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Income Tax Appellate Tribunal, ‘’ B’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned cross appeals have been filed at the instance of the Assessee and the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-1, Ahmedabad, dated 08/02/2019 arising in the matter of assessment order passed under s. 143(3) r.w.s. 148 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-2016.
The assessee has raised the following grounds of appeal:
1. The Ld. CIT(A) failed to adjudicate on the merits of the following disallowances of Rs. 6262173/- out of total disallowances of Rs.7142691/-u/s 40(a)(ia) made by AO, which were the subject matter of ground No. 1 of appeal before him.
2. Sr. No. Name of Payment Amount (Rs.) 1. Export Commission 1,75,283/- 2. Export Transport *4,65,200/- 3. Clearing and forwarding expenses 32,81,278/- 4. Ocean freight 18,75,212/- 5. Transport charges paid to J.R. Road lines *4,65,200/- Total 62,62,173/- *Disallowance of transport charges of Rs. 4,65,200/- is made twice by AO. [S. No. 2 & 5 of para 5 of the asst. order] Appellant submits that the Ld. CIT(A) be directed to adjudicate on the same on the merits of the case. It is submitted that it be so held now. 2.1 The learned CIT (A) is unjustified & erred in law by confirming addition of Rs.57,58,935/- made by AO, on account of Vat refund received against o/s the vat input credit receivable, reflected on asset side balance sheet, treating the same as income of appellant. Vat refund was receivable on export sales of company, not liable to Vat. 2.2 VAT refund was received for F.Y. 2013-14 & directly deposited by Comm. Tax dept., into Kotak Mahindra Bank account of company. Due to non passing of JV for credit to vat refunds receivable account by accountant, refund amount was reflected on liability side of balance sheet. 3. The appellant craves a leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
& 674/AHD/2019 Asstt. Year 2015-16 3
The 1st issue raised by the assessee in ground No. 1 is that the Ld. CIT-A erred in confirming the disallowance made by the AO for Rs. 62,62,173/- on account of non-deduction of TDS.
The assessee in the year under consideration has incurred certain expenses without deducting the TDS under the respective provisions of the Act. The relevant details of the expenses stand as under:
Sr. No. Name of payment Amount(Rs.) 1. Export Commission 1,75,283/- 2. Export Transport *4,65,200/- 3. Clearing & forwarding 32,81,278/- expenses 4. Ocean Freight 18,75,212/- 5. Transport charges paid to J.R *4,65,200/- Road lines 6. Transport charges paid to 87,048/- Ashok Bulk Carriers 7. Legal & professional fees 7,93,470/- Total 71,42,691/-
The AO in view of the above fact that the assessee has not deducted the TDS on the above-said expenses has made the disallowance under the provisions of section 40(a)(ia) of the Act and added to the total income of the assessee.
Aggrieved assessee file an appeal to the Ld. CIT-A. The assessee before the Ld. CIT-A submitted that the disallowance of the expenses incurred without deducting the TDS, as per the amended provisions of section 40(a)(ia) of the Act as applicable with effect from assessment year 2015-16, should be restricted to 30% only. However the AO, has made the disallowance to the tune of 100% which is against the provisions of law. & 674/AHD/2019 Asstt. Year 2015-16 4 6.1 Besides the above, the assessee also contended that the export transport charges paid to M/s J.R. Road Lines amounting to Rs. 4,65,200 has been disallowed twice.
6.2 In respect of the export commission paid to foreign parties, the assessee submitted that none of the foreign agent operates in India and the payment was directly made through the banking channel in the foreign country only. As such no income arises in India of the foreign agents and none of them has a permanent establishment in India or any other business connection. All the services by the foreign agents were rendered outside India.
6.3 With respect to the Ocean Freight and Clearing and Forwarding Expenses, the assessee contended that it is not liable for deducting the TDS in view of the CBDT Circular No. 723 dated 19-09-1995 as the foreign shipping companies and their agents are liable to tax under the provisions of section 172 of the Act.
However, the Ld. CIT-A rejected the contention of the assessee by observing as under: On consideration of the facts of the case, it is seen that the contention of the appellant that the AO has made the disallowance of transport charges paid to M/s J.R Roadlines twice in correct. Therefore, the AO is directed to rectify the mistake while giving effect to this order. Further, it has fairly been admitted during the appeal proceedings that no TDS liable has been deducted on payments made on account of transport charges to M/s.Ashok Carriers of Rs.87,048/- and Rs.7,93,470/- paid as legal and professional fees. The AO is directed to restrict the disallowance @ 30% on Rs.8,80,518/- as per the provisions of section 40(a)(ia) of the Act. This ground of appeal is partly allowed.
Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us.
The Ld. AR before us reiterated the contentions made before the authorities below whereas the Ld. DR vehemently supported the order of the authorities below. & 674/AHD/2019 Asstt. Year 2015-16 5
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that there is no finding given by the Ld. CIT-A with respect to the following items of expenses: i- Export commission expenses Rs. 1,75,283.00 ii- Clearing and Forwarding Expenses Rs. 32,81,278.00 iii- Ocean Freight Rs. 18,75,212.00 10.1 In the absence of any finding with respect to the above expenses, we are inclined to restore this issue to the Ld. CIT-A for fresh adjudication as per the provisions of law.
10.2 With respect to the expenses paid to M/s J.R. Road Lines amounting to Rs. 4,65,200/-, we note that the assessee has not deducted the TDS and therefore the same is liable for disallowance under the provisions of section 40(a)(ia) of the Act but at the rate of 30% of such expenses by virtue of the amended provisions of section 40(a)(ia) of the Act effective from assessment year 2015-16.
10.3 With respect of other expenses i.e. transport charges paid to M/s Ashok Bulk Carriers and legal & professional fees amounting to Rs. 87,048/- and Rs. 7,93,470/- only, we do not find any infirmity in the order of the Ld. CIT-A. In view of the above, the ground of appeal of the assessee is partly allowed for the statistical purposes.
11. The 2nd issue raised by the assessee is that the Ld. CIT-A erred in confirming the order of the AO by treating the amount of VAT refund as income of the assessee.
The AO during the assessment proceedings found that the assessee has received a refund from the VAT department amounting to Rs. 57,58,935/- which is a revenue receipt. Thus, the AO added the sum of Rs. 57,58,935/- to the total income of the assessee. & 674/AHD/2019 Asstt. Year 2015-16 6
Aggrieved assessee preferred an appeal to the Ld. CIT-A, who confirmed the order of the AO by relying on the order of his predecessor for the assessment year 2014-15. The relevant extract of the Ld. CIT-A order is reproduced as under: On consideration of the entire facts, it is seen that the explanation of the appellant does not hold any merit. The appellant had its accounts audited and VAT refund entries were to be very clearly adjusted on the asset side of the balance sheet which was not done. Similar addition made by the AO in AY 2014-15 has also been confirmed by my Id. predecessor vide order dated 26/02/2018. No new evidences has been adduced before the undersigned and therefore, the contention of the appellant is not 1 acceptable and the addition of Rs.57,58,935/- is confirmed. Ground no.2 dismissed.
Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us.
The Ld. AR before us filed two paper book running from pages 1 to 127 and 1 to 536 and contended that the ITAT in the own case of the assessee involving identical facts and circumstances in the assessment year 2014-15 has decided the issue in favour of the assessee. Thus, the Ld. AR contended that the amount of VAT refund does not represent the income of the assessee.
On the other hand the Ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that this tribunal in the own case of the assessee involving identical facts and circumstances has decided the issue in favour of the assessee vide order dated 21st Oct, 2019 in pertaining to the assessment year 2014-15. The relevant extract of the order is reproduced as under: 6. We have heard the rival contentions on this issue. With the assistance of Id. representatives, we have gone through the material on record and it is noticed that assessee company has credited the Vat refund ofRs, 79,78,94l/-to the Vat payable account (F.Y, 2013- 14} instead of adjusting the same against the duties and taxes (F.Y, 2013-14 Account) outstanding balance of Rs. 2,86,63,940/-. After adjusting the Vat refund received of Rs. 79,78,941/-credited outstanding balance in the receivable account shall be Rs. 20,68,999/-, Considering the forgoing facts, the addition is deleted and the appeal of the assessee is allowed on this issue. & 674/AHD/2019 Asstt. Year 2015-16 7 17.1 At the time of hearing, the Ld. DR has not brought anything on record contrary to the finding of the ITAT in the own case of the assessee as discussed above. Likewise, nothing was brought on record suggesting that the finding of the ITAT has either been stayed or overruled. Accordingly, we set aside the finding of the Ld. CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
17.2 In the result, the appeal filed by the assessee is partly allowed for the statistical purposes.
Now Coming to A.Y. 2015-16 an appeal filed by the Revenue
The 1st issue raised by the Revenue is that the Ld. CIT-A erred in deleting the addition made by the AO for Rs. 15,12,798/- on account of estimating interest @ 12% on advances given.
The AO during the assessment proceedings found that the assessee on one hand is incurring interest expenses and on the other hand it has given interest free advances amounting to Rs. 1,26,06,654/- only. According to the AO the assessee has diverted interest-bearing fund to non-interest-bearing loans and advances. Thus the AO worked out the amount of interest attributable to such interest free loan and advances amounting to Rs. 15,12,798/- being 12% of Rs. 1,26,06,654/- only. Thus the AO disallowed the same and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the Ld. CIT-A. The Ld. CIT-A deleted the addition made by the AO by observing as under: I find from the submission made by the appellant that it has sufficient interest free funds available with it during the year under consideration and to make interest free loans and advances. The AO has also not brought out any nexus to show that appellant had diverted interest bearing funds to make interest free advances. In view of these facts, & 674/AHD/2019 Asstt. Year 2015-16 8
addition of Rs.15,12,798/- is held not justified and is deleted. Ground no.3 of appeal is allowed.
Being aggrieved by the order of the Ld. CIT-A the Revenue is in appeal before us.
Both the Ld. DR and the AR before us vehemently supported the order of the authorities below as favourable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. We note that the own fund of the assessee exceeds the advances given by it. We find that own fund of the assessee stands at Rs. 177.77 lacs whereas total advances given by the assessee stands at Rs. 126.06 lacs. Thus it can be safely concluded that the assessee was having sufficient own fund to make interest free loans and advances. It is settled position of law by virtue of various order of the competent courts that if there are mixed funds, then the presumption would be that the advances have been given out of interest free funds. In holding so we draw support and guidance from the judgment of Hon’ble jurisdictional High court in the case of CIT vs. Torrent Power Ltd reported in 363 ITR 474 where it was held as under: “It was noted from records that the assessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs.195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7] “ 23.1 We also refer the judgment of Hon’ble jurisdictional high court of Gujarat in case of CIT vs. Raghuvir Synthetics Ltd. reported in 354 ITR 222 where it was held that when huge interest free fund available and there is no evidence that the borrowed money utilized for making interest free advances. In such facts and circumstances disallowances of interest expenses is unjustifiable. For the ready reference, the headnotes of the judgment of Hon’ble Gujarat High Court (Supra) is extracted here under: & 674/AHD/2019 Asstt. Year 2015-16 9
“Where huge funds were available without any interest liability with assessee and there was no evidence to hold that borrowed money was utilized for purpose of advance to sister concerns, no disallowance of interest was warranted”
23.2 In view of the above, we do not find any infirmity in the order of the Ld. CIT- A and accordingly we decline to disturb the finding of the Ld. CIT-A. Hence the ground of appeal of the Revenue is hereby dismissed.
24. The 2nd issue raised by the revenue is that the Ld. CIT-A erred in deleting the addition made by the AO for Rs. 4,00,50,340/- representing the outstanding creditors in the balance sheet.
25. The AO during the assessment proceedings found that there were certain sundry creditors which were added in the year under consideration. But the assessee failed to produce any documentary evidence in support of the genuineness of such sundry creditors. Accordingly, the AO concluded that the sundry creditors are bogus or the liabilities have ceased to exist. Thus the amount of sundry creditors amounting to Rs. 4,00,50,340/- was treated as bogus and added to the total income of the assessee.
26. Aggrieved assessee preferred an appeal to the Ld. CIT-A, who deleted the addition made by the AO by observing as under: It is seen that the AO has not established the fact that there was remission or cessation of liability during the year under consideration. He has made the disallowance merely because the amounts were outstanding. The appellant has submitted the details as evident from point no.13 of its letter dated 19/08/2017 addressed to the AO (available on page 49 of the paper book). The AO was at liberty to make independent enquires in this regard. Considering these facts, the disallowance made by the AO of Rs.4,00,50,340/- is held not justified and is deleted. Ground no.4 of appeal is allowed.
Being aggrieved by the order of the Ld. CIT-A, the revenue is in appeal before us.
The Ld. DR and the AR before us vehemently supported the order of the authorities below. & 674/AHD/2019 Asstt. Year 2015-16 10
We have heard the rival contentions of both the parties and perused the materials available on record. We have perused the paper book available on record and found that there were complete addresses of all the sundry creditors available with the AO. This fact can be verified from the necessary details placed on pages 62 to 93 of the paper book. Thus in the event of any doubt about the genuineness of such sundry creditors, it was necessary for the AO to carry out the necessary verification from the respective parties. But we note that the AO has not done so. At the time of hearing, the Ld. DR has not brought anything contrary to the finding of the Ld. CIT-A. Thus we do not find any infirmity in the order of Ld. CIT-A. Hence the ground of appeal of the Revenue is hereby dismissed.
In the result, the appeal filed by the Revenue is hereby dismissed.
In the combined results, the appeal filed by the assessee is partly allowed for statistical purposes whereas the appeal filed by the Revenue is dismissed.
Order pronounced in the Court on 05/08/2022 at Ahmedabad.