M/s Hillcrest Foods, Chandigarh V. DCIT, Chandigarh

ITA 1115/CHANDI/2011

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2593 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 17-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSHIL VERMAN
• Assessee Lawyers: MOHIT KAPILA
• Keywords: Proportionate interest; Additional evidence; Non-deduction of tax; Commercial expediency
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.1115/CHD/2011 (ASSESSMENT YEAR : 2007-08) M/S HILLCREST FOODS, VS. THE D.C.I.T., 188, SECTOR 19-A, CIRCLE 1(1), CHANDIGARH. CHANDIGARH. PAN: AAEFH2773F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MOHIT KAPILA RESPONDENT BY : SHRI SUSHIL VERMAN, CIT DR DATE OF HEARING : 26.11.2016 DATE OF PRONOUNCEMENT : 15.01.2016 O R D E R PER RANO JAIN, A.M . : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH DATED 1.9.2011 FOR ASSESSMENT YEAR 2007-08. 2. THE GROUND NOS.1,5 AND 6 RAISED BY THE ASSESSEE ARE GENERAL IN NATURE, THEREFORE, NO ADJUDICATION I S REQUIRED. 2 3. THE GROUND NO.2 RAISED BY THE ASSESSEE RELATING TO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE INCO ME TAX ACT, 1961 (IN SHORT THE ACT), READS AS UNDER : 2. THAT THE LEARNED CIT (A) ERRED BOTH IN LAW AND FA CTS IN CONFIRMING THE DISALLOWANCE OF RS.881.386 UNDER SECTION 40(A)(IA) FOR NON-DEDUCTION OF TAX WHILE MAKIN G FREIGHT PAYMENT TO VARIOUS TRANSPORTERS ON BEHALF O F THE SUPPLIER. 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE MADE FREIGHT PAYMENTS AMOUNTING TO RS.8,81,386/-. THE ASSESSING OFFICER QUESTIONED THE ASSESSEE ABOUT THE NON-DEDUC TION OF TDS ON THESE PAYMENTS. THE ASSESSEE REPLIED THA T IT IS ENGAGED IN AGRI BUSINESS AND ONLY RAW MATERIAL IS G REEN PEAS. THE PEAS ARE PURCHASED FROM AGRICULTURAL MAN DIS IN NORTH INDIA AND GENERALLY IT IS THE PRACTICE THAT T HE MATERIAL RATE ARE AT THE GATE OF FACTORY AND THE LI ABILITY OF FREIGHT IS OF SUPPLIERS. THE ASSESSEE MAKES PAYMEN TS OF FREIGHT ONLY ON BEHALF OF THE SUPPLIERS. IT DOES NOT BEAR THE FREIGHT BUT IT IS ONLY THE SUPPLIERS WHO BEAR T HE SAME. THERE IS NO CONTRACT BETWEEN THE ASSESSEE AND THE TRANSPORTER WHETHER WRITTEN OR ORAL AT ANY TIME. R ELYING ON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH CO URT IN THE CASE OF CIT VS. UNITED RICE LAND LTD. (2008 ) 217 CTR 332 (P&H). IT WAS CONTENDED THAT THE PAYMENTS ARE NOT EXIGIBLE TO TAX DEDUCTION AT SOURCE. THE ASSES SING OFFICER WAS NOT SATISFIED WITH THE REPLY OF TH E ASSESSEE 3 AND HELD THAT THE ASSESSEE WAS USING SERVICES OF SE LLERS OF PEAS TO BRING PEAS TO ITS FACTORY PREMISES AND PAYM ENTS HAVE BEEN MADE BY THE ASSESSEE FOR TRANSPORTATION A ND, THEREFORE, TDS SHOULD HAVE BEEN MADE. IN THIS VIEW , THE ENTIRE AMOUNT OF RS.8,81,386/- UNDER SECTION 40(A)( IA) OF THE ACT. 5. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AND CONTENDED THAT ONLY THE SUPPLIER BEARS THE FREIGHT AND THE ASSESSEE DOES NOT HAVE ANY CONTRACT WITH THE TRANSPORTER. REJECTING THE CONTENTION OF THE A SSESSEE THE LEARNED CIT (APPEALS) HELD THAT THE PAYMENTS WE RE MADE TO VARIOUS INDIVIDUALS/TRANSPORTER FIRMS BY TH E ASSESSEE. THEREFORE, THE PROPOSITION LAID DOWN IN THE CASE OF UNITED RICE LAND LTD. (SUPRA) IS NOT APPLICABLE TO ASSESSEES CASE AND DISALLOWANCE WAS CONFIRMED. 6. AGGRIEVED BY THIS, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED BEFORE US THAT AS A GENERAL PRACTICE, THE RAW MATERIAL IS DELIVERED BY THE SUPPLIER TO THE FACTOR Y GATE OF THE PURCHASER AND FOR THIS PURPOSE, SUPPLIER DELIVE RED THE RAW MATERIAL THROUGH SEVERAL TRUCK/TRANSPORT OPERAT ORS AND RAISED THE BILLS ON THE PURCHASER I.E. THE ASSESSEE AT THE PRICE OF THE SUPPLIES AT THE FACTORY GATE. THE FRE IGHT COST IS PAID TO THE TRANSPORTER AND THE SAME IS ADJUS TED IN 4 THE INVOICE DUE TO THE SUPPLIER. THE COPIES OF INV OICES OF VARIOUS SUPPLIERS WERE SHOWN TO US TO BEING TO OUR NOTICE THE FACT THAT THE SUPPLIER RAISES THE BILLS ON THE ASSESSEE FOR THE SUPPLY OF PEAS WHILE THE ASSESSEE MAKES PAY MENTS AFTER REDUCING THE FREIGHT COST OUT OF THAT. THE L EDGER ACCOUNTS OF VARIOUS SUPPLIERS WERE ALSO FILED BEFOR E US. THE RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASES OF UNITED RICE LAND LTD. (SUPRA), CIT VS. BHAGWATI STEELS (2010) 326 ITR 108 (P&H), CIT VS. M/S GREWAL BROTHERS (2011) 240 CTR 325 AND CIT VS. TRUCK OPERATORS UNION, ITA NO.865 OF 2010 DATED 23.3.2011. SPECIFIC RELIANCE WAS PLACED ON THE CASES UNITED RICE LAND LTD. (SUPRA) AND BHAGWAT I STEELS (SUPRA) FOR THE PROPOSITION THAT THERE BEING NO CONTRACT EITHER ORAL OR WRITTEN WITH THE TRANSPORTE R, SUCH EXPENDITURE CANNOT BE DISALLOWED UNDER SECTION 40(A )(IA) OF THE ACT. 7. THE LEARNED D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT (APPEA LS) AND FURTHER TRIED TO DISTINGUISH THE CASE OF THE HON'BL E JURISDICTIONAL HIGH COURT IN THE CASE OF UNITED RI CE LAND LTD. (SUPRA). AS PER THE LEARNED D.R., THE RATIO O F THIS JUDGMENT IS NOT APPLICABLE TO THE PRESENT CASE BECA USE IN THAT CASE THE PAYMENTS WERE MADE TO VARIOUS TRUCK OWNERS, WHEREAS IN THE PRESENT CASE THE PAYMENTS HA VE BEEN MADE TO INDIVIDUALS/TRANSPORTER FIRMS WHICH AR E 5 INDEPENDENT ASSESSES. IN THIS WAY, IT WAS PRAYED T HAT THE ORDER OF THE LEARNED CIT (APPEALS) BE UPHELD. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSES SEE IS IN THE BUSINESS OF PEAS AND THE PEAS ARE SUPPLIED F ROM CERTAIN SUPPLIERS IN NORTH INDIA AND THE ASSESSEE H AS NOT DEDUCTED ANY TDS ON THE FREIGHT PAYMENT MADE TO VAR IOUS TRANSPORTERS TO BRING THE PEAS TO THE ASSESSEE FROM THE SUPPLIER. ON PERUSAL OF VARIOUS COPIES OF BILLS AN D VOUCHERS PLACED BEFORE US AS WELL AS THE LEDGER ACC OUNT OF VARIOUS SUPPLIERS, WE SEE THAT THE SUPPLIERS HAVE R AISED BILLS TO THE ASSESSEE WITH REGARD TO SUPPLY OF PEAS MADE BY THEM. HOWEVER, WHILE MAKING THE PAYMENT TO THES E SUPPLIERS THE ASSESSEE DEDUCTS THE AMOUNT OF FREIGH T PAID BY HIM TO VARIOUS TRANSPORTERS ON BEHALF OF THE SUP PLIER. THESE EVIDENCES PROVE THE FACT THAT THOUGH THE ASSE SSEE HAS MADE PAYMENTS TO THE TRANSPORTER, THE PAYMENTS HAVE BEEN MADE ON BEHALF OF THE SUPPLIER. IN SUCH A SCE NARIO, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT CANN OT BE INVOKED. FURTHER, RELIANCE PLACED BY THE LEARNED C OUNSEL FOR THE ASSESSEE ON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF UNITED RICE LAND LTD. (SUPRA) IS NOT OUT OF CONTEXT IN THE SENSE THAT IN THAT CASE, IT HAS BEEN HELD THAT IF THERE IS NO CONTRACT BETWE EN THE PAYER AND PAYEE, THE TDS IS NOT CHARGEABLE UNDER SE CTION 6 194C OF THE ACT. IN THE PRESENT CASE ALSO, THE ASS ESSEE HAS ALL ALONG BEEN PLEADING THAT THERE IS NO CONTRACT NEITHER WRITTEN NOR ORAL BETWEEN THE ASSESSEE AND T HE SUPPLIER AND BEFORE US ALSO IT HAS NOT BEEN DEMONST RATED THAT THERE IS ANY CONTRACT BETWEEN THE ASSESSEE AND THE TRANSPORTERS. IN THE ABSENCE OF ANY SUCH CONTRACT, THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE TO T HE FACTS OF THE ASSESSEE AND NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT CAN BE MADE. THE GROUND OF AP PEAL RAISED BY THE ASSESSEE IS ALLOWED. 9. THE GROUND NOS.3 AND 4 RELATE TO DISALLOWANCE ON ACCOUNT OF INTEREST OF FUNDS DIVERTED TO SISTER CONCERN READS AS UNDER : 3. THAT THE LEARNED CIT (A) FURTHER ERRED IN CONFIRM ING DISALLOWANCE OF RS. 484,289 OF INTEREST ON BORROWED FUNDS BY HOLDING THAT INTEREST BEARING FUNDS WERE DIVERTED TO SISTER CONCERN M/S HIMALAYAN FROZEN FOODS LIMITED (HFFL) WITHOUT CHARGING INTEREST. 4. THAT WITHOUT PREJUDICE TO GROUND NO. 3, THE LEARN ED CIT(A) ERRED IN IGNORING THE FACT THAT THE SAID ADVAN CES TO HFFL WERE MADE FOR THE REASONS OF COMMERCIAL EXPEDIENCY. 10. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD CLAIMED IN ITS PROFIT & LOSS ACCOUNT CERTAIN EXPENDITURE ON ACCOUNT OF INTEREST PAYMENT. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD M ADE THE INTEREST FREE LOAN TO SISTER CONCERN M/S HIMALA YAN FROZEN FOODS LTD. IN VIEW OF THE DECISION OF 7 THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES, 286 ITR 1(P&H). THE ASSESSING OFFICER COMPUTED THE INTEREST @ 12% PER A NNUM ON THE MONTHLY DEBIT BALANCES AND DISALLOWED THE PROPORTIONATE INTEREST AMOUNTING TO RS.4,84,289/-. 11. BEFORE THE LEARNED CIT (APPEALS), IT WAS SUBMITTED THAT THE INTEREST HAS BEEN CALCULATED ON DEBIT BALANCE ONLY AND THE CREDIT BALANCE HAVE NOT BEEN T AKEN INTO ACCOUNT. IT WAS ALSO SUBMITTED THAT THE ASSES SEES INCOME IS EXEMPT FROM TAX AND HAD NO INTEREST IN DECLARING LOSSES. REJECTING THE CONTENTION OF THE ASSESSEE, THE LEARNED CIT (APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HE HEL D THAT SINCE THE ASSESSEE HAD BORROWED FUNDS ON WHICH LIAB ILITY TO PAY TAX WAS BEING INCURRED AND ON THE OTHER HAND , CERTAIN AMOUNTS HAD BEEN ADVANCED TO SISTER CONCERN WITHOUT CARRYING ANY INTEREST AND WITHOUT ANY BUSIN ESS PURPOSE, INTEREST TO THE EXTENT THE ADVANCE HAD BEE N MADE WITHOUT ANY INTEREST IS TO BE DISALLOWED UNDER SECT ION 36(1)(III) OF THE ACT. FURTHER, THE CONTENTION OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS NOT CONSIDE RED THE CREDIT BALANCE IN SOME MONTHS IS NOT ACCEPTABLE BEC AUSE THE INTEREST BEARING FUNDS HAD BEEN ADVANCED TO THE ASSESSEE. THE PLEA OF THE ASSESSEE THAT IT IS TAX EXEMPT, IS NOT ACCEPTABLE BECAUSE NOWHERE IN LAW IT IS MENT IONED THAT THE ADDITION OR DISALLOWANCES ARE NOT TO BE MA DE IN THE CASE OF TAX EXEMPT ENTITIES. 8 12. AGGRIEVED BY THIS, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSE SSEE DURING THE COURSE OF HEARING PLACED BEFORE US CERTA IN DOCUMENTS IN THE FORM OF LEDGER ACCOUNT OF M/S HIMA LAYAN FROZEN FOODS LTD. FOR ASSESSMENT YEAR 2006-07 AND C OPY OF SALE LEDGER FOR ASSESSMENT YEARS 2007-08 AND 200 8-09 IN THE FORM OF ADDITIONAL EVIDENCES UNDER RULE 29 O F INCOME TAX RULES. THESE COPIES OF ADDITIONAL EVIDE NCES WERE FORWARDED BY THE LEARNED D.R. TO THE CONCERNED ASSESSING OFFICER, WHO IN HIS REPORT DATED 10.4.201 3 STATED THAT THE EVIDENCES PRODUCED BY THE ASSESSEE ARE ALL ADDITIONAL EVIDENCES JUST ONLY AN AFTER THOUGHT. T HE ASSESSEE WAS GIVEN PROPER OPPORTUNITY TO FURNISH TH E SAID DOCUMENTS EVEN AT THAT STAGE. IT WAS PLEADED THAT THE ADDITIONAL EVIDENCES NOW SOUGHT RELIEF UPON, DOES N OT MERIT ADMITTANCE. 13. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE HAD RECEIVED ADVANCE OF RS.55,85,942/- FROM M/S HIMALAYAN FROZEN FOODS LTD. ON VARIOUS DATES DURING THE LAST ASSESSM ENT YEAR I.E. 2006-07 TO SET UP A PROJECT FOR FROZEN PE AS. DURING THE RELEVANT ASSESSMENT YEAR, SOME PAYMENTS OF SUCH LOAN HAVE BEEN MADE. IN THIS WAY, A CASE WAS TRIED TO BE MADE THAT THE AMOUNTS WAS GIVEN BY THE ASSESSEE TO THE SISTER CONCERN ON ACCOUNT OF COMMERCIAL EXPEDIENCY. AGAIN THE CONTENTION AGAIN ST THE ACTION OF THE ASSESSING OFFICER WAS RAISED THAT 9 HE HAS COMPUTED THE INTEREST ONLY ON THE DEBIT BALA NCE APPEARING IN THE ACCOUNT OF M/S HIMALAYAN FROZEN FO ODS LTD.(SUPRA) AT THE END OF EACH MONTH AND HAS TOTALL Y DISREGARDED THE CREDIT BALANCE APPEARING IN THE SAM E ACCOUNT AT THE END OF EACH MONTH. 14. THE LEARNED D.R. RELIED ON THE ORDER OF THE LO WER AUTHORITIES AS WELL AS THE REPORT OF THE ASSESSING OFFICER ON THE ADDITIONAL EVIDENCES AND SUBMITTED THAT A NE W CASE IS TRIED TO BE MADE BEFORE US FOR THE FIRST TIME. IN THIS VIEW, IT WAS PRAYED THAT THE ORDER OF THE LEARNED C IT (APPEALS) BE CONFIRMED. 15. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THIS IS AN UNDISPUTED PROPOSITION OF LAW AS HELD BY THE HON'BLE APEX COURT IN THE CASE OF SA BUILDERS LTD. VS.CIT,288 ITR 1(SC), WHEREBY IT HAS BEEN HELD IF T HE AMOUNT IS GIVEN TO THE SISTER CONCERN ON ACCOUNT OF BUSINESS EXPEDIENCY, THE INTEREST ON SUCH AMOUNTS C ANNOT BE DISALLOWED UNDER SECTION 36(1)(II) OF THE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE HAS FILED BEFORE U S A COPY OF LEDGER ACCOUNT OF M/S HIMALAYAN FROZEN FOODS LTD.(SUPRA) FOR THE RELEVANT ASSESSMENT YEAR, WHERE BY IT IS SEEN THAT THE SALES AMOUNTING TO RS.3,59,418/- DURI NG THE YEAR MADE TO M/S HIMALAYAN FROZEN FOODS LTD.(SUPRA ). IT 10 HAS ALSO BEEN STATED THAT IN THE SUCCEEDING ASSESSM ENT YEAR I.E. ASSESSMENT YEAR 2008-09, SALES AMOUNTING TO RS.3,16,33,508/- WERE MADE TO M/S HIMALAYAN FROZEN FOODS LTD.(SUPRA). COPY OF THE LEDGER ACCOUNT OF N EXT YEAR WAS ALSO SHOWN IN THIS REGARD. A MONTHLY SUMMARY O F THE BALANCE IN THE BOOKS OF M/S HIMALAYAN FROZEN FOODS LTD., THE ACCOUNTS OF THE ASSESSEE FOR THE PERIOD 1.4.200 5 TO 31.3.2006 WERE ALSO SHOWN TO US, WHEREBY BOTH THE D EBIT AND CREDIT ENTRIES ARE APPEARING IN THIS ACCOUNT. ON PERUSAL OF THESE DOCUMENTS, WE SEE THAT THE SUBSTAN TIAL AMOUNTS OF SALES HAVE BEEN MADE TO M/S HIMALAYAN FROZEN FOODS LTD.(SUPRA) IN THE SUCCEEDING YEAR WHI LE DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE H AS NOT BEEN ABLE TO DEMONSTRATE BEFORE US THE BUSINESS EXPEDIENCY BECAUSE OF WHICH THE AMOUNTS WERE GIVEN TO THE SISTER CONCERN. THESE FACTS, THESE CONTENTIONS AND THESE ARGUMENTS WERE NOT PLACED BEFORE THE LOWER AUTHORITIES. IF THE ASSESSEE IS ABLE TO PROVE THE BUSINESS EXPEDIENCY BECAUSE OF WHICH THE AMOUNTS WERE ADVANC ED TO THE SISTER CONCERN, THE INTEREST CANNOT BE DISAL LOWED IN VIEW OF THE JUDGMENT OF THE HON'BLE APEX COURT I N THE CASE OF SA BUILDERS LTD. (SUPRA). IN THIS SCENARI O, WE FIND IT PROPER TO SEND THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE ISSUE IN PROPER PERSPECTIVE IN VIEW OF THE LAW LAID DOWN BY THE HON 'BLE APEX COURT IN THE CASE OF SA BUILDERS LTD. (SUPRA). 11 NEEDLESS TO ADD THAT THE ASSESSEE BE GIVEN PROPER OPPORTUNITY TO REPRESENT ITS CASE AND TO FILE NECES SARY EVIDENCES AND DOCUMENTS. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF JANUARY, 2016. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 15 TH JANUARY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 12