS HAS ARISEN TO DEPARTMENT, SINCE ASSESSEE IS IN THE BRACKET OF MAXIMUM MARGINAL RATE AND ASSESSEE PAID THE TAX ONE YEAR BE FORE AND BORNE OUT LOSS OF INTEREST. IT WAS ACCORDINGLY SUBMITTED THAT EXPENSES ACCRUED, BORNE AND PAID IN THE YEAR THE SAME SHOULD BE DELET ED. 4. PER CONTRA, THE LD. DR SUBMITTED THAT THE ASSESS EE HAS FAILED TO PROVE THAT THE LIABILITY OF INTEREST WAS QUANTIFIED OR CRYSTALLIZED ONLY DURING THE PREVIOUS YEAR RELEVANT TO A.Y 2011-12. I T WAS FURTHER SUBMITTED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, THE DISALLOWANCE OF THE PRIO R PERIOD EXPENSES HAVE BEEN RIGHTLY CONFIRMED BY THE LD. CIT(A). IT W AS ACCORDINGLY SUBMITTED THAT NO INTERFERENCE IS CALLED FOR IN THE FINDINGS OF THE LD. CIT(A). 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS AN ADMITTED FACT THAT TH E INTEREST ON UNSECURED LOAN RELATES TO THE LAST QUARTER OF THE PRECEDING F INANCIAL YEAR. THEREFORE, WHERE THE ASSESSEE IS FOLLOWING MERCANTI LE SYSTEM OF ACCOUNTING, THEREFORE, THE INTEREST EXPENSES SHOULD HAVE BEEN CHARGED TO THE PROFIT/LOSS ACCOUNT IN THE PRECEDING FINANCI AL YEAR AND CLAIMED IN THE RETURN OF INCOME FOR THE PRECEDING ASSESSMENT Y EAR. THE EXPLANATION OF THE ASSESSEE AS TO WHY THE INTEREST ON THE UNSECURED LOAN COULD NOT BE DEBITED IN THE PRECEDING FINANCIA L YEAR IS THAT IT WAS ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 5 UNDER A BONA FIDE IMPRESSION THAT THE BORROWING WAS INITIALLY WITHOUT INTEREST AND SINCE THE LENDER MADE THE CLAIM OF INT EREST ONLY IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS FORCED TO PAY THE INTEREST. IN THIS REGARD, WE FIND THAT THERE IS NOTHING ON RECORD IN TERMS OF PERSON FROM WHOM THE AMOUNT HAS BEEN TAKEN ON LOAN AND FOR WHAT PERIOD AND UNDER WHAT TERMS AND CONDITIONS. IT IS A GENERIC EX PLANATION MADE BY THE ASSESSEE WHICH CANNOT BE ACCEPTED WITHOUT BRING ING THE RELEVANT MATERIAL ON RECORD. IT IS COMMON UNDERSTANDING THAT WHENEVER ANY LOAN IS TAKEN, THE TERMS AND CONDITIONS OF SUCH LOAN ARE AGREED IN ADVANCE BETWEEN THE PARTIES AND THEN ONLY THE MONEY CHANGES HAND. IN THE CASE OF THE ASSESSEE BEING A CORPORATE ENTITY, IT IS VERY DIFFICULT TO ACCEPT THE EXPLANATION THAT THE ASSESSEE WAS UNDER BONA FIDE IMPRESSION THAT THE BORROWING WERE WITHOUT INTEREST INITIALLY AND THEREAFTER THE LENDER HAS SUBSEQUENTLY MADE THE CLA IM UNLESS THE ASSESSEE IS ABLE TO BRING ON RECORD CREDIBLE VERIFI ABLE EVIDENCE IN SUPPORT OF ITS CONTENTION WHICH IT HAS FAILED TO DO SO IN THE INSTANT CASE. 6. HAVING SAID THAT, THE FACT THAT THE INTEREST WAS PAID BY THE ASSESSEE HAS NOT BEEN DISPUTED BY THE REVENUE AND F OLLOWING THE PROPOSITION LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF CASE OF EXCEL INDUSTRIES WHERE THERE IS NO CHANGE IN EFFECT IVE RATE OF TAX AT WHICH THE ASSESSEE COMPANY HAS PAID THE TAXES IN TH E PRECEDING FINANCIAL YEAR AND IN THE YEAR CONSIDERATION, THERE IS NO LOSS TO THE REVENUE. FURTHER, WHETHER SUCH BORROWING HAS BEEN M ADE FOR BUSINESS PURPOSES HAS NOT BEEN EXAMINED BY THE ASSESSING OFF ICER AS THE CLAIM WAS REJECTED ON GROUND OF PRIOR PERIOD EXPENSE, THE SAME HAS TO BE EXAMINED BY THE ASSESSING OFFICER. THEREFORE, FOR THESE TWO LIMITED ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 6 PURPOSES OF EXAMINING THE EFFECTIVE RATE OF TAX AT WHICH THE ASSESSEE COMPANY HAS PAID TAXES AND WHETHER BORROWING HAS BE EN MADE FOR BUSINESS PURPOSES, THE MATTER IS SET-ASIDE TO THE F ILE OF THE ASSESSING OFFICER AFTER PROVIDING REASONABLE OPPORTUNITY TO T HE ASSESSEE. IN THE RESULT, GROUND NO. 2 OF ASSESSEES APPEAL IS ALLOWE D FOR STATISTICAL PURPOSES. 7. REGARDING GROUND NO. 3, THE ASSESSEE HAS CHALLEN GED THE SUSTENANCE OF DISALLOWANCE OF TRAVEL EXPENSES AMOUN TING TO RS. 55,040/-. IN THIS REGARD, THE LD. AR SUBMITTED THAT TRAVELLING WAS DONE BY MR LAL MORANI, MANAGING DIRECTOR FOR ATTENDING T HE MEETINGS WITH THE PARENT COMPANY FOR WHICH THE COMPANY WAS DOING THE WORK. IT WAS SUBMITTED THAT M/S HERO MOTORCORP ORGANIZES MEETING S WITH THE MAIN DEALERS OF INDIA AT VARIOUS PLACES AND ASSESSEE, BE ING ONE OF THE DEALERS, WAS REQUIRED TO ATTEND SUCH MEETINGS AND E NTIRE PROOFS WERE FILED BEFORE AO DURING ASSESSMENT PROCEEDINGS. THER EFORE, THE ENTIRE TRAVEL EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLU SIVELY FOR BUSINESS PURPOSES AND THE SAME SHOULD BE ALLOWED. 8. PER CONTRA, THE LD. DR SUBMITTED THAT THE ASSESS EE DID NOT FILE ANY SUPPORTING EVIDENCE INCLUDING THE NAME OF THE PERSO N PERFORMING THE JOURNEY BEFORE THE LOWER AUTHORITIES. THEREFORE, TH E DISALLOWANCE OF FOREIGN EXPENSES HAVE BEEN RIGHTLY CONFIRMED BY THE LD. CIT(A). 9. HAVING HEARD BOTH THE PARTIES AND ON PERUSAL OF THE RECORDS, WE FIND THAT THE ASSESSEE HAS SUBMITTED A COPY OF THE INVOICE OF M/S SAPIENT TOURS & TRAVELS PVT. LTD. GIVING DETAILS OF THE FOREIGN TRAVEL ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 7 ITINERARY OF SH. LAL CHAND MORANI WHO TRAVELLED FRO M JAIPUR TO DELHI, HONG KONG AND MANILA. THEREFORE, AS FAR AS THE PER SON WHO HAS UNDERTAKEN THE FOREIGN TRAVEL, IT IS CLEAR THAT THE FOREIGN TRAVEL WAS UNDERTAKEN BY SH. LAL CHAND MORANI WHO HAPPENS TO B E THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY. HOWEVER THE QUEST ION THAT REMAINS IS WHETHER SUCH TRAVEL HAVE BEEN UNDERTAKEN FOR THE PURPOSES OF ASSESSEES BUSINESS OR NOT. IN THIS REGARD, THE LD. AR HAS CONTENDED THAT HE HAS TRAVELLED ABROAD TO ATTEND DEALERS MEE TING ORGANIZED BY M/S HERO MOTOCORP. THE CONTENTION HOWEVER STRONG N EEDS TO BE SUPPORTED BY APPROPRIATE EVIDENCE. HOWEVER, IN THE INSTANT CASE, WE FIND THAT NOTHING HAS BEEN BROUGHT ON RECORD IN TER MS OF ANY DEALERS MEETING INVITATION AND RELATED CORRESPONDENCE WHICH CAN REASONABLY BE RELIED UPON IN SUPPORT OF ASSESSEES CONTENTION. I N ABSENCE OF APPROPRIATE DOCUMENTARY EVIDENCE IN SUPPORT OF THE FOREIGN TRAVEL, THE ONUS CAST ON THE ASSESSEE IS NOT SATISFIED AND WE S EE NO INFIRMITY IN THE ACTION OF THE ASSESSING OFFICER AND THE DISALLOWANC E SO MADE BY THE ASSESSING OFFICER IS HEREBY CONFIRMED AND THE GROUN D NO. 3 OF ASSESSEES APPEAL IS DISMISSED. 10. IN GROUND NO. 4, THE ASSESSEE HAS CHALLENGED TH E SUSTENANCE OF DISALLOWANCE OF RENT EXPENSES OF RS. 3,00,000/-. B RIEFLY THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAS PAID RENT OF RS. 3,00,000/- TO ONE OF ITS DIRECTORS FOR ITS REGI STERED OFFICE AT A-34, KIRTI NAGAR, JAIPUR PURSUANT TO RENT AGREEMENT DATE D 01.04.2008. THE ENQUIRIES WERE CONDUCTED THROUGH THE INSPECTOR AND AS PER THE INSPECTORS REPORT, THE ASSESSEE COMPANY WAS USING THE SAID PREMISES ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 8 JUST FOR ADDRESS PURPOSES AND NO BUSINESS ACTIVITIE S WERE BEING CARRIED OUT AND THE SAID PREMISES WERE ACTUALLY RESIDENCE O F THE DIRECTORS. ACCORDING, A SHOW CAUSE WAS ISSUED TO THE ASSESSEE- COMPANY AS TO WHY THE RENT PAYMENT SHOULD NOT BE DISALLOWED. IN R ESPONSE, THE ASSESSEE COMPANY SUBMITTED THAT IT IS MAINTAINING I TS REGISTERED OFFICE AT THE SAID PREMISES AS REQUIRED UNDER THE COMPANY ACT WHERE ALL NECESSARY REGULATORY AND OTHER CORRESPONDENCE CAN B E RECEIVED. THE SUBMISSIONS SO FILED BY THE ASSESSEE WERE CONSIDERE D HOWEVER, NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER. AS PER THE ASSESSING OFFICER, IT IS A FACT THAT AS PER THE COMPANY ACT, REGISTERE D OFFICE OF THE ASSESSEE COMPANY HAS BEEN DECLARED AT THE SAID PREM ISES HOWEVER, AS PER THE FIELD ENQUIRY, IT HAS BEEN FOUND THAT THE A SSESSEE-COMPANY IS USING THE PREMISES JUST FOR ADDRESS PURPOSE AND NO OFFICE IS BEING RUN AT THE SAID PREMISES. THE SAID PREMISES ARE RESIDEN CE OF THE DIRECTORS OF THE ASSESSEE-COMPANY AND EVEN WHERE THE CONTENTION OF THE ASSESSEE- COMPANY IS ACCEPTED, THE ASSESSEE HAS FAILED TO FUR NISH LAY OUT OF THE PREMISES INDICATING THE AREA USED BY THE ASSESSEE C OMPANY AS ITS REGISTERED OFFICE. SINCE RUNNING AN OFFICE IS A COM MERCIAL AFFAIRS, IT REQUIRES SEPARATE ELECTRIC & WATER CONNECTIONS AND AS PER THE RENT AGREEMENT, THE TENANT HAS TO BEAR THE ADDITIONAL EX PENSES ON ELECTRICITY, WATER AND MAINTENANCE EXPENSES. THE AS SESSEE-COMPANY HAS NOT BROUGHT ON RECORD ANY EVIDENCE IN TERMS OF ELECTRIC BILLS & WATER BILLS TO PROVE ITS CONTENTION. IT WAS ACCORDINGLY H ELD THAT THE ASSESSEE- COMPANY HAS PAID EXCESS RENT OF RS. 3,00,000/- WHIC H IS NOT INCLINED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE-COMPANY AND EVEN OTHERWISE, THE SAID PAYMENT IS COVERED UNDER THE PROVISIONS OF 40A(2)(B) OF THE IT ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 9 ACT AND ACCORDINGLY, THE SAID AMOUNT WAS DISALLOWE D AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE-COMPANY. 11. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD. CIT(A) WHICH HAS SINCE SUSTAINED THE SAID A DDITION. AS PER THE LD. CIT(A), THE RENT PAID TO THE DIRECTOR OF THE ASSESS EE WAS UNREASONABLE AS THERE WAS NO SEPARATE ELECTRIC AND WATER CONNECT ION IN THE NAME OF THE ASSESSEE-COMPANY AND AS PER PROVISION OF SECTIO N 40A(2)(B) OF THE ACT, ANY UNREASONABLE EXPENDITURE IS DISALLOWABLE. AGAINST THE SAID FINDINGS, THE ASSESSEE-COMPANY IS IN APPEAL BEFORE US. 12. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE ASSESSEE-COMPANY IS AN AUTHORIZED DEALER OF HYUNDAI CARS AND ENGAGED IN THE SALES AND SERVICE OF THE CARS. THE DIRECTORS OF THE ASSESSEE- COMPANY ARE REQUIRED TO SPEND TIME RIGHT FROM EARLY MORNING TO LATE EVENING IN SUCH CIRCUMSTANCES THERE ARE RUNNING THE IR OFFICE FROM RESIDENCE ALSO. FURTHER, THE ASSESSEE COMPANY MAINT AINS THE HEAD OFFICE AND REGISTERED OFFICE AT A- 34, KIRTI NAGAR, JAIPUR AND ALL THE MEETING OF BOARD OF DIRECTORS AND SHAREHOLDERS ARE HELD AT THIS PLACE ONLY. ALL THE CORRESPONDENCE FROM THE INCOME TAX DE PARTMENT AND OTHER AUTHORITIES ARE RECEIVED AT THIS ADDRESS ONLY . IN SUPPORT OF THE MEETINGS OF BOARD OF DIRECTORS AND THE ANNUAL GENER AL MEETINGS, COPY OF THE MINUTE BOOKS WAS PLACED ON RECORD. IT WAS SU BMITTED THAT THE RENT WAS SUBJECT TO TDS AND THE PAYMENT WAS MADE AF TER DEDUCTION OF TDS THEREON. IT WAS FURTHER SUBMITTED THAT THE RENT WAS PAID TO ONE OF THE DIRECTORS OF THE ASSESSEE-COMPANY WHO WAS UNDER THE HIGHEST TAX SLAB AND IN SUPPORT, COPY OF HIS TAX RETURNS WERE SUBMITTED WHICH ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 10 PROVES THAT THERE IS NO INTENTION TO AVOID ANY INCO ME TAX LIABILITY. IT WAS FURTHER SUBMITTED THAT THE AO INVOKED THE PROVISION S OF SECTION 40A(2)(B) OF THE ACT AND HAS DISALLOWED THE WHOLE OF THE RENT PAYMENT HOWEVER, THE ENTIRE EXPENSES CANNOT BE CONSIDERED A S EXCESSIVE AND NO COMPARABLE CASE HAS BEEN SUBMITTED AS TO WHY THE R ENT PAYMENT WAS EXCESSIVE. IT WAS ACCORDINGLY SUBMITTED THAT THE AD DITION SO MADE BY THE AO SHOULD BE DELETED. 13. PER CONTRA, THE LD. DR IS HEARD WHO HAS RELIED ON THE ORDER OF LOWER AUTHORITIES AND HAS TAKEN US THROUGH ITS FIND INGS OF THE LOWER AUTHORITIES WHICH HAVE BEEN TAKEN NOTE OF AND NOT B EEN REPEATED FOR THE SAKE OF GRAVITY. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS PER THE RENT AGREEMENT DATE D 01.04.2008 ENTERED INTO BETWEEN THE ASSESSEE-COMPANY AND SHRI JAWAHAR MORANI, ONE OF THE DIRECTORS OF THE ASSESSEE-COMPANY AND AL SO THE OWNER OF THE PREMISES SITUATED AT A-34, KIRTI NAGAR, JAIPUR, THE ASSESSEE-COMPANY HAS TAKEN THE PREMISES AT THE FIRST FLOOR CONSISTIN G OF AN OFFICE ALONG WITH ATTACHED TOILET FOR THE PURPOSE OF ITS BUSINES S FOR THE PERIOD OF 3 YEARS FOR MONTHLY RENT OF RS. 25,000/-. THEREFORE, IT IS NOT THE ENTIRE PREMISES WHICH HAVE BEEN TAKEN ON RENT BY THE ASSES SEE-COMPANY RATHER THE PREMISES SITUATED AT FIRST FLOOR ONLY WH ICH HAVE BEEN TAKEN ON RENT BY THE ASSESSEE-COMPANY FOR THE PURPOSE OF ITS BUSINESS. THEREFORE, THE DIRECTOR OF THE ASSESSEE-COMPANY IS STAYING AT THE GROUND FLOOR AND THE FIRST FLOOR HAS BEEN FOR TAKEN ON RENT BY THE ASSESSEE COMPANY WHICH IS CLEARLY SPECIFIED IN THE RENT AGREEMENT. ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 11 FURTHER, IT IS AN ADMITTED FACT AND WHICH HAS NOT B EEN DISPUTED BY THE REVENUE THAT THE SAID PREMISES ARE USED AS THE REGI STERED OFFICE OF THE ASSESSEE-COMPANY AS THE EVERY COMPANY REGISTERED UN DER THE COMPANY ACT IS STATUTORILY REQUIRED TO HAVE A REGIS TERED OFFICE WITHIN THE JURISDICTIONAL LIMIT OF THE CONCERNED REGISTRAR OF COMPANIES WHERE ALL STATUTORY AND OTHER CORRESPONDENCE CAN BE RECEI VED ON BEHALF OF THE COMPANY. FURTHER, ON PERUSAL OF THE MINUTE BOOKS O F THE ASSESSEE- COMPANY, IT IS NOTED THE MEETINGS OF BOARD OF DIREC TORS AND ALSO OF THE SHAREHOLDERS IN TERMS OF ANNUAL GENERAL MEETINGS AR E REGULARLY HELD AT THIS PLACE. THEREFORE, WE FIND THAT THE SAID OFFIC E PREMISES HAVE BEEN USED FOR THE PURPOSES OF ASSESSEE-COMPANYS BUSINES S AND IT HAS ESTABLISHED THE NECESSARY NEXUS OF THE RENT EXPENSE S BEING INCURRED FOR THE PURPOSE OF ITS BUSINESS. FURTHER, THE AO HAS IN VOKED THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, IN THIS REGARD, IT IS ADMITTED FACT THAT THE RENT PAYMENTS HAVE BEEN MADE BY THE ASSESSEE CO MPANY TO ONE OF ITS DIRECTORS, HOWEVER, MERELY BECAUSE PAYMENT HAS BEEN MADE TO A RELATED PERSON WOULD NOT BE SUFFICIENT TO MAKE THE DISALLOWANCE U/S 40A(2)(B) OF THE ACT. THE ONUS IS ON THE REVENUE TO BRING ON RECORD COMPARABLE INSTANCES WHEREIN THE RENT PAYMENT FOR S IMILAR PREMISES ARE THE LOWER THAN THE RENT PAID BY THE ASSESSEE-COMPAN Y. HOWEVER, THERE IS NOTHING ON RECORD WHICH HAS BEEN BROUGHT BY THE REVENUE TO HOLD THE PAYMENT AS EXCESSIVE. THEREFORE, IN LIGHT OF T HE AFORESAID DISCUSSION, THE DISALLOWANCE SO MADE BY THE ASSESSI NG OFFICER IS HEREBY DELETED AND THE GROUND NO. 4 OF ASSESSEES APPEAL I S ALLOWED. 15. NOW, WE TAKE UP GROUND NO. 5 ALONG WITH GROUND NO. 1. IN GROUND NO. 5, THE ASSESSEE HAS CHALLENGED THE SUSTE NANCE OF ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 12 DISALLOWANCE OF RS. 8,64,000/- BY DISALLOWING INTER EST WRONGLY ALLEGING THAT INTEREST WAS NOT CHARGED BY THE ASSESSEE. IT W AS SUBMITTED BY THE LD AR THAT THE ASSESSEE HAS ADVANCED A SUM OF RS. 7 2,00,000/- TO M/S LOTUS BUILDSTATE PVT. LTD. AS BOOKING AMOUNT FOR LA ND FOR CONSTRUCTION OF GODOWN FOR SAFE STORAGE OF TRADED GOODS. UNFORTUNAT ELY, BOOKING HAS BEEN CANCELLED DURING NEXT YEAR AND ADVANCE WAS RET URNED BACK. THEREAFTER, A SHOWROOM WAS PURCHASED FROM M/S LOTUS BUILDSTATE PVT. LTD VIDE REGISTRATION SALE DEED DATED 18.07.2012. I T WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS MOVED AN APPLICATIO N UNDER RULE 46A BEFORE THE LD. CIT(A) FOR ADMISSION ADDITIONAL EVID ENCE IN FORM OF COPY OF APPLICATION FORM FOR BOOKING OF SHOWROOM AS WELL AS COPY OF THE REGISTERED SALE DEED AS THE SAME COULD NOT BE FILED BEFORE THE AO FOR WANT OF PROPER COUNSELING. HOWEVER, THE ADDITIONAL EVIDENCE WAS NOT ADMITTED BY THE LD. CIT(A). IT WAS SUBMITTED THAT T HE SIMILAR APPLICATION UNDER RULE 46A HAVE BEEN FILED IN A.Y 2012-13 BEFOR E THE LD. CIT(A) AND WHICH WAS DULY ACCEPTED AND THE APPEAL WAS ALLO WED. IT WAS SUBMITTED THAT THESE DOCUMENTS CATEGORICALLY PROVE THE BUSINESS EXPEDIENCY OF ADVANCING THE AMOUNT BY THE ASSESSEE. THEREFORE, IT WAS REQUESTED TO ADMIT THE ADDITIONAL EVIDENCE SO FILED BY THE ASSESSEE (AS ALSO RAISED IN GROUND NO. 1 OF ASSESSEES APPEAL) A ND THE MATTER MAY BE SET-ASIDE TO THE FILE OF THE AO TO EXAMINE THE SAME ON MERITS. 16. THE LD. DR IS HEARD WHO HAS OPPOSED THE ADMISS ION OF THE ADDITIONAL EVIDENCE. 17. AFTER HEARING BOTH THE PARTIES AND CONSIDERING THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THE AS SESSEE DESERVE AN ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 13 OPPORTUNITY TO PLACE ON RECORD THE ADDITIONAL EVIDE NCE AS TECHNICALITY CANNOT OVERRIDE THE SUBSTANTIAL JUSTICE AND RECOVE RY OF JUST AND DUE TAXES. WE HEREBY ADMIT THE ADDITIONAL EVIDENCE SO FILED BY THE ASSESSEE AND THE MATTER IS SET ASIDE TO THE FILE OF THE AO TO EXAMINE THE SAME ON MERITS. IN THE RESULT, THE GROUND NO. 1 OF ASSESSEES APPEAL IS ALLOWED AND GROUND NO. 5 OF THE ASSESSEE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 18. IN GROUND NO. 6, THE ASSESSEE HAS CHALLENGED T HE DISALLOWANCE OF INTEREST OF RS. 6,00,000/- BY THE ASSESSING OFFI CER. IN THIS REGARD, THE LD. AR SUBMITTED THAT THE SAID AMOUNT WAS GIVEN AS ADVANCE FOR PURCHASE OF LAND. IT WAS SUBMITTED THAT THE ASSESSE E HAS OWN NET WORTH OF RS. 17.50 CRORES AND THE SAID ADVANCE WAS MADE F ROM ASSESSEES OWN FUNDS AND NOT OUT OF BORROWED FUND. IT WAS SUBM ITTED THAT THE ADDITION WAS MADE BY INVOKING SECTION 36(1)(III) OF THE ACT WHEREAS NO LOAN WAS TAKEN FOR PURCHASE OF LAND. IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) HAS ALLOWED THE ASSESSEES APPEAL ON SAM E GROUND FOR A.Y 2012-13. IT WAS ACCORDINGLY SUBMITTED THAT WHERE TH E ADVANCE HAS BEEN MADE OUT OF ASSESSEES OWN FUND IN ABSENCE OF ANY NEXUS ESTABLISHED BY THE ASSESSING OFFICER BETWEEN BORROW ED FUND AND THE INTEREST FREE ADVANCE FOR PURCHASE OF LAND, NO ADDI TION CAN BE MADE IN THE HANDS OF THE ASSESSEE COMPANY. 19. PER CONTRA, THE LD. DR SUBMITTED THAT DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY HAS AD VANCED A SUM OF RS. 10 LAKH FOR PURCHASE OF LAND SITUATED AT GRAM P ANCHORI AND RS. 14 LAKH FOR LAND SITUATED NEAR CHOWKI DHANI, TONK ROAD , JAIPUR. THE ASSESSEE WAS ASKED TO SUBMIT COPY OF THE AGREEMENT IN SUPPORT OF THE ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 14 AFORESAID ADVANCES, HOWEVER, THE ASSESSEE HAS NOT F URNISHED ANY EVIDENCE INCLUDING COPY OF THE AGREEMENT TO JUSTIFY THE INTEREST FREE ADVANCE PAYMENT. EVEN NO REASON/PURPOSE FOR PURCHAS E OF LAND WAS INFORMED TO THE ASSESSING OFFICER. IT WAS FURTHER SUBMITTED THAT THE SAID INTEREST FREE ADVANCE HAS BEEN GIVEN OUT OF FU ND RAISED BY ASSESSEE FROM VARIOUS BANKS AND PRIVATE PARTIES AND THE ASSESSEE HAS CLAIMED THE INTEREST EXPENSE IN THE PROFIT AND LOSS ACCOUNT. REFERRING TO THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT, THE INTEREST SHOULD HAVE BEEN CAPITALIZED AND NOT ALLOWABLE AS REVENUE DEDUC TION. IT WAS FURTHER SUBMITTED THAT EVEN WHERE THE ADVANCE TOWARDS PURCH ASE OF LAND HAS BEEN HELD TO BE FOR BUSINESS PURPOSE, THE LAND IN Q UESTION HAVE NOT BEEN PUT TO USE TILL END OF THE ASSESSMENT YEAR. TH EREFORE, THE INTEREST PAID ON ACCOUNT OF ADVANCE USED FOR PURCHASE OF SAI D PROPERTY IS NOT DEDUCTIBLE ITEM FROM INCOME OF THE ASSESSEE AS REFE RRED TO IN SECTION 36(1)(III) OF THE ACT AND ACCORDINGLY, AO APPLYING THE RATE OF INTEREST @ 12% HAS DISALLOWED INTEREST OF RS. 6,00,000/- AND A DDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IT WAS FURTHER SU BMITTED THAT EVEN DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO SHOW THAT THE INTEREST FREE ADVANCE WER E GIVEN FOR ANY BUSINESS PURPOSE. FURTHER, THE ASSESSEE HAS NOT FUR NISHED ANY FUND FLOW STATEMENT TO SHOW THAT INTEREST FREE FUNDS OR OWN CAPITAL HAS BEEN USED FOR GIVING THE INTEREST FREE ADVANCE OF RS. 15 ,00,000/-. ACCORDINGLY, THE CONTENTION OF THE ASSESSEE THAT NO INTEREST BEARING BORROWED FUND WAS UTILIZED FOR GIVING INTEREST FREE ADVANCE WAS NOT FOUND ACCEPTABLE BY THE LD CIT(A). IT WAS ACCORDING LY SUBMITTED THAT THERE IS NO INFIRMITY IN THE FINDINGS OF THE LOWER AUTHORITIES AND THE SAME SHOULD BE CONFIRMED. ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 15 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, WE FIND T HAT WHERE THE ASSESSEE WAS ASKED TO SHOW-CAUSE TO EXPLAIN THE INT EREST-FREE TRANSACTION TOWARDS ADVANCE FOR PURCHASE OF LAND, I T IS INCUMBENT UPON THE ASSESSEE TO DEMONSTRATE THROUGH VERIFIABLE EVID ENCE THAT THE ADVANCE SO MADE IS ACTUALLY TOWARDS PURCHASE OF LAN D AND SECONDLY, SUPPORT ITS CONTENTION THAT SUCH ADVANCE IS OUT OF ITS INTEREST-FREE FUNDS. WE HOWEVER FIND THAT THE ASSESSEE HAS MERELY STATIN G THAT IT HAS NET- WORTH OF RS 17.50 CRORES WHICH IS SUFFICIENT TO PLA CE SUCH ADVANCES OF RS 50 LACS. IN OUR VIEW, WHAT IS RELEVANT IS TO DE MONSTRATE THAT SUCH NET-WORTH IS REPRESENTED BY SURPLUS FUNDS WHICH CAN BE EASILY DEPLOYED. IN OTHER WORDS, THERE ARE LIQUID FUNDS WHICH ARE NO T LOCKED UP IN ASSETS AND INVENTORY AND WHICH CAN BE ACTUALLY USED FOR PL ACING THE ADVANCE TOWARDS THE PURCHASE OF LAND. THAT IS, AVAILABILIT Y OF SURPLUS DEPLOYABLE FUNDS AT THE RELEVANT POINT IN TIME WHEN THE ADVANC ES WERE PLACED TOWARDS THE PURCHASE OF LAND. SECONDLY, WHETHER SU CH FUNDS ARE ARISING OUT OF OPERATING REVENUES FOR THE YEAR AND OTHERWIS E AVAILABLE AS PART OF FREE RESERVES AND DOESNT CARRY ANY INTEREST BUR DEN OR NOT. IN THE INSTANT CASE, WE FIND THAT THERE ARE MERE CONTENTIO NS NOT SUPPORTED BY ANY HARD DATA AND FIGURES. AT THE SAME TIME, WHERE THE ASSESSING OFFICER ALLEGES THAT INTEREST BEARING FUNDS HAVE BE EN USED FOR PLACING SUCH ADVANCES, THE ONUS IS EQUALLY ON THE REVENUE T O SUPPORT THE SAID CONTENTION WITH VERIFIABLE HARD DATA AND FIGURES. MERELY STATING THAT THE ASSESSEE IS PAYING HUGE INTEREST COST ON BORROWED F UNDS AND HAS GIVEN INTEREST-FREE FUNDS IS NOT SUFFICIENT AS NECESSARY NEXUS HAS TO BE ESTABLISHED BETWEEN THE BORROWED FUNDS AND PLACING OF SUCH ADVANCES. WE THEREFORE FIND THAT THERE ARE SHORT-COMINGS ON B OTH SIDE, THE MATTER ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 16 REQUIRE FURTHER EXAMINATION, AND IN THE INTEREST OF JUSTICE, IT WOULD BE APPROPRIATE THAT THE MATTER IS SET-ASIDE TO THE FIL E OF THE ASSESSING OFFICER TO EXAMINE THE SAME AFRESH AFTER PROVIDING REASONABLE OPPORTUNITY TO THE ASSESSEE. IN THE RESULT, THE MA TTER IS SET-ASIDE TO THE FILE OF THE AO AND THE GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 21. IN GROUND NO. 7, THE ASSESSEE HAS CHALLENGED TH E SUSTENANCE OF DISALLOWANCE OF SALARY EXPENSES OF RS. 4,56,583/- OUT OF TOTAL DISALLOWANCE OF RS. 9,21,527/- MADE BY THE ASSESSIN G OFFICER. IN THIS REGARD, THE LD. AR SUBMITTED THAT AO HAS DISALLOWED THE SALARY PAYMENT OF RS. 9,21,527/- OUT OF THIS DISALLOWANCE, LD CIT (A) RESTRICTED THE DISALLOWANCE TO RS. 456,583/-. A CHART WAS GIVEN BE FORE AO WHICH IS PLACED ON PAGE NO 12 OF AO ORDER WHEREIN IT CAN BE NOTED THAT IN MONTH OF APRIL, NO SALARY WAS PAID AND IN THE MONTH OF MARCH, DOUBLE SALARY WAS PAID. 22. IT WAS SUBMITTED THAT THE ASSESSEE PAID SALARY TO STAFF ON 7TH DAY OF FOLLOWING MONTH. SALARY OF APRIL IS PAID ON 7TH MAY AND SO ON. ACCORDINGLY, NO SALARY WAS PAID IN APRIL. SINCE THE MONTH OF MARCH IS THE LAST MONTH, TO FOLLOWING ACCRUAL CONCEPT THE SALARY IS PROVIDED ON 31ST MARCH. THE SALARY, SO OUTSTANDING HAS BEEN PAID IN FOLLOWING MONTH IN NEXT YEAR. ACCORDINGLY, IN THE CHART THE SALARY AMO UNT IS SHOWN TWICE PLACED ON PAGE 90 OF PAPER BOOK. ASSESEEE MAINTAINS FULL RECORD OF SALARIES. SALARY WAS PAID AFTER DEDUCTION AND PAYIN G ESI, PF ETC. RECORDS ARE SUBJECT TO REGULAR SCRUTINY OF LABOUR D EPARTMENT. WE ARE SUBMITTING DETAILED CHART SHOWING MONTH WISE SALARY , PF, ESI AND NET ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 17 PAYMENT TO EMPLOYEES ALONG WITH EVIDENCES. COPIES O F ACCOUNT ARE ALSO ENCLOSED TO PROVE THE PAYMENT IN NEXT YEAR WHICH AR E PLACED AT PAGE NO 90-134 OF PAPER BOOK. DISALLOWANCE OUT OF SALARY IS NOT BASED ON EVEN REMOTE JUSTIFICATION. 23. IT WAS SUBMITTED THAT THE AO DISALLOWED THE SAL ARY CALCULATING AVERAGE SALARY PER MONTH FROM APRIL TO JANUARY IN W RONG WAY WHICH WAS FURTHER RESTRICTED BY LD.CIT(A). BUT LD.CIT(A) ERRED IN APPRECIATING THAT THE SLIGHT INCREMENT IN SALARY IS BEING JUSTIF IED BY DEPOSITING HIGHER ESI. 24. IT WAS FURTHER SUBMITTED THAT ON SIMILAR FACTS , THE AO ALSO MADE DISALLOWANCE IN M/S MORANI CARS PVT. LTD., SISTER C ONCERN WHICH HAS BEEN DELETED BY THE LD CIT(A). 25. PER CONTRA, THE LD. DR IS HEARD WHO HAS RELIED ON THE FINDINGS OF THE ASSESSING OFFICER AND SUBMITTED THAT THE LD. CI T(A) HAS ALREADY ALLOWED RELIEF OF RS. 4,64,944/- TO THE ASSESSEE CO MPANY AND THEREFORE, THE BALANCE DISALLOWANCE HAS BEEN RIGHTLY SUSTAINED BY THE LD. CIT(A) AND OUR REFERENCE WAS DRAWN TO THE FINDINGS OF THE LD. CIT(A) WHICH CONTAINED AT PARA 11.3 WHICH READS AS UNDER:- 11.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER, GRO UNDS OF APPEAL AND WRITTEN SUBMISSION CAREFULLY. THE CONTEN TION OF THE APPELLANT THAT THE TOTAL SALARY DEBITED BY THE APPE LLANT DURING THE F.Y. 2011-12 IS ONLY IN RESPECT OF 12 MONTHS ONLY I S FOUND TO BE CORRECT. AS FROM THE ASSESSMENT ORDER ITSELF, IT IS CLEAR THAT THOUGH IN THE MONTH OF MARCH, THE AMOUNT OF SALARY DEBITED IS ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 18 MORE THAN DOUBLE OF THE AVERAGE SALARY OF THE OTHER MONTHS, BUT IN THE MONTH OF APRIL 2010, NO SALARY HAVE BEEN DEB ITED. HOWEVER, IT IS ALSO TRUE THAT IN THE MONTH OF FEBRU ARY AND MARCH 2011, THE AMOUNT OF SALARY DEBITED IS EXTRAORDINARY HIGH. THE SALARY PAYMENT IN THE OTHER MONTHS OF THE FINANCIAL YEAR VARY FROM RS. 3,90,636/- TO RS. 4,36,443/-. THE AO HAS M ENTIONED IN THE ASSESSMENT ORDER THAT THE APPELLANT DID NOT FUR NISH COMPLETE NAME AND ADDRESS OR DESIGNATION OF THE EMPLOYEES WH OM THE SALARY WAS CLAIMED TO HAVE BEEN PAID. THE MAXIMUM S ALARY IS CLAIMED TO HAVE BEEN PAID IN CASH. IN VIEW OF THESE FACTS, I AM OF THE CONSIDERED VIEW THAT IT WOULD BE FAIR AND REASO NABLE TO ALLOW DEDUCTION OF RS. 4 LAC EACH IN RESPECT OF SALARY FO R THE FEBRUARY- MARCH 2011. ACCORDINGLY, THE DISALLOWANCE OF RS. 4, 56,583/- (RS. 11,52,206 + RS. 5,04,377 RS. 12,00,000) IS HEREBY CONFIRMED AND REMAINING DISALLOWANCE OF RS. 4,64,944/- IS HER EBY DELETED. 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LIMITED ISSUE IS WHETHER S ALARY EXPENSE SHOWN TO HAVE BEEN CLAIMED BY THE ASSESSEE COMPANY FOR TH E MONTH OF FEBRUARY AND MARCH, 2010 HAS ACTUALLY BEEN INCURRED BY THE ASSESSEE COMPANY OR THE SAME HAS BEEN ARTIFICIALLY INFLATED TO CLAIM HIGHER EXPENDITURE. THE CONTENTION OF THE ASSESSEE THAT A MOUNT DEBITED IN THE MONTH OF MARCH RELATES TO TWO MONTHS ON ACCOUNT OF ACCRUAL METHOD OF ACCOUNTING HAS BEEN ACCEPTED BY THE LOWER AUTHORITIES AND IS THUS NOT IN DISPUTE. ONLY MATTER WHICH REQUIRES DE TERMINATION IS THE QUANTUM OF SALARY WHICH HAS BEEN INCURRED BY THE AS SESSEE COMPANY FOR THESE TWO MONTHS. THE LD CIT(A) HAS RECORDED A FINDING THAT DURING ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 19 THE ASSESSMENT AND APPELLATE STAGE, THE ASSESSEE DI D NOT FURNISH COMPLETE NAME AND ADDRESS OR DESIGNATION OF THE EMP LOYEES WHOM THE SALARY WAS CLAIMED TO HAVE BEEN PAID AND THE MAXIMU M SALARY IS CLAIMED TO HAVE BEEN PAID IN CASH. PER CONTRA, THE CONTENTION OF THE ASSESEEE IS THAT IT MAINTAINS FULL RECORD OF SALARI ES SUBJECT TO REGULAR SCRUTINY OF LABOUR DEPARTMENT. FURTHER, SALARY HAS BEEN PAID AFTER DEDUCTION OF ESI, PF ETC AND DETAILS ARE AVAILABLE ON RECORD SHOWING MONTH WISE SALARY, PF, ESI AND NET PAYMENT TO EMPLO YEES ALONG WITH EVIDENCES. THE QUESTION IS WHETHER SUCH RECORDS WER E PRODUCED AND AVAILABLE BEFORE THE ASSESSING OFFICER FOR HIS EXAM INATION OR NOT, HOWEVER, WE DONOT FIND ANY CLEAR ANSWER FROM THE PE RUSAL OF RECORDS. GIVEN THAT SUCH RECORDS ARE CLAIMED TO BE MAINTAINE D AT THE RELEVANT POINT IN TIME AND ALREADY SUBJECT TO SCRUTINY OF LA BOUR DEPARTMENT, WE BELIEVE THAT THE ASSESSEE DESERVE ONE MORE OPPORTUN ITY TO PRODUCE SUCH RECORDS FOR VERIFICATION BEFORE THE ASSESSING OFFICER AND THE MATTER IS ACCORDINGLY SET-ASIDE TO THE FILE OF THE ASSESSI NG OFFICER. IN THE RESULT, THE GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PUR POSES. 27. IN GROUND NO. 9, THE ASSESSEE HAS CHALLENGED TH E SUSTENANCE OF DISALLOWANCE OF RS. 10,83,521/- OUT OF VARIOUS EXPE NSES. THE LD AR SUBMITTED THAT THE AO DISALLOWED 15% OUT OF VARIOUS EXPENDITURES. THOSE EXPENDITURE ARE GIVEN ON PAGE NO. 28 OF THE A SSESSMENT ORDER. THE REASONS BEHIND THE DISALLOWANCE GIVEN BY AO ARE VAGUE. THE AO MENTIONED THAT MOST OF THE PAYMENTS WERE MADE IN CA SH AND SUPPORTING VOUCHERS ARE INTERNAL VOUCHERS AND THE E XPENSES WERE NOT FULLY OPENED FOR VERIFICATION AS WHETHER INCURRED I N CONNECTION WITH BUSINESS ACTIVITIES OF THE ASSESSEE. ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 20 28. IT WAS SUBMITTED THAT THE ASSESEE DEBITED SALES PROMOTION, ADVERTISING AND SELLING AND DISTRIBUTION EXPENSES T HIS INCLUDES, DEBIT NOTES OF HERO HONDA MOTORS FOR SHARE OF ASSESSEE OF ADVERTISEMENT, BILLS FOR ADVERTISEMENT WITH NEWS CHANNELS, BILLS F OR ADVERTISEMENT IN NEWS PAPERS. ALL THE PAYMENTS WERE MADE BY CHEQUE A ND AFTER MAKING TDS. ACCORDING TO INCOME TAX ACT, THE ASSESSE IS RE QUIRED TO PROVE THAT EXPENDITURE ARE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE, THE VOUCHERS ARE MEANT TO PROVE THE NATURE OF EXPEN DITURE AND THE PAYEE AND THE GENUINENESS. IN CASE OF TELEPHONE EXP ENDITURE, LEGAL AND PROFESSIONAL EXPENSES, PRINTING AND STATIONARY, TRA VELLING EXPENSES, ALL THE VOUCHERS ARE FROM THIRD PARTY. FOR OTHER EXPEND ITURE MOST OF THE VOUCHERS BELONG TO THIRD PARTY AND WHERE THE PAYEES ARE ILLITERATE, ARE FROM UNORGANIZED SECTOR, THE INTERNAL VOUCHERS ARE PREPARED AND GET SIGNED FROM PAYEE. BOOKS OF ACCOUNTS ARE AUDITED BY CHARTERED ACCOUNTANT UNDER COMPANIES ACT AS WELL AS U/S 44AB OF THE I.T.ACT, 1961 AND HE DID NOT POINT OUT ANY DISCREPANCIES. DU RING THE COURSE OF SCRUTINY PROCEEDINGS, BOOKS OF ACCOUNTS WERE PRODUC ED BEFORE AO FROM TIME TO TIME AS AND WHEN, THE AO CALLED FOR. VOUCHE RS OF EXPENDITURE ARE THE PART OF BOOKS OF ACCOUNTS AND STATING BY AO THAT ONLY ONE MONTH VOUCHERS WERE PRODUCED IS BASELESS AND MISLEA DING. 29. IT WAS FURTHER SUBMITTED THAT THE AO DID NOT P OINT OUT ANY SPECIFIC EXPENSES, WHICH IN HIS OPINION NOT RELATED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. EVEN LD. AO DID NOT DISCUSS EACH HEAD OF EXPENSES SEPARATELY. HE MENTIONED THE LIST OF VARIOUS EXPENSES ON ONE PLACE OF HIS ORDER AND DISCUSSED IN TOTAL. T HIS SHOWS HIS CASUAL APPROACH. OFFICE EXPENSES INCLUDE HOUSEKEEPING EXPE NSES FOR WHICH ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 21 THIRD PARTY VOUCHERS ARE THERE. CONVEYANCE IS PAID MAINLY TO WORKSHOP EMPLOYEES. LEGAL AND PROFESSIONAL EXPENSES WERE PAI D TO PROFESSIONALS FOR WHICH BILLS ARE AVAILABLE AND TDS WERE DULY DED UCTED AND DEPOSITED. TELEPHONE EXPENSES AND PRINTING & STATIONARY EXPENS ES ARE SUPPORTED BY BILLS. EXPENSES ON TOURS AND TRAVELS ARE FULLY S UPPORTED BY BILLS AND VOUCHERS. MAJOR EXPENDITURE ON ACCOUNT OF REPAIRS A ND MAINTENANCE ARE SUPPORTED BY BILLS. 30. PER CONTRA, THE LD. DR HAS RELIED ON THE FINDIN GS OF LOWER AUTHORITIES AND SUBMITTED THAT THE AO HAD PROVIDED AMPLE OPPORTUNITY TO THE ASSESSEE TO PRODUCE THE EVIDENCE IN SUPPORT OF THE EXPENSES, HOWEVER, THE ASSESSEE COULD NOT FURNISH COMPLETE VO UCHERS/ LEDGER ACCOUNTS OF THESE EXPENSES. THE PAYMENTS WERE MADE IN CASH AND GIVEN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE AO HAS ONLY DISALLOWED 15% OF THIS EXPENSE WHICH IS QUITE REASO NABLE AND FAIR. ACCORDINGLY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOULD BE SUSTAINED. 31. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS RECO RDED A FINDING THAT MAXIMUM NUMBER OF VOUCHERS WERE SELF-MADE, NOT SUPP ORTED BY RELEVANT BILLS AND PAYMENTS ARE MADE IN CASH; AND T HERE ARE OTHER EXPENSES IN RESPECT OF WHICH VOUCHERS WERE NOT EVEN PRODUCED FOR VERIFICATION. IT WAS ACCORDINGLY HELD THAT EXPENSE S WERE NOT FULLY OPEN FOR VERIFICATION AS TO WHETHER INCURRED IN CONNECTI ON WITH BUSINESS OR NOT AND ELEMENT OF PERSONAL NATURE CANNOT BE RULED OUT. THEREAFTER, HE HAS PROCEEDED AND DISALLOWED 15% OF ALL OF THE EXPE NSES UNDER ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 22 CONSIDERATION RANGING FROM SALES PROMOTION, ADVERTI SEMENT, LEGAL & PROFESSIONAL, TRAVEL, REPAIR AND MAINTENANCE, ETC. PER CONTRA, THE CONTENTION OF THE ASSESSEE IS THAT IT HAS DEBITED S ALES PROMOTION, ADVERTISING AND SELLING AND DISTRIBUTION EXPENSES W HICH INCLUDE DEBIT NOTES OF HERO HONDA MOTORS FOR ASSESSEES SHARE OF ADVERTISEMENT AND IN RESPECT OF WHICH THE PAYMENTS WERE MADE BY CHEQU E AFTER MAKING TDS. IN CASE OF TELEPHONE EXPENDITURE, LEGAL AND PR OFESSIONAL EXPENSES, PRINTING AND STATIONARY, TRAVELLING EXPENSES, ALL T HE VOUCHERS ARE FROM THIRD PARTY. FOR OTHER EXPENDITURES, MOST OF THE VO UCHERS BELONG TO THIRD PARTY AND WHERE THE PAYEES ARE ILLITERATE OR FROM UNORGANIZED SECTOR, THE INTERNAL VOUCHERS ARE PREPARED AND GOT SIGNED FROM PAYEE. WE THEREFORE FIND THAT THERE ARE CONTRADICTORY CLAI MS AND CONTENTIONS ADVANCED BY BOTH THE PARTIES AND IN ABSENCE OF RELE VANT FACTS EMERGING FROM RECORDS, WE DEEM IT APPROPRIATE TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE SAME AFRESH AN D TO PASS A SPEAKING ORDER IN THIS REGARD. IT IS A SETTLED PROP OSITION THAT WHETHER A PARTICULAR EXPENDITURE IS REQUIRED TO BE INCURRED O R NOT IS THE DOMAIN AND PREROGATIVE OF THE COMPANYS MANAGEMENT AND NOT THAT OF THE REVENUE. AT THE SAME TIME, THE ASSESSING OFFICER I S WELL WITHIN HIS JURISDICTION TO VERIFY WHETHER THE EXPENDITURE SO C LAIMED HAS ACTUALLY BEEN INCURRED FOR THE PURPOSES OF BUSINESS AND WHAT DOCUMENTATION IS SUBMITTED BY THE ASSESSEE TO SUBSTANTIATE ITS CLAIM . THE FACTUM OF PARTICULAR EXPENSE PAYMENT IN ASSESSEES LINE OF BU SINESS MAY BE CONSISTENT WITH EARLIER YEARS, HOWEVER, THE EXAMINA TION THEREOF IS A FACTUAL EXERCISE TO BE UNDERTAKEN EVERY YEAR AND OU TCOME THEREOF NEED NOT BE GUIDED SOLELY WITH THE OUTCOME AND TREATMENT DONE IN THE EARLIER YEARS. IT IS THEREFORE, INCUMBENT ON PART OF THE A SSESSING OFFICER, WHERE ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 23 HE INTENDS TO DISALLOW ANY EXPENSES, TO BRING OUT S PECIFIC DEFECT IN THE DOCUMENTATION SO MAINTAINED FOR THE YEAR UNDER EXAM INATION AND SUBMITTED FOR VERIFICATION, AND RECORD A FINDING TH AT A PARTICULAR EXPENSE HAS NOT BEEN INCURRED FOR THE PURPOSES OF BUSINESS OR THE EXPENSE IS BOGUS IN NATURE FOR THE RELEVANT YEAR. IN CASE OF VOLUMINOUS TRANSACTIONS, SOME DEFINED AUDIT METHODOLOGY AND AD EQUATE SAMPLE SIZE MAY BE ADOPTED BY THE AO TO VERIFY THE EXPENSE S. WITH THE AFORESAID DIRECTIONS, THE MATTER IS SET-ASIDE TO TH E FILE OF THE ASSESSING OFFICER TO EXAMINE THE SAME AFRESH. IN THE RESULT, THE GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 32. IN GROUND NO. 10, THE ASSESSEE HAS CHALLENGED T HE SUSTENANCE OF DISALLOWANCE OF RS. 21,378/- DUE TO NON DEDUCTION O F TDS. IN THIS REGARD, THE LD. AR SUBMITTED THAT THE AO DISALLOWED RS. 1700/- PAID TO SHRI MURLIDHAR MAHESHWARI AGAINST BROKERAGE AND RS 19,678/- OF CONTRACT PAYMENT TO M/S AGRESEN CARS (P) LTD. HOLDI NG THAT ASSESSE WAS REQUIRED TO DEDUCT TAX AT SOURCE ON THESE PAYMENTS U/S 194H AND 194C. IT WAS SUBMITTED THAT UNDER BOTH THESE PROVIS IONS, TDS WAS NOT REQUIRED TO BE MADE FOR WANT OF THRESHOLD LIMIT. IN CASE OF 194H, WHERE PAYMENT EXCEEDS RS. 2,500/- AND U/S 194C RS. 30,000 /-, THEN TDS IS REQUIRED TO BE DONE. ACCORDINGLY THE DISALLOWANCE IS ILLEGAL AND LIABLE TO BE DELETED. 33. WE FIND THAT THE PAYMENTS ARE BELOW THE THRESHO LD LIMITS PROVIDED IN THE RESPECTIVE TDS PROVISIONS AND THUS, THE DISALLOWANCE SO MADE IS DIRECTED TO BE DELETED. IN THE RESULT, THE GROUND OF APPEAL IS ALLOWED. ITA NO. 434/JP/2018 MORANI MOTORS PRIVATE LTD, JAIPUR VS. ACIT, CIRCLE- 06, JAIPUR 24 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S DISPOSED OFF IN LIGHT OF AFORESAID DIRECTIONS AND PARTLY ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28/02/2020. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 28/02/2020. *GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- MORANI MOTORS PRIVATE LIMITED, JAIPU R 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-06, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 434/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR