TaxTMI 
TaxTMI 
2012 (9) TMI 228
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....pellant. No addition on this score is called for, addition made by the AO and sustained by the CIT (Appeals) is liable to be deleted. 2. That while making of the addition in respect of amounts appearing in the liability side of the balance sheet amounted to Rs. 2503452/-, The authorities below have completely ignored the facts that the aforesaid amount are payable to the creditors, to whom the amount belonged, the creditors have not forgone the aforesaid amount as not to be taken back, The genuine loans were taken and genuine liabilities to be payable are standing in the balance sheet, no addition treating the same as not genuine can be made, addition made on this score by the AO and sustained by the CIT (Appeals) is liable to be deleted." 3. On these grounds, the AO made addition of Rs.25,03,452/- by invoking the provisions of section 28(iv) of the IT Act. As per the AO, the assessee had received sums of Rs.15 lacs and Rs.10,03,452/- from M/s. CRB Capital Ltd. and M/s. CRB Corporation Ltd. respectively. The AO asked the assessee to furnish confirmations from these parties and also correspondence made with these creditors. The AO also asked the assessee as to when these amounts w....
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....e assessee during the year under consideration and the assessee has to repay the amounts to the parties. There is no cessation of liability during the year under consideration. There is no circumstantial evidence available against the assessee to prove that the amount payable as liability has changed its colour as income. The provisions of section 28(iv) are not applicable as no benefit or perquisites has accrued to the assessee during the year under consideration. The amount of loan received from both the parties is an established liability, which the assessee acknowledges to pay back. Therefore, it cannot be treated as income accrued or earned by the assessee. Since, no income accrued or received by the assessee, the same cannot be taxed in the hands of the assessee. Certain decisions have been relied upon. The ld. CIT(A), however, rejected the contention of the assessee and confirmed the addition. His findings in para 3.2 of the appellate order are reproduced as under : "3.2. I have considered the rival contentions and find that the loans undisputedly have not been received during the year. However, nothing has been brought on record by the appellant that these are genuine outs....
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....dgment, the court further held - "In the present case, the money has received by the assessee in the course of carrying on his business. Although it was treated as deposit and was of capital nature at the point of time it was received by efflux of time the money has become assessee's own money." Therefore, following the judgment of the Hon'ble Supreme Court, I confirm the addition made by the AO." 4. The ld. counsel for the assessee reiterated the submissions made before the authorities below and referred to PB-16, which contains Schedule-J attached to the balance sheet to show that the amount received from M/s. CRB Capital Ltd. and CRB Corporation Ltd. are part of the balance sheet and the same have been shown as liability in the accounts of the assessee. He has, therefore, submitted that the provisions of section 28(iv) would not apply in the case of the assessee, as the assessee has not forgone the liability. The amounts in question have not been credited in the profit and loss account or assets of the assessee. The assessee is willing to pay back the amount to the parties and it was only the opening balance in the assessment year under appeal and liability is coming up from t....
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.... business or the exercise of a profession" 5.1 The above provision is not applicable to the facts and circumstances of the case. The assessee has shown liability of the aforesaid amounts in its books of account and the balance sheet. The liability is still existing, which is also noted in schedule-J to the balance sheet (PB-16). The assessee specifically pleaded before the AO that these were old loans, which were accepted by the Revenue Department in the preceding assessment year in the scrutiny assessment. Thus, these were opening balance coming up in the assessment year under appeal. The assessee has not written off or squared up any of the amounts in the accounts of the assessee. The amount in question has not been transferred to the profit and loss account, there is no waiver of the loan and the amounts have not been transferred to any reserve fund of the assessee. Therefore, the same cannot be treated as income of the assessee because the liability still existing in the books of the assessee. The decisions cited by the authorities below are, therefore, clearly distinguishable on the facts of the case. Since the assessee has not received any amount during the year under consid....
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.... proposition of law, the AO has relied on the judgment of Special Bench of ITAT, New Delhi in the case of M/s. Cheminvest Ltd. vs. ITO, Wd. 3(3), New Delhi in ITA No. 87/Del/2008. The AO also by relying on the judgment in the case of CIT vs. Abhishek Industries Ltd. 286 ITR 1 (P&H) held that not only income but expenditure also goes from the common kitty. The AO has also referred to the judgment of Bombay High Court in the case of Godrej & Boyce vs. DCIT 328 ITR 81 for the proposition that rule 8D is applicable in the assessee's case. Accordingly, by applying the provisions of rule 8D(2)(ii), the AO worked out the disallowance at Rs.6,02,311/-. 6.1 The assessee challenged the addition before the ld. CIT(A) and his written submission is incorporated in the appellate order, in which the assessee briefly explained that the provisions of section 14A would not apply to the assessment year under appeal because the same is applicable from 24.03.2008. It was also explained that the AO has neglected in considering the facts of the case. The assessee filed list of companies of which the assessee purchased shares along with respective dates, which is incorporated by the ld. CIT(A) at page 1....
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....t no interest bearing funds were diverted for investment towards earning exempt income, the action of the AO cannot be faulted. Therefore, the disallowance made by the AO is upheld." 7. The ld. counsel for the assessee reiterated the submissions made before the authorities below and submitted that the investments were made above 20 years back and sufficient funds are available with the assessee to make investment. PB-13 is the balance sheet and the opening capital balance with the assessee is Rs.2,53,66,343/- and after adjustment, the same is available at Rs.3,09,03,113/-. He has submitted that no investment was made in the assessment year under appeal. PB-16 shows that the interest free funds from M/s. Bhole Baba Milk Food Industries Ltd., Dholpur and Kosi in a sum of Rs.4,70,37,185/- and Rs. 89,00,116/- are available to the assessee. He has referred to the details of interest earned and paid and submitted that the assessee received the interest from bank after adjustment in a sum of Rs.2,62,657/- and paid interest at Rs.1,48,913/- (PB-18), which is reflected in the profit and loss account. The interest received is more than the interest paid. Therefore, the assessee has not incu....
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.... claimed that the borrowed funds were taken at the later stage for the purchase of business. The AO has not proved any nexus between the borrowed funds and the amounts invested in shares in assessment year. BP-13 is the balance sheet to show that the opening balance of the profit of the year. The assessee had sufficient balance to make investment in the amounts mentioned by the AO. Thus, sufficient funds and profits are available to the assessee to make investment though no investment has been made in this year, but it was made several years back. Further, the ld. counsel rightly contended that the funds from Bhole Baba Milk Food Industries Ltd., Dholpur, Kosi are available to the assessee for making investment (PB-16). The details of interest have been filed at page 18 and 14 of the paper book to show that the interest received by the assessee are in a sum of Rs.2,62,656/-, but interest paid was Rs.1,48,913/-. Thus, the assessee practically did not incur any expenditure on the interest. The provisions of section 14A, therefore, have been wrongly applied. Considering the totality of facts and circumstances, noted above, we do not find any justification for disallowance of the inte....