ACIT CIR-11[1], Pune V. M/s Lab India Instruments P. Ltd, Pune

ITA 133/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76153 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 14-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Keywords: Proportionate interest; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.133/PN/2013 A.Y. 2008-09 ACIT, CIRCLE 11 (2), PUNE APPELLANT VS. M/S. LAB INDIA INSTRUMENTS PVT. LTD., 34/38, BHARAT KUNJ SOCIETY II, ERANDWANE, PUNE - 411004 PAN: AAACL5140P RESPONDENT APPELLANT BY : SHRI P.L. P ATHADE RESPONDENT BY : SHRI NIK HIL PATHAK DATE OF HEARING: 18.02.2014 DATE OF ORDER : 24.02.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-I, [SHORT CI T(A)-I] PUNE, DATED 29.08.2012 FOR A.Y. 2008-09 ON THE FOLLOWING GROUNDS. 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GRO SSLY ERRED IN DELETING THE DISALLOWANCE OF RS.15,32,834/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NON- BUSINESS INTEREST FREE ADVANCES INSTEAD OF CONFIRMI NG SUCH DISALLOWANCE. 3. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GRO SSLY ERRED IN HOLDING THAT THE STAND TAKEN BY THE ASSESS ING OFFICER THAT IF THE ASSESSEE HAD NOT GIVEN OWN FUND S TO ITS 2 SISTER CONCERNS WITHOUT CHARGING ANY INTEREST, IT W OULD NOT HAVE HAD TO BORROW INTEREST-BEARING LOANS FOR I TS BUSINESS PURPOSES, AS AMOUNTING TO STEPPING INTO TH E SHOES OF THE ASSESSEE. 4. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GRO SSLY ERRED IN FAILING TO APPRECIATE THAT THE RATIO OF TH E DECISION OF THE KERALA HIGH COURT IN THE CASE OF COMMISSIONE R OF INCOME-TAX VS. V I BABY(123 TAXMAN 894(KER) SQUAREL Y APPLIES TO THE FACTS OF THE ASSESSEE'S CASE AND, TH EREFORE, THE DISALLOWANCE MADE IN THE ASSESSMENT OUGHT TO HA VE BEEN CONFIRMED. 5. IN VIEW OF THE AFOREMENTIONED DECISION, THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GROSSLY ERRED I N HOLDING THAT ' WHEN IT IS DISCERNIBLE THAT THE BORR OWED FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF BUSINES S, NOTHING FURTHER IS REQUIRED TO BE LOOKED INTO EVEN IF THE ASSESSEE HAS ADVANCED ITS FUNDS WITHOUT INTEREST, WITHOUT OR WITH BUSINESS EXIGENCY.' 6. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GRO SSLY ERRED IN RESTRICTING THE DISALLOWANCE FROM OUT OF T HE ASSESSEE'S CLAIM TOWARDS FOREIGN TRAVEL EXPENSES TO RS.1,50,000/- INSTEAD OF CONFIRMING THE ENTIRE DISALLOWANCE OF RS.3,71,080/-. 7. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GRO SSLY ERRED IN RESTRICTING THE DISALLOWANCE AS ABOVE ON T HE BASIS OF THE ADDITIONAL EVIDENCE FURNISHED BY THE A SSESSEE AND WITHOUT GIVING THE ASSESSING OFFICER OPPORTUNIT Y TO CONSIDER OR REBUT SUCH EVIDENCE, THUS VIOLATING THE MANDATE OF RULE 46A OF THE INCOME-TAX RULES, 1962. 8. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) EVE N OTHERWISE ERRED IN ALLOWING PART OF THE DISALLOWANC E OF FOREIGN TRAVEL EXPENSES WITHOUT APPRECIATING THAT T HE SO- CALLED ADDITIONAL EVIDENCE DID NOT ESTABLISH THE AS SESSEE'S CLAIM THAT THE IMPUGNED EXPENSES HAD BEEN INCURRED BY IT IN THE COURSE OF AND FOR THE PURPOSE OF ITS BUSI NESS. 9. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME-TAX(APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 10. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY OR ALL THE GROUNDS OF APPEAL. 3 2. THE ASSESSEE COMPANY IS CARRYING ON BUSINESS OF MARKETING OF HIGH TECH INSTRUMENTS OF FOREIGN COMPANIES, MANU FACTURING AND TRADING OF INSTRUMENTS. THESE INSTRUMENTS HAVE APPLICATION MAINLY IN RESEARCH LABORATORIES, PHARMACEUTICAL AND DRUG MANUFACTURING COMPANIES, GOVERNMENT RESEARCH INSTIT UTES, MANUFACTURING PROCESSES OF PETROCHEMICALS AND VARIO US OTHER MANUFACTURING COMPANIES. 3. THE FIRST ISSUE IS WITH REGARD TO DISALLOWANCE O F INTEREST OF 15,32,834/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF NON- BUSINESS INTEREST FROM ADVANCES. THE ASSESSING OFF ICER HAS OBSERVED THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES TO ITS SISTER CONCERN AND OTHERS OF 7,45,10,749/- AND HAD TAKEN INTEREST FREE LOAN OF 97,00,000/- FROM THE DIRECTORS. THE INTEREST DEBITED TO PROFIT & LOSS ACCOUNT ON LOANS WAS 31,18,000/- ON A LOAN AMOUNT OF 13,18,34,160/-. THE ASSESSEE WAS ASKED BY THE ASSESSING OFFICER TO SHOW CAUSE WH Y PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED AND ADDED BACK. THE ASSESSEE MADE A DETAILED SUBMISSION BEFORE THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER WHILE FINA LIZING THE ASSESSMENT ON THIS ISSUE, HELD THAT THE ASSESSEE HA D USED INTEREST BEARING BORROWED FUNDS TO THE EXTENT OF 6,48,10,749/- (I.E. 7,45,10,749 - 97,00,000/-) FOR THE PURPOSE OF GIVING NON- BUSINESS INTEREST FREE ADVANCES TO SISTER CONCERNS. THEREFORE, PROPORTIONATE EXPENDITURE WAS DISALLOWED U/S. 36(1) (III) OF ACT. CONSEQUENTLY, THE ASSESSING OFFICER DISALLOWED A SU M OF 15,32,834/-. 3.1 THE MATTER WAS CARRIED BEFORE THE FIRST APPELLA TE AUTHORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF O F ASSESSEE AND THE CIT(A) HAVING CONSIDERED THE SAME, HAS GRAN TED RELIEF TO THE ASSESSEE. THE SAME HAS BEEN OPPOSED ON BEHALF OF REVENUE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, INTER A LIA SUBMITTED 4 THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE D ISALLOWANCE OF 15,32,834/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF NON- BUSINESS INTEREST FREE ADVANCES. THE CIT(A) HAS ER RED IN HOLDING THAT THE STAND TAKEN BY THE ASSESSING OFFICER THAT IF THE ASSESSEE HAD NOT GIVEN OWN FUNDS TO ITS SISTER CONCERNS WITH OUT CHARGING ANY INTEREST, IT WOULD NOT HAVE HAD TO BORROW INTER EST-BEARING LOANS FOR ITS BUSINESS PURPOSES, AS AMOUNTING TO ST EPPING INTO THE SHOES OF THE ASSESSEE. IN SOME AND SUBSTANCE, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF THE ASSESSING OFFICER ON THE ISSUE AND THE LEARNED AUTH ORIZED REPRESENTATIVE HAS SUPPORTED THE ORDER OF CIT(A). 3.2 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT THE STAND OF THE ASSESSEE HAS BEEN THAT ALL INTEREST BEARING LOANS WERE TAKEN FOR THE PURPOSE O F SPECIFIC AND FOR PURCHASE OF ASSETS AND BEING HAVE DISBURSED THE LOAN DIRECTLY TO THE PARTIES FROM WHOM THE ASSETS WERE PURCHASED, WHICH WAS FOUND VERY CLEAR FROM THE CHART GIVEN BY THE ASSESS EE IN THEIR SUBMISSIONS BEFORE CIT(A). IN THE ABOVE BACKGROUND , THE ASSESSEE WAS OF THE VIEW THAT THERE WAS NO POSSIBIL ITY OF SUCH LOAN BEING USED BY BORROWERS FOR ANY OTHER PURPOSES . THE ASSESSING OFFICER HAS BROUGHT NOTHING ON RECORD TO SUGGEST TO DEMOLISH THIS CONTENTION OF THE ASSESSEE IN HIS ORD ER. THUS, FROM MATERIAL AVAILABLE ON RECORD, IT WAS OBSERVED THAT THE ASSESSEE WAS IN A POSITION TO ESTABLISH NEXUS BETWEEN THE BO RROWED FUNDS AND UTILIZATION FOR THE PURPOSE OF BUSINESS. IN TH IS BACKGROUND, IT WAS NOT JUSTIFIED ON THE PART OF ASSESSING OFFIC ER TO STEP INTO THE SHOES OF THE ASSESSEE WHO IS A BEST JUDGE OF IT S AFFAIRS. THE ASSESSING OFFICER HAS ALSO NOT DISPUTED THE FACT TH AT THE ASSESSEE HAS ADVANCED THE FUNDS TO ITS SISTER CONCERNS AND A SSOCIATE CONCERNS FOR BUSINESS EXIGENCIES. ONCE IT IS CLEAR THAT THE BORROWED FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE O F BUSINESS, NOTHING FURTHER IS REQUIRED TO BE LOOKED INTO, EVEN ASSESSEE HAS 5 ADVANCED HIS OWN FUNDS WITHOUT INTEREST OR WITH BUS INESS EXIGENCIES. THEREFORE, THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER WERE RIGHTLY DELETED BY THE CIT(A) WHICH NE EDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 4. THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OU T OF TRAVEL EXPENDITURE OF 3,71,080/-. THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF 3,71,080/- BEING EXPENDITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF TOUR AND TRAVELLING HOLDING THE SAME TO BE NOT FOR BUSINESS PURPOSE. 4.1 THE MATTER WAS CARRIED BEFORE THE FIRST APPELLA TE AUTHORITY, WHEREIN, VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF ASSESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) HAS GRAN TED RELIEF TO THE ASSESSEE BY WAY OF RESTRICTING THE DISALLOWANCE TO 1,50,000/- AND THE RELIEF GRANTED TO THE ASSESSEE H AS BEEN OPPOSED BEFORE US BY REVENUE. 4.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUB MITTED THAT THE CIT(A) HAS ERRED IN RESTRICTING FROM OUT O F ASSESSEES OWN CLAIM TOWARDS TRAVEL EXPENSES OF 1,50,000/- INSTEAD OF CONFIRMING THE ENTIRE DISALLOWANCE OF 3,71,080/-. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO OPPOSED THE ADMISS ION OF ADDITION EVIDENCE IN VIOLATION OF MANDATE RULE 46 W HILE GRANTING RELIEF TO THE ASSESSEE. IN SOME AND SUBSTANCE, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND, THE LEARNED AUTHORIZED REPRESENTATIVE HAS SUPPORTED THE ORDER OF CIT(A) AN D SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MA RKETING OF HIGH TECH INSTRUMENTS OF FOREIGN PARTIES. THESE I NSTRUMENTS ARE USED IN RESEARCH LABORATORIES, ETC. THES E INSTRUMENTS ARE USED BY SCIENTISTS/RESEARCH PERSONNEL OF THE CUSTOM ERS. CUSTOMERS, MANY TIMES PUT CONDITION IN PURCHASE ORD ERS THAT THE FIRST HAND TRAINING IS TO BE GIVEN TO CUSTOMER SCIENTISTS OR 6 SPECIALISTS IN MANUFACTURES LABORATORY OR TRAINING ESTABLISHMENT TO GET COMPLETE KNOWLEDGE OF INSTRUMENTS AND KNOW L ATEST TECHNOLOGICAL DEVELOPMENTS. THE COMPANY HAS INCURRE D TRAVELING EXPENDITURE OF 34,03,917/- ON SENDING CUSTOMERS PERSONNEL TO TRAINING ABROAD. THE LEARNED AUTHORIZED REPRESENTA TIVE HAS POINTED THAT THE PURCHASE ORDERS AND RELEVANT DATA TO THE ASSESSING OFFICER IN MANY CASES. BUT IN FEW CASES ASSESSEE WAS NOT ABLE TO PRODUCE THE DATA IN TIME GIVEN BY THE A SSESSING OFFICER. THIS DATA/ PURCHASE ORDERS WERE AVAILABLE WITH THE COMPANY. BUT IT WAS NOT POSSIBLE TO COLLECT THE SAM E IN TIME AT THE RELEVANT POINT OF TIME. THIS WAS DUE TO SALE OF ONE OF THE UNDERTAKING OF THE COMPANY TO THE OTHER COMPANY. EM PLOYEES AND DATA RELATING TO CUSTOMERS HAVE BEEN TRANSFERRE D TO PURCHASER COMPANY AND THEREFORE, ASSESSEE HAS NO DI RECT CONTROL OVER THE EMPLOYEES AND DATA. SO, THE ASSESSING OFFI CER DISALLOWED THE EXPENDITURE OF 3,71,080/-, FOR WANT OF EVIDENCE IN THE NATURE OF PURCHASE ORDERS CONTAINING THE CONDITION FOR FOREIGN TRAINING. SOME OF THE REMAINING PURCHASE ORDERS WH ICH WERE NOT PRODUCED AT THE TIME OF ASSESSMENT WERE OF COURSE P RODUCED BEFORE THE CIT(A) IN CONTINUATION OF EARLIER CLAIM AND CIT(A) ALLOWED THE SAME. THIS REASONED FINDING OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. THE ASSESSING OFFICER MADE DISALLOWANCE ON ACCOUNT OF FAILURE ON THE PART OF A SSESSEE TO SUBMIT THE DOCUMENTARY EVIDENCE AT THE RELEVANT POI NT OF TIME. THE ASSESSEE COULD NOT PRODUCE THE SAME OF THE PROO F AT THE TIME OF ASSESSMENT ORDER. HOWEVER, A COPY OF PURCHASE O RDER OF SCLINIGENE & GLENMARK AND EXPRESSED ITS INABILITY T O PRODUCE FURTHER EVIDENCE AS THE SAID BUSINESS DIVISION HAS BEEN SOLD OUT TO A DIFFERENT COMPANY. IN VIEW OF THIS, THE ASSES SEE WAS NOT ABLE TO PROVE THAT THE ENTIRE EXPENDITURE WAS INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. KEEPING TH IS IN VIEW, THE CIT(A) HAS RESTRICTED THE DISALLOWANCE TO 1,50,000/-. THIS 7 REASONED FINDING OF CIT(A) NEEDS NO INTERFERENCE FR OM OUR SIDE. WE UPHOLD THE SAME. 5. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 24 TH OF FEBRUARY, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 24 TH FEBRUARY, 2014 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A)-I, PUNE 4) THE CIT-I, PUNE 5) THE DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE