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2010 (5) TMI 903 - ITAT DELHI

2010 (5) TMI 903 - ITAT DELHI - TMI - ITA No. 3451(Del)2009 - Dated:- 14-5-2010 - SHRI A.D. JAIN AND SHRI B.P. JAIN JJ. Appellant by: Mrs. Banita Devi Naorem, Sr. DR Respondent by: Shri H.P. Aggarwal, CA ORDER PER A.D. JAIN, J.M. This is Department s appeal for the assessment year 2004-05 taking the following grounds:- 1. The order of the learned Commissioner of Income Tax(Appeals) is erroneous and contrary to the facts and law. 2. On the facts and in the circumstances of the case and in law, th .....

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an that of M/s. Dhampur Alco Chem Ltd. 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of ₹ 45,94,525/- made by the AO u/s 68 of the I.T. Act when the assessee failed to discharge the onus of proving the identity of the creditors and genuineness of the credit transactions. 4.1 The ld. CIT(A) erred in accepting the additional evidence under Rule 46 A of the I.T. Rules, when the assessee was provided ample opportunities by th .....

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ve;-vis the rate at the time on which the bills were raised by the assessee; that the assessee had created a total debit provision of ₹ 6,23,388/- and total credit provision of ₹ 71,820/- on 31.3.2004, thereby creating a net debit provision of ₹ 5,51,568/- and a corresponding expenditure for provision on account of revaluation of debts; that the assessee could not adjust any loss on foreign exchange fluctuation against its income from interest under the head of income from othe .....

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owed the entire loss of ₹ 1,04,473/- claimed under income from other sources . An amount of ₹ 4,47,095/- was added to the assessee s income as business income, observing it to be the total income earned by the assessee from foreign exchange fluctuation. 4. The ld. CIT(A) directed the AO to allow to the assessee net loss of ₹ 1,04,473/- on account of foreign exchange fluctuation, basing on the decision of the Hon ble jurisdictional High Court in Woodward Governor India (P)Ltd. , .....

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ble jurisdictional High Court has held that loss on account of foreign exchange fluctuation, though notional, needs to be allowed. As per Schedule IX to the balance sheet of the assessee, the assessee had interest income of ₹ 10,78,127/- and a misc. gain of ₹ 15,024/-, besides the foreign exchange fluctuation of ₹ 1,04,473/-, total amounting to ₹ 9,88,678/- . The assessee had offered other income to tax as income from other sources . This had been arrived at after deducti .....

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the date of the drawing up of the balance sheet. On that date, the assessee had debited ₹ 6,23,388/- and had credited ₹ 71,820/- in the foreign exchange fluctuation account. This gave the net debt provision made on the balance sheet date, amounting to ₹ 5,51,568/-. The balance of the foreign exchange fluctuation account before passing of the said entry was ₹ 4,47,095/-, i.e., the credit entry representing the assessee s fluctuation gain. This, however, got converted into .....

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on based on revaluation of debts at the end of the previous year cannot also be claimed under the said section. 8. However, the situation has been dealt with by Woodward Governor India (P)Ltd. (supra). Woodward Governor India (P)Ltd. (supra), has since been approved by the Hon ble Supreme Court on appeal by the Department as well as in Honda Seil Power Projects Pvt. Ltd. , 223 CTR 1(SC), as rightly taken note of by the ld. CIT(A). 9. In view of the above, finding no merit in ground No.2 raised b .....

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er annum to its Directors. 2% per annum representing the difference of interest on the loans was thus added to the income of the assessee for the expenses claimed do not relatable to the assessee s business. For the year under consideration, again, the same practice was found to have been adopted by the assessee. Interest of ₹ 26,13,295/- was claimed by the assessee in its profit and loss account. The AO observed that interest of capital borrowed is allowable only if the capital is used fo .....

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d loans given to the Directors did not relate to the assessee s business, the AO disallowed 6% per annum qua the loans given to Shri Vivek Bihani and @ 20% per annum each apropos the loans given to Smt. Devika Singh and Shri Vivek Sethi. Interest of ₹ 17,46,330/- was thus disallowed as not relating to the assessee s business. 11. The learned CIT(A) observed, inter alia, that during the year, the assessee had paid interest of ₹ 11,92,568/- to M/s. Dhampur Alco Chem. Ltd. on loans rais .....

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paid to M/s. Dhampur Alco Chem. Ltd. in excess of the amount recovered from the Directors of the assessee company was required to be disallowed, amounting to ₹ 3,70,068/- representing, the difference of the interest paid of ₹ 11,92,568/- and the interest received of ₹ 8,22,500/-, was to be disallowed; that an amount of ₹ 17,46,330/- had been disallowed by the AO on a percentage basis without considering that the assessee company had paid total interest of ₹ 26,13,29 .....

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representing the difference of the interest paid and the interest received, as above and to allow the balance amount of ₹ 22,43,227/-. 12. The learned DR pleads that while wrongly restricting the addition correctly made by the AO of the amount of ₹ 17,46,330/-, to an amount of ₹ 3,70,068/-, the ld. CIT(A) failed to appreciate that the loan advanced to the Directors of the company was much more than that of M/s. Dhampur Alco Chem. Ltd. 13. The learned counsel for the assessee, p .....

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ding year; that for that year, no disallowance had been made; that in the year under consideration, ₹ 11,92,568/- had been paid as interest to M/s. Dhampur Alco Chem. Ltd., recovering an amount of ₹ 8,22,500/- from the assessee s Directors towards the loan advanced to them; that the AO had disallowed ₹ 17,46,330/- on account of interest, as expenses concerning loans given to the Directors and not relating to the assessee s business; that the AO could have disallowed a maximum o .....

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#8377; 3,70,068/-; that the assessee had paid ₹ 14,20,727/-, i.e., the difference between the total interest of ₹ 26,13,295/- received by the assessee company and ₹ 11,92,568/- paid to M/s. Dhampur Alco Chem. Ltd., to banks on overdraft and term loans and on car finance loans and to other parties, i.e., Indian Plastics, Al Mehtab Projects P.Ltd., Hewa P.Ltd. and Gold Coin; and that it is a matter of record that the AO did not bring anything to establish that the payment of inte .....

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and that undisputedly, it was out of this amount that the assessee company advanced the money to its Directors and charged lesser rate of interest. The ld. CIT(A) has not discussed the material on the basis of which this observation has been made. Before us also, nothing has been brought to show that the amount was advanced by the assessee company to its Directors out of this amount. Without considering this aspect of the matter, the issue of payment of interest to the parties for non business p .....

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.C. International 6,00,000/- M/s. Indian Plastic & Cements Ltd. 13,00,000/- M/s.Kostub 5,00,000/- Shri Vimlendu Verma 1,30,000/- Total: 45,94,525/- 16. The AO asked the assessee to file confirmed copies of account of the said parties. The AO failed to do so. It was therefore that holding the source of unsecured loans as remaining unestablished, the AO made addition of ₹ 45,94,525/-, representing these unsecured loans, u/s 68 of the Income Tax Act. 17. Before the ld. CIT(A), contending .....

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