Madhu Hydrocolloids Private Limited, Ahmedabad V. The Dy. Commissioner of Income Tax, Circle-2(1)(2), Ahmedabad

CO 134/AHD/2016

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3513 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 05-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S J SHAH
• Keywords: Proportionate interest; Commercial expediency; Capital expenditure
• Section: 37(1); 131; 37

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA NO.1808/AHD/2016 WITH CO NO.134/AHD/2016 / ASSTT. YEAR: 2012-13 DCIT, CIR.2(1)(2) AHMEDABAD. VS. M/S.MADHU HYDROCOLLOIDS P.LTD,. 308, RATNA COMPLEX OPP: BANK OF BARODA MANINAGAR AHMEDABAD 380 008. PAN : AAECM 4684 R / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI MUDIT NAGPAL, SR.DR ASSESSEE BY : SHRI S.J. SHAH, AR ! / DATE OF HEARING : 08/03/2018 '#$ ! / DATE OF PRONOUNCEMENT: 19/03/2018 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF LD.CIT(A)-2, AHMEDABAD DATED 15.4.2016 PASSED FOR T HE ASSTT.YEAR 2012-13. ON RECEIPT OF NOTICE IN REVENU ES APPEAL, THE ASSESSEE HAS FILED CO BEARING NO.134/AHD/2016. 2. IN THE FIRST GROUND OF APPEAL, GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING DISALLOWAN CE OF RS.41,29,450/- WHICH WAS MADE BY THE AO BY MAKING DISALLOWANCE OUT OF COMMISSION PAYMENT. ITA NO.1808/AHD/2016 WITH CO 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME 30.9.2012 DECLARING TOTAL INCOME A T RS.33,96,535/-. THE CASE OF THE ASSESSEE WAS SELEC TED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTI NY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE H AS DEBITED A SUM OF RS.41,29,450/- UNDER THE HEAD COMMISSION EX PENSES. IT TRANSPIRES THAT THE ASSESSEE COMPANY WAS MANUFACTUR ING STARCH AND CELLULOSE DERIVATIVES USED IN FOOD, PHARMA, DET ERGENT, PAINT, CONSTRUCTION ETC. ACCORDING TO THE ASSESSEE IT HAS TO SUBMIT DIFFERENT TENDERS ON THE BASIS OF ADVERTISEMENT APP EARED IN THE NEWSPAPERS FOR THEIR PRODUCTS. ONGC USED TO FLOAT TENDERS FOR THESE PRODUCTS AT DIFFERENT LOCATIONS THROUGHOUT IN DIA AND THEREFORE ASSESSEE TOOK HELP OF AGENTS WHO COULD TA KE NOTE OF SUCH TENDERS FROM THE CUSTOMERS, COLLECT LETTERS OF INTENT FROM ONGC, CONFIRMATION OF RATE, PURCHASE ORDERS ETC. T HUS, IT HAS PAID COMMISSION TO 17 PARTIES. SUCH COMMISSION WAS PAID ON THE BASIS OF SALES MADE THROUGH SUCH AGENTS. RATE OF C OMMISSION WAS DETERMINED ON THE BASIS OF QUANTITY SOLD THROUGH SU CH COMMISSION AGENT. THE ASSESSEE HAS SUBMITTED REQUISITE DETAIL S BEFORE THE AO. THE LD.AO HAS NOTICED REPLY GIVEN BY THE ASSES SEE IN BRIEF, AND THEREAFTER RECORDED A FINDING THAT THE ASSESSEE FAILED TO JUSTIFY PAYMENT OF COMMISSION TO THESE 17 AGENTS. SUBMISSI ON OF THE ASSESSEE NOTICED BY THE AO AS WELL AS FINDING RECOR DED IN THIS REGARD READS AS UNDER: 1. COMMISSION EXPENSES TO PROVE THE CLAIM OF GENUINENESS IN RESPECT OF PAY MENT OF COMMISSION WE WOULD LIKE TO GIVE REASONS FOR PAYMEN T OF COMMISSION AS UNDER. ITA NO.1808/AHD/2016 WITH CO 3 1. FIRST OF ALL THE AGENT WILL INTIMATE US R EGARDING TENDER PUBLISH IN THE NEWS PAPERS. 2. AFTER INTIMATION OF TENDER FOR OUR PRODUC T ONGC WILL GIVE LETTER OF INTENT AFTER WE ARE PROVED AS LOWEST BIDDER FOR THE TENDER. 3. THERE AFTER CONFIRMATION OF OUR RATE THEY WILL GIVE PURCHASE ORDER. 4: THE SAMPLING OF OUR PRODUCT WILL BE DONE WITH THE HELP OF AGENTS. 5. THERE AFTER ONGC WILL CARRY OUT TESTING OF OUR PRODUCT AND GIVE US TEST REPORT OF OUR PRODUCT. 6. ON RECEIVING THE TEST REPORT THEY WILL SE ND A TEAM FOR DISPATCH OF THE MATERIAL WHICH WAS APPROVED BY ONGC . 7. AFTER DISPATCH OF MATERIAL TO ONGC THE AG ENT ENSURES THAT THE MATERIAL IS REACHED THE DESTINATION OF ONG C AND THE SAME HAS BEEN UNLOADED SAFELY. 8. THE AGENT WILL ARRANGE TO COLLECT REQUIS ITE DOCUMENTS FROM THE DESTINATION OF ONGC FOR PROCESSING THE PAY MENT. 9. AFTER RECEIPT OF DOCUMENTS THE AGENT WILL ARRANGE TO SEND THE DESTINATION AND FOLLOW UP FOR THE PAYMENT WITH ONGC. YOU WILL APPRECIATE FROM THE ABOVE PROCESS THAT BEI NG AN INDUSTRIALIST/MANUFACTURER IT IS PRACTICALLY IMPOSS IBLE TO ATTEND THE ABOVE PROCESS PERSONALLY AND THEREFORE I N CONSIDERATION THEREOF THE COMPANY IS PAYING COMMISS ION. IT IS WORTHWHILE TO NOTE THAT THE PERSON TO WHOM CO MMISSION IS PAID ARE WELL CONVERSION WITH THE PROCESS WITH O NGC AND ALSO THEY ARE WORKING FOR OTHER COMPANIES FOR THE S IMILAR ACTIVITY PERTAINING TO ONGC. IT IS NOTEWORTHY THAT MS. SMRUTIBEN DALAI AND MRS. JARNA MINESHBHAI SHAH TO W HOM NOTICE U/S. 131 HAVE BEEN ISSUED IN FACT WE HAVE AL READY SUBMITTED COPY OF INCOME TAX RETURN WHEREIN THEY HA VE SHOW THE COMMISSION PAID BY THE COMPANY AS THEIR IN COME ITA NO.1808/AHD/2016 WITH CO 4 IN INCOME TAX RETURN FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. WE HAVE ALREADY FURNISHED INFORMATION OF COMMISSION EXPENSES OF RS. 41.29 LACS AGAINST WHICH WE HAVE PA ID COMMISSION TO THEM VIDE LETTER DATED 2/3/2015. WHER EIN WE HAVE SUBMITTED THE PERSONS TO WHOM COMMISSION HAS B EEN PAID ALONG WITH DETAILS OF PAN, TDS MADE U/S. 194H, WHILE MAKING PAYMENT /PASSING J.V. AND THE COMMISSION AMO UNT ALONG WITH COPY OF LEDGER ACCOUNT, DETAILS OF BANK A CCOUNT THROUGH WHICH PAYMENT HAS BEEN MADE. A PERUSAL OF THE DETAILS SUBMITTED BY THE ASSESSEE IS MADE AND IS NOT FOUND TENABLE BECAUSE OF THE REASONS AS FOLLOWS: 1). THE ASSESSEE HAS ENUMERATED THE VARIOUS ST EPS IN THE TENDER FILING PROCESS FOR THE PSUS. AS PER PSU'S TEND ER POLICY ANY COMMISSION PAID TO ANY AGENT IS TO BE DISCLOSED UPFRONT THE ASSESSEE HAS NOT SUBMITTED ANY DOCUMENT SUGGEST ING THAT FOR THE PROJECT OF ONGC THE SERVICES OF THESE COMMISSION AGENTS HAVE BEEN UTILIZED. 2). NO DETAILS OF THE AGENT SPECIFIC WORK HAS BEEN SUBMITTED AND NOTHING ABOUT THE EDUCATIONAL QUALIFI CATIONS OF THESE COMMISSION AGENTS HAS BEEN BROUGHT ON RECORD TO PROVE THAT ACTUAL SERVICES RELATED TO THE TECHNICAL ASPECTS OF TENDER FILING AND SAMPLING HAVE BEEN RENDERED BY TH E COMMISSION AGENTS. 3). NO COPY OF AGREEMENT, SALES WISE COMMISSIO N BIFURCATION, BASIS OF COMMISSION PAYMENT AND TERMS AND CONDITIONS OF THE SERVICES RENDERED AND PAYMENT TER MS HAVE BEEN SUBMITTED BY THE ASSESSEE. 4). IT IS NOTED THAT 4 OUT OF 5 COMMISSION AGE NTS HAVE STATED THAT THEY HAVE NOT RECEIVED COMMISSION TILL DATE AND HENCE BANK STATEMENTS HAVE BEEN SUBMITTED ,THEN HOW THE SERVICES HAVE BEEN RENDERED WITHOUT REALIZATION OF MONEY BY THE COMMISSION AGENTS . 5. NO ONE ATTENDED IN RESPONSE TO NOTICE U/S 131 AN D THE ASSESSEE ALSO FAILED TO PRODUCE THE PARTIES TO PROV E THE GENUINENESS OF PAYMENTS. ITA NO.1808/AHD/2016 WITH CO 5 6. IT IS IMPORTANT TO NOTE THAT THESE COMMISSION PA YMENTS HAVE NOT BEEN MADE ON SALES AS PER SUBMITTED BY TH E COMMISSION AGENTS RATHER THESE PAYMENTS HAVE BEEN M ADE WITH RESPECT TO OBTAINING TENDERS FROM ONGC BUT NO FURTHER DETAILS REGARDING VARIOUS PROJECTS OF ONGC AND COMM ISSION HAVE BEEN SUBMITTED BY THE ASSESSEE. 4. DISSATISFIED WITH THE ORDER OF THE AO ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A) WHO ALLOWED T HE APPEAL OF THE ASSESSEE ON THIS ISSUE AND DELETED THE DISALLOW ANCE. 5. THE LD.CIT(A) BASICALLY DRAW INFERENCE FROM CIRC UMSTANTIAL EVIDENCE PRODUCED BY THE ASSESSEE FOR HABOURING A B ELIEF THAT THE ASSESSEE MUST HAVE INCURRED EXPENDITURE TOWARDS COM MISSION PAYMENT. BEFORE US, THE LD.DR CONTENDED THAT THE A SSESSEE FAILED TO DEMONSTRATE SERVICES RENDERED BY THESE AG ENTS. NO DOUBT PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANN EL AND TDS WAS DEDUCTED. BUT THE AO HAS SPECIFICALLY POIN TED OUT THAT THE ASSESSEE FAILED TO GIVE DETAILS OF AGENTS, SPEC IFIC WORK AND ALSO FAILED TO PRODUCE AGENTS BEFORE HIM. THE LD.CIT(A) HAS ERRED IN DELEING DISALLOWANCE. 6. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESS EE PLACED ON RECORD WRITTEN NOTE EXPLAINING ASSESSEES POSITION AS TO WHY COMMISSION PAYMENT OUGHT TO BE ALLOWED. HE FURTHER SUBMITTED THAT BEFORE LD.CIT(A), ASSESSEE HAS FILED A DETAILE D WRITTEN SUBMISSIONS WHICH ARE AVAILABLE IN THE PAPER BOOK A T PAGE NOS.1 TO 17. HE RELIED UPON THESE SUBMISSIONS. IN THE W RITTEN NOTE, THE LD.COUNSEL FOR THE ASSESSEE HAS REBUTTED EACH ALLEG ATION OF THE AO POINTED OUT IN PAGE NO.4 AND 5 OF THE ASSESSMENT OR DER. IN OTHER ITA NO.1808/AHD/2016 WITH CO 6 WORDS, THESE REASONS SUMMARIZED BY THE LD.AO IN THE ASSESSMENT ORDER AND EXTRACTED BY US HAVE BEEN REBUTTED IN THI S WRITTEN NOTE. 7. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD. IT IS PERTINENT TO OBSERVE THAT IN ORD ER TO CLAIM EXPENDITURE UNDER SECTION 37(1) OF THE ACT, THE ASS ESSEE IS REQUIRED TO FULFILL CONDITIONS VIZ. (A) THERE MUST BE EXPENDITURE, (B) SUCH EXPENDITURE MUST NOT BE OF THE NATURE DESCRIBE D IN SECTIONS 30 TO 36, (C) THE EXPENDITURE MUST NOT BE IN THE NA TURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENDITURE OF THE ASSESSEE , AND (D) EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE EXP RESSION WHOLLY EMPLOYED IN SECTION 37 REFERS TO QUANTIFICATION OF EXPENDITURE WHILE EXPRESSION EXCLUSIVELY REFERS TO THE MOTIVE , OBJECTIVE AND PURPOSE OF THE EXPENDITURE. IN ORDER TO APPRAISE O URSELVES AS TO HOW THE CONCEPT OF COMMERCIAL EXPENDENCY AND BUSINE SS NEEDS ARE TO BE APPRECIATED, WHILE CONSIDERING THE ALLOWA NCE OR DISALLOWANCE OF EXPENDITURE CLAIMED BY AN ASSESSEE, WE WOULD LIKE TO MAKE REFERENCE TO THE JUDGMENT OF THE HONBLE GU JARAT HIGH COURT IN THE CASE OF VOLTAMP TRANSFORMER PVT. LTD. VS. CIT, 129 ITR 105 (GUJ). THE FOLLOWING OBSERVATIONS ARE WORT H TO NOTE: SO FAR AS THE QUESTIONS OF COMMERCIAL EXPEDIENCY A ND BUSINESS NEED OF AN ORGANIZATION ARE CONCERNED, IT IS NOT THE VIEW POINT OF A REVENUE OFFICER WHICH SHOULD COUNT, BUT IT SHOULD BE THE VIEW OF AN ORDINARY BUSINESSMAN DEALI NG WITH A SITUATION LIKE THE ONE FACED BY THE ASSESSEE. IN A SIMILAR CIRCUMSTANCE, THE HONBLE DELHI HIGH C OURT HAD AN OCCASION TO EXAMINE ASPECT OF COMMERCIAL EXPEDIE NCY CONSIDERED BY A BUSINESSMAN WHILE INCURRING ANY EXP ENDITURE. ITA NO.1808/AHD/2016 WITH CO 7 THE HONBLE DELHI HIGH COURT HAS MADE THE FOLLOWING OBSERVATIONS ON THIS ASPECT IN THE DECISION OF THE CIT VS. DALMI A CEMENT LTD., 254 ITR 377. AN EXPENDITURE TO WHICH ONE CANNOT APPLY AN EMPIRI CAL OR SUBJECTIVE STANDARD IS TO BE JUDGED FROM THE POINT OF VIEW OF A BUSINESSMAN AND IT IS RELEVANT TO CONSIDER HOW TH E BUSINESSMAN HIMSELF TREATS A PARTICULAR ITEM OF EXP ENDITURE. THE TERM 'COMMERCIAL EXPEDIENCY' IS NOT A TERM OF A RT. IT MEANS EVERYTHING THAT SERVES TO PROMOTE COMMERCE AN D INCLUDES EVERY MEANS SUITABLE TO THAT END. IN APPLY ING THE TEST OF COMMERCIAL EXPEDIENCY, FOR DETERMINING WHET HER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS THE REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT THE REVENUE (SEE CIT V. WALCHAN D AND CO. (P.) LTD. ; J. K. WOOLLEN MANUFACTURERS V. CIT; ALUMINIUM CORPORATION OF INDIA LTD. V. CIT AND CIT V. PANIPAT WOOLLEN AND GENERAL MILLS CO. LTD. 8. IN THE LIGHT OF THE ABOVE, LET US EXAMINE THE RE ASONS ASSIGNED BY THE AO VIS--VIS EXPLANATION GIVEN BY T HE ASSESSEE. WITH REGARD TO THE OBJECTIONS OF THE AO THAT NO AGR EEMENT WAS ENTERED INTO BY THE ASSESSEE WITH THE COMMISSION AG ENTS IS CONCERNED, THE ASSESSEE CONTENDED THAT THERE IS NO POLICY OF THE COMPANY TO EXECUTE ANY AGREEMENT WITH THE AGENTS. HOWEVER, COMPANY HAS PASSED A RESOLUTION TO GIVE EFFECT THAT COMPANY WOULD PAY COMMISSION TO THE AGENT ACCORDING TO VOLU ME OF SALES ACHIEVED BY THEM. COPY OF THE RESOLUTION DATED 4.4 .2011 HAS BEEN PLACED AS ANNEXURE-2 WITH THE NOTE. SIMILARLY , THE ASSESSEE HAS EXPLAINED THE ALLEGED SERVICES PROVIDED BY THE ASSESSEE. 9. WE HAVE GONE THROUGH THESE EXPLANATIONS. IT IS PERTINENT TO BEAR IN MIND THAT ISSUE BEFORE US IS TO DETERMINE T HE FACT WHETHER AGENTS HAVE PROVIDED ANY SERVICES TO THE ASSESSEE O R NOT. IF THEY ITA NO.1808/AHD/2016 WITH CO 8 HAVE PROVIDED SERVICES TO THE ASSESSEE FOR FURTHERI NG COMMERCIAL EXIGENCIES, THEN OF COURSE COMMISSION PAYMENT TO TH EM WOULD BE JUSTIFIED. THERE CAN BE TWO METHODS FOR DETERMININ G THE FACTUM OF PROVIDING SERVICES TO THE ASSESSEE WITH THE HELP OF DIRECT EVIDENCE I.E. BY WAY OF PRODUCING ALLEGED AGENTS BEFORE THE AO, SHOWING CORRESPONDENCE BETWEEN AGENTS AND THE PRINCIPAL, AN Y OTHER DOCUMENTS AVAILABLE WITH THOSE PERSONS SHOWING ANY ACT PERFORMED BY THEM ON BEHALF OF THE ASSESSEE. OTHER METHOD COULD BE WITH HELP OF INDIRECT EVIDENCE I.E. WITH H ELP OF PERIPHERAL EVIDENCE. CIRCUMSTANTIAL EVIDENCE IS ALSO A DIRECT EVIDENCE OF FACT FROM WHICH A PERSON MAY REASONABLY INFER THE EXISTE NCE OR NON- EXISTENCE OF ANY OTHER FACT. LET US EXPLAIN THE SI TUATION WITH THE HELP OF AN EXAMPLE, WHAT IS THE DIFFERENCE BETWEEN THE DIRECT EVIDENCE AND CIRCUMSTANTIAL EVIDENCE. SUPPOSE IN A GIVEN SITUATION, ONE OF THE PARTIES IS TRYING TO PROVE TH AT IT WAS RAINING ON CERTAIN MORNING. A WITNESS TESTIFIES THAT ON TH AT MORNING HE WALKED TO THE SUBWAY AND AS HE WALKED HE SAW RAIN F ALLING, HE FELT IT IS STRIKING HIS FACE, AND HE HEARD IT SPLASHING ON THE SIDEWALK. THAT TESTIMONY OF THE WITNESS'S PERCEPTIONS WOULD B E DIRECT EVIDENCE THAT IT RAINED ON THAT MORNING. SUPPOSE, O N THE OTHER HAND, THE WITNESS TESTIFIED THAT IT WAS CLEAR AS HE WALKED TO THE SUBWAY, THAT HE WENT INTO THE SUBWAY AND GOT INTO T HE TRAIN AND THAT WHILE HE WAS ON THE TRAIN, HE SAW PASSENGERS C OME IN AT ONE STATION AFTER ANOTHER CARRYING WET UMBRELLAS AND WE ARING WET CLOTHES AND RAINCOATS. THAT TESTIMONY CONSTITUTES D IRECT EVIDENCE OF WHAT THE WITNESS OBSERVED, AND BECAUSE AN INFERE NCE THAT IT WAS RAINING IN THE AREA WOULD FLOW NATURALLY, REASO NABLY, AND LOGICALLY FROM THAT DIRECT EVIDENCE, THE WITNESS'S TESTIMONY WOULD CONSTITUTE CIRCUMSTANTIAL EVIDENCE. THE CIRCUMSTAN TIAL EVIDENCE IS ITA NO.1808/AHD/2016 WITH CO 9 AN EVIDENCE THAT RELIES ON AN INFERENCE. THE LAW D RAWS NO DISTINCTION BETWEEN CIRCUMSTANTIAL EVIDENCE AND DIR ECT EVIDENCE IN TERMS OF WEIGHT OR INFORMATION. EITHER TYPE OF EVI DENCE MAY BE ENOUGH TO ESTABLISH THE FACT BEYOND A REASONABLE DO UBT. 10. IN THIS BACKGROUND, WE HAVE EVALUATED EVIDENCE AVAILABLE ON RECORD. IN THE DETAILS, CORRESPONDENCE WITH ONGC A RE THERE. BUT ROLE OF ANY AGENT IS NOT DISCERNIBLE, EXCEPT PAYMEN T OF COMMISSION AND DEDUCTION OF TDS. THERE IS NO OTHER EVIDENCE A S TO HOW THESE AGENTS HAVE HELPED THE ASSESSEE CARRY OUT ITS BUSIN ESS. WE HAVE DOUBT ABOUT THESE DETAILS ALSO; FOR EXAMPLE, MS.SMR UTIBEN MANUBHAI DALAL HAD ALLEGED TO HAVE BEEN RECEIVED A COMMISSION OF RS.2.00 LAKHS. WITH THE HELP OF SMRUTIBEN M. DA LAL ASSESSEE HAS ALLEGED TO HAVE SOLD 90,000 KGS OF PRODUCTS AND COMMISSION WAS CALCULATED AT THE RATE OF RS.2.25 PER KG. BUT SALES WERE MADE IN AGARTALA. SIMILARLY, COMMISSION OF RS.3.00 LAKH S WAS PAID TO ZARNA MINESHBHAI SHAH. SALES WERE MADE AT SLS SHIV SAGAR (ASSAM), WHICH CREATES A DOUBT THAT HOW TWO LADIES SITUATED IN AHMEDABAD HELPING THE ASSESSEE TO CARRY OUT SALES I N AGARTALA AND SLS SHIVSAGAR; WHAT WAS THE LEVEL OF EXPENDITUR E INCURRED BY THEM FOR PROCURING THESE SALES; WHETHER IT WAS FEAS IBLE TO ARRANGE THESE SALES WITH A COMMISSION OF RS.2 LAKHS ONLY. HOW THEY HAVE VISITED THESE OFFICES ? ALL THESE DETAILS ARE MISS ING. DOUBT AROSE TO THE AO, AND THEREFORE, HE DIRECTED ASSESSEE TO P RODUCE THEM. BOTH THESE ALLEGED COMMISSION AGENTS HAVE FILED THEI R RETURN OF INCOME ONLY SHOWING THIS COMMISSION INCOME AND RESI DING AT SOMEWSHWAR COMPLEX, PART-1, SATELLITE ROAD, AHMEDAB AD. THE ASSESSEE COULD HAVE EASILY PRODUCE THEM BEFORE THE AO TO PROVE GENUINENESS OF SERVICES PROVIDED BY THE AGENTS. ITA NO.1808/AHD/2016 WITH CO 10 11. WE HAVE EXAMINED OTHER DETAILS ALSO AND SATISFI ED THAT THE ASSESSEE IS MISERABLY FAILED TO PROVE GENUINENESS O F THE SERVICES RENDERED BY THE ALLEGED AGENTS, AND THEREFORE DEDUC TION OF COMMISSION PAYMENT IS NOT ADMISSIBLE TO THE ASSESSE E. WE ALLOW THIS GROUND OF APPEAL AND SET ASIDE THE FINDING OF THE LD.CIT(A) AND RESTORE THAT OF THE AO. ADDITION TO THE EXTENT OF RS.41,29,450/- IS CONFIRMED. 12. IN THE NEXT GROUND OF APPEAL, GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING DISALLOWAN CE OF RS.25,16,400/-. 13. BRIEF FACTS OF THE CASE ARE THAT ACCORDING TO TH E AO THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS.40,02,000/-. IT HAS SHOWN CAPITAL WORK-IN-PROGRESS OF RS.2,09,70,000/- AS ON 31.3.2012. ACCORDING TO THE AO, THE ASSESSEE HAS N OT CAPITALIZED THE INTEREST EXPENDITURE IN WORK-IN-PROGRESS. IT I S NOT PUT TO USE WORK-IN-PROGRESS, AND THEREFORE INTEREST EXPENDITUR E TO THIS EXTENT IS NOT ADMISSIBLE TO THE ASSESSEE. ON APPEAL, THE LD.CIT(A) HAS HELD THAT THE ASSESSEE HAS CONSTRUCTED THE ALLEGED WIP FROM ITS OWN FUNDS. THE LD.CIT(A) HAS MADE REFERENCE TO THE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE, AND THEREAFTER HEL D THAT INTEREST BEARING FUNDS HAVE NOT BEEN UTILIZED FOR THE PURPOS E OF CAPITAL WIP. THE LD.CIT(A) HAS DELETED DISALLOWANCE. THE DISCUSSION MADE BY THE LD.CIT(A) IN THIS CONNECTION READS AS U NDER: 4.3. DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE AO HAS MADE THE DISALLOWANCE OF INTE REST @ ITA NO.1808/AHD/2016 WITH CO 11 12% ON THE CAPITAL WORK-IN PROGRESS IN RESPECT OF F ACTORY BUILDING STATING THAT THE INTEREST BEARING FUNDS HA VE BEEN UTILIZED FOR THIS PURPOSE AND THE INTEREST WAS NOT ALLOWABLE U/S.36(L)(III) OF THE ACT. THE AO OBSERVED THAT THE APPELLANT HAS NOT GIVEN ANY DOCUMENTARY EVIDENCES IN SUPPORT OF THE UTILIZATION OF THE FUNDS FOR THE PURPOSE OF CAPITAL WORK-IN- PROGRESS MADE OUT OF SURPLUS AND INTERNAL ACCRUALS AND HAS NOT GIVEN JUSTIFICATION IN RESPECT OF CAPITAL ADVAN CES. THE ASSESSEE HAS ALSO FAILED TO ESTABLISH ANY NEXUS TO PROVE THAT IN THE FINANCIAL YEAR UNDER CONSIDERATION, THE ASSE SSEE HAD FUNDS AVAILABLE WITH IT ON THE DATE WHEN CAPITAL WI P WERE MADE. THUS, THE AO HELD THAT IN ABSENCE OF ANY EVID ENCES, IT WAS ESTABLISHED THAT BORROWED FUNDS WERE UTILISED F OR CAPITAL WIP. HAD THE ASSESSEE NOT UTILISED BORROWED FUNDS F OR THE PURPOSE OF CAPITAL WIP THERE WOULD NOT HAVE BEEN AN Y NEED FOR TAKING LOANS TO THE EXTENT OF AMOUNT UTILISED F OR ADVANCES FOR THE ABOVE PURPOSES. IN RESULT, IT WAS HELD THAT INTEREST ON BORROWED FUNDS TO THE EXTENT OF ADVANCES UTILISED F OR THE PURPOSE OF CAPITAL WIP WAS TO BE CAPITALISED U/S. 3 6( 1) (III) OF THE I.T. ACT. 4.4. ON THE OTHER SIDE, THE APPELLANT CLAIMED THAT THE CAPITAL WIP HAS BEEN MADE OUT OF ITS OWN FUNDS. THE APPELLA NT FURTHER SUBMITTED THAT IT HAD THE SUFFICIENT INTERE ST FREE FUNDS AVAILABLE IN THE FORM OF SHARE CAPITAL, RESERVES AN D SURPLUS FOR GIVING LOANS AND ADVANCES TO VARIOUS PARTIES BE SIDES OUTSTANDING CAPITAL CREDITORS. THIS WAS VERIFIABLE FROM THE BOOKS OF ACCOUNTS AND BALANCE SHEET SUBMITTED IN TH E ASSESSMENT PROCEEDINGS ALSO. THESE DETAILS WERE ALS O SUBMITTED TO THE A.O. VIDE LETTER DTD. 13.03.2015 T O THE A.O. 4.5. THE POSITION OF SUCH INTEREST FREE FUNDS OWNED BY THE APPELLANT IS AS UNDER: SR. NO. ACCOUNT HEAD 31 - 03 - 12 RS. 31 - 03 - 11 RS. INCREASE RS. 1. CAPITAL 7500000 2500000 5000000 2. RESERVE & SURPLUS 5156000 3048000 2108000 3. ADVANCE RECEIVED FROM CUSTOMER 2906000 238000 2668000 ITA NO.1808/AHD/2016 WITH CO 12 4. CAPITAL CREDITORS UNDER SCHEDULE-5 15529000 1268000 14261000 TOTAL : - 31091000 7054000 24037000 4.6. IT IS APPARENT THAT THE APPELLANT HAD GRANTED THE CAPITAL WIP EXPENDITURE OF RS.2,09,70,000/- WHILE IT HAD TH E INTEREST FREE OWN FUNDS OF RS.3,10,91,000/- AS ON 31/03/2012 AND RS.70,54,000/- AS ON 31/03/2011. THUS THERE WAS THE NET INCREASE IN THE INTEREST FREE OWN FUNDS TO THE TUNE OF RS.240,37,000/- IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF INCREASE IN THE SHARE CAPITAL, RESERVE SURPLUS, ADVANCE RECEIVED FROM CUSTOMERS AND THE OUTSTANDING CAPITAL CREDITORS WITH REGARD TO THE CAPITAL WIP. THUS, THE INTEREST FREE FUNDS OWNED BY THE APPELLANT WERE MUCH MORE TH AN THE CAPITAL WIP. THUS, NO INTEREST BEARING FUNDS HAVE B EEN UTILISED FOR THE PURPOSE OF CAPITAL WIP; EVEN OTHER WISE ALSO THE CAPITAL WIP WAS FOR THE BUSINESS PURPOSES NOT F OR ANY OTHER PURPOSES. 4.7. CONSIDERING THE FACTS AND SUBMISSIONS, THE DIS ALLOWANCE MADE BY THE AC TOWARDS THE INTEREST, TREATING THE S AME AS CAPITAL EXPENDITURE U/S. 36(L)(III) IS NOT CORRECT, AND THEREFORE, THE SAME IS DELETED ALSO BY RESPECTFULLY FOLLOWING THE DECISIONS / JUDGMENTS BRIEFLY NOTED HEREUNDER:- (I) CIT VS. TORRENT LEASING & FINANCE PVT. LTD . IN TAX APPEAL NO. 620 TO 625 OF 2006 DATED 17/12/2014, WHE REBY THE HON'BLE GUJARAT HIGH COURT HAS HELD THAT WHEN T HE INTEREST FREE FUNDS WERE AVAILABLE WITH THE APPELLA NT THEN DISALLOWANCE OF INTEREST U/S..36(1)(HI) OF THE ACT WAS UNWARRANTED. 14. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. IT IS PERTINENT TO O BSERVE THAT THE ASSESSEE HAS DEMONSTRATED AVAILABILITY OF INTEREST FREE FUNDS AMOUNTING TO RS.3,10,91,000/- AS ON 31.3.2012 AND RS.70,54,000/- AS ON 31.3.2011. ACCORDING TO THE A SSESSEE IT HAS SUFFICIENT INTEREST FREE FUNDS AND IT CAN TAKE CARE OF ALLEGED CAPITAL INVESTMENT IN THE SHAPE OF WIP OF INDUSTRIAL SHED. THE LD.CIT(A) ITA NO.1808/AHD/2016 WITH CO 13 HAS RELIED UPON JUDGMENT OF HONBLE GUJARAT HIGH CO URT IN THE CASE OF CIT VS. TORRENT LEASING & FINANCE P.LTD. IN TAX APPEAL NO.602 TO 625 OF 2006 DATED 17.12.2014. THE ASSESS EE HAS NOT USED INTEREST BEARING FUNDS FOR CONSTRUCTION OF CAP ITAL WIP, AND THEREFORE, NO PROPORTIONATE INTEREST EXPENDITURE OU GHT TO BE ALLOCATED TOWARDS SUCH FUNDS. WE DO NOT FIND ANY E RROR IN THE ORDER OF THE LD.CIT(A) ON THIS GROUND. HENCE, THIS GROUND OF APPEAL IS REJECTED. 15. SO FAR AS CO IS CONCERNED, THE GRIEVANCE RAISED BY THE ASSESSEE IN ITS CO IS MERELY IN SUPPORT OF ORDER OF THE LD.CIT(A). REVENUE HAS CONTESTED SIMILAR ISSUE IN ITS APPEAL, WHICH WE HAVE PARTLY ALLOWED AS PER THE DISCUSSION MADE HEREINABO VE. THEREFORE, THERE IS NO GRIEVANCE LEFT TO THE ASSESSEE FOR ADJU DICATION AT OUR END. ACCORDINGLY THE SAME IS DISPOSED OF AS PARTLY ALLOWED. 16. IN THE RESULT, APPEAL OF THE REVENUE AND CO OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 19 TH MARCH, 2018. SD/- SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 13/03/2018