TMI Blog2019 (11) TMI 799X X X X Extracts X X X X X X X X Extracts X X X X ..... ilk supplies creditors to verify about their genuineness and bonafide rather the entire sum wherein the payments were outstanding for more than one week stood added by the AO while CIT(A) gave part relief to the assessee by accepting creditors which were outstanding upto two weeks. The assessee has also to rebut said presumption by bringing on record complete details of each of these milk suppliers creditors such as name, address, PAN, reasons for non payments, any dispute with these milk suppliers, communication with these milk suppliers, claims filed by these milk suppliers with any court etc. . In our considered view based on facts and circumstances of the case and in the interest of substantial justice to both the parties, the assessee deserves one more opportunity and the matter needs to be set aside and restored to the file of the AO for framing fresh assessment denovo on merits in accordance with law. We have already explained the onus which lay on both the parties. The assessee is directed to produce complete details of milk suppliers to the AO in set aside proceedings for making necessary enquiries and verifications, if deem fit by the AO in set aside proceedings . A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e set aside and restore this matter to the file of the AO for framing fresh assessment denovo on merits in accordance with law. The assessee is directed to produce these additional evidences before the AO in set aside proceedings for making necessary enquiries and verifications, if deem fit by the AO in set aside proceedings . The AO is directed to provide proper and adequate opportunity of being heard to assessee in accordance with principles of natural justice in accordance with law. Disallowance of interest on term loans borrowed for incurring capital expenditure for installing Karur Chilling Plant - HELD THAT:- Addition on the grounds that the said Karur Chilling Plant had not commenced commercial operations and the assets thereof were not put to use. The decision by the AO as to whether the assessee did commence commercial production and put to use assets before the end of previous year relevant to impugned ay or not as per our decision in preceding para 12 was set aside to the AO and the decision of the AO in set aside denovo proceedings shall have direct bearing on the allowability of interest on term loans availed for incurring capital expenditure for installing Karur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As the cessation of liability is the matter of the Assessee's policy and prudence and they are the better judges to take a decision on cessation of Liabilities, the addition made U/s 41(1)(a) on this account needs to be deleted. 03. The Commissioner of Income Tax (Appeals) ought to have appreciated the fact in respect of the all the additions made U/s 41(1) it is relied on the decision of the Honorable Delhi High court in the case of CIT Vs. Hotline Electronics ltd (2012) 205 Taxmann 245 (Delhi), where in it is held that unpaid liabilities cannot be added as the Assessee's income under Section 41(1) merely because they remained unpaid for a sufficiently long time and that it is required of the revenue authorities to show that the liability to pay the creditors has ceased or has been remitted by the creditors . In fact, without confirming from the creditors, the cessation of liability will not be possible. 04. The Commissioner of Income Tax (Appeals) ought to have appreciated the fact that a statement given at the time of survey U/s 133A cannot be a basis for making an addition as held by the Honorable Madras High court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The brief facts of the case are that the assessee is engaged in the business of Milk Dairy. A survey action u/s.133A of the 1961 Act was carried out by Revenue in the premises of assessee on 06.11.2013. During the course of survey operations conducted by Revenue u/s 133A of the 1961 Act, the assessee had declared additional income of ₹ 2,05,98,000/- on account of waiver of milk creditors. The assessee in its return of income filed with Revenue, however, declared an additional income of ₹ 2 Crores. The case was selected by Revenue for framing of scrutiny assessment u/s 143(3) of the 1961 Act and statutory notices u/s 143(2) and 142(1) of the 1961 Act were issued to the assessee by the AO. The AO during the course of assessment proceedings observed that sundry creditors on account of milk supplies were claimed by assessee to be ₹ 13,71,68,433/- as on 31.03.2014, as against opening balance of ₹ 10,05,12,485/- at the beginning of the year. The AO observed that despite surrender of ₹ 2 Crores on account of waiver of milk creditors, there was an increase in the closing balance. During the course of sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO observed that total of such creditors are to the tune of ₹ 32,70,589/- for which list was annexed by the AO along with the assessment order. The AO observed that the assessee has not given proper explanation for non inclusion of these sundry creditors for waiver/declaration of income. The AO observed that these milk suppliers were poor villagers who cannot wait for more than a year to receive their payments and hence AO was of the view that it is difficult to accept version of the assessee and AO was of the view that either the assessee had paid these sundry creditors out of unaccounted funds or else the liability has extinguished which attracts provisions of Section 41(1)(a) of the 1961 Act. This led AO to make additions to the tune of ₹ 32,70,589/- as income of the assessee by invoking provisions of Sec.41(1)(a) of the 1961 Act, vide assessment order dated 30.12.2016 passed by the AO u/s. 143(3) of the 1961 Act. 3.3 Similarly, the AO also observed from list of outstanding milk creditors, wherein last purchases were more than a month old or payments for last few purchases were made back to back , that there is no previous balances of sundry credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment has already made an addition to the income of the assessee for ay:2013-14 to the tune of ₹ 5,06,56,197/- u/s. 68 of the Act in respect of unexplained sundry creditors outstanding as on 31.03.2013. It was observed by AO that Ld.CIT(A) has already deleted the aforesaid addition for ay: 2013-14 vide appellate order dated 30.08.2016 and matter is now pending for disposal before tribunal at the behest of Revenue . The AO observed that since matter for ay: 2013-14 has not reached finality, out of additions to the tune of ₹ 10,99,14,393/- now being made on account of waiver of sundry creditors, an amount of ₹ 5,06,56,197/- is being added on protective basis and if additions for ay:2013-14 are not sustained by appellate authorities , then in that situation, the entire additions to the tune of ₹ 10,99,14,393/- will stood confirmed as income in the hands of the assessee on substantive basis for impugned ay under consideration. 4. The AO also observed that assessee had claimed depreciation on assets in respect of two new Chilling Plants set up at Aayilpatti and Karur, it was observed by AO that as per information submitted by assessee dated 14.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , vide assessment order dated 30.12.2016 passed by AO u/s 143(3) of the 1961 Act 6. The AO also observed that assessee has availed term loans for setting up these two new chilling plants at Aayilpatty and Karur and interest on term loans to the tune of ₹ 60,82,257/- was incurred by assessee for the year under consideration and since these two units have not commenced operations till the end of previous year relevant to impugned ay , which led AO to refer to provisions of Section 36(1)(iii) of the 1961 Act to disallow these interest expenses which stood added to the income of the asssseee by the AO, vide assessment order dated 30.12.2016 passed by the AO u/s 143(3) of the 1961 Act. 7. The AO further observed that during the course of survey operations conducted by Revenue against the assessee on 06.11.2013 u/s 133A of the 1961 Act, the cash to the tune of ₹ 26,35,769/- was physically found but however cash balance as per auditor s statement now filed with department as on the date of the survey was ₹ 56,33,311/-, which led to excess cash to the tune of ₹ 29,97,542/- reflected in books of accounts of the assessee, which led AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that assessee has admitted to have inflated purchases and overstated sundry creditors in its books of accounts. The learned CIT(A) observed that genuineness of sundry creditors balances is also in question. The assessee relied on judgment in the case of CIT v. Hotline Electronics Limited(2012) 205 taxman 245(Delhi) , while Ld.CIT(A) distinguished the aforesaid decision relied upon by the assessee and held that the assessee cannot take benefit of the said judgment which is distinguishable on facts and not applicable to the case of the assessee. 8.2 The Ld.CIT(A) also observed that assessee is in the business of collection, processing and distribution of milk . The learned CIT(A) observed that assessee procured milk from farmers through its collection centers/agents. The Ld.CIT(A) observed that on perusal of ledger accounts of milk collection centers/agents will reveal that the payments for milk purchases were made at weekly intervals which follows a particular pattern of back to back settlement leaving no credit balances. The Ld.CIT(A) also observed that these farmers/procuring agents cannot afford to extend credit period of more than one or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of Karur Unit. The Ld.CIT(A) directed AO to allow depreciation on unit located at Navalpatty village. The Ld.CIT(A) also observed that AO vide letter dated 09.06.2017 stated that the assessee had received ₹ 50 lakhs as capital subsidy for set up of the new chilling plants which was not reduced from actual cost of the chilling plants while working out depreciation. The learned CIT(A) held that since depreciation has been allowed by him with respect to chilling plant located at Navalpatty village, the capital subsidy received in respect of that plant shall be considered in arriving the depreciation. 8.4 With respect to additional depreciation of ₹ 66,35,246/- disallowed by AO u/s.32(1)(iia) of the 1961 Act with respect to both the chilling plants claimed to be newly commissioned during the impugned ay under consideration , the Ld.CIT(A) observed that the assessee is only collecting milk and processing packaging it for sale and there is no manufacturing or production activity of any article or thing carried on by assessee to become eligible for additional depreciation within the provisions of Section 32(1)(iia) of the 1961 Act. The Ld.CIT(A) observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus the learned CIT(A) accepted the contentions of the assessee and held that this shortfall of cash cannot be brought to tax as unexplained in the hands of the assessee. Thus, this addition stood deleted by Ld.CIT(A), vide appellate order dated 14.02.2018 passed by learned CIT(A). 9. Aggrieved by appellate order dated 14.02.2018 passed by learned CIT(A), both assessee and Revenue has come in appeal before the tribunal. The Revenue is aggrieved by deletion of addition to the tune of ₹ 2.63 Crs. by allowing further allowance of credit of one week for milk purchases by Ld.CIT(A), wherein, the earlier additions were made by AO towards waiver of sundry creditors u/s 41(1)(1) of the 1961 Act for period of outstanding for milk purchases beyond one week. Secondly , the Revenue is aggrieved by deletion of addition by learned CIT(A) of ₹ 29,97,542/- which was added earlier by the AO as the income of the assessee as an unexplained cash u/s.68 of the Act. The assessee on the other hand is aggrieved by confirmation by learned CIT(A) of the additions made by AO u/s.41(1)(a) of the Act towards waiver of sundry creditors except relief of ₹ 2.63 Crs. granted by l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ay: 2013-14 due to differential in figures of milk creditors as aon 31.03.2013 and 01.04.2013 has become irrelevant. 9.3 The learned DR on the other hand submitted that it is a case where there is admittedly an inflation of purchases by the assessee. It was submitted by learned DR that survey was conducted by Revenue in the case of the assessee u/s.133A on 06.11.2013 and it was found that assessee is inflating its purchases of milk. It was submitted that there was a decline in GP ratio over the year s. Our attention was drawn to ITAT order for ay: 2012-13 and 2013-14 in assessee s own case, wherein the GP ratio for last several years is stated. Thus, learned DR prayed that assessment order passed by AO be confirmed/upheld on this issue of additions being made on account of waiver of sundry creditors. The learned DR submitted that there was a statement recorded of Partner during the course of survey operations on 06.11.2013 conducted by Revenue and in reply to question number 32 , the partner has admitted that there is an inflation of purchases. It was submitted by learned DR that Ld.CIT(A) erred in granting relief of ₹ 2.63 Crs. to assessee on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.7 The learned counsel for the assessee fairly admitted that assessee did not raise ground of appeal with respect to disallowance of additional depreciation u/s 32(1)(iia) but it was submitted that general ground of appeal is raised by assessee in memo of appeal filed with the tribunal with respect to disallowance of depreciation. 9.8 The Ld.DR submitted that there is a difference of ₹ 29,97,542/- in the audited cash book which was produced by assessee during the course of assessment proceedings and the physical cash found during the course of survey, the Ld.CIT(A) had deleted this addition without any basis as cash was found short during the course of survey while higher amount of cash is reflected on the date of survey in the audited books of accounts produced by assessee before the authorities during the course of assessment proceedings . It was submitted by learned DR that Ld.CIT(A) wrongly granted benefit of ₹ 2.63 Crs. to assessee u/s.41(1)(a) of the Act by extending period of credit by further 7 days without any basis. The learned DR would submit that assessee has not provided list of sundry creditors. It was submitted by learned DR that det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as part relief was granted by learned CIT(A). The AO had added all milk supplier creditors which were existing in books of accounts of the assessee as at the end of previous year which were outstanding for payment for more than one week , while learned CIT(A) gave part relief by accepting milk supplier creditors which were outstanding for payment for one more week beyond that what was allowed by the AO. The assessee was surveyed by Revenue u/s 133A on 06.11.2013. The partner of the assessee Mr. S.P. Loganathan in his statement recorded during the course of survey operations on 06.11.2013, in reply of question number 32 has itself admitted that the assessee is boosting its purchases in its books of accounts and fictitious purchases are introduced in the books of accounts of the assessee. The employee of the assessee Shri Ramaswamy in his statement recorded during the course of survey proceedings conducted by Revenue u/s 133A of the 1961 Act , on 20.11.2013 stated in reply to question number 6 and 7 that payment for milk purchases are made within a week s time by assessee to milk suppliers. The assessee had of his own voluntarily surrendered ₹ 2.06 crores during course of sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are infact non-existent liabilities and the assessee is hit by provisions of Section 41(1)(a) of the 1961 Act. The 1961 Act is a taxing statute which is governed by preponderance of probabilities and strict rule of evidence may not be applicable. The normal conduct of business in regular course as is applicable to a particular business activities shall also be having an important bearing for fastening of tax liabilities if proper explanation for variations in normal conduct of business could not be explained/forthcoming from the tax-payer. Coming back to appeal in hand, the Revenue in order to discharge its primary burden as is cast u/s 41(1)(a) of the 1961 Act had brought on record following incriminating evidences/material against assessee to discharge their onus while invoking provisions of Section 41(1)(a) of the 1961 Act:- a) Statement Recorded of Partner of the assessee firm , Mr. S.P.Loganathan during the course of survey operations admitting inflation of purchases. b) Statement of employee Mr. Ramaswamy recorded during course of survey wherein he stated that payments for milk are made by assessee within a week s time, while books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used for fastening liability against the tax-payer while framing its Block Assessment, wherein Hon ble Supreme Court held as under: 15. The power of survey has been provided under Section 133A of the IT Act. Therefore, any material or evidence found/collected in a Survey which has been simultaneously made at the premises of a connected person can be utilized while making the Block Assessment in respect of an assessee under Section 158BB read with Section 158 BH of the IT Act. The same would fall under the words and such other materials or information as are available with the Assessing Officer and relatable to such evidence occurring in Section158 BB of the Act. In the present case, the Assessing Officer was justified in taking the adverse material collected or found during the survey or any other method while making the Block Assessment. It is not that the Revenue is solely relying on the statement recorded during course of survey operations rather Revenue is also relying on the difference in sundry creditors as on 31.03.2013 and 01.04.2013 as recorded in the hard disk impounded during survey operations and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt more than two weeks stood added to the income of the assessee by learned CIT(A). However, there could be some cases wherein genuinely the assessee had not made payments to these milk suppliers creditors and the assessee continued to be liable to these milk supplies vendor , albeit is payment is pending for more than one/two weeks. This requires enquiry and verifications of these milk supplies creditors . The authorities below have however made no enquiry with milk supplies creditors. No summons u/s 131 or notices u/s 133(6) were issued by AO/learned CIT(A) to these milk supplies creditors to verify about their genuineness and bonafide rather the entire sum wherein the payments were outstanding for more than one week stood added by the AO while learned CIT(A) gave part relief to the assessee by accepting creditors which were outstanding upto two weeks. The assessee has also to rebut said presumption by bringing on record complete details of each of these milk suppliers creditors such as name, address, PAN, reasons for non payments, any dispute with these milk suppliers, communication with these milk suppliers, claims filed by these milk suppliers with any court etc. . In our cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except difference of ₹ 684/- which was explained to be difference in petty cash. Now, the assessee is claiming cash balance in its books of accounts to be ₹ 56,33,311/- as on 06.11.2013 as against physical cash found during survey operations u/s 133A on 06.11.2013 of ₹ 26,35,769/- and hence onus is on assessee to bring out reconciliation statement before the authorities to reconcile justly the variation of ₹ 29,97,542/- and to explain that income component , if any arising due to aforesaid variation under the provisions of the 1961 Act has been offered to tax and due taxes paid to Revenue. In our considered view based on facts and circumstances of the case and in the interest of substantial justice to both the parties, the matter needs to be set aside and restored to the file of the AO for framing fresh assessment denovo on merits in accordance with law. The assessee is directed to produce reconciliation statement reconciling aforesaid differential in cash before the AO in set aside proceedings and justification for said differential . The AO is directed to provide proper and adequate opportunity of being heard to assessee in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings in the interest of justice and then adjudicate the same on merits in accordance with law . Thus appeal filed by assessee on this issue stand allowed for statistical purposes. We order accordingly. 13. The connected matter with the aforesaid allowability of depreciation with respect to Karur Chilling Plant as discussed by us in para 12 above in this order , is the allowability of interest on term loans borrowed for incurring capital expenditure for installing said Karur Chilling Plant . The disallowance of interest on term loans borrowed for incurring capital expenditure for installing Karur Chilling Plant was on the grounds that the said Karur Chilling Plant had not commenced commercial operations and the assets thereof were not put to use. The decision by the AO as to whether the assessee did commence commercial production and put to use assets before the end of previous year relevant to impugned ay or not as per our decision in preceding para 12 was set aside to the AO and the decision of the AO in set aside denovo proceedings shall have direct bearing on the allowability of interest on term loans availed for incurring capital expenditure for installing Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X
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