TMI Blog2011 (7) TMI 1243X X X X Extracts X X X X X X X X Extracts X X X X ..... tice stating the assessee should prove the services rendered as well as genuineness of the transactions by producing the person to whom these consultancy service charges have been paid. The assessee was also asked to establish the identity of the person to whom payment was made. The AO stated that the assessee has failed to establish the genuineness of the transaction and requirement of consultancy services, its nature and purpose and therefore, the AO disallowed the payment of consultancy charges. It was submitted before the learned CIT(A) that the assessee had submitted the name and address of the person with PA number. The assessee had also deducted TDS and same was paid within the prescribed time to the treasury. The assessee has filed ledger accounts of the Super Consultancy Services and Super Testing Laboratory to show that TDS has been deducted on the professional fees paid to them. The assessee further stated that it procures yarn from various suppliers and supplies the same to Mafatlal Industries Ltd. In order to maintain the good quality of yarn before it is applied the services of Super Consultancy Services were unveiled. The assessee uses the services to find out count, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rightly noted that by filing these papers would not prove that payment in question is genuine and was spent wholly sand exclusively for the purpose of business of the assessee. The assessee claimed that it procures yearn from various suppliers and the same are supplied to Mafatlal Industries Ltd. Therefore, services of Super Consultancy Services and Super Testing Laboratory were obtained to find out the standard quality of yarn. It would, therefore, prove that the assessee got the yarn tested prior to supply to Mafatlal Industries Ltd. The assessee failed to submit any test report either before the authorities below or before the Tribunal. In the absence of any evidence of testing of yearn by this Consultancy Services, the assessee failed to prove that they had rendered any services for the purpose of business of the assessee. The AO also specifically asked the assessee to produce the person to whom consultancy service charges have been paid and to establish their identity. The assessee however, did not produce any such persons before the AO and even the identity is not established. The AO also noted in the assessment order that as per information available during the course of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also explained that capital of the partners is also ₹ 29,52,319/- and ₹ 1,03,87,659/-. Therefore, the assessee had sufficient balance/funds to give interest free loans and advances. She has relied upon the decision of the Hon'ble Karnataka High Court in the case of CIT vs Sridev Enterprises, 192 ITR 165 on the proposition that if the opening balances are coming in the year under consideration no disallowance has been made in the earlier year, no addition could be made by disallowing interest. She has relied upon the order of ITAT Ahmedabad Bench in the case of M. Ravi and Co. and Core Health Care Ltd. in ITA No. 1745/Ahd/1995 and ITA Nos. 85 and 86/Ahd/2007 dated 23-01-2001 and 16-10-2009 respectively. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that since no interest has been charged from these 3 parties, therefore, interest was rightly disallowed. 8. We have considered the rival submissions and material available on record. It is not in dispute that the amounts against these 3 parties were opening balances as on 01-04-2006. Copies of their ledger accounts are also filed in the paper book to support the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the opening balance of the profits of the assessee-firm as on April 1, 1994, was ₹ 1.91 crores, and the profits were sufficient to cover the loan given to a sister concern of ₹ 5 lakhs only, the Appellate Tribunal ought to have held that ht loan given was from the assessee's own funds. 9. Considering the above discussions, we are of the view that there is no basis to disallow the interest. We accordingly, set aside the orders of the authorities below and deleted the addition. Ground No.2 of the appeal of the assessee is allowed. 10. No other point is argued or pressed. 11. In the result, the appeal of the assessee is partly allowed. ITA No. 3122/Ahd/2010 12. The assessee in this appeal challenged the levy of penalty u/s 271 (1) (b) of the IT Act in a sum of ₹ 20,000/-. In the penalty order, the AO stated that the first notice u/s 143(2) of the IT Act was issued on 29-09-2008 which was served on the same day and the assessee was required to comply with the same notice on 15-10-2008 but nobody attended. Another notice u/s 142(1) and 143(2) of the IT Act along with questionnaire was issued on 3rd/6th July, 2009 which was also served thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(3) and not under section 144, it means that subsequent compliance in the assessment proceedings was considered as good compliance and the defaults committed earlier were ignored by the AO hence penalty under section 271 (1) (b) could not be levied. 14. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that since two statutory notices were not complied with, therefore, penalty has been rightly imposed. 15. We have considered the rival submissions and do not find any justification to interfere with the orders of the authorities below. The first notice was issued u/s 143(2) of the IT Act on 29-09-2008 and according to the AO the same was not complied with because nobody attended the proceedings. It was claimed before the learned CIT(A) that the Accountant had attended the proceedings and since it was the first notice, therefore, case was adjourned. The learned CIT(A) however, on going through the record found that the assessee has not filed any evidence to show that the assessee or his Accountant had attended the proceedings. No evidence is produced before us also to support such contentions raised before the learned CIT(A). F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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