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2020 (8) TMI 676 - AT - Income TaxDisallowance of interest on loan since interest free advances given to the parties - HELD THAT:- CIT(A) did not accept the assessee’s contention by observing that “however, no corroborative evidences have been filed by the appellant” in respect of the advances. We are unable to appreciate the view point of the CIT(A). Here, the assessee is contending that the amounts were recoverable out of sales made during the year. Once sales have been stated to be made, there could have been no further evidence to corroborate the same, unless the contention of the assessee of having made sales was faulted with. CIT(A) simply rejected the contention of having made sales to these parties without showing as to how the same was not correct. Once it is held that the amount was outstanding out of sales made, the business purpose is automatically established and there can be no question of disallowance in respect of outstanding amount for business purpose. We therefore, order to delete the addition. Disallowance on account of rate difference - AO observed that the assessee purchased entire raw material in the form of Ingots/billets from its sister concern - rate difference was worked out on the basis of excess credit period allowed than the normal payment of one week - HELD THAT:- Considering the fact that the assessee uncontrovertedly contended to have availed excess credit period from Mauli Steels Pvt. Ltd. during the last six months of the financial year in contrast to normal credit period of one week during the first half, the contention of assessee for excess small payment for purchases made during such period cannot be rejected. Relevant to note that the authorities below have tried to make out a case that the assessee made purchases at excessive rate from its sister concern. Impliedly, the provisions of section 40A(2) have been invoked, though specific reference to the same is absent. If the authorities were satisfied that the assessee made purchases at excessive rate, then it was upon them to bring on record some material to indicate that the purchase rate was excessive in comparison with some comparable case or the market rate of the goods purchased. As nothing has been done in this regard, we are of the considered opinion that the assessee deserves to succeed on this ground. This ground is allowed. Outstanding under the head ‘Sundry Creditors’ - Addition invoking the provisions of section 41(1) AO made disallowance on the ground that the assessee could not show that the liability was existing - HELD THAT:- It can be seen from the impugned order that the assessee specifically stated that sum was unsecured loan. Such a finding has been recorded which has not been controverted by the ld. CIT(A). If it was a case of unsecured loans coming from the A.Y. 2005-06 onwards, there could have been no addition u/s 68 of the Act in the year under consideration, namely, A.Y. 2011-12. If we go with the AO’s point of view that the amount of ₹ 69.55 lacs was on account of sundry creditors, then section 41(1) was attracted, but still no addition could have been made because the liability was existing, which was discharged in later years by means to passing journal entries. Viewed from any angle, the addition of ₹ 69.55 lacs cannot be sustained and the same is directed to be deleted. Enhancement of disallowance - HELD THAT:- Simply because there is a difference in closing balances of a creditor in the books of the assessee and the assessee’s account in the books of the creditor, it cannot, automatically, lead to the addition for the differential amount. One needs to verify the transaction for the year. It is only if certain transactions for the year have been suppressed/overstated by the assessee that the enquiry initiates in the direction of disallowance. Such a difference is the beginning and not the end of the road for making any addition. If the difference arises only on account of opening balances and the transactions for the year tally, there can be no addition to the income of the assessee for the year on that score. Since such necessary details are not available on record, we deem it fit to set aside the impugned order on this issue and restore the matter to the file of AO. The assessee is directed to produce proper reconciliation of accounts before the AO for enabling him to reach a positive conclusion about the sustainability or otherwise of the addition.
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