ITO, Bangalore V. M/s. Shankara Steels & Tubes, Bangalore

ITA 460/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9447 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-08-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 14-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SWATHI S PATIL
• Assessee Lawyers: K Y NINGOJI RAO
• Keywords: Unexplained cash credit; Business income; Business expenditure; Opportunity of being heard; Principle of natural justice; Additional evidence; Bad and doubtful debts; TDS
• Section: 43B; 234B; 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBE R AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.460/BANG/2009 ASSESSMENT YEAR : 2005-06 THE INCOME TAX OFFICER, WARD 9(1), BANGALORE. : APPELLANT VS. M/S. SHANKARA STEELS & TUBES, NO.G-2, FARAH WINSFORD, NO.133, INFANTRY ROAD, BANGALORE. : RESPONDENT C.O.NO. 20/BANG/2009 (IN ITA NO.460/BANG/2009) ASSESSMENT YEAR : 2005-06 M/S. SHANKARA STEELS & TUBES, NO.G-2, FARAH WINSFORD, NO.133, INFANTRY ROAD, BANGALORE. : CROSS OBJECTOR VS. THE INCOME TAX OFFICER, WARD 9(1), BANGALORE. : RESPONDENT ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 2 OF 17 ITA NO.545/BANG/2009) ASSESSMENT YEAR : 2005-06 M/S. SHANKARA STEELS & TUBES, NO.G-2, FARAH WINSFORD, NO.133, INFANTRY ROAD, BANGALORE. : APPELLANT VS. THE ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE 9, BANGALORE. : RESPONDENT REVENUE BY : SMT. SWATHI S. PATIL ASSESSEE BY : SHRI K.Y. NINGOJI RAO O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THESE ARE THREE APPEALS (I) PREFERRED BY THE REV ENUE, (II) CROSS- OBJECTION BY THE ASSESSEE FIRM; AND (III) REGULAR A PPEAL PREFERRED BY THE ASSESSEE FIRM, ALL ARE DIRECTED AGAINST THE ORDER O F THE CIT (A)-V, BANGALORE FOR THE ASSESSMENT YEAR 2005-06. I. ITA NO:460/09 - (BY THE REVENUE): THE REVENUE HAS RAISED SEVEN GROUNDS, OUT OF WHICH, GROUND NOS: 1, 2 AND 7 ARE GENERAL AND NOT SPECIFIC WHICH, IN OUR CO NSIDERED VIEW, DO NOT SURVIVE FOR ADJUDICATION. THE REMAINING FOUR GROUNDS , ARE, REFORMULATED AS UNDER: ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 3 OF 17 (1) DELETING THE ADDITION OF UNEXPLAINED CASH CREDITS O UT OF UNSECURED LOANS TO THE EXTENT OF RS.44.05 LAKHS; (2) ADMISSION OF FRESH EVIDENCE AND DELETING OF UNEXPLA INED CASH CREDITS OUT OF SUNDRY CREDITORS TO THE EXTENT OF RS.69.41 L AKHS; (3) DIRECTING THE AO TO ADMIT THE SALES-TAX PAYMENT O F RS.54,170/-; & (4) ALLOWING OF THE DISALLOWANCE OF BAD DEBTS. II. C.O NO: 20 (BY THE ASSESSEE) : THE ONLY CROSS OBJECTION RAISED BY THE ASSESSEE FIR M IS THE DISALLOWANCE OF RS.31.53 LAKHS BY THE AO BEING INTEREST PAID BY THE ASSESSEE ON THE LOANS BORROWED IN THE EARLIER YEARS WHICH HAS BEEN CONFIR MED BY THE APPELLATE AUTHORITY. III. ITA NO:545/09 - (BY THE ASSESSEE) : EVEN THOUGH THE ASSESSEE HAS RAISED THREE GROUNDS, THE FIRST BEING GENERAL AND NOT SPECIFIC, THE OTHER TWO EFFECTIVE GROUNDS ARE AS UNDER: (1) THE DISALLOWANCE OF RS.31.53 LAKHS BY THE AO BEING INTEREST PAID BY THE ASSESSEE ON THE LOANS BORROWED IN THE EARLIER Y EARS WHICH HAS BEEN CONFIRMED BY THE APPELLATE AUTHORITY; & (2) LEVY OF INTEREST U/S 234B OF THE ACT. 2. BEFORE PROCEEDING TO DEAL WITH THE GRIEVANCES O F THE RIVAL PARTIES, WE FIND THAT THERE WAS A DELAY IN PREFERRING A REGU LAR APPEAL BY THE ASSESSEE FIRM [ITA NO.545/09]. THE ASSESSEE FIRM IN ITS APPLICATION DATED: 26/5/2009 U/S 253(5) OF THE I.T.ACT HAS SOUGHT COND ONATION OF DELAY IN FILING THE APPEAL ON THE GROUND THAT THE ASSESSEE FIRMS S TAFF FAILED TO PAY THE ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 4 OF 17 REQUIRED APPEAL FEE UNTIL 25/5/2009 WHICH HAD RESUL TED IN THE DELAY IN FILING THE APPEAL WITHIN THE TIME SPECIFIED U/S 253(3) OF THE ACT. 2.1. THE ASSESSEE FIRMS APPLICATION CAME UP FOR CO NSIDERATION BEFORE THIS BENCH. AFTER DUE CONSIDERATION OF THE CIRCUMS TANCES UNDER WHICH THE ASSESSEE WAS PREVENTED FROM FURNISHING THE APPEAL I N TIME, THE DELAY WAS CONDONED AND THE REGISTRY WAS DIRECTED TO PLACE THE APPEAL FOR ADJUDICATION. 3. IN THESE APPEALS, THE ISSUES RAISED BY THE RIVAL PARTIES ARE INTER- LINKED PERTAINING TO THE SAME ASSESSEE FIRM, FOR TH E SAKE OF CONVENIENCE, THEY ARE TAKEN UP FOR CONSIDERATION TOGETHER AND, ACCORDINGLY, ADJUDICATED IN THIS COMMON ORDER. I. ITA NO:460 (BY THE REVENUE): 4. THE FIRST EFFECTIVE GROUND RAISED BY THE REVENUE IS THAT THE CIT (A) HAD FAILED TO APPRECIATE THE FACT THAT IN SPITE OF AFFORDING SEVERAL OPPORTUNITIES, THE ASSESSEE FIRM HAD FAILED TO FURN ISH THE SPECIFIC DETAILS WITH REGARD TO UNEXPLAINED CASH CREDITS. 4.1. THE ISSUE, IN BRIEF, IS THAT THAT IN THE BALAN CE SHEET, THE ASSESSEE HAD SHOWN UNSECURED LOANS OF RS.1.98 CRORES FROM 53 PARTIES, OUT OF WHICH CONFIRMATION LETTERS FROM 26 PARTIES WERE PRODUCED. ON THE AOS PART, THESE CONFIRMATION LETTERS APPEAR TO HAVE BEEN GENE RATED FROM THE SAME COMPUTER AND SIGNED BY THE SAME PERSON IN DIFFERENT NAMES. NONE OF THE PARTIES HAD STATED THEIR CURRENT ADDRESSES. SUMMON S U/S 131 WERE ISSUED TO 39 PARTIES, OF WHOM 23 APPEARED AND THEIR STATEM ENTS WERE DULY ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 5 OF 17 RECORDED. COMMISSIONS WERE ALSO ISSUED TO HYDERABA D AND MUMBAI. A SHOW-CAUSE NOTICE WAS ISSUED TO THE ASSESSEE TO EXP LAIN AS TO WHY RS.66.35 LAKHS SHOULD NOT BE DISALLOWED AS UNEXPLAI NED CASH CREDITS FROM 20 PARTIES AND ANOTHER RS.12 LAKHS FROM FOUR OTHER PARTIES. 4.2. REJECTING THE ASSESSEES CONTENTION THAT THE ALL THE CREDITS WERE GENUINE AS THEY WERE OBTAINED THROUGH ACCOUNT PAYEE CHEQUES AND THAT THE LENDERS WERE ESTABLISHED PERSONS WITH PROVEN ID ENTITY AND ASSESSED TO INCOME-TAX, THE AO WAS OF THE VIEW THAT MERE FILING OF CONFIRMATION LETTERS OF DOUBTFUL CREDIBILITY, THE ASSESSEE HAD DONE LITT LE TO PROVE THE CREDITS. HE FURTHER CONTENDED THAT GENUINENESS OF CREDITS DEPEN D NOT ONLY ON THE MODE OF PAYMENT BUT ALSO THE REALNESS OF THE TRANSACTION AND CREDITWORTHINESS OF THE PARTIES AND MOST OF THE PARTIES HAPPEN TO HAVE PANS AND WERE ASSESSED TO TAX WHICH DO NOT MEAN THAT THE CREDIT CLAIMED BY THE ASSESSEE WERE GENUINE. THUS, HE WENT ON TO ADD RS.44.05 LAKHS AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. 4..3. WHEN THE ISSUE WENT BEFORE THE CIT (A) FOR RE DRESSAL, IT WAS VEHEMENTLY CONTENDED THAT THE IMPUGNED ADDITION MAD E U/S 68 OF THE ACT CANNOT BE SUSTAINED FOR A SIMPLE REASON THAT THE AO HAD NOT COMPLIED WITH THE PROVISIONS OF S.68 AND AS SUCH DID NOT ASSUME J URISDICTION TO MAKE ADDITION THERE-UNDER. THE ASSESSEE FIRM HAD PLACED STRONG RELIANCE ON THE FOLLOWING CASE LAWS TO DRIVE HOME ITS POINT: (A) J.S.PARKAR V. V.B.PALEKAR AND OTHERS 94 ITR 616 ( BOM); (B) CIT V. NOORJAHAN P.K. 237 ITR 570 (SC); & (C) ADDL. CIT V. BAHRI BROS (P) LTD. 154 ITR 244 (PAT NA). ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 6 OF 17 4.4. AFTER ANALYZING THE ISSUE IN DEPTH, CONSIDERIN G THE FORCEFUL ARGUMENTS PUT-FORTH BY THE ASSESSEE FIRM, REMAND RE PORT OF THE AO, REJOINDER OF THE ASSESSEE TO THE AOS REMAND REPORT AND ALSO DREW STRENGTH FROM THE JUDICIAL PRECEDENTS REPORTED IN (I) 291 IT R 59 (RAJ), (II) 96 ITR 97 (ALL), (III) 116 TAXMAN 332 (KAR) AND (IV) 83 TTJ 3 69 (RAJ), THE LD.CIT(A) HAD OBSERVED THUS 5.7..THE DETAILS OF PAN, CONFIRMATION LETT ERS AND CREDITORS BEING ASSESSED TO TAX ARE WITH THE AO. W HEN THE APPELLANT HAS PROVIDED ALL THE REQUIRED MATERIALS AND EVIDENC ES ON RECORD, IT IS THE DUTY OF THE AO TO FIND OUT AND PROVED THAT T HE EVIDENCES ARE FALSE AND NOT GENUINE. THE AO HAS NOT DONE THIS IN THE INSTANT CASE AS THE CASE WAS UNDER SCRUTINY. HE CANNOT BE GUIDED BY SUSPICION AND SURMISES IN MAKING THE ADDITION U/S 68 AS SUCH IMPUGNED ORDER IS BEING BAD IN LAW AS PER THE RATIO OF THE DECISIO N OF THE SUPREME COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD. ( 26 ITR 775). THE MATERIALS GATHERED IN THE BACK OF THE ASSESSEE CANNOT BE USED AGAINST HIM IN THE ASSESSMENT ORDER UNLESS OPPORTUN ITY OF BEING HEARD IS GIVEN. THE AO CANNOT DISALLOW THE CLOSING BALANCES OF EARLIER YEARS AS POINTED IN THE SUBMISSION MADE BY THE APPELLANT IN THE CASE OF FIVE CREDITORS IN THIS ASSESSMENT YEAR. THE AO HAS NOT GIVEN ANY VALID REASONS AS TO WHY THE CONFIRMATIONS OF SOME OF THE CREDITORS ARE IGNORED AS NOT GENUINE AND SOME OF TH E CONFIRMATIONS ARE ACCEPTED AS GENUINE. IN VIEW OF THE EXPLANATIO NS AND EVIDENCES FURNISHED AND ATTACHED TO THE WRITTEN SUBMISSIONS D ATED 14.8.2008 AND WHAT IS STATED HEREIN IN THIS REJOINDER, I AM O F THE OPINION THAT THE IMPUGNED ADDITION IS LIABLE FOR DELETION IN ENT IRETY 4.5. WHEN THE ISSUE CAME UP FOR CONSIDERATION BEFOR E US, THE LD. D RS ARGUMENT WAS REVOLVED AROUND THE REASONS SET-OUT BY THE AO IN THE IMPUGNED ORDER AND THAT THE LD.CIT(A), IN STEAD OF GIVING DUE WEIGHT-AGE TO THE WELL FOUNDED REASONING OF THE AO, HAD DECID ED THE ISSUE SOLELY RELIED ON THE CONTENTIONS OF THE ASSESSEE FIRM. SH E HAD, THEREFORE, PLEADED THAT THE FINDING OF THE LD.CIT (A) REQUIRES TO BE A NNULLED AND THAT OF THE AO BE RESTORED. ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 7 OF 17 4.5.1. ON THE OTHER HAND, THE LD A.R REIT ERATED MORE OR LESS WHAT HAS BEEN CONTENDED BEFORE THE APPELLATE AUTHORITY. TO SUPPORT HIS CONTENTIONS, HE HAS FURNISHED A VOLUMINOUS PAPER-BO OK CONTAINING 1 236 (SIC) 234 PAGES WHICH CONSISTS OF, INTER ALIA, COPI ES OF CONFIRMATORY LETTERS FROM THE CREDITORS, COPIES OF LEDGER ACCOUNTS OF LO AN CREDITORS, COPIES OF FINDINGS OF HONBLE TRIBUNAL ETC., 4.5.2. WE HAVE DULY CONSIDERED THE RIVAL SUBM ISSIONS. WE HAVE ALSO PERUSED THE RELEVANT RECORDS AND ALSO THE PAPER BOO K FURNISHED BY THE LD.A.R. AS RIGHTLY POINTED OUT BY THE LD.CIT (A), THE AO HAD ACCEPTED SOME OF THE CONFIRMATORY LETTERS EVEN THOUGH THE LO AN CREDITORS DID NOT APPEAR BEFORE THE AO IN SPITE OF SUMMONS WERE ISSUE D TO PROCURE THEIR VERY PRESENCE. THE AO HAD FAILED TO GIVE A SPEAKIN G ORDER, DETAILING THE REASONS TO ARRIVE AT SUCH A CONCLUSION THAT SOME OF THE CONFIRMATION LETTERS WERE OF DOUBTFUL CREDITABILITY. AS A MATTER OF FAC T, THE ASSESSEE FIRM SHOULD HAVE BEEN GIVEN A CHANCE TO REBUT OR OTHERWISE WITH REGARD TO REPORTS PURPORTED TO HAVE BEEN RECEIVED FROM THE OFFICERS W HO HAVE BEEN ISSUED COMMISSION FOR EXAMINATION OF CERTAIN PARTIES BASED AT HYDERABAD AND MUMBAI, BEFORE USING THE PIECE OF INFORMATION AGAIN ST THE ASSESSEE FIRM. NATURAL JUSTICE AND EQUITY HAS BEEN GIVEN A GO-BYE ON THIS VITAL ISSUE. THE RULING OF THE HONBLE APEX COURT IN THE CASE OF DHA KESWARI COTTON MILLS LTD. REPORTED IN 26 ITR 775 IS DIRECTLY ON THE POINT THA T MATERIALS GATHERED AT THE BACK OF THE ASSESSEE CANNOT BE USED AGAINST HIM (IT ) IN THE ASSESSMENT PROCEEDINGS UNLESS AN OPPORTUNITY OF BEING HEARD WA S EXTENDED. IN THE INSTANT CASE, THIS HAS NOT BEEN PRECISELY DONE. TH E AO HAD DISALLOWED ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 8 OF 17 RS.44.05 LAKHS BEING UNSECURED LOANS U/S 68 OF THE ACT AS UNEXPLAINED CASH CREDITS. 4.5.3. WHAT SECTION 68 SAYS ? WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESS ING OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. 4.5.4. ON A PERUSAL OF THE IMPUGNED ORDER, WE F IND THAT THE AO HAD NOT MADE (A) ANY FINDING TO THE EFFECT THAT SUCH SUMS WERE CREDI TED IN THE BOOKS OF THE ACCOUNT MAINTAINED BY THE ASSESSEE FIRM DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER DISPUTE; (B) BROUGHT ANY DISCREET EVIDENCE TO REBUT THE ASSESSEE FIRMS CLAIM THAT RS.44.05 LAKHS REPRESENT THE CLOSING BALANCES OF AM OUNTS APPEARING IN THE BOOKS OF THE ASSESSEE FIRM IN RESPECT OF AMO UNTS BORROWED BY CROSSED ACCOUNT PAYEE CHEQUES AND THAT THE SO CALLE D DIFFERENCES IN THE AMOUNTS WERE CONFIRMED BY THE PARTIES CONCERNED ; (C) DOCUMENTARY EVIDENCE TO SUBSTANTIATE HIS CLAIM THAT THE SO CALLED AMOUNTS WERE FOUND TO HAVE BEEN CREDITED IN THE BOO KS OF ACCOUNT MAINTAINED BY THE ASSESSEE FIRM DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION; AND (D) ANY SINCERE EFFORTS TO REFUTE THE ASSESSEE FIRMS E XPLANATION THAT THE SAID AMOUNTS REPRESENT LOANS BORROWED THROUGH ACCOU NT PAYEE CHEQUES, THE IDENTITY OF THE CREDITORS , THEIR PANS ETC., 4.5.5. WITH DUE RESPECTS TO THE JUDICIAL PRONO UNCEMENTS OF VARIOUS HONBLE COURTS, WE FIND THAT THE ASSESSEE FIRM HAD FURNISHED ALL THE REQUIRED INFORMATION WITH REGARD TO THE IDENTITY OF THE CREDITORS, THEIR PANS ETC. THEREBY THE ONUS WAS PLACED AT THE DOORSTEP OF THE AO TO ARRIVE AT A CONCLUSION WHETHER THE LOAN CREDITS WERE GENUINE OR OTHERWISE. HOWEVER, THE AO HAD FAILED TO DISCHARGE THE ONUS TO ITS TILT . ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 9 OF 17 4.5.6. IN OVER ALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AND ALSO IN VIEW OF THE RULING OF THE HONBLE APEX COURT ON WHICH THE LD. CIT (A) HAD PLACED STRONG RELIANCE, WE ARE OF T HE CONSIDERED VIEW THAT THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF S.68 OF THE ACT . IT IS ORDERED ACCORDINGLY. 5. THE SECOND EFFECTIVE GROUND IS WITH REGARD TO ADMISSION OF FRESH EVIDENCE AND DELETING OF UNEXPLAINED CASH CRE DITS OUT OF SUNDRY CREDITORS TO THE EXTENT OF RS.69.41 LAKHS. 5.1. THE AO NOTICED THAT IN SCHEDULE D TO B ALANCE SHEET, THERE WAS AN ENTRY BEING SUNDRY CREDITORS FOR TRADE OF RS.6 9.41 LAKHS UNDER THE HEAD CURRENT LIABILITIES. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, IN COMPLIANCE WITH THE QUERIES, THE ASSESSEE FIRM HAD PROMISED THAT THE EXTRACT OF THE ACCOUNTS OF THE SUNDRY CREDITORS WOU LD BE FURNISHED. SINCE THE PROMISED EXTRACT OF ACCOUNTS WAS NOT FORTH-COMI NG, THE AO HAD DISALLOWED THE SAME AS UNEXPLAINED CASH CREDITS U/S 68 OF THE ACT. 5.2. BEFORE THE CIT(A), IT WAS CONTENDED THA T DURING THE COURSE OF PROCEEDINGS, THE AO HAD NEITHER DOUBTED THE GENUIN ENESS OF THE TRADE CREDITOR NOT REQUIRED THE ASSESSEE TO PRODUCE THE C ONFIRMATION FROM THE SAID CREDITOR. A CONFIRMATORY LETTER FROM M/S.SHANK ARA PIPERS INDIA PRIVATE LIMITED - ALONG WITH THE DETAILS OF ITS PAN AND THE JURISDICTION OF THE AO WHERE IT WAS BEING ASSESSED ETC WAS FURNISHED WIT H A REQUEST TO ADMIT THE ADDITIONAL EVIDENCE UNDER RULE 46A AND DELETE T HE ADDITION. ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 10 OF 17 5.3. AFTER CONSIDERING THE CONTENTION OF THE A SSESSEE, THE CIT(A) TOOK A VIEW THAT THE DETAILS FORMING PART OF THE SCHEDUL E IN THE BALANCE SHEET AS ON 31.3.05 ATTACHED TO THE ROI CANNOT BE TREATED AS ADDITIONAL EVIDENCE UNDER RULE 46A. THE CIT (A) HAD FURTHER OBSERVED T HAT 6.6. THE DETAILS ARE ALREADY IN TRADE CRE DITORS ITSELF WITH ALL THE PARTICULARS. THE APPELLANT HAD EXPLAI NED THAT THE ENTIRE SUM OF RS.69,41,723.88 WAS DUE TO M/S. SHANKARA PIP ERS (INDIA) PRIVATE LIMITED WHICH BECAME A LIMITED COMPANY W.E. F. 28.8.2007. THE APPELLANT HAD EXPLAINED THE SAID COMPANY IS SUB STANTIALLY OWNED BY ONE OF THE PARTNERS OF THE FIRM VIZ., MR.S UKUMAR SRINIVAS WHO HOLDS OVER 90% SHAREHOLDING AND HE IS THE CHAIR MAN AND MANAGING DIRECTOR. THE SAID COMPANY IS ASSESSED TO INCOME-TAX, HAVING PAN AND MAINTAINED THE BOOKS OF ACCOUNT WHIC H WERE PRODUCED DURING THE COURSE OF HEARING. THE APPELLA NT ALSO EXPLAINED THE RECEIPT OF RS.25,00,000/- TOWARDS REN T AND RS.10,00,000/- TOWARDS INTEREST FROM THE SAID COMPA NY, VIZ., M/S. SHANKARA PIPERS (INDIA) PRIVATE LIMITED AND THE CRE DIT FOR TDS OF RS.1,12,200/- AND RS.5,61,000/- THERE-FROM ARE ALLO WED, THE TRANSACTION WITH THE SAID COMPANY WAS EXPLAINED. I N VIEW OF THIS, I AM OF THE OPINION THAT THE DISALLOWANCE MADE BY THE AO HAS TO BE DELETED AS THE ADDITION WAS MADE ON THE GROUND THAT DETAILS WERE NOT FURNISHED. IT IS SEEN THAT THE AO HAS NOT LOOK ED INTO THE DETAILS AVAILABLE IN THE RECORD BEFORE MAKING THE DISALLOWA NCE. 5.4.1. WE HAVE CONSIDERED THE REASONING OF THE LD. CIT(A). WE ARE IN AGREEMENT WITH THE CIT (A)S REASONING THAT THE DETAILS FORMING PART OF THE SCHEDULE IN THE BALANCE SHEET AS ON 31. 3.05 ATTACHED WITH THE ROI CANNOT BE TREATED AS ADDITIONAL EVIDENCE UN DER RULE 46A OF I.T. RULES. HOWEVER, THE ASSESSEE FIRM HAD CHOSEN TO FU RNISH A CONFIRMATORY LETTER FROM M/S. SHANKARA PIPERS (INDIA) PRIVATE LIMITED BEFORE THE APPELLATE AUTHORITY. IN OUR VIEW, THIS VITAL PIECE OF INFORMATION IS NOTHING BUT ADDITIONAL EVIDENCE WHICH WAS NOT BE FORE THE AO AND ALSO WE NOTICED THAT THE ASSESSEE FIRM HAD FAILED T O KEEP ITS PROMISE OF FURNISHING OF EXTRACT OF THE ACCOUNTS OF SUNDRY CRE DITORS IN TACT. ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 11 OF 17 5.4.2. IN THE INTEREST OF JUSTICE AND EQUITY, WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE SHOULD BE REMITTED BACK ON THE FILE OF THE AO WITH A DIRECTION TO CONSIDER THE ASSESSEES VIEW BEFORE DECIDING THE ISSUE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. IN THE MEANWHILE, THE ASSESSEE FIRM, THROUGH ITS A R, IS ADVISED TO FURNISH ALL THE RELEVANT PARTICULARS ALONG WITH THE CONFIRMATOR Y LETTER WHICH WOULD FACILITATE THE AO TO DECIDE THE ISSUE IN AN EXPEDIT IOUS MANNER. IT IS ORDERED ACCORDINGLY. 6. THE THIRD EFFECTIVE GROUND IS WITH REGARD TO THE ALLOWING THE DISALLOWANCE OF SALES-TAX IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CLAIM. 6.1. THE CIT (A) TOOK A VIEW THAT THE ASSESSEE FIR M HAD PAID SALES TAX ARREARS FOR 2000-01 OF RS.58265 ON 31.3.0 5 AND RS.2170/- FOR 03-04 ON 18.11.04. COPIES OF LEDGER ACCOUNT AND DEM AND NOTICES WERE FURNISHED BEFORE THE CIT (A) ON PAGES 63 69 OF PA PER BOOK FILED BEFORE HIM. TAKING CUE FROM THE PROVISIONS OF SECT ION 43B OF THE ACT, HE HAD DIRECTED THE AO TO ALLOW THE SALES-TAX ARREA RS PAID BY THE ASSESSEE AS THE PROOF OF PAYMENT WAS ON RECORD. 6.2. AS IS EVIDENT FROM THE ABOVE THAT THE PROOF FOR HAVING PAID THE SALES TAX ARREARS WAS NOT FURNISHED BEFORE THE ASSESSING AUTHORITY WHICH HAD RESULTED IN DISALLOWANCE OF SUC H A CLAIM AT THE HANDS OF THE AO. THE ASSESSEE FIRM, THROUGH ITS A R, IS ADVISED TO APPROACH THE AO WITH DOCUMENTARY EVIDENCE FOR REDRE SSAL. IN THE ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 12 OF 17 MEANWHILE, THE AO IS DIRECTED TO VERIFY THE PROOF W HICH WILL BE FURNISHED BY THE ASSESSEE FIRM AND ADMIT ITS CLAIM, IF FOUND TO BE ADMISSIBLE. 7. THE LAST EFFECTIVE GROUND IS THE ASSESSEE FIRMS CLAIM OF RS.38769/- AS BAD DEBTS WRITTEN OFF UNDER THE HEAD MISC. EXPENSES WHICH WAS NOT ENTERTAINED BY THE AO IN TH E ABSENCE OF DETAILS SUCH AS NAMES OF PARTIES, YEAR OF ORIGIN OF DEBTS, EFFORTS PUT- FORTH BY THE ASSESSEE TO SALVAGE SUCH DEBTS ETC. H OWEVER, THE CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE FIRM WITH A CRYPT IC REASONING THAT IT IS SEEN THAT IN THE BOOKS OF ACCOUNTS, THE APPELLAN T HAD WRITTEN OFF BAD DEBT WRITTEN OFF (EMD) OF RS.38769/-. IN VIEW OF T HIS FACT, THE DISALLOWANCE MADE BY THE AO IS NOT JUSTIFIED ... 7.1. THE ASSESSEE FIRM HAD, IN ITS REJOINDER TO TH E REMAND REPORT OF THE AO [BEFORE THE CIT (A)-V - PAGE 140 O F PAPER BOOK], ADMITTED THAT, 32. IF THE RESPONDENT HAD REQUIRED THE EVIDENCES DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AP PELLANT HAD NO PROBLEM IN FURNISHING THE EVIDENCE . THIS GOES TO PROVE THAT NO DETAILS WITH REGARD TO BAD DEBTS WRITTEN OFF WERE PLACED BEFORE THE AO FOR HIS CONSIDERATION. 7.2. IN VIEW OF THE ABOVE, WE ARE OF THE UNANIMOU S VIEW THAT THIS ISSUE SHOULD BE REMITTED BACK ON THE FILE OF T HE AO FOR FRESH CONSIDERATION. IN THE MEANWHILE, THE ASSESSEE FIRM , THROUGH ITS A R, IS DIRECTED TO FURNISH THE RELEVANT DETAILS, AS PROMIS ED, [PAGE 140 OF PB] ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 13 OF 17 WHICH WOULD FACILITATE THE AO TO TAKE APPROPRIATE A CTION UNDER THE PROVISIONS OF THE ACT. IT IS ORDERED ACCORDINGLY. II. C.O NO: 20 (BY THE ASSESSEE) : 8. THE ONLY CROSS OBJECTION OF THE ASSESSEE FIRM IS THAT THE DISALLOWANCE OF RS.31.53 LAKHS BY THE AO BEING INTE REST PAID BY THE ASSESSEE ON THE LOANS BORROWED IN THE EARLIER YEARS HAS BEEN CONFIRMED BY THE APPELLATE AUTHORITY. 8.1. IN SCHEDULE N TO THE P & L ACCOUNT, THE ASSES SEE HAD DEBITED RS.31.53 LAKHS TOWARDS INTEREST ON UNSECURE D LOANS OF RS.1.98 CRORES. HOWEVER, THE ASSESSEE FIRM HAD CLOSED ITS BUSINESS OF DEALING IN PIPES AND TUBES W.E.F. 1.4.02 AND HENCE-FORTH HAD E NGAGED ONLY IN TERMINAL ACTIVITIES OF REALIZING BUSINESS RECEIVABLES AND I N LIQUIDATING BUSINESS OBLIGATIONS. THE ONLY BUSINESS INCOME GENERATED BY IT DURING THE YEAR WAS COMMISSION OF RS.105000/-, THE UNSECURED LOANS CL AIMED BY IT HAD SHOWN AN INCREASE FROM RS.8185000 TO 19875000 AS COULD BE SEEN FROM A COMPARISON OF THE FIRMS BALANCE SHEETS AS AT 31.3. 04 AND 31.3.05. THERE WAS ALSO A HUGE DEBIT BALANCE OF RS.2.20 CRORES IN THE CURRENT ACCOUNT OF ONE OF THE PARTNERS, SHRI SUKUMAR SRINIVAS. CONSIDE RING THE ABOVE STATE OF AFFAIRS, THE AO TOOK A VIEW THAT THE ASSESSEES CLA IM OF RS.3153296 AS INTEREST PAID WAS WHOLLY UNTENABLE AND UNRELATED TO ITS BUSINESS AND ACCORDINGLY DISALLOWED. 8.2. AFTER DUE CONSIDERATION OF THE SPIRITED ARGUM ENTS PUT-FORTH BY THE ASSESSEE FIRM, THE LD.CIT(A) HAD OBSERVED THUS ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 14 OF 17 7.3..SINCE THE APPELLANT HAS DISCONTINUED ITS BUSINESS OPERATION W.E.F. 1.4.02, IT CANNOT CONTINU E TO BORROW LOANS AND PAY INTEREST FOR THE PURPOSE OF BUSINESS ACTIVI TIES. IT IS AN ADMITTED FACT THAT THE APPELLANT IS ONLY ENGAGED IN TERMINAL ACTIVITIES OF REALIZING BUSINESS RECEIVABLES AND I N LIQUIDATING BUSINESS OBLIGATIONS. THEREFORE, THE PAYMENT OF I NTEREST IS NOT ON ACCOUNT OF BUSINESS ACTIVITY WHICH IS FURTHER STREN GTHENED BY THE FACT THAT THERE IS A HUGE DEBIT BALANCE OF RS.22014272/- IN THE ACCOUNT OF ONE PARTNERS OF THE FIRM. THE APPELLANT ALSO MEN TIONED THAT UNSECURED LOAN OF RS.8185000/- WAS THE OPENING BALA NCE AS ON 1.4.04 AND AMOUNT BORROWED DURING THE YEAR WAS RS.2 1190000/- AND THE AMOUNT DRAWN BY THE PARTNER WAS RS.7555000/ -. IF AT ALL INTEREST IS TO BE DISALLOWED IT WILL BE ONLY RS.811 000/- I.E., RS.3153296 X 7555000 DIVIDED BY RS.29375000/-. THI S VIEW OF THE APPELLANT IS NOT ACCEPTABLE AS THE REASON FOR BORRO WING SUCH HUGE BORROWED LOAN OF RS.21190000/- WAS NOT CLEAR WHEN T HE APPELLANT HAS ACCEPTED THE CLOSURE OF ITS BUSINESS WITH EFFEC T FROM 1.4.02 AND WAS ENGAGED ONLY IN TERMINAL ACTIVITIES OF REALIZIN G BUSINESS RECEIVABLES AND IN LIQUIDATING BUSINESS OBLIGATION. IN VIEW OF THIS, I AM OF THE CONSIDERED OPINION THAT THE INTEREST PAYM ENT IS NOT RELATING TO BUSINESS ACTIVITIES AND THE SAME CANNOT BE ALLOWED AS BUSINESS EXPENSES. 8.3.1. THE CONTENTION OF THE ASSESSEE FIRM WAS REV OLVED AROUND THAT THE AO ERRED IN MAKING THE DISALLOWANCE OF RS.31.53 LAKHS, THE SAME BEING THE INTEREST PAID BY THE ASSESSEE ON THE LOANS BORR OWED IN THE EARLIER YEARS AND IN THE YEAR AS NOT RELATING TO THE BUSINESS OF THE ASSESSEE WITH TOTAL DISREGARD TO THE FACTS OF THE CASE AND THE EXPLANAT ION OFFERED BY THE ASSESSEE FIRM. 8.3.2. WE HAVE DULY CONSIDERED THE SUBMISSION OF T HE ASSESSEE FIRM AND ALSO CAREFULLY CONSIDERED THE IMPUGNED ORDERS O F THE LOWER AUTHORITIES. IT WAS AN ADMITTED FACT THAT THE ASSESSEE FIRMS BU SINESS HAD CEASED W.E.F. 1.4.2002 AND ENGAGED ONLY IN TERMINAL ACTIVITIES OF REALIZING BUSINESS RECEIVABLES AND IN LIQUIDATING BUSINESS OBLIGATIONS . FURTHER, OPENING BALANCE OF UNSECURED LOAN AS ON 1/4/04 WAS RS.81,85 ,000/-, HOWEVER, ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 15 OF 17 DURING THE YEAR UNDER DISPUTE, THE ASSESSEE HAD BOR ROWED A WHOPPING LOAN OF RS.2.11 CRORES. THE ASSESSEE FIRMS SPIRITED AR GUMENT THAT THE ALLEGED INTEREST PAYMENT ON UNSECURED LOANS WAS BORROWED TO LIQUIDATE THE EARLIER LIABILITIES OF THE FIRM AND FOR REPAYMENT OF LOANS BORROWED EARLIER. NO COMPREHENSIVE DETAILS ARE FORTH-COMING TO JUSTIFY T HE ASSESSEE FIRMS CLAIM THAT BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE I T WAS INTENDED TO, WHEREAS, AS ADMITTED BY THE FIRM ITSELF, IT HAD CLO SED ITS BUSINESS OF DEALING IN PIPES AND TUNES W.E.F. 1.4.2002 AND WAS ENGAGED ONLY IN TERMINAL ACTIVITIES. ON THE OTHER SIDE OF THE COIN, NEITHER THE AO NOR THE FIRST APPELLATE AUTHORITY HAS COME OUT WITH COHESIVE REAS ONING TO JUSTIFY SUCH A DISALLOWANCE. EVEN AT THIS STAGE, THE ASSESSEE FIR M HAS NOT BROUGHT ON RECORD ANY TANGIBLE DETAILS JUSTIFYING IT CLAIM. IN VIEW OF THE FLUID SITUATION, WE ARE OF THE UNANIMOUS VIEW THAT THIS ISSUE SHOULD BE RESTORED ON THE FILE OF THE AO TO LOOK INTO THE MATTER AFRESH IN A COMP REHENSIVE MANNER, BY MAKING DISCREET VERIFICATION OF THE DETAILS WHICH WILL BE FURNISHED BY THE ASSESSEE FIRM AND TO BRING OUT THE NECESSARY INPUTS , SUCH AS, - (I) WHETHER THE ASSESSEE FIRM HAD BORROWED RS.2.11 CROR ES UNSECURED LOAN DURING THE YEAR UNDER DISPUTE, TO LIQUIDATE T HE LOANS ALREADY AVAILED? THE DETAILS, WHICH WILL BE FURNISHED BY THE A SSESSEE FIRM, MAY BE SCRUTINIZED TO FIND OUT WHETHER THE CLAIM OF THE AS SESSEE FIRM IS JUSTIFIABLE; (II) WHETHER THE PAYMENT OF INTEREST HAS ANY NEXUS WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE FIRM? (III) THERE WAS A HUGE DEBIT BALANCE OF RS.2.20 CR ORES IN THE ACCOUNT OF ONE OF THE PARTNERS OF THE FIRM. THE RATIONALE FOR SUCH A HUGE DEBIT MAY ALSO BE LOOKED INTO. ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 16 OF 17 8.3.3. IN THE MEANTIME, THE ASSESSEE FIRM, THROUGH ITS A.R., ADVISED TO FURNISH THE REQUIRED DETAILS IN A COMPREHENSIVE MANNER WHICH WILL FACILITATE THE AO TO DECIDE THE ISSUE IN AN EXPEDIT IOUS WAY. IT IS ORDERED ACCORDINGLY. 8.3.4. BEFORE PARTING WITH, WITH RESPECTS , WE HAVE PERUSED THE FINDING OF THE HONBLE TRIBUNAL IN ITA NO:1187/B/07 IN THE CASE OF M/S.HANS STEEL PRIVATE LIMITED ON WHICH THE ASSESSEE FIRM HAS PLAC ED RELIANCE [PAGE 219 OF PB]. THE ISSUE DEALT BY THE HONBLE TRIBUNAL WA S ON THE DIFFERENT FOOTING AND, THUS, NOT DIRECTLY APPLICABLE TO THE FACTS OF THE CASE ON HAND. III. ITA NO:545/09 - (BY THE ASSESSEE) : 9. THE FIRST EFFECTIVE GROUND IS THE DISALLOWANCE OF RS.31.53 LAKHS BY THE AO BEING INTEREST PAID BY THE ASSESSEE ON THE LOANS BORROWED IN THE EARLIER YEARS WHICH HAS BEEN CONFIRMED BY TH E APPELLATE AUTHORITY. 9.1. THIS ISSUE HAS ALREADY BEEN DEALT WITH BY US WHEN THE ASSESSEE FIRM HAD RAISED THE SAME ISSUE THROUGH ITS CROSS OBJECTION REFERRED SUPRA [PARA 8 8.3.4.]. THE SAME REASONI NG HOLDS GOOD HERETO. 10. THE NEXT GROUND IS LEVYING OF INTEREST US 234B OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE. HOWEVER, THE AO S HALL GIVE CONSEQUENTIAL RELIEF WHILE GIVING EFFECT TO THIS COMMON ORDER. 11. IN THE RESULT (I) THE REVENUES APPEAL IN ITA NO.460/09 IS PARTLY ALLOWED ; (II) THE ASSESSEE FIRMS CROSS OBJECTION IN C.O. NO.20/09 IS ALLOWED FOR STATISTICAL PURPOSES; & ITA NO.460/09, 545/09 & CO NO.20/B/09 PAGE 17 OF 17 (III) THE ASSESSEE FIRMS APPEAL IN ITA NO.545/09 DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER 2009. SD/- SD/- (SHAILENDRA KUMAR YADAV ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 30 TH SEPTEMBER, 2009. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.