9911796707
TMI Blog2012 (1) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. The AO has not pointed out any particular expenses which are not for purposes of business. Looking to the turnover of the assessee and other details kept by assessee, we hold that ld. CIT (A) was justified in deleting the addition. Depreciation @80% on windmill allowed Addition on account of interest expenses - Held that:- The ground taken by the department is wrong as ld. CIT (A) has remitted the matter back to the file of AO to work out disallowance in view of provisions of section 14A of the Act. The assessee has also challenged the finding of ld. CIT (A) by ground No. 11 and 12 in which it has been held that provisions of section14A are not applicable on the facts of the present case. Vehicle running 50,000/- on adhoc basis. Accordingly, we delete the addition. The ground of the assessee is allowed. Addition on account of unverified sundry creditors - Held that:- Assessee deserves to succeed in this ground. There is no dispute about liability of the assessee which is coming from last year. This liability has not been ceased to exist X X X X Extracts X X X X X X X X Extracts X X X X ..... k of finished goods, raw material & WIP but the valuation is unverifiable as there are number of instances of undervaluation of finished goods. In the absence of details of market price, the valuation of closing stock is not fully acceptable. (v) Assessee failed to substantiate whether the purchases from sister concerns is at prevailing market rate or not, in the absence of which genuineness of purchases from them is unverifiable. (vi) No evidence could be brought on record by the assessee regarding the increase in packing expenses by 40.51% in compared to increase in turnover by only 20.74% as compared to the last year. Accordingly, AO rejected the books of accounts u/s 145(3) & made adhoc addition of ₹ 75 lacs to cover the possible leakage of revenue. 6. The ld. CIT (A) deleted the addition by observing the following observations :- "After due consideration and hearing the assessee at great length, it is seen that this addition is also similar to addition made in the A.Y. 2003-04. The AO did not pointed out any defects in the books of account, stock register, purchase and consumable stock. Simply saying that expenses have increased compared to the preceding year is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33.14% (PB 13) which itself shows that yield rate can not be constant every year or even month to month. Further, from the mustard oil cake, assessee extracted solvent oil of 7.06% (PB 16). In earlier years the yield percentage has been accepted. In these circumstances, comparison of yield percentage of M/s Vijay Industries with that of the assessee has no significance. (ii) The assessee company maintains daily stock and production register wherein all the mustard seeds purchased and consumed in the milling are entered into. Month-wise quantitative details of mustard seed, mustard oil, mustard refined oil, mustard oil cake, solvent extraction oil, solvent oil, solvent refined oil, mustard de oil cake & vanaspati ghee is at PB 13-37. The expectation of the AO to maintain stock register for each and every lot of seed purchased is neither feasible nor practical nor any other industry maintains such record. Hence, the observation of the AO that no records are maintained for different quality of mustard seeds purchased is irrelevant. In case of CIT Vs. Saatal Kattha & Chemicals (P.) Ltd. 296 ITR 197 (MP)(HC) assessee was engaged in the business of manufacturing and sale of Kattha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowing the loss on sale of Mustard D Oil Cake. However, ITAT Jaipur Bench accepted the trading results declared by the assessee vide ITA No. 599/JP/10 dt. 25.02.2011 (PB 379-388, Para 2.7, Page 3-5 of the order). It is to be further noted that in assessee's sister concern M/s Deepak Vegpro Pvt. Ltd. & M/s Vijay Industries, AO made trading addition by making similar observations in A.Y. 06-07. However, ITAT Jaipur Bench vide ITA No.361/JP/11 dt. 21.10.2011 (PB 389-415, Para 23, Page 8-10 of the order) & ITA No.902/JP/10 dt. 23.09.2011 (Para 416-423, Para 3.5, Page 2-4 of the order) respectively deleted the trading addition. 9.1. The ld. Counsel further submitted that in the present case, the G.P. Rate of 9.92% on turnover of ₹ 3,25,37,85,015/- during the year under consideration is better than the G.P. Rate of 9.72% on turnover of ₹ 2,70,38,05,605/- declared in the preceding year. Not only the G.P. rate, but the turnover & gross profit have also increased. It is a settled law that, no trading addition is called for if the result declared is better as compared to the result declared in earlier year. 10. In view of above, it was submitted that ld. CIT (A) has right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 2,68,77,150/- of M/s Deepak Vegpro (P.) Ltd. & M/s Saurabh Agrotech (P.) Ltd. respectively in its books of account is not on account of such purchases rather the same is on account of receipt of cheques from M/s Deepak Vegpro (P.) Ltd. & M/s Saurabh Agrotech (P.) Ltd. respectively. 15. Accordingly, AO by relying on various decisions held that provisions of section 2(22)(e) is attracted in case of the assessee company & therefore he added ₹ 6,77,22,353/- i.e. the peak credit balance as on 16.03.2006 in case of M/s Deepak Vegpro (P.) Ltd. & ₹ 3,43,51,373/- i.e. the peak credit balance as on 13.01.2006 in case of M/s. Saurabh Agrotech (P.) Ltd. as deemed dividend u/s 2(22)(e). 16. The ld. CIT (A) after considering the submissions of the assessee as summarized in Para 7.2 of the order & also considering the various case laws relied by the AO & the assessee, deleted the addition of ₹ 10,20,73,726/- as per the findings given in Para 7.3 (Page 31-34 of the order). The same is reproduced as under:- "I have considered the submissions of the learned counsel thoroughly and perused the assessment order and annexure annexed thereto. The submissions of the learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a business and trade account. Now the question arises, whether, the provision section 2(22)(e) of the Income-Tax. Act' 1961 are attracted upon the business of trade transaction. In this regard learned counsel has rightly placed the reliance upon the decision of Hon'ble Delhi High Court in the case of CIT V/s Raj Kumar (2009) TIOL 247 (Del.) "Trade advance which are in the nature of money transacted to give effect to a commercial transactions would not fall within the ambit of the provisions of Section 2(22)(e) of the Act - Revenue's appeal dismissed. While delivering the judgment, Hon'ble Delhi High Court has distinguished the decision of Apex Court in the case of P.Sharda and Taru Lata Shayam. It has also recently been held by Hon'ble Delhi High Court in case of CIT Vs. Ambassador Travels (P) Limited (2008) 173 Taxman 407 (Del.) that "the assessee was involved in the booking of resorts for the customers of these company and entered into normal business transaction as a part of its dayto day business activities. The financial transaction cannot in any circumstances be treated as loans or advances received by the assessee from these two concerns." Decision of Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en paid on the same and the same view have been upheld by Income Tax Appellate Tribunal, Bench-Jaipur, Jaipur in the case of Income Tax Officer v/s Mahavir Stores, Alwar ITA No. 1834 & 1835/JP/981 dated 23.11.1993. Recently Hon'ble ITAT - G - Bench Mumbai in case of DCIT Vs. Gharada Chemical Ltd. in ITA No. 2012/ Mumbai/ 2010 A.Y. 2004-05 order dated 07.01.2001 has held that purchases made from the subsidiary company worth ₹ 31.53 crores were commercial transaction between the two companies could not be brought within the preview of the provisions of s. 2(22)(e) by considering the judgment of CIT Vs. Ambassador Travel Pvt. Ltd. (2008 - TIOL 247 HC - Delhi - IT) and CIT Vs. Ambassador Travel Pvt. Ltd. (2008 - TIOL - 451 - HC Delhi - IT). Therefore considering all the above fact and latest case laws on the subject it is categorically held that the transaction of assessee company with the Deepak Vegpro (P) Ltd. and the Saurabh Agrotech (P) Ltd, is the business and trade transaction entered into the normal course of business and the provision of section 2(22)(e) are not applicable thereupon and the addition of ₹ 10,20,73,726/- u/s 2(22)(e) of the Income-Tax Act' 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has received more money and deeming provisions of section 2(22)(e) are applicable and, therefore, the addition was made. The ld. CIT (A) through has deleted the addition by placing reliance on various case laws and thereafter holding that transactions of the assessee company with M/s. Deepak Vegpro Pvt. Ltd. and M/s. Saurabh Agrotech Pvt. Ltd. are in the nature of trading transactions entered into in the normal course of business, therefore, provisions of section 2(22)(e) are not applicable. It is further explained that ld. CIT (A) has not given any independent finding as he has simply relied upon the assessee's version and allowed the appeal. It is explained that assessee could not establish that these were business and trade transactions entered into, in the normal course of business. In case of both the group companies, the data of purchase from them and sales made to them have been mentioned in the assessment order. The AO has discussed that assessee's transactions are not in nature of business and, therefore, he has made the addition under section 2(22)(e). Reliance has been placed on various case laws i.e. in cases of P. Sarda, 229 ITR 444, Walchand & Co. Ltd., 100 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 785.03 lacs Opening Debit ₹ 225.72 lacs Closing Credit ₹ 559.31 lacs (ii) The brief of the transactions in the books of assessee company with M/s Saurabh Agrotech (P.) Ltd. of purchase, sale, payment made & payment received during the year under consideration is as under:- (PB 152-211) Purchases from M/s Saurabh Agrotech (P.) Ltd. (Cr.) ₹ 2180.52 lacs Payment received on sales made & other trade/debt transactions (Cr.) ₹ 3268.65 lacs Total of credit side ₹ 5449.17 lacs Sales to M/s Saurabh Agrotech (P.) Ltd. (Dr.) ₹ 682.13 lacs Payment made on purchases & trade/debt transactions (Dr.) ₹ 4457.79 lacs Total of debit side ₹ 5139.92 lacs Balance Credit ₹ 309.25 lacs Opening Debit ₹ 40.48 lacs Closing Credit ₹ 268.77 lacs The credit entries in the books of assessee company is in respect of the following transactions with M/s Deepak Vegpro (P.) Ltd. & M/s Saurabh Agrotech (P.) Ltd.:- (i) Purchases from M/s Deepak Vegpro (P.) Ltd. & M/s Saurabh Agrotech (P.) Ltd. (ii) Realization of sales made to M/s Deepak Vegpro (P.) Ltd. & M/s Saurabh Agrotech (P.) Ltd. (iii) Payment received from parties against sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead in conjunction with the word "loan". Usually attributes of a loan are that (i) it involves a positive act of lending coupled with acceptance by the other side of the money as loan (ii) generally carries an interest (iii) obligation of repayment. Therefore, the word "advance" which appears in the company of the word "loan" could only be such advance which carries with it an obligation of repayment. Thus, trade advances which is in the nature of money transacted to give effect to a commercial transaction would not fall within the ambit of section 2(22)(e). (ii) The transaction of loan involves lending delivery by one party & receipt by another party of sum of money upon express or implied agreement to repay it with or without interest. In case of Bombay Steam Navigation Co. (P.) Ltd. 56 ITR 52, 57 (SC), it was held that a loan of money results in debt but every debt does not involve a loan. Liability to pay a debt may arise from diverse sources & loan is only one of such source. Every creditor who is entitled to receive a debt can not be regarded as a lender. Therefore, M/s Saurabh Agrotech (P.) Ltd. can not be considered to be a lender in the present facts & thus credit on cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taking into consideration the entire conspectus of the case, the receipt from H Ltd. was in the nature of share application money. It cannot be construed loan or advance. As such, the case of the assessee falls beyond the ken of s. 2(22)(e). AO has invoked section 2(22)(e) only because the account contain transactions of payment received from M/s Deepak Vegpro (P.) Ltd. of ₹ 10094.33 lacs & from M/s Saurabh Agrotech (P.) Ltd. of ₹ 3268.65 lacs & payment made to M/s Deepak Vegpro (P.) Ltd. of ₹ 10193.85 lacs & to M/s Saurabh Agrotech (P.) Ltd. of ₹ 4457.79 lacs & therefore he took a view that amount outstanding is due to receipt of cheque & not towards the purchase of goods. He ignored the fact that the outstanding balance represents the purchases made in last two months i.e. February 2006 & March 2006. Further, he has nowhere ascertained that the payment received & the payments made are towards payment by way of loans or advances. Hence, simply because there are transactions of cheques received & cheques paid in the mutual, open, current, running & trade account with the sister concern, the same can not be considered as payment by way of loans or advances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also. On perusal of ledger account of M/s. Saurabh Agrotech Pvt. Ltd. in the books of the assessee company, it is noticed that the nature of transaction between them are business transaction. In case of C1T vs. Raj Kumar, 318 ITR 462 (Del.), the Hon'ble Delhi High Court has held that applying the rule of "Noscitur a Sociis" which means that the word in an Act of Parliament is to be constructed with reference to the words found in immediate connection with them the word "advance" has to be read in conjunction with the word "loan". Usually attributes of a loan are that (i) it involves a positive act of lending coupled with acceptance by the other side of the money as loan (ii) generally carries an interest (iii) obligation of repayment. Therefore, the word "advance" which appears in the company of the word "loan" could only be such advance which carries with it an obligation of repayment. Thus, trade advances which is in the nature of money transacted to give effect to a commercial transaction would not fall within the ambit of section 2(22)(e). 35.1 Similar facts are involved in this case also as the transactions are of business nature. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is very important in examining whether a payment made by the company falls u/s 2(22)(e) or not. Where a company pays to its shareholder any amount against repayment of an existing loan or advance or against purchase or availing of service or paying on account on any other grounds, such payments made in the ordinary course of carrying on of the business of that company cannot be brought under the purview of s. 2(22)(e). That is why s. 2(22)(e) provides that any payment by a company by way of advance or loan to a shareholder alone is to be considered for the purpose if deemed dividend. Payments made by a company through a running account in discharge of its existing debts or against purchases or for availing services, such payments made in the ordinary course of business carried on by both the parties could not be treated as deemed dividend for the purpose of section 2(22)(e). The deeming provisions of law contained in section 2(22)(e) apply in such cases where the company pays to a related person an amount as advance or loan as such & not in any other context. The law does not prohibit business transactions between related concerns & therefore payment made in the ordinary course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Tours (India) (P.) Ltd. were also in tourism business. The assessee was involved in booking of resorts for the customers of these companies & entered into normal business transactions as a part of its day-to-day business activities. The financial transactions can not in any circumstances be treated as loans or advances received by the assessee from these two concerns. Pradip Kumar Malhotra Vs. CIT 338 ITR 538 (Cal.) (HC) dt. 02.08.2011 The phrase "by way of advance or loan" appearing in sub - clause (e) of s. 2(22) of the Income Tax Act, 1961, must be construed to mean those advances or loans which a shareholder enjoys simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less then 10% of the voting power; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. Thus, gratuitous loan or advance given by a company to thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfluenced by the same individual. In other words, the decision to give and the decision to take rested with either the same group of people or with the same individual. In such circumstances of the case, it is held that the transactions inter se between the sister concerns and the assessee cannot partake of the nature either "deposit" or "loan", though interest might have been paid on the same. Expecting for the transfer of funds being witnesses in the books of account of the concerned firms, no material is on record to show issue of receipt or pronote in evidence of accepting a deposit or accepting a loan. Therefore, the transactions as are found in the books of accounts of the assessee cannot be termed as deposits or loans as understood in common parlance. It only represents diversion of funds from one concern to another depending upon the exigencies of the business. These findings has been approved by Rajasthan High Court in case of CIT Vs. Maheshwari Nirman Udhoyg 302 ITR 201. DCIT Vs. Lakra Brothers 106 TTJ 250 (Chand.) (Trib.) The important words in section are loan or advance & for the individual benefit of such shareholders. Loan is something different from debt. For a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to increase its export business and to compete with the international standards in garments exports proposed modernization and expansion of the plant and machinery of the assessee-company. The assessee-company being unable to invest such a large amount, P agreed to invest 50% of the project cost, the rest of the 50% to be arranged by the shareholders/directors of the company. The funds advanced were to be adjusted against the dues payable by P to the assessee-company in subsequent years for the job work of printing and dyeing to be done by the assessee for P. The Assessing Officer held that the amount paid to the assessee-company was a deemed dividend under section 2(22)(e) of the Income-tax Act, 1961. The Tribunal held that it was an advance for a commercial purpose to the assessee-company by its sister concern P and not a deemed dividend under section 2(22)(e) of the Act. On appeal, it was held that the amounts advanced for business transaction between the assessee-company and P did not fall within the definition of deemed dividend under section 2(22)(e). The transaction of cheque received & cheque paid, in the present case, in the normal course of business are neither tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance Unless & Until all the above conditions are satisfied, deeming fiction would not be attracted. In the present case, the nature of business of both the companies is trading & manufacturing of mustard oil and oil cake. In the course of business, both the companies have entered into a series of trade transactions of purchase, sale, making payment & receiving payment. The respective entries are made in their respective books of accounts in single & consolidated account. The brief of the transactions of purchase, sale, payment made & payment received in the books of assessee company during the year under consideration is as under:- (PB 33-48). Purchases from M/s Saurabh Agrotech (P.) Ltd. (Cr.) ₹ 363.68 lacs Payment received on sales made & other trade/debt transactions (Cr.) ₹ 2956.90 lacs Total of credit side ₹ 3320.58 lacs Sales to M/s Saurabh Agrotech (P.) Ltd. (Dr.) ₹ 585.25 lacs Payment made on purchases & trade/debt transactions (Dr.) ₹ 2645.78 lacs Total of debit side ₹ 3231.03 lacs Balance Credit ₹ 89.55 lacs Opening Credit ₹ 3.89 lacs Closing Credit ₹ 93.44 lacs The credit entries in the books of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds found in immediate connection with them, the word "advance" has to be read in conjunction with the word "loan". Usually attributes of a loan are that (i) it involves a positive act of lending coupled with acceptance by the other side of the money as loan (ii) generally carries an interest (iii) obligation of repayment. Therefore, the word "advance" which appears in the company of the word "loan" could only be such advance which carries with it an obligation of repayment. Thus, trade advances which is in the nature of money transacted to give effect to a commercial transaction would not fall within the ambit of section 2(22)(e). (ii) The transaction of loan involves lending delivery by one party & receipt by another party of sum of money upon express or implied agreement to repay it with or without interest. In case of Bombay Steam Navigation Co. (P.) Ltd. 56 ITR 52, 57 (SC), it was held that a loan of money results in debt but every debt does not involve a loan. Liability to pay a debt may arise from diverse sources & loan is only one of such source. Every creditor who is entitled to receive a debt can not be regarded as a lender. Therefore, M/s Saurabh Agrotech (P.) Ltd. can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tched, zealously regarded and never to be pressed beyond its true limits. Taking into consideration the entire conspectus of the case, the receipt from H Ltd. was in the nature of share application money. It cannot be construed loan or advance. As such, the case of the assessee falls beyond the ken of s. 2(22)(e). AO has invoked section 2(22)(e) only because the account contain transactions of payment received from M/s Saurabh Agrotech (P.) Ltd. of ₹ 2956.90 lacs & payment made to M/s Saurabh Agrotech (P.) Ltd. of ₹ 2645.78 lacs & therefore he took a view that amount outstanding is due to receipt of cheque & not towards the purchase of goods. He ignored the fact that the outstanding balance of ₹ 93.44 lacs represents the purchases made in last two months i.e. February 2006 ₹ 36.22 lacs & March 2006 ₹ 57.21 lacs. Further, he has nowhere ascertained that the payment received & the payments made are towards payment by way of loans or advances. Hence, simply because there are transactions of cheques received & cheques paid in the mutual, open, current, running & trade account with the sister concern, the same can not be considered as payment by way of lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a shareholder alone is to be considered for the purpose if deemed dividend. Payments made by a company through a running account in discharge of its existing debts or against purchases or for availing services, such payments made in the ordinary course of business carried on by both the parties could not be treated as deemed dividend for the purpose of section 2(22)(e). The deeming provisions of law contained in section 2(22)(e) apply in such cases where the company pays to a related person an amount as advance or loan as such & not in any other context. The law does not prohibit business transactions between related concerns & therefore payment made in the ordinary course of business can not be treated as loans or advances. Therefore, payments made by a company in the course of carrying on of its regular business through a mutual, open & current account to a related party does not come under the purview of section 2(22)(e). Mtar Technologies (P.) Ltd. Vs. ACIT 39 SOT 465 (Trib.) (Hyd.) (2010) Under section 2(22)(e), only the payments made by way of loan or advance to a shareholder alone is to be considered for the purpose of deemed dividend. Payments made by a company through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company was having running current account with its Director, the Director use to pay the money as well as withdraw from that account, no interest is charged & in these facts it was held that the deposits & withdrawal of money from the current account could not be considered as loan or advance. Muthoot M. George Brothers Vs. ACIT 47 TTJ 434 (Cochin) (Trib.) In this case it was held that bonafide transactions between sister concerns with centralized accounts & management do not attract provisions of section 269SS & section 269T. The transactions between the sister concern & the assessee are to be examined. There are transfer of funds from and to the sister concerns. There is no evidence to show that the money was loaned or kept deposited for a fixed period or repayable on demand. Further, the sister concerns and the assessee are owned by the same family group with a common managing partner with centralized accounts under the same roof. Transfer of funds has taken place in a whimsical manner. Therefore, it is rather difficult to say that the transactions are in the nature of the deposits or loans with certain conditions attached to them, either as regards the period of such dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defect has been pointed out in the conclusion of the CIT(A) the same is upheld. Sri Satchindananad S. Pandit Vs. ITO 19 SOT 213 (Trib.) (Mum.) It was held that where the amount outstanding from assessee director to the company is on account of transaction entered into during the regular course of business between them, it can no be treated as deemed dividend u/s 2(22)(e). There is no prohibition against any business transaction between a shareholder & his company. Section 2(22)(e) is a deeming provision on the basis of a legal fiction. In constructing a legal fiction, it will be proper & necessary to assume all those facts on which alone the fiction can operate & as held by Apex Court in case of Mancheri Puthusseri Ahmed Vs. Kuthiravattam Estate Receiver AIR 1997 SC 208, in so constructing the fiction, it is not to be extended beyond the purpose for which it is created or beyond the language of the section by which it is created. By enacting section 2(22)(e), the legislature has created a fiction & has made the payments referred to therein "dividend" for the purpose of income tax, but the fiction cannot be extended further or so interpreted as to go beyond the legislature's inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given the following finding:- "I have considered the submissions of the learned counsel thoroughly and perused the assessment order and annexure annexed thereto. The submissions of the learned counsel are found to be in order not only on one ground but on several grounds. Firstly and foremost among them, is that the assessee company is having the transaction with the Saurabh Agrotech (P) Ltd on regular and daily basis, wherein substantial transaction are being transacted through. The transaction entered into the account are transaction of purchase, sale, payment received and given from/to third parties, which have been accounted for in the account of Saurabh Agrotech (P) Ltd and also the payment received and payments made to Saurabh Agrotech (P) Ltd . Balance in the account have alternated between debit and credit. This fact have also been accepted by the Assessing Officer in his assessment order on page number 14 in para number (v) that at some point of time, the balance was debit and at some point of time the balance was credit. A list of instance wherein such balances are in debit have also been given by the appellant and mentioned in the order (supra). Under this scenario, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowed by the same High Court in the case of CIT v/s Creative Dyeing & Printing (P) Limited (2009) TIOL 532 (Del.) wherein it has been held that "advances given for commercial purposes of expansion of business can not be treated as loan or dividend income in the hands of the shareholders of the assessee company." Income-Tax Appellate Tribunal, Bench- Mumbai in NH Securities Limited v/s Deputy Commissioner of Income-Tax, (2007) 11 SOT 302 (Mumbai), after considering the decision of P.K.Badiani, M.B.Stock Holding and Wal Chand & Company, (Supra), have held that "payments made by a company in the course of carrying on of its regular business through a mutual, open and current account to a related party do not come under purview of section 2(22)(e) of the Act." Therefore by following the above decision, I have no hesitation to come to the conclusion that the transaction entered into between the assessee company and the Saurabh Agrotech (P) Ltd , which have been considered by the Assessing Officer are in the nature of business and trade transaction entered into the regular and normal course of business and are not in the nature of loans or advances, therefore the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and the other companies are akin to loan and advances. The nature of transaction clearly established that they related to purchase and sale entered into between the parties or on account of running account. After going through the chart of transaction, we find that this transaction cannot be treated as payment or any sum paid or payable and this payment are not by way of loan or advances and until these conditions are satisfied, provisions of section 2(22)(e) cannot be attracted. The nature of transaction of both the companies is trading and manufacturing of mustard oil and oil cake. In the course of business, both these companies had entered into a series of trade transactions of purchase, sale, making payment and receiving payment. The respective entries are made in their respective books of accounts in single & consolidated account. The brief of the transactions have been explained at page 8 of the written submission which are reproduced somewhere above in this order also. On perusal of ledger account of M/s. Saaurabh Agrotech Pvt. Ltd. in the books of the assessee company, it is noticed that the nature of transaction between them are business transaction. In case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by ld. Counsel has already been considered by us while deciding the appeal in case of M/s. Deepak Vegpro Pvt. Ltd. The cases on which reliance has been placed by ld. D/R are distinguishable as these transactions are not of loan transaction and, therefore, they are not applicable on the facts of the present case. We have already held that transactions are of business in nature, therefore, provisions of section 2(22)(e) cannot be applied. In view of these facts and circumstances and in view of the decision of Tribunal in case of sister concern for the same year in which we have held that transactions are business in nature, we uphold the order of ld. CIT (A). This ground of the department also fails. 21. Ground No. 3 in appeal of the department is against deleting the disallowance of ₹ 6,36,288/- made under section 40A(3) of the Act. 22. The brief facts of the case are that AO observed that assessee has made payment of freight charges to M/s. Shree Krishna Freight Carrier, Bansur in excess of ₹ 20,000/-. The total of such payment is ₹ 31,81,440/-. Accordingly, he disallowed 20% of the same u/s 40A(3). 23. The ld. CIT(A) after examining the sample GR/invoices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y AO for assessment years 2003-04 and 04-05. Tribunal has decided the issue in favour of the assessee. Similar issue was also involved in case of M/s. Deepak Vegpro Pvt. Ltd. and the Tribunal in ITA No. 415/JP/2007 vide order dted 27.06.2008 has deleted the addition by observing as under :- "From the provisions of allowing depreciation on wind mill which is governed by Appendix I Para (xiii)(1), it is evident that the depreciation @80% has to be charged on the complete wind mill. Therefore the ld. CIT(A) is not justified in segregating the cost of the construction of the room from the said wind mill. The said construction of the room has been specifically designed for the purpose of the windmill & therefore Ld. CIT(A) is directed to allow depreciation as per the rules applicable on the wind mills". In view of the decision of Tribunal, we hold that ld. CIT (A) was justified in deleting this addition also. Accordingly, we confirm the order of ld. CIT (A) on this issue. 33. Ground No. 6 in the appeal of the department is against restricting the disallowance at ₹ 17,12,628/- out of total disallowance of ₹ 1,06,76,964/- made by AO on account of interest expenses. 34. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nship with the tax exempt income. 13.3. The assessee through its written submission has explained that the interest expenses of ₹ 87,29,446/- is incurred on working capital limits & term loan taken from SBBJ against hypothecation of stock, debtors & plant and machinery. The total working capital loan outstanding as on 31.3.2006 is ₹ 900.21 lacs against which investment in stock and debtors is ₹ 2057.38 lacs. Similarly, the outstanding term loan is ₹ 90.58 lacs whereas the investment in plant and machinery is of ₹ 529.38 lacs. Thus, the entire loan from SBBJ is utilized for the purpose of the business. There is no finding either by the AO or by the ld. CIT (A) that this was not utilized for the purpose of business. It is also mentioned in the written submission that the investment made in shares in earlier year out of interest free funds. In earlier year no such disallowance was made. It has been stated that from the Balance Sheet it can be noted that the assessee company is having share capital and reserve and surplus of ₹ 1190.08 lacs whereas investment in shares is only ₹ 688.45 lacs. Thus interest free funds available with the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total disallowance of ₹ 2,05,942/-. 44. Assessee has also challenged the sustenance of addition in ground no. 5. 45. After considering the orders of the AO and ld. CIT (A), we noted that in case of assessee itself for assessment year 2004-05, the Tribunal while deciding the appeal in ITA No. 380/JP/11 dated 14.10.2011 has deleted the entire addition. Therefore, following the order of Tribunal in case of assessee, we delete the entire addition. Ground no. 8 of the department fails and ground no. 5 of the assessee is allowed. 46. Ground No. 9 in appeal of the department is against restricting the disallowance of packaging material expenses from ₹ 5,00,000/- to ₹ 1,00,000/-. 47. Sustaining the disallowance at ₹ 1,00,000/- is challenged by assessee by ground no. 10. 48. After considering the orders of the AO and ld. CIT (A) and the order of the Tribunal for assessment year 2005-06, we noted that adhoc disallowance was made for assessment year 2005-06 also and Tribunal vide ITA No. 599/JP/2010 dated 25.02.2011 has deleted the disallowance. In case of M/s. Deepak Vegpro Pvt. Ltd also similar adhoc disallowance was made and the Tribunal while deciding the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed and the ground of the department fails. 57. There is no other ground in appeal of the department. 58. Now we will take up the remaining grounds in appeal of the assessee. 59. Ground nos. 1 to 4 were not pressed, therefore, they are dismissed as not pressed. 60. The remaining ground is ground no. 7 which is against confirming the disallowance of ₹ 1,65,699/- on account of unverified sundry creditors. 61. The AO made addition by observing that there are outstanding sundry creditors amounting to ₹ 1,65,699/- whose opening balances have been brought forward & in whose accounts there were no transactions during the year under consideration. Further, the assessee failed to furnish the confirmation from the creditors & even the Law of Limitation clearly specifies that if a payment is not recovered by a person within 3 years from the date it became due or any legal remedy has not been adopted, the same cannot be recovered. He, therefore, made addition of ₹ 1,65,699/- u/s 41(1) of the Act. 62. The ld. CIT (A) upheld the addition as per his finding given on Page 36 of the order as under:- "The Ld. AR has not submitted confirmation of creditors, did not give the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such loss or expenditure" incurred in any previous year in section 41(1)(a) of the Income-tax Act, 1961, refer to the actual receiving of cash of that amount. The amount may be actually received or it may be adjusted by way of any adjustment entry or a credit note or in any other form when the cash or the equivalent of the cash can be said to have been received by the assessee. But it must be the obtaining of the actual amount which is contemplated by the Legislature when it used the words "has obtained, whether in cash or in any other manner whatsoever, an amount in respect of such loss or expenditure in the past". The question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but has to be decided only if the creditor is before the concerned authority. In the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt is barred and has become unenforceable. There may be circumstances which may enable the creditor to come with a proceeding for enforcement of the debt even after expiry of the normal period of limitation as provided in the Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & L account at all by the assessee. Transfer to P & L account becomes significant only to show that there is a cessation of liability at least from the point of view of the assessee. When the assessee treated the liabilities in the instant case as payable and outstanding it could not be said that the said liabilities ceased to exist just because there was delay in payment. Victor Cycle (P) Ltd Vs ACIT 90 TTJ 776 (Chd) It was held that the liability in question are outstanding for the past 4 years and the same have been accepted as such by the Department. There is no material on record that the assessee had no intention of honoring the debt. The liability existed in the account of the assessee and the same has not been written back by the assessee. There being no cessation of liability or remission of liability, same could not be charged to tax u/s 41(1). DCIT Vs Thakker Developers 115 TTJ 841 (Pune) It was held that for applicability of s. 41(1), 'receipt' of amount or benefit is a necessary condition. There being no material on record to show that assessee was in receipt of any amount of benefit, no addition under s. 41(1) could be made on the ground that amount shown as outstand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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