INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "E": NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER
AND
SHRI L.P. SAHU, ACCOUNTANT MEMBER
ITA No.5236/Del/2015
Asstt. Year: 2011-12
ACIT Gangol Sahkari Dugdh Utpadak
Circle-1, Sangh Ltd.
Aayakar Bhawan, Vs. Gangoi Road,
Bhainsali Ground, Partapur
Delhi Road Meerut
Meerut PAN AAAAG0147K
(Appellant) (Respondent)
Department by: Shri G. Johnson, Sr.DR
Assessee by : None
Date of Hearing 06/12/2018
Date of 24/ 01 /2019
pronouncement
ORDER
PER L.P. SAHU, A.M.
This is an appeal filed by the Revenue against the order of the
Ld. CIT(A) Meerut dated 4.6.2015 on the following grounds of appeal :-
1. "Whether in the facts and circumstances of the case, the
Ld. Commissioner of Income Tax (Appeals) has erred in
deleting the additions of Rs. 23,43,274/- and Rs.
49,83,846/- made by the A.O. towards unconfirmed
sundry creditors ignoring that the assessee totally failed
to discharge the onus cast upon it to prove the identity &
creditworthiness of the creditors and genuineness of
transactions.
2. Whether in the facts and circumstances of the case, the
Ld. Commissioner of Income Tax (Appeals) has erred in
law and facts in allowing the interest of Rs.
3,84,83,897/- disallowed by the A.O. u/s 43B of the IT
Act, 1961, ignoring the fact that this is the amount of
overdue interest that was paid due to non-payment of
loan installments in the preceding previous years and
interest chargeable on late payment of loan amount does
not fall within the ambit of Section 43B of the IT Act,
1961.
3. Whether in the facts and circumstances of the case, the
Order of the Ld. Commissioner of Income Tax (Appeals)
may be set aside and that of the A.O. be restored."
2. The brief facts of the case are that the assessee filed return of
income on 30.9.2010 declaring loss of Rs. 28889710/-. The case was
selected for scrutiny through CASS and statutory notices were issued
to the assessee. The assessee society a co-operative society registered
under the Society Registration Act, 1860. It derives its income from
purchase and sale of milk and milk products. The financial statements
and books of accounts and other documents were produced by the
assessee before the AO. During the course of assessment proceedings
the AO noticed that the assessee has shown current liabilities of Rs.
86439441/-. In this regard assessee was asked the details of the
creditors and confirmations in the cases where the balance is more
than Rs. 1 lac. The Ld. AO issued 133(6) to the creditors to ascertain
the genuineness of the liabilities. From the details filed by the
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creditors and the assessee it was noticed that there was a difference in
the balances shown by the creditors and the assessee. The
observations of the AO are as under :-
"As per above chart it is seen that there are some
differences between closing balances shown by the
assessee and creditors at S.No. 3,5,6,7,8,14 & 16. The total
of balances shown by the assessee against the above seven
parties is Rs. 1657736.62/-. However, as per copy of
account alongwith confirmation letter total of balances
shown by the above seven parties against the assessee is
Rs. 1447372.39. Thus the balance shown by the assessee
can not be accepted as correct. Thus out of total liabilities of
Rs. 6796048.35/- shown in the above table, only liability of
Rs. 4452774.64/- has been confirmed as correct. In the case
of other parties, either the letters issued were returned
unserved or no replies were received. Thus, out of liabilities
of Rs. 6796048.35, liabilities of Rs. 2343273.71 has not
been confirmed. Hence, in respect of liabilities to whom
notices u/s 133(6) have been issued remained unconfirmed
of Rs. 2343274/- is disallowed and added to the income of
the assessee.
(Addition Rs. 2343274/-)
Further, in respect of notices u/s 133(6) have not been
issued remained for Rs. 14454309/- (total advance from
parties shown at balance sheet of Rs. 21250357/- out of
this notices u/s 133(6) have been issued for Rs. 6796048/-).
Being unconfirmed advance from parties remained for Rs.
2343274/- out of Rs. 6796048/- which were sent on the test
check basis. Thus, remained unconfirmed advance from
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parties worked out at 34.48%. On the same basis and on the
same proportion as discussed above a sum of RS.
4983846/- (34.48% of Rs. 14459309/- to whom notice u/s
133(6) have not been issued) is hereby disallowed and
added to the income of the assessee.
(Addition Rs. 4983846/-)
4. "During the course of assessment proceedings on going
through the audit report furnished by the assessee it is
noticed that an amount of Rs. 38483897/- on account of
interest on loan from NDDB for preceding previous year
has been paid during F.Y. 2010-11 and accordingly
accounted for in the books of account for F.Y. 2010-11 i.e.
A.Y. 2011-12. The assessee has asked to explain how to
interest of previous years could be allowed during the
year under consideration. In response the assessee has
submitted that the assessee society received the loans
from Nation Dairy development Board for installation of
dairy and Plant, which are a central govt. concern. The
assessee society received loan in two segment, out of
which, the loan was to be paid within statutory time.
Besides, instalment fixed was also to be paid, as per
scheduled date. The society being in loss was unable to
make timely payment of instalments but only paid the
regular interest on the one segment of loan. On account of
delayed payment, the NDDB created a liabilities of Rs.
112189000/-, but as per loan account the assessee has
to pay only the sum of Rs. 52391352/-. The Govt. of Uttar
Pradesh after negotiation (alongwith the assessee sangh)
worked out the formula and one time settlement was
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made to pay to NDDB at 101.09 Crores again the total
outstanding liabilities 144.94 corres, out of which, net
101.09 crores, was settled on account of one time
settlement. Thus the assessee has to pay the sum of Rs.
9.23 cr. Of his share. As the payment was on account of
interest due on untimely payment, which was not certain
and was ascertained only 24.6.2010, when, after
settlement payment, was made. As this was a payment
of overdue interest covered u/s 43-B, it was to be allowed
only in the year, in which the payment was made
accordingly the sum of Rs. 38483897/- was debited to
the interest account and transfer to P & L account.
The reply of the assessee has been considered carefully
but not found convincing. Therefore, interest of Rs.
38483897/- debited in P & L account for the year under
consideration which is pertaining to previous years are
hereby disallowed and added to the income of the
assessee.
(Addition : Rs. 38483897/-)"
3. Further on scrutiny of accounts and audit report, AO noticed
that an amount of Rs. 38483897/- on account of interest on loan from
NDDB for previous year has been paid during the financial year 2010-
11 and accordingly accounted for in books of accounts for financial
year 2010-11. The assessee was asked to explain how the interest of
previous year could be allowed during the year under consideration. In
response to this, assessee submitted that the loan has been obtained
for two segment from Nation Dairy Development Board out of which
loan was to be paid within statutory time and the installment was also
to be paid within time but being a loss it could not be paid timely and
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due to delayed payment the NDDB created liabilities of Rs.
112189000/- but as per loan account the assessee has to pay only
sum of Rs. 52391352/-. The Govt. of Uttar Pradesh after negotiation
developed a formula for payment of one time settlement. The payment
was to be made to NDDB at Rs. 101.9 crores as against outstanding
liabilities of Rs. 144.94 crores out of which 101.9 crores was settled on
one time settlement. Thus assessee has to pay the sum of Rs. 9.23
crore of his share. The payment was on account of interest on
untimely payment which was not certain and was ascertained only on
24.6.2010 when after settlement payment was made. Ld. AO noticed
that it was overdue interest and covered u/s 43B that it was to be
allowed in the year of payment. Accordingly he disallowed the sum of
Rs. 38483897/-. Feeling aggrieved from the above order, assessee
appealed before the Ld. CIT(A) and he made detailed written
submission before him. Ld. CIT(A) after considering all the
submissions of the assessee, allowed the appeal of the assessee.
Feeling aggrieved from the order of the Ld. CIT(A) the revenue is in
appeal before the Income Tax Appellate Tribunal.
4. Ld. DR relied upon the order of the AO and further submitted
that the assessee was unable to reconcile the differences noticed in
respect of disallowance of interest by the AO. Therefore AO is justified
to make addition which has been wrongly deleted by the Ld. CIT(A)
and in case of interest payment in respect of disallowance of interest
the AO has rightly added as per the provision of section 43B of the
Income Tax Act because the assessee has debited to the interest which
falls in the financial year 2010-11. AO is justified to make addition on
the above two counts and therefore the order of the AO should be
restored. On the other hand Ld. AR relied upon the order of the Ld.
CIT(A) and he reiterated the submissions made before him. He also
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submitted paper book containing pages 1 to 328 and he submitted a
chart in the paper book.
After hearing both the sides and perusing the entire material on
record we observe that Ld. CIT(A) has done good reasoned order which
is as under :-
"3.4 I have gone through the assessment order as well as the
written submission of the AR. The assessee is a cooperative
society which is partly owned by the government of UP. From a
study of balance sheet of the assessee it is seen that most of the
capital of the assessee is by way of government grants or fund
from government agencies. Being a semi-government agency the
books of accounts of the assessee are subject to multiple audit test
checks. The books are first audited by government appointed
auditors. The books are then audited under the provision of
section 44AB of the Income Tax Act. The balance sheet and the
profit and loss account of the assessee bears testimony to the fact
that the books have been audited by government appointed
auditors. Audit r port in form 3CD containing the balance sheet
and the profit and loss account of the assessee was submitted
before the AO.
3.5 From the assessment order it is seen that no discussion has
been made as to how credit from these sundry creditors has come
into existence. The assessee had submitted books of accounts
before the AO and no adverse remark was made on the books of
account. It is seen from the written submission that the assessee
had filed complete books of accounts including purchase bill, sale
bill and stock register etc. The AR has also argued that credit
purchases can be verified from the books of accounts and bank
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statement through which payment has been made. It can also be
verified that the payments have been made through cheques.
3.6 There may be many reasons why a letter of enquiry can come
back undelivered. The enquiry was being made by the AO in
February/March, 2014 while the transaction relates to financial
year 2010-11. Thus there is a considerable time gap between the
credit transaction and letters of enquiry. Moreover, mere non-
delivery of enquiry letters or absence of reply from creditors
cannot be a ground for making addition. This will especially be
true in a situation where the assessee has submitted sufficient
details from which the genuineness of transaction leading to credit
can be determined. Once the assessee has submitted names and
addresses of the creditors and other relevant details the onus
shifted to the AO to bring in positive evidence before making any
addition. It is seen from the facts of the case that the AO did not
even make an attempt to know whether the credit standing in
assessment year 2011-12 has been squared off in the next
assessment year. In a recent judgment given by the jurisdictional
Allahabad High Court in the case of ClT Vs Jagdish Prasad
Tewari 220 Taxmann 0141 (2014), it has been held that if the
payments have been made by cheques and are reflected in the
books of account of the assessee, no adverse inference can be
drawn. In a judgment given by the Calcutta High Court in the case
of Diagnostics vs. CIT 334 ITR 111 on a similar question , it has
been held by the Hon'ble Court that "if any asseseee took care to
purchase material by way of account payee cheques from a third
party does not appeal before the AO pursuant to the notice or even
has stopped business, the claim of the assesee on that account
cannot be discarded as non-existence."
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3.7 From the assessment order it is clear that one of the primary
reasons for making this addition was because there was
difference in closing balance between the appellant's account and
many creditor's accounts. The appellant had however filed
reconciliation statement and explanation before the AO which
seems to be completely ignored by the AO. He has not mentioned
in the assessment order that a show cause has been issued on
this point. Clearly, the AO for no reason disregarded the
explanation and reconciliation submitted by the appellant.
3.8 The AO has also given a strange logic in making an addition
of Rs. 49,83,846/-. He has estimated the amount of sundry
creditor which would be unproved because 34.48% of the credit
balances were found to be unproved in his enquiry. Clearly, the
AO has made a mockery of the principles of natural justice,
income tax law and accountancy. Once the assesee has
discharged his onus by furnishing necessary details like names
and addresses, books of account, payment details etc the AO has
to bring in positive material on record in order to treat sundry
creditors as bogus. Such addition cannot be made on the basis of
estimation by percentage analysis.
3.9 Considering the above facts and judicial pronouncements,
grounds of appeal No. 1 & 2 is allowed and addition of Rs.
73,27,120/-.
4.3 I have gone through rival submissions as above. First of all,
it is seen that in the assessment order, the AO has not at all
discussed the rival argument and explanation submitted by the
appellant. He has made such a large addition by merely writing
that the submission of the assessee has been considered and not
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found convincing. The facts like what are the submissions of the
assessee, how are they not worth considering, what is the counter
argument of the AO have not been discussed at all in the
assessment order. This is a very unfair practice and goes against
the principle of natural justice.
4.4 From the facts of the case, it 'is seen that the interest amount
of Rs. 3,84,83,897/- was paid during the F.Y. 2010-11 relevant
the A.Y. 2011-12. It has not been disputed by the AO that amount
of interest was paid on 24.06.2010. At this point, it would be
necessary to first understand the provision of section 43B.
Relevant portion of section 43B is as given below:
Not withstanding anything contained in any other provision
of this Act a deduction otherwise, allowable under this Act. In
respect of;
Clause (a) - - - - - - - - - - -
Clause (b) - - - - - - - - - - -
Clause (c) - - - - - - - - - - -
Clause (d) "any sum payable by the assessee as interest on any
loan or borrowing from any public financial institution or a State
Financial Corporation or a State Industrial Investment
Corporation, in accordance with -terms and conditions of the
agreement governing such loan or borrowing"
Shall be allowed irrespective of the previous year, in which
the liability to pay such sum was incurred by the assessee
according to the method of accounting regularly employed by him
only in computing the 'income referred in section 28 of that
previous year in which such sum is actually paid by him.
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4.5 As per the provision of section 43B, the following criteria
should have been fulfilled in order that the interest payment was
allowable u/s 43B:
1. The National Dairy Development Board should be a public
financial institution. The NDDB is a financial institution
under the central government and is very much a public
financial institution within the meaning of section 4A of the
Companies Act, 1956 because it has been established by a
central Act and is owned by the Central Government.
2. The claim of deduction for payment to the NDDB should
have been made in that previous year in which such sum is
actually' paid by the appellant. There is no dispute to this
fact that payment to NDDB was made on 24.06.2010. The
details of such payment were made before the AO. The
claim' has been made in the same year in which the
payment of interest to NDDB was made.
4.6 From the above, it can be seen that the appellant
fulfills both the criteria mentioned above. In this situation,
the payment of interest to NDDB is allowable only in the A.Y.
2011-12 irrespective of the fact that the liability to pay such
sum had arisen in some other previous year. Based on
above discussion, Grounds of appeal No. 3 is allowed and
additions of Rs. 3,84,83,897/- is deleted."
5. From the above findings of the Ld. CIT(A) and documents
submitted before us we noted that assessee has tried to explain to
each and every item before the AO and Ld. CIT(A). The reconciliation
statement is available at page No. 184-185. The assessee has
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explained the reasons for difference in the accounts and he has also
submitted the details of sundry liabilities along with a copy of
accounts for the assessment year 2011-12 and 2012-13 alongwith the
copy of bills and their ledger account. Further on perusal of the details
of the loan agreement, loan account and document of one time
settlement and the notification u/s 194A (3)(ii)(f), we observe that
there is no infirmity in the order of the Ld. CIT(A). Ld. CIT(A) has
considered all the aspects of the case and has decided the issue in
favour of the appellant. Ld. DR could not controvert the findings
reached by the Ld. CIT(A).
6. In the result appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 24th January, 2019.
sd/- sd/-
(AMIT SHUKLA) (L.P. SAHU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 24 /1/2019
Veena
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5.DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi
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