Income Tax Appellate Tribunal - Amritsar
M/S. Pms Diesels,, Phagwara vs The Income-Tax Officer,, Phagwara on 30 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER
AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER
I.T.A No.114/(Asr)/2014
Assessment Year: 2006-07
[
PAN: AAAFP9505H
M/s PMS Diesels, Vs. Addl. C. I. T.
Village : Jamalpur, Phagwara Range;
G.T. Road, Phagwara. Phagwara.
(Appellant) (Respondent)
I.T.A No.116/(Asr)/2014
Assessment Year: 2007-08
[
PAN: AAAFP9505H
M/s PMS Diesels, Vs. Dy. C. I. T.
Village : Jamalpur, Phagwara Circle,
G.T. Road, Phagwara. Phagwara.
(Appellant) (Respondent)
I.T.A No.117/(Asr)/2014
Assessment Year: 2008-09
[
PAN: AAAFP-9505-H
M/s PMS Diesels, Vs. Income Tax Officer,
Village : Jamalpur, Ward-3, Phagwara.
G.T. Road, Phagwara.
(Appellant) (Respondent)
I.T.A No.118/(Asr)/2014
Assessment Year: 2009-10
[
PAN: AAAFP9505H
M/s PMS Diesels, Vs. Income Tax Officer,
Village : Jamalpur, Ward-3, Phagwara.
G.T. Road, Phagwara.
(Appellant) (Respondent)
2 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015
Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08
I.T.A No.214, 216 & 217/(Asr)/2014
Assessment Years: 2006-07, 2007-08 & 2008-09
[
PAN: AAAFP9505H
D.C.I.T, Vs. M/s PMS Diesels,
Phagwara Circle, Village : Jamalpur,
Phagwara. G.T. Road, Phagwara
(Appellant) (Respondent)
Appellant by: Sh. Tarun Bansal (Adv.)
Respondent by: Sh. Rahul Dhawan (D.R.)
Date of Hearing: 02.08.2017
Date of Pronouncement: 30.08.2017
ORDER
PER T. S. KAPOOR (AM):
These are seven appeals filed by Assessee as well as Revenue for the Asst. Years 2006-07 to Asst. Years 2009-10. These appeals were heard together and some common issues are involved in these appeals and, therefore, for the sake of convenience, a common and consolidated order is being passed.
2. The grounds of appeal taken by assessee as well as by the revenue are reproduced below:
Grounds of appeal in ITA No. 114/Asr/2014
1. "That the order of the CIT(A) to the extent upholding the additions/disallowances made by the Assessing Officer is against the law and facts of the case.
2. That the CIT(A) failing to appreciate the facts of the case in light of the settled position of law had therein erred in upholding disallowance of interest u/s 36(1)(iii) of the 'Act' on advances made by the assessee 3 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 firm to Sh. Rajesh Kumar, Sh. Satpal Sethi, M/s Fine Switch Gears, Sh. Sohan Lal, Smt. Maya Devi Educational Society, M/s Aroma Engg. Corpn. And M/s Bapu Jewellers.
3. That the CIT(A) failing to appreciate the facts of the case in light of the settled position of law had erred in upholding disallowance of interest u/s 36(1)(iii) of the 'Act' on advances made by the assessee firm to its 'Sister concerns', namely M/s Star Trading Co., M/s PMS Enterprises and M/s Sahdev Enterprises, specifically when the same were prompted by 'Commercial expendiency'.
4. That the CIT(A) failing to appreciate the facts of the case in light of the settled position of law had wrongly upheld the addition aggregating to Rs. 11,58,963/- made by the Assessing Officer u/s 41(1) of the 'Act' on the ground of alleged cessation of liability pertaining to the following parties :-
(i) M/s El Marwa Import and Trading Co., Cairo : Rs.6,15,095/-
(ii) M/s Khyati Machine Tools : Rs.66,060/- (iii) Sh. M.N. Patel : Rs.2,48,600/- (iv) M/s S.R. Forgings : Rs.2,29,208/-
5. The CIT(A) misconceiving the facts of the case and rather most arbitrarily brushing aside the very fact that the G.P. Rate for the year under consideration was substantially progressive as in comparison to that of the preceding years had upheld the 'Trading addition' of Rs.4,73,392/- so made by the Assessing Officer in the hands of the assessee firm.
6. The CIT(A) had though deleted the addition of Rs.1,62,842/- on the ground that the same would be covered by the 'Trading addition' which had been sustained by him, had however grossly erred in failing to independently adjudicate the said issue which was specifically challenged by the assessee on merits before him.
7. That the CIT(A) had erred in law and facts of the case by failing to appreciate that the disallowance u/s 40(a)(ia) of the 'Act' was liable tot be restricted only with respect to the amounts as were found 'Payable' in the 'Balance sheet' pertaining to the year under consideration.
8. That the CIT(A) had gravely erred in law and facts of the case in sustaining the disallowance u/s 40(a)(ia) of the 'Act' with respect to payments aggregating to Rs.7,27,908/- made by the assessee firm to the 'Shipping agents' towards IHC, THC, BAF & CAF charges, failing to appreciate that no TDS was required to be deducted on the said amounts u/s 172(8) of the Act'.
4 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08
9. That the CIT(A) had erred in law and facts of the case in upholding the addition of Rs.21,000/- so made by the Assessing Officer u/s 40A(3) of the 'Act'.
10. Any other ground of appeal as may be allowed to be raised at the time of hearing of the appeal."
Grounds of appeal in ITA No. 116/Asr/2014
1. That the order of the CIT(A) to the extent upholding the addition made by the Assessing Officer is against law and facts of the case.
2. That the CIT(A) failing to appreciate the facts of the case in light of the settled position of law had wrongly upheld the disallowance of interest u/s 36(1)(iii) of the 'Act' amounting to Rs.4,95,560/-
3. That the CIT(A) failing to appreciate the facts of the case in light of the settled position of law had therein erred in sustaining the disallowance of Rs.98,660/- made by the Assessing Officer u/s 40(a)(ia) 'Act'.
4. Any other ground of appeal as may be allowed to be raised at the time of hearing of the appeal."
Grounds of appeal in ITA No. 117/Asr/2014
1. "That the order of the CIT(A) to the extent upholding the additions made by the Assessing Officer is against the law and facts of the case.
2. That the CIT(A) had on the basis of misconceived facts wrongly upheld the additions of Rs.3,82,113/- in the hands of the assessee firm.
3. That the CIT(A) failing to appreciate the facts of the case in light of the settled position of law and therein erred in upholding disallowance of interest on advances of Rs.59,43,782/-
4. That the CIT(A) while ''Directing' The Assessing Officer to also disallow interest on amounts aggregating to Rs.24,08,050/- on advances made to Sh. Rajesh Kumar, Smt. Maya Devi Educational Society and Sh. Sohan Lal, had exceeded his powers and enhanced the income of the assessee firm without affording any opportunity to the latter, as statutorily required u/s 251(2) of the 'Act'.
5. Any other ground of appeal as may be allowed to be raised at the time of hearing of the appeal".
5 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 Grounds of appeal in ITA No. 118/Asr/2014
1. "That the order of the CIT(A) to the extent upholding the additions made by the Assessing Officer is against the law and facts of the case.
2. That the CIT(A) failing to appreciate the facts of the case in light of the settled position of law and therein erred in upholding disallowance of interest on advances made to M/s Rajesh Jewellers, Sh. Rajesh Kumar, Smt. Maya Devi Educational Society, Sh. Sohan Lal, M/s PMS Enterprises, Sh. Balwinder Kaur and M/s S.R. Forgings.
3. That the CIT(A) had erred in sustaining the disallowance of 1/10th of the 'Vehicle Expenses' amounting to Rs.1,18,225/-.
4. That the CIT(A) had erred in upholding the addition of Rs.10,319/-
made by the Assessing Officer in the hands of the assessee firm.
5. Any other ground of appeal as may be allowed to be raised at the time of hearing of the appeal".
Grounds of appeal in ITA No. 214/Asr/2014
1. "Deleting the addition of Rs.39,64,344/- made by the Assessing Officer on account of deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961 and held that deemed dividend can only be considered in the hands of a shareholder. The Ld. CIT(A) has not appreciated the fact that the firm has to be treated as the "shareholder" even though it is not the "Registered Shareholder" for the purpose of section 2(22)(e) of the I.T. Act, 1961 in view of Delhi High Court Judgment in the case of CIT Vs. M/s National Travel Services.
2. Deleting the addition of Rs.3,61,074/- made by the Assessing Officer on account of disallowances u/s 36(1)(iii) of the Income Tax Act, 1961, as directed to recalculate the disallowances at the rate at which the assessee firm is paying interest.
3. Deleting the addition of Rs.1,93,71,054/- made by the Assessing Officer on account of cessation of liability u/s 41(1) of the Income Tax Act, 1961. Assessing Officer has brought on record that the liabilities were bogus and assessee failed to substantiate with evidence.
4. Deleting the addition of Rs.1,62,842/- made by the Assessing Officer on account of unaccounted voucher for expenses as these expanses have not been found to be booked in the regular books of accounts.
5. Deleting the addition of Rs.3,13,400/- made by the Assessing Officer on account of disallowance of expenses u/s 40(a)(ia) of the Income - Tax Act, 1961, though during appellate proceedings the counsel for the assessee admits defaults for non deductions of TDS.
6 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08
6. It is prayed that the order of the learned Commissioner of Income Tax (Appeals) be set-aside and that of the Assessing Officer be restored.
7. The appellant request for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed off." Grounds of appeal in ITA No. 216/Asr/2014
1. "Deleting the addition of Rs.14,25,204/- made by the Assessing Officer on account of deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961 and held that deemed dividend can be made only be considered in the hands of a shareholder. The Ld. CIT(A) has not appreciated the fact that the firm has to be treated as the "shareholder" even though it is not the "Registered Shareholder" for the purpose of section 2(22)(e) of the I.T. Act, 1961 in view of Delhi High Court Judgment in the case of CIT Vs. M/s National Travel Services dated 01.10.2011.
2. Deleting the addition of Rs.4,95,560/- made by the Assessing Officer on account of disallowances u/s 36(1)(iii) of the Income Tax Act, 1961, as directed to recalculate the disallowances at the rate at which the assessee firm is paying interest.
3. Deleting the addition of Rs.46,11,381/- made by the Assessing Officer on account of non charging on interest on loans to sister concerns ignoring the decision of Jurisdictional High Court in the case of Abhishek Industries reported at 286 ITR 1.
4. It is prayed that the order of the learned Commissioner of Income Tax (Appeals) be set-aside and that of the Assessing Officer be restored.
5. The appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed off." Grounds of appeal in ITA No. 217/Asr/2014
1. "On the facts and in the circumstances of the case and in law the Ld. Commissioner of Income-tax (Appeals) has erred in deleting the addition of Rs.18,85,177/- made by the Assessing Officer on account of notional interest chargeable on interest free loans and advances to sister concerns ignoring the decision of Jurisdictional High Court in the case of Abhishek Industries reported at 286 ITR 1.
2. It is prayed that the order of the learned Commissioner of Income Tax (Appeals) be set-aside and that of the Assessing Officer be restored.
3. The appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed off."
7 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08
3. At the outset, the Ld. AR invited our attention to the common grounds of appeal in all these appeals and invited our attention to a consolidated chart showing the common grounds of appeal.
4. The Ld. AR also invited our attention to application for raising additional grounds of appeal in assessment year 2006-07 but which stood withdrawn on dated 23.05.2016 and therefore the application for raising additional grounds of appeal in Asst. Year 2006-07 is dismissed as withdrawn. Ground No. 1 in assessee's appeals is general in nature and do not require adjudication. As regards grounds no. 2 in assessment year 2006-07, 2007-08 and 2009-10, relating to disallowance u/s 36(1)(iii) of the Act, the Ld. AR submitted that the Ld. CIT(A) has confirmed this disallowance and while confirming the disallowance, he has not considered the exclusion of opening balances for the purpose of calculation of making disallowance and in this respect invited our attention to synopsis page 313 where the detailed calculation of disallowance of u/s 36(1)(iii) was placed.
5. The Ld. AR submitted that as per the decision of Hon'ble. Tribunal in the case of assessee itself in ITA No. 425, it has been held that no disallowance of interest u/s 36(1)(iii) can be made for opening balances. He submitted that similar decision has been made by the Hon'ble. Tribunal Amritsar Bench in the case of DCIT Vs. IShar Infrastructure in ITA No. 198/Asr/2013. The Ld. AR further placed his reliance on the following case laws:
(i) Ajay Electronics Vs. ITO (2016) 52 ITR (Trib) 332 (Asr), 8 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08
(ii) DCIT Vs. Sadguru Land Finance (2016) 52 ITR(Trib) 182 (Asr)
6. The Ld. AR in this respect also invited our attention to the amount of closing balances of various advances on which such disallowance was made. He submitted that if the opening balances are reduced from these figures, the remaining amount representing interest free advances will be less than the interest free capital and interest free unsecured loan available with the assessee and in this respect our attention was invited to paper book 36 for Asst. Year 2006-07 where a copy of balance sheet was placed. The Ld. AR submitted that as per the settled law no addition can be made when interest free funds of the partners are more than the interest free advances and in this respect placed his reliance on the following case laws:
"(i) PMS Diesels Vs. DCIT ITA No. 425/Asr/2014 dtd. 5.5.17 Own case of appellant, copy enclosed at page 168 to 172
(ii) MBD Printographics Pvt. Ltd. Vs. DCIT - 61 I.T. Reps 187 (2016) 7 ITR(Trib) - OL 593 (Amritsar) Enclosed at page 188 to 194
(iii) Malhotra Book Depot Vs. ACIT (2016) 47 CCH 879 Asr Trib enclosed at page 195 to 199
(iv) CIT Vs. Satish Bala Malhotra & Ors.
(2016) 387 ITR 403 (P & H) enclosed at page 200 to 203 (V) CIT Vs. Max India Ltd. (No.2) (2016) 388 ITR 81 (P&H) enclosed at page 204 to 215 Similarly, the Ld. AR in ITA No. 116/Asr/2014 for Asst. Year 2007-
08 invited our attention page 21 of synopsis and submitted that during 9 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 this year also there were opening balances and Ld. CIT(A) had confirmed the addition on the total advances including opening balances. The Ld. AR submitted that after reducing the opening balances, the total advances made during the year comes to Rs.67,62,551/-. He submitted that the capital and unsecured loans which were interest free balances was more than this amount and which was more than the interest free advances and therefore in assessment year 2007-08 also the addition was not warranted. Inviting our attention to similar disallowance in assessment year 2008-09, the Ld. AR submitted that in this year also there were opening balances and also the capital of the partners and interest free loans was more than the interest free advances and therefore, the same is also covered by the various case laws as cited in the appeal in ITA No. 114/Asr/2014. Coming to the ground no. 2 of appeal of Revenue for which the Ld. CIT(A) has allowed relief to the assessee in assessment year 2006-07 & 2007-08, the Ld. AR submitted that the Ld. CIT(A) had directed the Assessing Officer to make the disallowance u/s 36(1)(iii) of the Act as the rates at which assessee had paid interest.
7. Ld. AR submitted that no addition can be made when the interest free funds are more than the interest free advances which has already been highlighted, while arguing the assessee's appeal and therefore this ground of appeal of Revenue will become infructuous, if the issue is decided in favour of assessee. Similarly he submitted that ground no. 1 in Revenue's appeal in ITA No. 217 will be come infructuous if the appeal of 10 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 the assessee is decided in favour of Assessee keeping in view the case laws cited by him.
8. Inviting our attention to the second issue of addition u/s 41(1) of the Act, the Ld. AR submitted that the Assessing Officer had made a total addition of Rs.2,05,30,717/- on account of cessation of liability u/s 41(1) of the Act. He submitted that the Ld. CIT(A) has deleted a substantial amount of Rs.1,93,71,054/- and has confirmed only Rs.11,59,663/-. In this respect, the Ld. AR submitted that detailed chart of the addition has been mentioned by the Assessing Officer at page 26 of his order. The Ld. AR submitted that as per this chart the balances were outstanding from assessment years 2001 onwards and none of the amount was relating to the year under consideration.
9. The Ld. AR further submitted that few of the accounts noted at serial no. 4 to 7 were already squared up by year ending 31.03.2008. The Ld. AR submitted that no such addition was made in the preceding assessment year and in this respect our attention was invited to assessment order of assessment year 2005-06 placed at paper book page 1 to 20. The Ld. AR submitted that if the assessee continues to declare the liabilities in the balance sheet, the liability cannot be said to have extinguished. The Ld. AR submitted that the Hon'ble Delhi High Court in the case of CIT Vs. Sugauli Sugar Works Pvt. Ltd. (1999) 236 ITR 518(SC) has explained the position with respect to cessation of liabilities u/s 41(1) of the Act. Therefore, the addition cannot be sustained as the amounts 11 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 were brought forward balances and further reliance was placed on the following case laws:
"(i) DCIT Vs. Sadguru Land Finance (2016) 52 ITR(TRib) 182, Amritsar Important Para - 22, Page-200
(ii) CIT Vs. Smt. Sita DEvi Juneja (2009) 77 CCH 1104 (PHHC) Also see page 86 of CIT(A)'s Order Enclosed at Page 218 to 220
(iii) CIT Vs. G.P. International Ltd.
(2009) 77 CCH 1100 (PHHC) Also see page-87 of CIT(A)'s order enclosed at page 221 to 223
(iv) CIT Vs. Shri Vardhman Overseas Ltd.
(2012) 343 ITR 408 (Del Hon'ble High Court) Copy enclose at page 224 to 233.
(v) CIT Vs. Bhogilal Ramjibhai Atara (2014) 88 CCH 49 (Guj Hon'ble High Court) (2014) 222 Taxman 313 (Guj) Copy enclosed at page 234 to 237"
10. As regards the addition of Rs.4,73,392/- which has been made as a trading addition, the Ld. AR submitted that the gross profit ratio declared by assessee was progressive as has been noted by Ld. CIT(A) in his order at page 97. He submitted that during the year under consideration the G.P. Rate was declared at 13.01% which was more than the earlier years, G.P. Rate of 11.92% and 11.03% respectively and moreover the Assessing Officer u/s 143(3) had accepted 11.03% as gross profits of the assessee. The Ld. AR submitted that the action of Ld. CIT(A) is not correct as the gross profit was progressive and Assessing Officer had not rejected the books of accounts. Reliance in this respect was placed on the following case laws:
12 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 "(i) Sargam Cinema Vs. CIT (SC) (2010) 328 ITR 513
(ii) Sh. Dushiant Kumar Vs. ITO ITA No. 468/Asr/2014 - A. Y. 2010-11 (Copy enclosed at Page 295 to 309
(iii) Vinod Kumar Vs. ITO ITA No. 467/Asr/2014 A. Y. 2010-11
(iv) DCIT Vs. Harpreet Singh Gulati ITA No. 317/Asr/2013
(v) Ganesh Dass Piara Lal Jain Vs. ITO (2016) 49 ITR(Trib) 36 (CHD)
(vi) CIT Vs. Bholanath Poly Fab P Ltd. (2013) 335 ITR 290 (Guj) Page- 293
(vii) Shakti Industries (Guj Hon'ble High Court) (2013) 36 Taxmann.com 16"
As regards the addition on account of unaccounted vouchers amounting to Rs.1,62,841/-, the Ld. AR submitted that though the Ld. CIT(A) had deleted the addition by holding that the addition was already covered by the trading addition but he has not adjudicated on the merits of this addition.
11. As regards the addition u/s 40(a)(ia) of the Act, the Ld. AR submitted that in respect of a few parties, the assessee had deposited the tax deducted at source before the filling of return and Ld. CIT(A) had allowed relief to the assessee subject to the condition that Assessing Officer will verify such deposits of tax. The Ld. AR submitted that Assessing Officer had verified such deposits and has already decided the issue and has given relief as per paper book page 92 and Revenue has not filed any appeal against such relief. The Ld. AR submitted that in respect 13 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 of other payees the assessee had deposited the tax in succeeding year and therefore assessee should be given credit for such taxes paid in succeeding year. In respect of other payees the Ld. AR submitted that in few cases the assessee was not required to deduct tax at all as in some cases the payments did not exceed Rs.2,0000/-. The Ld. AR submitted that in some cases the payments were made as reimbursements and therefore the assessee was not required to deduct TDS in respect of such parties. In this respect the Ld. AR invited our attention to an order of Hon'ble ITAT Amritsar Bench in the case of assessee itself in ITA No. 257 wherein the Hon'ble Bench had held that assessee was not required to deduct taxes in such cases.
The Ld. AR submitted that these payments were made to shipping agents towards IFC, THC, BAF, and CAF charges and the assessee was not required to deduct TDS as per the provisions of 172(8) of the Act.
As regards disallowance u/s 40A(3) in assessment year 2006-07, the Ld. AR submitted that above payment of Rs.21,000/- was paid in cash towards visa fee to UAE embassy as the said day was a Friday and keeping in view the business exigencies, the said payments could not have been delayed. The said payment by way of account payee draft at that point of time was not possible, and that is why the assessee had to make the payment of visa fee in cash. The Ld. AR submitted that Assessing Officer did not raise any doubt about the genuineness of payment and payee was also identified and therefore no disallowance u/s 40A(3) was warranted 14 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 and in this respect reliance was placed on the case laws in ITO Vs. Dhanshree Ispat 50 CCH 0086 and in the case law of Gurdas garg by Punjab & Haryana High Court in ITA No. 413/Asr/2014. Without prejudice it was submitted that the Finance Act, 1995 had amended the section and whereby the disallowance can only be made upto 20% of such payment which comes to Rs.4200/-.
As regards confirmation of disallowance of vehicle expenses, the Ld. AR submitted that Assessing Officer has made disallowance at the rate of 1/5th of depreciation on cars and petrol expenses and which the Ld. CIT(A) has reduced to 1/10th which again is very excessive. Without prejudice it was submitted that the addition on account of depreciation on cars can not be made irrespective of the fact as to whether the car was used for personal use or for business purposes and reliance was placed on the decision of Mumbai Tribunal in the case of Mukesh K. Shah Vs. ITO (2004) 23 CCH 0225 Mum Trib. For addition of other expenses, the Ld. AR submitted that suitable relief may be given.
As regards the addition of Rs.10,319/- on account of balance of Bawa Hardware Store, the Ld. AR submitted that the amount of Bawa Hardware Store has already been transferred to rebate & discount in the F.Y. 2009-10, and our attention was invited to paper book page 6 where a copy of account of Bawa Hardware Store was placed and wherein the amount was transferred to rebate and discount and in view of the above, it was submitted that addition sustained by Ld. CIT(A) will tantamount to 15 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 double addition and in view of the above it was prayed that the same may be deleted.
12. The Ld. DR arguing on behalf of the Revenue submitted that the disallowance u/s 36(1)(iii) was partly deleted by Ld. CIT(A) and he had upheld only that portion of disallowance where he was satisfied that the disallowance was necessary. As regards the addition partly sustained by Ld. CIT(A) in respect of addition u/s 41(1) of the Act, the Ld. DR submitted that Ld. CIT(A) has sustained the addition in accordance with the specific provisions of the Act and he heavily placed his reliance on the order of Assessing Officer.
As regards addition u/s 40(a)(ia) the Ld. DR submitted that the entire issue can be set aside to the office of Assessing Officer who should verify the same and should allow the relief accordingly.
As regards the gross profit addition and addition on account of unaccounted vouchers, the Ld. DR placed his reliance on the orders of authorities below:
Arguing upon Revenue's appeal, the Ld. DR in respect of deletion by Ld. CIT(A) on account of addition u/s 2(22)(e) submitted that the assessee firm was not a shareholder but the partners of the firm were shareholders and therefore the assessee firm has to be treated as the beneficial shareholder and therefore, the Ld. CIT(A) has wrongly allowed relief to the assessee. The Ld. DR in this respect relied on the case laws Shri. Gopal & Sons Vs. CIT pronounced by Hon'ble Supreme Court of India in Civil Appeal No. 12274 of 2016. The Ld. DR submitted that in this case, the 16 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 assessee was holding shares in its individual capacity and the Hon'ble Supreme Court held that provisions of deemed dividend get attracted even if the loan was given to HUF which was not a registered shareholder. The Ld. DR submitted that Hon'ble Supreme Court has held that though the shares were held in the individual capacity but for the purpose section 2(22)(e), even HUF was considered as a beneficial owner of the shares and therefore following the same in the present case, though assessee firm is not a partner but the partners in their individual capacities are shareholder of the company and therefore the deeming provisions were applicable. As regards the relief given by Ld. CIT(A) on account of addition u/s 41(1) of the Act, the Ld. DR submitted that additions were made strictly in accordance with the provisions of section 41(1). As regard regards the deletion of addition u/s 36(1)(iii), the Ld. DR submitted that his arguments are same as were advanced in the assessee's appeal on this issue.
13. We have heard the rival parties and have gone through the material placed on record. We first take up the appeal In ITA No. 214. Ground no. is general and do not require any adjudication. Ground no. 2 and 3 relate to addition u/s 36(1)(iii) of the Act. The Ld. AR has argued that the closing balances on which the interest was calculated also included opening balances and also argued that the interest free funds available with the assessee were more than the interest fee advances and therefore, relying on various case laws, he had argued that the addition was not sustainable. We find that in assessee's own case in ITA No. 425/Asr/2014 17 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 decided by Amritsar Bench vide order dated 05.05.2017, the Amritsar Bench had restored the above issue to the office of the Assessing Officer with the following findings.
"8. We have heard the rival parties and have gone through the material placed on record. We find that it is a fact that in original assessment proceedings, the Assessing Officer had made disallowance of interest u/s 36(1)(iii) in respect of 10 parties , whereas the Assessing Officer in the second round of proceedings examined 14 parties and made disallowances accordingly which is not as per directions of Hon'ble ITAT. Therefore, we direct the Assessing Officer to restrict the disallowance if any in respect of only 10 parties which were originally listed in the original assessment order. We further find that in a few cases, the amount of advances was as opening balances and there are judgments of Amritsar Tribunal holding that in respect of old advances from earlier years, no disallowance u/s 36 (1) (iii) of the Act was warranted. Further the disallowance if any u/s 36(1)(iii) has to be restricted to the amounts of loans which exceeded the capital of the assessee as has been held by Hon'ble Amritsar Bench in various case laws relied on by assessee. Therefore, the Assessing Officer is directed to restrict the disallowance of interest on loan amounts exceeding the available capital of the assessee. With these directions the appeal of the assessee is set aside to the office of Assessing Officer to reframe the assessment order in terms of above said directions."
In the present case also we are of the opinion that Assessing Officer should examine the disallowance keeping in view the case laws relied on by assessee wherein it has been held that on opening balances of advances no disallowance u/s 36(1)(iii) was warranted and similarly in cases it has been held that if the interest free funds of the assessee are more than the interest free advances, no disallowance u/s 36(1)(iii) can be made.
14. In view of the above we remit this issue to the Assessing Officer to examine the issue afresh, in view of the judgments relied on by the assessee to Assessing Officer should examine availability of interest free funds vis-à-vis interest free advances. In view of the above ground no. 2, 3 in ITA No. 114/Asr/2014, ground no. 2 in ITA No. 116/Asr/2014, ground 18 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 no. 3 & 4 in ITA No. 117/Asr/2014, ground no. 2 in ITA No. 118/Asr/2014, ground no. 2 in ITA No. 214/Asr/2014, ground no. 2 and 3 in ITA No. 216/Asr/2014 and ground no. 1 in ITA No. 217/Asr/2014 are treated as allowed for statistical purposes.
15. Now coming to the addition partly deleted by Ld. CIT(A) in respect of addition u/s 41(1) which is ground no. 4 in ITA No. 114/Asr/2014 and ground no. 3 in ITA No. 214/Asr/2014, we find that the issue of addition u/s 41(1) has been dealt with many cases. The Amritsar Bench in ITA No. 639/Asr/2016 vide order dated 11.08.2017 has considered various case laws in this respect and has decided the issue in favour of assessee by holding as under:
"Ground of appeal no. 7: During the assessment proceedings it was noticed by the AO, that the assessee has shown in his books of account that following amounts were payable to eight parties mentioned in the following table amounting to Rs. 26,26,270/-
S. NO. Name of the Party Total Amount
1. HATTIM COPPER 4,00,000 CLOSED
2. KARITKE BUILD CON 1,80,000 NOT REPLIED
3. MONTAGE ENTERPRISES 68,687 DENIED
4. SARVESHWAR RICE MILLS, BARI 3,14,508 NOT REPLIED
BRHAMANA
5 SATYA METALS, LANE 3 BARI 6,66,809 NOT REPLIED
BRAHMANA
6 SPERRY PLAST, BARI BRAHMANA 1,00,000 NOT REPLIED
7 STAR INDUSTRIES 6,17,684 NOT REPLIED
8 VS INDUSTRIES 3,12,582 NOT REPLIED
TOTAL 26,60,270
The AO, on verification of ledger accounts in the preceding two years noticed that the above stated creditors are static creditor since outstanding balance are being shown by the assessee for more than three years. There 19 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 was no single transaction between the assessee and creditors during last three years neither any interest has been paid. The creditors have also not demanded the outstanding payments. The AO, therefore, concluded that the above creditors might have squared off or written off the impugned demands/balances and as such there is a remission or cessation of assessee's liability. The AO has also stated that in the case of M/s Montage Enterprises, it was denied that any amount is receivable from the assessee. In the case of M/s Hatim Copper, the unit has been closed since long and no confirmation could be made. The AO, therefore, asked the assessee to submit its reply on the proposed addition. In response to that the assessee submitted that the amounts shown in the above table 'as payable' against the creditors are not static and are actually payable. There is no cessation or remission of liability shown against them. The assessee further submitted that it is a fact that the assessee firm is not dealing with these parties and has withheld the payments because of working capital crunch at that time. The replies not received from these parties do not mean that the liability has ceased to exist or has been remitted. The AO, however, was not convinced with the reply of the assessee and added back the entire amount of Rs.26,60,270/- to the total income of the assessee u/s. 41(1) of the Income tax Act.
The appellant, on the other hand, in his submission made during the appellate proceedings has stated as under:-
"The appellant submits as under: -
The Ld. AO has made additions of Rs. 2660270/- u/s 41(1) on account of static creditors. Section 41(1) of the Income Tax Act, 1961 reads as under:
Profits chargeable to tax.
41 .[ (l) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,--
A). the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such60 loss or expenditure60 or some benefit in respect of such trading liability60 by way of remission or cessation thereof60, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or B). the successor in business has obtained60, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in 20 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 respect of the trading liability referred to in clause (a) by way of remission or cessation thereof60, the amount obtained60 by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.
[Explanation l.--For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause
(a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in is accounts.] Form the above it is clear that to attract section 41(1) following conditions must be satisfied:-
a). In the assessment of an assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him
b). (i) Any amount is obtained in respect of such loss or expenditure, or
(ii) Any benefit is obtained in respect of such trading liability by way of remission or cessation thereof
c). Such amount or benefit is obtained by the assessee; and
d). Such amount or benefit is obtained in a subsequent year.
Only if all these conditions are fulfilled section 41(1) gets attracted. Moreover the amounts are added to the income of the previous year in which the liability ceases or remits or the benefit is received by the appellant. In the present case; neither the liability has ceased to exist nor has the appellant written off these amounts in its books of account as provided by Explanation-1 above. All the balances are shown as payable in the books of account. Copies of account of all these creditors showing that there were no transactions during the year are enclosed (Page 28-29). Moreover, the Ld. AO had not brought anything on record to prove that any amount or benefit had been obtained by the appellant during the year under consideration against liabilities which is allegedly ceased to exist. It is also an established proposition of law that onus is on the AO to establish that any benefit has accrued to the appellant against alleged liabilities during the year under consideration. Since the Ld. AO has failed to prove his case, the additions are prayed to be deleted. Case laws in support of appellant's contention are given below: -
1. ITO vs. Sh. Jagmohansingh G Dhiman ITA No. 1959/Ahd/2012 -
A.Y. 2009-10 ITAT Ahmedabad (Page 30-34) 21 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08
2. CIT vs. Shri Vardhman Overseas Ltd. ITA NO. 774/2009 Del HC (Page 35-50)
3. CIT v. Sugauli Sugar Works (P) Ltd. (1999), 236 ITR 518 SC (Page 51-54)
4. CIT v. Kesaria Tea Co. Ltd. (2002) 254 ITR 434 SC (Page 55-58) I have considered the rival contentions and it is found that though the payments have not been made to these creditors and shown as the liability and also that there was no transaction in last three years with all these creditors and no confirmation was received, yet it cannot be said that liabilities have ceased to exist. Coming to the case laws cited by the appellant in support of its claim that there was no cessation or remission of this liability as defined u/s. 41(1) of the Income tax Act, I have perused the above decisions and it is found that in the case of CIT Vs. Sugauli Sugar Woks (P) LTD ( 1999) 236 ITR 518 SC it has been held that the question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but it is a matter which has to be decided only if the creditor has stated that the liability has ceased to exist because the creditor may enforce the debt or liability after expiry of sometime then it would not be possible for the assessee to pay back the outstanding balance. The Hon'ble Courts have therefore, held that the liability to make payment ceased to exist only after expiry of the normal portion of limitation as provided under the limitation Act. The other decisions also cited by the appellants support the case of the appellant.
I, therefore, hold that in the absence of any examination of the creditors to the effect that they have waived the liability or the limitation period has expired under the limitation Act, the creditors shown in the balance sheet cannot be treated to have been remitted u/s. 41(1) of the Income tax Act. Thus, the addition made by the AO on this ground is deleted and appellant gets a relief of Rs.26,60,270/-"
The Ld. CIT(A) has deleted the part addition after examining various documents and from which he arrived at the conclusion that the reasons why the amounts were laying for such a long period of time were explainable and therefore, he deleted substantial portion of the addition.
While deleting the addition, the Ld. CIT(A) had accepted additional evidences also. However the case laws relied on by Ld. AR clearly establish that addition u/s 41(1) is not warranted unless the assessee writes off the 22 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 credit balances of such creditors. In view of the above ground no. 4 in ITA No. 114/Asr/2014 is allowed whereas the ground no. 3 in ITA No. 214/Asr/2014 is dismissed.
16. Now coming to additions u/s 40(a)(ia), we find that in few cases the assessee had submitted before Ld. CIT(A) that taxes were duly deposited and for which the Ld. CIT(A) had issued directions to Assessing Officer for verification of such cases. The Ld. AR submitted that the Assessing Officer had carried out such verification and had allowed relief to the assessee and in this respect our attention was invited to paper books page 92. We find that this is a document giving appeal effect of Ld. CIT(A)'s order and Assessing Officer was required to examine that taxes on these amounts were duly deposited and therefore he has given relief only after such examination and therefore ground no. 5 in ITA No. 214 is dismissed. In respect of other group of items, the Ld. AR has argued that in some cases the amounts on which tax was deductible were paid during the year and was not payable and therefore the disallowance should have been restricted only to the amounts payable but when his attention was invited to the fact that this issue is settled now against assessee, the Ld. AR submitted that taxes on such payments were deposited in succeeding year and therefore as per the provisions of law its benefit should be given in succeeding year. The Ld. AR submitted that in respect of Anjali Engineers and P.S. Castings in Asst Year 2006-07 tax was deposited in succeeding year. In view of the substantial justice we deem it appropriate to remit this 23 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 issue back to Assessing Officer who should decide the issue afresh in view of the provisions of law. Similarly the issue of payments to V. B. Seth and CO is also remitted back to Assessing Officer as the Ld. AR has submitted that payments in this case did not exceed Rs. 2,0000/-. Therefore ground no. 7 in ITA No. 214 is allowed for statistical purposes.
17. The third class of cases is those cases where the Ld. AR has claimed that tax was not deductible as the amounts were paid as reimbursement to shipping agents. We find that in the case of assessee itself in ITA No. 257/Asr/2014, the Hon'ble ITAT vide order dated 22.03.2016 had held that in the case of payments made to shipping agents of non resident owners, the assessee was not liable to deduct TDS. While deciding in such a manner, the Hon'ble Tribunal had relied on the case laws ITO Freight Systems (India) Pvt. Ltd.; 6, SOT 473(Del). We find that in ITA No. 257/Asr/2014 vide order dated 22.03.2016, the issue of tax deduction at source on payments on account of Inland haulage charges, Terminal handling charges, Bunker adjustment factor and cost adjustment factor were considered in respect of payments of M/s IAL, M/s R.K. Shipping, M/s S.K. Shipping, LTA Worldwide were considered and the Hon'ble Tribunal had decided the issue in favour of assessee by holding as under:
"5. Apropos Ground no. 2, the Assessing Officer noted that it was the observation of the auditors of the assessee that the assessee had not deducted tax at source in some of such payment, which had been made to the contractors, custom agents, lease rent charges etc., as under:
Nature of expenses Amount of payment
a. Shipping expenses
24 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 M/s, Worldwide Container & shipping Services Rs.1,00,000/-
M/s. Venus Clearing Rs.21,712/- M/s. IAL Rs. 75,762/- M/s. R.K. Shipping Rs. 68,846/- M/s. S.K. Shipping Rs. 46,013/- M/s. LTA Worldwide Rs. 40,101/- b. Payments of Rajkot Branch: i. Job Work Rs. 91,620/- ii) M/s. Nanda Raodways Rs.1,37,924/-
6. The AO observed that the assessee's contention that non deduction of tax at source was in pursuance to the provisions of section 172(8) of the I.T. Act, as supplemented by CBDT Circular no.723 dated 19.09.1995, was not acceptable, since the amounts paid were found to represent charges paid other than ocean freight and were not paid under the provisions of section 172(8) and the Circular of the Board; that the amounts of shipping charges do not constitute freight amount, but represented other charges which had been paid to the clearing and forwarding agents for their services to clear the goods at the custom port; and that by clearing the goods at the custom port, the clearing and forwarding agents cannot be considered to be the agents of the nonresident ship-owners or charters and they will not step into the shoes of the principal as stated in Circular No.723, dated 19.09.1995. As such, the AO held the assessee to be in default in respect of payments of Rs.3,52,434/-. The tax in default @ 2.04% was worked out to Rs.7,189/-, whereas the interest u/s 201(1A) from 31.03.2006 was worked out at Rs.4,314/-.
7. The Id. CIT(A) confirmed the action of the Assessing Officer.
8. The Id. counsel for the assessee has contended that the Id. CIT(A) has erred in upholding the order of the AO, holding the assessee company to be in contravention of Section 194C of the Act in respect of shipping expenses; that according to section 172(8) of the Act, as supplemented by CBDT Circular No. 723 dated 19.09.1995, the amounts paid by the assessee company towards Inland haulage charges, Terminal handling charges, Bunker adjustment factor, Cost adjustment factor, etc., i.e., shipping expenses, were not liable for any deduction of tax at source and the authorities below have erred in holding the assessee-company to be in default u/s 201(1)/201(1A) read with section 194C of the Act for failure to deduct tax at source on these amounts.
9. On the other hand, the Id. DR, has placed strong reliance on the impugned order.
10. We have heard the rival contentions and have perused the material available on record. The question is as to whether Inland haulage charges, Terminal handling charges, Bunker adjustment factor, Cost adjustment factor, etc., i.e., shipping expenses paid by the assessee regarding exports using non-resident shipping call for TDS.
25 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08
11. Section 172 of the Act regulates the procedure for assessing the income of non-resident shipping.
12. Section 172(2) reads as follows:
"Where such a ship carries goods shipped at a port in India, seven and half percent of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage."
13. Section 172(6) is as follows:
"A port clearance shall not be granted to the ship until the Collector of Customs or other officer duly authorized to grant the same, is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangements have been made for the payment thereof."
14. According to section 172(8): "For the purpose of this section, the amount referred to in sub-section (2) shall include the amount paid or payable by way of demurrage charge or handling charge or any other amount of similar nature".
15. From the above, it is clear that in case of shipping of goods at a port in India , seven and a half percent of the carriage charges shall be deemed to be income accruing in India on account of such carriage; that unless and until the tax assessable u/s 172 is paid or arranged for and the Collector of Customs is satisfied to that effect, the ship shall not be granted port clearance; that the carriage charges, as and envisaged by section 172(2) shall be included in the amount of demurrage charge or handling charge or any other amount of similar nature.
16. In this regard, as per CBDT Circular No.723 dated 19.09.1995 (APB 37-38), where payments are made to shipping agents of nonresident ship- owners or charterers for carriage of passengers, etc., shipped at a port in India, since the agent acted on behalf of the nonresident ship-owner or charterer, he steps into the shoes of the principal and, accordingly, the provisions of section 172 shall apply and those of sections 194C and 195 will not apply.
17. Further, in TTO vs. Freight Systems (India ) Pvt. Ltd.', 6 SOT 473 (Del.), it has been held that payment of ocean freight and Inland haulage charges cannot be subjected to TDS by virtue of the provisions of section 172 of the Act, which position is clarified by CBDT Circular No.723 dated 19.09.1995. This decision, though cited by the assessee before the Id. CIT(A), it does not find even a mention, much less adjudication, by the Id. CIT(A), in the operative portion of the order. Before us also, no decision contrary to 'Freight Systems (India) Pvt. Ltd.' (supra) has been cited on behalf 26 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 of the Department. Thus, in view of the clear provisions of section 172(8) of the Act, as supplemented by CBDT Circular No.723 dated 19.09.1995, both of which have been duly considered in 'Freight Systems (India ) Pvt. Ltd.' (supra). The grievance of the assessee by way of Ground no. 2 is found to be justified and is accepted as such. Accordingly, the demand of Rs.7,189/- u/s 201(1) and Rs.4,314/- u/s 201(1A) of the Act for non-deduction of TDS on payment of shipping expenses of Rs.3,52,434/- is cancelled."
We find that in the present case the assessee had made payments to few of the parties mentioned in the order of Hon'ble ITAT. Therefore we deem it appropriate to remit this issue to Assessing Officer who should examine the nature of expenses and if the payments made are covered by the provisions of section 172(8) and CBDT Circular No. 723, then Assessing Officer should allow relief thereof. In view of the above ground no. 8 is allowed for statistical purposes.
18. As regards the addition on account of unaccounted vouchers in assessment year 2006-07, the Ld. AR had relied on the Delhi High Court decision in the case of CIT Vs. Lubtech India Ltd. 311 ITR 175 for the proposition that addition cannot be made for unaccounted vouchers. We find that in this case the addition was made u/s 69C of the Act on account of certain items jotted in pencil on two sheets of paper which were recovered during the course search and seizure operation. The assessee submitted that the said can not be treated as unexplained expenditure and under these circumstances, the Hon'ble Delhi High Court in the case of Lubtech India Ltd. has held that section 69(c) postulates that first of all, the assessee must have incurred the expenditure and thereafter if the 27 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 explanation offered by the assessee was not found satisfactory only then the addition can be made u/s 69C of the Act. In the present case also the assessee had denied to have incurred this expenditure and the assessee had been maintaining that such expenditure was never incurred by the assessee and these were not reimbursed to the employees and therefore we are in agreement with the arguments of assessee that addition under these circumstances can not be made u/s 69C of the Act. In view of the above, ground no. 6 in ITA No. 114/Asr/2014 is allowed whereas the ground no. 4 in ITA No. 214/Asr/2014 is dismissed.
19. As regards the addition u/s 40(a)(ia) amounting to Rs.21,000/-, we are in agreement with the arguments of Ld. AR that the said payment was made in cash due to exceptional circumstances as the payment was made on Friday and the fee was paid to the embassy. The Assessing Officer did not doubt the genuineness of the party to whom the payment was made and the party is identified and therefore ground no. 9 in ITA No. 114/Asr/2014 is allowed.
20. Coming to the addition on account of low gross profit ratio, we find that in assessment year 2004-05, the G.P. ratio was 11.92% and in assessment year 2005-06, the G.P. ratio was 11.03%. The G.P. ratio in assessment year 2005-06 was accepted by the department u/s 143(3) of the Act. The assessee has declared G.P. ratio of 13.01% in the year under consideration which is progressive when compared with earlier years and moreover, we find that though Assessing Officer obtained auditors report 28 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 from the auditors but he did not reject the books of account. The various Benches of the Tribunal and various High Courts had held that no addition on account of G.P. can be made if the books of account are not rejected.
The Amritsar Bench in the case of Harpreet Singh Gulati in ITA No. 317/Asr/2013 has decided this issue in favour of assessee by holding as under:
"6. We have heard the rival contentions and perused the facts of the case. We concur with the findings of the Ld. CIT(A) that the Assessing Officer has failed to record any finding in the assessment order that the case of the assessee is akin to the provisions of section 145(3) of the Act. the arguments made by the Ld. counsel for the assessee before the Ld. CIT(A) are that the assessee furnished audited accounts/tax audit report alongwith books of account and bills/vouchers for purchase/sales of liquor and relating to expenses were produced for verifications. The details and basis of valuation of closing stock were placed on record during the course of assessment proceedings. The state excise and taxation department keeps strict control and supervision over the liquor trade carried out by the assessee. The purchases of liquor can be made by the assessee against the permits issued by the state excise department and similarly the sales of the liquor by the assessee to the retailers having 1-2 licenses can only be made against the permits issued by the State Excise Department. The Assessing Officer failed to rebut the contention of the assessee that that the net rebate of Rs.16586467/- is a part of the trading results and also the gross profit. The Assessing Officer has tried to make out a case that the above stated amount of Rs.16586467/- is the income of the assessee as per his own version by twisting the contentions of the assessee in written reply filed during the course of assessment proceedings by recording the finding that "a fact that emerges is that whether the rebate received by the assessee is ultimately passed in toto to the retailers as per the assessee's won version as stated above or not" because the word in toto has been introduced by the Assessing Officer but the counsel of the assessee did not use this word in the written reply. The details of rebate received from the sellers from whom the liquor was purchased and paid to the purchasers L-2 License holders to whom the liquor was soled, alongwith the supporting evidence was filed before the Assessing Officer during the course of assessment proceedings and no defect was pointed out by the Assessing Officer either during the course of the assessment proceeding or in the assessment order. No opportunity was allowed by the Assessing Officer to the assessee before making the addition of Rs.48,16,438/-.
29 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 6.1. As mentioned hereinabove, we concur with the findings of the Ld. CIT(A) that the case of the assessee is covered by the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. K.S. Bhatia reported in 269 ITR 577 and the judgment of the Hon'ble Chhattisgarh High Court in the case of ACIT, Raipur Vs. Roop Chand Tharani reported in 249 CTR 326 in which it has been held that the profits cannot be estimated without rejecting the books of account by pointing out the specific defects and recording the finding regarding the same. The contentions of the AR of the assessee are factually correct and the Assessing Officer has failed to point out any discrepancy in the books of account to justify his action of estimating the income of the assessee at Rs.16586467/- as against the income of Rs.11770029/- declared in the profit and loss account. 6.2. Thus, in view of the facts and circumstances of the case discussed above, we find no infirmity in the order of the Ld. CIT(A), who has rightly deleted the addition of Rs.48,16,438/-. We accordingly, uphold the order of the Ld. CIT(A) and dismiss the appeal of the Revenue." There are other case laws also holding the same proposition which for the purpose of brevity has not been reproduced here. In view of the above facts and circumstances, the ground no. 5 in ITA No. 114/Asr/2014 is allowed.
As regards issue of disallowance of 1/10th out of vehicle expenses we find that the disallowance sustained by Ld. CIT(A) consisted of depreciation and other car expenses. As regards disallowance of depreciation on account of personal use we find that Mumbai Tribunal in the case of Mukesh K. Shah Vs. Income Tax Officer in ITA No. 3888/Mum/2000 has held as under:
"If the car is used by the assessee for the purpose of his business, then the depreciation need to be allowed as per the rate suggested by the statute. Depreciation is an statutory allowance. The statutory allowance cannot be restricted on the basis of the volume of business use and volume of personal use. The condition to be satisfied is that the asset should be owned by the assessee and it should be used for the business of profession. Both the conditions are satisfied here. Personal use of the care cannot fetter the granting of statutory 30 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 allowance. Therefore, the disallowance made on account of depreciation is deleted."
In view of the above, the Assessing Officer is directed to delete disallowance on account of depreciation which the Ld. CIT(A) had sustained due to personal use. However as regards other expenses the disallowance sustained by Ld. CIT(A) is upheld.
In view of this ground no. 3 in ITA No. 118 is partly allowed. As regards addition sustained by Ld. CIT(A) for a credit balance of Rs.10319/-, we find that assessee at its own had transferred this amount to rebate and discount in the succeeding year and therefore addition during the year under consideration will tantamount to double addition.
In view of the above ground no. 4 in ITA No. 118 is allowed. As regards the addition deleted by Ld. CIT(A) on account of deemed dividend u/s 2(22)(e) of the Act, we find that section 2(22)(e) necessarily imposes a condition that payee must be a shareholder who must be the beneficial owner of shares. In the present case, undisputedly the assessee is not a shareholder as is noted by Ld. CIT(A) in his order at page 22 of his order where he has recorded a submission of assessee that the partners of the assessee firm were registered shareholder of the aforesaid company in their individual capacity. The Ld. CIT(A) has made a finding of fact that the deemed dividend can only be assessed in the hands of shareholder. He has 31 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 further noted that assessee had clearly demonstrated that it was not a shareholder in the company which had advanced loan.
21. The Ld. DR had relied on the Judgment of Hon'ble Supreme Court in the case of Gopal and Sons (HUF) Vs. CIT for the proposition that where a concern receives some advance and the partners of the concern are shareholders in the company, the provisions of section 2(22)(e) will be applicable.
However from the facts of this case we find that the Hon'ble Supreme Court in para 17 has noted that in the annual returns the HUF was shown as registered and beneficial owners. Moreover we find that Hon'ble Madras High Court in the case of Principal Commissioner of Income Tax Vs. Ennore Cargo Container Terminal P. Ltd. vide order dated 27.03.2017 and in ITA Nos. 106 & 107, after considering the Judgment of Gopal and Sons (HUF) has decided vide para 5.1 onwards as under:
"5.1 In our view, the question of law considered by the Supreme Court in the case of Gopal and Sons (supra) was different from the issue which arises in the present matter. The question of law which the Supreme Court was called upon to consider was whether loans and advances received by a HUF could be deemed as a dividend within the meaning of Section 2(22)(e) of the Act. The assessee in that case was the HUF and the payment in question was made to the HUF. The shares were held by the Karta of the HUF. It is in this context that the Supreme Court came to the conclusion that HUF was the beneficial shareholder."
We find that in the present case also the registered and beneficial shareholders are different than the assessee company and therefore the case law of Hon'ble Supreme Court in the case of Gopal and Sons (HUF) is 32 ITA Nos.114,116,117,118,214,216,&217 (Asr)/2015 Asst. Years:2006-07,to,09-10,06-07 to,08-09,07-08 distinguishable. In view of the above ground no. 1 in ITA No. 214 and in ITA No. 216 are dismissed.
22. In nutshell, the above appeals are decided in the manner as described above.
Order pronounced in the open Court on 30.08.2017.
Sd/- Sd/-
(N.K. CHOUDHRY) (T. S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 30.08.2017.
/GP/Sr. Ps.
Copy of the order forwarded to:
(1) The Assessee:
(2) The
(3) The CIT(A),
(4) The CIT,
(5) The SR DR, I.T.A.T.,
True copy
By Order