DY CIT 3(2), MUMBAI V. THE PATODIA STNTEX LTD, MUMBAI

ITA 1522/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1577 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-09-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 03-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Proportionate interest; Wholly owned subsidiary; Commercial expediency; TDS

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: MUMBAI BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER ITA NO 1522/MUM/2008 (ASSESSMENT YEAR: 2004-05) DY COMMISSIONER OF INCOME TAX, ROOM NO 608, 6TH FLOOR, AAYAKAR BHAVAN, MUMBAI -400 020 VS M/S PATODIA SYNTEX LTD, RAHEJA CHAMBERS, NARIMAN POINT, MUMBAI -400 021 PAN: AAACP 4751 E APPELLANT RESPONDENT APPELLANT BY: SHRI SANJEEV JAIN RESPONDENT BY: SHRI S L JAIN ORDER PER R.K. GUPTA, JUDICIAL MEMBER THIS IS THE APPEAL FILED BY THE DEPARTMENT IS AGAIN ST THE ORDER OF THE CIT (A) FOR ASSESSMENT YEAR 2004-05. 2. IN FIRST GROUND THE DEPARTMENT IS OBJECTING DELE TING THE ADDITION OF RS 92,97,937/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLO WANCE OF COMMISSION AND BROKERAGE. 3. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO PROVIDE EVIDENCE TO PROVE THAT THE EXPENSES ON ACCOUNT OF B ROKERAGE AND COMMISSION HAVE ACTUALLY BEEN INCURRED AS ALSO DETAILS TO PROVE THA T SERVICES TO BROKERS AND COMMISSION AGENTS HAVE BEEN UTILISED FOR PURCHASE AND SALE OF MATERIALS. AS PER THE ORDER OF THE ASSESSING OFFICER THESE DETAILS WERE NOT PROVIDED A ND, THEREFORE, HE CONCLUDED THAT ASSESSEE HAS NOT UTILISED THE SERVICES OF BROKERS A ND COMMISSION AGENTS. THE ASSESSING OFFICER HELD THAT IN THE ABSENCE OF EVIDENCES AS OT HERWISE THE CLAIM OF THE ASSESSEE IS NOT ESTABLISHED. BY FURTHER OBSERVING THAT CORRESPONDE NCE BETWEEN ASSESSEE AND BROKERS / AGENTS SHOULD HAVE BEEN BROUGHT ON RECORD. IN THE ABSENCE OF THESE CORRESPONDENCES, ITA 1522/M/2008 PATODIA SYNTEX LTD 2 ASSESSING OFFICER CONCLUDES THAT EVEN DAY-TO-DAY AC TIVITY HAS NOT BEEN ESTABLISHED. IT WAS FURTHER SUBMITTED THAT 80% OF THE RAW MATERIALS ARE FROM ASSOCIATES AND SISTER CONCERNS. BY FURTHER OBSERVING THAT PAN NUMBER OF BROKERS HAS NOT BEEN PROVIDED, THEREFORE, HE DISALLOWED THE CLAIM OF BROKERAGE AND COMMISSION AT RS 92,77,937/-. 4. BEFORE THE CIT (A) IT WAS SUBMITTED THAT WHATEVE R BROKERAGE HAS BEEN PAID TO THIRD PARTIES AND IN RESPECT OF PURCHASES MADE FROM THIRD PARTIES. IT WAS CLARIFIED THAT NO BROKERAGE HAS BEEN PAID TO ANY RELATED PERSON AND N O BROKERAGE HAS BEEN PAID IN RESPECT OF PURCHASE FROM ASSOCIATED CONCERNS. IT W AS FURTHER CONTENDED THAT ALL PAN EXISTED AND WERE PROVIDED TO THE ASSESSING OFFICER. THEY HAVE CONTENDED THAT IN EVERY CASE OF BROKERAGE AND COMMISSION, TDS HAS BEEN DEDU CTED. IT WAS FURTHER CONTENDED THAT IN THE YARN AND TEXTILE TRADE, THE ENTIRE PURC HASES ACROSS THE COUNTRY ARE ROUTED THROUGH BROKERS AND COMMISSION AGENTS AND IT IS AN ESTABLISHED PRACTICE OF TRADE THAT PAYMENT OF BROKERAGE AND COMMISSION IS INVARIABLY M ADE IN THE NORMAL COURSE OF BUSINESS. COPY OF WHOLE BUNCH OF DOCUMENTARY EVIDE NCE WAS FILED BEFORE THE ASSESSING OFFICER AND WAS ALSO FILED BEFORE THE CIT (A). THE SE EVIDENCES ARE IN SHAPE OF DEBIT NOTES, CALCULATIONS OF COMMISSION AND BROKERAGE WIT H REFERENCE TO PARTIES FROM WHICH PURCHASES HAVE BEEN MADE WHICH CONFIRMS THAT IN RES PECT OF PURCHASES FROM SISTER CONCERNS, NO BROKERAGE HAS BEEN PAID BY THEM. THEY HAVE EVEN ARGUED THAT ASSESSING OFFICER HAS DISALLOWED RS 9.42 LAKHS AS BROKERAGE W HICH IS IN RESPECT OF DEPB LICENSE, FOR WHICH THERE IS NO BASIS AND ON WHICH TAX HAS BEEN D EDUCTED AT SOURCE. ACCORDINGLY, IT WAS SUBMITTED THAT DISALLOWANCE MADE BY THE ASSESSI NG OFFICER WAS UNJUSTIFIED. 5. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE DETAILS FILED BEFORE HIM, THE CIT (A) CONCLUDED THAT THE ASSESSING OFFICER WAS NO T JUSTIFIED IN MAKING THE DISALLOWANCE ON ACCOUNT OF COMMISSION AND BROKERAGE. ACCORDINGL Y, HE DELETED THE DISALLOWANCE. FINDING IN THIS RESPECT ARE GIVEN IN PARA 2.2 AND A T PAGES 4 AND 5 OF THE ORDER OF THE CIT (A) ARE AS UNDER : 2.2 I HAVE PERUSED THE FACTS OF CASE, ARGUMENTS O F THE ASSESSING OFFICER AND THE CONTENTION MADE ON BEHALF OF APPELLANT. IT IS A FACT THAT IN TEXTILE TRADE, ITA 1522/M/2008 PATODIA SYNTEX LTD 3 PURCHASES ARE INVARIABLY THROUGH BROKERS AND COMMIS SION AGENT. THIS IS A RECOGNISED FACT AND CANNOT BE DISPUTED. THIS FACT HAS BEEN TOTALLY IGNORED BY ASSESSING OFFICER IN MAKING ASSESSMENT. ONE CANNOT IGNORE THE SYSTEM BY WHICH PARTICULAR BUSINESS IS CARRIED OUT. IT IS IN THIS PREMISE THAT ONE HAS TO ANALYZE WHETHER EXPENSES HAVE TO BE DISALLOWED OR NOT. THE TOTAL DISREGARD OF THE PRACTICE AS DONE BY THE ASSESSING OFFICER IS NOT JU STIFIED. ONE OF THE MAIN BASE OF DISALLOWANCE TAKEN UP BY ASSESSING OFFICER IS THAT COMMISSION HAS BEEN PAID ON PURCHASES EFFECTED FROM SISTER CONCERN. THIS BASE ITSELF IS NOT CORRECT. APPELLANT HAS CONTENDED BEFORE ME THAT NO BROKERAGE WAS PAID ON MY TRANSACTIONS UNDERTAKEN WITH SISTER CONCERNS. THE FACT OF PAN H AS NOT BEEN PROVIDED IN RESPECT OF ANY BROKER OR COMMISSION HAS ALSO BEEN CHALLENGE D BY APPELLANT. IT IS PARTICULARLY NOTED BY ME THAT IN EVERY CASE OF BROK ERAGE COMMISSION PROVIDED, TDS HAS BEEN DEDUCTED BY APPELLANT. IN THE ABOVE C IRCUMSTANCES, THE ARGUMENT OF THE ASSESSING OFFICER THAT BROKERAGE AND COMMISS ION HAS NOT BEEN PAID FOR THE PURPOSE OF BUSINESS IS NOT AT ALL CORRECT. IT IS V ERY MUCH AN INHERENT PART OF THE SYSTEM OF BUSINESS IN COTTON AND TEXTILES WHICH CAN NOT BE IGNORED. ALL COMMISSION IS TO THIRD PARTIES AND IN RESPECT OF PURCHASES FRO M THIRD PARTIES ONLY. IN SUCH A SITUATION, THE MANNER IN WHICH ADDITION HAS BEEN MA DE BY THE ASSESSING OFFICER IS NOT JUSTIFIED. THE ADDITION MADE IS ACCORDINGLY DE LETED. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE PLACED R ELIANCE ON THE ORDER OF THE ASSESSING OFFICER, PART OF THE ORDER OF THE ASSESSI NG OFFICER WAS READ ALSO. ON THE OTHER HAND, THE LEARNED AR PLACED RELIANCE ON THE ORDER O F THE CIT (A). ATTENTION OF THE BENCH WAS DRAWN ON VARIOUS DETAILS PLACED ON RECORD IT WA S FURTHER SUBMITTED THAT EACH AND EVERY DETAIL WAS FILED BEFORE THE ASSESSING OFFICER AND THEN BEFORE THE CIT (A), THEREFORE, THIS WAS INCORRECT ON THE PART OF THE ASSESSING OFF ICER BY NOTING THAT NO DETAILS HAVE BEEN FILED. ATTENTION OF THE BENCH WAS DRAWN ON COPY OF LETTER, THROUGH WHICH DETAILS WERE FILED BEFORE THE ASSESSING OFFICER AND THE CIT (A). ATTENTION OF THE BENCH WAS DRAWN ON DETAILED REPLY FILED BEFORE THE CIT (A), COPY OF WH ICH IS FILED ON RECORD. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED T HEM CAREFULLY. AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD WE FOUND NO INFIRMITY IN THE ORDER OF LEARNED CIT (A). THE CIT (A) HAS TAKEN INTO CONSID ERATION THE VARIOUS DETAILS IN RESPECT OF BROKERAGE AND COMMISSION, COPY OF WHICH IS PLACE D ON RECORD. THE ASSESSEE HAD FILED NAME OF THE PARTIES, SHOWING THEIR VALUE OF PURCHAS ES AND AMOUNT OF COMMISSION, AMOUNT FROM WHICH TDS HAS BEEN DEDUCTED. UNDER THE COLUMN OF NAME LATEST PANS OF ITA 1522/M/2008 PATODIA SYNTEX LTD 4 PARTIES ARE ALSO MENTIONED. THESE DETAILS ARE PLAC ED AT PAGES 12 TO 25 OF THE PAPER BOOK. WE FURTHER NOTED THAT THE ASSESSEE PAYING CO MMISSION CONSISTENTLY ON ITS PURCHASES. DURING ASSESSMENT ORDER 2001-02, THE PE RCENTAGE OF COMMISSION OF SALES WAS 2.51%. IN 2002-03 THIS PERCENTAGE WAS 2.28% AND IN 2003-04 THE SAME WAS AT 1.82% AND DURING THE YEAR UNDER CONSIDERATION THE PE RCENTAGE OF BROKERAGE IS 1.07%. IN ALL OTHER YEARS, THE BROKERAGE AND COMMISSION PA ID BY THE ASSESSEE HAS BEEN ACCEPTED WHILE COMPLETING ASSESSMENTS U/S 143(3). 8. AFTER GOING THROUGH ALL THESE DETAILS AND DETAIL ED EXPLANATION FILED BEFORE THE CIT (A) ON WHOSE BASIS THE LEARNED CIT (A) HAS DELETED THE DISALLOWANCES, WE ARE OF THE VIEW THAT THE LEARNED CIT (A) WAS JUSTIFIED IN DELE TING THE DISALLOWANCES, THEREFORE, THE ORDER OF THE CIT (A) IS CONFIRMED. 9. SECOND ISSUE IS AGAINST DELETING THE ADDITION OF RS 57,82,696/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF FREIGHT FORWARDING AND CLEARING CHARGES. 10. SIMILARLY, THE ASSESSING OFFICER REQUIRED THE A SSESSEE TO FILE DETAILS IN RESPECT OF CLEARING, FORWARDING AND FREIGHT CHARGERS. AS PER ORDER OF THE ASSESSING OFFICER, PROPER DETAILS WERE NOT FILED, THEREFORE, HE DISALLOWED 60 % OF THE TOTAL CLAIM, WHICH WAS AT RS 57,82,696/-. DETAILED SUBMISSIONS WERE FILED BEFOR E THE CIT (A) INCLUDING A DETAILED BREAK-UP OF THE TOTAL AMOUNT OF EXPENDITURE UNDER T HE HEAD CLEARING, FORWARDING AND FREIGHT CHARGES AT RS 96,32,828/-. IT WAS SUBMITT ED THAT THIS ENTIRE AMOUNT DID NOT RELATE TO CLEARING AND FORWARDING CHARGES, AS ON AC COUNT OF CLEARING AND FORWARDING CHARGES ONLY SUM OF RS 18,30,970/- WAS SPENT. THE BALANCE AMOUNT IS ON TRANSPORTATION CHARGES OF RAW MATERIAL AND FINISHED GOODS. THEREF ORE, IT WAS CONTENDED THAT SINCE THE ASSESSING OFFICER WAS ONLY REFERRING TO CLEARING, F ORWARDING AND FREIGHT CHARGES AT RS 18,30,970/- WHICH WAS NOT JUSTIFIED. FURTHER, IN R ESPECT OF CLEARING AND FORWARDING CHARGES, BILLS FROM AGENTS HAVE BEEN PRODUCED BEFOR E THE CIT (A) WHICH CONTAIN THE DETAILS OF EXPENSES AND WHICH WAS ALSO FILED BEFORE THE ASSESSING OFFICER. IT WAS SUBMITTED THAT THE ASSESSING OFFICER WAS HAS NOT AS KED ANY FURTHER DETAILS, THEREFORE, NO ITA 1522/M/2008 PATODIA SYNTEX LTD 5 FURTHER DETAILS COULD BE FILED. IT WAS SUBMITTED T HAT THESE AGENTS SUMMARILY ISSUE ONLY BILLS AND ON THE BILLS ITSELF THE SIGNATURE OF THE AGENTS HAVE BEEN TAKEN WHEN THE PAYMENTS ARE MADE. IT WAS EXPLAINED THAT BILL ISSU ED BY AGENTS IS ITSELF IS A PRIMARY EVIDENCES AND, THEREFORE, FURTHER VOUCHERS ISSUED B Y RESPECTIVE AGENTS ARE NOT REQUIRED TO BE KEPT BY THE ASSESSEE. 11. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE CIT (A) AGAIN FOUND THAT ASSESSING OFFICER WAS NOT JUSTIFIE D IN DISALLOWING THE CLAIM OF THE ASSESSEE. IN HIS VIEW, EACH AND EVERY DETAILS WERE FILED, THEREFORE, NO FURTHER DETAIL WAS REQUIRED TO BE FILED. THE FINDING IN THIS RESPECT HAVE BEEN GIVEN IN PARA 3.3 AT PAGES 6 & & 7 OF THE CIT (A), WHICH IS AS UNDER:- 3.3 I HAVE PERUSED THE FACTS OF THE CASE AND I FIN D THAT AS FAR AS TRANSPORTATION CHARGES INCLUDED IN THE TOTAL AMOUNT OF RS 96.39 LA KHS IS CONCERNED, THEY ARE NOT SUBJECTED TO DISALLOWANCE BY ASSESSING OFFICER, BUT WHILE COMPUTING THE QUANTUM OF DISALLOWANCE, ASSESSING OFFICER HAS ALSO TAKEN T HE SAME. TO THIS EXTENT, ORDER OF ASSESSING OFFICER IS ERRONEOUS. AS FAR AS THE I SSUE OF DISALLOWANCE OF 60% AMOUNT PAID TO FREIGHT, FORWARDING AND CLEARING AGE NTS IS CONCERNED, ASSESSING OFFICER HAS HELD THAT THE APPELLANT IS ONLY AN EXPO RTER AND FOR EXPORTING GOODS, AGENTS ARE ENGAGED FOR OBTAINING CUSTOMS CLEARING A ND FORWARDING GOODS TO CUSTOMERS ABROAD. THESE AGENTS INCUR EXPENSES AT V ARIOUS STAGES AND SUBMIT ONLY SUMMARY BILLS TO THE CUSTOMERS. THIS IS A RECOGNIZ ED SYSTEM IN THE TRADE AND HAS TO BE ACCEPTED. THE ORIGINAL VOUCHERS OF EXPENSES ARE VERY MUCH AN INTEGRAL PART OF THE ACCOUNTS OF CLEARING AND FORWARDING AGENTS. IF THOSE ORIGINAL VOUCHERS ARE PASSED ON TO THE CUSTOMERS, THE FORWARDING AGENTS W ILL HAVE PROBLEMS FOR ITS OWN ACCOUNTS. THEREFORE, THIS HAS BEEN FOLLOWED OVERTI ME WHERE PRIMARY VOUCHERS ARE RETAINED BY CLEARING AND FORWARDING AGENTS AND ONLY SUMMARY BILLS ARE GIVEN TO THE CUSTOMERS. IN THIS SYSTEM, SUMMARY BILL ITSELF BECOME PRIMARY EVIDENCE FOR THE EXPORTER. IT IS NOT THE CASE OF ASSESSING OFFICER THAT THE EXPENSES UNDER CONSIDERATION ARE FALSE OR WERE NOT INCURRED AT ALL . THIS ALSO FOLLOWS FROM THE FACT THAT EXPORTS HAVE TAKEN PLACE. ONCE EXPORTS ARE TH ERE, CLEARING AND FORWARDING EXPENSES ARE BOUND TO BE INCURRED. THE ONLY CASE O F ASSESSING OFFICER IS THAT DESPITE SUMMARY BILLS, SINCE PRIMARY EVIDENCES HAVE NOT BEEN PRODUCED, CLAIM OF EXPENSES IS NOT JUSTIFIED. THIS APPROACH OF THE AS SESSING OFFICER IS NOT JUSTIFIED. ONE CANNOT IGNORE THE PREVALENT SYSTEM IN A PARTICU LAR TRADE. ANY EXPORTER HIMSELF ENGAGED IN THE MANUFACTURING OR MAY BE TRAD ING CANNOT AFFORD DIVERSION FROM PRIMARY ACTIVITIES WHEN THERE ARE EXPERTS TO U NDERTAKE THE VARIETY OF WORKS RELATING TO CLEARING AND FORWARDING OF EXPORTS. TH EREFORE, NEED ARISES AND, WHEN THE AGENT HAS GIVEN BILL TO THE CUSTOMER, WHICH HAS NOT BEEN DOUBTED, OR GENUINENESS OF WHICH HAS NOT BEEN DOUBTED, OR NOT B EEN CHALLENGED, THE ITA 1522/M/2008 PATODIA SYNTEX LTD 6 DISALLOWANCE ON THE GROUND THAT THE PRIMARY EVIDENC E, WHICH WOULD THE BASE OF THE SUMMARY BILL OF THE CLEARING AND FORWARDING AGE NTS, HAVE NOT BEEN PRODUCED, CANNOT BE A BASE FOR MAKING DISALLOWANCE. THE ADDI TION MADE IS THEREFORE, DELETED. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER AND ON THE OTHER HAND, THE LEARNE D COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE ORDER OF THE CIT (A). ATTENTION OF THE BENCH WAS DRAWN ON COPY OF WRITTEN SUBMISSION FILED BEFORE THE CIT (A) AND DET AILS IN RESPECT TO THESE EXPENSES, WHICH ARE PLACED ON RECORD. 13. AFTER CONSIDERING THE SUBMISSION AND PERUSING T HE MATERIAL ON RECORD, AGAIN WE FOUND NO INFIRMITY IN THE ORDER OF THE CIT (A), WHO ALLOWED THE CLAIM OF THE ASSESSEE AFTER ASCERTAINING EACH AND EVERY DETAILS KEPT BY THE ASS ESSEE. IN TYPE OF BUSINESS OF THE ASSESSEE THESE EXPENSES ARE REQUIRED TO BE BORNE RO UTINELY. IT WAS FURTHER NOTED BY CIT (A) THAT THE PERCENTAGE OF THESE EXPENSES IS VERY L ESS AS COMPARED TO EARLIER YEAR, AS IN EARLIER THREE YEAR THE PERCENTAGE WAS 1.27% OF THE TURNOVER WHEREAS DURING THE YEAR UNDER CONSIDERATION IT WAS ONLY 1.11%. THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED CONSISTENTLY. THEREFORE, WITHOUT POINTING OUT ANY DEFECT OR BRINING OUT ANY COGENT MATERIAL ON RECORD, ADVERSE INFERENCE DRAWN BY THE ASSESSING OFFICER FOR MAKING ADHOC DISALLOWANCE @ 60%, IN OUR CONSIDERED VIEW WAS NOT JUSTIFIED AT ALL AND THE CIT (A) WAS JUSTIFIED IN DELETING THE DISALLOWANCES. THERE IS NO DISPUTE THAT EACH AND EVERY DETAIL WAS KEPT BY THE ASSESSEE AND WERE FILED BEFORE THE ASSE SSING OFFICER ALSO. THERE IS NO DISPUTE IN THE PAYMENTS ALSO. IN VIEW OF THESE FAC TS AND CIRCUMSTANCES AND IN VIEW OF THE ABOVE DETAILED REASONING GIVEN BY THE CIT (A), WE CONFIRMED HIS ORDER ON THIS ISSUE ALSO. 14. REMAINING ISSUE IN THE DEPARTMENT APPEAL IS AGA INST DELETING THE ADDITION OF RS 45,45,000/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF DISALLOWANCE OF PROPORTIONATE INTEREST AND BANKING CHARGES ON INTEREST FREE ADVAN CES WITHOUT APPRECIATING THAT THE BUSINESS EXPEDIENCY WAS NOT PROVED BEFORE THE ASSES SING OFFICER. ITA 1522/M/2008 PATODIA SYNTEX LTD 7 15. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSIN G OFFICER NOTICED THAT ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO SUBSIDIARY AND ASSOCIATE CONCERNS ON WHICH NO INTEREST HAS BEEN CHARGED. THE ASSESSING OFFICER O BSERVED THAT ASSESSEE HAD PAID INTEREST OF RS 21,63,217/- ON BORROWED FUNDS. IN A DDITION, BANKING CHARGES AT RS 30,65,350/- HAVE BEEN PAID. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS ADVANCED RS 5.05 CORES TO ITS SUBSIDIARY COMPANIES ON WHICH NO INTEREST HAS BEEN CHARGED. BY FURTHER OBSERVING THAT ASSESSEE HAS FAILED TO PROVE THAT AD VANCES WERE MADE OUT OF OWN FUNDS. THE ASSESSING OFFICER, ACCORDINGLY, DISALLOWED 9% OF INTEREST FREE ADVANCES OUT OF INTEREST AND BANK CHARGES PAID BY ASSESSEE. 16. IT WAS CONTENDED BEFORE CIT (A) THAT ADVANCES H AVE BEEN MADE TO TWO SISTER CONCERNS I.E. MAHARASHTRA SYNTHETICS AND FIBRES & M /S EUROSPIN INDUSTRIES LTD. IT WAS SUBMITTED THAT WHILE THE FORMER IS A 100% SUBSIDIAR Y OF THE ASSESSEE COMPANY AND LATTER IS SUBSIDIARY COMPANY. IT WAS LATTER ARGUED THAT A SSESSEE HAD PASSED FUNDS TO MAHARASHTRA SYNTHETICS AND FIBRES, IN CONNECTION WI TH SUPPLY OF COTTON FABRICS TO VARIOUS TEXTILES MERCHANTS. THE ENTIRE ADVANCES BORNE TO E ARLIER YEARS. EVIDENTLY THIS COMPANY, WHICH IS A 100% SUBSIDIARY COMPANY, IS ALSO ENGAGED IN ACTUAL JOB WORK FOR ASSESSEES ACTIVITY AS WELL AS SALE OF FABRICS. ACCORDINGLY, IT WAS CONTENDED THAT ADVANCES TO THIS COMPANY WAS FOR BUSINESS PURPOSE FOR COMMERCIAL INT EREST. IN RESPECT OF SECOND ADVANCE TO M/S EUROSPIN INDUSTRIES LTD, WHICH IS A SUBSIDIARY OF THE ASSESSEE, IT WAS INFORMED THAT ADVANCE WAS MADE IN EARLIER YEARS FOR THE PURCHASE OF YARN. DETAILS OF YARN PURCHASED THROUGH THIS COMPANY WAS ALSO FILED. IT WAS FURTHER INFORMED THAT COMPANY BECAME SICK COMPANY DURING ASSESSMENT YEAR 2003-04 HAS STOPPED ITS OPERATIONS. THEREAFTER, ON THE OUTSTANDING BALANCES WITH THE CO MPANY, NO INTEREST HAS BEEN CHARGED. IT WAS AGAIN CONTENDED THAT ADVANCES WAS FOR BUSINE SS PURPOSE AND FOR COMMERCIAL CONSIDERATION. 17. THE RELIANCE HAS PLACED ON THE DECISION OF THE APEX COURT IN THE CASE OF S A BUILDERS (288 ITR 1), WHEREIN IT HAS BEEN CATEGORIC ALLY HELD THAT WHEN INTEREST FREE ADVANCES ARE MADE TO SISTER CONCERN OR TO A SUBSIDI ARY COMPANY FOR COMMERCIAL PURPOSE, ITA 1522/M/2008 PATODIA SYNTEX LTD 8 NO DISALLOWANCE CAN BE MADE OUT OF INTEREST PAID BY ASSESSEE. RELIANCE WAS ALSO PLACED UPON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF HOTEL SAVERA LTD (239 ITR 795) AND IN CASE OF PREM HEAVY ENGINEERING WORKS PVT LTD (285 ITR 554) (ALL). IT WAS ALSO ARGUED THAT NO BORROWED FUNDS WERE UTILISED IN ADVA NCING FUNDS TO SISTER CONCERNS AS MUCH MORE OWN FUNDS WERE AVAILABLE WITH THE ASSESSE E. IT WAS SUBMITTED THAT ENTIRE AMOUNT OF BANK CHARGES WERE IN RELATION TO EXPORT A CTIVITY AND HAS NOTHING TO DO WITH THE INTEREST FREE ADVANCES MADE BY THE ASSESSEE. 18. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE CIT (A) FOUND THAT THIS IS A CLEAR-CUT CASE OF COMMERCIAL C ONSIDERATION AS ADVANCES WERE GIVEN TO TWO SUBSIDIARY COMPANIES. THE DECISION OF THE APEX COURT IN CASE OF S A BUILDERS (SUPRA) WAS FOUND APPLICABLE ON THE FACTS OF THE PRESENT CA SE, THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED BY THE CIT (A) . THE LEARNED DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE ORDER OF CIT (A). IT WAS FURTHER SUBMITTED THAT THE ASSESSEES OWN FUNDS WERE TO THE TUNE OF RS 29 CRORES WHEREAS, THE ONLY 5.05 CRORES HAVE BEEN ADVANCES TO ITS SUBSIDIA RY COMPANY AND THAT TOO FOR COMMERCIAL EXPEDIENCY ONLY. 19. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD. WE FOUND THAT THE CIT (A) WAS JUSTIFIED IN DELETING THE DISALLOWANCES. THE DECISI ON OF THE APEX COURT IN CASE OF S A BUILDERS (SUPRA) IS SQUARELY APPLICABLE IN THE FACT S OF THE PRESENT CASE. EVEN OTHERWISE ON MERIT ALSO THE ADVANCES WERE GIVEN IN EARLIER YE AR AND NO DISALLOWANCES WAS MADE IN EARLIER YEAR, THEREFORE, DISALLOWANCES MADE DURING THE YEAR UNDER CONSIDERATION WAS NOT JUSTIFIED. THE OWN FUNDS OF THE ASSESSEE WERE AVAI LABLE TO THE TUNE OF RS 29 CRORES WHEREAS ADVANCES ARE ONLY TO THE EXTENT OF RS 5.05 CORES. WE FURTHER NOTED THAT BANK CHARGES DOES NOT RELATE WITH THE ADVANCES GIVEN TO SUBSIDIARY COMPANY AS THE BANK CHARGES WERE PAID ON ACCOUNT OF EXPORT MATERIAL, TH EREFORE, IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE HOLD THAT CIT (A) WAS JUSTIFIED I N DELETING THIS DISALLOWANCE ALSO. ITA 1522/M/2008 PATODIA SYNTEX LTD 9 20. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. ORDER PRONOUNCED ON 27TH DAY OF NOVEMBER 2009. SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER SD/- (R.K. GUPTA) JUDICIAL MEMBER MUMBAI, DATE: 27TH NOVEMBER 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) III, MUMBAI. 4) THE CIT-3, MUMBAI. 5) THE D.R. C BENCH, ITAT, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T., MUMBAI ITA 1522/M/2008 PATODIA SYNTEX LTD 10 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 20.11.09 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 2611.09 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER