DCIT, Circle - 4, Kolkata, Kolkata V. M/s. Warren Tea Ltd., Kolkata

ITA 1243/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48205 (ITAT-KOLKATA)
• Duration Of Justice: 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 1997-1998
• Appeal Filed On: 16-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K PRAMANICK
• Assessee Lawyers: S BANDYOPADHYAY
• Keywords: Opportunity of being heard; Additional evidence; Notional interest; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE . . , ! '# '# '# '# /AND ' # , ! ) [BEFORE HONBLE SHRI S. V. MEHROTRA, AM & HONBLE S RI MAHAVIR SINGH, JM] #$ #$ #$ #$ / I.T.A NO. 1243/KOL/2010 %& ''( %& ''( %& ''( %& ''(/ // / ASSESSMENT YEAR: 1997-98 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. WARRE N TEA LTD. CIRCLE-4, KOLKATA. ( *+ /APPELLANT ) (,-*+/ RESPONDENT ) *+ . / / FOR THE APPELLANT: SHRI A. K. PRAMANICK ,-*+ . / / FOR THE RESPONDENT: SHRI S. BANDYOPADHYAY 0 / ORDER PER MAHAVIR SINGH, JM/ ' # ' # ' # ' # , ! ! ! ! : THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF CIT(A)-VI, KOLKATA IN APPEAL NO.1072/CIT(A)-VI/09-10/SR-2/KOL VIDE DATED 18.03.2 010. THE ASSESSMENT WAS FRAMED BY J.C., SPL. RANGE-2, KOLKATA U/S.143(3) OF THE INCOM E TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 1997-98 VIDE HIS ORD ER DATED 14.3.2000. 2. THE FIRST ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF NOTIONAL INTEREST BY AO IN REGARD T O INTEREST FREE ADVANCE TO M/S. WARREN INDUSTRIAL LTD. (IN SHORT WIL). FOR THIS, THE REVE NUE HAS RAISED THE FOLLOWING GROUND NO.1: 1. THAT, THE LD. CIT(A) HAS ERRED IN LAW AS WELL A S ON FACTS IN DELETING THE ADDITION OF RS.19.01 LAC BEING NOTIONAL INTEREST ON LOAN GIVEN TO M/S. WARREN INDUSTRIAL LTD., A COMPANY UNDER THE SAME MANAGEMENT WITHOUT APPRECIAT ING THE FACTS THAT THE DIRECTORS OF BOTH THE COMPANIES ARE SAME AND PAYMENTS WERE MA DE BY THE ASSESSEE COMPANY TO M/S. WARREN INDUSTRIAL LTD. INCURRED ON BEHALF OF T HE ASSESSEE COMPANY. 3. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSING OFFICER HAS DISALLOWED THE N OTIONAL INTEREST AMOUNTING TO RS.19.01 LACS ON THE BASIS THAT THE ASSESSEE COMPANY HAS ADVANCED ADJUSTABLE LOAN OF RS.111.85 LACS TO WIL AS INTEREST FREE ADVANCE, A SISTER CONCERN OF THE A SSESSEE, ENGAGED IN THE BUSINESS OF SUPPLY OF MACHINERY ETC. AND ALSO SERVICING AND REPAIRING OF PLANT AND MACHINERY. ACCORDINGLY, ASSESSING OFFICER COMPUTED DISALLOWANCE OF INTEREST AT 17% ON RS.111.85 LACS AND DISALLOWED A SUM OF RS.19.01 LAC AS INADMISSIBLE BUSINESS EXPE NDITURE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO DELETED THE ADDITION BY R ELYING ON THE CASE OF HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT (2007) 28 8 ITR 1 (SC) BY GIVING FOLLOWING FINDING: 2 ITA 1243/K/2010 M/S. WARREN TEA LTD.. A.Y.1997-98 I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND ALSO THE ORDER OF THE A.O. AS SEEN FROM THE DETAILS FURNISHED BY THE APPELLANT THE AMOUNTS WERE ADVANCED TO WARRAN INDUSTRIAL LTD. (SIL) IN VIEW OF COMMERCIAL EXPEDIENCY. THE DECREASE IN ADVANCE NOTICED BY THE AO WAS ON ACCOUNT OF ADJUSTM ENTS MADE FOR THE DEBIT NOTICES RAISED BY WIL. THE AMOUNT OF ADVANCE WAS ADJUSTED TO THE EXPENDITURE ON BEHALF OF WIL. THE HONBLE ITAT IN THE CASE OF THE APPELLANT ON THE SAME ISSUE FOR THE EARLIER ASSESSMENT YEAR 1994-95, 1995-96 AND 1996-97 DECIDE D THAT IMPOSITION OF NOTIONAL INTEREST FOR ADVANCES MADE TO WIL IN THE SAME MANAG EMENT OF THE APPELLANT COMPANY DOES NOT WARRANT DISALLOWANCES AND UPHELD THE APPEL LANTS CONTENTION IN APPELLANTS FAVOUR. RELYING ON THE DECISION OF THE HONBLE ITA T AND ALSO THE DECISION OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF S. A. BUILDERS LTD. VS. CIT (APPEALS) (2007) 288 ITR (SC) 1, I DIRECT THE A.O. TO DELETE THE DISALLOWANCE. THIS GROUND OF APPEAL IS ALLOWED. WE FIND THAT THE ASSESSEE BEFORE THE LOWER AUTHORI TIES STATED THAT WIL IS UNDER THE SAME MANAGEMENT AND UNDERTAKES JOBS LIKE MANUFACTURE OF TEA MACHINERY, SHARPENING OF CTC SEGMENTS, REPAIRING AND MAINTENANCE OF MACHINERIES AND MACHINERY PARTS ETC. IT WAS CLAIMED THAT WIL IS ENTRUSTED WITH THE TICKETING FACILITIES FOR INTERNATIONAL AND DOMESTIC TOURS AS WELL AS HOTEL BOOKING FACILITIES FOR THE ASSESSEE COMPANY. THE ASSESSEE BEFORE US CONTENDED THAT THE ADVANCES MADE BY THE ASSESSEE WAS FOR SMOOTH COMPLE TION OF JOBS ENTRUSTED TO WIL, AS VARIOUS JOBS WERE ENTRUSTED TO THE SAME, AND HENCE, THERE INVOLVES ELEMENT OF COMMERCIAL EXPEDIENCY FOR MAKING THIS ADVANCE. EVEN OTHERWISE , THE ASSESSEES CONTENTION BEFORE THE LOWER AUTHORITIES AND EVEN NOW BEFORE US IS THAT TH E ADVANCE IS MADE OUT OF RESERVE AND SURPLUS AND THE COMPANYS OWN FUND I.E. SHAREHOLDERS EQUIT Y IS AT RS.52.90 CR. EVEN OTHERWISE THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ISSUE IN A SSESSEES OWN CASE IN EARLIER YEARS IN ITA NO.720/CAL/98 DATED 15.2.200 FOR ASSESSMENT YEAR 19 94-95, IN ITA NO.202/KOL/2005 DATED 8.12.2006 FOR ASSESSMENT YEAR 1995-96 AND IN ITA NO .1564/KOL/2005 DATED 27.1.2006 FOR ASSESSMENT YEAR 1996-97 IS COVERED. WE FIND THAT E VEN ON REASONING THAT THERE IS COMMERCIAL EXPEDIENCY AND THE CASE LAW RELIED ON BY THE LOWER AUTHORITIES AND THE ASSESSEE IN THE CASE OF S. A. BUILDERS LTD. (SUPRA) APPLIES TO THIS CASE OF TH E ASSESSEE. EVEN OTHERWISE, THE ASSESSEES RESERVE AND SURPLUS FUND AND ASSESSEES OWN FUND I. E. SHAREHOLDERS EQUITY IS AT RS.52.90 CR. IS AVAILABLE FREE OF INTEREST AND THE INTEREST FREE AD VANCE TO WIL IS LESSER AMOUNT, HENCE FOLLOWING THE CASE LAW OF HONBLE APEX COURT IN THE CASE OF M UNJAL SALES CORPORATION V. CIT (2008) 298 ITR 298 (SC), WE UPHOLD THE ORDER OF CIT(A). THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 4. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION OF PACKING CHARGES. FOR THIS, THE REVENUE HAS RAISED FOLLOWING GROUND NO.2: 2. THAT LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING THE ADDITION OF RS.8,19,079/- ON ACCOUNT OF PACKET TEA EXPENSES WIT HOUT APPRECIATING THE FACTS THAT A.O. DISALLOWED THE SAME AS THE ASSESEE HAD FAILED TO GI VE ANY DOCUMENT AND EVEN INDICATE THE EXTRA AMOUNT EARNED FOR SUCH EXPENSES AND RELYING O N ADDITIONAL EVIDENCE PRODUCED BY 3 ITA 1243/K/2010 M/S. WARREN TEA LTD.. A.Y.1997-98 ASSESSEE LD. CIT(A) DELETED THE ADDITION, WITHOUT A LLOWING ANY OPPORTUNITY OF BEING HEARD. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSING OFFICER DURING THE COURS E OF ASSESSMENT PROCEEDINGS DISALLOWED PACKING CHARGES PAID BY THE ASSESSEE COMPANY FOR PA CKING OF TEA EXPORTED TO IRAN I.E. STATE TEA ORGANISATION, IRAN. THE ASSESSEE CONTENDED THAT IT HAS EXPORTED TEA AMOUNTING TO RS. 1.02 CR. TO STATE TEA ORGANISATION, IRAN AND FOR THIS, IT HAS T O DO SPECIALIZED PACKING AS REQUIRED BY THE CUSTOMER. ACCORDINGLY, IT HAS TO INCUR PACKING EXP ENSES AT RS.8 LACS AS PER THE DEMAND AND BUYERS SPECIFICATIONS. WE FIND THAT THE CIT(A) HA S DELETED THE DISALLOWANCE EXACTLY ON SAME REASONING BY GIVING FOLLOWING FINDING: I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND THE ORDER OF THE A.O. THE A.O. OBSERVED THAT A SUM OF RS.8,19,079/- APPEARS A S PACKET TEA EXPENSES RELATING TO EXPORTS OF TEA IN PACKET FORM SPECIFICALLY AGAINST ORDERS FOR EXPORTS. THE A.O. CONCLUDED THAT SINCE NO EXTRA AMOUNT WAS EARNED FOR SUCH SMALL PACKAGING TO MEET THE EXPORT COMMITMENT DISALLOWED AN AMOUNT OF RS. 8 LAC S AND ADDED TO THE INCOME. AS SEEN FROM THE DETAILS FURNISHED BY THE APPELLANT TH E ORDER PROCURED FOR EXPORTS INCLUDES THE EXPENDITURE OF PACKING AS WELL. THE APPELLANT SUBMITTED THAT EXTRA INCOME WHATEVER HE EARNED IS REFLECTED IN THE GROSS SALES AND THE RELEVANT EXPENDITURE DEBITED TO THE COMPOSITE EXPENDITURE. THE APPELLANT HAS EX PORTED THE PACKET TEA ON SPECIFIC ORDER TO IRAN. THE SALE PROCEEDS HAVE BEEN TAKEN I NTO ACCOUNT IN THE GROSS SALES. HENCE, THE EXPENDITURE RELEVANT TO THIS IS INCURRED FOR BUSINESS PURPOSE AND TO BE ALLOWED U/S. 37. HENCE, I DIRECT THE A.O. TO DELET E THE ADDITION. THIS GROUND OF APPEAL IS ALLOWED. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND ACC ORDINGLY, WE CONFIRM THE SAME. THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 6. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION OF GOLF EXPENSES. FOR THIS, THE REVENUE HA S RAISED THE FOLLOWING GROUND NO.3: 3. THAT LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING THE ADDITION OF RS.39,591/- TOWARDS GOLF EXPENSES WITHOUT APPRECIAT ING THE FACTS THAT THE ASSESEE WAS IN POSITION TO KNOW THE ACTUAL EXPENDITURE RELATING TO A.Y 1996-97 AS THE ACCOUNTS OF A.Y 1996-97 WAS FINALIZED ON 20.08.1996 FAR AWAY FR OM THE LAST DATE OF P.Y 1995-96 I.E. 31.03.1996 CORRESPONDING TO A.Y 1996-97. 7. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE COMPANY HAS SPENT AMOUNT FOR SPONSORSHIP OF GOLF TOURNAMENT IN THE END OF PREVIOUS YEAR OF ASSESSMENT YEAR AND ACT UAL EXPENDITURE WAS NOT KNOWN AT THE TIME OF FINALIZATION OF ACCOUNTS AND SAME WAS ACCOUNTED FOR IN THE PRESENT ASSESSMENT YEAR. WE FIND THAT THE ASSESSEE HAS RECEIVED THE PAYMENTS IN THE RELEVANT ASSESSMENT YEAR AND BOOKED THE EXPENDITURE. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND ACCORDINGLY, WE CONFIRM THE DELETION. THIS ISSUE OF THE REVENUES APPEAL IS AL SO DISMISSED. 4 ITA 1243/K/2010 M/S. WARREN TEA LTD.. A.Y.1997-98 8. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF ADVERTISEMENT EXPENSES. FOR THIS, THE REVENUE HAS RAISED THE FOLLOWING GROUND NO.4: 4. THAT LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING THE ADDITION OF RS. ONE LAC ON ACCOUNT OF PAYMENT MADE TO CLUB WITHOUT APPRECIATING THE FACT THAT SUCH EXPENSES WAS NOT PROVED TO BE WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS. 9. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS ACTUALLY INCURRED EXP ENDITURE AT RS.92,500/- AS AGAINST THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AT RS.1 LAC ON ACCOUNT OF CLUB EXPENSES. THESE ARE ACTUALLY PAYMENT MADE FOR THE PURPOSE OF ADVERTISEM ENT TO THE CLUBS IN THE FORM OF HOARDING, BANNER AND SOUVENIR ETC. ONCE THIS EXPENDITURE INC URRED AT RS.92,500/- AND THAT ALSO FOR HOARDING, BANNER AND SOUVENIR ETC., WE FIND NO INFI RMITY IN THE ORDER OF CIT(A) DELETING THE DISALLOWANCE. ACCORDINGLY, THIS ISSUE OF THE REVEN UES APPEAL IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 11. ORDER PRONOUNCED IN OPEN COURT ON 10.6.2011 SD/- SD/- . . ! ' '' ' # # # # , ! (S. V. MEHROTRA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( 1 1 1 1) )) ) DATED 10TH JUNE, 2011 '23 %45 6' JD.(SR.P.S.) 0 . ,7 87'9- COPY OF THE ORDER FORWARDED TO: 1 . *+ / APPELLANT DCIT, CIRCLE-4, KOLKATA 2 ,-*+ / RESPONDENT, M/S. WARREN TEA LTD., 31, CHOWRINGHEE ROAD, KOLKATA- 700 016. 3 . 0% ( )/ THE CIT(A), KOLKATA 4. 0% / CIT, KOLKATA 5 . '? ,% / DR, KOLKATA BENCHES, KOLKATA -7 ,/ TRUE COPY, 0%@/ BY ORDER, #5 /ASSTT. REGISTRAR .