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TMI Blog2015 (5) TMI 1216X X X X Extracts X X X X X X X X Extracts X X X X ..... from the Bank as to how the assessee has taken his loan from Indiabulls and Reliance Capital for construction of house and housing loan has been used in business purpose. Therefore, we restore this issue to the file of AO and the AO is directed to verify from Bank and concerned companies for what purpose the assessee has taken this loan and housing loan and how it was used and how it was shown to be taken from India bulls Housing Finanace and Reliance Capital. The AO is directed to make the inquiry and if the AO finds that the assessee has taken this housing loan for which housing loans are given for business purpose, then processing charges and interest payment should be decided accordingly. The AO is directed to verify whether section 40a(ia) is applicable to it or not. Addition u/s 68 - assessee has taken unsecured loan from the above parties and has not submitted the income tax returns of the depositors - HELD THAT:- The assessee has submitted the balance sheet and list of sundry creditors. The accounts of the two borrowers show that there was no movement in the accounts of the two parties. The borrowing amount was not paid since last three years, therefore, the AO has held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bank statement of Sh. Anand Jain without confronting it to the AO as per provisions of Rule 46A of the I. T. Rules. 2.2. While holding so the Id. CIT(A) failed to appreciate that the cash was deposited in the accounts of the loan creditors just before clearing the loan amount and the bank passbook was showing negligible balance before and after clearing of the loan cheques. 3. On the facts and the circumstances of the case the Id. CIT(A) erred in deleting the addition of ₹ 405448/- made by the AO u/s 41 (1) of the 1. T. Act in consonance with provisions of limitation Act when there was no movement of fund/transaction with the sundry creditors for the last 03 years and when assessee failed to produce the confirmations from the said creditors. 3.1. While holding so the Ld. CIT(A) erred in relying upon the arguments of the assessee taken before him which were not submitted before the AO without calling for any counter comments of the AO. " 4. 2. Ground no. 1 of Department's appeal and ground no.1 of assessee's cross appeal are common, therefore, they are disposed of by this common order. 3. Brief facts of the case are that the assessee derives income from manufacturin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheque. Further, the Bank pass book showing negligible balance before and after clearing of loan cheque. Therefore, the AO has disallowed ₹ 4,86,734/- as non business expenditure. 6. The matter carried to CIT(A) and the ld. CIT(A) has deleted the addition of ₹ 4,22,604/- on account of processing charges and disallowed the interest payment of ₹ 25,26,377/- which is aggregate of the concerns, namely, India Bulls Financial Services Limited and Reliance Capital Limited u/s 40(a)(ia) of the Act. "4.3 I have considered the AO's order as well as the appellant's submission. Having considered both, I find that all the loans including the personal and home loans have been utilized of the purpose of business of the appellant. Having considered the appellant's submissions, it is evident that the appellant being individual borrowed fund from different bank as detailed in appellant's submission under the head "Housing loan/personal loan". Merely with an intention at lower rate of interest, I am in agreement with the appellant's business and utilized for the business purposes. The borrowed fund might have been taken for different purpose but the fact remains that the same we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and held that it attracts the provisions of Section 40(a)(ia) of the Income-tax Act, 1961. 10. The assessee is in appeal before us for confirming the disallowance of ₹ 25,26,377/-. 11. The Ld. Senior D.R. submitted before us that the assessee has taken loan from HDFC Bank and Indiabulls Housing Finance. The assessee has taken this loan as home loan and the assessee has paid the processing charges for taking these home loan, which is nowhere connected with the business loss, therefore, whatever amount was paid for processing charges was taken as home loan cannot be allowed and the ld. CIT(A) is not justified in allowing the same. Moreover the Ld. Senior D.R. submitted that the assessee has taken the loan from Indiabulls Housing Finance and Reliance Capital and interest paid to these two institutions is not for any business purpose and when the loan is not taken for business purposes, if the interest paid to these companies, cannot attract the provisions of Section 40(a)(ia). Therefore, the ld. CIT(A) is justified in confirming the interest payment paid to these two companies. 12. On the other hand, the Ld. counsel for the assessee has submitted before us a written submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such residenti. i. has furnished his return of income under section 139; ii. has taken into account such sum for computing income in such return of income; and iii. has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed. It is humbly submitted that the respective recipients are National Companies and one of them has given a certificate about inclusion of interest in its return. The prescribed form as required has also been furnished which is enclosed herewith. The Hon'ble Indore Tribunal in the case of Pratibha Exime reported in 22 ITJ Page 287 has held that the second proviso has a retrospective effect and in the identical circumstances has allowed the assessee appeals by setting aside the case on the file of the Assessing Officer for verification. The same view has been taken by the Jabalpur Bench in the case of Rajkumar Agrawal reported in 24 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted any evidence regarding the creditworthiness of the creditors, income tax returns and other documents have not been filed. He has also held that in two cases, the cash has been deposited in the account and the cheque has been given to the assessee. Therefore, the AO has made the addition u/s 68 of the Income-tax Act, 1961. 16. The matter travelled to CIT(A. The ld. CIT(A) deleted the additions observing as under in paragraphs 5.3 :- "5.3 I have considered the AO's order as well as the appellant's submission. Having considered both, I find that the appellant have taken loan from the aforesaid person and the appellant has filed copy of the bank account of all persons, wherein regular transaction of withdrawal/deposits was affected. Besides this, they are also having PAN number and the payments have been made by account payee and even the appellant has made payment on interest on such loan taken. Even TDS has been made on such interest payment. " 17. The Ld. Senior D.R. submitted that the assessee has taken unsecured loan from the above parties. The assessee has not submitted the income tax returns of the depositors. It was also observed from the Bank that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and list of sundry creditors. The accounts of the two borrowers show that there was no movement in the accounts of the two parties. The borrowing amount was not paid since last three years, therefore, the AO has held that liability is ceased. Therefore, he has added it u/s 41(1) of the Act. We find that Hon'ble Supreme Court in the case of Sugauli Sugars reported in 236 ITR 518, wherein it is clearly held that if any liability which the assessee wanted to pay this amount, then the Limitation Act would not apply and the liability still remains. Therefore, the ld. CIT(A) is justified in his action and our Pinterference is not required. 24. In the result, the Departmental appeal on this ground is dismissed. 25. Ground no. 2 taken by the assessee in the cross objection is that the ld. CIT(A) has erred in maintaining the gross profit addition by 2 %. 26. The short facts of the case are that the AO has verified the trading account and found that there was fall of gross profit ratio by 5.18 %. During the year under consideration, it was 13.59 %, while in preceding year it was 18.77 %. The assessee was asked to explain with evidence the reason for so much fall in gross profit rati ..... 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