AKSHAT POLYMERS,,MEHSANA vs. THE INCOME TAX OFFICER, PATAN WARD-4,, MEHSANA

There was a delay of 96 days in filing this appeal by the assessee. The assessee has filed an affidavit explaining that the delay was occurred because of ill health of the managing partner. It is explained because of his treatment there was delay in handing over of the order of the ld. CIT(A) to the authorized representative as a result the impugned appeal was filed late by 96 days. After considering the facts reported in the affidavit it appeared that there was a bona fide reason for fling the instant appeal late by 96 days, therefore, we condoned the delay in filing this appeal

The assessee has filed return of income declaring total loss at Rs. 67,11,953/-. The case was selected under scrutiny u/s. 143(3) of the act on 25th Sep, 2010. During the course of assessment, the assessing officer has stated that in respect to following depositors (i) Shri Rakeshbhai Govinbhai Patel-Unsecured loan of Rs. 50,000/- (ii) Shri Shaileshbhai Naranbhai Patel-Unsecured loan of Rs. 99,000/- (iii) Shri Kanjibhai Muljibhai Desai-Unsecured loan of Rs. 3,00,000/- (iv) Shri Dharmasibhai Iallubhai Desai-Introduction of Capital as partner of Rs. 515,50,000/- The assessee has not filed details as per provisions of section 68 of the act therefore assessee failed to prove the credit worthiness of the depositors. Consequently, the assessing officer has disallowed the impugned unsecured loan u/s. 68 of the act and added the amount of Rs. 19,99,000/- to the total income of the asssessee.

During the course of assessment the assessing officer noticed assessee had advanced loan of Rs. 10 lacs to Shri Rajesh P Shukla. Rs. 20,600/ to Abhaday Corporation, Rs. 66,000/- to Shri Iqbal A. Malik and Rs. 66000/- to Prahlad H. Patel but no interest has been charged on these advances. On the other hand the assessee has debited interest expenses of Rs. 33,04,223/- in the P & L a/c. Therefore, the assessing officer issued show cause notice to the assessee to explain why proportionate interest should not to be disallowed for not charging interest on the aforesaid advances . The assessee responded that interest free advances were given out of interest free borrowing , therefore, there was no question of disallowance of interest expenses. The assessing officer has not accepted the explanation of the assessee on the ground that assessee has not proved with the documentary evidences that impugned advances were given out of interest-free borrowings. consequently the assessing officer has worked out interest @ 15% on the impugned advances to the amount of Rs. 1,72,890/- and added to the total income of the assessee holding that the interest expenses up to that extent has not been incurred for the purpose of business.

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

With the assistance of the representatives of the assessee and the revenue, we have gone through the material on record and examined the issue of addition of Rs. 19,99,000/- in respect of unsecured loan made u/s. 68 of the act and disallowance of interest amounting to Rs. 11,72,890/- in respect of interest free advances. During the course of course appellate

In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 31-01-2019