2019 (11) TMI 799 - AT - Income Tax

Addition u/s 68 - Cessation of liability i.e. the sundry creditors for milk purchase u/s.41(1)(a) - HELD THAT - AO has made additions for all milk purchases which are outstanding for payment for more than one week while learned CIT(A) gave part relief by accepting the purchases which were outstanding for payment for one more week and entire purchases outstanding for payment more than two weeks stood added to the income of the assessee by learned CIT(A). There could be some cases wherein genuinely the assessee had not made payments to these milk suppliers creditors and the assessee continued to be liable to these milk supplies vendor albeit is payment is pending for more than one/two weeks. This requires enquiry and verifications of these milk supplies creditors. The authorities below have however made no enquiry with milk supplies creditors. No summons u/s 131 or notices u/s 133(6) were issued by AO/learned CIT(A) to these milk supplies creditors to verify about their genuineness and bonafide rather the entire sum wherein the payments were outstanding for more than one week stood added by the AO while CIT(A) gave part relief to the assessee by accepting creditors which were outstanding upto two weeks. The assessee has also to rebut said presumption by bringing on record complete details of each of these milk suppliers creditors such as name address PAN reasons for non payments any dispute with these milk suppliers communication with these milk suppliers claims filed by these milk suppliers with any court etc. . In our considered view based on facts and circumstances of the case and in the interest of substantial justice to both the parties the assessee deserves one more opportunity and the matter needs to be set aside and restored to the file of the AO for framing fresh assessment denovo on merits in accordance with law. We have already explained the onus which lay on both the parties. The assessee is directed to produce complete details of milk suppliers to the AO in set aside proceedings for making necessary enquiries and verifications if deem fit by the AO in set aside proceedings . AO is directed to provide proper and adequate opportunity of being heard to assessee in accordance with principles of natural justice in accordance with law. AO shall admit evidences/explanations filed by the assessee in its defense in set aside denovo assessment proceedings in the interest of justice and then adjudicater on merits in accordance with law . Thus appeal filed by both the parties on this issue stand allowed for statistical purposes. Difference in physical cash found during the course of survey operations conducted by Revenue u/s 133A - HELD THAT - The cash in hand was physically found to be Rs. 26, 35, 769/- during the course of survey operations conducted by Revenue on 06.11.2013 u/s 133A of the 1961 Act and it is the assessee s Managing Partner Mr. S.P.Loganthan in his statement recorded u/s 133A on 06.11.2013 in reply to question number 28 stated that cash book maintained by assessee is tallying with physical cash found during the course of survey operations on 06.11.2013 except difference of Rs. 684/- which was explained to be difference in petty cash. Now the assessee is claiming cash balance in its books of accounts to be Rs. 56, 33, 311/- as on 06.11.2013 as against physical cash found during survey operations u/s 133A on 06.11.2013 of Rs. 26, 35, 769/- and hence onus is on assessee to bring out reconciliation statement before the authorities to reconcile justly the variation of Rs. 29, 97, 542/- and to explain that income component if any arising due to aforesaid variation under the provisions of the 1961 Act has been offered to tax and due taxes paid to Revenue - matter needs to be set aside and restored to the file of the AO for framing fresh assessment denovo on merits in accordance with law. Denial of depreciation on Buildings and Plant Machinery with respect to its Karur Chilling Plant - HELD THAT - The authorities below did not get an opportunity to verify these documents nor any enquiries could be made by authorities below in the context of these additional evidences to arrive at conclusion whether the new Karur Chilling Plant commenced operations until the end of previous year or not and hence accordingly whether the assessee would be entitled to get depreciation on Building and Plant Machinery for the year under consideration In all fairness to both the parties and in the interest of justice we set aside and restore this matter to the file of the AO for framing fresh assessment denovo on merits in accordance with law. The assessee is directed to produce these additional evidences before the AO in set aside proceedings for making necessary enquiries and verifications if deem fit by the AO in set aside proceedings . The AO is directed to provide proper and adequate opportunity of being heard to assessee in accordance with principles of natural justice in accordance with law. Disallowance of interest on term loans borrowed for incurring capital expenditure for installing Karur Chilling Plant - HELD THAT - Addition on the grounds that the said Karur Chilling Plant had not commenced commercial operations and the assets thereof were not put to use. The decision by the AO as to whether the assessee did commence commercial production and put to use assets before the end of previous year relevant to impugned ay or not as per our decision in preceding para 12 was set aside to the AO and the decision of the AO in set aside denovo proceedings shall have direct bearing on the allowability of interest on term loans availed for incurring capital expenditure for installing Karur Chilling Plat. Thus this matter is also remitted back to the file of the AO for framing denovo assessment. Allowability of additional depreciation u/s 32(1)(iia) on both the new plants at Aaiyilapatti and Karur - HELD THAT - No grounds of appeal are raised by assessee in context thereof with respect to denial of claim of additional depreciation u/s 32(1)(iia) by learned CIT(A) and hence we are afraid that in the absence thereof we cannot entertain this issue at this stage. We can only decide the issue which are specifically raised before us and we cannot venture into an unchartered territory to do fishing expeditions. This plea raised by assessee is not accepted and stand rejected.

Summary

Issues Involved:
1. Addition under Section 41(1) for cessation of liability.
2. Disallowance of depreciation on new chilling plants.
3. Disallowance of interest on loans for new chilling plants.
4. Addition under Section 68 for unexplained cash.

Issue-wise Analysis:

1. Addition under Section 41(1) for Cessation of Liability:
The assessee, engaged in the milk dairy business, was subjected to a survey under Section 133A, revealing inflated purchases and corresponding sundry creditors. The AO added Rs. 32,70,589, Rs. 1,04,62,889, and Rs. 9,61,80,915 under Section 41(1)(a), citing cessation of liability. The CIT(A) allowed a further one-week credit, reducing the addition by Rs. 2.63 crores. The tribunal noted that the assessee voluntarily declared Rs. 2.06 crores during the survey and offered Rs. 2 crores in its return. The tribunal emphasized that the onus is on the assessee to prove the genuineness of the sundry creditors and remanded the issue to the AO for fresh assessment, directing the AO to verify the creditors' details and provide the assessee an opportunity to explain the discrepancies.

2. Disallowance of Depreciation on New Chilling Plants:
The AO disallowed depreciation of Rs. 91,97,894 on two new chilling plants, stating they were not operational. The CIT(A) allowed depreciation for the Navalpatty plant but not for the Karur plant due to lack of evidence. The assessee submitted additional evidence before the tribunal, which admitted the evidence and remanded the issue to the AO for verification and fresh assessment.

3. Disallowance of Interest on Loans for New Chilling Plants:
The AO disallowed Rs. 60,82,257 interest on loans for the chilling plants, citing non-commencement of operations. The CIT(A) allowed interest for the Navalpatty plant but not for the Karur plant. The tribunal, linking this issue to the operational status of the Karur plant, remanded it to the AO for fresh assessment, directing verification of the plant's operational status.

4. Addition under Section 68 for Unexplained Cash:
During the survey, physical cash of Rs. 26,35,769 was found, but the assessee's books showed Rs. 56,33,311. The AO added the difference of Rs. 29,97,542 under Section 68. The CIT(A) deleted this addition without proper reconciliation. The tribunal remanded the issue to the AO, directing the assessee to provide a reconciliation statement and the AO to verify the same in fresh assessment proceedings.

Conclusion:
The tribunal allowed both the assessee's and the Revenue's appeals for statistical purposes, remanding the issues to the AO for fresh assessment, directing proper verification, and providing the assessee an opportunity to present evidence and explanations.