TMI Blog2012 (11) TMI 906X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowed funds on account of interest free advances being provided to other parties - assessee contended that it was having interest free fund of Rs.6.94 crores against interest free advance of Rs.1.06 crores and therefore, dis-allowance on interest was uncalled for. Held that:- Aforesaid contention of assessee requires verification at the end of the A.O. and for this purpose the matter is restored to the file of the A.O. Dis-allowance u/s 40(a)(ia) - payment to labour contractor - seasonal business - assessee contended that assessee engaged labour on piecemeal basis without any type of written or oral contract - Held that:- Provision of section 40(a)(ia) could not be invoked where tax u/s 194C was not deducted from labour charges paid to labour sardars as there was no agreement between the assessee and the labour sardars to supply labour. CIT(A) rightly deleted the addition Dis-allowance made on account of repairing and maintenance for want of bills - assessee contended before CIT(A) that the expenditure was fully supported by vouchers and supporting evidence was also available - Held that:- Amount that has been spent by self made vouchers is less than 10% of the total repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on one hand the assessee has claimed interest expense to the tune of 18,49,243/- where as on the other hand it had given interest free advances to Chintamani Trading Co. the closing balance of the loans advances account of these parties on 31.03.2008 are is as under:- SrNo. Name of the party Amount Advanced (In Rs.) 1. Chintamani Trading Co. 17,31,967 2. Chintamani Trading Co[Adv] 89,55,901 Total 1,06,87,868 During the course of assessment proceeding, vide order sheet dated 14/12/2010, the assessee was asked to justify why no interest has been charged from these concerns or to show cause why appropriate disallowance in respect of interest expense should not be disallowed. The hearing for this purpose was fixed on 22/12/2010. The relevant extract of the reply of the assessee in this regard is reproduced as under:- "That as regards the advance shown to Chintamani Trading of Rs.8955901 is concerned it is submitted that in the Assessment Year 06-07 sales was made to this party and in the Assessment Year 2007-08 sales was made to him and in the above Assessment year it is shown as opening balance infact Chintamani Trading Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rystal clear that the assessee has tried to make fool to the Department with a only intention to give justification of not charging the interest on the advances. During the course of assessment proceeding to ascertain the truth behind the curtain, it was asked to give complete address of the party along with name/names of the proprietor/ partner, however in spite of repeated request the assessee remained fail to provide the required detail, for the reasons best known to it. There is possibility that close relative/ relatives of the directors of the assessee company might having interest in that firm therefore in order to provide him/ them interest free advances the assessee company had made these transactions and thereby created an interest burden of 18,49,243/- to the assessee company. ii) On going through the ledger account copy of the M/s Chintamani trading Co. (Adv.). for financial Year 2007-08 it is further noticed that during that year the assessee company has made several transactions with the above mentioned party, detail of the ledger account is reproduced as under. CHINTAMANI TRADING CO. Ledger Account l-Apr-2007 to 31-Mar-2008 Page 1 Date Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely of financial nature. It may be noted that in that year also the assessee has not charged any interest on the advances made to the said party. All these facts clearly prove that receivable amount shown in the name of M/s Chintamani Trading co. is nothing but purely of Loans advance nature. iii) The assessee itself has stated that the financial position of M/s Chintamani Trading Co. was very weak. The said company already owed an amount of Rs 89,55,901/- since long. The assessee has not been able to justify in any manner, why it had to borrow the amount bearing an interest burden and give totally interest free advances of Rs. 1,06,87,868/- to the concern. It is pertinent to mention here that:- a. Any business is conducted with an objective to earn profit and any prudent businessman would generally adopt means which would enhance its profits. b. Had the assessee charged interest on the advances given to this concern at the prevailing rate i.e. 12% in the year under consideration the assessee could have earned an interest income which could have not only surpassed its interest expense but can be source of income for the assessee. Taking into consideration all these fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submission of the appellant has also been examined. The copies of account of Chintamani Trading Co. for different years show that there were numerous transactions in F. Y. 2006-07 as well as in earlier years and the transactions are in the nature of money lending. The claim of the appellant that it had sufficient interest free fund for making the advance is not supported by facts as the advances that were given in earlier years were huge and the appellant has taken as borrowed money for the working capital from different financial institutions. The appellant has not been able to demonstrate that the loan given by him was out of interest free fund. In view of the above mentioned facts and circumstances, the addition made by the A. O. is upheld. The ground of appeal is accordingly dismissed. Further aggrieved, now the assessee in is appeal before us. 5. At the time of hearing ld. counsel of the assessee, reiterating the submissions made before ld. CIT(A), further submitted that interest free advance of Rs.1,06,87,868/- given to M/s Chintamani Trading Company was given in earlier years and during the year under consideration there is no transaction with M/s Chintamani Tradi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the assessee that since the assessee was having surplus fund of Rs.6,94,13,331/- against interest free advance of Rs.1,06,87,868/- to M/s Chintamani Trading Company, disallowance of interest free expenditure of Rs.18,49,243/- was uncalled for, requires verification at the end of the A.O. and for this purpose the matter is restored to the file of the A.O. The assessee would, however, be free to advance other arguments also in support of his claim of interest expenditure of Rs.18,49,243/-. 8. In the result, the appeal of the assessee is allowed for statistical purpose. 9. Ground No.1 relates to deletion of addition of Rs.9,00,902/-, made by the A.O. on account of cessation of liability u/s 41(1) of the Act. The A.O., while making this addition has observed as under:- "On perusal of Balance Sheet of the assessee company, as on 31.03.08 it -was noticed that assessee has shown Sundry Creditors for goods of Rs.1,05,91,647/-. During the course of assessment proceeding to verify the genuineness and correctness of the creditors, the assessee was asked to furnish the historical details of the creditors. On verification of the details produced by the assessee it was noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss or profession in respect of which the allowance or deduction has been made is in existence in that year or not; It is clear from the above section two condition is satisfy before treating any income under this section. (i) That should be trading liability for which loss or expenditure incurred and allowed in earlier year and ii) The trading liability is ceased As per the Limitation Act the creditor does not have any legal right to enforce the payment of this amount. Whether the liability of the assessee has fully been discharged or not is within the specific knowledge of the assessee. He has to prove that in fact the liability subsists. Where the conduct and surrounding circumstances demonstrate that the amount has been remitted or forgone or the sum has ceased to be claimable against the assessee, it would be a clear case of remission or cessation of the liability. The right to recover the said amount has become barred by limitation. Therefore, the provisions of Section 41(1) are invoked. Reliance is also placed on the below judgments :- In the case of Kesoram Industries cotton Mills Ltd. v. CIT[1992] 196 ITR 845 (Cal), the court observed that whether the liability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fixed on 16/12/2010. On the said date, the assessee has neither furnished confirmation in any of the case nor filed any explanation in this regard. In these circumstances it is clearly proved that the aforesaid liability of the assessee is not genuine, unclaimed and non subsisting and the undersigned is left with no alternative but to hold that all the liabilities towards above referred creditors totaling to Rs.900902/- are no more payable by the assessee and are not subsisting liability and are covered by explanation 3 of Section 41(1) of the Act. For making a fair and just conclusion on this issue, the judgments given by various judicial authorities on the similar issue have also been relied upon. a. In the case of Dy. CIT Vs Bhagawandas Shobalal Jain (1997) 57 TTJ (Jab) 379 b. Hon'ble Supreme Court in the case of CIT Vs T.V.Sundaram Iyengar Sons Ltd (1996) 136 CTR(SC) 444 c. The case of G.L. Rexroth Industries Ltd Vs Dy. CIT. (2002) 74 TTJ(Ahd) 418 : (2001) 77 ITD 429(Ahd) the ITAT had made the following observations d. In the case of lTO Vs Ahuja Graphic Machinery P Ltd (2007) 111 TTJ (Mumbai) TM445 the ITAT, Mumbai Bench In view of the facts and discussion made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of confirmation from the creditors does not lead to the conclusion that the debts have been obliterated. In the light of these facts and circumstances of this case and in view of the case laws relied by the assessee, we are of the considered opinion that ld. CIT(A) has rightly deleted this addition of Rs.9,00,902/- made by the A.O. and the order passed by him is hereby upheld. 13. In the result, this ground of the Revenue is dismissed. 14. Ground No.2 relates to deleting the disallowance of Rs.5,18,697/- made by the A.O. u/s 40(a)(ia) of the Act. The A.O., while making this disallowance has observed as under:- "During the course of assessment proceeding On verification of the details filed during the course of assessment proceedings, it was noticed that the assessee has paid the following charges to the persons shown in the table below. 4.2.1 Payment to Labour Contractor On verification of the ledger produced during the course of assessment proceeding, it was noticed that the assessee has shown expenses of labour charges under different heads i.e. Labour Charges - Gin Pala House, Kapasia Loading, MEH, Press Contractor and Press Fitter. On perusal of these accounts it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Muktaram Press Fitter Charges 24/01/2008 27650 Total 27,650 8. Lala Chaudhary Press Fitter Charges 27/02/2008 28050 Total 28,050 Sec.l94C of the I. T. Act states that "Tax is required to be deducted at the time of credit of any interest, commission, brokerage, rent, royalty, fees for professional service, fees for technical services payable to a resident. From the above facts and as per the provision of Sec. 194 C it is clear that the assessee -was liable to made TDS on the contractual payments amounting to Rs.5,18,967/-at the time of making the above payments to these persons as mentioned above, but the same had not deducted by the assessee. In view of this fact the assessee vide order sheet dated 14/12/2010 was asked to give explanation as to why TDS has not been deducted, on these payments. It was further informed that in case of failure to furnish satisfactory explanation in this regard, please show cause as to why the expenses paid or the sum which is had been credited in the accounts of these persons in respect of these payments should not be disallowed U/s 40(a)(ia) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced by the assessee. The contention put forth by the assessee prima facie appears to be an afterthought with an object to justify its failure of non deduction of TDS. Even if it is assumed to be true, it was just an internal adjustment between the assessee and these main persons, which do not have any consequence as far as revenue is concerned. Further it is worthwhile to mention here that, on verification of the ledger accounts of the persons, mentioned in the above table it is noticed that there are several instances when they have obtained certain amount as advances which clearly proves that in fact they were contractor of the assessee as such receipts of advances can obviously only be obtained in case where there is some contract between the assessee and the so called main person. Further in support of the theory put forth by the assessee it should have furnish the labour registers and prove that these second lined persons were actually worked directly to it or produce any other evidence that they have been engaged directly by the assessee company in which it proved fail. From all these facts and circumstances it is clearly proved that that the payments made to the persons, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written or oral contract with the labourers employed by the assessee. The ratio of the decision of Hon ble ITAT, Calcutta Bench in the case of Samanways Vs. ACIT wherein it was held that provision of section 40(a)(ia) could not be invoked where tax u/s 194C was not deducted from labour charges paid to labour sardars as there was no agreement between the assessee and the labour sardars to supply labour, is therefore, applicable to the facts of this case as the A.O. has not pointed out that there was any written contract between the assessee and the labourers. We further find that this practice of the assessee has been accepted by the Revenue in earlier years as no addition on this ground has been made in the past. 18. In the light of these facts and circumstances of this case, the provision of Section 194C are not applicable in this case and the addition made by A.O. has rightly been deleted by ld. CIT(A). Therefore, the order passed by him is hereby upheld. This ground of the Revenue is also dismissed. 19. Ground No.3 relates to disallowance of Rs.3,05,477/- made by the A.O. on account of repairing and maintenance. The A.O., while making this disallowance has observed as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35. 955 - - 36. 562 - - 562 37. 11100 - - Total 85419 48910 13305 157843 Total 305477 In spite of availing more than reasonable opportunities the assessee remained fail in furnishing any bill/voucher in respect of above mentioned expenses by verification of the same genuineness and correctness can be examined. As the assessee failed to avail these opportunities and therefore vide order sheet dated 22/12/2010 the assessee was asked to produce relevant evidences to prove the genuineness of these expenses or to show cause as to why the same should not be disallowed treating them to be unverifiable expenses. On the said day, the assessee has not produced anything to substantiate its claim and the following disallowances totaling to Rs.3,02,829 /-is made out of the repairs maintenance expenses and added to the total income of the assessee. i) Plant Machinery Rs. 81871 ii) Office Building Rs. 49810/- iii) Office Equipment Rs. 13305/- iv) Car Repairs Rs 157843/- Total Rs. 302829/-" . 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is dismissed. C.O. No.84 of 2012 (By assessee) 28. The assessee has taken following grounds in cross objection:- 1. That the appellant has not made any entry and claimed in Profit Loss Account and, as such there is no remissions or cessation of liability U/s 41(1) of the I.T. Act 1961 during the accounting year under consideration and as such the learned CIT(A) has rightly deleted the said addition. WITHOUT PREJUDICE 2. That the appellant has shown income under the remission and cessation of the said amount in subsequent years which facts are available in the appellate order on page-6 bottom para and considering the same also the appeal filed by the Department on this ground be cancelled. If it be held as income during the year under consideration there is a duplicate taxation on the same income which against the principle of Income-tax Act and as such this ground is required to be rejected. 3. That the learned A.O. disallowed Rs.5,18,697/- U/s 40(a)(ia) without establishing that there is a contract and as such section 194C is not applicable and therefore disallowance made by learned A.O. U/s 40(a)(ia) and deleted by learned CIT(A) is My justified. 4. That the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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