DCIT Vs Gayatri Construction (ITAT Ahmedabad)
Ld. counsel has submitted that advances were given to Ramjibhai and Company for business purpose and petrol and diesel was also purchased from them. The ld. Counsel has also contended that assessee was having interest free fund of Rs. 64,75,145/-. The ld. counsel has also placed reliance on the judicial pronouncement of the Hon’ble Bombay High Court in the case of Reliance Utilities 313 ITR 340 (Bom).
The assessee has not brought any material on record to substantiate that aforesaid huge amount of advance was extended to Ramji bhai and Company exclusively for the purpose of petrol and diesel. The ld. Departmental Representative has pointed out that loan amount was very old which was given in the earlier years and there was no sufficient interest free fund available with the assessee. During the course of course of appellate proceedings before us, the ld. counsel has stated that opening debit balance was Rs. 61,14,336/- and closing debit balance was Rs. 59,31,445/- and the interest free fund available with the assessee was Rs. 64,75,145/-. However, to controvert the submission of the ld. Departmental Representative the ld. counsel has not furnished any information and material to disprove the claim of the Ld. Departmental Representative that the loan amount was pertained to earlier years when the assessee was not having sufficient interest free fund. The cases relied upon by the assessee are distinguishable on facts. We do not find any merit in the ground of appeal of revenue after considering that the ld. CIT(A) has judiciously restricted the disallowance to the extent of Rs. 3,98,436/- on pro-rata basis as elaborated in his finding supra in this order after following the decision of Sanghiv Swiss Refills Pvt. Ltd. 85 (ITD) 59. In the light of the above facts and findings, both the appeals of the Revenue and assessee on this issue are dismissed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
These two appeals filed by Revenue and assessee for A.Y. 2009-10, arise from order of the CIT(A), Gandhinagar, Ahmedabad dated 03-102012, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”. Since similar issues involved in these ground of appeal directed against the order of ld. CIT(A) therefore for the sake of convenience both these appeals are adjudicated together as under.
ITA No. 25/Ahd/2013 A.Y. 2009-10 filed by Revenue and ITA No. 2816/Ahd/2012 filed by the assessee
2. The assessee has filed return of income on 30th Sep, 2009 declaring total income of Rs. 7,67,740/-. The assessee firm was engaged in the business of govt. contractor for civil construction work. The case was selected for scrutiny by issuing of notice u/s. 143(2) of the Act on 18th August, 2010. The relevant facts relating to the issues contested in the grounds of appeals are discussed as under:-
Ground No. 1 (Deleting addition of Rs. 2,22,175/- u/s. 40(a)(ia) for non-deduction of tax)
3. At the time of assessment, the Assessing Officer noticed that assessee has made interest payment to GE Capital and Tate Motors Ltd. without deduction of tax as prescribed u/s. 194A of the act, therefore, amount of Rs. 2,22,175/- was disallowed u/s. 40(a)(ia) of the Act and added to the total income of the assessee.
4. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has deleted the addition following the decision of Merillyn Shipping and Transport ITAT Special Bench 20 com 244 holding that once the payments are made and no amount is payable as on 31/03 of the relevant previous year, no disallowance u/s. 40(a)(ia) can be made.
5. During the course of appellate proceeding before us, both the ld. counsel and ld. Departmental Representative have agreed that aforesaid issue of non-deduction of TDS is covered by the decision of Hon’ble High Court of Gujarat in the case of Sikandar Tunwar 33 com 133 and the same may be restored to the file of Assessing Officer for adjudicating afresh.
6. Heard both the sides and perused the material on record. With the assistance of ld. representatives, we have gone through the decision of the Hon’ble Gujarat High Court in the case of CIT-IV v. Sikanderkhan N. Tanwar wherein it is held that section 40(a)(ia) would cover not only the amounts which are payable as on 31st March of a particular year but also which are payable at any time during the year. Accordingly, this issue is restored back to the file of Assessing Officer for adjudicating afresh as per the direction laid down in the decision of Hon’ble Gujarat High Court in the case of Sikandar Tunwar supra. Therefore this ground of appeal of the revenue is allowed for statistical purposes.
Ground No. 2 (Deleting disallowance of interest expenses of Rs. 7,63,307/-) of Revenue’s appeal and Ground No. 1 of assessee’s Appeal (confirming the disallowance of Rs. 3,98,436/-)
7. During the course of assessment the Assessing Officer noticed that assessee has made advances to M/s. Ramjibbai & Company on account of diesel and petrol expenses. M/s. Ramjibhai & Company was owned by one of the partners and no interest was charged from the said partnership firm. In the said account, debit balance as on 1st April, 2008 was Rs. 61,14,436/-and the closing debit balance was Rs. 59,31,445/-. As per the P & L account there was interest payment of Rs. 41,82,598/- which was paid to banks and private finance companies. On the basis of aforesaid information the Assessing Officer observed that assessee has paid substantial amount of interest on the loan taken from outside parties however no interest has been charged on the amounts advanced to the related concern. The Assessing Officer has further observed that assessee has paid interest @ 19% to the outside parties therefore he has computed interest @ 19% on the interest free advances of Rs. 61,14,436/- provided to aforesaid related concern. Accordingly, an amount of Rs. 11,61,743/- was disallowed out of the interest expenses.
8. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has restricted disallowance out of interest expenses to the amount of Rs. 3,98,436/-. The relevant part of the discussion made by the ld. CIT(A) on this issue is as under:-
“6.3 I have gone through the facts of the case. The appellant is t all disputing the finding of the AO that the amount has been diverted for non-business purpose. As far as the claim of non-interest bearing funds available with the appellant is concerned, the following facts are very pertinent:
i) the advance has been given to a partner’s proprietary concern who runs a petrol pump. No commensurate purchases of fuel are there. The appellant is not even disputing it. It is therefore, in nature of withdrawal of funds by partner from his capital and even over and above it. On the one hand the partner Shri Ramjibhai Chaudhary is being paid interest on his capital of Rs.24.45 lac and on the other hand he has withdrawn over Rs. 60 lac and no interest has been charged from him.
ii) all these credits which are claimed as interest free funds; are very old and there were huge investments at that time in the business as well as there was substantial sundry debtors outstanding. There were no funds available from these credits when the funds have been diverted to the partner’s concern.
iii) therefore, it can be safely said that loans taken on Interest mixed with other funds have been diverted for non-business purpose.
In the light of the above facts, on the one hand by manipulation of account, interest has been paid to the partner Shri Ramjibhai Chaudhary to the extent of Rs.2,23,486/- whereas, in effect he was having huge funds taken from the firm for his own purpose and there was a net debit balance in his account. Further, the case is not of simple interest free funds being more than non-business advance, in the light of the above observations of the fact that such funds were already lying utilized for other purposes. The cases relied upon by the appellant are therefore distinguishable on facts. The total interest paid is Rs.41,92,598/- and the total investments including that diverted to the partner is Rs.6.43 crore. On pro-rata basis, considering the mixed funds the interest is disallowed as computed hereunder:
Disallowance of interest
Rs. 41,92,598 x 61.14.736
6,43,43,095
= Rs. 3,98,436/-
Therefore, relying on the judgment of Hon’ble ITAT, Mumbai in the case of Sanghvi Swiss Refills (P.) Ltd (85 ITD 59), which has decided the case on similar facts, the disallowance of interest claimed to the extent of Rs. 3,98,436/- is confirmed. This would include the absolutely non-allowable interest paid to partner, Shri Ramjibhai Chaudhary to the extent of Rs.2,23,486/-whereas, in effect he was having huge funds taken from the firm for his own purpose and there was a net debit balance in his account. To sum up, the disallowance of Rs. 3,98,436/- is confirmed and the remaining disallowance is directed to be deleted.”
9. During the course of appellate proceedings before us, the ld. Departmental Representative has supported the order of Assessing Officer. On the other hand, the ld. counsel has submitted that advances were given to Ramjibhai and Company for business purpose and petrol and diesel was also purchased from them. The ld. Counsel has also contended that assessee was having interest free fund of Rs. 64,75,145/-. The ld. counsel has also placed reliance on the judicial pronouncement of the Hon’ble Bombay High Court in the case of Reliance Utilities 313 ITR 340 (Bom).
10. Heard both the sides and perused the material on record. The assessee has not brought any material on record to substantiate that aforesaid huge amount of advance was extended to Ramji bhai and Company exclusively for the purpose of petrol and diesel. The ld. Departmental Representative has pointed out that loan amount was very old which was given in the earlier years and there was no sufficient interest free fund available with the assessee. During the course of course of appellate proceedings before us, the ld. counsel has stated that opening debit balance was Rs. 61,14,336/- and closing debit balance was Rs. 59,31,445/- and the interest free fund available with the assessee was Rs. 64,75,145/-. However, to controvert the submission of the ld. Departmental Representative the ld. counsel has not furnished any information and material to disprove the claim of the Ld. Departmental Representative that the loan amount was pertained to earlier years when the assessee was not having sufficient interest free fund. The cases relied upon by the assessee are distinguishable on facts. We do not find any merit in the ground of appeal of revenue after considering that the ld. CIT(A) has judiciously restricted the disallowance to the extent of Rs. 3,98,436/- on pro-rata basis as elaborated in his finding supra in this order after following the decision of Sanghiv Swiss Refills Pvt. Ltd. 85 (ITD) 59. In the light of the above facts and findings, both the appeals of the Revenue and assessee on this issue are dismissed.
Ground No. 3 (Revenue’s ground of appeal against deleting addition u/s. 41(1) in respect of outstanding creditors shown in balance sheet of Rs. 3,75,18,118/-) and Assessee’s 2nd ground of appeal in respect of confirming addition u/s. 41(1) of Rs. 8,39,727/-
11. During the course of assessment, the Assessing Officer noticed that as per balance sheet there was outstanding sundry credit balance to the amount of Rs. 3,83,57,845/-. The Assessing Officer has stated that assessee has failed to prove the genuineness of the outstanding liability. He has further submitted that because of delay in furnishing the information there was no time to verify the genuineness of the confirmations filed by the assessee. Therefore, treating the outstanding creditors as cessation of liability, the Assessing Officer has made addition of Rs. 3,83,57,845/- to the total income of the assessee.
12. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has admitted additional evidences under rule 46A of the I.T. Rule comprising confirmations/copies of details etc. furnished by the assessee to prove the genuineness of the outstanding sundry creditors. The ld. CIT(A) has also called remand report from the Assessing Officer with direction to examine the sundry creditors from the angle (i) credit u/s. 68 including genuineness and paying capacity (b) allowbility of expenses claimed by assessee during the year being admitted by the creditors shown in the books of account. The Assessing Officer has submitted remand report to the ld. CIT(A) along with remarks reproduced at page no. 19 to 22 in the order of CIT(A). The copy of remand report was also forwarded to the assessee and assessee has reported that the Assessing Officer has not correctly reported the facts in the remand report and stated that all the credits were genuine and the addition cannot be made u/s. 41(1) unless there was a benefit of cessation of liability. The ld. CIT(A) has deleted the addition except in the case of Shri Bhemjibhai L Chaudhary to whom assessee has shown payable amount of Rs. 8,39,727/- as unsecured loan inadvertently reported under the head sundry creditors. After examination of the statement u/s. 131 of the Act and other material, the ld. CIT(A) observed that Bhemjibhai L. Chaudhary was a person of small means, closely related to the assessee and had never filed income tax return. Considering the facts and circumstances, the ld. CIT(A) has confirmed the addition to the unsecured loan amount of Rs. 8,39,727/- and deleted the remaining addition of Rs. 3,75,18,118/- (Rs. 3,83,57,845/- – Rs. 8,39,727/-) holding that looking to the details filed such addition is not justified u/s. 41(1) of the Act. Relevant part of the decision of ld. CIT(A) is as under:-
“7.5 I have gone through the facts of the case carefully. The AO ‘has conducted verification and enquiries with respect to all 25 creditors whose balance at the end of the year was more than Rs.5 lac. Notices u/s 133(6) were issued by the AO at the new addresses given by the appellant. They were delivered in most cases except 4. According to the AO, even out of these 3 have submitted confirmations by tapal. From the report it is found that most of the creditors have confirmed the balances and the fact that the money is due to them. As decided by the Supreme court in the case of Suguali Sugar Works Pvt. Ltd. (1999) 236 ITR 518 (SC ) in the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt was barred and had become unenforceable. I have also noted the recent decision of Hon’ble Delhi High Court in case of Shri Vardhman Overseas Ltd ,343 ITR 408 wherein the case was decided in assessee’sfavour on same principals though in case of many claimed creditors even the address or trail was not available. Now, I will proceed to discuss the cases of the claimed creditors in groups, according to the facts of the cases
