M/s Cornell Overseas Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5488/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97578 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VANDANA BHANDARICA

Judgement Text

PAGE 1 OF 10 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SH. A.T.VARKEY, JM AND SH. PRASHAN T MAHARISHI, AM ITA NO. 5488/DEL/2013 : ASSTT. YEAR : 2009-10 CORNELL OVERSEAS PVT. LTD. VS. DCIT C-1, PANCHSHEEL ENCLAVE CIRCLE-3(1), NEW DELHI NEW DELHI PAN : AAACC0034F APPELLANT RESPONDENT APPELLANT BY : MS. VANDANA BHANDARI,CA. RESPONDENT BY : SH. HEMANT GUPTA, SR. DR. DATE OF HEARING : 13.10.2015 DATE OF PRONOUNCEMENT : PER PRASHANT MAHARISHI, AM: 01. THIS APPEAL IS AGAINST ORDER OF CIT(A)-VI, NEW DELH I DATED 31.07.2013 PREFERRED BY ASSESSEE RAISING MAINLY FO LLOWING THREE GROUNDS OF APPEAL :- 1. THE LD. CIT-A & AO ERRED IN IMPUTING AND ADDING RS. 2,31,640/- AS INTEREST, COMPUTED @ 12% ON ADVANCE T O MADE TO M/S CHRYSALIS PRINTING & DYING MILLS LTD., ON THE REASONING THAT APPELLANT HAS DIVERTED INTEREST BEARING FUNDS TO THE SISTER CONCERNS. 2. FURTHER, THE LD. CIT A & AO ERRED BOTH ON FACTS AN D IN LAW IN DISALLOWING RS. 8,69,906/- AS UNEXPLAINED LO ANS AND ADVANCES ON THE REASONING THAT FIGURES MENTIONE D BY THE AUDITORS IN THE AUDIT REPORT IS DIFFERENT FROM THE DETAILS PROVIDED. 3. THE LD. CIT-A HAS ERRED BOTH IN FACTS AND IN LAW I N TREATING RS. 4,20,512/- AS UNEXPLAINED INCOME ON TH E GROUND THAT THE APPELLANT COULD NOT FURNISH ANY EXPLANATION REGARDING NATURE OF RECEIPTS. PAGE 2 OF 10 02. APPELLANT IS A PRIVATE LTD. COMPANY AND FILED ITS R ETURN OF INCOME SHOWING INCOME OF RS. 1,36,23,491/- AND AFTER SETTI NG OFF BROUGHT FORWARD LOSES THE INCOME WAS REDUCED TO NIL. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS AO MADE SOME ADDITIONS MAIN LY RELATE TO DISALLOWANCE OF INTEREST OF RS. 2,31,640/- ON ACCOU NT OF ADVANCES MADE TO SISTER CONCERN, ADDITION OF RS. 8,69,906/- ON ACCOUNT OF UNEXPLAINED LOANS AND ADVANCES AND ADDITION OF RS. 4,20,512/- WAS MADE AS AMOUNT OUTSTANDING AS SUSPENSE ACCOUNT AS UNEXPLAINED INCOME ON THE GROUND THAT NO EXPLANATION IS FURNISH ED. ALL THESE THREE ADDITIONS WERE CONFIRMED BY CIT(A) AGAINST WHICH A SSESSEE IS IN APPEAL BEFORE US. 03. GROUND NO. 1 IS RELATING TO DISALLOWANCE OF RS. 2 ,31,640/- OUT OF INTEREST COMPUTED @ 12% ON ADVANCES GIVEN TO M/S. C HRYSALIS PRINTING AND DYING MILLS LTD. BEING SISTER CONCERN OF THE ASSESSEE. IT WAS FOUND THAT AN ADVANCE OF RS. 19,28,900/- WAS OU TSTANDING IN THE NAME OF ONE CHRYSALIS PRINTING AND DYING LTD AS TH E CLOSE OF THE YEAR. APPELLANT COMPANY HOLDS 50% SHARE HOLDING IN THAT COMPANY. THE BREAKUP OF AMOUNT OUTSTANDING IN THE NAME OF THESE PARTIES SHOWS THAT THESE ARE GIVEN FROM FINANCIAL YEAR 1 998-99 TO 2003-04. LD. AO WAS OF THE VIEW THAT ASSESSEE HAS GIVEN LOAN TO THIS PARTY AND NO INTEREST HAS BEEN CHARGED ON THE SAME, HE COMPUT ED 12% INTEREST ON THE AMOUNT OF RS. 19,28,900/- AND DISALLOWED RS. 2,31,460/- APPLYING THE PROVISIONS OF SECTION 36(1)(III) OF TH E ACT. LD. CIT(A) ALSO UPHELD THE DISALLOWANCE HOLDING THAT AS ASSESS EE HAS CLAIMED INTEREST EXPENDITURE OF RS. 27,75,885/- AND HAS DI VERTED INTEREST BEARING FUNDS TO THE SISTER CONCERN. THEREFORE HE HOLD THAT THE PAGE 3 OF 10 AMOUNT OF MONEY BORROWED FOR THE PURPOSE OF THE BUS INESS BY THE ASSESSEE HAS NOT BEEN UTILIZED FOR THE PURPOSE OF T HE BUSINESS AND THEREFORE THE DISALLOWANCE OF RS. 2,31,460/- WAS CO NFIRMED. 04. BEFORE US LD. AR SUBMITTED THAT THE COMPANY WAS PRO VIDING DYING AND PRINTING SERVICES TO THE APPELLANT IN FY 1998-99 TO 2003-04 AND THEREFORE THE ADVANCES WERE GIVEN TO THAT PARTY. SH E SUBMITTED DETAILS OF TRANSACTIONS ENTERED INTO WITH THAT PARTY FROM 1 998-99 TILL 2003-04 WHICH SHOWS THAT ALMOST SIMILAR AMOUNT OF CLOSING ADVANCES WERE OUTSTANDING FOR THOSE YEARS BUT THE TRANSACTION VAL UE WITH THAT COMPANY IS OF APPROXIMATELY 2 CRORES FOR EACH OF TH E YEAR. THEREFORE, THE ADVANCES ARE IN THE NATURE OF BUSINESS ADVANCES . SHE FURTHER SUBMITTED THAT THE ADVANCES ARE OUTSTANDING FOR LON G PERIOD AND NO DISALLOWANCES MADE BY THE ASSESSING OFFICER IN EARL IER YEAR AND FURTHER THESE ADVANCES ARE NOT GIVEN DURING THE YEA R BUT IN EARLIER YEARS. SHE ALSO REITERATED HER SUBMISSION MADE BEFO RE THE AO AND CIT(A) THAT THESE ARE BUSINESS ADVANCES AND THESE B USINESS ADVANCES COULD NOT BE RECOVERED ON ACCOUNT OF DISPUTE OF THA T PARTY WITH ITS LANDLORD AND THAT PARTY STOPPED THE BUSINESS FROM 13 TH JULY, 2001. SHE SUBMITTED THAT THE ASSESSEE HAS ALSO SHARE CAPITAL AND RESERVE FUND OF MORE THAN THIRTEEN AND HALF CRORES THEREFORE THE AS SESSEE HAS MORE NON INTEREST BEARING FUNDS THEN THE AMOUNT ALLEGED TO HAVE BEEN LENT INTEREST FREE. SHE SUBMITTED THAT DISALLOWANCE HAS BEEN INCORRECTLY MADE BY AO AND CONFIRMED BY CIT(A). 05. LD. DR SUBMITTED THAT ASSESSEE HAS GIVEN INTEREST F REE FUNDS TO ITS ASSOCIATE CONCERN AND SAME IS NOT RECOVERABLE FOR A LONG TIME AND PAGE 4 OF 10 THEREFORE AO HAS RIGHTLY MADE DISALLOWANCE OF INTER EST THEREON AS ASSESSEE IS PAYING HUGE INTEREST. HE RELIED ON THE ORDER OF THE ASSESSING OFFICER AS WELL AS CIT(A). 06. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION. THE ASSESSEE HAS NOT GIVEN ADVANCES DURING THE YEAR BUT ARE OUTSTAND ING SINCE 31 ST MARCH, 2004. IN F Y 2008-09 TO 2003-04 ASSESSEE WA S ENJOYING BUSINESS RELATION WITH THAT COMPANY AS THAT COMPAN Y WAS CARRYING ON BUSINESS OF DYEING AND PRINTING FOR THE ASSESSEE. D URING THAT PERIOD THE TRANSACTION ENTERTAIN TO BY THE ASSESSEE COMPAN Y WITH ITS SISTER CONCERN WERE APPROXIMATELY RS 2 CRORES EACH AND AT THE END OF THE EACH YEAR OUTSTANDING BALANCE WAS ALSO REMAINING OF APPROXIMATELY RS 19 LAKHS. AS THE DETAILS SUBMITTED SHOWS THAT AS SESSEE IS ENGAGED IN THE BUSINESS TRANSACTIONS WITH THAT COMPANY AS THESE ADVANCES WERE GIVEN FOR THE PURPOSE OF PRINTING AND DYING GR OUPS SERVICES FOR THE ASSESSEE, IT CANNOT BE SAID THAT THE ADVANCES A RE NOT FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE COMPANY. FURTHER TH E ASSESSEE WAS HAVING INTEREST BEARING FUND OF RS. 36,21,707/- AND NON INTEREST BEARING FUNDS OF APPROXIMATELY RS. 13.51 CRORES I N THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUSES AS AT 31 ST MARCH, 2009, THEREFORE THERE IS A CONSIDERABLE FORCE IN THE ARGUMENTS OF AR THAT AS IT HAS MORE NON-INTEREST BEARING FUNDS AVAILABLE WITH IT T HEN THE AMOUNT OF ALLEGED ADVANCES GIVEN TO SISTER CONCERN, THE PRESU MPTION OF DIVERTING THE INTEREST BEARING FUNDS USED FOR GIVING THIS ADV ANCES IS NOT CORRECT. HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. RELIAN CE UTILITIES LTD. 313 ITR 340 HAS HELD THAT THE PRINCIPLE FOR DISALL OWANCE U/S 36(1)(III) PAGE 5 OF 10 WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INT EREST FREE AND LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTME NT WOULD BE OUT OF INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENTS . IN THE CASE OF THE ASSESSEE THIS PRESUMPTION IS ESTABLISHED IN VIEW OF HUGE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. HE NCE WE DELETE THE DISALLOWANCE OF RS. 2,31,640/- AS INTEREST @ 12% ON ADVANCE OUTSTANDING TO M/S CHRYSALIS PRINTING & DYING MILL S LTD AND REVERSE THE ORDER OF CIT (A). GROUND NO. 1 OF THE APPEAL IS ALLOWED. 07. GROUND NO. 2 OF THE APPEAL IS AGAINST DISALLOWANCE REGARDING THE ADDITION OF RS. 8,69,906/- AS UNEXPLAINED LOANS AND ADVANCES. THE LD. AO NOTED THAT THE LOAN AMOUNT SHOWN BY THE ASSESSEE IS NOT TALLYING WITH THE FIGURES MENTIONED BY THE AUDITOR IN ITS AU DIT REPORT. OUT OF THE TOTAL LOAN OF RS. 150.41 LACS FOR WHICH SHOW CAUSE NOTICE IS ISSUED ASSESSEE ONLY PROVIDED DETAILS OF 1,41,71,094/- AND THEREFORE HE MADE AN ADDITION OF RS. 8,69,906/-. BEFORE CIT(A) ASSESS EE SUBMITTED THAT THE OUTSTANDING AMOUNT OF LOANS AND ADVANCES IS ONLY RS. 1,41,71,094/- AND AO HAS WRONGLY TAKEN THE MAXIMUM AMOUNT OUTSTANDING DURING THE YEAR FIGURES FROM THE AUDIT REPORT WHICH IS RS. 1,50,41,688/- AND THEREFORE THE ADDITION HAS BE EN MADE. LD. CIT(A) DID NOT ACCEPT THE EXPLANATION OFFERED AND C ONFIRMED THE ADDITION OF RS. 8,69,906/-. 08. BEFORE US THE LD. AR SUBMITTED THAT THE ASSESSEE HA S GIVEN AN ADVANCE OF RS. 141.71 LACS ONLY HOWEVER, THE AO HAS TAKEN T HE FIGURE FROM THE PAGE 6 OF 10 AUDIT REPORT AS PER CARO 2003 WHERE THE AUDITOR I S REQUIRED TO SUBMIT MAXIMUM OUTSTANDING BALANCE OF THE SPECIFIED PARTIES AT ANY DURING THE YEAR. SHE SUBMITTED THE DETAILS TABULAT ED AS UNDER :- TABLE- 1 MAXIMUM AMOUNT OF LOAN AND ADVANCE OUTSTANDING DURI NG THE YEAR (A) ROSETTA TEXTILES PRIVATE LTD. 1,3 1,12,788 OPENING BALANCE (BEING MAXIMUM AMOUNT O/S) (B) CHRYSALLIS LOANS (OPENING/CLOSING BALANCE) 19,28,900 (OPENING AND CLOSING BALANCE BEING SAME) ___ ________ MAXIMUM OUTSTANDING (A)+(B) 1,50,41,688 TABLE-2 CLOSING AMOUNT OF LOAN AND ADVANCE OUTSTANDING (A) ROSETTA TEXTILES PRIVATE LTD 1,22,42,194 CLOSING BALANCE (B) CHRYSALLIS LOANS (CLOSING BALANCE) 19,28,900 (OPENING AND CLOSING BALANCE BEING SAME) __________ CLOSING OUTSTANDING (A)+(B) 1,41,71, 094/- SHE DREW OUR ATTENTION TO ITEM NO. III (A) WERE AUD ITORS HAVE CERTIFIED THAT THE MAXIMUM AMOUNT INVOLVED IN THE TRANSACTION IS RS. 150.41 LACS. THESE FIGURES ARE REGARDING THE LOAN TO THE COMPANIES AND PARTIES COVERED IN THE REGISTERED MAINTAINED U/S 3 01 OF THE COMPANIES ACT, 1956. THE CLOSING BALANCE OF THESE PARTIES IS ONLY RS. 1,41,71,094/- THEREFORE THERE IS NO FIGURES OF LOAN S AND ADVANCES AS PER BALANCE SHEET AS MENTIONED BY AO. SHE FURTHER DREW OUR ATTENTION TO NOTE NO. 6 OF SCHEDULE 19 OF THE BALANCE SHEET W HERE THE DETAILS ARE CRYSTAL CLEAR THAT THE LOANS AND ADVANCES ARE OF RS. 1,41,71,094/- ONLY IN WHICH THE DIRECTORS ARE INTERESTED AND MAXI MUM AMOUNT OUTSTANDING DURING THE YEAR IS RS. 1,50,41,688/-. T HEREFORE SHE PAGE 7 OF 10 SUBMITTED THAT THE ADDITION HAS ARISEN BECAUSE OF INCORRECT UNDERSTANDING OF THE BALANCE SHEET OF THE COMPANY. 09. LD. DR RELIED ON THE ORDERS OF CIT(A) AS WELL AS A O. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ARE CONVINCED THAT LOANS AND ADVANCES ARE OUTSTANDING AS PER THE BALANCE SHEET OF THE COMPANY IN CASE OF TWO PARTIES AS AT 31-3-2009 AMO UNTING TO RS. 1,41,71,094/- AND THE MAXIMUM OUTSTANDING BALANCE A T ANY TIME DURING THE YEAR OF THESE TWO PARTIES IN AGGREGATE A MOUNTS TO RS. 1,50,41,688/-. THEREFORE THE ACTUAL BALANCE OUTSTAN DING IS ONLY RS. 1,41,71,094. THE NOTE NO. 6 IN SCHEDULE NO. 19 OF THE BALANCE SHEET AS WELL AS THE AUDITORS REPORT CLEARLY DESCRIBES S O. THE LD. AO AS WELL AS THE CIT(A) BOTH ERRED IN READING THE AUDITED ACCOUNTS OF THE COMPANY AND MAKING AND CONFIRMING THE ADDITION. ACC ORDING TO US AND AS DETAILS FURNISHED THERE IS NO DIFFERENCE IN THE BALANCE SHEET OF THE ASSESSEE AND THEREFORE WE DELETE THE ADDITION O F RS. 8,69,906/- AND REVERSE THE ORDER OF CIT(A). GROUND NO. 2 OF THE AP PEALS IS ALLOWED. 11. THE 3 RD GROUND OF APPEAL IS AGAINST THE ADDITION OF RS. 4, 20,512/-. THE ADDITION HAS BEEN MADE AS THIS AMOUNT IS SHOWN AS S USPENSE ACCOUNT. THE SUSPENSE ACCOUNT HAS ARISEN BECAUSE OF MONEY R ECEIVED FROM THE DEBTORS BUT INFORMATION OF THE NAME OF THE REMITTER S IS NOT AVAILABLE. HENCE THIS AMOUNT IS SHOWN AS A SUSPENSE AMOUNT. AO HAS MADE THE ADDITION AS ASSESSEE COULD NOT GIVE ANY INFORMATION ABOUT THIS AMOUNT. PAGE 8 OF 10 THE CIT(A) CONFIRMED THE ADDITION BECAUSE ASSESSEE FAILED TO OFFER AN EXPLANATION BEFORE AO AND THEREFORE HE TREATED THIS INCOME AS TRADING INCOME. 12. LD. AR BEFORE US SUBMITTED THAT THE SUSPENSE ACCOUN T IS THE AMOUNT OUTSTANDING IN THE BOOKS OF THE COMPANY FOR WHICH T HE DETAILS OF PARTIES REMITTING THE SAME AMOUNT COULD NOT BE IDEN TIFIED AND THEY HAVE BEEN RECEIVED THROUGH BANKING CHANNEL. SHE SUB MITTED THAT AS ON 1.4.2008 THE OPENING BALANCE OF RS. 3,43,335/- WAS OUTSTANDING AND DURING THE YEAR 77,176/- WERE FURTHER ADDED RESULT ING INTO A CLOSING BALANCE OF RS. 4,20,511/-. IN FY 2009-10 THE AMOUNT OF OPENING BALANCE CARRIED FORWARD WAS 4,20,511/- AND OUT OF W HICH RS 59,400/- WERE ADJUSTED RESULTING INTO A CLOSING BALANCE OF R S. 3,61,111/- WHICH WAS CARRIED FORWARD AND SAME IS WRITTEN BACK AND CR EDITED TO THE PROFIT AND LOSS ACCOUNT IN SUBSEQUENT YEAR . SHE SUBMITT ED THAT THIS INCOME HAS ALREADY BEEN TAKEN INTO ACCOUNT FINANCIAL YEAR 2010-11. SHE STATED THAT THE TAX RATE FOR BOTH THE YEARS ARE SAME AND T HEREFORE ADDITION MAY BE DELETED AN INCOME OFFERED BY THE ASSESSEE. 13. LD. DR SUBMITTED THAT THE INCOME OFFERED BY THE AS SESSEE IN FINANCIAL YEAR 2010-11 IS NOT VERIFIABLE AT THIS STAGE AND TH EREFORE THE MATTER MAY BE SET ASIDE TO THE FILE OF AO FOR THE PURPOSE OF VERIFICATION. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND AS FACT S DEMONSTRATED BEFORE US THAT SUSPENSE ACCOUNT IS ARISEN OUT OF VA RIOUS DEBITS AND CREDITS WHICH COULD NOT BE IDENTIFIED BY THE ASSESS EE. SAME WERE PAGE 9 OF 10 NEITHER OFFERED AS INCOME NOR CLAIMED AS EXPENDITU RE. ULTIMATELY IN FINANCIAL YEAR 2010-11 THE ASSESSEE HAS WRITTEN IT BACK TO THE P & L ACCOUNT AND AS IT IS NOT DISPUTED THAT THERE IS NO DIFFERENCE BETWEEN THE TAX RATE OF THE CURRENT YEAR AS WELL AS AY 201 1-12, THEREFORE WE SET ASIDE THIS ISSUE BACK TO THE FILE OF AO FOR VER IFYING THE FACTS WHETHER THE SUSPENSE ACCOUNT WRITTEN BACK HAS BEEN OFFERED TO TAX IN FINANCIAL YEAR 2010-11I.E. AY 2011-12 AND IF SO, DELETE THE ADDITION IN THE ASSESSMENT YEAR IN THE APPEAL. THIS GROUND O F APPEAL IS ALLOWED FOR THE STATISTICAL PURPOSES. 15. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE COURT ON 21/10/2 015) SD/- SD/- (A.T.VARKEY) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21 /10/2015 *B. RUKHAIYAR* COPY FORWARDED TO: 1. APPELLANT A 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR PAGE 10 OF 10 DATE INITIAL 1. DRAFT DICTATED ON 20 / 10 /2015 2. DRAFT PLACED BEFORE AUTHOR 20 / 10 /2015 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.