JCIT (OSD), Ludhiana V. Sh. Bharti Bhushan Jindal, Ludhiana

ITA 1237/CHANDI/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60864 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-05-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 22-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: N K AGGARW AL
• Keywords: Gift; Revenue expenditure; Capital expenditure
• Section: 56(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI T.R. SOOD, AM AND MS. SUSHMA CHOWLA, JM ITA NO. 1237/CHD/2011 ASSESSMENT YEAR: 2008-09 J.C.I.T. (OSD) V. BHARTI BHUSHAN JINDAL CIRCLE I PROP M/S JINDAL ELECTRIC & LUDHIANA MACHINERY CORP C-57, FOCAL POINT LUDHIANA ACVPJ 3724 B (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI N.K. SAINI RESPONDENT BY: S/SHRI TEJ MOHAN SINGH & N.K. AGGARW AL DATE OF HEARING: 16.05.2012 DATE OF PRONOUNCEMENT: 24.05.2012 ORDER PER T.R. SOOD, A.M IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWIN G GROUNDS: 1 THAT THE LD. CIT(A) HAS ERRED IN LAW IN DELETIN G THE ADDITION OF RS. 50,00,000/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF INCOME FROM OTHER SOURCES BY IGNORING THE PROVISIONS OF SECTIO N 56(2)(VI) AS DISCUSSED IN DETAIL BY THE ASSESSING OFFICER IN PAR A 5.4 OF THE ASSESSMENT ORDER. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW IN DELETIN G THE ADDITION OF RS. 1,50,000/- CONSIDERED BY THE ASSESSING OFFICER AS C APITAL EXPENDITURE WHEREAS THE ASSESSING OFFICER HAS RIGHTLY MADE THE ADDITION BY HOLDING DISCRIMATION BETWEEN A CAPITAL AND REVENUE EXPENDIT URE IN DETAIL VIDE PARA 6.3 OF THE ASSESSING OFFICER BY REPRODUCING TH E RELEVANT PORTION OF THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE O F ASSAM BENGAL CEMENT COMPANY REPORTED AT 27 ITR 34. 2. GROUND NO. 1 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS RECEIVED A SUM OF RS. 50.00 LAKHS FROM JINDAL ELECT RICALS WHICH IS SHOWN IN THE BALANCE SHEET AS LOAN. IT WAS FURTHER NOTICED THAT NO INTEREST WAS PAID ON THIS LOAN. THEREFORE, THE ASSESSING OFFICER ISSUED A S HOW CAUSE NOTICE THAT AS TO WHY THIS INTEREST FREE UNSECURED LOAN BE NOT TREATE D AS INCOME FROM OTHER SOURCES U/S 56(2)(VI). IN RESPONSE IT WAS MAINLY S TATED THAT THE PROVISIONS OF SECTION 56(2) WERE INTRODUCED TO AVOID MONEY LAUNDE RING CASES AND THESE 2 PROVISIONS WERE BASICALLY APPLICABLE IN RELATION TO GIFTS BECAUSE GIFT TAX ACT HAD ALREADY BEEN REPEALED. RELIANCE WAS ALSO PLACED ON SOME CASE LAWS AND SPEECH OF THE FINANCE MINISTER AT THE TIME OF INTRO DUCTION OF FINANCE (NO. 2) BILL, 2004. IT WAS FURTHER SUBMITTED THAT MONEY WAS RECE IVED FROM HUF AND THEREFORE, THE SAME WAS EXEMPT U/S 10(2). HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THESE EXPLANATIONS BECAUSE THE ASSESSEE WAS NOT PAYING ANY INTEREST ON THE LOANS AND PROPRIETARY CONCERN OF HU F WAS NOT COVERED BY THE DEFINITION OF RELATIVE GIVEN IN SECTION 56(2)(VI). IT WAS ALSO OBSERVED THAT THE MONEY HAS BEEN RECEIVED FROM PROPRIETARY CONCERN OF THE HUF AND INDIRECTLY FROM HUF AND THEREFORE, THE SAME WAS NOT COVERED EV EN BY SECTION 10(2). IN THIS BACKGROUND A SUM OF RS. 50.00 LAKHS WAS ADDED TO THE INCOME OF THE ASSESSEE U/S 56(2)(VI). 3. ON APPEAL BEFORE THE LD. CIT(A), IT WAS SUBMITTE D THAT THE ISSUE WAS COVERED BY THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. SARANPAL SINGH (HUF) 237 CTR 50. 4. THE LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS O BSERVED THAT THE ASSESSING OFFICER HIMSELF HAS RECORDED IN THE ASS ESSMENT ORDER THAT THE AMOUNT WAS RECEIVED FROM HUF AND WAS RECORDED IN TH E BALANCE SHEET AS LIABILITY OF UNSECURED LOAN. THEREFORE, THE ISSUE WAS COVERED BY THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF SARA NPAL SINGH (HUF) (SUPRA) AND ACCORDINGLY HE DELETED THE ADDITION. 5. BEFORE US, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF ASSESSING OFFICER. 6. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BECAUS E THE AMOUNT WAS TAKEN AS LOAN FROM HUF AND WAS REFLECTED AS LOAN AND HE REFE RRED TO PAGE 8 OF THE PAPER BOOK WHICH IS BALANCE SHEET OF THE ASSESSEES PROPR IETARY CONCERN. HE ALSO SUBMITTED THAT IN ANY CASE THE LOAN HAS BEEN RETURN ED IN THE NEXT YEAR. 3 7. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. TH E AMOUNT HAS BEEN CLEARLY REFLECTED IN THE BALANCE SHEET AS LOAN. EVEN THE A SSESSING OFFICER AFTER EXAMINING THE SUBMISSIONS AS RECORDED THE FOLLOWING FINDINGS: THE ASSESSEE, SHRI BHARTI BHUSHAN JINDAL HAS RECEI VED THE SUM OF RS. 50,00,000/- FROM JINDAL ELECTRICALS WHICH IS A PROP RIETORSHIP CONCERN OF BHARTI BHUSHAN JINDAL HUF, WHICH HAS BEEN SHOWN AS UNSECURED LOAN. BUT THE ASSESSEE IS NOT PAYING ANY INTEREST ON THE LOAN. IT IS APPARENT THAT THERE IS NO CONSIDERATION INVOLVED IN THE RECE IPT OF THIS SUM FROM THE PROPRIETORSHIP OF THE HUF AS THE ASSESSEE IS NOT PA YING ANY INTEREST ON IT. THE PROPRIETORSHIP OF THE HUF IS NO COVERED BY THE DEFINITION OF RELATIVE AS IN SECTION 56(2)(VI). THEREFORE, THER EFORE, THE SUM RECEIVED BY THE ASSESSEE FROM THE HUF CLEARLY FALLS WITHIN T HE PURVIEW OF INCOME FROM OTHER SOURCES U/S 56(2)(VI). THEREFORE, THE A MOUNT HAS BEEN RECEIVED GRATUITOUSLY (WITHOUT CONSIDERATION). THUS IT IS CLEAR THAT THE AMOUNT HAS BEEN TAKEN AS LOAN AS UNSECURED LOAN. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. SARANPAL SINGH (HUF) (SUPRA) HAS CLEARLY HELD THAT AN AMOUNT CONTEMPLATE D U/S 56(2)(V) CAN NOT INCLUDE LOAN WHICH IS SHOWN TO HAVE BEEN REPAID. S INCE THE AMOUNT HAS BEEN SHOWN AS LOAN AND IS ALSO STATED TO HAVE BEEN PAID, THE DECISION OF HON'BLE HIGH COURT IS CLEARLY APPLICABLE. ACCORDINGLY WE F IND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND CONFIRM THE SAME. 8. GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAD CLAIMED A SUM OF RS. 1,50,000/- AS CONSULTANCY CHAR GES PAID TO M/S JEET ENGINEERING, BARODA. IN RESPONSE TO A QUERY INITIA LLY IT WAS STATED THAT THE AMOUNT WAS PAID FOR CONSULTANCY OF DESIGNING THE EQ UIPMENT AS PER SPECIFICATIONS OF THE EXPORT ORDER FROM M/S SURYA M INERALS PVT LTD, ZAMBIA AND TAX WAS ALSO DEDUCTED @ 11.33%. THE ASSESSEE WAS A SKED THAT WHY THIS EXPENDITURE BE NOT TREATED AS CAPITAL EXPENDITURE. IN RESPONSE IT WAS STATED THAT THE AMOUNT WAS BASICALLY PAID FOR ASSISTANCE PROVID ED FOR EXECUTION OF EXPORT ORDER / SALES FOR AN AMOUNT OF RS. 27,91,000/-. TH US IT WAS CLAIMED THAT IT WAS A KIND OF COMMISSION WHICH WAS ALLOWABLE BEING BUSI NESS EXPENDITURE. HOWEVER, THE ASSESSING OFFICER WAS OF THE OPINION T HAT IT WAS CONSULTANCY 4 CHARGES FOR DESIGNING OF EQUIPMENT AND THAT BENEFIT WAS OF ENDURING NATURE AND THUS THE SAME WAS DISALLOWED. 9. ON APPEAL BEFORE THE LD. CIT(A), IT WAS MAINLY S TATED THAT IT WAS A KIND OF COMMISSION PAID FOR NEGOTIATION OF THE ORDER AND EX ECUTION OF THE SAME. THE LD. CIT(A) IN VIEW OF THIS STAND SOUGHT REMAND REPO RT WHEREIN THE PRESENT ASSESSING OFFICER REITERATED THE STAND TAKEN BY HIS PREDECESSOR. IN COUNTER- COMMENTS IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS MISUNDERSTOOD AND WRONGLY INTERPRETED T HE EXPRESSION OF CONSULTANCY FOR DESIGNING EQUIPMENT. THE FIRM M/S JEET ENGINEERS WAS PROVIDING THE SERVICES BY WAY OF SOURCING, EXPORT, INSTALLATION OF VARIOUS PROJECTS AND DESIGNING EQUIPMENTS. IT WAS POINTED OUT THAT THE ASSESSEE WAS MANUFACTURER OF RECTIFIERS EACH RECTIFIERS WAS BEIN G TAILORED MADE AS PER THE REQUIREMENT AND SPECIFICATIONS OF THE CUSTOMERS AND IN THIS REGARD SOME INVOICES ETC. WERE FILED. 10. THE LD. CIT(A) AGREED WITH THE SUBMISSIONS AND ALLOWED THE EXPENSES BECAUSE THE SAME HAD BEEN CONFIRMED BY THE RECIPIEN T ON ACCOUNT OF SOURCING, EXPORT, INSTALLATION AND NOT FOR DESIGNING OF ANY E QUIPMENT. 11. BEFORE US, THE LD. DR FOR THE REVENUE RELIED ON THE ORDER OF ASSESSING OFFICER. 12. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSE SSEE SUPPORTED THE ORDER OF THE LD. CIT(A). 13. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE LD. CIT(A) HAS DECIDED THE ISSUE VIDE PARA 8 WHICH IS AS UNDER: 8 I HAVE CONSIDERED THE FACTS OF THE CASE, THE BAS IS OF ASSESSING OFFICERS CONCLUSION AND THE SUBMISSIONS OF THE A.R ON THE ISSUE. IT IS A MATTER OF FACT THAT AN AMOUNT OF RS. 1,50,000/- AND THE SAME HAS BEEN CONFIRMED BY THE RECIPIENT TO BE ON ACCOUNT OF SOU RCING, EXPORT, INSTALLATION AND NOT FOR DESIGNING OF ANY EQUIPMENT . IT IS ALSO A MATTER OF FACT THAT THE APPELLANT HAS BEEN IN THE BUSINESS OF MANUFACTURING OF RECTIFIERS FOR VERY LONG AND SIMILAR RECTIFIERS HAD BEEN SUPPLIED TO DIFFERENT CUSTOMERS EARLIER THAN THIS SALE AS WELL. THIS ONL Y MEANT THAT THE PRODUCT 5 IN QUESTION HAS BEEN DESIGNED IN HOUSE BY THE ASSES SEE AND THE SERVICES PROVIDED BY M/S JEET ENGINEERS ARE ONLY IN THE NATURE OF FACILITATING THE SALES OF THE PRODUCT. EVEN OTHERW ISE AN AMOUNT OF RS. 1,50,000/- IS TOO SMALL TO BE PAID AS REMUNERATION FOR DESIGNING OF RECTIFIERS. AS SUCH THERE IS NO EVIDENCE TO HOLD T HAT THE PAYMENT MADE WAS FOR THE PURPOSES OF DESIGNING. THE CLAIM OF TH E APPELLANT THAT THE SAME REPRESENTS REVENUE EXPENDITURE IS CORRECT AND THEREFORE, ADDITION DESERVES TO BE DELETED. 14. FROM THE REPLY IN THE COUNTER-COMMENTS GIVEN BY THE ASSESSEE TO THE REMAND REPORT OF THE ASSESSING OFFICER, IT BECOMES CLEAR THAT THE MONEY WAS PAID BASICALLY FOR SOURCING OF THE ORDER AND NOT AS FEE FOR DESIGNING OF EQUIPMENT. THEREFORE, WE ARE OF THE OPINION THAT T HE LD. CIT(A) HAS CORRECTLY DECIDED THE ISSUE AND NO INTERFERENCE IS CALLED FOR IN THE ORDER. 15 IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED ON 24.05 .2012 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 24.05 .2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/ THE DR 6