TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 1904
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....s. 5,73,443/- on account of disallowance of expenditure u/s 40A(3) and proviso to Sec.40A(3A) of the Act and Rs. 4,18,143/- on account of depreciation on fixed assets. The assessee challenged the assessment order before the Ld. CIT(A) who partly affirmed the said additions made by the Assessing Officer, against which the assessee has filed the instant appeal before us. 3. Having heard the parties at length and perused the material available on record. The assessee has raised the following grounds of appeal challenging the impugned order. 1. The orders passed by the Commissioner of Income Tax (Appeal) vide orders dated 21.02.2014 are illegal, uncalled for and against the law & facts. 2. The Commissioner of Income Tax (Appeal) has made additions merely on conjectures and surmises without any legal basis. 3. That, assessment framed by assessing officer is without jurisdiction and Commissioner of Income Tax (Appeal) fails to admit the facts & evidences as submitted by the appellant. That, Jurisdiction of the assessee falls under ACIT, Circle- Ill, Ferozepur, case was selected for scrutiny by Circle-Ill, Ferozepure. No notice for transfer of file from ACIT, Circle-Ill, Feroze....
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....As per Revenue case, it was noticed that the assessee has advanced Rs. 2,97,54,333/- to Ms. Bhagwati Lacto Vegetarian Exports Pvt. Ltd., Rs. 33,50,000/- to M/s Pawan Kumar & Co. and Rs. 35,12,624/- to M/s. Rahul Udyog. Though the assessee had received interest from M/s. Rahul Udyog and M/s. Bhagwati Lacto Vegetarian Exports Pvt. Ltd. in the preceding year i.e. Financial Year: 2008-09 relevant to A.Y.2009-10 to the tune of Rs. 3,38,152/- and Rs. 3,20,334/- respectively, however no interest was charged during the year under consideration, for the advances outstanding and advances made during the year. Though the assessee claimed to have paid the said amount as a security amount for business expediencies, however, could not find favour from the Assessing Officer and the Assessing Officer concluded as under: (i) That the money borrowed by the assessee from cash and credit account on which interest has been paid was actually diverted for advancing interest free loans to these concerns. (ii) That there was no commercial expediency by making advance to these concerns. (iii) That the assessee is not having own or interest free borrowed funds with it to given advance to these concerns....
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.... Bhagwati Lacto Vegetarian Export Pvt. Ltd. (sister concern of the assessee) for doing the job work and therefore, for the business expediency. Further the assessee claimed that during the F.Y: 2010-11, the assessee has done the milling of the paddy received from M/s. Bhagwati Lacto Vegetarin Export Pvt. Ltd. and received Rs. 74,21,040/- by way of job work of paddy. The assessee also involved in selling/purchase of rice from each other frequently in subsequent years. The assessee has also drawn our attention to the circular No.19/2017 dated 12/06/2017 and submitted that the CBDT Board has considered the aspect qua advances made by the company to sister concern and adjusted against the dues for job work done by the sister concern and held that amount advanced for business transactions do not fall within the definition of deemed dividend u/s 2(22)(e) of the Act. The CBDT Board ultimately held that trade advances, which are in the nature of commercial transactions would not fall within the ambit of word 'advance' in section 2(22)(e) of the Act. Accordingly, the Revenue Department not to file any appeal on this ground and filed if any, already in Courts/Tribunal then may be wit....
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....iency. xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxx 36. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilise the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans." 6.4 From the dictum of the Apex Court in the aforesaid decision it is clear that the authorities are under obligation to examine the purpose for which the assessee advanced the money to its sister- con....
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....cto Vegetarian Export Pvt. Ltd. on 15.11.2009 and secured the stock of paddy and did the milling work subsequently, which is also not in dispute as it is clearly reflects from para no.4 of the impugned order to the effect that the assessee has received Rs. 74,21,040/- by way of job work of paddy during the subsequent Financial Year 2010- 11, hence in our considered view the aforesaid facts substantiate the relation of business between the assessee and M/s. Bhagwati Lacto Vegetarian Export Pvt. Ltd effective from the date of signing of the milling agreement i.e, 15.11.2009 or receipt of paddy for milling, whichever is earlier. During the financial year under consideration, the assessee has advanced an amount of Rs. 6,51,00,000. The Assessee on specific query by Bench also clarified qua cost of paddy stored to the tune of Rs. 13 Crores approximately during the financial year 2009-2010 relevant to this appeal. We therefore find that as against the cost of paddy to the tune of Rs. 13 crores, Rs. 9.48 crores which was earlier advanced by the assessee has been mutually agreed upon between the parties as security deposit. Therefore, for period starting the date of signing of the milling a....
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.... the M/s. Rahul Udyog, the assessee also relied upon the certificate issued by M/s Rahul Udyog to the effect that they have business dealing with M/s Bhagwati Rice Mills, Ferozepur Cant. (the assessee herein) and are helping it in purchase of paddy from the market, that's why they keep fund from them. Funds transferred in F.Y.2009-10 were transferred for the same purpose and account was settled before 31st March, 2010. The assessee except showing the certificate, failed to produce any document to authenticate the business/commercial expediency with M/s. Rahul Udyog, hence, considering the test laid down in the case of S.A Builders (supra), we are not convinced that the assessee had any commercial expediency for paying the security amount to M/s Rahul Udyog and therefore, we are not inclined to entertain the Assessee's claim of business expediency qua M/s. Rahul Udyog and thus the decision of the Ld CIT(A) qua addition on account of M/s. Rahul Udyog is sustained. 6.9 This is also in controversy as to whether any disallowance of interest u//s 36(1)(iii) can be made for opening balances. Though the Ld. CIT(A) has affirmed the disallowance on the opening balances as well by co....
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....t. Nilan Lal vs. DCIT decided on 10.05.2000 (2000) 19 CCH 0157 (Delhi Trib.) and submitted that the Tribunal has accepted that it is a general practice that the transporters do not accept the payments otherwise than in cash. Further, the assessee also relied upon the decision of the jurisdictional High Court in the case of CIT vs. Bal Kirshan Jagdish Chand (ITA No.156 of 1996, decided on 12 July, 2007) (2007) 164 taxmann.com 0459 (P & H), wherein while deciding the reference/substantial question of law as to whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that various cash payments made to one party on one day were not required to be clubbed and treated as one cash payment and, for that reason, total cash payments exceeding Rs. 2,500/- in a day to that party were not to be held as violative of section 40A(3) of the Act. The Hon'ble Court answered the reference/substantial question of law against the Revenue and in favour of the assessee. Further the Hon'ble Orissa High Court in the case of CIT vs. Aloo Supply Company, decided on 18th Dec., 1979 [1980] 121 ITR 0680 held that the statutory limit of Rs. 2,500 u/s 40A(3) of the Act ....