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TMI Blog2012 (10) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee are directed against the order of the CIT(A) II, Hyderabad dated 21.11.2011 for the assessment year 2008-09. Revenue's Appeal: 2. The only issue arising out of the grounds raised by the Department in its appeal relates to deletion of an addition of ₹ 48 lakhs, which was disallowed by the Assessing Officer under section 36(l)(iii) of the Act. 3. Briefly, the facts of the case are that the assessee filed the return for the assessment year under dispute, declaring an income of ₹ 66,35,325. In the course of assessment proceedings, the Assessing Officer on verification of the final accounts noticed that the assessee has taken secured and unsecured loans totalling to Rs.l5.99 crores and ₹ 28.06 crores as on 31.3.2007 and 31.3.2008 respectively. The assessee, during the year, has incurred expenditure towards interest payment of ₹ 2.39 crores. The Assessing Officer noticed that he assessee has advanced huge amounts to one M/s. Agarwal Steel, a proprietary concern of one Shri L.N. Agarwal, who also happens to be a promoter of the assessee company. On examining the ledger account of M/s. Agarwal Steel, the Assessing Officer fond that the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said source was created as a tax planning device for the members of Shri L.N. Agarwal family. The Assessing Officer held that not only Shri L.N. Agarwal, but also other directors and share-holders have drawn amounts from time to time depending on their needs from M/s. Agarwal Steel. The Assessing Officer came to the conclusion that on account of diversion of borrowed amount, the assessee was made to avail more and more overdraft facility, thereby attracting heavy interest amount, which ultimately had an effect on deriving low profits compared to preceding assessment year. The Assessing Officer held that there is no commercial expediency in advancing amount to M/s. Agarwal Steel. The Assessing Officer finally came to a conclusion that even assuming that the ratio of the decision of the Hon'ble Supreme Court in S.A. Builders Ltd, s case {supra) is applicable to trade advances, giving the advance of ₹ 7 crores, against average purchase of ₹ 2.50 crores per month is not a case of commercial expediency. The Assessing Officer observed that even taking a liberal approach, at best, an amount of ₹ 1 crore can be taken as advance given as normal trade practice, as bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he effect that the assessee has done some window dressing by booking heavy purchases in the month of March, to be without any basis and merely on presumptions and surmises. The CIT(A) was of the opinion that since M/s. Agarwal Steel is a dealer of steel, the assessee purchased steel from M/s. Agawral Steel and in the process made trade advances, which are adjusted against the purchases made during the year. The CIT(A) also took note of the fact that even the Assessing Officer himself was of the view that there may be a nexus between the expenditure and the purpose of business, for which reason, the Assessing Officer has treated an amount of Rs.l crore to be in the nature of trade advance, and did not consider it for disallowance of proportionate interest under section 36(l)(iii) of the Act. The CIT(A) however found, that the Assessing Officer has not given any basis as to why he has considered the figure of ₹ 1 crore for excluding the same towards advance given for purchase. The CIT(A), relying on the decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. s case (supra), held that it is not for the Revenue to decide whether any advance is to be made or no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith M/s. Agarwaal Steel and the advance has been given to be adjusted against the purchases to be made from the proprietary concern. The learned Authorised Representative for the assessee submitted that in fact the entire amount of advance was an opening balance as on 1.4.2007 and after adjustment of purchases made during the year, at the end of the year, i.e. on 31.3.2008, there is a closing credit balance of ₹ 2,68,623. In this regard, the learned Authorised Representative for the assessee invited our attention to the Balance Sheet and Profit Loss Account, besides extract of ledger account submitted in the paper-book. Learned Authorised Representative for the assessee submitted that it is not in the domain of the Assessing Officer to decide as to what expenditure a businessman should incur for the purposes of business. The learned Authorised Representative for the assessee submitted that since the advance was in the nature of trade advance and was for the purchase of business, the matter is beyond the scope of the provisions of S.36( l)(iii) and therefore, the CIT(A) was justified in deleting the disallowance made by the Assessing Officer. In support of his contentions, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove that the money advanced by the assessee has no nexus with the business activity of the assessee. The assessee has brought material on record to discharge the onus cast upon it for proving that the advance made by it is purely a trade advance, having been made against purchases and is purely for the purposes of business. The copy of the ledger account clearly demonstrates that the assessee has regular business transactions with M/s. Agarwal Steel and the advance made by it has been adjusted in due course, and at the end of the year, there is a closing credit balance of ₹ 2.68 lakhs. The contention of the learned Authorised Representative for the assessee that what expenditure is required to be met has to be looked into from the perspective of a businessman, has substantial force. A person carrying on business is the best person to judge what expenditure is to be incurred in the best interests of business, keeping in view the commercial expediency. The Assessing Officer certainly can raise questions regarding the genuineness and reasonableness of the expenditure incurred. However, as long as there is nexus between the expenditure incurred and the business of the assessee, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a delay of 14 days in the filing of the cross-Objection. Assessee has filed a petition seeking condonation of delay. We are satisfied with the reasons put forth by the assessee in the said petition, which, according to it, led to the delay in the filing of the cross objections. We accordingly condone the delay and proceed to dispose of the Cross Objections on merits. 15. The only issue in the cross-objections of the assessee is with regard to confirmation of the disallowance of ₹ 4,40,218 made under S.40a(ia) of the Act. 16. During the assessment proceedings, the Assessing Officer noticed that the assessee has debited an amount of ₹ 4,40,218 towards payment of interest to Citi Corp Finance Ltd. The Assessing Officer found that the assessee has not deducted any tax under S. 194A of the Act on the payment made. Since the payee is not a bank, the Assessing Officer disallowed the payment of ₹ 4,40,218 under S.40a(ia) of the Act. The assessee challenged the disallowance before the CIT(A). Before the CIT(A), it was argued by the assessee that since the amount paid towards instalment for hire purchase of vehicle, TDS provision was not applicable. The CIT(A) did no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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