2010 (5) TMI 903

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....n that of M/s. Dhampur Alco Chem Ltd. 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 45,94,525/- made by the AO u/s 68 of the I.T. Act when the assessee failed to discharge the onus of proving the identity of the creditors and genuineness of the credit transactions. 4.1 The ld. CIT(A) erred in accepting the additional evidence under Rule 46 A of the I.T. Rules, when the assessee was provided ample opportunities by the AO during the assessment proceedings." 2. Ground No.1 is general. 3. Apropos ground No.2, the assessee claimed expenses of Rs. 1,04,473/- on account of foreign exchange fluctuation under the head 'income from other sources' by adjusting it against interest income under the said head of income. The AO observed that other than the actual loses and gains on receipt of export proceeds, the assessee had passed adjustment entries on 31.3.2004 on the basis of exchange rates as on that date vis-à-vis the rate at the time on which the bills were raised by the assessee; that the assessee had created a total debit provision of Rs. 6,23,388/- and total credit provision of Rs.....

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....lance foreign exchange fluctuation account was the net impact of the credit entries representing the gain realized during the year as well as the debit entries representing losses, realized and unrealized. The unrealized gain or loss represented the entry made on the last date of the financial year. The said entry was passed to reflect the correct value of the debtors and/or creditors as on the date of the drawing up of the balance sheet. On that date, the assessee had debited Rs. 6,23,388/- and had credited Rs. 71,820/- in the foreign exchange fluctuation account. This gave the net debt provision made on the balance sheet date, amounting to Rs. 5,51,568/-. The balance of the foreign exchange fluctuation account before passing of the said entry was Rs. 4,47,095/-, i.e., the credit entry representing the assessee's fluctuation gain. This, however, got converted into the loss of Rs. 1,04,473/-. It was this loss which was claimed by the assessee as 'income from other sources'. An amount of Rs. 5,51,568/- had been disallowed by the AO. This amount represented the net debt provision made by the assessee as on the last date of the financial year relating to the year under consideration. ....

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....hi. Interest of Rs. 17,46,330/- was thus disallowed as not relating to the assessee's business. 11. The learned CIT(A) observed, inter alia, that during the year, the assessee had paid interest of Rs. 11,92,568/- to M/s. Dhampur Alco Chem. Ltd. on loans raised by it; that out of this amount, the assessee had advanced money to its Directors and had charged lesser rate of interest; that the interest paid by the assessee to M/s. Dhampur Alco Chem. Ltd. in excess of what had been recovered from the Directors needed to be disallowed; that the assessee company was in the business of providing E-learning services to its client; that the business activities of the assessee company did not include lending activities; that it was therefore that the interest paid to M/s. Dhampur Alco Chem. Ltd. in excess of the amount recovered from the Directors of the assessee company was required to be disallowed, amounting to Rs. 3,70,068/- representing, the difference of the interest paid of Rs. 11,92,568/- and the interest received of Rs. 8,22,500/-, was to be disallowed; that an amount of Rs. 17,46,330/- had been disallowed by the AO on a percentage basis without considering that the assessee compan....

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.... ld. CIT(A) has nowhere erred in restricting the addition from Rs. 17,46,330/- to Rs. 3,70,068/-; that the assessee had paid Rs. 14,20,727/-, i.e., the difference between the total interest of Rs. 26,13,295/- received by the assessee company and Rs. 11,92,568/- paid to M/s. Dhampur Alco Chem. Ltd., to banks on overdraft and term loans and on car finance loans and to other parties, i.e., Indian Plastics, Al Mehtab Projects P.Ltd., Hewa P.Ltd. and Gold Coin; and that it is a matter of record that the AO did not bring anything to establish that the payment of interest to the said parties was on account of non-business purposes. 14. In this regard, the ld. CIT(A) has observed that the AO has not established any nexus to show that the payment of interest by the assessee to different parties was on account of non business purposes. To arrive at such a finding, the ld. CIT(A) has observed that there was no doubt that during the year, the assessee company had paid interest of Rs. 11,92,568/- to M/s. Dhampur Alco Chem. Ltd. on the loan amount raised by it and that undisputedly, it was out of this amount that the assessee company advanced the money to its Directors and charged lesser rate....