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TMI Blog2015 (9) TMI 1668X X X X Extracts X X X X X X X X Extracts X X X X ..... llised during AY 2006-07 when the dues have been squared up. Thus, as find the contention of the assessee as put forth deserves to be accepted. Addition of interest expenses - HELD THAT:- We do not find any merit in this ground of appeal of the revenue. The assessee was to recover the amount from sister concern on account of sales made to this party which has no connection whatsoever with the interest and storage paid to PSWC for lifting of the paddy. Since for lifting of the paddy, assessee used storage facility of PSWC, therefore, amount was spent for the purpose of business only. Further, assessee has not claimed any interest expenditure in assessment year under appeal. Therefore, addition made by the Assessing Officer was wholly unjustified. CIT(Appeals), on proper appreciation of the facts and material on record correctly deleted the addition and this ground of appeal of the revenue is accordingly, dismissed. Addition on account of valuation of closing stock - HELD THAT:- It is clear that assessee has been able to prove reduction in the valuation of the closing stock because these commodities get deteriorated and explanation of the assessee is supported by material o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st till 13.06.2004. Later the assessee made the payments and lifted the commodity. It started making payments and lifting the paddy in October,2004 and continued till August,2005. It was noted that the paddy lot Nos. 12 to 15 comprising of total 9250.90 Qtls. Were paid for, as well as lifted in financial year 2004-05. Payment for these lots of paddy amounting to ₹ 2.08 crores was also made in financial year 2004-05. However, the interest for late payment and storage charges for these lots were paid in current year and has been charged to Profit Loss Account of the current year i.e. financial year 2005-06. It was, therefore, noted that these expenses pertain to last year and should not be allowed this year. On the issue of prior period expenses, the Assessing Officer made detailed working of the interest for late payment and storage charges according to number of days of delay in payment and for lifting of the paddy. As per this working, interest on days of delay in financial year 2005-06 i.e. for the period 01.04.2005 to the date of payment amounts to ₹ 10,55,394/- and similarly storage charges paid for number of days pertaining to financial year 2005-06 amounts to on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imes. The final extension being 25.07.2005. (v) Accounts were settled on 15.07.2005 when the liability towards interest and storage charges were determined by PSWC, therefore, entire liability was allowable in assessment year under appeal. The assessee relied upon decision of Allahabad High Court in the case of CIT v. Ashok Iron Steel Rolling Mill [1993] 213 ITR 815/[1992] 63 Taxman 489 and decision of Gujrat High Court in the case of Saurashtra Cement Chemical Industries Ltd. v. CIT [1995] 213 ITR 523/80 Taxman 61. It was also submitted that claiming of this expenditure in earlier year also would not have affected the profitability in any way. Had this amount been debited to the trading account of earlier year, same would have been added to the closing stock of paddy of the earlier year and thereby the corresponding increase in the valuation of the paddy of the current financial year, it would amount to double taxation. The ld. CIT(Appeals) considering material on record, deleted the addition. His findings in para 5.3 are reproduced as under : 5.3. I have carefully considered the assessee's submissions and the impugned order. It is the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y settled after a dispute as per orders of the State Government passed after dissolution of the assessee-firm deduction allowable. 7. The Hon'ble Gujarat High Court in the case of Saurashtra Cement Chemicals Industries Ltd. (supra) held, Business expenditure - year of allowability - mercantile system of accounting - liabilities allowable only in the year in which it was crystallized and determined. It cannot be disallowed merely because it related to earlier previous year. 8. Considering the facts and circumstances of the case in the light of the material on record, we do not find any error in the order of the ld. CIT(Appeals) in deleting both the additions. We, therefore, dismiss this ground of appeal of the revenue. 9. On ground No. 3, revenue challenged the order of ld. CIT(Appeals) in deleting the addition in interest expenses of ₹ 7,63,187/-. It is noted in the impugned order that Assessing Officer held that interest expenses was not incurred for business. It was noted from the details furnished by the assessee that debit balance of ₹ 1,81,35,619/- was outstanding in the name of M/s Loil Continental Foods Ltd. as on 31.03.2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that addition was unjustified. The assessee has sufficient funds interest free. Therefore, addition may be deleted. 11. The ld. CIT(Appeals) considering submissions of the assessee, found that the amount from sister concern was receivable on account of sale transactions. On the other hand, the amount paid to PSWC pertain to lifting of the paddy lots and using warehousing facilities. Therefore, both the amounts pertain to business exigencies. Therefore, addition on account of notional interest would not stand. The ld. CIT(Appeals), accordingly deleted the addition. 12. On consideration of the rival submissions, we do not find any merit in this ground of appeal of the revenue. The assessee was to recover the amount from sister concern on account of sales made to this party which has no connection whatsoever with the interest and storage paid to PSWC for lifting of the paddy. Since for lifting of the paddy, assessee used storage facility of PSWC, therefore, amount was spent for the purpose of business only. Further, assessee has not claimed any interest expenditure in assessment year under appeal. Therefore, addition made by the Assessing Officer was wholly unjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 55,21,392/-. 17. The assessee challenged the addition before ld. CIT(Appeals) and written submission of the assessee is reproduced in the appellate order in which the assessee briefly explained that due to deterioration in the quality, these two commodities could not be sold and same were valued at the net realizable value as on 31.03.2005. The net realizable value conducted by assessee was rejected by Assessing Officer without reasons. These two commodities were stated to have been originally purchased for using as edible oil but at the time of valuation of the closing stock on 31.03.2005. They became non-edible which resulted in their valuation at the market price of non-edible oil. The closing stock of cotton seed oil and mustered seed oil were sold in March,2007 i.e. assessment year 2007-08 and an amount of ₹ 36,67,562/- was realized which was duly accounted for in the balance sheet for assessment year 2007-08. The valuation was based on the valuation report of an independent export of Public Limited company Mr. Harbhajan arrived at on a scientific basis. It was submitted to the Assessing Officer that there are technical reasons for reducing the valuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck in respect of finished goods is At cost or Net Realizable Value The same method was followed in assessment year under appeal as well. There is no dispute that assessee is maintaining quantitative tally (PB-11) in which no defects have been pointed out by the Assessing Officer. All the purchase and sales are vouched and no defects in the same books of account have been pointed out. The books of account have not been rejected under section 145(3). 19(i) The assessee submitted lab report which is duly certified by the qualified technician from which it is clear that since rancidity had gone very high, therefore, the commodity become unfit for human consumption (PBs 24- 25) everything was disclosed in the Tax Audit Report. Since it was perishable item, therefore, the nature of commodity should be considered by the authorities below. There is nothing afterthought because value of the stock was prepared as on 31.03.2005. The distress sale of the commodity was made in March, 2007 after persistent efforts as per sample copies of the bills filed at pages 19 to 23 of the Paper Book on which no queries have been raised by the Assessing Officer. The findings of the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k on the basis of its cost. It has not been shown that the valuation shown by the assessee is less than the cost price. That being so, there is no infirmity in the view taken by the Tribunal. In view of the above, no substantial question of law arises for the consideration of the Court in this appeal. It is, accordingly, dismissed in limine. 19(ii) Decision in the case of CIT v. Satish Estate (P.) Ltd. [2014] 361 ITR 451/45 taxmann.com 479/226 Taxman 11 (Mag.)(Punj. Har.) in which it was held as under : Civil suit was filed by M/s Amritsar Royon and Silk Mill Pvt, Limited in which assessee was impleaded as respondent No.4. There was an interim order passed by trial court which was affirmed by this Court as well. In circumstances, assessee was justified in reducing valuation of closing stock, Assessee had reduced closing stock and same was taken as opening stock for assessment year 2007-08 which was accepted by AO while framing assessment u/s 143(3). Thus, no loss to revenue had been caused. Appeal dismissed. 20. He has submitted that since the case of the assessee was not considered in proper perspective, therefore, addition is liable to be deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear from the facts of this case that when sale could not be made of this commodity in assessment year under appeal and sales have been made in March 2007, would support the contention of assessee that the quality of the commodity so purchased by assessee has deteriorated, therefore it could not be sold at the same price. The assessee has also, admittedly following the consistent method of accounting to value the closing stock and with regard to finished goods, assessee has been adopting method of valuation as At cost or not realizable value . The method of valuation adopted by assessee has not been disputed by the authorities below. All the sales and purchases of the assessee are vouched and entered into the books of account in which no defects have been pointed out. 22(i) The Assessing Officer has also not rejected the book results of the assessee under section 145(3) of the Act. The sales made by assessee of the same commodity in March,2007 after it deteriorated in its quality, has not been disputed by the revenue department because the same sales have been entered into the books of account in assessment year 2007-08 and the Assessing Officer accepted the same in scrut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countholder, account number, nor transactions were clearly visible. The assessee did not produce the loan creditor and its PAN number or copy of the return. Therefore, Assessing Officer noted that assessee has failed to explain the source of giving loan of ₹ 85 lacs to the assessee. The Assessing Officer on examining the books of account of assessee found that assessee has shown receipts of ₹ 20 lacs each on 07.05.2004, 31.05.2004, 15.06.2004 and ₹ 25 lacs on 27.07.2004. All these amounts are stated to have been received in assessee's current account No. 2118026 in Punjab National Bank, Mohali Branch. Except these four credit entries, there is no other entry in the account of M/s Loil Impex Ltd. maintained in the books of account of the assessee. There was no opening balance and credit closing balance was ₹ 85 lacs on 31.03.2005. The Assessing Officer, therefore, noted that except filing copy of undated confirmation having the address of the same person and illegible copy of the bank account of the creditor, assessee has not furnished any other evidence to prove existence, genuineness or creditworthiness of the creditor and accordingly made the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source in their case was also explained. Copy of account of creditor in the books of the assessee is filed at page 40 of the Paper Book. Copy of the account of assessee company in the books of the creditor is filed at page 41 of the Paper Book. Confirmation of the loan of the creditor is filed at page 37 of the Paper Book and copy of the bank statement of assessee company where such credit of ₹ 85 lacs has been appearing is filed at page 30 of the Paper Book. Copy of the bank statement of the creditor is submitted before Assessing Officer along with letter is filed at page 42 of the Paper Book along with copy of the bank statement PB-43. The source of the credit in the bank account of the creditor with copy of the bank account of M/s Laxmi Overseas Industries are filed at pages 45 and 46 of the Paper Book. The confirmation from M/s Nav Bharat International, who has given ₹ 90 lacs to the creditor along with confirmation are filed at pages 47-49 of the Paper Book. He has submitted that all entries in the books of account of the assessee are explained through bank entries. He has also clarified that in the bank account of the assessee PB-30, the cheques issued by the cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of then the purposes of income tax. On a reference whether the Appellate Tribunal was justified in holding that when there was credit in the capital account of the partner in the books of the firm, the addition therefore could not be made in the case of the firm under section 68 of the Act but the same had to be considered in the case of the partner : Held, on the facts, that there was concurrent finding of both the Commissioner of Income Tax (Appeals) as well as the Tribunal that the firm had satisfactorily explained the three credit entries in the books of the firm. The addition therefore could not be made in the hands of the firm. 28(i) Hon'ble Gauhati High Court in the case of P.K. Sethi v. CIT [2006] 286 ITR 318 held as under : Held, that out of the three requirements, the first two, namely, the identity of the creditors and their creditworthiness had been established. In respect of the genuineness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appearing on prior dates which were through clearing only. There is no cash deposit in the account of the creditor. The transfer entries in the bank account of the creditor are stated to be from M/s Laxmi Overseas Industries and M/s Nav Bharat International Ltd. (supra). Copies of their confirmation and their bank accounts are filed on record. It would, therefore, prove that even the source of the source have been explained by the assessee in this case which is, however, not the requirement in law to be proved by the assessee. The copy of the bank account of the assessee is filed at page 30 of the Paper Book which pertains to Punjab National Bank, Mohali Branch in which the assessee received the loan amount in four instalments. All the loan entries are appearing in the bank account of assessee. The ld. counsel for the assessee, during the course of arguments explained that all these four cheques issued by the creditors were discounted by the assessee from the bank on which interest has been paid. All these entries are appearing in the bank statement of the assessee which match with the entries made in the bank account of the creditor. The assessee has also filed copy of the stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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