Case Law Details
ITO Vs Discovery Liquor House (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the Revenue’s appeal and upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had deleted additions relating to disallowance of interest expenditure, unexplained cash credits under Section 68, and addition to business income arising from alleged discrepancies in purchase figures for Assessment Year 2022-23.
The first issue concerned the disallowance of interest expenditure amounting to Rs. 1,26,30,730. The Assessing Officer had disallowed the entire interest expense on the ground that interest-bearing funds had allegedly been diverted for non-business purposes, particularly in relation to a debit balance in the account of one of the members of the assessee association of persons (AOP). However, the CIT(A) observed that the assessee possessed sufficient non-interest-bearing funds that exceeded the amount withdrawn by its members. The appellate authority further noted that the assessee had purchased liquor, wine, and beer largely on credit while most sales were made in cash, resulting in the availability of substantial interest-free funds. The CIT(A) concluded that the Assessing Officer had failed to establish any nexus between the interest-bearing loans and the advances to members. It was also found that the borrowed funds had been utilized for business purposes, including payment of excise licence fees and settlement of trade creditors. Since no material evidence was produced to show diversion of borrowed funds for non-business purposes, the disallowance of interest expenditure was deleted.
The ITAT agreed with the findings of the CIT(A), observing that the Assessing Officer had not brought any material on record to demonstrate that the interest-bearing funds had been used for non-business purposes. Finding the appellate authority’s reasoning clear and well-supported by the facts, the Tribunal declined to interfere and dismissed the Revenue’s ground of appeal.
The second issue related to the deletion of additions made under Section 68 of the Income-tax Act in respect of unsecured loans aggregating to Rs. 7,45,25,000. The Revenue also challenged the admission of additional evidence by the CIT(A). The CIT(A) examined the details of loans received by the assessee and found that unsecured loans had been received through banking channels. In the case of one lender, amounts aggregating to Rs. 7 crore had been transferred through bank accounts, interest had been paid after deduction of tax at source, and a portion of the loan had subsequently been repaid. In another instance, the appellate authority accepted the assessee’s explanation that a clerical error had resulted in an incorrect accounting entry, which was later rectified. The CIT(A) also considered another loan transaction supported by RTGS transfers and evidence showing the source of funds.
During the appellate proceedings, the assessee furnished documentary evidence including bank statements, income tax returns, TDS certificates, confirmation letters, and PAN details of the lenders. The CIT(A) concluded that the identity of the lenders, genuineness of the transactions, and creditworthiness stood established. Since the loans were routed through banking channels and supported by documentary evidence, the addition under Section 68 was held to be unwarranted.
The ITAT found the conclusions of the CIT(A) to be logical, clear, and in accordance with the provisions of law. Observing that the findings were based on supporting evidence and proper appreciation of facts, the Tribunal upheld the deletion of the Section 68 additions and dismissed the Revenue’s objections.
The final issue concerned the deletion of an addition of Rs. 1,15,79,384 made by the Assessing Officer as business income due to a difference between the purchase figures reflected in the profit and loss account and the figures derived from tax collected at source (TCS) data. The assessee explained before the CIT(A) that purchases had been recorded based on actual purchase invoices and that the differences arose because certain suppliers collected TCS after adjusting rebates and discounts, while others did not collect TCS on their sales.
The CIT(A) accepted this explanation and observed that the purchases had been debited at actual cost as reflected in the purchase invoices. It was also noted that the Assessing Officer had not identified any instance of excess expenditure claimed by the assessee during assessment proceedings. Since there was no evidence of inflated purchases or excess deduction, the addition was deleted.
The ITAT concurred with the findings of the CIT(A), noting that the issue had been examined comprehensively after considering all relevant aspects. Finding no reason to interfere with the appellate order, the Tribunal upheld the deletion of the addition.
Accordingly, the ITAT dismissed the Revenue’s appeal in its entirety and affirmed the order of the CIT(A).
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal is filed by the Revenue against the order of Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (‘Ld. CIT(A)/NFAC’ for short), New Delhi dated 23.01.2025 for the Assessment Year 2022-23.
2. Grounds of appeal raised by the Assessee are as under:
1. On the facts and circumstances of the case the Ld. CIT (A) erred in law in deleting the addition of Rs. 1,26,30,730/-, made by the AO by disallowing the expenditure interest paid on loans.
2. On the facts and circumstances of the case the Ld. CIT(A) erred in law in admission of additional evidence without allowing the opportunity to the Assessee Officer to submit remand report and thereby allowing the appeal and deleting the admission of additional evidence without allowing the opportunity to the Assessing additions to the tune of Rs. 7,45,25,000/- added u/s 68 Act, 1961, and Rs. 1,15,79,384/- added in business income.
3. On the facts and circumstances of the case the Ld. CIT(A) erred in deleting the addition of Rs. 1,15,79,384/- as business income without considering that the appellant failed to furnish the relevant and circumstantial evidence regarding difference in purchases.
4. The appellant reserves the right to add, amend or alter the grounds of appeal on or, before the date of disposal.
3. The first ground of appeal is against the deletion of addition of Rs. 1,26,30,730/- made by the Assessing Officer by disallowing the expenditure of interest paid on loans. The Ld. CIT(A) in the appellate order has given his findings as under:-
“I have gone through the submission and same has been perused carefully. It is pertinent to note that the appellant has claimed interest expenses of Rs. 1,26,30,730/- on loans. As per the Audited Balance Sheet as on 31.03.2022, the unsecured loans were of Rs. 23,42,04,718/-. It is also noted that one of the members of the assessee AOP, M/s Gannayak Associates had a debit balance of Rs. 5,36,22,623/-from the AOP and the appellant has not charged any interest. It is also fact that the appellant is having sufficient non-interest-bearing funds to give advance to its members without charging interest thereon. The appellant has been purchasing goods (i.e., liquor, wine, and beer) on credit for a reasonable time and most of the sales have been made on cash basis and only a small portion of sales have been made on credit. The appellant has also earned profit during the year on the sale of goods. The position of interest free funds available from sales made during the year. It is evidently clear that the assessee was having non-interest bearing funds more than the amount of withdrawals by its members. Thus, the debit balance in the capital account of the members did not have any nexus with the interest-bearing unsecured loans. After considering the facts of the case, it is evident that the Assessing Officer was not justified in disallowing the entire expenses on account of interest of Rs. 1,26,30,730/-. The conclusion drawn by the Assessing Officer that the interest-bearing funds of loans were not utilized for business purposes is not tenable. The Assessing Officer has not brought any material on record to establish the nexus that interest bearing funds were utilized for non-business purposes. Since, the Assessing Officer has not proved, by bringing any material on record, the nexus that interest bearing funds were directly utilized for withdrawals by its members, whereas in fact the interest bearing funds raised as loans were utilized by the appellant for its business purposes to make payments to Excise Department for Licence Fee and to creditors for purchases of goods for its business and further that there were sufficient interest free funds available with the appellant which were more than the debit balance in the capital account of its members, the Assessing Officer was not justified in disallowing the entire interest expenses of Rs. 1,26,30,730/-. The contention of the appellant is found tenable. Hence, the appeal is allowed.”
4. We have considered the findings given by the Assessing Officer in the assessment order and the arguments of the ld. DR on this issue. We have also considered the findings given by the Ld. CIT(A) in the appellate order. We find that the Ld. CIT(A) has given very clear cut findings on this issue by pointing out that the Assessing Officer has not brought on record any material to establish the nexus that interest bearing funds were utilized for non-business purposes which has also not been clearly established by the Assessing Officer that such funds were not utilized by the Assessee for making payments to excise Department for license fee or to creditors for purchase of goods for the business as claimed by the Assessee, therefore, in our considered view that the findings given by the Ld. CIT(A) on this issue are very clear and need no interference. Accordingly, Revenue’s appeal on this issue is dismissed.
5. Appeal on ground No.2 is against the admission of additional evidence by the Ld. CIT(A) and deleting the addition to the tune of Rs. 7,45,25,000/- added u/s 68 of the Income Tax Act, 1961 of Rs. 1,15,79,384/- added as business income. The Ld. CIT(A) in the appellate order has given a very exhaustive findings which is reproduced as under: –
“I have gone through the submission and same has been perused carefully. It is pertinent to note that the appellant has taken unsecured loans of Rs. 7,00,00,000/- from Smt. Saroj Jain during the year. It is noted that the appellant received the amount of Rs. 6,00,00,000/- on 12.11.2021 (Rs. 48,00,000 x 12 = Rs. 5,76,00,000 + Rs. 24,00,000 = Rs. 6,00,00,000) and Rs. 1,00,00,000/- on 28.03.2022 (Rs. 40,00,000 + Rs. 40,00,000 + Rs. 20,00,000) through bank transfers from her HDFC Bank Account No. 50100046710486 to the Appellant credited in its HDFC Bank Account No. 50200048887325 and paid interest to Smt. Saroj Jain after duly deducted TDS on such interest. The net amount of interest paid/credited in her account was Rs. 4,43,835/- (Rs. 4,93,151 – TDS Rs. 49,316) and Rs.8,04,822/- (Rs. 8,94,247 – TDS Rs. 89,425). The appellant has also repaid an amount of Rs. 50,00,000/-to Smt. Saroj Jain in subsequent year on 07.09.2022. In respect of Shri Kasmiri Lal, appellant has not taken any fresh loan from Sh. Kashmiri Lal during the current previous year relevant to A.Y. 2022-23 under consideration. The appellant had in fact received a loan of Rs. 16,25,500/- from Sh. Kashmiri Lal on 10.09.2020 through NEFT from his PNB Account and credited in the bank account of the appellant maintained with Punjab National Bank, Hisar However, by an inadvertent mistake the Accountant has made entry of this transaction in the ledger account of M/s Keshubhai Enterprises. When the mistake was noticed, it was rectified on 01.04.2021 and the amount was credited in the account of Sh. Kashmiri Lal in Hisar Branch of the Appellant by debiting the same amount wrongly entered in the account of M/s Keshubhai Enterprises. This amount was transferred to Head Office from Hisar Branch on 31.03.2022. There was an opening balance of unsecured loan of Rs. 44,50,000/- in the account of Sh. Kashmiri Lal as on 01.04.2021. Further, the amount of loan of Rs. 16,25,500/- received on 10.09.2020 from Sh. Kashmiri Lal, which was wrongly entered in the account of M/s Keshubhai Enterprises, has been corrected and entered in the account of Sh. Kashmiri Lal making the total at Rs. 60,75,500/- (Rs. 44,50,000 + Rs. 16,25,500). In respect of Subhas Bansal, the appellant received an unsecured loan of Rs. 29,00,000/-from Sh. Subhash Bansal on 02.04.2021 through RTGS. It is noted from the bank account statement of Sh. Subhash Bansal with Bank of India that he had received an amount of Rs. 29,00,000/- on 31.03.2021 through RTGS from M/s KLM Infotech Pvt. Ltd. wherein he is one of the directors. The assessee repaid an amount of Rs. 6,00,000/- to him on 29.05.2023 through RTGS from its bank account with ICICI. During the course of appeal proceedings, the appellant has submitted the supporting documents regarding the genuineness of these unsecured loans such as Bank statement, ITR copy, TDS certificate, confirmation letter and PAN copy. It is also noted that the said transactions related to loans were undertaken through a banking channels and TDS was deducted on the interest paid and credited to the Central Government as reflected in TDS certificates. In view of the above discussion and sincerely following the Hon’ble judiciary decision, in my considered opinion, it is established fact that this unsecured loan is a genuine transaction and addition made u/s 68 of the Act was not warranted on this account. The contention of the appellant is found tenable. Hence, the appeal is allowed.”
6. We have considered the arguments of the ld. DR on this issue and findingsgiven by the Assessing Officer in the assessment order. We have also considered the findings given by the Ld. CIT(A) on this issue and the arguments of the Ld. Counsel for the Assessee. We find that the findingsgiven by the Ld. CIT(A) on this issue are very clear, logical and as per the provisions of the Act, therefore, it needs no interference. Accordingly, Revenue’s appeal on this ground is dismissed.
7. In the next ground, on this issue of deletion of addition to the tune of Rs. 1,15,79,384/- as business income, the Ld. CIT(A) has given his findings as under: –
“I have gone through the submission and same has been perused carefully. It is pertinent to note that the appellant claimed gross purchases at Rs. 778,29,71,684/- as per the P&L Account for the said year. However, as per the statement of computation of income, tax collected at source (TCS) was claimed at Rs. 7,77,13,913/-. Accordingly, the total purchases are worked out at Rs. 777,13,92,300/- . Thus, there is a difference in gross purchases amounting to Rs. 1,15,79,384/-. During the course of appeal proceedings, the appellant stated that the appellant company has debited cost of purchases made during the year as per purchase invoices. The difference between the amount of purchases worked out based on TCS claimed in the return of income and purchases shown in Profit and Loss Account was due to the main reasons that some parties collected TCS after reducing rebate and discount allowed to the appellant on purchases and some of the parties have not collected TCS on sales made by them. The reasons for such difference and reconciliation are provided by the appellant in the supra.
In view of the above discussion, it is pertinent to note that the appellant had debited purchases as per actual cost on the purchase invoices. There is no case of claiming excess expenditure on purchase of goods by the appellant. Therefore, considering the facts and circumstances of the case, the impugned addition of Rs. 1,15,79,394/- was not warranted. It is also fact that the assessing officer has not observed any excess expenditure on purchase of goods by the appellant during the course of assessment proceedings. The contention of the appellant is found tenable. Hence, the appeal is allowed.”
8. We have considered the findings given by the Assessing Officer in the assessment order and the arguments of the ld. DR on this issue. We have also considered the arguments of the ld. Counsel for the Assessee as well as the findings given by the Ld. CIT(A) on this issue. We find that the Ld. CIT(A) has dealt with this issue in the appellate order in a very detailed manner and after duly considering and taking into view of all possible aspects on the issue, he has concluded his findings. Therefore, we find to reason to make interference in the findings given by the Ld. CIT(A). Accordingly, appeal on this issue is dismissed.
9. In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 04th May, 2026
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