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TMI Blog2017 (12) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 172(8) and CBDT Circular No. 723, then Assessing Officer should allow relief thereof. In view of the above ground no. 8 is allowed for statistical purposes. Addition was made u/s 69C on account of certain items jotted in pencil on two sheets of paper which were recovered during the course search and seizure operation. The assessee submitted that the said can not be treated as unexplained expenditure and under these circumstances, the Hon'ble Delhi High Court in the case of Lubtech India Ltd. [2007 (7) TMI 281 - DELHI HIGH COURT] has held that section 69(c) postulates that first of all, the assessee must have incurred the expenditure and thereafter if the - explanation offered by the assessee was not found satisfactory only then the addition can be made u/s 69C of the Act. In the present case also the assessee had denied to have incurred this expenditure and the assessee had been maintaining that such expenditure was never incurred by the assessee and these were not reimbursed to the employees and therefore we are in agreement with the arguments of assessee that addition under these circumstances can not be made u/s 69C of the Act. Disallowance of 1/10th out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 963/- made by the Assessing Officer u/s 41(1) of the 'Act' on the ground of alleged cessation of liability pertaining to the following parties : (i) M/s El Marwa Import and Trading Co., Cairo : Rs.6,15,095/ (ii) M/s Khyati Machine Tools : Rs.66,060/ (iii) Sh. M.N. Patel : Rs.2,48,600/ (iv) M/s S.R. Forgings : Rs.2,29,208/ 5. The CIT(A) misconceiving the facts of the case and rather most arbitrarily brushing aside the very fact that the G.P. Rate for the year under consideration was substantially progressive as in comparison to that of the preceding years had upheld the 'Trading addition' of ₹ 4,73,392/- so made by the Assessing Officer in the hands of the assessee firm. 6. The CIT(A) had though deleted the addition of ₹ 1,62,842/- on the ground that the same would be covered by the 'Trading addition' which had been sustained by him, had however grossly erred in failing to independently adjudicate the said issue which was specifically challenged by the assessee on merits before him. 7. That the CIT(A) had erred in law and facts of the case by failing to appreciate that the disallowance u/s 40(a)(ia) of the 'Act' was liable tot be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired u/s 251(2) of the 'Act'. 5. Any other ground of appeal as may be allowed to be raised at the time of hearing of the appeal". Grounds of appeal in ITA No. 118/Asr/2014 1. "That the order of the CIT(A) to the extent upholding the additions made by the Assessing Officer is against the law and facts of the case. 2. That the CIT(A) failing to appreciate the facts of the case in light of the settled position of law and therein erred in upholding disallowance of interest on advances made to M/s Rajesh Jewellers, Sh. Rajesh Kumar, Smt. Maya Devi Educational Society, Sh. Sohan Lal, M/s PMS Enterprises, Sh. Balwinder Kaur and M/s S.R. Forgings. 3. That the CIT(A) had erred in sustaining the disallowance of 1/10th of the 'Vehicle Expenses' amounting to ₹ 1,18,225/-. 4. That the CIT(A) had erred in upholding the addition of ₹ 10,319/ made by the Assessing Officer in the hands of the assessee firm. 5. Any other ground of appeal as may be allowed to be raised at the time of hearing of the appeal". Grounds of appeal in ITA No. 214/Asr/2014 1. "Deleting the addition of ₹ 39,64,344/- made by the Assessing Officer on account of deemed dividend u/s 2(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of disallowances u/s 36(1)(iii) of the Income Tax Act, 1961, as directed to recalculate the disallowances at the rate at which the assessee firm is paying interest. 3. Deleting the addition of ₹ 46,11,381/- made by the Assessing Officer on account of non charging on interest on loans to sister concerns ignoring the decision of Jurisdictional High Court in the case of Abhishek Industries reported at 286 ITR 1. 4. It is prayed that the order of the learned Commissioner of Income Tax (Appeals) be set-aside and that of the Assessing Officer be restored. 5. The appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed off." Grounds of appeal in ITA No. 217/Asr/2014 1. "On the facts and in the circumstances of the case and in law the Ld. Commissioner of Income-tax (Appeals) has erred in deleting the addition of ₹ 18,85,177/- made by the Assessing Officer on account of notional interest chargeable on interest free loans and advances to sister concerns ignoring the decision of Jurisdictional High Court in the case of Abhishek Industries reported at 286 ITR 1. 2. It is prayed that the order of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R submitted that as per the settled law no addition can be made when interest free funds of the partners are more than the interest free advances and in this respect placed his reliance on the following case laws: "(i) PMS Diesels Vs. DCIT ITA No. 425/Asr/2014 dtd. 5.5.17 Own case of appellant, copy enclosed at page 168 to 172 (ii) MBD Printographics Pvt. Ltd. Vs. DCIT - 61 I.T. Reps 187 (2016) 7 ITR(Trib) - OL 593 (Amritsar) Enclosed at page 188 to 194 (iii) Malhotra Book Depot Vs. ACIT (2016) 47 CCH 879 Asr Trib enclosed at page 195 to 199 (iv) CIT Vs. Satish Bala Malhotra & Ors. (2016) 387 ITR 403 (P & H) enclosed at page 200 to 203 (V) CIT Vs. Max India Ltd. (No.2) (2016) 388 ITR 81 (P&H) enclosed at page 204 to 215 Similarly, the Ld. AR in ITA No. 116/Asr/2014 for Asst. Year 2007- 08 invited our attention page 21 of synopsis and submitted that during this year also there were opening balances and Ld. CIT(A) had confirmed the addition on the total advances including opening balances. The Ld. AR submitted that after reducing the opening balances, the total advances made during the year comes to ₹ 67,62,551/-. He submitted that the capital and unsecured loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05-06 placed at paper book page 1 to 20. The Ld. AR submitted that if the assessee continues to declare the liabilities in the balance sheet, the liability cannot be said to have extinguished. The Ld. AR submitted that the Hon'ble Delhi High Court in the case of CIT Vs. Sugauli Sugar Works Pvt. Ltd. (1999) 236 ITR 518(SC) has explained the position with respect to cessation of liabilities u/s 41(1) of the Act. Therefore, the addition cannot be sustained as the amounts were brought forward balances and further reliance was placed on the following case laws: "(i) DCIT Vs. Sadguru Land Finance (2016) 52 ITR(TRib) 182, Amritsar Important Para - 22, Page-200 (ii) CIT Vs. Smt. Sita DEvi Juneja (2009) 77 CCH 1104 (PHHC) Also see page 86 of CIT(A)'s Order Enclosed at Page 218 to 220 (iii) CIT Vs. G.P. International Ltd. (2009) 77 CCH 1100 (PHHC) Also see page-87 of CIT(A)'s order enclosed at page 221 to 223 (iv) CIT Vs. Shri Vardhman Overseas Ltd. (2012) 343 ITR 408 (Del Hon'ble High Court) Copy enclose at page 224 to 233. (v) CIT Vs. Bhogilal Ramjibhai Atara (2014) 88 CCH 49 (Guj Hon'ble High Court) (2014) 222 Taxman 313 (Guj) Copy enclosed at page 234 to 237" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n some cases the payments did not exceed ₹ 2,0000/-. The Ld. AR submitted that in some cases the payments were made as reimbursements and therefore the assessee was not required to deduct TDS in respect of such parties. In this respect the Ld. AR invited our attention to an order of Hon'ble ITAT Amritsar Bench in the case of assessee itself in ITA No. 257 wherein the Hon'ble Bench had held that assessee was not required to deduct taxes in such cases. The Ld. AR submitted that these payments were made to shipping agents towards IFC, THC, BAF, and CAF charges and the assessee was not required to deduct TDS as per the provisions of 172(8) of the Act. As regards disallowance u/s 40A(3) in assessment year 2006-07, the Ld. AR submitted that above payment of ₹ 21,000/- was paid in cash towards visa fee to UAE embassy as the said day was a Friday and keeping in view the business exigencies, the said payments could not have been delayed. The said payment by way of account payee draft at that point of time was not possible, and that is why the assessee had to make the payment of visa fee in cash. The Ld. AR submitted that Assessing Officer did not raise any doubt about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer who should verify the same and should allow the relief accordingly. As regards the gross profit addition and addition on account of unaccounted vouchers, the Ld. DR placed his reliance on the orders of authorities below: Arguing upon Revenue's appeal, the Ld. DR in respect of deletion by Ld. CIT(A) on account of addition u/s 2(22)(e) submitted that the assessee firm was not a shareholder but the partners of the firm were shareholders and therefore the assessee firm has to be treated as the beneficial shareholder and therefore, the Ld. CIT(A) has wrongly allowed relief to the assessee. The Ld. DR in this respect relied on the case laws Shri. Gopal & Sons Vs. CIT pronounced by Hon'ble Supreme Court of India in Civil Appeal No. 12274 of 2016. The Ld. DR submitted that in this case, the assessee was holding shares in its individual capacity and the Hon'ble Supreme Court held that provisions of deemed dividend get attracted even if the loan was given to HUF which was not a registered shareholder. The Ld. DR submitted that Hon'ble Supreme Court has held that though the shares were held in the individual capacity but for the purpose section 2(22)(e), even HUF was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded the capital of the assessee as has been held by Hon'ble Amritsar Bench in various case laws relied on by assessee. Therefore, the Assessing Officer is directed to restrict the disallowance of interest on loan amounts exceeding the available capital of the assessee. With these directions the appeal of the assessee is set aside to the office of Assessing Officer to reframe the assessment order in terms of above said directions." In the present case also we are of the opinion that Assessing Officer should examine the disallowance keeping in view the case laws relied on by assessee wherein it has been held that on opening balances of advances no disallowance u/s 36(1)(iii) was warranted and similarly in cases it has been held that if the interest free funds of the assessee are more than the interest free advances, no disallowance u/s 36(1)(iii) can be made. 14. In view of the above we remit this issue to the Assessing Officer to examine the issue afresh, in view of the judgments relied on by the assessee to Assessing Officer should examine availability of interest free funds vis-à-vis interest free advances. In view of the above ground no. 2, 3 in ITA No. 114/Asr/2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed addition. In response to that the assessee submitted that the amounts shown in the above table 'as payable' against the creditors are not static and are actually payable. There is no cessation or remission of liability shown against them. The assessee further submitted that it is a fact that the assessee firm is not dealing with these parties and has withheld the payments because of working capital crunch at that time. The replies not received from these parties do not mean that the liability has ceased to exist or has been remitted. The AO, however, was not convinced with the reply of the assessee and added back the entire amount of ₹ 26,60,270/- to the total income of the assessee u/s. 41(1) of the Income tax Act. The appellant, on the other hand, in his submission made during the appellate proceedings has stated as under: "The appellant submits as under: The Ld. AO has made additions of ₹ 2660270/- u/s 41(1) on account of static creditors. Section 41(1) of the Income Tax Act, 1961 reads as under: Profits chargeable to tax. 41 .[ (l) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 41(1) gets attracted. Moreover the amounts are added to the income of the previous year in which the liability ceases or remits or the benefit is received by the appellant. In the present case; neither the liability has ceased to exist nor has the appellant written off these amounts in its books of account as provided by Explanation-1 above. All the balances are shown as payable in the books of account. Copies of account of all these creditors showing that there were no transactions during the year are enclosed (Page 28-29). Moreover, the Ld. AO had not brought anything on record to prove that any amount or benefit had been obtained by the appellant during the year under consideration against liabilities which is allegedly ceased to exist. It is also an established proposition of law that onus is on the AO to establish that any benefit has accrued to the appellant against alleged liabilities during the year under consideration. Since the Ld. AO has failed to prove his case, the additions are prayed to be deleted. Case laws in support of appellant's contention are given below: 1. ITO vs. Sh. Jagmohansingh G Dhiman ITA No. 1959/Ahd/2012 A.Y. 2009-10 ITAT Ahmedabad (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on by Ld. AR clearly establish that addition u/s 41(1) is not warranted unless the assessee writes off the credit balances of such creditors. In view of the above ground no. 4 in ITA No. 114/Asr/2014 is allowed whereas the ground no. 3 in ITA No. 214/Asr/2014 is dismissed. 16. Now coming to additions u/s 40(a)(ia), we find that in few cases the assessee had submitted before Ld. CIT(A) that taxes were duly deposited and for which the Ld. CIT(A) had issued directions to Assessing Officer for verification of such cases. The Ld. AR submitted that the Assessing Officer had carried out such verification and had allowed relief to the assessee and in this respect our attention was invited to paper books page 92. We find that this is a document giving appeal effect of Ld. CIT(A)'s order and Assessing Officer was required to examine that taxes on these amounts were duly deposited and therefore he has given relief only after such examination and therefore ground no. 5 in ITA No. 214 is dismissed. In respect of other group of items, the Ld. AR has argued that in some cases the amounts on which tax was deductible were paid during the year and was not payable and therefore the disallowance s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/ M/s. S.K. Shipping ₹ 46,013/ M/s. LTA Worldwide ₹ 40,101/ b. Payments of Rajkot Branch: i. Job Work ₹ 91,620/ ii) M/s. Nanda Raodways Rs.1,37,924/ 6. The AO observed that the assessee's contention that non deduction of tax at source was in pursuance to the provisions of section 172(8) of the I.T. Act, as supplemented by CBDT Circular no.723 dated 19.09.1995, was not acceptable, since the amounts paid were found to represent charges paid other than ocean freight and were not paid under the provisions of section 172(8) and the Circular of the Board; that the amounts of shipping charges do not constitute freight amount, but represented other charges which had been paid to the clearing and forwarding agents for their services to clear the goods at the custom port; and that by clearing the goods at the custom port, the clearing and forwarding agents cannot be considered to be the agents of the nonresident ship-owners or charters and they will not step into the shoes of the principal as stated in Circular No.723, dated 19.09.1995. As such, the AO held the assessee to be in default in respect of payments of ₹ 3,52,434/-. The tax in defaul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andling charge or any other amount of similar nature". 15. From the above, it is clear that in case of shipping of goods at a port in India, seven and a half percent of the carriage charges shall be deemed to be income accruing in India on account of such carriage; that unless and until the tax assessable u/s 172 is paid or arranged for and the Collector of Customs is satisfied to that effect, the ship shall not be granted port clearance; that the carriage charges, as and envisaged by section 172(2) shall be included in the amount of demurrage charge or handling charge or any other amount of similar nature. 16. In this regard, as per CBDT Circular No.723 dated 19.09.1995 (APB 37-38), where payments are made to shipping agents of nonresident shipowners or charterers for carriage of passengers, etc., shipped at a port in India, since the agent acted on behalf of the nonresident ship-owner or charterer, he steps into the shoes of the principal and, accordingly, the provisions of section 172 shall apply and those of sections 194C and 195 will not apply. 17. Further, in TTO vs. Freight Systems (India ) Pvt. Ltd.', 6 SOT 473 (Del.), it has been held that payment of ocean freight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also the assessee had denied to have incurred this expenditure and the assessee had been maintaining that such expenditure was never incurred by the assessee and these were not reimbursed to the employees and therefore we are in agreement with the arguments of assessee that addition under these circumstances can not be made u/s 69C of the Act. In view of the above, ground no. 6 in ITA No. 114/Asr/2014 is allowed whereas the ground no. 4 in ITA No. 214/Asr/2014 is dismissed. 19. As regards the addition u/s 40(a)(ia) amounting to ₹ 21,000/-, we are in agreement with the arguments of Ld. AR that the said payment was made in cash due to exceptional circumstances as the payment was made on Friday and the fee was paid to the embassy. The Assessing Officer did not doubt the genuineness of the party to whom the payment was made and the party is identified and therefore ground no. 9 in ITA No. 114/Asr/2014 is allowed. 20. Coming to the addition on account of low gross profit ratio, we find that in assessment year 2004-05, the G.P. ratio was 11.92% and in assessment year 2005-06, the G.P. ratio was 11.03%. The G.P. ratio in assessment year 2005-06 was accepted by the department u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer but the counsel of the assessee did not use this word in the written reply. The details of rebate received from the sellers from whom the liquor was purchased and paid to the purchasers L-2 License holders to whom the liquor was soled, alongwith the supporting evidence was filed before the Assessing Officer during the course of assessment proceedings and no defect was pointed out by the Assessing Officer either during the course of the assessment proceeding or in the assessment order. No opportunity was allowed by the Assessing Officer to the assessee before making the addition of ₹ 48,16,438/-. 6.1. As mentioned hereinabove, we concur with the findings of the Ld. CIT(A) that the case of the assessee is covered by the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. K.S. Bhatia reported in 269 ITR 577 and the judgment of the Hon'ble Chhattisgarh High Court in the case of ACIT, Raipur Vs. Roop Chand Tharani reported in 249 CTR 326 in which it has been held that the profits cannot be estimated without rejecting the books of account by pointing out the specific defects and recording the finding regarding the same. The contentions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le addition. In view of the above ground no. 4 in ITA No. 118 is allowed. As regards the addition deleted by Ld. CIT(A) on account of deemed dividend u/s 2(22)(e) of the Act, we find that section 2(22)(e) necessarily imposes a condition that payee must be a shareholder who must be the beneficial owner of shares. In the present case, undisputedly the assessee is not a shareholder as is noted by Ld. CIT(A) in his order at page 22 of his order where he has recorded a submission of assessee that the partners of the assessee firm were registered shareholder of the aforesaid company in their individual capacity. The Ld. CIT(A) has made a finding of fact that the deemed dividend can only be assessed in the hands of shareholder. He has further noted that assessee had clearly demonstrated that it was not a shareholder in the company which had advanced loan. 21. The Ld. DR had relied on the Judgment of Hon'ble Supreme Court in the case of Gopal and Sons (HUF) Vs. CIT for the proposition that where a concern receives some advance and the partners of the concern are shareholders in the company, the provisions of section 2(22)(e) will be applicable. However from the facts of this case w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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