Santram Spinners Ltd., Ahmedabad V. The Income tax Officer,Ward-8(1), Ahmedabad

CO 84/AHD/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7264 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 11-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: N C AMIN
• Keywords: Proportionate interest; Corroborative evidences
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD C BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER I.T.A. NO.54/AHD/2012 A. Y. 2008-09 SANTRAM SPINNERS LTD. 259, NEW CLOTH MARKET, O/S. RAIPUR GATE RAIPUR, AHMEDABAD-380 002 PAN-AADCS9694L APPELLANT VS. INCOME TAX OFFICER, WARD-8(1) AHMEDABAD RESPONDENT WITH I.T.A. NO.554/AHD/2012 A. Y. 2008-09 INCOME TAX OFFICER, WARD-8(1) AHMEDABAD APPELLANT VS. SANTRAM SPINNERS LTD. 259, NEW CLOTH MARKET, O/S. RAIPUR GATE RAIPUR, AHMEDABAD-380 002 PAN-AADCS9694L RESPONDENT WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012) SANTRAM SPINNERS LTD. 259, NEW CLOTH MARKET, O/S. RAIPUR GATE RAIPUR, AHMEDABAD-380 002 APPELLANT VS. INCOME TAX OFFICER, WARD-8(1) AHMEDABAD RESPONDENT DEPARTMENT BY : SHRI M. MATHIVANAM, SR. D.R. I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 2 ASSESSEE BY : SHRI N.C. AMIN, A.R. DATE OF HEARING : 26.06.2012 DATE OF PRONOUNCEMENT 20.07.2012 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER SINCE THESE CROSS APPEALS AND C.O. BELONG TO THE SA ME ASSESSEE AND WERE HEARD TOGETHER, FOR THE SAKE OF CONVENIENCE, W E ARE DISPOSING OF THEM BY PASSING A CONSOLIDATED ORDER. ITA NO.54 OF 2012 (ASSESSEES APPEAL) 2. THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF LD. CIT(A) CONFIRMING THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.18,49,24 3/-. 3. THE A.O., WHILE MAKING THIS ADDITION HAS OBSERV ED AS UNDER:- 'ON VERIFICATION OF P& L A/C, IT WAS NOTICED THAT T HE ASSESSEE HAS CLAIMED INTEREST EXPENSE OF RS18,49,24 3 /-. ON PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE COMPAN Y, IT WAS FURTHER NOTICED THAT AS ON 31/03/08, THE ASSESSEE W AS HAVING BALANCE OF ADVANCES OFRS.1,07,88,232/-/-. DURING TH E CURSE OF ASSESSMENT PROCEEDING THE VIDE QUESTIONNAIRE DATED 08/06/10 THE ASSESSEE WAS REQUESTED TO FURNISH DETAILS AS UN DER: LOANS AND ADVANCES/DEPOSITS PLEASE FILE DETAILS OF LOANS & ADVANCES AND DEPOSIT S IN THE GIVEN FORMAT. NAME & ADDRESS OF THE PERSON AMOUNT PURPOSE INTEREST CHARGED IF ANY? RATE OF INTEREST WHETHER PERSON COVERED U/S 40 A 2(B) SOURCE OF ADVANCE IF INTEREST NOT CHARGED, GIVE REASONS FOR THE SAME IT WAS ALSO ASKED TO FURNISH COPY OF ACCOUNTS OF AL L THE RELEVANT PARTIES. IN RESPONSE TO THAT AFTER REPEATE D REQUEST THE ASSESSEE HAD NOT FURNISHED THE REQUIRED DETAIL, AT LAST ON I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 3 14/12/2010 THE ASSESSEE HAD FURNISHED PART COMPLIAN CE TO THE SAID QUESTION. ON VERIFICATION OF THE DETAIL FURNIS HED IT WAS FURTHER NOTICED THAT THE ASSESSEE HAD MADE SUBSTANT IAL ADVANCE TO A PARTY NAMELY M/S CHINTAMANI TRADING CO. UNDER TWO DIFFERENT ACCOUNTS I) M/S CHINATAMANI TRADING CO. A ND M/S CHINTAMANI TRADING CO. (ADV.). HOWEVER THE ASSESSEE HAD NOT GIVEN THE PURPOSE OF THE ADVANCES AND REASONS FOR N OT CHARGING INTEREST THEREON. AS MENTIONED SUPRA THAT ON ONE HAND THE ASSESSEE HA S CLAIMED INTEREST EXPENSE TO THE TUNE OF 18,49,243/- WHERE AS ON THE OTHER HAND IT HAD GIVEN INTEREST FREE ADVANCES TO CHINTAMANI TRADING CO. THE CLOSING BALANCE OF THE LOANS & ADVA NCES ACCOUNT OF THESE PARTIES ON 31.03.2008 ARE IS AS UNDER:- SRNO. NAME OF THE PARTY AMOUNT ADVANCED (IN RS.) 1 CHINTAMANI TRADING CO 17,31,967 2 CHINTAMANI TRADING CO[ADV] 89,55,901 TOTAL 1,06,87,868 DURING THE COURSE OF ASSESSMENT PROCEEDING, VIDE OR DER SHEET DATED 14/12/2010, THE ASSESSEE WAS ASKED TO J USTIFY WHY NO INTEREST HAS BEEN CHARGED FROM THESE CONCERNS OR TO SHOW CAUSE WHY APPROPRIATE DISALLOWANCE IN RESPECT OF IN TEREST EXPENSE SHOULD NOT BE DISALLOWED. THE HEARING FOR T HIS PURPOSE WAS FIXED ON 22/12/2010. THE RELEVANT EXTRACT OF THE REPLY OF THE ASSESSEE I N THIS REGARD IS REPRODUCED AS UNDER:- 'THAT AS REGARDS THE ADVANCE SHOWN TO CHINTAMANI TRADING OF RS.8955901 IS CONCERNED IT IS SUBMITTED THAT IN THE ASSESSMENT YEAR 06-07 SALES WAS MADE TO THIS PARTY AND IN THE ASSESSMENT YEAR 2007-08 SALES WAS MADE TO HIM AND I N THE ABOVE ASSESSMENT YEAR IT IS SHOWN AS OPENING BALANC E INFACT CHINTAMANI TRADING CO. IS A DEBTOR WITH THE ASSESSE E COMPANY BUT IN THE GROUPING THROUGH AN OVERSIGHT IT HAS BEE N SHOWN AS ADVANCES. THAT OUT OF THE ABOVE OUTSTANDING IN THE ASSESSMENT YEAR 2009-10 AND 2010-LITHE MONEY HAS BEEN RECOVERE D FROM THIS DEBTOR AND AS ON MARCH 2010 THE BALANCE REMAIN ED RS 5789001. SINCE THE PARTY FINANCIALLY IS VERY WEAK H ENCE THE AMOUNT OF SALES MADE TO THEM IN EARLIER YEARS IS RE CEIVED GRADUALLY. WE ARE ENCLOSING THE COPY OF ACCOUNT OF THE PARTY I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 4 FROM ASSESSMENT YEAR 2007-08 TO 2010-11 FOR YOUR KI ND REFERENCE. SINCE THE TRANSACTIONS PERTAINED TO SALE S AND THEREFORE NO INTEREST HAS BEEN CHARGED.' THE REPLY OF THE ASSESSEE HAS BEEN CAREFULLY CONSID ERED BUT CANNOT BE ACCEPTED ON THE FOLLOWING GROUNDS:- I) THE FIRST CONTENTION OF THE ASSESSEE THAT AT SOM E POINT OF TIME DURING A PREVIOUS YEAR, IT HAD MADE SALES T O THE SAID PARTY AND THEREFORE THE PAYMENT IS NOT IN NATURE OF LOANS OR FINANCE ON WHICH INTEREST HAS TO BE CHARGED IS NOT AT ALL ACCEPTABLE. IN SUPPORT OF IT THE ASSESSEE HAS FURNI SHED LEDGER COPIES OF THE PARTY FROM F.Y.2006-07 TO TILL DATE. ON VERIFICATION OF THE LEDGER PERTAINING TO F. Y. 2006-07, IT WAS N OTICED AND IT HAD DEBITED THE ACCOUNT OF THE PARTY BY FOUR PETTY SALES, TOTALING OF WHICH COMES TO RS.LL,955/-ONLY. TO EXPLAIN MORE CLEARLY, THE TRANSACTION SHOWN IN THIS LEDGER ACCOUNT IS REPRODU CED AS UNDER: DATE PARTICULAR VOUCHER TYPE VOUCHER NO. DEBIT CREDIT 01.04.06 O/ BALANCE 89,43,946.00 18.09.06 CR. SALES AJC WASTE SALES SALES SALES W/008 W/009 W/010 3,178.00 3,672.00 4,565.00 89,55,901.00 DR. CL. BALANCE 89,55,901.00 89,55,901.00 89,55,901.00 THE TRANSACTIONS SHOWN IN THE ACCOUNT, REPRODUCED A BOVE ITSELF SPEAKS THE SHALLOWNESS OF THE STORY COOKED B Y THE ASSESSEE. A PARTY TO WHOM SOMEONE HAS ADVANCED RS. 89,43,946/ - HAD COME ON A PARTICULAR DAY FOR PURCHASE OF WASTE AND THAT WAS ALSO OF PALTRY SUM OF RS.11,955/-, IT IS FURTHER INTERES TING TO LOOK THAT THE SAID SALES OF RS.11,9551- WAS NOT BY A SIN GLE PURCHASE, THE ASSESSEE COMPANY HAD MADE FOUR SALES BY FOUR VO UCHER AND THAT WERE ALSO IN CREDIT. ON THE BASIS OF THESE CRE DIT SALES THE I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 5 ASSESSEE COMPANY CLAIMS THAT IT IS NOT A CASE OF AD VANCE BUT IS A DEBTOR PARTY. FROM ALL THESE FACTS IT CRYSTAL CLEAR THAT THE ASSE SSEE HAS TRIED TO MAKE FOOL TO THE DEPARTMENT WITH A ONLY IN TENTION TO GIVE JUSTIFICATION OF NOT CHARGING THE INTEREST ON THE A DVANCES. DURING THE COURSE OF ASSESSMENT PROCEEDING TO ASCERTAIN TH E TRUTH BEHIND THE CURTAIN, IT WAS ASKED TO GIVE COMPLETE ADDRESS OF THE PARTY ALONG WITH NAME/NAMES OF THE PROPRIETOR/ PARTNER, H OWEVER IN SPITE OF REPEATED REQUEST THE ASSESSEE REMAINED FAI L TO PROVIDE THE REQUIRED DETAIL, FOR THE REASONS BEST KNOWN TO IT. THERE IS POSSIBILITY THAT CLOSE RELATIVE/ RELATIVE S OF THE DIRECTORS OF THE ASSESSEE COMPANY MIGHT HAVING INTE REST IN THAT FIRM THEREFORE IN ORDER TO PROVIDE HIM/ THEM INTERE ST FREE ADVANCES THE ASSESSEE COMPANY HAD MADE THESE TRANSA CTIONS AND THEREBY CREATED AN INTEREST BURDEN OF 18,49,243 /- TO THE ASSESSEE COMPANY. II) ON GOING THROUGH THE LEDGER ACCOUNT COPY OF THE M/S CHINTAMANI TRADING CO. (ADV.). FOR FINANCIAL YEAR 2 007-08 IT IS FURTHER NOTICED THAT DURING THAT YEAR THE ASSESSEE COMPANY HAS MADE SEVERAL TRANSACTIONS WITH THE ABOVE MENTIONED PARTY, DETAIL OF THE LEDGER ACCOUNT IS REPRODUCED AS UNDER . CHINTAMANI TRADING CO. LEDGER ACCOUNT L-APR-2007 TO 31-MAR-2008 PAGE 1 DATE PARTICULARS VCH TYPE VCH NO. DEBIT CREDIT 1-4-2007 CR OPENING BALANCE 24,83,567 9-4-2007 DR NNSB, C CA/C-9026 RECEIPT 14 11,000 DR NNSB, C CA/C- 902 6 RECEIPT 15 3,49,000 CR NNSB, C CA/C-9026 PAYMENT 20 4,700 CR NNSB, C CA/C- 9026 PAYMENT 21 550 11-4-2007 CR NNSB, C CA/C- 9026 PAYMENT 26 23,800 12-4-2007 CR NNSB, C CA/C- 9026 PAYMENT 45 3,800 I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 6 16-4-2007 DR NNSB, C CA/C- 9026 RECEIPT 21 78,500 18-4-2007 DR NNSB, C CA/C- 9026 RECEIPT 25 12,900 DR NNSB, C CA/C- 9026 RECEIPT 26 1,65,000 19-4-2007 DR NNSB, C CA/C- 9026 RECEIPT 27 31,500 20-4-2007 CR NNSB, C CA/C- 9026 PAYMENT 77 4,75,000 DR NNSB, C CA/C- 9026 RECEIPT 29 1,500 DR NNSB, C CA/C- 9026 RECEIPT 30 24,000 DR NNSB, C CA/C- 9026 RECEIPT 31 1,40,000 23-4-2007 CR NNSB, C CA/C- 9026 PAYMENT 82 1,41,500 24-4-2007 CR NNSB, C CA/C- 9026 PAYMENT 84 2,350 27-4-2007 CR NNSB, C CA/C- 9026 PAYMENT 91 3,000 2-5-2007 DR NNSB, C CA/C- 9026 RECEIPT 37 42,000 3-5-2007 DR NNSB, C CA/C- 9026 RECEIPT 38 7,600 4-5-2007 CR NNSB, C CA/C- 9026 PAYMENT 113 4,200 5-5-2007 CR NNSB, C CA/C- 9026 PAYMENT 117 23,700 CR NNSB, C CA/C- 9026 PAYMENT 118 60,000 7-5-2007 CR NNSB, C CA/C- 9026 PAYMENT 123 36,400 10-5-2007 CR NNSB, C CA/C- 9026 \PAYMENT 143 1,000 15-5-2007 CR NNSB, C CA/C-9026 PAYMENT 157 40,400 31-5-2007 CR NNSB , C CA/C-9026 PAYMENT 222 1,01,000 5-2-2008 DR NNSB C CA/C-9026 RECEIPT 293 8,10,000 34,04,967 16,73,00 0 I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 7 DR CLOSING BALANCE 17,31,967 34,04,967 34,04,967 FROM THE TRANSACTION MADE IN THE ABOVE ACCOUNT IS C LEAR THAT DURING THE YEAR CONSIDERATION ALSO, THE ASSESS EE COMPANY HAS MADE ADVANCES TO THE ABOVE NAMED PARTY. THEREFO RE THE EXPLANATION GIVEN BY THE ASSESSEE COMPANY IS FACTUA LLY INCORRECT AND IT APPEARS THAT THE ASSESSEE HAS TRIED TO MISLE AD THE DEPARTMENT, AS ALL THE TRANSACTIONS ARE EXCLUSIVELY OF FINANCIAL NATURE. IT MAY BE NOTED THAT IN THAT YEAR ALSO THE ASSESSEE HAS NOT CHARGED ANY INTEREST ON THE ADVANCES MADE TO TH E SAID PARTY. ALL THESE FACTS CLEARLY PROVE THAT RECEIVABL E AMOUNT SHOWN IN THE NAME OF M/S CHINTAMANI TRADING CO. IS NOTHIN G BUT PURELY OF LOANS & ADVANCE NATURE. III) THE ASSESSEE ITSELF HAS STATED THAT THE FINANC IAL POSITION OF M/S CHINTAMANI TRADING CO. WAS VERY WEAK. THE SA ID COMPANY ALREADY OWED AN AMOUNT OF RS 89,55,901/- SI NCE LONG. THE ASSESSEE HAS NOT BEEN ABLE TO JUSTIFY IN ANY MA NNER, WHY IT HAD TO BORROW THE AMOUNT BEARING AN INTEREST BURDEN AND GIVE TOTALLY INTEREST FREE ADVANCES OF RS. 1,06,87,868/- TO THE CONCERN. IT IS PERTINENT TO MENTION HERE THAT:- A. ANY BUSINESS IS CONDUCTED WITH AN OBJECTIVE TO EARN PROFIT AND ANY PRUDENT BUSINESSMAN WOULD GENER ALLY ADOPT MEANS WHICH WOULD ENHANCE ITS PROFITS. B. HAD THE ASSESSEE CHARGED INTEREST ON THE ADVANCES GIVEN TO THIS CONCERN AT THE PREVAILING RA TE I.E. 12% IN THE YEAR UNDER CONSIDERATION THE ASSESSEE CO ULD HAVE EARNED AN INTEREST INCOME WHICH COULD HAVE NOT ONLY SURPASSED ITS INTEREST EXPENSE BUT CAN BE SOURCE OF INCOME FOR THE ASSESSEE. TAKING INTO CONSIDERATION ALL THESE FACTS AND DISCU SSION MADE ABOVE IT IS VIEWED THAT THE ABOVE THE INTEREST CLAIM OF THE ASSESSEE IS NOT ADMISSIBLE AND THEREFORE THE ENTIRE INTEREST EXPENSE OF RS18,49,243/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE.' 4. IN APPEAL, LD. CIT(A) AFTER TAKING INTO CONSIDE RATION THE SUBMISSIONS OF THE ASSESSEE, WHICH HAVE BEEN REPRO DUCED BY HIM IN PARA I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 8 6.2 OF HIS ORDER, HAS CONFIRMED THE ACTION OF THE A .O. BY OBSERVING AS UNDER:- I HAVE CAREFULLY PERUSED THE FINDINGS OF THE ASSESS ING OFFICER AND SUBMISSIONS MADE BY THE ID. A.R. THE A. O. HAS DISALLOWED THE INTEREST EXPENSES CLAIMED BY THE IN THE RETURN OF INCOME AS IT WAS HELD BY HIM THAT THE APPELLANT HAS GIVEN INTEREST FREE ADVANCES OF RS.1,06,87,868/- TO M/S. CHINTAMANI TRADING CO. WHICH WAS NOT FOR THE PURPOSE OF BUSINE SS. THE APPELLANT HAS SUBMITTED THAT THE INTEREST THAT WAS PAID WAS FOR THE PURPOSE OF BUSINESS AND SAME IS ALLOWABLE AS EX PENDITURE. REGARDING THE ADVANCE, IT IS SUBMITTED BY THE APPEL LANT THAT IT IS AN OLD BALANCE THAT IS BEING CARRIED FORWARD AND SO ME SALES HAVE ALSO BEEN MADE TO THE PARTY. THE CONTENTION OF THE APPELLANT THAT THE ADVANCE TO CHINTAMANI TRADING WERE OLD TRANSACTIONS AND THERE WERE BUSINESS TRANSACTION IN THE ACCOUNT HAS BEEN EFFECT IVELY DEALT WITH BY THE A. O. IN HIS ORDER. HE HAS RIGHTLY NOTE D THAT THERE ARE CONTINUOUS TRANSACTIONS IN THE ACCOUNT OF CHINTAMAN I TRADING CO. DURING THE YEAR. IN RESPECT OF CHINTAMANI TRADI NG CO. (ADVANCE) HE HAS RIGHTLY OBSERVED THAT THE SALES AR E OF MEAGER AMOUNT AND THE TRANSACTIONS WERE IN FACT IN THE NAT URE OF ADVANCE. THE CLAIM OF THE APPELLANT THAT THE INTERE ST PAYMENT HAS BEEN MADE FOR BUSINESS PURPOSES HAS ALSO BEEN E XAMINED AND IT IS NOTED MOST OF THE INTEREST EXPENSES RELAT ES TO THE LOAN FOR WORKING CAPITAL FOR BORROWINGS MADE FOR BUSINES S PURPOSES ETC. IT IS CLEAR FROM THE FACTS THAT THE SUBSTANTIA L PORTION OF THE BORROWED MONEY IS BLOCKED IN THE ADVANCES FOR WHICH THE APPELLANT HAS NOT CHARGED ANY INTEREST. THE ADVANCE S ARE NOT FOR THE PURPOSE OF BUSINESS AND ALL THE TRANSACTIONS EX CEPT FOR A SMALL AMOUNT ARE IN THE NATURE OF MONEY LENDING. TH E TRANSACTION THAT RELATES TO SALE HAVE BEEN SHOWN BY THE APPELLANT TO GIVE THE ACCOUNT A DIFFERENT COLOUR. T HE APPELLANT HAS ALSO CLAIMED THAT THESE ADVANCES WERE GIVEN TO THE PARTY IN EARLIER YEARS AND THE APPELLANT HAD SUFFICIENT INTE REST FREE FUNDS FOR THESE ADVANCES. THE SUBMISSION OF THE APPELLANT HAS ALSO BEEN EXAMINED. THE COPIES OF ACCOUNT OF CHINTAMANI TRADING CO. FOR DIFFERENT YEARS SHOW THAT THERE WERE NUMEROUS T RANSACTIONS IN F. Y. 2006-07 AS WELL AS IN EARLIER YEARS AND TH E TRANSACTIONS ARE IN THE NATURE OF MONEY LENDING. THE CLAIM OF TH E APPELLANT THAT IT HAD SUFFICIENT INTEREST FREE FUND FOR MAKIN G THE ADVANCE IS NOT SUPPORTED BY FACTS AS THE ADVANCES THAT WERE GI VEN IN EARLIER YEARS WERE HUGE AND THE APPELLANT HAS TAKEN AS BORR OWED MONEY FOR THE WORKING CAPITAL FROM DIFFERENT FINANC IAL INSTITUTIONS. THE APPELLANT HAS NOT BEEN ABLE TO DE MONSTRATE THAT THE LOAN GIVEN BY HIM WAS OUT OF INTEREST FREE FUND . I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 9 IN VIEW OF THE ABOVE MENTIONED FACTS AND CIRCUMSTAN CES, THE ADDITION MADE BY THE A. O. IS UPHELD. THE GROUN D OF APPEAL IS ACCORDINGLY DISMISSED. FURTHER AGGRIEVED, NOW THE ASSESSEE IN IS APPEAL BE FORE US. 5. AT THE TIME OF HEARING LD. COUNSEL OF THE ASSES SEE, REITERATING THE SUBMISSIONS MADE BEFORE LD. CIT(A), FURTHER SUBMITT ED THAT INTEREST FREE ADVANCE OF RS.1,06,87,868/- GIVEN TO M/S CHINTAMANI TRADING COMPANY WAS GIVEN IN EARLIER YEARS AND DURING THE YEAR UNDER CONSIDERATION THERE IS NO TRANSACTION WITH M/S CHINTAMANI TRADING COMPANY. IN THE PAST, IT WAS TR EATED AS BUSINESS TRANSACTION AND NO DISALLOWANCE OF INTEREST MADE ON DEBIT BALAN CE IN ASSESSMENT YEAR 2006- 07, 2007-08, THEREFORE, FOLLOWING THE RULE OF CONSI STENCY DISALLOWANCE OF INTEREST MADE BY THE A.O. AND SUSTAINED BY LD. CIT(A) BE DEL ETED. IT WAS FURTHER ARGUED THAT ASSESSEE WAS HAVING INTEREST FREE FUND OF RS.6 ,94,13,331/- AGAINST INTEREST FREE ADVANCE OF RS.1,06,87,868/- AND THEREFORE, DIS ALLOWANCE ON INTEREST WAS UNCALLED FOR. FOR MAKING THIS SUBMISSION THE RELIA NCE WAS PLACED ON THE DECISION OF RAJKOT ITAT IN THE CASE OF MAHESHWARI HANDLING A GENCY PVT. LTD. VS. ACIT. THERE BEING NO FINDING TO THE EFFECT THAT BORROWED FUNDS WERE UTILIZED BY THE ASSESSEE IN GIVING LOANS TO ITS SUBSIDIARY COMPANIE S AND OTHERS OR THAT THE ASSESSEE HAD ACTUALLY COLLECTED INTEREST ON SUCH LO ANS, INTEREST CANNOT BE INCLUDED ON NOTIONAL BASIS NOR DISALLOWANCE ON PROPORTIONATE INTEREST PAID ON BORROWINGS MADE FOR BUSINESS PURPOSES CAN BE MADE. RELIANCE WA S PLACED ON THE DECISION OF SHAHIBAG ENTREPRENEURS P. LTD. VS. ITO 49 TTJ 554 A ND IN VIEW OF THIS ALSO THE ADDITION DESERVES TO BE DELETED. IT WAS FURTHER AR GUED THAT MAJOR INTEREST EXPENDITURE OF RS.11,96,555/- WAS PAID TO GUJARAT S TATE CO-OPERATIVE MARKETING FEDERATION LTD., FOR DOING GINNING AND PRESSING WOR K FOR COTTON AND COTTON BALES AT I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 10 MEHSANA UNIT OWNED BY GUJCO. DURING COTTON SEASON THE PARTY OF THE FIRST PART HAS BORROWED LOAN OF RS.2.5 CRORES AS WORKING CAPIT AL AND THEREON INTEREST OF RS.11,96,555/- WAS PAID ON LOAN BORROWED FOR BUSINE SS PURPOSES AND THEREFORE, INTEREST PAID IS ALLOWABLE. SIMILARLY THE INTEREST AMOUNT TO RS.6,52,688/- PAID TO BANKS AND OTHER PARTIES WAS ALSO FOR BUSINESS PURPO SE. CONCLUDING HIS ARGUMENTS, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ADDI TION MADE BY THE A.O. AND SUSTAINED BY LD. CIT(A) DESERVES TO BE DISALLOWED. 6. LD. D.R., ON THE OTHER HAND, RELIED ON THE ORD ER OF THE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT THE CONTENTI ON OF THE ASSESSEE THAT ASSESSEE WAS HAVING SURPLUS INTEREST FREE FUNDS TO THE EXTEN T OF RS.6,94,13,331/- AGAINST INTEREST FREE ADVANCE OF RS.1,06,87,868/- TO M/S CH INTAMNI TRADING COMPANY REQUIRES VERIFICATION AND THEREFORE, IT WILL BE IN THE FITNESS OF THINGS, IF THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O. FOR SUCH VERI FICATION. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THE CONTENTION OF THE ASSESSEE THAT SINCE THE ASSES SEE WAS HAVING SURPLUS FUND OF RS.6,94,13,331/- AGAINST INTEREST FREE ADVANCE OF R S.1,06,87,868/- TO M/S CHINTAMANI TRADING COMPANY, DISALLOWANCE OF INTERES T FREE EXPENDITURE OF RS.18,49,243/- WAS UNCALLED FOR, REQUIRES VERIFICAT ION AT THE END OF THE A.O. AND FOR THIS PURPOSE THE MATTER IS RESTORED TO THE FILE OF THE A.O. THE ASSESSEE WOULD, HOWEVER, BE FREE TO ADVANCE OTHER ARGUMENTS ALSO IN SUPPORT OF HIS CLAIM OF INTEREST EXPENDITURE OF RS.18,49,243/-. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSE. ITA NO.554 OF 2012 (REVENUE APPEAL) I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 11 9. GROUND NO.1 RELATES TO DELETION OF ADDITION OF RS.9,00,902/-, MADE BY THE A.O. ON ACCOUNT OF CESSATION OF LIABILITY U/S 4 1(1) OF THE ACT. THE A.O., WHILE MAKING THIS ADDITION HAS OBSERVED AS UNDER:- 'ON PERUSAL OF BALANCE SHEET OF THE ASSESSEE COMPAN Y, AS ON 31.03.08 IT -WAS NOTICED THAT ASSESSEE HAS SHOWN SUNDRY CREDITORS FOR GOODS OF RS.1,05,91,647/-. DURING THE COURSE OF ASSESSMENT PROCEEDING TO VERIFY THE GENUINENESS AND CORRECTNESS OF THE CREDITORS, THE ASSESSEE WAS ASKE D TO FURNISH THE HISTORICAL DETAILS OF THE CREDITORS. ON VERIFIC ATION OF THE DETAILS PRODUCED BY THE ASSESSEE IT WAS NOTICED THA T THERE HAS BEEN NO CHANGE IN THE OUTSTANDING AMOUNT IN RESPECT OF THE BELOW CREDITORS SINCE F.Y.2006-07 SR NO NAME OF THE CREDITOR OUTSTANDING AMOUNT 1 KANTILAL M SHAH 10,000 2 S.D. ASSOCIATE 1,15,317 3 SHREE AMBICA TRANSPORT 45,600 4 U.P STATE YARN CO. LTD, BALIA 10,414 5 U.P STATE YARN CO. LTD, BUNDIA 31,370 6 ALOK ENTERPRISE 30,867 7 DYNAMIC FINSTOCK PVT LTD 31,500 8 TIRUPATI ENGINEERS 16,600 9 KALIKA SYNTHETICS PVT LTD 61,425 10 SAUREE CZECH A. S. 5,37,825 11 SHREE MAHALAXMI ROADWAYS 9,984 TOTAL AMOUNT 9,00,902 FROM THE SUBMISSIONS GIVEN BY THE ASSESSEE, IT WAS NOTICED THAT THE ASSESSEE HAD DEBITED THE AMOUNT IN THE P& L A/C IN THE RESPECTIVE YEARS IN WHICH THE TRANSACTIO N HAD TAKEN I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 12 PLACE. THE COPY OF ACCOUNTS WERE FURNISHED IN RESPE CT OF THESE PARTIES FROM THE END OF THE YEAR IN WHICH TRANSACTI ON HAD TAKEN PLACE TO TILL DATE AND THE PURCHASE BILLS IN SUPPOR T OF THE PURCHASES MADE DURING THE RESPECTIVE YEAR/S. TO VERIFY THE GENUINENESS OF THE TRANSACTIONS, THE ASSESSEE WAS FURTHER ASKED TO FURNISH COMPLETE ADDRESSES OF THESE CREDITORS. IT WAS ALSO ASKED TO FURNISH CONFIRMATIO N FROM THE CREDITORS. HOWEVER THE ASSESSEE FAILED NOT ONLY IN FILING ANY CONFIRMATION EVEN THOUGH OPPORTUNITIES IN SERIES WE RE GIVEN TO IT RIGHT FROM THE BEGINNING OF THE ASSESSMENT PROCEEDI NG TO TILL DATE. FROM THE SUBMISSIONS GIVEN BY THE ASSESSEE, I T WAS OBSERVED THAT MORE THAN 3 YEARS HAVE PASSED FROM TH E DATE OF TRANSACTION TO TILL DATE NOT A SINGLE RUPEE HAS BEE N PAID. SECTION 41(L)(A) PROVIDES AS UNDER: WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN TH E ASSESSMENT YEAR FOR ANY YEAR IN RESPECT OF LOSS, EX PENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINA FTER REFERRED AS THE FIRST-MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR,- (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHE R IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESP ECT OF SUCH TRADING LIABILITY BY WAY REMISSION OR CESSATION THE REOF, THE AMOUNT OBTAINED BY SUCH PERSON OR VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFIT AND GAINS OF BUSIN ESS 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; IT IS CLEAR FROM THE ABOVE SECTION TWO CONDITION IS SATISFY BEFORE TREATING ANY INCOME UNDER THIS SECTION. (I) THAT SHOULD BE TRADING LIABILITY FOR WHICH LOSS OR EXPENDITURE INCURRED AND ALLOWED IN EARLIER YEAR AN D II) THE TRADING LIABILITY IS CEASED AS PER THE LIMITATION ACT THE CREDITOR DOES NOT HAV E ANY LEGAL RIGHT TO ENFORCE THE PAYMENT OF THIS AMOUNT. WHETHER THE LIABILITY OF THE ASSESSEE HAS FULLY BEEN DISCHARGED OR NOT IS WITHIN THE SPECIFIC KNOWLEDGE OF THE ASSESSEE. HE HAS TO PROVE THAT IN FACT THE LIABILITY SUBSISTS. WHERE THE CONDUCT AND SURROUNDING CIRCUMSTANCES DEMONSTRATE THAT THE AMOUNT HAS BEEN REMITTED I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 13 OR FORGONE OR THE SUM HAS CEASED TO BE CLAIMABLE AG AINST THE ASSESSEE, IT WOULD BE A CLEAR CASE OF REMISSION OR CESSATION OF THE LIABILITY. THE RIGHT TO RECOVER THE SAID AMOUNT HAS BECOME BARRED BY LIMITATION. THEREFORE, THE PROVISIONS OF SECTION 41(1) ARE INVOKED. RELIANCE IS ALSO PLACED ON THE BELOW J UDGMENTS :- IN THE CASE OF KESORAM INDUSTRIES & COTTON MILLS LT D. V. CIT[1992] 196 ITR 845 (CAL), THE COURT OBSERVED THA T WHETHER THE LIABILITY OF THE ASSESSEE HAS BEEN FULLY DISCHA RGED IS WITHIN THE KNOWLEDGE OF THE ASSESSEE. HE HAS TO PROVE THAT IN FACT THE LIABILITY SUBSISTS. IN THE CASE OF CIT V. CHASE BRIGHT STEEL LTD. (NO.2 )[1989] 177 ITR 128 (BOM.), THE COURT OBSERVED THAT THE LIA BILITY CEASES WHEN IT HAS BECOME BARRED BY LIMITATION AND THE ASS ESSEE HAS UNEQUIVOCALLY EXPRESSED ITS INTENTION NOT TO HONOUR THE LIABILITY EVEN WHEN DEMANDED. IN CASE OF LTO V. AHUJA GRAPHIC MACHINERY (P) LTD. (2007) 109 ITD 71 (MUM-TRIB) : (2007) 111 TTJ (MUM-TRIB) 445, IT WAS OBSERVED BY THE HONORABLE TRIBUNAL THAT 'WHERE OUTSTANDING LIABILITIES IN THE NAME OF CREDITORS WERE NOT GENUI NE AND THE NAME, AND OTHER DETAILS OF CREDITORS WERE FURNISHED BUT ALL THE CREDITORS EXCEPT ONE DID NOT RESPOND TO SUMMONS ISS UED BY AO AND THE ASSESSEE WAS UNABLE TO FURNISH OTHER DETAIL S, THE OUTSTANDING LIABILITIES IN THE NAME OF CREDITORS BE ING NON SUBSISTING AND BOGUS, ADDITION UNDER SECTION 41(1) WAS, THEREFORE, RIGHTLY MADE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS CAN BE SEEN FROM THE ORDER SHEET, THE ASSESSEE WAS CONTINU OUSLY ASKED TO PROVIDE THE COMPLETE DETAILS IN RESPECT OF THE A BOVE SAID CREDITORS I.E. COPY OF ACCOUNT OF THE ASSESSEE FROM THE BOOKS OF THESE CREDITORS WITH CONFIRMATION, BUT IN SPITE OF REPEATED REQUESTS, THE ASSESSEE COULD NEITHER BRING ANY CONF IRMATION FROM THE CREDITORS NOR COULD IT PRODUCE SUPPORTING EVIDE NCES TO PROVE THAT THE LIABILITY STILL EXISTS. THE ASSESSEE COULD NOT CLEARLY STATE WHEN THE LIABILITY WOULD BE POSSIBLY PAID AND ALSO COULD NOT PRODUCE ANY RELEVANT DOCUMENTS SHOWING WHETHER THE CREDITORS HAVE FILED ANY CLAIM BEFORE THE COURT OR ANY OTHER AGENCY. IT WAS MADE CLEAR TO THE ASSESSEE THAT IF IT FAILS TO SUBMIT ANY CONCRETE INFORMATION IN RESPECT OF THESE CREDIT ORS OR TO ADDUCE ANY EVIDENCE TO THE EFFECT THAT THESE LIABIL ITIES ARE IN FACT PAYABLE, THEN THE ONLY LOGICAL CONCLUSION THAT CAN BE DRAWN WILL BE THAT- THESE CREDITORS ARE ALSO NO MORE PAYABLE A ND ARE CEASED LIABILITIES. I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 14 THE ASSESSEE HAS TOTALLY FAILED TO DISCHARGE ITS ON US IN THIS REGARD AND AN ADVERSE INFERENCE IS DRAWN AGAINST TH E ASSESSEE. THEREFORE BY ORDER SHEET DATED 12/12/2010, A FINAL OPPORTUNITY WAS GIVEN TO THE ASSESSEE EITHER TO PROVE THAT THES E LIABILITIES STILL EXIST OR TO SHOW CAUSE , WHY THE SAME SHOULD NOT BE CONSIDERED TO BE CEASED LIABILITY U/S 41(1) OF THE IT ACT. THE HEARING FOR THIS PURPOSE WAS FIXED ON 16/12/2010. O N THE SAID DATE, THE ASSESSEE HAS NEITHER FURNISHED CONFIRMATI ON IN ANY OF THE CASE NOR FILED ANY EXPLANATION IN THIS REGARD. IN THESE CIRCUMSTANCES IT IS CLEARLY PROVED THAT THE AFORESA ID LIABILITY OF THE ASSESSEE IS NOT GENUINE, UNCLAIMED AND NON SUBS ISTING AND THE UNDERSIGNED IS LEFT WITH NO ALTERNATIVE BUT TO HOLD THAT ALL THE LIABILITIES TOWARDS ABOVE REFERRED CREDITORS TOTALI NG TO RS.900902/- ARE NO MORE PAYABLE BY THE ASSESSEE AND ARE NOT SUBSISTING LIABILITY AND ARE COVERED BY EXPLANATION 3 OF SECTION 41(1) OF THE ACT. FOR MAKING A FAIR AND JUST CONCLUSION ON THIS ISSUE , THE JUDGMENTS GIVEN BY VARIOUS JUDICIAL AUTHORITIES ON THE SIMILAR ISSUE HAVE ALSO BEEN RELIED UPON. A. IN THE CASE OF DY. CIT VS BHAGAWANDAS SHOBALAL J AIN (1997) 57 TTJ (JAB) 379 B. HON'BLE SUPREME COURT IN THE CASE OF CIT VS T.V.SUNDARAM IYENGAR & SONS LTD (1996) 136 CTR(SC) 444 C. THE CASE OF G.L. REXROTH INDUSTRIES LTD VS DY. CIT. (2002) 74 TTJ(AHD) 418 : (2001) 77 ITD 429(AHD) THE ITAT HAD MADE THE FOLLOWING OBSERVATIONS D. IN THE CASE OF LTO VS AHUJA GRAPHIC MACHINE RY P LTD (2007) 111 TTJ (MUMBAI) TM445 THE ITAT, MUMBAI BENC H IN VIEW OF THE FACTS AND DISCUSSION MADE ABOVE AND PLACING RELIANCE ON ABOVE SAID JUDGMENTS BY VARIOUS AUTHORITIES, IT IS ESTABLISHED BEYOND DOUBT THAT THERE IS A CLEA R CESSATION OF LIABILITY U/S 41(1) OF THE IT ACT. THEREFORE AN ADD ITION OF RS.9,00,902/- IS MADE ON ACCOUNT OF THESE CEASED LI ABILITIES U/S 41 (1) OF THE IT ACT. ' 10. IN APPEAL, LD. CIT(A), AFTER TAKING INTO CONSI DERATION THE SUBMISSION OF THE ASSESSEE, WHICH HAS BEEN REPRODUCED BY HIM IN P ARA 4.2 OF HIS ORDER, DELETED THIS ADDITION. AGGRIEVED BY THIS ORDER OF LD. CIT( A), NOW THE REVENUE IS IN APPEAL BEFORE US. I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 15 11. AT THE TIME OF HEARING, LD. D.R. VEHEMENTLY SU PPORTED THE ORDER PASSED BY THE A.O. WHILE LD. COUNSEL OF THE ASSESSE E HAS PLACED RELIANCE ON THE ORDER OF LD. CIT(A). 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE A.O. HAS MADE ADDITION OF RS.9,00,902/- AS CERT AIN CREDITORS WERE OUTSTANDING SINCE ASSESSMENT YEAR 2007-08 BY TREATING IT AS CES SATION OF LIABILITY U/S 41(1) OF THE ACT AFTER GIVING OPPORTUNITY TO THE ASSESSEE TO FILE CONFIRMATION OF THESE CREDITORS TO ASCERTAIN WHETHER THESE LIABILITIES WE RE IN FACT PAID AS ASSESSEE FAILED TO FILE SUCH CONFIRMATION. THE ASSESSEES CONSISTE NT STAND HAS BEEN THAT HE HAD NOT MADE ANY ENTRY IN THE PROFITS AND LOSS ACCOUNTS DURING THE YEAR UNDER APPEAL AND THERE WAS NO REMISSION OR CESSATION OF LIABILIT Y DURING THE YEAR UNDER APPEAL. RELYING ON THE DECISION OF HONBLE APEX COURT IN TH E CASE OF CIT VS. SUGAULI SUGAR MILLS PVT. LTD. 236 ITR 518 AND THE DECISION OF HON BLE ITAT, AHMEDABAD BENCH IN THE CASE OF NEW COMMERCIAL MILLS COMPANY LTD. 73 TT J 893 IT WAS ARGUED THAT ON THESE FACTS NO ADDITION U/S 41(1) CAN BE MADE. WE FURTHER FIND THAT THE A.O. HAS NOT BEEN ABLE TO DEMONSTRATE ANY COGENT REASON AND HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THESE LIABILITIES HAVE CEASE D IN THE YEAR UNDER APPEAL. SIMPLY BECAUSE ASSESSEE WAS NOT ABLE TO PRODUCE ANY CONFIRMATION REGARDING THE CREDITORS, THE CONCLUSION CANNOT BE ARRIVED THAT TH E LIABILITY HAS CEASED TO EXIST. WE FURTHER FIND THAT THE ASSESSEE HAD NOT PASSED AN Y ENTRY IN ITS BOOKS OF ACCOUNTS WHICH SHOWS THE INTENTION OF THE ASSESSEE FOR MAKING PAYMENTS TO THESE PARTIES. THE A.O. HAS NOT PROVED THAT THE LIABILIT IES WERE EITHER BOGUS OR HAVE CEASED TO EXIST. IT IS ALSO NOT A CASE OF THE REVE NUE THAT THE ASSESSEE HAD OBTAINED ANY BENEFIT BY WAY OF REMISSION DURING THE YEAR. I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 16 NON-AVAILABILITY OF CONFIRMATION FROM THE CREDITORS DOES NOT LEAD TO THE CONCLUSION THAT THE DEBTS HAVE BEEN OBLITERATED. IN THE LIGHT OF THESE FACTS AND CIRCUMSTANCES OF THIS CASE AND IN VIEW OF THE CASE LAWS RELIED BY THE ASSESSEE, WE ARE OF THE CONSIDERED OPINION THAT LD. CIT(A) HAS RIGHTLY DELE TED THIS ADDITION OF RS.9,00,902/- MADE BY THE A.O. AND THE ORDER PASSED BY HIM IS HEREBY UPHELD. 13. IN THE RESULT, THIS GROUND OF THE REVENUE IS D ISMISSED. 14. GROUND NO.2 RELATES TO DELETING THE DISALLOWAN CE OF RS.5,18,697/- MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT. THE A.O ., WHILE MAKING THIS DISALLOWANCE HAS OBSERVED AS UNDER:- 'DURING THE COURSE OF ASSESSMENT PROCEEDING ON VERIFICATION OF THE DETAILS FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE HAS P AID THE FOLLOWING CHARGES TO THE PERSONS SHOWN IN THE TABLE BELOW. 4.2.1 PAYMENT TO LABOUR CONTRACTOR ON VERIFICATION OF THE LEDGER PRODUCED DURING THE C OURSE OF ASSESSMENT PROCEEDING, IT WAS NOTICED THAT THE ASSE SSEE HAS SHOWN EXPENSES OF LABOUR CHARGES UNDER DIFFERENT HEADS I.E. LABOUR CHARGES - GIN PALA HOUSE, KAPASIA LOADING, M EH, PRESS CONTRACTOR AND PRESS FITTER. ON PERUSAL OF THESE ACCOUNTS IT WAS NOTICED THAT TH E ASSESSEE HAD MADE PAYMENTS TO THESE PERSONS ON PERF ORMING CERTAIN LABOUR CONTRACT OR FOR CARRYING SPECIFIC PR OFESSIONAL WORK I.E. GINNING FITTING OR PRESS FITTING ETC. . THE VE RY NATURE OF THESE WORKS IS CLEARLY A CONTRACTUAL; HENCE AS PER THE PR OVISION OF SECTION 194 C OF THE I.T. ACT, THE ASSESSEE WAS REQ UIRED TO MAKE TDS OUT OF THE PAYMENTS MADE THE ABOVE MENTIONED LA BOUR CONTRACTORS/ PROFESSIONALS. HOWEVER THE ASSESSEE NO T DID SO. TO EXPLAIN IT MORE CLEARLY NAMES AND DETAIL OF THE WOR K CARRIED OUT BY THESE PERSONS ALONG WITH PAYMENTS MADE TO THEM A RE TABLED AS UNDER :- I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 17 SR NO NAME OF THE PERSON NATURE OF CONTRACT DATE OF PAYMENT AMOUNT OF PAYMENT (IN RS.) 1 SANTOSH SAHANEE LABOUR CHARGES BUNGADU 28/12/2007 21062 LABOUR CHARGES KAPASIA LOADING 28/12/2007 40875 LABOUR CHARGES KAPASIA LOADING 24/01/2008 45905 LABOUR CHARGES KAPASIA LOADING 28/01/2008 36985 TOTAL 1,45,327 2 TASUBHA PARMAR LABOUR CHARGES PRESS FITTER 26/11/2007 14500 LABOUR CHARGES PRESS FITTER 19/12/2007 8700 LABOUR CHARGES PRESS FITTER JO/01/2008 6000 LABOUR CHARGES PRESS FITTER 24/01/2008 14000 LABOUR CHARGES P RESS FITTER 26/11/2007 14500 LABOUR CHARGES PRESS FITTER 19/12/2007 8700 3 TASUBHA PARMAR LABOUR CHARGES PRESS FITTER 10/01/2008 6000 LABOUR CHARGES PRESS FITTER 24/01/2008 14000 LABOUR CHARGES PRESS FITTER 23/02/2008 15820 LABOUR CHARGES PRESS FITTER 31/03/2008 9500 TOTAL 68,520 I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 18 4 PREMARAM N CHAUDHARY LABOUR CHARGES PRESS FITTER 1/1/2008 75750 TOTAL 75,750 5 AMBARAM PATTARAM LABOUR CHARGES- PRESS FITTER 30/12/2007 1500 LABOUR CHARGE S PRESS FITTER 1/1/2008 73500 TOTAL 73,500 6 SANJAY BAHADURSINGH GIN FITTER CHARGES 9/11/2007 19450 GIN FITTER CHARGES 19/12/2007 10455 GIN FITTER CHARGES 29/12/2007 10795 GIN FITTER CHARGES 24/01/2008 7000 GIN FITTER CHARGES 22/02/2008 8000 TOTAL 55,700 7 MUKTARAM PRESS FITTER CHARGES 24/01/2008 27650 TOTAL 27,650 8 LALA CHAUDHARY PRESS FITTER CHARGES 27/02/2008 28050 TOTAL 28,050 SEC.L94C OF THE I. T. ACT STATES THAT 'TAX IS REQUIRED TO BE DEDUCTED AT THE TIME OF CRED IT OF ANY INTEREST, COMMISSION, BROKERAGE, RENT, ROYALTY, FEE S FOR PROFESSIONAL SERVICE, FEES FOR TECHNICAL SERVICES P AYABLE TO A RESIDENT. FROM THE ABOVE FACTS AND AS PER THE PROVISION OF SE C. 194 C IT IS CLEAR THAT THE ASSESSEE -WAS LIABLE TO MADE TDS ON THE CONTRACTUAL PAYMENTS AMOUNTING TO RS.5,18,967/-AT T HE TIME OF MAKING THE ABOVE PAYMENTS TO THESE PERSONS AS MENTI ONED I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 19 ABOVE, BUT THE SAME HAD NOT DEDUCTED BY THE ASSESSE E. IN VIEW OF THIS FACT THE ASSESSEE VIDE ORDER SHEET DATED 14 /12/2010 WAS ASKED TO GIVE EXPLANATION AS TO WHY TDS HAS NOT BEE N DEDUCTED, ON THESE PAYMENTS. IT WAS FURTHER INFORMED THAT IN CASE OF FAILURE TO FURNISH SATISFACTORY EXPLANATION IN THIS REGARD, PLEASE SHOW CAUSE AS TO WHY THE EXPENSES PAID OR THE SUM W HICH IS HAD BEEN CREDITED IN THE ACCOUNTS OF THESE PERSONS IN R ESPECT OF THESE PAYMENTS SHOULD NOT BE DISALLOWED U/S 40(A)(I A) OF THE IT. ACT. IN THIS RESPECT THE ASSESSEE FILED ITS REPLY BY LET TER DATED 22.12.2010, THE RELEVANT PORTION OF THE SAME IS AS UNDER: 'THAT AS REGARDS THE TDS ON LABOUR CHARGES ARE CONC ERNED IT IS SUBMITTED THAT THE PAYMENTS WERE MADE TO VARI OUS LABOUR BUT IN THE LEDGER THE NAME OF MAIN PERSON HAS BEEN MENTIONED FOR CONVENIENCE AND NOT TO INCREASE THE SIZE OF THE LEDGER. HOWEVER WE ARE ENCLOSING HEREWITH THE VOUCHERS SHOW ING THAT THE PAYMENT WAS MADE TO INDIVIDUAL AND THEY WERE NO T LIABLE FOR TDS AND HENCE NO TDS WAS DEDUCTED.' THE REPLY OF THE ASSESSEE IS CAREFULLY CONSIDERED B UT THE SAME IS NOT ACCEPTABLE BECAUSE AS PER THE PROVISION OF SEC. 1 94 C THE ASSESSEE SHOULD HAVE DEDUCTED THE T.D.S. AT T HE TIME OF PAYMENT OR MAKING CREDIT OF THE AMOUNT IN THE RESPE CTIVE PARTIES, WHICHEVER IS EARLIER. IN THIS CASE THE ASS ESSEE WAS REQUIRED DEDUCT THE TDS AT THE TIME OF MAKING THE P AYMENT TO THESE PARTIES. THE CONTENTION OF THE ASSESSEE THAT PAYMENTS WERE MADE TO VARIOUS LABOURERS BUT THE LEDGER ACCOU NT WAS OPENED IN THE NAME OF THE MAIN PERSON ONLY FOR CONV ENIENCE AND NOT TO INCREASE THE SIZE OF LEDGER IS AMUSING AND I S NOT ACCEPTABLE. HAD THE ASSESSES INTENDED TO PAY THE AM OUNT TO ALL THE LABOURERS ON INDIVIDUAL BASIS, IT COULD HAVE AL SO DONE SO BY DIRECTLY DEBITING THE LABOUR EXPENSES AND CREDITING THESE LABOURERS ACCOUNT. IT HAS NOT DONE SO WHICH ITSELF IMPLIES THAT IT HAD ENTERED INTO A CONTRACT WITH THE SO CALLED MAIN PERSON AND HAD PAID THE AMOUNT TO THE MAIN PERSON AT THE TIME OF CREDITING HIS ACCOUNT AND AT THIS POINT OF TIME THE ASSESSES WAS LIABLE TO DEDUCT IDS ON THE AMOUNT CREDITED TO THE MAIN PERSO NS ACCOUNT. IT IS IMMATERIAL THAT TO WHOM THE ASSESSEE HAD MADE PAYMENTS OUT OF THE TOTAL CONTRACTUAL PAYMENT OF THE CONTRAC TOR OR SO CALLED MAIN PERSON. ACTUALLY, FACT IS THAT THE ASSESSEE HAD MADE CONTR ACT WITH THESE MAIN PERSONS HOWEVER, BEING A LABOUR ORIENTED WORK THE MAIN PERSON HAVE ENGAGED OTHER PERSONS FOR THE SAID CONTRACTUAL WORK AND THE ASSESSEE HAD MADE PAYMENTS TO THESE PERSONS, ENGAGED BY THESE CONTRACTORS OUT OF THE TO TAL CONTRACT I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 20 AMOUNT. BUT IN THIS SITUATION ALSO THE ASSESSEE W AS REQUIRED TO MAKE TDS WHILE MAKING TO PAYMENT TO ANY ONE EITHER TO THE SO CALLED MAIN PERSON OR TO THE OTHER PERSONS. AS CONTENDED BY THE ASSESSEE THAT THEY ARE ENCLOSIN G THE VOUCHERS OF PAYMENT TO INDIVIDUAL, IS FACTUALLY INC ORRECT AS NO VOUCHERS HAD BEEN PRODUCED BY THE ASSESSEE. THE CON TENTION PUT FORTH BY THE ASSESSEE PRIMA FACIE APPEARS TO BE AN AFTERTHOUGHT WITH AN OBJECT TO JUSTIFY ITS FAILURE OF NON DEDUCTION OF TDS. EVEN IF IT IS ASSUMED TO BE TRUE, IT WAS JU ST AN INTERNAL ADJUSTMENT BETWEEN THE ASSESSEE AND THESE MAIN PERS ONS, WHICH DO NOT HAVE ANY CONSEQUENCE AS FAR AS REVENUE IS CONCERNED. FURTHER IT IS WORTHWHILE TO MENTION HERE THAT, ON VERIFICATION OF THE LEDGER ACCOUNTS OF THE PERSONS, MENTIONED IN THE ABOVE TABLE IT IS NOTICED THAT THERE ARE SEVERA L INSTANCES WHEN THEY HAVE OBTAINED CERTAIN AMOUNT AS ADVANCES WHICH CLEARLY PROVES THAT IN FACT THEY WERE CONTRACTOR OF THE ASSESSEE AS SUCH RECEIPTS OF ADVANCES CAN OBVIOUSLY ONLY BE OBTAINED IN CASE WHERE THERE IS SOME CONTRACT BETWEEN THE ASSES SEE AND THE SO CALLED MAIN PERSON. FURTHER IN SUPPORT OF THE TH EORY PUT FORTH BY THE ASSESSEE IT SHOULD HAVE FURNISH THE LABOUR R EGISTERS AND PROVE THAT THESE SECOND LINED PERSONS WERE ACTUALLY WORKED DIRECTLY TO IT OR PRODUCE ANY OTHER EVIDENCE THAT T HEY HAVE BEEN ENGAGED DIRECTLY BY THE ASSESSEE COMPANY IN WHICH I T PROVED FAIL. FROM ALL THESE FACTS AND CIRCUMSTANCES IT IS CLEARLY PROVED THAT THAT THE PAYMENTS MADE TO THE PERSONS, MENTION ED IN THE ABOVE TABLE ACTUALLY WERE THE CONTRACTUAL PAYMENTS AND THE ASSESSEE WAS LIABLE TO MAKE TDS FORM THAT AND WHICH THE ASSESSEE PROVED FAIL. IN VIEW OF THE ABOVE IT IS CLEAR THAT THE ASSESSEE HAD MADE DEFAULT BY NON DEDUCTION OF TAX WHILE MAKING THESE PAYMENTS TOWARDS LABOUR CHARGES/CONTRACT PAYMENT AS REQUIRED BY THE PROVISIONS OF SECTION 194 C OF THE IT ACT. THEREFOR E, A SUM OF RS.5,18,967/- ON WHICH T.D.S. HAS NOT BEEN DEDUCTED IS DISALLOWED U/S. 40 (A) (IA) OF THE I. T. ACT AND AD DED BACK TO THE TOTAL INCOME. ' 15. IN APPEAL, LD. CIT(A), AFTER TAKING INTO CONSI DERATION THIS SUBMISSION OF THE ASSESSEE, WHICH HAS BEEN REPRODUCED BY HIM IN P ARA 5.2 OF HIS ORDER, DELETED THIS ADDITION/DISALLOWANCE. AGGRIEVED BY THIS ORDER OF LD. CIT(A), NOW THE REVENUE IS IN APPEAL BEFORE US. I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 21 16. AT THE TIME OF HEARING, LD. D.R. VEHEMENTLY SU PPORTED THE ORDER PASSED BY THE A.O. WHILE LD. COUNSEL OF THE ASSESSE E HAS PLACED RELIANCE ON THE ORDER OF LD. CIT(A). 17. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E RECORD WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS THE A.O. OBSERVED THAT THE PAYMENT MADE FOR LABOUR CHARGES FOR VARIOUS WORKS SUCH AS KAPASIA LO ADING, PRESS FITTER, GIN FITTER CHARGES WERE IN THE NATURE OF CONTRACTUAL PAYMENT A ND THE PROVISIONS OF SECTION 194C WERE APPLICABLE. THE ASSESSEES CONTENTION WA S THAT THE BUSINESS OF THE ASSESSEE BEING A SEASONAL BUSINESS AND THE ASSESSEE ENGAGED LABOUR ON PIECEMEAL BASIS WITHOUT ANY TYPE OF WRITTEN OR ORAL CONTRACT, WITHOUT FIXING ANY CHARGES, QUALITY OF WORK AND PERIOD OF WORK ETC. E VERY YEAR THE LABOUR GET CHANGED AND NO LONG TERM LABOURER IS THERE. THE PA YMENT WAS MADE BY THE ASSESSEE TO THE MAIN PERSON AND IN TURN HE MADE PAY MENT TO THE PERSONS WHO WERE ACTUALLY DOING THE WORK. THE PERSONS WHO HAVE BEEN MENTIONED IN THE ASSESSMENT ORDER WERE ONLY INTERMEDIARY AND NOT THE CONTRACTOR. THIS CONTENTION WAS NOT DISPUTED BY LD. D.R. AT THE TIME OF HEARING BEFORE US. THEREFORE, WE ARE OF THE OPINION THAT THE BUSINESS OF THE ASSESSEE WAS S EASONAL WORK. HE HAD EMPLOYED DIFFERENT LABOURERS TO CARRY OUT THE WORK AS MENTIO NED ABOVE. LD. CIT(A) HAS, THEREFORE, RIGHTLY ACCEPTED THE CONTENTION OF THE A SSESSEE THAT THE BUSINESS WERE SEASONAL AS THE SAME WERE SUPPORTED BY THE ACCOUNTS OF THE ASSESSEE. THE BUSINESS WAS ONLY FOR 2-3 MONTHS AND AT THE END OF YEAR MOST OF THE ACCOUNTS WERE SQUARED UP. THERE WAS NO WRITTEN OR ORAL CONTR ACT WITH THE LABOURERS EMPLOYED BY THE ASSESSEE. THE RATIO OF THE DECISION OF HONBLE ITAT, CALCUTTA BENCH IN THE CASE OF SAMANWAYS VS. ACIT WHEREIN IT WAS HELD THAT PROVISION OF I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 22 SECTION 40(A)(IA) COULD NOT BE INVOKED WHERE TAX U/ S 194C WAS NOT DEDUCTED FROM LABOUR CHARGES PAID TO LABOUR SARDARS AS THERE WAS NO AGREEMENT BETWEEN THE ASSESSEE AND THE LABOUR SARDARS TO SUPPLY LABOUR, I S THEREFORE, APPLICABLE TO THE FACTS OF THIS CASE AS THE A.O. HAS NOT POINTED OUT THAT THERE WAS ANY WRITTEN CONTRACT BETWEEN THE ASSESSEE AND THE LABOURERS. W E FURTHER FIND THAT THIS PRACTICE OF THE ASSESSEE HAS BEEN ACCEPTED BY THE R EVENUE IN EARLIER YEARS AS NO ADDITION ON THIS GROUND HAS BEEN MADE IN THE PAST. 18. IN THE LIGHT OF THESE FACTS AND CIRCUMSTANCES OF THIS CASE, THE PROVISION OF SECTION 194C ARE NOT APPLICABLE IN THI S CASE AND THE ADDITION MADE BY A.O. HAS RIGHTLY BEEN DELETED BY LD. CIT(A). THERE FORE, THE ORDER PASSED BY HIM IS HEREBY UPHELD. THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 19. GROUND NO.3 RELATES TO DISALLOWANCE OF RS.3,05 ,477/- MADE BY THE A.O. ON ACCOUNT OF REPAIRING AND MAINTENANCE. THE A .O., WHILE MAKING THIS DISALLOWANCE HAS OBSERVED AS UNDER:- 'DURING THE COURSE OF ASSESSMENT PROCEEDING, IT HAD BEEN NOTICED THAT THE ASSESSEE HAD CLAIMED EXPENSES UNDE R VARIOUS SUB HEADS OF THE MAJOR HEAD REPAIRS & MAINTENANCE . THE ASSESSEE WAS ASKED TO PRODUCE THE DETAILS OF THESE EXPENSES ALONG WITH THE RELATED LEDGER ACCOUNTS AND IT WAS F OUND THAT IT HAD CLAIMED THE EXPENSES UNDER VARIOUS HEADS AS TAB ULATED BELOW:- SR NO MAJOR HEAD HEAD OF EXPENSE AMOUNT IN RUPEES OFFICE BUILDING 56237 OFFICE EQUIPMENT 15055 MACHINERY 122300 REPAIRING OF CAR 376386 1 REPAIR & MAINTENANCE TOTAL EXPENSE 569978 I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 23 DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASS ESSEE WAS ASKED TO PRODUCE THE SUPPORTING BILLS/VOUCHERS TO PROVE THE GENUINENESS AND CORRECTNESS OF THESE EXPENSES. IN R ESPONSE THE ASSESSEE PRODUCED THE BILLS/ VOUCHERS FILE FOR VERI FICATION AND IT WAS OBSERVED THAT THERE WERE NO SUPPORTING BILLS /V OUCHERS IN SUPPORT OF THE EXPENSES WHICH HAVE BEEN TABULATED A S UNDER :- HEAD OF EXPENSE-REPAIR & MAINTENANCE (AMOUNT IN RS.) SRNO. PLANT & MACHINERY OFFICE BUILDING OFFICE EQUIPMENT CAR REPAIRS 1 3385 2271 1700 3000 2 6447 1660 1050 1000 3 8837 4145 1500 280 4 1050 2040 210 3561 5 601 80 875 10730 6 1700 4375 670 1364 7 7305 150 310 27172 8 820 394 1220 320 9 3317 1044 210 1057 10 1400 5500 2200 1315 11 172 2690 1250 595 12 1475 2000 1100 4400 13 3758 1000 1010 1412 14 887 2360 - 1349 15 1900 910 - 8252 16 269 2955 - 6321 17 220 1000 - 1412 I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 24 18 350 2160 - 2162 19 135 3627 - 2858 20 1254 1616 - 9963 21 585 1265 - 15575 22 5513 2000 - 14960 23 100 713 - 240 24 1280 2050 - 4399 25 45 235 - 8008 26 981 670 - 11306 27 374 - - 4028 28 437 - - 5809 29 459 - 695 30 45 - - 4300 31 6285 - - - 2590 32 7222 - - - 33 396 - - - 396 34 250 - - 35 955 - - 36 562 - - 562 37 11100 - - I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 25 TOTAL 85419 48910 13305 157843 TOTAL 305477 IN SPITE OF AVAILING MORE THAN REASONABLE OPPORTUNI TIES THE ASSESSEE REMAINED FAIL IN FURNISHING ANY BILL/VOUCH ER IN RESPECT OF ABOVE MENTIONED EXPENSES BY VERIFICATION OF THE SAME GENUINENESS AND CORRECTNESS CAN BE EXAMINED. AS THE ASSESSEE FAILED TO AVAIL THESE OPPORTUNITIES AND THEREFORE V IDE ORDER SHEET DATED 22/12/2010 THE ASSESSEE WAS ASKED TO PRODUCE RELEVANT EVIDENCES TO PROVE THE GENUINENESS OF THESE EXPENSE S OR TO SHOW CAUSE AS TO WHY THE SAME SHOULD NOT BE DISALLO WED TREATING THEM TO BE UNVERIFIABLE EXPENSES. ON THE S AID DAY, THE ASSESSEE HAS NOT PRODUCED ANYTHING TO SUBSTANTIATE ITS CLAIM AND THE FOLLOWING DISALLOWANCES TOTALING TO RS.3,02,829 /-IS MADE OUT OF THE REPAIRS & MAINTENANCE EXPENSES AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. I) PLANT & MACHINERY RS. 81871 II) OFFICE BUILDING RS. 49810/- III) OFFICE EQUIPMENT RS. 13305/- IV) CAR REPAIRS RS 157843/- TOTAL RS. 302829/-' . 20. IN APPEAL, LD. CIT(A), AFTER TAKING INTO CONSI DERATION THIS SUBMISSION OF THE ASSESSEE, WHICH HAS BEEN REPRODUCED BY HIM IN P ARA 7.2 OF HIS ORDER, DELETED THIS ADDITION OF DISALLOWANCE. AGGRIEVED BY THIS OR DER OF LD. CIT(A), NOW THE REVENUE IS IN APPEAL BEFORE US. 21. AT THE TIME OF HEARING, LD. D.R. VEHEMENTLY SU PPORTED THE ORDER PASSED BY THE A.O. WHILE LD. COUNSEL OF THE ASSESSE E HAS PLACED RELIANCE ON THE ORDER OF LD. CIT(A). 22. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E RECORD, WE FIND THAT THE ASSESSEES CONTENTION BEFORE LD. CIT(A) WAS THA T THE EXPENDITURE WAS FULLY I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 26 SUPPORTED BY VOUCHERS AND SUPPORTING EVIDENCE WAS A LSO AVAILABLE. THE CLAIM OF THE ASSESSEE THAT MOST OF THE EXPENSES, THAT HAVE B EEN DISALLOWED BY THE A.O. WERE SUPPORTED BY BILLS OF THE THIRD PARTY AND WERE PAID BY CHEQUES, WERE EXAMINED BY LD. CIT(A) WITH REFERENCE TO THE VOUCHE RS PRODUCED BY THE ASSESSEE BEFORE THE A.O. AFTER THIS EXAMINATION THE FOLLOWI NG FACTUAL POSITION EMERGED:- SL. NO. NATURE OF EXPENSES AMOUNT DISALLOWED BY A.O. (RS.) AMOUNT SUPPORTED BY BILLS OF THIRD PARTY (RS.) AMOUNT BY SELF MADE VOUCHERS (RS.) 1. PLANT & MACHINERY REPAIR 85,419/- 84,364/- 1,055/- 2. OFFICE BUILDING REPAIR 48,910/- 44,535/- 4,375/- 3. OFFICE EQUIPMENT REPAIR 3,305/- 6,315/- 6,990/- 4. CAR REPAIR 1,57,843/- 1,17,649/- 40,614/- TOTAL 52,614/- 23. IT IS CLEAR FROM THE ABOVE THAT THE ONLY PAYME NT OF RS.52,614/- WAS NOT SUPPORTED BY BILLS AND HAS BEEN SPENT THROUGH S ELF MADE VOUCHERS. THE ASSESSEE HAS CLAIMED TOTAL EXPENSES ON ACCOUNT OF R EPAIRS OF RS.5,59,978/-. THUS THE AMOUNT THAT HAS BEEN SPENT BY SELF MADE VOUCHER S IS LESS THAN 10% OF THE TOTAL REPAIR EXPENSES INCURRED BY THE ASSESSEE DURI NG THE YEAR UNDER APPEAL WHICH APPEARS TO BE QUITE REASONABLE AS IT IS SOME TIMES NOT POSSIBLE TO OBTAIN BILLS FOR EACH AND EVERY EXPENDITURE INCURRED AS REPAIRING EX PENSES ARE PAID TO DIFFERENT PERSONS WHICH MAY NOT HAVE THE BILLS WITH THEM. 24. IN THE LIGHT OF THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT LD. CIT(A) HAS RIGHTLY DELE TED THE DISALLOWANCE OF RS.3,05,477/- MADE BY THE A.O. I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 27 25. THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 26. GROUND NO.4 AND 5 ARE GENERAL IN NATURE AND DO NT REQUIRE ANY ADJUDICATION. 27. IN THE RESULT, REVENUES APPEAL IS DISMISSED. C.O. NO.84 OF 2012 (BY ASSESSEE) 28. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS IN CR OSS OBJECTION:- 1. THAT THE APPELLANT HAS NOT MADE ANY ENTRY AND C LAIMED IN PROFIT & LOSS ACCOUNT AND, AS SUCH THERE IS NO R EMISSIONS OR CESSATION OF LIABILITY U/S 41(1) OF THE I.T. ACT 19 61 DURING THE ACCOUNTING YEAR UNDER CONSIDERATION AND AS SUCH THE LEARNED CIT(A) HAS RIGHTLY DELETED THE SAID ADDITION. WITHOUT PREJUDICE 2. THAT THE APPELLANT HAS SHOWN INCOME UNDER THE REMISSION AND CESSATION OF THE SAID AMOUNT IN SUBSE QUENT YEARS WHICH FACTS ARE AVAILABLE IN THE APPELLATE ORDER ON PAGE-6 BOTTOM PARA AND CONSIDERING THE SAME ALSO THE APPEA L FILED BY THE DEPARTMENT ON THIS GROUND BE CANCELLED. IF IT B E HELD AS INCOME DURING THE YEAR UNDER CONSIDERATION THERE IS A DUPLICATE TAXATION ON THE SAME INCOME WHICH AGAINST THE PRINC IPLE OF INCOME-TAX ACT AND AS SUCH THIS GROUND IS REQUIRED TO BE REJECTED. 3. THAT THE LEARNED A.O. DISALLOWED RS.5,18,697/- U /S 40(A)(IA) WITHOUT ESTABLISHING THAT THERE IS A CONT RACT AND AS SUCH SECTION 194C IS NOT APPLICABLE AND THEREFORE D ISALLOWANCE MADE BY LEARNED A.O. U/S 40(A)(IA) AND DELETED BY L EARNED CIT(A) IS MY JUSTIFIED. I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 28 4. THAT THE APPELLANT HAS CITED VARIOUS DECISIONS I NCLUDING DECISION OF HON'BLE ITAT AHMEDABAD BENCH AND CONSID ERING THE RATIO LAID DOWN IN THE SAID-DECISION THE LEARNED CI T(A) HAS HELD THAT SEC.L94C IS NOT APPLICABLE TO THE FACTS AND CI RCUMSTANCES OF THE CASE AND ADDITION OF RS.5,18,697/- DELETED BY L EARNED CIT(A) IS FULLY JUSTIFIED AND THIS GROUND RAISED BY THE DE PARTMENT BE DISMISSED. 5. THAT THE LEARNED A.O. HAS FURTHER DISALLOWED RS.3,05,477/- AND DISCUSSED IN ASSESSMENT ORDER IN PARA 4.4 AND ASKED FOR DETAILS VIDE ORDER SHEET ENTRY DATED 22.12.10 AND NO REASONABLE OPPORTUNITY WAS GRANTED AND EXPECTED FROM THE APPELLANT TO . FURNISH THE DETAILS AS ON |22.12.10 PERTAINING TO ACCOUNTING PERIOD OF 2007-08. MOREOVER THE BOOKS OF ACCOUNT OF THE COMPANY ARE AUDITED AND THERE IS NO ANY ADVERSE COMMENTS BY THE AUDITORS REGARDING THESE EXPENDITURE AND THE LEARNED CIT(A) HAS VERIFIED ALL THE VOUCHERS AND MAJOR PAYM ENTS ARE MADE BY ACCOUNT PAYEES CHEQUES AND SUPPORTED WITH T HE VOUCHERS AND THEREFORE THE DELETION MADE BY LEARNED CIT(A) IS FULLY JUSTIFIED. 6. THAT THE LEARNED A.O. HAS ACCEPTED THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT THAT THE RE IS NO DIVERSION OF BORROWED FUNDS FOR NON-BUSINESS PURPO SES AND DURING THE YEAR UNDER CONSIDERATION THE FACTS ARE O N RECORD, HOWEVER, THE LEARNED A.O. HAS DISALLOWED AND CONFIR MED BY CIT(A) DESERVES TO BE DELETED. 7. THAT THE LEARNED CIT(A) HAS RETAINED AN ADDITIO NS OF RS.18,49,243/- AND DISCUSSIONS IS MADE IN PARA 6, 6 .1 AND 6.2 AND FINDING IS GIVEN IN 6.3 WHICH IS AGAINST THE MA TERIALS AVAILABLE ON RECORD. THE LEARNED A.O. AS WELL AS CI T(A) BOTH I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 29 HAVE FAILED TO APPRECIATE THE FACT THAT THE SHARE C APITAL OF THE COMPANY AND RESERVE AND SURPLUS ETC. IS MORE THAN T HE AMOUNT ADVANCED TO THE OTHER PARTIES IN EARLIER YEAR AND A S SUCH IT DESERVES TO BE DELETED. 29. GROUND NO.1 TO 6 OF C.O. ARE IN SUPPORT OF LD. CIT(A) ORDER IN DELETING THE ADDITION OF RS.9,00,902/- MADE BY THE A.O. ON A CCOUNT OF CESSATION OF LIABILITY U/S 41(1) OF THE ACT, RS.5,18,697/- MADE BY THE A.O . U/S 40(A)(IA) OF THE ACT AND RS.3,05,477/- MADE BY THE A.O. ON ACCOUNT OF REPAIR ING AND MAINTENANCE. SINCE WE HAVE DISMISSED THE APPEAL OF THE REVENUE, THESE GROUNDS OF C.O. HAVE BECOME INFRUCTUOUS AND THE SAME ARE DISMISSED AS INFRUCTUO US. GROUND NO.7 OF THE C.O. RELATES TO THE GROUND TAKEN BY THE ASSESSEE IN HIS APPEAL IN ITA NO.54/AHD/2012. IN VIEW OF OUR DECISION IN THAT APPEAL, THIS GROUND HAS ALSO BECOME INFRUCTUOUS AND THE SAME IS DISMISSED AS INFRUCTUOUS. THEREFOR E, THE C.O. FILED BY THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. 30. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FO R STATISTICAL PURPOSE, REVENUES APPEAL AND THE C.O. FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 20.07.2012 SD/- SD/- (T.R. MEENA) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY N.K. CHAUDHARY, SR. P.S. / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. , ! , '# / DR, ITAT, AHMEDABAD I.T.A. NO.54/AHD/2012, A. Y. 2008-09 WITH I.T.A. NO.554/AHD/2012, A. Y. 2008-09 WITH C.O. NO.84/AHD/2012 (ARISING OUT OF ITA NO.554/AHD/2012 30 6. $% &' / GUARD FILE. BY ORDER/ , ( / ' ) ! , '# *