TMI Blog2019 (4) TMI 1281X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 crores whereas the outstanding credit balance of cash credit (both the accounts) in aggregate is 3 crores approximately. Thus a presumption can be drawn that the assessee has not diverted any borrowed fund for noncommercial activity. See RELIANCE UTILITIES POWER LTD. [ 2009 (1) TMI 4 - BOMBAY HIGH COURT]. Thus we hold that no disallowance of interest expense claimed by the assessee can be made on account of investments as discussed above. - Decided in favour of assessee. Difference in the value of the stock as per the bank statement and as per the audit annual accounts - as explained that the difference is arising on account of the higher value of stock declared to the bank to avail the higher amount of cash credit facility from the bank - HELD THAT:- There was no difference in the quantity recorded by the assessee in its books of accounts in the stock statement as well as the stock statement furnished to the bank. Thus there is no dispute that the difference in the valuation of closing stock for ₹ 39,15,600/- was arising due to the declaration of the higher value of the stock to the bank. In such situations, courts have held that there cannot be any addition in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in holding that there was excessive payment made by the appellant to the specified persons to extent of 3% and on that ground confirming the disallowance of interest to the extent of ₹ 1,67,463/- out of disallowance of ₹ 3,34,926/- made in the assessment order. 2. In law and in the facts and circumstances of the appellant s case, the ''Ld.CIT(A) has erred in upholding the disallowing of interest expenditure of ₹ 16,83,923/- made by the Assessing Officer being the interest on C.C. A/c on the ground that the assessee would have deferred interest-bearing funds toward interest-free advances/loans/investment. 3. In law and in the facts and circumstances of the appellant s case, the ''Ld.CIT(A) has erred in upholding the addition of ₹ 39,15,600/- made by the ''Ld.Assessing Officer for the alleged difference in the value of stock of ship as per the bank statement and the stock of ship as per the audited Annual Accounts. 4. In law and in the facts and circumstances of the appellant s case the ''Ld.CIT(A) has erred in upholding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en partial relief to the assessee by observing from the interest ledger account that some of the parties have paid interest @15% and 18% per annum. The details of such parties stand as under: 1. Shri J.N. Patel, HUF 15% 2. Deviben I. Sanghvi 18% 3. Vijay Ishwarbhai Sanghvi HUF 18% 4. Bhartiben J. Doshi 18% 5. Hiten K. Shah HUF 18% 6. Aarti Ship Breaking 15% 7. J.N. Patel HUF 12% 8. Pars Steel Corporation 18% 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee as unreasonable/excessive, we are not impressed with the finding of the AO. 12. There is no dispute about the use of fund borrowed by the assessee at the rate of 18% per annum. Thus it is transpired that the assessee has used the borrowed fund for its business. Regarding this, we are of the view that it is the assessee who knows its business affairs the best than any other person. Accordingly, the assessee can only decide the need for the borrowing from the related parties including the rate of interest. As such the AO is not expected to direct/advice to the assessee to borrow the money for the business at a particular rate of interest. In this regard, we find support and guidance from the judgment of Hon ble Delhi High Court in case Oracle India (P.) Ltd. reported in 11 taxmann.com 139 wherein it was held as under: It is well-settled that it is not open to the department to adopt a subjective standard of reasonableness and disallow a part of business expenditure as being unreasonably large, or decide what type of expenditure the assessee should incur and in what circumstances. Thus, the jurisdiction of the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r noticed that customs duty, other port charges, etc. are of ₹ 1,51,39,081/- whereas outstanding balance in C/C account is of ₹ 1,24,05,546/- and ₹ 1,76,11,813/- aggregating the amount of ₹ 30017359/- which prove that the fund of the assessee has been diverted. 16. On a question by the AO, the assessee submitted that the company imported all the vessels on credit by establishing usance LC from the bank. As such the credit from the bank in the international market is available virtually at cost-free. Thus the assessee deploys the same for earning a higher rate of returns. The LC generally has a tenure of 180 days. 17. The assessee further submitted the that the Company purchased vessel winner-4 weight 13426 MT in January 2010 for which it has made an advance payment of US$ 3,50,000/- by availing credit facility of ₹ 1,22,64,000/- after payment of necessary margin at the rate of 25%. Another cash credit limit of ₹ 2,26,67,882/- availed for payment of customs duty, etc. Aggregate credit availed by the company for the ship is ₹ 3,49,31,882/- 18. However, the AO disagree with the submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by AO is correct, and thus disallowance is confirmed. 23. Being aggrieved by the order of the Ld.CIT (A) assessee is in appeal before us. 24. The ld. AR before us submitted that the own fund of the assessee axes the amount of cash credit account as shown outstanding in the balance sheet. Thus it can safely be presumed that there was no diversion of fund and accordingly no disallowance of interest is warranted. On the contrary, the ld. DR before us vehemently supported the order of the authorities below. 25. We have heard the rival contentions and perused the materials available on record. On perusal of the balance sheet of the assessee as on 31st March 2010, it was noticed that owned fund and Reserve surplus of the assessee stands 6.51 crores whereas the outstanding credit balance of cash credit (both the accounts) in aggregate is 3 crores approximately. Thus a presumption can be drawn that the assessee has not diverted any borrowed fund for noncommercial activity. In this regard, we find support and guidance from the judgment of Hon ble Bombay High Court in the case of Reliance Utilities and Power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eplied that the difference in the value of the stock is arising due to two reasons. Firstly, on account of foreign exchange gain earned by the company while importing the ship on credit and secondly, on account of the element of central excise duty included in the bank statement stock which has not been considered in the valuation of stock in the books of accounts because assessee uses the exclusive method of accounting. 29. However, the AO rejected the contention of the assessee by observing as under: 1) No calculation of such Foreign Exchange gain furnished by Assessee, no ledger account showing the impact of gain from Foreign Exchange. 2) Stock as per bank stock statement for bank ₹ 9,04,22,800/- and as per books of accounts 8,01,37,200/- difference is 1,02,85,600/- when the assessee is following the exclusive method without considering the excise duty element then the value of the stock should be of ₹ 8,40,52,800/- but still there is the difference of ₹ 39,15,600/- only. 30. Therefore the undervaluation of the stock has decreased the profit. Accordingly, the difference of ₹ 39,15, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntity recorded by the assessee in its books of accounts in the stock statement as well as the stock statement furnished to the bank. Thus there is no dispute that the difference in the valuation of closing stock for ₹ 39,15,600/- was arising due to the declaration of the higher value of the stock to the bank. In such situations, courts have held that there cannot be any addition in the total income of the assessee in the event assessee has declared the inflated value of the stock. We find support and guidance from the judgment of Hon ble Gujarat High Court in the case of CIT Vs. Read the steel and tubes private Ltd reported in 40 taxman.com 177 wherein it was held as under: 9.2 It is a settled law, as rightly held by the Tribunal, that only on account of inflated statements furnished to the banking authorities for the purpose of availing of larger credit facilities, no addition can be made if there appears to be a difference between the stock shown in the books of account and the statement furnished to the banking authorities. If, for the purpose of fulfilling the margin requirements of the bank purely on inflated estimate basis, when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of ₹ 5,55,720/-. The assessee in support of its claimed filed the copy of the account of the party, detail of bad debts expenses. 42. However, the ld. CIT(A) observed from the list of debtors that the party named quality casting industries had been shown in the list of debtors for the amount of ₹ 12,92,33,269/-. 43. Moreover, this plea was not taken by before the AO. As such the plea was taken 1st time during the appellate proceeding and a copy of the ledger account was filed as additional evidence without any request under rule 46A, and hence the plea of the assessee was not accepted. 44. Being aggrieved by the order of the Ld.CIT (A) assessee is in appeal before us. 45. The ld. AR before us reiterated the submissions as made before the learned CIT (A). On the contrary, the ld. DR before us vehemently supported the order of authorities below. 46. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the difference observed by the AO between the value of the debtors shown by the assessee in its books of accounts viz a viz l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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