Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, SMC BENCH, PUNE
Before: SHRI R.S. SYAL
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.
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.
Briefly stated, the facts, as discussed on page 2 onwards of the
assessment order, are that the assessee had shown balance of
2 ITA No. 343/PUN/2023 Namdeo Indarrao Gore
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.
Having heard the rival submissions and gone through the
relevant material on record, it is seen that the AO made these two
3 ITA No. 343/PUN/2023 Namdeo Indarrao Gore
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.
The only other ground is against the confirmation of
disallowance u/s.14A of the Act.
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.
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
4 ITA No. 343/PUN/2023 Namdeo Indarrao Gore
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.
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
5 ITA No. 343/PUN/2023 Namdeo Indarrao Gore
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.
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/-.
In the result, the appeal is partly allowed. Order pronounced in the Open Court on 08th June, 2023.
Sd/- (R.S.SYAL) VICE PRESIDENT पुणे Pune; िदनांक Dated : 08th June, 2023 सतीश
6 ITA No. 343/PUN/2023 Namdeo Indarrao Gore
आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The Respondent 2. 3. The Pr.CIT concerned 4. DR, ITAT, ‘SMC’ Bench, Pune गाड� फाईल / Guard file. 5.
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 JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/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.
*