2015 (9) TMI 1668 - AT - Income Tax

Addition of interest expenses and storage charges - HELD THAT - AO has bifurcated these expenditure to AY 2005-06 and AY 2006-07. So the issue is when can it be said that the liabilities have crystallised. It is not in dispute that the final lifting of the paddy was completed during the relevant AY and the account also got settled then after several correspondences between the assessee and PSWC whereby some waivers were granted to the assessee. A certificate of receipt towards interest and towards storage charges during FY 2005-06 issued by PWSC has been placed at PB 4.1. The authenticity of this certificate has not been challenged. No doubt as evident from the working of the interest and storage charges, the incurring of the liabilities have been determined with reasonable certainty, but it cannot be said that the actuals have been quantified correctly as extension of interest as well as storage waivers have been given by the PSWC. In other words, it can be safely said that the liability got crystallised during AY 2006-07 when the dues have been squared up. Thus, as find the contention of the assessee as put forth deserves to be accepted. Addition of interest expenses - HELD THAT - We do not find any merit in this ground of appeal of the revenue. The assessee was to recover the amount from sister concern on account of sales made to this party which has no connection whatsoever with the interest and storage paid to PSWC for lifting of the paddy. Since for lifting of the paddy, assessee used storage facility of PSWC, therefore, amount was spent for the purpose of business only. Further, assessee has not claimed any interest expenditure in assessment year under appeal. Therefore, addition made by the Assessing Officer was wholly unjustified. CIT(Appeals), on proper appreciation of the facts and material on record correctly deleted the addition and this ground of appeal of the revenue is accordingly, dismissed. Addition on account of valuation of closing stock - HELD THAT - It is clear that assessee has been able to prove reduction in the valuation of the closing stock because these commodities get deteriorated and explanation of the assessee is supported by material on record, therefore, authorities below were not justified in making and confirming the addition on account of undervaluation of closing stock. We, therefore, set aside the orders of the authorities below and delete the addition Addition u/s 68 as unexplained credit - HELD THAT - Assessee has been able to prove creditworthiness of the creditor and all these evidences on record also prove that assessee entered into genuine loan transaction with the creditor. Therefore, the initial burden lay upon the assessee to prove identity/existence of the creditor, its creditworthiness and genuineness of the transaction have been discharged by the assessee. AO has, however, not brought any evidence on record to prove that loan was not genuine in the matter. Therefore, there was no justification for the authorities below to make addition against the assessee under section 68

Issues Involved:
1. Deletion of addition of interest expenses and storage charges.
2. Deletion of addition in interest expenses.
3. Addition on account of valuation of closing stock.
4. Addition under section 68 of the Income Tax Act as unexplained credit.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Interest Expenses and Storage Charges:
The Department challenged the deletion of interest expenses of Rs. 37,79,639/- and storage charges of Rs. 14,59,436/-. The CIT(A) noted that the assessee had been awarded a tender by PSWC and was required to pay the sale amount and lift paddy, failing which it had to pay storage and interest charges. The liability for these charges crystallized in the assessment year 2006-07 when the final agreement with PSWC was reached, and the accounts were settled. The CIT(A) deleted the additions, concluding that the liability had crystallized during the relevant assessment year. The Tribunal upheld this decision, citing that the liability was determined in the assessment year under appeal and thus, the CIT(A) was justified in deleting the additions.

2. Deletion of Addition in Interest Expenses:
The Department challenged the deletion of an addition of Rs. 7,63,187/- in interest expenses. The Assessing Officer had disallowed this amount, noting that it was not incurred for business purposes and was related to a deliberate interest-free advance to a group company. The CIT(A) found that the amount from the sister concern was receivable on account of sales transactions, and the interest paid to PSWC was for lifting paddy and using warehousing facilities. The Tribunal agreed with the CIT(A), noting that the interest paid to PSWC was for business purposes and the addition by the Assessing Officer was unjustified.

3. Addition on Account of Valuation of Closing Stock:
The assessee challenged the addition of Rs. 55,21,394/- on account of the valuation of closing stock. The Assessing Officer noted discrepancies in the valuation of cotton seed oil and mustard seed oil, which were valued significantly lower than their purchase price. The CIT(A) upheld the addition, stating that no documentary evidence was provided to support the claim of deterioration in quality. The Tribunal, however, found that the assessee had followed a consistent method of accounting and provided lab reports supporting the deterioration claim. The Tribunal concluded that the assessee had proved the reduction in the valuation of the closing stock and deleted the addition.

4. Addition under Section 68 of the Income Tax Act as Unexplained Credit:
The assessee challenged the addition of Rs. 85 lacs as unexplained credit under section 68. The Assessing Officer noted that the assessee failed to provide sufficient evidence regarding the loan from M/s Loil Impex Ltd. The CIT(A) upheld the addition, citing a lack of income tax particulars and an illegible bank statement. The Tribunal found that the assessee had provided sufficient evidence, including the creditor's registration with the Registrar of Companies, bank statements, and confirmations. The Tribunal concluded that the assessee had discharged the burden of proving the identity, creditworthiness, and genuineness of the transaction, and deleted the addition.

Conclusion:
The Tribunal dismissed the departmental appeal and partly allowed the assessee's appeal, upholding the deletion of additions related to interest expenses, storage charges, and unexplained credit, while deleting the addition on account of the valuation of closing stock.

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