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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI R.C. SHARMA & SHRI AMARJIT SINGH
These cross appeals are directed against the impugned order dated 14th July 2014, passed by the learned Commissioner (Appeals)– 20, Mumbai, for the assessment year 2010–11, in the matter of order passed under section 143(3) of the Income Tax Act, 1961 (for short "the Act").
Brief facts are, the assessee is dealing in laminates, veeners, tiles, etc. During the course of scrutiny assessment, the Assessing Officer made disallowance on account of interest expenditure amounting to ` 27,46,796 under section 36(1)(iii). The Assessing Officer also made addition under section 68, on account of sundry debtors amounting to ` 34,15,666.
By the impugned order, the learned CIT(A) deleted the addition under section 68 of the Act on account of sundry debtors after observing as under:–
“4.3 I have considered the finding of the Assessing Officer and rival submission o fthe appellant, carefully. I find that Ld. Assessing Officer has made this addition of ` 34,15,666 merely for want of details or evidences without issuing any specific speaking showcause notice. Contrary to the presumption of the Assessing Officer, appellant is successful in demonstrating with evidence that an amount of ` 34,15,666 represents advance received from 3 M/s. Subhnen Ply Pvt. Ltd. its customer namely M/s. National Laminates Corporation. The ledger account of this party reveals the fact that throughout the year there is purchase and sale of goods and receipt of advances and at the end of financial year there is closing balance of ` 34,50,666. The balance sheet of M/s. National Laminate Corporation appearing on paper book, page no.50, 52 and 53, reveals the facts of credit in the name of appellant, hence, it is wrong on the part of the Assessing Officer to presume that such sundry debtor is unexplained or without any known source. It is also important to point out, as appearing from paper book Page No.50 that M/s. National Laminate Corporation is a regular assessee filing regular return of income. In this year, there is gross total income of Rs.7,19,213/-, hence, merely for want of some information or details, no such addition could be made u/s.68. Further, the evidences on record proves that there is no unexplained debtor, hence, no such addition can be sustained. Here it is also relevant to mention that such deficiency of submission of details is not only on the part of the assessee but it can also be seen from notice dated 27.11.2012 u/s.142(1) that very cryptic information has been sought and there is no speaking showcause notice as to why sundry debt is to be disallowed or to be added. Therefore, in the light of the above discussion, I find that Assessing Officer has made addition of Rs.34,15,666/- without substantiating it whereas appellant has been successful in demonstrating the genuineness of receipt of sundry debt from M/s. National Laminate Corporation, who is regular assessee. Therefore, such addition of Z. 34,15,666/- is deleted.”
The learned CIT(A), however, confirmed the disallowance of interest by observing that it was not for the purpose of business. Against this order of the learned CIT(A), both, the assessee and the Revenue are in further appeal before us.
We find that the disallowance of interest was made by the Assessing Officer on the plea that borrowed fund was utilised for non– business purpose. We find that the company has paid interest on cash credit facilities from the bank which was sanctioned by the bank for 4 M/s. Subhnen Ply Pvt. Ltd.
working capital requirement of the business. Assessee has also paid interest to Standard Chartered Bank on the loan borrowed for the purchase of property at Jaipur. We find that the assessee has started real estate development business and treated the Jaipur property as current asset in the Balance Sheet. The Board of Directors of the company have also passed a resolution to that effect in the meeting of the company and accordingly, it was shown as current assets in the Balance Sheet w.e.r. 1st April 2009. We also find that in subsequent assessment year, this property was sold and profit earned on the same was offered by the assessee as business income. Once the income from the said property has been offered as business income, there is no reason to disallow the interest paid for acquiring the said property which was held by the assessee as current asset in its Balance Sheet and income from which has been offered as business income. Accordingly, we do not find any merit in disallowance of interest so made.
With regard to the addition of sundry debtors of ` 34,15,666, we 6. find that it was an advance payment received from National Laminates Corporation. The learned Commissioner (Appeals) has recorded a categorical finding to the effect that ledger account of this party reveals a fact that throughout the year there is a purchase and sale of 5 M/s. Subhnen Ply Pvt. Ltd. goods and receipt of advance and at the end of the financial year there was a closing balance of ` 34,15,666. We also find that the Balance Sheet of National Laminates Corporation reveals the fact of credit in the name of the assessee. Accordingly, there is no justification for adding this amount as unexplained credit. No additional document was relied upon by the learned Commissioner (Appeals) insofar as statement of account with National Laminates Corporation was already filed before the Assessing Officer which clearly indicates that advance payment was made by it to the assessee in the normal course of business. We also find that National Laminates Corporation is a regular assessee and filing return of income regularly. Under these facts and circumstances, we do not find any reason to interfere with the order of the learned Commissioner (Appeals) deleting the addition of ` 34,15,666 made on account of sundry debtors.