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TMI Blog2015 (8) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 1,00,000/- out of various expenses. In the present case since the assessee agreed for the addition, we, therefore, do not see any valid ground to interfere with the findings given by the ld. CIT(A) on this issue. Accordingly we do not see any merit in this ground of the assessee’s appeal. - Decided against assessee. - ITA No. 1194/Del/2012, ITA No. 4463/Del/2012 - - - Dated:- 31-7-2015 - Sh. N. K. Saini And Sh. George George K, JJ For The Appellant : Sh. Sh. Ved Jain Sh. Ashish Goel, CAs For The Respondent : Sh. Amit Jain, Sr. DR. ORDER PER N.K. SAINI, A.M. These two appeals by the assessee are directed against the separate orders dated 02.12.2011 and 31.05.2012 of the ld.CIT(A), Karnal for the assessment year 2008-09 and 2009-2010 respectively. 2. Main issue involved is common in these appeals which heard together, so, these are being disposed off by this consolidated order for the sake of convenience and brevity. 3. First, we will deal with the appeal in ITA No. 1194/Del/2012 for the assessment year 2008-09. Following grounds have been raised in this appeal: 1. On the facts and circumstances of the case, the order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id through cheques and the agreement has to be effected upto 31.12.2010. The AO asked the assessee to furnish following documents/details :- i) Proof of land purchased where the proposed paper manufacturing Unit was proposed to be set up alongwith complete details of land purchased, where located, in whose name it stands alongwith copy of relevant revenue papers/registration deed etc. ii) If the land has been purchased in the name of the assessee firm, then sources thereof and where reflected in the books of accounts. Also, fate of agreement i.e. if all the plant and machinery stand purchased or not? If not, then reason thereof? If yes, then complete details thereof? iii) Complete details of proposed loacation/location selected and infrastructure erected thereupon and where the expenses thereof have been booked/reflected (with supporting documentary evidences). The AO observed that the assessee did not offer any explanation or supporting documentary evidences with reference to the queries raised. He therefore, inferred that the assessee had nothing to say in the matter and charged and worked out the interest @ 12% on the interest free advance of ₹ 1.17 crore, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there, whereas in this case there was no such penal clause and as per this agreement in case of non execution of the terms of agreement by the company, the amount of advance was to be returned and that too without any interest. The Ld. CIT(A) inferred that the entire exercise had been carried out by the assessee to show that the advance was made for business purposes to prevent the disallowance out of claim of interest for making this interest free advance. The ld. CIT observed that from the bank statement furnished by the assessee it was difficult to ascertain/ verify the exact source of making the said advancement to M/s Northwest Crafts Pvt. Ltd. He also observed that the assessee had taken secured loans of ₹ 8.30 crores on which interest liability of ₹ 1.24 crores was claimed and had those interest free advances been not made to M/s North West Paper Craft (P) Ltd, the same would be available with the assessee for use of business which in turn would reduce the interest liability of the assessee substantially. The Ld. CIT(A) did not accept this contention of the assessee that no interest was paid on the capital of the partners by observing that the same was not availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be clear that apart from the advance given to the said party there were many other transactions and some times, there was credit balance in the account of said party. In the present case, it is not the case of the department that the borrowed funds were not used for the business purpose and in the absence of nexus between the interest bearing borrowed funds and the advance given by the assessee for purchase of Plant Machinery, the disallowance made by the AO, was not justified. In the present case, it is also noticed that the partners of the assessee firm were having opening balance of ₹ 24,07,594.88 in their capital account and added ₹ 81,19,857/- during the year under consideration, on the said amount, the partners were not charging any interest. The said amount was available to the assessee for giving an advance to M/s North West Paper Craft Pvt. Ltd. As such the disallowance made by the AO and sustained by the ld. CIT(A) was not justified. 10. On a similar issue their lordship of Punjab Haryana High Court in the case CIT vs. Rockman Cycle Industries Ltd. 176 Taxman 21 (Supra) has observed in para 5 as under : 5. After hearing the counsel for the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance of an amount of ₹ 13,24,585/- on account of interest. (ii) That while confirming the said disallowance the learned CIT(A) has erred both on facts and in law in misinterpreting the agreement entered into between the assessee and North West Paper Kraft Pvt. Ltd. (iii) That the disallowance has been confirmed ignoring the explanation and evidences brought on record by the assessee. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in disallowing an amount of ₹ 4,39,764/- on account of interest expenditure incurred during the year by invoking the provisions of section 40(a)(ia) of the Act. 4(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of an amount of ₹ 1,45,570/- on account of challans and penalty. (ii) That the above disallowance has been confirmed despite the fact that the expenses were incurred wholly and exclusively for the purposes of business. 5. On the facts and circumstances of the case , the learned CIT(A) has erred both on facts and in law in confirming the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground no. 5 the grievance of the assessee relates to the confirmation of addition of ₹ 55,000/- made by the AO on account of disallowance of interest. The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee had advanced a loan of ₹ 5,00,000/- to Sh. Rakesh Khanna but no interest had been charged on the said amount of advance. The AO observed that the assessee had borrowed the funds from the bank on which interest was being paid which was allowable deduction u/s 36 (1)(iii) of the Act but the amount of ₹ 5,00,000/- had been given as a friendly interest free loan out of borrowed funds. He worked out the interest @ 12 % amounting to ₹ 55,000/- and disallowed the same. 18. Being aggrieved the assessee carried the matter, Ld. CIT(A) and submitted as under :- That the assessee firm has paid a sum of ₹ 5,00,000/- to Sh. Rakesh Khanna on 03.05.2008 as advance for purchase of suitable land for paper mill. The advance was given for giving token money to the prospective seller of the land. Since the partners of the assessee firm has wide experience of running paper mills, therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance sheet enclosed by the appellant it is noted that the appellant has taken secured loans and unsecured loans as on 31.03.2009 at ₹ 5,41,56,761/- and ₹ 3,66,000/- respectively and claimed payment of interest thereon at ₹ 1,36,25,546/- . On the other, the appellant made interest free advance of ₹ 5 lac to one Sh. Rakesh Khanna on 03.05.2008, i.e. during the year under consideration. The appellant claimed that the advance was made for purchase of land for paper mill and hence claimed that the advance was made for business referred to in para 2.2 of the written submissions reproduced above. The appellant, however, could not bring on record any evidence in support of its claim that the said advance was made for business purposes. Hence case laws relied upon by the appellant is of no help rather ratio laid down by the Hon ble Punjab Haryana High Court in the case of Abhishek Industries, 286 ITR 1 is squarely applicable to the facts of the case of the appellant and hence disallowance out of interest made by the AO is hereby confirmed. Now the asessee is in appeal. 20. The ld. Counsel for the assessee reiterated the submissions made before the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally mentioned that the assessee agreed for a disallowance of ₹ 1,00,000/- out of above expenditure. Accordingly the AO made the addition of ₹ 1,00,000/-. 23. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted that the AO made the above addition on adhoc basis without giving any reason thereto. It was also stated that the addition made by the AO was erroneous and excessive. 24. The ld. CIT(A) after considering the submissions of the assessee observed that the disallowance was made on agreed basis and hence no interference was called for in order of the AO. Accordingly disallowance made by the AO was confirmed. Now the assessee is in appeal. 25. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the disallowance made by the AO and sustained by the Ld. CIT(A) was highly excessive. However he could not controvert this fact that the assessee agreed for the said addition and thereafter AO did not make any further inquiry. In his rival submissions, the ld. DR strongly supported the orders of the authorities below further submitted that the assessee himself agreed for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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