ASSTT. COMMISSIONER OF INCOME TAX, CC-2, UDAIPUR, UDAIPUR vs. CORAL ASSOCIATES, UDAIPUR

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ITA 270/JODH/2023Status: DisposedITAT Jodhpur07 August 2026AY 2017-188 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the deletion of disallowance of interest expenditure, stating that the assessee had sufficient interest-free funds. It also upheld the deletion of unverifiable expenses, noting the disallowance was ad hoc without specific deficiencies. Finally, it upheld the deletion of addition for old currency deposits, finding the source of funds was explained by business receipts and audited accounts.

What were the facts?

The Department appealed the deletion of additions made by the Assessing Officer concerning interest expenditure on interest-free loans, unverifiable expenses, and deposit of old currency notes. The assessee, an Association of Persons, had advanced interest-free loans, incurred cash expenses, and deposited old currency notes during demonetization.

What were the issues?

Whether interest expenditure is disallowable when interest-free funds are available for interest-free advances, and whether ad hoc disallowances for unverifiable expenses are justified. Also, whether cash deposits of old currency notes during demonetization represent undisclosed income when the source is explained by business receipts.

Which sections of the Income-tax Act were involved?

Section 132(4),Section 44AB

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JODHPUR BENCH, JODHPUR

For Appellant: Shri Yogesh Parwal, CA (Virtual)
For Respondent: Ms. Shivani Bansal, CIT-DR (Physical)

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT AND SHRI MAKARAND VASANT MAHADEOKAR, HON’BLE ACCOUNTANT MEMBER

ITA No. 270/Jodh/2023 (Assessment Year – 2017-18) Asstt. Commissioner of Income Tax, CC Coral Associates, CC-2, Room No. 105A, 1st Floor, Aaykar Udaipur Vs. Bhawan, Subsidy center, Savina, Reti Stand, Udaipur-313001 PAN No. AABAC 5760 F Assessee by Shri Yogesh Parwal, CA (Virtual) Revenue by Ms. Shivani Bansal, CIT-DR (Physical) Date of Hearing 03 / 08 / 2026. Date of Pronouncement 07 / 08 / 2026.

ORDER Per: Shri Saktijit Dey, V.P.: Captioned appeal by the Department arises out of order dated 31-5-2023 of learned Commissioner of Income Tax (Appeal) [in short ‘CIT(A)], Udaipur for the Assessment Year 2017-18.

2.

Ground No.1, is general and does not require adjudication.

3.

In Ground Nos. 2 to 4, the Department has challenged deletion of addition of Rs.1,00,67,711/- made on account of allocation of interest expenditure on interest-free loans and advances.

2 ITA No. 270/Jodh/2023 Asst. Year: 2017-18 4. Briefly, the facts relating to this issue are, the assessee is an Association of Persons (AOP). For the assessment year under dispute, the assessee filed its return of income on 6.11.2017, declaring income of Rs.3,32,3,760/-. The return of income so filed by the assessee was selected for scrutiny. In course of assessment proceedings, the Assessing Officer found that during the search and seizure operation carried out in case of Mahendra Tak Group of cases at Udaipur on 21-3-2017, certain information relating to the assessee was found. Based on such information, various queries were raised to the assessee. One of the queries raised related to non-charging of interest on interest-free advances. While discussing the issue, the Assessing Officer has observed that the assessee had advanced interest-free loans to other AOPs/members out of interest-bearing funds. Meaning thereby, while the assessee is paying interest on the interest-bearing funds, it is not receiving any interest on the interest-free advances. Therefore, ultimately, he held that since interest- bearing funds, on which the assessee was paying interest, was utilized for non-business purposes, proportionate interest expenditure needs to be disallowed. Accordingly, he computed the disallowance at Rs.1,00,67,711/-. The assessee contested the aforesaid disallowance before learned First Appellate Authority.

5.

After considering the submissions of the assessee in the context of facts and materials on record, learned First Appellate Authority, having found that the assessee had sufficient interest-free funds available with it, deleted the disallowance.

3 ITA No. 270/Jodh/2023 Asst. Year: 2017-18 6. We have considered rival submissions and perused the materials on record. As could be seen from the observations of the Assessing Officer, as also other materials on record, while the assessee had advanced an amount of Rs.38,21,64,408/- to AOPs/members towards security deposits and other Government liabilities for obtaining new contracts for the subsequent years. It had available with it non-interest-bearing funds in the form of members’ capital amounting to Rs.43,33,00,709/-. The First Appellate Authority has further observed that out of total interest expenditure of Rs.1,00,67,711/- disallowed by the Assessing Officer, the assessee had actually debited an amount of Rs.63,13,547/- towards interest expenses in the profit and loss account. Whereas, during the year it had earned interest income of Rs.59,59,239/-. It is further evident that an amount of Rs.37,54,164/- was paid towards bank charges for bank credit limits, bank guarantees, demand drafts and other charges, which cannot be attributed towards interest-free advances. The aforesaid finding of fact recorded by learned First Appellate Authority remains uncontroverted. In any event, the very fact that the assessee had sufficient surplus interest-free funds available with it, will not enable us to restore the disallowance made by the Assessing Officer, keeping in view the legal principle that presumption would be that interest-free fund has been utilized for interest-free advances. In view of aforesaid, we do not find any infirmity in the decision of learned First Appellate Authority. Accordingly, grounds are dismissed.

7.

In Ground No.5, the Department has challenged the deletion of disallowance of Rs.5,00,000/- made on account of unverifiable expenses.

4 ITA No. 270/Jodh/2023 Asst. Year: 2017-18 8. Briefly the facts are, in course of assessment proceedings, the Assessing Officer noticed that compared to the declared turnover, the net profit/loss shown by the assessee is less. Hence, he called upon the assessee to furnish the books of account for verification of expenses debited to profit and loss account. After verifying the profit and loss account, the Assessing Officer found that most of the expenses were made in cash. Stating that cash expenses are not fully vouched, to cover up possible leakage of revenue, he disallowed an amount of Rs.500,000/- on ad hoc basis. The assessee contested the disallowance before learned first appellate authority.

9.

Having considered the submissions of the assessee in the context of facts and materials on record, learned first appellate authority deleted the addition.

10.

We have considered rival submissions and perused the materials on record. As could be seen from the observations of the Assessing Officer, only reason for making the disallowance was the low net profit/ loss declared by the assessee. On going through the observations of the Assessing Officer, we have not found any specific deficiency pointed out by him relating to s particular head of expense. Thus, the disallowance has been made purely on ad hoc basis based on general observations that some part of the expenditure is unverifiable. Hence, to take care of possible leakage of revenue, disallowance has to be made. Since the Assessing Officer has failed to pinpoint any specific deficiency either in relation to any particular expenditure or the evidence furnished, we are inclined to uphold the decision of learned first appellate authority on the issue. Ground raised is dismissed.

5 ITA No. 270/Jodh/2023 Asst. Year: 2017-18 11. In Ground No. 6, the Department has challenged the deletion of addition made of Rs.7,00,91,000/- towards deposit of old currency notes during the demonetization period.

12.

Briefly, the facts, are in course of assessment proceedings, the AO noticed that during the period from 9-11-2016 to 30-12-2016, the assessee had deposited cash amounting to Rs.7,00,91,000/- in specified bank notes. He observed that as per the income tax return filed by the assessee for the Assessment Year 2016-17, the cash in hand as on 31-03-2016 was Nil. Thus, he formed an opinion that the cash deposited in the bank account represents undisclosed and unaccounted income of the assessee. In this context, the Assessing Officer referred to statement recorded under section 132(4) of the Act from the Directors and Promoters of Mahindra Tak Group.

13.

Be that as it may, though the assessee furnished an explanation explaining the source of cash deposit, however, rejecting the explanation, the Assessing Officer ultimately treated the cash deposit of Rs.7,00,91,000/- as undisclosed income and added back at the hands of the assessee. The assessee contested the aforesaid addition before learned first appellate authority. In course of proceedings before learned first appellate authority, the assessee furnished detailed submissions alongwith supporting evidences for explaining the source of cash deposit. After factually verifying the source explained by the assessee, learned first appellate authority, having found that such deposits were made out of various business receipts, deleted the addition.

6 ITA No. 270/Jodh/2023 Asst. Year: 2017-18 14. We have considered rival submissions and perused the materials on record. It is a fact on record that the assessee is engaged in the business of mining, royalty and toll plaza at various locations. Thus, the nature of business carried on by the assessee involves daily collection of cash. Hence, it cannot be denied that the assessee would be having cash availability with it on a day-to-day basis. Undoubtedly, during the period from 9-11-2016 to 30-12-2016, the assessee had deposited cash in old high denomination notes. To explain the source of cash deposit, the assessee had furnished various supporting evidences before the Departmental Authorities. The assessee has furnished the details of cash sales for the Financial Years 2015-16 and 2016-17. The assessee had also furnished details of month- wise cash deposits from 1-4-2015 to 31-3-2016 as also from 01-4-2016 to 31-3-2017 to demonstrate that in the line of business carried on by the assessee, cash receipts and availability of cash are normal features. As could be seen from the observations of learned first appellate authority and other materials on record, the total royalty collection of the assessee from mining and toll plazas amounted to Rs.15.23 crores. The aforesaid fact was demonstrated by the assessee by furnishing monthly summaries of cash sales and cash book entries. The evidences furnished by the assessee clearly demonstrate huge cash deposits not only in the impugned assessment year but also in Assessment Year 2015-16. The cash sales effected by the assessee in both the assessment years are also substantial. The materials on record demonstrate that out of total cash sales of Rs.50,77,58,681/- in the current assessment year, cash sales up to 8-11-2016 was to the tune of Rs.35,96,53,912/-. Thus, the trend of

7 ITA No. 270/Jodh/2023 Asst. Year: 2017-18 cash sales justifies assessee's claim that the cash deposits in the bank account are out of cash sales made by the assessee. The fact which has to be borne in mind is that the accounts of the assessee are audited under section 44AB of the Act. The books of account maintained by the assessee in regular course of business having not been rejected by the Assessing Officer. Learned first appellate authority has marshalled all the facts and materials on record while concluding that the source of cash deposits have been well explained by the assessee through supporting evidence. The Department has not come up with any convincing reasons supported by cogent evidence to enable us to disturb the finding of learned first appellate authority.

15.

In view of the aforesaid, we decline to interfere with the decision of learned first appellate authority on the issue. Grounds raised are dismissed.

16.

In the result, appeal is dismissed.

Order Pronounced in the open court on 07/08/2026. Sd/- Sd/- (Makarand Mahadeokar) (Saktijit Dey) Accountant Member Vice President Dated : 07/08/2026. Aks/- True Copy

8 ITA No. 270/Jodh/2023 Asst. Year: 2017-18

Copies to : (1) The appellant. (2) The respondent. (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File BY ORDER,

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