DCIT, CIR-3(1), KOLKATA, KOLKATA vs. M/S AANCHAL ISPAT PVT. LTD., HOWRAH

This Revenue’s appeal and assessee’s cross-objection for AY 2011-12 arise against the order dated 18.02.2016 passed by the CIT(A)-9, Kolkata in Appeal No.216/CIT(A)-9/Wd-1(4)/2015-16/Kol involving proceedings u/s 143(3) of the Income tax Act, 1961 (in short “Act”). Heard both the parties. Case file perused.

It is noticed that at the outset that the Revenue’s appeal suffers from four days delay in filing. It has filed necessary condonation petition which has not been disputed at the assessee’s behest. We therefore condone the impugned delay of four days in filing of this appeal. & C.O.-No.-49/Kol/2016 [Assessment Year: 2011-12] 3. We now advert to Revenue’s pleadings. Its first substantive ground challenges the CIT(A) finding deleting section 36(1)(iii) interest disallowance/addition of Rs.14,45,779/- made in the course of assessee as deleted in lower authorities proceedings. Learned CIT(A)’s findings under challenge qua the instant issue read as follows:- 4.2. “In the second ground the assessee has disputed the disallowance of Rs. 14,45,779/- from interest payment. The AO found that interest free advance of Rs.1,38,82,141/- gave been made to six parties even though the assessee has taken interest bearing loans and was paying interest. I however find that the appellant's own capital was sufficient to cover up the interest free advances. Apart from that the assessee has also received interest free advances. Majority of the advances were made in the earlier year and no part of the interest was disallowed in the earlier years assessment. The AO has also not brought on record any evidence to suggest that interest free advances were made nu l of interest bearing loans. Hence the addition was no called for. The addition is deleted.” 4. Learned Sr. DR vehemently contends during the course of hearing that the Assessing Officer had rightly made the impugned addition as the assessee had made interests free advances of Rs.1,38,82,141/- to six parties from interest bearing loans. He fails to dispute the CIT(A) clinching finding of fact that assessee’s own capital was very much sufficient to cover the impugned interests free advances as per Hon’ble Bombay High Court in CIT vs Reliance Utility & Power 0 Ltd. 313 ITR 340. It has further come on record that all the advances had been made in earlier assessment years involving no such disallowance. We therefore affirm the CIT(A) findings under challenge. 5. The Revenue’s 2nd substantive ground seeks to revive the Assessing Officer’s action adding alleged unaccounted sales of Rs.76,84,308/- as detected by DGCEI & C.O.-No.-49/Kol/2016 [Assessment Year: 2011-12] in assessment order as restricted to 5% G.P.rate in lower appellate proceedings as under:- 4.3. “In ground no.3 the assessee has disputed the addition of Rs. 76,84,308/- being the unaccounted sale found in the exercise duty proceedings. The assessee has not disputed the fact of unaccounted sales. I find that the books of accounts were concerned, no defect was found in the books of accounts and the books are not rejected. The assessee also maintained day to day stock register wherein also no defect was found. In view of the above the entire additional sale found cannot be added as income. The assessee has claimed that only the net profit can be added. However in my opinion the gross profit earned by the assessee should be added as income in view of the decisions cited by the assessee. Hence the gross profit is estimated at 3%. The addition shall be restricted to Rs. 230530/- on account of un accounted sale.” 6. We have given our thoughtful consideration to rival companies. The Revenue seeks to add assessee’s entire unaccounted sales of Rs.76,84,308/-. We find no merit in the instant argument since such sales included necessary corresponding expenditure incurred on raw material, labour and processing etc. which has been rightly granted by way of the impugned profit estimation during the course of lower appellate proceedings. This is not the Revenue’s case that the CIT(A) assumption under challenge @ 3% in anyway against the taxpayer’s normal profit rate. We therefore reject Revenue’s 2nd substantive ground in these facts. 7. We are now left with Revenue’s 3rd substantive ground that Learned CIT(A) has erred in law as well as fact in reversing adding undisclosed sale of finished goods amounting to Rs.20,09,768/-. It fails to dispute the CIT(A)’s clinching finding of fact that the impugned addition was made because of difference found in the details of sales filed by the taxpayer vis-à-vis the corresponding figure in its tax audit report. He then holds that similar difference of 79 M. Tons also appeared in Page | 3 ITA No.1132/KOL/2016 & C.O.-No.-49/Kol/2016 [Assessment Year: 2011-12] the other side of details filed. Meaning thereby that the assessee has duly reconciled the impugned difference to be a mere typing mistake. We therefore find the fault in the CIT(A)’s findings on this count alone.

We now come assessee’s cross-objection in challenging correctness of both the lower authorities action disallowing its tour and travelling expenses allegedly incurred for business purpose to the tune of Rs.8,43,365/-. The Assessing Officer as well as Ld.CIT(A) hold the assessee to have failed in proving corresponding business purposes of the impugned expenditure. Ld. DR fails to dispute the fact that the lower authorities declined assessee’s impugned expenses in entirety. The fact also remains that the assessee’s compilation of the impugned expenses as considered in pages 8 & 9 of the assessment order makes it clear that the impugned expenditure involved its Director/family members whose details have not been placed on record in the instant file. We therefore take into account all these facts and circumstances to restrict the impugned disallowance of Rs.8,43,365/- to Rs.6,43,365/- only. The assessee gets part relief of Rs.2 lacs to with a rider that the same shall not be treated as a precedent in any preceding or succeeding assessment year. Its C.O.No.49/Kol/2016 is partly accepted in above terms.

In the result, the Revenue’s appeal i.e. ITA No.1132/Kol/2016 is dismissed and C.O. No.49/Kol/2016 of the assessee is partly allowed. Order pronounced in the open court on 26.10.2018.