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TMI Blog2016 (5) TMI 463X X X X Extracts X X X X X X X X Extracts X X X X ..... al status of the creditworthiness of the loan creditor. Also if the assessee has been able to show that for Asst. Year 2006-07 assessee had passed through scrutiny assessment u/s 143(3) of the Act and loan creditor Hemal Nanavati has been verified and held as genuine by Revenue for loan taken in Asst. Year 2006-07 then it could have formed the basis for us to accept the creditworthiness of Hemal Nanavati for the year under appeal. However, no such information is placed on record. Therefore, we are of the view that Assessing Officer has rightly made addition u/s 68 - Decided against assessee Addition on account of commission expenses - Held that:- No disallowance was called for in relation to commission expenses as assessee has been able to demonstrate complete details including calculation of commission debited during the year in profit and loss account - Decided against revenue Addition invoking provisions of Section 36(1)(iii) on account of interest expenses - Held that:- We have gone through the ledger account of Aabhar Holding Pvt. Ltd. and we observe that in the ledger account appearing in the sundry creditor list, assessee has entered into various transactions of sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entary evidences and audited financial statements. We are therefore, of the view that ld. CIT(A) has rightly deleted the disallowance - Decided against revenue Disallowance of tractor expenses - Held that:- The disallowance having been made on ad hoc basis without pin-pointedly detecting any defects in the books of account of the assessee and the expenses have been supported by bills and vouchers. Therefore, the disallowance is deleted. - Decided against revenue Disallowance of provisions for expenses like staffs salary & bonus, travelling exp., telephone exp., electricity charges, audit fees and stationary bills etc. - Held that:- From going through the list showing provisions of expenses we find that all the expenses are of recurring nature which remained unpaid at the end of the year which mostly pertaining to the last month or as the case may be. However, we do not agree with the view taken by the Assessing Officer who has not pointed out any specific defect in regard to the expenses claimed by the assessee for ₹ 2,96,177/- rather he has made disallowance only by taking the basis of payment made in the subsequent year. In our view if the expenses has been genuinely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,662/- made by the Assessing Officer, out of provisions for expenses like staffs salary bonus, travelling exp., telephone exp., electricity charges, audit fees and stationary bills etc.. 8). On the facts and in the circumstances of the case, the Id. Commissioner of Income-tax (A)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. 9). It is therefore, prayed that the order of the Id. Commissioner of Incometax( A)- XIV, Ahmedabad may be set-aside and that of the Assessing Officer be restored. 2. Briefly stated facts as culled out from the assessment records are that assessee is a company engaged in trading of clothes. It filed its return of income on 30.10.2007 declaring income of ₹ 2,33,605/-. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 15.9.2008 and served upon the assessee. Thereafter notice u/s 142(1) of the Act along with questionnaire was issued on 7.1.2009. The case was discussed, necessary details were furnished and assessment was completed after making following additions Out of unsecured loans Unexplained cash credit u/s 68 as per para 4.1. Rs.1,57,840 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee company in the name of the said person. Further, on 25th May, 2006, the assessee has received a sum of ₹ 1,57,839/- by account payee cheque No. 801506 drawn on Bank of India, Shahibaug Branch, Ahmedabad. Thus, the total credit balance in the name of party at the end of the previous year remained to be ₹ 3,16,840/-. With regard to the Assessing Officer having collected details by issuing a letter and local enquiry through his Inspector, but before taking adverse view the Assessing Officer has neither issued a show cause notice nor provided an opportunity explain the evidence gathered, if any, and provide a copy of Inspector's Report before holding an adverse view. On this ground, the appellant vehemently objected to the action of the Assessing Officer which is arbitrary and wholly unjustified. The appellant has further explained that the amount was received by account payee cheque and the transaction has been reflected in the regular books of account, the person concerned has also confirmed the same in writing in the form of a confirmatory letter containing his detailed address and particulars of cheque for deposit. The appellant has further relied upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of CIT(A) as well as the Tribunal that the loans were genuine loans.The details of payments were also furnished. There was also finding that the amount of interest was paid by assessee on such genuine loans. The addition respect of cash credit and interest were not valid. (iv) Divine Leasing Finance Limited (2008) 299 ITR 268 (Delhi HC) As regards creditworthiness in a matter of subscription towards share application, more may not be expected from the assessee. The burden of proof that is expected as regards creditworthiness has to be decided in the light of facts of each case. Where the subscriptions were received through banking channels as prescribed under SEBI regulations, the inference that the subscribers lack creditworthiness could not have been lightly drawn without some investigation on the part of the Assessing Officer. The addition without such investigation should be treated as based upon mere surmises. The principle that identity is more important in such cases has been reiterated and that even where creditworthiness is not established to the satisfaction of the Assessing Officer, it need not be unexplained income of the Company, since the legitimate inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anavati. Assessee has also not furnished copy of income-tax return and financial statement of Hemal Nanavati. Assessee therefore, failed to produce the person as well as all the related documents to prove the identity, creditworthiness of Hemal Nanavati and the only basis taken by assessee was that the amount has been received by account payee cheque. Due to lack of copy of bank statement and copy of identity it is difficult to accept the contention of assessee about the identity, creditworthiness and genuineness of the unsecured loan taken of ₹ 1,57,840/- from Hemal Nanavati. It is pertinent to note that in many cases where the amount of unsecured loan is taken by account payee cheque but when the bank statement of the loan creditor is perused it is observed that the loan creditor normally maintains a minimum balance and just before few days of giving a loan by account payee cheque, cash is deposited in the bank account and unless it is proved that loan creditor has sufficient source of cash to deposit in the account, creditworthiness of the loan creditor is not proved and in the ground before us there is no documentary evidence except that the loan creditor is having openin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d facts made available on record of the Assessing Officer. Therefore, the disallowance of ₹ 2,07,381/- 13. Being aggrieved, Revenue is now in appeal before the Tribunal. 14. Ld. DR relied on the order of Assessing Officer whereas ld. AR supported the order of ld. CIT(A). 15. We have heard the rival contentions and perused the material on record. From perusal of the record, we understand that assessee has submitted various details on 20th October, 2009 as well as on 13.11.2009 stating the details of calculation of commission which was based on percentage of sales effected by those persons and copies of credit notes were also placed on record. We also observe that tax has been deducted at source and payments have been made through account payee cheque and most of them have furnished confirmation letters also as observed by ld. CIT(A) during appellate proceedings. We, therefore, are of the view that no disallowance was called for in relation to commission expenses at ₹ 2,07,381/- as assessee has been able to demonstrate complete details including calculation of commission debited during the year in profit and loss account and we, therefore, do not find any reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke disallowance of interest beyond this net debit balance of ₹ 25,79,080/- Besides M/s. Aabhar Holdings Pvt. Limited is a group/associated concern, as evident from the Assessing Officer's order vide para 4.3(1) on page ~ 5 of the order. The Assessing Officer has not brought any material on record to contradict the arguments of the appellant. The advances made to M/s. Aabhar Holdings Pvt. Limited were for goods and the goods having already been received, the account of the party was reflected in sundry creditors for goods. That being the position, the advances which were made to M/s. Aabhar Holdings Pvt. Limited was for the purpose of business and to maintain business relations with the party, from whom the appellant purchases goods. For allowability of claim u/s 36(l)(iii) only the test of the purpose of business has to be satisfied and once it is satisfied no further condition should be imposed. The Assessing Officer has not produced any evidence on record to prove that the advances were not made in the course of business for commercial expediency and for the purpose of business and on the other hand the purchases having been accepted as genuine and at a reasonable rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. As on the year end on 31.3.2007 debit balance of ₹ 2,14,00,018/- is appearing in the name of Aabhar Holding Pvt. Ltd. under the head of loan advances and in the list of sundry creditors name of Aabhar Holding Pvt. Ltd. is appearing for the credit balance of ₹ 1,88,20,938/-. We have gone through the ledger account of Aabhar Holding Pvt. Ltd. and we observe that in the ledger account appearing in the sundry creditor list, assessee has entered into various transactions of sale of cloth and similarly various transactions of bleached cloth purchases are appearing which is enough to show that there has been regular business dealing with Aabhar Holding Pvt. Ltd. The net difference between the debit and credit balance of Aabhar Holding Pvt. Ltd. as on 31.3.2007 works out to the debit balance of ₹ 25,80,080/- (Rs.2,14,00,018/- (-) ₹ 1,88,20,938/-). In the given circumstances assessee has been able to prove that transactions have been entered in the course of business commercial expediency with regard to purchases and sales then it was not correct on the part of Assessing Officer to make disallowance of interest of ₹ 18,90,321/- only with reference to non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. On appeal by assessee before first appellate authority the addition of ₹ 6,30,546/- was deleted by ld. CIT(A) by observing as under :- 9.3 I have considered the submission of the appellant and having regard to the material available on record, I find that the addition made on account of sundry creditors for ₹ 6,30,546/- is without any substance. Further the new credit during the year is of ₹ 28,500/-+Rs.62,960/- +Rs.l,239/-= ₹ 92,699/- only and the opening balance of earlier years is of ₹ 5,37,847/-(Rs.6,30,546/- -Rs 92,699/~.) The credits during the year are for commission except for vehicle sales and as per Ground No. 2 above the addition of commission are fully deleted by me. The A.O. should have excluded the opening balance of earlier years as indicated above for making additions. The Assessing Officer has neither brought cogent evidence on record to disprove the explanation of the appellant nor has the Learned Assessing Officer applied his mind before making such huge addition. As such I feel no hesitation in holding that the said disallowance was totally unjustified and this ground of appeal is allowed accordingly and the addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93/- The above status of 5 sundry creditors of ₹ 5,57,293/- speaks about the factual position of the sundry creditors. Had there been genuine sundry creditors then either they had been paid off in the following years or they certainly would have given duly signed confirmation letters which are completely missing in the case of assessee. We are therefore, of the view that to the extent of ₹ 5,57,293/- addition was rightly made by Assessing Officer. As far as difference of the remaining amount of addition of ₹ 73,253/- (Rs. 6,30,546/- (-) ₹ 5,57,293/-), we confirm the decision of ld. CIT(A) as these amounts must have been paid off in the following years. Accordingly we sustain the addition of ₹ 5,57,293/- out of ₹ 6,30,293/- in relation to sundry creditors which have not been proved by the assessee. This ground of Revenue is partly allowed. 31. Ground no.5 The Ld. Commissioner of Income-tax (A)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of ₹ 2,71,032/- made by the Assessing Officer, out of total packing material and stores expenses. 32. During assessment proceedings, assessee claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... packing material, stores consumed were placed before the assessing authority and no defect has been pointed out by the Assessing Officer. The evidences placed on record are sufficient to support the claim of assessee for claiming allowance of ₹ 7,12,662/- towards packing material and stores consumed and we are of the view that ld. Assessing Officer erred in making an ad hoc disallowance by taking a view on the basis of his own surmises and conjectures and completely ignoring the documentary evidences and audited financial statements. We are therefore, of the view that ld. CIT(A) has rightly deleted the disallowance and we uphold the same. This ground of Revenue is dismissed. 36. Ground No.6 The Ld. Commissioner of Income-tax (A)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of ₹ 64,103/- made by the Assessing Officer, out of tractor expenses. 37. During the course of assessment proceedings Assessing Officer found that assessee had claimed tractor expenses at ₹ 1,38,768/-. In the preceding year the same was ₹ 67,875/-. As the expenses are increased substantially though the sales were reduced, therefore by order sheet dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the details of provisions shown in the audited balance sheet at ₹ 2,96,177/- and reducing the amount of ₹ 1,96,662/- which ld. Assessing Officer has allowed on the basis of payment made in the subsequent year, the remaining amount works out at ₹ 1,26,515/-, therefore, in this ground the figure ₹ 1,26,662/- is replaced by ₹ 1,26,515/-] by observing as under :- 12.2 I have considered the submissions of the appellant and having regard to the relevant material placed on record of the Assessing Officer. The complete details are available in P.B. page No. 248 249 r. w. P.B. page No. 277 which are in the nature of salary, tractor Expenses, telephone expenses, electricity expenses, audit fees vehicle and stationery expenses. The provision of unpaid expenses is for the month of March, 2007 out of which ₹ 1,69,662/- is paid in the subsequent month i.e. April, 2007 and the remaining amount is shown outstanding. The method of accounting followed by the appellant is mercantile system of accounting and therefore the action of A.O. in allowing only ₹ 1,69.662/- paid in subsequent month out of total provision of ₹ 2,96,177/- and thereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Rs.2,96,177/- Out of the provisions of ₹ 2,96,177/- as mentioned above Assessing Officer has allowed the claim of assessee for ₹ 1,69,622/- by taking a basis that they have been paid in the subsequent year and added the remaining unpaid amount of ₹ 1,26,515/- to the income of assessee. In our view, in case of assessee who maintains his books of accounts on mercantile system of accounting, then expenses which have been incurred for the relevant financial year (which in this case is financial year 2006-07) then those expenses/prices/income has to be entered in the books of account for that year irrespective of the payment which might have been paid during the year or after the year in other words for allowing expenses, the pivotal point to examine as to whether the expenses have been genuinely incurred for the particular year. From going through the list referred above, showing provisions of expenses of ₹ 2,96,177/- we find that all the expenses are of recurring nature which remained unpaid at the end of the year which mostly pertaining to the last month or as the case may be. However, we do not agree with the view ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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