The ACIT, Central Circle 22, Mumbai V. Bombay Minerals Ltd, Jam-Khambhalia

ITA 1174/RJT/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62811 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-04-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 10-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: YOGESH PANDEY
• Assessee Lawyers: DM RINDANI
• Keywords: Depreciation; Business expenditure; Wholly owned subsidiary; Unabsorbed depreciation
• Section: 147; 43B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT . .. . . . . . , , , , . .. . . . . . , , , , $ $ $ $ BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K. SR IVASTAVA, AM ITA NO.1174/RJT/2010 / ASSESSMENT YEAR 2000-01 ASSTT. CIT CC-22 V. BOMBAY MINERALS LTD. ROOM NO.403, AAYAKAR BHAVAN DWARARKA HIGHWAY, MUMBAI. JAM-KHAMBHALIA PAN: AAACB8993D DATE OF HEARING : 23-04-2012. DATE OF PRONOUNCEMENT : 31 -05-2012. REVENUE BY: SHR I YOGESH PANDEY, D.R ASSESSEE BY: SHRI D. M. RINDANI, C.A. / / / / ORDER . .. . . . . . /D. K. SRIVASTAVA: THE APPEAL FILED BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 28-06-2010. THE APPEAL RELATES TO ASSESSMENT YEAR 2000-01. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MINING OF MINERALS. IT FILED ITS RETURN OF INCOME ON 12-07-20 01 RETURNING TOTAL LOSS OF RS.94,506/- AS AGAINST WHICH ASSESSMENT U/S.143(3)/ 147 WAS COMPLETED BY THE AO ON 22-02-2007 ASSESSING THE TOTAL INCOME AT RS.33,6 2,746/- BEFORE ADJUSTMENT OF BUSINESS LOSSES/UNABSORBED DEPRECIATION. SOME OF TH E ADDITIONS/DISALLOWANCES MADE BY THE AO AND DELETED/REDUCED BY CIT(A) ARE SU BJECT MATTER OF PRESENT APPEAL. 2. GROUND NO.1 TAKEN BY THE DEPARTMENT READS AS UND ER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.37,877/ - BEING THE PAYMENTS OF ESI WHICH WERE NOT PAID WITHIN DUE DATE BY WRONGLY APPLYING THE DECISION OF THE APEX COURT IN THE CASE OF CIT VS. ALOM EXTRUSIO N LTD.(319 ITR 306). 3. THE ASSESSING OFFICER HAS MADE THE IMPUGNED DISA LLOWANCE WITH THE FOLLOWING OBSERVATIONS:- 7. AS PER THE SCHEDULE 10E OF THE BALANCE-SHEET, O UTSTANDING LIABILITIES FOR ESI IS SHOWN AT RS.37877 FOR AY 2000-01. THIS F IGURE IS ALSO SUPPORTED WITH THE ANNEXURE-5 FILED WITH THE WRITTEN SUBMISSI ON FOR AY 2001-02 AND ANNEXURE-I TO TAR FOR AY 2001-02. OUT OF RS.37877, RS.20371 HAD BEEN PAID VIDE CHEQUE NO.4680948 DATED 6-9-2000 WHICH IS STATED TO BE AGAINST LIABILITY FOR THE MONTH OF APRIL 1999 TO SEPTEMBER 1999. IT MAY BE SEEN THAT THE PAYMENTS IS AFTER THE DUE DATE I.E. 21 OF THE F OLLOWING MONTH. THE BALANCE RS.17505 HAD BEEN ALSO CREDITED TO THE RELEVANT FUN D AFTER THE DUE DATE (VIDE ITA 1174/2010 2 CHEQUE NO.131382 DATED 3-9-2001). HOWEVER, I THE CO MPUTATION OF THIS OUTSTANDING LIABILITY, NO DISALLOWANCE HAS BEEN MAD E. ALSO, THE PAYMENT HAD NOT BEEN MADE WITHIN THE STIPULATED DUE DATE. THERE FORE, THE ASSESSEE WAS REQUESTED TO SHOW CAUSE AS TO WHY ADDITION OF RS.37 877 SHOULD NOT BE MADE TO THE TOTAL INCOME AS THE SAME IS OUT OF PURVIEW O F SECTION 36(1)(VA) AND/OR SECTION 43B. THE ASSESSEE HAS NOT GIVEN ANY REPLY I N THIS REGARD. THEREFORE, DISALLOWANCE OF RS.37877 HAS BEEN MADE TO THE TOTAL INCOME OF THE ASSESSEE. AS IT AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS, PENALTY PROCEEDINGS U/S.271(1)(C) INITIATED. 4. ON APPEAL, THE LD. CIT(A) HAS DELETED THE IMPUGN ED DISALLOWANCE WITH THE FOLLOWING OBSERVATIONS:- 8. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE A.O. AND THE A.R. OF THE ASSESSEE. THE A.O. HAS CONTENDED THAT THE PAYME NT OF ESI HAS BEEN MADE BEYOND THE DUE DATES PRESCRIBED. THE HONBLE S UPREME COURT IN THE CASE OF CIT V/S. ALOM EXTRUSION LTD. (319 ITR 306 S C) HAS HELD THAT THAT OMISSION OF THE 2 ND PROVISO TO SEC-43B OF THE ACT BY THE FINANCE ACT,2 003 OPERATED RETROSPECTIVELY WITH EFFECT FROM 01/04/198 8 AND NOT PROSPECTIVELY 01/04/2004. RESPECTIVELY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT, DISALLOWANCE OF RS.37,877/- IS DELETED. 5. AT THE TIME OF HEARING, NONE OF THE PARTIES COUL D CLARIFY AS TO WHETHER THE IMPUGNED CONTRIBUTIONS RELATED TO THE EMPLOYEES SH ARE OR EMPLOYERS SHARE. HOWEVER, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPOR TED THE ORDER PASSED BY THE AO. HE SUBMITTED THAT THE JUDGMENT OF THE HONBLE S UPREME COURT IN CIT VS. ALOM EXTRUSION LTD., 319 ITR 306 (SC) WAS NOT APPLICABLE ON THE FACTS OF THE CASE. 6. IN REPLY, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES. SECTION 43B IS A NON-OBSTANTE PROVISION. AS THE OPENING LINES OF SECTION 43B MANDATE, SECTION 4 3B CAN BE INVOKED ONLY WHEN THE DEDUCTION IS OTHERWISE ALLOWABLE UNDER SECTIO N 43B. SECTION 43B CANNOT THUS BE PRESSED INTO SERVICE TO ALLOW A DEDUCTION WHICH IS OTHER-WISE NOT ALLOWABLE UNDER THE INCOME-TAX ACT. IT IS TRUE THAT THE HONBLE SUP REME COURT HAS HELD IN CIT VS. ALOM EXTRUSION LTD., 319 ITR 306 (SC) THAT THE OMIS SION OF 2 ND PROVISO TO SEC.43B BY THE FINANCE ACT, 2003 OPERATED RETROSPECTIVELY W ITH EFFECT FROM 01-04-1998 BUT THAT JUDGMENT DOES NOT FURTHER HOLD THAT DEDUCTION U/S 43B WOULD BE ALLOWED IF IT IS NOT OTHERWISE ALLOWABLE UNDER THE INCOME-TAX ACT. 8. AS STATED EARLIER, THE RELEVANT FACTS, E.G., AS TO WHETHER THE IMPUGNED CONTRIBUTIONS RELATED TO EMPLOYEES SHARE OR EMPLOY ERS CONTRIBUTION, ARE NOT AVAILABLE ON RECORD. IN THIS VIEW OF THE MATTER, TH E ISSUE RAISED IN GROUND NO.1 BY THE DEPARTMENT IS RESTORED TO THE FILE OF THE CIT(A ) FOR FRESH ADJUDICATION. IF THE ITA 1174/2010 3 DEDUCTION BEING CLAIMED BY THE ASSESSEE IS OTHERWI SE ALLOWABLE UNDER THE INCOME-TAX ACT INCLUDING THE PROVISIONS OF SECTION 36(1)(VA) THEREOF, THE DEDUCTION CLAIMED BY THE ASSESSEE WOULD NOT BE DISALLOWED MER ELY FOR THE REASON THAT IT HAS BEEN PAID AFTER 31 ST MARCH PROVIDED IT HAS BEEN PAID BEFORE THE EXPIRY OF DUE DATE FOR FILING THE RETURN OF INCOME U/S 139(1). REASONA BLE OPPORTUNITY OF HEARING SHALL BE GIVEN BY THE C.I.T.(A) TO BOTH THE PARTIES. GROUND NO.1 TAKEN BY THE DEPARTMENT IS TREATED AS ALLOWED FOR STATISTICAL PURPOSED. 9. GROUND NO.2 TAKEN BY THE DEPARTMENT READS AS UND ER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.19,26,7 82/- BEING THE AMOUNT DISALLOWED OUT OF INTEREST EXPENSES, AS THE SAME WA S ATTRIBUTABLE TO INTEREST- FREE ADVANCE GIVEN TO SISTER CONCERNS. 10. THE ASSESSING OFFICER HAS MADE THE IMPUGNED DIS ALLOWANCE WITH THE FOLLOWING OBSERVATIONS IN PARA 10 OF THE ASSESSMENT ORDER:- 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSEE FURNISHED VARIOUS LEDGER ACCOUNTS OF THE SISTER CONCERNS AS P ER ANNEXURE 1 OF THE WRITTEN SUBMISSION. ON VERIFICATION, IT WAS SEEN TH AT THE ASSESSEE IS NOT CHARGING INTEREST ON ADVANCES ,MADE TO THE SISTER C ONCERNS THOUGH THE ASSESSEE HAS PAID SUBSTANTIAL INTEREST OF RS.175192 78 (DEBITED TO P &L A/C.). AS PER PARA 3(IV) OF THE WRITTEN SUBMISSION, REGARDING M/S. RISHABH ENTERPRISES, THE ASSESSEE CLAIMED THAT THE NATURE O F TRANSACTION IS ADVANCE AGAINST GRINDING WORK AND REGARDING M/S. MINERALS & MINERALS CORPORATION, THE ASSESSEE CLAIMED THAT THE NATURE OF TRANSACTION IS ADVANCE AGAINST RAW MATERIALS AS WELL GRINDING. THE ASSESSEE ARGUED THA T THEY WERE NOT SUPPLY SUCH A MATERIAL TO ASSESSEE AND THEREFORE MONEY WAS PAID Y WAY OF ADVANCE. HOWEVER, THE TRANSACTION DID NOT MATERIALI ZED LATER ON. THE ARGUMENT OF THE ASSESSEE HAS BEEN DULY CONSIDERED, HOWEVER, ON MERIT FOUND THEREIN. THE ASSESSEE FAILED TO ESTABLISH THE FACT THAT THE NON-CHAGING OF INTEREST IN RESPECT OF ADVANCES MADE TO THE ABOV E SISTER CONCERNS ARE FOR BUSINESS PURPOSES AND THEREBY FAILED TO ESTABLISH T HAT THE EXPENDITURE OF INTEREST OF RS.17519278 PAID TO VARIOUS PERSONS IS A BUSINESS NECESSITY. THEREFORE, THE FUND OF THE ASSESSEE ADVANCE TO THE SISTER CONCERNS WITHOUT CHARGING INTEREST HAS BEEN TREATED AS ON-BUSINESS P URPOSES AND/OR USED TOWARDS THE NON-PERFORMING ASSETS OF THE ASSESSEE. THE ASSESSEE WAS ASKED TO FURNISH THE WORKING F INTEREST @ 18% (THE PREVAILING MARKET RATE OF INTEREST AT THAT TIME) ON THE AMOUNTS SHOWN IN THE LEDGE ACCOUNTS OF THE ABOVE TWO CASES I.E. M/S. RISHABH ENTERPRISES AND M /S. MINERALS CORPORATION. THE ASSESSEE FAILED TO FURNISH THE SAI D WORKING. THEREFORE, ON THE BASIS OF AVERAGE METHOD I.E. OPENING + CLOSING BALANCE / 2, INTEREST @ 18% HAS BEEN DISALLOWED FROM TOTAL INTEREST DEBITED TO P & L A/C. I.E. ITA 1174/2010 4 RS.17519278. THE TOTAL ADDITION ON THIS COUNT IS RS .1926782 AS PER THE WORKING GIVEN HEREUNDER:- NAME OF THE SISTER CONCERN OPENING BALANCE CLOSING BALANCE. TOTAL OF OP. & CL. BALANCES DISALLOWANCE OF INTEREST @ 18% ON AVERAGE OF OP. & CL. BALANCES M/S. RISHABH ENTERPRISE 3825003 4340853 8165856 734927 M/S. MINERALS & MINERALS CORPORATION. 6988541 6254291 13242832 1191855 TOTAL 1926782 11. THE LD. CIT(A) HAS DELETED THE IMPUGNED DISALLO WANCE MADE BY THE AO WITH THE FOLLOWING OBSERVATIONS:- 25. I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS. I FIND THAT OUT OF THE TOTAL INTEREST EXPENSE OF RS.1,75,19,278/-, INTERES T OF RS.22,92,513/- PERTAINS TO TERM LOAN FOR IDBI, INTEREST OF RS.79,981/- IS D UE TO THE SALES TAX AND INTEREST OF RS.34,11,607/- IS DUE ON ACCOUNT OF PAC KING CREDIT. AS FAR AS THESE BORROWINGS ARE CONCERNED, THE QUESTION OF DIVERSION CANNOT ARISE SINCE THE ADVANCES ARE GIVEN AGAINST SPECIFIC PURPOSES. I ALS O FIND THAT BOTH THESE SISTER CONCERNS-RISHABH ENTERPRISE HAD OPENING DEBI T BALANCE OF RS.38,25,009/- AND M/S. MINERALS & MINERALS CORPORA TIONS HAD OPENING DEBIT BALANCE OF RS.69,88,541/-. AS FAR AS RISHABH ENTERP RISE IS CONCERNED, IT HAD CLOSING DEBIT BALANCE OF RS.41,58,431/- I.E. FRESH ADVANCE OF RS.3,33,422/- WERE GIVEN DURING THE COURSE OF ASSESSMENT YEAR UND ER CONSIDERATION. AS FAR AS MINERALS & MINERALS CORPORATION IS CONCERNED, TH E CLOSING BALANCE HAS REDUCED TO RS.62,54,291/- WHICH IMPLIES THAT THERE WAS A REPAYMENT MADE BY THE CONCERN DURING THE COURSE OF THE ASSESSMENT YEAR UNDER CONSIDERATION. THE A.O. HAS BROUGHT NOTHING ON RECO RD TO INDICATE THAT THE DISALLOWANCE OF INTEREST WAS MADE IN THE EARLIER YE ARS. TO THAT EXTENT, NO DISALLOWANCE CAN BE MADE IN THE YEAR UNDER CONSIDER ATION IN THE OPENING BALANCE. AS FAR AS THE FRESH ADVANCES MADE DURING T HE YEAR UNDER CONSIDERATION IS CONCERNED, THE SAME IS RS.3,33,422 /- MADE TO RISHABH ENTERPRISE. I ALSO FIND THAT IF THE SHARE CAPITAL, RESERVES AND UNSECURED LOAN OF THE ASSESSEE TO BE CONSIDERED, THE INTEREST FREE BALANCE AVAILABLE ARE FAR IN EXCESS OF THESE FRESH ADVANCES OF RS.3,33,422/- MADE DURING THE YEAR UNDER CONSIDERATION. THE A.O. HAS ALSO FAILED TO ES TABLISH ANY NEXUS BETWEEN THE INTEREST EXPENSE AND THE OUTFLOW OF FUN DS WHICH IS A NECESSARY SINE QUA NON FOR ANY SUCH DISALLOWANCE. THEREFORE T HE SAID DISALLOWANCE OF RS.19,26,782/- IS NOT TENABLE UNDER LAW AND IS DELE TED. 12. IN SUPPORT OF APPEAL, THE LD. DEPARTMENTAL REPR ESENTATIVE RELIED UPON THE ASSESSMENT ORDER PASSED BY THE AO IN THIS BEHALF. ITA 1174/2010 5 13. IN REPLY, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE ORDER PASSED BY THE CIT(A). 14. ON INQUIRY RAISED BY THE BENCH AS TO WHAT WAS T HE BUSINESS EXPEDIENCY IN GIVING INTEREST-FREE ADVANCE TO SISTER CONCERNS, TH E LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE INVITED OUR ATTENTION TO THE SUBMISSIO NS MADE BEFORE THE AO WHICH HAVE BEEN REFERRED TO IN PARA-10 OF THE ASSESSMENT ORDER, WHICH HAS ALREADY BEEN EXTRACTED AND REPRODUCED ABOVE. 15. WE HAVE HEARD BOTH THE PARTIES. IT HAS BEEN HEL D IN S.A. BUILDERS LTD. V. C.I.T., 288 ITR 1 (SC) THAT WHAT IS RELEVANT IN DEC IDING THE ISSUE IS WHETHER THE AMOUNT WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPE DIENCY. THE LD. CIT(A) HAS NOT RECORDED ANY FINDING AS TO WHETHER THE IMPUGNED INTEREST-FREE ADVANCES WERE GIVEN OUT OF BUSINESS EXPEDIENCY. IN THIS VIEW OF T HE MATTER, THE ORDER PASSED BY THE CIT(A) IN THIS BEHALF IS SET-ASIDE AND THE MATTER I S RESTORED TO HIS FILE FOR A FRESH DECISION IN CONFORMITY WITH LAW AFTER GIVING REASON ABLE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. GROUND NO.2 TAKEN BY THE DEPARTMENT IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 16. GROUND NO.3 TAKEN THE DEPARTMENT READS AS UNDER :- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.2,46,56 0/- BEING THE AMOUNT DISALLOWED OUT OF VARIOUS BUSINESS EXPENSES WITHOUT APPRECIATING THE AOS CONTENTION THAT SEVERAL OF THE VOUCHERS WERE WITHOU T NAME OF THE RECIPIENT, SIGNATURE AND NATURE OF TRANSACTION MENTIONED THERE ON. 17. THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE WITH THE FOLLOWING OBSERVATIONS IN THE ASSESSMENT ORDER:- 11. AS PER THE SCHEDULE 18 OF ADMINISTRATIVE, SELL ING & OTHER EXPENSES, TRAVELING EXPENSES OF RS.1249677, GENERAL EXPENSES OF RS.1025528 AND MISCELLANEOUS EXPENSES OF RS.190406 (TOTAL RS.24656 11) HAD BEEN DEBITED. ON VERIFICATION OF THE VARIOUS VOUCHERS, IT WAS SEE N THAT IN SOME OF THE VOUCHERS, NO SIGNATURES OF RECIPIENTS ARE FOUND, NO DATES HAS BEEN MENTIONED, THE NATURE F EXACT EXPENDITURE HAD NOT B EEN MENTIONED. THE ASSESSEE FAILED TO GIVE ANY JUSTIFIABLE REASONS FOR SUCH LACUNA. ALSO, THE ASSESSEE FAILED TO PRODUCE THE COPY OF LEDGE ACCOUN TS IN RESPECT OF GENERAL EXPENSES OF RS.22847 AND MISCELLANEOUS EXPENSES OF RS.29028 IN RESPECT BHATIA. IN VIEW THEREOF, 1/10 TH , I.E., RS.246560 OF THE TOTAL OF RS.2465611 OF THESE EXPENSES HAS BEEN DISALLOWED AND ADDED TO THE TOTAL INCOME. 18. THE LD. CIT(A) HAS DELETED THE IMPUGNED DISALLO WANCE WITH THE FOLLOWING OBSERVATIONS:- ITA 1174/2010 6 29. I HAVE DULY CONSIDERED THE CONTENTIONS OF THE A.O. AND THE SUBMISSIONS OF THE A.R. OF THE ASSESSEE. THE ENTIRE DISALLOWANCE HAS BEEN MADE BY THE A.O. ON FLEETING REFERENCE WITHOUT POIN TING OUT ANY SPECIFIC DEFECT WHATSOEVER. THE ASSESSEE IS 100% SUBSIDIARY OF A PUBLIC LIMITED COMPANY WHOSE ACCOUNT ARE SUBJECTED TO STRINGENT AU DIT REQUIREMENTS AND IT IS IMPERATIVE ON THE PART OF THE A.O. TO PINT OUT S PECIFIC DEFECTS BEFORE ANY DISALLOWANCE CAN BE MADE. THE A.R. HAS CONSIDERED T HAT THE LEDGER ACCOUNT OF GENERAL EXPENSE OF RS.22.847/- AND MISCELLANEOUS EXPENSE OF RS.29028 COULD NOT BE PROVIDED TO THE A.O. SINCE THEY WERE M ISPLACED. I THEREFORE HOLD THAT THE ADDITION BE RESTRICTED TO RS.51,875/- (22, 847+29,028). THE ASSESSEE GETS A RELIEF OF RS.1,94,685/-. 19. WE HAVE HEARD BOTH THE PARTIES. THE LD. CIT(A) HAS GIVEN COGENT REASONS FOR RESTRICTING THE DISALLOWANCE TO RS.51,875/-. WE ARE IN AGREEMENT WITH THEM. HIS ORDER IN THIS BEHALF IS THEREFORE CONFIRMED. GROUND NO.3 IS DISMISSED. APPEAL IS PARTLY ALLOWED. ) + 31 -05-2012 . ) ORDER PRONOUNCED IN OPEN COURT ON 31-05-2012 SD/- SD/- ( .. / T. K. SHARMA) ( .. / D. K. SRIVASTAVA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER +/ DATE 31-05-2012 /RAJKOT ) )) ) 12 12 12 12 32 32 32 32 / COPY OF ORDER FORWARDED TO:- 1. 6 / APPELLANT-THE ASSTT. CIT, MUMBAI. 2. 186 / RESPONDENT-BOMBAY MINERALS LTD., JAM-KHAMBHALIA. . 3. ; / CONCERNED CIT, JAMNAGAR. 4. ;- / CIT (A), JAMNAGAR. 5. 2 1, , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , ASSTT. REGISTRAR/ , / ITAT, RAJKOT.