Priya Blue Industries Pvt. Ltd., Bhavnagar V. The Asstt. Commissioner of Income Tax, Circle-1, Bhavnagar

ITA 1195/AHD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3728 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 15-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Gift
• Section: 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ I.T.A. NO.1195/AHD/2017 ( / ASSESSMENT YEAR : 2012-13) PRIYA BLUE INDUSTRIES PVT.LTD. 1563/A, ASHIRWAD RUPANI SARDARNAGAR ROAD BHAVNAGAR / VS. THE ASST.CIT CIRCLE-1 BHAVNAGAR ./ ./ PAN/GIR NO. : AABCP 2808 B ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI TUSHAR P. HEMANI, AR / RESPONDENT BY : SHRI S.K. DEV, SR.DR / DATE OF HEARING 14/02/2019 !'# / DATE OF PRONOUNCEMENT 15/02/2019 / O R D E R PER SHRI RAJPAL YADAV, JUDICIAL MEMBER : THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LD.COMMISSIONER OF INCOME TAX(APPEALS)-6, AHMEDABAD [CIT(A) IN SHORT] DATED 23/02/2017 PASSED FOR ASSESSMENT YEAR (AY) 2012-13. ITA NO.1195/AHD /2017 PRIYA BLUE INDUSTRIES PVT.LTD. VS. ACIT ASST.YEAR 2012-13 - 2 - 2. IN THE FIRST GROUND OF APPEAL, THE GRIEVANCE OF ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES OF RS.11,11,635/-. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS FILED ITS RETURN OF INCOME ELECTRONICALLY ON 26/09/2012 DECLARING TOTA L INCOME AT RS.4,70,07,880/-. THE ASSESSEE AT THE RELEVANT T IME WAS ENGAGED IN SHIP BREAKING BUSINESS AT SOSIYA SHIP BREAKING YARD, SOS IYA. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICE U/S.143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'T HE ACT') WAS SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT ASSESSEE HAS DEBITED A SUM O F RS.11,11,635/- UNDER THE HEAD GIFT AND PRESENTATION. THE ASSE SSING OFFICER HAS DIRECTED THE ASSESSEE TO SUBMIT DETAILS QUA THIS EX PENDITURE. IT WAS POINTED OUT TO THE ASSESSING OFFICER THAT GOLD WAS PURCHASED FROM INDIAN OVERSEAS BANK, OUT OF WHICH GOLD COINS HAVING LOGO OF THE ASSESSEE- COMPANY WERE PREPARED. THESE COINS WERE GIFTED TO VARIOUS BANK EMPLOYEES AND OTHERS WITH WHOM ASSESSEE HAS BUSINES S CONNECTION. THE LD.AO DID NOT DISPUTE WITH REGARD TO PURCHASE OF GO LD AND ALSO DID NOT DISPUTE WITH MANUFACTURING OF GOLD COIN WITH LOGO O F THE ASSESSEE- COMPANY. HE RAISED OBJECTION THAT THESE COINS WERE PRESENTED TO THE BANK EMPLOYEES. HENCE, ACCORDING TO EXPLANATION-1 TO SECTION 37, THIS AMOUNTS TO ILLEGAL GRATIFICATION WHICH DESERVES TO BE DISALLOWED. ACCORDINGLY, LD. ASSESSING OFFICER DISALLOWED THE C LAIM OF THE ASSESSEE. ITA NO.1195/AHD /2017 PRIYA BLUE INDUSTRIES PVT.LTD. VS. ACIT ASST.YEAR 2012-13 - 3 - 4. APPEAL TO THE LD.CIT(A), DID NOT BRING ANY RELIE F TO THE ASSESSEE. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. ACCORDING TO THE AS SESSEE, IT HAS GIVEN THESE GIFTS ON FESTIVAL OCCASION TO VARIOUS PERSONS WITH WHOM IT HAS BUSINESS DEALING. THESE WERE NOT GIVEN IN LIEU OF ANY SPECIFIC WORK. IT WAS A GESTURE FOR GOOD RELATIONSHIP WITH VARIOUS EM PLOYEES OF THE BANK. 6. ON THE OTHER HAND, STAND OF THE REVENUE IS THAT EXPLANATION-1 TO SECTION 37 PROHIBITS PRESENTATION OF SUCH GIFTS. O N DUE CONSIDERATION OF THE ABOVE, WE ARE OF THE VIEW THAT EXPLANATION-1 TO SECTION 37 PROHIBITS ALLOWANCE OF ANY EXPENDITURE IF INCURRED ON ILLEGAL ACTIVITIES. IN OTHER WORDS, IF ANY, EXPENDITURE WAS INCURRED FOR BREACH OF ANY LAW, THEN THAT EXPENDITURE WILL NOT BE ALLOWED. IF ASSESSEE HAD M ADE PAYMENT OF SOME MONEY OR GOLD COIN ON A FIXED TERM BASIS FOR CARRYI NG OUT ITS WORK FROM THE BANK EMPLOYEES PROBABLY EXPENDITURE WILL NOT BE ALLOWABLE BUT HERE THE EXPENDITURE WAS NOT INCURRED, KEEPING IN MIND A NY SPECIFIC WORK, IT WAS GIVEN AT THE TIME OF FESTIVALS AS A GIFT TO MAR K SOCIAL RELATION. THIS DOES NOT FALL WITHIN THE AMBIT OF EXPLANATION-1 APP ENDED TO SECTION 37 OF THE ACT. THEREFORE, WE ALLOW THE CLAIM OF THE ASSE SSEE AND DELETE THE DISALLOWANCE. ITA NO.1195/AHD /2017 PRIYA BLUE INDUSTRIES PVT.LTD. VS. ACIT ASST.YEAR 2012-13 - 4 - 7. IN THE NEXT GROUND OF APPEAL, ASSESSEES GRIEVAN CE IS THAT THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF I NTEREST EXPENSES OF RS.40,15,247/- U/S.40A(2)(B) OF THE ACT. 8. THE ASSESSEE HAD AVAILED LOANS FROM RELATED PART IES AND OTHER PARTIES. IT HAS GIVEN INTEREST RANGING BETWEEN 11 TO 15% TO OTHER PARTIES AND 18% TO THE RELATED PARTIES. THE ASSESSING OFFI CER WAS OF THE VIEW THAT ASSESSEE HAS EXTENDED UNDUE BENEFIT TO THE REL ATED PARTIES AND THEREFORE THE EXCESS INTEREST EXPENDITURE INCURRED BY IT DESERVES TO BE DISALLOWED U/S.40A(2)(B) OF THE ACT. HE ALLOWED IN TEREST @ 13% AND BALANCE WAS DISALLOWED. 9. APPEAL TO THE LD.CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 10. BEFORE US, LD.COUNSEL FOR THE ASSESSEE CONTEN DED THAT SIMILAR DISALLOWANCE WAS MADE IN AY 2011-12 WHICH TRAVELLED UPTO THE TRIBUNAL AND TRIBUNAL HAS DELETED THE DISALLOWANCE. HE PL ACED COPY OF THE TRIBUNALS ORDER DATED 13/04/2018 PASSED IN ITA NO. 756/AHD/2015. THE TRIBUNAL WHILE DELETING THE DISALLOWANCE RECORDED F OLLOWING FINDING: 6. WE HAVE HEARD BOTH THE PARTIES. THE LIMITE D ISSUE FOR ADJUDICATION IN THE INSTANT CASE IS APPLICABILITY OF SECTION 40A (2)(B) OF THE ACT TO THE INTEREST PAID TO DIRECTORS IN EXCESS OF INTEREST PA ID TO OTHER PARTIES. ON BEHALF OF THE ASSESSEE, IT WAS FIRSTLY CONTENDED T HAT IT IS NOT THE ITA NO.1195/AHD /2017 PRIYA BLUE INDUSTRIES PVT.LTD. VS. ACIT ASST.YEAR 2012-13 - 5 - DIRECTORS OF THE ASSESSEE ALONE WHO HAVE BEEN PAID INTEREST @ 18% P.A. ON THE LOANS/ADVANCES AVAILED BUT THERE ARE OTHER P ARTIES TOO TO WHOM INTEREST @ 18% P.A. WAS PAID ON THE LOANS/ADVANCES AVAILED. THE PARTIES MARINE LINE SHIP BREAKERS PVT.LTD. AND R.K.GUPTA & SONS WAS REFERRED TO AUGMENT THE AFORESAID CONTENTION. IT IS THUS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE PROVISIONS OF SECTION 40A(2)( B) CANNOT BE APPLIED TO INTEREST COSTS TOWARDS BORROWALS FROM DIRECTORS WHE RE THE INTEREST COST INCURRED QUA NON-RELATED PARTIES ARE SIMILAR AND CO MPARABLE. SECONDLY, IT IS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE VALUE OF SERVICES I.E. MARKET RATE OF INTEREST HAS NOT BEEN INDEPENDENTLY DETERMINED BY AO AT ALL AND THEREFORE THERE WAS NO WARRANT FOR THE AO T O HOLD INTEREST PAID TO THE DIRECTORS AS EXCESSIVE TO THE EXTENT OF 5% ON T HE LOANS AVAILED. FOR THIS PROPOSITION, THE DECISION OF THE HONBLE GUJAR AT HIGH COURT IN THE CASE OF CIT VS. SARJAN REALITIES LTD. (2014) 50 TAX MANN.COM 52(GUJ.) WAS RELIED UPON. IN SHORT, IT WAS CONTENDED ON BEH ALF OF THE ASSESSEE THAT THE INTEREST PAID TO THE DIRECTORS @ 18% PER ANNUM ON THE LOANS AVAILED CANNOT BE SAID TO BE EXCESSIVE AND UNREASONABLE HAV ING REGARD TO THE COMPARABLE CASES AS POINTED OUT AND ALSO IN THE ABS ENCE OF ANY INDEPENDENT FINDING TOWARDS PREVALENT MARKET RATE O F INTEREST TO BE LOWER THAN THE RATE AT WHICH INTEREST COSTS HAVE BEEN INC URRED. 7. WE FIND SUBSTANCE AT THE FIRST INSTANCE ON THE P LEA PADDLED ON BEHALF OF THE ASSESSEE THAT INTEREST RATE @ 18% CAN NOT BE SEEN AS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FACT THAT THE ASSESSEE HAS INCURRED INTEREST COSTS AT THE SIMILAR RATE ON BORROWED FUNDS FROM UNCONTROLLED PARTIES. THIS FACT ITSELF PROVES THE CASE OF THE ASSESSEE IN AFFIRMATIVE. THE REVENUE HAS NOT BEEN ABLE TO COUNT ER THIS ASPECT OF JUSTIFICATION FOR MAKING PAYMENT OF INTEREST ALLEGE D AT HIGHER RATE QUA OTHER LENDERS. THEREFORE, WE DO NOT CONSIDER IT NE CESSARY TO LOOK INTO THE OTHER PLEA OF THE ASSESSEE ON REQUIREMENT OF DE TERMINATION OF MARKET RATE OF INTEREST INDEPENDENTLY. IN VIEW OF THE AFO RESAID DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) I N DRAWING CONCLUSION IN FAVOUR OF THE ASSESSEE. ITA NO.1195/AHD /2017 PRIYA BLUE INDUSTRIES PVT.LTD. VS. ACIT ASST.YEAR 2012-13 - 6 - 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 11. THE LD.DR WAS UNABLE TO CONTROVERT THE CONTENTI ONS OF THE LD.COUNSEL FOR THE ASSESSEE. 12. ON DUE CONSIDERATION OF THE ABOVE, WE ARE OF TH E VIEW THAT DISALLOWANCE U/S.40A(2)(B) CAN BE MADE, IF ANY, PAY MENT IS BEING MADE TO THE PERSONS COVERED UNDER SUB-CLAUSE((B) OF SECT ION 40A(2) AND SUCH PAYMENT WAS EXCESSIVE IN RESPECT OF THE SERVICES OR GOODS AVAILED FROM THEM IF THE RATES ARE COMPARED WITH THE OPEN MARKET . IN OTHER WORDS, IF AN ASSESSEE HAS AVAILED SERVICES AND GOODS FROM REL ATED PARTIES AT A HIGHER RATE, THAN IT COULD BE AVAILED FROM OPEN MAR KET AT A LOWER RATE, THE EXCESS PAYMENT WILL BE DISALLOWED. PAYMENT OF INTE REST @ 18% CANNOT BE TERMED AT A HIGHER RATE. RESPECTFULLY FOLLOWIN G THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE PASSED IN EARLIER A SSESSMENT YEAR, WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER. AS A RESULT, GROUND RAISED BY THE ASSESSEE IS ALLOWED. 13. IN THE LAST GROUND OF APPEAL, ASSESSEES GRIEVA NCE IS THAT THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF I NTEREST AMOUNT OF RS.40,28,592/-. ITA NO.1195/AHD /2017 PRIYA BLUE INDUSTRIES PVT.LTD. VS. ACIT ASST.YEAR 2012-13 - 7 - 14. THE ASSESSEE HAS RECEIVED ADVANCES FROM ODYSSEY CORPORATION. THOSE ADVANCES WERE RECEIVED AGAINST SALES AND IT H AS NOT MADE SALES BUT PAID INTEREST ON THOSE ADVANCES. THE ASSESSING OFF ICER WAS OF THE VIEW THAT ASSESSEE SHOULD NOT PAY INTEREST ON THE SALES ADVANCES. HENCE, HE DISALLOWED THE CLAIM. 15. APPEAL TO THE LD.CIT(A), DID NOT BRING ANY RELIEF T O THE ASSESSEE. 16. BEFORE US, LD.COUNSEL FOR THE ASSESSEE CONTENDE D THAT IN EARLIER YEAR, ASSESSEE HAS PAID INTEREST AND THE LD.CIT(A) HAS DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN AY 2 011-12. THIS ORDER OF THE LD.CIT(A) WAS ACCEPTED BY THE REVENUE. THE ASSESSEE BROUGHT THE ORDER OF THE LD.CIT(A)-6, AHMEDABAD DATED 05/01 /2015 TO THE NOTICE OF LD.CIT(A) FOR AY 2012-13, BUT IT WAS NOT CONSIDE RED. THE FINDING RECORDED BY THE LD.CIT(A) FOR AY 2011-12 ON THIS IS SUE READ AS UNDER: 6.3. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF THE A.O. AND THE CONTENTIONS OF THE A.R. A.O. RELIED ON THE LEDGER ACCOUNT OF THE APPELLANT COMPANY IN THE BOOKS OF ODYSSEY CORPORATION LTD. H E REPRODUCED THE DEBIT SIDE OF THE SAID ACCOUNT WHEREIN THE FIRST TH REE AMOUNTS WERE STATED TO HAVE BEEN GIVEN BY WAY OF ADVANCES AGAINST PURCH ASES. HOWEVER, HE IGNORED THE FACT THAT NO SUCH DESCRIPTION WAS FOUND IN THE SUBSEQUENT SIX ENTRIES. FURTHER, HE DID NOT TAKE NOTE OF THE CRED IT SIDE OF THE SAID ACCOUNT WHICH SHOWS THAT SUMS TOTALLING TO RS.6 CRO RES HAD BEEN PAID BACK BY THE APPELLANT IN THE YEAR UNDER CONSIDERATI ON. SIMILARLY, HE IGNORED THE DEBIT ENTRY INTEREST ON LOAN RECEIVED @ 10% OF RS.71.5 LAKHS MADE ON 31-03-2011 AND THE CREDIT ENTRY OF TD S MADE ON THE SAME ITA NO.1195/AHD /2017 PRIYA BLUE INDUSTRIES PVT.LTD. VS. ACIT ASST.YEAR 2012-13 - 8 - DAY OF RS.7.5 LAKHS. THERE WAS NOT EVEN A SINGLE E NTRY SHOWING SALES EFFECTED BY THE APPELLANT COMPANY TO THE SAID PARTY IN THE ENTIRE YEAR. IT IS ALSO SEEN THAT THE TRANSACTIONS OF RECEIPT AND R E-PAYMENT OF MONIES CONTINUED IN THE SUBSEQUENT YEARS AND THE CREDIT BA LANCE CAME DOWN TO RS.NIL ON 04-12-2014. EVEN IN THE SUBSEQUENT YEARS THERE WAS NO SALE EFFECTED BY THE APPELLANT TO ODYSSEY CORPORATION. IN THE LIGHT OF THESE FACTS THE VERY BASIS ON WHICH THE DISALLOWANCE WAS MADE BY THE A.O. [I.E. THAT INTEREST WAS PAID ON THE ADVANCES RECEIVED AGA INST SALES] FALLS. IMPUGNED DISALLOWANCE, MADE ON ERRONEOUS APPRECIATI ON OF FACTS, IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 17. ON THE OTHER HAND, LD.DR RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 18. ON DUE CONSIDERATION OF THE ABOVE FACT, WE FIND THAT SAME AMOUNTS CONTINUED FROM EARLIER YEARS TO THIS YEAR. ON THES E VERY ADVANCES PAYMENT OF INTEREST EXPENDITURE WERE ALLOWED TO THE ASSESSEE IN EARLIER YEARS. THE REVENUE DID NOT CHALLENGE THE ORDER OF THE LD.CIT(A). HENCE, REVENUE CANNOT CHALLENGE THIS ISSUE IN THIS YEAR. THE SALES ADVANCES RECEIVED BY THE ASSESSEE WERE ULTIMATELY R EPAID ON 04/12/2014 AS NOTICED BY THE LD.CIT(A) IN AY 2011-12. IT IS A LSO IMPORTANT TO NOTE THAT ITS A TRANSACTION BETWEEN BUSINESS MAN, IF IT IS AGREED THAT ON SALE ADVANCES, INTEREST HAS TO BE PAID THEN HOW THE ASSE SSING OFFICER CAN DISALLOW PAYMENT OF SUCH INTEREST BY THE ASSESSEE T O ITS CREDITOR. THEREFORE, WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. ITA NO.1195/AHD /2017 PRIYA BLUE INDUSTRIES PVT.LTD. VS. ACIT ASST.YEAR 2012-13 - 9 - 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE COURT ON 15 TH FEBRUARY-2019 AT AHMEDABAD. SD/- SD/- ( AMARJIT SINGH ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 15/ 02 /2019 &.., .(../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-6, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION ..14.2.19 (DICTATION-PAD 16- PA GES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..15.2.19 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.15.2.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 15.2.19 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER