D.C.I.T.-4(1), Agra V. M/s PNC Cold Storage (P) Ltd., Agra

ITA 148/AGR/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50355 (ITAT-AGRA)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 18-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 12-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K VERMA
• Assessee Lawyers: R C TOMAR I T P
• Keywords: Commercial expediency
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NO. 148/AGRA/2010 ASSTT. YEAR : 2006-07 D.C.I.T., 4(1), AGRA, VS. M/S. P.N.C. COLD ST ORAGE (P) LTD., C-2/37, VIKAS MARKET, KAMLA NAGAR, AGRA. (PAN : AACCP 7061R) (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI S.K. VERMA, JR. DR FOR RESPONDENT : SHRI R.C. TOMAR, I.T.P. DATE OF HEARING : 18.08.2011 DATE OF PRONOUNCEMENT : 19.08.2011 ORDER PER BENCH : THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 15.02.2010 OF LEARNED CIT(A)-II, AGRA ON THE FOLLOWING EFFECTIVE GROUNDS : 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN ALLOWING THE DEDUCTION U/S. 80IB OF I.T. ACT AMOUNTING TO RS.14, 03,943/- IGNORING THE FACT THAT THIS DEDUCTION IS ALLOWABLE ONLY TO THOSE COLD STOR AGE WHERE THE FACILITIES IN CHAIN ARE PROVIDED IN ADDITION TO NORMAL STORAGE IN REFRI GERATED CONDITIONS AND THE ASSESSEES BUSINESS OF COLD STORAGE DOES NOT COVERE D BY THE DEFINITION OF COLD CHAIN FACILITY. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DECIDING THE ISSUE OF DEDUCTION U/S. 80IB OF I.T. ACT BY APPLYING THE PRINCIPLE OF RES-JUDICATA THOUGH THE SAME IS NOT APPLICABLE IN INCOME TAX PROCEEDING S. 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITIONS OF RS.5,47,110/- MADE BY THE AO IGNORING THE FACT THAT THE ASSESSEE HAS NOT DISCHARGED ITS BURDEN OF PROVING THAT MONEY BOR ROWED TO THE TUNE OF RS.3.10 CRORE HAD NOT BEEN UTILIZED FOR BUSINESS PURPOSES. 4. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN ALLOWING THE DEDUCTION OF RS. 5,47,110/- BEING INTEREST ON CAPIT AL UTILIZED FOR PROVIDING INTEREST FREE LOAN TO THE DIRECTORS AND OTHERS, THOUGH THE S AME IS NOT ALLOWABLE IN VIEW OF 2 THE FACT THAT THE BORROWED CAPITAL TO THE TUNE OF R S.3.10 CRORES HAD NOT BEEN APPLIED FOR BUSINESS PURPOSES. 2. THE FACTS NARRATED BY THE REVENUE AUTHORITIES AR E NOT DISPUTED BY BOTH THE PARTIES. THEREFORE, THERE IS NO NEED TO REPEAT THE SAME FOR THE SAKE OF REPETITION. 3. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE STATED THAT ISSUE INVOLVED IN GROUND NO. 1 & 2 HAS ALREADY BEEN ADJUDICATED BY THIS BENC H AND DECIDED IN FAVOUR OF THE ASSESSEE IN THE CASE OF ITO VS. M/S. AMBICA SHEET GRAH P. LTD. AND OTHERS IN ITA NO. 342/AG./2004 AND 298/AGRA/2004 FOR ASSESSMENT YEARS 2001-02 AND 2003 -04. HE REQUESTED THAT KEEPING IN VIEW OF THE DECISION OF JURISDICTIONAL BENCH, THE ISSUE INV OLVED IN GROUND NOS. 1 & 2 RAISED BY THE REVENUE MAY BE DISMISSED. 4. ON THE CONTRARY, LD. DR RELIED ON THE ORDER PASS ED BY THE ASSESSING OFFICER. 5. WE HAVE HEARD THE BOTH PARTIES ON THE ISSUES INV OLVED IN GROUND NO. 1 & 2. WE HAVE ALSO THOROUGHLY GONE THROUGH THE ORDER PASSED BY THIS BE NCH IN THE CASE OF ITO VS. M/S. AMBICA SHEET GRAH P. LTD. (SUPRA) AND WE ARE OF THE CONSI DERED OPINION THAT ITAT, AGRA BENCH HAS ADJUDICATED THE ISSUE INVOLVED IN GROUND NO. 1 & 2 AND DECIDED THE SAME IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, GROUND N O. 1 & 2 OF REVENUES APPEAL ARE DISMISSED. 6. AS REGARD TO THE ISSUE INVOLVED IN GROUND NO. 3 & 4 IN WHICH THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS.5,47,110/- MADE BY T HE ASSESSING OFFICER. THE FACTS RELATING TO THE ISSUE IN DISPUTE ARE THAT THE ASSESSING OFFICER FOU ND THAT THE ASSESSEE HAS BORROWED THE MONEY AND PAID INTEREST ON THE SAME AND DEBITED THE INTER EST IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS ALSO EXTENDED INTEREST FREE LOANS TO ITS DIRECT ORS, SHRI PRADEEP KUMAR JAIN, NAVEEN KUMAR 3 JAIN, YOGESH KUMAR JAIN, CHAKRESH KUMAR JAIN AND OT HER PERSONS AND CONCERNS. THE ASSESSING OFFICER ALSO FOUND THAT IN SOME CASES, LOANS HAVE B EEN GIVEN INTEREST FREE AT THE CONCESSIONAL RATE OF 9% TO VARIOUS OTHER PERSONS, LIKE SARDAR MOHAN S INGH, MADAN LAL JAIN, BENARA BEARING & PISTON LTD., MUKESH BENARA ETC., HOWEVER, THE LOANS HAVE BEEN TAKEN @ 12%. THE PLEA OF THE ASSESSEE WAS THAT THE POSSESSION OF SUBSTANTIAL CA PITAL OF ITS OWN IN THE FORM OF SHARE CAPITAL, RESERVE & SURPLUS, WHICH IS NOT INTEREST BEARING AN D IT WAS SUCH FUND WHICH HAS BEEN ADVANCED TO DIRECTORS & OTHERS WITHOUT INTEREST. THE ASSESSEE S TATED THAT THE REVENUE IS NOT LIABLE TO ESTABLISH A DIRECT NEXUS BETWEEN INTEREST BEARING FUNDS AND A DVANCES THEREOF TO DIRECTORS AND OTHERS WITHOUT INTEREST, IN ORDER TO MAKE DISALLOWANCES OF INTEREST ALLOWABLE IN SECTION 36(1)(III) OF THE ACT. THE ASSESSING OFFICER HAS NOT ACCEPTED THE PLE A OF THE ASSESSEE AND HELD THAT IF THE ASSESSEE HAS SUFFICIENT CAPITAL OF ITS OWN, IT WOULD NOT BE REQUIRED TO MAKE BORROWING THEREBY PREJUDICING ITS OWN BUSINESS INTEREST. THE ASSESSEE COMPELLED T O RESORT TO BORROWINGS ON INTEREST DUE TO DIVERSION OF ITS OWN FUNDS FOR THE PURPOSES OTHER T HAN OWN BUSINESS, I.E., ADVANCES TO ITS DIRECTORS. THE ASSESSING OFFICER FURTHER HELD THAT THE PROVISIONS OF SECTION 36(1)(III) LAYS DOWN THAT THE INTEREST IS ALLOWABLE IF THE RELEVANT BORR OWINGS ARE FOR THE PURPOSE OF THE BUSINESS. THE ASSESSEE HAS BORROWED SUCH CAPITAL FOR THE PURPOSE TO COMPENSATE THE DEFICIT OUT OF DIVERSION OF THE FUNDS TO DIRECTORS OR OTHERS WITHOUT ADEQUATE C ONSIDERATION. IN THE END, THE ASSESSING OFFICER PROPORTIONATELY MADE DISALLOWANCE OF INTEREST AMOUN TING TO RS.5,47,110/- VIDE ORDER DATED 19.11.2008 U/S. 143(3) OF THE ACT. 7. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A), WHO VIDE IMPUGNED ORDER DATED 15.02.2010 DE LETED THE ADDITION OF RS.5,47,110/- ON THE GROUND THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO PROVE ANY DIRECT NEXUS BETWEEN THE INTEREST BEARING LOANS AND ADVANCES MADE, THE TOTAL OF SECURED AND UNSECURED LOAN WAS 4 SUBSTANTIALLY LESS THAN THE ADVANCES MADE WHICH ARE FOUND TO BE RELATED WITH SUBSTANTIAL AMOUNT OF RESERVE AND SURPLUS FUNDS STANDING AT CREDIT OF ASSESSEE. 8. AT THE TIME OF HEARING, THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND ON THE CONTRARY, THE LD. COUNSEL RELIED ON THE ORDER PASSE D BY THE FIRST APPELLATE AUTHORITY. TO SUPPORT THE ORDER OF THE LD. FIRST APPELLATE AUTHORITY, THE LD. COUNSEL ALSO CITED THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PR EM HEAVY ENGG. WORKS (P) LTD. (2006) 150 TAXMAN 90 (ALL.), WHEREIN THE DECISION IN THE CASE OF CIT VS. RADICO KHAITAN LTD. (2005) 274 ITR 354 (ALL.) HAS ALSO BEEN REFERRED. HE STATED TH AT WHERE THE AMOUNT OF INTEREST FREE LOAN IS SUFFICIENTLY COVERED WITH THE NON-INTEREST BEARING FUND AVAILABLE WITH THE ASSESSEE, THE QUESTION OF DISALLOWANCE OF INTEREST ON BORROWED FUND DOES N OT ARISE. 9. WE HAVE HEARD BOTH THE PARTIES ON THE ISSUE INVO LVED IN GROUND NO. 3 AND 4 AND WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED FIRST APPEL LATE AUTHORITY HAS RIGHTLY DELETED THE ADDITION IN DISPUTE. IT IS VERY RELEVANT TO REPRODUCE THE RELEV ANT PORTION OF THE IMPUGNED ORDER AT PAGE 13 AND 14 AS UNDER : THE SUBMISSIONS MADE BY THE APPELLANT HAVE BEEN CO NSIDERED AND THE FOLLOWING FACTS EMERGE 1. THE A.O. HAS NOT BEEN ABLE TO PLACE EVIDENCE ON RECORD TO SHOW THAT THE BORROWED LOANS WERE UTILIZED FOR MAKING THE ADVANCES AS MENT IONED BY THE A.O. IN HIS ASSESSMENT ORDER ON PAGE 9 PARA 13. IT IS ALSO FOUND THAT THER E IS NO DIRECT NEXUS BETWEEN THE INTEREST BEARING FUNDS AND THE ADVANCES MADE AT LOWER RATE O R INTEREST FREE. THE ADVANCE MADE STOOD AT MUCH HIGHER FIGURE THAN THE TOTAL OF UNSECURED & SECURED LOAN. INTEREST BEARING FUNDS WERE UTILIZED FOR ADVANCING LOAN AT HIGHER RATE THA N THE RATE OF INTEREST BEARING FUNDS I.E., TO FARMERS @ 15% AND EVEN MORE. 2. THE A.O. HAS FAILED TO APPRECIATE THAT THE BORR OWINGS ARE INEXTRICABLE MIXED WITH ALL OTHER FUNDS OF THE BUSINESS AND LOST THEIR IDEN TITY AS SUCH AND ARE PART OF TOTAL FUNDS OF THE BUSINESS. THE ADVANCES MADE AT NEGOTIABLE RATE CAN NOT BE TERMED THAT ASSESSEE HAS MADE ANY BENEFIT TO 3 RD PARTY BY MAKING THE ADVANCES AT THE COST OF HIS BU SINESS EXPEDIENCY. 5 IT IS ALSO A SETTLED POSITION OF LAW AS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT (2007) 288 ITR 1 THAT THE TERM COMMERCIAL EXPEDIENCY IS NOT A TERM OF ART. IT MEANS EVERYTHING THAT SERV ES TO PROMOTE COMMERCE AND INCLUDES EVERY MEANS SUITABLE TO THAT END. IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY, FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS THE REASONABLENESS OF THE EXPENDITURE HAS TO BE JUD GED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT THE REVENUE. THE REALITY OF EXP ENDITURE AND INCOME IN THE FORM OF INTEREST EARNED THEREON IS ESTABLISHED BEYOND ANY D OUBT AND IT WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. ONCE IT IS ESTABLI SHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS, THE RE VENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE CHAIR OF A BUSINESSMAN OR IN THE POSITION OF DIRECTORS AND ASSUME THE SAID ROLE TO DECIDE HOW MUCH A REASONABLE EXPENDITURE HAVING REG ARD TO THE CIRCUMSTANCES OF THE CASE. SINCE THE AO HAS NOT BEEN ABLE TO PROVE ANY DIRECT NEXUS BETWEEN THE INTEREST BEARING LOANS AND ADVANCES MADE, THE TOTAL OF SECUR ED AND UNSECURED LOAN WAS SUBSTANTIALLY LESS THAN THE ADVANCES MADE WHICH ARE FOUND TO BE R ELATED WITH SUBSTANTIAL AMOUNT OF RESERVE AND SURPLUS FUNDS STANDING AT CREDIT OF APP ELLANT AS DISCUSSED ABOVE, THE ADDITION MADE BY THE AO U/S. 36(1)(III) AT RS.5,47,110/- BEI NG DEVOID OF ANY MERIT BOTH ON FACTS AND IN LAW IS DIRECTED TO BE DELETED. THE APPEAL FILED BY THE APPELLANT IS ALLOWED. 10. AFTER GOING THROUGH THE AFORESAID FINDING OF TH E LEARNED FIRST APPELLATE AUTHORITY ON THE ISSUE INVOLVED IN GROUND NO. 3 & 4, WE ARE OF THE C ONSIDERED OPINION THAT THE ORDER OF THE LD. FIRST APPELLATE AUTHORITY NEEDS NO INTERFERENCE, AS NO CO NTRARY EVIDENCES ARE LAID ON RECORD BY THE REVENUE TO REBUT THE SAME. THERE BEING NO INFIRMITY IN THE FINDING RECORDED BY THE FIRST APPELLATE AUTHORITY, GROUND NO. 3 & 4 RAISED BY REVENUE ARE D ISMISSED. 11. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. SD/- SD/- (K.G. BANSAL) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 19 TH AUGUST, 2011 *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE ASSISTANT REGISTRAR TRUE COPY