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M/s Paliwal Industries Pvt Ltd Versus Commissioner of Income Tax

2015 (11) TMI 545 - PUNJAB & HARYANA HIGH COURT

Advances for purchase of raw material from two concerns being trade creditors as interest free loan - whether advances were made for commercial expediency? - Held that:- The Assessing Officer, CIT(A) and the Tribunal had concurrently concluded that the advance to M/s Chirag Spinning Mills amounting to ₹ 15 lacs appearing as opening balance had remained outstanding at the end of the year. The assessee had failed to show that the advance was made for purchase of yarn or for any other busines .....

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sessing Officer, CIT(A) and the Tribunal, the assessee cannot claim any benefit by urging that no addition under similar circumstances was made by the then Assessing Officer for the assessment year 2005-06, as each year is independent and such addition depends upon facts and circumstances existing at the relevant time. - Decided against assessee. - ITA No. 310 of 2010 (O&M) - Dated:- 23-9-2015 - Ajay Kuamr Mittal And Ramendra Jain, JJ. For the Petitioner : Mr. S. K. Mukhi, Adv For the Respondent .....

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f the case, the Tribunal was justified in concurring with the orders of authorities below in treating the advances for purchase of raw material from two concerns being trade creditors as interest free loan without any documentary evidence on record to support the contentions of Revenue and thus against the principles of commercial expediency as so held by the Hon'ble Supreme Court of India in the case of S. A. Builders vs. CIT 288 ITR 1 (SC)?. B. Whether the order of the Tribunal is perverse .....

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tion 143(2) of the Act. The appellant appeared before the Assessing Officer and filed reply alongwith documents. The Assessing Officer observed that the appellant had given interest free advances to the following concerns:- 1. M/s Chirag Spinnng Mills ₹ 15,00,000/- 2. M/s Dina Nath and Sons ₹ 2,67,359/- The advances were made for commercial expediency as the appellant had to buy the raw material as per particular specifications that raw material was not readily available in the marke .....

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ded that the appellant never advanced any loan but a sum of ₹ 2,69,569.80 to M/s Dina Nath and Sons in Financial Year 2004-05 (Assessment year 2005-06) was on account of earlier transactions while even for the year under consideration it received goods on 23.8.2005 wherein a sum of ₹ 2,27,590/- was paid on 9.9.2005 for purchase of goods whereas the earlier amount was outstanding. However, for the year under consideration i.e. Assessment year 2006-07, the CIT(A) by concurring with the .....

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there was no disallowance made under section 36(1)(iii) of the Act on account of advances given to M/s Chirag spinning Mills Limited, Panipat and M/s Dina Nath & Sons which was also without charging any interest from them. 5. On the other hand, learned counsel for the revenue supported the order passed by the Assessing Officer which was affirmed by the CIT(A) and upheld by the Tribunal. 6. During the assessment proceedings, it was found that the assessee company had given interest free adva .....

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n the previous year. This firm was not related to any director of the company. Further, the advance money given to M/s Dina Nath & Sons for purchase of yarn was a trade advance and was not related to the assessee company or its directors at all. After considering the matter, the Assessing officer disallowed the amount of interest paid by the assessee on the loan raised by it to the extent the amount was advanced on interest free basis to the above said two firms which came to ₹ 2,11,51 .....

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that the advance was made for purchase of yarn or for any other business transaction. Generally the business practice is that first the goods to be purchased are selected and if necessary the samples are approved and only then such huge advances are given and that too with an agreement or other evidence, whereas, there is no such thing in the case of the assessee, hence the claim that the advance was given for yarn purchase is merely an after thought and therefore, it has not resulted in any bu .....

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ng which is almost the same amount as was the opening balance, whereas the assessee has not explained any reason for keeping such an outstanding balance and why was the purchase not adjusted out of the opening balance, therefore, the advance to the extent of ₹ 2,67,359/- is not for business purposes, hence it is beyond doubt that both the advances outstanding, in the case of M/s Chirag Spinning Mills and Dina Nath & Sons, as considered by the AO were without business purposes." 7. .....

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CIT vs. Savera Hotel CTR 148 ITR 585. Learned counsel also claimed that above parties were not related to the assessee. 6.1 Learned DR on the other hand submitted that it has been a categorical finding in orders of the authorities below that the parties are related and assessee has incurred interest in obtaining the funds and at the same time has given interest free advance to these concerns. Learned DR further pointed out that the decisions relied upon by the learned counsel of the assessee ha .....

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and some dispute has risen in this regard. 7.1 As regards the advance to Dina Nath and Sons, we find that an amount almost equal to opening balance has remained outstanding at the end of the year. In this connection, also no evidence has been produced that advance was meant for the business purposes. As regards the present status of this advance, learned counsel submitted that the same is still outstanding and some dispute has arisen. 8. Upon careful consideration, we find that the assessee has .....

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