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Facts
The Revenue appealed against the CIT(A)'s order which deleted additions made by the AO related to alleged unaccounted purchases and disallowance of interest. The assessee also filed a cross-objection.
Held
The Tribunal held that the addition on account of alleged unaccounted purchases of Guar Gum was unjustified, and the disallowance of interest paid u/s 36(1)(iii) was restricted. The appeal of the revenue was dismissed, and the cross-objection was allowed.
Key Issues
1. Whether the addition on account of alleged unaccounted purchases of Guar Gum was justified. 2. Whether the disallowance of interest under Section 14A and 36(1)(iii) was justified.
Sections Cited
143(3), 133A, 115BBE, 14A, 8D, 36(1)(iii), 145(3)
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 458/JPR/2024
in the assessment order there is a delay in the date of invoice vis-a- vis the date of delivery and such invoices and dates of deliveries have been accepted in the assessment order. This shows the practice of regular nature of the business of the assessee-appellant.
Out of the purchases so made in the case of one invoice of goods purchased from Kanda Edible Oil Private Limited the delay is abnormally high which is the reason that the same has been rejected in the assessment order and thereby the alleged negative stock and its peak was worked out. Ld. AO excluded that delivery of goods of Kanda Edible Oil Private Limited wherein abnormal delay of one invoice was observed and Id. AO has prepared the stock register taking all entries on the basis of invoice date and worked out the peak negative stock. reproduced reply of the appellant on this query of the Id. AO on such transaction. Ld. AO in para 2 on page 13 of assessment order taken an adverse inference with respect to the questioned invoice alleging that the delay is abnormal of delivery date and date of invoice. In the proceeding before the ld. CIT(A) the assessee-appellant has summarized the trades where dates are different was considered by the ld. AO, based on that set of facts ld. CIT(A) has considered the arguments of the assessee that there is difference in dates in several trades and it reflects a regular practice in the business of the assessee. From the fact as is evident that one invoice issued by Kanda Edible Oil Private Limited on 31/03/2014 is placed at Paper book page 43, wherein the delivery date of the goods was mentioned as 01/06/2013. Further the assessee has also filed the confirmation from Kanda Edible Oil Private Limited which is placed at page 44 wherein the party has confirmed the fact of delivery of the goods on 01/06/2013. As per the facts mentioned in the assessment order, neither in course of survey nor during assessment any fact was brought on record to show cause that the goods were delivered on Revenue in this appeal could not brought on record any evidence so as to reject the evidence in the form of seller's confirmation in the assessment order and there is no reference to any adverse finding from the third party inquiry if any or that of the contention of the invoice. The Id. AO has observed on pg. 15 of assessment order that sauda bahi / contract note etc. were not produced, in this regard the assessee-appellant submitted that no sauda bahi / contract notes are separately maintained rather the same is mentioned in the invoices and the stock register which were produced during the assessment proceedings. In the assessment order there is no reference to any material which would have been found during survey which would corroborate the findings arrived in the assessment order. Whereas the stand of the assessee-appellant that the delivery was received on 01.06.2013 even during the survey and it is not the case of otherwise fact having been present after survey a case of afterthought. Ld. AR has argued that during the survey the business records of the appellant were checked in detail. In survey, statement of the authorized person was recorded wherein the survey the fact of delivery of the goods in respect of the above impugned bill. In the question during the survey in the same question details of sale by the group entity M/s N.M. Agro Foods Products Private Limited to the third party Kanda & Company and purchase of the same quantity by the appellant are asked. In question no. 2, the delivery details of sale of 5000 Qtl guwar gum by group concern M/s N.M. Agro Foods Products Private Limited to Kanda & Company vide bill No.65 on 21/05/2013 have been asked and it has been stated in the question that no delivery details, truck number etc. are mentioned on bill. Further in the same question, in continuation, question has been asked with respect to impugned purchase bill dated 31.03.2014 from Kanda Edible Oil Private Limited. The assessee-appellant in response to the same stated that the delivery of the goods took place on 01.06.2013 but the bill was received on 31.03.2014. The appellant-assessee has stated in submissions that N.M. Agro Food Product Private Limited sold Guwar Gum to Kanda & Company (A sister concern of Kanda Edible Oil Private Limited Rs.
14,12,50,000/- @ 28250/-on 21/05/2013 vide Bill No. 65. Kanda & Oils Private Limited for Rs. 13,72,50,000/- @21450/- per qtil. Kanda & Company Oils Private Limited sold the same quantity @ 30250/-
per qtl for Rs. 15,12,50,000/- to N.M. Food Product i.e. the assessee vide bill No. 271 dated 31/03/2014 but delivery of the goods were made on 01/06/2013.
Further to this fact it is stated by assessee-appellant that "We may further point out that this purchase is made Ex- Wherehouse as mentioned in the copy of the purchase bill itself”. The delivery of this is verifiable from the circumstantial evidence as found in the survey itself and specially discussed in the statement recorded in survey where assessee made surrender of Rs.1,00,00,000/- on the basis of this transaction. As we note from the statement that N.M.Agro Food Product Private Limited (this is a group concern of the assessee- appellant) sold Gwar Gum to Kanda & Company (A sister concern of Kanda Edible Oil Private Limited) for Rs.14,12,50,000/-28250/-on 21/05/2013 vide Bill No. 65. At this time N.M.Agro Good Product Private Limited was having stock of guwar gum in hand at 5466.65 qtl Copy of the stock register in support of the same placed on goods remained at the same godown. Kanda & Company sold the same quantity of Gwar Gum to Kanda & Company Oils Private Limited for Rs.13,72,50,000/-21450/- per qtl. This delivery was also symbolic and goods remained at the same place. Kanda & Company Oils Private Limited sold the same quantity @30250/- per qui for (vi)
Rs. 15,12,50,000/- to N.M. Food Product i.e. the assessee vide bill No. 271 dated 31/03/2014 but delivery of the goods were made on 01/06/2013. This delivery was also symbolic. In fact goods sold from group concern was come back to the assessee. Goods remained at the godown of sister cocern itself. On perusal of the details it is seen that the invoices were issued and the goods were sold ex-warehouse and the same goods came to be purchased back by the assessee- appellant. Further the assessee in its statement itself has clarified that delivery was received on 01/06/2013 but the bill was received on 31/03/2014. This has also confirmed by the party through confirmation and mentioning the delivery date on the bill. In the assessment order the same has been rejected only on account of large gap in the delivery date and date of invoice and where the gap issued by Ganganagar Traders Associtaion of Sriganganar region (PB 36). Invoice dates and delivery dates can differ specially in large quantity orders and invoice dates by default cannot be treated as delivery date. No inquiry based evidence has been relied on in the assessment order. There is no reference to any documents having been found during survey showing transaction of any unaccounted purchases by the appellant. The legal precedent cited before us says that it is trite law that suspicion howsoever strong cannot take place of a legal proof. The Hon'ble Supreme Court in the case of Sreelekha Banerjee vs. CIT (1963) 49 ITR 112 (SC) has held that "The Department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof. Considering this facts and circumstances of the case, it is obvious that the invoice dates by default cannot be treated as delivery dates. No inquiry based evidence has been brought on record in the assessment order.
There is no finding from the survey regarding any unaccounted purchases/sale. Even during survey same stand was adopted. The confirmations have been filed by appellant. Considering the totality rejected and that there is no negative stock if the stock register is seen in terms of the delivery dates and thus no addition is justifiable on the issue. The assessee also raised an alternative ground before the ld. CIT(A) stating that it has been held in so many cases that no sale can take place without the purchase and if the appellant has indulged into bogus purchases in such a case a percentage of the bogus purchases can be added to arrive at the net income of the appellant. The appellant is a trader and not a manufacturer of the oil in which the appellant is dealing. The books of accounts of the appellant have been rejected in the assessment order. During the survey proceedings the appellant has already offered an additional income of Rs.1,00,00,000 on the same invoice which is 14.09% of the impugned invoice of Rs. 7,09,75,070. Even as held by our Hon’ble Jurisdictional High Court in the case of Clarity Gold that in such type of case the profit is required to be estimated and in the present case since G.P. is better, no addition on G.P. can be done by inclusion of the income declared by the assessee. From the perspective of the gross profit ratio, the G.P. rate during the year is surrender which is better as compared to 0.92% declared in the last year and no evidence of unrecorded purchase/ sale was found in survey or otherwise brought on record by the ld. AO. even in case of a scenario of rejection of books of accounts, no addition over and above surrendered income is called for on the issue. Thus, we do not find any infirmity in the finding so recorded by the ld. CIT(A) while deleting the made in the assessment order of Rs. 7,09,75,070/- and thereby we do not found any merits in the grounds so raised by the revenue. In the light of this discussion ground no. 1 raised by the revenue stands dismissed.
Ground no 2 raised by the revenue states that the CIT(A) was not justified in deleting the addition of Rs.2,87,229/- on account of out of the claim of interest without appreciating the fact that that in the case of Lally Motors India (P.) Ltd. Vs PCIT, Hon'ble ITAT Amritsar in [2018] 93 taxmann.com 39 (Amritsar - Trib.)/[2018] 170 ITD 370 (Amritsar - Trib.) held that Section 14A would apply even if no dividend was earned by assessee from investments in shares.
The brief facts related to the dispute is that assessee-appellant is Rs.41,89,301/- in residential house as on 31-03-2014. The income received from these investments being exempt from tax, the provision of section 14A read with rule 8D is required to be applied as contended by the ld. AO and accordingly, the AO, by applying the provisions of section 14A, made disallowance of Rs.Rs.2,87,229/-.
The assessee-appellant submitted that the disallowance u/s 14A is attracted only when exempt income is earned. During the year the assessee has not earned any exempt income from these land or residential house and therefore no disallowance can be made u/s 14A. To support this contention the assessee-appellant placed reliance on various cases laws including Supreme Court decision in case of PCIT Vs. Oil Industry Development Board (2019) 262 Taxman 102 and CIT Vs. Chettinad Logistics (P.) Ltd. (2018) 257 Taxman 2. As we note from the order of the lower authority wherein the assessee-appellant also contended that there was mistake in calculation of the disallowance as the AO should have considered net interest of Rs.1,00,50,643/ and net investment of Rs. 1,80,84,689/-. On this basis even as per the AO the correct contention of the revenue change in the law and decision of Lally Motors India (P.) Ltd. Vs PCIT (Supra), the assessee-appellant vehemently stated that the amendment made by Finance Act, 2022 to section 14A by inserting a non- obstante clause and Explanation will take effect from 1-4-2022 and cannot be presumed to have retrospective effects in the case of the assessee. To support this view the assessee-appellant relied on the decision of Principal Commissioner of Income-tax (Central) v. Era Infrastructure (India)
Ltd. [2022] 141 taxmann.com 289 (Delhi)/[2022] 288 Taxman 384 (Delhi)/[2022] 448 ITR 674 (Delhi) [20-07-2022] wherein it was held that the amendment made by Finance Act, 2022 to section 14A by inserting a non- obstante clause and Explanation will take effect from 1-4-2022 and cannot be presumed to have retrospective effects and thereby we found force in the arguments of the ld. AR of the assessee. Considering that aspect of the matter and the fact that the assessee has not earned any exempt income and thereby in the year under consideration no addition can be made and this precedent support the contention of the assessee as in detailed elaborated in infirmity in the finding of the ld. CIT(A). In light of this discussion ground no. 2 raised by the revenue stands dismissed.
Ground no. 3 raised by the revenue deals that ld. CIT(A) was not justified in restricting the addition of Rs.97,63,413/- made by the AO on account of disallowance of interest paid u/s 36(1)(iii) to Rs.24,42,040/- without appreciating the fact that the assessee has advanced interest bearing business funds and has diverted the same for non-business purposes to other persons without charging interest with an ulterior motive to reduce the incidence of his own case.
The brief facts related to this issue is that the net interest claimed by the assessee-appellant was at Rs. 97,63,413. Based on the submission ld. CIT(A) considered that the interest expenses are incurred for the purpose of the business whereas the Ld. AO is treating the same as incurred on giving interest free advance. Ld.
CIT(A) noted that the disallowance of entire interest expenses appears to the apparently incorrect as fund are also utilized in the business as evident from the balance sheet. Therefore ld. CIT(A) find that it would be reasonable if the total interest expenses is than compare the interest attributable to the advance to related parties and interest income received from them. On analysis of the balance sheet CIT(A) noted that the gross payment of the interest is Rs.4,48,24,980. This interest expenses is incurred on the interest bearing funds utilized in the stock of Rs. 54,34,68,474 and debtors of Rs. 349,45,15,887 totaling to Rs. 403,79,84,361. He also noted from the arguments made by the ld. AR of the assessee that on analysis of the debtors it is seen that the outstanding debtors relating to group concern of the assessee works out to Rs. 175,63,73,496 as on 31/03/2014 comprising of the following parties only:-
Nand Lal Mahabir Prasad- Rs.49,44,97,897 Manoj Traders Rs.56,27,39,927 N.M. Exports Rs.69,91,36,372 Rs. 175,63,74,196 Ld. CIT(A) thereby considering that arguments noted that the total interest expenses incurred are divided in the inventory and debtors than the proportionate interest expenses incurred in relation to the investment in these debtors works out to Rs. 1,94,97,212 assessee during the year receieved interest of Rs. 1,70,55,172 from the above three parties:-
Nand Lal Mahabir Prasad Rs 48,99,429 Manoj Traders Rs.63,12,330 N.M. Exports Rs.58,43,413 ----------------- Rs. 1,70,55,172 Therefore, ld. CIT(A) find the difference in the interest attributable at Rs. 1,94,97,212 and interest recovered at Rs. 1,70,55,172 works out to Rs. 24,42,040 (1,94,97,212 1,70,55,172). This interest is considered as incurred on advancing the funds to related parties without interest/at lower interest. Considering all these facts the disallowance made by the AO is restricted to Rs. 24,42,040 and balance disallowance was directed to be deleted by him.
Aggrieved from the aforesaid finding so made by the ld. CIT(A) the revenue raised ground no. 3 in his appeal whereas the assessee has filed cross objections making the additional of Rs. 24,42,040/- Since this issue is common for both the parties we considered it fit to decide together. paid interest of Rs.4,48,24,479/- (APB-17) on the unsecured loan and to the creditors on delayed payment of purchases. The assessee also received interest of Rs.3,47,74,334/- (APB 22) on loans given. Thus net interest paid and claimed to have been is Rs.1,00,50,642/- and this facts are not in dispute. In the assessment order the ld. AO noted that assessee has not charged any interest or charged very nominal interest from various parties. Further party wise details of interest paid and charged were not filed by assessee. Accordingly he made disallowance of interest of Rs.97,63,413/- [(1,00,50,642 – 2,87,229*) *being interest already disallowed] by holding that assessee has diverted the interest bearing funds for non business purpose to other persons without charging any interest from them. Whereas the first appellant authority noted that interest of Rs.4,48,24,980/- was incurred on interest bearing funds which were utilized in stock & debtors of Rs.403,79,84,361/- whereas the outstanding debtors relating to the group concern is Rs.175,63,74,196/-. Thus ld. CIT(A) made the proportionate interest with reference to the debtors of group concern was worked out at Rs.1,94,97,212/- whereas the interest received from these debtors was Rs.1,70,55,172/-. Accordingly he (1,94,97,212-1,70,55,172) and the balance was deleted by him based on the submission of the assessee-appellant. The total claim of the assessee for payment of interest for an amount of Rs.4,48,24,980/- is on account of payment of interest paid to the following parties:-
Particulars Amount Interest paid on unsecured and secured loans Rs.2,30,89,920/- Interest paid to the creditors for delayed payment of Rs.2,17,35,059/- purchases Total Rs.4,48,24,980/- The party wise details of interest paid of Rs.4,48,24,980/- was filed in the paper book page 45-46 and the interest paid to creditors for Rs.2,17,35,059/- are in the normal course of business. Before us the ld. AR of the assessee-appellant argued that interest to the creditor paid was out of commercial expediency like borrowing from parties rather than to supplier itself and therefore, the same cannot be compared for making the disallowance and in support reliance was made on the decision of the apex court in the case of S. A. Builders 288 ITR 1 (Supra) wherein apex court held that ;
“24. In our opinion, the High Court as well as the Tribunal and other income-tax authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest free loan was given to CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed.
The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency.” The ld. AR of the assessee-appellant also placed on service the decision of apex court in the case of Hero Cycles (P.) Ltd. Vs. CIT (Central) (2015) 379 ITR 347 (SC) to the contention so raised for the sustained disallowance wherein it has been held that ;
“Once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman.” Based on that contention the ld. AR of the assessee-appellant submitted that if that part of the interest is excluded from the disallowance computed by the ld. CIT(A) then in that case there is income earned by the assessee as interest and therefore, the disallowance sustained is not correct based on the above facts and once the interest received is more than the interest paid, no disallowance is called for.
Rs.2,30,89,920/- is partly used in giving the advances and partly for the purpose of business too. On advances given interest earned is Rs.3,47,74,334/- which is much more than the interest paid of Rs.2,30,89,920/-. The AO has referred to certain parties from whom no interest or lesser interest has been charged and the explanation in respect of each of such party as filed before us reads as under :
Name of the Opening Closing Remarks party Balance Balance Nand Lal Mahabir 30,34,71,392 49,44,97,897 He is a debtor to whom goods Prasad sold. There is no stipulation for (PB 47-48) charging interest from him. Only in certain bills where there was delay in payment of more than the normal time, interest is charged. Manoj Traders 32,28,97,214 56,27,39,927 He is a debtor to whom goods (PB 49-52) sold. There is no stipulation for charging interest from him. Only in certain bills where there was delay in payment of more than the normal time, interest is charged. N.M Exports 15,02,67,851 69,91,36,372 He is a debtor to whom goods (PB 53-54) sold. There is no stipulation for charging interest from him. Only in certain bills where there was delay in payment of more than the normal time, interest is charged. Vikas WSP 65,01,90,627 NIL (PB 55) Sat Vichar Dealer 4,28,74,244 4,28,74,244 The balance is coming from (PB 56) earlier years and there is no CO No. 09/JPR/2024 DCIT vs. Naresh Kumar Gupta stipulation of charging interest. Gravity Commo 4,20,16,531 2,11,11,546 The balance is coming from Sales earlier years and there is no (PB 57) stipulation of charging interest. Shiva Associates 62,78,00,000 21,44,48,445 This is the running account of (PB 58-59) the party from whom assessee has received funds and also advanced funds. There is no stipulation for charging interest from him. VikasChemigum 15,67,45,512 53,07,45,512 The assessee sold as well as India Ltd. purchased goods from this (PB 60-61) party. No interest is charged or paid on the transactions undertaken with him.
We note that ld. CIT(A) while dealing with the issue held that the entire interest of Rs.4,48,24,980/- on borrowed funds has been utilized in stock and debtors of Rs.403,79,84,361/- whereas as discussed herein above, such interest is only Rs.2,30,89,920/-. Therefore, even if the calculation made by CIT(A) is corrected, the proportionate interest expenses incurred in relation to investment in stock & debtor would work out to Rs.1,00,43,263/- (2,30,89,920*1,75,63,74,196/4,03,79,84,361) against which the interest received is Rs.1,70,55,172/-. Hence no disallowance out of the interest is called for. In the light of these facts as discussed herein above the ground no. 3 raised by the revenue stands dismissed and that of the ground no. 1 of the cross objection raised by the assessee is allowed. objection raised by the assessee being general does not require our adjudication. Ground no. 3 raised by the assessee before us for which no arguments were placed and therefore, we deem it fit for academic purpose only.
In the results the appeal of the revenue stands dismissed and the cross objection filed by the assessee stands allowed.
Order pronounced in the open court on 28/11/2024.
Sd/- Sd/- ¼Mk0 ,l- lhrky{eh½ ¼ jkBkSM+ deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judcial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28/11/2024 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- DCIT, Central Circle-3, Jaipur. 2. izR;FkhZ@ The Respondent- Sh. Naresh Kumar Gupta, Sri Ganganagar. vk;djvk;qDr@ The ld CIT 3. 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकरअपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZQkbZy@ Guard File ( CO No. 09/JPR2024) vkns'kkuqlkj@ By order,
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