SCOTTISH CHEMICAL INDUSTRIES,MUMBAI vs. ACIAT 19(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND ASHWANI TANEJA, AM (A.Y:2010-11) Scottish Chemical Industries The Asst. Commissioner of Span Centrer, 5th Floor, South Income Tax 19(1), Piramal Avenue, Santa Cruz(w), Mumbai- Vs. Chamber, Room No. 320, 400054 Lalbaug, Mumbai-400012 .. Appellant Respondent Assessee by .. Shri N.B. khandelwal .. Revenue by Miss. Anupama Singla Date of hearing .. 24-11-2016 .. Date of pronouncement 24-11-2016 O R D E R PER MAHAVIR SINGH, JM:

This appeal by the assessee is arising out of the order of CIT (A)-30, Mumbai in appeal No. CIT (A)-30/ACIT-Circle19(1)/IT-27/13-14 dated 09-10- 2014. The Assessment was framed by ACIT Circle-19(1), Mumbai for the A.Y. 2010-11 vide order dated 28-03-2013 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

3. Brief facts leading to the above issue are that, during the course of assessment proceedings the AO noticed from the accounts of the assessee i.e. the Profit and Loss A/c and balance sheet that the assessee debited interest on unsecured loan amount to the extent of Rs.12,52,466/-, bank interest on account of EPC of Rs.54,82,770/- and bank interest on account to AAEC of Rs.9,77,667/-. The AO, on perusal of balance sheet, noticed that the assessee has advanced interest free loans to related parties namely Kamal Khandelwal (HUF), Kamal Kahndelwal (Loan), Rishabh Khandelwal (HUF), Sarita Khandelwal, Scott Mataullcx P. Ltd, etc. amounting to Rs.8,83,07,058/-. The AO required the assessee to explain as to why proportionate interest paid on unsecured loans and bank be not disallowed as the assessee has advanced interest free loans to related parties. The AO was not convinced with the explanation of the assessee and he disallowed proportionate expenses claimed by assessee u/s 36 (i) (iii) of the Act amounting to Rs.17,06,326/-. Aggrieved assessee preferred appeal before CIT(A), who also confirmed the action of the AO by observing as para 3.3.1 as under: - “3.3.1 1 have duly considered the submissions of the appellant and find that as per the appellant's own statement, interest free capital fund available was Rs.2,30,70,739/-, while interest free loan and advances made by the firm is Rs.2,42,80,190/-, i.e. in excess of the interest free funds available. The appellant's contention that advances of Rs.1,10,87,000/- made to sister concern M/s. Scottish Chemical & Fluxes were for developing the manufacturing and business locally with the intention to merge two businesses and thus, the advances made, to them were for business purpose and out of business expediency cannot be accepted in the light of the fact that both the concerns are separate entities and the AO's finding that interest bearing funds have been siphoned off to make interest free advances to sister concerns and firms and Individuals has not been controverted , at the assessment or appellate stage. During the course of appellate proceedings also the appellant has not furnished cash flow' statement to show that interest free loan available to the extent of Rs.2,30,70,739, has been transferred for interest free loans and advances. I, therefore, do not find any merit in the submission of the appellant and in the light of these facts, hold that the case laws discussed by the AO. fully apply to the facts of the appellant's case. Accordingly, T uphold the disallowance of interest on proportionate' basis which I find is on scientific basis. This ground of appeal is, therefore, dismissed.” Aggrieved, assessee came in second appeal before Tribunal.

4. We have heard rival contentions and gone through the facts and circumstances of the case. Before us, learned Counsel for the assessee for the first time filed computation of net interest free funds available with it and interest free advances of related parties from no interest was charged. When this was confronted to learned senior DR, she stated that these were never verified by the lower authorities and at this stage it is not possible to verify the same. On this, the learned Counsel for the assessee fairly agreed that the issue can be remanded back to the file of the AO for examination of interest free funds vis-à-vis interest bearing loans on which assessee has claimed interest. In view of these facts, we feel that this issue needs re-consideration at the level of the AO afresh. Needless AO will not get influenced by earlier assessment order or the order of the CIT(A) because both are set aside. Hence, we direct the AO to examine the evidences afresh “denovo”. Accordingly, this issue is remanded back to the file of the AO and allowed for statistical purpose.

5. The next issue in this appeal of the assessee is against the order of CIT(A) confirming the addition made by the AO by invoking the provisions of Section 41(1) of the Act. For this assessee has raised following round No.2: - “2. The Learned CIT(A) erred in confirming the additions of Rs.2,58,041/- u/s 41(1) ignoring that the appellant recognized it as creditors and liability not ceased to exist.”

9. We have heard rival contentions and gone through the facts and circumstances of the case. The learned Counsel for the assessee before us stated that factually this statement of the AO and CIT(A) is incorrect that assessee has made payment by way of cash exceeding Rs. 20,000/- or more than 20,000/-. The learned Counsel for the assessee stated that copy of Ledger A/c of Thakkar Popatlal Velji Sales Ltd. for the period of 01-04-2009 to 31-03-2010 was never confronted to the assessee. It was also argued by the learned Counsel for the assessee that, in case, opportunity is allowed to assessee and the copy of account is confronted to him, he will answer the queries of the AO. On query from the bench the learned Sr. DR has no objected setting aside the issue to the file of the AO. After hearing both the sides and going through the facts and circumstances of the case, we remand the matter back to the file of AO for fresh examination. Therefore, we set aside the orders of lower authorities and remand the matter back to the file of the AO for fresh adjudication on this issue. Needless to say that the AO will confront these documents to the assessee. This issue of assessee’s appeal is allowed for statistical purpose.