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TMI Blog2023 (10) TMI 1231X X X X Extracts X X X X X X X X Extracts X X X X ..... sion assessee had paid a sum in the next financial year and for this, assessee has filed proof before CIT(A) and therefore, he allowed the same but sustained the balance amount being excess provision made in the accounts. Even now before us, the assessee could not file any evidence or could not explain how this amount is allowable. Hence, we confirm the order of CIT(A) on this issue. Thereby the total amount sustained on account of provision made for power division and the order of CIT(A) on this, is confirmed. Addition of non-existing sundry creditor liability - Difference in outstanding balance vis a vis the balance reflected in the books of the appellant company based on the statement of account obtained from the concerned supplier - HELD THAT:- CIT(A) noted that the assessee could not file any explanation as to why they have declared excess liability in its books of accounts. He also noted that there Thermodyne Technologies Pvt. Ltd., has declared liability to the extent of Rs. 18,68,421/- as against declared by assessee at Rs. 71,67,656/-. Since nothing was explained before AO or no evidence was filed to prove its claim, the CIT(A) also confirmed the order of AO. Even now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other maintenance and by this, it has incurred and claimed expenditure - AO has simply disallowed without verifying and without any basis. We are of the view that disallowance should have some basis. There can be a reason for some personal disallowance and for that estimated disallowance can be to the extent of 10% and hence, we restrict the disallowance at 10% and allow this issue of assessee s appeal partly. - Shri Mahavir Singh, Vice President And Shri Manjunatha.G, Accountant Member For the Assessee : Ms. Vidya, C.A. For the Revenue : Shri P. Sajit Kumar, JCIT ORDER PER MAHAVIR SINGH, VICE PRESIDENT: These cross appeals by the assessee and Revenue, are arising out of order of the Commissioner of Income Tax (Appeals)-18, Chennai in ITBA/APL/M/250/2021-22/1039396014(1) dated 04.02.2022. The assessment was framed by the ACIT, Company Circle III(1), Chennai, for the assessment year 2008-09 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter the Act ) vide order dated 21.12.2010. Revenue s Appeal in ITA No. 311/CHNY/2022 2. The only issue in this appeal of Revenue is as regards to the order of CIT(A) deleting the disallowance made by AO of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intrinsically mixed up and cannot be physically identified as to from which source funds have been sourced. It is akin to a situation when a pile of water is accumulated from different source then the identity of the source loses its characteristics. n such situation various higher judiciary has held that when funds from different source such as non interest bearing source (own source) and interest bearing source such as equity share capital, general reserves, accumulated profits, Reserves and interest bearing loan received are mixed up by way of introducing them in the books of accounts then there is a presumption that when interest free loan is extended then they are firstly sourced to cover up the entire extend of interest free of loan the balance is met out of interest bearing funds. In the case of the assessee, the assessee 's equity share capital, general reserves, accumulated profits and reserves exceeds the interest free loan extended during the relevant assessment y ears and the same is not in dispute. Therefore, the facts in the case of the assessee are identical to the case decided by the Hon'ble Jurisdictional Madras High Court, Hon'ble Bombay High Court an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l that this issue is fully covered by the Tribunal s decision. Hence, we find no infirmity in the order of CIT(A) and the appeal of the Revenue is dismissed. Assessee s Appeal in ITA No.182/CHNY/2022 6. The first issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of the AO in disallowing the provisions made for raw materials, stores and spares for an amount of Rs. 2,52,68,564/- treating the same as contingent liability. For this, assessee has raised the following ground No.2:- 2. The Learned AO erred in making a disallowance towards provision made for new materials, stores and spares in the sum of Rs. 2,52,68,564/- treating the same as contingent liability. 7. Brief facts are that the AO while framing assessment and on perusal of audited balance sheet and profit loss account of the assessee noticed that the assessee has reported a sum of Rs. 61.24 crores under the head current liabilities . The assessee explained and filed details of sundry creditors for expenses of Rs. 5,60,85,668/- out of which, the assessee has created provision for Rs. 2,52,68,564/- towards raw materials, stores and spares. According to AO, this is m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the same is confirmed. 10. As regards to power division, the assessee has created provision for demurrage payable to M/s. N.R. International amounting to Rs. 2,40,55,989/- pertaining to assessment year 2008- 09. The assessee contended that out of provision of Rs. 2,40,55,989/- the assessee has paid a sum of Rs. 1.65 crores and balance sum of Rs. 75,55,989/- was waived by M/s. N.R. International in the financial year 2008-09 pursuant to negotiations made by the assessee company and assessee has already offered the same as income in assessment year 2009-10. The CIT(A) going through the submissions of the assessee noted that the party account of N.R. International shows that the assessee has paid a sum of Rs. 50 lakhs towards demurrage charges on 19.03.2008 before the year ends but still the assessee shown the same as payable amount under demurrage charges and hence, he confirmed the addition of Rs. 50 lakhs being excess provision made in the accounts and sustained the addition. 11. Before us, the ld.counsel could not explain how this is allowable and in our view, since the assessee has paid this amount of Rs. 50 lakhs towards demurrage charges already on 19.03.2008, the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 71,67,656/-. The AO enquired and noticed from the accounts statement filed by Thermodyne Technologies Pvt. Ltd., that in their books, balance appeared is only Rs. 18,68,421/- and therefore there is a variance in the books of the assessee to the extent of Rs. 52,99,235/- and which is actually shown as excess outstanding liability by the assessee. According to AO, this being non-existent liability, he added to the total income of the assessee. Aggrieved, assessee preferred appeal before CIT(A). 15. The CIT(A) noted that the assessee could not file any explanation as to why they have declared excess liability in its books of accounts. He also noted that there Thermodyne Technologies Pvt. Ltd., has declared liability to the extent of Rs. 18,68,421/- as against declared by assessee at Rs. 71,67,656/-. Since nothing was explained before AO or no evidence was filed to prove its claim, the CIT(A) also confirmed the order of AO. Even now before us, the assessee could not file any evidence or could not make any arguments to support its ground, hence we find no infirmity in the order of CIT(A) and affirm the order of CIT(A) on this issue. This issue of assessee s appeal is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case. We noted that the CIT(A) has given directions to the AO for consideration whether on the matching principles, as claimed by assessee, the excise duty was to be included in the closing stock or not. The CIT(A) noted that if matching principle is to be applied then debit of excise duty is to be disallowed automatically if it is included in the closing stock, it should be excluded. The CIT(A) directed the AO vide para 12.6 as under:- 12.6. I have considered the submissions of the AR and the reasons given by the AO in the assessment order. It is settled law that excise duty need not be included in the closing stock as held by the Supreme Court in the case of Dynavision Ltd and Hindustann ZincLtd.(2007(5)-TMI 1995). Even after the introduction of section 145A, the Bombay High Court has held in the case of CIT Vs. Lokhete Balasaheb Desai SSK Ltd. (2011-6 TMI 481) that excise duty need not be included in closing stock. However, the appellant has contended that the excise duty was included in the closing stock also. Ii matching principle is applied, if the debit of excise duty is disallowed then automatically if it is included in the closing stock, it should be ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimated basis at the rate of 20% of total expenses incurred on account of repair and maintenance. The assessee before CIT(A) filed ledger accounts without supporting evidences. Hence, he sustained the disallowance made by AO at 20%. We have gone through the assessment order and noted that the AO has purely estimated disallowance at 20% but assessee explained that the assessee company is following a practice of claiming this expenditure towards building repairs and maintenance, plant repairs and maintenance and other maintenance and by this, it has incurred and claimed expenditure of Rs. 5,29,74,156/-. The AO has simply disallowed without verifying and without any basis. We are of the view that disallowance should have some basis. There can be a reason for some personal disallowance and for that estimated disallowance can be to the extent of 10% and hence, we restrict the disallowance at 10% and allow this issue of assessee s appeal partly. 26. In the result, the appeal filed by the Revenue in ITA No.311/CHNY/2022 is dismissed and the appeal filed by the assessee in ITA No.182/CHNY/2022 is partly-allowed. Order pronounced in the open court on 12th October, 2023 at Chennai. ..... 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