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TMI Blog2013 (11) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... e an ad hoc disallowance of 50% of interest expenses – Relying upon the judgment of the Hon’ble Supreme Court in the case of Munjal Sales Corporation Vs. CIT [2008 (2) TMI 19 - Supreme Court] held that the disallowance made by the AO on ad hoc basis is not sustainable – Decided in favor of Assessee. - ITA No.743,863/Mum/2011 - - - Dated:- 30-8-2013 - B Ramakotaiah And STM Pavalan, JJ. For the Appellant : Shri Vijay Mehta For the Respondent : Shri KCP Patnaik ORDER:- PER : B Ramakotaiah These are cross appeals by assessee and revenue against the orders of the CIT(A)-41, Mumbai dated 19.11.2010. We have heard the ld. Counsel and the ld. DR and perused the paper book on record filed by assessee. 2. Briefly stated, the assessee company belongs to the Etco Group wherein search and seizure operations have been undertaken on 11.04.2007 and the group declared the amount of Rs.7,08,69,757/- as undisclosed income in the hands of different concerns/persons of the group. Accordingly for the assessment year under consideration the assessee company declared income at 1% of sales at Rs.16,95,239/-. In addition, the assessee also disallowed interest at Rs.1,85,597/- and di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue is in cross appeal on the same issue. 4. We have considered the rival contentions and examined the record. Even though there is no detailed discussion by AO in the assessment order, it seems the investgation unit made enquiries and took statement from Director of M/s. Triton Infotech Pvt. Ltd. that the said company was only giving accommodation bills. This aspect was not fully objected to by the assessee in the course of the assessment proceedings or before CIT(A). Therefore, the findings of AO to that extent are not rebutted. Further, as seen from the assessment order, AO did give credit to the purchases by not disallowing the entire amount. On perusing the order of CIT(A), we do not see any reason to differ from the same as ld. CIT(A) restricted the amount of addition from adhoc 20% done by AO without any basis, to a reasonable amount on the basis of so called saving of the local taxes. His order is as under :- "I have considered the submissions of the appellant, order of the AO and facts of the case in brief are that the AO has observed that the appellant company has shown purchases from M/s. Triton Infotech Pt. Ltd amounting to Rs.2,78,60,000/- during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the extent of Rs.2,80,000/-. This benefit also is to be given to the assessee as was done by AO. AO is directed to give further benefit of 1% of the sales offered by the assessee. Accordingly, assessee s ground is partly allowed. ITA No.863/Mum/2011 (Revenue s appeal) :- 5. The revenue has raised five grounds on three issues. 6. Ground No.2 pertains to the disallowance of the amount of bogus purchases which was restricted to Rs.11,20,000/- by the ld. CIT(A) as against disallowance of Rs.55,92,000/-. This issue was already discussed in detail in assessee s appeal. For the reasons stated, therein we do not find any reason to consider the revenue ground as AO without establishing any thing simply disallowed 20% of the purchases. We do not see any reason to consider the ground. Therefore, the same is rejected. 7. Ground No.3 pertains to alternate contention of the revenue stating that the disallowance is as per provisions of section 40A(3). This ground is raised for the first time before ITAT as neither AO nor CIT(A) considered that purchases are made in cash and hence, provisions of section 40A(3) are called for. Since, the fact that purchases are made in cash was not on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the assessee company are more than the loans given ignoring the fact the assessee company has not furnished such statement vide questionnaire dated 13.5.2009 and therefore, presumption that assessee company has used own fund to give interest free loans can not be raised in the present case." 11. As stated earlier, assessee claimed interest expenditure to the tune of Rs.16,78,379/-. AO gave a finding that assessee has advanced loans of Rs..58.72 crores out of which advances of Rs.54.68 crores were interest free. The Assessing Officer was of the opinion that since funds are mixed and there was a possibility of use of interest bearing funds and providing them as interest free loans can not be ruled out. Since the assessee did not provide the necessary details, he made a disallowance of 50% of interest expenses and after reducing the amount already added back by assessee, Assessing Officer made an addition of Rs.6,53,593/-. Ld. CIT(A) deleted the said addition. 12. The ld. DR reiterated the facts as stated in the assessment order at page-3 whereas the ld. Counsel submitted that the assessee has Rs.77.23 crores of own funds. Further, it was submitted that the assessee has earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available. Moreover, the appellant has also itself disallowed Rs1,85,597/- in the computation of income. From these facts of the case, it is observed that the appellant has Rs. 77.23 crores interest free funds available with him and advanced loan of Rs. 54.68 crores as interest free. The AO has not denied these facts but only on the presumption that possibility of use of interest bearing funds fro non business purposes could not be ruled out and made an ad hoc disallowance of 50% of interest expenses. Since on the facts of the case, it is clear that the appellant has its own funds out of which interest free loans have been given. Therefore, in view of the decision of Hon ble Supreme Court in the case of Munjal Sales Corporation Vs. CIT and other decisions of Hon ble Courts (Supra) it is held that the disallowance made by the AO on ad hoc basis is not sustainable, hence deleted. Ground of appeal is allowed." 13.1 We do not see any reason to interfere with the above order, accordingly ground is rejected. It seems that the ld. CIT(A) mentioned interest free loans of Rs.30.00 crores from the banks in his order at line no.3 which in fact is from debentures. However, this mistake does ..... X X X X Extracts X X X X X X X X Extracts X X X X
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