TMI Blog2017 (12) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A) stood confirmed. Disallowance u/s. 41(1) on account of cessation of liabilities - Held that:- CIT(A) has granted relief to the assessee as the assessee has written back these liabilities in AY 2007-08 except two liabilities firstly payable to Shaft Broadcast Private Limited on the ground that this liability was disputed/contested by the assessee before Hon’ble Bombay High Court and secondly liability payable to Mr. Sushant G Mohite wherein part payments was made by the assessee subsequently and partly the same was written back in AY 2007-08. The afore-said claims were made before learned CIT(A) for the first time wherein relief was granted by learned CIT(A) without verification . The AO is directed to make verification of the aforesaid claims so made by the assessee for the first time before learned CIT(A) and if the contentions of the assessee are found to be correct, we find no reason to withhold relief to the assessee. - I.T.A. No. 6278/Mum/2010 And I.T.A. No. 6035/Mum/2010 - - - Dated:- 29-11-2017 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : None For The Revenue : Shri. Rajat Mittal ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 5,68,50,000/- and notional interest at the rate of 12.25% had to be disallowed on the said amount. 4. These are very old appeals for the assessment year 2006-07 filed by the assessee as well revenue in the year 2010. In these instant appeals several opportunities were granted to the assessee as per order sheet entries in the file but the assessee is not appearing when the appeals were called for hearing before the tribunal. On 21-08-2017, when the appeal were called for hearing again none appeared on behalf of the assessee. On 21-08-2017, the Bench directed issue of notice by RPAD as well directions were issued by the Bench to serve notice through learned DR. The learned DR has filed acknowledged copy of receipted service of notice which was received by the assessee on 27-09-2017 intimating about hearing fixed on 04-10-2017 , but still none appeared on 04-10-2017 when the appeal was called for hearing. Thus, keeping in view wilful default of the assessee wherein appearances are not entered deliberately by the assessee and no adjournment application is filed, we are proceedings to decide these two appeals after hearing learned DR and perusing material placed on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the tune of ₹ 1,59,66,007/- which was held to be in contravention of Section 36(1)(iii), vide assessment order dated 26-12-2008 passed by the AO u/s 143(3). Further, it was observed by the A.O that creditors to the tune of ₹ 28,61,468/- are outstanding for the last more than two years as per list placed by the AO at page 9 and 10 of the assessment order . The AO observed that since the said amounts were outstanding for more than 3 to 4 years as on 31.03.2008 . The AO observed that the burden is on the assessee to prove that the liability subsists as the facts are especially in the knowledge of the assessee. The A.O added the said amount of ₹ 28,61,468/- to the income of the assessee as unclaimed liabilities and on account of cessation/remission of liability u/s. 41(1) of the Act, vide assessment order dated 26-12-2008 passed by the AO u/s 143(3). 6. Aggrieved by the assessment order dated 26-12-2008 passed by the AO u/s 143(3), the assessee filed first appeal before the learned CIT(A). The assessee contended before the learned CIT(A) that the finance charges amounting to ₹ 46,60,216/- were also considered while calculating the interest rate at 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or financing practice, interests are calculated on daily outstanding balances or on reducing balances depending on the terms of each loan or advance. Interests are, however, not calculated on year end outstanding balances or even on average of opening and closing balances. Moreover, though observing that Appellant had paid interest on fixed loans and others as well as incurred finance charges on leases etc., AO has taken the entire sum of ₹ 1,61,92,705/- to work out-the cost of borrowing at 22.75% disregarding the fact that the term loan, cash credit loan, packing credit loan etc. were at different rates and for different purposes and could not be considered in entirety as directed against the loans and advanced by Appellant to others. Moreover, though the entire loans advances given by Appellant have been considered, AO has only considered the interest received from subsidiaries while working out the percentage of interest received at 1.40%. Additionally, there has been no attempt to identify whether Appellant had utilised interest-bearing loans to make loans and advances to different parties or whether these were out of appellants own funds. 2.1.5 The assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts except Shaft Broadcast Private Limited and Sh. Sushant G. Mohite were written back as income u/s 41(1) in AY 2007-08. With respect to Sh. Sushant G Mohite it was submitted that the amount of ₹ 6,168/- was paid on 12-4-2006 and remaining ₹ 1200/- was written back as income u/s 41(1) on AY 2007-08. With respect to Shaft Broadcast Private Limited, it was submitted that the dispute is pending before the Court and though disputed liability is continuing in books of accounts. The copy of summary suit filed with Hon ble Bombay High Court was filed. Thus, it was submitted that no additions can be made for the amounts which were already written back in AY 2007-08. The learned CIT(A) observed that no disallowance can be made by the A.O. , by holding as under: 2.2.3 Facts and material on record are considered. There is a details discussion in the assessment order on this disallowance. However, it does not seem that the A.O queried the appellant for satisfaction. regarding the creditors/liabilities except for asking Appellant to produce details with regard to creditors lying outstanding for past two years. As stated in the assessment order, this compliance was made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that in this business in which the assessee is engaged, the liability does not exist outstanding for payment beyond one year. It is submitted that the matter can be restored to the file of the A.O. for necessary verifications . 8. We have considered the contentions of Ld. DR and have perused the material on record including orders of the authorities below. The assessee is engaged in the business of animation production services. The A.O observed that assessee has obtained secured loans to the tune of ₹ 7.11 crores from the Banks and Finance Companies. The AO observed that the assessee has incurred interest and other finance charges to the tune of ₹ 1.61 crores . It was also observed by the AO that assessee has advanced ₹ 6.52 crores as loans and advances , out of which the AO observed that loans and advances were given to subsidiaries as well as Inter-corporate Deposits(ICD) to various companies. It was also observed by the AO that assessee has advanced ₹ 5,68,50,000 as ICD to Classic Credit Limited in the year 2003 which was marked as doubtful . The AO concluded that there is violation of provisions of Section 36(1)(iii) as on the one hand the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DULE ANNEXED TO AND FORMING PART OF THE BALANCE SHEET AS AT 31ST MARCH, 2006 (RUPEES) SCHEDULE-C SECURED LOANS (1) Term loan from State Bank of India, 15,000,000 (2) Term loan from State Bank of India 13,172,898 (3) Vehicle loans from ICICI Bank Limited 8,160,685 (4) Equipment loan from Ceejay Finance Limited - (5) Cash credit from State Bank of India, 21,213,640 (6) Packing credit from State Bank of India 13,007,923 71,155,146 We have also observed from the financial statements which are part of the assessment order of the AO at page 2 , that the total owned funds of the assessee ( share capital + reserves and surplus-debit balance in P L A/c) as at 31-03-2006 were to the tune of ₹ 94.36 crores , while investments are to the tune of ₹ 41.88 crores and loans and advances including ICD are to the tune of ₹ 6.51 ..... 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