M/s Alka Incternational Ltd., Aligarh V. Dy. C.I.T., Circle-1, Aligarh

ITA 193/AGR/2011

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0385 (ITAT-AGRA)
• Duration Of Justice: 7 year(s) 11 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-06-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 30-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DEEPAND RA MOHAN
• Keywords: Unexplained cash credit; Corroborative evidences; Assessment record
• Section: 43B; 133(6); 37(1); 69B

Judgement Text

.N THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 193/AGRA/ 2011 ASSESSMENT YEAR 2006-07 M/S ALKA INTERNATIONAL LIMITED VS. DEPUTY COMMIS SIONER OF INCOME TAX 19/37, JAINPURI, CIRCLE-1, ALIGARH ALIGARH. (PAN AABCA 1511 A) ITA NO. 210/AGRA/2011 ASSESSMENT YEAR 2006-07 ASSTT. COMMISSIONER OF INCOME TAX VS. M/S ALKA I NTERNATIONAL LIMITED (AO), CIRCLE-1(1), 19/37, JAINPURI, ALIGARH ALIGARH. (PAN AABCA 1511 A) (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI DEEPANDRA MOHAN, C.A. REVENUE BY : SHRI WASEEM ARSHAND, SR. D.R. DATE OF HEARING : 26.06.2013 DATE OF PRONOUNCEMENT : 05.07.2013 ORDER PER A.L. GEHLOT,ACCOUNTANT MEMBER: THESE ARE CROSS APPEALS HAVE BEEN FILED BY THE REV ENUE AND ASSESSEE AGAINST THE ORDER DATED 29.09.2011 PASSED BY THE LE ARNED CIT(A), ALLAHABAD FOR A.Y. 2006-07. ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 2 2. THE EFFECTIVE GROUNDS RAISED IN THESE CROSS APP EALS ARE REPRODUCED AS BELOW:- ITA NO. 193/AGRA/2011 BY THE ASSESSE:- 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE OF RS.1,22,25,730/- TO RS.50,16,825/- U/S 43B EVEN WHEN THE INTEREST LIABILITY WAS FULLY PAID . 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADD ITION OF RS.4,00,000/- U/S 69A BEING UNSECURED LOAN FROM MR. KHAN JAIN EVEN WHEN THE APPELLANT HAS NOT TAKEN ANY FRESH LOAN OF RS.4,00,000/- FROM MR. KIRAN JAIN DUR ING THE ASSESSMENT YEAR UNDER APPEAL. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPE ALS) HAS ERRED IN SUSTAINING THE ADDITION OF RS.7,25,000 /- BEING 10% OF TOTAL MANUFACTURING AND ADMINISTRATIVE EXPENSES ADDED U/S 69B ON MERE SURMISES AND CONJECTURES. 4. THAT THE ORDER PASSED BY THE AUTHORITIES BELOW I S BAD IN LAW AND AGAINST THE FACTS OF THE CASE. ITA NO. 210/AGRA/2011 BY THE REVENUE :- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.72,08,905/-ON ACCOUNT OF INTERES T PAYMENT HOLDING THAT THE UNION BANK OF INDIA (UBI) HAS PAID BACK THE ASSESSEES LIABILITY OF INTEREST ALON GWITH SECURED LOAN TO J&K BANK FOR THE PERIOD 01.04.2005 TO 21.11.2005, IGNORING THE FACT THAT AS PER SECTION 4 3B READ WITH EXPLANATION-3 THE WORDS USED ARE PREVIOU S YEAR IN WHICH THE SUM IF ACTUALLY PAID BY HIM . IN THIS CASE, THE PAYMENT HAS NOT BEEN MADE BY THE ASSESSEE , BUT ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 3 ON HIS BEHALF BY ANOTHER BANK, THEREFORE, THE QUES TION OF LAW ARISES AS THE WORD USED IN THE ACT IS PAID BY HIM AND NOT PAID ON BEHALF OF HIM. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION ON ACCOUNT OF SHARE APPLICATION MONEY NOT DISCLOSED OF AMOUNTING TO RS.141.34 LAC, WITHOUT AFFORDING ANY OPPORTUNITY TO THE AO TO EXAMINE THE EVIDENCES OR DOCUMENTS FILED BY THE ASSESSEE FOR TH E FIRST TIME BEFORE CIT(A)IN CLEAR VIOLATION OF RULE 46A OF THE INCOME TAX RULES, 1962. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION ON ACCOUNTS OF SHARE APPLICATION MONEY NOT DISCLOSED OF AMOUNTING TO RS.141.34 LACS, IGNORING THE FACT THAT THE SHARE APPLICATION MONEY NOT DISCLOSED OF AMOUNTING TO RS.141.34 LACS, IGNORING THE FACT THAT THE SHARE APPLICATION MONEY WAS NOT SHOWN IN THE BALANC E SHEET OR OTHER DOCUMENTS DURING THE TIME OF FILING THE RETURN OR AT THE TIME OF ASSESSMENT PROCEEDINGS. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITIONS ON ACCOUNT OF SUNDRY CREDITORS OF RS.21,22,950/- IGNORING THE FACT THAT THE ASSESSEE DID NOT FURNISH THE DETAILS OF CREDITORS AND TRANSACTIONS D URING THE ASSESSMENT PROCEEDINGS. 3. THE FIRST COMMON GROUND RAISED IN THESE CROSS AP PEALS PERTAINING TO DISALLOWANCE OF INTEREST UNDER SECTION 43B OF THE A CT. 4. THE BRIEF FACTS OF THE FIRST GROUND WITH THE ASS ESSEES APPEAL ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AND TRADIN G OF PLASTIC PRODUCTS. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE CLAIMING DEDUCTION TOWARDS INTEREST LIABILITY TO A FINANCIAL INSTITUTION RS.1,22,25,730/-. THE ASSESSEE WAS HAVING LIABILITY OF RS.1,22,25,730/- AS INTEREST AND FINANCIAL CHARGES PAYABLE TO THE J&K B ANK FOR THE LOAN ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 4 AMOUNTING TO RS.11,84,83,258/- TAKEN BY THE ASSESSE ES COMPANY. IT WAS STATED THAT LOAN INCLUDING INTEREST WERE TAKEN OVER BY THE BANK M/S UNION BANK OF INDIA, WHO HAD MADE ALL THE PAYMENTS OF LIA BILITIES INCLUDING OUTSTANDING INTEREST AGAINST THE ASSESSEE TO M/S J& K BANK. THE A.O. NOTED THAT THE MANAGER, UNION BANK OF INDIA IN THEIR REPL Y SUBMITTED THAT THE ASSESSEE DID NOT REPAY ANY INTEREST ON ACCOUNT OF L OAN OF RS.11,84,83,258/-. SINCE THE ASSESSEE HAS NOT PAID INTEREST, THEREFORE , THE A.O. MADE ADDITION OF RS.1,22,25,730/- INVOKING SECTION 43B OF THE ACT. 5. THE CIT(A) ALLOWED THE PART RELIEF DELETED THE A DDITION TO THE EXTENT OF RS.72,08,905/- AND SUSTAINED ADDITION TO THE EXTENT OF RS.50,16,825/- AS UNDER :- (CIT(A) PAGE NOS. 12 TO 15) 5. AFTER HAVING CAREFULLY CONSIDERED APPELLANTS S UBMISSION AND ALSO THE FACTS BROUGHT OUT BY THE AO IN THE ASS ESSMENT ORDER, MY CONCLUSIONS/OBSERVATIONS ON GROUNDS TAKEN IN APP EAL ARE AS UNDER : 5.1 REGARDING ADDITION OF RS.1,22,25,730/:- ON THIS ISSUE, FIND THAT THE AO L;HAS QUOTED WRONG FACTS AND ALSO, HAS MADE ADDITION HAPHAZARDLY WITHOUT PROPERLY VERIFYING THE FACTS, AS AVAILABLE ON RECORD. THE AO MENTIONS THAT THE ASSESSEE HAD REPLIED ABOV E CLOSURE OF THE COMPANY, CONSEQUENT RECOVERY PROCEED INGS STARTED BY BANK AUTHORITIES AND HENCE, DIFFICULTY IN SUBMIT TING DETAILS. THE AO MADE ENQUIRY FROM ASSESSEES BANKER (UBI), W HICH REPLIED THAT THE EARLIER BANKER OF ASSESSEE WAS J&K BANK, BUT NOW, THE UBI HAD TAKEN OVE, AFTER ..ALL THE LIA BILITIES OUTSTANDING IN THEIR BANK OF THIS COMPANY HAVE BEEN PAID BY THEIR BANK I.E. M/S UNION BANK OF INDIA.. (EMPHASIS SU PPLIED) THE ABOVE REPLY BY UBI, ITSELF, CLEARLY INDICATES THAT INTEREST LIABILITY OF ASSESSEE TOWARDS J&K BANK, HA VE BEEN PAID ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 5 BY THE U.B.I., ON BEHALF OF ASSESSEE, WHILE TAKING OVER THE LOAN FROM J & K BANK. SO, THERE IS NO QUESTION OF ANY IN TEREST LIABILITY TOWARDS J & K BANK REMAINING UNPAID. NOW, I FIND THAT IN LETTER DT. 22.11.2008 TO AO, U BI HAS HOW HERE WRITTEN THAT THE ASSESSEE DID NOT REPAY A NY INTEREST ON ACCOUNT OF THIS SECURED LOAN OF RS.11,84,83,258/- ! ! SO, I FIND THAT AO HAS MENTIONED WRONG FACTS. HE HAS NEITHER MADE P ROPER VERIFICATION FROM BANK OR ASSESSEES ACCOUNTS, NOR HAS APPLIED HIS MIND TO THE ISSUE BEFORE MAKING SUCH HUGE DISAL LOWANCE. THE BASIC CONTRADICTION/FALLACY IN AOS FINDING BE COMES CLEAR ALSO FROM THE FACT THERE IS NO SUCH OUTSTANDI NG INTEREST PAYABLE BEING SHOWN BY UBIS DOCUMENTS INTESELF, ! ! NOR EVEN IN AUDITED REPORT. I HAVE ANALYSED THAT THE DOCUMENTS AVAILABLE ON ASSESSMENT RECORDS AND ALSO ASSESSEES SUBMISSIONS MADE NOW. I MAKE FOLLOWING INFERENCES :- (A) M.O.U. WITH UBI IS ON RECORD AND IT CLEARLY INDICATES THAT (AND AS IN HE PREVALENT PRACTICE IN BANKING) WHILE TAKING OVER THE LIABILITY FROM J&K BANK, THE UBI HA D TAKEN OVER THE ENTIRE LOAN INCLUDING INTEREST, COMPOUND AND/O R ADDITIONAL INTEREST AND HAS GRANTED, TO ASSESSEE VARIOUS FA CILITIES OR BUSINESS, TO THE EXTENT OF ELEVEN CRORE AND NINETY LACS ONLY (PAYABLE TO J&K BANK) ONCE INTEREST HAS MERGED INTO THE LOAN FACILITIES; THERE IS NO QUESTION OF ANY DISALLOWANCE U/S 43B TO THE EXTE NT OF INTEREST INCURRED TOWARDS J&K BANK. (B) THE ASSESSEE HAS FURNISHED COMPLETE A/C OF BAN K INTEREST AND BANK CHARGES/COMMISSION. A CAREFUL INTO 2 P ERIODS--- 01.04.2005 TO 21.11.2005 (J&K BANK) AND 22.11.2005 TO 31.03.2006 (UBI); GIVES FOLLOWING PRECISE POSITION: TOWARDS J&K BANK TOWARDS UBI BANK INTEREST 69,01,540/- 45,50,895/- BANK COMMISSION/CHARGES 3,07,366/- 4,65,930/- TOTAL OF THESE 4----- RS.1,22,25,730/- HAD THE AO ERRED TO VERIFY, THESE FIGURES COULD HA VE EMANATED FROM THE RECORDS AVAILABLE. ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 6 CONCLUSION:- OUT OF INTEREST DEBITED OF RS.1,22,25,730/-; THE A MOUNTS OF 69,01,540/- AND RS.3,07,366/- STAND PAID TO J&K BAN K BY UBI, AND MERGED INTO THE LOAN GIVEN BY UBI. THUS, THE INTEREST LIABILITY REMAINING UNPAID CAN, AT THE MOST, BE RS.50,16,825/- (RS.45,50,895/- + RS.4,65,930/-). AS ASSESSEE HAS NOT PRODUCED ANY FULL-PROOF EVIDEN CE OR BANK CONFIRMATION TO THE EFFECT THAT THESE INTEREST (AND BANK CHARGES) LIABILITY TOWARDS UBI HAS BEEN PAID; I AM CONSTRAIN ED TO DISALLOW, U/S 43B, AN AMOUNT OF RS.50,16,825/-. THUS, THE DISALLOWANCE OF RS.1,22,25,730/- IS REST RICTED TO RS.50,16,825/-. (RELIEF: RS.72,08,905/-) 6. SINCE THE CIT(A) HAS ALLOWED PART RELIEF, THEREF ORE, THE ASSESSEE AND REVENUE BOTH ARE IN APPEALS THROUGH GROUND NO.1 OF THEIR RESPECTIVE APPEALS. 7. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE OBSERVATION MADE BY THE A.O. IS NOT CORRECT AND HE IS NOT JUSTI FIED TO MAKE ADDITION TO THE INCOME OF THE ASSESSEE. THE LD. AUTHORIZED REPR ESENTATIVE SUBMITTED THAT THE ASSESSEES COMPANY WAS RUNNING A LOCK MANUFACTU RING UNIT AT ALIGARH FOR THE LAST SEVERAL YEARS, BUT, LATELY, IT HAD SUFFERE D SUBSTANTIAL LOSSES AND THE FINANCIAL POSITION OF THE COMPANY BECOME DETERIORAT ED AND HEAVY AMOUNT PAYABLE TO THE BANK PILLED UP ON THE BANK AND FINAL LY THE ACCOUNT BECOME BAD IN THE LEGAL PARLANCE OF THE BANK. THE ASSESSEE S COMPANY OPERATED ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 7 ACCOUNT WITH J&K BANK AND FINDING SUBSTANTIAL LOANS PAYABLE, THE BANK SQUEEZED ALL THE LIMITS AND DID NOT ALLOW THE COMPA NY TO WITHDRAW FUNDS FOR THE BUSINESS PURPOSES. THE LD. AUTHORIZED REPRESENT ATIVE SUBMITTED THAT FOR THE YEAR CONSIDERATION, INTEREST PAYABLE AMOUNTED T O RS.1,22,25,730/- WHICH WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT ASSESSEE REQUESTED TO UNION BANK OF INDIA, FOR A TOTAL TAKE OVER OF THE LOAN AND RESCHEDULING THE SAME SO AS TO HELP THE COMPANY TO REHABILITATE THE BUSINESS. THE UNION BANK OF INDIA SANCTIONED THE LOAN IN FAVOUR OF THE COMPANY AND THUS TOOK OVER THE TOTAL LOAN FROM THE J&K BANK WHERE COMPLETE PAYMENTS WERE DEPOSITED BY THE UNION BANK OF INDIA UNDER DIFFERENT LOAN ACCOUNTS. THE LD. AUTHORIZED REPRESE NTATIVE SUBMITTED THAT TAKE OVER AND PAYMENT THEREOF INCLUDED PRINCIPLE LO AN AND INTEREST UPTO THE DATE OF THE PAYMENT OF THE AMOUNT TO THE BANK, WHIC H CLEARLY INDICATE THAT THE INTEREST PAYABLE TO THE BANK FOR THE FINANCIAL YEAR HAS TO BE TREATED AS PAID. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED T HAT CERTIFIED COPY OF THE LOAN ACCOUNT OF THE COMPANY WITH THE J&K BANK WAS F URNISHED BEFORE THE REVENUE AUTHORITIES. THE LD. AUTHORIZED REPRESENTAT IVE SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, WHATEVER PAYME NTS WERE REALIZED FROM THE MARKET THEY WERE ALL ADJUSTED AGAINST THE LOAN PAYABLE TO J&K BANK TILL THE FRESH LOAN WAS SANCTIONED BY UNION BANK OF INDI A FOR COMPLETE TAKE OVER OF THE LOAN FROM J&K BANK. THE LD. AUTHORIZED REPRE SENTATIVE SUBMITTED ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 8 THAT UNION BANK OF INDIA HAS MADE FOLLOWING PAYMENT S TO THE J&K BANK IN NOVEMBER, 2005 WHEN THEIR ENTIRE LOAN ACCOUNT UNDER DIFFERENT HEADS INCLUDING THE BANK INTEREST AND COMMISSION DEBITED TO THE ACCOUNT WAS BROUGHT TO NIL AS UNDER :- TERM LOAN ACCOUNT 21.11.2005 1,76,84,423.87 WCTL ACCOUNT 21.11.2005 70,06,764.76 CASH CREDIT SCHEME ACCOUNT 21.11.2005 2,88,21,807.43 EQUATED QUARTERLY INSTALLMENT A/C 21.11.2005 41,30, 618.80 8. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT ACCOUNT WAS BROUGHT TO NIL BY PAYMENT FROM UNION BANK OF INDIA. THUS, T HE ADDITION WAS WRONGLY MADE BY THE A.O. INVOKING SECTION 43B OF THE ACT. T HE LD. AUTHORIZED REPRESENTATIVE IN SUPPORT OF HIS CONTENTION RELIED UPON THE ORDER OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF VINIR E NGINEERING PRIVATE LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX, 313 ITR 154. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT WITHOUT PREJUDICE TO THE FACT THAT THE INTEREST IS MERGED INTO THE PRINCIPLE LOAN BEING DEBITED TO THE SAME ACCOUNT TIME TO TIME AND SINCE THE ENTIRE LOAN WAS REPAID BY THE UN ION BANK OF INDIA, IT CANNOT BE PRESUMED THAT THE INTEREST IS NOT PAID BY THE ASSESSEE. HOWEVER, ADMITTEDLY IT COULD BE A CASE OF NON PAYMENT OF INT EREST ONLY FOR THE PERIOD OF 01.12.2005 TO 31.03.2006 WHEN THE ASSESSEE ENJOY ED LOAN FACILITIES FROM UNION BANK OF INDIA. UNDER SUCH CIRCUMSTANCES, THE DISALLOWANCE COULD BE RESTRICTED ONLY TO THE PROPORTIONATE AMOUNT OF INTE REST PAYABLE TO UNION ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 9 BANK OF INDIA FOR THE PERIOD 01.12.2005 TO 31.03.20 06. THE LD. AUTHORIZED REPRESENTATIVE FURNISHED FOLLOWING BREAKUP & DETAIL S OF THE INTEREST PAID TO UNION BANK OF INDIA:- BREAKUP OF INTEREST & BANK COMM. J&K BANK U.B.I. BANK TOTAL REF. BANK INTEREST 69,01,540.00 45,50,895.00 1,14,52,435 .00 PB/2-3 BANK COMMISSION 3,07,366.00 4,65,930.00 7,73,296.00 PB/4-6 TOTAL RS. 72,08,906.00 50,16,825.00 1,22,25,731.00 DETAILS OF PAYMENTS MADE BY UBI TO J&K BANK J&K BANK DATE TRF. FR OM UBI A/C REF TL A/C 1,76,84,423.87 21.11.2012 CC16 PB/7 CASH CREDIT ACCOUNT 2,88,21,807.43 21.11.2012 TL A/C PB/8 EQI 41,30,618.00 21.11.2012 CC16 PB/9 WCTL 70,06,764.76 21.11.2012 CC16 PB/10 DETAILS OF INTEREST PAID TO UBI DATE INTEREST DEBITED DATE OF PAYMENT INTEREST PAID 29.11 7,27,173.00 05/12 22/12 22/12 22/12 500000 40000 100000 87173 7,27,173 31.12 5,02,608.00 09/01 11/01 23/01 23/01 24/01 90000 150000 50000 75000 137608 5,02,608 ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 10 31.01 5,72,341.00 01/02 06/02 340000 232341 5,72,341 27.02 5,28,093.00 27/02 27/02 500000 28093 5,28,093 TOTAL(A) 23,30,215.00 23,30,215 IN TERM LOAN A/C DATE INTEREST DEBITED DATE OF PAYMENT INTEREST PAID 31.10 75154 30.11 333735 8.12 408889 31.12 233418 31.01 209330 28.02 203638 24.03/28.03 64638 6 31.03 233019 IN APR.06 233019 TOTAL(B) 12,88,294.00 12,88,294.00 1288294 IN LC A/C DATE INTEREST DEBITED DATE OF PAYMENT INTEREST PAID 29.11 TO 31.03 965430 07.04.2006 965430 TOTAL(C) 965430 965430 ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 11 9. THE LD. AUTHORIZED REPRESENTATIVE REFERRED BANK STATEMENT OF UNION BANK OF INDIA OF WHICH COPIES HAVE BEEN PLACE D AT PAGE NOS. 11 TO 13 OF THE ASSESSEES PAPER BOOK. THE LD. AUTHOR IZED REPRESENTATIVE SUBMITTED THAT THE INTEREST FOR THE PERIOD 27.12.20 05 TO 30.04.2006 RS.09,65,430/- IS PAID ON 07.04.2006 OF RS.9,70,000 /-. THE LD. AUTHORIZED REPRESENTATIVE HAS ALSO FURNISHED A COPY OF LETTER AND CERTIFICATE FROM UNION BANK OF INDIA DATED 28.05.20 13. IT WAS STATED THAT THE INTEREST PERTAINING TO TERM LOAN AND CASH CREDIT FOR THE PERIOD 2005-06 WERE AS UNDER :- TERM LOAN KHATA 26 CASH CREDIT KHATA 114 75,154/- 94,180/- 3,33,735/- 7,27,173/- 2,33,418/- 5,02,608/- 2,09,330/- 5,28,093/- 2,03,638/- 5,73,379/- 2,33,019/- 5,72,361/- -------------- ----------------------- 12,88,294/- 29,97,794/- -------------- ------------------ ----- 10. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE HAS FAILED TO FURNISH THE SUPPORTING EVIDENCE. THE INTEREST WA S IN FACT PAID BY THE ASSESSEE. AS REGARDS, THE CLAIM OF THE ASSESSEE THA T AMOUNT HAS BEEN PAID IS SUBJECT TO VERIFICATION, THE LD. D.R. SUBMITTED THA T IN VIEW OF THIS FACT, THE A.O. HAS RIGHTLY MADE ADDITION UNDER SECTION 43B OF THE ACT. ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 12 11. WE HAVE HEARD LD. REPRESENTATIVES OF THE PARTIE S AND RECORDS PERUSED. THE ISSUE UNDER CONSIDERATION IS IN TWO FOLDS; ONE IS THAT THE INTEREST PART ON LOAN OF ONE BANK TAKEN BY ANOTHER BANK AFTER GRANTI NG FRESH FACILITY TO THE ASSESSEE WHETHER SUCH CONVERSION OF INTEREST IN THE LOAN AMOUNTS TO BE PAID UNDER SECTION 43B OF THE ACT. THE SECOND ONE IS, AC TUAL PAYMENT OF INTEREST AND ALLOWABLE UNDER SECTION 43B OF THE ACT. IN THE CASE UNDER CONSIDERATION, THE CIT(A) HELD THAT THE CONVERSION OF INTEREST IN THE LOAN AMOUNT TO DEPOSIT FOR THE PURPOSE OF SECTION 43B OF THE ACT. HE, THER EFORE, DELETED THE ADDITION TO THE EXTENT OF RS.72,08,905/-. THIS FINDING OF TH E CIT(A) IS FORTIFIED BY A JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF VINIR ENGINEERING PRIVATE LTD. VS. DEPUTY COMISSIONER OF INCOME TAX, 313 ITR 154 WHEREIN IT HAS BEEN HELD THAT FUNDING OF OUTSTA NDING INTEREST BY A FRESH LOAN WOULD AMOUNT TO DEEMED PAYMENT OF THE INTEREST FOR THE PURPOSE OF SECTION 43B OF THE ACT. IN THE LIGHT OF THE FACT, W E DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE ADDITION TO THE EXTENT OF RS.72,08,905/-. ACCORDINGLY, FIRST GROUND OF REVENU ES APPEAL IS DISMISSED. 12. AS REGARDS, THE SECOND ASPECT OF THE ISSUE FOR WHICH THE ASSESSEE IS IN APPEAL, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS PAID INTEREST AND RELEVANT DETAILS HAVE ALSO BEEN F URNISHED, WHICH IS ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 13 REPRODUCED IN SUBMISSION OF THE LD. AUTHORIZED REPR ESENTATIVE IN PARA 8 OF THIS ORDER. 13. THE CONTENTION OF THE LD. D.R. THAT THIS IS SUB JECT TO VERIFICATION, WE FIND FORCE IN THE SUBMISSION OF THE LD. D.R. THAT T HE SO CALLED PAYMENT OF THE INTEREST CLAIMED BY THE ASSESSEE IS SUBJECT TO VERI FICATION. WE, THEREFORE, SEND BACK THE ISSUE PERTAINING TO ADDITION OF RS.50 ,16,825/- SUSTAINED BY THE CIT(A) ON ACCOUNT OF DISALLOWING INTEREST UNDER SEC TION 43B OF THE ACT, TO THE FILE OF THE A.O. DIRECTING HIM TO VERIFY THE PA YMENT OF INTEREST AND DECIDE THE ISSUE FRESH, IN ACCORDANCE WITH LAW, AFTER PROV IDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE FIRST G ROUND OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 14. THE SECOND GROUND OF ASSESSEES APPEAL IS PERTA INING TO ADDITION OF RS.4,00,000/- UNDER SECTION 69A OF THE ACT. THE A.O . MADE ADDITION OF RS.4,00,000/- ON THE GROUND THAT THE ASSESSEE HAS T AKEN FRESH UNSECURED LOAN OF RS.4,00,000/- FROM KIRAN JAIN. THE ASSESSEE HAS FAILED TO FURNISH IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION . THE ADDITION MADE BY THE A.O. HAS BEEN CONFIRMED BY THE CIT(A), OBSERVIN G THAT THE LOAN OF RS.4,00,000/- FROM KIRAN JAIN HAS BEEN EMANATED FRO M ASSESSEES OWN SUBMISSION PLACED ON ASSESSMENT FOLDER PAGE NO.110 (POINT NO.11 OF THE SUBMISSION). THE LD. AUTHORIZED REPRESENTATIVE SUBM ITTED THAT THE ASSESSEE ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 14 DID NOT TAKE SUCH LOAN FROM KIRAN JAIN. THE LD. AUT HORIZED REPRESENTATIVE HAS REFERRED PAGE NO.44 OF THE ASSESSEES PAPER BOO K WHERE DETAILS OF UNSECURED LOAN AND LOAN FROM OTHERS ANNEXURE FORMIN G PART OF BALANCE SHEET AS ON 31.03.2006 HAVE BEEN PLACED. THE LD. AU THORIZED REPRESENTATIVE SUBMITTED THAT THERE IS NO SUCH CREDIT ENTRY. AFTER HEARING LD. D.R., WE NOTICED THAT CONTRADICTORY FACTS ARE ON RECORD. THE CASE OF THE REVENUE IS THAT THE ASSESSEE HIMSELF SUBMITTED THAT THE ASSESS EE RECEIVED FRESH LOAN OF RS.4,00,000/- ONLY FROM MR. KIRAN JAIN AND ALL OTHE R UNSECURED LOAN SCHEDULE ARE OLD LOAN, WHEREAS ASSESSEES SUBMISSIO N WAS THAT THE ASSESSEE DID NOT TAKE SUCH LOAN FROM MR. KIRAN JAIN. SINCE T HERE IS A CONTRADICTORY FACT AND SAME IS SUBJECT TO VERIFICATION, WE, THERE FORE, SEND BACK THIS ISSUE ALSO TO THE FILE OF THE A.O. DIRECTING HIM TO VERIF Y THE BOOKS OF ACCOUNT AND ALSO VERIFY THE ASSESSEES SUBMISSION AND PUT THE C OMPLETE FACTS ON RECORD. AFTER RECORDING THE COMPLETE FACTS, THE A.O. IS DIR ECTED TO DECIDE THE ISSUE A FRESH, IN ACCORDANCE WITH LAW, AFTER PROVIDING REAS ONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 15. THE THIRD GROUND OF ASSESSEES APPEAL PERTAINS TO SUSTAINING ADDITION OF RS.7,25,000/- BEING 10% OF TOTAL MANUFACTURING E XPENSES. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. MADE ADDITION OF R S.7,25,000/- DISALLOWING 10% OF THE MANUFACTURING AND ADMINISTRA TIVE EXPENSES, ON THE ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 15 GROUND THAT THE EXPENSES WERE INCURRED IN CASH AND THE ASSESSEE HAS FAILED TO FURNISH SUPPORTING EVIDENCE. THE DISALLOWANCE MADE BY THE A.O. HAS BEEN CONFIRMED BY THE CIT(A) OBSERVING THAT THE PERCENTA GE OF THE EXPENSE HAS GONE UP FROM 11.76% LAST YEAR TO 12.56% THIS YEAR, COMBINED WITH THE FACTS THAT BILLS AND VOUCHERS WERE NOT PRODUCED BEFORE A. O. 16. WE HAVE HEARD LD. REPRESENTATIVES OF THE PARTIE S AND RECORDS PERUSED. THE ADMITTED FACTS OF THE CASE ARE THAT THE A.O. DI D NOT POINT OUT THE SPECIFIC EXPENDITURE WHICH WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS. SECTION 37(1) PROVIDES THAT ANY EXPENDITURE WHICH IS INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE SAME I S ALLOWABLE. THERE IS NO FINDING BY THE A.O. NOR BY THE CIT(A) THAT THESE EX PENDITURES WERE NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. THE CIT(A) SUSTAINED THE ADDITION MERELY ON THE FACT THAT EXPE NSES IN THE YEARS CONSIDERATION HAS BEEN INCREASED. HOWEVER, IT IS AD MITTED FACT THAT THE ASSESSEE HAS FAILED TO SUPPORT THESE EXPENSES BY VO UCHERS AND BILLS AND INCOME IS DECLARED IN THE RETURN OF INCOME IS RS.77 ,394. KEEPING IN VIEW OF THE THESE FACTS, WE ARE, THEREFORE, OF THE VIEW THA T TO COVER DEFICIENCY IT WILL BE FAIR WITH BOTH SIDES IF THE ADDITION TO THE EXTE NT OF 10% I.E. RS. 72,500/- IS SUSTAINED OUT OF THE ADDITION OF RS.7,25,000/- SUST AINED BY THE CIT(A). THUS, ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 16 THE ADDITION OF RS.72,500/- IS CONFIRMED AND BALANC E AMOUNT RS.6,52,500/- IS DELETED. 17. NOW, WE ARE TAKING REMAINING GROUND OF REVENUE S APPEAL. GROUND NOS.2 & 3 PERTAINS TO ADDITION OF RS.141.34 LAKHS O N ACCOUNT OF SHARE APPLICATION MONEY. THE A.O. MADE ADDITION OF RS.141 .34 LAKHS ON ACCOUNT OF SHARE APPLICATION MONEY ON THE GROUND THAT THE A SSESSEE HAS DISCLOSED THE SHARE APPLICATION MONEY IN THE DOCUMENT FILED WITH THE BANK AS COLLATERAL GUARANTEE TO THE BANK. THE CIT(A) DELETED THE SAID ADDITION AS UNDER :- (CIT(A) PAGE NOS.15, 16 AND 17.) 5.2 REGARDING ADDITION OF RS.1,41,34,000/- 5.2.1 FROM THE PERUSAL OF ASSESSMENT RECORDS, IT IS FOUND CORRECT THAT THE AO NEVER CONFRONTED THE ASSESSEE; THE MATERIAL COLLECTED FROM THE BANK, AND TO THAT EXTENT, AO IS GUILTY OF USING INFORMATION BEHIND THE APPELLANTS BACK. 5.1.2 IN FACT, FROM CAREFUL PERUSAL OF ASSESSMENT R ECORDS, I FIND THAT NO SUCH BALANCE SHEET WAS SUBMITTED BY TH E BANK TO AO. THE AO DID AS U/S 133(6) OF THE ACT UBI, VIDE LETTE R DATED 22.11.2008 FURNISHED THE SAME BALANCE-SHEET OF F.Y. 2005-06, AS HAS BEEN FILED BY THE APPELLANT ALONG WITH RETURN OF IN COME. WHAT APPEARS IS THAT AO OBTAINED SUCH WRONG BALANCE -SHEET, FROM SOME OTHER SOURCE, WHICH IS NOT CLEAR FROM THE RECORDS. IN ANY CASE APPELLANT HAS ACCEPTED TO HAVE FILED SUCH WRO NG OR INFLATED BALANCE-SHEET TO THE BANK, AND, HENCE, IT CAN BE US ED BY THE AO. HOWEVER, FROM WHATEVER SOURCE, AO OBTAINED SUCH BAL ANCE- SHEET, HE SHOULD HAVE CONFRONTED THE APPELLANT WITH SUCH INFORMATION. 5.1.3 BUT, MORE IMPORTANTLY, I FIND THAT THE PARTIC ULAR DOCUMENT/BALANCE-SHEET, ON THE BASIS OF WHICH ADVER SE CONCLUSION ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 17 REGARDING UNEXPLAINED CREDIT (BY WAY OF SHARE APPLI CATION MONEY), HAS BEEN MADE BY AO; ACTUALLY DOES NOT PERTAIN TO T HE YEAR UNDER CONSIDERATION. THE SAID BALANCE SHEET PERTAIN TO LA ST F.Y. I.E. F.Y. 2004-05. IT IS CLEAR, THUS, THAT A.O. HAS BASED THE ADDITION OF RS.1,41,34,000/- ON THE BALANCE-SHEET FILED WITH TH E BANK PERTAINING TO A.Y.2005-06. IN THE AUDITED B/S OF A.Y. 2005-06 FILED WITH THE DEPARTMENT, HOWEVER, THERE IS NO SUCH ENTRY OF SHA RE APPLICATION MONEY OF RS.1,41,34,000/-. FOR A.Y. 2006-07 I.E. T HE A.Y. UNDER CONSIDERATION, NEITHER ANY B/S WAS FOUND FROM THE B ANK, NOR THERE IS ANY SUCH ENTRY IN THE AUDITED B/S FILED WITH THE RE TURN OF INCOME FOR A.Y. 2006-07. THE CONCLUSION IS OBVIOUS. FIRSLTY, THE COPY OF BAL ANCE-SHEET FILED WITH THE BANK MAY NOT BE REFLECTING CORRECT P ICTURE AT ALL; RATHER MAY BE JUST INFLATING CAPITAL FOR LOAN PUR POSES. BUT, SECONDLY AND MORE IMPORTANTLY, FOR MAKING ANY ADDIT ION OF RS.1,41,34,000/- ON ACCOUNT OF ENTRY REGARDING SHAR E APPLICATION MONEY, THE AO SHOULD HAVE AND STILL CAN, TAKE REMED IAL ACTION IN THE A.Y., IN WHICH SUCH SHARE APPLICATION MONEY WERE CR EDITED IN APPELLANTS BOOKS, IF AT ALL. SUCH A.Y. CAN, AT THE BEST, BE A.Y. 2005- 06. BUT THERE IS NO BASIS, AT ALL, FOR MAKING ADDIT ION OF RS.1,41,34,000/- IN THE PRESENT A.Y. THIS ADDITION OF RS.1,41,34,000/- IS, THUS, DELETED. (RELIEF: RS.1,41,34,000/-) 18. WE HAVE HEARD LD. REPRESENTATIVES OF THE PARTIE S AND RECORDS PERUSED. THE ADMITTED FACTS OF THE CASE ARE THAT THE SO CALL ED BALANCE-SHEET OBTAINED BY A.O. FROM THE BANK WHEREIN SHARE APPLICATION OF RS.1,41,34,000/- HAS BEEN SHOWN IS NOT PERTAINING TO THE YEARS CONSIDERA TION BUT IT IS PERTAINING TO A.Y.2005-06. THIS FACT HAS NOT BEEN DISPUTED BY THE REVENUE. THEREFORE, ADDITION IS WARRANTED IN THE YEAR CONSIDERATION. IN THE LIGHT OF THE FACT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS.1,41,34,000/- IS CONFIR MED. ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 18 19. GROUND NO.4 OF REVENUES APPEAL PERTAINS TO ADD ITION OF RS.21,22,950/- ON ACCOUNT OF SUNDRY CREDITORS. THE A.O. MADE THE ADDITION OF 10% OF THE OUTSTANDING BALANCES OF CRDITORS AS T HE ASSESSEE HAS FAILED TO FURNISH THE REQUIRED DETAILS. THE CIT(A) DELETED TH E ADDITION AS UNDER :- 5.3 REGARDING ADDITION OF RS.21,22,950/-: I FIND SUBSTANTIAL FORCE IN APPELLANTS CONTENTION THAT PERUSAL B/S FIGURES OF LAST YEAR BALANCE-SHEET AND THIS YEAR BA LANCE-SHEET CLEARLY INDICATE THAT TOTAL CREDITORS BALANCE HAS C OME DOWN FROM RS.4,52,13,416/- AS ON 31.03.2005 TO RS.2,12,29,588 /- AS ON 31.03.2006. SO, THERE ARE NO FRESH ADDITIONS TO SUN DRY CREDITORS. FURTHER, AND MORE IMPORTANTLY, WHEN THE AO HAS HIM SELF ACCEPTED THE TRADING RESULTS AND HAS NOT DOUBTED PURCHASES; THAN HOW CAN CREDITORS BE BOGUS? ACCEPTING THE PURCHASES AND SAL ES, ITSELF IMPLIES THAT CREDITORS BALANCES ARE ALSO ACCEPTABLE. BECAU SE OF THE CLOSURE OF BUSINESS, FULL DETAILS, ESPECIALLY CONFIRMATION MAY NOT COME ON RECORD. BUT THAT DOES NOT JUSTIFY SUCH AD-HOC % DIS ALLOWANCE, ESPECIALLY IN LIGHT OF FACTS THAT PURCHASES HAVE NO T BEEN DOUBTED, AND ALSO THAT OVERALL SUNDRY CREDITORS BALANCE HAS BEEN REDUCED SUBSTANTIALLY. I HOLD THAT SUCH FACTS AND CIRCUMSTANCES, AOS P ERCENTAGE DISALLOWANCE WAS NOT RATIONAL AND APPROPRIATE. ADDITION OF RS.21,22,950/- IS DELETED. (RELIEF: RS.21,22,950/-) 20. WE HAVE HEARD LD. REPRESENTATIVES OF THE PARTIE S AND RECORDS PERUSED. IT IS ADMITTED FACT THAT THE ASSESSEE HAS SHOWN CRE DITORS IN ITS BALANCE-SHEET AS ON 31.03.2006. THE A.O. MADE AD-HOC 10% DISALLOW ANCE WITHOUT POINTING OUT SPECIFIC CREDITOR IN THIS REGARD. THE CREDITORS SHOWN BY THE ITA NOS.193 /AGRA./2011, 210/AGRA/2011 A.YS. 2006-07 19 ASSESSEE COMES OUT OF REGULAR BUSINESS TRANSACTION FOR WHICH THE ASSESSEE RECORDED THE TRANSACTION ON DAY-TO-DAY BASIS. IN AB SENCE OF SPECIFIC CREDITOR, AD-HOC DISALLOWANCE CANNOT BE MADE. IN THE LIGHT OF THE FACT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS.21,22,950/- IS CONFIRMED. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT.) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTA NT MEMBER AMIT/ COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, AGRA TRUE COPY