TCP LIMITED ,CHENNAI vs. ACIT CENTRAL CIRCLE 1(1), CHENNAI

These cross appeals by the assessee and Revenue, are arising out of order of the Commissioner of Income Tax (Appeals)-18, Chennai in ITBA/APL/M/250/2021-22/1039396014(1) dated 04.02.2022. The assessment was framed by the ACIT, Company Circle III(1), Chennai, for the assessment year 2008-09 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 21.12.2010.

The only issue in this appeal of Revenue is as regards to the order of CIT(A) deleting the disallowance made by AO of proportionate interest paid on borrowed funds amounting to Rs.4,91,60,188/- paid in respect of Binny Limited and Rs.19,52,400/- paid in respect of Viceroy Chennai Hotels Pvt. Ltd. For this, Revenue has raised various grounds which are argumentative and hence, need not be reproduced.

Brief facts are that the assessee company is engaged in the business of manufacturing and trading of chemicals and in 3 & 311/Chny/2022 generation of power. The AO during the course of assessment proceedings noticed that the assessee had obtained loans on interest and paid interest as under:- On Fixed Loans Rs.8,46,22,311 On Fixed Deposits Rs. 43,62,075 On Others Rs.3,56,27,617 The AO also noticed that in regard to others, the assessee has paid interest to Managing Director amounting to Rs.11,01,961/- out of the interest ‘on others’ amounting to Rs.3,56,27,617/-. The AO also noticed from the accounts of the assessee that assessee has also advanced a sum of Rs.27,31,12,155/- as interest free loans to its sister concern Binny Ltd., and Rs.1,08,46,667/- to its wholly owned subsidiary company Viceroy Chennai Hotels P Ltd. The assessee before AO explained that this is for business expediency but the AO was not convinced and hence, he bank charged interest at the rate of 9% to 12% on the amount advanced to the assessee and by cumulative effect of compounding the process charges, bank charges, etc., the interest according to him comes to 18% to 22%. Hence, he computed the disallowance by applying a flat rate of 18% and thereby disallowed a sum of Rs.5,11,12,588/- in regard to interest free advance made to its sister concern Binny Ltd., and

We have heard rival contentions and gone through facts and circumstances of the case. We noted that the funds advanced to assessee is a continuous process and these are old advances and these have been considered by the Tribunal from assessment year 1997-98 to 2004-05. There is no change in facts and hence, we feel that this issue is fully covered by the Tribunal’s decision. Hence, we find no infirmity in the order of CIT(A) and the appeal of the Revenue is dismissed.

The first issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of the AO in disallowing the provisions made for raw materials, stores and spares for an amount of Rs.2,52,68,564/- treating the same as contingent liability. For this, assessee has raised the following ground No.2:-

Brief facts are that the AO while framing assessment and on perusal of audited balance sheet and profit & loss account of the assessee noticed that the assessee has reported a sum of Rs.61.24 crores under the head ‘current liabilities’. The assessee explained and filed details of sundry creditors for expenses of Rs.5,60,85,668/- out of which, the assessee has created provision for Rs.2,52,68,564/- towards raw materials, stores and spares. According to AO, this is merely a provision for future liability and liability is contingent in nature and yet to be incurred. Hence, according to him, this is not an allowable deduction. The AO disallowed the liability which is yet to be incurred for the provision of Rs.2,52,68,564/-. Aggrieved, assessee preferred appeal before CIT(A).

We noted that even now before us, the assessee could not explain how these expenses which are claimed by assessee in the closing stock is allowable i.e., provision in regard to freight expenses payable and labour charges payable. The assessee has not made any payment during the year and even there is no liability incurred for this, rather this is merely a provision. Hence, we find no infirmity in the order of CIT(A) and the same is confirmed.

As regards to power division, the assessee has created provision for demurrage payable to M/s. N.R. International amounting to Rs.2,40,55,989/- pertaining to assessment year 2008- 09. The assessee contended that out of provision of Rs.2,40,55,989/- the assessee has paid a sum of Rs.1.65 crores and balance sum of Rs.75,55,989/- was waived by M/s. N.R. International in the financial year 2008-09 pursuant to negotiations made by the assessee company and assessee has already offered the same as income in assessment year 2009-10. The CIT(A) going

Before us, the ld.counsel could not explain how this is allowable and in our view, since the assessee has paid this amount of Rs.50 lakhs towards demurrage charges already on 19.03.2008, the provision shown as payable cannot be allowed as deduction. Hence, we confirm the order of CIT(A) on this issue.

As regards to balance provision of Rs.1,90,55,989/-, the assessee had paid a sum of Rs.1,15,00,000/- in the next financial year and for this, assessee has filed proof before CIT(A) and therefore, he allowed the same but sustained the balance amount of Rs.75,55,989/- being excess provision made in the accounts. Even now before us, the assessee could not file any evidence or could not explain how this amount of Rs.75,55,989/- is allowable. Hence, we confirm the order of CIT(A) on this issue. Thereby the total amount

The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in making addition of non-existing sundry creditor liability to the extent of Rs.52,99,235/- For this, assessee has raised following ground Nos.3 & 4:-

We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO while perusal of balance sheet noticed that there is sundry creditors liability outstanding, out of that a sum of Rs.61.24 crores is reported as ‘current liabilities’. Out of this, a sum of Rs.53,37,21,170/- represents gross amount of outstanding balance of sundry creditors for trade and expenses in respect of all the divisions of the assessee company. The AO while enquiring into the details filed by the 11 & 311/Chny/2022 assessee in regard to liability of each division separately, he noticed that in one of the case of creditors namely Thermodyne Technologies Pvt. Ltd., the balance outstanding as on 31.03.2008 was at Rs.71,67,656/-. The AO enquired and noticed from the accounts statement filed by Thermodyne Technologies Pvt. Ltd., that in their books, balance appeared is only Rs.18,68,421/- and therefore there is a variance in the books of the assessee to the extent of Rs.52,99,235/- and which is actually shown as excess outstanding liability by the assessee. According to AO, this being non-existent liability, he added to the total income of the assessee. Aggrieved, assessee preferred appeal before CIT(A).

The CIT(A) noted that the assessee could not file any explanation as to why they have declared excess liability in its books of accounts. He also noted that there Thermodyne Technologies Pvt. Ltd., has declared liability to the extent of Rs.18,68,421/- as against declared by assessee at Rs.71,67,656/-. Since nothing was explained before AO or no evidence was filed to prove its claim, the CIT(A) also confirmed the order of AO. Even now before us, the assessee could not file any evidence or could not make any arguments to support its ground, hence we find no

The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in making addition of non-existent liability on account of amount payable to Associated Traders amounting to Rs.5,54,519/-. For this, assessee has raised the following ground No.5:-

Brief facts are that the AO required the assessee to explain and file details of outstanding liability appearing in its books of accounts in the name of Associated Traders, Agra. The AO noted that the assessee has not filed any detail or evidence with regard to above claim of outstanding liability of Rs.5,54,519/-. He added the same as non-existent liability and disallowed. Aggrieved, assessee filed appeal before CIT(A).

The CIT(A) considering the plea of assessee, noted that no discount is payable by assessee to Associated Traders in regard to 13 & 311/Chny/2022 purchases made by that party. The assessee has made provision in its books of accounts by debiting the discount account and shown the same as outstanding liability. But the assessee could not file any evidence before AO or CIT(A) to explain the outstanding liability. We also noted that there is no evidence that the assessee has given discount to the party and shown only amount outstanding. We noted that assessee is contemplating recovery of the amount from the party and not treated the same as bad debit. Once the amount is shown as outstanding, the assessee is duty bound to explain the entry by filing evidences. As there is no evidence, the AO is justified in making addition and CIT(A) has confirmed the addition on non-existence of liability and we confirm the same. This issue of assessee’s appeal is dismissed.

The next issue in this appeal of assessee is as regards to provision made for excise duty on closing stock of finished goods amounting to Rs.65,69,434/-. For this, assessee has raised the following ground No.6:-

Before us, the ld.counsel for the assessee stated that she has no grievance against the order of CIT(A) and the AO will verify the factual position. Hence, this ground is dismissed.

We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO disallowed the provision made as contingent liability on account of ocean freight charges payable to one Maersk India P Ltd. It was claimed before AO and CIT(A) that assessee has paid a sum of Rs.70,914/- on 24.03.2008 and if already paid during financial year relevant to assessment year 2008-09, then it was directed to AO to allow the claim after verification. We noted that this matter has already been referred back to the file of the AO for verification of facts and decide accordingly. We don’t want to interfere in the findings of CIT(A). Let AO will examine this issue afresh and will decide as per directions of CIT(A). This issue of assessee’s appeal is also dismissed.

We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO has made disallowance on estimated basis at the rate of 20% of total expenses incurred on account of repair and maintenance. The assessee before CIT(A) filed ledger accounts without supporting evidences. Hence, he sustained the disallowance made by AO at 20%. We have gone through the assessment order and noted that the AO has purely estimated disallowance at 20% but assessee explained that the assessee company is following a practice of claiming this expenditure towards building repairs and maintenance, plant repairs and maintenance and other maintenance and by this, it has incurred and claimed expenditure of Rs.5,29,74,156/-. The AO has simply disallowed without verifying and without any basis. We are of the view that disallowance should have some basis. There can be a reason for some personal disallowance and for that 17 & 311/Chny/2022 estimated disallowance can be to the extent of 10% and hence, we restrict the disallowance at 10% and allow this issue of assessee’s appeal partly.

In the result, the appeal filed by the Revenue in is dismissed and the appeal filed by the assessee in is partly-allowed.