2023 (1) TMI 425 - AT - Income Tax

Revenue's Appeal Dismissed, CIT(A)'s Decisions Upheld.

D.C.I.T., Circle-4 (1) (1), Ahmedabad. Versus Sanghi Infrastructure Ltd.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions in all issues, subject to necessary verifications by the AO. - D.C.I.T., ... Addition of interest attributable on the diversion of loan fund - AO computed being 14% of the interest free loans and advances and added to the total income of the assessee - CIT-A deleted the addition - HELD THAT:- Interest was disallowed by the AO on the reasoning that there was diversion of interest bearing fund for non-commercial purposes. Admittedly, the interest free fund available with the assessee exceeds the amount of interest free advances which can be verified from the submission of the assessee before the Ld.CIT(A). Once own fund of the assessee exceeds the amount of interest free loans and advances, then a presumption can be drawn that the interest free loans and advances has been given by the assessee out of its own interest free fund available with it. Thus, in such a situation the disallowance of interest u/s 36(1)(iii) is not warranted. Accordingly, we do not find any infirmity in the order of the Ld. CIT(A). Hence, the ground of appeal of the revenue is hereby dismissed. Mismatch in the income reported in the profit and loss account vis-à-vis form 26AS - CIT-A deleted the addition - HELD THAT:- From the preceding discussion, we note that the income of Rs. 49,63,600/- has been offered to tax in the Assessment Year 2013-14 and thus, if any addition is made in the year under consideration than it will lead to the double addition which is unwarranted under the provision of law. Thus, we are of the view that the Ld. CIT(A), has rightly directed the AO to delete the addition made by him after necessary verification. Thus, we hold that there is no infirmity in the order of the Ld. CIT(A) and accordingly ground of appeal of the Revenue is dismissed. Suppression of income - CIT-A deleted the addition - HELD THAT:- We note that the claim of the assesse was allowed by the Ld. CIT(A), after carrying out the necessary verification as discussed above. Admittedly, if the income has been offered to tax for Rs. 57,40,491/- then the assessee can claim the bad debts under the provision of section 36(1)(vi) of the Act. Likewise, if the income has been debited in the name of Larsen & Turbo for Rs.35,53,900/-, then there is no un-reported of income as alleged by the AO. Nevertheless, the Ld.CIT(A), has given relief to the assessee subject to the necessary verification to be done by the AO. Thus, we do not find any infirmity in the order of the Ld.CIT(A), and uphold the same. Hence, the ground of appeal of the revenue is hereby dismissed. Cessation of liability - Addition under the provisions of section 28(iv) r.w.s. 41(1) - HELD THAT:- Assessee has not disputed for the same and therefore the same represent the cessation of liability and therefore the same is liable to be added. Difference in the opening balance pertaining to the earlier year - CIT(A) has allowed deduction to the assessee subject to the necessary verification to be done by the AO. We find no infirmity in the direction of the Ld. CIT(A). Revenue has challenged the deletion of addition in the ground of appeal which to our understanding is not correct. It is for the reason that the Ld. CIT(A), has not given any relief to the assessee with respect to the cessation of liability as the same has been confirmed. Thus, there should not be any grievance to the Revenue with respect to such addition. Thus, the ground of appeal of the Revenue is dismissed. Addition on account of cessation of liability under the provision of section 41(1) - HELD THAT:- From the submission of the assessee, we note that such liability has been settled in the subsequent year. Therefore, the Ld.CIT(A), allowed the ground of appeal subject to the verification by the AO about the payment made by the assessee to the party. We do not find any infirmity in the direction of the Ld.CIT(A), Hence, we uphold the same. Thus, the ground of appeal of the Revenue is hereby dismissed. Issues Involved:1. Disallowance of interest under section 36(1)(iii) of the IT Act.2. Addition due to reconciliation of income in Form 26AS with the profit and loss account.3. Addition on account of disputed transactions with Larsen & Toubro and TDS from payments to Meka Dredging Pvt. Ltd.4. Addition on account of cessation of liability.5. Addition under section 41(1) of the IT Act.Detailed Analysis:1. Disallowance of Interest under Section 36(1)(iii):The Revenue appealed against the deletion of an addition of Rs. 33,75,921/- made by the Assessing Officer (AO) on the grounds of diversion of interest-bearing funds for non-commercial purposes. The AO had calculated this disallowance based on the assessee's interest-free loans and advances. The assessee argued that the interest-free advances were from the financial year 2009-10 when no interest-bearing funds were borrowed, except a term loan from Yes Bank used for business purposes. The CIT(A) found that the assessee had sufficient interest-free funds exceeding the interest-free advances and deleted the disallowance, citing precedents from the Gujarat High Court and the Supreme Court. The Tribunal upheld the CIT(A)'s decision, noting no infirmity in the order.2. Addition Due to Reconciliation of Income in Form 26AS with Profit and Loss Account:The AO added Rs. 52,58,144/- due to a mismatch between income reported in Form 26AS and the profit and loss account. The assessee contended that the discrepancy arose because the income was booked in the subsequent year. The CIT(A) directed the AO to verify the assessee's claim that Rs. 49,63,500/- of the disputed amount was offered to tax in the subsequent year. The Tribunal agreed with the CIT(A), emphasizing the need to avoid double addition and upheld the order.3. Addition on Account of Disputed Transactions with Larsen & Toubro and TDS from Payments to Meka Dredging Pvt. Ltd.:The AO added Rs. 25,18,460/- due to an unexplained difference and Rs. 35,53,900/- for unreported income from Meka Dredging Pvt. Ltd. The assessee argued that the disputed amount was settled with Larsen & Toubro and the income from Meka Dredging was reported under Larsen & Toubro. The CIT(A) allowed the claims subject to verification by the AO. The Tribunal upheld the CIT(A)'s decision, noting that if the income was offered to tax, the assessee could claim bad debts, and there was no unreported income.4. Addition on Account of Cessation of Liability:The AO added Rs. 68,694/- due to a mismatch in balances with M/s. K.B. Shipping & Company and cessation of liability. The assessee argued that the difference included an amount from the previous year and was not aware of the bad debt claimed by the creditor. The CIT(A) directed the AO to verify the claims and recompute the addition. The Tribunal upheld the CIT(A)'s order, noting that the cessation of liability of Rs. 42,470/- was not disputed and required verification of the remaining amount.5. Addition Under Section 41(1) of the IT Act:The AO added Rs. 33 lakhs, treating it as income due to cessation of liability in the name of M/s. Wartsial India Limited. The assessee contended that the liability was settled in the subsequent year. The CIT(A) directed the AO to verify the payment and allow the claim if found correct. The Tribunal upheld the CIT(A)'s decision, emphasizing the need for verification of the payment.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions in all issues, subject to necessary verifications by the AO. The order was pronounced on 23/12/2022 at Ahmedabad.