2017 (2) TMI 173 - AT - Income Tax

Disallowance of proportionate interest u/s 36(1)(iii) - non considering the statement of interest free Fund against interest free Loans & Advances. - Held that - Assessee for the first time filed computation of net interest free funds available with it and interest free advances of related parties from no interest was charged. When this was confronted to learned senior DR, she stated that these were never verified by the lower authorities and at this stage it is not possible to verify the same. On this, the learned Counsel for the assessee fairly agreed that the issue can be remanded back to the file of the AO for examination of interest free funds vis- -vis interest bearing loans on which assessee has claimed interest. In view of these facts, we feel that this issue needs re-consideration at the level of the AO afresh. Needless to say that the AO will not get influenced by earlier assessment order or the order of the CIT(A) because both are set aside. Hence, we direct the AO to examine the evidences afresh denovo . Addition invoking the provisions of Section 41(1) - Held that - The assessee first of all argued that these amounts were outstanding as on the data in his name of Jupiter Shipping Agency and moreover these payments are cleared on 10-12-2010 vide cheque No.549288 issued towards previous year opening amount adjusted against advance payment by Jupiter Shipping Agency. To prove his point, he filed copy of account and payment made by cheque and argued that once the assessee admitted this liability and paid in the subsequent year, this liability cannot be said to have not in existence and ceased to exist. Accordingly, we are of the view that AO has wrongly invoked the provision of section 41(1) of the Act and hence we delete the addition. This issue of assessee s appeal is allowed. Addition on account of cash payments made to creditor by invoking the provision of Section 40A (3) - Held that - Assessee before us stated that factually this statement of the AO and CIT(A) is incorrect that assessee has made payment by way of cash exceeding ₹ 20,000/- or more than 20,000/-. The learned Counsel for the assessee stated that copy of Ledger A/c of Thakkar Popatlal Velji Sales Ltd. for the period of 01-04-2009 to 31-03-2010 was never confronted to the assessee. It was also argued by the learned Counsel for the assessee that, in case, opportunity is allowed to assessee and the copy of account is confronted to him, he will answer the queries of the AO. On query from the bench the learned Sr. DR has no objected setting aside the issue to the file of the AO. After hearing both the sides and going through the facts and circumstances of the case, we remand the matter back to the file of AO for fresh examination. Therefore, we set aside the orders of lower authorities and remand the matter back to the file of the AO for fresh adjudication on this issue.

Summary

Issues:
1. Disallowance of proportionate interest on advances and loans.
2. Addition under Section 41(1) for outstanding creditors.
3. Addition under Section 40A(3) for cash payments to a creditor.

Issue 1: Disallowance of Proportionate Interest:
The appeal concerns the disallowance of proportionate interest of ?17,06,326 out of interest-bearing advances and loans. The AO disallowed the expenses under section 36(1)(iii) as the assessee had advanced interest-free loans to related parties. The CIT(A) upheld the disallowance stating that interest-free funds exceeded interest-free loans, and the explanation provided by the assessee was not accepted. The Tribunal remanded the issue to the AO for fresh examination, directing not to be influenced by previous orders. The Tribunal found the issue needing reconsideration at the AO level. The appeal was allowed for statistical purposes.

Issue 2: Addition under Section 41(1) for Outstanding Creditors:
The AO invoked Section 41(1) for outstanding creditors amounting to ?3,27,942, stating the balances were unclaimed for several years. The CIT(A) deleted the addition for some creditors but sustained it for Jupiter Shipping Agency. The Tribunal, after hearing arguments, deleted the addition for Jupiter Shipping Agency as the liability was admitted, paid, and hence did not cease to exist. The Tribunal found the AO wrongly applied Section 41(1) and allowed the appeal on this issue.

Issue 3: Addition under Section 40A(3) for Cash Payments:
The addition of ?1,26,100 was made under Section 40A(3) for cash payments to a creditor. The CIT(A) confirmed the addition based on the creditor's ledger account. The Tribunal, after hearing contentions, remanded the matter back to the AO for fresh examination. The Tribunal found discrepancies in the AO and CIT(A) statements and directed the AO to confront documents to the assessee. The issue was allowed for statistical purposes.

In conclusion, the Tribunal partially allowed the assessee's appeal for statistical purposes. The judgments provided detailed analysis and directions for each issue, ensuring a fair examination and reconsideration of the disputed matters.