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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI. CHANDRA POOJARI & SMT. BEENA PILLAI
Date of Hearing : 23-12-2021 Date of Pronouncement : 03-01-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeals filed by assessee against the two separate orders both dated 27/09/2018 passed by Ld.CIT(A), Hubballi for assessment years 2013-14 and 2014-15.
Brief facts of the case are as under: 2013-14 2.1 During the course of assessment proceedings, it was noticed that sum of Rs. 25,27,630/- and Rs. 8,29,458/- was advanced to Page 2 of 8 & 3215/Bang/2018 Sri Manjunath V Habib and Sri Harish V Habib respectively. The Ld.AO noticed that both these persons are sons of the assessee, it has also been observed that the assessee advanced amount of Rs. 35,00,000/- to Sri K.R Chatni. The Ld.AO noted that on all these loans and advances, the assessee has not charged any interest and that the assessee on one hand is paying interest on its unsecured loans @ 15% per annum and on the other hand has diverted funds to his sons without any interest. The assessee was asked to explain why interest @ 15% on the aforementioned amounts shall not be disallowed from the interest paid by the assessee. But no explanation was furnished by the assessee in respect of advances given to his sons. 2.2 However, in respect of loans advanced to Sri K R Chatni, the AR has submitted that the loan was advanced for the purchase of property. On being asked to submit evidences in support of his submission, no evidence could be furnished by the Ld.AR. The Ld.AO after considering the submission of the assessee noted that the assessee has incurred interest on unsecured loan during the year. On the other hand, the assessee has diverted funds to his sons and Sri K R Chatni without charging interest. The Ld.AO accordingly, calculated interest at the rate of 15% on the floating balance method on the amount advanced to his sons and Sri K R Chatni at Rs. 7,75,561/-. Accordingly, an amount of Rs. 7,75,561/- is disallowed from the interest paid by the assessee and the same amount is added to the income returned by the assessee.
Page 3 of 8 & 3215/Bang/2018
During the course of assessment proceedings, the assessee was asked to produce the confirmation letters from sundry creditors as on 31/03/2013. The assessee after availing many opportunities and sufficient time could not produce confirmation in respect of the following creditors. Balance as per Sl.No. Name books 1 Abhinandan Jewels 15,34,240 2 Rajendra B Guledudda 2,31,549 Total 17,65,789 3.1 During the course of assessment proceedings the assessee was given fair opportunity and sufficient time to submit the creditor’s confirmations as on 31/03/2013. Despite availing sufficient time he could not produce confirmation of accounts in respect of the abovementioned creditors. Also, the assessee failed to furnish the present address of the abovementioned creditors for verification. Accordingly, an amount of Rs. 17,65,789/- being the sum of the above two creditors is treated as unconfirmed liability claimed by the assessee and added to the total income returned by the assessee.
Aggrieved by the order of Ld.AO, assessee preferred appeal before Ld.CIT(A). 4.1 In the course of appellate proceedings, the assessee submitted proof that balance was pending with sundry creditors by submission of confirmation letter. Since the assessee had not produced the same before the Ld.AO in the course of assessment proceedings, the CIT(A) remanded the submission of the assessee to the Ld.AO for remand report. The Ld.AO vide letter Dt.
Page 4 of 8 & 3215/Bang/2018 28.03.2018 forwarded the remand report, wherein he observed that, the confirmation required pertained to the period relevant to A.Y. 2013-14, whereas the confirmation letter filed by assessee pertains to A.Y. 2011-12. It was noted that the confirmation submitted by the assessee does not amount to proof of balance with sundry creditors. Also given the nature of the assessee’s business, it is unlikely that a creditor would extend long period of loans or credit. Therefore, it is more likely that the assessee has received the balance if any and not accounted in his books of accounts. Thus, the Ld.AO is correct in presuming cessation of liability. 4.2 Before Ld.CIT(A), the assessee submitted that the advances given to his sons were out of the disposable funds available from his capital balance and not out of the assessee’s business loans. The assessee was asked to submit a cash flow statement showing the balance of funds available along with sources of such funds on the dates on which the advances were given to his son. This was relevant as the assessee had raised loans to enable him to trade in bullion and gold and did not appear to have idle funds. Despite the numerous opportunities afforded to him, the assessee was unable to do so. Thus, the Ld.AO had correctly disallowed expenditure on account of interest on loans used to give interest free advances to his son. Aggrieved by the order of Ld.CIT(A), the assessee is in appeal before this Tribunal.
We have perused the submissions advanced by both sides in light of records placed before us. We note that both the issues Page 5 of 8 ITA Nos. 3214 & 3215/Bang/2018 raised by assessee needs to be revisited afresh. There are no supporting documents available on record in order to ascertain correct facts. We direct the Ld.AO to carry out fresh verification. Assessee is directed to file all requisite details as called for by the Ld.AO. Accordingly, ground nos. 2-3 raised by assessee stands allowed for statistical purposes. It is submitted by both sides that, for A.Y: 2014-15, in Ground nos. 3-4 on similar facts disallowance has been made on notional interest. As we have remanded the issue for fresh consideration for A.Y. 2013-14, following the same Ground nos. 3-4 for A.Y: 2014-15 also stands remanded to the Ld.AO for de novo assessment. Accordingly, ground nos. 3-4 raised by assessee for A.Y.: 2014-15 stands allowed for statistical purposes. There is one issue raised by assessee in Ground no. 2 for A.Y: 2014-15 that reads as under: “2. In any case, the learned Assessing Officer had erred in treating a sum of Rs.2,07,36,058/- being purchases made as unexplained expenditure and the learned CIT(A) has erred in confirming the same. On the proper appreciation of facts and circumstances of the case and law applicable, there is no unexplained expenditure at all. The addition as made is wholly erroneous is to be deleted.” The Ld.AO has observed as under:- “6. During the course of assessment proceedings, on examination of trading account, it is noticed that the assessee has debited an amount of Rs.2,07,36,058/- towards purchase bills receivable pertaining to the previous years received during the year. When asked, the AR has stated that the purchase bills to the tune of Rs.2,07,36,058/- pertaining to the AY 2013-14 were received during the financial year under assessment and Page 6 of 8 & 3215/Bang/2018 these bills are included in the total purchase bills and as such, these purchase bills were deducted from the total value of purchases. I have gone through the explanation of the assessee. Here, it would be pertinent to note that the assessee has shown Rs.2,07,36,058/- towards purchase bills to come liability in the balance sheet as on 31-03- 2013. The assessee has already created liability in the balance sheet towards bills yet to come. However, the assessee has debited an amount of Rs.2,07,36,058/- from the purchases in the financial year 201314 relevant to the assessment year 2014-15. In the process, the assessee has not accounted purchases to the tune of Rs.2,07,36,058/-in the books of account. Further, it is also pertinent to mention here that the assessee has shown taxable turnover in VAT 240 annual return at Rs.453,55,55,207/- which includes bills to come of Rs.2,07,36,058/-. However, the assessee has deducted the same from the purchases in the trading account. As the assessee is following double entry system of accounting, whenever goods are purchased on credit, the double entry effected is as follows: Purchase Account Debit To Parties Account Credit. As can be seen from the balance sheet for the AY 20134, the assessee has already credited the parties account by way of bills to come as a liability in the balance sheet. In view of the above, Rs.2,07,361058/- is treated as unexplained expenditure and as the explanation offered by the assessee is not satisfactory, the same is treated as income of the assessee and brought to tax accordingly.”
On an appeal before the Ld.CIT(A), it was observed and held as under: “6.1 In the course of appellate proceedings, the assessee submitted that he had purchased 7 kgs. of gold bullion from corporation bank on Dt.30.03.2012 and Dt.31.03.2012, and sold on the same dates. However, as the bank had recorded the transactions only on Dt.02.04.2012, the assessee did not include the purchases in his books during the F.Y.2012-13 and included the transaction in F.Y.2013-14, as the entry was made the following year. The assessee however submitted that the amount of Rs.2,07,36,058/- was deducted from his purchases in the following year, i.e. F.Y.2013- , as no purchases were actually made in that year.
Page 7 of 8 & 3215/Bang/2018 6.2 Since sales in F.Y.2012-13, were made out of the purchases made in F.Y.2012-13, in the same year, the assessee was asked explain how the sales and purchases were reflected differently in the P&L account and in the VAT returns. If the assessee had recorded only sales but not purchases, in F.Y. 2012-13, it would have led to an abnormal rise in profit. But if the assessee did not record sales and purchases in the F.Y. 2012-13, then they would only be recorded in the next year, i.e. F.Y.2013-14. The assessee was asked how it was able to record the same entry for purchases in both years, if sales were only reflected in one year. 6.3 The assessee's claim appears to be that purchases were recorded in the P&L account, in both years i.e. F.Y.2012-13 & F.Y.2013-14, and sales only in one year, i.e. F.Y. 2012-13, and the purchases were reduced from the P&L account of F.Y.2013-14, vide entry "Purchase Bill to come". The assessee was asked if similar entries were made in its VAT returns reflecting the sales once in F.Y.2012-13 and the purchases twice, i.e. F.Y.2012-13 86 F.Y.2013-14, to reduce it again for F.Y.2013-14, vide book entry. The assessee stated that in its VAT returns, the sales were duly reflected in F.Y.2012-13 and the purchases in only one year. 6.4 The assessee was asked to show this variation in turnover, i.e. purchase and sales, between the P&L account and the VAT returns, for both concerned years, i.e. F.Y.2012-13 86 F.Y.2013-14, to establish his claim. The assessee was unable to do so, as both the sales and purchase turnover as reflected in the assessee's P&L account and the VAT returns were one and the same. Thus, I, find no error in the addition made by the AO.” Aggrieved by the order of Ld.CIT(A), assessee is in appeal before us. We have perused the submissions advanced by both sides in the light of records placed before us. We note that nothing is placed on record by the assessee in order to verify the facts. In the interest of justice, we remand this issue also to the Ld.AO to consider it afresh. We direct the assessee to Page 8 of 8 ITA Nos. 3214 & 3215/Bang/2018 file requisite details in support of its claim and the Ld.AO shall verify in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee. Accordingly, ground no. 2 for A.Y: 2014-15 stands allowed for statistical purposes. In the result, the appeal filed by assessee for A.Y: 2013-14 & 2014-15 stands allowed for statistical purposes. Order pronounced in the open court on 03rd January, 2022.