TMI Blog2011 (7) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... cer u/s.36(1)(iii) of the Income Tax Act, 1961. 3. Facts of the case in brief are that the assessee company is engaged in the business of manufacturing of polyester and dealing in cotton yarn and waste. During the year under consideration, the assessee company debited an amount of ₹ 69,76,984 to its profit and loss account on account of interest paid on loans taken from banks amounting to ₹ 4,47,24,765. The assessee company has also given interest free advances to various persons amounting to ₹ 47,38,005. During the course of assessment proceedings, the Assessing Officer asked the assessee to explain as to why proportionate interest should not be disallowed for giving interest free advances to other parties. In reply th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee however did not file any details during the appellate proceedings on the ground that its records were destroyed in Surat floods in the year 2006. 4.1 However, the learned CIT(A) was not satisfied with the explanation given by the assessee and upheld the disallowance made by the A.O. by holding as under : I have considered the submissions of the appellant. As per balance sheet of the appellant, share capital of the appellant is ₹ 11,62,200 and there is no balance in the reserve and surplus account. Whereas debit balances as per profit and loss account is ₹ 7,33,51,230. Therefore, it cannot be said that the appellant has any surplus funds which it could use for the purpose of giving interest loans. The appellant has ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following observation : After hearing the rival submissions and perusing the record, we find that the aspect of commercial expediency as directed by the Hon'ble Supreme Court in the case of S.A. Builders Ltd. Vs. CIT cited supra has not been looked into either by the Assessing Officer or the CIT(A). The ratio laid down by the Hon'ble Supreme Court in the S.A. Builders Ltd. Vs. CIT (cited supra) is applicable to the facts of the present case. However, the matter is set aside to the file of the Assessing Officer to look into the commercial expediency of advancing interest bearing funds, as interest free advances, to the parties. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee. The ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The average of the opening stock and purchases as noted by the Assessing Officer are as under : Cotton Waste Quantity Amount Rs Rate Per Kg. (Rs.) Purchases 618445.05 23563016 38.10 Sale 599611 19887160 33.16 6.2 According to the Assessing Officer, these details show that the assessee has made sales of cotton waste at the average rate of ₹ 33.16 per kg whereas the average purchase rate of cotton waste by the assessee is ₹ 38.10 per kg. It was explained by the assessee to the Assessing Officer that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by holding as under : I have considered the submissions of the appellant. The major contention of the appellant for selling cotton waste at a rate less than the purchase rate is that it entered into sale transactions in advance and delivery of goods are given later on. The appellant filed absolutely no evidence for this claim. Therefore, the claim of the appellant that it was under contractual obligation to supply goods at a low rate than the rate of purchase of waste cotton cannot be accepted. As regards decision of ITAT dated 25.5.2009 in ITA No.5136/Mum/2004-05 is concerned, the decision was delivered by the ITAT on the facts existing in that year. In that year, there was no finding that there is no evidence with the appellant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quite different. We find the assessee has made general submissions before the lower authorities regarding fall in price of cotton or explanation regarding loss without any corroborative evidence. Confirmation of the parties were not produced either before the Assessing Officer or before the CIT(A) or even before us. In absence of the same the acceptance of loss consecutively for the 3rd year is not possible. In our opinion, no prudent businessman will incur losses year after year which is against all human probabilities. Now even the books of accounts are also stated to be destroyed due to floods. Since the CIT(A) has given a categorical finding that the assessee filed no evidence for the claim that it entered into sale transaction in advan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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