Deputy Commissioner of Income-tax, V. M/s. Sparkon Engineers, Pune

ITA 1152/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2008 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 30-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B; R Y BALAWADE JAIN
• Assessee Lawyers: R M RAJAPURKAR
• Keywords: Business expenditure; Maximum Marginal Rate; Proportionate interest; Additional evidence; Non passing of speaking order

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . . , , ' # BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1152/PN/2014 '% % / ASSESSMENT YEAR : 2009-10 DCIT, CIRCLE-8, PUNE . / APPELLANT V/S M/S. SPARKON ENGINEERS, PLOT NO. 1 & 5, GAT NO.627/02, KURULI, CHAKAN, TAL KHED, PUNE 410501 PAN NO.AAFFS5801A . / RESPONDENT CO NO.12/PN/2016 '% % / ASSESSMENT YEAR : 2009-10 M/S. SPARKON ENGINEERS, PLOT NO. 1 & 5, GAT NO.627/02, KURULI, CHAKAN, TAL KHED, PUNE 410501 PAN NO.AAFFS5801A CROSS OBJECTOR V/S DY.CIT, CIRCLE-8, PUNE APPELLANT IN THE APPEAL / ASSESSEE BY : SHRI R.M. RAJAPURKAR / REVENUE BY : SHRI R.Y. BALAWADE JAIN & B / DATE OF HEARING :30.03.2016 / DATE OF PRONOUNCEMENT:07.04.2016 2 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 / ORDER PER R.K. PANDA, AM : THE APPEAL FILED BY THE REVENUE AND CO FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 20-03-2 014 OF THE CIT(A)-II, NASHIK RELATING TO ASSESSMENT YEAR 2009-10. 2. IN GROUNDS OF APPEAL NO. 1 TO 8 THE REVENUE HAS CHALLENGED THE ORDER OF THE CIT(A) IN DELETING THE FINANCE CHARGES OF RS.88,68,694/- MADE BY THE AO. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF FABRICATION AND DEALING IN MS AND SS ITEMS. IT FILED ITS RETURN OF INCOME ON 31-10-2009 DECLARING TOTAL INCOME OF RS.51,09,835/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOT ICED FROM PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE FIRM HAS DEBITED AN AMOUNT OF RS.1,02,33,109/- UNDER THE HEAD FINANCE CHARGES AS AGAINST RS.59,57,918/- SHOWN IN THE PRECEDING YEAR. HE NOTED THAT THE INCREASE IN THE FINANC E CHARGES HAS OCCURRED DESPITE REDUCTION IN THE LOAN FUNDS . HE NOTED THAT THE LOAN FUNDS AMOUNTED TO RS.5.70 CRORES AS ON 31-03-2008 HAS GONE DOWN TO RS.4.38 CRORES AS ON 31- 03-2009. FURTHER, CURRENT LIABILITIES AND PROVISIONS ARE ALSO LESSER AS COMPARED TO THE PRECEDING YEAR. HOWEVER, THE RE IS SUBSTANTIAL INCREASE IN THE SUNDRY DEBTORS AS ON 31-03 -2009 AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR. THE SU NDRY DEBTORS HAVE INCREASED FROM RS.6.15 CRORES AS ON 31-03- 2008 TO RS.9.51 CRORES AS ON 31-03-2009. FROM THE DET AILS OF SUNDRY DEBTORS FURNISHED BY THE ASSESSEE THE AO NO TED 3 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 THAT ASSESSEE HAS ADVANCED HUGE AMOUNT TO ASSOCIATE CONCERNS WITHOUT CHARGING INTEREST, THE DETAILS OF WHICH AR E AS UNDER : NAME OF THE DEBTOR BALANCE AS ON 31-03-2008 (IN RS.) BALANCE AS ON 31-03-2009 (IN RS.) AMIT GARMENT 3,45,29, 367/ - 5,28,41,575/ - AMIT APPAREL 80,35,328/ - 1,08,12,872/ - SPARKON TEXTILE 1,52,20,499/ - 1,37,84,936/ - TOTAL 5,77,85,194/ - 7,74,39,383/ - 4. FROM THE LEDGER ACCOUNT OF THESE PARTIES HE NOTED T HAT NONE OF THE TRANSACTIONS OF RECEIPTS AND PAYMENTS RELATE D TO SALE OF GOODS OR SERVICES BY THE ASSESSEE OR THE CONCE RNED PARTIES AND THE TRANSACTIONS ARE PURELY FINANCIAL IN NATUR E. HE, THEREFORE, CAME TO THE CONCLUSION THAT IN THE GUISE OF SUNDRY DEBTORS THE ASSESSEE HAS MADE ADVANCES WITHOU T CHARGING INTEREST TO THE ASSOCIATE CONCERNS. THUS, THE INTEREST BEARING FUNDS HAVE BEEN DIVERTED FOR NON-BUSINES S PURPOSES BY MAKING ADVANCES TO ASSOCIATE CONCERNS ON INTEREST FREE BASIS. HE THEREFORE ASKED THE ASSESSEE T O EXPLAIN AS TO WHY PROPORTIONATE DISALLOWANCE SHOULD NOT BE MADE OUT OF THE FINANCE CHARGES. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE AO DISALLOWED AN AMOUNT OF RS.88,68,694/- WHICH ACCORDING TO HIM RELATES T O PROPORTIONATE FINANCE CHARGES ON FUNDS DIVERTED FOR NON- BUSINESS PURPOSES. 5. BEFORE CIT(A) IT WAS SUBMITTED THAT THE TOTAL AMOUNT O F RS.1,02,33,109/- ON ACCOUNT OF FINANCE CHARGES ARE AS UNDER: PARTICULARS AMOUNT (RS.) BANK CHARGES AND COMMISSION 12,46,498 INTEREST OF CC AND OD 55,00,583 4 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 INTEREST ON TERM LOAN 1,42,325 B.G. CHARGES 3,51,254 L.C. CHARGES 15,10,161 INTEREST ON CAR LOAN 22,006 OTHER INTEREST LC DISCOUNTING CHARGES 14,60,283 TOTAL 1,02,33,100 6. IT WAS SUBMITTED THAT INTEREST ON CC AND OD OF RS.55,05,583/- IS ON ACCOUNT OF WORKING CAPITAL OF THE BUSINESS AND HAS NO RELATION WHATSOEVER WITH THE ADVANC ES GIVEN TO THE SISTER CONCERNS. THE INTEREST WHICH IS CHAR GED BY THE BANK HAS DIRECT NEXUS WITH CIRCULATING ASSETS OF T HE BUSINESS AND AS SUCH IS A DIRECT BUSINESS EXPENDITURE. SIMILARLY, THE BANK CHARGES LIKE COMMISSION, LC CHARGES, BANK GUARANTEE CHARGES ARE DEBITED BY THE BANK FOR PERFORMING SPECIFIC BUSINESS OPERATIONS LIKE OPENING OF LC, ISSUE OF BANK GUARANTEE AND OTHER SERVICE CHARGES SUC H AS BANK STATEMENT, CHEQUE BOOK ETC. WHICH AMOUNTS TO RS.31,07,913/-. THE ASSESSEE HAS ALSO PAID INTEREST OF RS.14.60 LAKHS FOR DISCOUNTING OF LC ISSUED TO A CREDITOR WHERE THE DISCOUNT PERIOD IS GREATER THAN THE CREDIT PE RIOD. FURTHER, THE ASSESSEE HAS ALSO RECEIVED INTEREST FREE ADVANCES OF RS.2,77,72,986/- FROM SISTER CONCERNS WHEREAS DURING THE YEAR THE ASSESSEE HAS MADE INTEREST FREE ADVANCES OF RS.1,96,54,189/- ONLY TO THE SISTER CONCERNS. APART FR OM THE ABOVE, THE ASSESSEE FIRM HAS ALSO CAPITAL OF PARTNERS OF RS.3.35 CRORES AS ON 3103-2008 WHICH HAS GONE UP TO RS.6.56 CRORES AS ON 31-03-2009. IT WAS ARGUED THAT T HE METHOD ADOPTED BY THE AO IS ALSO ERRONEOUS BECAUSE HE HAS CALCULATED THE DISALLOWANCE OF INTEREST ON THE OPENING BALANCE OF ADVANCES GIVEN/TAKEN. HOWEVER, SINCE THE INTEREST IS ONLY AN EXPENSE OF CURRENT YEAR, IT IS LOGICAL O NLY 5 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 TO CONSIDER CHANGES OF RECEIPT AND PAYMENT OF ADVANCES DURING THE YEAR. THE FUND FLOW STATEMENT WAS FILED BEFORE THE CIT(A) TO SUBSTANTIATE THAT THE INTEREST FREE ADVANC ES GIVEN TO SISTER CONCERNS ARE FROM INTEREST FREE SURPLUS FU NDS AVAILABLE WITH THE ASSESSEE AND NOT FROM INTEREST BEARING LOAN FUNDS. IT WAS ALSO SUBMITTED THAT THE ENTITIES FROM WHOM ADVANCES HAVE BEEN TAKEN AND TO WHOM ADVANCES HAVE BEEN GIVEN ARE ALL TAX PAYER ENTITIES AT THE MAXIMU M MARGINAL RATE OF INCOME TAX AND THEY HAVE FILED THEIR INCOME TAX RETURNS. THEREFORE, THE NOTIONAL DISALLOWANCE IN ONE ENTITY WOULD RESULT IN CORRESPONDING REDUCTION OF INCOME IN ANOTHER ENTITY AND THUS TAX IMPACT AS A WHOLE WILL BE NIL . RELYING ON VARIOUS DECISIONS IT WAS SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO NEEDS TO BE DELETED. 7. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE FINANCE CHARGES OF RS.88,68,694/-. WHILE DOING SO, HE HELD THAT THE FINANCE CHARGES ARE IN THE NATURE OF REGULAR INTEREST/CHARGES OF SANCTIONED BANK LIMIT S FOR THE PURPOSE OF BUSINESS. THE INTEREST FREE ADVANCES RECEIVED BY THE ASSESSEE DURING THE YEAR EXCEED THE IN TEREST FREE ADVANCES GIVEN AND HENCE THE ADVANCES GIVEN TO S ISTER CONCERNS DO NOT REPRESENT DIVERSION OF BUSINESS FUNDS. H E FURTHER HELD THAT THERE IS NO ABNORMAL CHARGE OF INTERES T OR UNDERSTATEMENT OF PROFIT ON THIS ACCOUNT DURING THE YEAR . WHILE DOING SO, HE RELIED ON THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. PREM HEAVY ENGINEERING WORKS PVT. LTD. REPORTED IN 285 ITR 554, THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . 6 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 AND VARIOUS OTHER DECISIONS. 8. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 9. THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RELIED ON THE ORDER OF THE AO. HE SUBMITTED THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAS GIVEN SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO JUSTIFY HIS CLAIM WHICH WA S NOT DONE BY THE ASSESSEE. THE VARIOUS DETAILS FILED BEFORE THE CIT(A) WERE NOT AVAILABLE WITH THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THEREFORE THE CIT(A) SHOULD HAVE GIVEN AN OPPORTUNITY TO THE AO TO VERIFY THE DETA ILS SUBMITTED BY THE ASSESSEE. 10. AS REGARDS THE OBSERVATION OF THE CIT(A) THAT THERE IS NO ABNORMAL CHARGE OF INTEREST OR UNDERSTATEMENT OF PRO FIT ON THIS ACCOUNT DURING THE YEAR IS CONCERNED HE SUBMITT ED THAT THE AO IN THE ASSESSMENT ORDER ITSELF HAS MENTIONE D THAT THE ASSESSEE HAS DEBITED FINANCE CHARGES AMOUNTING TO RS.1,02,33,109/- AS AGAINST RS.59,57,918/- IN THE PRECEDING YEAR. FURTHER, THE AO HAS ALSO ESTABLISHED THAT INTEREST FREE ADVANCES MADE TO SISTER CONCERNS WERE NOT FROM OWN FUN DS BUT FROM BORROWED FUNDS. UNDER THESE CIRCUMSTANCES AN D IN ABSENCE OF ANY ESTABLISHMENT OF DIRECT NEXUS BETWEEN INTEREST FREE FUNDS AVAILABLE AND INTEREST FREE ADVANCES GIV EN TO SISTER CONCERNS BY THE ASSESSEE THE ORDER OF THE C IT(A) IS ERRONEOUS ESPECIALLY IN ABSENCE OF A NON SPEAKING ORDER . HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE AO BE RESTORED. 7 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 11. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT WHEN IT WAS CLEARLY ESTABLISHED THAT THE OWN FUNDS AS WE LL AS INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MORE T HAN THE INTEREST FREE FUNDS ADVANCED DURING THE YEAR TO SIST ER CONCERNS, NO DISALLOWANCE OF INTEREST/FINANCE CHARGE IS PERMISSIBLE IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA). HE SUBMITTED THAT THE COORDINATE BENCHES OF THE TRIBUNAL ARE CONSISTENTLY TAKING THE VIEW THAT WHEN SUFFICIENT INTEREST FREE FUNDS ARE AVAILABLE WITH THE ASSESSEE WHICH FAR EXCEEDS THE INTEREST FREE ADVANCES GIVEN TO SIS TER CONCERNS NO DISALLOWANCE OF PROPORTIONATE INTEREST IS CALLED FOR. FOR THE ABOVE PROPOSITION HE RELIED ON THE FOLLOWING DECISIONS : 1. DCIT VS. A2Z ONLINE SERVICES PVT. LTD. ITA NO.1566/PN/2013 (PUNE TRIBUNAL) 2. M/S. MIHIR BAKRE PROJECTS VS. ACIT- ITA NO.1710/PN/2012 (PUNE TRIBUNAL) 12. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. FROM TH E VARIOUS DETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BO OK WE FIND THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEA R HAS RECEIVED INTEREST FREE ADVANCES OF RS.2,77,72,986/- FRO M THE SISTER CONCERNS WHICH ARE AS UNDER : 8 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 SR.NO. NAME OF THE SISTER CONCERN NET AMT. RECEIVED DURING THE YEAR (RS.) 1 SPARKON EQUIPMENTS 49,54,690 2 FABTECH PROJECTS AND ENGINEERS LTD. 2,28,18,296 TOTAL 2,77,72,986 13. FROM THE ORDER OF THE AO WE FIND THE NET AMOUNT ADVANCED DURING THE YEAR TO THE SISTER CONCERNS ARE A S UNDER: SR.NO. NAME OF THE SISTER CONCERN NET AMT. ADVANCED DURING THE YEAR (RS.) 1 AMIT APPAREL 27,77,544 2 AMIT GARMENT 1,83,12,208 3 SPARKON TEXTILES - 14,35,563 TOTAL 1,96,54,189 THUS DURING THE IMPUGNED ASSESSMENT YEAR THE INTEREST FREE AMOUNTS ADVANCED TO SISTER CONCERNS IS LESS THAN THE INTEREST FREE ADVANCES RECEIVED FROM THE SISTER CONCERNS . FURTHER, THE FUND FLOW STATEMENT GIVEN BY THE ASSESSEE ALSO REFLECT THAT THE INTEREST FREE ADVANCES GIVEN TO SISTER CONCERNS ARE FROM INTEREST FREE SURPLUS FUNDS AVAILABLE WIT H THE ASSESSEE. THE SUBMISSION OF THE ASSESSEE THAT THE ENTITIES FROM WHOM ADVANCES HAVE BEEN TAKEN AND TO WHO M ADVANCES HAVE BEEN GIVEN ARE TAX PAYING ENTITIES IN THE MAXIMUM MARGINAL RATE OF INCOME TAX AND THEY HAVE FILED THEIR RETURNS OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ALSO COULD NOT BE CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE. 14. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . RELIANCE UTILITIES AND POWER LTD. (SUPRA) HAS HELD THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT S 9 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 AND OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INTEREST FREE ADVANCES WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FRE E FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. SINCE IN THE INSTANT CASE IT IS VERY CLEAR FROM THE DETAILS FURNISHED THA T THE INTEREST FREE ADVANCES RECEIVED FROM SISTER CONCERNS DURING THE YEAR AT RS.2.78 CRORES FAR EXCEEDS THE INTEREST FREE AMOUNTS ADVANCED TO SISTER CONCERNS AT RS.1.97 CRORES, THEREFORE, IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT CITED (SUPRA) AND IN VIEW OF VARIOUS OTHER DECISION S RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE NO DISALLOWANC E OF PROPORTIONATE INTEREST IS CALLED FOR. IN THIS VIEW OF THE MATTER WE UPHOLD THE ORDER OF THE CIT(A) AND THE GROUN DS RAISED BY THE REVENUE ARE DISMISSED. 15. THE SECOND ISSUE IN THE GROUNDS RAISED BY THE REVE NUE RELATES TO THE ORDER OF THE CIT(A) IN DELETING AN AMOUNT O F RS.1,11,80,098/- ON ACCOUNT OF DIFFERENCE IN BALANCE OF CREDITORS. 16. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DURING TH E COURSE OF ASSESSMENT PROCEEDINGS ISSUED NOTICE U/S.136 O F THE ACT TO CERTAIN CREDITORS OF THE ASSESSEE. SOME OF THE CREDITORS HAVE REPLIED DIRECTLY TO THE OFFICE AND IN CERTAIN CASES THE ASSESSEE FILED CONFIRMATIONS FROM SOME CREDITORS . ON VERIFICATION OF THE CONFIRMATIONS RAISED FROM THE CREDITORS, VIS--VIS LEDGER ACCOUNT OF THE ASSESSEE THE AO NOTED THE FOLLOWING DIFFERENCE : 10 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 SR. NO. NAME OF CREDITOR BALANCE AS PER ASSESSEES BOOKS (RS.) BALANCE AS PER CREDITORS BOOKS DIFFERENCES 1 TIRUMALA ENTERPRISES 6,50,628/ - 6,49,960/ - 668/ - 2 PHINOLEK STEEL & ENGG. CO. 49,79,106/ - 16,22,500/ - 33,56,606/ - 3 SHRI MAHAVEER METAL 28,81,946/ - 33,67,629/ - ( - )4,85,683/ - 4 ADVANCE METAL CORP. P. LTD. 69,89,667/ - NIL 69,89,667/ - 5 UNITED METAL INDUSTRIES 9,24,491 11,33,373/ - ( - )2,08,882/ - 6 SHREE SAI INDUSTRIES PVT. LTD. 31,63,296/ - 31,36,857/ - 26,439/ - 7 DOMET TRADING PVT. LTD. 10,38,049/ - 2,25,259/ - 8,12,790/ - 8 JINDAL STAINLESS STEEL 7,36,467/ - 13,393/ - 7,23,074/ - 9 PRATHMESH ENTERPRISES 19,78,730/ - 13,62,584/ - 6,16,146/ - 10 SUN IMPEX 2 1,83 ,848/ - 43,69,367/ - ( - )21,85,519/ - 17. THE AO ASKED THE ASSESSEE TO RECONCILE THE DIFFEREN CE BETWEEN THE BOOKS OF THE ASSESSEE AND THE BALANCE IN T HE BOOKS OF THE CREDITORS. THE ASSESSEE COULD NOT JUSTIFY THE DIFFERENCE IN THE CASE OF SL.NO.1, 3 TO 6 AND 10. HOWEVER, AFTER RECONCILIATION THE DIFFERENCE IN CASE OF CREDITOR AT SL.NO.2 CAME TO RS.1,64,544/- AS AGAINST RS.33,56,606/-. SIMILARLY, DIFFERENCE IN CREDITOR AT SL.NO.7 CAME DOWN TO RS.1,95,338/- AS AGAINST RS.8,12,790/-. HOWEVER, CREDITOR AT SL.NO.8 WENT UP TO RS.8,76,776/- AS AGAINST RS.7,23,074/- AND CREDITOR AT SL.NO.9 CAME DOWN TO RS.46,585/- AS AGAINST RS.6,16,146/-. THE AO, THEREFORE, MADE ADDITION OF RS.1,11,80,098/- TO THE TOTAL INCOME OF THE ASSESSEE BEING THE DIFFERENCE IN BALANCE OF CREDITORS. 18. BEFORE CIT(A) THE ASSESSEE MADE ELABORATE SUBMISSIONS. IT WAS SUBMITTED THAT ADDITION OF RS.69,89,667/- HAS BEEN MADE ON ACCOUNT OF DIFFERENCE IN BALANCES ON ACCOUNT OF ADVANCE METAL CORPORATION. IT WAS 11 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 SUBMITTED THAT A SEARCH WAS CONDUCTED ON THE ASSESSE E AFTER THE COMPLETION OF THE ABOVE ASSESSMENT ON 31-01-2012. THE ASSESSEE HAD FILED AN APPLICATION BEFORE THE SETTLEMENT COMMISSION ON 21-02-2013 FOR A.Y. 2006-07 TO 2012-13 DECLARING THE ABOVE AMOUNT AND PAID TAXES AND INTEREST DUE ON ACCOUNT OF THE ABOVE AMOUNT. THE HONBLE SETTLEMENT COMMISSION HAS ACCEPTED THE SETTLEMENT PETITION FILED BEFORE THEM WHERE THE ASSESSEE AFTER ADDING ALL THE NON GENUINE INCOME HAD PAID FULL TAXES WITH INTEREST WHICH INCLUDES DECLARATION OF RS.69.89 LAKHS. IT WAS ACCORDINGLY SUBMITTED THAT THE AMOUNT OF RS.69.89 LAKHS SHOULD BE EXCLUDED FROM THE AMOUNTS SINCE THE DECISION OF THE SAME HAS ALREADY BEEN PASSED BY THE SETTLEMENT COMMISSION AND TAXES AND INTEREST ON THE SAME HAS BEEN PAID. 18.1 SO FAR AS THE OTHER PARTIES ARE CONCERNED THE ASS ESSEE FILED THE FOLLOWING SUMMARY OF DIFFERENCE IN THE CREDITORS : SR. NO. PARTICULARS AMOUNT (RS.) 1 PURCHASES BOOKED FOR LESSER AMOUNTS DUE TO VARIOUS REASONS 11,40,331 2 JINDAL STEEL STAINLESS STEELWAY PURCHASE BILL OF ONE PARTY CONSIDERED WHEN THERE ARE TWO PARTIES WITH SIMILAR NAMES 7,99,925 3 OPENING BALANCE DIFFERENCE DUE TO PURCHASE BOOKED FOR LESSER AMOUNTS IN EARLIER YEARS 6,49,223 4 PAYMENTS BOOKED FOR HIGHER AMOUNTS BY CREDITORS BY MISTAKE - 17,632 5 PAYMENTS BOOKED FOR LOWER AMOUNTS BY CREDITORS, I.E. NET OF LC CHARGES 1,28,949 6 LC DISCOUNTED IN PREVIOUS YEAR BY THE CREDITORS, ASSESSEE MAKING PAYMENT ON DUE DATE IN NEXT YEAR 33,19,007 7 OPENING BALANCE TIMING DIFFERENCE DUE TO LC PAYMENT - 19,44,849 8 INTEREST FOR DELAYED PAYMENT BOOKED BY ASSESSEE AND PAID IN FULL 1,14,809 TOTAL 41,89,763 12 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 19. IT WAS SUBMITTED THAT THE ASSESSEE HAS ALREADY BOOKED THE BILLS FOR LOWER AMOUNTS, I.E. SHOWN HIGHER INCOME FOR THE YEAR UNDER CONSIDERATION. HE IS AGAIN SUB JECT TO TAX BECAUSE OF THIS AMOUNT WHICH AMOUNTS TO DOUBLE ADDITION. IT WAS ARGUED THAT THE ASSESSEE HAS BOOKED ALL THE PURCHASES CORRECTLY FOR THE YEAR UNDER CONSIDERATION. THE ADDITION IS ON ACCOUNT OF OPENING BALANCE DIFFERENCE WHICH SHOULD NOT BE TAXED FOR THE YEAR UNDER CONSIDERATION. O NLY THE CURRENT LIABILITIES SHOULD HAVE BEEN ADDED. 20. SO FAR AS THE PURCHASES BOOKED FOR LESSER AMOUNT D UE TO VARIOUS REASONS AMOUNTING TO RS.11,40,331/- IS CONCERNED THE ASSESSEE FILED THE FOLLOWING DETAILS BY GIVING THE PARTY WISE DETAILS : SR.NO. NAME OF THE PARTY AMOUNT (RS.) 1 JINDAL STAINLESS LTD. 63,453 2 SHRI MAHAVEER METAL 33,837 3 UNITED METAL INDUSTRIES 15,575 4 SUN IMPEX 7,22,614 5 DOMET TRADING PVT. LTD. 2,05,872 6 PHILOLEK STEEL AND ENG. CO. 51,408 7 PRATHAMESH ENTERPRISES 21,133 8 SHREE SAI INDUSTRIES 26,439 TOTAL 11,40,331 21. FOR THE PURPOSE OF DIFFERENCE ON ACCOUNT OF OPENING BALANCES THE ASSESSEE FILED THE FOLLOWING CHART : SR.NO. NAME OF THE PARTY AMOUNT (RS.) 1 UNITED METAL INDUSTRIES 1,78,558 2 SHRI MAHAVEER STEEL 4,51,846 3 JINDAL STAINLESS STEEL 18,819 TOTAL 6,49,223 22. IN THE FOLLOWING CASES, IT WAS ARGUED THAT THE CREDITO RS HAVE BOOKED AMOUNTS PAID BY US AT HIGHER VALUES DUE TO CLERICAL ERROR. HOWEVER, THERE IS NO DISCREPANCY IN OUR BOOKS: 13 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 SR.NO. NAME OF THE PARTY AMOUNT (RS.) 1 JINDAL STAINLESS LTD. 5422 2 PHINOLEK STEEL & ENGINEERING CO. 1673 3 DOMET TRADING PVT. LTD. 10537 TOTAL 17,632 23. IN THE FOLLOWING CASES, THE AMOUNTS PAID BY US HAVE BEEN BOOKED FOR LESSER VALUES BY THE CREDITORS (I.E. THE CREDITORS HAVE BOOKED L.C. PAYMENT RECEIVED BY THEM AS NET OF L.C. CHARGES). HENCE THE LIABILITY IN THE BOOKS OF THE ASSESSEE IS LESS BY THIS AMOUNT : SR.NO. NAME OF THE PARTY AMOUNT (RS.) 1 UNITED METAL INDUSTRIES 14,749 2 PRATHMESH ENTERPRISES 25,454 3 SUN IMPEX 88,746 TOTAL 1,28,949 24. IN CASE OF ONE PARTY, M/S. SUN IMPEX LTD., IN ADDITIO N TO THE DIFFERENCE ARISING DURING THE YEAR, ON ACCOUNT OF OPENING BALANCE IS AS FOLLOWS : SR.NO. NAME OF THE PARTY AMOUNT (RS.) A LC PAYMENT ACCOUNTED FOR BY THE ASSESSEE ON THE DUE DATE BUT ACCOUNTED FOR BY THE CREDITOR AT THE TIME OF DISCOUNTING IN EARLIER YEAR HENCE THE CREDITORS BALANCE IS LESS COMPARED TO ASSESSEE (33,19,007) B BILLS BOOKED FOR LESS AMOUNTS IN EARLIER YEARS (I.E. INCOME ALREADY OFFERED IN EARLIER YEARS) 11,89,220 C LC CHARGES NOT ACCOUNTED BY THE CREDITOR IN EARLIER YEARS 1,84,938 D OPENING BALANCE DIFFERENCE (D=B+C - A) - 19,44 ,849 25. BASED ON THE SUBMISSIONS MADE BY THE ASSESSEE THE LD.CIT(A) CALLED FOR A REMAND REPORT FROM THE AO. AFTER CONSIDERING THE REMAND REPORT OF THE AO AND THE SUBMISS ION 14 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 OF THE ASSESSEE TO SUCH REMAND REPORT THE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO RS.1,25,326/- BY OBSERVING A S UNDER : 8.1.2 SUNDRY CREDITORS I. ADVANCE METAL CORPORATION RS.69,89,667/- THIS AMOUNT HAS ALREADY BEEN DECLARED BY THE ASSESSEE AND TAX WITH INTEREST ON THE SAME HAS BEEN PAID. I HA VE PERUSED THE ORDER OF THE HON. SETTLEMENT COMMISSION IN THIS MATTER AND HENCE I CONCLUDE THAT ADDITION OF THIS AM OUNT IS NOT NECESSARY. II. OTHER DISALLOWANCES SR. NO. PARTICULARS AMT (RS.) OBSERVATIONS CONCLUSIONS 1 OPENING BALANCE DIFFERENCE 19,15,371 DIFFERENCE DUE TO EARLIER YEARS TRANSACTIONS. NO TRANSACTIONS DURING THE YEAR, AMOUNTS NOT CREDITED TO P&L BY THE ASSESSEE ALLOWED (DIRECT CASE LAW CITED) 2 BILLS PASSED AND ACCEPTED FOR LESSER AMOUNTS DUE TO RATE DIFFERENCE, DIFFERENCE IN QTY, P.O. TERMS ETC. 9,28,855 LIABILITY ALREADY REDUCED AND PROFIT INCREASED IN ASSESSEES BOOKS ALLOWED (SECTION 41(1) NOT APPLICABLE) 3 CONFIRMATION OF DIFFERENT PARTY CONSIDERED BY A.O. 7,99,925 PROPER CONFIRMATION OF CORRECT PARTY JINDAL STEELWAY (SIMILAR NAME), PURCHASE BILL AND PAYMENT PROOF PRODUCED BY THE ASSESSEE ALLOWED AS THERE IS NO DIFFERENCE 4 NET AMOUNTS BOOKED BY THE CREDITORS, I.E. PAYMENT NET OF LC CHARGES, INTEREST, BANK CHARGES, LC DISCOUNTING CHARGES, ETC BOOKED BY CREDITORS 4,20,956 LIABILITY ALREADY REDUCED IN ASSESSEES BOOKS ALLOWED SECTION 41(1) NOT APPLICABLE 5 MISCELLANEOUS DIFFERENCES 1,25,326 LIABILITY APPEARING MORE IN ASSESSEES BOOKS DISALLOWED TOTAL 41,90,433 15 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 CONSIDERING THE ABOVE, I AM OF THE OPINION THAT IN T HE FACTS AND CIRCUMSTANCES OF THE CASE, THE QUESTION OF DISALLOWANCE OF FINANCIAL CHARGES AND DISALLOWANCE OF DIFFERENCE IN C REDITORS SHOULD BE ANSWERED IN FAVOUR OF THE ASSESSEE AS MENTIONED ABOVE CREPT THE MISCELLANEOUS DIFFERENCE OF RS.1,25,32 6/- WHICH IS CONFIRMED. THE GROUNDS RAISED BY THE APPELLA NT ARE PARTLY ALLOWED. 26. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 27. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY OPPOS ED THE ORDER OF THE CIT(A). HE SUBMITTED THAT ALTHOUGH THE CIT(A) HAD CALLED FOR A REMAND REPORT FROM THE AO, HOWEVER , THE AO IN THE REMAND REPORT HAS CONFIRMED THE ADDITION STATING THAT THE ASSESSEE COULD NOT SUBMIT RECONCILIATION FOR THE DIFFERENCE FOR WHICH THE AO HAS RIGHTLY TREATED EXCE SS LIABILITY AS CESSATION OF LIABILITY U/S.41 OF THE ACT. 28. SO FAR AS THE DIFFERENCE IN OPENING BALANCE OF VARIOUS PARTIES AMOUNTING TO RS.19,15,371/- IS CONCERNED THE CIT(A ) DELETED THE SAME ON THE GROUND THAT THE DIFFERENCE IS DU E TO EARLIER YEAR TRANSACTIONS. HE SUBMITTED THAT THE ORDER OF THE CIT(A) IS NOT CORRECT. FURTHER, VARIOUS OTHER ADDITIONS ON ACCOUNT OF DIFFERENCE IN THE BALANCES BETWEEN THE BOOKS O F THE ASSESSEE AND THE BOOKS OF CREDITORS WERE BASED ON CERTAIN ADDITIONAL EVIDENCES. HE SUBMITTED THAT SINCE THE ASSESSEE WAS UNABLE TO RECONCILE THE DIFFERENCE BEFORE TH E AO, THEREFORE, THE DECISION OF THE CIT(A) IS INCORRECT. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THE ORDER OF THE AO BE RESTORED. IN HIS ALTERNATE CONTENTION, HE SUBMITTED THAT THE ISSUE MAY B E RESTORED TO THE FILE OF THE AO. 16 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 29. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED T HAT AN AMOUNT OF RS.69,89,667/- ON ACCOUNT OF ADVANCE METAL CORPORATION HAS ALREADY BEEN ACCEPTED BEFORE THE HONB LE SETTLEMENT COMMISSION. THEREFORE, THE CIT(A) WAS JUSTIFIED IN DELETING THIS AMOUNT. 30. SO FAR AS THE BALANCE AMOUNT OF RS.41,90,433/- IS CONCERNED HE SUBMITTED THAT THE CIT(A) HAS SUSTAINED AN AMOUNT OF RS.1,25,326/- AND DELETED AN AMOUNT OF RS.40,65,107/- BY GIVING JUSTIFIABLE REASONS. HE ACCORDINGLY SUBMITTED THAT THE GROUNDS RAISED BY THE REVENUE SHOU LD BE DISMISSED. 31. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE AO IN THE INSTANT CASE HAS MADE ADDITION OF RS.1,11,80,098/- ON ACCOUNT OF DIFFERENCE IN THE BALANCE OF CREDITORS IN CASE OF 10 PARTIES. SO FAR AS THE AMOUNTS APPEARING IN THE NAM E OF ADVANCE METAL CORPORATION PVT. LTD. AMOUNTING TO RS.69,89,667/- IS CONCERNED WE FIND THE LD.CIT(A)DELETED THIS AMOUNT ON THE GROUND THAT THE ASSESSEE HAS ALREA DY OFFERED THE ABOVE AMOUNT IN HIS APPLICATION BEFORE THE SETTLEMENT COMMISSION AND HAS PAID DUE TAXES ON THE SAME. SINCE THE LD.CIT(A) ON THE BASIS OF PERUSAL OF THE ORDER OF THE SETTLEMENT COMMISSION ON THIS ISSUE HAS GIVEN A FINDING THAT ASSESSEE HAS ALREADY DECLARED THIS AMOUNT BEFORE T HE SETTLEMENT COMMISSION AND PAID THE TAXES AND INTEREST THEREON, THEREFORE, IN ABSENCE OF ANY CONTRARY MATERIAL 17 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 BROUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRESENTATIVE THE ORDER OF THE CIT(A) ON THIS ISSUE IS UPHELD. 32. SO FAR AS THE BALANCE AMOUNT OF RS.41,90,433/- IS CONCERNED WE FIND THE LD.CIT(A) DELETED AN AMOUNT OF RS.40,65,107/- AND SUSTAINED AN AMOUNT OF RS.1,25,326/-. THE AMOUNT RS.40,65,107/-CONSISTS OF 4 ITEMS AS PER THE TABLE GIVEN AT PARA 25 OF THIS ORDER. FROM THE DETAILS FURNISHED BEFORE THE LD.CIT(A) WE FIND THE ASSESSEE HAS GIVE N THE DIFFERENCE ON ACCOUNT OF OPENING BALANCE AT RS.6,49,223 + RS.19,44,849 AMOUNTING TO RS.25,94,072/- WHEREAS THE CIT(A) HAS DELETED AN AMOUNT OF RS.19,15,371/- ON ACCOUNT OF OPENING BALANCE DIFFERENCE. WE ARE UNABLE TO UNDERSTAND AS TO HOW THE CIT(A) HAS DELETED AN AMOUNT OF RS.19,15,371/- ON ACCOUNT OF OPENING BALANCE DIFFERENCE WHERE THE ASSESSEE HAD GIVEN THE DETAILS OF OPENING BALAN CE AT RS.25,94,072/- . THEREFORE, TO THIS EXTENT THE ORDER OF LD.CIT(A) APPEARS TO BE ERRONEOUS FOR WHICH WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE ISSUE OF DIFFERENCE IN THE OPENING BALANCE OF RS.19,15,371/-. 33. SO FAR AS OTHER ITEMS ARE CONCERNED WE FIND THE LD.CIT(A) AFTER PROPER APPRECIATION OF FACTS HAS DELETED TH E AMOUNT OF RS.9,28,855/-, RS.7,99,925/- AND RS.4,20,956/- ON ACCOUNT OF THE RESPECTIVE HEADS. IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE FINDIN G GIVEN BY THE CIT(A), WE DO NOT FIND ANY INFIRMITY. THE GROUND 18 ITA NO.1152/PN/2014 AND CO NO.12 OF 2016 RAISED BY THE REVENUE IS ACCORDINGLY PARTLY ALLOWED FOR STATISTICAL PURPOSES. CO NO.12/PN/2016 : 34. THERE WAS A DELAY OF 40 DAYS IN FILING OF CO BY THE ASSESSEE. THERE IS NO APPLICATION REQUESTING FOR CONDONAT ION OF DELAY NOR ANY APPLICATION WAS FILED EXPLAINING THE REASONS FOR DELAY IN FILING OF THE CO. IN ABSENCE OF ANY CONDONATION PETITION FOR DELAY IN FILING OF THE CO, THE SAME IS DISMISSED AS UNADMITTED. 35. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSE AND THE CO FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07-04-2016. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE ; ' DATED : 07 TH APRIL 2016 ( )'+ , / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) , / THE CIT(A)-II, NASHIK 4. % / THE CIT-II, NASHIK 5 . 6. ( ++,, ,, / DR, ITAT, A PUNE; 1 / GUARD FILE. / BY ORDER , ( //TRUE COPY // ( + //TRUE COPY// 34 + , / SR. PRIVATE SECRETARY ,, / ITAT, PUNE