TaxTMI 
TaxTMI 
2019 (7) TMI 1438
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....he facts & circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of Rs. 10,79,275/- made by the AO u/s 36(l)(iii) of the I. T. Act particularly when the assessee had charged interest on such advances in AY 2010-11 and 2011-12 ? 3. Whether on the facts & circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of Rs. 10,79,275/- made by the AO u/s 36(l)(iii) of the I. T, Act particularly when the purchases were not debited against advances from AY 2010-11 ? 3. Brief facts relating to the issue are that during assessment proceedings the Assessing Officer (AO) observed that the assessee had given advances to his sister concern amounting to Rs. 2,90,12,762/-. The assessee was asked to explain the expediency of the advance made and was further asked to show cause as to why interest made to the related party i.e. M/s Franklin Laboratories (India) Herbals, be not disallowed at bank rate for diversion of business profit to exempt unit. Due reply was filed by the assessee stating that the advance was given for commercial purposes for the purposes of making purchase of medicines used in the business of the a....
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....arguments made before us. 6. The Ld. Counsel for the assessee, on the other hand, stated that it was repeatedly contended by the assessee, both before the AO and the CIT(A), that the advances had been given for business purpose only. That it was pointed out that the advances had been given to sister concern of the assessee for setting up it is manufacturing unit for the manufacture of medicines which were purchased by the assessee for use in its business. That the advances had been given for financial year 2009-10 for setting up of manufacturing unit of the sister concern and till the unit was set up the interest had been charged on the advances given. Thereafter once the sister concern started manufacturing medicines, the advance was for the purchase of medicine from the sister concern and no interest was, therefore, charged. The Ld. Counsel for the assessee contended that necessary documents by way of agreement entered into by the assessee with its sister concern for making advances was filed alongwith copies of ledger account of the parties, demonstrating the above facts. Our attention was drawn to the submissions made before the Ld.CIT(A), reproduced at para 2.2 of the or....
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....nce in respect of purchase of medicines, if some of the amount was there-after advanced for the set up and run of the business to the party M/s Franklin Laboratories (India) Herbals by the appellant company, the appellant company continued to charge interest on the amount advanced by it to the party. During the FY 2010-11, the appellant company charged interest of Rs. 25,07,333/- from the party M/s Franklin Laboratories (India) Herbals. Further, it is submitted that the business of the party M/s Franklin Laboratories (India) Herbals was completely set up till FY 2010-11 and thereafter the appellant did not give any advance to the party M/s Franklin Laboratories (India) Herbals but only the advance for the purchase of medicines from the party M/s Franklin Laboratories (India) Herbals was given by the appellant. All these facts and figures are verifiable and compile-able from the ledger account of the party M/s Franklin Laboratories (India) Herbals from the books of the appellant company. Ledger account of this party M/s Franklin Laboratories (India) Herbals from the books of the appellant company for the FYs 2009-10 to FY 2013-14 i.e. year in question is enclosed. ....
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....dvances in previous years including the year in question. During the year in question, if we go through the figures in the ledger account, only an amount of Rs. 30,08,6521- (amount advanced net of purchases) only has been paid to the party M/s Franklin Laboratories (India) Herbals for the advance payment of purchases to be made and/or previous years purchases (if any). The closing balance of the year immediately preceding to the year in question of this party in the books of appellant company was Rs. 2,60,04,110.43. So, Ld. A 0 has not applied his mind anywhere to draw a right conclusion while making addition of notional interest on advance o/s of Rs. 2,90,12,762/- in respect of party M/s Franklin Laboratories (India) Herbals, but has made a haste decision of illogical addition ignoring facts. Addition made is unjustified. Further, it is submitted that when no advance has been given during the year in question, no disallowance of notional interest can be made by the assessing officer. Here in the case of appellant company amount advanced is much lower than the alleged amount of Rs. 2,90,12,762/- and that too is the amount of advance due to business necessity and in regular course o....
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....lin Laboratories(lndia) Herbals, Bills of material purchased, it has been noticed that the appellant has given advances to its sister concern for business purpose. It was found that the appellant has entered into an agreement on 01/11/2009 for the purchase of materials and the appellant company would provide the funds for setting up the manufacturing unit. Further, it is also seen that these advances have been provided long back in FY 2009-10 which were accounted for in the books of appellant company and the Revenue has not disallowed any interest in earlier A.Y. 2010-11, 2011-12 & AY 201213. The appellant company has shown regular purchase of material from its sister concern. The opening balance of advances Rs. 2,60,04,110/- has increased to Rs. 2,90,12,762/- in the FY 2013-14 against which purchase of medicines of Rs. 58,12,705/- has taken place, thus no fresh advances were given in the year under reference. The appellant has made payment only on account of purchase of material from its sister concern during the year under reference. The Ld. A.O. had failed to consider that the appellant company has given the advances for business purpose. It is seen that the AO has made addition....
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....iency. The addition of Rs. 10,79,275/- u/s 36(1)(iii) made by the assessing officer in this case is not accordance with law and facts of the case, therefore, directed to be deleted. In result, ground no. 3 of appeal taken by the appellant company is allowed." 9. The Ld. Counsel for the assessee, therefore, contended that the Ld.CIT(A) had rightly deleted the disallowance made by the AO. 10. We have heard the rival contentions and carefully perused the orders of the authorities below. The issue before us relates to disallowance of interest u/s 36(1)(iii) of the Act, as per which only interest paid in respect of capital borrowed for the purpose of business or profession is to be allowed as deduction. In the impugned case, the interest disallowed relates to advances made by the assessee to its sister concern M/s Franklin Laboratories (India) Herbals amounting to Rs. 2,90,12,762/- which was entirely interest free. The Ld.CIT(A), we find, has after considering all evidences produced before him relating to the impugned advance, in the form of agreement entered into by the assessee with sister concern for making the advances, the copy of ledger account of the sister concern, bills o....
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.... as under: 4. Whether on the facts & circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of Rs. 70,20,654/- made out of salary & wages particularly when the assessee failed to demonstrate that the services in lieu thereof were received by it ? 5. Whether on the facts & circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of Rs. 70,20,654/- made out of salary & wages particularly when there was no ESI & EPF numbers of all persons whom the said payments were made ? 6. Whether on the facts & circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of Rs. 70,20,654/- made out of salary & wages particularly when the assessee failed to demonstrate either before the AO or CIT(A) that such sums had been received by the concerned persons? 12. Brief facts relating to the issue are that during the course of assessment proceedings, the assessee was asked to produce wages and salary register. From the same, the AO observed that there were numerous payments against salary and wages where no payment proof by way of signature or thumb impression of the rec....
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....dmission of additional evidence U/r 46 A . Under the given facts and circumstances I find that additional evidence given by the assessing proceedings are of only clarifactory nature in continuation of the facts stated by the assessee in the course of assessment proceedings. Accordingly after considering all the facts of the request of the assessee for admission of additional evidence under rule 46 A is hereby accepted. 4.5 In view of the above stated facts and in the circumstances of the case. I am of the opinion that the assessing officer is not justified in making the addition of Rs. 70,20,654/- in this case on account of disallowance of Wages and salary expenses by invoking suspicion that these payments are bogus just because there were no signature or thumb impression of employees without getting into detailed understanding of the nature of expenditure. All these employees are duly registered with ESI/PF authorities and appellant keep on depositing the ESI/PF/TDs on regular basis. The same register was also produced before the A.O. in which the PF/ESI number of all employees was specifically written which shows that the expenditure claimed is completely genuine in natu....