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TMI Blog2012 (7) TMI 726X X X X Extracts X X X X X X X X Extracts X X X X ..... ated and utilised for the purpose of business or to be invested in a manner in which it generates income and not that these were diverted towards associate or sister concerns free of interest - this would result in not presenting the true and correct picture of the accounts of the assessee - it cannot be held that the funds to the extent diverted to associate concerns without charging any interest - against assessee. Credit of TDS & Set off of brought forward loss - Held that:- CIT(A) directed the AO to allow the credit for TDS after necessary verification in terms of provisions of section 155(14) & Set off of brought forward loss but as the assessee did not make any submissions on this issue nor placed any material to enable to take a different view in the matter no infirmity in the directions of the CIT(A). - ITA No..4625/Del./2011 - - - Dated:- 8-6-2012 - SHRI G.C. GUPTA,VP AND SHRI A.N. PAHUJA, JJ. Assessee by Shri K.L. Aneja, AR Revenue by Smt . Veena Joshi,DR O R D E R A.N. PAHUJA:- This appeal filed on 19th October, 2011 by the Revenue and the corresponding cross-objection [CO] filed on 28th October, 2011 by the assessee, against an order dated 08.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per relevant orders are that e-return declaring nil income filed on 30.09.2008 by the assessee, running a rice mill,after being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act), was selected for scrutiny with the service of a notice u/s 143(2) of the Act issued on 31.08.2009. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the balance sheet of the company revealed unsecured loans of Rs.28,83,480/- from the following persons:- [In Rs.] i. Old Balance Rs.10,85,000/- ii. Akhtar Hasan Rs. 7,50,000/- iii. Munnawar Hasan Rs. 5,24,480/- iv. Sarwar Hasan Rs. 1,60,000/- v. Dr. Mansur Ahmad Rs.15,000/- vi. Ajahar Hasan Rs.19,000/- vii. Aniq Ahmad Rs.19,000/- viii. Shahanawaz Ahmad Rs. 15,000/- ix. Idrish Neta Rs.18,000/- x. Nisar Ahmad Rs.15,000/- xi. Asif Alvi Rs.15,000/- xii. Zahir Ahmad Rs.18,000/- xiii. Gayas Mohamad Khan Rs.15,000/- xiv14.Moh. Umar Peeru Rs.15,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors and genuineness of transactions totaling to Rs.28,83,480/-. Further, in the order passed u/s 263 of the Act dated 26-03-2007 no adverse inference has been drawn by the C.I.T., Muzaffarngar in respect of unsecured loans totaling to Rs.28,83,480/-. Furthermore, the A.O. vide order passed u/s 263/143(3) dated 12-11-2007 for A.Y. 2002- 03 has discussed the unsecured loans at Rs. 27,I8,840/- as under:- .. ... ... It has been stated by the assessee company that all these loans are old and no fresh loans have been taken in the year under consideration as evident from the figures of previous year shown in Balance sheet itself. It has been stated that no interest has been paid on these loans. It has further been mentioned that the Ld. CIT has raised this issue but not taken any adverse view in the matter. Considering the reply and the fact that the Ld. CIT has not taken any adverse inference in this regard, contention of the assessee appears to be correct.... From the above is evident that neither the CIT, Muzaffarnagar in her order passed u/s 263 nor the A.O. in his assessment order passed u/s 263/143(3) for A.Y. 2002-03 dated 12-11-2007 have accepted the genuineness of uns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , being outstanding for more than three years. On appeal, the ld. CIT(A) deleted the addition on the ground that provisions of sec. 41(1) were not attracted. The provisions of sec. 41(1)(a) stipulate that where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year, the assessee obtains, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly, chargeable to income-tax as the income of that previous year, whether or not the business or profession in respect of which the allowance or deduction has been made is in existence in that year . Indisputably, the assessee did not receive any benefit nor the amount has been transferred to profit and loss account nor even written off and thus, the amount did not become the assessee's own money. Rather the ld. CIT(A) concluded that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be added as per the provisions of section 41(1) of the Act. Similarly, Hon ble Gujarat High Court in the case of CIT Vs. Chetan Chemicals Pvt. Ltd. 267 ITR 770 (Guj) held that: On a reading of the provisions, it is apparent that before the section can be invoked, it is necessary that an allowance or a deduction has been granted during the course of assessment for any year in respect of loss, expenditure or trading which is incurred by the assessee, and subsequently during any previous year the assessee obtains, whether in cash or in any other manner, any amount in respect of such trading liability by way of remission or cessation of such liability. In that case, either the amount obtained by the assessee or the value of the benefit occurring to the assessee can be deemed to the profits and gains of business or profession and can be brought to tax as income of the previous year in which such amount or benefit is obtained. In the facts of the case on hand, without entering into the aspect as to whether the liability to repay the loans would be a trading liability or not, it is an admitted position that there had been no allowance or deduction in any of the preceding years and, hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.2 in the appeal of the Revenue relates to charging of interest on the aforesaid loans. The ld. DR did not make any submissions on this ground nor any such issue of interest arises from the impugned order or considered in the assessment order. Therefore, this ground is also dismissed. 7.Now adverting to ground no.2 in the CO, the AO on perusal of profit and loss account noticed that the assessee debited a sum of Rs. 10,18,745/- under the head interest to bank while it had advanced loans to the following persons without charging any interest:- [In Rs.] i) M/s Kishan Rice General Mills Rs. 20,00,000/- ii) M/s Hasan Steels Alloys (P) Ltd. Rs.9,50,000/- iii) M/s B.B. Rice General Mills Rs. 15,65,960/- Rs. 45,15,960/- 7.1 To a query by the AO, the assessee replied that the aforesaid concerns were sister concerns and, therefore, the assessee was not charging any interest. After considering the reply of the assessee, the AO disallowed an amount of Rs. 5,41,915/- on account of interest paid to others. 8. On appeal, the ld. CIT(A) reduced the disallowance to Rs.1,95,898/- in the following te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Madhav Prasad Jatia v. CIT [1979] 118 ITR 200 (SC) Hon ble Supreme Court observed that under s. 10(2)(iii) of the 1922 Act( now sec. 36(1)(iii) of the 1961 Act), three conditions were required to be satisfied in order to enable the assessee to claim a deduction in respect of interest on borrowed capital, namely, (a) that money (capital) must have been borrowed by the assessee, (b) that it must have been borrowed for the purpose of business, and (c) that the assessee must have paid interest on the said amount and claimed it as a deduction. It was also held that the expression "for the purpose of business" occurring under the provision is wider in scope than the expression "for the purpose of earning income, profits or gains". In the case under consideration, there is nothing in the order of lower authorities to suggest that the assessee discharged the onus laid down upon them that borrowed funds had indeed been utilized for the purpose of its business so as to entitle it to claim deduction u/s 36(1)(iii) of the Act. In case the assessee had some surplus amount which, according to him, could not be repaid prematurely to its creditors, still the same were either required to be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he credit for TDS after necessary verification in terms of provisions of section 155(14) of the Act. The ld. AR appearing before us did not make any submissions on this issue nor placed any material before us so as to enable us to take a different view in the matter.. In these circumstances, we do not find any infirmity in the directions of the ld. CIT(A). Therefore, ground no.3 in the cross objection is dismissed. 12. Ground no.4 in the cross objection relates to set off of brought forward loss. There is no discussion on this aspect in the assessment order while the assessee raised an additional ground before the ld. CIT(A), seeking set off of brought forward losses. The ld. CIT(A) after admitting the additional ground directed the AO to verify the claim and allow set off of brought forward losses. Since the ld. AR on behalf of the assessee did not make any submissions on this issue before us nor placed any material before us so as to enable us to take a different view in the matter , we do not find any infirmity in the conclusion of the ld. CIT(A) while directing to allow set off of brought forward losses in accordance with law. Therefore, ground no.4 in the cross objection is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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