Radha Shyam Panda, Cuttack V. ITO, Cuttack

ITA 18/CTK/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81451 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 08-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: S N SAHU
• Keywords: Commercial expediency
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH , CUTTACK BEFORE S/SHRI S.V.MEHROTRA (AM) AND GEORGE MATHAN (JM) I.T.A. NO. 18/CTK/2013 ASSESSMENT YEAR: 2008-09 RADHA SHYAM PANDA, PROP. M/S. PANDA & CO., AT: PANDA BUILDING, BANK STREET, JAJPUR ROAD, JAJPUR PAN NO.ADIPP 9695 D VS ITO, WARD 1( 2), CUTTACK APPELLANT RESPONDENT FOR THE APPELLANT: SHRI S.N.SAHU FOR THE RESPONDENT: SHRI S.C.MOHANTY DATE OF HEARING: 15/10/.2014 DATE OF PRONOUNCEMENT: 17 /10/2014 ORDER PER S.V.MEHROTRA, AM THIS APPEAL FILED BY THE ASSESSE IS DIRECTED AGAINS T ORDER DATED 14.11.2012 OF LD CIT(A), CUTTACK FOR THE ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE HAS RAISED THE CONCISE GROUNDS AS U NDER: 1. THAT THE ADDITION OF RS.55,157/- UNDER SECTION 40A(3) OF THE I.T.ACT, IS ILLEGAL, UNCALLED FOR, EXCESSIVE AND NOT JUSTIFIED IN ACCORD ANCE WITH LAW. 2. THAT THE DISALLOWANCE OF INTEREST TO A TUNE OF R S.2,01,991/- IS ILLEGAL, EXCESSIVE AND AGAINST THE FACTS ON RECORD BECAUSE THE ASSESSE E HAD GIVEN ADVANCE LOAN OUT OF HIS CAPITAL. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A N INDIVIDUAL, DERIVED INCOME FROM WHOLESALE OF IRON & STEEL AND G.C.SHEETS. HE HAD F ILED RETURN OF INCOME DECLARING TOTAL INCOME AT RS.3,64,740/-. THE ASSESSMENT WAS COMPLETED AT A TOTAL INCOME OF RS.13,36,843/-, INTER ALIA, MAKING FOLLOWING DISALLOWANCES: 2 I.T.A. NO. 18/CTK/2013 ASSESSMENT YEAR: 2008-09 1. DISALLOWANCE UNDER SECTION 40A(3) : RS. 55,1 57/- 2. CHARGE OF INTEREST ON INTEREST FREE LOAN : RS. 2,01,991/- 4. LD CIT(A), WHILE PARTLY ALLOWING THE ASSESSEES APPEAL CONFIRMED THE AFOREMENTIONED TWO DISALLOWANCES. BEING AGGRIEVED BY THE ORDER OF LD CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 5. APROPOS GROUND NO.1, BRIEF FACTS OF THE CASE ARE THAT ON VERIFICATION OF CASH BOOK, THE ASSESSING OFFICER NOTICED THAT FOLLOWING PAYMENTS W ERE MADE AGAINST PURCHASE OF TRADED GOODS EXCEEDING RS.20,000/-: DATE AMOUNT TO WHOM PAID 9.6.2007 30,782/- LAXMI STEEL & PIPES 18.3.2008 24,375/- BHARATIYA DISTRIBUTORS HE OBSERVED THAT THESE PAYMENTS WERE MADE IN CONTRA VENTION OF PROVISIONS OF SECTION 40A(3) AND, ACCORDINGLY, MADE THE ADDITION. 6. BEFORE LD CIT(A), IT WAS SUBMITTED THAT BOTH M/S . LAXMI STEEL AND PIPES AND M/S. BHARATIA DISTRIBUTORS LTD., WERE AT PILGRIM ROAD, C UTTACK. THESE PAYMENTS WERE AGAINST THE DEMAND OF THE SELLER FOR CASH PAYMENT. THERE WAS N O BANK ACCOUNT OF THE ASSESSEE AT CUTTACK. THE PAYMENT HAD NOT BEEN MADE VIOLATING THE PROVISI ONS OF RULE 6DD. FURTHER, IT WAS SUBMITTED THAT, IN ANY VIEW OF THE MATTER, ONLY 20% OF THE SAME SHOULD HAVE BEEN ADDED. LD CIT(A) CONFIRMED THE AOS ACTION, INTER ALIA, OBSER VING THAT ASSESSEE HAD NOT ESTABLISHED THE EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES AS DELINE ATED IN RULE 6DD. 7. AT THE TIME OF HEARING, LD COUNSEL FOR THE ASSES SEE REITERATED THE SUBMISSIONS MADE BEFORE LD CIT(A). 8. LD D.R. POINTED OUT THAT ASSESSEES CASE DOES NO T FALL WITHIN ANY OF THE EXCEPTION OF CLAUSES PROVIDED UNDER RULE 6DD. 9. HAVING HEARD BOTH SIDES, WE FIND THAT ASSESSEES CLAIM IS NOT COVERED BY ANY OF THE EXCEPTIONS PROVIDED UNDER RULE 6DD. HOWEVER, THE F IRST PROVISO BELOW SECTION 40A(3) CLEARLY TAKES INTO CONSIDERATION THE NATURE OF EXPENSES, BA NKING FACILITIES, CONSIDERATION OF BUSINESS 3 I.T.A. NO. 18/CTK/2013 ASSESSMENT YEAR: 2008-09 EXPEDIENCY AND OTHER RELEVANT FACTORS. RULE 6DD IN INTENT AND PURPOSE TAKES INTO CONSIDERATION ALL THESE ASPECTS FOR PRESCRIBING VARIOUS EXCEPTION AL CIRCUMSTANCES. THEREFORE, RULE 6DD CANNOT BE MECHANICALLY APPLIED AND WE HAVE TO CONSI DER THE OVERALL EXPLANATION OF THE ASSESSEE HAVING REGARD TO THE BUSINESS CONSIDERATION. THE AS SESSEES EXPLANATION IS THAT ASSESSEE HAD NO BANK ACCOUNT AT CUTTACK AND SELLER WAS INSISTING F OR CASH PAYMENTS. THE PAYMENTS HAD BEEN MADE TO THE SELLER BECAUSE OF THAT REASON. THE GEN UINENESS OF PURCHASES HAD NOT BEEN DOUBTED BY THE ASSESSING OFFICER. UNDER SUCH CIRCU MSTANCES, WE ARE OF THE OPINION THAT THE DISALLOWANCE OF THESE EXPENSES BY APPLYING TO SECTI ON 40A(3) WOULD NOT BE JUSTIFIED. WE, ACCORDINGLY, SET ASIDE THE ORDER OF LD CIT(A) ON TH IS COUNT. 10. APROPOS GROUND NO.2, BRIEF FACTS ARE THAT ASSES SEE HAD GIVEN LOAN TO ANOTHER BUSINESS CONCERN I.E. M/S. PANDA ENTERPRISES, WHICH HAPPENED TO BE THE PROPRIETARY CONCERN OF HIS WIFE WITHOUT INTEREST ON THE SAID ADVANCE. HE FURTHER O BSERVED THAT THE TOTAL INTEREST FREE LOANS WAS ADVANCED TO THE TUNE OF RS.50,70,692/- ON DIFFERENT DATES FROM CASH CREDIT ACCOUNT OF THE ASSESSEE AGAINST WHICH REPAYMENT WAS RECEIVED ON DI FFERENT DATES FOR RS.21,86,024/- RESULTING INTO OUTSTANDING LOAN AS ON 31.3.2008 AT RS.28,84,6 68/-. HE HAS PRODUCED THE LEDGER ACCOUNT OF M/S. PANDA ENTERPRISES IN THE BOOKS OF THE ASSES SEE AT PAGE 6 OF THE ASSESSMENT ORDER. HE SHOW CAUSED THE ASSESSEE AS TO WHY THE INTEREST REL ATING TO OUTSTANDING AMOUNT BE NOT DISALLOWED. ASSESSEE IN HIS EXPLANATION POINTED OU T THAT TWO FIRMS BEING RUN BY HUSBAND AND WIFE, HENCE WERE SISTER CONCERNS. THE ASSESSEE REL IED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS, 288 ITR 1 (SC), WHEREIN, IT HAS BEEN HELD THAT INTEREST ON MONEY BORROWED FROM BANK LENT TO SISTER CONCERN WIT HOUT CHARGING INTEREST IS AN ALLOWABLE EXPENDITURE IF USED FOR THE PURPOSE OF BUSINESS - C OMMERCIAL EXPEDIENCY. THE AO AFTER CONSIDERING THE ASSESSEES SUBMISSION POINTED OUT T HAT THOUGH THE ASSESSEE WAS CLOSELY RELATED IN PERSONAL LIFE BUT THERE WAS NO BUSINESS NEXUS BE TWEEN THE TWO BUSINESS CONCERNS. HE, ACCORDINGLY, COMPUTED THE INTEREST @ 12% AS APPLIC ABLE FOR CASH CREDIT LOANS AND MADE DISALLOWANCE AMOUNTING TO RS.2,01,991/-. 11. BEFORE LD CIT(A), ASSESSEE REITERATED THE SUBMI SSIONS MADE BEFORE THE AO. LD CIT(A) CONFIRMED THE ADDITION, INTER ALIA, OBSERVING THAT THERE WAS NO COMMERCIAL EXPEDIENCY IN RESPECT OF SUCH INTEREST FREE ADVANCE. HE RELIED O N THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. ACCELERATED FREEZE DYING CO LTD ., (2010) 324 ITR 316 (KER) AND THE 4 I.T.A. NO. 18/CTK/2013 ASSESSMENT YEAR: 2008-09 DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF PUNJAB STAINLESS STEELS IND VS. CIT, 324 ITR 396 (DEL). 12. LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSE SSEE HAD SUFFICIENT INTEREST FREE FUNDS TO ADVANCE THE LOAN TO M/S. PANDA ENTERPRISES. LD COU NSEL REFERRED TO THE BALANCE SHEET OF M/S. PANDA & CO., WHICH IS THE PROPRIETARY CONCERN OF TH E ASSESSEE TO DEMONSTRATE THAT ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO ADVANCE THE L OAN. LD COUNSEL FOR THE ASSESSEE ALSO RELIED , INTER ALIA, ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. HOTEL SAVERA, 148 CTR 585 (MAD) TO SUBMIT THAT IN ABSENCE OF ANY MATE RIAL OR EVIDENCE TO INDICATE THAT FIRM HAD ADVANCED MONEYS OUT OF BORROWED FUNDS, THE PRESUMPT ION WOULD ARISE THAT MONEY WAS ADVANCED OUT OF ITS OWN FUNDS. 13. LD D.R. SUBMITTED THAT THE ENTIRE ADVANCE HAD B EEN GIVEN FROM CASH CREDIT ACCOUNT AND, THEREFORE, THE NEXUS OF PAYMENT BETWEEN THE BORROWE D FUNDS AND ADVANCE WAS DULY ESTABLISHED. 14. HAVING HEARD BOTH PARTIES, WE ARE OF THE OPINIO N THAT IF ASSESSEE IS ABLE TO SUBSTANTIATE ITS CLAIM THAT THE ADVANCE WAS GIVEN OUT OF ITS OWN FUNDS, THEN NO ADDITION IS CALLED FOR. IT IS WELL SETTLED LAW THAT IF THE ASSESSEE HAS ADVANCED INTEREST FREE LOAN OUT OF ITS OWN FUNDS, THEN NO DISALLOWANCE CAN BE MADE UNDER SECTION 36(1)(III ) OF THE ACT. WE FIND THIS ASPECT HAS NOT BEEN EXAMINED BY THE LOWER REVENUE AUTHORITIES AND, THEREFORE, WE RESTORE THE MATTER TO THE FILE OF THE AO TO DECIDE THE ISSUE DENOVO IN THE LI GHT OF OUR OBSERVATIONS. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 17 TH OCTOBER, 2014. SD/- SD/- ( GEORGE MATHAN) (S.V.MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, CUTTACK 17 /10/2014 B.K.PARIDA, SR. PS 5 I.T.A. NO. 18/CTK/2013 ASSESSMENT YEAR: 2008-09 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT: RADHA SHYAM PANDA, PROP. M/S. PANDA & CO.,AT: PANDA BUILDING, BANK STREET, JAJPUR ROAD, JAJPUR 2. THE RESPONDENT: ITO, WARD 1(2),CUTTACK 3. THE CIT, CUTTACK 4. THE CIT(A), CUTTACK 5. DR, CUTTACK BENCH 6. GUARD FILE. TRUE COPY// BY ORDER ASST. REGISTRAR, ITAT, CUTTACK