SHRI JAYESH BALCHANDBHAI SHAH,AHMEDABAD vs. INCOME TAX OFFICER, WARD-5(3)(1),, AHMEDABAD

The appeal filed by the assessee for A.Y. 2014-15, arise from order of the CIT(A)-5, Ahmedabad dated 01.11.2017, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.

The brief fact is that the assessee has filed return of income declaring total income of Rs. 9,58,760/- on 14.10.2014. The case of the assessee was subject to scrutiny u/s. 143(2) of the Act on 31.08.2015. The remaining facts of the case are discussed while adjudicating the ground of appeal filed by the assessee as under.

During the course of assessment the AO noticed that assessee has shown interest as payable to the amount of Rs. 31,23,892/-. The AO has observed that interest payable is only a provision, therefore, he has added the same to the total income of the assessee.

Aggrieved assessee has filed appeal before the Ld. CIT(A). The Ld. CIT(A) has dismissed the appeal of the assessee.

We have heard the rival contention on this issue and it is noticed that assessee was following mercantile system of accounting. Therefore, the outstanding interest expenses was shown as interest payable.As per mercantile system of accounting interest expenses are to be debited to the profit and loss account irrespective of the fact that as to whether the same has been paid or not. We considered that Ld. CIT(A) and AO has completely taken a wrong assumption. Therefore, the impugned addition deserved to be deleted. Accordingly, appeal of the assessee is allowed on this issue.

During the course of assessment proceeding the AO has noticed that assessee has shown loan and advances to the amount of Rs. 16,35,000/- to M/s. B. K. Commodities. However, as per the balance sheet of the B. K. Commodities the total amount of advances made by the assessee was shown to the amount of Rs. 2,71,07,690/-. Therefore, difference of Rs. 2,54,72,690/- (Rs. 2,71,07,690 – 16,35,000) was added to the income of the assessee as unexplained investment.

Assessee has filed before the Ld. CIT(A). The Ld. CIT(A) has dismissed the appeal of the assessee.

We have heard the rival contention and perused the material on record. During the course of appellate proceedings before the Ld. Counsel has submitted Paper Book comprising details of submission made before the lower authorities. With the assistance of the Ld. Representatives we have gone through the different pages of the aforesaid Paper Book. It is noticed that loan transactions of the assessee with M/s. B. K. Commodities has been shown under the head “Loan from Family Members” in the balance sheet of the assessee as per Page 19 of the Paper Book. The assessee has shown these loan on net basis at Rs. – 84,812.21. As per No. 22 of the Paper Book the total loan obtained from the family member including M/s. B. K. Commodities was obtained at Rs. 2,84,09,939.52/- against loan and advance provided to family members at Rs. 2,84,94,751.73. It is further noticed that out of the aforesaid loan to family members the outstanding loan/advances made to M/s. B. K. Commodities was to the amount of Rs. 2,66,52,609/- in the ledger A/c appearing in the books of the assessee as per Page 23 of the Paper Book. Similarly, as per ledger A/c of assessee appearing in the books of M/s. B. K. Commodities the closing balance of loan and advances was also at Rs. 2,66,52,609/- as per Page No. 39 to 50 placed in the book. It is noticed that the assessee has shown loan from family member in his balance sheet on net basis. In view of the above facts we considered that AO and CIT(A) has failed to disprove the correctness of the transaction as reported in the books of account of the assessee. Therefore, the action of the CIT(A) is not justified and addition is deleted.

We have heard the rival contention and noticed that even before us the assessee has not furnished the relevant detail in respect of family members and supporting evidence of withdrawal made from HUF etc.,therefore, we do not find any error in the decision of the CIT(A). Accordingly, this appeal of the assessee is dismissed.

In the result, the appeal of the assessee is partly allowed.