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TMI Blog2014 (9) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... nced the loans – the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of revenue. Interest expenses u/s 36(1)(iii) – Held that:- In the absence of any comparable instances the AO was not justified in presuming that the rate of interest was higher than the prevailing rate - for the purpose of the expansion of the business, the assessee was in need of the funds, and arranged the funds from private parties instead from banks and paid the interest @ 15% - the order of the CIT(A) is upheld – Decided against Revenue. Rejection of books of accounts – Held that:- Without placing on record any substantive defect in the books of account it was not justifiable on the part of the AO to presume that there was suppression of production - the production was also subject to scrutiny by Excise Department - The production accounts were therefore also subject to audit by the department - The assessee has also furnished the comparative figures of the turnover, also the corresponding profits earned from the past years – the order of the CIT(A) is upheld that in the absence of any particular defect in the books of accounts and in the absence of any material brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the disallowance out of interest claimed to have been paid on unexplained unsecured loans. 3. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) dated 30.12.2011 were that the assessee firm is in the business of manufacturing of aromatic chemicals. It was noted by the AO that in total there were unsecured loans of ₹ 3,78,91,165/-. Because of that reason, the case was selected for scrutiny. The Assessee was asked to give the details of unsecured loans with names, addresses, PAN and confirmations from the concerned persons. Only some of the confirmations were furnished by the assessee. The assessee has furnished Form No.15G and Form No.15H in respect of those parties, meant for non deduction of TDS. The AO s observation was that in a situation when those persons have furnished Form No.15G and Form No.15H then it could be held that those parties had no capacity to give loans. Hence, the assessee was asked to furnish the genuineness of the loan from those persons. There were in all 25 persons as listed by the AO in the show cause notice in respect of unsecured loan received, pertaining to the year under consideration, of ₹ 61,01,457/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishes identity, genuineness of transaction and creditworthiness of the creditor. This way, the appellant had discharged onus cast upon him by the provisions of section 68 of I.T. Act, 1961. Accordingly, I am of the considered view that addition against these cash credits u/s.68 is not tenable. (ii) During the assessment as well as appellate proceedings the appellant has furnished P.A. Numbers of the creditors. This itself proves the creditworthiness of the creditor. In case, if the A.O. was not satisfied with the creditworthiness of the creditors, the right course of action will be to initiate proceedings in the case of such creditors and not make an addition in the case of the appellant. In this regard the appellant has rightly placed reliance on the case of Rohini Builders, 256 ITR 360 (Guj). (iii) As discussed above, the appellant has filed sufficient evidences to prove the creditworthiness of the creditors during the assessment proceedings. The A.O. had not made any enquiries to disprove these evidences and this way these evidences remained uncontroverted and the same needs to be accepted. On the other hand the A.O. had made an assumption that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the parties. Further, he has drawn our attention on a statement showing the details of unsecured loans placed on page no.28 of the paper book. Giving the name of the party, amount of interest, addition of amounts made in the account during the year, details of ledger account and information about PAN. He has also informed that in most of the cases the deposits were taken in the past year; therefore, for the year under consideration only the old balances have been carried forward over which interest was paid. He has also pleaded that in the past years the impugned deposits were taken through bank transaction. In his opinion, the primary onus was discharged and the AO had not chosen the recourse of further investigation; therefore, in such situation the explanation as offered by the assessee should be accepted. Reliance was placed on CIT Vs. Ranchhod Jivabhai Nakhana, 21 taxmann. com 159 (Gujarat). 7. Heard the rival submissions and perused the material available on record. In this case, an interesting position is that on one hand the assessee is claiming that the primary onus has been discharged as prescribed u/s. 68 of the IT Act; however, on the other hand, the Revenue De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. We are also not in agreement with the finding of learned CIT(A) that by furnishing of PAN details, the assessee had proved the creditworthiness of the creditors. Furnishing of PAN can lead to an inquiry from the concerned officer having jurisdiction over the said creditor, but the creditworthiness was required to be independently investigated to accept the loan u/s.68 of IT Act. As far as the genuineness of the transaction in the present case is concerned, no effort, either by AO or by learned CIT(A), was made. We, therefore, hold that in a situation when on one hand the assessee has furnished the documents which were required to be investigated by the AO and on the other hand the AO has not thoroughly investigated those parties who have advanced the loans, then it shall be justifiable to restore this ground back to the stage of the AO to be decided de novo as per law afresh, needless to say after providing an adequate opportunity of hearing to the assessee. Since, the issue is restored back for de novo consideration; hence, this ground of the Revenue may be treated as allowed for statistical purpose only. 8. Apropos to other ground, which is in respect of the disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained quantitative details of raw material, finished gods and yield and had not maintained stock register. The ld. CIT(A) has erred in law and on facts in deleting the addition made by the AO on account of suppression of production. 12.1 On account of an observation of the auditor in the audit report the AO had raised a query asking the assessee to explain the yield of the finish goods. The assessee has submitted the working of the yield of three major products, namely, Amyl Salicylate, Benzyl and Clove Retified. The yield of the said three products was stated to be 1.15 1.25, 1.15 1.25 and 0.70 0.80 . According to AO, the yield in respect of some of the products was towards lower side. In his opinion, in the chemical manufacturing such a low yield was not possible. In compliance of an another show cause notice, the assessee has given the reasoning, relevant portion is as follows: Point No :-4 : Yield Base We are manufacturer of Aromatics ingredients As per our previous submission on 27/08/2011, we have explained the facts yield of any products depends purely on finished goods as per customer order received. Reasons for lower Yield of 3rd Produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.271(1)(c) of the Act are initiated. [Addition of suppression of production ₹ 22,14,987/-] 13. When the matter was carried before the First Appellate Authority. Learned CIT(A) has granted relief in the light of the following observations: 5.2 (iii The books of accounts were audited by excise authorities and the audit report was submitted on 19.12.2011. The audit period was from November 2006 to September, 2011. It means that the current financial year was covered with the excise audit. The excise auditors has not found out any defects in consumption of raw materials and production. This fact also indicate that the books of accounts were truthfully maintained by the appellant. (iv) Books of accounts were audited by the statutory auditors and the auditors has verified the financial results and the books of accounts maintained by the appellant. The auditors has not given any adverse comment on the books of accounts of the appellant. 5.3 In view of above facts and keeping in view of the facts that the AO has not found specific defects in the books of accounts, I am inclined to agree with the contentions of ld. AR. Accordingly, I hold that ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock did not include the Excise Duty. As per the amended provisions of Section 154A, according to AO, the Excise Duty was to be included in the valuation of closing stock. The AO had worked out the Excise Duty component @ 19% at the closing stock of ₹ 20,39,181/- and included the Excise duty component of ₹ 3,87,444/- in the assessee income of the assessee. 17. When the matter was carried before the First Appellate Authority, the main contention of the assessee was as under: 5. The next ground of appeal (ground no.14 15) is regard to an addition of ₹ 3,87,444/- on account of excise duty included in the closing stock. Your appellant submitted that during the course of assessment proceedings the method of accounting followed in the trading and manufacturing division was explained with the treatment of excise duty charged on the manufacturing of finished goods. The ld. AO not appreciating the facts of the case that since the appellant goods, which has not left the factory premises of the appellant, addition thereof cannot be made as the element of cost. Your appellant submits that since the appellant has debited purchases also exclusive of Excise duty as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty was Revenue neutral in the present case. To appreciate the correct figures of Excise duty accounted for in the P L a/c and as to whether it was transferred to the balance-sheet by the assessee, are not emerging from the facts of the case. Therefore, we deem it proper to restore this ground back to the stage of the AO to be decided denovo after asking the assessee to produce before him the accounts of the Trading Division as well as the accounts of the Manufacturing Division . Since, the matter has been restored back for denovo consideration; hence, this ground of the Revenue is hereby allowed only for statistical purpose. In the result, Revenue s Appeal is partly allowed. B. Assessee s Appeal (ITA No.2839/Ahd/2012) 19. The assessee has raised ground no.1 and 2 as follows: 1. The learned CIT(A) has erred both in law and in facts in confirming the disallowance of commission expense of ₹ 7,78,582/- though the appellant had submitted the details of nature of expenditure, work performed and sales made through commission agents. The commission expense having been incurred for the purpose of business as in the past, the same be allowed. 2. Both the Low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.37 21.1 We have been informed that no such disallowance was made earlier. As per the details furnished before the lower authorities, it was explained that the commission was paid to the agents for procuring orders from outside and also getting payment on the sales which were executed through those agents. One of the admitted factual position was that the TDS on commission was also deducted. It has also been pleaded that it was not the case of the Revenue Department that the impugned commission was paid to the related parties. The assessee has furnished few case laws of the Respected Co-ordinate Benches of the Tribunal in support of the claim that the services rendered by those commission agents have also been established; hence, the disallowance was legally incorrect. We, therefore, hold that this is not the case where payment of commission was made merely through account payee cheques but this is the case where the facts have revealed that the order have been procured and the sales were excluded through those commission agents, therefore, on payment of commission the TDS was deducted by the assessee. Resultantly, after considering few case laws in sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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