RAMI DEVI RAMDAS RICE MILL PRIVATE LIMITED,BURDWAN vs. ITO, WARD 2(4), BURDWAN, BURDWAN

The assessee’s first substantive ground seeks to challenge the CIT(A)’s appellate order upholding the Assessing Officer’s action disallowing proportionate interest amount of ₹2,79,956/- in relation to loan given of ₹38.70 lac. The CIT(A)’s discussion to this effect reads as under:-

Rami Devi Ramdas Rice Mill Pvt. Ltd. Vs. ITO Wd-2(4) BWD Page 2 “3. Discussions and Findings: This appeal, ground-wise is disposed as under: Grounds 1 and 2: These two grounds agitate the same addition and are disposed as one. The appellant had claimed an interest of Rs.13,31,425/- in the audited balance sheet chedule-2 under the head of interest on cash credit loan of Rs.1,84,05,0511/-. This interest had been paid against the money borrow4ed by the appellant from its CC account in Bangya Gramin Vikash Bank. But, at the same time, two directors of the appellant company had withdrawn Rs.37,30,000/- and Rs. 1,40,000/- totaling Rs.38,70,000/- under the head loans and advances without paying any interest. The AO disallowed the proportionate interest as being diverted for non-business purposes. The appellant, during appeal proceedings, stated that the AO had not properly checked the facts and that the moneys borrowed had indeed been used for business purposes. The matter, accordingly was remanded back to the ITO for providing of opportunity to the appellant to prove his contention. During remand proceedings also the appellant merely stayed that the moneys had been withdrawn for the smooth functioning of the business. No evidence was produced on this count. In his rejoinder, the appellant has reiterated his stand while relying upon various judicial authorities. He has however produced nothing to show, as a matter of fact, that the said withdrawals had indeed been made for the purposes of the business of the appellant. From the material on record also, this contention of the appellant is not proved. The onus lies squarely on the appellant to establish that such funds had been put to business use. Since this has not been done, it is difficult to agree with the appellant’s contentions based solely on his averments. The citations relied upon by him also do not help him once the facts themselves have not been established. This ground is therefore dismissed.”

We have given our thoughtful consideration to rival contentions. It emerges from the assessee’s evidence on record that its interest fee funds amounted to ₹46.80 lac under share capital and share application heads. Hon'ble Bombay high court’s decision in CIT vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom) holds that the necessary presumption that arises in such a case is that of utilization of interests free funds only. We accordingly direct the Assessing Officer to delete the impugned interest disallowance of ₹2,79,956/-.

Next comes assessee’s second substantive ground challenging sec. 40(a)(ia) r.w.s. sec. 194J of the Act on account of non-deduction of TDS on Rami Devi Ramdas Rice Mill Pvt. Ltd. Vs. ITO Wd-2(4) BWD Page 3 accounting charges amounting to ₹36,000/-. We find that the assessee had deducted the impugned expenditure as accounting charges than it to an accountant inviting TDS deduction. We delete the impugned disallowance on this count alone.

Next comes assessee’s challenge of addition of ₹19,83,800/- made by both the lower authorities as excess stock as per statement given to bank for approving higher credit limit. There is no dispute that the assessee’s duly verified books of account nowhere contain the difference in question. We notice in this backdrop of facts that this tribunal’s co-ordinate bench’s order in ITO vs. Shri Rabindra Nath Kumar in decided on 31.01.2014 has rejected Revenue’s identical ground seeking to revive addition on difference in figures given to bank and actual books of account as follows:- “4. We find from the facts of the case that the assessee has filed audited accounts with the Sales Tax Authorities also. With the introduction of VAT system, any dealer, who purchases goods from registered dealer and paid VAT on the said purchases, gests credit as input credit from the gross VAT payable by the dealer. The details of purchase made by the assessee 2005-06 was submitted before Sales Tax Authorities and on the basis of the same, assessee got benefit of input credit and this total input credit benefit was at Rs.8,04,095/-. As per the Shri Rabindra Nath Kumar, AY: 2006-07 assessment order dated 16.09.2008 the total turnover determined by Sales Tax Authorities of the assessee is at Rs.49,44,802/-. According to assessee and as per records as well as from the orders of the authorities below, it is clear that opening stock as on 01.04.2005, purchases during FY 2005-06 and sales during FY 2005-06 tallies with the figures mentioned in P&L Account and Balance Sheet filed with the Income tax return. It is clear from the above that the assessee disclosed the value of Rs.23,66,234/- as stock before the bank but no quantity was mentioned to the bank.. Even the stock statement submitted before the Bank was not verified by the bank and it is unverified statement. No quantity was mentioned by the bank and assessee has not shown any higher quantity of stock with the bank. However, it has estimated higher value of stock to the bank what was available in its books. Once this is the position, merely on the basis of difference in value of stock cannot be considered as difference in stock in term of quantity also. In case, there is no difference in quantity in terms of stock, no addition can be sustained. The CIT(A) has rightly deleted the addition and we confirm the same. Appeal of revenue is dismissed.”

Next come two addition(s) of excess purchased figure(s) of ₹17,54,000/- and out of books sale amounting to ₹63,08,910/-. Case file suggests that assessee’s closing stock as per its books as on the date of survey dated 31.03.2010 was 12468 qts. whereas it came to 5414.32 qts. in survey findings. It is thus a case of shortage of stock found during the course of survey. So is its next grievance regarding addition amount of ₹63,08,910/- indicating out of books sale. Learned departmental representative fails to rebut the fact that the lower authorities have not granted credit of cost of either alleged excess stock purchased nor that of the stock sold out books. We therefore quote hon'ble jurisdictional high court’s latest decision in PCIT vs. Subarna Rice Mill (2018) 96 taxmann.com 286 (Cal) to conclude that it is only the profit element in both these two heads which is required to be added. Case file suggests that the assessee’s gross profit rate in the impugned assessment year as per its auditor’s certificate is 5%. We therefore direct the Assessing Officer to frame necessary computation at the said gross profit rate of 5% only. The assessee’s instant two substantive grounds are treated as partly allowed in above terms.