Rajkham Builders Pvt Ltd, Chennai V. ITO, Corp Ward -5(4), Chennai

ITA 1147/CHNY/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2700 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 22-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gift; Business expenditure; Proportionate interest; Commercial expediency
• Section: 37; 40A(3); 13; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER & S HRI S.JAYARAMAN , ACCOUNTANT MEMBER ./ I.T.A.NO.1147/CHNY/2019 / ASSESSMENT YEAR : 2015-16 M/S.RAJKHAM BUILDERS PVT LTD ., NEW NO.12,OLD NO.3, ZACKAARIA COLONY,3 RD STREET, CHOLLAI MEDU, CHENNAI 600 024. VS. THE INCOME TAX OFFICER, CORPORATE WARD 5(4), 121 M G ROAD, CHENNAI 600 034. [PAN AADCR 9485 Q ] ( / APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.G.BASKAR, ADVOCATE !' /RESPONDENT BY : MR.AR. V.SREENIVASAN,JCIT, D.R # $ %& / DATE OF HEARING : 21.01. 2020 '( %& / DATE OF PRONOUNCEMENT : 13 - 03 - 20 20 ! / O R D E R PER S.JAYARAMAN, ACCOUNTANT MEMBER THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, CHENNAI IN ITA NO.25/2017-18/A-3, DATED 27.03.2019 FOR THE ASSESSM ENT YEAR 2015-16. ITA NO.1147/CHNY/2019 :- 2 -: 2. THE ASSESSEE, M/S.RAJKHAM BUILDERS PVT LTD . , IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND FLAT PROMOTION. WHILE COMPLETING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2015-16, THE ASS ESSING OFFICER MADE DISALLOWANCES UNDER SECTIONS 36(1)(III), 40A(3 ) AND DONATIONS UNDER SECTION 37 OF THE INCOME TAX ACT, 1961 (IN SH ORT THE ACT) AND COMPLETED THE ASSESSMENT. AGGRIEVED, THE ASSESSEE F ILED AN APPEAL BEFORE THE CIT(A). THE LD CIT(A) DISMISSED THE APP EAL. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED THIS APPEAL. 3. THE ASSESSEE HAS TAKEN VARIOUS GROUNDS IN THE G ROUNDS OF APPEAL. HOWEVER, AT THE TIME OF HEARING, THE ASSESS EE ARGUED ON THE FOLLOWING ISSUES ONLY AND HENCE, EACH OF THE ISSUES IS NARRATED BELOW AND DISPOSED OFF ACCORDINGLY. 4. THE LD. A.R. SUBMITTED THAT THE ASSESSEE MADE I NTEREST FREE ADVANCES TO ITS SISTER CONCERN, M/S.RAJKHAM INFRA P . LTD.,DURING THE YEAR UNDER CONSIDERATION WERE UTILIZED SOLELY FOR T HE PURPOSE OF BENEFITING THE BUSINESS OF THE ASSESSEE. THE ASSESS EE AND ITS SISTER CONCERN WERE IN THE SAME BUSINESS AND HENCE, THERE IS NO QUESTION OF DIVERSION OF FUNDS. THEREFORE, LD. A.R. SUBMITTED T HAT THE DISALLOWANCE MADE BY THE A.O. AND SUSTAINED BY THE LEARNED CIT(A ) IS NOT CORRECT. HENCE LD. A.R. PLEADED TO ALLOW THE ASSESSEES PLEA ON THIS GROUND. 5. PER CONTRA LD. D.R. SUBMITTED THAT THE ASSESSEE HAS CLEARLY DISCLOSED IN ITS AUDITED ACCOUNTS THAT M/S.RAJKHAM INFRA P. LTD., IS A ITA NO.1147/CHNY/2019 :- 3 -: RELATED PARTY. THE ASSESSING OFFICER HAS FOUND THAT THE ASSESSEE HAS GIVEN 5,66,75,198/- TO ITS SUBSIDIARY, M/S.RAJKHAM INFRA P. LTD., DURING THE YEAR WITHOUT CHARGING ANY INTEREST. THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE AT .2,16,45,310/-, WHICH WAS PAID TOWARDS PROJECT LOAN OBTAINED FROM LIC HOUSING FINA NCE LTD., WORKING CAPITAL AND CREDIT FACILITY OBTAINED FROM STATE BAN K OF INDIA, AXIS BANK AND INDIAN OVERSEAS BANK. THE A.O WAS OF THE VIEW T HAT WHEN THE ASSESSEE COMPANY ITSELF OBTAINED LOAN FOR ITS PROJE CTS, DIVERTING ITS FUND TO SUBSIDIARY WITHOUT CHARGING ANY INTEREST IS NOT IN ORDER AND HENCE, HE DISALLOWED THE PROPORTIONATE INTEREST ON THE IMPUGNED LOAN UNDER SECTION.36(1)(III) OF THE ACT. THE A.O HAS A LSO EXAMINED THE LEDGER ACCOUNT OF M/S.RAJKHAM INFRA P. LTD., STANDI NG IN THE BOOKS OF THE ASSESSEE AND FOUND THAT FUNDS RECEIVED FROM THE ASSESSEE COMPANY ARE USED FOR THE PURPOSE OF PROJECT AT MADU RAPAKKAM PROJECT UNDERTAKEN BY ITS SISTER CONCERN AND THE ENTIRE EXP ENSES WAS INCURRED TOWARDS THEM. THE A.O. NOTICED THAT THE ASSESSEE C OMPANY GAVE INTEREST FREE FUNDS TO ITS SUBSIDIARY TO MEET OUT S UBSIDIARYS EXPENDITURE WHEREAS ITS SUBSIDIARY HAS NOT DONE ANY CONTRACT WORK OR SUPPLY OF GOODS OR MATERIALS TO THE ASSESSEE COMPAN Y. FURTHER, THE ASSESSEE COMPANY HAS NOT PRODUCED ANY EVIDENCE TO S HOW THAT IT HAS BENEFITTED IN ANY WAY FROM THE FUNDS ADVANCED TO IT S SISTER CONCERN. WHEN THE A.O. PERUSED THE P&L A/C, HE NOTICED THAT THE ASSESSEE ITA NO.1147/CHNY/2019 :- 4 -: COMPANY HAS DISCLOSED A MEAGER PROFIT OF .10.41 LAKHS FROM ITS OPERATIONS, WHICH IS JUST 1.24% ONLY. THEREFORE, TH E A.O. HELD THAT ONE OF THE REASONS FOR SUCH LOW PROFIT IS ON ACCOUNT OF HIGHER INTEREST COST TO THE ASSESSEE. HAD THERE BEEN NO DIVERSION OF INT EREST BEARING FUNDS TO ITS SISTER CONCERN, THE ASSESSEE MUST HAVE DISCL OSED THE HIGHER PROFIT. THEREFORE, THE A.O. HELD THAT THERE IS NO C OMMERCIAL EXPEDIENCY IN THE IMPUGNED TRANSACTION. THE ENTIRE FACTS AND C IRCUMSTANCES DISCLOSED THAT ASSESSEE COMPANY HAS DIVERTED FUNDS TO ITS SISTER CONCERN FOR NON BUSINESS PURPOSES. THEREFORE, THE L D. D.R. SUBMITTED THAT THE DISALLOWANCE MADE BY THE A.O. IS IN ACCORD ANCE WITH THE ESTABLISHED PROCEDURE. ON APPEAL, THE LEARNED CIT( A) APPLYING THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE C ASE OF CIT VS. CHANDULAL KESHAVLAL & CO., REPORTED IN (1960) 38 IT R 601, 610(SC), HAS CONFIRMED THE DISALLOWANCES MADE BY THE A.O., A LTHOUGH THE LEARNED CIT(A) HAS DIRECTED THE A.O. TO EXAMINE WHE THER THE PERCENTAGE OF INTEREST AT WHICH THE DISALLOWANCE IS JUSTIFIED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND ACCORDINGLY , MODIFIED THE DISALLOWANCE. THEREFORE, LD. D.R. SUPPORTED THE ORD ERS OF THE LOWER AUTHORITIES AND PLEADED THAT THE CORRESPONDING GROU NDS OF THE ASSESSEE BE DISMISSED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS CLEAR FROM THE ABOVE FA CTS AND CIRCUMSTANCES ITA NO.1147/CHNY/2019 :- 5 -: OF THE CASE THAT THE ASSESSEE HAS BORROWED INTEREST BEARING FUNDS AND CLAIMED THE CORRESPONDING INTEREST AS EXPENDITURE. IT ADVANCED INTEREST FREE LOAN TO SUBSIDIARY CONCERN BUT HAS NO T ESTABLISHED THE COMMERCIAL EXPEDIENCY ON THE TRANSACTION WITH ITS S ISTER CONCERN. THE ASSESSEE HAS NOT PLACED ANY MATERIAL EVEN BEFORE US TO PROVE THAT THE IMPUGNED TRANSACTION WAS UNDERTAKEN ON COMMERCIAL C ONSIDERATION. THEREFORE, WE UPHOLD THE DISALLOWANCE MADE BY THE A .O. AND SUSTAINED BY THE LEARNED CIT(A) SUBJECT TO VERIFICA TION AS DIRECTED BY THE LEARNED CIT(A). THEREFORE, THE CORRESPONDING GR OUNDS OF THE ASSESSEE ON THIS ISSUE FAIL. 7. THE NEXT ISSUE IS RELATING TO DISALLOWANCE OF .4,56,471/- UNDER SECTION 40A(3) OF THE ACT. DURING ASSESSMENT PROCEE DINGS, THE A.O. ON VERIFICATION OF THE CASH BOOK OF THE ASSESSEE HAS I DENTIFIED THE FOLLOWING ITEMS FOR DISALLOWANCE. NATURE OF EXPENDITURE AMOUNT IN POOJA EXPENSES 21,763 GIFT PUR CHASE FOR AYUDA POOJA 57,828 PAYMENT TO EMMKAY ASSOCIATES LABOUR CONTRACTORS 1,18,190 PAYMENT TO RAJSHREE ASSOCIATES LABOUR CONTRACTORS 1,18,190 CASH PURCHASES 32,300 SIVARANJINI CONTRACTOR 21,300 PACHYAPPAN - MASONARY 48,300 SHANMUGAM - CENTRING 38,600 TOTAL 4,56,471 ITA NO.1147/CHNY/2019 :- 6 -: AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A). ON APPEAL, LEARNED CIT(A) DISMISSED THE ASS ESSEES PLEA. 8. IN THIS REGARD, THE LD. A.R. SUBMITTED THAT EXP ENDITURE INCURRED TOWARDS POOJA EXPENSES INCLUDE PURCHASE OF SWEETS, GOD PICTURE, SERIAL LIGHTS AND CERTAIN EXPENDITURE INCU RRED TOWARDS WATER BOTTLES, BREAKFAST AND OTHER MATERIAL FROM THE LOCA L ROAD SIDE SHOPS. THERE IS NO SINGLE PAYMENT, WHICH IS EXCEEDING 20,000/- AND THE AGGREGATE EXPENDITURE CLAIMED BY THE ASSESSEE WAS A T 21,763 ONLY UNDER THIS HEAD. 8.1 WITH REGARD TO STAFF WELFARE EXPENSES, ACCORDI NG TO THE LD. A.R THAT THIS EXPENDITURE WAS INCURRED FOR BUYING G IFTS TO THE STAFF ON CERTAIN OCCASION OF AYUDHA POOJA ETC., AND NO SINGL E PAYMENT IS EXCEEDED 20,000/-, ALTHOUGH AN AGGREGATE EXPENDITURE OF 57,828/- WAS CLAIMED BY THE ASSESSEE. SIMILAR EXPE NSES WERE MADE TOWARDS CASH PURCHASES AND EXPENDITURE INCURRED TOW ARDS SIVARANJINI CONTRACTOR, ETC., WHICH ARE WHOLLY AND EXCLUSIVELY INCURRED FOR THE ASSESSEES BUSINESS AS PER THE MATERIAL PLACED IN T HE PAPER BOOK AND HENCE, PLEADED TO ALLOW THE APPEALS. PER CONTRA, LD . D.R. SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. ITA NO.1147/CHNY/2019 :- 7 -: 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE EXP ENDITURE INCURRED UNDER THE HEAD POOJA EXPENSES, GIFT PURCHASES FOR AYUDHA POOJA, CASH PURCHASES, SIVARANJINI CONTRACTOR, COULD BE A LLOWED AS BUSINESS EXPENDITURE, TOWARDS WHICH INCURRING OF CASH EXPEND ITURE COULD BE JUSTIFIED. THEREFORE, WE DIRECT THE A.O. TO ALLOW T HESE EXPENSES. WITH REGARD TO PAYMENTS MADE UNDER THE FOLLOWING HEADS, RAJSHREE ASSOCIATES-LABOUR CONTRACTORS, EMMKAY ASSOCIATES-LA BOUR CONTRACTORS, PACHYAPPAN-MASONARY, SIVARANJINI CONTRACTOR, SHANUG AM-CENTRING, SINCE THE ASSESSEE IS NOT ABLE TO ESTABLISH THAT T HESE PAYMENTS DID NOT ATTRACT THE PROVISIONS OF SECTION 40A(3) OF THE ACT , WE ARE OF THE VIEW THAT DISALLOWANCES MADE BY THE A.O. AND AS SUSTAINE D BY THE LEARNED CIT(A) UNDER THIS HEADS DO NOT REQUIRE ANY DISTURBA NCES AND HENCE, SUCH DISALLOWANCES ARE CONFIRMED. THUS, THE CORRESP ONDING GROUNDS ARE TREATED AS PARTLY ALLOWED ON THIS ISSUE. 10. THE LAST ISSUE OF WHICH THE ASSESSEE PLEADED I S DISALLOWANCE OF DONATIONS. WHILE MAKING THE ASSESSMENT, THE A.O . OBSERVED THAT THE ASSESSEE MADE 1 LAKH IN FAVOUR OF TOWN PLANNERS FOR GETTING THE BUSINESS PERIODICAL FOR ORCHID PROJECT. HOWEVER, TH E ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TOWARDS THE CLAIM MADE FOR 1,99,955/-. THEREFORE, A.O. DISALLOWED AND BROUGHT TO TAX. AGGR IEVED, ASSESSEE ITA NO.1147/CHNY/2019 :- 8 -: FILED AN APPEAL BEFORE THE LEARNED CIT(A). ON APPEA L, LEARNED CIT(A) DISMISSED THE CORRESPONDING GROUNDS. IN THIS REGARD , THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS GIVEN .1 LAKH AS DONATION TO INSTITUTE OF TOWN PLANNERS AT 63 RD , NTPC CONGRESS TOWARDS ADVERTISEMENT FEES AND THE ASSESSEE HAS GIVEN .50,000/- AS DONATION TO MALABAR REHABILITATION CENTRE, WHICH IS AN INSTITUTION RECO GNIZED UNDER SECTION.80G OF THE ACT, REMAINING AMOUNT WAS PAID T OWARDS PUBLICITY EXPENSES. THE LD. A.R INVITING OUR ATTENTION TO PAG E 108 TO 109 OF PAPER BOOK AND THE CORRESPONDING RECEIPT PLACED IN THE PAPER BOOK SUBMITTED THAT ASSESSEE INCURRED THESE EXPENSES AS PART OF ITS BUSINESS OPERATIONS. THE LOWER AUTHORITIES HAVE NOT DISPUTED THE GENUINENESS OF THE EXPENDITURE. THEREFORE, THESE EX PENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HENCE, THEY ARE ALLOWABLE AS AN EXPENDITURE UNDER SECTION 37 OF THE ACT. HENCE, LD. A.R. PLEADED THAT THE ASSESSEES PLEA MA Y BE ALLOWED. ON THE OTHER HAND, LD. D.R. SUPPORTED THE ORDERS OF TH E LOWER AUTHORITIES. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASS ESSEE HAS INCURRED THE IMPUGNED EXPENSES WHOLLY AND EXCLUSIVELY FOR TH E PURPOSE OF BUSINESS AND HENCE, THE DISALLOWANCE MADE BY THE A. O IS NOT WARRANTED. THEREFORE, WE DIRECT THE A.O TO ALLOW T HE EXPENSES ITA NO.1147/CHNY/2019 :- 9 -: CLAIMED BY THE ASSESSEE UNDER SECTION 37 OF THE ACT . CORRESPONDING GROUNDS OF THE ASSESSEE ARE ALLOWED. 12. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH MARCH , 2020, AT CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) ' # / JUDICIAL MEMBER ( ) (S. JAYARAMAN) $ # /ACCOUNTANT MEMBER ) $ / CHENNAI * / DATED: 13 TH MARCH, 2020. K S SUNDARAM + !%,- . -% / COPY TO: 1 . / APPELLANT 4. # /% / CIT 2. !' / RESPONDENT 5. -01 !%2 / DR 3. # /% () / CIT(A) 6. 15 6$ / GF