KANOI TEA PVT. LTD.,KOLKATA vs. DCIT, CENTRAL-XI, KOLKATA, KOLKATA

The solitary issue involved in the appeal of the assessee for A.Y. 2008-09 being relates to the disallowance of Rs.2.88 lakhs made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of interest expenditure. ./2014 Assessment year: 2008-2009 & I.T.A. No. 1415/KOL./2014 Assessment year: 2009-2010 Page 2 of 5

The assessee in the present case is a Company, which is engaged in the business of tea, warehousing and trading. The return of income for the year under consideration, i.e. A.Y. 2008-09 was filed by it on 25.09.2008 declaring total income of Rs.9,94,690/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has borrowed a loan of Rs.3.61 crores on interest, but the same was not fully utilized for the purpose of its business. In this regard, he noted that a sum of Rs.24,00,000/- out of the borrowed funds was invested by the assessee in shares. Since the assessee was not carrying on any business of share trading, the proportionate interest expenditure as attributable to the investment of Rs.24,00,000/- made in shares calculated by applying the rate of 12% amounting to Rs.2.88 lakhs was disallowed by the Assessing Officer. On appeal, the ld. CIT(Appeals) confirmed the said disallowance made by the Assessing Officer by observing that the investment made by the assessee in shares was not for the purpose of its business.

I have considered the rival submissions and also perused the relevant material available on record. It is observed that the proportionate interest attributable to the investment of Rs.24,00,000/- made by the assessee in shares has been disallowed by the authorities below on the ground that the said investment was not made by the assessee for the purpose of its business. In the written submission filed before the Tribunal, the assessee has not been able to controvert or rebut the findings recorded by the authorities below in this regard by establishing any nexus whatsoever of the investment made in the relevant shares with its business. It is thus clear that the borrowed funds to the extent of Rs.24,00,000/- were not utilized by the assessee for the purpose of its business and the interest expenditure claimed by the assessee as attributable on such investment is liable to be disallowed being not ./2014 Assessment year: 2008-2009 & I.T.A. No. 1415/KOL./2014 Assessment year: 2009-2010 Page 3 of 5 wholly and exclusively incurred for the purpose of assessee’s business. I, therefore, find no infirmity in the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer on this issue and upholding the same, I dismiss the appeal of the assessee for A.Y. 2008-09.

Now I take up the appeal of the assessee for A.Y. 2009-10 being which involves a solitary issue relating to the addition of Rs.83,278/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of service charges by treating the same as unexplained expenditure under section 69C of the Act.

In the Profit & Loss Account filed along with its return of income for A.Y. 2009-10 declaring a total income of Rs.13,76,718/-, a sum of Rs.6,63,291/- paid to M/s. PDK Export & Imports (Pvt.) Limited on account of service charges was debited by the assessee. Enquiry made by the Assessing Officer with the said party, however, revealed that a sum of Rs.7,46,570/- was actually paid by the assessee to the said Company. Since the assessee could not offer any satisfactory explanation in this regard, the difference of Rs.83,278/- in the service charges paid by the assessee to M/s. PDK Export & Imports (Pvt.) Limited was added by the Assessing Officer to the income of the assessee as unexplained expenditure. On appeal, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer on the ground that the assessee could not offer any satisfactory explanation even before him as regards the difference of Rs.83,278/- noticed by the Assessing Officer in the amount paid to M/s. PDK Export & Imports (Pvt.) Limited on account of service charges.

I have considered the rival submissions and also perused the relevant material on record. As submitted by the assessee in the written ./2014 Assessment year: 2008-2009 & I.T.A. No. 1415/KOL./2014 Assessment year: 2009-2010 Page 4 of 5 submission filed before the ld. CIT(Appeal) as well as before the Tribunal, there were three separate accounts maintained by it in the name of M/s. PDK Export & Imports (Pvt.) Limited and the total amount paid to the said party taking all these three accounts together was Rs.7,92,091/-. It appears that the Assessing Officer as well as the ld. CIT(Appeals), however, have considered only one account and the remaining two accounts showing payments of Rs.33,800/- and Rs.95,000/- made to the said party have been ignored by them while making the impugned addition on account of difference of Rs.83,278/- by treating the same as unexplained expenditure. If the total payment made by the assessee to the said party as reflected in three accounts maintained by the assessee is taken into consideration, there is actually no such difference and keeping in view the same, I hold that the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue is not sustainable. I, therefore, delete the same and allow the appeal of the assessee for A.Y. 2009-10.

In the result, the appeal of the assessee for A.Y. 2008-09 is dismissed, while the appeal of the assessee for A.Y. 2009-10 is allowed. Order pronounced in the open Court on October 21, 2016.