TMI Blog2007 (10) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner (Appeal) was not justified in deleting the said additions because neither confirmation letter from the creditors nor bank statement nor copy of income-tax assessment order was filed in the case of the persons from whom loans were taken by the assessee. The learned Departmental Representative further submitted that the addition of ₹ 6 lacs being the aggregate amount of loans of ₹ 2 lakhs each from Gopal Singh, Chandrapal Singh and Pahalwan Singh and further ₹ 42,000 is the disallowance of interest which was claimed to have been paid to the abovementioned parties. The learned Departmental Representative submitted that in the absence of proof of the capacity, the genuineness and the creditworthiness of the creditors, addition was rightly made by the assessing officer and should not have been deleted by the Commissioner (Appeals). 3. The learned Counsel, Shri B.K. Nema from S.R. Nema Co., Satna, for the assessee while relying on the order of Commissioner (Appeal) submitted that relevant documents were submitted before the assessing officer namely copy of confirmation letters of the 3 creditors, copy of the income-tax assessment orders, copy of stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dded under Section 68, as unexplained cash credit and interest of ₹ 42,000 accruing on the same stand allowed. 5. We have carefully considered the rival submissions, the findings of the learned Commissioner (Appeals) and the material on record. In our considerate opinion, the assessing officer was not justified in making the said addition since the capacity, genuineness and creditworthiness of the 3 creditors was proved by way of confirmation letters, copy of income-tax assessment orders and the certificate from the bank. Moreover, as held by the jurisdictional High Court in the case of CIT v. Metochem Industries (supra) and in the case of Sumerchand Jain (supra), the assessee is not required to prove the source of source and once the creditors have confirmed the loans and have also filed their income-tax returns which show the capacity of these creditors to give the loan to the assessee therefore, in our considerate opinion the judgment of the jurisdictional High Court applies in full force to the given facts and circumstances of the case and therefore, the Commissioner (Appeals) was justified in deleting the said addition of ₹ 6,42,000. As a result, this ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer as well as before the learned appellate authority. (i) Name of the parties from whom machineries were hired. (ii) Copies of agreements with parties. (iii) Details of machines owned by assessee, copies of bills and its photographs. (iv) Appearance of two parties with books of accounts and vouchers. The learned Counsel further submitted that the payees were produced before the Commissioner (Appeal) and they have admitted having received the hire, charges as claimed by the assessee. Affidavits of the payees were also filed in support of the same. Insofar as the observation of the Commissioner (Appeals) in respect of payment made to Vijay Kumar Singh over compressor rent at the rate of ₹ 1,750 per hour it was submitted by the learned Counsel for assessee that the said payment was made to Vijay Kumar Singh at a higher rate because Vijay Kumar Singh was doing prospective drilling work as well as regular drilling in respect of mineral and this work was spread over an area of more than 1,000 hectares and moreover, the work involved use of machinery in areas which had no regular roads and the conditions were harsh and involved high wear and tear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t mean that any payment made to the said concern is excessive or unreasonable and falls within ambit of Section 40A(2)(b). The Counsel further relied on the case of Geetanjali Woollens (P) Ltd. v. Asstt. CIT. Insofar as the observation of the assessing officer that payments have been made to the persons at the fag end of the accounting year, the learned Counsel submitted that the assessee had in fact built up his own capital by delaying payment of hire charges and has saved considerable amount on account of interest. The assessee was able to build assets to the tune of ₹ 70,70,380 by delaying such payments of hire charges. The Counsel submitted that this aspect should also be taken into consideration to consider payment of hire charges at higher rates to Vijay Kumar Singh. Insofar as payment of hire charges to Suresh Kumar Singh, Shiv Traders, Singh Roadlines, Smt. Vimlesh Kumari Singh, Vijay Pal Singh and Govind Singh the learned Counsel relied on the findings given by the Commissioner (Appeals) whereby the learned Commissioner (Appeals) has taken into consideration all the facts like cost of the machine, agreement between the assessee and the lessors, the video presentatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be accepted. Moreover, the facts which are on record clearly establish one genuinity of the transactions as they have been confirmed by the payee. The payment of hire charges if appear to be excessive could only lead to an enquiry but that by itself cannot be a ground to disallow any expenditure. This enquiry conducted by the assessing officer and the Commissioner (Appeal) has culminated into the assessee proving by way of substantial evidence that by paying higher charges the assessee had in fact earned substantially which could not have been .possible had such higher charges not been paid. The receipt of charges from Maihar Cement for 9,829 hours for one year translate into working of 614 days if an average working day of 16 hours a day is taken into consideration and this fact clearly demonstrated the business prudence of the assessee in making the payment of higher charges. The assessee has also demonstrated built up of capital assets to the tune of ₹ 70,70,380 by delaying payments of hire charges. The aforesaid facts coupled with documentary evidences on record in the form of agreements with the lessors, affidavits of the lessors, confirmation from the lessors, photogra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'for the purpose of business' used in the Section 37(1) while computing the income chargeable under the head 'Profits and gains of business or profession', held that such expenditure is to be tested in the light of the commercial expediency, which is one of the wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency. It was further held that the expenditure incurred for the purpose of business meant in Section 37(1) includes the expenditure voluntarily incurred for commercial expediency and it is immaterial if a third party also benefits thereby. It is not for the authorities or the court to examine the purpose for which the assessee incurred the expenses for its commercial expediency. What is relevant is whether the amount was spent as a measure of commercial expediency and not from the point of view whether the amount was spent for earning profit. Once it is established that there was nexus between the expenditure and the purpose of the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed for assessment year 2004-05, I hold that there was no justification on the part of the assessing officer to have insisted upon the assessee to follow the mercantile system of accounting even with regard to his interest income. For this reason, the addition made by the assessing officer of ₹ 3,26,090 stands deleted. 14. We have carefully considered the rival submission and we are of the opinion that the assessee has already shown the interest in the assessment year 2004-05 on the basis of actual receipt and we are inclined to agree with the findings of the learned Commissioner (Appeals) and therefore, this ground of appeal of the department is dismissed. 15. The next ground of appeal of the department is in respect of deletion of addition of ₹ 40,000 by the Commissioner (Appeals) in respect of unexplained money given for purchase of shares. The learned departmental Representative submitted that as per books of accounts of the assessee, purchased shares worth ₹ 2,40,000 were purchased on 15-4-2001 while only an amount of ₹ 2,00,000 was withdrawn on 9-4-2001. The learned departmental Representative submitted that this is a clear case of payment of e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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