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TMI Blog2019 (2) TMI 1909X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) erred in facts and law in sustaining the disallowance under section 40(a)(ia) of the Act despite the fact that adequate material evidencing the payment of tax made by the payee in its return of income on the income earned from assessee was placed on record. (c) Without prejudice to lea) and 1 (b) above, the Ld. CIT(A) erred in facts and law in confirming the disallowance of Rs. 28,49,485/- under section 40(a)(ia) of the Act without appreciating that out of the said amount, the assessee has already paid Rs. 16,94,403/- in the year under consideration and the provisions of section 40(a)(ia) of the Act are applicable only to the expenditure payable at the end of the year. 2) Disallowance of interest: (a) The Ld. CIT(A) erred in facts and law in sustaining the disallowance of interest of Rs. 7,42,500/- by adopting the rate of 16.50% for the whole year on the sum advanced for booking office premises without restricting it to the extent of interest claimed by debiting in the Profit and Loss account at the rate of 16% p.a. on pro-rata basis and allowing the consequential depreciation thereon. (b) Without prejudice to above, the Ld. Assessing Officer shall be directed to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure included various expenses such as wharfage charges, stevedoring charges, port charges, detention charges, custom duty etc. During the assessment proceeding the assessee was asked to file detail of the expenses incurred and the TDS made thereon. With regard to the payment to ESPL the assessee submitted that they had deducted TDS from payments in the nature of stevedoring charges, freight charges and detention charges. However, no TDS was deducted on reimbursement of the expenses amounting to Rs. 28,49,485/- only. The assessing officer took the view that assessee could not pick and choose the nature of expenses on which TDS was required to be deducted. The assessing officer was further of the view that if some amount was not liable to tax, the receiver should have obtained TDS certificate for non-deduction of TDS under section 197, therefore, the assessing officer disallowed the entire payment made to ESPL of Rs. 1,21,71,665/-. 4. Before learned Commissioner (Appeals) the assessee furnished the breakup of payments made to ESPL, after considering the submission of the assessee ld Commissioner (Appeals) restricted disallowance to the extent of Rs. 28,49,485/-. The said amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch reimbursement. The assessee also contended that the recipient was acting only as a conduit for receiving the payment and as per section 194I; the deduction is to be made by the payee on such income which income assessable as rent in term of the said section. Even so far as section 194C is concerned, the responsibility of the person paying any sum to the contactor and when the amount was reimbursed by the assessee it was not paid to the contractor but to the party who had to make the payment to the contractor. 8. The learned Commissioner (Appeals) after considering the contention of assessee noted that ESPL is a clearing and forwarding agents and was reimbursed all the expenses paid on behalf of the assessee. The assessee against the copy of debit notes issued by ESPL, which indicate that the amount paid to ESPL, was reimbursement of expenses. Further the claim of the assessee that reimbursement is without any markup is not supported by any evidence on record. No such contract was produced before the learned Commissioner (Appeals) and in absence of any contract, the learned Commissioner (Appeals) concluded that it was difficult to ascertain whether the reimbursement of expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of allotment letter was filed before assessing officer. Before the assessing officer the assessee vide its letter dated 18 February 2013 and 21 March 2013 contended that the advance to Lotus Grhinirman Private Ltd was out of refund received from Lotus Venture Private Ltd and not of borrowed funds. The assessing officer disallowed the interest expenses of Rs. 28,70,901/- with regard to the entire loan and advances. However, the learned Commissioner (Appeals) confirmed the disallowance to the extent of Rs. 7,42,500/- being the interest on advances given to s Lotus Grhinirman Private Ltd. The learned AR of the assessee submits that assessee has own funds of Rs. 5,68,63,512/- as recorded by learned Commissioner (Appeals) in its order. Since the funds were more than advance was given to Lotus Grhinirman Private Ltd, it can safely be presumed that advances was out of own funds. 11. The ld. AR for the assessee without prejudice to his right contended that assessee had sufficient own funds to invest in Lotus Grhinirman Private Ltd and hence no disallowance of interest was called for. In support of his submission the learned AR of the assessee relied upon the decision of Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to s Lotus Grhinirman Private Ltd. We have noted that the assessee has shown his own funds of Rs. 5.68 crore, this fact has been duly recorded and accepted by learned Commissioner (Appeals) in para 4.2 of its order. The assessee has made a booking of office premises with Lotus Grhinirman Private Ltd. We have noted that the fund advanced by assessee is of Rs. 45 lacks on account of booking of office premises. The assessee has sufficient interest free funds in the form of reserve and surplus and share capital of Rs. 5.68 Crore. Therefore, keeping in view, the ratio of the decision of Hon'ble Bombay High Court in CIT Vs Reliance Utility and Powers Ltd (supra), no interest disallowance is warranted, when the interest free funds available with the assessee is far more than the investment made by the assessee. Therefore respectfully following the decision of Hon'ble Bombay High Court, we direct the assessing officer to delete the disallowance of Rs. 7,42,500/-. In the result, ground no.2 is allowed. 14. Ground No.3 relates to disallowance sundry balance written off. The ld. AR of the assessee submits that the assessee written off sundry balances of Rs. 25,86,229/-. The Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n off balances of Rs. 25,86,229/- consist of Cenvat Duty, Education Cess, Excise Duty etc. of Rs. 13,74,030/- and sundry debtor written of is Rs. 12,12,199/-. The details were also furnished along with the ledger copies of such parties reflecting write off made in the books of account and ledger reflecting accounting of income in earlier years and explaining the fact as to why the balance written of be allowed. The details of sundry balance written of is recorded by ld. Commissioner (Appeals) in para 5.2 of its order in the following manner: Sr. No. Particulars Amount (Rs.) Remarks 1 Mohd. Mustaq Ali 1,00,000 Advance was given for purchasing steam coal. However, the same could not be recovered despite best efforts and hence claimed as business loss u/s. 28 or sec. 37 of the Act. 2 M.S. Inter-Trade Company 3,99,987 On perusal of the ledger of the said party, Your honour would find that consistently, the appellant has been showing sales to this party and has even offered the same to tax. Hence, the conditions prescribed in section 36(2) is complied and so the claim of bad debts be allowed. 3 Manglam Ceramic P. Ltd. 4,70,192 Advance was given for purchasing stores cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of Mohan Spinning Mills (supra) and the Girdhar Fibres Pvt. Ltd. (supra) passed the following order: 6. Having heard the submissions of both the sides and considering the facts of the case as narrated before the authorities, it was observed that the aforesaid amount of the Excise Duty credit (CENVAT Credit) written off was allowable as deduction. On this issue, Coordinate Bench at Chandigarh in the case of M/s.Mohan Spinning Mills (supra) has opined as under :- "7. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in respect of the deduction claimed on account of CENVAT amounting to Rs. 35,94,577. The assessee was engaged in the business of manufacturing and trading of yarn and fibre. The yarn manufactured by the assessee was an excisable item. The assessee was paying excise duty on the raw material purchased i.e. acrylic yarn/fibre and polyester yarn/fibre. In turn, assessee was liable to pay duty on its manufactured items. The rate of excise duty payable on the raw material was higher and the assessee was depositing the excise duty in PLA account which in turn was adjustable against the excise duty payable on the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned two amounts were part of the duty which was paid by the assessee at the time of purchase of rawITA material, however, the assessee had maintained exclusive system of accounting, therefore the duty paid was not debited as a part of the purchases but a separate account was maintained and carried to the balance-sheet. The AED and NCCD were applicable on POY, i.e. rawmaterial. When the finished goods, i.e. texturised yarn is manufactured, the excise is levied in the form of basic duty. The assessee has adopted exclusive method of accounting, therefore debited the net purchases and those were separately recorded in the books of accounts. We find force in this argument of the assessee because while maintaining the exclusive method of accounting the assessee had a choice to increase the value of the purchases in respect of the duty paid in the form of AED & NCCD. In other words, expenditure was incurred but that expenditure could not be adjusted against the CENVAT Rules because on the finished goods, i.e. texturised yarn only the basic duty is leviable. We, therefore, hold that the amount which is now written off being part of the business expenditure, hence allowable under the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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