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TMI Blog2014 (1) TMI 1641X X X X Extracts X X X X X X X X Extracts X X X X ..... is placed was found to be bogus, sham and unreal, the assessee's claim is to be negatived. - Decided against the assessee. Unexplained cash credit - Unapproved creditors - addition u/s 68 deleted by ITAT - Held that:-Particulars were sought for, complete particulars were not furnished thereby disabling the assessing authority to make any further enquiry. It is in those circumstances, the assessing authority has been very reasonable, instead of treating the entire credit, for which the particulars are not given, he has treated only 10 per cent. of the total advances as unexplained cash credit. The finding of the Tribunal that such procedure is contrary to the spirit of judicial precedents is unfounded. In view of that, the finding recorded by the Tribunal cannot be sustained. It is contrary to law. - Decided against the assessee. Interest on borrowed funds disallowed - ITAT allowed the claim - Held that:- Unfortunately, the Tribunal did not look into all the three transactions as one transaction. It was of the view because S. N. Project Ltd. did not take off and because of the memorandum of understanding entered into between the parties towards the purchase of the electricit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent. depreciation as claimed by the lessor was found to be bogus. On the other hand, enquiry relating to the assessment year 1998-99 showed that the assessee had substantial creditors under the head advances against sales and sundry creditors which are reflected in the balance-sheet. In fact, the managing director of the assessee, Sri S. Madhava, filed an affidavit confirming the above facts. Therefore, the assessing authority recorded a finding that the lease rentals paid by the assessee-company and debited to the profit and loss account need to be disallowed. Accordingly, it was disallowed. The assessee contended if the lease rentals is disallowed, the said amount is allowable as an expenditure as financial charges. During the assessment year 1998-99, the total payments of lease rentals to the tune of ₹ 23,99,48,270 was made. Out of this, an amount of ₹ 1,63,10,230 only is debited to the profit and loss account and the balance amount ₹ 22,36,38,040 has been taken as closing work-in-progress/integrated steel plant. Therefore, he disallowed a sum of ₹ 1,63,10,230. He declined to treat the said amount as financial charges and to give deductions on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose. The funds are routed through various associated companies for the reason therein business consideration. Therefore, the assessing authority held that the amount of ₹ 45.5 crores of the borrowed funds from banks and financial institutions is diverted and invested by the assessee in various associated companies is not a genuine business transaction and, therefore, the proportionate interest at the prevailing rates paid by the companies amounting to ₹ 4,91,65,609 was disallowed and added back to the total income. 5. Aggrieved by these findings of the assessing authorities, the assessee preferred appeals. The Commissioner of Income-tax (Appeals), after re- appreciating the entire material on record, confirmed the said findings. It is against the said order, the assessee preferred an appeal to the Tribunal. 6. The Tribunal on the question of lease rentals, after referring to various judgments held that unless the Revenue has disputed the assessee's claim with the documentary evidence, it cannot be termed as a sham or a device. The Revenue has placed more stress on the survey report rather than making discreet enquiry to pin point, where the assessee at faul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectricity for its use from S. N. Project Ltd. for which it had invested ₹ 45.5 crores. Due to technical snag faced by M/s. S. N. Project Ltd., the proposed project could not take shape, as was expected, for which the assessee had no control over it. The Assessing Officer's assertion is that all the three companies were having directors with common interest and shareholders. However on a perusal of the documents reveal that the total number of directors were four. Out of which the managing director of the assessee S. Madhav was holding 14.28 per cent. of shares, whereas the other directors together were holding the remaining 85.72 per cent. of shares. Therefore, it was of the view that the observations made by the Assessing Officer is lacking conviction. It held that the assessee was financially on sound footing and had advanced a sum of ₹ 45.5 crores to S. N. Project Ltd. and not out of the loans availed of from the financial institutions. The said loan amount received from the financial institutions have been invested for the different purposes and not for advancing to S. N. Project Ltd. as alleged by the Revenue. The sole intention of the assessee was perhaps out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of its claim ? 10. From the aforesaid material on record, it is clear that the lessor has not purchased any machinery. When no machineries were purchased, the question of leasing non-existence machinery would not arise. Therefore, the payment of rent for a property, which is not leased would not arise. That is why the assessing authority and the lower appellate authority rightly and concurrently held that the lease in question is a sham and it is not real. The Tribunal has not disturbed this finding that there was no purchase of machinery, there was no lease of machinery and there was no payment of lease rentals. But strangely, it recorded a finding that unless the Revenue has disputed the assessee's claim with documentary evidence, it cannot be termed as a sham or a device. When once the managing director admits in his affidavit that there was no purchase of materials/machinery, there was no lease of machinery and, therefore, the amounts paid is not lease rentals, we fail to understand what more evidence was required to establish that the case of lease rentals pleaded by the assessee is a sham transaction or unreal transaction. Therefore, the Tribunal without any justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th liability. In those circumstances, it was held that there is an obligation cast on the assessing authority to conduct an enquiry to find out the truth or otherwise of the particulars furnished by the assessee. Those judgments have no application to the facts of these cases. Particulars were sought for, complete particulars were not furnished thereby disabling the assessing authority to make any further enquiry. It is in those circumstances, the assessing authority has been very reasonable, instead of treating the entire credit, for which the particulars are not given, he has treated only 10 per cent. of the total advances as unexplained cash credit. The finding of the Tribunal that such procedure is contrary to the spirit of judicial precedents is unfounded. In view of that, the finding recorded by the Tribunal cannot be sustained. It is contrary to law. Therefore, the said substantial question of law is answered in favour of the Revenue and against the assessee. 12. In so far as the interest on borrowed funds amounting to ₹ 4,91,65,609 is concerned, the admitted position is that the assessee invested ₹ 45.5 crores in S. N. Project Ltd. for the purpose of generati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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