TMI Blog2017 (12) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... account of certain items jotted in pencil on two sheets of paper which were recovered during the course search and seizure operation. The assessee submitted that the said can not be treated as unexplained expenditure and under these circumstances, the Hon'ble Delhi High Court in the case of Lubtech India Ltd. [2007 (7) TMI 281 - DELHI HIGH COURT] has held that section 69(c) postulates that first of all, the assessee must have incurred the expenditure and thereafter if the - explanation offered by the assessee was not found satisfactory only then the addition can be made u/s 69C of the Act. In the present case also the assessee had denied to have incurred this expenditure and the assessee had been maintaining that such expenditure was never incurred by the assessee and these were not reimbursed to the employees and therefore we are in agreement with the arguments of assessee that addition under these circumstances can not be made u/s 69C of the Act. Disallowance of 1/10th out of vehicle expenses - Held that:- Assessing Officer is directed to delete disallowance on account of depreciation which the Ld. CIT(A) had sustained due to personal use. However as regards other expenses th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,963/- made by the Assessing Officer u/s 41(1) of the Act on the ground of alleged cessation of liability pertaining to the following parties : (i) M/s El Marwa Import and Trading Co., Cairo : Rs.6,15,095/ (ii) M/s Khyati Machine Tools : Rs.66,060/ (iii) Sh. M.N. Patel : Rs.2,48,600/ (iv) M/s S.R. Forgings : Rs.2,29,208/ 5. The CIT(A) misconceiving the facts of the case and rather most arbitrarily brushing aside the very fact that the G.P. Rate for the year under consideration was substantially progressive as in comparison to that of the preceding years had upheld the Trading addition of ₹ 4,73,392/- so made by the Assessing Officer in the hands of the assessee firm. 6. The CIT(A) had though deleted the addition of ₹ 1,62,842/- on the ground that the same would be covered by the Trading addition which had been sustained by him, had however grossly erred in failing to independently adjudicate the said iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts aggregating to ₹ 24,08,050/- on advances made to Sh. Rajesh Kumar, Smt. Maya Devi Educational Society and Sh. Sohan Lal, had exceeded his powers and enhanced the income of the assessee firm without affording any opportunity to the latter, as statutorily required u/s 251(2) of the Act . 5. Any other ground of appeal as may be allowed to be raised at the time of hearing of the appeal . Grounds of appeal in ITA No. 118/Asr/2014 1. That the order of the CIT(A) to the extent upholding the additions made by the Assessing Officer is against the law and facts of the case. 2. That the CIT(A) failing to appreciate the facts of the case in light of the settled position of law and therein erred in upholding disallowance of interest on advances made to M/s Rajesh Jewellers, Sh. Rajesh Kumar, Smt. Maya Devi Educational Society, Sh. Sohan Lal, M/s PMS Enterprises, Sh. Balwinder Kaur and M/s S.R. Forgings. 3. That the CIT(A) had erred in sustaining the disallowance of 1/10th of the Vehicle Expenses amounting to ₹ 1,18,225/-. 4. That the CIT(A) had erred in upholding the addition of ₹ 10,319/ made by the Assessing Officer in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shareholder even though it is not the Registered Shareholder for the purpose of section 2(22)(e) of the I.T. Act, 1961 in view of Delhi High Court Judgment in the case of CIT Vs. M/s National Travel Services dated 01.10.2011. 2. Deleting the addition of ₹ 4,95,560/- made by the Assessing Officer on account of disallowances u/s 36(1)(iii) of the Income Tax Act, 1961, as directed to recalculate the disallowances at the rate at which the assessee firm is paying interest. 3. Deleting the addition of ₹ 46,11,381/- made by the Assessing Officer on account of non charging on interest on loans to sister concerns ignoring the decision of Jurisdictional High Court in the case of Abhishek Industries reported at 286 ITR 1. 4. It is prayed that the order of the learned Commissioner of Income Tax (Appeals) be set-aside and that of the Assessing Officer be restored. 5. The appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed off. Grounds of appeal in ITA No. 217/Asr/2014 1. On the facts and in the circumstances of the case and in law the Ld. Commissioner of Income-tax (Appeals) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the opening balances are reduced from these figures, the remaining amount representing interest free advances will be less than the interest free capital and interest free unsecured loan available with the assessee and in this respect our attention was invited to paper book 36 for Asst. Year 2006-07 where a copy of balance sheet was placed. The Ld. AR submitted that as per the settled law no addition can be made when interest free funds of the partners are more than the interest free advances and in this respect placed his reliance on the following case laws: (i) PMS Diesels Vs. DCIT ITA No. 425/Asr/2014 dtd. 5.5.17 Own case of appellant, copy enclosed at page 168 to 172 (ii) MBD Printographics Pvt. Ltd. Vs. DCIT 61 I.T. Reps 187 (2016) 7 ITR(Trib) OL 593 (Amritsar) Enclosed at page 188 to 194 (iii) Malhotra Book Depot Vs. ACIT (2016) 47 CCH 879 Asr Trib enclosed at page 195 to 199 (iv) CIT Vs. Satish Bala Malhotra Ors. (2016) 387 ITR 403 (P H) enclosed at page 200 to 203 (V) CIT Vs. Max India Ltd. (No.2) (2016) 388 ITR 81 (P H) enclosed at page 204 to 215 Similarly, the Ld. AR in ITA No. 116/Asr/2014 for Asst. Year 2007- 08 invited our a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and none of the amount was relating to the year under consideration. 9. The Ld. AR further submitted that few of the accounts noted at serial no. 4 to 7 were already squared up by year ending 31.03.2008. The Ld. AR submitted that no such addition was made in the preceding assessment year and in this respect our attention was invited to assessment order of assessment year 2005-06 placed at paper book page 1 to 20. The Ld. AR submitted that if the assessee continues to declare the liabilities in the balance sheet, the liability cannot be said to have extinguished. The Ld. AR submitted that the Hon'ble Delhi High Court in the case of CIT Vs. Sugauli Sugar Works Pvt. Ltd. (1999) 236 ITR 518(SC) has explained the position with respect to cessation of liabilities u/s 41(1) of the Act. Therefore, the addition cannot be sustained as the amounts were brought forward balances and further reliance was placed on the following case laws: (i) DCIT Vs. Sadguru Land Finance (2016) 52 ITR(TRib) 182, Amritsar Important Para 22, Page-200 (ii) CIT Vs. Smt. Sita DEvi Juneja (2009) 77 CCH 1104 (PHHC) Also see page 86 of CIT(A) s Order Enclosed at Page 218 to 220 (iii) CIT Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue and has given relief as per paper book page 92 and Revenue has not filed any appeal against such relief. The Ld. AR submitted that in respect of other payees the assessee had deposited the tax in succeeding year and therefore assessee should be given credit for such taxes paid in succeeding year. In respect of other payees the Ld. AR submitted that in few cases the assessee was not required to deduct tax at all as in some cases the payments did not exceed ₹ 2,0000/-. The Ld. AR submitted that in some cases the payments were made as reimbursements and therefore the assessee was not required to deduct TDS in respect of such parties. In this respect the Ld. AR invited our attention to an order of Hon'ble ITAT Amritsar Bench in the case of assessee itself in ITA No. 257 wherein the Hon'ble Bench had held that assessee was not required to deduct taxes in such cases. The Ld. AR submitted that these payments were made to shipping agents towards IFC, THC, BAF, and CAF charges and the assessee was not required to deduct TDS as per the provisions of 172(8) of the Act. As regards disallowance u/s 40A(3) in assessment year 2006-07, the Ld. AR submitted that above paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance was necessary. As regards the addition partly sustained by Ld. CIT(A) in respect of addition u/s 41(1) of the Act, the Ld. DR submitted that Ld. CIT(A) has sustained the addition in accordance with the specific provisions of the Act and he heavily placed his reliance on the order of Assessing Officer. As regards addition u/s 40(a)(ia) the Ld. DR submitted that the entire issue can be set aside to the office of Assessing Officer who should verify the same and should allow the relief accordingly. As regards the gross profit addition and addition on account of unaccounted vouchers, the Ld. DR placed his reliance on the orders of authorities below: Arguing upon Revenue s appeal, the Ld. DR in respect of deletion by Ld. CIT(A) on account of addition u/s 2(22)(e) submitted that the assessee firm was not a shareholder but the partners of the firm were shareholders and therefore the assessee firm has to be treated as the beneficial shareholder and therefore, the Ld. CIT(A) has wrongly allowed relief to the assessee. The Ld. DR in this respect relied on the case laws Shri. Gopal Sons Vs. CIT pronounced by Hon'ble Supreme Court of India in Civil Appeal No. 12274 of 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of only 10 parties which were originally listed in the original assessment order. We further find that in a few cases, the amount of advances was as opening balances and there are judgments of Amritsar Tribunal holding that in respect of old advances from earlier years, no disallowance u/s 36 (1) (iii) of the Act was warranted. Further the disallowance if any u/s 36(1)(iii) has to be restricted to the amounts of loans which exceeded the capital of the assessee as has been held by Hon'ble Amritsar Bench in various case laws relied on by assessee. Therefore, the Assessing Officer is directed to restrict the disallowance of interest on loan amounts exceeding the available capital of the assessee. With these directions the appeal of the assessee is set aside to the office of Assessing Officer to reframe the assessment order in terms of above said directions. In the present case also we are of the opinion that Assessing Officer should examine the disallowance keeping in view the case laws relied on by assessee wherein it has been held that on opening balances of advances no disallowance u/s 36(1)(iii) was warranted and similarly in cases it has been held that if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,17,684 NOT REPLIED 8 VS INDUSTRIES 3,12,582 NOT REPLIED TOTAL 26,60,270 The AO, on verification of ledger accounts in the preceding two years noticed that the above stated creditors are static creditor since outstanding balance are being shown by the assessee for more than three years. There was no single transaction between the assessee and creditors during last three years neither any interest has been paid. The creditors have also not demanded the outstanding payments. The AO, therefore, concluded that the above creditors might have squared off or written off the impugned demands/balances and as such there is a remission or cessation of assessee's liability. The AO has also stated that in the case of M/s Montage Enterprises, it was denied that any amount is receivable from the assessee. In the case of M/s Hatim Copper, the unit has been closed since long and no confirmation could be made. The AO, therefore, asked the assessee to submit its reply on the proposed addition. In respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. [Explanation l.-For the purposes of this sub-section, the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in is accounts.] Form the above it is clear that to attract section 41(1) following conditions must be satisfied: a). In the assessment of an assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him b). (i) Any amount is obtained in respect of such loss or expenditure, or (ii) Any benefit is obtained in respect of such trading liability by way of remission or cessation thereof c). Such amount or benefit is obtained by the assessee; and d). Such amount or benefit is obtained in a subsequent year. Only if all these conditions are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e creditor may enforce the debt or liability after expiry of sometime then it would not be possible for the assessee to pay back the outstanding balance. The Hon'ble Courts have therefore, held that the liability to make payment ceased to exist only after expiry of the normal portion of limitation as provided under the limitation Act. The other decisions also cited by the appellants support the case of the appellant. I, therefore, hold that in the absence of any examination of the creditors to the effect that they have waived the liability or the limitation period has expired under the limitation Act, the creditors shown in the balance sheet cannot be treated to have been remitted u/s. 41(1) of the Income tax Act. Thus, the addition made by the AO on this ground is deleted and appellant gets a relief of ₹ 26,60,270/- The Ld. CIT(A) has deleted the part addition after examining various documents and from which he arrived at the conclusion that the reasons why the amounts were laying for such a long period of time were explainable and therefore, he deleted substantial portion of the addition. While deleting the addition, the Ld. CIT(A) had accepted additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 22.03.2016 had held that in the case of payments made to shipping agents of non resident owners, the assessee was not liable to deduct TDS. While deciding in such a manner, the Hon'ble Tribunal had relied on the case laws ITO Freight Systems (India) Pvt. Ltd.; 6, SOT 473(Del). We find that in ITA No. 257/Asr/2014 vide order dated 22.03.2016, the issue of tax deduction at source on payments on account of Inland haulage charges, Terminal handling charges, Bunker adjustment factor and cost adjustment factor were considered in respect of payments of M/s IAL, M/s R.K. Shipping, M/s S.K. Shipping, LTA Worldwide were considered and the Hon'ble Tribunal had decided the issue in favour of assessee by holding as under: 5. Apropos Ground no. 2, the Assessing Officer noted that it was the observation of the auditors of the assessee that the assessee had not deducted tax at source in some of such payment, which had been made to the contractors, custom agents, lease rent charges etc., as under: Nature of expenses Amount of payment a. Shipping expenses M/s, Worldwide Contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any deduction of tax at source and the authorities below have erred in holding the assessee-company to be in default u/s 201(1)/201(1A) read with section 194C of the Act for failure to deduct tax at source on these amounts. 9. On the other hand, the Id. DR, has placed strong reliance on the impugned order. 10. We have heard the rival contentions and have perused the material available on record. The question is as to whether Inland haulage charges, Terminal handling charges, Bunker adjustment factor, Cost adjustment factor, etc., i.e., shipping expenses paid by the assessee regarding exports using non-resident shipping call for TDS. 11. Section 172 of the Act regulates the procedure for assessing the income of non-resident shipping. 12. Section 172(2) reads as follows: Where such a ship carries goods shipped at a port in India, seven and half percent of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage. 13. Section 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra). The grievance of the assessee by way of Ground no. 2 is found to be justified and is accepted as such. Accordingly, the demand of ₹ 7,189/- u/s 201(1) and ₹ 4,314/- u/s 201(1A) of the Act for non-deduction of TDS on payment of shipping expenses of ₹ 3,52,434/- is cancelled. We find that in the present case the assessee had made payments to few of the parties mentioned in the order of Hon'ble ITAT. Therefore we deem it appropriate to remit this issue to Assessing Officer who should examine the nature of expenses and if the payments made are covered by the provisions of section 172(8) and CBDT Circular No. 723, then Assessing Officer should allow relief thereof. In view of the above ground no. 8 is allowed for statistical purposes. 18. As regards the addition on account of unaccounted vouchers in assessment year 2006-07, the Ld. AR had relied on the Delhi High Court decision in the case of CIT Vs. Lubtech India Ltd. 311 ITR 175 for the proposition that addition cannot be made for unaccounted vouchers. We find that in this case the addition was made u/s 69C of the Act on account of certain items jotted in pencil on two sheets of paper which we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncur with the findings of the Ld. CIT(A) that the Assessing Officer has failed to record any finding in the assessment order that the case of the assessee is akin to the provisions of section 145(3) of the Act. the arguments made by the Ld. counsel for the assessee before the Ld. CIT(A) are that the assessee furnished audited accounts/tax audit report alongwith books of account and bills/vouchers for purchase/sales of liquor and relating to expenses were produced for verifications. The details and basis of valuation of closing stock were placed on record during the course of assessment proceedings. The state excise and taxation department keeps strict control and supervision over the liquor trade carried out by the assessee. The purchases of liquor can be made by the assessee against the permits issued by the state excise department and similarly the sales of the liquor by the assessee to the retailers having 1-2 licenses can only be made against the permits issued by the State Excise Department. The Assessing Officer failed to rebut the contention of the assessee that that the net rebate of ₹ 16586467/- is a part of the trading results and also the gross profit. The Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of brevity has not been reproduced here. In view of the above facts and circumstances, the ground no. 5 in ITA No. 114/Asr/2014 is allowed. As regards issue of disallowance of 1/10th out of vehicle expenses we find that the disallowance sustained by Ld. CIT(A) consisted of depreciation and other car expenses. As regards disallowance of depreciation on account of personal use we find that Mumbai Tribunal in the case of Mukesh K. Shah Vs. Income Tax Officer in ITA No. 3888/Mum/2000 has held as under: If the car is used by the assessee for the purpose of his business, then the depreciation need to be allowed as per the rate suggested by the statute. Depreciation is an statutory allowance. The statutory allowance cannot be restricted on the basis of the volume of business use and volume of personal use. The condition to be satisfied is that the asset should be owned by the assessee and it should be used for the business of profession. Both the conditions are satisfied here. Personal use of the care cannot fetter the granting of statutory allowance. Therefore, the disallowance made on account of depreciation is deleted. In view of the above, the Assessing Officer is dir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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