Namdeo Indarrao Gore, Pune V. Deputy Commissioner of Income Tax, Circle-7, Pune

ITA 343/PUN/2023

AI Insights

The case involves an appeal by Namdeo Indarrao Gore against the order of the CIT(A) in the National Faceless Appeal Centre, Delhi, concerning the assessment year 2014-15. The primary issues in the appeal were the additions made to the opening balances of trade creditors and disallowances under section 14A of the Income-tax Act, 1961. The AO had made these additions and disallowances based on the discrepancies and non-reconciliation in the accounts of trade creditors and the computation of expenses related to investments yielding exempt income. The Tribunal found that the AO's approach in adding the amounts to the opening balances without further transactions in the current year was incorrect and that the assessee had sufficient interest-free funds to cover the investments, thus not justifying the disallowance of interest expenses.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124120 (ITAT-PUNE)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 04-06-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 26-03-2023
• Other Referred Cases: CIT vs. Reliance Utilities and Power Ltd., East India Pharmaceutical Works Ltd. Vs. CIT, CIT vs. Tin Box Company, CIT(LTU) VS. Reliance Industries Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT आयकर अपील सं. /ITA No.343/PUN/2023 नधा रण वष / Assessment Year : 2014-15 Namdeo Indarrao Gore, Subhadra CME Engineers, Plot No.1, Subhadra House, Nanded Phata, Pune 411041 Maharashtra PAN : AAVPG0671L Vs. DCIT, Circle-7, Pune Appellant Respondent आदेश / ORDER PER R.S. SYAL, VP: This appeal by the assessee arises out of the order dated 25-01-2023 passed by the CIT(A) in National Faceless Appeal Centre, Delhi u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2014-15. 2. The first issue raised in this appeal is against the confirmation of addition of Rs.5,30,186/- in respect of opening balances of the trade creditors, namely, M/s. P.M. Engineers and Contractors, Nanded and M/s. Ganesh Bansode, Pune. 3. Briefly stated, the facts, as discussed on page 2 onwards of the assessment order, are that the assessee had shown balance of Assessee by Shri Sharad Shah Revenue by Shri Gurmel Singh Date of hearing 08-06-2023 Date of pronouncement 08-06-2023 ITA No. 343/PUN/2023 Namdeo Indarrao Gore 2 Rs.1,12,96,751/- payable as on 01-04-2013 to M/s. P.M. Engineers and Contractors. The AO made disallowance of Rs.49,28,990/- in his order for the A.Y. 2013-14. During the course of assessment proceedings for the year under consideration, the AO observed that the balance shown as receivable by M/s. P.M. Engineers and Contractors was at Rs.56,47,534/-. He, therefore, made further addition of Rs.3,99,173/- [Rs.1,09,76,237 (opening balance on 1.4.2014 – Rs.49,28,990 (addition made in the last year) – Rs.56,47,534 (balance shown by the creditor)]. Similarly, as regards the other creditor, namely, M/s Ganesh Bansode, the opening and closing balance for the preceding year, namely, as on 01-04-2013 and 31.3.2014, as appearing in the books of account of the assessee stood at Rs.1,30,504/-. The AO observed that the addition made in the preceding year due to non-reconciliation in this account was Rs.4,42,663/-. He made further addition of Rs.1,30,473/- towards difference in the opening balance as was not added in the preceding year. These two amounts totalled up to Rs.5,30,186/-, which became the subject matter of the addition. The ld. CIT(A) countenanced the additions, against which the assessee has approached the Tribunal. 4. Having heard the rival submissions and gone through the relevant material on record, it is seen that the AO made these two ITA No. 343/PUN/2023 Namdeo Indarrao Gore 3 additions by treating the opening balances as unexplained. He made partial additions in the preceding year and the remaining amounts in the current year towards the closing balance of the last year. Once there is a difference in the account in the opening balance and there is no further transaction for the year, then no addition can be made on that score. If the AO was not satisfied with the correctness of the balances appearing in the last year, then he ought to have made addition for the full difference in the preceding year. Having not made full addition due to non-reconciliation of the balances in the preceding year, and there being no fresh transactions, the AO cannot be allowed to make addition in the current year towards opening balances. I, therefore, order to delete the addition. 5. The only other ground is against the confirmation of disallowance u/s.14A of the Act. 6. Briefly stated, the facts of the case are that the AO computed disallowance u/s.14A r.w. Rule 8D(2)(ii) at Rs.92,108/- and under Rule 8D(2)(iii) at Rs.33,978/-. The ld. CIT(A) sustained the disallowances made by the AO, against which the assessee has come up in appeal before the Tribunal. 7. Having heard both the sides and perused the relevant material on record, it is seen that the latter component of Rs.33,978/- is the ITA No. 343/PUN/2023 Namdeo Indarrao Gore 4 amount of disallowance u/s.14A r.w.r 8D(2)(iii), which has been rightly computed at 0.5% of the average value of investments towards expenses. 8. Coming to the first component of Rs.92,108/-, being, the disallowance made towards interest expenses u/s.14A r.w.r 8D(2)(ii), it is seen from the AO’s table drawn on page 6 that the total of investments yielding exempt income stands at Rs.67,95,634/. As against that, the assessee’s capital is Rs.1.64 crore. The Hon'ble Bombay High Court in CIT vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom), has held that where an assessee possessed sufficient interest free funds of its own which were generated in the course of relevant financial year, apart from substantial shareholders’ funds, presumption gets established that the investments in sister concerns were made by the assessee out of interest free funds and, therefore, no part of interest on borrowings can be disallowed on the basis that the investments were made out of interest bearing funds. In reaching this conclusion, the Hon’ble High Court relied on the judgment of the Hon’ble Supreme Court in the case of East India Pharmaceutical Works Ltd. Vs. CIT (1997) 224 ITR 627 (SC). Similar view has been taken by the Hon'ble Dehi High Court in CIT vs. Tin Box Company (2003) 260 ITR 637 (Del), holding that when ITA No. 343/PUN/2023 Namdeo Indarrao Gore 5 the capital and interest free unsecured loan with the assessee far exceeded the interest free loan advanced to the sister concern, disallowance of part of interest out of total interest paid by the assessee to the bank was not justified. More recently, the Hon’ble Supreme Court in CIT(LTU) VS. Reliance Industries Ltd. (2019) 410 ITR 466 (SC) has reiterated the same view. 9. When we examine the amount of Investments at Rs.67.95 lakh lakh as against the availability of Share Capital and Reserves at Rs.1.64 crore, it becomes evident that the amount of such Investments is less than the amount of the assessee’s capital. We, therefore, order to delete the disallowance of Rs.92,108/-. 10. In the result, the appeal is partly allowed. Order pronounced in the Open Court on 08 th June, 2023. Sd/- ( R.S.SYAL) VICE PRESIDENT पुणे Pune; िदनांक Dated : 08 th June, 2023 सतीश ITA No. 343/PUN/2023 Namdeo Indarrao Gore 6 आदेश की ितिलिप अ ेिषत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. थ / The Respondent 3. 4. 5. The Pr.CIT concerned DR, ITAT, ‘SMC’ Bench, Pune गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 08-06-2023 Sr.PS 2. Draft placed before author 08-06-2023 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *