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2015 (9) TMI 1346 - ITAT MUMBAI

2015 (9) TMI 1346 - ITAT MUMBAI - TMI - Diversion of interest bearing funds towards non-business purposes - assessee has advanced interest-free funds to related concerns - Held that:- None of the discussion in the orders of AO or CIT(A) makes a reference to any nexus between the interest bearing funds and the impugned interest free advance made to the sister concerns . Moreover, the assessee has pointed out that it has enough interest free funds to cover the impugned interest free advance made t .....

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ted to be deleted. - Decided in favour of assessee. - ITA 2343/MUM/2011 - Dated:- 31-8-2015 - SHRI G.S.PANNU AND SHRI SANJAY GARG, JJ. For The Appellant : Ms. Vasanti Patel For The Revenue : ShriYogesh Kamat ORDER PER G.S. PANNU,AM: The captioned appeal by the assessee is directed against the order of the CIT(A)-29, Mumbai dated 10/12/2010 pertaining to the assessment year 2000-01, which in-turn has arisen from an order passed by the Assessing Officer dated 29/12/2008 under section 143(3) r.w.s. .....

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ons of the appellant against the action of reopening of the assessment. 3. The learned Commissioner of Income Tax (Appeals) erred in not directing the Assessing Officer not to reduce 90% of Sundry Credit balance of ₹ 59,04,330/- written back from taxable business income to arrive at Profits of Business while computing deduction u/s.80HHC. 4. a) The learned Commissioner of Income Tax (Appeals) erred in not appreciating that 3rd and 4th proviso to section 8OHHC(3) were not applicable in the .....

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ellant had advanced interest free funds to related parties of ₹ 23,25,899/- . b) The learned Commissioner of Income Tax (Appeals) erred in holding that Appellant failed to prove that the advance has been covered by interest free capital and reserves ignoring the factual position of large amount of interest free funds available with the appellate firm. 3. The appellant before us is a partnership firm which is engaged in the business of manufacturing and sale of wearing apparels and other ac .....

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s of exports. Subsequently, the Assessing Officer reopened the assessment by issuing notice under section 148 of the Act on 30/03/2007 after recording reasons, on the ground that certain income chargeable to tax had escaped assessment. In the ensuing assessment made under section 143(3) r.w.s 147 of the Act dated 29/12/2008 the Assessing Officer assessed the total income at ₹ 3,09,68,400/-, after making disallowances on account of denial of deduction under section 80HHC of the Act, interes .....

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referred to a copy of the reasons recorded by CIT(A) dated 29/3/2007, which reads as under:- In this case, the original return was filed on 31.10.2000 showing returned income of ₹ 1,52,63,859/-. The return was processed u/s. 143(3) on the same income. The assessment was subsequently completed u/s. 143(3) of the I. T. Act, on 27.03.2003 assessing the income at ₹ 1,52,63,859/-. 2. On going through the above return and other details, it is seen that only profit from export of manufactur .....

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) of the I. T. Act were sent to various parties. It was seen that in the case of Salbha Garments, enquiry letter issued u/s.133(6) of the I. T. Act was returned unserved with the remark Not found . The assessee was accordingly informed that genuineness of the above purchases has not been verified and therefore, assessee was asked to furnish the PAN or furnish the confirmations of transactions. However, the assessee failed to furnish the PAN or confirmed copy of ledger a/c. Since, the assessee fa .....

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e has advanced loans of ₹ 25,47,609/- free of interest to related persons for non-business purpose. Further, the assessee has claimed interest expenditure ofRs.63,837/- in its P&L a/c. Hence, the interest expenditure on interest being funds to the extent they have been used for non-business purpose is not genuine business expenditure and therefore the income to that extent has escaped assessment. An addition on this issue has been made in the subsequent year. Taking 10% to be the avera .....

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ee. Hence, income to that extent has escaped assessment because of assessee s failure to furnish true material parituclars. 6. In the circumstances, I have reasons to believe that income above ₹ 1 lakh chargeable to tax has escaped assessment within the meaning of section 147 of the I. T. Act 5.1 The contention of the assessee is that, so far as the reason relating to the deduction under section 80HHC of the Act is concerned, it is contended that the same is factually incorrect. In order t .....

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- was taken into account, there would be a negative profit, which would show that assessee was not entitled to the deduction under section 80HHC. Furthermore, the Assessing Officer noted that the profits from export incentives cannot be considered as profits derived from export. 5.2 In this context, we find that before the Lower authorities as well as before us the plea of the assessee is that the reasons recorded are factually incorrect in as much as that the profit from the export of manufactu .....

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ring the loss from the export of trading goods there remains a positive figure of adjusted profits of business for the purposes of section 80HHC of the Act. Furthermore, assessee pointed out that in view of the retrospective amendment made to section 80- HHC of the Act by the Taxation Law (Amendment) Act 2005 by way of insertion of 5th Proviso w.r.e.f. 1/4/1992, even if, there is a negative profit before considering the export incentives, the assessee would still be entitled to deduction under s .....

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o denial to the factual assertions made by the Ld. Representative for the assessee before us. In fact, similar objection was taken by the assessee even before the Assessing Officer at the time of raising objection to the reopening of assessment and such written submissions have been placed in the Paper Book at pages 45 to 49. We find that there is no rebuttal of the aforesaid position canvassed by the assessee and, therefore, we are in agreement with the plea of the assessee that the reason reco .....

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ubsequent assessment year of 2002-03. On these aspects, factually speaking, the Ld. Representative for the assessee pointed out that in the appeal proceedings for A.Y 2002-03, the Tribunal vide its order in ITA No.3189/Mum/2006 dated 21/1/2009 has deleted the additions. 7. In so far as, the disallowance of ₹ 89,084/- on account of the payment made to M/s. Sulpha Garment is concerned, the same has already been deleted by the CIT(A) and there is no grievance of the assessee. The only other i .....

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nt account balance in the current year is ₹ 14,73,21,801/- which is substantially higher than the impugned amount of interest free advances to the related concerns. It was pointed out that the assessee firm does not pay interest to its Partners and, therefore, the said amount of interest free funds can be said to have been available with the assessee to cover the impugned interest free advances to sister concerns. The Ld. Representative for the assessee pointed out that similar notional di .....

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