TMI Blog2013 (8) TMI 988X X X X Extracts X X X X X X X X Extracts X X X X ..... In the assessment order the AO has stated that the assessee has paid interest @ 18% per annum amounting to ₹ 36,30,267/- to its sister concern Vareli Fabrics Pvt. Ltd. on the unsecured loan taken by the assessee from Vareli Fabrics Pvt. Ltd.. The AO found that the interest allowed was apparently higher and, therefore, an explanation was sought from the assessee as to why the high interest was allowed when the rate of interest in the market is much lower. The assessee argued before the AO that the assessee company had no secured loans from any banks and it was very difficult for the company to borrow secured finance from bank or any other financial institution. Therefore, according to the assessee, the only remedy remained was to borrow unsecured loans from the market. It has also been stated by the assessee that the Surat Textile Mills Ltd. was given advances @ 16.25% by Dena Bank. The said advances were hypothecated by stock of raw materials, finished goods, stores etc., used for manufacturing. It was therefore argued by the assessee that the payment of interest at the rate of 18% was reasonable and at the market rate. It was also argued before the AO that the directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Shri Praful Shah is Chairman and Managing Director of Garden Silk Mills. It is also noted that Shri Praful Shah is also Director of Vareli Fabrics Pvt. Ltd. from which assessee obtained unsecured loan @ 18% interest. Thereafter, he has given a finding that the assessee and this company are inter-connected. In AY 2003-04, it is noted by the Tribunal that Section 40A(2)(b) are not applicable and therefore, the disallowance made by the AO is not justified. In AY 2004- 05, the Tribunal has simply followed the order for earlier year in AY 2003-04. In the present year, the AO has given a clear finding that assessee-company and lender are inter-connected. It means that Section 40A(2)(b) is invoked and therefore, this earlier Tribunal s orders are not applicable in the present year. It was an argument of the assessee before Ld. CIT(A) that Surat Textile Mills Ltd. was given advances @ 16.25% by Dena Bank. In the paper book, the assessee has enclosed copy of the loan sanction letter issued by Dena Bank in favour of Surat Textile Mills Ltd., which is available on pages 102 to 104 of the Paper Book. On page 103, it is seen that sanction letter is dated 12-03-2002 but before us, the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerns. Out of this amount of ₹ 9.91 crores the assessee has received ₹ 9.66 crores from Kamla Associates and balance from Garden Silk Mills Ltd., both being group concerns. The rate at which the assessee has done processing of Kamla Associates is ₹ 6.70 per meter for dyeing and ₹ 13.57 per meter for printing. In other words, the assessee has given rate discount of ₹ 1,76,93,464/- by reducing the same from the gross job receipt of ₹ 11,43,86,158/-. The net job receipts comes to ₹ 9,66,92,694/- for processing 9308784 meters of fabric for Kamla Associates. The AO stated that the assessee has also given comparative chart of processing done for other parties. On verification of this chart, it is seen that the assessee has charged higher rate ranging from ₹ 28.55 per meter to ₹ 16.45 per meter to ₹ 10.4 per meter. For example, if the rate of those parties are taken who has brought the clothes processed of more than 2 lacs from the assessee the charges taken from them are ₹ 28.55, ₹ 15.69, ₹ 10.40, Rsa.12.96 and ₹ 12.70 per meter. This clearly shows that the assessee has suppressed receipts by way of cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rden Silk Mills Pvc. Ltd., also does not figure into the statement u/s. 40A(2)(b). With respect to the argument that there was no expenditure incurred by the assessee in this regard, the AO stated that the assessee company has shown gross sale as ₹ 18,58,16,570/- and if it is true then without claiming any expenditure how can be sale become Rsa.16,81,23,106/-. The claim of discount is in collusion with the sister concern and hence the AO disallowed the amount of discount of ₹ 1,76,93,464/- u/s. 40A(2)(a). 10. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) who has deleted this addition and now, Revenue is in appeal before us. 11. Ld. DR of the Revenue supported the assessment order whereas the Ld. AR of the assessee supported the order of Ld. CIT(A). 12. We have considered the rival submissions and perused the material on record and gone through the orders of authorities below. We find that this issue has been decided by Ld. CIT(A) in favour of assessee. Ld. CIT(A) has decided this issue on this basis that the job work business procured by assessee from Kamla Associates contain the bigger job loss compared to other parties. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment stage are noted by Ld. CIT(A) in para No.9.1 of his order and same is reproduced below for the sake of ready reference:- 9.1 This is regarding addition of ₹ 11,45,024/- on account of differential dyeing charges of ₹ 80,30,582/- on account of differential printing chares charged to Kamla Associates. In the assessment order, the AO has stated that the assessee has submitted a comparative rate chart of processing charges of parties other than the group concerns. This chart shows that the assessee has charged at the higher rate ranging from ₹ 28.55 per meter to ₹ 16.45 per meter to ₹ 10.4 per meter. For example, if rate of those parties are taken to have got the cloth processed of more than 2 lacs meter from the assessee then the processing charges take from them are ₹ 28.55, 15.69, ₹ 10.40, ₹ 12.96 and ₹ 12.70 per meter. This clearly shows that the assessee has suppressed receipts by way of charging at lesser price from group concerns. The assessee was asked to show cause why an average of processing charges taken from other parties should not be considered for determining the suppressed receipts. The AO has reprod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciates are comparable in same instances but the job done by outsider parties are not at all comparable with either Garden Silk Mill or Kamla Associates. Even after noting this argument, no finding is given by Ld. CIT(A) regarding difference in job work done by the Garden Silk Mill and Kamla Associates and outside parties. On page 51 of the order, it is stated by Ld. CIT(A) that selling rate of colour TV and black and white TV can not be same and average selling price cannot be applied for sale of black and white TV. But then for colour TV and black and white TV, difference in the quality is apparent. Such difference in the quality of job work done by the assessee for Garden Silk Mills, and Kamla Associates and outsider has to be brought on record and then this analogy can be applied. Ld. CIT(A) has not given any finding regarding any such difference in the quality of job work done by the assessee for Garden Silk Mills and Kamla Associates and outsiders. Before us also, although the paper book of 211 pages is made available but the same is not as per Rule 18 of Income Tax (Appellate Tribunal) Rules, 1963 as discussed above and therefore, we cannot take help of the paper book to exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit cannot be determined correctly.. The AO therefore, issued a show-cause notice and worked out the closing stock value at ₹ 18,61,996/- and asked the AO as to why the same may9 not be added to the total income. The assessee replied that the rate of cost of goods worked out by the AO ion his query seems to be erroneous by pure arithmetic as the reduction of gross profit or ₹ 2.59 crores the average sale price of ₹ 12.47 will result into cost of goods of ₹ 9.88 instead of ₹ 18.18 as stated by the A.O. and applying 50% of cost of goods of ₹ 9.88 shall be ₹ 4.94 instead of ₹ 909 adopted by the AO and the resultant amount of WIP shall be ₹ 10,11,909/- and not ₹ 18,61,996/- as stated in his notice. The assessee further stated that the Company prima facie does not agree with any such valuation of WIP in case of job work. But if the AO intends to value WIP as proposed, while determining value of WIP, only dyes and chemicals used in job work stock lying as WIP should be considered and not the cost like coal, gas, electricity etc., as the said components have no physical presence in WIP and so they can not be measured for valua ..... X X X X Extracts X X X X X X X X Extracts X X X X
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