TaxTMI 
TaxTMI 
2017 (1) TMI 1095
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....e addition of Rs. 5,84,04,127/- being the difference in the closing stock for year and previous year without finding any defects in books or method of valuation which was followed consistently in the previous years. 4. Alternatively, your Assessee submits that CIT(A) direction that opening stock as ~ on 1-4-2009 should be taken as 6,13,97,833/- following the Hon'ble Supreme Court decision in the case of V.K.J. Builders & contractor Pvt Ltd Vs CIT 184 Taxman 357 (SC) be allowed. 5. The CIT(A) erred in law and facts of the case in confirming the addition of Rs. 65,80,441/- being notional interest estimated by the Assessing Officer ignoring the fact that there was no diversion of borrowed funds, your Assessees prays for deletion of the same. 6. The CIT(A) as well as the Assessing Officer erred in law and facts of the case in charging notional interest on assumption and presumption that funds have been diverted without giving any findings, ignoring the fact that the investment had been made in the previous year and no disallowance was made in the previous years, your assessee prays that the addition may be deleted. 7. Your Assessee submits that the CIT(A) ought to have appr....
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....harges, legal expenses, local lorry hire charges, office godown maintenance, packing expenses, packing material expenses, vehicle maintenance etc. He noted that as per the details submitted, some of the entries in excess of Rs. 20,000/- include several expenses of small amounts incurred en-route by the drivers, cleaners etc. for diesel, tollgate, etc., and all such expenses were clubbed and one entry was passed for each trip. The 40A(3) disallowances made for the last three years where the books of account were audited were as under: S.No. AY Disallowance of cash payments exceeding Rs. 20,000/- Turnover (Rs. in crores) 1 2006-07 14,88,116/- 116.40 2 2007-08 19,82,471 181.31 3 2008-09 69,17,063 261.66 Keeping in view the nature of the business where incurring of cash expenses cannot be avoided, and keeping in view the past record of the assessee, the turnover for A.Y. 2009-10 at Rs. 231.41 crores, the CIT(A) sustained a roundsum amount of Rs. 70,00,000/- u/s.40A(3) as against the disallowance made by the AO at Rs. 1,88,95,204/-. 6. Aggrieved by the order of CIT(A), the assessee is in appeal before us. 7. Ld. AR submitted that the AO has not doubted the gen....
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....ground Nos. 5 & 6 regarding the addition of Rs. 65,80,441/- being notional interest, on verification of impounded material, the AO noticed that India Growth Fund (IGF), a unit scheme of Kotak SEAF India. Funds invested a sum of Rs. 65 crores in the assessee company in the Financial Year 2007-08 vide agreement entered into on 06.02.2007 and the shares were allotted subsequently. From the balance sheet, it is seen that 'Advances' of Rs. 8,86,92,075/- was made to group companies, directors and relatives. The AO was, therefore, of the view that the funds were diverted in the form of interest free advances to group companies, directors and their relatives. Accordingly, the AO computed the notional interest @ 14% and the same was put forth to the assessee's AR, to which the AR vide letter dated 05/12/2011 agreed and submitted calculation of notional interest income and the total of which comes to Rs. 65,80,441/-. 11. Before the CIT(A), the AR of the assessee submitted that the Assessing Officer had estimated notional interest on mere surmises and assumptions of Rs. 65,80,440/- after calling for the interest calculation by it. This addition is on an agreed basis as claimed by the....
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....t carry any interest. Hence, there is no cost to the company. The assessee has invested the funds in the group companies on commercial expediency. The AO cannot charge notional interest when there is no cost to the assessee. 14. Ld. DR relied on the orders of AO and CIT(A). 15. Considered the rival submissions and perused the material facts on record. It is noted that AO has charged notional interest @ 14% on the advances given to group companies, directors and relatives considering the fact that IGF had invested money in the business. We agree with ld. AR that the money invested by IGF do not carry any cost to the company as the same was invested by IGF to subscribe to the shares in the company. The ld. CIT(A) has sustained the addition considering the fact that the assessee has incurred financial charges to the tune of Rs. 6.51 crores during the year. These financial charges are towards interest on term loan and other interest charges. We observe from the Balance Sheet that the term loans, working capital loans and vehicle loans ere existing loans (balance carried from previous year). There is no fresh loan taken this year, which the assessee would have diverted during this yea....
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....shown as income and offered for tax. Insofar as the loans to Directors are concerned, it could not be disputed by the Revenue that the assessee had a credit balance in the Bank account when the said advance of Rs. 34 lakhs was given. Remarkably, as observed by the CIT (Appeal) in his order, the company had reserve/surplus to the tune of almost 15 crores and, therefore, the assessee company could in any case, utilize those funds for giving advance to its Directors. On the basis of aforesaid discussion, the present appeal is allowed, thereby setting aside the order of the High Court and restoring that of the Income Tax Appellate Tribunal." Following the above ratio, we are inclined to treat the advances given to group concerns, is on commercial expediency and loan to directors as allowable as the company has enough reserves in the business to finance the same. Accordingly, ground Nos. 5 & 6 are allowed. 16. As regards ground Nos. 7 & 8 regarding disallowance of expenditure, the AO disallowed 10% of certain expenses claimed for the following reasons: a) That the assessee claimed total expenses of Rs. 2,27,96,29,398/- under various heads debited to P&L A/c. under Schedule 14,15 & 1....