2012 (11) TMI 94 - AT - Income Tax

Addition on the ground that cheques which had issued by the assessee and which had not been encashed alleged that assessee had disputed the liability for payment of this amount, it could not be taken that the liability to pay had arisen during the year under consideration Held that - Payment had been stopped because of inferior quality of work - there is no scope for disallowing the part payment only because there is a dispute about the quality of the work. If any remission against the liability received by the assessee, the same would be required to be offered for tax under the provisions of section 40A(1) of the Act - addition deleted Disallowance of interest alleged that money was advanced by the assessee to M/s Girnar Fabrics Ltd., knowing fully well that the financial posit ion of M/s Girnar Fibres was not good and the partners of the assessee firm, being Director in the company, were aware of the financial position of the company Held that - Assessee company appears to have left the money with the company without any good reason and without utilizing that money to pay for the purchases made for that company - assessee has not established the commercial expediency - uphold the disallowance of interest made against the outstanding interest free loan - disallowance on this account in the asstt years 2005-06 and 2007-08 has been made @ 13.5% by the AO - disallowance @ 21% does appear to be very steep and is not supported by showing that this was the cost of the funds borrowed by the assessee - direct the AO to recomputed and to limit the disallowance on account of interest for interest free loan given - rate of interest is required to be reduced to 10% Notice limitation appellant contended that the assessment order was passed on 01.01.2007. It was contended by the appellant that since the assessment order was received by it on 01.01.2007, it was also passed on the same date Held that - Assessment order was signed on 18-12-2006 and the mere fact that a copy was received personally by some person on 1-1-2007 does not detract from this fact - In the remand report the AO has no where stated that the order was passed on 31-12-2006. What she had stated is that the order was passed by 31-12-2006 since the same had been served on 1-1-2007. The Act requires the assessment order to be passed by the date of limitation - documents in record show that the order was passed on 18-12- 2006 and was dispatched on 30-12-2006 by speed post, in addition to being served by hand on 1-12007. Hence, the appellant s contention that the assessment is barred by limitation is rejected

Summary

Issues Involved:

1. Deletion of addition on account of disallowance of job work expenses.
2. Disallowance of interest on account of business advances.
3. Validity of assessment proceedings concerning notices under sections 142(1) and 143(2).

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Disallowance of Job Work Expenses:

The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 5,97,861 made by the Assessing Officer (AO) due to disallowance of job work expenses. The AO disallowed the amount because the liability to pay was disputed by the assessee, and the cheques issued were stopped due to inferior quality of work. The CIT(A) found that the liability existed and was quantified, and the mere dispute over quality did not negate the liability. The CIT(A) allowed the expenses, noting that the liability was based on actual work done, and any remission would need to be offered for tax under section 40A(1) of the Act. The Tribunal upheld the CIT(A)'s findings, dismissing the Revenue's appeal.

2. Disallowance of Interest on Account of Business Advances:

The assessee's appeal contested the disallowance of interest on advances given to M/s Girnar Fibres Ltd. The AO disallowed the interest, arguing that the assessee advanced money despite knowing the poor financial condition of M/s Girnar Fibres Ltd. The CIT(A) partially upheld the disallowance, noting that the assessee failed to show commercial expediency for the interest-free loan beyond the financial year 2000-01. The CIT(A) reduced the disallowance rate from 21% to 13.5%. The Tribunal found the CIT(A)'s order well-reasoned but reduced the interest rate to 10%, partly allowing the assessee's appeal.

3. Validity of Assessment Proceedings Concerning Notices under Sections 142(1) and 143(2):

The assessee argued that the CIT(A) did not consider the issue of notices under sections 142(1) and 143(2), contending that the assessment order dated 01.01.2007 was barred by limitation. The CIT(A) found evidence that the assessment order was signed on 18.12.2006 and dispatched on 30.12.2006, thus within the limitation period. The Tribunal upheld the CIT(A)'s findings, dismissing the legal ground raised by the assessee.

Conclusion:

- The appeal of the Revenue was dismissed.
- The appeal of the assessee was partly allowed, with the interest disallowance rate reduced to 10%.
- The Tribunal upheld the findings of the CIT(A) on all issues, providing a detailed analysis of the legal and factual aspects involved.