HINDUSATAN APPAREL INDUSTRIES,MUMBAI vs. ACIT 21(1), MUMBAI

The captioned appeal by assessee for Assessment Year [AY] 2012-13 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-33 [CIT(A)], Mumbai, Appeal No. CIT(A)-33/Rg.21/80/2015-16 dated 04/11/2016 qua confirmation of certain additions on account of Hindustan Apparel Industries Assessment Year-2012-13 purchases made by the assessee and treatment of certain interest income earned by the assessee as Income from Other Sources.

Briefly stated the assessee being resident firm engaged in manufacturing and export of readymade garments was assessed for impugned AY u/s 143(3) of the Income Tax Act, 1961 on 31/03/2015 wherein the income of the assessee was determining at Rs.489.73 Lacs after set-off of brought forward losses as against returned income of Rs.296.68 lacs e-filed by the assessee on 17/09/2012. The subject matter of the present appeal is addition of purchases made by the assessee from an entity namely M/s Sindhu Enterprises for Rs.26.94 Lacs since notice issued u/s 133(6) to confirm the transactions did not elicit satisfactory response. The second issue is treatment of certain interest income earned by the assessee which has been assessed under the head Income from other sources as against Business Income claimed by the assessee. 3. The first appellate authority has confirmed the additions to the extent of 25% of purchases made by assessee from aforesaid entity whereas the stand of Ld. AO in treating the interest income as Income from other sources has been confirmed. Aggrieved, the assessee is in further appeal before us. 4. The Ld. Authorised Representative for Assessee [AR], Sh.Vijay Kumar S. Biyani, pleaded that certain vital evidences submitted by assessee before lower authorities to substantiate the purchases have been ignored and additions have been confirmed merely on the footing that notice issued u/s 133(6) could not elicit satisfactory response. Regarding interest income, Ld. AR pointed out that Bank FDRs had Hindustan Apparel Industries Assessment Year-2012-13 direct nexus with business activity carried on by the assessee in the sense that the same were utilized to open Bank LC, Bank guarantee and to take advance against export bills, which were for business purposes of the assessee and therefore assessable as Business Income. The Ld. Departmental Representative, Sh.Rajat Mittal, while controverting the same relied on the stand of lower authorities.

After careful consideration, the material on record suggest that the assessee was in possession of primary purchase documents including confirmation of accounts with respect to purchases made from the aforesaid entity. The Ld. AR has pleaded that the assessee is in a position to substantiate the purchases made by the assessee by filing necessary confirmations / production of party before lower authorities. In view of the stated fact, this matter stand restored back to the file of Ld. AO for re-adjudication with a direction to the assessee to substantiate the purchases in the aforesaid manner. This ground stand allowed for statistical purposes.

So far as the treatment of interest income is concerned, we find that the same comprises of interest on Income Tax Refund and Bank interest on FDRs. So far as the treatment of interest on Tax Refund is concerned, the same is rightly been assessed as Income from Other sources. The stand of Ld. CIT(A) to that extent stand confirmed. However, regarding bank interest on FDRs, the Ld. AR has pleaded that the same has direct nexus with business activities carried on by the assessee. Therefore, the issue to that extent stand remitted to the file of Ld. AO for re-adjudication with a direction to the assessee to Hindustan Apparel Industries Assessment Year-2012-13 demonstrate such nexus and justify its claim. This ground stand partly allowed for statistical purposes.

The appeal stand partly allowed for statistical purposes.