Bhurjee Machine Tools, Ludhiana V. ACIT, Ludhiana

ITA 1160/CHANDI/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6150 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-05-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Condonation of delay

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1160/CHD/2013 ASSESSMENT YEAR: 2007-08 BHURJEE MACHINE TOOLS, VS. THE ACIT C-36, PHASE II CIRCLE I FOCAL POINT LUDHIANA LUDHIANA PAN NO. AABFB0513G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. AMAN PARTI RESPONDENT BY : SHRI. AKHILESH GUPTA DATE OF HEARING : 28/05/2014 DATE OF PRONOUNCEMENT : 09/06/2014 ORDER PER T.R.SOOD, A.M. THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)- CHANDIGARH DATED 24.09.2013. 2. THE APPEAL HAS BEEN FILED LATE BY THREE DAYS AND AN APPLICATION FOR CONDONATION OF DELAY ALONGWITH AN AFFIDAVIT OF SHRI. DEVINDER KUMA R ADVOCATE HAS BEEN FILED. LD. COUNSEL FOR THE ASSESSEE POINTED OUT TO THE CONDONA TION PETITION AND SUBMITTED THAT AFTER FINALIZATION OF THE APPEAL THE SAME WAS TIED WITH U NCONNECTED FILE BY MISTAKE AND WAS LOCATED ONLY AFTER THREE DAYS THEREFORE DELAY SHOUL D BE CONDONED. 3. ON THE OTHER HAND LD. DR OPPOSE THE SUBMISSION O F LD. COUNSEL FOR THE ASSESSEE. 4. AFTER CONSIDERING THE RIVAL SUBMISSION WE ARE SA TISFIED THAT ASSESSEE HAD SUFFICIENT CAUSE FOR FILING THIS APPEAL LATE AND THEREFORE DEL AY IS CONDONED. 5. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEA L: 1. BECAUSE THE ACTION IS BEING CHALLENGED ON FACTS & LAW, FOR MAKING THE NOTIONAL DISALLOWANCE OF INTEREST OF RS. 13,64,226/ - U/S 36(1) (III) OF THE INCOME TAX ACT, 1961 AND EVEN THE QUANTUM THEREOF I S DISPUTED. 2. BECAUSE THE ACTION IS BEING CHALLENGED ON FACTS AND LAW, FOR DECLINING THE ALLOWANCE OF SALARY OF RS. 1,20,000/- PAID TO THE P ARTNER AND EVEN THE QUANTUM THEREOF IS DISPUTED. GROUND NO. 1 : 6. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS GIVEN INTEREST FREE ADVAN CE TO ITS SISTER CONCERN M/S BHURJEE BROTHERS PVT. LTD. ASSESSEE WAS ASKED TO PROVIDE DE TAILS OF THE TRANSACTION AND ACCORDINGLY COPY OF THE ACCOUNT WAS FURNISHED. ASSE SSEE WAS FURTHER ASKED TO PROVE THE EXPEDIENCY OF THIS LOAN. IN RESPONSE IT WAS EXPLAIN ED THAT AMOUNT WAS GIVEN AGAINST PURCHASE MADE FROM THE SISTER CONCERN DURING THE SU BSEQUENT YEAR AND DETAILS OF THE PURCHASES MADE IN THE SUBSEQUENT YEAR WERE PROVIDED . AO DID NOT FIND FORCE IN THE SAME AND DISALLOWED THE INTEREST. IN VIEW OF THE DECISIO N OF THE HONBLE PUNJAN & HARYANA HIGH COURT IN CASE OF CIT VS. ABHISHEK INDUSTRIES L TD., 286 ITR 1. 7. ON APPEAL THE SUBMISSION MADE BEFORE AO WERE REI TERATED. THE LD. CIT DID NOT FIND FORCE IN THESE SUBMISSIONS AND INCORPORATED TH E COPY OF ACCOUNT WITH M/S BHURJEE BROTHERS PVT. LTD. AS ANNEXURE I, II, III ALONGWITH THE ORDER AND CONFIRMED THE ADDITION. 8. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT PURCHASES HAVE BEEN MADE FROM ITS CONCERN THEREFORE ADVANCE GIVEN SHOUL D HAVE BEEN TREATED FOR THE PURPOSE OF BUSINESS. IN ANY CASE THE DISALLOWANCE OF INTER EST HAS BEEN WRONGLY CALCULATED BECAUSE TOTAL INTEREST PAID COMPRISED OF THE FOLLOWING ITEM S : 1. INTEREST ON MACHINERY - RS. 1,20,000/- 2. INTEREST ON VEHICLE - RS. 69059/- 3. INTEREST ON UNSECURED LOAN - RS. 5,51,679/- 4. INTEREST ON PARTNER - RS. 5,47,000/- 5. INTEREST TO BANK - RS. 76,488/- THE ABOVE FIGURES WERE POINTED OUT FROM THE PROFIT & LOSS ACCOUNT. IT WAS SUBMITTED THAT INTEREST ON MACHINERY, INTEREST ON VEHICLE, IN TEREST ON PARTNER CANNOT BE SAID TO BE FOR THE PURPOSE OF RAISING LOAN BECAUSE SUCH INTERE ST WAS PAID FOR SPECIFIC PURPOSE AND THEREFORE DISALLOWANCE SHOULD HAVE BEEN RESTRICTED ONLY TO THE INTEREST ON UNSECURED LOAN AND INTEREST FROM BANK. 9. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF CIT(A). 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT PERUSAL OF ANNEXURE-1 OF THE IMPUGNED ORDER WHICH IS COPY OF ACCOUNT OF THE SIST ER CONCERN M/S BHURJEE BROTHERS PVT. LTD. IT BECOMES CLEAR THAT DURING THE YEAR NO PURCH ASES HAVE BEEN MADE. IN OUR OPINION EVEN IF SOME PURCHASES HAVE BEEN MADE IN NEXT YEAR THEY CANNOT ESTABLISH THE BUSINESS PURPOSE AT LEAST IN THIS YEAR. NO JUSTIFICATION WAS GIVEN BEFORE US. THEREFORE, WE FIND NOTHING WRONG IN THE DISALLOWANCE OF INTEREST IN VI EW OF THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. M/S ABHISHE K INDUSTRIES LTD. (SUPRA) IN PRINCIPLE. HOWEVER, WE PARTLY AGREE WITH SUBMISSION S THAT ONLY INTEREST WHICH IS INCURRED FOR GENERAL PURPOSES CAN BE DISALLOWED. WE FIND NO MERIT IN THE ARGUMENT THAT INTEREST PAID TO PARTNERS SHOULD NOT BE CONSIDERED BECAUSE C APITAL FROM PARTNERS CAN BE USED FOR ANY PURPOSE. HOWEVER, INTEREST ON MACHINERY AND INT EREST ON VEHICLE CANNOT BE CONSIDERED BECAUSE IT IS CLEAR THAT SUCH INTEREST H AS BEEN PAID FOR SPECIFIC PURPOSE OF PURCHASING NEW MACHINERY AND VEHICLES. THUS THIS IN TEREST SHOULD NOT BE CONSIDERED FOR DISALLOWANCE THEREFORE WE SET ASIDE THE ORDER OF LD . CIT(A) AND DIRECT AO TO RE-COMPUTE THE DISALLOWANCE OF INTEREST AFTER IGNORING THE INT EREST INCURRED ON PURCHASE OF MACHINERY AND INTEREST INCURRED FOR PURCHASE OF VEHICLE. GROUND NO. 2. 11. AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING ASSESSMENT PROCEEDING IT WAS NOTICED BY AO THAT SALARY HAS BEEN PAID TO ONE PART NER MR. PARVEEN PAL SINGH, THIS PARTNER WAS AN NRI AND RESIDING IN USA. THE ASSESSE E WAS ASKED TO JUSTIFY THE PAYMENT OF SALARY. IN RESPONSE IT WAS STATED THAT THIS PART NER WAS ALSO PARTICIPATING IN THE BUSINESS THROUGH INTERNET ETC. AO DID NOT FIND FORCE IN THIS SUBMISSION AND DISALLOWED THE SALARY AMOUNTING TO RS. 1,20,000.00. 12. ON APPEAL SUBMISSION MADE BEFORE AO WERE REITER ATED BUT THE LD. CIT (A) DID NOT FIND FORCE IN THE SAME AND CONFIRM THE ADDITION . 13. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ASSESSEE HAS PURCHASED CERTAIN MACHINERY DURING THE YEAR FROM VARIOUS COUN TRIES IN WHICH MR. PARVEEN PAL SINGH SUPERVISED THE PURCHASE OF MACHINERY THEREFORE, MR. PARVEEN PAL SINGH SHOULD BE CONSIDERED AS WORKING PARTNER. 14. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF CIT(A). 15. AFTER CONSIDERING THE RIVAL SUBMISSION CAREFULL Y WE FIND NO FORCE IN THE SUBMISSIONS. FIRSTLY, MR. PARVEEN PAL SINGH WAS LIV ING IN USA AND THEREFORE WE FAIL TO UNDERSTAND HOW HE COULD HELP THE ASSESSEE FIRM IN P URCHASING THE MACHINERY FROM EUROPEAN COUNTRY. THE SALARY IS ALLOWABLE IF MR. PA RVEEN PAL SINGH IS A WORKING PARTNER AND A PERSON STAYING OUTSIDE INDIA FOR WHOLE OF THE YEAR CANNOT BE CALLED A WORKING PARTNER THEREFORE, WE FIND NOTHING WRONG IN THE ORD ER OF CIT(A) AND CONFIRM THE SAME. 16. IN THE RESULT, APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 09.06.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 09 TH JUNE, 2014 AG COPY TO:1.THE APPELLANT,2.THE RESPONDENT,3.THE CIT, 4.THE CIT(A),5.THE DR