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2015 (11) TMI 1849 - ITAT CHANDIGARHAddition of interest paid on unsecured loans u/s 40 A(2)(b) - reasonableness of interest payment @ 15% - HELD THAT:- The undisputed fact is that the assessee has paid 15% interest on unsecured loan to persons covered under section 40A(2)(b) of the Act. This is also undisputed that the rate of bank loans are at around 10.5% but this is also a fact that the loans from banks are taken against the charge on the property and there are other opportunity costs involved in raising the loans from the banks, which are not there in the cases of these unsecured loans and the loans from these related persons are instantly available also - since the rate of interest charged by Market Committee itself is 18%, we are in agreement with the findings recorded by the learned CIT (Appeals) that the rate of interest at 15% is quite reasonable. Since the borrowings from private parties are always at higher rate of interest than the banks and these Market Committees. In view of this, order of the learned CIT (Appeals) in this regard is confirmed. Addition u/s 36(1)(iii) - interest on the advances made to the sister concern - HELD THAT:- As in assessee’s own case for assessment year 2006-07 we see that the additions in that year were also made on account of proportionate interest on the advances made to the sister concern M/s Gauri Shanker & Co., Chandigarh and transactions with some other parties to whom sales were made. Since in this year also the transaction has been made with M/s Gauri Shanker & Co., Chandigarh and the facts have not been distinguished by any of the lower authorities and even before us, the learned D.R. could not controvert the findings given by the learned CIT (Appeals). With regard to M/s Khandelia Udyog Pvt. Ltd., in the Paper Book filed by the assessee detailed ledger account of the said party has been filed and on perusal of which, we find that the regular sales and purchases are being made from this party through out the year.The ground of appeal raised by the Revenue is dismissed. Addition on account of suppression of sales - assessee has made substantial portion of the sales i.e. 38.42% to its sister concerns, which were at a very low rate as compared to the sales made to independent parties - HELD THAT:- In the instant case, the persons to whom sales are made at lower rates are tax payers in the highest marginal tax bracket and so it can not even be viewed as a scheme for tax reduction. In view of this discussion, it is held that the Assessing Officer was not justified in making addition on account of sales made to associated concerns at lower rate and the same is deleted - Ground of Revenue is dismissed. Disallowance u/s 14A - Sufficiency of own funds - HELD THAT:- In present case, assessee has been able to demonstrate that at the time of making investments, the assessee was having huge amount of owned funds. In view of this, the Assessing Officer cannot make disallowance of interest for the purposes of section 14A of the Act as per Rule 8D. As regards the expenditure part of the disallowance, we agree with the submission of the assessee that nowhere in his order the Assessing Officer has recorded any satisfaction directly or indirectly to the effect why the amount of expenditure incurred for earning exempt income as stated by assessee is not correct. As per the proposition laid down in the case of Deepak Mittal (2013 (9) TMI 764 - PUNJAB & HARYANA HIGH COURT] in the absence of such satisfaction, no disallowance of expenses can be made under section 14A of the Act as per Rule 8D. The ground of appeal raised by the assessee is allowed. Undervaluation of stock - As per AO assessee was valuing raw material and packing material at cost and the finished goods at estimated cost or net realizable value, whichever was lower - assessee was not following any systematic method for valuation of closing stock, which should have been as per the FIFO method - HELD THAT:- As perused the details filed by the assessee, whereby it is seen that all relevant expenses have been considered for valuing stock. Therefore, the observation of the Assessing Officer that expenses have not been loaded is also not correct. Further, the difference worked out in respect of oil, has been applied to all categories of stock i.e. oil cakes, de-oiled cakes, stock in process etc. This all shows the lack-luster approach, which has been adopted by the Assessing Officer for working out the difference in valuation of stock. On the other hand, the assessee has filed before the lower authorities all details pertaining to basis of valuation of stock of various items. These basis have been explained to us during the course of hearing in great detail. We do not find any irregularity in the same. In view of this, the addition made by the Assessing Officer is hereby deleted Disallowance on account of commission expenses - HELD THAT:- Disallowance on account of commission paid to Shri Anil Rastogi on the basis that his address is in Delhi, while the assessee has not made any sale in Delhi is not correct. It may be that the address is of Delhi, but Shri Anil Rastogi must be operating in West Bengal also. This issue has not been dealt with by the lower authorities in right perspective. Further, the confirmations filed by the assessee before the learned CIT (Appeals) were not admitted. In the interest of justice, we restore the issue back to the file of the learned CIT (Appeals) to consider afresh. The assessee is at liberty to produce evidence and material to defend its case. It may be given proper opportunity of being heard.
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