TaxTMI 
TaxTMI 
2017 (12) TMI 1041
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....ciate the facts of the case in light of the settled position of law had therein erred in upholding disallowance of interest u/s 36(1)(iii) of the 'Act' on advances made by the assessee firm to Sh. Rajesh Kumar, Sh. Satpal Sethi, M/s Fine Switch Gears, Sh. Sohan Lal, Smt. Maya Devi Educational Society, M/s Aroma Engg. Corpn. And M/s Bapu Jewellers. 3. That the CIT(A) failing to appreciate the facts of the case in light of the settled position of law had erred in upholding disallowance of interest u/s 36(1)(iii) of the 'Act' on advances made by the assessee firm to its 'Sister concerns', namely M/s Star Trading Co., M/s PMS Enterprises and M/s Sahdev Enterprises, specifically when the same were prompted by 'Commercial expendiency'. 4. That the CIT(A) failing to appreciate the facts of the case in light of the settled position of law had wrongly upheld the addition aggregating to Rs. 11,58,963/- made by the Assessing Officer u/s 41(1) of the 'Act' on the ground of alleged cessation of liability pertaining to the following parties : (i) M/s El Marwa Import and Trading Co., Cairo : Rs.6,15,095/ (ii) M/s Khyati Machine Tools : Rs.66,0....
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.... 4. Any other ground of appeal as may be allowed to be raised at the time of hearing of the appeal." Grounds of appeal in ITA No. 117/Asr/2014 1. "That the order of the CIT(A) to the extent upholding the additions made by the Assessing Officer is against the law and facts of the case. 2. That the CIT(A) had on the basis of misconceived facts wrongly upheld the additions of Rs. 3,82,113/- in the hands of the assessee firm. 3. That the CIT(A) failing to appreciate the facts of the case in light of the settled position of law and therein erred in upholding disallowance of interest on advances of Rs. 59,43,782/ 4. That the CIT(A) while ''Directing' The Assessing Officer to also disallow interest on amounts aggregating to Rs. 24,08,050/- on advances made to Sh. Rajesh Kumar, Smt. Maya Devi Educational Society and Sh. Sohan Lal, had exceeded his powers and enhanced the income of the assessee firm without affording any opportunity to the latter, as statutorily required u/s 251(2) of the 'Act'. 5. Any other ground of appeal as may be allowed to be raised at the time of hearing of the appeal". Grounds of appeal in ITA No. 118/Asr/2014 ....
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....llate proceedings the counsel for the assessee admits defaults for non deductions of TDS. 6. It is prayed that the order of the learned Commissioner of Income Tax (Appeals) be set-aside and that of the Assessing Officer be restored. 7. The appellant request for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed off." Grounds of appeal in ITA No. 216/Asr/2014 1. "Deleting the addition of Rs. 14,25,204/- made by the Assessing Officer on account of deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961 and held that deemed dividend can be made only be considered in the hands of a shareholder. The Ld. CIT(A) has not appreciated the fact that the firm has to be treated as the "shareholder" even though it is not the "Registered Shareholder" for the purpose of section 2(22)(e) of the I.T. Act, 1961 in view of Delhi High Court Judgment in the case of CIT Vs. M/s National Travel Services dated 01.10.2011. 2. Deleting the addition of Rs. 4,95,560/- made by the Assessing Officer on account of disallowances u/s 36(1)(iii) of the Income Tax Act, 1961, as directed to recalculate the disallowances at the rate at wh....
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.... 5. The Ld. AR submitted that as per the decision of Hon'ble. Tribunal in the case of assessee itself in ITA No. 425, it has been held that no disallowance of interest u/s 36(1)(iii) can be made for opening balances. He submitted that similar decision has been made by the Hon'ble. Tribunal Amritsar Bench in the case of DCIT Vs. IShar Infrastructure in ITA No. 198/Asr/2013. The Ld. AR further placed his reliance on the following case laws: (i) Ajay Electronics Vs. ITO (2016) 52 ITR (Trib) 332 (Asr), (ii) DCIT Vs. Sadguru Land Finance (2016) 52 ITR(Trib) 182 (Asr) 6. The Ld. AR in this respect also invited our attention to the amount of closing balances of various advances on which such disallowance was made. He submitted that if the opening balances are reduced from these figures, the remaining amount representing interest free advances will be less than the interest free capital and interest free unsecured loan available with the assessee and in this respect our attention was invited to paper book 36 for Asst. Year 2006-07 where a copy of balance sheet was placed. The Ld. AR submitted that as per the settled law no addition can be made when intere....
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....s appeal in ITA No. 217 will be come infructuous if the appeal of the assessee is decided in favour of Assessee keeping in view the case laws cited by him. 8. Inviting our attention to the second issue of addition u/s 41(1) of the Act, the Ld. AR submitted that the Assessing Officer had made a total addition of Rs. 2,05,30,717/- on account of cessation of liability u/s 41(1) of the Act. He submitted that the Ld. CIT(A) has deleted a substantial amount of Rs. 1,93,71,054/- and has confirmed only Rs. 11,59,663/-. In this respect, the Ld. AR submitted that detailed chart of the addition has been mentioned by the Assessing Officer at page 26 of his order. The Ld. AR submitted that as per this chart the balances were outstanding from assessment years 2001 onwards and none of the amount was relating to the year under consideration. 9. The Ld. AR further submitted that few of the accounts noted at serial no. 4 to 7 were already squared up by year ending 31.03.2008. The Ld. AR submitted that no such addition was made in the preceding assessment year and in this respect our attention was invited to assessment order of assessment year 2005-06 placed at paper book page 1 to 20. The Ld. ....
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....i) Shakti Industries (Guj Hon'ble High Court) (2013) 36 Taxmann.com 16" As regards the addition on account of unaccounted vouchers amounting to Rs. 1,62,841/-, the Ld. AR submitted that though the Ld. CIT(A) had deleted the addition by holding that the addition was already covered by the trading addition but he has not adjudicated on the merits of this addition. 11. As regards the addition u/s 40(a)(ia) of the Act, the Ld. AR submitted that in respect of a few parties, the assessee had deposited the tax deducted at source before the filling of return and Ld. CIT(A) had allowed relief to the assessee subject to the condition that Assessing Officer will verify such deposits of tax. The Ld. AR submitted that Assessing Officer had verified such deposits and has already decided the issue and has given relief as per paper book page 92 and Revenue has not filed any appeal against such relief. The Ld. AR submitted that in respect of other payees the assessee had deposited the tax in succeeding year and therefore assessee should be given credit for such taxes paid in succeeding year. In respect of other payees the Ld. AR submitted that in few cases the assessee was not required to....
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....ards the addition of Rs. 10,319/- on account of balance of Bawa Hardware Store, the Ld. AR submitted that the amount of Bawa Hardware Store has already been transferred to rebate & discount in the F.Y. 2009-10, and our attention was invited to paper book page 6 where a copy of account of Bawa Hardware Store was placed and wherein the amount was transferred to rebate and discount and in view of the above, it was submitted that addition sustained by Ld. CIT(A) will tantamount to double addition and in view of the above it was prayed that the same may be deleted. 12. The Ld. DR arguing on behalf of the Revenue submitted that the disallowance u/s 36(1)(iii) was partly deleted by Ld. CIT(A) and he had upheld only that portion of disallowance where he was satisfied that the disallowance was necessary. As regards the addition partly sustained by Ld. CIT(A) in respect of addition u/s 41(1) of the Act, the Ld. DR submitted that Ld. CIT(A) has sustained the addition in accordance with the specific provisions of the Act and he heavily placed his reliance on the order of Assessing Officer. As regards addition u/s 40(a)(ia) the Ld. DR submitted that the entire issue can be set aside to th....
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....that the addition was not sustainable. We find that in assessee's own case in ITA No. 425/Asr/2014 decided by Amritsar Bench vide order dated 05.05.2017, the Amritsar Bench had restored the above issue to the office of the Assessing Officer with the following findings. "8. We have heard the rival parties and have gone through the material placed on record. We find that it is a fact that in original assessment proceedings, the Assessing Officer had made disallowance of interest u/s 36(1)(iii) in respect of 10 parties, whereas the Assessing Officer in the second round of proceedings examined 14 parties and made disallowances accordingly which is not as per directions of Hon'ble ITAT. Therefore, we direct the Assessing Officer to restrict the disallowance if any in respect of only 10 parties which were originally listed in the original assessment order. We further find that in a few cases, the amount of advances was as opening balances and there are judgments of Amritsar Tribunal holding that in respect of old advances from earlier years, no disallowance u/s 36 (1) (iii) of the Act was warranted. Further the disallowance if any u/s 36(1)(iii) has to be restricted....
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.... 1,80,000 NOT REPLIED 3. MONTAGE ENTERPRISES 68,687 DENIED 4. SARVESHWAR RICE MILLS, BARI BRHAMANA 3,14,508 NOT REPLIED 5 SATYA METALS, LANE 3 BARI BRAHMANA 6,66,809 NOT REPLIED 6 SPERRY PLAST, BARI BRAHMANA 1,00,000 NOT REPLIED 7 STAR INDUSTRIES 6,17,684 NOT REPLIED 8 VS INDUSTRIES 3,12,582 NOT REPLIED TOTAL 26,60,270 The AO, on verification of ledger accounts in the preceding two years noticed that the above stated creditors are static creditor since outstanding balance are being shown by the assessee for more than three years. There was no single transaction between the assessee and creditors during last three years neither any interest has been paid. The creditors have also not demanded the outstanding payments. The AO, therefore, concluded that the above creditors might have squared off or written off the impugned demands/balances and as such there is a remission or cessation of assessee's liability. The AO has also stated that in the case of M/s Montage Enterprises, it was d....
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....ed person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof60, the amount obtained60 by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. [Explanation l.-For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in is accounts.] Form the above it is clear that to attract section 41(1) following conditions must be satisfied: a). In the assessment of an assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him b). (i) Any amount is obtained in respect of such loss or expenditure, or (ii) ....
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.... 518 SC it has been held that the question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but it is a matter which has to be decided only if the creditor has stated that the liability has ceased to exist because the creditor may enforce the debt or liability after expiry of sometime then it would not be possible for the assessee to pay back the outstanding balance. The Hon'ble Courts have therefore, held that the liability to make payment ceased to exist only after expiry of the normal portion of limitation as provided under the limitation Act. The other decisions also cited by the appellants support the case of the appellant. I, therefore, hold that in the absence of any examination of the creditors to the effect that they have waived the liability or the limitation period has expired under the limitation Act, the creditors shown in the balance sheet cannot be treated to have been remitted u/s. 41(1) of the Income tax Act. Thus, the addition made by the AO on this ground is deleted and appellant gets a relief of Rs. 26,60,270/-" The Ld. CIT(A) has deleted the part addition aft....
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....llowed for statistical purposes. 17. The third class of cases is those cases where the Ld. AR has claimed that tax was not deductible as the amounts were paid as reimbursement to shipping agents. We find that in the case of assessee itself in ITA No. 257/Asr/2014, the Hon'ble ITAT vide order dated 22.03.2016 had held that in the case of payments made to shipping agents of non resident owners, the assessee was not liable to deduct TDS. While deciding in such a manner, the Hon'ble Tribunal had relied on the case laws ITO Freight Systems (India) Pvt. Ltd.; 6, SOT 473(Del). We find that in ITA No. 257/Asr/2014 vide order dated 22.03.2016, the issue of tax deduction at source on payments on account of Inland haulage charges, Terminal handling charges, Bunker adjustment factor and cost adjustment factor were considered in respect of payments of M/s IAL, M/s R.K. Shipping, M/s S.K. Shipping, LTA Worldwide were considered and the Hon'ble Tribunal had decided the issue in favour of assessee by holding as under: "5. Apropos Ground no. 2, the Assessing Officer noted that it was the observation of the auditors of the assessee that the assessee had not deducted tax at so....
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....e erred in holding the assessee-company to be in default u/s 201(1)/201(1A) read with section 194C of the Act for failure to deduct tax at source on these amounts. 9. On the other hand, the Id. DR, has placed strong reliance on the impugned order. 10. We have heard the rival contentions and have perused the material available on record. The question is as to whether Inland haulage charges, Terminal handling charges, Bunker adjustment factor, Cost adjustment factor, etc., i.e., shipping expenses paid by the assessee regarding exports using non-resident shipping call for TDS. 11. Section 172 of the Act regulates the procedure for assessing the income of non-resident shipping. 12. Section 172(2) reads as follows: "Where such a ship carries goods shipped at a port in India, seven and half percent of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage." 13. Section 172(6) is as follows: "A port clearance....
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.... assessee by way of Ground no. 2 is found to be justified and is accepted as such. Accordingly, the demand of Rs. 7,189/- u/s 201(1) and Rs. 4,314/- u/s 201(1A) of the Act for non-deduction of TDS on payment of shipping expenses of Rs. 3,52,434/- is cancelled." We find that in the present case the assessee had made payments to few of the parties mentioned in the order of Hon'ble ITAT. Therefore we deem it appropriate to remit this issue to Assessing Officer who should examine the nature of expenses and if the payments made are covered by the provisions of section 172(8) and CBDT Circular No. 723, then Assessing Officer should allow relief thereof. In view of the above ground no. 8 is allowed for statistical purposes. 18. As regards the addition on account of unaccounted vouchers in assessment year 2006-07, the Ld. AR had relied on the Delhi High Court decision in the case of CIT Vs. Lubtech India Ltd. 311 ITR 175 for the proposition that addition cannot be made for unaccounted vouchers. We find that in this case the addition was made u/s 69C of the Act on account of certain items jotted in pencil on two sheets of paper which were recovered during the course search and sei....
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....t the Assessing Officer has failed to record any finding in the assessment order that the case of the assessee is akin to the provisions of section 145(3) of the Act. the arguments made by the Ld. counsel for the assessee before the Ld. CIT(A) are that the assessee furnished audited accounts/tax audit report alongwith books of account and bills/vouchers for purchase/sales of liquor and relating to expenses were produced for verifications. The details and basis of valuation of closing stock were placed on record during the course of assessment proceedings. The state excise and taxation department keeps strict control and supervision over the liquor trade carried out by the assessee. The purchases of liquor can be made by the assessee against the permits issued by the state excise department and similarly the sales of the liquor by the assessee to the retailers having 1-2 licenses can only be made against the permits issued by the State Excise Department. The Assessing Officer failed to rebut the contention of the assessee that that the net rebate of Rs. 16586467/- is a part of the trading results and also the gross profit. The Assessing Officer has tried to make out a case that the ....
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.... facts and circumstances, the ground no. 5 in ITA No. 114/Asr/2014 is allowed. As regards issue of disallowance of 1/10th out of vehicle expenses we find that the disallowance sustained by Ld. CIT(A) consisted of depreciation and other car expenses. As regards disallowance of depreciation on account of personal use we find that Mumbai Tribunal in the case of Mukesh K. Shah Vs. Income Tax Officer in ITA No. 3888/Mum/2000 has held as under: "If the car is used by the assessee for the purpose of his business, then the depreciation need to be allowed as per the rate suggested by the statute. Depreciation is an statutory allowance. The statutory allowance cannot be restricted on the basis of the volume of business use and volume of personal use. The condition to be satisfied is that the asset should be owned by the assessee and it should be used for the business of profession. Both the conditions are satisfied here. Personal use of the care cannot fetter the granting of statutory allowance. Therefore, the disallowance made on account of depreciation is deleted." In view of the above, the Assessing Officer is directed to delete disallowance on account of depreciation which....