M/S GLAMOUR ENTERPRISES PVT. LTD.,JAIPUR vs. INCOME TAX OFFICER, WARD-6-1, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 1279/JP/2018 fu/kZkj.k o"kZ@Assessment Years : 2012-13 cuke M/s Galmor Enterprises Pvt. Ltd. The ITO, Vs. F-46, Malviya Industrial Area, Ward-6(1), Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACG5149B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : None (Written Submission) jktLo dh vksj ls@ Revenue by : Smt. Monisha Choudhary (JCIT) a lquokbZ dh rkjh[k@ Date of Hearing : 22/03/2021 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 21/06/2021 vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M.

This is an appeal filed by the assessee against the order of ld. CIT(A)-2, Jaipur dated 14.03.2018 relevant for the assessment year 2012-13.

10. In ground No. 2, the assessee has challenged the sustenance of addition of Rs. 1,24,906/- U/s 41(1) of the Act.

11. In its written submissions, the assessee has submitted that during the course of assessment proceedings, the Assessing Officer observed that certain trade creditors of Rs. 3,87,797/- have been brought forward from earlier years and there are no transactions during preceding year as well as year under consideration. The AO accordingly held that the liability towards the said trade creditors has ceased to exist within the meaning of Section 41(1) of IT Act and addition was made in the hands of the assessee. On appeal, the ld. CIT(A) deleted the addition to the extent of Rs. 2,62,891/- on the ground that the addition in respect of the said parties namely M/s Krial Singh & Sons and M/s Raimant Craft has been made u/s 41(1) in preceding assessment year 2011-12. However the balance addition of Rs. 1,24,906/- was sustained.

12. In the above factual background, it was submitted that the old outstanding balance towards sundry creditors were shown in the books of accounts as acknowledged liability of the company to respective parties. The receptive creditors have not waived the liability and the assessee having included the same in its books of accounts has 7 M/s Galmor Enterprises Pvt. Ltd. vs. ITO acknowledged the said liability. It was submitted that the said liability has neither been waived nor otherwise ceased during the relevant previous year and the assessee has not obtained any benefit by way of remission or cessation thereof. Therefore, the provisions of Section 41(1) of the Act has no application and the addition of Rs. 1,24,906/- sustained by the ld. CIT(A) may be deleted.

13. Per contra, the ld. DR relied on the findings of the lower authorities. It was submitted that during the course of assessment proceedings, the assessee could not show that any sum have been paid to its creditors which were outstanding for past several years or any transaction has been entered into with them in the previous years or any correspondence with these parties to show that there was a claim of the outstanding amount from the assessee. It was further submitted that no confirmation letters or any other evidence have been submitted to show that the said creditors are having their claim against the assessee and the said liability has been barred by limitation as provided under limitation Act, therefore, the liability towards the said creditors have ceased to exist within the meaning of Section 41(1) of the Act. It was accordingly, submitted that the ld. CIT(A) has rightly sustained the disallowances and there is no infirmity in the said order passed by the ld. CIT(A) and hence, the same may be confirmed.

15. In ground No. 3, the assessee has challenged the action of ld. CIT(A) in confirming the ALP towards interest on loans to M/s Malmor Enterprises INC USA to whom the loan has been advanced by the assessee.

16. In its written submissions, the assessee has submitted that during the course of assessment proceedings, the AO observed that loan of Rs.1,63,21,021/- is outstanding in the name of M/s Glamor Enterprise INC NJ USA, an associated enterprises of the Assessee without any transaction during the relevant previous year. The AO also observed that for the A.Y.2007-08, the loan to the said entity, M/s Glamor Enterprise INC NJ USA, was held as International Transaction covered U/s 92CA(3) of IT Act, 1961 and arm length price of the interest was determined by applying interest rate of 11.40% p.a. under CUP method. The AO accordingly following the order of his predecessors for A.Y.2007-08 has applied interest rate of 11.40% p.a. under CUP method and made addition to the returned income. On appeal, the ld.CIT (A) following the order of the Tribunal for the A.Y.2007-08 restricted the interest rate to 8.9% p.a.

17. It was submitted that the outstanding loan has been brought forward from preceding year and there is no fresh loan/advance during the relevant previous year, therefore the same cannot be characterized as international transaction during the relevant previous year u/s 9 M/s Galmor Enterprises Pvt. Ltd. vs. ITO 92CA(3) of the Act and therefore, the addition sustained by the ld. CIT(A) may kindly be deleted.

18. Per contra, the ld. DR relied on the findings of the lower authorities. It was submitted that the ld. CIT(A) has already restricted the ALP at 8.9% against 11.4% applied by the AO and therefore, given that the loan amount continues to remain outstanding and the transaction continues to qualify as an international transaction, the order of the ld. CIT(A) may be confirmed.

is hereby dismissed.

10. M/s Galmor Enterprises Pvt. Ltd. vs. ITO

20. In ground No. 4, the assessee has challenged the sustenance of disallowance of depreciation claimed by the assessee on plant and machinery.

21. In its written submissions, the assessee has submitted that during the course of assessment proceedings, the AO observed that the assessee has claimed depreciation of Rs.10,25,961/- on plant and machinery relating to manufacturing of readymade garments of earlier business of the assessee and hence, the assessee has shifted to trading of fabrics/cloth and has no activity relating to manufacturing of readymade garments which has been carried out either in preceding year or in relevant previous year. The AO disallowed the depreciation of Rs 10,25,961/- so claimed by the assessee which has been confirmed by the ld CIT(A).

22. In this regard, it was submitted that though the assessee has no manufacturing activity during the relevant previous year, however the plant and machinery relating to manufacturing activities has been kept ready to use as and when required. It was submitted that a plant and machinery is subject to wear and tear even when the same has not been used for manufacturing. Therefore the assessee is eligible for depreciation as per the relevant provisions of the Income Tax Act and the disallowance of depreciation so made by the Assessing and sustained by the ld. CIT(A) may kindly be deleted. 11 M/s Galmor Enterprises Pvt. Ltd. vs. ITO

23. Per contra, the ld. DR relied on the finding of the lower authorities and our reference was drawn to the findings of the AO which read as under: “5. Disallowance of Depreciation: As per details and explanation furnished during the course of assessment proceedings it has been observed that the assessee has claimed depreciation of Rs.1025961/- on plant and machinery relating to manufacturing of readymade garments. The assessee during the relevant previous year was engaged in trading of fabric/cloth and has no activity relating to manufacturing of readymade garments, therefore the plant and machinery relating to manufacturing of readymade garments has not been put to use during the relevant previous year. As provided u/s 32 of IT Act, depreciation is allowable in respect of an assets which has been used for the purpose of the business. As the assessee during the relevant previous year as well as in the A.Y 2011- 12 has not used the above said plant and machinery for the purpose of the business, The assessee has moved from manufacturing of garments to trading in cloth and therefore depreciation in respect of the same as claimed by the assessee cannot be allowed. Thus depreciation of Rs.1025961/- claimed on plant and machinery relating to manufacturing of readymade garments is hereby disallowed and added to returned income.”

25. In ground No. 5, the assessee has challenged the sustenance of addition of Rs. 1,45,982/- made by the AO by disallowing the interest paid to Banks holding the same as attributable to interest free loans provided by the assessee to its sister concerns.

26. In its written submissions, the assessee submitted that during the course of assessment proceedings, the AO observed that the assessee has provided interest free loans of Rs. 10,42,730/- to it's sister concerns and on the other hand claimed interest of Rs. 46,02,681/-paid to bank on borrowed funds. Therefore, the AO made proportionate disallowance of interest of Rs.1,45,982/- by applying interest rate of 14% per annum of interest which has been sustained by the ld. CIT(A). It was submitted that loans/advances in the name of sister concerns in 13 M/s Galmor Enterprises Pvt. Ltd. vs. ITO most of the cases have been brought forward from preceding years and have no nexus with interest bearing funds. Therefore, no interest paid to Bank on borrowed funds is attributable to interest free loans outstanding in the name of sister concerns of the assessee. Therefore, the addition so made by the Assessing Officer and sustained by the ld. CIT(A) may kindly be deleted.

27. Per contra, the ld. DR relied on the finding of the lower authorities and our reference was drawn to the findings of the Ld. CIT(A) which are contained at para 8.3 of the appellate order which read as under:-

“8.3 I have perused the facts of the case, the assessment order and submissions of the appellant. The AO observed that the appellant has advanced interest-free loans to its various sister concerns as enlisted in the assessment order. The appellant had claimed interest expenditure of Rs. 46,02,681/- paid to bank towards borrowed funds. AO disallowed Rs.145982/- on proportionate basis at 14%. In the present proceedings, it is stated that the loans are old and brought forward amounts. The AR could not prove the business expediency of these loans and availability of funds when the same were forwarded, hence the disallowance made by the AO is confirmed. Ground of appeal is dismissed.”

29. In ground no. 6, the assessee has challenged the sustenance of addition of penalty of Rs. 1,95,000/- paid to Mining Engineer, Jaipur for breach of contractual obligations.

30. In this regard, the assessee has submitted that it has claimed penalty of Rs. 5,23,944/- levied by the Mining Department, Jaipur for delayed payments/breach of contractual obligations. It was submitted that the assessee has credited the said amount to the account of Mining Engineer, Jaipur and the payments have been made by account payee cheques, which is evident from the ledger account of Mining Engineer placed on the assessee’s paperbook at page No. 27 and 28. It was submitted that the AO on the alleged ground that the Mining Engineer Jaipur has charged penalty of Rs. 3,28,944/- only has disallowed balance of Rs. 1,95,000/-. It was submitted before the AO vide letter 15 M/s Galmor Enterprises Pvt. Ltd. vs. ITO dated 16.03.2015, the account statement provided by the Mining Department is not complete and certain pages/details are missing there from. The difference of Rs. 1,95,000/- is due to missing pages in the said account statement. It was accordingly submitted that the addition so made by the Assessing officer and sustained by the ld. CIT(A) may be deleted.

31. Per contra, the ld. DR relied on the finding of the lower authorities and our reference was drawn to the findings of the Ld. CIT(A) which are contained at para 9.3 of the appellate order which read as under:-

“9.3 I have perused the facts of the case, the assessment order and submissions of the appellant. As per the account statement called for by the AO under section 133(6), there was a difference in the amount of penalty paid as per the assessee and the records of the mining engineer and the difference of Rs. 1,95,000/- was added back by the AO. In the present proceedings, the AR submitted that the account statement collected is not complete and certain pages or details are missing, it was also submitted that the claim of the assessee is fully verifiable from the ledger account of mining engineer Jaipur, as appearing in the books of accounts of the appellant. As per the remand report called, the entries have been verified by the AO, further the AR could not reconcile the difference between the 2 statements. In view of the same the disallowance made by the AO is confirmed, ground of appeal is dismissed.”

33. Ground no. 7 was not pressed as per written submissions filed by the ld AR on behalf of the assessee for which the DR. raised no objection. Hence, the same is dismissed as not pressed.

34. In ground No. 8, the assessee has challenged the addition of Rs. 1,96,360/- towards disallowance of various expenses.

35. In it written submissions, the assessee has submitted that during the course of assessment proceedings, the Assessing Officer has made lump sum disallowance of expenses of Rs.5,00,000/- on alleged ground of self made vouchers and possibility of personal element involved therein and on appeal, the ld. CIT(A) restricted the relevant addition to 10% of total expenses. It was submitted that the assessee has claimed the expenses on the basis of regular books of accounts, supporting vouchers and other relevant records, audited by a qualified Chartered Accountant as prescribed u/s 44AB of the Act. The books of accounts along with other records as required by the AO were produced before 17 M/s Galmor Enterprises Pvt. Ltd. vs. ITO the AO during the course of assessment proceedings. Therefore relevant addition may kindly be deleted or further, reduced to a suitable extent as deemed fit and appropriate in the interest of justice.

36. Per contra, the ld. DR relied on the finding of the lower authorities and our reference was drawn to the findings of the Ld. CIT(A) which are contained at para 11.3 of the appellate order which read as under:-

“11.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The AO made the disallowance as the expenditures mentioned in the ground of a total amount of Rs.19,63,598/- as the same were not properly vouched and could not be verified. In the present proceedings, it was claimed that above said expenses were claimed on the basis of regular books of accounts, supporting vouchers and other relevant records, audited by a qualified Chartered Accountant as prescribed u/s 44AB of the Act The AO without giving any specific finding and without having any logical and reasonable base has disallowed the above said expenses on lump sum basis and alternatively without prejudice to the above, it is also submitted that the estimated disallowances made by the AO are highly excessive and not reasonable. In view of the reasons cited by the AO, the disallowance is confirmed but restricted to 10% which shall be reasonable. The ground of appeal is partly allowed.”

In the result, the appeal of the assessee is disposed off in light of aforesaid directions.