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TMI Blog2018 (11) TMI 950X X X X Extracts X X X X X X X X Extracts X X X X ..... farmers under agricultural loans against the individual name and the said loan was directly disbursed to the assessee company under tie up arrangement with the farmers. The AO's contention is that since the bank has sanctioned the loans to the individuals, farmers, the payment of interest has to be treated as payment to the individuals farmers, but not directly to the bank. The AO further observed that there was no agreement with the individuals, the assessee company and the bank for substantiating that the loan was sanctioned in tie up arrangement to the assessee company. Therefore, the AO held that the payment of interest to bank required to be treated as payment to individuals and the assessee has to deduct tax at source but not deducted the tax per section194A, thereby violated the provisions of section 40(a)(ia) of the Act and accordingly disallowed the sum of Rs. 2,74,49,637/-. 3. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) deleted the addition placing reliance on the decision of the Special Bench of ITAT Vizag in the case of Merilyn Shipping & Transports Vs. Addl.CIT [2012] 136 ITD 23/20 taxmann.com 244 (Vishakhapatnam) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dating the book debts. The company has mortgaged its assets for securing the loan. Accordingly, submitted that in case of Agricultural loans, the company and the farmer both are treated as principal debtors of the bank and therefore the sanction of loan exclusively in the name of individual farmer and the company availing of the said loan from the farmers does not arise and it is a single transaction of multiple borrowers. The charges for loan availed by the company has been duly registered with the Registrar of companies. In view of the above, the Ld.AR submitted that since the interest was paid directly to the bank, there is no requirement of deduction of tax at source as per section 194A of the Act and hence requested to delete the addition made by the AO representing the interest payment of Rs. 2,05,47,873/- on account of interest on farmer's loans as it was directly paid to the bank and the question of deduction of TDS on the interest payment does not arise. 5.2. In respect of interest of Rs. 69,01,764, the Ld.AR argued that the same was interest on working capital loan of the assessee company which was disallowed by the AO under the wrong impression, therefore requested to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly to the assessee, it has shown as loan funds in the assessee's balance sheet. It is also not disputed that the assessee has made the direct payment to the bank and there was no payment made to the individual farmers. Farmers also did not dispute the payment made to the banks and thus there was an implied agreement of the farmers for payment of interest and loan directly to the bank. It is a fact that the loan was not utilized by the farmer and the entire loan was utilized by the assessee for cold storage plant and given securities to the bank. Therefore, there is an obligation on the part of the assessee to repay the loan to the bank. Accordingly the assessee made the payment to the bank and has discharged its liability / obligation. Since the payment was directly made to the bank on behalf of the farmers it should be construed as the payment made to the bank, but not to the individual farmers., the interest payment made to the bank does not attract the TDS as per section 194A of the Act. Accordingly, we uphold the order of the Ld.CIT(A) and hold that no disallowance is called for u/s 40(a)(ia) of the Act and dismiss the appeal of the revenue. 7. In the result, the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y.2011-12. No real trade creditor would make advance for supply of apples / potatoes / tamarind etc. and wait for more than one year for supply of the same. 5.1.2. Appellant did not produce any contemporaneous evidence for receipt of advance in the form of agreement, contract etc. with Mr.K.Nagendra Kumar or I.T. return copy of Mr.K.Nagendra Kumar. In my view, this is a ruse to explain the appellant's credits (investments) in his bank account made, i.e. Rs. 19.50 lakh (Rs.9,75,000 + Rs. 9,75,000) on 10.05.2010 and Rs. 9,00,000/- on 27.08.2010, which was explained as trade credits. 5.1.3. The claim of appellant's AR in his submission dated 02.08.2016 that confirmation letter from a trade creditor after the lapse of three years from an unknown person is difficult as his address is not traceable and it is unable to collect respective account copy from trade creditor, indicates that there is no plausible and reasonable explanation from the appellant and the liability shown in the account is not a genuine trade credit. Copies of invoices in respect of sale of apples / potatoes / tamarind to Sri K.Nagendra Kumar were submitted during appeal proceedings for a sum of Rs. 38. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allow the appeal of the assessee. 11. Per contra, the Ld.DR supported the orders of the Ld.CIT(A). 12. We have heard both the parties and perused the material placed on record. In this case, the assessee has received a sum of Rs. 10 lakhs which was outstanding as at the end of the year 31.03.2010 relevant to the assessment year 2010-11, but not 2011-12. As per section 68 of the Act, the AO required to make the addition in the year in which it was received but not in the subsequent assessment year. Therefore, the addition made representing the advances relating to the assessment year 2010-11 required to be deleted. Further in this case, the assessee has received Rs. 38,50,000/- in aggregate upto assessment year 2011-12 which was outstanding as on 31.03.2011. The AO made the addition since the assessee failed to produce the evidence from the respective trade creditor. The Ld.CIT(A) confirmed the addition with a suspicion that no creditor would wait for such a long time. Though suspicion appears to be strong, it should not lead to conclusion without establishing the fact. In the instant case, the advances were received through cheques, but not in cash. The assessee submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee explained before us that in case of motor cycle dealership, the product being of high demand and supplies are not matching thereto particularly in case of Hero Honda Motor Cycle. Accordingly, purchasers gave advance for the goods chosen but not available in stock, for which advances are credited to "advance from customers account" and as and when particular product is available i.e. motor cycle, that is delivered after taking balance amount after adjusting earlier advance against full invoice price. According to assessee, such advances are mainly remained unadjusted for last 2/3 months round the year and accordingly, in the relevant financial year 2009-10 relevant to AY 2010-11, the balance as on 31.03.2010 was Rs. 3,99,54,051/-, which is the subject matter of present appeal as added by AO and confirmed by CIT(A). According to assessee, the advance was received by the assessee against booking of a particular make of motor cycle, which is not immediately available. As and when the same is received from Hero Motor Corporation Ltd. the same is delivered to customers after adjusting advance against full invoice price. The AO called for details viz., (a) Name & full postal addresses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " and the same is squared up the moment motor cycle is delivered to the customer. According to Ld. Counsel, this can be verified from the books of account and AO has verified also. Ld. Counsel for the assessee particularly drew our attention to page 131 of the assessee's paper book wherein the customer's name and address is mentioned as Maya Gurung, A-Zone, Hostel Avenue, Durgapur-4, DT. Burdwan, invoice dated 23.04.20 10 wherein advance of Rs. 38,000/- was adjusted as under: Sl. No . Particulars Amount 1. Super splendor cast 45,250.00 2. Hero Honda Goodlife 260.00 45,510.00 Less : Advance 38,000.00 Due 7,510.00 Less Paid 7,510.00 7. We find that the assessee is following mercantile system of accounting, wherein it is receiving advance deposits from customers on account of sale of motor cycle being a dealer in automobile. Whenever the sale is taken place, within one to two months, these deposits are adjusted against sale price of the motor cycle. This fact is admitted by both the sides. The issue is whether the assessee is consistently following certain system of accounting which had been accepted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Tribunal on the basis of evidence disclosed before them which is also found in the paper book filed before us by Mr. Khaitan. It cannot, therefore, be said that the view taken by the Tribunal is perverse. The question essentially is a question of fact and the learned Tribunal on the basis of evidence was satisfied that the money had in fact been received by way of advance and therefore, no question of any bogus liability being created was there as held by the Assessing Officer. 9. In that view of the matter, we are of the opinion that the finding arrived at by the learned Tribunal is not perverse. Section 68 in the facts of the case had no applicability. The question is, thus, answered in favour of the assessee. On the similar facts Hon'ble Delhi High court in the case of Commissioner of Income-tax, Delhi-VI v. Tulip Finance Ltd. reported in (2009] 178 Taxman 182 (Delhi) also taken the similar view. Therefore, we hold that the Ld.CIT(A) erred in confirming the addition made by the AO hence, we set aside the order of the Ld.CIT(A) and delete the addition. Accordingly, the appeal of the assessee on this ground is allowed. In the result, the appeal of the revenue is d ..... 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