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TMI Blog2020 (1) TMI 1028X X X X Extracts X X X X X X X X Extracts X X X X ..... as on 31 March 2003. It is also a fact on records that the assessee has duly furnished the details of the loans which were squared up in the year under consideration in its tax audit report available on record. But the AO either in the assessment proceedings or remand proceedings required the assessee to furnish detailsof such loans squared up during the year. Thus the assessee never got the occasion to furnish the details about such squared up loans. From the above letter dated 26 October 2012, it is transpired that the learned CIT (A) never enquired about the loans which were squared up in the year under consideration. Thus, the controversy arises whether the AO can extend the scope of dispute beyond the direction provided by the learned CIT (A). The answer stand negative in view of the judgement of Hon ble Gujarat High Court in the case of Saheli Synthetics Pvt. Ltd Vs. CIT [ 2008 (2) TMI 182 - GUJARAT HIGH COURT] We hold that the allegation of the AO in the remand proceedings that the assessee failed to furnish the details of the loans which were squared up in the year under consideration is not sustainable in the present facts and circumstances. Accordingly, we do not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to prove the business purpose of the foreign travel undertaken by the directors of the assessee private limited company, the expenditure was rightly disallowed - Decided against assessee. - ITA No. 802/Ahd/2016 - - - Dated:- 20-1-2020 - Shri Mahavir Prasad, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Appellant : Shri L.P. Jain, Sr.DR For the Respondent : Shri Anil Kshatriya ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals) 9, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-9/93/ITAT/10-11 dated 04/01/2016 arising in the assessment order passed under s.144 of the Income Tax Act, 1961(hereinafter referred to as the Act ) dated 17/02/2006 relevant to Assessment Year (AY) 2003-04. 2. The Revenue has raised the following grounds of appeal:- 1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 4,48,03,196/- made on account of unexplained loans u/s.68 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the business of manufacturing dealing in GIP Pipes Fitting, Plastic Planter, trading in barrel Nipple and PVC resin. The assessee in the year under consideration has shown unsecured loan amounting to ₹ 4,48,03,196/- in its financial statement as on 31 March 2003. The AO during the assessment proceedings required the assessee to furnish the necessary details about such unsecured loan for the purpose of verification. But the assessee failed to do so. Accordingly the AO treated the same as unexplained cash credit under section 68 of the Act and added to the total income of the assessee. Aggrieved assessee preferred an appeal to the learned CIT (A). 3.2. The assessee before the learned CIT (A) submitted that it has received fresh unsecured loan in the year under consideration amounting to ₹ 2,41,28,949/- only. The assessee further filed the details of the parties from whom it has taken the unsecured loan as detailed under: S.No. Party Name Unsecured Loan amount a) M/s Rampion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the income declared by the parties. Similarly, the reserve and surplus of Rampion Eyetech Pvt Ltd. stands at ₹ 1.60 crores only whereas the loan extended to the assessee of ₹ 2.00 crores. 3.5. In view of the above, the AO requested in his remand report for confirming the impugned amount of unsecured loan which were accepted by the assessee in the year under consideration. 3.6. However, the Ld. CIT (A) after considering the submission of the assessee and the remand report of the AO deleted the addition made by the AO by observing as under: 1.2. I have perused the observations of the A.O. and the appellant. The A.O. has made an addition of ₹ 4,48,03,196/- u/s.68 of the Act. According to the A.O. the appellant has failed to substantiate its claim with regard to unsecured loan. The then CIT(A)-XI, Ahmedabad vide its order dated 19/2/2007 has deleted the said addition. During the first appellate proceedings, the appellant has taken a stand that major part of the unsecured loans of ₹ 4.48 crores is the brought forward component. It had placed its reliance on the judgment of Karnataka High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that the A.O. has submitted his remand report (1) either having a look as to what is quantity of additional material and to cross verify with records (2) or without books of accounts being requisition or examination (3) without specifying other documents for conducting further investigation. In this context it may be mentioned here that at the time of calling of remand report the A.O. was categorically asked to confront the additional evidences with the appellant, to requisite books of accounts or books of accounts for examination or any other documents for further investigation. The A.O. has submitted its report accordingly. When the CIT(A) has categorically asked the A.O. to conduct the necessary investigation or requisition the books of accounts etc, if the A.O. has not undertaken the said exercise then the A.O. cannot take the plea that necessary bank statement, ledger etc. have not been furnished by the appellant. Out of the four new loans the assessment records of the two of them mainly Rampion Eyetech Pvt.Ltd. and Anuj R. Mehta are available with the A.O. himself. The loan from Vishal Agencies was a brought forward loan and during the earlier assessment year i.e. A.Y. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings nor the remand proceedings required the assessee to furnish the details about such loans. Similarly, the learned AR also submitted that the matter was remanded by the learned CIT (A) to the AO for furnishing the report on the loans which were appearing in the balance sheet as on 31 March 2003. As such, the loans which were squared up during the year were not appearing in the balance sheet as on 31st March 2003. As such, the AO exceeded his jurisdiction in the remand proceedings by submitting that the assessee has not furnished the details about the loans which were squared up in the year under consideration. Both the ld. DR and AR before us relied on the order of authorities below. 6. We have heard the rival contentions and perused the materials available on record. The dispute in the instant case relates to the unsecured loan received by the assessee in the year under consideration from certain parties which was treated as unexplained cash credit under section 68 of the Act by the AO. However, the learned CIT (A) subsequently deleted the addition made by the AO. 6.1. The provision of section 68 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt Cash element i. Rampion evetech 2,00,00,000/- 1,00,00,000/- ii. Sunil Kumar K HUF 20,54,000/- 18,54,000/- iii. Anuj R Mehta 3827726/- 1,27,726/- 7.1. Regarding the loan taken from Rempion Eyetech Pvt Ltd, we note that the assessee has filed the confirmation along with the PAN, copy of the ITR, ledger account of the assessee in the books of Rempion eyetech pvt ltd. ledger account in the assessee s book which are placed on pages 82, 90 and 88 of the paper book. 7.2. Similarly, we also note that the AO in the assessment of Rempion Eyetech Pvt Ltd. has admitted the fact that Rempion Eyetech Pvt Ptd. has advanced loan of ₹ 2 crores to the assessee vide order date17/02/2006. The relevant extract of the order is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration is to the tune of ₹ 35,05,817/-. During the year assessee company is paying interest @ 12# on unsecured loans and deposits accepted by it. It s a known fact that no prudent assessee would resort to such type of accounting principles wherein it incurs interest expenses on the funds borrowed from outside agencies but doesn t charge interest on its own funds passed on to outside agencies or be it, to ones own associate concern. Accordingly, for the reasons as aforesaid and the stand adopted by the assessee in not furnishing the details/reasoning for having not charged interest on such loans and advances passed on to an associate concern, as amount equal to 12% out of such loans and advances advanced is disallowed u/s.36(1)(iii), treating the same as being incurred for non-business purposes. 7.3. Now coming to the loan accepted from Sunil Kumar K Jain HUF, we note that the assessee has filed the confirmation along with the PAN, copy of the ITR, ledger account of the assessee in the books of Sunil Kumar K Jain HUF and ledger copy of assessee s books which are placed on pages 87,94, and 89 of the paper book. 7.4. Now coming to the loan ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt payee cheques. 7.9. We also conscious to the fact that the assessee has furnished the basic details about the loan taken from all the parties as discussed above such as, confirmation along with address, ledger copy of ITR , but the AO has not made any verification from such parties and arrived at the conclusion that the impugned amount represents unexplained cash credit under section 68 of the Act. 7.10. We also note that there is no prohibition to accept the loan in cash under the provisions of section 68 of the Act. As such the provision of section 68 of the Act has not differentiated the amount of cash credit accepted by the assessee through the cash and cheque. It means the test laid down to justify the cash credit under section 68 of the Act is same when the loan is taken in cash and through banking channel. 7.11. In our considered view, once the assessee has discharged primary onus by proving the identity of lender, genuineness of transaction and capacity to advance the loan then it is the burden of the Revenue to prove it otherwise. In this regards we drew guidance and support from decision of Hon ble Madhya Pradesh Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT [1963] 50 ITR 1 (SC) and Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. 7.13. Thus, in the present facts and circumstances, all informations were available about the loans but AO did not make further inquiry. If he has any doubt on unsecured loan of all above mention parties, the AO could have conducted necessary enquiries. But the AO failed to do so. However assessee has discharged its onus by providing the documents such as confirmation, ITR, address of the lender, ledger copy of the lender. The AO has not pointed out any specific defect in documents furnished by the assessee. In view of the above, we find no reason to interfere in the order of Ld. CIT (A) to the extent of the loan from the parties as discussed above. 7.14 Now, coming to the amounts of loans for ₹ 1,31,00,000/- which were accepted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29/3/2010 had restored back these additions to the file of CIT(A) for fresh adjudication. In the above mentioned appeal, the Hon ble ITAT has directed the CIT(A) to confront the additional evidences admitted during first round of appellate proceedings to the Assessing Officer. In the course of examination, you are free to requisition of books of accounts or any other documents and conduct further invetigation as deemed fit. After verification, detailed remand report to respect of above mentioned additions should reach this office within 15 days of receipt of this letter. 7.17. The amount of loan for ₹ 4,48,03,196.00 represents the loan which were outstanding in the books of the assessee as on 31 March 2003. This fact can be verified from the financial statements of the assessee available on record. Thus the loans which were squared up in the year under consideration were not part of the amount of loan appearing in the financial statements of the assessee as on 31 March 2003. It is also a fact on records that the assessee has duly furnished the details of the loans which were squared up in the year under consideration i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The AO during the assessment proceedings observed that the assessee has incurred interest expenditure of ₹ 30,67,057/- on the borrowed fund of ₹ 4,04,89,542/- only. The AO further observed that the assessee has given interest free loans and advances of ₹ 74,91,240/- to its subsidiary namely M/s Ramprasad trading and Investment (P) Ltd. without charging any interest. Accordingly, the AO proposed to make the disallowance of ₹ 11,23,686/- u/s 36(1)(iii) of the Act on account of diversion of fund. Accordingly, the AO sought an explanation from the assessee on the issue as discussed above. But the assessee failed to make any reply. Accordingly the AO disallowed the sum of ₹ 11,23,686.00 being 15% of the loan amount u/s 36(1)(iii) of the Act and added the same to the total income of the assessee. Aggrieved, assessee preferred an appeal to Ld. CIT(A). 10. The assessee before the Ld. CIT(A) submitted that it has made advance of ₹ 61,81,016/- for the purpose of business in the year 1997-98 to its subsidiary. The cash flow statement for that year was also submitted by it to substantiate its claim. However, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vive the company, the appellant company had changed its distribution network affecting the business of the subsidiary company. This has resulted in loss to the subsidiary company resulting in uncertainly over chances of recovery of loan given. As rightly pointed out by the appellant, it has relied upon the judgment of Hon ble Apex court in the case of S.A. Builders Ltd. vs. CIT 288 ITR 1 (SC). I am of the considered opinion that the loan was given to the subsidiary company from 1997-98 as a measure of commercial expediency. Therefore, no disallowance can be made on this account u/s.36(1)(iii). The addition of ₹ 11,23,686/- is hereby deleted. Being aggrieved by the order of ld. CIT(A) assessee is in appeal before us. 10.3. The ld. DR before us vehemently supported the order of the AO. 10.4. On the other hand, the Ld. AR before us demonstrated that its own fund exceeds the amount of loans and advances. Accordingly, the ld. AR claimed that there cannot be any disallowance of interest expense for the diversion of funds. The ld. AR in support his contention drew our attention on balance sheet as on 31st March, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XX) 1,633,117 665,493 TOTAL 186,348,022 189,451,016 11.1. From the above, it is clear that the own fund of the assessee exceeds the interest free loans and advances as discussed in the assessment order. In such facts and circumstances, a presumption can be drawn that the loans has been provided out of the owned funds of the assessee. In holding so, we find support and guidance from the judgment of Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 wherein it was held as under:- The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the expenses such statement of foreign travelling expenses, JK industries Bill regarding purchase of Foreign exchange, Receipt of LKP Finance Merchant Financing Ltd. which are available on record. 15. We have heard the rival contentions and perused the materials available on record. In the instant case, the AO made the disallowances of the foreign travelling expenses on the ground that the personal nature cannot be overruled. Subsequently the Ld. CIT(A) deleted the addition made by the AO by observing that the AO has not brought on record from which it can be proved that the expenses are personal in nature. Therefore the Revenue is in appeal before us. At the outset, we note that the assessee has not provided any documentary evidences to prove that the expenditure on foreign travelling was for the business purpose. Admittedly there is no doubt that the expense has been incurred on foreign travelling. But such expenses incurred for the business needs to be justified by furnishing the details of the person travelled, email correspondence, any business expansion from such foreign tour. However we note that the Ld. AR for the assessee has furnished before us detail o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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