Per Shri Kul Bharat, Jm.
This appeal by the assessee pertaining to assessment year 2008-09 is directed against the order of ld. CIT(A)-II, Jaipur dated 20.09.2013. The assessee has raised the following grounds of appeal :-
1. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in disallowing a sum of Rs. 1,840/- of sales tax demand. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 1,840/-.
2. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in disallowing a sum of Rs. 4,36,455/- of interest paid to following NBFCs u/s 40(a)(ia) of IT Act, 1961 :-
The action of the ld.CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 4,36,455/-.
3. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in adding a sum of Rs. 3,50,800/- of following parties u/s 68 of IT Act, 1961 :-
The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said addition of ? 3,50,800/-.
4.(a) In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in rejecting the books of accounts of the assessee by invoking the provisions of section 145(3) and thereafter making a trading addition of Rs. 23,39,083/- by estimating the sales at Rs. 1,56,09,536/- against the declared sales of Rs. 1,32,70,453/- for the alleged reason of unrecorded sales. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the rejection of books of account and deleting the trading addition of Rs. 23,39,083/- by accepting the book results as declared by assessee.
(b) In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in not considering the submissions made during the course of assessment proceedings. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by considering the complete submissions and granting relief accordingly.
2. Briefly stated the facts are that the case of the assessee was picked up for scrutiny and the assessment was framed under section 143(3) vide order dated 30.10.2010. While framing the assessment, the AO observed various defects in the books of accounts. Therefore, he rejected the books of accounts. The AO made addition on account of unrecorded sales, unexplained cash credit under section 68, disallowance u/s 40(a)(ia), employees PF contribution and sales-tax penalty. The assessee aggrieved by this order, preferred appeal before ld. CIT (A), who after considering the submissions, partly allowed the appeal. The ld. CIT (A) confirmed the addition made on account of disallowance of penalty of sales tax of Rs. 1,840/-, confirmed the addition of Rs. 4,36,455/- on account of interest u/s 40(a)(ia), confirmed the addition of Rs. 3,50,800/- u/s 68 and also trading addition of Rs. 23,39,083/- and deleted the addition made on account of PF contribution.
3. The first ground of the assessee's appeal is against confirming disallowance of a sum of Rs. 1840/- on account of sales tax.
3.1. The ld. Counsel for the assessee does not wish to press this ground. Therefore, this ground of the assessee is dismissed as not pressed.
4. Ground No. 2 is against disallowance of Rs. 4,36,455/- made on account of non-deduction of tax in respect of interest paid to non-banking finance companies.
4.1. The ld. Counsel for the assessee submitted that the authorities below were not justified in making the disallowance in respect of the interest expenditure of Rs. 4,36,455/- by invoking provisions of section 40(a)(ia) of the Act. He submitted that the entire expenditures were paid during the year under appeal. No amount was outstanding on the last date of financial year. He relied on the decisions rendered in the case of Merilyn Shipping & Transports vs. ACIT (2012) 16 ITR (Trib.) 1 (Vishakhapatnam)(SB), CIT vs. Vector Shipping Services Pvt. Ltd. in ITA No. 5219/Del/2012. The ld. Counsel submitted that this view has been followed by the Coordinate Bench of the Tribunal at Jaipur. The ld. Counsel submitted that when two views are possible, the view favourable to the assessee should be adopted. In support of the contention, the ld. Counsel placed reliance on the decision of the Hon'ble Supreme Court rendered in the case of CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC).
4.2. On the contrary, the ld. D/R supported the orders of the authorities below and placed reliance on the decision of the Hon'ble Punjab & Haryana High Court in the case of PMS Diesels vs. CIT (2015) 277 CTR 491 (P&H) and decision of Hon'ble Himachal Pradesh High Court in the case of Palam Gas Service vs. CIT (2015) 370 ITR 740 (HP).
4.3. We have heard rival contentions and perused the material on record. The contention of the ld. Counsel for the assessee is that no amount was outstanding on the last date of financial year and relied upon the decisions of Coordinate Bench in the case of Girdhari Lal Bargoti (ITA No. 757/JP/2012) and K.Y. Continental Interiors (P) Ltd. (ITA No. 595/JP/2013) wherein the Coordinate Bench took note of the judgments of the Hon'ble Gujarat High Court and Hon'ble Calcutta High Court and held that disallowance u/s 40(a)(ia) is applicable only if amount remains unpaid as at the year end. On the contrary, the ld. D/R placed on the decisions of Hon'ble Punjab & Haryana High Court and Hon'ble Himachal Pradesh High Court. Since there are conflicting views of the Hon'ble High Courts, therefore, the view favourable to the assessee is being adopted by respectfully following the judgment of the Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd (supra). The fact whether the amount was outstanding requires verification at the end of the AO hence the order of the ld. CIT (A) is set aside. The issue is restored to the file of the AO to verify whether any amount is payable on the last date of financial year in the balance sheet and in case he finds that no amount is payable on the last day of the financial year, he would delete the disallowance.
5. Ground no. 3 is against disallowance of Rs. 3,50,800/-.
5.1. The ld. Counsel for the assessee submitted that these are trading advances. The AO has made the addition on account of unexplained cash credit. The ld. Counsel submitted that there is no evidence direct or indirect to demonstrate that the money so received actually belonged to the assessee. Nowhere the AO has suggested that the money given as advances by different parties had actually flown from the assessee. In absence of such finding, no addition can be made to the income of the assessee. The ld. Counsel submitted that where books are rejected by the AO, no further addition can be made. Reliance is placed on the decision of Hon'ble Punjab & Haryana High Court in the case of Dulla Ram (2014) 42 taxmann.com 349 (P&H).
5.2. On the contrary, the ld. D/R supported the orders of the authorities below.
5.3. We have heard rival contentions and perused the material available on record. We find that the advances are in the nature of trade advances. The AO has already rejected the books of account and made the addition on account of suppressed sales. The Hon'ble Jurisdictional High Court in the case of G.K. Contractor has held that when estimated profit is considered after rejecting assessee's books of accounts by invoking the provisions of section 145(3) of the Act, no separate addition can be made even u/s 68 of the Act, even though the assessee has failed to discharge the onus of proof in explaining the amount shown in the books of accounts as 'market outstanding'. Respectfully following the same, we direct the AO to delete the disallowance.
6. Ground no. 4(a) is against trading addition made of Rs. 23,39,083/- by estimating the sales at Rs. 1,56,09,536/-.
6.1. The ld. Counsel for the assessee vehemently argued that the authorities below were not justified in making the addition. He submitted that the law is well settled that the better indicator of book result is the past history. The authorities below have not taken into consideration the past history of the assessee while making the addition of Rs. 23,39,083/- which in fact resulted into gross profit at 32.42% which is 7 to 8% higher than the previous years. The ld. Counsel reiterated the submissions as made in the written brief.
6.2. On the contrary, the ld. D/R supported the orders of the authorities below.
6.3. We have heard rival contentions and perused the material on record. The assessee has not challenged rejection of books of accounts. The AO has made addition on the basis of the difference in sales. As per the material consumption, the AO estimated the sales at Rs. 1,56,09,536/- and as per books of accounts, the sales were reflected at Rs. 1,32,70,543/-. We find that there is no scientific reason for such estimation. The AO has not considered the past history. Therefore, after considering the totality of the facts and considering the past history of the assessee, we restrict the disallowance to the extent of Rs. 15,00,000/-. The AO is directed to restrict the addition to the extent of Rs. 15,00,000/-. This ground of the assessee is partly allowed.
7. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 04/08/2016.