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TMI Blog2005 (2) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... nces came to Rs. 2.21 lakhs and Rs. 3.05 lakhs, the peak cash balance during the year reached a figure of Rs. 38.62 lakhs and when compared to the similar figures in the earlier assessment year, viz., 1988-89, the average cash holding in the year under appeal was double the amount of average cash holding in that year. Further, noting that a disallowance of Rs. 1,51,108 towards interest on such idle cash was made for the asst. yr. 1998-99 and the said disallowance was also confirmed by the CIT(A) on appeal, the AO made disallowance of Rs. 3 lakhs out of interest for the year under appeal. 4. On appeal, the CIT(A) observing that facts of the case for the year under appeal are similar to those of the preceding year, except for the difference that interest charges for the year under appeal were Rs. 47.18 lakhs, inclusive of a sum of Rs. 33.29 lakhs being interest payable on cash credit and other facilities from the bank, as compared to Rs. 16.46 lakhs for the preceding year, confirmed the disallowance made by the AO. Hence, assessee preferred the present appeal before us. 5. We have heard both sides and perused the orders of the lower authorities and other material on record. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A). 9. We have heard both sides and perused the impugned orders of the lower authorities and other material on record. On careful consideration of the matter, we find that the material on record clearly indicate that on some of the borrowings made by the assessee, other than from the banks, assessee, has paid interest at the rate of 21 per cent. As such, it is not correct to say that the interest paid on borrowings from bank is indicative of the market rate at the relevant point of time. In the circumstances, we are of the view that the interest paid to M/s P.J. Pipes & Vessels is reasonable and there is no excess payment of interest to it and, as such, no disallowance is called for. We accordingly delete the addition of Rs. 71,300 sustained by the CIT(A). Consequently, assessee's grounds on this issue are allowed and the grounds of the Revenue in its appeal on this issue are rejected. 10. The next ground of the assessee in its appeal relates to an addition of Rs. 86,175, as interest receivable on advance of Rs. 5,67,893 to M/s Apurva Tubes (P) Ltd. 11. The balance sheet of the assessee showed that it has sundry debtors for Rs. 8,39,092 on account of goods supplied by it a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earlier asst. yr. 1988-89. According to him, in the earlier year, the assessee had inflated the purchases made from several third parties, such as, M/s H.K. Traders, M/s Sejal Steels and M/s Nagurjuna Metals & Engg. (P) Ltd., and in the year under appeal as well, the assessee has inflated purchases made from M/s P.J. Pipes. In this connection, he noted from a copy of account of M/s P.J. Pipes in the books of assessee that a sum of Rs. 74,97,384 was shown payable by the assessee to the said concern, which indicated that the purchases made from this concern are highly inflated, especially when the said goods have been supplied directly to the ONGC by the said concern. Hence, relying on the decision of the Supreme Court in CIT vs. British Paints India Ltd. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC) and for the detailed reasons discussed in the impugned assessment order, made an addition of Rs. 6 lakhs on estimate basis. On appeal, the CIT(A) deleted the said addition of Rs. 6 lakhs. Hence, Revenue preferred appeal on this issue. 16. We have heard both sides on this issue and perused the impugned orders of the lower authorities, in the light of the case law on the point, and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue. 17. The next ground of the Revenue is that the CIT(A) erred in deleting the addition of Rs. 2 lakhs made on account of inflated valuation of opening stock. The AO observed that in the earlier asst. yr. 1988-89, the purchases effected from certain parties were highly inflated. On that basis, he observed that the valuation of opening stock has been made at inflated figures. On a comparative analysis of the figures of opening stock and closing stock for the asst. yrs. 1988-89 and 1989-90, the AO noted that in asst. yr. 1988-89, the opening stock was less than the closing stock by Rs. 1,65,820, but in the asst. yr. 1989-90 under appeal, the opening stock was more than the closing stock at Rs. 1,20,54,453. He also noted that out of the purchase made from several third parties at an inflated figure in asst. yr. 1988-89, the purchases to the extent of Rs. 57,16,545 also formed a part of the opening stock for the asst. yr. 1989-90. He accordingly, made an addition of Rs. 2 lakhs to the trading results, on this count. On appeal, the CIT(A) deleted this addition. Hence, Revenue is in appeal on this count. 18. We heard both sides and perused the impugned orders of the lower authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue in this appeal relates to deletion of disallowance to the extent of Rs. 71,300 out of payments made to M/s P.J. Pipes & Vessels Ltd. We have considered this issue in the context of assessee's appeal on this issue hereinabove and vide para 9 above, we have decided the same in favour of the assessee, and against the Revenue, accepting the contentions of the assessee in that behalf. Consequently, Revenue's ground on this issue is rejected. 22. The next grievance of the Revenue in this appeal is that the CIT(A) erred in deleting the addition of Rs. 1,64,748 made on account of excess rent paid to Shri Bharat J. Vora under s. 40A(2)(b) of the Act. 23. The AO noticed, and disallowed an amount of Rs. 1,64,748 out of total rent of Rs. 2,24,748 paid by the assessee to Shri Bharat J. Vora, managing director of the assessee-company. The AO made this disallowance observing that Shri Vora had purchased the said premises for Rs. 3,60,000 and maximum return on the said cost even at 21 per cent should not exceed Rs. 5,000 per month as rent for the premises. On that basis the AO allowed a sum of Rs. 60,000 per annum as reasonable return, and disallowed the balance amount of Rs. 1,64,748 paid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) erred in confirming the addition of Rs. 66,220, as interest receivable on advance of Rs. 3,67,883, as on 31st March, 1991, to M/s Apurva Tubes (P) Ltd. Facts and circumstances leading to the disallowance in question are similar to those considered by us while considering corresponding disallowance made by the AO and sustained by the CIT(A) for the asst. yr. 1989-90. Hence, following our decision for that year vide para 13 hereinabove, we delete the addition of Rs. 66,220 sustained by the CIT(A) for the asst. yr. 1991-92 as well and allow the grounds of the assessee on this issue. 28. The next grievance of the assessee in this appeal is that the CIT(A) erred in sustaining disallowance of interest amount of Rs. 5,640 on account of alleged cash balance held by the assessee. Facts and circumstances leading to the disallowance in question are similar to those considered by us while considering corresponding disallowance made by the AO and sustained by the CIT(A) for the asst. yr. 1989-90. Hence, following our decision for that year vide para 5 hereinabove, we delete the addition of Rs. 66,220 sustained by the CIT(A) for the asst. yr. 1991-92 as well and allow the grounds of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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