ITO, WD-2(1), KOLKATA, KOLKATA vs. M/S RAJSHREE VANIJYA PVT. LTD., KOLKATA

O R D E R

Per Dr. Arjun Lal Saini, AM:

2. That tax effect in the instant case is also much above the monetary limit as prescribed vide CBDT’s instruction No.3/2011 & instruction No.5/2014 for filing of appeal before Ld. ITAT, Kolkata.

3. That the assessee craves leave to amend, modify or alter any grounds of appeal during the course of hearing of this case.”

4. The brief facts qua the issue are that the assessee company is a trader of Textile machines, Scrap, Iron & Steel and Yarn. During the Financial Year 2009- 10, as per the Profit &Loss a/c, the assessee made a sale of Rs.178,45,97,471/- M/s Rajshree Vanijya Pvt. Ltd. Assessment Year: 2010-11 against a purchase of Rs.176,49,71,622/-. During the assessment proceedings the assessee submitted the details of sundry debtors and creditors. The AO noted thatin the profit and loss account the assessee has debited an amount of Rs.56,66,773/-, on account of payment of interest. During the course of hearing the assessee produced copies of bank statements with Allahabad Bank, Kolkata Red Cross Place Branch. On thorough scrutiny of the bank statement it was noticed that there were payments to two companies M/s NLBD Marketing Pvt. Ltd and M/s Phool Commercial Pvt. Ltd on various dates. On verification of the details of S/debtors it was noticed that there was an amount of Rs.3,54,96,917/- against M/s NLBD Marketing Pvt. Ltd. The AO noted, from the details submitted in respect of loans and advances given (Loan debtors) an amount of Rs.1,92,34,000/- was shown outstanding in the name of M/s Phool Commercial Pvt. Ltd. However, the name of M/s NLBD Marketing Pvt. Ltd was not appearing in the details of sales made by the assessee as submitted during the course of hearing. During the course of hearing, the AO asked the assessee, to explain the discrepancy along with the copy of ledger of the said party in the books of the assessee. The AO asked to explain as to why the payments made to M/s NLBD Marketing Pvt. Ltd during the year for Rs. 3,54,96,917/-. would not be treated as loan paid to the said company by the assessee. The assessee replied to the AO about the "Advance" to M/s NLBD Marketing Pvt. Ltd, stating thatwas an amount of Rs.3,54,96,917/- shown under sundry debtors as on 31.03.2010 in the name of M/s NLBD Marketing Pvt. Ltd. The amount has been advanced for purchase of property. The assessee`s client had entered in a Memorandum of Understanding (MOU) with M/s NLBD Marketing Pvt. Ltd for the sale and purchase of property. Further in the F.Y.2010-11, M/s Rajshree Vaniya Pvt. Ltd sold a plot costing Rs.50,92,500/- and earned a profit of Rs.55,96,500/-. The sale and purchase transactions have been duly reflected in the profit and loss account of Financial year 2010-11. The Net profit of Rs.55,96,500/- has been offered for taxation under the head Profits and Gains of Business & Profession. The advance to M/s NLBD Marketing Pvt. Ltd was purely for business purpose. M/s Rajshree Vanijya Pvt. Ltd. also got a plot of land on 04.10.2012 valuing Rs.30 lakh approximately in full and final settlement on this account after receiving the complete principal amount advanced to M/s NLBD Marketing Pvt. Ltd. within 31.03.2012. Page | 2 M/s Rajshree Vanijya Pvt. Ltd. Assessment Year: 2010-11 During the course of hearing, the assessee submitted the copy of ledger of M/s NLBD Marketing Pvt. Ltd in it books for the F.Y.2009-10. A close look of the ledger copy shows that the opening balance (debit) against M/s NLBD Marketing Pvt. Ltd stood at Rs.4,62,96,917/- as on 01.04.2009. After that the said party repaid Rs.2,18,80,000/- on difference dates between 18.06.2009 to 03.02.2010. Again, from 05.03.2010 to 10.03.2010, the assessee paid a sum of Rs.1,10,80,000/- to the party. This clearly indicates that there were regular transactions between the party and the assessee during the year. But the purpose of such transactions could not be towards payment of any advance for the purpose of property dealing as claimed by the assessee. The copy of MOU entered with M/s NLBD Marketing Pvt Ltd by the assessee regarding investment on property dealing cannot substantially prove that the advances were made only towards the purpose of purchase of property by the assessee. Had it been the only purpose, there would not have been any repayment of money by the party to the assessee. Moreover, a substantial amount was kept outstanding and idle for years together does not commensurate with the normal business practice. The assessee company paid the advance even before financial year 2008-09 and it was first utilized in the year 2010-11. The assessee has allowed to keep the advance with M/s NLBD Marketing Pvt. Ltd unutilized for more than 3 years is contrary to the common business phenomenon. Moreover, a meager part of the advance was utilized after 3 years also speaks contrary to the contention of the assessee. Thus, considering all these factors, the AO inferred that the money forwarded to M/s. NLBD Marketing Pvt. Ltd. by the assessee and shown against S/debtors was actually interest free loan given to the said party for its benefit. The AO also noted that there were regular course of payment and repayment between the assessee-company and M/s. Phool Commercial Pvt. Ltd. Therefore, the AO inferred that the money forwarded to M/s. Phool Commercial Pvt. Ltd. by the assessee was actually interest free loan given to the said party for its benefit. Regarding deployment of fund, the assessee stated that the assessee's own funds were utilized in providing interest free advance. Reliance was placed by the assessee on the decisions of the Hon'ble Supreme Court in the case of M/s. S.A. Builders Ltd. Vs. CIT(2007) 288 ITR 1 (SC), and Hon'ble Calcutta High Court in the case of J. K. Industries Ltd. Vs. CIT(2011) 61 DTR 153. Page | 3 M/s Rajshree Vanijya Pvt. Ltd. Assessment Year: 2010-11 However, the AO ignored the submissions of the assessee and stated that the quantum of interest paid on borrowed capital which was utilized in providing loan to M/s NLBD Marketing Pvt Ltd. and M/s Phool Commercial Pvt. Ltd, is Rs. 71,52,144/-. Therefore, the interest debited in the profit and loss account by the assessee at Rs. 56,66,773/- was disallowed.

5. Aggrieved by the order of the AO, the assessee filed an appeal before the ld.CIT(A) who has partly allowed the assessee’s appeal. The ld. CIT(A) was pleased to allow the claim in respect of loan given to M/s NLBED. However, we note that against the loan given to M/s Phool Commercial Pvt. Ltd., the assessee got only part relief.

6. Not being satisfied with the order of CIT(A), the Revenue is in appeal before us. The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. The ld Counsel for the assessee defended the order passed by the ld. CIT(A).The ld Counsel for the assessee also pointed out that on the same identical facts the Hon`ble ITAT Kolkata in ITA No.1722/Kol/2013, A.Y. 2009-10, in assessee`s own case adjudicated the issue and confirmed the order of CIT(A).