THE ACIT, 4(1), Indore V. Shri Satish Jain, Indore

ITA 1356/IND/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6514 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 22-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V J BORICHA
• Assessee Lawyers: SHRI
• Keywords: Question of law; Assessment record
• Section: 143(3); 142(1); 14A; 37

Judgement Text

SATISH JAIN ITA 1356/2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, HONBLE JUDICIAL MEMBER AND SHRI MANISH BORAD, HONBLE ACCOUNTANT MEM BER ITA NO. 1356/IND/2016 A.Y. 2012-13 ACIT 4(1) INDORE ::: APPELLANT VS SATISH JAIN INDORE ::: RESPONDENT APPELLANT BY SHRI V .J. BORICHA RESPONDENT BY SHRI PANKAJ SHAH DATE OF HEARING 3.7 .2018 DATE OF PRONOUNCEMENT 12 . 7 .2018 O R D E R PER SHRI MANISH BORAD, AM THIS APPEAL OF THE REVENUE RELATING TO THE ASSESSMENT YEARS 2012-13 IS DIRECTED AGAINST THE ORDER DATED 30.9.2016 OF THE COMMISSIONER OF INCOME TAX (APPEALS )-II, INDORE, WHICH ARE ARISING OUT OF THE ORDER U/S 143(3) OF THE ACT DATED 27.3.2015 FRAMED BY ACIT, CIRCLE 4(1), IND ORE. SATISH JAIN ITA 1356/2016 2 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF AGRICULTURAL SPRINKLERS AND RELATED IT EMS. INCOME OF RS. 1,10,17,697/- WAS DECLARED IN THE RETUR N OF INCOME. CASE SELECTED FOR SCRUTINY AND STATUTORY NOTI CES U/S 143(2) AND 142(1) OF THE ACT WERE SERVED UPON TH E ASSESSEE. NECESSARY INFORMATION AS CALLED FOR WAS FILED. VARIOUS ADDITIONS TOTALING RS. 1,78,19,902/- INCLUDING DISALLOWANCE OF COMMISSION EXPENDITURE OF RS. 1,64,60,197/- AND DISALLOWANCE U/S 14A OF THE ACT OF T HE ACT AT RS. 8,28,518/- WERE MADE AND THE INCOME WAS ASSESSED AT RS.2,88,37,600/-. AGAINST THE IMPUGNED ADDITIONS, THE ASSESSEE FILED APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND PARTLY SUCCEEDED. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE ADDITIONS/DISALLOWANCES DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). SATISH JAIN ITA 1356/2016 3 3. BY WAY OF GROUND NOS. 1 AND 2 THE REVENUE HAS CHALLENGED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THE GROUND THAT HE WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS. 1,64,60,19 7/- MADE ON ACCOUNT OF SALES COMMISSION EXPENSES U/S 37 OF TH E ACT. 4. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE ISSUE RAISED BY THE REVENUE IN THI S APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE COORDINATE BENCH IN ITA NO. 620/IND/ 2016. THE LEARNED DR COULD NOT CONTROVERT THIS SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE REVENUE IS AGGRIEVED W ITH THE DELETION OF DISALLOWANCE OF COMMISSION EXPENDITUR E OF RS.1,64,60,197/- CLAIMED BY THE ASSESSEE FOR SALES MADE DURING THE YEAR. WE FIND THAT DURING THE YEAR 80% OF TOTAL SATISH JAIN ITA 1356/2016 4 SALES MADE BY THE ASSESSEE IS THROUGH GOVERNMENT NODEL AGENCIES, VIZ. M.P. AGRO INDUSTRIES DEVELOPMENT CORPORATION LIMITED AND M.P. STATE COOPERATIVE MARKETING FEDERATION. IT WAS PLEADED BY THE ASSESSEE BEFORE THE L OWER AUTHORITIES THAT THE ACTUAL BUYERS OF THE PRODUCTS OF THE ASSESSEE ARE FARMERS AND THE REPRESENTATIVES OF THE ASSESSEE TRAVEL TO VARIOUS VILLAGES AND CONTACT THE BUYER S I.E. THE FARMERS TO CREATE DEMAND, ADVERTISE THE PRODU CTS OF THE ASSESSEE, COMPLETE THE FORMALITIES AND FOLLOW UP T HE PAYMENT. WE FURTHER FIND THAT THE VERY SAME ISSUE CAM E UP BEFORE THE COORDINATE BENCH IN ITA NO. 620/IND/2016 AND THE REVENUES GROUND WAS DISMISSED BY THE TRIBUNAL OBSERVING AS UNDER :- 10. WE HAVE CONSIDERED THE FACTS, RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON GOING THROUGH THE ASSESSMENT RECORD AS WELL AS FINDINGS OF THE LD . CIT(A), WE FIND THAT THE ASSESSEE HAS SUBMITTED DETAILED SATISH JAIN ITA 1356/2016 5 EVIDENCES LIKE NAMES OF THE AGENTS, PAN NUMBERS, DESCRIBING SERVICES RENDERED BY THE AGENTS, CONFIR MING THE TRANSACTION, DETAILS OF THE TDS MADE, BANK ACCOUNT DETAILS WITH RETURNS OF INCOME OF AGENTS. HOWEVER, THE AO H AS FAILED TO EXAMINE OR CROSS-EXAMINE THESE EVIDENCES BY CALLING THE CONCERNED AGENTS. WE ALSO NOTE THAT THE QUESTION FRAMED BY THE AO TO VARIOUS GOVERNMENT AGE NTS LIKE MADHYA PRADESH AGRO INDUSTRIES DEVELOPMENT CORPORATION LIMITED AND MADHYA PRADESH STATE CO- OPERATIVE MARKETING FEDERATION ETC. WAS WHETHER SUC H PURCHASES WERE MADE THROUGH ANY COMMISSION AGENTS ? IF YES, THE NAMES AND ADDRESSES OF SUCH COMMISSION AGE NTS. THEREFORE, THE REPLY TO THIS QUESTION HAD TO BE IN NEGATIVE AS THE COMMISSION AGENTS WERE APPOINTED BY THE ASSE SSEE AND NOT BY THE GOVERNMENT NODAL AGENCIES. WE ALSO N OTE THAT THE ASSESSEE IS DEALING IN SUPPLIES OF EQUIPME NTS TO THE FARMERS IN AS MANY AS THREE STATES SPREAD OVER A LARGE GEOGRAPHICAL AREA. THEREFORE, REQUIREMENT OF REPRESENTATIVES FOR DOING SUCH JOBS CANNOT BE DENIE D. FURTHER, M.P. STATE AGRO STATE MARKETING DEVELOPMEN T SATISH JAIN ITA 1356/2016 6 CORPORATION LIMITED VIDE THEIR LETTER DATED 21.02.2 014 PLACED AT PAPER BOOK PAGE NO. 53, PRESCRIBES THE VA RIOUS FORMALITIES AND SERVICES REQUIRED TO BE HANDLED BY THE ASSESSEE OR REPRESENTATIVES OF THE AGENTS. THEREFOR E, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) W AS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF CO MMISSION PAYMENTS DEBITED TO THE PROFIT AND LOSS ACCOUNT. TH IS VIEW IS ALSO SUPPORTED BY THE DECISION OF THE JURISDICT IONAL HIGH COURT AS RELIED UPON BY THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE, THE HON'BLE HIGH CO URT IN THE CASE OF CIT VS. PURE PHARMA, (2005) 144 TAXMAN 364 (MP) IN PARA 3 & 4 HELD AS UNDER :- 3, A FEW FACTS MATERIAL FOR DECIDING THE SAID APPE AL, IN SHORT, MAY BE MENTIONED AS UNDER : THE RESPONDENT/ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING AND SALE OF PHARMACEUTICAL FORMULATIO NS. DURING THE PREVIOUS FINANCIAL YEAR, THE ASSESSEE HA D PAID TOTAL COMMISSION OF RS. 13,35,336/-. OUT OF TH IS, A SUM OF RS. 10,24,290/- WAS PAID AS COMMISSION ON SA LES MADE TO THE GOVERNMENT AND ITS AGENCIES AND A SUM O F RS. 3,11,046/- WAS PAID AS COMMISSION TO NON- GOVERNMENT PURCHASES. SINCE, A DOUBT WAS RAISED WIT H SATISH JAIN ITA 1356/2016 7 REGARD TO THE PAYMENTS MADE TO VARIOUS PARTIES AS COMMISSION, ENQUIRY WAS HELD. IT WAS FOUND THAT ALL THE PAYMENTS HAVE BEEN MADE AS COMMISSION TO VARIOUS PARTIES BY DEMAND DRAFTS, WHEREIN THE IDENTITY OF E ACH OF THE AGENTS WAS ALSO ESTABLISHED. IT HAS ALSO BEEN F OUND THAT THE COMMISSION WAS PAID EXCLUSIVELY FOR BUSINE SS PURPOSES ONLY. 4. ALL THESE ARE FINDINGS OF FACT AND NO SUBSTANTIA L QUESTION OF LAW, AS IS REQUIRED TO BE FORMULATED FO R DECIDING THE APPEAL, ARISES IN THE SAME. THE TRIBUN AL HAS ALSO PLACED RELIANCE ON A JUDGMENT OF THE DELHI HIGH COURT REPORTED IN CIT VS. ELECTRIC CONSTRUCTION EQUIPMENT CO. LTD., [1990] 182 ITR 510, WHEREIN THE DELHI HIGH COURT DEALING WITH IDENTICAL QUESTION HA S ALREADY DECIDED THE MATTER AGAINST THE PRESENT APPELLANT-REVENUE. 11. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AN D RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTION AL HIGH COURT, WE ARE NOT INCLINED TO INTERFERE WITH T HE FINDINGS OF THE LD. CIT(A). ACCORDINGLY, THE APPEAL OF THE REVENUE IN RESPECT OF ABOVE THREE GROUNDS IS DISMISSED. SATISH JAIN ITA 1356/2016 8 6. WE FURTHER OBSERVE THAT THE DECISION OF THE TRIBU NAL STANDS CONFIRMED BY THE HON'BLE JURISDICTIONAL HIGH C OURT VIDE ITA NOS. 92 & 93/2017 DATED 1.2.2018 WHEREIN TH E HON'BLE COURT FOLLOWED ITS EARLIER ORDER IN THE CASE OF PRINCIPAL CIT VS. GUNVANTIBAI; ITA NO. 231/2017. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE HON'BLE JURISDICTIONAL HIGH COURT, CONFIRM THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND ACCORDINGLY DISMISS GROUND NOS. 1 AND 2 RAISED BY THE REVENUE. 7. GROUND NO. 3 RELATES TO DELETION OF DISALLOWANCE M ADE U/S 14A OF THE ACT IN RESPECT OF INTEREST EXPENSES INCURRED FOR INVESTMENT IN SUBSIDIARIES AND ADMINISTRATIVE EXP ENSES. 8. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFIC ER OBSERVED THAT THE ASSESSEE HAS MADE INVESTMENT OF RS. 12,11,449/- IN EQUITY SHARES, EARNED EXEMPTED INCOME AND HAS ALSO CLAIMED INTEREST EXPENDITURE, APPLIED THE SATISH JAIN ITA 1356/2016 9 PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE I T RULES AND COMPUTED THE DISALLOWANCE U/S 14A AT RS.8,28,518/-. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OBSERVING THAT THE ASSESSEE HAD SUFFICIENT INTEREST F REE RESERVES, SCALED DOWN THE DISALLOWANCE TO RS. 1,21,144 /- BY WAY OF CONFIRMING THE DISALLOWANCE @ 1% TOWARDS ADMINISTRATIVE EXPENDITURE ON THE AVERAGE INVESTMENTS HELD BY THE ASSESSEE AT RS.1,21,14,449/-. NOW THE REV ENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE REVENUE IS AGGRIEVED W ITH THE DELETION OF THE DISALLOWANCE U/S 14A OF THE ACT AT RS. 7,07,374/- AS AGAINST RS. 8,28,518/- MADE BY THE ASSESSING OFFICER. WE FIND THAT THE ASSESSEE HOLDS INVESTMENT IN EQUITY SHARES AT RS. 1,21,14,449/- AS AT T HE CLOSE OF THE YEAR I.E. 31.3.2012 AND CAPITAL OF THE ASS ESSEE STOOD AT RS. 2,38,57,195/-. THE ASSESSING OFFICER HAS NOT SATISH JAIN ITA 1356/2016 10 BROUGHT ANY FACT ON RECORD TO PROVE THAT THE INTEREST BEARING FUNDS HAVE BEEN APPLIED FOR MAKING INVESTMENTS IN EQUITY SHARES. IN THIS SITUATION, THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. REL IANCE UTILITIES & POWER LIMITED; 313 ITR 340 IS SQUARELY APPLICABLE WHICH HAS BEEN RELIED UPON BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALSO OBSERVING AS FOLLOWS :- 5. THIS GROUND OF APPEAL HAS BEEN RAISED AGAINST THE DISALLOWANCE OF RS. 8,28,518/- U/S 14A OF THE I T ACT, 1961 ON THE BASIS OF APPLICATION OF RULE 6D. I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE DETAILED SUBMISSIONS MADE BY THE APPELLANT. THE APPELLANT OWN FUNDS APPEARING IN ITS BALANCE SHEET BY WAY OF CAPITAL STANDS AT RS. 2,38,57,195/- ON 31.03.2012 WHICH IS ALMOST TWICE THE VALUE OF INVESTMENTS MADE IN SHARES BEING RS.1,21,14,449/- SATISH JAIN ITA 1356/2016 11 THE HON'BLE BOMBAY HIGH COURT IN CASE OF CIT VS. RELIANCE UTILITIES & POWER LIMITED (313 ITR 340) HA S CATEGORICALLY HELD AS UNDER :- IF THERE ARE FUNDS AVAILABLE BOTH, INTEREST FREE AND OVER DRAFT AND/OR LOANS ARE TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTY FREE FUND GENERATED OR AVAILABLE WI TH THE COMPANY, IF THE INTEREST FREE FUNDS ARE SUFFICI ENT TO MEET THE INVESTMENTS. IN THE INSTANT CASE SAID PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDINGS OF FACT, BOTH BY THE COMMISSIONER (APPEALS ) AND THE TRIBUNAL (PARA 10) FURTHER IN CASE OF CIT VS. HDFC BANK 366 ITR 505(BOM) IT IS HELD THAT WHERE ASSESSEES OWN FUNDS AND OTHER NON INTEREST BEARING FUNDS WERE MORE THAN INVESTMENT IN TAX FREE SECURITIES, IMPUGNED ORDER PASSED BY ASSESSING OFFICER DISALLOWING APART OF INTEREST PAYMENTS UNDER SECTION 14A WAS TO BE SET ASIDE. SATISH JAIN ITA 1356/2016 12 ALSO HON'BLE GUJARAT HIGH COURT IN CASE OF CIT VS. UTI BANK LIMITED (2013) 215 TAXMAN 8 (GUJARAT) MAG ) HAS HELD THAT IF THERE ARE SUFFICIENT INTEREST FREE FUNDS TO MEET TAX FREE INVESTMENTS THEY ARE PRESUMED TO BE MADE FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A. IN CASE OF CIT VS. BOMBAY OIL INDUSTRIES (222 TAXMAN 38) (BOM) IT IS HELD THAT WHERE INTEREST FRE E FUNDS ARE AVAILABLE WITH AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT SAME TIME LOANS ARE TAKEN, T HEN A PRESUMPTION WOULD ARISE THAT INVESTMENT HAS BEENB MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH COMP ANY AND NOT OUT OF LOANS. ATTENTION IS ALSO INVITED TO THE DECISION OF DELHI HIGH COURT IN CIT VS. TIN BOX CO. (2003) 260 ITR 637 TO HOLD THAT WHEN THE ASSESSEE HAD SUFFICIENT FUNDS AND NON INTEREST FUNDS WERE ADVANCED TO A SISTER CONCERN, N O DISALLOWANCE OF INTEREST WAS JUSTIFIED. SATISH JAIN ITA 1356/2016 13 THE AFORESAID PRINCIPLE THAT IF OWN FUNDS ARE MORE THAN INVESTMENTS THEN NO DISALLOWANCE ON ACCOUNT OF INTEREST CAN BE MADE UNDER SECTION 14A HE SUBMITTED THAT BEEN UPHELD BY THE JURISDICTIONAL INDORE BENCH OF INCOME TAX APPELLATE TRIBUNAL IN FOLLOWING CASES :- A. DCIT VS. D&H SECHERON ELECTRODES PVT. LTD.(ITA 313/IND/2013) B. DCIT VS. ARUN NAHAR (ITA 117/IND/2012) 5.1 THUS IT IS CLEAR FROM THE ABOVE JUDICIAL DE CISION THAT IF OWN FUNDS OR INTEREST FREE FUNDS AVAILABLE ARE MORE THAN THE INVESTMENT THEN NO DISALLOWANCE ON ACCOUNT OF INTEREST CAN BE MADE U/S 14A. 5.2 THE HON'BLE FINANCE MINISTER SHRI ARUN JAITLEY IN ORDER TO REDUCE THE LITIGATION U/S 13A HAS BROUG HT OUT COMPREHENSIVE AMENDMENT IN THE FINANCE ACT 2016 WHERE IT HAS BEEN PROVIDED THAT INSTEAD OF 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT (INCOME FROM WHICHY IS EXEMPT), 1% OF THE ANNUAL AVERAGE OF MONTHLY OPENIN G AND CLOSING AVERAGE OF THE INVESTMENTS SHOULD BE TA KEN. THIS AMENDMENT, THE PURPOSE BEING TO PUT AND END TO SATISH JAIN ITA 1356/2016 14 THE LITIGATION IS CURATIVE IN NATURE AND THUS CAN B E ADOPTED RETROSPECTIVELY AND NOT JUST FROM THE DATE IT HAS BEEN NOTIFIED IN GAZETTE. USING THIS FORMULA THE A NNUAL AVERAGE INVESTMENT HAS SHOWN TO BE RS. 1,21,14,449/ -. THE 1% OF THE SAME WORKS OUT TO RS. 1,21,144/-. THE A.O. IS DIRECTED TO REDUCE THE ADDITION FROM RS.8,28,518/- TO RS. 1,21,144/-. THIS GROUND OF APP EAL IS PARTLY ALLOWED. 7. WE, THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO THE REVENUE BEING UNABLE TO CONTROVE RT THE FINDINGS OF THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS), ARE OF THE CONSIDERED VIEW THAT NO INTEREST DISALLOWANCE WAS CALLED FOR U/S 14A OF THE ACT AS THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS IN THE SH APE OF SHARE CAPITAL TO COVER UP THE INVESTMENT IN EQUITY SHARE S AND ACCORDINGLY ARE NOT INCLINED TO MAKE ANY INTERFEREN CE IN THE FINDINGS OF THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS). SATISH JAIN ITA 1356/2016 15 8. IN THE RESULT, THIS GROUND OF THE REVENUE IS DIS MISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. PRONOUNCED IN OPEN COURT ON 12 TH JULY, 2018. SD/- SD/- (KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER 12 TH JULY, 2018 DN/-