TMI Blog2017 (1) TMI 724X X X X Extracts X X X X X X X X Extracts X X X X ..... Dated:- 11-11-2016 - SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Revenue : Shri Siurabh Deshpande, DR For The Assessee : Shri B.V. Jhaveri ORDER PER RAMIT KOCHAR, Accountant Member These two appeals, filed by the Revenue being ITA No. 4817/Mum/2014 ITA No. 4225/Mum/2015, are directed against the two separate appellate orders dated 29th May, 2014 and 24th April, 2015 respectively passed by the learned Commissioner of Income Tax (Appeals)-29, Mumbai (hereinafter called the CIT(A) ) and the learned Commissioner of Income Tax (Appeals)-33, Mumbai respectively , for the assessment years 2010-11 and 2011-12 respectively, the appellate proceedings before the learned CIT(A) arising from the assessment orders dated 28th March, 2013 and 20th March, 2014 respectively , both passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income-tax Act,1961 (Hereinafter called the Act ). 2. The following common grounds of appeal have been raised by the Revenue in the memo of appeal (only difference in the amount) filed with the Income-tax Appellate Tribunal, Mumbai (hereinafter called the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- to Menghraj Sons in which one of the partner of the assessee is one of the partners. The A.O. observed that this case is covered u/s 40A of the Act. The AO observed that the assessee has paid interest of ₹ 79.05 lacs to various parties. The rate of interest was 15% per annum. It was also observed by the AO that the assessee has paid compounding interest @16.2% to most of the parties. The assessee has advanced sum of ₹ 4,05,26,526/- to M/s Menghraj Sons for which no additional benefits have been received . The AO treated 15% of the same i.e. ₹ 60,78,950/- as expenses made in respect of person which are covered u/s 40A of the Act. Hence, the interest paid amounting to ₹ 60,78,950/- was disallowed by the AO vide assessment order dated 28/03/2013 passed u/s. 143(3) of the Act. Without prejudice, it was also observed by the AO that the assessee has advanced as sum of ₹ 4,05,26,526/- to Menghraj Sons for which no interest is recovered. The interest paid on ₹ 4,05,26,526/- to various parties is more than ₹ 60,78,950/- and hence interest paid to the extent of ₹ 60,78,950/- was disallowed as not incurred for the purpose of the assessee s bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the year as well as at the end of the year represents the sales transaction of goods of the assessee firm through M/s Menghraj Sons and to prove this, the copy of the ledger account of M/s Menghraj Sons was placed by the assessee on record which shows that the transactions between the assessee and M/s Menghraj Sons were in the nature of the business transactions and opening as well as the closing amounts outstanding in the account of M/s Menghraj Sons is the money due from them on account of sale effected through them by the assessee. The money is still outstanding and recoverable as at the end of the year because M/s Menghraj Sons has also not received the money from its debtors during the year. Hence, it is not in the nature of interest free funds but the outstanding from Menghraj Sons is as a result of business transactions, therefore, this outstanding amount of ₹ 4,05,26,526/- from M/s Menghraj Sons cannot be treated as an interest free advances. The ld. CIT(A) observed that in order to disallow the proportionate interest paid by the assessee during the year the A.O. has to establish that the assessee had advanced the money to the sister concern out of the borrowed fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected as such in the books of the assessee. The consignment agent agreement was executed on 10th August, 2004 between the assessee and the M/s Menghraj Sons. No disallowance has been made in the earlier years w.r.t. proportionate interest on these outstanding amounts. The agreement for consignment agent with M/s Menghraj Sons was terminated by the assessee w.e.f. 1st May, 2009 and the outstanding amount from M/s Menghraj Sons was ₹ 4.75 crores as at 01-05-2009 lacs on account of the sales made through them, which was ₹ 4.05 crores as at 31-3-2010. This amount as at 31-03- 2014 is further reduced to ₹ 3.44 lacs at 31-3-2014/pb page 72. The learned counsel for the assessee submitted that provision of Section 40A(2) of the Act were invoked. It was submitted that the assessee firm and M/s Menghraj Sons are separate entities and the assessee has not incurred any expenses which could be covered u/s 40A(2) of the Act. The agreement for consignment agent is placed on record. The assessee has also submitted written submissions. It was submitted that the Revenue has not made any disallowance in the preceding years. 9. We have considered the rival contentions and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess connections with the sister concern M/s Menghraj Sons and the funds outstanding in their account were on account of sales effected by them during the preceding year as well as during the year under consideration. Thus the outstanding receivable from Menghraj Sons cannot be treated as the interest free advances and hence the learned CIT(A) held that proportionate disallowance of interest to the tune of ₹ 60,78,950/- cannot be made . The ledger account of Menghraj Sons in the books of the assessee for the impugned assessment year and also for preceding year are placed on record in paper book filed with the tribunal by the assessee to show that the transactions with Menghraj Sons were towards sale of goods(page 42-53 56-57/pb) . No perversity in these ledger account was pointed out by learned DR. It is the contention of the assessee that Menghraj Sons could realize payments belatedly from the parties to whom sales were made by it and hence consequently the assessee s payment got delayed. The list of debtors of Menghraj Sons as at 31-03-2010 amounting to in aggregate ₹ 4.44 crores is placed in paper book/page 58-69. These above stated documents of transactions with Me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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