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2016 (5) TMI 538 - ITAT PUNE

2016 (5) TMI 538 - ITAT PUNE - TMI - Disallowance of finance charges - addition of interest - CIT(A) deleted the addition - Held that:- The Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT ) has held that if there are funds available both interest free and overdrafts and or loans taken, then a presumption would arise that interest free advances would be out of the interest free funds generated or available with the company, if .....

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wance of proportionate interest is called for - Decided against revenue

Addition on account of difference in balance of creditors - CIT(A) deleted the addition - Held that:- So far as the amounts appearing in the name of Advance Metal Corporation Pvt. Ltd. amounting to ₹ 69,89,667/- is concerned we find the Ld.CIT(A)deleted this amount on the ground that the assessee has already offered the above amount in his application before the Settlement Commission and has paid due taxes o .....

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CIT(A) deleted an amount of ₹ 40,65,107/- and sustained an amount of ₹ 1,25,326/-. The amount ₹ 40,65,107/-consists of 4 items as per the Table given at para 25 of this order. From the details furnished before the Ld.CIT(A) we find the assessee has given the difference on account of opening balance at ₹ 6,49,223 + ₹ 19,44,849 amounting to ₹ 25,94,072/- whereas the CIT(A) has deleted an amount of ₹ 19,15,371/- on account of opening balance difference. We .....

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ncerned we find the Ld.CIT(A) after proper appreciation of facts has deleted the amount of ₹ 9,28,855/-, ₹ 7,99,925/- and ₹ 4,20,956/- on account of the respective heads. In absence of any contrary material brought to our notice against the finding given by the CIT(A), we do not find any infirmity - Decided partly in favour of revenue for statistical purposes. - ITA No.1152/PN/2014, CO No.12/PN/2016 - Dated:- 7-4-2016 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Ass .....

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aged in the business of fabrication and dealing in MS and SS items. It filed its return of income on 31-10-2009 declaring total income of ₹ 51,09,835/-. During the course of assessment proceedings the AO noticed from profit and loss account that the assessee firm has debited an amount of ₹ 1,02,33,109/- under the head finance charges as against ₹ 59,57,918/- shown in the preceding year. He noted that the increase in the finance charges has occurred despite reduction in the loan .....

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sundry debtors furnished by the assessee the AO noted that assessee has advanced huge amount to associate concerns without charging interest, the details of which are as under : Name of the debtor Balance as on 31-03-2008 (in Rs.) Balance as on 31-03-2009 (in Rs.) Amit Garment 3,45,29,367/- 5,28,41,575/- Amit Apparel 80,35,328/- 1,08,12,872/- Sparkon Textile 1,52,20,499/- 1,37,84,936/- Total 5,77,85,194/- 7,74,39,383/- 4. From the ledger account of these parties he noted that none of the transac .....

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plain as to why proportionate disallowance should not be made out of the finance charges. Rejecting the various explanations given by the assessee the AO disallowed an amount of ₹ 88,68,694/- which according to him relates to proportionate finance charges on funds diverted for nonbusiness purposes. 5. Before CIT(A) it was submitted that the total amount of ₹ 1,02,33,109/- on account of finance charges are as under: Particulars Amount (Rs.) Bank charges and commission 12,46,498 Intere .....

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s such is a direct business expenditure. Similarly, the bank charges like commission, LC charges, Bank guarantee charges are debited by the bank for performing specific business operations like opening of LC, issue of bank guarantee and other service charges such as bank statement, cheque book etc. which amounts to ₹ 31,07,913/-. The assessee has also paid interest of ₹ 14.60 lakhs for discounting of LC issued to a creditor where the discount period is greater than the credit period. .....

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llowance of interest on the opening balance of advances given/taken. However, since the interest is only an expense of current year, it is logical only to consider changes of receipt and payment of advances during the year. The fund flow statement was filed before the CIT(A) to substantiate that the interest free advances given to sister concerns are from interest free surplus funds available with the assessee and not from interest bearing loan funds. It was also submitted that the entities from .....

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e the Ld.CIT(A) deleted the finance charges of ₹ 88,68,694/-. While doing so, he held that the finance charges are in the nature of regular interest/charges of sanctioned bank limits for the purpose of business. The interest free advances received by the assessee during the year exceed the interest free advances given and hence the advances given to sister concerns do not represent diversion of business funds. He further held that there is no abnormal charge of interest or understatement o .....

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rder of the AO. He submitted that the AO during the course of assessment proceedings has given sufficient opportunity to the assessee to justify his claim which was not done by the assessee. The various details filed before the CIT(A) were not available with the AO during the course of assessment proceedings and therefore the CIT(A) should have given an opportunity to the AO to verify the details submitted by the assessee. 10. As regards the observation of the CIT(A) that there is no abnormal ch .....

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rect nexus between interest free funds available and interest free advances given to sister concerns by the assessee the order of the CIT(A) is erroneous especially in absence of a non speaking order. He accordingly submitted that the order of the CIT(A) be reversed and that of the AO be restored. 11. The Ld. Counsel for the assessee on the other hand heavily relied on the order of the CIT(A). He submitted that when it was clearly established that the own funds as well as interest free funds ava .....

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concerns no disallowance of proportionate interest is called for. For the above proposition he relied on the following decisions : 1. DCIT Vs. A2Z Online services Pvt. Ltd. - ITA No.1566/PN/2013 (Pune Tribunal) 2. M/s. Mihir Bakre Projects Vs. ACIT- ITA No.1710/PN/2012 (Pune Tribunal) 12. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited be .....

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ister concerns are as under: Sr.No. Name of the sister concern Net Amt. advanced during the year (Rs.) 1 Amit Apparel 27,77,544 2 Amit Garment 1,83,12,208 3 Sparkon Textiles -14,35,563 Total 1,96,54,189 Thus during the impugned assessment year the interest free amounts advanced to sister concerns is less than the interest free advances received from the sister concerns. Further, the fund flow statement given by the assessee also reflect that the interest free advances given to sister concerns ar .....

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as held that if there are funds available both interest free and overdrafts and or loans taken, then a presumption would arise that interest free advances would be out of the interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investments. Since in the instant case it is very clear from the details furnished that the interest free advances received from sister concerns during the year at ₹ 2.78 crores far exceeds the interest .....

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ing an amount of ₹ 1,11,80,098/- on account of difference in balance of creditors. 16. Facts of the case, in brief, are that the AO during the course of assessment proceedings issued notice u/s.136 of the Act to certain creditors of the assessee. Some of the creditors have replied directly to the office and in certain cases the assessee filed confirmations from some creditors. On verification of the confirmations raised from the creditors, vis-à-vis ledger account of the assessee th .....

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26,439/- 7 Domet Trading Pvt. Ltd. 10,38,049/- 2,25,259/- 8,12,790/- 8 Jindal Stainless Steel 7,36,467/- 13,393/- 7,23,074/- 9 Prathmesh Enterprises 19,78,730/- 13,62,584/- 6,16,146/- 10 Sun Impex 21,83,848/- 43,69,367/- (-)21,85,519/- 17. The AO asked the assessee to reconcile the difference between the books of the assessee and the balance in the books of the creditors. The assessee could not justify the difference in the case of Sl.No.1, 3 to 6 and 10. However, after reconciliation the diffe .....

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nce of creditors. 18. Before CIT(A) the assessee made elaborate submissions. It was submitted that addition of ₹ 69,89,667/- has been made on account of difference in balances on account of Advance Metal Corporation. It was submitted that a search was conducted on the assessee after the completion of the above assessment on 31-01-2012. The assessee had filed an application before the Settlement Commission on 21-02-2013 for A.Y. 2006-07 to 2012-13 declaring the above amount and paid taxes a .....

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ame has been paid. 18.1 So far as the other parties are concerned the assessee filed the following summary of difference in the creditors : Sr. No. Particulars Amount (Rs.) 1 Purchases booked for lesser amounts due to various reasons 11,40,331 2 Jindal Steel Stainless Steelway - Purchase bill of one party considered when there are two parties with similar names 7,99,925 3 Opening balance Difference due to purchase booked for lesser amounts in earlier years 6,49,223 4 Payments booked for higher a .....

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for the year under consideration. He is again subject to tax because of this amount which amounts to double addition. It was argued that the assessee has booked all the purchases correctly for the year under consideration. The addition is on account of opening balance difference which should not be taxed for the year under consideration. Only the current liabilities should have been added. 20. So far as the purchases booked for lesser amount due to various reasons amounting to ₹ 11,40,331/ .....

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r.No. Name of the Party Amount (Rs.) 1 United Metal Industries 1,78,558 2 Shri Mahaveer Steel 4,51,846 3 Jindal Stainless Steel 18,819 Total 6,49,223 22. In the following cases, it was argued that the creditors have booked amounts paid by us at higher values due to clerical error. However, there is no discrepancy in our books: Sr.No. Name of the Party Amount (Rs.) 1 Jindal Stainless Ltd. 5422 2 Phinolek Steel & Engineering Co. 1673 3 Domet Trading Pvt. Ltd. 10537 Total 17,632 23. In the foll .....

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opening balance is as follows : Sr.No. Name of the Party Amount (Rs.) A LC payment accounted for by the assessee on the due date but accounted for by the creditor at the time of discounting in earlier year hence the creditors balance is less compared to assessee (33,19,007) B Bills booked for less amounts in earlier years (i.e. income already offered in earlier years) 11,89,220 C LC charges not accounted by the creditor in earlier years 1,84,938 D Opening balance difference (d=b+c-a) -19,44,849 .....

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the Hon. Settlement Commission in this matter and hence I conclude that addition of this amount is not necessary. ii. Other disallowances - Sr. No. Particulars Amt (Rs.) Observations Conclusions 1 Opening balance difference 19,15,371 Difference due to earlier years transactions. No transactions during the year, amounts not credited to P&L by the assessee Allowed (direct case law cited) 2 Bills passed and accepted for lesser amounts due to rate difference, difference in qty, P.O. terms etc. .....

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lready reduced in assessee s books Allowed Section 41(1) not applicable 5 Miscellaneous differences 1,25,326 Liability appearing more in assessee s books Disallowed Total 41,90,433 Considering the above, I am of the opinion that in the facts and circumstances of the case, the question of disallowance of financial charges and disallowance of difference in creditors should be answered in favour of the assessee as mentioned above crept the miscellaneous difference of ₹ 1,25,326/- which is con .....

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ty as cessation of liability u/s.41 of the Act. 28. So far as the difference in opening balance of various parties amounting to ₹ 19,15,371/- is concerned the CIT(A) deleted the same on the ground that the difference is due to earlier year transactions. He submitted that the order of the CIT(A) is not correct. Further, various other additions on account of difference in the balances between the books of the assessee and the books of creditors were based on certain additional evidences. He .....

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f Advance Metal Corporation has already been accepted before the Hon ble Settlement Commission. Therefore, the CIT(A) was justified in deleting this amount. 30. So far as the balance amount of ₹ 41,90,433/- is concerned he submitted that the CIT(A) has sustained an amount of ₹ 1,25,326/- and deleted an amount of ₹ 40,65,107/- by giving justifiable reasons. He accordingly submitted that the grounds raised by the revenue should be dismissed. 31. We have considered the rival argum .....

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above amount in his application before the Settlement Commission and has paid due taxes on the same. Since the Ld.CIT(A) on the basis of perusal of the order of the Settlement Commission on this issue has given a finding that assessee has already declared this amount before the Settlement Commission and paid the taxes and interest thereon, therefore, in absence of any contrary material brought to our notice by the Ld. Departmental Representative the order of the CIT(A) on this issue is upheld. .....

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