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सुनवाईक�तारीख/Date of Hearing : 13.01.2021 उदघोषणाक�तारीख/Date of Pronouncement : 08.04.2021 आदेश/Order आदेश आदेश आदेश Per R.L. Negi, Judicial Member:
The assessee has filed the present appeal against the order dated 11.02.2019 passed by the Commissioner of Income Tax (Appeals)-1, Ludhiana (for short ‘the CIT(A)], for the assessment year 2013-14 whereby, the Ld. CIT(A) has partly allowed the appeal of the assessee filed against the assessment order passed u/s 143(3) of the Income Tax Act, 1961 (for short 'the Act').
The brief facts of the case are that the assessee filed its return of income for the assessment year under consideration declaring total
596-chd-2019- M/s S.D. Marketing Co., Ludhiana income of Rs.26,75,690/- The case was selected for scrutiny and the AO passed the assessment order u/s 143(3) of the Act determining the total income of Rs. 71,00,314/- making addition of Rs. 39,04,797/- on account of disallowance u/s 36(1)(iii) of the Act along with other additions. The assessee challenged the assessment order passed by the AO. The Ld. CIT(A) after hearing the assessee partly allowed the appeal and reduced the disallowance on account of expenses debited under the head Car Expense, Insurance, Telephone expenses and Depreciation from 1/5th to 1/8th and disallowance of expenses debited on account of Freight, Cartage Inward, Rebate & Discount and Tempo expenses from 3 lakh to 1 lakh, however, upheld the addition of Rs. 39,04,797/- on account of disallowance u/s 36(1)(iii) of the Act. Still aggrieved, the assessee is in appeal before this Tribunal.
The assessee has challenged the impugned order by raising the following grounds: - 1. On the facts and in the circumstances of the case the Ld. Commissioner of Income-tax (Appeals) has erred both on facts and in law in upholding disallowance of interest u/s 36(l)(iii) amounting to Rs.39,04,797/- made by the AO on amount advanced, which was computed @15% on the monthly balances.
The Ld. CIT (A) has failed to appreciate that the partners of the firm were having sufficient non
596-chd-2019- M/s S.D. Marketing Co., Ludhiana interest-bearing funds of Rs.6.58 Crores Approx. out of which non interest bearing loans and advances of Rs. 3.35 Crores were outstanding since the F.Yr.2009-10.
The Ld. CIT(A) has also failed to appreciate that no such disallowance was made in the preceding assessment years on account of non-recoverable outstanding loans and advances”
The Ld. Counsel for the assessee submitted before us that the Ld. CIT(A) has wrongly upheld the addition of Rs.39,04,797/- made on account of disallowance of proportionate interest u/s 36(1)(iii) of the Act in respect of the amounts outstanding in the name of Sh. Radhey Sham Popli, M/s. G.D. Enterprises, M/s.
Parvati Textiles, M/s Lovesh Arora and Sh. F C Goyal. The Ld. Counsel pointed out that the CIT(A) has affirmed the action of the AO ignoring the contention of the assessee that the debit balances in the books of the assessee firm in respect of Radhy Sham Popli amounting to Rs. 7,13,438, Parvati Textiles amounting to Rs. 29,90,000/- Lovish Arora amounting to Rs. 9, 50,000/- and M/s. G.D. Export amounting to Rs. 2,06,48,500/- had been advanced out of the reserve capital of the partners and outstanding since accounting period 2010-11. Further, advance of 596-chd-2019- M/s S.D. Marketing Co., Ludhiana Rs. 73,00,000 to Sh. FC Goyal was given during the accounting period 2011-12. The Ld. Counsel further submitted that during the relevant period, the capital reserves of the partners were more than the advances made. The Ld. counsel pointed out that these advances/deposits/investments pertain to the preceding years i.e., earlier to the year relevant to the assessment year under consideration. The Ld. Counsel placing reliance on the judgment of the Hon’ble Supreme Court in the case of Hero Cycles P Ltd vs. CIT (Central) Ludhiana in Civil Appeal No 514 of 2008, judgment of the Hon’ble Punjab and Haryana High Court in the case of Munjal Sales Corporation vs. Asstt. CIT (2004) 90 TTJ (Chd)
782, judgment of the Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd. (2009) 178 Taxman 135 (Bom), and various decisions of the ITAT, submitted that the findings of the Ld. CIT(A) are contrary to the law laid down by the courts/ Tribunal in the aforesaid cases. The Ld. Counsel invited our attention to the copy of audited account, to point out that the aggregate of opening interest free capital funds of the partners as on 31.03.2012 was 7,37,08,229/- and closing balance as on 31.03.2013 was Rs. 6,58,79,641/-. These facts establish that 596-chd-2019- M/s S.D. Marketing Co., Ludhiana the assessee was having sufficient interest free funds in the form of capital reserves of the partners to cover the interest free advances made by the assessee. The Ld. Counsel further submitted that no disallowance was made by the AO during the relevant assessment years as the assessee had sufficient interest free capital to make the advances. The Ld. Counsel accordingly submitted that the impugned order passed by the Ld. CIT(A) is not sustainable in law.
On the other hand, the Ld. Departmental Representative supporting the order passed by the Ld. CIT(A) submitted that since the assessee could not substantiate its claim during the assessment proceedings and the appellate proceedings, the Ld. CIT(A) has rightly confirmed the addition made by the AO.
6. We have perused the material on record including the cases relied upon by the Ld. Counsel for the assessee and the authorities below. The assessee has assailed the action of the Ld. CIT(A) on two grounds i.e., that the advances and borrowings do not pertain to the year relevant to the assessment year under consideration but the same were made in the earlier years and since no disallowance was made in the relevant assessment year,
596-chd-2019- M/s S.D. Marketing Co., Ludhiana the Ld. CIT(A) ought to have deleted the addition so made by the AO. Secondly, the assessee has contended that at the time of making advances the assessee had sufficient non-interest-bearing funds in the form of capital reserves of the partners.
As contended by the Ld. Counsel, the assessee has reflected the outstanding debit balance in respect of Sh. Radhey Sham popli amounting to Rs. 7,13,483/-, M/s Parvati Textiles amounting to Rs. 29,90,000/-, Sh. Lovish Arora amounting to 9,50,000/- and Sh. Faqir Chand Goyal amounting to 73,00.000/- in Annexure ‘H’ under the head ‘Investment and Deposits’ as on 31-03-2013 in its books of account, which is at page 45 of the paper book.
Similarly, debit balance in respect of M/s G.D. Export (India) amounting to Rs. 2,06,48,500/- has been reflected in Annexure ‘K’ under the head ‘Loans and Advances as on 31.03.2013, which is at page 47 of the paper book. Further in the balance sheet of the firm, interest free capital of the partners viz Ashish Arora and Dhiti Arora as on 31.03.2013 has been shown as Rs. 6,11,97,264/- and 46,82,377.88/- respectively. As per the copy of audited report dated 29.09.2012 in respect of books of account of the assessee for accounting period 2011-12 relevant to the 596-chd-2019- M/s S.D. Marketing Co., Ludhiana assessment year 2012-13, capital of Ashish Arora was Rs. 6,99,36,180/- and Dhiti Arora was Rs. 37,72,049.73/- as on 31.03.2012. Copy of balance sheet as on 31.03 2012, containing the said entries is available at page 65 of the paper book. These facts establish that the outstanding debit entries do not pertain to the assessment year under consideration and the assessee had sufficient interest free capital to meet these advances during the years when these advances were made.
The authorities below have neither given any cogent reasons for rejecting the contention of the assessee based on the audited books of account nor brought on record any evidence to rebut the contention of the assessee. There is no evidence on record to arrive at the conclusion that the advances in question were made during the year relevant to the assessment year under consideration and the assessee had utilized the interest-bearing funds for giving interest free loans to the above five parties.
Hence, we find merit in the arguments of the Ld. Counsel for the assessee that the impugned order is not sustainable in law.
Further, we are of the considered view that the impugned order is contrary to the evidence on record and also against the settled
596-chd-2019- M/s S.D. Marketing Co., Ludhiana principles of law. Accordingly, we set aside the impugned order passed by the Ld. CIT(A) and direct the AO to delete the addition of Rs. 39,04,797/- made on account of disallowance u/s 36(1)(iii) of the Act
Order pronounced on 08.04.2021.