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Income Tax Appellate Tribunal, H Bench, Mumbai
Before: Shri D.T. Garasia & Shri Rajesh KumarShri Ilesh A. Gadhia
This appeal has been filed by the Revenue against the order of the CIT(A)-28, Mumbai dated 04.03.2016 for A.Y. 2010-11.
Revenue has raised the following grounds: - “(i) On the fact and in the circumstances of the case and in law, the Ld. CIT(A), erred in directing the AO to delete the disallowance of Rs.62,28,563/- on account of interest expenses claimed on bill discounting charges even when the assessee had sufficient fund to meet this business requirement which was instead used by the assessee for making interest free advance to its related parties. (ii) On the facts and in the circumstances of the case and law, the Ld. CIT(A), Mumbai erred in directing the AO to delete the disallowance of Rs. 11,03,000/- on account of brokerage paid for getting the credit facility from nationalized banks even when the assessee could not establish the identity of the party and genuineness of transaction.
Shri Ilesh A. Gadhia 3. The brief facts of the case are that the assessee is carrying of the business of trading in steel and filed return of income on 28th September, 2010 declaring total income of `28,37,533/-. Thereafter the case of the assessee was fixed for scrutiny under CASS and notice under Section 143(2) of the Income Tax Act, 1961 (hereinafter “the Act”) dated 24.08.2011 was duly served upon the assessee. During the course of assessment proceedings the AO noticed that the assessee has debited `62,28,563/- as interest on bill discounting charges. The learned AO also observed that the assessee has made investments/given advances to various parties as stated in para 6 of the order aggregating to `25,00,60,128/- and the assessee has not charged any interest on the said investments/advances and thus the reached a conclusion that the assessee has invested the money out of interest bearing funds received by way of bill discounting. The assessee was asked to furnish source of funds for these advances/investments. The AO noticed that the assessee has discounted various bills from Indian Overseas Bank with a credit limit of `10 crores and the assessee transferred the amount to M/s. Ushdev International Ltd. and in making other interest free advances and therefore claim of interest relating to the said amount cannot be allowed under Section 36(1)(iii) of the Act as the funds were diverted to related persons without charging interest.
In the appellate proceedings the CIT(A) allowed the appeal of the assessee by observing as under: -
“5.1 Ground 1: This is against the disallowance of bill discounting charges amounting to Rs 62,28,563. I find that the disallowance has been made by the AO on misconceived facts. I refer to the chart of bill discounting charges submitted by the appellant and reproduced in his submissions above. The appellant issued two sale bills to Ushdev Intl amounting to Rs 10,05,79,463 on 29/09/2009. These were discounted with the bank. The bank retained margin money @5% of each bill which was Rs 26,73,480 and Rs 23,85,500 respectively. The bank also retained processing charges of Rs 1,68,000 and charged interest for period of discount amounting to Rs 31,21,752. I have examined the bank statement of the appellant with Indian Overseas Bank for Sept 2009 and find that the bank has credited the sales amounts into the account and on the same day debited the interest, processing charges and the margin money Shri Ilesh A. Gadhia on the two bills. The value of the sale bills appears as a credit in the bank account, while the other amounts appear as debits on the same day. The net effect of this was that the balance amount of Rs.9,22,30,731 was paid to the appellant on 29/09/2009. The immediate next entry in the bank account is a debit of Rs.9,51,05,441 paid by RTGS to Royal Oak Steels Pvt Ltd. It is therefore clear that the proceeds of the sale discounted have been utilized to pay the creditor Royaloak. Similarly, the appellant further issued two more sale bills to Ushdev Intl amounting to Rs.10,00,98,098 on 13/01/2010 and the bank discounted the same by retaining processing charges, interest and margin money. The gross sale proceeds have been credited into the bank account on 13th Jan 2010 and on the same day, the bank has debited the processing charges, interest and margin money. The immediate next entry in the bank account is on 15th & 19th of Jan 2010 when Rs.5,00,00,057 and Rs 4,19,86,424 have been paid by RTGS to Lloyds Metals & Engineers Ltd. It is thus clear that the proceeds of sale discounted have been utilized to pay another creditor. The appellant has debited the interest charged on these two transactions of bills discounted amounting to Rs 62,28,563 to his P&L A/c. The AO has not appreciated these facts and has simply taken some overall view without any backing of facts. The facts as examined and narrated by me above clearly show that the amounts received from bills discounted have been utilized to pay his creditors and therefore used in the business. The interest of Rs 62,28,563 is therefore allowable to the appellant. I therefore delete the disallowance made by the AO on this issue.”
We heard the rival submissions and perused the material on record including the impugned order of the CIT(A). The ld DR argued before us that the order of CIT(A) was wrong as much as the interest bearing funds advanced free of interest without any business exigencies resulting into suppression of income of the assessee by claiming interest on discounting bills whereas the ld AR tried to substantiate that the funds were used to pay off the sundry creditors incurred in the ordinary course of business. It is apparent from the records that the assessee has given two loans to M/s. Ushdev International Ltd. amounting to `10,05,79,463/- in September, 2009 which was discounted with the bank and the bank after retaining margin money and processing charges released the net balance of `9,22,30,731/- to the assessee on 29.09.2009. The next day a payment of `9,51,05,441 was made to Royal Oak Steels Pvt. Ltd. Thus the proceeds of discounted bills were used to pay the creditor M/S Royal Oak Steels Pvt.
Shri Ilesh A. Gadhia Ltd. Similarly two bills were issued to Ushdev International Ltd. amounting to `10,00,98,098/- on 31.01.2010 and the bank discounted the same. The net amount released by the bank was also used to pay the sundry creditors. The learned CIT(A) has passed a detailed order listing therein the full sequences of events and how the bills have discounted and payments were made to sundry creditors. We are in agreement with the conclusion drawn by the CIT(A) that the AO has taken an overall view of the matter and disallowed the interest charge amounting `62,28,563/- in arbitrary manner without application of mind. In our opinion the order of the CIT(A) is correct and deserves to be upheld. Accordingly the ground raised by the Revenue is rejected.
The issue raised in the second ground of appeal is against the deletion of disallowance of `11,03,000/- on account of brokerage paid for obtaining credits from nationalised banks.
7. The brief facts of the case are that during the year the assessee paid `11,03,000/- as brokerage which was charged to Profit & Loss Account. The said brokerage was paid for obtaining credit facility from nationalised banks, i.e. Indian Overseas Bank. The AO issued notice under Section 133(6) of the Act to verify the genuineness of the payment but the same was returned unserved as the party was not available on the given address. The AO thereafter simply added the same to the income of the assessee while observing that it is very strange and unacceptable that a national bank has been approached for credit facility through brokers and as a result disallowed the said amount as non-genuine. The learned CIT(A) allowed the appeal of the assessee by observing as under: - “5.2 Ground 2: This is against the disallowance of brokerage paid of Rs 11,03,000. The AO has disallowed this brokerage claimed primarily on two grounds. One is that no brokerage needs to be paid for obtaining credit facilities in a nationalized bank and the other being the fact that the notice u/s 133(6) issued to Avias Corporate Services Pvt Ltd -was returned. The appellant has produced before me a confirmation from Avias being the bill issued to him. I observe that the bill is towards the credit facilities arranged by Avias for the appellant from Indian Overseas Bank. The appellant has also Shri Ilesh A. Gadhia explained the need to obtain professional services from this company. I also find that appropriate TDS has been deducted by the appellant while making the payment through banking channels. The appellant has also submitted all the relevant papers submitted by him through Avias to IOB to avail the bill discounting facilities. On a conspectus of facts, I am inclined to agree with the appellant on this issue. I therefore delete the disallowance of Rs 11,03,000 made by the AO.”
Both the parties were heard and the relevant records placed before us were perused carefully. A perusal of the order of the CIT(A) reveals that confirmation from the recipient M/s. Avias Corporate Services Pvt. Ltd. was produced before him. The learned CIT(A) also recorded a finding of fact that the bill is towards the credit facilities arranged from IOB and thus the payment was made in connection with professional services for obtaining credit facility. It was also noted by the CIT(A) that TDS has been deducted and the payment was made through banking channels. Having perused the facts on record and after hearing both the parties, we find that the learned CIT(A) has taken a correct view of the matter which deserves to be upheld. Accordingly we dismiss this ground of appeal.
In the result, the appeal filed by the Revenue is dismissed.