M/S TYTAN ORGANICS PVT LTD.,MUMBAI vs. DY CIT CIRCLE- 1 (3)(1), MUMBAI

These are two appeals filed by the assessee for two different years against the order of learned Commissioner of Income tax (Appeals) confirming the disallowances. Both the appeals are heard together and disposed of by this common order. 2. (Assessment year 2010-11) is against the order of the learned Commissioner of Income tax (Appeals)-3, Mumbai where the addition of Rs.3,22,962/- has been confirmed as unexplained expenditure 2 ITAs 312 & 313/Mum/2020 under section 69C of the Act on account of difference of balances of creditors. 3. Briefly stated, the facts show that the assessee is a company, manufacturer of speciality chemicals and other materials. It filed its return of income on 24/09.2010 declaring loss of Rs.6,53,81,473/-. During the course of assessment proceedings, the assessee submitted several details. With reference to one sundry creditor, M/s Arihant Chemical Corporation, assessing officer noted that the amount as per the books of the assessee shows credit balance of Rs. 2,00,30,088/- whereas as per the confirmation submitted by the creditor under section 133(6) of the Act shows debit balance of Rs. 1,83,40,566/- and therefore, there is a difference of Rs. 16,89,522/-. Assessee was asked to submit the reconciliation. Assessee submitted the same on 24/12/2012 along with bills and ledger accounts. The assessee explained that the above difference has arisen in the opening balance for the financial year. Despite this fact, the assessing officer made an addition of Rs. 16,89,522/- under section 69C of the Act. Consequently, the assessment order was passed under section 143(3) of the Act on 07th March 2013. 4. Assessee, aggrieved by the order, preferred appeal before the learned Commissioner of Income-tax (Appeals), who, after examining the explanation of the assessee deleted the addition of Rs.13,66,560/- as this was the difference in the opening balance as per the reconciliation statement submitted by the assessee. Therefore, out of the total addition of Rs. 16,89,522/-, the addition of Rs.13,66,560/- was deleted and the 3 ITAs 312 & 313/Mum/2020 balance addition of Rs.3,22,962/- was confirmed under section 69C of the Act, and therefore, assessee is in appeal on this issue.

Learned authorised representative submitted that assessee is a company, which has a turnover of more than Rs. 36 crores and has dealt with several debtors and creditors. Out of the many creditors, who were verified by the learned assessing officer, only in one case, the difference was found. The learned assessing officer worked out the difference by obtaining the confirmation under section 133(6) of the Act from the creditors. Such statements were not given to the assessee but only the balances were given and assessee was asked to explain the difference. He submitted that assessee explained that the difference as arising on account of opening balance. He also referred to the reconciliation of closing balances placed at pages 19 and 20 of the paper book. Further, he submitted that as there is no expenditure incurred by the assessee, which are not recorded in the books of account of the assessee, the provisions of section 69C do not apply. He, therefore, submitted that the addition of Rs.3,22,962/- made by the learned assessing officer and confirmed by the learned CIT (A) deserves to be deleted.

Learned departmental representative supported the order of the learned CIT (A).

We have carefully considered the rival contentions and perused the orders of the lower authorities. We find that with respect to one creditor,viz. M/s Arihant Chemicals Corporation, a sum of Rs.2,00,30,088/- was payable to the above party as on 31/03/2010. As per the books of Arihant Chemicals Corporation, only a sum of Rs.1,83,40,566/- were found to be receivable 4 ITAs 312 & 313/Mum/2020 from the assessee. Therefore, the assessing officer noted that there is a difference of Rs.16,89,522/- between the two balances and, therefore, the assessing officer made an addition of the above sum applying the provisions of section 69C of the Act. Assessee submitted before the assessing officer vide letter dated 24/12/2012 a reconciliation stating that the difference of Rs.13,66,560/- is on account of difference in opening balance as on 01/04/2009. On this basis, the learned CIT (A) deleted the addition to that extent and retained balance addition. Provisions of section 69 C of the Act provide if assessee for which no explanation incurs any expenditure or unsatisfactory explanation is provided. In the impugned appeal, there is no evidence that the difference in the credit balance in the books of assessee with the debit balance in the books of creditor is an expenditure incurred by assessee during financial year. It is not the case of the revenue that creditor has received sum but it are not recorded in books of assessee as payment. Therefore, according to us provision of section 69 C cannot be attracted in this case, unless revenue brings on record any proof of incurring such expenditure. Hence, we reverse the orders of lower authorities and direct ld AO to delete the addition of Rs 322962/- made u/s 69C of the Act. Accordingly, Ground no 1 of the appeal of the assessee is allowed.

In the Result filed by assessee is allowed.

Is appeal filed by the assessee against the order passed by the learned CIT(A)-3, Mumbai for assessment year 2012-13 on 30/10/2019 wherein the appeal filed by the assessee against the order passed under section 143(3) of the Income-tax Act, 1961 by the DCIT 1(3)(1)

The brief facts show that as per note No. 19 of the balance-sheet, assessing officer noted that assessee has given interest free loans and advances of Rs. 59,56,744/- to its various employees. Assessing officer questioned that the above sum has been diverted by the assessee for non business purpose and, therefore, an amount of Rs. 5,36,107/- being 9% interest should not be disallowed. The assessee submitted that it gave loans to staff of the company, which is a business purpose, and, therefore, it is not a non- business advance. The learned assessing officer rejected the explanation of the assessee and disallowed the above sum as per assessment order passed under section 143(3) of the Act on 12/02/2015. The assessee preferred appeal before the learned CIT (A), who also confirmed the same. Due to this, the assessee is in appeal before us.

The learned authorised representative referred to the paper book filed containing 51 pages. He referred to pages 25 and 26 of the paper book where the total amount advances of Rs. 59,56,744/- is tabulated, stating name, department, designation, loan advanced and the reason for what the advances have been given. He submitted that the total advance given is to 117 persons and almost all the advances are less than Rs. 1 lakh each. He referred to the other advances, which are above Rs. 1 lakh stating that one 6 ITAs 312 & 313/Mum/2020 of the advances is for medical treatment and another is educational advance of employees. He submitted that all the advances are given as per the company policy and to the staff of the assessee company. He, therefore, submitted that there cannot be any reason that above advances can by any stretch of imagination be considered as non-business advances. He, therefore, submitted that the lower authorities have incorrectly made the disallowance.

The learned departmental representative vehemently supported the orders of the lower authorities.

We have carefully considered the rival contentions and perused the orders of the lower authorities as well as the paper book filed by the assessee. The assessee has given advances to its employees amounting to Rs. 59,56,744/-. The above advance has been given to 117 employees of the company. The assessee has furnished the complete details of advances along with the purpose for which it is given. Most of the advances are less than Rs.1 lakh each. The natures of advances are festival loans, medical advances, educational advances and personal loans. Looking into the nature of the operation of the company where the employee benefit expenses of Rs. 4,68,00,000/- are incurred and the annual turnover of Rs. 42 crores is shown, amount of advances to the staff is in the nature of business advances. The assessee has also stated that advances are given in accordance with the company policy. Therefore, we find that advances given by the assessee are for the purposes of the business. It can also not said that there is an absence of business expediency in giving loans to staff. There is no contrary evidences recorded by the lower authority that 7 ITAs 312 & 313/Mum/2020 advances given to the staff are bogus or for any non-business purposes and is not in accordance with the nature of business policy of the assessee as well as the custom of the trade. In view of this, the amount of Rs. 5,36,107/- disallowed by the learned assessing officer and confirmed by the learned CIT(A) is unsustainable. Accordingly, we reverse the orders of the lower authorities and direct the assessing officer to delete the above disallowance. Accordingly, grounds 1 & 2 of the assessee are allowed.

In the result, an appeal in is allowed.

Accordingly, both the appeals filed by the assessee are allowed.