M/s. Kay Bouvet Engineering Ltd., Satara V. Deputy Commissioner of Income-tax,

ITA 1340/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0413 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 19-10-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 23-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NOS. 1340 & 1341/PN/2014 %' ( ')( / ASSESSMENT YEARS : 2008-09 & 2010-11 KAY BOUVET ENGINEERING LTD., N-3, ADDL. M.I.D.C., SATARA PAN : AABCK4669H ....... / APPELLANT ' /VS. DY. COMMISSIONER OF INCOME TAX , SATARA CIRCLE, SATARA / RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI REVENUE BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 19-10-2016 / DATE OF PRONOUNCEMENT : 30-11-2016 * / ORDER PER VIKAS AWASTHY, JM : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-III, PUNE DATED 1 9-03-2014 COMMON FOR THE ASSESSMENT YEARS 2008-09 & 2010-11. 2 ITA NOS. 1340 & 1341/PN/2014, A.YS. 2008-09 & 2010-11 SINCE, THE ISSUES RAISED IN BOTH THE APPEALS ARE COMMON T HE APPEALS ARE TAKEN UP TOGETHER FOR ADJUDICATION AND AR E DECIDED BY THIS SINGLE ORDER. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN T HE BUSINESS OF MANUFACTURING OF SUGAR MILL MACHINERY AND FABRICATION AND ASSEMBLY OF HEAVY ENGINEERING MACHINES. DURING THE COURS E OF SCRUTINY ASSESSMENT FOR THE ASSESSMENT YEAR 2008-09 T HE ASSESSING OFFICER INTER ALIA MADE ADDITIONS OF ` 7,56,321/- IN RESPECT OF CONTRACT RECEIPTS FROM HYDERABAD INDUSTRIES LTD. AND DISALLOWANCE O F ` 37,26,611/- U/S. 36(1)(III) OF THE INCOME TAX ACT, 1961 (HEREINAFT ER REFERRED TO AS THE ACT). IN ASSESSMENT YEAR 2010-11 THE ASSESSING OFFICER MADE DISALLOWANCE OF ` 29,43,757/- U/S. 36(1)(III) OF THE ACT. AGGRIEVED BY THE ASSESSMENT ORDERS FOR THE RESPECTIVE ASSESSMENT YEARS, THE ASSESSEE FILED APPEALS BEFORE THE COMMISSIONER O F INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) REJ ECTED THE CONTENTIONS OF THE ASSESSEE IN RESPECT OF AFORESAID ADDITIONS/DISALLOWANCES. NOW, THE ASSESSEE IS IN SECOND APP EAL ASSAILING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE ADDITIONS IN BOTH THE ASSESSMENT YEARS. 3. SHRI M.K. KULKARNI APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT GROUND NOS. 1 AND 2 IN THE GROUNDS OF APPEAL FOR AS SESSMENT YEAR 2008-09 ARE IN RESPECT OF ACTION OF COMMISSIONER OF INCOME TAX (APPEALS) IN UPHOLDING THE ADDITIONS OF ` 7,56,321/- IN RESPECT OF 3 ITA NOS. 1340 & 1341/PN/2014, A.YS. 2008-09 & 2010-11 CONTRACT RECEIPTS FROM HYDERABAD INDUSTRIES LTD. THE LD . AR CONTENDED THAT ADMITTEDLY BEFORE THE ASSESSING OFFICER THE ASSESSEE WAS NOT IN A POSITION TO RECONCILE THE DIFFERENCE BETWEEN THE AMOUNTS S HOWN IN FORM 26AS AND THE AMOUNTS REFLECTED IN BOOKS OF ACCOUNT OF THE ASSESSEE. THE ADDITION HAS BEEN MADE ON THE BASIS OF I NFORMATION CONTAINED IN FORM 26AS. HOWEVER, THE ASSESSEE FURNISHED RECONCILIATION CERTIFICATE FROM M/S. HYDERABAD INDUSTRIES LTD . BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE RECONCILIATION CERTIFICATE FURNISHED BY THE ASSESSEE WAS NOT CONSIDERED BY THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE CONTENTIONS OF THE ASSESSEE WERE REJECTED IN AN ARBITRARY AND UNJUSTIFIED MANNER. 3.1 IN RESPECT OF GROUND NO. 3 IN THE APPEAL FOR ASSESSME NT YEAR 2008-09 THE LD. AR SUBMITTED THAT THE AUTHORITIES BELOW H AVE ERRED IN MAKING DISALLOWANCE OF ` 37,26,611/- U/S. 36(1)(III) OF THE ACT ON ACCOUNT OF INTEREST PAID. THE AUTHORITIES BELOW HAVE IGNOR ED THE FACT THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AT TH E TIME OF MAKING ADVANCES. THE LD. AR REFERRED TO THE BALANCE SHEE T FOR ASSESSMENT YEAR 2008-09 PLACED ON RECORD AT PAGES 15 TO 22 OF THE PAPER BOOK. THE LD. AR POINTED OUT THAT AS ON 31-03-2008 THE AS SESSEE HAD RESERVES AND SURPLUS TO THE TUNE OF ` 9.77 CRORES AS AGAINST THE LOANS AND ADVANCES OF ` 3.54 CRORES ONLY. THE LD. AR FURTHER REFERRED TO LEDGER ACCOUNT OF M/S. KAY PULP AND PAPER MILLS LTD., A SIST ER CONCERN OF THE ASSESSEE TO WHOM ADVANCES WERE MADE AT PAGES 36 AND 37 OF THE PAPER BOOK. THE LD. AR CONTENDED THAT THE OPENING BALAN CE AS ON 1 ST APRILE, 2007 WAS ` 1.56 CRORES AND THE CLOSING BALANCE WAS ` 3.65 CRORES. THUS, DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2008-09 THE 4 ITA NOS. 1340 & 1341/PN/2014, A.YS. 2008-09 & 2010-11 ASSESSEE HAD ADVANCED ` 2.09 CRORES ONLY. NO ADDITION CAN BE MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST IF THE ASSESSEE IS ABLE T O SHOW THAT THE ASSESSEE HAD SUFFICIENT OWN INTEREST FREE FUNDS FOR MAK ING ADVANCES. MOREOVER, THE FUNDS WERE ADVANCED TO THE SIS TER CONCERN OUT OF BUSINESS EXIGENCIES. THE ASSESSEE HAD GIVEN CORPORATE GUARANTEE FOR THE LOAN TAKEN BY THE SISTER CONCERN. THE LD. AR IN ORDE R TO BUTTRESS HIS SUBMISSIONS PLACED RELIANCE ON THE FOLLOWING DECISIONS : I. COMMISSIONER OF INCOME TAX VS. COIMBATORE SALEM TRANSPORT (P) LTD., 61 ITR 480 (MAD.); II. DY. COMMISSIONER OF INCOME TAX VS. ASSAM INDUSTRIAL DEVELOPMENT CORPORATION LTD., 87 TTJ 1067 (ITAT-GAU.); III. P. JAYANTILAL & CO. (P) LTD. VS. DY. COMMISSIONER OF INCOME TAX , 97 TTJ 100 (ITAT-MUM); IV. COMMISSIONER OF INCOME TAX VS. RADICO KHAITAN LTD., 274 ITR 354 (ALL.). THE LD. AR CONTENDED THAT SIMILARLY, IN THE ASSESSMENT YE AR 2010-11 THE ASSESSEE HAD SUFFICIENT OWN INTEREST FREE FUND S FOR MAKING ADVANCES AND LOANS TO ITS SISTER CONCERN. THE REVENUE HAS NOT BEEN ABLE TO SHOW FROM RECORDS THAT THE ASSESSEE HAS DIVERT ED INTEREST BEARING FUNDS FOR MAKING INTEREST FREE ADVANCES TO SISTER CONCERNS. 3.2 THE LD. AR STATED AT THE BAR THAT HE IS NOT PRESSIN G GROUND NO. 4 RAISED IN THE APPEAL FOR ASSESSMENT YEAR 2008-09. 4. ON THE OTHER HAND SHRI HITENDRA NINAWE REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE FINDINGS OF COMMISSIONE R OF 5 ITA NOS. 1340 & 1341/PN/2014, A.YS. 2008-09 & 2010-11 INCOME TAX (APPEALS) AND PRAYED FOR DISMISSING BOTH THE A PPEALS OF THE ASSESSEE. IN RESPECT OF GROUND NOS. 1 AND 2 RAISED IN THE APPEAL FOR ASSESSMENT YEAR 2008-09, THE LD. DR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONSIDERED THE ALLEGED RECONCILIA TION CERTIFICATE ISSUED BY M/S. HYDERABAD INDUSTRIES LTD. A PE RUSAL OF THE CERTIFICATE WHICH IS PLACED AT PAGE 38 OF THE PAPER BOOK W OULD SHOW THAT M/S. HYDERABAD INDUSTRIES LTD. HAS NOT STATED TH AT THE TAX HAS BEEN DEDUCTED TWICE ON THE SAME AMOUNT. THE CERTIFICATE REITERATES THAT TAX HAS BEEN DEDUCTED AT SOURCE ON THE PAYMENT S MADE. THE CONTENTS OF THE CERTIFICATE HAVE BEEN REPRODUCED BY TH E COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER. IN RESPECT OF GROUN D NO. 3 IN THE APPEAL FOR THE ASSESSMENT YEAR 2008-09 AND THE SOLITARY GROUND RAISED IN THE ASSESSMENT YEAR 2010-11 IN RESPECT OF DISALLOWANCE OF INTEREST U/S. 36(1)(III) OF THE ACT, THE LD. DR SUBMITTED THAT THE ASSES SEE HAS NOT BEEN ABLE TO SHOW BUSINESS EXIGENCY FOR MAKING INTEREST FR EE LOANS AND ADVANCES. THE INTEREST FREE FUNDS OF THE ASSESSEE ARE LOCKED IN SOME OTHER INVESTMENTS AND THE ASSESSEE HAS DIVERTED INTERE ST BEARING FUNDS TO THE SISTER CONCERN. THE ASSESSEE HAS NOT PLACED ON RECORD ANY DOCUMENT TO SHOW THAT INTEREST FREE FUNDS WERE USED FOR DISCHARGING LOAN LIABILITY OF THE SISTER CONCERN. IN RESPECT OF CASE LAW RELIED ON BY THE LD. AR, THE LD. DR SUBMITTED THAT THE SAME ARE NOT A PPLICABLE AND ARE DISTINGUISHABLE ON FACTS. THE ASSESSEE HAS NOT BEEN ABLE TO SHOW ANY COMMON BUSINESS INTEREST WITH THE SISTER CONCERN. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED VARIOUS DOCUMENTS AND THE CASE LAW S ON WHICH 6 ITA NOS. 1340 & 1341/PN/2014, A.YS. 2008-09 & 2010-11 THE LD. AR OF THE ASSESSEE HAS PLACED RELIANCE TO FORTIFY HIS SUBM ISSIONS. THE FIRST ISSUE IN APPEAL FOR ASSESSMENT YEAR 2008-09 IS W ITH RESPECT TO ADDITION OF ` 7,56,321/-. THE ADDITION HAS BEEN MADE ON ACCOUNT OF DIFFERENCE BETWEEN THE PAYMENTS SHOWN IN FORM 26AS AND THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE CONTENTION OF THE ASSESSE E IS THAT M/S. HYDERABAD INDUSTRIES LTD. HAS DEDUCTED TDS TWICE ON T HE SAME PAYMENT. FIRST AT THE TIME OF ADVANCE PAYMENT OF ` 7,41,576/- AND SECOND TIME WHILE ISSUING INVOICE OF ` 7,56,744/-. THESE PAYMENTS ARE IN FACT ONE. AT THE TIME OF ASSESSMENT PROCEEDINGS THE A SSESSEE HAD NOT FURNISHED ANY DOCUMENT TO RECONCILE THE DIFFERENCE. DU RING THE FIRST APPELLATE PROCEEDINGS, THE ASSESSEE FURNISHED CERTIFICA TE ISSUED BY M/S. HYDERABAD INDUSTRIES LTD. A PERUSAL OF THE CERTIFICAT E AT PAGE 38 OF THE PAPER BOOK SHOWS THAT THE DEDUCTEE HAS ONLY C ERTIFIED THE DETAILS OF PAYMENTS MADE AND TDS DEDUCTED THEREON. THE DEDUC TEE HAS NOWHERE MENTIONED THAT THE TDS WAS DEDUCTED TWICE IN R ESPECT OF THE SAME PAYMENT. THE COMMISSIONER OF INCOME TAX (APPEALS) HA S CONSIDERED THE SAID CERTIFICATE AND EVEN REPRODUCED THE RELEVANT EXTRACT OF SAME IN THE IMPUGNED ORDER. THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING ALL THE FACTS AND DOCUMENTS, UPH ELD THE ADDITION BY HOLDING AS UNDER : 4.4.2.2 IT CAN BE SEEN THAT THE DEDUCTOR HAS NOWHE RE STATED THAT THE TAX HAS BEEN DEDUCTED TWICE OF THE SAME AMOUNT OR THERE WAS EXCESS DEDUCTION OF TAX AND IT WOULD APPEAR THAT THE ENTIR E AMOUNT OF RS.18,93,966/- HAD BEEN CREDITED TO THE ACCOUNT OF THE APPELLANT. EVEN PRESUMING THAT WHAT WAS ACTUALLY DUE TO THE APPELLA NT WAS RS.L1,52,390/- (RS.7,56,744 + 3,95,646), THE LEDGER EXTRACT ACCOUNT FURNISHED BY THE APPELLANT SHOWS THE GROSS AMOUNT A T RS.11,37,645/-. THEREFORE, THE NATURAL PRESUMPTION WOULD BE THAT TH E APPELLANT ACCOUNTED FOR ONLY THE ADVANCE PAYMENT RECEIVED OF RS.7,41,576/- WHILE THE BALANCE PAYMENT OF RS. 7,56, 744/- WAS REMAINED TO BE ACCOUNTED 7 ITA NOS. 1340 & 1341/PN/2014, A.YS. 2008-09 & 2010-11 FOR. THEREFORE, IN MY CONSIDERED VIEW, THERE IS NO INFIRMITY IN THE ACTION OF THE ASSESSING OFFICER IN ADOPTING THE FIGURE REPORT ED IN 26AS AND ACCORDINGLY, THE ADDITION OF RS.7,56,321/- TOWARDS CONTRACT RECEIPTS IS UPHELD. KEEPING IN VIEW THE FINDINGS AT PARAS 4 TO 4.4.2.2 HEREIN ABOVE, GROUND OF APPEAL NO.2 IS HELD TO BE PARTLY ALLOWED. 6. THUS, THE CONTENTION OF THE ASSESSEE THAT THE COMMIS SIONER OF INCOME TAX (APPEALS) HAS FAILED TO CONSIDER THE CERTIFICATE D OES NOT HOLD GROUND. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS MADE ADDITION AFTER CONSIDERING THE CERTIFICATE. THE LD. AR HAS NOT BEEN ABLE TO SHOW FROM RECORDS THAT THE ADVANCE PAYMENT MADE TO THE AS SESSEE AND THE AMOUNT MENTIONED IN THE INVOICE ARE IN FACT THE SAME AMO UNT. THE ONLY CONCLUSION THAT CAN BE DRAWN FROM THE DETAILS FURNISH ED BY THE ASSESSEE IS THAT BOTH THE AMOUNTS ARE DIFFERENT ON WHICH THE DEDUCTEE HAS RIGHTLY DEDUCTED TDS AT THE TIME OF PAYMENT. IN TH E FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN T HE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE ADD ITION. ACCORDINGLY, GROUND NOS. 1 AND 2 RAISED BY THE ASSESSEE IN APPEALS FOR ASSESSMENT YEAR 2008-09 ARE DISMISSED. 7. THE ISSUE RAISED IN GROUND NO. 3 IN ASSESSMENT YEAR 2008-09 AND THE SOLITARY GROUND RAISED BY THE ASSESSEE IN ASSESSMEN T YEAR 2010-11 RELATE TO THE COMMON ISSUE OF DISALLOWANCE OF INTEREST EXPE NSES U/S. 36(1)(III) OF THE ACT. THE CONTENTION OF THE LD. AR IS THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS TO ITS SISTER CONCERN T O M/S. KAY PULP AND PAPER MILLS LTD. FROM INTEREST FREE FUNDS AVAILABLE WITH TH E ASSESSEE. THE ASSESSEE HAS DRAWN OUR ATTENTION TO TH E BALANCE SHEET AS ON 31-03-2008 AT PAGE 15 OF THE PAPER BOOK. AS PE R THE BALANCE 8 ITA NOS. 1340 & 1341/PN/2014, A.YS. 2008-09 & 2010-11 SHEET THE ASSESSEE HAS RESERVES AND SURPLUS TO THE T UNE OF ` 9,76,99,579/- AND THE ASSESSEE HAS ADVANCED INTEREST FRE E LOAN TO ITS SISTER CONCERN TO THE TUNE OF ` 3.48 CRORES. THE LD. AR HAS ALSO REFERRED TO THE LEDGER ACCOUNT OF M/S. KAY PULP AND PAPER MILLS LT D. AT PAGE 36 OF THE PAPER BOOK TO SHOW THAT OPENING BALANCE OF ADVAN CES AS ON 01-04-2007 WAS ` 1.57 CRORES AND THE CLOSING BALANCE AS ON 31-03-2008 WAS ` 3.65 CRORES. THUS, THE ADVANCE DURING THE YEAR WAS TO THE TUNE OF ` 2.09 CRORES ONLY. AS REGARDS THE DETAILS OF THE ADVANCE AND THE AVAILABILITY OF THE FUNDS FOR THE ASSESSMENT YEAR 2 010-11 IS CONCERNED, THE ASSESSEE HAS NOT FURNISHED ANY DETAILS. T HE ASSESSEE FURTHER HAS NOT SHOWN FROM RECORDS THAT THE LOANS AND ADVANCES WERE MADE FROM THE SURPLUS FUNDS AND THE BORROWED FUNDS WER E NOT DIVERTED FOR FUNDING THE REPAYMENT OF LOANS OF SISTER CONCERN. THE REVENUE HAS ALSO FAILED TO BRING ON RECORD ANY MATERIAL TO ESTABLISH THE NEXUS BETWEEN THE INTEREST BEARING FUNDS OF THE ASSESSEE AND FUNDS ADVANCED TO THE SISTER CONCERN. UNDER SUCH CIRCUMSTANCES, WE AR E OF THE CONSIDERED VIEW THAT THIS ISSUE NEEDS REVISIT TO THE FILE OF ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-ADJUDICATE THIS ISSUE DE NOVO AFTER EXAMINING THE RELEVANT RECORDS AND ALSO KEEPING IN VIEW TH E RATIO LAID DOWN BY THE GAUHATI BENCH OF THE TRIBUNAL IN THE CASE OF DY. COMMISSIONER OF INCOME TAX VS. ASSAM INDUSTRIAL DEVELOPME NT CORPORATION LTD. (SUPRA). ACCORDINGLY, GROUND NO. 3 RAISED IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2008-09 AND THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2010-11 ARE ALLOWED FO R STATISTICAL PURPOSE. 9 ITA NOS. 1340 & 1341/PN/2014, A.YS. 2008-09 & 2010-11 8. THE LD. AR OF THE ASSESSEE HAS STATED AT THE BAR TH AT HE IS NOT PRESSING GROUND NO. 4 RAISED IN THE APPEAL FOR ASSESSMEN T YEAR 2008-09. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR ASSESSM ENT YEAR 2008-09 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2010-11 IS ALLOWED FOR STATISTICAL PUR POSE. ORDER PRONOUNCED ON WEDNESDAY, THE 30 TH DAY OF NOVEMBER, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 30 TH NOVEMBER, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-III, PUNE 4. ' / THE CIT-III, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE