AI Drafter 
TaxTMI 
TaxTMI 
2024 (9) TMI 1561
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.... unsecured loan? 2. Whether on the facts and in the circumstances of the case and in law the ld CIT(A) was justified in deleting the addition of Rs. 36,43,562/- u/s 68 of the Income Tax Act? 3. Whether on the facts and in the circumstances of the case and in law the ld CIT(A) was justified in deleting the addition of Rs. 54,170/- made by the AO on the issue of difference in valuation of stock? 4. Whether on the facts and in the circumstances of the case and in law the ld CIT(A) was justified in deleting the addition of Rs. 7,00,000/- on account of difference in consumption of raw materials? 5. Whether on the facts and in the circumstances of the case and in law the ld CIT(A) was justified in deleting the additions of Rs. 1,34,050/- and Rs. 13,53,785/- made by the AO invoking the provisions of section 41 of the Income Tax Act 1961? 6. Whether on the facts and in the circumstances of the case and in law the id CIT(A) was justified in deleting the addition of Rs. 14,69,178/- on account of excess interest paid on unsecured loans? 7. Whether on the facts and in the circumstances of the case and in law the ld CIT(A) was justified in d....
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....ns u/s 68 of the Act on account of unsecured loan receipts from M/s Lahoti Holding Ltd. for Rs. 1.00 crores and interest paid for Rs. 14,79,452/- are dealt with by the ld. CIT(A), wherein, observations of the ld. CIT(A) are as under: "5.2 On perusal of the facts and grounds of the case, arguments of the appellant and the evidences placed on record, it is evident that the appellant availed unsecured loans of Rs. 1,00,00,000/- from Lahoti Holdings Pvt Ltd. and Rs. 31,99,726/- from UDIT Infratech Pvt. Ltd. and had also paid interests of Rs. 14,79,452/- and Rs. 4,43,836/- respectively. The appellant argued before the AO that these loans were not pertaining to the year under consideration, infact, those were availed in previous AYs, however, the AO alleged that the appellant failed to substantiate the loans transactions and therefore, he treated the entire principal and interests paid totaling to Rs. 1,14,79,452/- and Rs. 36,43,562/- on account of unexplained cash credits u/s 68 of the Act. During the appeal proceedings, it is argued by the appellant that the details of the loans were provided to the AO, however, the same were ignored by the AO and proceeded with making the all....
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.... Sr. DR.") reiterated the facts of the issue from the assessment order and have submitted that during the year under consideration, the assessee had received a loan of Rs. 1.00 crore from M/s Lahoti Holding Ltd. and also paid an interest of Rs. 14,79,452/-. However, when the assessee was issued a show cause notice to explain about this transaction, the assessee replied that there was no fresh unsecured loan taken during the year and have not filed any confirmation of the lender to substantiate his claim, hence, the same is added to unexplained cash credit u/s 68 of the Act. Improper explanation given by the assessee of the query prompted the AO to make the additions, which were required proper explanation, accordingly, the AO made the additions and, therefore, the same are deserves to be sustained. 6.2 On the other hand, Mr. Moolchand Jain, Advocate, learned Authorized Representative (for short, "Ld. AR") for the assessee have submitted that the explanations which were also clarified before the CIT(A) that no loan was taken during the year under assessment, it was a balance of last year and due to change in name of lender company from "Betala Investment Finance Ltd." to "M/s Lah....
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.... and therefore, we find substance in the decision of the ld. CIT(A), accordingly, we upheld the same. Resultantly, ground No. 1 of the department stands dismissed. 7. Ground No. 2: regarding deleting additions at Rs. 36,43,562/- u/s 68 of the Act. The issue regarding unsecured loan of Rs. 36,43,562/- which comprised unsecured loan of Rs. 31,99,726/- and interest of Rs. 4,43,836/-, is similar to the issue decided in ground No. 1 of the present appeal. Under this addition, it was the allegation by the Ld. AR that during the year under consideration, the assessee had received Rs. 30.00 lacs from "M/s UDIT Infratech Pvt. Ltd." whereas the loan was sourced in the earlier year from "M/s Prism Fincorp Pvt. Ltd." and due to change of name to "M/s Udit Infratech Pvt. Ltd.", the transaction was transferred in the books of the assessee through Journal Entry. The amount of Rs. 1,99,726/-, which was accrued as interest on Rs. 30,00,000/-, which was availed during the year prior to the current assessment year, wherein it was transferred in the name of "UDIT Infratech Pvt. Ltd." from "Prism Fincorp Pvt. Ltd.". The ld. CIT(A) has elaborated the said fact of the case, the same are extracted a....
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....d, the ld. AR has submitted that the loan was taken in preceding year, and it was appearing as opening balance in the account of "UDIT Infratech Pvt. Ltd." as the name of company was changed from "Prism Fincorp Pvt. Ltd." to "Udit Infratech Pvt. Ltd.". There was just transfer of balance from one account to another accounts due to change in name of the lender company, there was no new loan availed by the assessee company during the relevant year, therefore, such additions u/s 68 of the Act is without any logical basis. The relevant documents regarding change of name to "UDIT Infratech Pvt. Ltd" from "M/s Prism Fincorp Pvt. Ltd." and other financial documents supporting such contention are placed before us at page No. 76 to 107. Based on the aforesaid submissions, it was the prayer of the ld. AR that this addition u/s 68 of the Act made by the ld. AO was in the wrong appreciation of facts and, therefore, the same cannot be sustained. 7.3 We have considered the river submissions of both the parties and perused the materials available on record. 7.4 Admittedly, the identical issue has been dealt with by us in ground No. 1, wherein unsecured loan received by the assessee in preced....
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....AO, stating that the assessee has not adopted the method of valuation of closing stock on the basis of value of last invoice for finished goods whereas such practice was adopted with respect to other items of the closing stock. The assessee have clarified that the finish goods are valued at cost derived on the basis of adjusted selling price method which was arrived at Rs. 36000 per MT, whereas Ld. AO have picked up the value of last invoice which was selling price. Ld. CIT(A) have appreciated this fact in right perspective and his held that the inference drawn by Ld. AO was incorrect and therefore, the addition made was rightly deleted. 8.3 We have considered the rival submissions, and perused the material available on record. The valuation of stock was computed by the assessee on a consistent method of valuation, Ld. AO's opinion to value the stock at selling price without pointing out any departure from the consistent method of valuation on cost cannot be concurred with. We, therefore, find substance in the decision of Ld. CIT(A), and therefore, approve the same. Resultantly, Ground No. 3 of the department in absence of any cogent material to dislodge the observations of Ld. ....
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....rfere with. Consequently, Ground No. 4 of the present appeal of the revenue being bereft of substance rendered as rejected. 10. Ground No. 5: Regarding deleting the addition of Rs. 1,37,050/- & 13,53,785/- u/s 41(1) of the Income Tax Act. 10.1 The aforesaid additions made by the Ld. AO u/s 41(1) of the Act on account of cessation of liability stating that there were fictitious liability of Rs. 1,37,050/- transferred from M/s Satpura Refractories (Jabalpur) to M/s Satpura Acid ware & Store ware, because it was not paid but transferred to different entity in the subsequent period, other liabilities in the name of Maa Mahamaya Alloys Pvt. Ltd. of Rs. 9,40,370/- and Shree Vishnu Iron Foundry of Rs. 4,13,415/- in the books of the assessee. The assessee was asked specifically to explain from when this credits are appearing in your books, but no reply was made, only the ledger of AY 2014-15 & 2015-16 i.e., subsequent period were furnished. In absence of any explanation as sought by the Ld. AO, he find it appropriate to disallow such liabilities considering the same as ceased / fictitious liabilities and have made the additions u/s 41(1). While dealing with this issue, Ld. CIT(A) has....
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....ure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year, - (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed....
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....e act of unilateral write off of the liabilities assumes great significance for the post-amendment assessments for deciding the finality of obtaining of the benefit specified in the s. 41(1) of the Act. It is even more significant when the AO has not established that the liabilities have ceased or there is no chance of revival of the claim by the creditors in future. In the absence unilateral entries in books of the appellant, it cannot be held that the AO has correctly applied the provisions of Section 41 (1) of the Act. The AO has not discharged his onus to prove that there is cessation of liabilities and the appellant obtained the benefits finally. In such circumstances and when the appellant has not unilaterally written off the said liabilities, the question of taking such outstanding liabilities as deemed profits of the year does not arise. 7.4 Reliance is placed in the case of CIT Vs. Enam Securities (P.) Ltd. reported in [2012] 345 ITR 64 (Bom), wherein, it was held by Hon'ble Bombay High Court that, "Whether since there was no remission or cessation of liability in question during current assessment year, addition made by Assessing Officer was to be deleted." A....
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....assessing officer is to prove that the liability has ceased to exist which in our considered view has been miserably failed to be established. Hon'ble Gujarat High Court in the case of PCIT Vs. Babul Products (P.) Ltd. reported in (2018) 96 taxmann.com 82 held that since assessee had not written off liability in his books of account with respect to debtors and had carried forward and continued same liability, Tribunal was justified in deleting addition made by Assessing Officer under section 41(1), on account of cessation of said liability. In the case of Sh. Nitin S. Garg vs. ACIT in ITA No 169,170,171,172/Ahd/2009 dated 04/06/2010, Hon'ble Ahmedabad Tribunal held as under:- "9.1 Considering the facts of the case as noted above it is clear that the assessee had continued to show the admitted amounts as liabilities in its balance sheet. The liabilities reflected in the balance sheet cannot be treated as cessation of liabilities. Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have ceased to exist It is also a fact that the assessee has not written off the outstanding liabilities in the boo....
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....uch observations, we do not find any error in the decision of Ld. CIT(A) which needs to be modified. Consequently, Ground no. 5 of the present appeal of revenue is dismissed having no material substance to invalidate the findings of Ld. CIT(A). 11. Ground No. 6: Regarding deleting the addition of Rs. 14,69,178/- on account of excess interest paid on unsecured loan 11.1 The Ld. AO has disallowed the interest over and above paid for more then 12% to various parties, @ 15.6%, 15% & 18%. The basis for disallowance was unreasonableness of interest. 11.2 Ld. CIT(A) has allowed the claim of assessee by deleting the addition made by Ld. AO on account of the fact that all such unsecured loans are carried forward from the earlier years and interest was paid consistently on the rates on which the same was paid during the relevant year. Assessment for AY 2013-14 was also completed u/s 143(3) on 22.03.2016 and no adverse inference to this issue was drawn by the Ld. AO. Ld. CIT(A) has decided the issue in favour of the assessee by deleting the addition made by the Ld. AO with the following observations: 8.2 The facts and grounds of the case, arguments of the appellant, evidence....
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....der such facts and circumstances, when the revenue has allowed the assessee to claim interest expenditure on similar rates in the prior year's then there was no reason for the Ld. AO to make such additions with deviation from his own stand taken in earlier years without any plausible reason brought on record, we, therefore, find substance in the observation of Ld. CIT(A) and approve the same. Ground no. 6 of the revenue's appeal, thus, have been dismissed. 12. Ground No. 7: Regarding deleting the addition of Rs. 1,22,50,000/- on account of stock statement submitted to the bank for obtaining CC limit. On this issue, the addition was made by the Ld. AO with the following observations: "12. The assessee has been asked to furnish acknowledged copy of stock statement submitted to the banks for obtaining CC Limit. The assessee has filed the acknowledged copy of stock statement submitted with ING Vyasa Bank Ltd. The stock statement for the month of March, 2014 was submitted and received by the bank authority on 10/04/2014 which contains the details of stock position as on 30/03/2014. The stock statement submitted to the bank is duly signed and verified by the Director of th....
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.... in stocks of finished goods which was valued on the basis/price of Cl Ingot Moulds @ Rs. 35,000/- per MT and was computed at Rs. 1,22,50,000/- (Rs. 35,000/- x 350) and treated the said sum as unexplained investment. In this regard, the appellant argues that it had shown 1045.463MT of finished goods in the stock statement, however in Note 19(b) of the audited balance sheet the 'Mould Boxes" were not declared as it manufactured the mould boxes which are partly used in its factory as pant and partly to its customers. In this regard, it has submitted a chart reconciling the difference in closing stock of finished goods alongwith depreciation chart. It is further argued that the entire mould boxes lying as finished goods or assets were reported to the bank as stock of finished goods and to increase the CC limit the higher figures were reported. The appellant further submits that there was no stock mortgaged to the bank, it is only hypothecated and the stock still remains under its own custody and relying on various judicial decisions wherein, it is held that based on the inflated value of the stocks statements furnished before the banking authorities, addition cannot be made u/s 69....
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....o obtain higher credit limit from the bank. The Assessing Officer had not brought on record any evidence to show that the assessee was in fact in possession of higher quantity of stock. Therefore, on mere comparison of the stock declared to the bank and the one shown in the books of account, addition could not be made of the difference between the two" Hon'ble Gujarat High Court in the case of CIT Vs Patel Proteins (P.) Ltd. Reported in [2017] 393 ITR 274 (Guj-HC) held that difference in stock statement as furnished before bank as compared to stock shown in books of account for availing of higher credit facility could not be added under section 69B as undisclosed investment. Thus, it is evident from the above that the Hon'ble courts have held that only on account of inflated statements furnished to the banking authorities for the purpose of availing of larger credit facilities, no addition can be made if there appears to be a difference between the stock shown in the books of account and the statement furnished to the banking authorities. In view of the very facts of the case and also respectfully relying on the judgement of the Hon'ble courts, the addition mad....