TaxTMI 
TaxTMI 
2013 (7) TMI 357
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.... parties are agitating the decision taken by Ld CIT(A) on the following issues:- (a) Disallowance of freight charges by invoking sec. 40(a)(ia) of the Act (b) Addition of interest calculated on loans and advances balances. 3. The facts relating to the above said issues are stated in brief. Both the assessees are engaged in textile business. The assessing officer, during the course of assessment proceedings, noticed that these assessees have paid freight charges without deduction of tax at source u/s 194C of the Act and hence he disallowed the said claim by invoking the provisions of sec. 40(a)(ia) of the Act. He also noticed that these assessees have paid interest free advances to certain concerns, even though t....
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....ully perused the record. We agree with the view expressed by Ld CIT(A) that the transport bills/vouchers by themselves constitute a contract. However, the question that arises here is whether there was a contract between the assessees herein and the transport contractors in the facts and circumstances of the present case. According to the assessees, the suppliers themselves dispatch the goods to them by engaging the lorries at their end. Thus, according to the assessees, the contract is between the suppliers and the transport contractors and not between him and the transport contractors. 7. In our view, the "parties to a contract" have to be determined on the basis of conduct of the parties. Mere payment of freight charges, by itself, cann....
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....ted the suppliers to dispatch goods through a particular transporter or that the supplier of goods entrusted the job of transportation of the appellant's goods to various transporters depending upon the willingness and readiness of a particular transporter at the given point of time to transport the goods of the appellant at a cost agreeable to the appellant, since, eventually, a particular transporter delivers goods at the appellant's premises and the appellant pays the freight charges to the representative of the transporter (whether the driver or anybody else) in connection with such delivery of goods...... Hence, there does exist unambiguous contractual relationship between the various transporters, (who freighted the goods of the appel....
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....are having huge interest free funds and further the interest bearing funds are meager out of the total funds employed in the business. Adverting our attention to the financial statements, the Ld A.R submitted that these assessees have availed specific purpose business loans like cash credits and term loans. He submitted that the cash credit loan constitute major portion of loan, which is given for purchase of business stock. The outstanding balance in cash credit account is far less than the closing stock value and hence it cannot be said that the assessees herein have diverted the cash credit loan for making the impugned advance. He further submitted that the term loans are granted for purchase of assets and hence those loans cannot also b....
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....ssed following amounts in the cases under consideration. Chandana Bros. (Ameerpet) (ITA No.85/V/2011) - Rs.21,63,711/- Chandana Bros (General Bazaar) (ITA No.86/V/2011) - Rs.7,81,988/- The interest paid by these two concerns, as noticed from the profit and loss account filed by them, is Rs.3,86,560/- and Rs.7,82,378/- respectively. We notice that both the assessees have availed loans from State Bank of India and according to the assessee, it represents cash credit loan. We further notice that the closing stock held by these two parties is more than the cash credit loan, meaning thereby the cash credit loan has been fully utilized for the purpose of business. M/s Chandana Bros (General Bazar) has availed car loan....
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....n other words, in the view of the ITO which has been accepted by the Tribunal, the assessee as a good business concern should not have granted interest free loan, or should have insisted on payment of interest. If the assessee had not bargained for interest, or had not collected interest, one fails to see how the IT authorities can fix a notional interest as due, or collected by the assessee. Attention has not been invited to any provisions of the IT Act empowering the IT authorities to include in the income interest which was not due or not collected." Since the assessing officer is not entitled to assess interest on notional basis, we do not find any justification in the order of Learned CIT(A) on this issue. Accordingly, we set aside hi....