TMI Blog2016 (2) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... which is only compensatory in nature. The banks in such a case are entitled to charge extra rate of interest which would be reimbursed to the borrower (assessee) as and when the stipulated conditions are fulfilled. We hold that the assessee had not committed any offence prohibited by any law and hence does not come under the ambit of Explanation to section 37 of the Act - Decided against revenue Subsidy received from Government of West Bengal towards incentive on Building and Pollution Control Devices - capital v/s revenue receipt - Held that:- Subsidy received is capital in nature and accordingly, the ground raised by the revenue is dismissed. - Decided against revenue Addition towards difference in debtors - Held that:- We find that the stock statements and debtors balances were submitted to the bank based on unaudited figures in order to review the situation of availability of drawing power in cash credit facility availed from the bank by the assessee. We agree to the fact that the debtors balances are bound to undergo changes pursuant to the statutory audit conducted and the list of balances of debtors are not disputed by the revenue. If there is any doubt, the Learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dated:- 6-1-2016 - Shri Mahavir Singh,Judicial Member, and Shri M. Balaganesh, Accountant Member For The Appellant: Shri Rajendra Prasad, JCIT, ld.Sr.DR For The Respondent: Shri K.K. Chhaparia, FCA, ld.AR ORDER SHRI M.BALAGANESH, AM This appeal of the revenue arises out of the order of the Learned CIT(A), Asansol in Appeal No. 218/C.I.T.(A)/Asl/Cir-3/Asl/10-11 dated 22.9.2011 against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The first issue to be decided in this appeal is as to whether in the facts and circumstances of the case an addition towards suppression of closing stock could be made in the sum of ₹ 1,49,66,105/- due to difference in stock declared in the balance sheet and that declared to the insurance company for renewal of insurance policy. 2.1. The brief facts of this issue is that the assessee is engaged in the business of manufacture of cement and had declared the closing stock of finished goods i.e cement to the tune of ₹ 33,895 as on 31.3.2008 in its balance sheet. The Learned AO during the course of assessment proceedings found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A). 2.3. We have heard the rival submissions and perused the materials available on record. We find that this addition has been made without appreciating the basic fact that the stock statements submitted to the bank by the assessee towards raw materials and finished goods. It is not in dispute that the bank had taken the insurance policy of stocks and plant and machinery in order to protect its cash credit facility advanced to the assessee. In the insurance policy , it was mentioned that the property insured was on stock of cement manufacturing . This is substantially different from the Learned AO s statement that the insured value of cement was shown at ₹ 1,50,00,000/- . Before the Learned CIT(A), the assessee had submitted a clarificatory letter dated 24.12.2010 from the bank which states that the cash credit facility had been advanced to the assessee against hypothecation of stock of raw materials, finished goods and sundry debtors. It also states that as per details , inspection of policy document, it is seen that the stock of cement manufacturing includes both raw materials and finished goods. We are not in a position to accept to the argument of the Learned DR t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making any addition in the sum of ₹ 1,49,66,105/- towards suppression of closing stock. Accordingly, the ground no. 1 raised by the revenue is dismissed. 3. The next ground to be decided in this appeal is as to whether the penal interest paid to the bank in the sum of ₹ 2,08,988/- due to non-fulfillment of conditions stated in the loan agreement could be disallowed as per Explanation to Section 37 of the Act. 3.1. The brief facts of this issue is that the assessee paid a sum of ₹ 1,18,938/- and ₹ 90,050/- totaling to ₹ 2,08,988/- as penal interest due to non-fulfillment of certain conditions in the loan agreement. The Learned AO invoked the Explanation to section 37 of the Act and disallowed the same considering the same as penal in nature. On first appeal, the Learned CITA deleted the addition. Aggrieved, the revenue is in appeal before us on the following ground:- (ii) That the Ld.CIT(A) has erred in deleting the addition made by the AO under the head penal interest of ₹ 2,08,988/- despite of material facts and circumstantial evidence brought by the AO on the assessment records. 3.2. The Learned DR vehemently supported the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mently supported the order of the Learned AO. In response to this, the Learned AR relied on the order of the Learned CIT(A) and took us to the relevant pages of the paper book containing the relevant evidences proving the nature of receipt. 4.3. We have heard the rival submissions and perused the materials available on record including the detailed paper book submitted by the Learned AR. We find that the Government of West Bengal , Directorate of Cottage Small Scale Industries had given a capital subsidy amounting to ₹ 27,76,460/- towards incentive on Building and Pollution Control Devices which were supplied by M/s Pronto Commercial Pvt Ltd, Barakar Road, P.O. Vivekananda Nagar, Purulia District, for setting up of a manufacturing unit in a backward district. There is no dispute as to whether the place in which the assessee had set up its cement manufacturing plant is a backward district or not. We also find from page 65 of the Paper Book submitted by the assessee a letter dated 2.5.2007 submitted by Directorate of Cottage Small Scale Industries , Purulia District addressed to The Branch Manager, Union Bank of India, Muri Branch, P.O. Muri, Jharkhand directing the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. The Learned AO obtained the said statement from the bank u/s 133(6) of the Act. In the said statement, the balance of debtors was shown at ₹ 4,28,18,000/- and whereas the debtors balance as per audited accounts was reflected at ₹ 4,26,46,492/- and the Learned AO brought to tax the difference in debtors of ₹ 1,71,508/- as unexplained. On first appeal, the Learned CIT(A) deleted the addition. Aggrieved, the revenue is in appeal before us on the following ground:- (iv) That the Ld.CIT(A) has erred in deleting the addition made by the AO under the head difference in debtors of ₹ 1,71,508/- despite of material facts and circumstantial evidence brought by the AO on the assessment records. 5.2. The Learned DR vehemently supported the order of the Learned AO. In response to this, the Learned AR argued that the balance of debtors are submitted to the bank along with the stock statements to review the drawing power limits in the cash credit facility based on unaudited figures within 20 days from the end of the previous year. After completion of audit, it is quite natural that the debtors balances would undergo minor changes due to reconciliation and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account had not been filed before him by the assessee and accordingly felt that the genuineness of transaction and creditworthiness of the parties are not proved and accordingly treated the receipt of share application monies as unexplained cash credit u/s 68 of the Act. On first appeal, the Learned CIT(A) held that since the details regarding the share applicants , their balance sheets were submitted by the assessee before the Learned AO and payments were made by the share applicants by cheques to the assessee, there is no scope for invoking the provisions of section 68 of the Act and accordingly deleted the addition. Aggrieved, the revenue is in appeal before us on the following ground:- (v) That the Ld.CIT(A) has erred in deleting the addition made by the AO under the head Unexplained share application mnoney of ₹ 1,75,00,000/- despite of material facts and circumstantial evidence brought by the AO on the assessment records. 6.2. The Learned DR vehemently supported the order of the Learned AO. In response to this, the Learned AR argued that all the details of share applicants together with their details, addresses, PAN of share applicants, income tax particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were duly submitted by the assessee. From the said details, the Learned AO resorted to issue notices u/s 133(6) of the Act for several parties. The Learned AO observed that one of the letter issued to M/s Shakti Trading Company returned unserved with postal remarks no such firm on this address . Accordingly the Learned AO treated the purchases made from that party to the tune of ₹ 19,00,493/- as bogus purchases and disallowed the same in the assessment. On first appeal, the Learned CIT(A) deleted the addition. Aggrieved, the revenue is in appeal before us on the following ground:- (vi) That the Ld.CIT(A) has erred in deleting the addition made by the AO under the head bogus purchase of ₹ 19,00,493/- despite of material facts and circumstantial evidence brought by the AO on the assessment records. 7.2. The Learned DR argued that since the notice u/s 133(6) of the Act could not be served on the address of Shakti Trading Company as provided by the assessee, the Learned AO had clearly discharged his duty for verification of the subject mentioned creditor and accordingly supported the order of the Learned AO. In response to this, the Learned AR argued that adm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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