IK Distilleries Private Limited, Hyderabad V. Income Tax Officer, Ward-2(3), Hyderabad

ITA 1394/Hyd/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1224 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 02-07-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure
• Section: 37; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1394/HYD/2018 ASSESSMENT YEAR: 2015 - 16 IK DISTILLERIES PRIVATE LIMITED, HYDERABAD. PAN: AACCI 4852 M VS. ITO, WARD - 2(3), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI P. MURALI MOHAN RAO REVENUE BY: SRI PAWAN KUMAR, DR DATE OF HEARING: 06/11/2018 DATE OF PRONOUNCEMENT: 28 /11/2018 ORDER PER SMT. P. MADHAVI DEVI, J.M.: THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2015 - 16 AGAINST THE ORDER OF THE CIT(A) - 2, HYDERABAD DATED 31.05.2018. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LD. CIT(A) ERRED BOTH ON FACTS AND IN LAW AND IT IS PREJUDICIAL TO THE INTEREST OF THE ASSESSEE. 2. THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF EXPENDITURE MADE BY A.O. AMOUNTING TO RS. 41,08,416/ - TOWARDS INTEREST ON BORROWED CAPITAL, WITHOUT APPRECIATING THE SUBMISSIONS MADE BY AP PELLANT. 3. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE A.O. ERRED IN DISALLOWING THE INTEREST CLAIMED ON THE LOAN TAKEN FOR THE PURPOSE OF BUSINESS FOR AN AMOUNT OF RS. 41,08,416/ - , WITHOUT CONSIDERING THE SUBMISSIONS MADE BY THE APPELLANT. 4. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE APPELLANT HAS BORROWED FUNDS FOR THE PURPOSE OF BUSINESS IN AN AMOUNT OF RS. 725 LAKHS FROM BANK OF 2 INDIA FOR THE PURPOSE OF BUSINESS IN MANUFACTURING OF IMFL AT KURNOOL DISTRICT IN ANDHRA PRADESH. 5. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT AN AMOUNT OF RS. 425 LAKHS WAS ADVANCED TO M/S. GURSIMRAN DISTILLERIES PVT LTD TOWARDS SUPPLY OF SPIRIT WHICH IS EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ACTIVITY AND THE BALANCE AMOUNT UTILISED FOR THE PURPO SE OF REPAYING THE ADVANCES TAKEN FOR BUSINESS. 6. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT A.O. ERRED IN NOT SETTING OFF THE INTEREST EXPENSE AGAINST THE INTEREST INCOME. 7. THE LD. CIT(A) OUGHT TO HAVE DIRECTED THE A.O. TO SET OFF THE INTEREST EXPEN SE AGAINST THE INTEREST INCOME RECEIVED. 8. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE ACCOUNTING PRINCIPLE THAT THE EXPENDITURE TOWARDS INTEREST ON BORROWED CAPITAL HAS TO BE ADJUSTED AGAINST THE INCOME ARISING OUT OF COMMERCIAL AND NON - COMMERCIAL ACTIV ITY ALSO AS INTER - HEAD ADJUSTMENT BEFORE ARRIVING AT THE RESULTANT TAXABLE INCOME. 9. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE ASSESSEES EXPLANATION THAT THE COMPANY HAS INCURRED THE EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE WHICH FAL LS UNDER THE CATEGORY OF ALLOWABLE EXPENDITURE U/S 36 & 37 OF THE ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE - COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SPIRIT AND WATER, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2015 - 16 ON 29.09.2015 ADMITTING INCOME OF RS. 67,414/ - . DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A.O. OBSERVED THAT THE ASSESSEE HAD OBTAINED A LOAN OF RS. 725 LAKHS FROM BANK OF INDIA AND THEREBY CLAIMED INTEREST AMOUNT OF RS. 41,08,416/ - AGAINST SUCH LOAN FOR THE PERIOD FROM JULY, 2014 TO MARCH, 2015. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE INTEREST CLAIMED SHOULD NOT BE DISALLOWED AS NO COMMERCIAL OPERATION ACTIVITIES WERE PERFORMED AND NO REVENUE WAS DERIVED DURING THE RELEVANT PREVIOUS YEAR . IN RESPONSE, ASSESSEE FURNISHED ITS EXPLANATION STATING THAT THE ASSESSEE HAS TAKEN A LOAN WITH AN INTENTION TO RUN A DISTILLERY FACTORY AT KURNOOL AND ACCORDINGLY FACTORY WAS ALSO SETUP AND HAD APPLIED FOR LICENSE TO EXCISE DEPARTMENT OF A NDHRA PRADESH. IT WAS ALSO SUBMITTED THAT IN ANTICIPATION OF GETTING THE LICENSE FROM EXCISE DEPARTMENT, THE ASSESSEE HAD APPLIED TO THE BANK FOR WORKING CAPITAL 3 LOAN . IT WAS SUBMITTED THAT T HE ASSESSEE RECEIVED A SUM OF RS. 725 LAKHS IN JANUARY 2014 FROM BANK OF INDIA , AS CASH CREDIT LOAN AND ADVANCE D A SUM OF RS. 425 LAKHS TO M/S . GURSIMRAN DISTILLERIES PVT LTD., TOWARDS SUPPLY OF SPIRIT AND THE BALANCE FUND WAS UTILISED FOR THE PURPOSE OF GETTING OTHER MATERIAL VIA DISTILLERY TANKS AND THEREFORE THE INTEREST PAID WAS BUSINESS EXPENDITURE . 3. THE A.O, HOWEVER, WAS NOT SATISFIED WITH THE ASSESSEES EXPLANATION AND OBSERVED THAT THE CLAIM OF ADVANCE OF RS. 425 LAKHS TO M/S. GURSIMRAN DISTILLERIES PVT LTD., TOWARDS SUPPLY OF SPIRIT IS NOT GENUINE SINC E THE PRODUCT HAS NOT BEEN SUPPLIED TILL DATE , EVEN THOUGH IT IS A PRODUCT THAT CAN BE SUPPLIED IMMEDIATELY. HE ALSO OBSERVED THAT M/S. GURUSIMRAN DISTILLERIES PVT LTD., HAS SHOWN THE MONEY RECEIVED FROM THE ASSESSEE UNDER THE HEAD LONG TERM LOAN BORROWI NGS ITS BOOKS OF ACCOUNT AND THEREFORE, THE ASSESSEES CONTENTION THAT IT HAS BEEN GIVEN FOR COMMERCIAL PURPOSES IS NOT CORRECT. FURTHER, HE ALSO NOTICED THAT THE FACTORY WHICH WAS PROPOSED TO BE CONSTRUCT ED HAS NOT BEEN CONSTRUCTED TILL DATE AND THEREFO RE, THE ASSESSEE IS NOT GENERATING ANY BUSINESS REVENUE AND HENCE , ASSESSEE IS NOT ELIGIBLE FOR CLAIM OF INTEREST AS BUSINESS EXPENDITURE . HE , THEREFORE , DISALLOWED THE CLAIM OF INTEREST OF RS. 41,0,416/ - AND BROUGHT IT TO TAX. 4 . AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE A.O SINCE THE ASSESSEE HAS NOT APPEARED OR FILED ANY EVIDENCE IN SUPPORT OF THE CONTENTIONS. THEREFORE, THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 5 . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS FILED ALL THE RELEVANT DETAILS BEFORE THE A.O. AS WELL AS THE CIT(A) , BUT THE CIT(A) , WITHOUT EVEN CONSIDERING ANY OF THEM , HAS CONFIRMED THE ORDER OF THE A.O. HE HAS DRAWN OUR ATTENTION TO THE RELEVANT PAGES OF 4 TH E PAPER BOOK TO DEMONSTRATE THAT THE ASSESSEE INDEED M ADE PAYMENTS TO M/S. GURUSIMRAN DISTILLERIES PVT LTD., FOR SUPPLY OF SPIRIT. 6 . LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7 . HAVING REGARD TO THE RIV AL CONTENTIONS AND THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAD FILED THE RELEVANT MATERIAL AND SUCH MATERIAL FILED BY THE ASSESSEE NEEDS VERIFICATION AND, THOUGH THE ASSESSEE HAS FILED ALL THE DETAILS BEFORE THE A.O. / CIT(A), NO NE OF T HEM HAVE VERIFIED THE SAME . THEREFORE, WE DEEM IT FIT AND PROPER TO REMAND THE ISSUE TO THE FILE OF THE CIT(A) FOR DE NOVO CONSIDERATION IN ACCORDANCE WITH LAW. 8 . IN THE RESULT, THE ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 28 TH NOVEMBER, 2018. SD/ - SD/ - (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 28 TH NOVEMBER, 2018 OKK COPY TO: - 1) M/S. IK DISTILLERIES PVT LTD., C/S. P. MURALIL & CO., CHARTERED ACCOUNTANTS, 6 - 3 - 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD - 82. 2) ITO, WARD - 2(3), HYDERABAD. 3) THE CIT(A) - 2, HYDERABAD. 4) THE PR. CIT - 2 , HYDERABAD 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE