TaxTMI 
TaxTMI 
2016 (5) TMI 538
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.... the preceding year. He noted that the increase in the finance charges has occurred despite reduction in the loan funds. He noted that the loan funds amounted to Rs. 5.70 crores as on 31-03-2008 has gone down to Rs. 4.38 crores as on 31- 03-2009. Further, current liabilities and provisions are also lesser as compared to the preceding year. However, there is substantial increase in the sundry debtors as on 31-03-2009 as compared to the immediately preceding year. The sundry debtors have increased from Rs. 6.15 crores as on 31-03- 2008 to Rs. 9.51 crores as on 31-03-2009. From the details of sundry debtors furnished by the assessee the AO noted that assessee has advanced huge amount to associate concerns without charging interest, the details of which are as under : Name of the debtor Balance as on 31-03-2008 (in Rs.) Balance as on 31-03-2009 (in Rs.) Amit Garment 3,45,29,367/- 5,28,41,575/- Amit Apparel 80,35,328/- 1,08,12,872/- Sparkon Textile 1,52,20,499/- 1,37,84,936/- Total 5,77,85,194/- 7,74,39,383/- 4. From the ledger account of these parties he noted that none of the transactions of receipts and payments related to sale of goods....
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....dopted by the AO is also erroneous because he has calculated the disallowance of interest on the opening balance of advances given/taken. However, since the interest is only an expense of current year, it is logical only to consider changes of receipt and payment of advances during the year. The fund flow statement was filed before the CIT(A) to substantiate that the interest free advances given to sister concerns are from interest free surplus funds available with the assessee and not from interest bearing loan funds. It was also submitted that the entities from whom advances have been taken and to whom advances have been given are all tax payer entities at the maximum marginal rate of income tax and they have filed their income tax returns. Therefore, the notional disallowance in one entity would result in corresponding reduction of income in another entity and thus tax impact as a whole will be NIL. Relying on various decisions it was submitted that the disallowance made by the AO needs to be deleted. 7. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted the finance charges of Rs. 88,68,694/-. While doing so, he held that the finance charges are in the natu....
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.... more than the interest free funds advanced during the year to sister concerns, no disallowance of interest/finance charge is permissible in view of the decision of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (Supra). He submitted that the Coordinate Benches of the Tribunal are consistently taking the view that when sufficient interest free funds are available with the assessee which far exceeds the interest free advances given to sister concerns no disallowance of proportionate interest is called for. For the above proposition he relied on the following decisions : 1. DCIT Vs. A2Z Online services Pvt. Ltd. - ITA No.1566/PN/2013 (Pune Tribunal) 2. M/s. Mihir Bakre Projects Vs. ACIT- ITA No.1710/PN/2012 (Pune Tribunal) 12. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. From the various details furnished by the assessee in the paper book we find the assessee during the impugned assessment year has received interest free advances of Rs. 2,77,72,986/- from the sister conce....
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....s. 1,11,80,098/- on account of difference in balance of creditors. 16. Facts of the case, in brief, are that the AO during the course of assessment proceedings issued notice u/s.136 of the Act to certain creditors of the assessee. Some of the creditors have replied directly to the office and in certain cases the assessee filed confirmations from some creditors. On verification of the confirmations raised from the creditors, vis-à-vis ledger account of the assessee the AO noted the following difference : Sr. No. Name of creditor Balance as per assessee's books (Rs.) Balance as per creditor's books Differences 1 Tirumala Enterprises 6,50,628/- 6,49,960/- 668/- 2 Phinolek Steel & Engg. Co. 49,79,106/- 16,22,500/- 33,56,606/- 3 Shri Mahaveer Metal 28,81,946/- 33,67,629/- (-)4,85,683/- 4 Advance Metal Corp. P. Ltd. 69,89,667/- Nil 69,89,667/- 5 United Metal Industries 9,24,491 11,33,373/- (-)2,08,882/- 6 Shree Sai Industries Pvt. Ltd. 31,63,296/- 31,36,857/- 26,439/- 7 Domet Trading Pvt. Ltd. 10,38,049/- 2,25,259/- 8,12,790/- 8 Jindal Stainless Steel ....
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....6,49,223 4 Payments booked for higher amounts by creditors by mistake -17,632 5 Payments booked for Lower amounts by creditors, i.e. net of LC charges 1,28,949 6 LC discounted in previous year by the creditors, assessee making payment on due date in next year 33,19,007 7 Opening balance timing Difference due to LC payment -19,44,849 8 Interest for delayed payment booked by assessee and paid in full 1,14,809 Total 41,89,763 19. It was submitted that the assessee has already booked the bills for lower amounts, i.e. shown higher income for the year under consideration. He is again subject to tax because of this amount which amounts to double addition. It was argued that the assessee has booked all the purchases correctly for the year under consideration. The addition is on account of opening balance difference which should not be taxed for the year under consideration. Only the current liabilities should have been added. 20. So far as the purchases booked for lesser amount due to various reasons amounting to Rs. 11,40,331/- is concerned the assessee filed the following details by giving the party wise details : Sr.N....
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....the assessee to such remand report the Ld.CIT(A) restricted the disallowance to Rs. 1,25,326/- by observing as under : "8.1.2 Sundry Creditors i. Advance Metal Corporation - Rs. 69,89,667/- This amount has already been declared by the assessee and tax with interest on the same has been paid. I have perused the order of the Hon. Settlement Commission in this matter and hence I conclude that addition of this amount is not necessary. ii. Other disallowances - Sr. No. Particulars Amt (Rs.) Observations Conclusions 1 Opening balance difference 19,15,371 Difference due to earlier years transactions. No transactions during the year, amounts not credited to P&L by the assessee Allowed (direct case law cited) 2 Bills passed and accepted for lesser amounts due to rate difference, difference in qty, P.O. terms etc. 9,28,855 Liability already reduced and profit increased in assessee's books Allowed (Section 41(1) not applicable) 3 Confirmation of different party considered by A.O. 7,99,925 Proper confirmation of correct party Jindal Steelway (similar name), purchase bill and payment proof produced by the assessee Allowed a....
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....g this amount. 30. So far as the balance amount of Rs. 41,90,433/- is concerned he submitted that the CIT(A) has sustained an amount of Rs. 1,25,326/- and deleted an amount of Rs. 40,65,107/- by giving justifiable reasons. He accordingly submitted that the grounds raised by the revenue should be dismissed. 31. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We find the AO in the instant case has made addition of Rs. 1,11,80,098/- on account of difference in the balance of creditors in case of 10 parties. So far as the amounts appearing in the name of Advance Metal Corporation Pvt. Ltd. amounting to Rs. 69,89,667/- is concerned we find the Ld.CIT(A)deleted this amount on the ground that the assessee has already offered the above amount in his application before the Settlement Commission and has paid due taxes on the same. Since the Ld.CIT(A) on the basis of perusal of the order of the Settlement Commission on this issue has given a finding that assessee has already declared this amount before the Settlement Commission and paid the taxes and interest thereon, therefore, in....