DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3, JAIPUR V. NARESH KUMAR GUPTA, SRIGANGANAGAR

ITA 458/JPR/2024

AI Insights

The case involves an appeal by the Deputy Commissioner of Income Tax against the decision of the CIT(A) which had deleted substantial additions made by the Assessing Officer (AO) regarding unaccounted purchases and disallowances of interest. The primary issues revolved around the validity of the additions made by the AO based on alleged discrepancies in the stock records and the application of sections 14A and 36(1)(iii) of the Income Tax Act concerning the disallowance of interest. The Tribunal examined the evidence, including the stock register and invoices, and found that the CIT(A)'s decision was well-founded, leading to the dismissal of the revenue's appeal and the allowance of the assessee's cross objection.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 469900 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-10-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 09-04-2024
• Other Referred Cases: Lally Motors India (P.) Ltd. Vs PCIT, S.A. Builders Ltd. Vs. CIT(A), Hero Cycles (P.) Ltd. Vs. CIT (Central)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALKA GAUTAM V.H
• Assessee Lawyers: P.C. PARWAL; THIS
• Keywords: Proportionate interest; Retrospective amendment; Business expenditure; Unexplained investment; Rejection of books of accounts; Bogus purchase; Commercial expediency; Earning of tax free income; Rule 8D; Bogus
• Section: 143(3); 142(1); 143(2); 131; 13; 14A; 133A; 207; 145(3)

Judgement Text

"vk;djvihyh; vf/kdj.k] t;iqjU;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh]U;kf;dlnL; ,oa Jh jkBkSM+ deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 458/JPR/2024 fu/kZkj.k o\"kZ@Assessment Year : 2014-15 Deputy Commissioner of Income Tax, Central Circle-3, Jaipur cuke Vs. Sh. Naresh Kumar Gupta 168, New Mandi Yard, Sri Ganganagar-335001. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABMPK3234H vihykFkhZ@Appellant izR;FkhZ@Respondent CO No. 09/JPR/2024 (Arising out of ITA No. 458/JPR/2024) fu/kZkj.k o\"kZ@Assessment Year : 2014-15 Sh. Naresh Kumar Gupta 168, New Mandi Yard, Sri Ganganagar-335001 cuke Vs. Deputy Commissioner of Income Tax, Central Circle-3, Jaipur LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABMPK3234H vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby : Shri P.C. Parwal (C.A.) jktLo dh vksjls@Revenue by: Ms. Alka Gautam (CIT) (V.H.) lquokbZ dh rkjh[k@Date of Hearing : 09/10/2024 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement: 28/11/2024 vkns'k@ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM By way of the present appeal the revenue challenges the finding of the Learned Commissioner of Income Tax (Appeals)-4, Jaipur [ for short 2 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta CIT(A)] recorded in the order dated 02.02.2024. Against that appeal so filed by the revenue, assessee also preferred the cross objection. The dispute relates to the assessment year 2014-15. That order of the ld. CIT(A) arise because the assessee has challenged the order dated 31.12.2017 before him the order passed under section 143(3) of the Income Tax Act, [ for short “Act” ] by the ACIT, Circle, Sri Ganganagar [ for short AO ]. 2. Revenue challenges the finding of the ld. CIT(A) on the following grounds in ITA No. 458/JPR/2024:- “1 Ground (i): Whether on facts and in circumstances of the case, the CIT(A) is justified in deleting the addition of Rs.7,09,75,070/- made on account of unaccounted purchase of Guar Gum without appreciating the fact that in the normal course of business the invoice date may not be with inordinate delay of 10 months; further, on the NCDEX platform, the transaction is registered and within the procedure laid down by the Govt; the assessee has done transactions which are not registered on NCDEX or any such platform; debit of amount takes place on the NCDEX trading account on the very date of delivery/intention but there is no such procedure following by the assessee in his business; in the case of the assessee, neither any Delivery order has been issued nor the amount of transaction has been debited in the books on Delivery date; also, no contract note or any similar evidence has been furnished by the assessee during the course of assessment proceedings however, the book of the assesse 2 Ground (ii): Whether on facts and in circumstances of the case, the CIT(A) is justified in deleting the addition of Rs.2,87,229/- on account of out of the claim of interest without appreciating the fact that that in the case of Lally Motors India (P.) Ltd. Vs PCIT, Hon'ble ITAT Amritsar in [2018] 93 taxmann.com 39 (Amritsar - Trib.)/[2018] 170 ITD 370 (Amritsar - Trib.) held that Section 14A would apply even if no dividend was earned by assessee from investments in shares. 3 (iii) Whether on facts and in circumstances of the case, the CIT(A) is justified in restricting the addition of Rs.97,63,413/- made by the AO on account of 3 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta disallowance of interest paid u/s 36(1)(iii) to Rs.24,42,040/- without appreciating the fact that the assessee has advanced interest bearing business funds and has diverted the same for non-business purposes to other persons without charging interest with an ulterior motive to reduce the incidence of his own case. 4 Ground (iv): The appellant craves leave to add, amend or withdraw any of the ground of appeal during the course of appellant proceeding.” 3. Whereas against the appeal of the revenue the assessee preferred to file cross objection in CO No. 09/JPR/2024 on the following grounds:- “1. The Ld. CIT(A), NFAC has erred on facts and in law in confirming the disallowance out of interest expenses of Rs. 24,42,040/- u/s 36(1)(iii) of the Act. 2. The assessee carves right to add, alter, amend, and modify any of the ground of appeal. 3. Necessary cost be awarded to the assessee.” 4. Since the dispute involved in the Revenue’s appeal and cross objection of the assessee relate to the same assessment year [AY] of the assessee and grounds of appeal of revenue and cross objections emanate from the single order of the assessment and that of the order of the ld. CIT(A) was heard together in agreement with both the parties and disposed off by this common order. 5. The brief facts as emerges from the order of the lower authority is that the assessee has filed his Income Tax Return [ITR] for the AY 4 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta 2014-15 on 22-01-2016 declaring total income at Rs.1,14,54,190/-. The case of the assessee was taken up under 'limited scrutiny'. The reasons for selection of case for limited scrutiny were communicated to the assessee. The first statutory notice u/s 143(2) dated 03-08-2016 was issued and duly served on the assessee on 19-08-2016. A questionnaire dated 27-09-2016 along with notice u/s 142(1) of the IT Act, 1961 seeking information was also served upon the assessee. The assessee during the year under assessment engaged in the trading of agricultural commodities such as guwar grams, guwar gum, mustard seed, barley, coriander, soyabean, Khal-binola and castor-seeds etc. In the assessment proceeding questionnaire dated 14-12-2017 was also issued as the assessee had not produced complete information and also did not produce books of account along with other records maintained by him. 5.1 A survey operation u/s.133A of the Act was carried out at the business premises of the assessee on 08.10.2014 wherein the revenue officer noted “Unaccounted profit on account of commodity business”. As the assessee could not tender any plausible explanation with regard to the 5 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta aforesaid discrepancies, assessee voluntarily offered to disclose additional income of Rs. 1,00,00,000/- besides the normal business income for the year under consideration. The said income was considered by the assessee while filling the return of income. But since that income was additional income disclosed the ld. AO considered that the income so disclosed subjected to tax at special rate as per provision of section 115BBE of the Act. During assessment proceedings, the ld. AO noted that as the assessee did not produce complete set of the account books and other records maintained by him at one point of time for examination i.e. when account books are produced, the bills and vouchers etc. have not been produced and when bills etc., were produced, the assessee did not produce the books of account. Accordingly, summons u/s 131 of the Act enforcing the production of all the books of account and other records was issued on 13-12-2017 fixing the compliance date for 14-12-2017. On 14-12- 2017, the assessee produced Ledger, Journal and Cash Book which were impounded u/s 131(3) of the Act. From the examination of said books of account, certain glaring discrepancies were noticed and vide letter dated 18-12-2017, the assessee was confronted with those discrepancies and 6 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta required to explain the same. The ld. AO on examination of Guar Gum Account, observed that stock of Guar Gum was negative on certain dates and discrepancy in respect of undervaluation of closing stock i.e. as appearing in the books of accounts and as worked out from Guar Gum account. A detailed questionnaire was issued in this regard on 18.12.2017 to explain the above discrepancy. In his reply, the assessee submitted that assessee is proprietor of M/s N. M Food Products which is engaged in trading of agriculture commodities such as Guar, Grams, Guwar Gums, Mustard Seed, Barley, Coriander, etc. Thus there is wide fluctuation in prices from time to time. Note worthily the prices of guwar gum were highly volatile in FY 2013-14, the price variation was more than the range of thousands rupee per quintal per day. Various issues relating to stock movements as well as negative stock or excess closing stock raised arises mainly due to the reason that stock report made based on the impounded record by the ld. AO was on the basis of invoice date (which is actually also wrongly compiled for date taken as 09/04/2013 instead of 15/06/2023) which actually does not represent actual date of movement (or right to possession) of goods. The Assessee has recompiled the stock records on the basis of delivery date and on 7 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta perusal of it there is no difference in stock quantity as well as in closing stock. Regarding Guar Gum MTP account at LF 8 & 77 wherein on 01-04- 13 to 08-04-13 assessee purchased 7000 bags of Guar Gum weighing 5707.60 qtls. from M/s Ram Chander Banarsi Das and on 09-04-13 sold 27835 bag weighing 22270.40 qtls. to NM Exports and there is no opening stock, therefore, ld. AO noted the assessee – appellant have sold excess stock of 16562.80 qtls. The assessee-appellant clarified that goods sold to N M Exports were in the right of NM Exports for possession/delivery on 16/05/2013 which is evident from the invoice copy placed on record. During that period assessee purchased Guar Gum MTP from various parties as detailed in the stock register placed on record. Thus there is no sale of excess stock on 09-04-13. As already submitted that the said difference was arised on account of difference in invoice date (which also wrongly taken as 09/04/2013 in the notice issued by the ld. AO) and delivery date. Assessee compiled stock register on the basis of delivery date which was placed on record. To support contention regarding delivery, following supporting documents were placed on record; i) Copy of invoice showing actual date of delivery is 16/05/2013(PВ nо 7-8) ii) Confirmation from the party (PB no 9) 8 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta iii) Compiled Stock ledger account of Guar Gum MTP (PB no. 1-6) The assessee also contended that the counter confirmations from all the parties can be done to verify the authenticity of details provided in the stock ledgers placed on record. 5.2 The ld. AO considered the reply of the assessee and from that he has observed as under:- 1. The main contention of the assessee is that it is a general business practice that there are three different scenario as also discussed by the assessee in his reply i.e. the delivery date/ intention date may be on the very same date or prior to or after the invoice date. In support of the second scenario i.e. Delivery date being prior to the invoice date, the assessee has furnished a write-up from NCDEX in this regard whose contents are stated in the above paragraphs, to substantiate his claim. But, the contention of the assessee is not fully acceptable because: (a) On the NCDEX platform, the transaction is registered and within the procedure laid down by the Govt. The assessee has done transactions which are not registered on NCDEX or any such platform. (b) Debit of amount takes place on the NCDEX trading account on the very date of delivery/ intention but there is no such procedure following by the assessee in his business. In the case of the assessee, neither any Delivery order has been issued nor the amount of transaction has been debited in the books on Delivery date. Also, no contract note or any similar evidence has been furnished by the assessee during the course of assessment proceedings. (c) No \"Sauda Bahi\" has been produced during the course of assessment proceedings to justify the claim of assessee regarding the date on which the transaction was primarily booked and the rights of delivery/ delivery date was ascertained. 9 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta (d) The books of the assessee have no such mention of Delivery date. It means the data so produced by the assessee regarding delivery date is without any documentary evidence. (e) The exceptions mentioned by the assessee regarding the delay in issuance/ receiving of invoice against purchase on NCDEX platform depicts that there may be instances for delay. But the normal ceiling for such delays is only 1 month. Thereafter, there are penal provisions for seller for delay. Although, in the instant case, primarily there is delay of approximately 10 months which. is unacceptable. This inordinate delay cannot be accepted in the regular course of business. It cannot be imagined that delivery rights were transferred 10 months before invoice date and the seller does not obtain any security/ collateral/ advance against such a huge transaction amount in the intervening period. No prudence man should do so in the normal course of business. 2. in the light of above discussions, it is inferred that in the normal course of business the invoice date may not be with inordinate delay of 10 months. This transaction is therefore suspicious and merely an false attempt by the assessee to cover its undisclosed sales. 3. In this regard, an attempt was made to arrange the transactions during the year in a chronological sequence on the basis of \"Invoice date\" depicting the balance of Closing Stock at the end of each date. 4. On perusal of this chart, it was found that there were several instances/dates on which the balance of closing stock was found negative. 5. It was found that the peak of such negative closing stock was on 01.10.2013 i.e. 4,468.90 Quintals of Guar Gum commodity. This fact was brought to the notice of the AR of the assessee. The AR stated that the earlier submissions made on this issue may kindly be considered as it is a general business practice. However, as already discussed in the above para’s such an instant where invoice has been generated after a lapse of almost 10 months is inappropriate and completely unacceptable. Due to this reason only, the trading results are not acceptable. 6. Since the assessee has not produced mandatory books to verify his t transactions i.e Sauda Bahi and contract notes/ Delivery challans, therefore the rates of purchase of a commodity and its sale are not verifiable vis-a-vis the market rates. Such an inappropriate practice and the büsiness through unregistered mechanism and without any documentary evidence is not 10 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta acceptable. The trading results are therefore liable to be rejected in view of the provisions of section 145(3) of the Income-tax Act, 1961. The books of the assessee are therefore rejected in view of these provisions. 7. In these circumstances and after considering the facts and material available on record, the investments in these unaccounted purchases is to be determined on the basis of market rate of deficit of stock on the date of its peak which is calculated as under; S. No. Particulars Remarks 1 Quantity of peak of unaccounted stock of Guar Gum 4,468.90 Quintals 2 Date of peak negative stock 01.10.2013 3 Market Rate of Guar Gum as obtained from NCDEX website as on 01.10.2013 Rs. 15,882/- per Quintal 4 Amount of unaccounted investment in purchase of stock of Guar Gum Rs. 7,09,75,070/- Accordingly addition of Rs. 7,09,75,070/- to the total income of the assessee was made on account of Unaccounted purchase of Guar Gum by the assessing officer. 5.3 The ld. AO from the perusal of balance-sheet found that the assessee has invested Rs. 1,38,95,388/- in agricultural lands and in residential house at Rs. 41,89,301/-. The income from these investments is exempt under the Act. Accordingly, the provisions of section 14A of the Act read with Rule 8D 11 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta of IT. Rules, 1962 are applicable to the facts of the case. Therefore, disallowance of Rs. 2,87,229/- out of the claim of interest was made. 5.4 Ld. AO also found that the assessee did not charge interest or charged it at a very nominal rate from the below noted parties/persons while he was making payment of interest to bank and other persons in as much as the assessee has debited Rs. 4,48,24,979/- in P&L account under the head ‘Interest’: M/s Nand Lal Mahabir Parshad (LF-21) [OB Rs. 30,34,71,392/- and CB Rs. 49,44,97,897/-]-Interest of Rs.48,93,529/- only has bee charged. M/s Manoj Traders (LF-23) [OB Rs.32,28,97,214/- and CB Rs.56,27,39,927/-] Interest of Rs.63,12,330/- only has been charged. M/s N.M. Exports (LF-24) [OB Rs.15,02,67,851/- & CB Rs.69,91,36,372/-] Interest of Rs.58,43,413/-only has been charged. The assessee also did not charge interest from the following parties:- Vikas WSP (LF-26) Sat Vichar Dealer (P) Ltd. (LF-37) Gravity Commo Sales (P) Ltd. (LF-37) Shiva Associates (LF-42 & 67) Vikas Chemigum India Ltd. (LF-43) The assessee was required to explain the reasons for non-charging of interest or charging it at a nominal rate although he himself was paying interest to creditors and others at a rate much higher than the interest rate charged by him. In response the assessee has not filed party-wise detail of 12 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta rate of interest paid and charged nor has furnished detail of parties from whom no interest has been charged. It has been found that the assessee has received interest of Rs.3,47,74,337/- while it has charged interest of Rs.4,48,24,979/- to P&L account. Thus after netting, the claim of interest remains at Rs.1,00,50,642/-. A disallowance of Rs. 2,87,229/- has been made out of interest in view of the provisions of section 14A read with Rule 8D of the Act. The remaining amount of interest at Rs.97,63,413/- was disallowed in view of the provisions of section 36(1) (iii) of the Act as also in view of the judgments of Hon'ble Superme Court in the case of S.A. Builders and that of Hon'ble Punjab & Haryana High Court of in the case of Abhisekh Industries. 6. Feeling dissatisfied the finding so recorded in the assessment order, the assessee has carried the matter before the ld. CIT(A). A propose to the grounds so raised the finding of the ld. CIT(A)is reiterated here in below:- “Decision:- On perusal of the overall facts I find that the main dispute in this appeal is whether the addition to the income equal to the amount of entire sum of negative stock is justifiable by rejecting the addition to the stock on account of the goods purchased from Kanda Edible Oil Private Limited 13 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta vide invoice dated 31/03/2014 in the facts and circumstances of the case. The main ground in the assessment order is that there is a large gap between the date of delivery of the goods and the date of invoice and the date of delivery is prior to the date of invoice. In the number of invoices as discussed in the assessment order there is a delay in the date of invoice vis-a-vis the date of delivery and such invoices and dates of deliveries have been accepted in the assessment order. This shows the practice of regular nature of the business of the appellant. In the present appeal, for one invoice of goods purchased from Kanda Edible Oil Private Limited the delay is abnormally high which is the reason that the same has been rejected in the assessment order. Considering the abnormal delay in one invoice, the Id. AO has prepared the stock register taking all entries on the basis of invoice date and worked out the peak negative stock. Ld. AO, on page 5 to 8 of the assessment order, has reproduced reply of the appellant on query of the Id. AO on such transactions and further as discussed in para 2 on page 13 of assessment order the adverse inference has been drawn w.r.t. the impugned invoice as the delay is large. The appellant has summarised the trades where dates are different as under:- Bill date Delivery date Name of party Purchases /Sale Qty (in qtl.) Proof submitted to the AO of delivery date 15.05.2013 31.05.2013 Vikas Chemigums (India) Ltd 6,000 (Sale Confirmation filed wherein delivery date is mentioned. (PB) 15.05.2013 31.05.2013 Vikas Chemigums (India) Ltd 6,000 (Sale Confirmation filed wherein delivery date is mentioned. (PB) 15.06.2013 16.05.2013 N M Exports 12,162 (Sale) Copy of the invoice given wherein delivery date is mentioned. (PB) 15.06.2013 13.05.2013 N M Exports 10,108 (Sale) Copy of the invoice given wherein delivery date is 14 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta mentioned. (PB) 31.03.2014 01.06.2013 Kanda Edible Oil Pvt. Ltd. 5,000 (Purchase ) Copy of the confirmation and invoice given wherein delivery date is mentioned.(PB) At the same time the argument of the appellant has made relevant argument that there is difference in dates in several trades and it reflects a regular practice. It is seen that the invoice issued by Kanda Edible Oil Private Limited on 31/03/2014 is placed at PB 43. In this bill, the delivery date of the goods is mentioned as 01/06/2013. Further the assessee has also filed the confirmation from Kanda Edible Oil Private Limited which is placed at PB 44 wherein the party has confirmed the fact of delivery of the goods on 01/06/2013. As per the facts in the assessment order, neither in course of survey nor during assessment any fact is on record to show that the goods were delivered on any other date than that mentioned in the bill. There is no evidence / finding to reject the evidence in the form of seller's confirmation in the assessment order and there is no reference to any adverse finding from the third party inquiry if any. The Id. AO has observed on pg. 15 of assessemt order that sauda bahi / contract note etc. were not produced, in this regard the appellant has submitted that no sauda bahi/contract notes are separately maintained rather the same is mentioned in the invoices and the stock register which were produced by the appellant during the assessment proceedings (PB 24-35). In the assessment order there is no reference to any material which would have been found during survey which would corroborate the findings arrived in the assessment order. It has been stand of the appellant that the delivery was received on 01.06.2013 even during the survey and it is not a case of afterthought. Ld. AR has argued that during the survey the business records of the appellant were checked in detail. In survey, statement of the appellant assessee was recorded wherein the survey team in question No. 2 specifically required the assessee to explain the fact of delivery of the goods in respect of the above bill. In the question during the survey in the same question details of sale by the group entity M/s N.M. Agro Foods Products Private Limited to the third 15 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta party Kanda & Company and purchase of the same quantity by the appellant are asked. In question no. 2, the delivery details of sale of 5000 Qtl gwar gum by group concern M/s N.M. Agro Foods Products Private Limited to Kanda & Company vide bill No.65on 21/05/2013 have been asked and it has been stated in the question that no delivery details, truck number etc. are mentioned on bill. Further in the same question, in continuation, question has been asked with respect to impugned purchase bill dated 31.03.2014 from Kanda Edible Oil Private Limited. The appellant in response to the same stated that the delivery of the goods took place on 01.06.2013 but the bill was received on 31.03.2014. The appellant has stated in submissions that N.M. Agro Food Product Private Limited sold Gwar Gum to Kanda & Company (A sister concern of Kanda Edible Oil Private Limited Rs. 14,12,50,000/- @ 28250/-on 21/05/2013 vide Bill No. 65. Kanda & Company sold the same quantity of Gwar Gum to Kanda & Company Oils Private Limited for Rs. 13,72,50,000/- @21450/- per qtil. Kanda & Company Oils Private Limited sold the same quantity @ 30250/- per qtl for Rs. 15,12,50,000/- to N.M. Food Product i.e. the assessee vide bill No. 271 dated 31/03/2014 but delivery of the goods were made on 01/06/2013. In this regard it is stated by appellant in the written submissions that:- \"We may further point out that this purchase is made Ex- Wherehouse as mentioned in the copy of the purchase bill itself. The delivery of this is verifiable from the circumstantial evidence as found in the survey itself and specially discussed in the statement recorded in survey where assessee made surrender of Rs.1,00,00,000/- on the basis of this transaction. The summarized position as per the statement is as under- (iv) N.M.Agro Food Product Private Limited (this is a group concern of the assessee) sold Gwar Gum to Kanda & Company (A sister concern of Kanda Edible Oil Private Limited) for Rs.14,12,50,000/-28250/-on 21/05/2013 vide Bill No. 65. At this time N.M.Agro Good Product Private Limited was having stock of gwar gum in hand at 5466.65 qtl Copy of the stock register in support of the same is enclosed. The delivery of this goods was done symbolic and thereby goods remained at the same godown. 16 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta (v) Kanda & Company sold the same quantity of Gwar Gum to Kanda & Company Oils Private Limited for Rs.13,72,50,000/-21450/- per qtl. This delivery was also symbolic and goods remained at the same place. (vi) Kanda & Company Oils Private Limited sold the same quantity @30250/- per qui for (vi) Rs. 15,12,50,000/- to N.M. Food Product i.e. the assessee vide bill No. 271 dated 31/03/2014 but delivery of the goods were made on 01/06/2013. This delivery was also symbolic. In fact goods sold from group concern was come back to the assessee. Goods remained at the godown of sister cocern itself.\" From the perusal of the details it is seen that the invoices were issued and the goods were sold ex-warehouse and the same goods came to be purchased back by the appellant. Further the assessee in its statement itself has clarified that delivery was received on 01/06/2013 but the bill was received on 31/03/2014. This has also confirmed by the party through confirmation and mentioning the delivery date on the bill. In the assessment order the same has been rejected only on account of large gap in the delivery date and date of invoice and where the gap is not large the same were accepted. Appellant has also filed letter issued by Ganganagar Traders Associtaion of Sriganganar region (PB 36). Invoice dates and delivery dates can differ specially in large quantity orders and invoice dates by default can not be treated as delivery date. No inquiry based evidence has been relied on in the assessment order. There is no reference to any documents having been found during survey showing transaction of any unaccounted purchases by the appellant. There are a number of judgements which say that it is trite law that suspicion howsoever strong cannot take place of a legal proof. The Hon'ble Supreme Court in the case of Sreelekha Banerjee vs. CIT (1963) 49 ITR 112 (SC) has held that \"The Department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof. Considering the facts and circumstances of the case, it is hereby held that the invoice dates by default can not be treated as delivery dates. No inquiry based evidence has been brought on record in the assessment order. There is no finding from the survey regarding any unaccounted purchases/sale. Even during survey same stand was adopted. The confirmations have been filed by appellant. Considering the totality of 17 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta facts and circumstances, the stated delivery dates can not be rejected and that there is no negative stock if the stock register is seen in terms of the delivery dates and thus no addition is called for on the issue. The appellant has also raised a alternate argument that it is a settled law that no sale can take place without the purchase and if the appellant has indulged into bogus purchases in such a case a percentage of the bogus purchases can be added to arrive at the net income of the appellant. The appellant is a trader and not a manufacturer of the oil in which the appellant is dealing. The books of accounts of the appellant have been rejected in the assessment order. During the survey proceedings the appellant has already offered an additional income of Rs.1,00,00,000 on the same invoice which is 14.09% of the impugned invoice of Rs. 7,09,75,070. As per judicial pronouncements, when the books have been rejected only G.P. addition can be done and in the present case since G.P. is better, no addition on G.P. can be done. From the perspective of the gross profit ratio, the G.P. rate during the year is 1.73% and the same gets enhanced to 2.04% after considering surrender which is better as compared to 0.92% declared in the last year and no evidence of unrecorded purchase/ sale was found in survey or otherwise brought on record by the ld. AO. even in case of a scenario of rejection of books of accounts, no addition over and above surrendered income is called for on the issue. The appellant has relied upon the following judgements in this regard:- • CIT Vs. Gotan Lime Khaniz Udyog 256 ITR 243(Raj) • Malani Ramjivan JagannathVs. ACIT 207 CTR (Raj.)19 • Kansara Bearings P. Ltd Vs. ACIT 270 ITR 235 (Raj) • CIT Vs. Inani Marbles Pvt Ltd. 316 ITR 125 (Raj.) (HC) • CIT Vs. Sh. Sindhuja Foods Pvt. Ltd. (2008) 16 DTR 278 dt. 24.10.2008(Raj.) (HC) • CIT Vs. Vaibhav Gems Ltd. (2014) 112 DTR 84 dt. 21.08.2014 (Raj) • DCIT Vs. M/s Gems Paradise ITA No.747/JP/12 order dt. 26.12.2017 Considering the facts and circumstances of the case, there is merit in the above alternate arguments of the appellant however in view of the findings in the preparagraphs no further adjudication is required on this argument. 18 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta In view of the above discussion, the addition made in the assessment order of Rs. 7,09,75,070/- in this regard is hereby directed to be deleted. Thus, this ground of appeal is hereby allowed.” Ground of Appeal No. 2 relates to AO disallowing Rs. 2,87,229/- of interest paid u/s 14A. The Id. AO has observed that appellant is having investment of Rs.1,38,95,388/- in agricultural land and Rs.41,89,301/- in residential house as on 31-03-2014. The income received from these investments are exempt from tax. Therefore the provision of section 14A read with rule 8D are applicable. Accordingly, the AO, by applying the provisions of section 14A, made disallowance of Rs.Rs.2,87,229/-. The appellant has stated that the disallowance u/s 14A is attracted only when exempt income is earned. During the year the assessee has not earned any exempt income from these land or residential house and therefore no disallowance can be made u/s 14A. Reliance is placed on various cases including Supreme Court decision in case of PCIT Vs. Oil Industry Development Board (2019) 262 Taxman 102 and CIT Vs. Chettinad Logistics (P.) Ltd. (2018) 257 Taxman 2. The appellant also submitted that there is mistake in calculation of the disallowance as the AO should have considered net interest of Rs.1,00,50,643/ and net investment of Rs. 1,80,84,689/-. On this basis even as per the AO the correct disallowance works out to Rs.25,210/-. The appellant has relied upon the judgements in the cases of DCIT Vs. UMIL Share & Stock Broking Services Ltd. (2018) 171 ITD 713 (Kol.) (Trib.) and Doha Bank QSC Vs. DCIT (2021) 187 ITD 125 (Mum.) (Trib.) in this regard. Considering the above discussion, the disallowance u/s 14A is to be worked after netting of interest and the disallowance calculation would be much lesser in the present case. Further in the case of Principal Commissioner of Income-tax (Central) v. Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289 (Delhi)/[2022] 288 Taxman 384 (Delhi)/[2022] 448 ITR 674 (Delhi) [20-07-2022] it is held that the amendment made by Finance Act, 2022 to section 14A by inserting a non- obstante clause and Explanation will take effect from 1- 4-2022 and cannot be presumed to have retrospective effects. 19 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta As the appellant has not earned any exempt income, in view of the decisions of the Hon'ble Supreme Court and Hon'ble Delhi High Court referred supra, the disallowance made by the ld. AO is deleted. In the result, this ground of appeal is allowed. Ground of appeal No. 3 related to AO disallowing Rs. 97,63,413/- of interest paid u/s 36(1)(iii). On perusal of the overall facts I find that the net interest claimed by the appellant is Rs. 97,63,413. The ld. AR is pleading that the interest expenses are incurred for the purpose of the business whereas the Ld. AO is treating the same as incurred on giving interest free advance. The disallowance of entire interest expenses appears to the apparently incorrect as fund are also utilized in the business as evident from the balance sheet. Therefore to meet the end of justice, I find that it would be reasonable if the total interest expenses is considered to be used in the total closing inventory and debtors and than compare the interest attributable to the advance to related parties and interest income received from them. On analysis of the balance sheet it is seen that the gross payment of the interest is Rs.4,48,24,980. This interest expenses is incurred on the interest bearing funds utilised in the stock of Rs. 54,34,68,474 and debtors of Rs. 349,45,15,887 totalling to Rs. 403,79,84,361. Ld. AR argued in hearing that on analysis of the debtors it is seen that the outstanding debtors relating to group concern of the assessee works out to Rs. 175,63,73,496 as on 31/03/2014 comprising of the following parties only:- Nand Lal Mahabir Prasad- Rs.49,44,97,897 Manoj Traders Rs.56,27,39,927 N.M. Exports Rs.69,91,36,372 Rs. 175,63,74,196 If the total interest expenses incurred are divided in the invesntory and debtors than the proportionate interest expenses incurred in relation to the investment in these debtors works out to Rs. 1,94,97,212 (4,48,24,980 x 175,63,74,196 / 403,79,84,361). As against this the assessee during the year receieved interest of Rs. 1,70,55,172 from the above three parties:- 20 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta Nand Lal Mahabir Prasad Rs 48,99,429 Manoj Traders Rs.63,12,330 N.M. Exports Rs.58,43,413 Rs. 1,70,55,172 Thus the difference in the interest attributable at Rs. 1,94,97,212 and interest recovered at Rs. 1,70,55,172 works out to Rs. 24,42,040 (1,94,97,212 1,70,55,172). This interest is considered as incurred on advancing the funds to related parties without interest/at lower interest. Considering all these facts the disallowance made by the AO is restricted to Rs. 24,42,040. The balance disallowance is deleted. In the result, this ground is partly allowed.” 7. The Revenue is aggrieved from the findings of the ld. CIT(A) preferred this appeal and since the appeal of the assessee was partly allowed, the assessee has also preferred cross objection. Since the issue in the appeal of the revenue and cross objection inter related and inter woven we have decided to deal the appeal of the Revenue and cross objection of the assessee by this consolidated order. Before us both the parties have relied upon the orders of the lower authority as favourable to them. 8. Ld. DR representing the revenue vehemently argued that there has been survey operation was carried out at the premises of the assessee. So far as ground no. 2 & 3 is concerned being the disallowance of interest the ld. DR relied upon the detailed finding 21 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta recorded in the order of the ld. AO and submitted that the same should have been sustained in fully by the ld. CIT(A) and the relief granted is not proper. As regards the ground no. 1 the ld. DR submitted that the assessee is alleging that the delivery of goods were received 10 month before and the bill was received after 10 month of delivery of goods cannot be believed and is after thought. After detailed analyses of stock records the ld. AO has rejected the book results as per provision of section 145(3) of the Act. As regards the delivery of goods the assessee did not furnish any sauda note and or contract and the invoice after 10 months is just to cover up the out of sales made by the assessee. Ld. AO has in detailed worked out the negative stock and the same was confronted to the assessee and after that the addition of peak negative stock was added after making the detailed analysis and having given to the show cause notice to the assessee. As regards the 14A disallowance since the assessee has invested money in agricultural land the same is required to be disallowed. The ld. CIT(A) has deleted the addition of 7.09 cr without considering the fact that assessee failed to establish the movement of stock. Ld. CIT(A) has 22 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta allowed the claim of the assessee without considering the detailed working made by the ld. AO. Ld. CIT(A) alternatively given the benefit of income disclosed by the assessee saying that it covers the addition of profit if any. 9. Per Contra, the ld. Authorized Representative appearing on behalf of the assessee, apropos to the appeal of the revenue and cross objection of the assessee, he has relied upon the following written submission:- Facts:- 1. The assessee is engaged in the business of trading of agricultural commodities i.e. guar, guar gum, gram, mustard seed, barley, coriander, soyabean, khal-binola, castor seed, etc. 2. A survey u/s 133A was conducted at the business premises of assessee on 08.10.2014. The assessee offered additional income of Rs.1,00,00,000/- in survey and accordingly the return was filed on 22.01.2016 declaring total income of Rs.1,14,54,190/- including the income disclosed in the survey(PB 1-5). 3. The AO on perusal of books of accounts noted that there is negative stock of guar gum on certain dates and undervaluation of the closing stock. The assessee filed detailed reply explaining the issues raised by the AO as reproduced at Pg 3 to 12 of the assessment order. The AO accepted the explanation of the assessee on the issues raised by him but in respect of 5000 quintal of guargum purchased from M/s Kanda Edible Oils Pvt. Ltd. which was invoiced on 31.03.2014 but goods were delivered on 01.06.2013, he did not accept the explanation and held that assessee is indulged in the activity of unaccounted purchase of the stock by giving following findings:- (i) The contention of the assessee that there is a general practice that the goods are received earlier than the issue of the invoice is not acceptable for the reason that:- 23 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta (a) The transactions are registered on the NCDEX platform and are within the procedure laid down by the Govt. but the assessee has done transactions which are not registered on NCDEX. (b) The assessee has not followed the procedure laid down in NCDEX trading account as neither any delivery order has been issued nor the amount of transaction has been debited in the books on delivery date. (c) No contract note & saudabahi was furnished by assessee to justify his claim. (d) The data produced regarding delivery date is not supported by any documentary evidence. (e) The normal ceiling for delay in issue of invoice allowed in NCDEX platform is of 1 month after which there are penal provisions for seller for delay. However in the present case there is delay of 10 months which is not acceptable. (ii) In the normal course of business the invoice date may not be with inordinate delay of 10 month. This transaction is therefore suspicious and merely a false attempt by the assessee to cover its undisclosed sales. (iii) At Pg 14 Para 4 of the order, on the basis of the date of invoice, the position of the closing stock show that there is negative stock on various dates which indicates that assessee made unaccounted sales which are not recorded in the books of accounts. (iv) The peak of negative closing stock of Guar Gum as on 01.10.2013 is 4468.90 Quintals. The explanation of the assessee that there is a general business practice that there is gap between the date of invoice and date of delivery is not acceptable when such delay is of 10 months. (v) Assessee has not produced Sauda Bahi and contract notes/ Delivery challans, therefore the rates of purchase of a commodity and its sale are not verifiable vis-à-vis the market rates. Such an inappropriate practice and the business through unregistered mechanism and without any documentary evidence is not acceptable. The trading results are therefore liable to be rejected in view of the provisions of section 145(3) of the Income-tax Act, 1961. Accordingly AO made addition of Rs.7,09,75,070/- on account of alleged unaccounted purchases in respect of peak negative stock calculated as under:- Particulars Remarks 24 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta Quantity of peak of unaccounted stock of Guar Gum 4468.90 quintal Date of peak negative stock 01.10.2013 Market Rate of Guar Gum as obtained from NCDEX website as on 01.10.2013 15,882/- per quintal Amount of unaccounted investment in purchase of Guar Gum Rs.7,09,75,070/- 4. The Ld. CIT(A) after considering the submission of assessee and documents & evidences produced at Pg 23-29 of the order and by referring to the statement of assessee recorded during the course of survey where it is explained that against purchase bill dt. 31.03.2014 from Kanda Edible Oil Pvt. Ltd., the delivery of the goods took place on 01.06.2013 which is also supported by the evidences produced, deleted the addition. Submission:- 1. At the outset we may point out that the modus operandi of the assessee’s business is that in a transaction of agricultural commodity following three dates are involved:- Sauda Date: This is the date on which the transaction of purchase/sale of commodity is entered into. Delivery Date: This is the date on which goods are physically delivered to the buyer or the date on which goods are to be delivered in near future. Invoice Date: This is the date when invoice is raised on the customers. There is usually difference between the sauda date, delivery date and invoice date and in support of the same assessee has furnished letter dt.24.12.2017 of The Ganganagar Traders Association (PB 36) which is not controverted by the AO. 2. In the present case, AO has accepted the explanation in respect of various discrepancy pointed by him but in respect of purchase made from M/s Kanda Edible Oil Pvt. Ltd. for which invoice was raised on 31.03.2014, though the delivery of the goods were made on 01.06.2013, he did not accept the explanation and made addition for alleged unaccounted purchases of guar gum represented by alleged negative stock of 4468.90 quintals. In holding so the AO has not considered the following evidences which are rightly appreciated by the Ld. CIT(A):- (i) The invoice dt. 31.03.14 of Kanda Edible Oil Pvt. Ltd.(PB 43) itself mentions the delivery date as 01.06.2013. The assessee has furnished the confirmation of Kanda Edible Oil Pvt. Ltd. confirming the date of delivery as 01.06.2013 against invoice dt.31.03.2014 (PB 44). It was also informed that the 25 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta books of accounts of M/s Kanda Edible Oil Pvt. Ltd. were impounded in survey dt.08.10.2014 from which this can be verified. It was further requested that counter confirmation can be made from Kanda Edible Oil Pvt. Ltd. However without any verification/cross examination, contention of the assessee was not accepted only on surmises and conjectures. Hence accepting the invoice date as correct but not accepting the delivery date of 01.06.2013 is contradictory in itself. Therefore the Ld. CIT(A) rightly held at Pg24 of the order that there is no evidence/ finding to reject the evidence in the form of seller’s confirmation in the assessment order and there is no reference of any adverse finding from the third party enquiry, if any. (ii) In course of assessment proceeding assessee has furnished the stock register of guargum as per delivery date (PB 37-39). In this register the delivery date, bill date and sauda date are mentioned. From the same it can be noted that the sauda date, delivery date and bill date in various transactions are different. AO has accepted the same in all other cases and therefore there is no reason for not accepting the variation in the invoice date and delivery date in case of purchases made from Kanda Edible Oils Pvt. Ltd. (iii) The AO on the basis of invoice date recasted the stock register (PB 40-42) and observed that the negative stock of 4468.90 qtls. between 02.09.2013 to 01.10.2013 gets adjusted against the purchase invoice dt. 31.03.2014 of 5000 qtls. from M/s Kanda Edible Oils Pvt. Ltd. leaving closing stock of 531.10 qtls on 31.03.2014. The AO has accepted the opening stock, sales and closing stock. In survey no evidence was found of any unrecorded purchases/sale. Had there been no stock, how goods could have been sold in the books of account. Hence the alleged negative stock cannot be assumed only on the presumption that since the invoice date is 31.03.2014, the goods have also been received on that date. 3. The various observations made by the AO and taken in the grounds of appeal by the revenue are irrelevant/ incorrect as explained hereunder:- (i) The AO has referred the procedure as per NCDEX ignoring that the assessee has carried out the above transaction outside the NCDEX and therefore his observation is irrelevant. (ii) No saudabahi/contract notes are separately maintained rather the same is mentioned in the invoices and the stock register. Hence the dates mentioned therein as to the date of sauda and date of delivery cannot be ignored. (iii) The purchase invoice of Kanda Edible Oil Pvt. Ltd. dt.31.03.2014 is on account of delay in their part. (iv) The sale/purchase rate has been accepted by the AO. 26 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta In view of above, alleged discrepancy pointed out by the AO and taken in the grounds of appeal are irrelevant. 4. It may be further noted that this purchase is made ex-warehouse as mentioned in the copy of purchase bill itself. The delivery of the goods is otherwise verifiable from the circumstantial evidence as found in the survey itself and specially discussed in the statement recorded in survey where assessee made surrender of Rs.1,00,00,000/- on the basis of this transaction. In the statement assessee has explained as under:- (i) M/s NMAgro Food Product Pvt. Ltd. (a group concern of the assessee) sold 5,000 quintalsguargum to Kanda & Company (a sister concern of Kanda Edible Oil Pvt. Ltd.) for Rs.14,12,50,000/- @ Rs.28,250/- on 21.05.2013 vide bill no.65. On this date NMAgro Food Product Pvt. Ltd. was having stock of guar gum at 5466.65 qtl. The delivery of the goods was symbolic and therefore the goods remained in the same godown. (ii) Kanda & Company sold the same quantity of guargum to Kanda & Company Oils Pvt. Ltd.for Rs.13,72,50,000/- @ Rs.21,450/- per qtl. This delivery was also symbolic and goods remained in the same godown. (iii) Kanda & Company Oils Pvt. Ltd. sold the same quantity @ Rs.30,250/- per qtl. for Rs.15,12,50,000/- to NM Food Product i.e. the assessee vide bill no.271 dt. 31.03.2014 but delivery of the goods was made on 01.06.2013. This delivery was also symbolic. In fact the goods sold by group concern has come back to the assessee. The goods remained at the godown of sister concern itself. From the above sequence of the event the symbolic delivery of the goods is proved. The goods are routed from assessee’s group concern and came back to the assessee and remained in the godown of the sister concern. The sister concern was having the stock at the time of sale. Thus the delivery of goods is also proved. Further the assessee in its statement itself has clarified that delivery was received on 01.06.2013 but the bill was received on 31.03.2014. This was also confirmed by the party through confirmation and mentioning the delivery date on the bill. After considering the date of delivery as 01.06.2013 there is no negative stock. The Ld. CIT(A) has rightly appreciated these facts at Pg 25-26 of the order by holding at Pg 27 of the order that no enquiry based evidence has been relied on in the assessment order and there is no reference of any document having been found during survey showing transaction of any unaccounted purchases by the assessee. 5. Before the Ld. CIT(A) it was also contended that after considering the surrender of Rs.1 crore, the g.p. rate for the year works out at 2.04% which is better as compared to 0.92% declared in the last year and therefore in the 27 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta absence of any evidence of unrecorded purchase/ sale found in survey, even if the books of accounts are rejected no addition is called for. However, the Ld. CIT(A) though accepted at Pg 28, last para of the order that there is merit in the alternate argument of the assessee but since the first contention of assessee is accepted, no further adjudication is required on this argument. This finding is not challenged by the revenue. Hence the addition made by AO is otherwise uncalled for. In view of above, order of Ld. CIT(A) be upheld by dismissing the ground of department. Ground No.2 (Department) Whether on facts and in circumstances of the case, the CIT(A) is justified in deleting the addition of Rs.2,87,229/- on account of out of the claim of interest without appreciating the fact that that in the case of Lally Motors India (P.) Ltd. Vs PCIT, Hon'bleITAT Amritsar in [2018] 93 taxmann.com 39 (Amritsar - Trib.)/[2018] 170 ITD 370 (Amritsar - Trib.) held that section 14A would apply even if no dividend was earned by assesseefrom investments in shares. Facts:- 1. The AO at Pg 15-17 of the order observed that assessee is having investment of Rs.1,38,95,388/- in agricultural land and Rs.41,89,301/- in residential house as on 31.03.2014. The income received from these investments is exempt from tax. Therefore the provision of section 14A read with rule 8D are applicable. Accordingly, AO by applying section 14A made disallowance of Rs.2,87,229/- computed as under:- (i) Amount of expenditure directly in relation to income which does not form part of total income 0 A Amount of interest expenditure not attributable to any particular income 4,48,24,980 B Average value of investment Opening balance of investment Closing balance of investment Average of the above investment 30,15,993 3,28,32,888 1,79,24,440 C Average of Total Assets Opening balance of asset Closing Balance of asset Average value of above assets 406,20,23,086 406,98,83,398 406,59,53,242 (ii) A* B / C 1,97,607 (iii) 0.5 % of the average value of investment 89,622 Disallowance u/s 14A (i+ii+iii) 2,87,230 28 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta 2. The Ld. CIT(A) at Para 5.2, Pg 35-37 of the order considering the fact that assessee has not earned any exempt income, after relying on the decision of Hon’ble Supreme Court in case of PCIT Vs. Oil Industry Development Board 262 Taxman 102 & CIT Vs. Chettinad Logistics Pvt. Ltd. 257 Taxman 2 and decision of Delhi High Court in case of PCIT Vs. Era Infrastructure Pvt. Ltd. 288 Taxman 384 where it considered the effect of amendment made by FA, 2022 effective from 01.04.2022, deleted the addition. Submission:- 1. It is submitted that the disallowance u/s 14A is attracted only when exempt income is earned. If no exempt income is earned then no disallowance can be made u/s 14A. During the year assessee has not earned any exempt income and this fact is not disputed by the AO. Hence no disallowance can be made u/s 14A. Reliance in this connection is placed on the following cases:- PCIT Vs. Oil Industry Development Board (2019) 262 Taxman 102 (SC) Where High Court upheld Tribunal’s order that in absence of any exempt income, disallowance u/s 14A of any amount was not permissible, SLP filed against said decision was to be dismissed. CIT Vs. Chettinad Logistics (P.) Ltd. (2018) 257 Taxman 2 (SC) SLP dismissed against High Court ruling that section 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. PCIT Vs. Era Infrastructure (India) Ltd. (2022) 216 DTR 191/ 288 Taxman 384 (Del.) (HC) No disallowance u/s 14A can be made if the assessee had not earned any exempt income. Insertion of Explanation of sec. 14A by the Finance Act, 2022 which is \"for removal of doubts\" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood. 2. Otherwise also, the calculation made by the AO for making disallowance u/s 14A is not correct as explained at Pg 35 of the order of Ld. CIT(A). In view of above, order of Ld. CIT(A) be upheld by dismissing the ground of department. Ground No.3 (Department) Whether on facts and in circumstances of the case, the CIT(A) is justified in restricting the addition of Rs.97,63,413/- made by the AO on account of disallowance of interest paid u/s 36(1)(iii) to Rs.24,42,040/- without appreciating the fact that the assessee has advanced interest bearing business funds and has 29 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta diverted the same for non-business purposes to other persons without charging interest with an ulterior motive to reduce the incidence of his own case. Assessee’s Cross Objection The Ld. CIT(A), NFAC has erred on facts and in law in confirming the disallowance out of interest expenses of Rs.24,42,040/- u/s 36(1)(iii) of the Act. Facts:- 1. During the year assessee has paid interest of Rs.4,48,24,479/- (PB 17)on the unsecured loan and to the creditors on delayed payment of purchases. The assessee also received interest of Rs.3,47,74,334/-(PB 22) on loans given. Thus net interest paid is Rs.1,00,50,642/-. 2. The AO at Pg 17-18 of the order observed that assessee has not charged any interest or charged very nominal interest from various parties. Further partywise details of interest paid and charged were not filed by assessee. Accordingly he made disallowance of interest of Rs.97,63,413/- [(1,00,50,642 – 2,87,229) being interest already disallowed] by holding that assessee has diverted the interest bearing funds for non business purpose to other persons without charging any interest from them. 3. The Ld. CIT(A) at Para 6.2, Pg 44-45 of the order observed that interest of Rs.4,48,24,980/- was incurred on interest bearing funds which were utilized in stock & debtors of Rs.403,79,84,361/- whereas the outstanding debtors relating to the group concern is Rs.175,63,74,196/-. Thus the proportionate interest with reference to the debtors of group concern was worked out at Rs.1,94,97,212/- whereas the interest received from these debtors was Rs.1,70,55,172/-. Accordingly disallowance out of interest to the extent of Rs.24,40,040/- (1,94,97,212-1,70,55,172) was confirmed and the balance was deleted. Submission:- 1. At the outset it is submitted that the total interest of Rs.4,48,24,980/- paid by the assessee comprises of the following:- Particulars Amount Interest paid on unsecured and secured loans Rs.2,30,89,920/- Interest paid to the creditors for delayed payment of purchases Rs.2,17,35,059/- Total Rs.4,48,24,980/- The party wise details of interest paid of Rs.4,48,24,980/- is at PB 45-46. The interest paid to creditors for Rs.2,17,35,059/- are in the normal course of business. 30 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta It is a settled law that where interest bearing funds have been advanced to other persons in the course of business out of “commercial expediency”, the interest cannot be disallowed u/s 36(1)(iii) of the Act. Reliance in the connection is placed on the following case laws:- S.A. Builders Ltd. Vs. CIT(A)(2007) 288 ITR 1 (SC) “24. In our opinion, the High Court as well as the Tribunal and other income-tax authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest free loan was given to the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed. 25. The expression \"commercial expediency\" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency.” Hero Cycles (P.) Ltd. Vs. CIT (Central) (2015) 379 ITR 347 (SC) “Once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman.” Hence no disallowance out of interest of Rs.2,17,35,059/- paid to the creditors against delay in payment of purchase price can be made. 2. So far as interest of Rs.2,30,89,920/- is concerned, the same is partly used in giving the advances and partly for the purpose of business. On advances given interest earned is Rs.3,47,74,334/- which is much more than the interest paid of Rs.2,30,89,920/-. The AO has referred to certain parties from whom no interest or lesser interest has been charged. The explanation in respect of each of such party is as under:- Name of the party Opening Balance Closing Balance Remarks Nand Lal Mahabir Prasad 30,34,71,392 49,44,97,897 He is a debtor to whom goods sold. There is no stipulation for 31 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta (PB 47-48) charging interest from him. Only in certain bills where there was delay in payment of more than the normal time, interest is charged. Manoj Traders (PB 49-52) 32,28,97,214 56,27,39,927 He is a debtor to whom goods sold. There is no stipulation for charging interest from him. Only in certain bills where there was delay in payment of more than the normal time, interest is charged. N.M Exports (PB 53-54) 15,02,67,851 69,91,36,372 He is a debtor to whom goods sold. There is no stipulation for charging interest from him. Only in certain bills where there was delay in payment of more than the normal time, interest is charged. Vikas WSP (PB 55) 65,01,90,627 NIL Sat Vichar Dealer (PB 56) 4,28,74,244 4,28,74,244 The balance is coming from earlier years and there is no stipulation of charging interest. Gravity Commo Sales (PB 57) 4,20,16,531 2,11,11,546 The balance is coming from earlier years and there is no stipulation of charging interest. Shiva Associates (PB 58-59) 62,78,00,000 21,44,48,445 This is the running account of the party from whom assessee has received funds and also advanced funds. There is no stipulation for charging interest from him. VikasChemigum India Ltd. (PB 60-61) 15,67,45,512 53,07,45,512 The assessee sold as well as purchased goods from this party. No interest is charged or paid on the transactions undertaken with him. Thus when the interest received is more than the interest paid, no disallowance is called for. 3. The Ld. CIT(A) has incorrectly held that the entire interest of Rs.4,48,24,980/- on borrowed funds has been utilized in stock and debtors of 32 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta Rs.403,79,84,361/- whereas as explained above, such interest is only Rs.2,30,89,920/-. Therefore, even if the calculation made by CIT(A) is corrected, the proportionate interest expenses incurred in relation to investment in stock & debtor would work out to Rs.1,00,43,263/- (2,30,89,920*1,75,63,74,196/4,03,79,84,361) against which the interest received is Rs.1,70,55,172/-. Hence no disallowance out of the interest is called for. In view of above, ground of the department be dismissed and CO of assessee be allowed.” 10. In this appeal the Ld. AR of the assessee submitted a detailed paper book to support his arguments to support the order of the ld. CIT(A) and his cross objection and the same is extracted here in below:- S. No. Particulars Pg. No. Filed before AO/CIT(A) 1. Copy of submission filed before Ld. CIT(1) 1A-16A CIT(A) 2. Copy of index of paper book filed before Ld. CIT(A) 17A CIT(A) 3. Copy of original ITR and Computation for AY 2014-15 filed on 22.01.2016 1-5 Both 4. Copy of audited financial statements for AY 2014-15 06-23 Both 5. Copy of reply dt.22.12.2017 filed before AO 24-31 Both 6. Copy of reply dt.27.12.2017 filed before AO 32-35 Both 7 Copy of letter dt.24.12.2017 of The Ganganagar Traders Association 36 Both 8. Copy of day to day stock register prepared on the basis of the delivery date 37-39 Both 9. Copy of day to day stock register prepared on the basis of the invoice date 40-42 Both 10. Copy of invoice & confirmation of Kanda Edible Oil Pvt. Ltd. regarding date of invoice and date of delivery 43-44 Both 11. Copy of party wise details of interest paid and interest received 45-46 Both 12. Copy of ledger account of M/s Nand Lal Mahabir Prasad 47-48 Both 13. Copy of ledger account of M/s Manoj Traders 49-52 Both 14. Copy of ledger account of M/s N.M Exports 53-54 Both 15. Copy of ledger account of M/s Vikas WSP 55 Both 16. Copy of ledger account of M/s Sat Vichar Dealer 56 Both 17 Copy of ledger account of M/s Gravity Commo Sales 57 Both 18. Copy of ledger account of M/s Shiva Associates 58-59 Both 33 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta 19. Copy of ledger account of M/s Vikas Chemigum India Ltd. 60-61 Both 11. The ld. AR of the assessee in addition to what has been submitted relied upon the order of the ld. CIT(A) so far as the appeal of the revenue is concerned and as regards his cross objection he submitted that the interest disallowance sustained by the ld. CIT(A) is required to be deleted and to support this contention he relied upon the written submission filed. As regards the addition of 7.09 cr the ld. CIT(A) has considered the facts and arguments of the assessee and has based on the detailed finding allowed the ground raised by the assessee. Ld. CIT(A) has also discussed the better book results of the assessee and there is no ground of the revenue challenging that finding of the ld. CIT(A). 12. We have heard the rival contention, perused the material placed on record. First we deal with the appeal of the revenue wherein first ground raised by the revenue challenges the finding of the ld. CIT(A) while deleting the addition of Rs. 7,09,75,070/- made on account of alleged peak amount of purchase of Guar Gum. Thrust of the revenue is that ld. CIT(A) has deleted that addition without 34 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta appreciating the fact that in the normal course of business the invoice date may not be with inordinate delay of 10 months; further on the NCDEX platform, the transaction is registered and within the procedure laid down by the Government; the assessee has done transactions which are not registered on NCDEX or any such platform; debit of amount takes place on the NCDEX trading account on the very date of delivery / intention but there is no such procedure followed by the assessee in his business. Revenue also contended that in the case of the assessee, neither any Delivery order has been issued nor the amount of transaction has been debited in the books on Delivery date; also, no contract note or any similar evidence has been furnished by the assessee during the course of assessment proceedings. The brief facts related to the dispute are that in this case addition of peak of negative stock as worked out by the AO was for 4468.90 quintals of Guar Gum commodity computed at Rs. 15,882/- per quintal for an aggregate amount of Rs. 7,09,75,070/-. Assessee contended that entire sum of negative stock is justifiable as the stock on account of the goods purchased from Kanda Edible Oil 35 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta Private Limited vide invoice dated 31/03/2014 in the facts and circumstances of the case has not been given credit. The contention of the ld. AO was that there is a large gap between the date of delivery of the goods and the date of invoice and the date of delivery is prior to the date of invoice. In the number of invoices as discussed in the assessment order there is a delay in the date of invoice vis-a- vis the date of delivery and such invoices and dates of deliveries have been accepted in the assessment order. This shows the practice of regular nature of the business of the assessee-appellant. Out of the purchases so made in the case of one invoice of goods purchased from Kanda Edible Oil Private Limited the delay is abnormally high which is the reason that the same has been rejected in the assessment order and thereby the alleged negative stock and its peak was worked out. Ld. AO excluded that delivery of goods of Kanda Edible Oil Private Limited wherein abnormal delay of one invoice was observed and Id. AO has prepared the stock register taking all entries on the basis of invoice date and worked out the peak negative stock. 36 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta Ld. AO, on page 5 to 8 of the assessment order, has reproduced reply of the appellant on this query of the Id. AO on such transaction. Ld. AO in para 2 on page 13 of assessment order taken an adverse inference with respect to the questioned invoice alleging that the delay is abnormal of delivery date and date of invoice. In the proceeding before the ld. CIT(A) the assessee-appellant has summarized the trades where dates are different was considered by the ld. AO, based on that set of facts ld. CIT(A) has considered the arguments of the assessee that there is difference in dates in several trades and it reflects a regular practice in the business of the assessee. From the fact as is evident that one invoice issued by Kanda Edible Oil Private Limited on 31/03/2014 is placed at Paper book page 43, wherein the delivery date of the goods was mentioned as 01/06/2013. Further the assessee has also filed the confirmation from Kanda Edible Oil Private Limited which is placed at page 44 wherein the party has confirmed the fact of delivery of the goods on 01/06/2013. As per the facts mentioned in the assessment order, neither in course of survey nor during assessment any fact was brought on record to show cause that the goods were delivered on 37 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta any other date than that mentioned in the invoice relied upon. Revenue in this appeal could not brought on record any evidence so as to reject the evidence in the form of seller's confirmation in the assessment order and there is no reference to any adverse finding from the third party inquiry if any or that of the contention of the invoice. The Id. AO has observed on pg. 15 of assessment order that sauda bahi / contract note etc. were not produced, in this regard the assessee-appellant submitted that no sauda bahi / contract notes are separately maintained rather the same is mentioned in the invoices and the stock register which were produced during the assessment proceedings. In the assessment order there is no reference to any material which would have been found during survey which would corroborate the findings arrived in the assessment order. Whereas the stand of the assessee-appellant that the delivery was received on 01.06.2013 even during the survey and it is not the case of otherwise fact having been present after survey a case of afterthought. Ld. AR has argued that during the survey the business records of the appellant were checked in detail. In survey, statement of the authorized person was recorded wherein the survey 38 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta team in question No. 2 specifically required the assessee to explain the fact of delivery of the goods in respect of the above impugned bill. In the question during the survey in the same question details of sale by the group entity M/s N.M. Agro Foods Products Private Limited to the third party Kanda & Company and purchase of the same quantity by the appellant are asked. In question no. 2, the delivery details of sale of 5000 Qtl guwar gum by group concern M/s N.M. Agro Foods Products Private Limited to Kanda & Company vide bill No.65 on 21/05/2013 have been asked and it has been stated in the question that no delivery details, truck number etc. are mentioned on bill. Further in the same question, in continuation, question has been asked with respect to impugned purchase bill dated 31.03.2014 from Kanda Edible Oil Private Limited. The assessee-appellant in response to the same stated that the delivery of the goods took place on 01.06.2013 but the bill was received on 31.03.2014. The appellant-assessee has stated in submissions that N.M. Agro Food Product Private Limited sold Guwar Gum to Kanda & Company (A sister concern of Kanda Edible Oil Private Limited Rs. 14,12,50,000/- @ 28250/-on 21/05/2013 vide Bill No. 65. Kanda & 39 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta Company sold the same quantity of Gwar Gum to Kanda & Company Oils Private Limited for Rs. 13,72,50,000/- @21450/- per qtil. Kanda & Company Oils Private Limited sold the same quantity @ 30250/- per qtl for Rs. 15,12,50,000/- to N.M. Food Product i.e. the assessee vide bill No. 271 dated 31/03/2014 but delivery of the goods were made on 01/06/2013. Further to this fact it is stated by assessee-appellant that \"We may further point out that this purchase is made Ex- Wherehouse as mentioned in the copy of the purchase bill itself”. The delivery of this is verifiable from the circumstantial evidence as found in the survey itself and specially discussed in the statement recorded in survey where assessee made surrender of Rs.1,00,00,000/- on the basis of this transaction. As we note from the statement that N.M.Agro Food Product Private Limited (this is a group concern of the assessee- appellant) sold Gwar Gum to Kanda & Company (A sister concern of Kanda Edible Oil Private Limited) for Rs.14,12,50,000/-28250/-on 21/05/2013 vide Bill No. 65. At this time N.M.Agro Good Product Private Limited was having stock of guwar gum in hand at 5466.65 qtl Copy of the stock register in support of the same placed on 40 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta record. The delivery of these goods was done symbolic and thereby goods remained at the same godown. Kanda & Company sold the same quantity of Gwar Gum to Kanda & Company Oils Private Limited for Rs.13,72,50,000/-21450/- per qtl. This delivery was also symbolic and goods remained at the same place. Kanda & Company Oils Private Limited sold the same quantity @30250/- per qui for (vi) Rs. 15,12,50,000/- to N.M. Food Product i.e. the assessee vide bill No. 271 dated 31/03/2014 but delivery of the goods were made on 01/06/2013. This delivery was also symbolic. In fact goods sold from group concern was come back to the assessee. Goods remained at the godown of sister cocern itself. On perusal of the details it is seen that the invoices were issued and the goods were sold ex-warehouse and the same goods came to be purchased back by the assessee- appellant. Further the assessee in its statement itself has clarified that delivery was received on 01/06/2013 but the bill was received on 31/03/2014. This has also confirmed by the party through confirmation and mentioning the delivery date on the bill. In the assessment order the same has been rejected only on account of large gap in the delivery date and date of invoice and where the gap 41 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta is not large the same were accepted. Appellant has also filed letter issued by Ganganagar Traders Associtaion of Sriganganar region (PB 36). Invoice dates and delivery dates can differ specially in large quantity orders and invoice dates by default cannot be treated as delivery date. No inquiry based evidence has been relied on in the assessment order. There is no reference to any documents having been found during survey showing transaction of any unaccounted purchases by the appellant. The legal precedent cited before us says that it is trite law that suspicion howsoever strong cannot take place of a legal proof. The Hon'ble Supreme Court in the case of Sreelekha Banerjee vs. CIT (1963) 49 ITR 112 (SC) has held that \"The Department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof. Considering this facts and circumstances of the case, it is obvious that the invoice dates by default cannot be treated as delivery dates. No inquiry based evidence has been brought on record in the assessment order. There is no finding from the survey regarding any unaccounted purchases/sale. Even during survey same stand was adopted. The confirmations have been filed by appellant. Considering the totality 42 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta of facts and circumstances, the stated delivery dates can not be rejected and that there is no negative stock if the stock register is seen in terms of the delivery dates and thus no addition is justifiable on the issue. The assessee also raised an alternative ground before the ld. CIT(A) stating that it has been held in so many cases that no sale can take place without the purchase and if the appellant has indulged into bogus purchases in such a case a percentage of the bogus purchases can be added to arrive at the net income of the appellant. The appellant is a trader and not a manufacturer of the oil in which the appellant is dealing. The books of accounts of the appellant have been rejected in the assessment order. During the survey proceedings the appellant has already offered an additional income of Rs.1,00,00,000 on the same invoice which is 14.09% of the impugned invoice of Rs. 7,09,75,070. Even as held by our Hon’ble Jurisdictional High Court in the case of Clarity Gold that in such type of case the profit is required to be estimated and in the present case since G.P. is better, no addition on G.P. can be done by inclusion of the income declared by the assessee. From the perspective of the gross profit ratio, the G.P. rate during the year is 43 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta 1.73% and the same gets enhanced to 2.04% after considering surrender which is better as compared to 0.92% declared in the last year and no evidence of unrecorded purchase/ sale was found in survey or otherwise brought on record by the ld. AO. even in case of a scenario of rejection of books of accounts, no addition over and above surrendered income is called for on the issue. Thus, we do not find any infirmity in the finding so recorded by the ld. CIT(A) while deleting the made in the assessment order of Rs. 7,09,75,070/- and thereby we do not found any merits in the grounds so raised by the revenue. In the light of this discussion ground no. 1 raised by the revenue stands dismissed. 13. Ground no 2 raised by the revenue states that the CIT(A) was not justified in deleting the addition of Rs.2,87,229/- on account of out of the claim of interest without appreciating the fact that that in the case of Lally Motors India (P.) Ltd. Vs PCIT, Hon'ble ITAT Amritsar in [2018] 93 taxmann.com 39 (Amritsar - Trib.)/[2018] 170 ITD 370 (Amritsar - Trib.) held that Section 14A would apply even if no dividend was earned by assessee from investments in shares. The brief facts related to the dispute is that assessee-appellant is 44 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta having investment of Rs.1,38,95,388/- in agricultural land and Rs.41,89,301/- in residential house as on 31-03-2014. The income received from these investments being exempt from tax, the provision of section 14A read with rule 8D is required to be applied as contended by the ld. AO and accordingly, the AO, by applying the provisions of section 14A, made disallowance of Rs.Rs.2,87,229/-. The assessee-appellant submitted that the disallowance u/s 14A is attracted only when exempt income is earned. During the year the assessee has not earned any exempt income from these land or residential house and therefore no disallowance can be made u/s 14A. To support this contention the assessee-appellant placed reliance on various cases laws including Supreme Court decision in case of PCIT Vs. Oil Industry Development Board (2019) 262 Taxman 102 and CIT Vs. Chettinad Logistics (P.) Ltd. (2018) 257 Taxman 2. As we note from the order of the lower authority wherein the assessee-appellant also contended that there was mistake in calculation of the disallowance as the AO should have considered net interest of Rs.1,00,50,643/ and net investment of Rs. 1,80,84,689/-. On this basis even as per the AO the correct 45 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta disallowance works out to Rs.25,210/- only. As regards the contention of the revenue change in the law and decision of Lally Motors India (P.) Ltd. Vs PCIT (Supra), the assessee-appellant vehemently stated that the amendment made by Finance Act, 2022 to section 14A by inserting a non- obstante clause and Explanation will take effect from 1-4-2022 and cannot be presumed to have retrospective effects in the case of the assessee. To support this view the assessee-appellant relied on the decision of Principal Commissioner of Income-tax (Central) v. Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289 (Delhi)/[2022] 288 Taxman 384 (Delhi)/[2022] 448 ITR 674 (Delhi) [20-07-2022] wherein it was held that the amendment made by Finance Act, 2022 to section 14A by inserting a non- obstante clause and Explanation will take effect from 1-4-2022 and cannot be presumed to have retrospective effects and thereby we found force in the arguments of the ld. AR of the assessee. Considering that aspect of the matter and the fact that the assessee has not earned any exempt income and thereby in the year under consideration no addition can be made and this precedent support the contention of the assessee as in detailed elaborated in 46 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta the decision of the ld. CIT(A) and therefore, we do not find any infirmity in the finding of the ld. CIT(A). In light of this discussion ground no. 2 raised by the revenue stands dismissed. 14. Ground no. 3 raised by the revenue deals that ld. CIT(A) was not justified in restricting the addition of Rs.97,63,413/- made by the AO on account of disallowance of interest paid u/s 36(1)(iii) to Rs.24,42,040/- without appreciating the fact that the assessee has advanced interest bearing business funds and has diverted the same for non-business purposes to other persons without charging interest with an ulterior motive to reduce the incidence of his own case. The brief facts related to this issue is that the net interest claimed by the assessee-appellant was at Rs. 97,63,413. Based on the submission ld. CIT(A) considered that the interest expenses are incurred for the purpose of the business whereas the Ld. AO is treating the same as incurred on giving interest free advance. Ld. CIT(A) noted that the disallowance of entire interest expenses appears to the apparently incorrect as fund are also utilized in the business as evident from the balance sheet. Therefore ld. CIT(A) find that it would be reasonable if the total interest expenses is 47 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta considered to be used in the total closing inventory and debtors and than compare the interest attributable to the advance to related parties and interest income received from them. On analysis of the balance sheet CIT(A) noted that the gross payment of the interest is Rs.4,48,24,980. This interest expenses is incurred on the interest bearing funds utilized in the stock of Rs. 54,34,68,474 and debtors of Rs. 349,45,15,887 totaling to Rs. 403,79,84,361. He also noted from the arguments made by the ld. AR of the assessee that on analysis of the debtors it is seen that the outstanding debtors relating to group concern of the assessee works out to Rs. 175,63,73,496 as on 31/03/2014 comprising of the following parties only:- Nand Lal Mahabir Prasad- Rs.49,44,97,897 Manoj Traders Rs.56,27,39,927 N.M. Exports Rs.69,91,36,372 Rs. 175,63,74,196 Ld. CIT(A) thereby considering that arguments noted that the total interest expenses incurred are divided in the inventory and debtors than the proportionate interest expenses incurred in relation to the investment in these debtors works out to Rs. 1,94,97,212 48 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta (4,48,24,980 x 175,63,74,196 / 403,79,84,361). As against this the assessee during the year receieved interest of Rs. 1,70,55,172 from the above three parties:- Nand Lal Mahabir Prasad Rs 48,99,429 Manoj Traders Rs.63,12,330 N.M. Exports Rs.58,43,413 ----------------- Rs. 1,70,55,172 Therefore, ld. CIT(A) find the difference in the interest attributable at Rs. 1,94,97,212 and interest recovered at Rs. 1,70,55,172 works out to Rs. 24,42,040 (1,94,97,212 1,70,55,172). This interest is considered as incurred on advancing the funds to related parties without interest/at lower interest. Considering all these facts the disallowance made by the AO is restricted to Rs. 24,42,040 and balance disallowance was directed to be deleted by him. 15. Aggrieved from the aforesaid finding so made by the ld. CIT(A) the revenue raised ground no. 3 in his appeal whereas the assessee has filed cross objections making the additional of Rs. 24,42,040/- Since this issue is common for both the parties we considered it fit to decide together. 49 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta 16. As is evident from the record that the assessee-appellant has paid interest of Rs.4,48,24,479/- (APB-17) on the unsecured loan and to the creditors on delayed payment of purchases. The assessee also received interest of Rs.3,47,74,334/- (APB 22) on loans given. Thus net interest paid and claimed to have been is Rs.1,00,50,642/- and this facts are not in dispute. In the assessment order the ld. AO noted that assessee has not charged any interest or charged very nominal interest from various parties. Further party wise details of interest paid and charged were not filed by assessee. Accordingly he made disallowance of interest of Rs.97,63,413/- [(1,00,50,642 – 2,87,229*) *being interest already disallowed] by holding that assessee has diverted the interest bearing funds for non business purpose to other persons without charging any interest from them. Whereas the first appellant authority noted that interest of Rs.4,48,24,980/- was incurred on interest bearing funds which were utilized in stock & debtors of Rs.403,79,84,361/- whereas the outstanding debtors relating to the group concern is Rs.175,63,74,196/-. Thus ld. CIT(A) made the proportionate interest with reference to the debtors of group concern was worked out at Rs.1,94,97,212/- whereas the interest received from these debtors was Rs.1,70,55,172/-. Accordingly he 50 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta confirmed the disallowance out of interest to the extent of Rs.24,40,040/- (1,94,97,212-1,70,55,172) and the balance was deleted by him based on the submission of the assessee-appellant. The total claim of the assessee for payment of interest for an amount of Rs.4,48,24,980/- is on account of payment of interest paid to the following parties:- Particulars Amount Interest paid on unsecured and secured loans Rs.2,30,89,920/- Interest paid to the creditors for delayed payment of purchases Rs.2,17,35,059/- Total Rs.4,48,24,980/- The party wise details of interest paid of Rs.4,48,24,980/- was filed in the paper book page 45-46 and the interest paid to creditors for Rs.2,17,35,059/- are in the normal course of business. Before us the ld. AR of the assessee-appellant argued that interest to the creditor paid was out of commercial expediency like borrowing from parties rather than to supplier itself and therefore, the same cannot be compared for making the disallowance and in support reliance was made on the decision of the apex court in the case of S. A. Builders 288 ITR 1 (Supra) wherein apex court held that ; “24. In our opinion, the High Court as well as the Tribunal and other income-tax authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest free loan was given to 51 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed. 25. The expression \"commercial expediency\" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency.” The ld. AR of the assessee-appellant also placed on service the decision of apex court in the case of Hero Cycles (P.) Ltd. Vs. CIT (Central) (2015) 379 ITR 347 (SC) to the contention so raised for the sustained disallowance wherein it has been held that ; “Once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman.” Based on that contention the ld. AR of the assessee-appellant submitted that if that part of the interest is excluded from the disallowance computed by the ld. CIT(A) then in that case there is income earned by the assessee as interest and therefore, the disallowance sustained is not correct based on the above facts and once the interest received is more than the interest paid, no disallowance is called for. 52 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta The ld. AR of the assessee-appellant also stated that the interest of Rs.2,30,89,920/- is partly used in giving the advances and partly for the purpose of business too. On advances given interest earned is Rs.3,47,74,334/- which is much more than the interest paid of Rs.2,30,89,920/-. The AO has referred to certain parties from whom no interest or lesser interest has been charged and the explanation in respect of each of such party as filed before us reads as under : Name of the party Opening Balance Closing Balance Remarks Nand Lal Mahabir Prasad (PB 47-48) 30,34,71,392 49,44,97,897 He is a debtor to whom goods sold. There is no stipulation for charging interest from him. Only in certain bills where there was delay in payment of more than the normal time, interest is charged. Manoj Traders (PB 49-52) 32,28,97,214 56,27,39,927 He is a debtor to whom goods sold. There is no stipulation for charging interest from him. Only in certain bills where there was delay in payment of more than the normal time, interest is charged. N.M Exports (PB 53-54) 15,02,67,851 69,91,36,372 He is a debtor to whom goods sold. There is no stipulation for charging interest from him. Only in certain bills where there was delay in payment of more than the normal time, interest is charged. Vikas WSP (PB 55) 65,01,90,627 NIL Sat Vichar Dealer (PB 56) 4,28,74,244 4,28,74,244 The balance is coming from earlier years and there is no 53 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta stipulation of charging interest. Gravity Commo Sales (PB 57) 4,20,16,531 2,11,11,546 The balance is coming from earlier years and there is no stipulation of charging interest. Shiva Associates (PB 58-59) 62,78,00,000 21,44,48,445 This is the running account of the party from whom assessee has received funds and also advanced funds. There is no stipulation for charging interest from him. VikasChemigum India Ltd. (PB 60-61) 15,67,45,512 53,07,45,512 The assessee sold as well as purchased goods from this party. No interest is charged or paid on the transactions undertaken with him. We note that ld. CIT(A) while dealing with the issue held that the entire interest of Rs.4,48,24,980/- on borrowed funds has been utilized in stock and debtors of Rs.403,79,84,361/- whereas as discussed herein above, such interest is only Rs.2,30,89,920/-. Therefore, even if the calculation made by CIT(A) is corrected, the proportionate interest expenses incurred in relation to investment in stock & debtor would work out to Rs.1,00,43,263/- (2,30,89,920*1,75,63,74,196/4,03,79,84,361) against which the interest received is Rs.1,70,55,172/-. Hence no disallowance out of the interest is called for. In the light of these facts as discussed herein above the ground no. 3 raised by the revenue stands dismissed and that of the ground no. 1 of the cross objection raised by the assessee is allowed. 54 ITA No. 458/JPR/2024 & CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta 17. Ground no. 4 raised by the revenue and ground no. 2 of cross objection raised by the assessee being general does not require our adjudication. Ground no. 3 raised by the assessee before us for which no arguments were placed and therefore, we deem it fit for academic purpose only. In the results the appeal of the revenue stands dismissed and the cross objection filed by the assessee stands allowed. Order pronounced in the open court on 28/11/2024. Sd/- Sd/- ¼Mk0 ,l- lhrky{eh½ ¼ jkBkSM+ deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judcial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28/11/2024 *Ganesh Kumar, Sr. PS vkns'k dh izfrfyfivxzsf’kr@Copy of the order forwarded to: 1. The Appellant- DCIT, Central Circle-3, Jaipur. 2. izR;FkhZ@ The Respondent- Sh. Naresh Kumar Gupta, Sri Ganganagar. 3. vk;djvk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;djvihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZQkbZy@ Guard File (ITA No. 458/JPR/2024 & CO No. 09/JPR2024) vkns'kkuqlkj@ By order, lgk;diathdkj@Asstt. Registrar "