TMI Blog2020 (12) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of interest expenses - advances to Company owned by one of the partners on account of diesel and petrol expenses.and no interest was charged from the said partnership firm - Proof of sufficiency of own funds - HELD THAT:- The assessee has not brought any material on record to substantiate that aforesaid huge amount of advance was extended to Ramjibhai and Company exclusively for the purpose of petrol and diesel. The ld. Departmental Representative has pointed out that loan amount was very old which was given in the earlier years and there was no sufficient interest free fund available with the assessee. During the course of course of appellate proceedings before us, the ld. counsel has stated that opening debit balance was ₹ 61,14,336/- and closing debit balance was ₹ 59,31,445/- and the interest free fund available with the assessee was ₹ 64,75,145/-. However, to controvert the submission of the ld. Departmental Representative the ld. counsel has not furnished any information and material to disprove the claim of the Ld. Departmental Representative that the loan amount was pertained to earlier years when the assessee was not having sufficient inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of price, assessee was entitled to grant of deprecation. In view of the above facts and findings, this ground of appeal of the Revenue is dismissed. GP Addition - rejection of books of a/c u/s. 145 confirming addition of G.P. @ 1.5% of the turn over - HELD THAT:- No merit in the appeal of the Revenue on this issue as the ld. CIT(A) has judicially restricted the addition to the extent of 1.5 % G.P. rate after following the direction laid down in the various judicial findings relevant to the facts and circumstances pertained to the case of the assessee. It is observed that no separate addition for sub-contract expenses is justified since these expenses ultimately also affect the gross profit therefore the ld. CIT(A) has rightly held that addition of 1.5% in G.P. would also covered addition of sub-contract expenses. No merit in the appeal and alternative contention of the assessee because assessee has failed to co-relate the incurring of entire expenses in cash to the different projects therefore labour expenses of ₹ 3.57 crores and diesel/ petrol expenses of ₹ 2.20 crores could not be verified.The assessee has failed to furnish basic detail i.e. project wise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. 4. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has deleted the addition following the decision of Merillyn Shipping and Transport ITAT Special Bench 20 taxman.com 244 holding that once the payments are made and no amount is payable as on 31/03 of the relevant previous year, no disallowance u/s. 40(a)(ia) can be made. 5. During the course of appellate proceeding before us, both the ld. counsel and ld. Departmental Representative have agreed that aforesaid issue of non-deduction of TDS is covered by the decision of Hon ble High Court of Gujarat in the case of Sikandar Tunwar 33 taxman.com 133 and the same may be restored to the file of Assessing Officer for adjudicating afresh. 6. Heard both the sides and perused the material on record. With the assistance of ld. representatives, we have gone through the decision of the Hon ble Gujarat High Court in the case of CIT-IV v. Sikanderkhan N. Tanwar wherein it is held that section 40(a)(ia) would cover not only the amounts which are payable as on 31st March of a particular year but also which are payable at any time during the year. Accordingly, this issue is restored back to the file of Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove it. On the one hand the partner ShriRamjibhaiChaudhary is being paid interest on his capital of ₹ 24.45 lac and on the other hand he has withdrawn over ₹ 60 lac and no interest has been charged from him. ii) all these credits which are claimed as interest free funds; are very old and there were huge investments at that time in the business as well as there was substantial sundry debtors outstanding. There were no funds available from these credits when the funds have been diverted to the partner's concern. iii) therefore, it can be safely said that loans taken on Interest mixed with other funds have been diverted for non-business purpose. In the light of the above facts, on the one hand by manipulation of account, interest has been paid to the partner ShriRamjibhaiChaudhary to the extent of ₹ 2,23,486/- whereas, in effect he was having huge funds taken from the firm for his own purpose and there was a net debit balance in his account. Further, the case is not of simple interest free funds being more than non-business advance, in the light of the above observations of the fact that such funds were already lying utilized for other purposes. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the ld. Departmental Representative the ld. counsel has not furnished any information and material to disprove the claim of the Ld. Departmental Representative that the loan amount was pertained to earlier years when the assessee was not having sufficient interest free fund. The cases relied upon by the assessee are distinguishable on facts. We do not find any merit in the ground of appeal of revenue after considering that the ld. CIT(A) has judiciously restricted the disallowance to the extent of ₹ 3,98,436/- on pro-rata basis as elaborated in his finding supra in this order after following the decision of Sanghiv Swiss Refills Pvt. Ltd. 85 (ITD) 59. In the light of the above facts and findings, both the appeals of the Revenue and assessee on this issue are dismissed. Ground No. 3 (Revenue s ground of appeal against deleting addition u/s. 41(1) in respect of outstanding creditors shown in balance sheet of ₹ 3,75,18,118/-) and Assessee s 2nd ground of appeal in respect of confirming addition u/s. 41(1) of ₹ 8,39,727/- 11. During the course of assessment, the Assessing Officer noticed that as per balance sheet there was outstanding sundry credit bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- 7.5 I have gone through the facts of the case carefully. The AO 'has conducted verification and enquiries with respect to all 25 creditors whose balance at the end of the year was more than ₹ 5 lac. Notices u/s 133(6) were issued by the AO at the new addresses given by the appellant. They were delivered in most cases except 4. According to the AO, even out of these 3 have submitted confirmations by tapal. From the report it is found that most of the creditors have confirmed the balances and the fact that the money is due to them. As decided by the Supreme court in the case of Suguali Sugar Works Pvt. Ltd. (1999) 236 ITR 518 (SC ) in the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt was barred and had become unenforceable. I have also noted the recent decision of Hon'ble Delhi High Court in case of ShriVardhman Overseas Ltd ,343 ITR 408 wherein the case was decided in assessee'sfavour on same principals though in case of many claimed creditors even the address or trail was not available. Now, I will proceed to discuss the cases of the claimed creditors in groups, according to the facts of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its has been proved not genuine or bogus. When letters are sent to 25 persons ,some non -responses are natural Out of the cases test checked by the AO, in all cases except as per SI.No.2 of the Remand Report, it has been held under the facts and circumstances discussed above that no addition is justified under law u/s 41(1) of the IT Act. The remaining case is that of Bhemjibhai L. Chaudhary. The appellant has in his submissions claimed that the amount of ₹ 8,39,7277- is due to him and is an unsecured loan which was interest free and has been grouped under Sundry Creditors inadvertently. However, his statement was taken under section 131 and Bhemjibhai L. Chaudhary has stated that the payment was due for jobwork. He didn't even remember the period to which it pertained. The person concerned is closely related to the partners of the firm. Even otherwise, Bhemjibhai L. Chaudhary appears to be a person of small means and has admitted that he has never filed his Income-tax Return. Why, in these circumstances he would lend such a big amount interest free for years together without even bothering to recover, cannot be believed. The assessee itself has clubbed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbhai 845874 Notice u/s. 133(6) of the Act was issued on 16.07.2012 for confirmation of 1 transaction occurred with the assessee company but the same was returned undelivered 9 Jivabhai Laxmanbhai 981774 Notice u/s. 133(6) of the Act was issued on 16.07.2012, in response no reply is received till now from Jivabhai Laxmanbhai 12 Mohanbhai nathabhai pagi 644301 In response to the summon u/s. 131 of the I.T Act, Shri Mohan nathabhai pagi has attended this office and in his statements he confessed that he worked as supervisor in Gayatri construction till 2007 and worked as a salaried employee only 15 New Mehsana Auto Parts 632690 Notice u/s. 133(6) of the Act was issued on 16.07.2012, in response no reply is received till now from New Mehsana Auto Parts 23 Navdurga Quary Works 527724 Notice u/s. 133(6) of the Act was issued on 16.07.2012, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Paver Machine and stock transfer of Paver Machine was done in favour of Gayatri Construction Co. (assessee) and machine was used for the purpose of business. The assessee has made part payment of ₹ 7,61,533/- by various cheques and the amount due as on 31-03-2009 was ₹ 7,40,230/- as it was decided between them that the ownership paper would be provided to the assessee after making full payment of the consideration. In the light of facts and considering the finding of ld. CIT(A) based on the decision of Hon ble Gujarat High Court in the case of CIT vs. Deepak Nitrate wherein it is held that since assessee acquired possession and was running factory on payment of a substantial part of price, assessee was entitled to grant of deprecation. In view of the above facts and findings, this ground of appeal of the Revenue is dismissed. Ground No. 5 (Restricting GP addition @ 1.5 of GP out of 3.27% of GP) of Revenue and ground nos. 3 4 of assessee confirming the rejection of books of a/c u/s. 145 confirming addition of G.P. @ 1.5 thereby confirming addition of ₹ 19,20,000/- 18. During the course assessment, the Assessing Officer noticed that asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-contractors were not furnished. Consequently, the Assessing Officer has treated the aforesaid sub-contract expenses of ₹ 92,518+ 16,61,545+ 2,84,551 totaling to ₹ 14,38,610/- as unexplained and added to the total income of the assessee. 19. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has restricted the addition on account of GP addition to the extent of 1.5% of the turn over also covering the addition on account of sub-contract expenses of ₹ 14,38,610/-. The relevant part of the decision of ld. CIT(A) is reproduced as under:- 9.3 I have gone through the facts of the case. It is observed that major expenses like labour, petrol diesel and sub-contract expenses which are to the extent of ₹ 3.57 crore. 2.22 crore and 2.45 crore respectively cannot be verified at all vis-a-vis the actual contract work done. This is a very major shortcoming in the books of account. The first two expenses are in cash. In the case of labour expenses, even the payees cannot be traced from the record and therefore, there cannot be any independent check. The appellant himself is saying that sub-contract expenses is booked on the date of paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be ₹ 19,20,000/- (1.5 % of 12,74,56,608). As total receipts have been considered after rejecting books to estimate the profits, it covers addition required on sub contract expenses also. Therefore, instead of the additions of ₹ 41,67,831/- and disallowance of ₹ 14,38,610/- made by the AO; the addition is confirmed to the extent of ₹ 19,20,000/-. Therefore, the appellant gets a relief of ₹ 36,86,441/- on the two grounds of appeal. 20. During the course of appellate proceedings before us, the ld. Departmental Representative has contended that the assessee has failed to furnish the project wise income/expenditure details and also failed to prove the genuineness of labour and diesel/petrol expenses with relevant supporting evidences. Regarding sub-contract expenses, he has pointed that the assessee was unable to prove the genuineness of such expenses and no required supporting details/information furnished. The ld. Departmental Representative sated that full amount of sub-contract expenses be disallowed. On the other hand, the ld. Authorized Representative has submitted that the main reason for fall in the GP was due to increased subcontract expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the assessee was not established. We have gone through the page no. 18 of the paper book pertaining to the submission of the assessee on sub-contract expenses of ₹ 14,38,610/-. In the submission, the assessee has simply stated that the payment to the sub-contractors were made in advance and the work was completed later on. We have also gone through the pages 87 to 89 of the paper book showing only entries of payment made to the sub-contractors in the month of April 2008 of the Financial Year but the assessee has failed to furnish the primary details of nature of work and the income earned from these sub-contracts till 31-03-2009. Even the assessee has failed to furnish the addresses of these sub-contractors and other relevant details of their existence from which the Assessing Officer could have verified the genuineness of the claim of the assessee. In the light of the aforesaid facts and circumstances the ld. CIT(A) has made addition of 1.5% in GP rate after placing reliance on the comparable judicial cases for estimating the income in respect of cases of contracts and sub-contracts as elaborated supra in the findings of the ld. CIT(A). Considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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