TMI Blog2022 (4) TMI 610X X X X Extracts X X X X X X X X Extracts X X X X ..... their PAN were furnished except four parties; substantial payments have been made through account payee cheques. AO has not pointed out any defects in the books of accounts nor doubted nature of the work carried out by the assessee. All these vital aspects about the genuineness of the payment were not considered by the AO while making outright rejection. Therefore, considering the nature of business of the assessee, higher GP rate declared during the year, and the fact that the AO has not pointed out any discrepancies in the books of accounts maintained by the AO, the ld.CIT(A) has justified in restricting the addition to 10% of the impugned addition. - Decided against revenue. Disallowance of interest expenditure - HELD THAT:- We find that the ld.AO has made the impugned addition on some presumption and assumption that the assessee-company would have diverted interest bearing funds to non-business purpose. Such observation was not based on some material evidence. Though the assessee has furnished sufficient details to prove the case that it has sufficient interest free funds to make such investment and advances, and made for the business purpose, but the AO has not appreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in machinery. For the Asstt.year 2010-11 assessee has filed its return of income declaring total income at ₹ 2,19,92,310/- on 26.9.2010. The same was processed under section 143(1), and after rectification, income was determined at ₹ 1,55,34,520/-. The case of the assessee was selected for scrutiny assessment by issuance of notice under section 143(2) on 24.8.2011 which was duly served upon the assessee. During the assessment proceedings, it was noticed by the AO that the assessee-company executed contract works of Jaihind projects Ltd., and BRPL etc. and sold some machineries. For doing this contract work, the assessee had engaged labour contractors for labour work and certain works were sub-contracted to some other parties. For executing these works, the assessee has incurred expenses. The ld.AO called for the details viz. names and addresses of the contractors including labour contractors, their PANs. The assessee was also asked to produce before the AO some of the labour contractors. Information was also called under section 133(6) of the Act seeking various details of work undertaken by them. After verification of the details, the ld.AO observed that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractors, the assessee submitted that looking to the nature of business, execution of work was carried out at various odd and remote sites across the country; that some of the sub-contractors are illiterate, and they did not have permanent address, as they moved from place to another depending upon the area of work. Even estimation of expenditure by the AO was not based on some justifiable and scientific manner; the AO has not disputed the nature of work carried out by the assessee, and comparatively higher GP margin for the year under consideration. The AO has also not proved whether the alleged payment to the sub-contractors have come back to the assessee or not. The ld.CIT(A) gave substantial relief to the assessee, after considering the submissions of the assessee and examining the claim of the assessee i.e. by restricting the disallowance at ₹ 19,66,655/- being 10% of the disputed expenditure. Against this order, the Revenue is in appeal before the Tribunal. 7. Before us, the ld.DR supported the assessment order, while the ld.counsel for the assessee reiterated submissions as were made before the lower authorities. He further submitted that the assessee has made deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find any infirmity in the order of the ld.CIT(A) in restricting the disallowance, and we uphold the same. Thus, this ground of Revenue is dismissed. 9. Now we take appeal for the Asstt.Year 2012-13 in ITA No.2008/Ahd/2016. 10. Revenue has raised two grounds in the appeal. In the first ground, the grievance of the assessee is that the ld.CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,47,12,505/- made on account of disallowance of interest expenditure. 11. During the assessment proceedings, the ld.AO noticed that the assessee net contract work in hand was to the tune of ₹ 5,33,21,205/-, against which the assessee has shown large amount of expenditure including an amount of ₹ 3,01,59,199/- being the interest payment. Considering the quantum of contract work on hand, the ld.AO disbelieved expenditure to the size of ₹ 3,01,59,199/-. The ld.AO further noticed that the assessee has made huge investment in shares of Jayhind Projects Ltd., and Newton Solar P.Ld. amounting to ₹ 58,56,44,892/-, against which, as per the balance sheet, the assessee has capital fund of ₹ 9,73,87,327/- being subscribed capital and reserve surp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made out of the own funds. The assessee has also relied upon some other cases to support its case, which were noticed by the ld.CIT(A) in the impugned order. The assessee ultimately submitted that if the disallowance at all to be made, the same should be made on proportionate basis. A calculation sheet was submitted before the ld.CIT(A) working out notional interest at ₹ 17,72,381/-. This sheet was reproduced by the ld.CIT(A) in his impugned order. After considering the submissions of the assessee and the facts on record, the ld.CIT(A) found that as per the balance sheet as on 31.03.2012 total advances made by the assessee was at ₹ 12,52,32,613/- which included ₹ 5,41,76,013/- lying with various government departments, staff advances and other security deposits and prepaid expenses. Further an amount of ₹ 16,06,600/- has been given as loan to two parties, from whom the assessee was receiving interest income, and the remaining amount of ₹ 6,94,50,000/- represented interest free loans and advances available with assessee. In this view of the matter coupled with various judicial pronouncements cited in the impugned order, the ld.CIT(A) restricted the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten submissions with details of interest free fund available with the assessee-company to support its case that the assessee-company has more interest free funds at its disposal so as to make impugned investment and advances to the sister concerns. It is further submitted that investment made in the sister concerns are on account of business strategy and for business expediency, because major part of work contract have been undertaken by these sister concerns, which fact has not been disputed by the Department. It is further submitted that without help and assistance of the sister companies, the assessee could not undertake contract of that much size, and therefore, the assessee has established nexus between the impugned expenditure and purpose of the business. In order to strengthen the claim, the assessee has relied upon various case laws, which are noted by the ld.CIT(A) in his impugned order. The ld.CIT(A) after examining the submissions of the assessee, partly allowed the claim of the assessee to the extent of ₹ 17,72,381/- worked out on pro-rata basis. In holding so, the ld.CIT(A) made the following concluding observations: 5.5 I have carefully considered the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds in the sister concern which is also in the same line of business i.e. Jaihind Projects Limited (contractors), and considering the judicial pronouncements in the above referred cases, the A.O. is directed to disallow the interest expense of ₹ 17,72,381/-which is worked out on prorata basis(working attached with the order) on the net interest free advances of ₹ 6,94,50,000/-. Accordingly the disallowance of interest u/s. 36(i)(iii) is Restricted to ₹ 17,72,381/- and the balance addition of ₹ 14,712,505/- is deleted. The ground of the appellant is partly allowed. 15. In light of the above observation of the ld.CIT(A), we find that the ld.AO has made the impugned addition on some presumption and assumption that the assessee-company would have diverted interest bearing funds to non-business purpose. Such observation was not based on some material evidence. Though the assessee has furnished sufficient details to prove the case that it has sufficient interest free funds to make such investment and advances, and made for the business purpose, but the AO has not appreciated the same in right perspective. Therefore, we are in agreement with the reasoned fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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