Rewale Engineering P. Ltd.,, Pune vs Assessee

Rewale Engineering P. Ltd., Plot No.78/3, S Block, MIDC, Bhosari, Pune - 411026 .... Appellant

PAN: AAACR8920P

Vs.

The Asst. Commissioner of Income Tax, Circle - 10, Pune. .... Respondent

Appellant by : Smt. Deepa Khare Respondent by : Shri B.C. Malakar

Date of hearing : 12-02-2015 Date of pronouncement : 31-03-2015

ORDER

PER SUSHMA CHOWLA, JM:

This appeal filed by the assessee is against the order of CIT(A)-V, Pune

dated 17.12.2012 relating to assessment year 2009-10 passed under section

143(3) of the Income-tax Act, 1961.

2. The assessee has raised the following grounds of appeal:

1. The learned CIT(A) erred on facts and in law in upholding disallowance of notional interest of Rs.14,43,000/- on advances/share application money of Rs.1,11,00,000/- to M/s.

Shrinivas Machine Crafts P. Ltd. on the ground that the said advance was for acquiring shares. He failed to appreciate that the advance was in furtherance of the business of the assessee. He also failed to appreciate the arguments and contentions advanced in this behalf.

2. The appellant craves leave to add, alter, delete or substitute all or any of the above grounds of appeal.

3. The brief facts of the case are that, the assessee was engaged in the

business of manufacturing of press components, assembly of Diesel Genset 2 ITA No.548/PN/2013 Rewale Engineering P. Ltd

and engineering workshop. During the course of assessment proceedings the

Assessing Officer noted that the assessee had taken interest bearing secured

loans of Rs.5.35 crores from banks and unsecured loans of Rs.1.56 crores, on

which the assessee had claimed interest expenditure of Rs.2,24,60,594/-. The

assessee had made certain interest free advances and the Assessing Officer

show caused the assessee to explain as to why the interest debited to the

Profit & Loss Account may not be disallowed for the relevant year in the

absence of business nexus. Despite several opportunities, the Assessing

Officer noted that the assessee failed to establish that the amounts had been

borrowed and utilized for the purpose of business. The Assessing Officer

thus, observed that the interest bearing funds had been diverted for non-

business purposes i.e. personal advances to group members and the interest

incurred on funds which were utilized for non-business purpose, was not

allowable as business expenditure. Therefore, the Assessing Officer

disallowed interest expenditure in respect of the loans advanced for non-

business purpose. Further, the assessee had also made investment in shares

of M/s. Shrinivas Machine Crafts Pvt. Ltd. i.e. in the form of share application

money up to 30.04.2008 and thereafter, for the balance period of the financial

year, shares were allotted which had not yielded any income, hence, the

interest on the same was disallowed under section 36(1)(iii) of the Act and

total disallowance of Rs.22,36,000/- was made.

4. The CIT(A) upheld the interest expenditure relatable to two advances

made by the assessee i.e. M/s. Bison India Ltd. and Shri Manoj Ambike. As

regards the advance of Rs.1,11,00,000/- to M/s. Shrinivas Machine Crafts Pvt.

Ltd., the CIT(A) noted that the same was given for acquiring shares, which

could not be considered as expenditure in the nature of business. Therefore,

disallowance of interest expenditure relatable to the same was upheld. The

CIT(A) restricted the disallowance to Rs.15,47,000/-. 3 ITA No.548/PN/2013

Rewale Engineering P. Ltd

5. The assessee is in appeal against the disallowance of notional interest

of Rs.14,43,000/- on advances / share application money advanced to M/s.

Shrinivas Machine Crafts Pvt. Ltd.

6. The plea of the learned Authorized Representative for the assessee

before us was that the advances were made to a sister concern with whom it

had business connection and major sales were made to the said party. The

learned Authorized Representative for the assessee further pointed out that

the evidence at pages 13 to 20 of the Paper Book establish that the advances

were made from own funds out of current account with the bank and hence, no

disallowance of interest is warranted in the case. The learned Authorized

Representative for the assessee pointed out that these were additional

evidences, which were not filed before the authorities below and also this

aspect was not raised before the Assessing Officer.

7. The learned Departmental Representative for the Revenue on the other

hand, relied on the order of CIT(A).

8. We have heard the rival contentions and perused the record. The issue

arising vide ground of appeal No.1 is against the disallowance of interest of

Rs.14,43,000/- on advances made to M/s. Shrinivas Machine Crafts Pvt. Ltd.

The said disallowance of interest was made on account of non-user of interest

bearing funds for business purposes. Before the authorities below, the

contention of the assessee was that these were the business advances and

therefore, no disallowance of interest was called for. However, before us, the

learned Authorized Representative for the assessee has raised a new plea

that factually, there was no nexus between the borrowed funds and the

advances made to the said parties. In support thereof, the assessee has

furnished by way of additional evidence the bank statement showing working

of bank account on the relevant dates of advances. The said evidences filed

by the assessee are by way of additional evidence. However, since the 4 ITA No.548/PN/2013 Rewale Engineering P. Ltd

additional evidence goes to the root of the issue, we admit the same and

restore the issue back to the file of CIT(A) to adjudicate the issue after

verifying the documents furnished by the assessee by way of additional

evidences. We remit the issue back to the file of CIT(A), who shall decide the

issue after affording reasonable opportunity of hearing to the assessee. The

grounds of appeal raised by the assessee are thus, allowed for statistical

purposes.

9. The assessee has further raised an additional ground of appeal which

reads as under:-

Additional Concise Ground sought to be raised:

The Ld. AO erred in making an addition of Creditors of Rs.4,56,45,562/-

10. The assessee had raised the issue before the CIT(A) vide ground of

appeal No.2 against the said addition of Rs.4,56,45,562/-. The basis for

making the said addition was the un-verifiability of the said Creditors. The

assessee was asked to submit the full names, addresses and PAN numbers of

the creditors. However, the Assessing Officer noted that the assessee had

failed to furnish the details in respect of the following parties:-

1. JVM Steel Pvt. Ltd.

2. Maldar Barrels Pvt. Ltd.

3. Darpan Trading Company

4. Western Industrial Syndicate

5. Rashmi Enterprises

6. Padmahalaxmi Sale & Alloy Pvt. Ltd.

7. ISK Trading Co. Pvt. Ltd.

8. Megha Enterprises

11. In the absence of any details being filed, the Assessing Officer was of

the view that the said creditors were bogus and had to be added as un-

verifiable creditors. However, letters were sent to the parties at the addresses

given by the assessee calling for information under section 133(6) of the Act,

but no response was received. The assessee was asked to produce parties

along with books of account for verification and in the absence of any

information or production of parties, the creditors to the extent of 5 ITA No.548/PN/2013 Rewale Engineering P. Ltd

Rs.4,56,45,562/- remained unverified and were added as income of the

assessee.

12. Before the CIT(A), the assessee did not press the said ground of

appeal and the same was dismissed as not pressed.

13. The assessee however, before us has furnished an application for

admission of the additional ground of appeal and also a request for admission

of additional evidence, in this regard. The plea of the assessee before us was

that there was Survey at the premises of the assessee on 06.11.2012 and

during the course of Survey, the Managing Director of the assessee under

pressure and fear accepted the following parties as non-genuine, which were

subject of addition in the assessment proceedings:-

1. Rashmi Enterprises

2. Padmahalaxmi Sale & Alloy Pvt. Ltd.

3. ISK Trading Co. Pvt. Ltd.

14. In respect of the other creditors, it was pointed out by the learned

Authorized Representative for the assessee that the addition was in respect of

the credit balance as on 31.03.2008, which was brought forward as on

01.04.2008 and since the transaction did not pertain to the financial year

2008-09, the same should not have been added by the Assessing Officer.

The plea of the assessee before us was that the Ledger accounts for the year

were produced before the Assessing Officer. However, in confusion arisen

pursuant to the Survey on 06.11.2012, the Counsel for the assessee was

instructed not to press the above ground of appeal before the CIT(A), but now

the additional ground of appeal was raised before the Tribunal for admission

and adjudication. The learned Authorized Representative for the assessee

before us pointed out that the ground of appeal was not pressed under mis-

understanding and confusion and the same may be sent back to the CIT(A) for

adjudication. In respect of the genuineness of the creditors, the assessee has

furnished on record additional evidence in the form of bank certificates for 6 ITA No.548/PN/2013 Rewale Engineering P. Ltd

payment to the creditors, which were found to be non-genuine. However, in

respect of the credits which have brought forward from the preceding year, the

plea of the learned Authorized Representative for the assessee was that no

addition was warranted.

15. The learned Departmental Representative for the Revenue placed

reliance on the order of CIT(A).

16. We have heard the rival contentions and perused the record. The

assessee by way of additional ground of appeal has raised an issue against

the addition made on account of un-verifiable creditors totaling Rs.4.56 crores.

The assessee had raised the said issue before the CIT(A) vide ground of

appeal No.2. From the perusal of Paper Book submitted to the CIT(A), copy of

which is placed on record, we find that the assessee had also submitted

written submissions in this regard. The assessee had also furnished

confirmations from the said parties and has also furnished the Ledger

accounts of the previous years, which reflect business transactions with the

said parties. However, the said ground of appeal was not pressed before the

CIT(A) and hence, the same was dismissed as not pressed. The plea of the

learned Authorized Representative for the assessee before us was that by

some confusion, the said ground of appeal was not pressed before the CIT(A).

However, creditors were genuine and verifiable. With regard to some of

creditors, the assessee explained that payments were made in the subsequent

years, for which the bank certificates have been furnished by way of additional

evidences. In respect of the other creditors, it was pointed out that the

addition is not warranted since the credit balance is the opening balance as on

01.04.2008 and no transaction has been transacted during the year.

However, no such plea was raised before the authorities below. In the entirety

of the above facts and circumstances and in the interest of justice, we deem it

fit to restore the issue to the file of CIT(A) and direct the CIT(A) to adjudicate 7 ITA No.548/PN/2013 Rewale Engineering P. Ltd

the same after verifying the contention of the assessee and to decide the issue

in accordance with the law, after affording reasonable opportunity of hearing to

the assessee. The additional ground of appeal raised by the assessee is thus,

allowed for statistical purposes.

17. In the result, the appeal of the assessee is allowed for statistical

purposes.

Order pronounced on this 31st day of March, 2015.

Sd/- Sd/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 31 st March, 2015.

GCVSR

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-V, Pune; 4) The CIT-V, Pune; 5) The DR "B" Bench, I.T.A.T., Pune; 6) Guard File.

By Order //True Copy//

Assistant Registrar I.T.A.T., Pune