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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI L.P. SAHU
This is an appeal filed by the Revenue against the order of the Ld. CIT(A) Meerut dated 4.6.2015 on the following grounds of appeal :- 1. “Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in deleting the additions of Rs. 23,43,274/- and Rs. 49,83,846/- made by the A.O. towards unconfirmed sundry creditors ignoring that the assessee totally failed to discharge the onus cast upon it to prove the identity & creditworthiness of the creditors and genuineness of transactions.
2. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in law and facts in allowing the interest of Rs. 3,84,83,897/- disallowed by the A.O. u/s 43B of the IT Act, 1961, ignoring the fact that this is the amount of overdue interest that was paid due to non-payment of loan installments in the preceding previous years and interest chargeable on late payment of loan amount does not fall within the ambit of Section 43B of the IT Act, 1961.
Whether in the facts and circumstances of the case, the Order of the Ld. Commissioner of Income Tax (Appeals) may be set aside and that of the A.O. be restored.”
The brief facts of the case are that the assessee filed return of income on 30.9.2010 declaring loss of Rs. 28889710/-. The case was selected for scrutiny through CASS and statutory notices were issued to the assessee. The assessee society a co-operative society registered under the Society Registration Act, 1860. It derives its income from purchase and sale of milk and milk products. The financial statements and books of accounts and other documents were produced by the assessee before the AO. During the course of assessment proceedings the AO noticed that the assessee has shown current liabilities of Rs. 86439441/-. In this regard assessee was asked the details of the creditors and confirmations in the cases where the balance is more than Rs. 1 lac. The Ld. AO issued 133(6) to the creditors to ascertain the genuineness of the liabilities. From the details filed by the creditors and the assessee it was noticed that there was a difference in the balances shown by the creditors and the assessee. The observations of the AO are as under :-
“As per above chart it is seen that there are some differences between closing balances shown by the assessee and creditors at S.No. 3,5,6,7,8,14 & 16. The total of balances shown by the assessee against the above seven parties is Rs. 1657736.62/-. However, as per copy of account alongwith confirmation letter total of balances shown by the above seven parties against the assessee is Rs. 1447372.39. Thus the balance shown by the assessee can not be accepted as correct. Thus out of total liabilities of Rs. 6796048.35/- shown in the above table, only liability of Rs. 4452774.64/- has been confirmed as correct. In the case of other parties, either the letters issued were returned unserved or no replies were received. Thus, out of liabilities of Rs. 6796048.35, liabilities of Rs. 2343273.71 has not been confirmed. Hence, in respect of liabilities to whom notices u/s 133(6) have been issued remained unconfirmed of Rs. 2343274/- is disallowed and added to the income of the assessee.
(Addition Rs. 2343274/-) Further, in respect of notices u/s 133(6) have not been issued remained for Rs. 14454309/- (total advance from parties shown at balance sheet of Rs. 21250357/- out of this notices u/s 133(6) have been issued for Rs. 6796048/-). Being unconfirmed advance from parties remained for Rs. 2343274/- out of Rs. 6796048/- which were sent on the test check basis. Thus, remained unconfirmed advance from parties worked out at 34.48%. On the same basis and on the same proportion as discussed above a sum of RS. 4983846/- (34.48% of Rs. 14459309/- to whom notice u/s 133(6) have not been issued) is hereby disallowed and added to the income of the assessee.
(Addition Rs. 4983846/-)
“During the course of assessment proceedings on going through the audit report furnished by the assessee it is noticed that an amount of Rs. 38483897/- on account of interest on loan from NDDB for preceding previous year has been paid during F.Y. 2010-11 and accordingly accounted for in the books of account for F.Y. 2010-11 i.e. A.Y. 2011-12. The assessee has asked to explain how to interest of previous years could be allowed during the year under consideration. In response the assessee has submitted that the assessee society received the loans from Nation Dairy development Board for installation of dairy and Plant, which are a central govt. concern. The assessee society received loan in two segment, out of which, the loan was to be paid within statutory time. Besides, instalment fixed was also to be paid, as per scheduled date. The society being in loss was unable to make timely payment of instalments but only paid the regular interest on the one segment of loan. On account of delayed payment, the NDDB created a liabilities of Rs. 112189000/-, but as per loan account the assessee has to pay only the sum of Rs. 52391352/-. The Govt. of Uttar Pradesh after negotiation (alongwith the assessee sangh) worked out the formula and one time settlement was made to pay to NDDB at 101.09 Crores again the total outstanding liabilities 144.94 corres, out of which, net 101.09 crores, was settled on account of one time settlement. Thus the assessee has to pay the sum of Rs. 9.23 cr. Of his share. As the payment was on account of interest due on untimely payment, which was not certain and was ascertained only 24.6.2010, when, after settlement payment, was made. As this was a payment of overdue interest covered u/s 43-B, it was to be allowed only in the year, in which the payment was made accordingly the sum of Rs. 38483897/- was debited to the interest account and transfer to P & L account. The reply of the assessee has been considered carefully but not found convincing. Therefore, interest of Rs. 38483897/- debited in P & L account for the year under consideration which is pertaining to previous years are hereby disallowed and added to the income of the assessee. (Addition : Rs. 38483897/-)”
3. Further on scrutiny of accounts and audit report, AO noticed that an amount of Rs. 38483897/- on account of interest on loan from NDDB for previous year has been paid during the financial year 2010- 11 and accordingly accounted for in books of accounts for financial year 2010-11. The assessee was asked to explain how the interest of previous year could be allowed during the year under consideration. In response to this, assessee submitted that the loan has been obtained for two segment from Nation Dairy Development Board out of which loan was to be paid within statutory time and the installment was also to be paid within time but being a loss it could not be paid timely and due to delayed payment the NDDB created liabilities of Rs. 112189000/- but as per loan account the assessee has to pay only sum of Rs. 52391352/-. The Govt. of Uttar Pradesh after negotiation developed a formula for payment of one time settlement. The payment was to be made to NDDB at Rs. 101.9 crores as against outstanding liabilities of Rs. 144.94 crores out of which 101.9 crores was settled on one time settlement. Thus assessee has to pay the sum of Rs. 9.23 crore of his share. The payment was on account of interest on untimely payment which was not certain and was ascertained only on 24.6.2010 when after settlement payment was made. Ld. AO noticed that it was overdue interest and covered u/s 43B that it was to be allowed in the year of payment. Accordingly he disallowed the sum of Rs. 38483897/-. Feeling aggrieved from the above order, assessee appealed before the Ld. CIT(A) and he made detailed written submission before him. Ld. CIT(A) after considering all the submissions of the assessee, allowed the appeal of the assessee. Feeling aggrieved from the order of the Ld. CIT(A) the revenue is in appeal before the Income Tax Appellate Tribunal.
4. Ld. DR relied upon the order of the AO and further submitted that the assessee was unable to reconcile the differences noticed in respect of disallowance of interest by the AO. Therefore AO is justified to make addition which has been wrongly deleted by the Ld. CIT(A) and in case of interest payment in respect of disallowance of interest the AO has rightly added as per the provision of section 43B of the Income Tax Act because the assessee has debited to the interest which falls in the financial year 2010-11. AO is justified to make addition on the above two counts and therefore the order of the AO should be restored. On the other hand Ld. AR relied upon the order of the Ld. CIT(A) and he reiterated the submissions made before him. He also submitted paper book containing pages 1 to 328 and he submitted a chart in the paper book.
After hearing both the sides and perusing the entire material on record we observe that Ld. CIT(A) has done good reasoned order which is as under :- “3.4 I have gone through the assessment order as well as the written submission of the AR. The assessee is a cooperative society which is partly owned by the government of UP. From a study of balance sheet of the assessee it is seen that most of the capital of the assessee is by way of government grants or fund from government agencies. Being a semi-government agency the books of accounts of the assessee are subject to multiple audit test checks. The books are first audited by government appointed auditors. The books are then audited under the provision of section 44AB of the Income Tax Act. The balance sheet and the profit and loss account of the assessee bears testimony to the fact that the books have been audited by government appointed auditors. Audit r port in form 3CD containing the balance sheet and the profit and loss account of the assessee was submitted before the AO. 3.5 From the assessment order it is seen that no discussion has been made as to how credit from these sundry creditors has come into existence. The assessee had submitted books of accounts before the AO and no adverse remark was made on the books of account. It is seen from the written submission that the assessee had filed complete books of accounts including purchase bill, sale bill and stock register etc. The AR has also argued that credit purchases can be verified from the books of accounts and bank 7 statement through which payment has been made. It can also be verified that the payments have been made through cheques. 3.6 There may be many reasons why a letter of enquiry can come back undelivered. The enquiry was being made by the AO in February/March, 2014 while the transaction relates to financial year 2010-11. Thus there is a considerable time gap between the credit transaction and letters of enquiry. Moreover, mere non- delivery of enquiry letters or absence of reply from creditors cannot be a ground for making addition. This will especially be true in a situation where the assessee has submitted sufficient details from which the genuineness of transaction leading to credit can be determined. Once the assessee has submitted names and addresses of the creditors and other relevant details the onus shifted to the AO to bring in positive evidence before making any addition. It is seen from the facts of the case that the AO did not even make an attempt to know whether the credit standing in assessment year 2011-12 has been squared off in the next assessment year. In a recent judgment given by the jurisdictional Allahabad High Court in the case of ClT Vs Jagdish Prasad Tewari 220 Taxmann 0141 (2014), it has been held that if the payments have been made by cheques and are reflected in the books of account of the assessee, no adverse inference can be drawn. In a judgment given by the Calcutta High Court in the case of Diagnostics vs. CIT 334 ITR 111 on a similar question , it has been held by the Hon’ble Court that “if any asseseee took care to purchase material by way of account payee cheques from a third party does not appeal before the AO pursuant to the notice or even has stopped business, the claim of the assesee on that account cannot be discarded as non-existence.”
3.7 From the assessment order it is clear that one of the primary reasons for making this addition was because there was difference in closing balance between the appellant’s account and many creditor’s accounts. The appellant had however filed reconciliation statement and explanation before the AO which seems to be completely ignored by the AO. He has not mentioned in the assessment order that a show cause has been issued on this point. Clearly, the AO for no reason disregarded the explanation and reconciliation submitted by the appellant. 3.8 The AO has also given a strange logic in making an addition of Rs. 49,83,846/-. He has estimated the amount of sundry creditor which would be unproved because 34.48% of the credit balances were found to be unproved in his enquiry. Clearly, the AO has made a mockery of the principles of natural justice, income tax law and accountancy. Once the assesee has discharged his onus by furnishing necessary details like names and addresses, books of account, payment details etc the AO has to bring in positive material on record in order to treat sundry creditors as bogus. Such addition cannot be made on the basis of estimation by percentage analysis. 3.9 Considering the above facts and judicial pronouncements, grounds of appeal No. 1 & 2 is allowed and addition of Rs. 73,27,120/-.
4.3 I have gone through rival submissions as above. First of all, it is seen that in the assessment order, the AO has not at all discussed the rival argument and explanation submitted by the appellant. He has made such a large addition by merely writing that the submission of the assessee has been considered and not 9 found convincing. The facts like what are the submissions of the assessee, how are they not worth considering, what is the counter argument of the AO have not been discussed at all in the assessment order. This is a very unfair practice and goes against the principle of natural justice.
4.4 From the facts of the case, it 'is seen that the interest amount of Rs. 3,84,83,897/- was paid during the F.Y. 2010-11 relevant the A.Y. 2011-12. It has not been disputed by the AO that amount of interest was paid on 24.06.2010. At this point, it would be necessary to first understand the provision of section 43B. Relevant portion of section 43B is as given below:
Not withstanding anything contained in any other provision of this Act a deduction otherwise, allowable under this Act. In respect of; Clause (a) - - - - - - - - - - - Clause (b) - - - - - - - - - - - Clause (c) - - - - - - - - - - - Clause (d) "any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, in accordance with -terms and conditions of the agreement governing such loan or borrowing"
Shall be allowed irrespective of the previous year, in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him only in computing the 'income referred in section 28 of that previous year in which such sum is actually paid by him.
4.5 As per the provision of section 43B, the following criteria should have been fulfilled in order that the interest payment was allowable u/s 43B:
1. 1. The National Dairy Development Board should be a public financial institution. The NDDB is a financial institution under the central government and is very much a public financial institution within the meaning of section 4A of the Companies Act, 1956 because it has been established by a central Act and is owned by the Central Government.
2. The claim of deduction for payment to the NDDB should have been made in that previous year in which such sum is actually' paid by the appellant. There is no dispute to this fact that payment to NDDB was made on 24.06.2010. The details of such payment were made before the AO. The claim' has been made in the same year in which the payment of interest to NDDB was made. 4.6 From the above, it can be seen that the appellant fulfills both the criteria mentioned above. In this situation, the payment of interest to NDDB is allowable only in the A.Y. 2011-12 irrespective of the fact that the liability to pay such sum had arisen in some other previous year. Based on above discussion, Grounds of appeal No. 3 is allowed and additions of Rs. 3,84,83,897/- is deleted.”