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2016 (5) TMI 463 - ITAT AHMEDABAD

2016 (5) TMI 463 - ITAT AHMEDABAD - TMI - Addition on account of unsecured loan - unexplained creditworthiness - Held that:- Due to lack of copy of bank statement and copy of identity it is difficult to accept the contention of assessee about the identity, creditworthiness and genuineness of the unsecured loan taken from Hemal Nanavati. It is pertinent to note that in many cases where the amount of unsecured loan is taken by account payee cheque but when the bank statement of the loan creditor i .....

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ar amount has been received by account payee cheques but no copy of bank statement is available through which we could have verified the factual status of the creditworthiness of the loan creditor. Also if the assessee has been able to show that for Asst. Year 2006-07 assessee had passed through scrutiny assessment u/s 143(3) of the Act and loan creditor Hemal Nanavati has been verified and held as genuine by Revenue for loan taken in Asst. Year 2006-07 then it could have formed the basis for us .....

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t and loss account - Decided against revenue

Addition invoking provisions of Section 36(1)(iii) on account of interest expenses - Held that:- We have gone through the ledger account of Aabhar Holding Pvt. Ltd. and we observe that in the ledger account appearing in the sundry creditor list, assessee has entered into various transactions of sale of cloth and similarly various transactions of bleached cloth purchases are appearing which is enough to show that there has been regular busin .....

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interest of ₹ 18,90,321/- only with reference to non-charging of interest in debit balance of ₹ 2,14,00,018/- in the name of Aabhar Holding Pvt. Ltd. Therefore, we are of the view that ld. CIT(A) has rightly deleted the addition - Decided against revenue

Addition on account of unproved creditors - Held that:- Had there been genuine sundry creditors then either they had been paid off in the following years or they certainly would have given duly signed confirmation letters .....

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creditors which have not been proved by the assessee. - Decided partly in favour of assessee

Disallowance of packing material and stores expenses - Held that:- . From perusal of record, we observe that all relevant material in the form of copies of purchase bills of packing material, stores consumed were placed before the assessing authority and no defect has been pointed out by the Assessing Officer. The evidences placed on record are sufficient to support the claim of assessee for .....

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llowance having been made on ad hoc basis without pin-pointedly detecting any defects in the books of account of the assessee and the expenses have been supported by bills and vouchers. Therefore, the disallowance is deleted. - Decided against revenue

Disallowance of provisions for expenses like staffs salary & bonus, travelling exp., telephone exp., electricity charges, audit fees and stationary bills etc. - Held that:- From going through the list showing provisions of expenses we fi .....

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the books of account then payment made or not is not material and the same is the factual position in this ground wherein no defect has been specifically pointed out by the Assessing Officer in the claim and he has just made the disallowance for the unpaid amount which in our view is not correct. Therefore, we are of the view that ld. CIT(A) has rightly deleted this addition - Decided against revenue - ITA No. 535 /Ahd/2011 - Dated:- 1-4-2016 - Shri Rajpal Yadav, JM, & Manish Borad, AM For T .....

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IV, Ahmedabad has erred in law and on facts in deleting the addition of ₹ 1,57,840/- made by the Assessing Officer on account of unsecured loans. 2) The Ld. Commissioner of Income-tax (A)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of ₹ 2,07,381/-made by the Assessing Officer on account of commission expenses. 3) The Ld. Commissioner of Income-tax (A)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of ₹ 18,90,321/- made by .....

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tores expenses. 6) The Ld. Commissioner of Income-tax (A)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of ₹ 64,103/- made by the Assessing Officer, out of tractor expenses. 7) The Ld. Commissioner of Income-tax (A)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of ₹ 1,26,662/- made by the Assessing Officer, out of provisions for expenses like staffs salary & bonus, travelling exp., telephone exp., electricity charges, audit .....

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ts return of income on 30.10.2007 declaring income of ₹ 2,33,605/-. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 15.9.2008 and served upon the assessee. Thereafter notice u/s 142(1) of the Act along with questionnaire was issued on 7.1.2009. The case was discussed, necessary details were furnished and assessment was completed after making following additions - Out of unsecured loans Unexplained cash credit u/s 68 as per para 4.1. Rs.1,57,840/ .....

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35,81,903/-. 3. Aggrieved, assessee went in appeal before ld. CIT(A) who partly allowed the appeal of assessee by deleting addition of ₹ 33,47,738/- out of total addition at ₹ 33,48,298/-. 4. Aggrieved, revenue is now in appeal before us. 5. Ground no.1 - The Ld. Commissioner of Income-tax (A)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of ₹ 1,57,840/- made by the Assessing Officer on account of unsecured loans. 6. During the course of assessment proc .....

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7. Assessee went in appeal before ld. CIT(A) who deleted the addition of ₹ 1,57,840/- by observing as under :- The first ground raised by the appellant is regarding unsecured loans in the name of Mr. Hemal Nanavati. It is submitted by the appellant that the appellant has already placed on record of the Assessing Officer a confirmation letter dated 16th November, 2009. The account of said person is not a new account in the previous year. In fact there is opening balance of ₹ 1,59,000 .....

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h his Inspector, but before taking adverse view the Assessing Officer has neither issued a show cause notice nor provided an opportunity explain the evidence gathered, if any, and provide a copy of Inspector's Report before holding an adverse view. On this ground, the appellant vehemently objected to the action of the Assessing Officer which is arbitrary and wholly unjustified. The appellant has further explained that the amount was received by account payee cheque and the transaction has be .....

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ut cannot be asked to prove the source of source. It is further submitted by the appellant that the money has been received as share application and, therefore, placing reliance on the following judgments of Hon'ble Courts it is explained by the appellant that the amount received towards share application cannot be disallowed under Section 68 of the Act once the assessee has furnished confirmation of the subscriber and there is nothing to suggest that amount belongs to the Company: (i) A-One .....

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share capital was not proved." (ii) CIT V/s Micromelt Pvt. Limited (2009) 212 Taxation page -1 (Gujarat) "The Assessing Officer made addition of ₹ 8,33,500/- under Section 68. The CIT(A) held that affidavit of creditors, their creditworthiness, loans being taken through Bank and genuineness was proved and there was no material brought by the Assessing Officer to controvert the above evidences, allowed the assessee's appeal. The Tribunal appreciating the evidence as discussed .....

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he borrower to the issue of such cheques. After analyzing the entire evidence, regarding grant of these loans, there was a concurrent finding of facts of CIT(A) as well as the Tribunal that the loans were genuine loans.The details of payments were also furnished. There was also finding that the amount of interest was paid by assessee on such genuine loans. The addition respect of cash credit and interest were not valid." (iv) Divine Leasing & Finance Limited (2008) 299 ITR 268 (Delhi HC .....

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g Officer. The addition without such investigation should be treated as based upon mere surmises. The principle that identity is more important in such cases has been reiterated and that even where creditworthiness is not established to the satisfaction of the Assessing Officer, it need not be unexplained income of the Company, since the legitimate inference is that the income is that of the subscriber as long as the advance of the amount to the Company is established and there is nothing to sug .....

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ayee cheque from the creditor's bank account out of his own fund available in the said bank account, the credit worthiness is also established Therefore, the addition made for ₹ 1,57,840/- invoking .provisions of Section 68 is deleted. 8. Ld. DR supported the order of ld. Assessing Officer whereas ld. AR relied on the order of ld. CIT(A). 9. We have heard rival contentions and perused the material on record. The issue in this ground is that Revenue is aggrieved, against the action of l .....

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was received by account payee cheque and the total credit balance at the end of the year remained at ₹ 3,16,940/-. Assessing Officer made addition of only ₹ 1,57,840/- which was the amount received during the year by assessee as unsecured loan from Hemal Nanavati. We further observe that during the course of assessment proceeding assessee vide his letter dated 30.10.2009 itself had submitted that Hemal Nanavati has left Ahmedabad and confirmation from him is not available and therea .....

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ati and the only basis taken by assessee was that the amount has been received by account payee cheque. Due to lack of copy of bank statement and copy of identity it is difficult to accept the contention of assessee about the identity, creditworthiness and genuineness of the unsecured loan taken of ₹ 1,57,840/- from Hemal Nanavati. It is pertinent to note that in many cases where the amount of unsecured loan is taken by account payee cheque but when the bank statement of the loan creditor .....

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ear amount has been received by account payee cheques but no copy of bank statement is available through which we could have verified the factual status of the creditworthiness of the loan creditor. Also if the assessee has been able to show that for Asst. Year 2006-07 assessee had passed through scrutiny assessment u/s 143(3) of the Act and loan creditor Hemal Nanavati has been verified and held as genuine by Revenue for loan taken in Asst. Year 2006-07 then it could have formed the basis for u .....

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IV, Ahmedabad has erred in law and on facts in deleting the disallowance of ₹ 2,07,381/-made by the Assessing Officer on account of commission expenses. 11. During the course of assessment proceedings Assessing Officer observed that commission has been paid to various parties but assessee failed to produce any detail about services rendered for which the commission had been debited in the books of account nor any confirmation was placed on record in respect of 7 parties out of 8 parties li .....

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t source and appellant has submitted requisite quarterly returns in Form No. 26Q and has also issued TDS certificates in Form No. 16A to respective deductees. The Commission payment claimed in the name of aforesaid parties is wholly and exclusively for the purpose of business and payments are genuine having regard to the aforesaid facts made available on record of the Assessing Officer. Therefore, the disallowance of ₹ 2,07,381/- 13. Being aggrieved, Revenue is now in appeal before the Tri .....

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ve that tax has been deducted at source and payments have been made through account payee cheque and most of them have furnished confirmation letters also as observed by ld. CIT(A) during appellate proceedings. We, therefore, are of the view that no disallowance was called for in relation to commission expenses at ₹ 2,07,381/- as assessee has been able to demonstrate complete details including calculation of commission debited during the year in profit and loss account and we, therefore, d .....

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ame of Aabhar Holdings Pvt. Ltd. at ₹ 2,14,00,018/- as on 31.3.2007 and opening balance at on 1.4.2006 was shown at ₹ 1,68,00,000/- and Aabhar Holdings Pvt. Ltd. was a sister concern of the assessee. Ld. Assessing Officer was of the view that assessee has claimed interest expenses of ₹ 18,90,321/- whereas on the other hand it has given interest free advances to Aabhar Holdings Pvt. Ltd. at ₹ 2,14,00,018/- and this has been intentionally done by the assessee to reduce the .....

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the Income Tax Act, 1961 and statutory Tax Audit Report are filed along with the return of income. As per schedule -10 annexed to the Tax Audit Report, there was a debit balance in the name of Aabhar Holldings Pvt. Limited for Rs. lr 68, 00,000/- as on 31/3/2006 and the closing balance as on 31st March, 2007 was ₹ 2, 14, 00,018/-. On the other hand as per the schedule 11 to the Tax Audit Report( out of sundry creditors for the goods) the opening credit balance as on 31/3/2006 was of ͅ .....

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Holdings Pvt. Limited is a group/associated concern, as evident from the Assessing Officer's order vide para 4.3(1) on page 5 of the order. The Assessing Officer has not brought any material on record to contradict the arguments of the appellant. The advances made to M/s. Aabhar Holdings Pvt. Limited were for goods and the goods having already been received, the account of the party was reflected in sundry creditors for goods. That being the position, the advances which were made to M/s. Aab .....

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ose of business and on the other hand the purchases having been accepted as genuine and at a reasonable rate not being purchase made at a excessive price/rate since no disallowance is made out of it. And therefore it is established that it was in the business interest of the assessee to advance the amount to M/s. Aabhar Holdings Pvt. Limited for making purchases and had in fact made the purchases as evident from the audited accounts. Therefore, considering the vital facts brought on record, the .....

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CIT(A) and submitted that Assessing Officer has not taken note of the fact that as on 31st March, 2007 on one hand there was a debit balance of ₹ 2,14,00,018/- in the name of Aabhar Holdings Pvt. Ltd. and on the other hand there was a credit balance of ₹ 1,88,20,938/-in the name of same party as on 31.3.2007 and effectively the difference of ₹ 25,79,080/- was debit balance standing in the name of Aabhar Holding Pvt. Ltd. Ld. AR further submitted that assessee is having regular .....

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ectly tried to reduce the profit by claiming interest expenses against sales and from perusal of record, we find that ld. Assessing Officer has not gone through the facts of the case properly because in the audited financial statement produced before us we find that Aabhar Holding Pvt. Ltd. which is a group co. of assessee is appearing on both sides of balance sheet and assessee has separately shown transactions in this account in order to facilitate the proper accounting of the transactions. As .....

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oth and similarly various transactions of bleached cloth purchases are appearing which is enough to show that there has been regular business dealing with Aabhar Holding Pvt. Ltd. The net difference between the debit and credit balance of Aabhar Holding Pvt. Ltd. as on 31.3.2007 works out to the debit balance of ₹ 25,80,080/- (Rs.2,14,00,018/- (-) ₹ 1,88,20,938/-). In the given circumstances assessee has been able to prove that transactions have been entered in the course of business .....

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of Income-tax (A)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of ₹ 6,30,546/- made by the Assessing Officer on account of unproved creditors. 24. During the course of assessment proceedings Assessing Officer called for confirmation and genuineness of outstanding liabilities of ₹ 6,30,546/- in respect of following creditors :- Sl.No. Name Amount in Rs. 1. Rupesh Textile Rs.3,27,444/- 2. Harihar Cloth Agency Rs.2,07,167/- 3. K.P. Shah Rs.56,424/- 4. CLG Globe .....

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gly both these parties denied to have made any transaction with the assessee during financial year 2006-07 and also submitted that no payment is receivable/payable to the assessee company. Further assessee could not place any thing on record to controvert the replies by the sundry creditors and, therefore, as the assessee was unable to prove the liabilities of ₹ 6,30,546/- the same was added to the income of the assessee. 26. On appeal by assessee before first appellate authority the addit .....

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e credits during the year are for commission except for vehicle sales and as per Ground No. 2 above the addition of commission are fully deleted by me. The A.O. should have excluded the opening balance of earlier years as indicated above for making additions. The Assessing Officer has neither brought cogent evidence on record to disprove the explanation of the appellant nor has the Learned Assessing Officer applied his mind before making such huge addition. As such I feel no hesitation in holdin .....

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editors. From perusal of records, we find that there is no dispute about the fact that sundry creditors of ₹ 5,37,847/- stood at the year end and out of 10 parties confirmation was received only in the cases of 2 parties namely Rupesh Textiles Pvt. and Harihar Cloth Agency. Both these parties also denied to have any transactions with the assessee during financial year 2006-07 and nor any amount was receivable or payable by the assessee. Normally any person who is a sundry creditor in the b .....

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etter but then in that circumstances assessee can prove by submitting that the account statement of the year in which payment has been paid off. 30. In the case of assessee in order to enquire about the status of the sundry creditors in following years financial statement for Asst. Year 2010-11 relevant to F.Y. 2009-10 were called for and from the perusal of the list of sundry creditor we observe that following 5 parties still remain to be sundry creditor since Financial Year 2006- 07:- i) Ankit .....

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ly missing in the case of assessee. We are therefore, of the view that to the extent of ₹ 5,57,293/- addition was rightly made by Assessing Officer. As far as difference of the remaining amount of addition of ₹ 73,253/- (Rs. 6,30,546/- (-) ₹ 5,57,293/-), we confirm the decision of ld. CIT(A) as these amounts must have been paid off in the following years. Accordingly we sustain the addition of ₹ 5,57,293/- out of ₹ 6,30,293/- in relation to sundry creditors which ha .....

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77; 4,01,482/- and sales of the assessee have marginally decreased from ₹ 9,98,29,584/- to ₹ 9,84,21,650/- in the year under appeal. Assessing Officer was not convinced about the consumption of packing material at ₹ 7,12,662/-. Therefore, after allowing price inflation factor increase of 10% of ₹ 4,01,482/- shown in the preceding year, he disallowed the excess amount of expenses of ₹ 2,71,032/-. Assessee went in appeal before ld. CIT(A) who deleted the addition by o .....

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t bills and ledger A/c. On scrutiny of it, it is found that the purchases of packing material and stores expenses are directly related to the appellant's business of trading in textile products and are for the purpose of this business. I agree that the ratio laid down in the cited decisions (supra) squarely applies to the facts of the appellant's case as the transaction of purchase of material is not proved to be sham and there is a direct nexus between the expenditure and the purpose of .....

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cord. The issue in this ground raised by the Revenue is against deletion of addition of ₹ 2,71,032/- made by Assessing Officer. From perusal of record, we observe that all relevant material in the form of copies of purchase bills of packing material, stores consumed were placed before the assessing authority and no defect has been pointed out by the Assessing Officer. The evidences placed on record are sufficient to support the claim of assessee for claiming allowance of ₹ 7,12,662/- .....

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as erred in law and on facts in deleting the disallowance of ₹ 64,103/- made by the Assessing Officer, out of tractor expenses. 37. During the course of assessment proceedings Assessing Officer found that assessee had claimed tractor expenses at ₹ 1,38,768/-. In the preceding year the same was ₹ 67,875/-. As the expenses are increased substantially though the sales were reduced, therefore by order sheet dated 31.8.2009 assessee was requested to justify the same with supporting .....

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addition of ₹ 64,103/- was deleted by ld. CIT(A) by observing as under :- 11.2 I have gone through the submission of the appellant and perused relevant material on record. The disallowance having been made on ad hoc basis without pin-pointedly detecting any defects in the books of account of the assessee and the expenses have been supported by bills and vouchers. Therefore, the disallowance of ₹ 64,103/- is deleted. 38. We have already dealt similar issue while dealing with ground n .....

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perusal of financial statement of assessee, ld. Assessing Officer observed that the provisions for expenses payable stood at ₹ 2,96,177/- as on 31st March, 2007 out of which ₹ 1,96,662/- was paid in the month of April, 2007 and the remaining amounts were outstanding. No details were furnished by the assessee in relation to the details of payments made for the balance amount of ₹ 1,26,215/- due to which ld. Assessing Officer has made disallowance of ₹ 1,26,515/- out of cr .....

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is of payment made in the subsequent year, the remaining amount works out at ₹ 1,26,515/-, therefore, in this ground the figure ₹ 1,26,662/- is replaced by ₹ 1,26,515/-] by observing as under :- 12.2 I have considered the submissions of the appellant and having regard to the relevant material placed on record of the Assessing Officer. The complete details are available in P.B. page No. 248 & 249 r. w. P.B. page No. 277 which are in the nature of salary, tractor Expenses, te .....

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6,177/- and thereby making disallowance for the balance amount of ₹ 1,26,662/- is against the consistently followed mercantile system of accounting by the appellant as under mercantile system any expense paid or payable is eligible for deduction if it is not a payment specifically covered u/s 43B of the Act. It is seen that the provisions for expenses is not for any statutory liability u/s 43B and are therefore allowable under the mercantile method of accounting. I find that the disallowan .....

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/- was provided in the book for the expenses which have become payable during Financial year 2006-07 but paid in the subsequent year and more particularly there was no specific liability covered u/s 43B of the Act which ought to have been paid before the due date of filing of the return. 43. We have heard the rival contentions and perused the material on record. The issue raised by the Revenue in this ground is against the action of ld. CIT(A) who has deleted the addition of ₹ 1,26,515/- m .....

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rent Rs.12,400/- Total Rs.2,96,177/- Out of the provisions of ₹ 2,96,177/- as mentioned above Assessing Officer has allowed the claim of assessee for ₹ 1,69,622/- by taking a basis that they have been paid in the subsequent year and added the remaining unpaid amount of ₹ 1,26,515/- to the income of assessee. In our view, in case of assessee who maintains his books of accounts on mercantile system of accounting, then expenses which have been incurred for the relevant financial y .....

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