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TMI Blog2012 (11) TMI 906X X X X Extracts X X X X X X X X Extracts X X X X ..... etails as under: Loans and advances/Deposits Please file details of loans & advances and deposits in the given format. Name & Address of the person Amount Purpose Interest Charged if any? Rate of interest Whether Person Covered U/s 40 A 2(b) Source Of advance If interest Not charged, give reasons for the same It was also asked to furnish copy of accounts of all the relevant parties. In response to that after repeated request the assessee had not furnished the required detail, at last on 14/12/2010 the assessee had furnished part compliance to the said question. On verification of the detail furnished it was further noticed that the assessee had made substantial advance to a party namely M/s Chintamani Trading Co. under two different accounts i) M/s Chinatamani Trading Co. and M/s Chintamani Trading Co. (Adv.). However the assessee had not given the purpose of the advances and reasons for not charging interest thereon. As mentioned supra that on one hand the assessee has claimed interest expense to the tune of 18,49,243/- where as on the other hand it had given interest free advances to Chintamani Trading Co. the closing balance of the loans & advances account of these p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .06 Cr. Sales AJc waste Sales W/008 3,178.00 Sales W/009 3,672.00 Sales W/010 4,565.00 89,55,901.00 Dr. Cl. balance 89,55,901.00 89,55,901.00 89,55,901.00 The transactions shown in the account, reproduced above itself speaks the shallowness of the story cooked by the assessee. A party to whom someone has advanced Rs. 89,43,946/- had come on a particular day for purchase of waste and that was also of paltry sum of Rs.11,955/-, it is further interesting to look that the said sales of Rs.11,9551- was not by a single purchase, the assessee company had made four sales by four voucher and that were also in credit. On the basis of these credit sales the assessee company claims that it is not a case of advance but is a debtor party. From all these facts it crystal clear that the assessee has tried to make fool to the Department with a only intention to give justification of not charging the interest on the advances. During the course of assessment proceeding to ascertain the truth behind the curtain, it was asked to give complete address of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 15-5-2007 Cr. NNSB, C CA/C-9026 Payment 157 40,400 31-5-2007 Cr. NNSB C CA/C-9026 Payment 222 1,01,000 5-2-2008 Dr. NNSB C CA/C-9026 Receipt 293 8,10,000 34,04,967 16,73,000 Dr. Closing Balance 17,31,967 34,04,967 34,04,967 From the transaction made in the above account is clear that during the year consideration also, the assessee company has made advances to the above named party. Therefore the explanation given by the assessee company is factually incorrect and it appears that the assessee has tried to mislead the department, as all the transactions are exclusively of financial nature. It may be noted that in that year also the assessee has not charged any interest on the advances made to the said party. All these facts clearly prove that receivable amount shown in the name of M/s Chintamani Trading co. is nothing but purely of Loans & advance nature. iii) The assessee itself has stated that the financial position of M/s Chintamani Trading Co. was very weak. The said company already owed an amount of Rs 89,55,901/- since long. The assessee has not been able to justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest expenses relates to the loan for working capital for borrowings made for business purposes etc. It is clear from the facts that the substantial portion of the borrowed money is blocked in the advances for which the appellant has not charged any interest. The advances are not for the purpose of business and all the transactions except for a small amount are in the nature of money lending. The transaction that relates to sale have been shown by the appellant to give the account a different colour. The appellant has also claimed that these advances were given to the party in earlier years and the appellant had sufficient interest free funds for these advances. The submission of the appellant has also been examined. The copies of account of Chintamani Trading Co. for different years show that there were numerous transactions in F. Y. 2006-07 as well as in earlier years and the transactions are in the nature of money lending. The claim of the appellant that it had sufficient interest free fund for making the advance is not supported by facts as the advances that were given in earlier years were huge and the appellant has taken as borrowed money for the working capital from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g his arguments, ld. counsel of the assessee submitted that the addition made by the A.O. and sustained by ld. CIT(A) deserves to be disallowed. 6. Ld. D.R., on the other hand, relied on the order of the lower authorities and further submitted that the contention of the assessee that assessee was having surplus interest free funds to the extent of Rs.6,94,13,331/- against interest free advance of Rs.1,06,87,868/- to M/s Chintamni Trading Company requires verification and therefore, it will be in the fitness of things, if the matter is restored back to the file of the A.O. for such verification. 7. After hearing both the parties and perusing the record, we find that the contention of the assessee that since the assessee was having surplus fund of Rs.6,94,13,331/- against interest free advance of Rs.1,06,87,868/- to M/s Chintamani Trading Company, disallowance of interest free expenditure of Rs.18,49,243/- was uncalled for, requires verification at the end of the A.O. and for this purpose the matter is restored to the file of the A.O. The assessee would, however, be free to advance other arguments also in support of his claim of interest expenditure of Rs.18,49,243/-. 8. In the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (hereinafter referred as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, 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 remission or cessation thereof, the amount obtained by such person or value of benefit accruing to him shall be deemed to be profit and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; It is clear from the above section two condition is satisfy before treating any income under this section. (i) That should be trading liability for which loss or expenditure incurred and allowed in earlier year and ii) The trading liability is ceased As per the Limitation Act the creditor does not have any legal right to enforce the payment of this amount. Whether the liability of the assessee has fully been discharged or not is within the specific knowledge of the assessee. He has to prove that in fact the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties are in fact payable, then the only logical conclusion that can be drawn will be that- these creditors are also no more payable and are ceased liabilities. The assessee has totally failed to discharge its onus in this regard and an adverse inference is drawn against the assessee. Therefore by order sheet dated 12/12/2010, a final opportunity was given to the assessee either to prove that these liabilities still exist or to show cause , why the same should not be considered to be ceased liability U/s 41(1) of the IT Act. The hearing for this purpose was fixed on 16/12/2010. On the said date, the assessee has neither furnished confirmation in any of the case nor filed any explanation in this regard. In these circumstances it is clearly proved that the aforesaid liability of the assessee is not genuine, unclaimed and non subsisting and the undersigned is left with no alternative but to hold that all the liabilities towards above referred creditors totaling to Rs.900902/- are no more payable by the assessee and are not subsisting liability and are covered by explanation 3 of Section 41(1) of the Act. For making a fair and just conclusion on this issue, the judgments given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under appeal. Simply because assessee was not able to produce any confirmation regarding the creditors, the conclusion cannot be arrived that the liability has ceased to exist. We further find that the assessee had not passed any entry in its books of accounts which shows the intention of the assessee for making payments to these parties. The A.O. has not proved that the liabilities were either bogus or have ceased to exist. It is also not a case of the Revenue that the assessee had obtained any benefit by way of remission during the year. Non-availability of confirmation from the creditors does not lead to the conclusion that the debts have been obliterated. In the light of these facts and circumstances of this case and in view of the case laws relied by the assessee, we are of the considered opinion that ld. CIT(A) has rightly deleted this addition of Rs.9,00,902/- made by the A.O. and the order passed by him is hereby upheld. 13. In the result, this ground of the Revenue is dismissed. 14. Ground No.2 relates to deleting the disallowance of Rs.5,18,697/- made by the A.O. u/s 40(a)(ia) of the Act. The A.O., while making this disallowance has observed as under:- "Durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Fitter 30/12/2007 1500 Labour Charges Press Fitter 1/1/2008 73500 Total 73,500 6. Sanjay Bahadursingh Gin fitter Charges 9/11/2007 19450 Gin fitter Charges 19/12/2007 10455 Gin fitter Charges 29/12/2007 10795 Gin fitter Charges 24/01/2008 7000 Gin fitter Charges 22/02/2008 8000 Total 55,700 7. Muktaram Press Fitter Charges 24/01/2008 27650 Total 27,650 8. Lala Chaudhary Press Fitter Charges 27/02/2008 28050 Total 28,050 Sec.l94C of the I. T. Act states that "Tax is required to be deducted at the time of credit of any interest, commission, brokerage, rent, royalty, fees for professional service, fees for technical services payable to a resident. From the above facts and as per the provision of Sec. 194 C it is clear that the assessee -was liable to made TDS on the contractual payments amounting to Rs.5,18,967/-at the time of making the above payments to these persons as mentioned above, but the same had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other persons for the said contractual work and the assessee had made payments to these persons, engaged by these contractors out of the total contract amount. But in this situation also the assessee was required to make TDS while making to payment to any one either to the so called main person or to the other persons. As contended by the assessee that they are enclosing the vouchers of payment to individual, is factually incorrect as no vouchers had been produced by the assessee. The contention put forth by the assessee prima facie appears to be an afterthought with an object to justify its failure of non deduction of TDS. Even if it is assumed to be true, it was just an internal adjustment between the assessee and these main persons, which do not have any consequence as far as revenue is concerned. Further it is worthwhile to mention here that, on verification of the ledger accounts of the persons, mentioned in the above table it is noticed that there are several instances when they have obtained certain amount as advances which clearly proves that in fact they were contractor of the assessee as such receipts of advances can obviously only be obtained in case where there is some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of hearing before us. Therefore, we are of the opinion that the business of the assessee was seasonal work. He had employed different labourers to carry out the work as mentioned above. Ld. CIT(A) has, therefore, rightly accepted the contention of the assessee that the business were seasonal as the same were supported by the accounts of the assessee. The business was only for 2-3 months and at the end of year most of the accounts were squared up. There was no written or oral contract with the labourers employed by the assessee. The ratio of the decision of Hon'ble ITAT, Calcutta Bench in the case of Samanways Vs. ACIT wherein it was held that provision of section 40(a)(ia) could not be invoked where tax u/s 194C was not deducted from labour charges paid to labour sardars as there was no agreement between the assessee and the labour sardars to supply labour, is therefore, applicable to the facts of this case as the A.O. has not pointed out that there was any written contract between the assessee and the labourers. We further find that this practice of the assessee has been accepted by the Revenue in earlier years as no addition on this ground has been made in the past. 18. In the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 34. 250 - - 35. 955 - - 36. 562 - - 562 37. 11100 - - Total 85419 48910 13305 157843 Total 305477 In spite of availing more than reasonable opportunities the assessee remained fail in furnishing any bill/voucher in respect of above mentioned expenses by verification of the same genuineness and correctness can be examined. As the assessee failed to avail these opportunities and therefore vide order sheet dated 22/12/2010 the assessee was asked to produce relevant evidences to prove the genuineness of these expenses or to show cause as to why the same should not be disallowed treating them to be unverifiable expenses. On the said day, the assessee has not produced anything to substantiate its claim and the following disallowances totaling to Rs.3,02,829 /-is made out of the repairs & maintenance expenses and added to the total income of the assessee. i) Plant & Machinery Rs. 81871 ii) Office Building Rs. 49810/- iii) Office Equipment Rs. 13305/- iv) Car Repairs Rs 157843/- Total Rs. 302829/-" . 20. In appeal, ld. CIT(A), after taking into conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant has not made any entry and claimed in Profit & Loss Account and, as such there is no remissions or cessation of liability U/s 41(1) of the I.T. Act 1961 during the accounting year under consideration and as such the learned CIT(A) has rightly deleted the said addition. WITHOUT PREJUDICE 2. That the appellant has shown income under the remission and cessation of the said amount in subsequent years which facts are available in the appellate order on page-6 bottom para and considering the same also the appeal filed by the Department on this ground be cancelled. If it be held as income during the year under consideration there is a duplicate taxation on the same income which against the principle of Income-tax Act and as such this ground is required to be rejected. 3. That the learned A.O. disallowed Rs.5,18,697/- U/s 40(a)(ia) without establishing that there is a contract and as such section 194C is not applicable and therefore disallowance made by learned A.O. U/s 40(a)(ia) and deleted by learned CIT(A) is My justified. 4. That the appellant has cited various decisions including decision of Hon'ble ITAT Ahmedabad Bench and considering the ratio laid down in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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