M/s Parkash Chand Krishan Chand, Patiala V. ITO, Patiala

CO 49/CHANDI/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8490 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-04-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-04-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 03-12-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NO. 1075/CHD/2012 ASSESSMENT YEAR: 2009-10 ITO, WARD-2, V M/S PARKASH CHAND PATIALA. KRISHAN CHAND, PATIALA. PAN: AAEFP-3559M (APPELLANT) (RESPONDENT) & CO NO. 49/CHD/2012 IN ITA NO. 1075/CHD/2012 M/S PARKASH CHAND V ITO, WARD 2, KRISHAN CHAND, PATIALA. COMMISSION AGENTS, PATIALA. DEPARTMENT BY : SHRI AKHILESH GUPTA ASSESSEE BY : SHRI TEJ MOHAN SINGH DATE OF HEARING : 08.04.2013 DATE OF PRONOUNCEMENT : 08.04.2013 ORDER PER HARI OM MARATHA,JM THE APPEAL BY THE REVENUE AND C.O. BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS), PAT IALA, DATED 23.08.2012. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE- FIRM DERIVES INCOME FROM THE BUSINESS OF COMMISSION AGENT. FOR ASSESSMENT YEAR 2009-10, IT FILED ITS RETURN OF INCOME (ROI) ON 26.08.2009. IN THE P&L ACCOUNT, THE ASSESSEE FIR M HAS DEBITED INTEREST EXPENDITURE UNDER THE HEADS INTER EST TO 2 PARTNERS (RS.6,55,591/-), INTEREST PAID A/C (RS.53 ,911/-) AND INTEREST TO UNSECURED LOANS (RS.10,57,742/-) TOTALI NG TO RS.17,67,244/-. THUS, EXPENDITURE ON ACCOUNT OF IN TEREST ON UNSECURED LOAN HAS BEEN CLAIMED AT RS.10,57,742/- A ND UNSECURED LOANS OUTSTANDING AS ON 31.03.2009 HAS BE EN SHOWN AS RS.91,12,659/-. THE ASSESSEE HAS ALSO SHO WN ADVANCES TO CROP GROWERS (ZIMIDARS) AT RS.1,31,16,9 65/-, ON WHICH INTEREST HAS BEEN CHARGED OF RS.3,47,766/- ON LY. THE ASSESSEE HAS ALSO SHOWN INTEREST RECEIVED FROM J.P. AGRO AT RS.41,717/-. THEREFORE, THE ASSESSEE WAS ASKED TO FURNISH DETAILS OF INTEREST CHARGED FROM ZIMIDARS AND FROM THE INFORMATION SO FURNISHED, IT WAS SEEN THAT, IN FACT , THE ASSESSEE FIRM HAS NOT CHARGED INTEREST FROM EACH LA ND-OWNER AND THE INTEREST CHARGED FROM SOME OF THEM WAS AT A VARYING RATE OF INTEREST. THE AO HAS NOTICED THAT INTEREST CHARGED ON UNSECURED LOANS IS @ 14% P.A. AND THE FIRM HAS PAID INTEREST TO PARTNER SHRI KRISHAN CHAND @ 12% AND TO OTHER PA RTNER NAMELY SHRI VIJAY KUMAR @ 10%. FROM THE ABOVE FACT S, THE AO HAD CONCLUDED THAT THE FUNDS BORROWED BY THE ASSESS EE FROM LOAN CREDITORS, PARTNERS AND BANK(S) HAVE NOT BEEN UTILIZED FOR ITS BUSINESS BY THE ASSESSEE, BUT HAVE BEEN UTILIZE D FOR MAKING INTEREST-FREE ADVANCES. THEREFORE, THE AO SOUGHT T O DISALLOW TO THE EXTENT THE BORROWED FUNDS WERE NOT UTILIZED FOR THE PURPOSE OF BUSINESS, AFTER CALCULATING IT @ 14% P.A. ON THE ADVANCES MADE TO ZIMIDARS. TO REPLY THE ABOVE SHOW-CAUSE N OTICE, THE ASSESSEE FIRM REPLIED VIDE LETTER DATED 30.11.2011 STATING THEREIN THAT FROM ITS BUSINESS OF KACHA AARTIYA, THE ASSESSEE FIRM HAS EARNED A SUM OF RS.24,17,499/- IN THIS YEA R AS 3 COMMISSION AND HAS ALSO EARNED A SUM OF RS.3,47,766 /- AS INTEREST FROM FARMERS AND A SUM OF RS.42,717/- AS I NTEREST FROM OTHER PARTIES. IT WAS EXPLAINED THAT IN ORDER THAT THE FARMERS SHOULD SELL THEIR AGRICULTURAL PRODUCE TO T HE ASSESSEE FIRM, IT HAS TO GIVE AS ADVANCE MONIES TO THE FARME RS FOR A SHORT DURATION AS AND WHEN DEMANDED BY THEM TO MEET THEIR DAY-TODAY NEEDS. IT WAS EXPLAINED THAT THIS IS REQ UIRED TO PROMOTE ASSESSEE'S BUSINESS INTERESTS. IT WAS FURT HER EXPLAINED THAT THIS IS A REGULAR PRACTICE FOLLOWED BY SIMILARLY BASED ASSESSEES WHO WERE PURSUING THE SAME LINE OF BUSINESS. BUT, THE AO WAS NOT AGREEABLE WITH THE ASSESSEE AND CONSEQUENTLY, HE HAS CONCLUDED THAT THE INTEREST BE ARING FUNDS BORROWED BY IT, HAVE NOT BEEN UTILIZED WHOLLY AND E XCLUSIVELY FOR THE BUSINESS BY THE ASSESSEE AND HAS DIVERTED T HEM TO FARMERS WITHOUT CHARGING INTEREST THEREON. HE, ACC ORDINGLY, BY INVOKING PROVISIONS OF SECTION 36(1)(III) OF THE AC T, DISALLOWED THE ENTIRE INTERESTS CLAIMED AT RS.10,57,742/- ON U NSECURED LOANS. HE HAS ALSO DISALLOWED INTEREST CHARGEABLE ON ADVANCES, WHICH COMES TO RS.42,220/- OUT OF INTEREST PAID TO PARTNERS AND TO BANKS. THUS, A TOTAL DISALLOWANCE, IN THIS ACCOUNT HAS BEEN MADE AT RS.10,99,962/-, WHICH HAS BEEN ADDED B ACK TO THE ASSESSEE FIRMS INCOME OF THIS YEAR. 3. AGGRIEVED, THE ASSESSEE FIRM PREFERRED APPEAL BE FORE LD. CIT(APPEALS), WHO, IN TURN, HAS DELETED THE ENTIRE DISALLOWANCE SO MADE AND THEREFORE, THE REVENUE IS AGGRIEVED AND BY RAISING IN AS MUCH AS 7 GROUNDS IN ALL, HAS RAISED ONLY ONE ISSUE AGAINST THE DISALLOWANCE OF ADDITION OF RS.10,99,96 2/-. 4 4. THE ASSESSEE HAS FILED CROSS OBJECTION IN SUPPOR T OF THE FINDINGS OF LD. CIT(APPEALS) SIMPLY CITER. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE CAREFUL LY PERUSED THE ENTIRE RECORD AVAILABLE BEFORE US. WE HAVE NOTICED THAT THE INCOME DISCLOSED BY THE ASSESSEE FIRM IS F ROM ITS BUSINESS OF KACHA AARTIYA AND THIS BUSINESS DEPEN DS SOLELY ON THE SALE AND PURCHASE OF AGRICULTURAL PRODUCE WH ICH THE FARMERS BRING TO THE GRAIN MARKET (MANDI) AND IS SO LD THROUGH THIS FIRM. THE FARMERS HAVE A CHOICE TO BRING THEI R PRODUCE TO ANY OF THE KACHA AARTIYA AND EVEN TO OTHER AGENCI ES AND THE INCOME DERIVED BY SUCH AN ASSESSEE IS DIRECTLY PROP ORTIONATE TO THE QUANTUM AND MAGNITUDE OF SALE AND PURCHASE OF G RAINS, DONE VIA THAT ASSESSEE. THEREFORE, EVERY SUCH BUSIN ESSMAN WOULD LIKE TO IMPLORE AND COAX THE FARMERS BY PROVI DING VARIOUS INCENTIVES AND FACILITIES INCLUDING THAT OF GIVING THEM MONEY IN ADVANCE, BY EITHER NOT CHARGING ANY INTERE ST THEREON AT ALL OR BY CHARGING VERY COMPETITIVE INTEREST. I T IS REVEALED FROM THE RECORDS THAT THE BUSINESS OF COMMISSION AG ENT IS DONE THROUGH VARIOUS COOPERATIVE SOCIETIES WHO ARE PROVI DING GREAT INCENTIVES TO FARMERS IN ORDER TO ALLURE THEM TO BR ING THEIR AGRICULTURAL PRODUCE TO THEM. THUS, WE FAIL TO UND ERSTAND AS TO WHY SUCH A BUSINESS GIMMICK HAS BEEN EQUATED BY THE AO WITH DIVERSION OF FOREIGN FUNDS WITH A MOTIVE OTHER THAN ATTRIBUTABLE TO THE BUSINESS OF COMMISSION AGENT, W HICH THE ASSESSEE IN QUESTION HAS BEEN PURSUING. WE ARE NOT IN AGREEMENT WITH THE SUBMISSION OF LD. DR SHRI AKHILE SH GUPTA, THAT THIS INCENTIVE OF NOT CHARGING INTEREST OR CHA RGING LESS RATE OF INTEREST FROM THESE FARMERS IS NOT A PART O F ASSESSEE'S 5 BUSINESS INCENTIVES. WE ARE IN AGREEMENT WITH THE SUBMISSION OF LD. AR SHRI TEJ MOHAN SINGH, ADVOCATE THAT THIS ADVANCEMENT OF FUNDS TO FARMERS AND NOT CHARGING OR CHARGING LESS RATE OF INTEREST IS THE MAIN PLANK OF ASSESSEE 'S BUSINESS INTEREST AND THERE BEING CUT-THROAT COMPETITION IN THIS LINE OF BUSINESS, THE ASSESSEE IS BOUND TO GIVE ALLURING IN CENTIVES TO THE FARMERS WHO GROW THEIR FOODGRAINS AND WOULD BRI NG THEM TO THE ASSESSEE FIRM SO THAT THE ASSESSEE COULD EARN M ORE AND MORE COMMISSION FROM THE SALE/PURCHASE THEREOF. AC CORDINGLY, WE FIND NO FALLACY IN THE IMPUGNED FINDING OF LD. C IT(APPEALS) AND THEREFORE, WE CONFIRM THE SAME. 6. IN THE RESULT, APPEAL OF THE REVENUE STANDS DISM ISSED AND THE C.O. IS ALSO DISMISSED AS NO MERITORIOUS ISSUE HAS BEEN RAISED THEREIN. 7. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE AN D THE C.O. STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH APRIL,2013. SD/- SD/- (N.K.SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 8 TH APRIL,2013. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT ,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH