TMI Blog2022 (6) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 36(1)(iii) - assessee had made interest free advances out of interest bearing funds - Proof of business expediency - HELD THAT:- CIT(A) correctly held that it was clearly noticeable from the balance-sheet extracted for all the assessment years under appeal that thematic average of interest free advance was far less than the available interest free funds, and the borrowed funds also appeared to have been deployed in closing stock, trade receivables and business assets for which primarily the funds have been borrowed. CIT(A) held that the advances prima facie appeared to have been made out of interest free funds available with the assessee; secondly, the AO has not discharged onus of establishing clear cut and direct nexus between the interest bearing loans and interest free advances so as to justify disallowance in the light of the ratio laid down in the case of Reliance Utility [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] and Hero Cycles [ 2015 (11) TMI 1314 - SUPREME COURT] and no examination of the accounts of the recipients could yield such nexus, and therefore, as a matter fact, it was to be held that such a nexus did not exist warranting any disallowance under section 36(1)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) It is, therefore, prayed that the order of the CIT(A) be set aside and that of the A.O. be restored to the above extent. ITA No. 227/RJT/2016 : Asst. Year 2007-08 1) The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of Handling charges of Rs. 12,00,000/-. 2) The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of Godown rent exp. of Rs. 12,00,000/-. 3) The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of Handling Shifting Other charges of Rs. 95,97,214/-. 4) The ld. CIT(A) has erred in law and on facts in deleting the addition made on account of disallowance of interest u/s. 36(1)(iii) of Rs. 1,56,47,087/- though the assessee had made interest free advances out of interest bearing funds. 5) On facts and in circumstances of the case and in law, the ld. CIT(A) ought to have upheld the order of the A.O. 6) It is, therefore, prayed that the order of the CIT(A) be set aside and that of the A.O. be restored to the above extent. 3. Brief facts of the case is that the assessee is a private limited company engaged in the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for this proposition, he relied upon the decision of Special Bench of the ITAT in the case of All Cargo Global, reported in 137 ITD 287 (Mum-SB), Delhi High Court judgment in the case of Kabul Chawla, reported in 61 taxmann.com 412 (Del), decision of Co-ordinate Bench of the ITAT in IT(SS)A. No. 3/Ahd/2014 in the case of Saumya Construction and the decisions in the other cases. The ld. CIT(A) observed that by following the above judgments he has considered similar issue in favour of another assessee viz. Arvind V. Joshi Co. and accordingly held that in the present appeals, it was not in dispute that the assessment orders under appeal remained unabated as no proceedings before the AO on the date of search i.e. 15.6.2011 was pending. Further, Department could not produce any incriminating seized material in support of addition made by the AO for the above assessment years. It is therefore held that the additions made by the AO dehors any reference to or foundation in any incriminating seized materials are not sustainable for any of the assessment year under appeal, therefore, he deleted the impugned additions/disallowance and allowed the appeal in favour of the assessee. 5. Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of all the six assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as, the assessment in respect of each of the six assessment years is a separate and distinct assessment. Under section 153A of the Act, an assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this court is in complete agreement with the view adopted by the Rajasthan High Court in the case of Jai Steel (India), Jodhpur (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details of the godown rent and how these were utilized for business purpose, why the accounting entries were not passed and tax was not deducted on month to month basis, to furnish copy of agreement entered with M/s. Arvind V. Joshi Co. and to prove the genuineness of the expenses with documentary evidence. In response, the assessee explained that the assessee have taken open space, at port, on hire from M/s. Arvind V. Joshi Co. for which necessary invoicing was done by M/s. Arvind V. Joshi Co. only on the last day of accounting year and for which the assessee, as a service recipient, don't have any reason to object for. Further, necessary tax as required were deducted and deposited in to the government A/c. It was further explained that as the appellant does not own any warehouse/open space within the port area, it become necessary on their part to take such space on hire from available sources so that the cargo handled by them, as imported by their customer (which attracts custom duty), can be stored there. As in this case the space was available with M/s. Arvind V. Joshi Co., the assessee has taken such space for storing the scrap cargo of their customer. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore the same is deleted. The appellant would get relief of Rs. 3,59,000/-. The related ground 3(i) succeeds. 12. We have heard rival submissions, it is not the case of the Department that the assessee has not paid the rent of Rs. 3,59,000/- but paid on the last day of the first year. The ld. AO could not prove this as bogus expenditure, whereas the assessee has proved that it required open yard to place the imported goods of its customers for a period of 30 days, which is already collected from its customers as handling charges. In the facts of the above circumstances of the case, we do not find any infirmity in the order passed by the ld. CIT(A) and therefore confirm the same and dismiss the Ground No. 1 raised by the Revenue. 13. As regards Ground No. 2 relating to disallowance of interest u/s. 36(1)(iii) of the Act. 14. Brief facts in this regard is that the Special Auditor in his observation opined that the assessee firm has taken loan on hypothecation of stock in trade, FD-OD, machinery and vehicles and that firm has paid interest processing charges and other charges of Rs. 1,85,46,964/-. The Special Auditor further listed 6 parties and opined that with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal before the ld. CIT(A). The assessee submitted before the ld. CIT(A) that the assessee-company had huge funds of Rs. 22,61,18,071/- available as on 31.3.2009 on which no interest is payable; as against this interest-free advances given to the parties of Rs. 2,93,83,500/-. There was also no instance of relationship attracting section 40A(2)(b) of the Act. The assessee also furnished details of statement showing secured loans, interest-free funds, advances etc. The ld. AO failed to consider that the advances given to the parties was for the purpose of commercial expediency, and therefore, the advances given to the third parties cannot be considered for disallowance under section 36(1)(iii) of the Act. Further, the advances given to the parties are also to the sister-concerns, and the sister concerns do not charge interest for mutual accommodation given. These factual submissions were being considered by the AO. However, the AO made disallowance at the rate of 12% and made disallowance of Rs. 1,85,46,964/-, which deserves to be deleted. The ld. AR further relied upon various case laws more particularly- i) Reliance Utility and Powers Ltd., (2009) 313 ITR 340 (Bom); ii) RL ..... X X X X Extracts X X X X X X X X Extracts X X X X
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