ACIT, Sangrur V. M/s Jindal Oil & Fats Ltd., Sangrur

ITA 1125/CHANDI/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8399 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-08-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 07-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Business income; Depreciation; Business expenditure; Commercial expediency
• Section: 143(3); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1125/CHD/2009 ASSESSMENT YEAR: 2006-07 THE ACIT, VS. M/S JINDAL OIL & FATS LTD., CIRCLE, SANGRUR SANGRUR, PAN NO. AAACJ7145C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K.SAINI RESPONDENT BY: SHRI ASHWANI KUMAR ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE REVENUE IS AGAINST THE ORDER OF CIT(A), PATIALA DATED 14.10.2009 RELATING TO ASSESSMENT YEAR 2006-0 7 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE CI T(A) HAS ERRED IN DELEING THE ADDITION OF RS. 22,18,850/ - ON ACCOUNT OF DIVERTING INTEREST BEARING FUNDS TOWARDS INTEREST FREE ADVANCES, IGNORING THE RATIO LAID DOW N BY THE HON'BLE JURISDICTIONAL HIGH COURT INTEREST HE C ASE OF CIT V M/S ABHISHEK INDUSTRIES LTD. (2006) 286 ITR 1 (P&H). 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 22,18,850 /- ON 2 ACCOUNT OF DIVERTING INTEREST BEARING FUNDS TOWARDS INTEREST FREE ADVANCES WITHOUT APPRECIATING THAT TH E ASSESSEE HAD FAILED TO PROVE THAT THE SAID ADVANCES HAD BEEN MADE TOWARDS PURCHASE OF RAW MATERIAL, WHICH F ACT WAS IN THE EXCLUSIVE KNOWLEDGE OF THE ASSESSEE, AN D HAVING FAILED TO SHARE THE SAME WITH THE REVENUE, T HE ASSESSING OFFICER WAS JUSTIFIED IN DRAWING AN ADVE RSE INFERENCE AS PER SECTION 114 OF THE INDIAN EVIDENCE ACT. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CI T(A) HAS ERRED IN ALLOWING DEPRECIATION ON TRUCKS @ 30% INSTEAD OF @ 15% ALLOWED BY THE ASSESSING OFFICER IGNORING THE FACT THAT THE TRUCKS HAD BEEN USED PRI MARILY AND SUBSTANTIALLY FOR OWN BUSINESS OF THE ASSESSEE. HENCE, THE ASSESSEE WAS NOT ENTITLED TO HIGHER RATE OF DEPRECIATION IN VIEW OF THE FOLLOWING DECISION:- CIT VS. SARDAR STONES (1995) 215 ITR 350(RAJ.) CIT VS. MANJIT STONE CO (1991) 190 ITR 183 (RAJ.) VANEER MILLS VS. CIT (1993) 201 ITR 764 (KER.) 4. THE GROUND NOS. 1 & 2 RAISED BY THE REVENUE IS A GAINST THE DELETION OF ADDITION OF RS. 22,18,850/-. THE BRIEF FACTS RE LATING TO THE ISSUE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTE D BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD MADE ADVANCES TO TWO PARTIES DURING THE YEAR FROM WHOM INTEREST WAS NOT CHARGED. THE DETAILS OF ADVANCES MADE THE CLOSING BALANCE AT THE CLOSE OF THE YEAR AND THE IN TEREST COMPUTABLE AT THE RATE OF 10.25% IS TABULATED UNDER PARA 3 AT PAGE 2 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER FURTHER NOTED THE ASSESSEE TO HAVE PAID RS. 41.71 LACS AS INTEREST TO THE BANK ON WORKING CAPITAL AND INTEREST OF RS. 6.24 LACS PAID ON UNSECURED LOANS. THE EXPLANATION OF THE A SSESSEE BEFORE THE ASSESSING OFFICER WAS THAT IT WAS PURCHASING RAW MA TERIAL FROM THE SAID PARTY AND DURING THE YEAR BECAUSE OF FAST FLUCTUAT ION IN THE PRICE OF RAW 3 MATERIAL THE ASSESSEE DID NOT OWN ITS COMMITMENT FO R PURCHASE OF RAW MATERIAL FROM M/S A.P. SOLVEX LTD. THE PARTY WANT ED TO FORFEIT THE ADVANCE OF RS. 1 CRORES, WHICH WAS RECOVERED IN THE NEXT YEARS. IN RESPECT OF THE ADVANCE TO M/S JINDAL NICKEL AND ALLOYS LTD OF RS. 3.78 CRORES, WITH CLOSING BALANCE OF RS. 1.78 CRORES, IT WAS POI NTED OUT THAT THE ORDER WAS PLACED FOR THE SUPPLY OF PALM OIL BUT DUE TO PR ICE NEGOTIATIONS, THE TERMS WERE FOUND TO BE NOT BENEFICIAL AND REFUND WA S SOUGHT FROM THE SAID PARTIES. THE ASSESSING OFFICER NOTED THE ASSESSEE TO HAVE TAKEN THE BANK ADVANCES AT THE RATE OF 10.25% AND ON SPECIAL LIMIT S AT THE RATE OF 13%. THE PLEA OF THE ASSESSEE THAT ADVANCES WERE MADE TO M/S A.P. SOLVEX TO SECURE PURCHASES WAS FOUND TO BE NOT TENABLE AS THE TOTAL PURCHASES WERE TO THE TUNE OF RS. 57,08,507/- DURING THE YEAR AND THE TOTAL PURCHASE PRICE WAS PAID IN THE YEAR ITSELF. THE ASSESSING OFFICE R ALSO FOUND THE ASSESSEE NOT TO HAVE MADE ANY PURCHASES FROM M/S JINDAL NICK EL AND ALLOYS LTD AND HELD THE ASSESSEE TO HAVE DIVERTED ITS INTEREST BEARING FUNDS TO NON INTEREST BEARING ADVANCES AND COMPUTED THE ADDITION AT RS. 22,18,850/-. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE APPLYI NG THE RATIO OF HON'BLE SUPREME COURT IN SA BUILDERS VS. CIT [288 I TR 1 (SC)] AND MUNJAL SALES CORPORATION [298 ITR 298 (SC)], FOLLOW ED BY HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. ROCKMAN CYCLES INDU STRIES LTD [176 TAXMAN 21 (P&H)]. BEFORE THE CIT(A), THE ASSESSEE ALSO FURNISHED CONFIRMATION FROM THE TWO PARTIES THAT THE ADVANCES WERE FOR THE PURCHASE OF RAW MATERIAL AND THE PRINCIPAL WAS REFUNDED AS S ETTLED WITHOUT CHARGING ANY DAMAGES. THE CIT(A) HAS GIVEN A FINDING THAT THE AMOUNT WAS ADVANCED FROM TIME TO TIME FOR THE SUPPLY OF RAW MA TERIAL AND DURING THE YEAR THERE WAS FAST FLUCTUATION IN THE PRICE OF RAW MATERIAL AND THE ASSESSEE DID NOT OWN ITS COMMITMENT FOR THE PURCHAS E OF RAW MATERIAL FROM M/S A.P. SOLVEX PVT LTD. THE CIT(A) ALSO FOUND THE ASSESSEE TO HAVE 4 RECOVERED THE ADVANCES IN THE NEXT YEAR. THE SAID COMPANY WAS NOT A SISTER CONCERN OR OTHERWISE RELATED TO THE ASSESSEE AND AS PER THE CIT(A) THE PLEA OF THE ASSESSEE THAT ADVANCES WERE MADE FO R COMMERCIAL EXPEDIENCY WAS REJECTED BY ASSESSING OFFICER WITHOU T JUSTIFICATION. 5. THE REVENUE IS IN APPEAL AGAINST THE SAID DELETI ON BY THE CIT(A). THE LD. DR FOR THE REVENUE POINTED OUT THAT THE ASS ESSEE HAS FAILED TO FURNISH ON RECORD ANY DOCUMENTS TO PROVE THAT THE P AYMENT WERE MADE FOR PURCHASES AND MERELY ON VERBAL SAYING, DOES NOT ES TABLISH THE CASE OF THE ASSESSEE. THE LD. AR FOR THE ASSESSEE PLACED RELI ANCE ON THE ORDER OF CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE HON'BLE SUPREME COURT IN S.A. BUILDERS LTD VS. CIT( A) AND ANOTHER (288 ITR 1) (SC) HAD LAID DOWN THE PROPOSITION IN CONNEC TION WITH THE ALLOWABLY OF INTEREST ON BORROWED CAPITAL WHERE CER TAIN AMOUNTS WERE ADVANCED INTEREST FREE TO THE SISTER CONCERN AND TH E TEST FOR ALLOWING THE BUSINESS EXPENDITURE WAS ALLOWABLE, IF MADE, AS A M EASURE OF COMMERCIAL EXPEDIENCY. THE APEX COURT HELD THAT FOR ALLOWING THE DEDUCTION U/S 36(1)(III) OF THE ACT, THE CORRECT VIEW IN OUR OPINION WAS WHETHER THE AMOUNTS ADVANCED TO THE SUBSIDIARY OR ASSOCIATE COM PANY OR ANY OTHER PARTY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPED IENCY . THE COURT IN CONCLUSION CLARIFIED THAT EVERY CASE OF ALLOWABI LITY OF INTEREST ON BORROWED LOANS ADVANCED TO SISTER CONCERN DEPENDS O N ITS FACTS AND CIRCUMSTANCES, AND WHERE THE ADVANCES ARE MADE FOR COMMERCIAL EXPEDIENCY, THE ASSESSEE ORDINARILY WOULD BE ENTITL ED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. HOWEVER, IF THE S ISTER CONCERN UTILIZES THE 5 AMOUNTS ADVANCED TO IT FOR ITS PERSONAL BENEFITS, T HE SAID ADVANCES COULD NOT BE HELD TO BE AS A MEASURE OF COMMERCIAL EXPEDI ENCY. 7. APPLYING THE ABOVE SAID RATIO PROPOUNDED BY THE HON'BLE SUPREME COURT IN S.A. BUILDERS VS. CIT (SUPRA) TO THE FACTS OF THE PRESENT CASE, WE FIND THAT THE CLAIM OF THE ASSESSEE BEFORE US IS TH AT THE AMOUNTS HAVE BEEN ADVANCED OUT OF ITS CAPITAL AND RESERVE IN SURPLUS AND HAS NO CONNECTION WITH THE BORROWED FUNDS. THE SECOND PLEA OF THE ASSESSEE IS THAT THE SAID ADVANCES HAD BEEN MADE BY THE ASSESSEE FOR THE PURC HASE OF RAW MATERIAL AND DUE TO THE FAST MOVEMENT IN THE MARKET, THE ASS ESSEE WAS UNABLE TO PURCHASE THE SAID RAW MATERIAL AND THE ADVANCES REM AINED WITH THE COMPANY AS THESE WERE SOUGHT TO BE FORFEITED BY THE SAID COMPANY. FROM THE PERUSAL OF RECORD, WE FIND THAT THE NECESSARY E VIDENCE IN RESPECT OF THE CLAIM OF THE ASSESSEE IS NOT AVAILABLE ON RECORD. ASSESSEE FIN THAT IN LINE WITH THE RATIO LAID DOWN BY HON'BLE SUPREME COURT I N S.A. BUILDERS VS. CIT (SUPRA), WHERE IN SUCH CASES ADVANCES ARE MADE TO THE SISTER CONCERN OR ANY OTHER PARTY AS A MEASURE OF COMMERCIAL EXPED IENCY, OUT OF BORROWED CAPITAL, NO DISALLOWANCE IS WARRANTED OUT OF THE INTEREST EXPENDITURE ON SUCH BORROWED CAPITAL. HOWEVER, TH E ONUS IS UPON THE ASSESSEE TO ESTABLISH ITS CASE OF ADVANCING THE SAI D SUMS FOR COMMERCIAL EXPEDIENCY. THE ASSESSEE DURING THE YEAR HAD ADVA NCE RS. 3 CRORES TO M/S A.P.SOLVEX LTD AND THE ASSESSING OFFICER HAD NOTED THAT THE PURCHASES TO THE TUNE OF RS. 57.08 LACS WERE MADE FROM THE SAID PARTY AND PURCHASE PRICE WAS PAID IN THE YEAR ITSELF. ON THE OTHER HA ND THE CLAIM OF THE ASSESSEE IS THAT THE ADVANCE WAS PAID AGAINST PURCH ASE OF RAW MATERIAL WHICH COULD NOT BE ULTIMATELY PURCHASED DUE TO THE MARKET CONDITIONS. WE ARE OF THE VIEW THAT THE ONUS IS UPON THE ASSESS EE TO ESTABLISH ITS CLAIM WITH EVIDENCE IN RESPECT OF THE SAID TRANSACTION WH ICH IS NOT AVAILABLE 6 BEFORE US. IN THE INTEREST OF JUSTICE, WE DEEM IT F IT TO RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THE SAME IN ACCORDANCE WITH LAW AND IN THE LIGHT OF THE OBSERVATIONS MADE BY TH E HON'BLE SUPREME COURT IN S.A. BUILDERS VS. CIT (SUPRA). IN RESPECT OF THE SECOND TRANSACTIONS OF ADVANCES MADE TO M/S JINDAL NICKEL AND ALLOYS LTD., EVIDENCE IS NOT AVAILABLE ON RECORD AND THE ASSESSE E IS TO DISCHARGE ITS ONUS OF ESTABLISHING THE COMMERCIAL EXPEDIENCY FOR ADVANCING OF THE SAID LOANS TO THE SAID PARTY. IN THE INTEREST OF JUSTI CE, WE RESTORE THIS ISSUE ALSO BACK TO THE FILE OF ASSESSING OFFICER TO DECID E THE SAME IN LINE WITH OUR DIRECTIONS HERE IN ABOVE AND THE ASSESSEE IS TO DISCHARGE ITS ONUS OF PROVING HIS CASE OF ADVANCEMENT OF THE SAID AMOUNT AS A MEASURE OF COMMERCIAL EXPEDIENCY. A REASONABLE OPPORTUNITY O F HEARING TO THE ASSESSEE SHALL BE AFFORDED BY THE ASSESSING OFFICER . THE GROUND NOS 1 & 2 RAISED BY THE REVENUE ARE ALLOWED FOR STATISTICAL P URPOSES. 8. THE SECOND ISSUE RAISED BY THE REVENUE IS AGAINS T THE ALLOWABLILITY OF DEPRECIATION ON THE TRUCKS. THE ASSESSEE HAD CL AIMED DEPRECIATION ON TRUCKS AT THE RATE OF 30% BUT THE ASSESSING OFFICER HAS RESTRICTED THE SAME TO 15%. THE CIT(A) ALLOWED THE CLAIM OF THE ASSES SEE AS THE INCOME FROM TRUCKS WAS ASSESSED AS BUSINESS INCOME BY THE ASSES SING OFFICER. WE ARE IN CONFORMITY WITH THE ORDER OF CIT(A) THAT IN ALL SUCH CASES, WHERE THE ASSESSEE HAD SHOWN HIRE INCOME FROM THE TRUCKS OWNE D BY IT, DEPRECIATION AT THE RATE OF 30% IS TO BE ALLOWED AND THERE IS NO REQUIREMENT FOR THE ASSESSEE TO BE ENGAGED IN THE EXCLUSIVE BUSINESS OF RUNNING THE TRUCKS ON HIRE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE UPHOLD THE ORDER OF CIT(A) IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON TRUCKS AT THE RATE OF 30%. THUS, THE GROUND NO.3 RAISED B Y THE REVENUE IS DISMISSED. 7 ITA NO. 1125/CHD/2009 ACIT VS. M/S JINDAL OIL & FATS LTD 9. IN THE RESULT, APPEAL OF REVENUE IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH NOVEMBER DAY OF NOVEMBER, 2010, SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH NOVEMBER, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR