9911796707
TMI Blog2017 (5) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... ough cheques and remaining amount of 1,00,000/- in cash on 08.07.2010 as is evident from the copy of ledger account placed in the paper book. A perusal of computation of income of assessee, we further find that the amount of 1,00,000/- paid in cash already stood disallowed by the assessee itself in its computation of income u/s. 40A(3) of the Act. Therefore, in our considered opinion, the disallowance of this amount of compensation, as made by the AO, would amount to double addition not permissible in the facts and circumstances of the case - Decided against revenue Disallowance of excess interest paid on unsecured loans - Held that:- Assessee stands supported by several documentary evidences such as copy of ITR, computation of income and relevant bank statement of the directors Sh. Anand Prakash and Sh. Ravi Prakash, Confirmatory certificate issued by M/s. Dynamic Weaving Pvt. Ltd., the original lender, copy of account of both the directors in the books of M/s. Dynamic Weaving Pvt., Ltd. along with its PAN and ITR, comparative chart of interest paid to directors @ 20% for A.Yrs. 2011-12 to 2013-13 toward reimbursement of interest on loan raised by them from M/s. Dynamic Weaving Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration has declared sales at 62,17,48,614/- against cost of raw material consumed of 27,89,56,500/- and manufacturing expenses of 23,84,34,176/-, which after considering the other income of 9,88,021/- declared by assessee, gives gross profit of 11,47,41,082/- representing to 18.79% with increase in stock of 1,43,95,123/-. We, therefore, find substance in the observations of the ld. CIT(A) that if the purchases made from said supplier company worth 20,42,24,661/- are deducted from the cost of raw material consumed, it will given GP of 50.8% which is not at all feasible in the trade of assessee. It is also not the case of Revenue that the ratio of raw material consumed to sale by the assessee during the year does not commensurate to such ratio declared by the assessee in preceding assessment years, rather it stands parallel to the material consumed in preceding years. Not only this, the trading results of the assessee company was also found parallel to other paper mills during the year under consideration as examined by the ld. CIT(A) in the impugned order, against which there is nothing from the side of Revenue. The Revenue has utterly failed to rebut the reasonable analysis ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000/- under the head 'medical expenses' and ₹ 1,00,000/- under the head 'workman compensation' ignoring the fact that these additions had been made by the A.O due to lack of documentary evidence in support of these expenses. 2.Whether in the facts and circumstances of the case, the Ld. Commissioner of Income tax (Appeals) has erred in restricting the addition of ₹ 14,18,666/- to ₹ 8,10,666/- inspite of the fact that this addition had been made by the A.O as the assessee had paid excess interest to two lenders at a rate that was much above the rate at which the assessee paid interest to other persons. 3-Whether in the facts and circumstances of the case, the Ld. Commissioner of Income tax (Appeals) is correct in deleting the addition of ₹ 17,15,837/- that had been made by the A.O on account of difference between the balance confirmations received from sundry creditors and balances as shown in the books of account of the assessee. 4.Whether in the facts and circumstances of the case, the Ld. Commissioner of Income tax (Appeals) is correct in deleting the addition of ₹ 34,95,471/- that had been made by the A.O on account of differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s deduction had to be limited to ₹ 3,40,338/- being the amount of claim approved by the insurance company is incorrect and ill founded and the submissions of the appellant have not been considered in the right perspective thereof." 2. Briefly stated, the facts of the case are that the assessee company is engaged in the business of manufacturing and trading of paper. The assessee filed its return of income on 28.09.2011, declaring a net taxable income of ₹ 30,63,770/-. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessment was completed vide order dated 28.03.2014 after making following additions to the total income of the assessee : (i). Addition on account of 'medical expenses' & 'workman compensation'. Rs.2,00,000 (ii). Disallowance of excess interest paid on unsecured loans Rs.14,18,666 (iii). Addition on account of difference in sundry creditors. Rs.17,15,837 (iv). Addition on account of difference in purchases. Rs.34,95,471 (v). Addition on a/c of bogus purchases u/s. 69C. Rs.20,42,24,461 (vi) Addition on a/c of unexplained cash credit u/s. 68. Rs.89,72,748 (vii). Addition on a/c of Insurance claim writte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases of the aforesaid amount from M/s. Prakash Marketing Pvt. Ltd. with credit balance of ₹ 1,46,70,433/-. In response to notice u/s. 133(6) sent to the above party at its new address furnished by assessee, the confirmation was received by AO whereby two confirmed copy of loan account and sale account were received, according to which sales have been shown to the assessee amounting to ₹ 20,69,44,661/- and the loan receivable from the assessee company of ₹ 89,72,748/- as on 01.04.2010.. The AO also observed that M/s. Prakash Marketing Pvt. Ltd. has filed return of income of ₹ 1,02,994/- against his total sales of ₹ 21,79,51,836/- and the assessee alone has shown purchase of ₹ 20,69,44,661/- representing 94.95% of the total sale of Prakash Marketing Pvt. Ltd. The AO also observed that the Inspector was again sent to enquire the office and other details of the above company at the new address given by assessee, who vide his report informed that no such company was found in existence at the given address. The AO, thereafter, visited the place where he met one of the directors of the assessee company. The assessee was directed to produce principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid on unsecured loans, from 14,18,666/- to ₹ 8,10,666/-, thereby giving a relief of ₹ 6,08,000/- to the assessee on this account. He also sustained the addition of ₹ 1,00,00,000/- made by the AO on account of disallowance of insurance claim written off. The assessee was aggrieved by the sustenance of additions and the Revenue was not satisfied by the deletion of additions as noted above, hence, both the parties are in these cross appeals before the Tribunal. 10. We have heard the rival submissions and have carefully gone through the entire material available on record and we decide the issues involved in both these cross appeals as under : 11. Assailing the deletion of disallowance of ₹ 1,00,000/- on account of medical expenses, the ld. DR reiterated the observations made by the AO on this count that some of the bills were found not proper. The ld. AR of the assessee, on the other hand, relied on the submissions made before the first appellate authority (A) and findings of the ld. CIT(A) recorded on this issue. On perusal of the records, we observe that the assessee had produced audited books of account before the authorities below and the AO has utterly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,666/- towards interest paid in excess of 12%, thereby giving part relief of ₹ 6,08,000/- vide impugned order. On this issue, the ld. AR has filed before us a written synopsis wherein he has made submissions and relied on various documentary evidences as under : "1. Written submissions as filed before CIT(A) at pages A-l to A-19 (relevant pages A-4 to A-5) of the paper book. 2. Letter dated 10/02/2014 filed before AO at pages 46-49 (relevant para 15 at page 48) of the paper book in which it was submitted that Directors of the Assessee Co. Sh. Anand Prakash and Sh. Ravi Prakash had raised loan from M/s Dynamic Weaving Pvt. Ltd. against their personal properties and advanced the same loan simultaneously to the Assessee Co. to fulfill the fund requirement of the Assessee Co. In other words, the Directors were paying interest @20% to M/s Dynamic Weaving Pvt. Ltd and were getting reimbursement from the Assessee Co. and in effect the total interest earned by them from the Assessee Co. was reimbursed to the lender Co. To prove, the same, copy of ITR, computation of income and relevant bank statement of the Directors Sh. Anand Prakash and Sh. Ravi Prakash as filed before the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid factual background, we fail to appreciate as to how, when there is no change in the business of the assessee, relief under section 80-1 of the Act can be denied to them in respect of some of the assessment years when similar relief is granted for previous and subsequent years. We are of the view that having accepted at least in three assessment years that the assessee's business activity fell within the ambit of section 80-1 of the Act, the Revenue cannot be allowed to now turn around and contend that deduction under the said section is not available to them in respect of the present assessment years. In Union of India vs. Satish Panalal Shah [2001] 249 ITR 221, apex court has also deprecated the practice of the Department in accepting the correctness of a judgment on a particular issue in one case and challenging its correctness in another case". 6. It is also trite law that Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of Directors and assume the role to decide as to how the business is to be run. In this connection, reliance is placed on 288 ITR page 1, S.A. Builders ltd. Vs. CIT (SC) which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on his assumptions only and not on any cogent material on record. Such a disallowance, in our opinion, would amount to adhoc disallowance, not permissible under the Act. The ld. CIT(A) appears to have supported his assumption of rate of interest at 12% as reasonable by following reasons: (i). It is not clear as to what was the constraining factors which led the assessee to borrow from their directors at exorbitant rate of 20%. (ii). The assessee could borrow the amount from financial institutions or commercial banks at the rate lower than 20%. (iii). The lender company is not engaged in the primary business of advancing loans. (iv). If the assessee has managed unsecured loans at the rate of 6% from other lenders, the loan with interest rate of 20% would be unreasonable from the point of view of a prudent businessman. (v). All unsecured loans from different lenders would not bear uniform rate of interest. 16. We observe that the aforesaid reasons considered by the ld. CIT(A) for disallowance of assessee's claim of interest are not tenable in view of the submissions made on behalf of the assessee duly supported by documentary evidence. The constraining factors to borrow t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 10,00,000/- each was paid to its directors in 2012-13 as the loan was repaid by the assessee on 01.10.2012 the directors in turn repaid the same to M/s. Dynamic Weaving Pvt. Ltd. on 04.10.2012. In view of this applying the rule of consistency, the authorities below should have allowed the claim of assessee in view of decisions in the case of Radhasoami Satsang vs. CIT (supra) and CIT vs.ARG Securities Printers (supra). The other reasons assigned by the ld. CIT(A) are also not tenable in the eye of law in view of the decision of Hon'ble Supreme Court in SA Builders Ltd. vs. CIT(supra) and of Hon'ble Delhi High Court reported in 254 ITR 377. 19. In view of above discussion, we are not inclined to endorse the conclusion reached by the ld. CIT(A) and the addition sustained by him on this account deserves to be deleted. Accordingly, ground No. 1 of the assessee's appeal deserves to be allowed and ground No. 2 of revenue's appeal is dismissed. 20. Regarding the addition of ₹ 17,15,837/- on account of difference in sundry creditors, and ₹ 34,95,471/- on account of difference in purchases, the ld. DR submitted that the AO found a difference between the amounts claimed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... think is appropriate to remit both these issues back to the file of Assessing Officer to properly examine the reconciliation statement filed by the assessee with reference to party-wise explanation furnished before the first appellate authority, as reproduced in the impugned order. After making proper enquiries, the AO shall decide these issues afresh after providing reasonable opportunity of being heard to the assessee. Accordingly, grounds Nos. 3 & 4 of the Revenue's appeal are allowed for statistical purposes. 23. Assailing the deletion of addition of ₹ 20,42,24,661/- made by AO on account of bogus purchases u/s. 69C, the ld. DR relied on the findings reached by the Assessing Officer and submitted that the ld. CIT(A) was not justified in deleting the addition ignoring the fact that the assessee failed to prove the genuineness of the purchase transactions. 24. On the other hand, the ld. AR relied on the submissions made before both the authorities below and the conclusions reached by the ld. CIT(A). 25. We have considered the rival submissions and have gone through the entire material available on record and we find no justification to interfere with the order of the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of raw material consumed = 27,89,56,500/- Sales- 62,17,48,614/- Manufacturing expenses 23,84,34,176/- Other income = 9,88,021/- Gross profit- 11,97,41,082/- Increase in stock = 1,43,95,123/- From the above it can be seen that the gross profit percentage shown by the assessee is 18.79%. Now suppose the purchases from the supplier company is reduced from the cost of raw material consumed. In this situation the computation of G.P, will be as follow:- Cost of raw material consumed 27,89,56,500 - 20,42,24,661 - 7,47,31,839/- Sales = 62,17,48,614/- Manufacturing expenses = 23,84,34,176/- Other income = 9,88,02 1/- Gross profit = 32,39,65,743/- Increase in stock 1,43,95,123/- From the above analysis it can be seen that if purchases worth ₹ 20,42,24,661/- is treated as bogus the G.P. of the appellant company shoots to 50.8% which in my opinion is extremely unlikely. 8.7 It is also to be kept in mind that the appellant has followed the same method of accounting consistently year after year and there is no change in its method of accounting during the concerned previous year. The PBDIT of the appellant has been in the range of 10 to 12% during the last two previou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unlikely that the appellant would inflate purchases, fudge its books of accounts and get away from the scrutiny of not one but three taxing departments namely, income tax, central excise and sales tax. 8.10 In the detailed discussion in the assessment order the AO has not - 1. Made any purchases to sales ratio analysis. 2. Doubted the sales, manufacturing expenses and other major expenses, 3. Doubted that finished goods have not been produced by the appellant 4. Doubted that payment for purchases have not been made through banking channels. 5. Doubted that bank account of the appellant is not debited by issue of cheques in favour of the supplier company. 6. Doubted that bank account of the supplier cortfpany has not shown matching credit entries. Instead of above points the AO has focused his entire attention to discredit the supplier company on circumstantial evidences. The AO seems to have lost sight of the fact that he was making an assessment of the appellant company and not of the supplier company. 8.11. It is interesting to note that the AO has quoted appellant's submissions that it is not possible to manufacture finished papers without there being the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served at the supplier company's address at Delhi. However the AO has not made any comment as to how notice issued by JCIT, Range-1, Meerut, was served at the same address in Delhi. Purchases being the basic component in any trading and manufacturing activity can not be held to be bogus on the basis of circumstantial evidence. 8.13 In a recent judgment given by the jurisdictional Allahabad High Court in the case of CIT Vs Jagdish Prasad Tewari 220 Taxmann 0141 (2014), it has been held that if the payments have been made by cheques and are reflected in the books of account of the assessee, no adverse inference can be drawn. In a judgment given by the Calcutta High Court in the case of Diagnostics Vs CIT 334 ITR 111 on a similar question, it has been held by the Hon'ble Court that ''if an assessee took care to purchase material by way of account payee cheques from a third party and subsequently, three years after the purchase, the said third party does not appear before the AO pursuant to the notice or even has stopped business, the claim of the assessee on that account cannot be discarded as non-existence ". 8.14 Considering the totality of facts and judicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s i.e. FY 2009-10, 2010-11 & 2011-12 were placed before the lower authority, showing that all the payments have been made through proper banking channels. (vi). Copy of bank statement of M/s Prakash Marketing Pvt. Ltd. were produced to support the contention that all the payments made by the assessee to the supplier company were duly credited to their bank accounts only. (vii). The copy of the sanction letter of limit of ₹ 4 crore, as sanctioned by the Punjab National Bank, to the M/s Prakash Marketing Pvt. Ltd. was also placed on record. (viii).The notice u/s 133(6) issued to the said company on second occasion were duly replied. Copies of the said notice and the reply filed are placed on record. (ix). The director of the said company, namely Sh. Vineet Aggarwal, appeared before the Id. A.O. and confirmed the sale of goods to the appellant. Copy of the statement on oath of Sh. Vineet Aggarwal are available on record. (x). Copies of sales tax and excise return of the assessee company as filed with the concerned departments for the period FY 2010-11, as filed during the course of the assessment proceedings vide submission dated 18.11.2013 and 29.11.2013 are placed on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier company is regularly filing its return of income. 3. The supplier company has supplied goods to parties other than the appellant company. 4. The appellant company has made payment for purchase through cheques. 5. The suppliers company has shown corresponding sales in its books and corresponding credit in its bank account. 6. The raw material have been transported from outside Uttar Pradesh. The necessary details as contained in form xxxviii issued by the commercial taxes department has been submitted before the AO. From a perusal of these forms it can be seen that the supplier company has transported paper waste for the use of appellant company. The ld. CIT(A) has further observed that the Assessing Officer has not - 1. Made any purchases to sales ratio analysis. 2. Doubted the sales, manufacturing expenses and other major expenses, 3. Doubted that finished goods have not been produced by the appellant 4. Doubted that payment for purchases have not been made through banking channels. 5. Doubted that bank account of the appellant is not debited by issue of cheques in favour of the supplier company. 6. Doubted that bank account of the supplier cortfpany has not shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO. Further the appellant has paid the said amount during the relevant year through banking channels. It seems from the facts that M/s Prakash Marketing Pvt. Ltd. had entered the transaction of loan in their books in the name of M/s Sumit Agro Products Ltd. which was the earlier name of the appellant company. Considering the totality of facts, it seems that the AO has drawn wrong conclusion on this issue as the transaction in question is appearing as opening balance in the account book of both the appellant and M/s Prakash Marketing Pvt. Ltd. It is also to be considered here that there is no fresh credit of ₹ 89,72,748/- in the books of account of the appellant company during the concerned previous year and for this reason alone no addition can be made u/s 68 of the IT Act, 1961 because it is a necessary condition for the application of section 68 that an amount should be found credited in the previous year(emphasis given). Based on above discussion, the grounds of appeal no. 8 is allowed and the addition of ₹ 89,72,748/- is deleted." We do not find any material available on record to counter the findings reached by the ld. CIT(A) on this issue. The ld. DR failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... figure does not stand corroborated by any material or evidence on record. The observation of the ld. CIT(A) that the amount of insurance claim actually received at 3,40,338/- could only be claimed as deduction, also does not appear appealing to reason, for the amount of claim actually received cannot be treated as allowable on account of loss of stock. The contention of the assessee has been that he had claimed total loss of ₹ 1,04,62,653/-, which after being adjusted with the receipt of claim of ₹ 3,40,338/- on dated 02.03.2012, remained at ₹ 1,01,22,315/-. Out of this amount, the appellant has written off ₹ 1,00,00,000/-during the year under appeal and remaining ₹ 1,22,315/- during A.Y.2012-13 and the loss claimed during A.Y.2012-13 stands allowed u/s 143(1). It is no doubt true that the assessee has made this claim by making an entry under the wrong nomenclature as "excess claim written off", but in our opinion, nomenclature of an entry would not change the actual characteristics of the actual claim made by the assessee. In fact, the authorities below were required first to ascertain as to how much stock was available with the appellant on the date ..... X X X X Extracts X X X X X X X X Extracts X X X X
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