M/S CORNELL OVERSEAS PVT. LTD.,,NEW DELHI vs. DCIT, NEW DELHI

Before us ld. AR submitted that the company was providing dying and printing Services to the appellant in FY 1998-99 to 2003-04 and therefore the advances were given to that party. She submitted details of transactions entered into with that party from 1998-99 till 2003-04 which shows that almost similar amount of closing advances were outstanding for those years but the transaction value with that company is of approximately 2 crores for each of the year. Therefore, the advances are in the nature of business advances. She further submitted that the advances are outstanding for long period and no disallowances made by the Assessing Officer in earlier year and further these advances are not given during the year but in earlier years. She also reiterated her submission made before the AO and CIT(A) that these are business advances and these business advances could not be recovered on account of dispute of that party with its landlord and that party stopped the business from 13th July, 2001. She submitted that the assessee has also share capital and reserve fund of more than thirteen and half crores therefore the assessee has more non interest bearing funds then the amount alleged to have been lent interest free. She submitted that disallowance has been incorrectly made by AO and confirmed by CIT(A).

Ld. DR submitted that assessee has given interest free funds to its associate concern and same is not recoverable for a long time and Page 3 of 10

We have carefully considered the rival contention. The assessee has not given advances during the year but are outstanding since 31st March, 2004. In F Y 2008-09 to 2003-04 assessee was enjoying business relation with that company as that company was carrying on business of Dyeing and printing for the assessee. During that period the transaction entertain to by the assessee company with its sister concern were approximately Rs 2 crores each and at the end of the each year outstanding balance was also remaining of approximately RS 19 lakhs. As the details submitted shows that assessee is engaged in the business transactions with that company as these advances were given for the purpose of Printing and Dying Groups services for the assessee, it cannot be said that the advances are not for the purpose of the business of the assessee company. Further the assessee was having interest bearing fund of Rs. 36,21,707/- and non interest bearing funds of approximately Rs. 13.51 crores in the form of share capital and reserves and surpluses as at 31st March, 2009, therefore there is a considerable force in the arguments of AR that as it has more non-interest bearing funds available with it then the amount of alleged advances given to sister concern, the presumption of diverting the interest bearing funds used for giving this advances is not correct. Hon’ble Bombay High Court in case of CIT vs. Reliance utilities Ltd. 313 ITR 340 has held that the principle for disallowance u/s 36(1)(iii)

Ground no. 2 of the appeal is against disallowance regarding the addition of Rs. 8,69,906/- as unexplained loans and advances. The ld. AO noted that the loan amount shown by the assessee is not tallying with the figures mentioned by the auditor in its audit report. Out of the total loan of Rs. 150.41 lacs for which show cause notice is issued assessee only provided details of 1,41,71,094/- and therefore he made an addition of Rs. 8,69,906/-. Before CIT(A) assessee submitted that the outstanding amount of loans and advances is only Rs. 1,41,71,094/- and AO has wrongly taken the maximum amount outstanding during the year figures from the audit report which is Rs. 1,50,41,688/- and therefore the addition has been made. Ld. CIT(A) did not accept the explanation offered and confirmed the addition of Rs. 8,69,906/-.

Before us the ld. AR submitted that the assessee has given an advance of Rs. 141.71 lacs only however, the AO has taken the figure from the audit report as per CARO 2003 where the auditor is required to submit maximum outstanding balance of the specified parties at any during the year. She submitted the details tabulated as under :-

Ld. DR relied on the orders of CIT(A) as well as AO.

We have carefully considered the rival contentions and are convinced that loans and advances are outstanding as per the balance sheet of the company in case of two parties as at 31-3-2009 amounting to Rs. 1,41,71,094/- and the maximum outstanding balance at any time during the year of these two parties in aggregate amounts to Rs. 1,50,41,688/-. Therefore the actual balance outstanding is only Rs. 1,41,71,094. The note no. 6 in schedule no. 19 of the balance sheet as well as the auditor’s report clearly describes so. The ld. AO as well as the CIT(A) both erred in reading the audited accounts of the company and making and confirming the addition. According to us and as details furnished there is no difference in the balance sheet of the assessee and therefore we delete the addition of Rs. 8,69,906/- and reverse the order of CIT(A). Ground no. 2 of the appeals is allowed.

Ld. AR before us submitted that the suspense account is the amount outstanding in the books of the company for which the details of parties remitting the same amount could not be identified and they have been received through banking channel. She submitted that as on 1.4.2008 the opening balance of Rs. 3,43,335/- was outstanding and during the year 77,176/- were further added resulting into a closing balance of Rs. 4,20,511/-. In FY 2009-10 the amount of opening balance carried forward was 4,20,511/- and out of which Rs 59,400/- were adjusted resulting into a closing balance of Rs. 3,61,111/- which was carried forward and same is written back and credited to the profit and loss account in subsequent year . She submitted that this income has already been taken into account financial year 2010-11. She stated that the tax rate for both the years are same and therefore addition may be deleted an income offered by the assessee.

Ld. DR submitted that the income offered by the assessee in financial year 2010-11 is not verifiable at this stage and therefore the matter may be set aside to the file of AO for the purpose of verification.

We have considered the rival submission and as facts demonstrated before us that suspense account is arisen out of various debits and credits which could not be identified by the assessee. Same were neither offered as income nor claimed as expenditure. Ultimately in financial year 2010-11 the assessee has written it back to the P & L Account and as it is not disputed that there is no difference between the tax rate of the current year as well as AY 2011-12, therefore we set aside this issue back to the file of AO for verifying the facts whether the suspense account written back has been offered to tax in Financial Year 2010-11i.e. AY 2011-12 and if so, delete the addition in the assessment year in the appeal. This ground of appeal is allowed for the statistical purposes.