ABHYUDAYA PHARMACEUTIVALS,GHAZIABAD vs. DCIT, CIRCLE- 1, GHAZIABAD

The substantive grievance of the assessee read :-

Briefly stated the facts of the case are that during the course of the scrutiny of assessment proceedings, the Assessing Officer noticed that the assessee has paid interest of Rs.11.78 lacs on unsecured loans. The Assessing Officer found that the assessee has extended a sum of Rs.2.03 lacs on which no interest was charged. The Assessing Officer further found that sum of Rs. 32.30 lacs was shown as advance in supplier. The Assessing Officer was of the firm belief that proportionate interest should be disallowed out of the interest expenses claimed by the assessee accordingly the Assessing Officer computed the allowable expenses as under :- S. Description Amount No. 1 Interest expenses on 11,78,934 A unsecured loans @13% 2 Total advances given 34,34,127 B (interest free) 3 Interest income to be 4,46,436 C earned (B@13%) 4 Allowable interest 7,32,498 expenses (A-C)

The Assessing Officer made addition of Rs.4,46,436/-. Proceeding further the Assessing Officer found that the assessee claimed salary expenses of Rs. 10.48 lacs and 1.54 lacs respectively. The Assessing Officer disallowed 10% and made addition of Rs. 3,49,600/- and 30,827/-.

The assessee carried the matter before the CIT(A) but without any success.

Before me the counsel for the assessee stated that advances to suppliers are coming from earlier years and paid advances cannot be considered as interest free loans and advances. The counsel further pointed out that the loan of Rs. 2,03,173/- has given out of interest free funds available with the assessee, therefore, no disallowance is called for.

The counsel further stated that ad-hoc disallowance is unwarranted as the expenses are fully supported by bills and vouchers. Per contra the DR strongly supported the findings of the Assessing Officer.

I have carefully considered the orders of the authorities below. I find from the balance sheet of 31.03.2013 advance to suppliers was of Rs.29 lacs. The same is Rs.32.30 lacs on 31.03.2014. In my considered opinion advances to suppliers are given in the normal course of business and therefore not to be considered interest free loans and advances. To this extent I do not find any reason for disallowing proportionate interest. Further I find that assessees own capital is Rs.31.17 lacs therefore, loan of Rs.2.03 lacs can be safely concluded to be coming out of interest free funds available with the assessee. I, therefore, direct the Assessing Officer to delete the disallowance of Rs.44,45346/- the ground is allowed.

While making ad-hoc disallowance the Assessing Officer has not pointed out any specific defect in any bills/ vouchers submitted by the assessee. In my considered opinion without pointing out any defect in the books of account, the Assessing Officer cannot make ad-hoc disallowance accordingly I direct the Assessing Officer to delete the addition of Rs.349600/- and Rs.30827/- this ground is also allowed.

In the result, the appeal is filed by the assessee is allowed.