Appeal details
Counselvise Citation
[2017] 130 COUNSELVISE.COM (IT) 6201 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 4 month(s) 25 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-01-2017
Appeal Filed By
Assessee
Bench Allotted
B
Next Hearing Date
19-12-2016
Assessment Year
2006-2007
Appeal Filed On
05-09-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1459/HYD/14 2006-07 M/S. CANDID INDUSTRIES LTD., (OLD NAME: FUTURETECH INDUSTRIES LTD) HYDERABAD [PAN: AAACF4493Q] ASS IS T ANT COMMISSIONER OF INCOME TAX, CIRCLE-1(3), HYDERABAD 1460/HYD/14 2007-08 FOR ASSESSEE : SHRI P. MURALI MOHAN RAO, AR FOR REVENUE : SMT U. MINICHANDRAN, DR DATE OF HEARING : 19-12-2016 DATE OF PRONOUNCEMENT : 31-01-2017 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE TWO APPEALS ARE BY ASSESSEE AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-V, HYDERABAD F OR AYS. 2006-07 & 2007-08 BOTH DATED 31-03-2014. THE COMMON ISSUE IS DISALLOWANCE OF FINANCIAL CHARGES BY 50% BY THE ASS ESSING OFFICER (AO) WHICH HAS CONFIRMED BY THE LD. CIT(A). ANOTHER I SSUE IN AY. 2007-08 IS WITH REFERENCE TO DISALLOWANCE OF AMOUNT OF PURCHASES TO AN EXTENT OF RS. 36,09,954/-. THIS AMOUNT WAS CONSEN TED BY THE ASSESSEE, BEFORE THE AO AND AS SUCH CONFIRMED BY THE LD. CIT(A). BEFORE US ALSO NO ARGUMENTS WERE PLACED. ACCORDINGLY , GROUND TO THAT EXTENT IS CONSIDERED NOT PRESSED. I.T.A. NOS. 1459 & 1460/HYD/2014 M/S. CANDID INDUSTRIES LTD., (OLD NAME: FUTURETECH INDUSTRIES LTD) :- 2 - : 2. AS STATED, THE ONLY ISSUE FOR CONSIDERATION IS THE D ISALLOWANCE OF 50% OF FINANCIAL CHARGES CLAIMED BY ASSESSEE. I N AY.2006-07, ASSESSEE CLAIMED FINANCIAL CHARGES BY WAY OF LC DIS COUNTING TO AN EXTENT OF RS. 83,89,594/- UNDER THE HEAD FINANCIAL C HARGES. ON THE REASON THAT ASSESSEE WAS DIVERTING THE FUNDS OBTAIN ED FROM THIS TO ADVANCE AS LOANS TO SISTER CONCERNS WITHOUT INTE REST, AO DISALLOWED 50% OF THE CHARGES AS NOT PERTAINING TO AS SESSEES BUSINESS. SIMILARLY, IN AY. 2007-08, ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 88,55,691/- TOWARDS FINANCIAL CHARGES ; OUT OF WHICH FOR THE SAME REASONS, 50% OF THE AMOUNT WAS DISA LLOWED. EVEN THOUGH ASSESSEE SUBMITTED THAT THE ENTIRE FUNDS OBTAIN ED FROM THE BANKS BY WAY OF LC DISCOUNTING WAS USED FOR PAYING CREDITORS AND NO PART OF THE AMOUNT WAS DIVERTED TOWARDS ADVANCES TO OTHER CONCERNS, LD. CIT(A) DID NOT ACCEPT AS SIMIL AR DISALLOWANCE WAS CONSIDERED BY THE CIT U/S. 263 IN A Y. 2008-09 AND FURTHER HE RELIED ON THE ORDERS FOR AY. 2008-09. HIS ORDER IN AY. 2006-07 IS AS UNDER: 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, REMAND REPORT OF THE AO AND COMMENTS OF ADDL.CIT AN D THE ASSESSMENT ORDER. THE APPELLANTS SUBMISSIONS THAT SINCE IDEN TICAL ISSUE WAS DEALT IN THE A.Y.2008-09 AND THE AMOUNT OF EXPENDITURE INCUR RED TOWARDS THE FINANCIAL CHARGES WAS ALLOWED AS BUSINESS EXPENDITU RE CANNOT BE ACCEPTED SINCE THE ASSESSMENT PROCEEDINGS FOR EACH YEAR ARE INDEPENDENT. THE ASST. ORDER OR THE DECISION TAKEN WITH RESPECT TO AY 2006-07 OR AY 2007-08 SHOULD NOT HAVE ANY IMPACT OR RELATION WITH THE ASST. ORDER FOR THE A.Y. 2008-09. THOUGH THE AO HA D NOT SUBMITTED DETAILED REPORT REGARDING FINANCIAL CHARGES FOR AY. 2006-07, 2007-08 AND 2008-09 AS PER THE REQUEST OF THE CIT(APPEALS)-II, HYDERABAD, VIDE HER LETTER DATED 19-6-2012MENTIONED IN PARA 303 OF THIS ORDER, THE REPORT OF THE AO DATED 15-6-2014 IS EXHAUSTIVE AND VERY MUCH RELEVANT AND ADEQUATE ON THE ISSUE OF FINANCIAL CHARGES. HENCE, I FULLY AGREE WITH THE AO REGARDING THE DISALLOWANCE OF 50% OF THE AMOUNT OF FINANCIAL CHARGES DEBITED I.E. RS. 41,94,797, BEING INTEREST RELATED TO THE BORROWED FUNDS UTILIZED FOR THE PURPOSE OTHER THAN BUSINESS AND AL SO AGREE WITH THE REPORT OF THE AO DATED 15-6-2012. THE CASE-LAW CITED BY T HE APPELLANT ARE ALSO I.T.A. NOS. 1459 & 1460/HYD/2014 M/S. CANDID INDUSTRIES LTD., (OLD NAME: FUTURETECH INDUSTRIES LTD) :- 3 - : DIFFERENT FROM THE FACTS OF THE APPELLANT AND HENCE , THE APPELLANT SUBMISSION CANNOT BE ACCEPTED. THEREFORE, I CONFIR M THE ADDITION. 2.1. SIMILAR ORDER WAS PASSED IN AY. 2007-08 ALSO. HENCE, THE PRESENT APPEALS. 3. FOR THE SAKE OF RECORD, THE GROUNDS RAISED BY ASSE SSEE ARE EXTRACTED AS UNDER: 1. THE LEARNED CIT(A) ERRED IN BOTH FACTS AND LAW WHILE PASSING THE ORDER FOR THE A.Y 2006-07. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISAL LOWANCE TOWARDS INTEREST RS.41,94,797/- MADE BY ASST. COMMISSIONER OF INCOME TAX, CIRCLE 1(3), HYDERABAD BASING ON SUSPICION AND SURMISES WH ICH IS NOT CORRECT. 3. THE LEARNED CIT (A) ERRED IN NOT APPRECIATING TH E FACT THAT THE FINANCIAL CHARGES ON DISCOUNTING LC'S WAS INCURRED FOR THE BU SINESS PURPOSE ONLY. 4. THE LEARNED CIT (A) ERRED IN NOT CONSIDERING THE EXPLANATIONS AND SUBMISSIONS MADE BY THE APPELLANT COMPANY. 5. THE LEARNED CIT (A) ERRED IN NOT CONSIDERING THE FACT THAT THE NET PROCEEDS OF THE DISCOUNTED LCS WERE UTILIZED FOR PA YMENT TO THE CREDITOR PARTIES ONLY. 6. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED TH E FACT THAT SPECIAL AUDIT U/S 142(2A) WAS CONDUCTED IN THE CASE OF ASSESSEE F OR THE YEAR UNDER CONSIDERATION AND NO ADVERSE FINDING WAS MADE BY TH E SPECIAL AUDITOR. HENCE, NO ADDITION CAN BE MADE TO THE INCOME OF THE APPELLANT. 7. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED TH E ORDERS OF HYDERABAD ITAT IN THE CASE OF BARTRONICS INDIA LIMITED VS. AC IT 1(3) WHEREIN IT IS HELD THAT NO ADDITION CAN BE MADE TO THE INCOME OF THE A SSESSEE IF NO ADVERSE FINDING IS MADE IN THE SPECIAL AUDIT CONDUCTED U/S 142(2A) OF THE ACT. 8. THE ASSESSEE MAY ADD, ALTER, AND SUBSTITUTE ANY OTHER GROUNDS TO THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL. 3.1. LD. COUNSEL REFERRING TO THE PAPER BOOKS FILED, SUBMITTED THAT ASSESSEE WAS CONTENDING THAT LC DISCOUNTING CHARGES ARE PAID TO THE BANKS AND WAS PART OF THE BUSINESS EXPENDITURE AND NO PART OF I.T.A. NOS. 1459 & 1460/HYD/2014 M/S. CANDID INDUSTRIES LTD., (OLD NAME: FUTURETECH INDUSTRIES LTD) :- 4 - : THE AMOUNT WAS DIVERTED AS ADVANCE TO SISTER CONCERNS, THE FACT OF WHICH WAS NOT CONTRADICTED BY THE REVENUE. IT WAS FURTH ER SUBMITTED THAT AO IN THE POST SEARCH ASSESSMENTS U/S. 15 3A HAS ALLOWED SIMILAR CLAIMS IN AYS. 2004-05 & 2005-06. I T WAS SUBMITTED THAT THE CLAIM IN AY. 2005-06 WAS TO AN EXTENT O F RS. 1,30,69,614/- AND THE SAME AMOUNT WAS ALLOWED IN THE POST SEARCH SCRUTINY ASSESSMENTS. FURTHER, IT IS ALSO SUBMI TTED THAT IN AY. 2008-09, AO HAS ALLOWED THE AMOUNT AND EVEN THOUG H 263 PROCEEDINGS WERE INITIATED IN THAT YEAR ALSO, THE LD. C IT DID NOT TAKE UP ANY ISSUE ON DISALLOWANCE OF FINANCIAL CHARG ES. LD. COUNSEL REFERRED TO THE ORDERS IN THE AY. 2008-09, WH EREIN AO AFTER DETAILED EXAMINATION OF THE CLAIM HAS DISALLOWED ONLY AN AMOUNT OF RS. 3,07,808/- PERTAINING TO DISCOUNTING CHA RGES PAID TO M/S. DPJ VINIYOG PVT. LTD., ON THE REASON THAT ASSESSEE COULD NOT FURNISH ANY EXPLANATION. IT WAS FURTHER SUBMITTED THE LD .CIT INITIATED PROCEEDINGS U/S. 263 ON THE REASON THAT MBB TRANSACTIONS STATED IN THE DETAILS PERTAIN TO THIRD PARTY AND AO WAS WRONG IN ALLOWING THE EXPENDITURE. THE ITAT VIDE ITS ORDER DT. 26-03-2014 IN ITA NO. 1099/HYD/2013 HAS CONSIDERED THAT M/S. MBB TRANSACTIONS ARE NOT THIRD PARTY TRANSACTIONS BUT MUL TI- BRANCH BANK TRANSACTIONS AND ON THAT BASIS, PROCEEDINGS ARE HELD TO BE BAD IN LAW, THEREBY IT WAS SUBMITTED THAT THERE WAS NO DISALLOWANCE OF FINANCIAL CHARGES IN EITHER EARLIER YEARS OR IN LATER YEARS AND DISALLOWANCE OF 50% OF FINANCIAL CHARGES ON ADHOC BASIS FOR THE IMPUGNED YEARS IS NOT CORRECT. 4. IT WAS FURTHER SUBMITTED THAT THE CO-ORDINATE BENCH IN THE CASE OF M/S. BARTRONICS INDIA LTD., IN ITA NO. 2188/H YD/2011 DT. 31-05-2012 HELD THAT WHEN THERE IS A SPECIAL AUDIT IN THE I.T.A. NOS. 1459 & 1460/HYD/2014 M/S. CANDID INDUSTRIES LTD., (OLD NAME: FUTURETECH INDUSTRIES LTD) :- 5 - : PARTICULAR YEAR AND SPECIAL AUDITOR HAS NOT REPORTED AN Y DISALLOWANCE, AO IS NOT CORRECT IN DISALLOWING THE AM OUNT IGNORING THE SPECIAL AUDIT REPORT. IT WAS SUBMITTED THAT THERE WAS A SPECIAL AUDIT IN AY. 2007-08 AND SO THE DISALLOWANCE IN THAT Y EAR NOT RECOMMENDED BY THE SPECIAL AUDITOR IS ALSO BAD IN LA W. IT WAS FAIRLY SUBMITTED THAT THERE IS NO SPECIAL AUDIT IN AY. 20 06-07 AND THE GROUNDS PERTAINING TO THAT, PARTICULARLY GROUND NOS. 6 & 7 DOES NOT APPLY. 5. LD.DR, HOWEVER, SUBMITTED THAT THERE IS NO RESJUDICA TA INVOLVED AND EACH YEAR HAS TO BE CONSIDERED ON ITS OW N. SINCE THE AO AND CIT(A) EXAMINED AND CONFIRMED THE DISALLOWANC E AT 50%, THE SAME IS TO BE UPHELD. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE DOCUMENTS PLACED ON RECORD. AS FAR AS THE FACTS ARE C ONCERNED, IT WAS SUBMITTED THAT FINANCIAL CHARGES AROSE ONLY ON DIS COUNTING OF LCS, WHICH WAS INCURRED FOR THE PURPOSE OF BUSINESS . EVEN THOUGH AO HAS NOTED THAT ASSESSEE IS DIVERTING FUNDS FOR INTER EST FREE ADVANCES TO SISTER CONCERNS, NO SUCH NEXUS WAS ESTABLI SHED NOR DETAILS OF FUNDS UTILISED FOR NON-BUSINESS PURPOSES WERE PLACED ON RECORD BY THE AO. HE HAS ADHOCLY DISALLOWED 50% OF THE AMOUNT WITHOUT ESTABLISHING THAT FUNDS ARE DIVERTED FOR NON-B USINESS PURPOSES. AS SEEN FROM THE CONTENTIONS OF ASSESSEE, IT IS THE SUBMISSION THAT THESE FINANCIAL CHARGES HAVE ARISEN O NLY BECAUSE OF DISCOUNTING OF THE BILLS AND FUNDS ARE UTILISED FOR PAYMENT TO THE CREDITORS. THIS CONTENTION OF ASSESSEE WAS NEITHER EX AMINED BY THE AO NOR BY THE CIT(A), EVEN THOUGH ASSESSEE IS INSISTI NG ON THIS. AS SEEN FROM THE ORDERS IN EARLIER YEARS AND ALSO IN AY . 2008-09 AND I.T.A. NOS. 1459 & 1460/HYD/2014 M/S. CANDID INDUSTRIES LTD., (OLD NAME: FUTURETECH INDUSTRIES LTD) :- 6 - : 2009-10, THE FINANCIAL CHARGES ARE ALLOWED AS SUCH IN SCRUTINY PROCEEDINGS, THAT TOO IN POST SEARCH PROCEEDINGS IN AY S. 2004-05 AND 2005-06. THIS MEANS THAT THE FINANCIAL CHARGES AR E UTILISED FOR THE PURPOSE OF BUSINESS ONLY. WE ARE PRIMA-FACIE SATISFIED THAT THE FINANCIAL CHARGES CANNOT BE DISALLOWED. HOWEVER , AO HAS NOT GIVEN ANY FINDING WHETHER THE FUNDS ARE REALLY DIVERT ED TO SISTER CONCERNS, OUT OF THE FUNDS AVAILED DUE TO DISCOUNTING OF BILLS. THEREFORE, FOR THE LIMITED PURPOSE OF VERIFICATION, TH E ISSUE IS RESTORED TO THE FILE OF THE AO. IN CASE ASSESSEE HAS N OT DIVERTED ANY OF THE FUNDS SO OBTAINED FOR ADVANCING INTEREST FR EE TO ITS SISTER CONCERNS, NO AMOUNT OF FINANCIAL CHARGES SHOULD BE D ISALLOWED. AO IS DIRECTED TO EXAMINE THIS ASPECT AND IF FUNDS AR E NOT DIVERTED AS STATED BY ASSESSEE, ALLOW THE FULL CLAIM OF FINANCI AL CHARGES. ACCORDINGLY, THE GROUNDS ON THIS ISSUE ARE CONSIDERE D ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, BOTH THE APPEALS OF ASSESSEE ARE ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2017 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 31 ST JANUARY, 2017 TNMM I.T.A. NOS. 1459 & 1460/HYD/2014 M/S. CANDID INDUSTRIES LTD., (OLD NAME: FUTURETECH INDUSTRIES LTD) :- 7 - : COPY TO : 1. M/S. CANDID INDUSTRIES LTD., (OLD NAME: FUTURETE CH INDUSTRIES LTD), C/O. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(3 ), HYDERABAD. 3. CIT (APPEALS)-V, HYDERABAD. 4. THE CIT-I, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.
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