Sri Zubin Ranka, Secunderabad vs Assessee

2 ITA.No.592/Hyd/2011 Mr. Zubin Ranka

Sl.No. Particulars Amount in Rs. 1. Unexplained cash credits under 6,13,262 section 68 of the Act 2. Disallowance of interest under 5,46,639 section 40(a)(ia) 3. Income from other sources 5,91,619 4. Unexplained journal entries 2,54,729 5. Disallowance of VAT under section 24,894 43B 6. Disallowance of unverifiable 2,72,517 expenditure

2.1. Against the order passed by A.O. under section 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) disputing all the above six additions/disallowances made by A.O. After considering the submissions made on behalf of the assessee and perusing the relevant material on record, the Ld. CIT(A) restricted the additions/disallowances made by the A.O. on account of unexplained cash credits under section 68, interest under section 40(a)(ia) and unverifiable expenses to Rs.4,34,515, Rs.3,22,045 and Rs.2,17,185 respectively. He also deleted entirely the addition of Rs. 24,894 made by A.O. on account of VAT payable under section 43B. The additions made by A.O. on account of income from other sources and unexplained journal entries, however, were confirmed by Ld. CIT(A). Still aggrieved by the order of the Ld. CIT(A), assessee has preferred this appeal before the Tribunal on the following grounds :

I. "The Ld. CIT(A) ought to have deleted the disallowance made by the A.O. for unsecured loans under section 68 of the Income Tax Act, 1961 of Rs.4,34,515.

II. The Ld. CIT(A) ought to have deleted the disallowance of interest payment under section 40(a)(ia) of Rs.3,22,045 made by the A.O. 3 ITA.No.592/Hyd/2011 Mr. Zubin Ranka

III. The Ld. CIT(A) ought to have deleted the additions made under income from other sources for Rs.5,91,619.

IV. The Ld. CIT(A) ought to have deleted the addition of Rs.2,54,729 as sales.

V. The Ld. CIT(A) ought to have deleted the disallowance of expenditure under section 69C of the Income Tax Act, 1961 of Rs.2,17,185 on expenses debited to Profit & Loss Account @ 20% on Rs.10,85,944."

3. We have heard the arguments of both sides and also perused the relevant material on record. As regards the issue involved in Ground No.1 relating to the addition made on account of unsecured loans treating the same as unexplained cash credits under section 68 of the Act, the Learned Counsel for the Assessee has invited our attention to the relevant details placed at page No.12 to show that the amounts added by the A.O. and confirmed by the Ld. CIT(A) actually represented loans and advances given by the assessee and that too in the earlier years and not in the year under consideration. He has contended that these amounts representing advances given thus cannot be added under section 68 of the Act. Although the learned D.R. has agreed in principle with this contention of the Learned Counsel for the Assessee, he has contended that this matter requires verification as the fact that the amounts in question represented advances given by the assessee was not specifically brought to the notice of the Assessing Officer by the assessee. Since the Learned Counsel for the Assessee also has no objection in this regard, we restore this issue to the file of the A.O. for deciding the same afresh, after verifying the stand of the assessee that the amount in question actually 4 ITA.No.592/Hyd/2011 Mr. Zubin Ranka

represented advances given by the assessee which cannot be added under section 68 of the Act as unexplained cash credits. Ground No.1 is accordingly treated as allowed for statistical purposes.

4. As regards the issue involved in Ground No.2 relating to the disallowance made by the A.O. and confirmed by the Ld. CIT(A) on account of interest under section 40(a)(ia), Learned Counsel for the Assessee has submitted that the required declarations in the prescribed Form No.15G were obtained by the assessee from all the parties to whom interest was payable and the said forms having been received from the payees in the prescribed time limit, there was no obligation on the part of the assessee to deduct tax at source from the payment of interest and consequently, there was no question of disallowance under section 40(a)(ia). This contention raised by the assessee, which is duly supported by the decision of the Coordinate Bench of this Tribunal in the case of Vipin B. Mehta vs. ITO rendered vide its order dated 20.05.2011 in ITA.No.3317/Mum/2010, is not controverted by the learned D.R. He, however, has contended that the claim of the assessee of having received declarations in Form 15G from all the payees of interest requires verification by the A.O. Since the Learned Counsel for the Assessee has no objection in this regard, we restore this issue to the file of A.O. for deciding the same afresh, after verifying the stand of the assessee in the light of decision of the Tribunal in the case of Vipin B. Mehta (supra). Ground No.2 of the appeal is accordingly treated as allowed for statistical purposes.

5 ITA.No.592/Hyd/2011 Mr. Zubin Ranka

5. As regards the issue involved in ground No.3 relating to the addition made by the A.O. and confirmed by the Ld. CIT(A) on account of income from other sources, it is observed that in the absence of any interest charged by the assessee on the loans and advances allegedly given for non- business purposes, interest attributable to such advances was worked out by the A.O. at Rs.5,91,619 and the same was added to the total income of the assessee as income from other sources.

5.1. At the time of hearing, Learned Counsel for the Assessee has invited our attention to the details of such loans and advances placed at page 12 as well as the details of interest received at page No.13 to point out that interest on loans given to G.Com Systems amounting to Rs.9,24,273, L C. Ranka HUF amounting to Rs.3,65,537, Vinod Ranka amounting to Rs.11,50,414 and Bhanusa.com amounting to Rs.11,73,192 was duly charged by the assessee and the same was also offered to tax as income. As regards the remaining loans and advances representing small amounts, he has submitted that the same were mainly given to the employees as well as for some other business purposes and therefore, the addition made on account of interest attributable to the said advances is not sustainable.

6. Learned D.R. on the other hand has submitted that the explanation now offered by the Learned Counsel for the Assessee being offered for the first time before the Tribunal and since the same was not specifically putforth before the authorities below, an opportunity may be given to the A.O. to verify the same. We find merit in the contention of the learned D.R. and since the Learned Counsel for the Assessee also has 6 ITA.No.592/Hyd/2011 Mr. Zubin Ranka

no objection in this regard, we restore this issue to the file of the A.O. for deciding the same afresh, after verifying the explanation of the assessee offered before the Tribunal. Ground No.3 is accordingly treated as allowed for statistical purposes.

7. As regards the issue involved in ground No.4 relating to the addition made by the A.O. and confirmed by the Ld. CIT(A) on account of journal entries, it is observed that the amounts receivable from the various parties amounting to Rs.2,54,729 were squared off by the assessee by transferring the balances in the said accounts to one creditor namely Rajesh Chemical Company by way of journal entry. Since the explanation offered by the assessee in respect of these journal entries was not found acceptable by the A.O., he treated the balances squared off amounting to Rs.2,54,729 as the sales made by the assessee and added the same to his total income which the Ld. CIT(A) confirmed.

8. At the time of hearing before us, the Learned Counsel for the Assessee has submitted that the relevant six debtors as well as one creditor namely Rajesh Chemical Company were belonging to the same group and a journal entry, therefore, was passed in the books of account squaring off the debit balances in the debtors account against the credit balance of Rajesh Chemical Company. He has contended that this entry passed by the assessee in the books of accounts squaring off the debit balances/against the credit balance pertaining to the same group was revenue neutral and there was no justification in adding the amount of Rs.2,54,729 to the total income of the assessee treating the same as sales. Although this stand of the Learned Counsel for the Assessee is 7 ITA.No.592/Hyd/2011 Mr. Zubin Ranka

duly supported by the ledger account extracts of the concerned parties placed at page Nos. 26 to 32 of the paper book, we find that the explanation on this issue as offered by the Learned Counsel for the Assessee before us was not offered specifically in that manner before the A.O. and in the absence of the same, the A.O. had no occasion to verify the same from the books of accounts of the assessee as rightly pointed out by the learned D.R. We, therefore, restore this issue to the file of A.O. for deciding the same afresh, after verifying the explanation of the assessee from the relevant record. Ground No.4 is accordingly, treated as allowed for statistical purposes.

9. As regards the issue involved in ground No.5 relating to the disallowance made by the A.O. and sustained by the Ld. CIT(A) out of various expenses on account of unverifiable element involved therein, it is observed that out of total expenses of Rs.13,62,591, sum of Rs.2,72,517 being 20% of the total expenses was disallowed by the A.O. on the ground that the expenses claimed by the assessee were not fully verifiable. Ld. CIT(A), however, found from the relevant order sheet entry that disallowance of 20% was liable to be made as per the calculation made by the A.O. himself out of the total expenses of Rs.10,85,944 claimed by the assessee. He, therefore, restricted the disallowance of Rs.2,72,517 made by the A.O. on this issue to Rs.2,17,185.

10. At the time of hearing before us, Learned Counsel for the Assessee has submitted that the books of account regularly maintained by the assessee were duly produced before the A.O. for verification along with supporting bills and vouchers. He has contended that not a single instance, however, was pointed out by the A.O. of any unverifiable 8 ITA.No.592/Hyd/2011 Mr. Zubin Ranka

element involved in the expenses claimed by the assessee which were duly supported by the relevant bills or vouchers. However, as rightly contended by the learned D.R., the nature of expenses claimed by the assessee such as conveyance, petrol, entertainment, telephone etc., is such that the involvement of personal element in the expenses claimed by the assessee cannot be ruled out and some disallowance out of the said expenses for such personal element can justifiably be made. Having regard to all the facts and circumstances of the case, we are of the view that it would be fair and reasonable to disallow the expenses claimed by the assessee to the extent of Rs.50,000 on account of involvement of personal element. We, accordingly, modify the impugned order of Ld. CIT(A) on this issue and restrict the disallowance to Rs.50,000. Ground No.5 is partly allowed.

11. In the result, appeal of the assessee is partly allowed.

Order pronounced in the open Court on 18.02.2015.

Sd/- Sd/- (ASHA VIJAYARAGHAVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 18th February, 2015 VBP/- Copy to

1. Mr. Zubin Ranka, 1-8-73, 473, Jawaharnagar Colony, P.G. Road, Secunderabad.

2. The Income Tax Officer, Ward 10(1), Hyderabad

3. CIT(A)-VI, 6A, I.T. Towers, A.C. Guards, Hyderabad 004.

4. CIT-V, Hyderabad.

5. D.R. I.T.A.T. "A" Bench, Hyderabad.