SHYAM CHEMICALS P.LTD, MUMBAI V. ACIT 2(3), MUMBAI

ITA 1906/MUM/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9890 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 08-03-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 08-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO.1906/M/2013 ASSESSMENT YEAR: 2006-07 M/S. SHYAM CHEMICALS PVT. LTD., JASH CHAMBERS, 5 TH FLOOR, SHRI P.M. MEHTA ROAD, MUMBAI 400 001 PAN: AADCS 0883K VS. ACIT 2(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : MISS DINKLE HARIYA, A.R. REVENUE BY : MISS ANUPAMA SINGLA, D.R. DATE OF HEARING : 20.04.2017 DATE OF PRONOUNCEMENT : 07.07.2017 O R D E R PER D.T. GARASIA, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 02.01.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2006-07. 2. GROUND NO.1 IS NOT PRESSED BY THE ASSESSEE, HENC E, THE SAME IS DISMISSED. GROUND NO.2 3. DURING THE COURSE OF ASSESSMENT PROCEEDING IT WA S SEEN AND ASKED THE ASSESSEE THAT YOU HAVE PAID INTEREST AT THE RATE OF 21% TO THE RELATIVES SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT WHEREAS TO THE O THER PERSONS IT HAD PAID THE INTEREST AT THE RATE OF 12%. THE AO ISSUED SHOW CA USE NOTICE THAT PREVAILING RATE AT THAT TIME IN THE MARKET WAS 12%. THE AO WA S OF A VIEW THAT ASSESSEE PAID INTEREST TO SMT. DURGADEVI SOMANI, MASTER SOMA NI, SMT. INDRADEVI ITA NO.1906/M/2013 M/S. SHYAM CHEMICALS PVT. LTD. 2 TAPADIA AND SMT. SARALA S. PAREKH AT THE RATE OF 21 % WHICH WORKS OUT TO RS.25,322/-, RS.50,114/-, RS.1,88,207/- & RS.1,10,6 96/- RESPECTIVELY. THE AO HAS ALLOWED THE INTEREST AT THE RATE OF 12% AND DIS ALLOWED THE INTEREST OF 9% WHICH WAS PAID BY THE ASSESSEE AND IT WAS ADDED BAC K TO THE INCOME OF THE ASSESSEE. 4. MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT (A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. 5. THE LD. A.R. RELIED UPON THE DECISION OF SMC OF JAIPUR BENCH 4 ITR TRIBUNAL 245 IN THE CASE OF RAM AVTAR GARG VS. ITO WHEREIN IT WAS HELD BY THE TRIBUNAL THAT ASSESSEE HAS RECEIVED THE INTEREST AT THE RATE OF 24% FROM DEBTORS DECLARED TOTAL RECEIPT AND AFTER MAKING PAYMENT AT DIFFERENT RATE DECLARED NET INCOME IN THE PROFIT & LOSS ACCOUNT. THERE WAS NO LOSS OF REVENUE SINCE THE ASSESSEE HAS CHARGED THE INTEREST AT THE RATE OF 24 %. THIS WAS A CASE OF EXCESS CREDIT OF INTEREST AND NET INTEREST HAS BEEN DECLAR ED AS INCOME BORROWED FUND AND WAS USED FOR BUSINESS PURPOSE AND INTEREST PAID AT THE RATE OF 24% HAS BEEN ALLOWED IN PAST AND INTEREST WAS NOT EXCESSIVE AND UNREASONABLE. IN VIEW OF THE FACT THAT THERE WAS NO NEED TO PLEDGE ANY TITLE OR SECURITY FOR OBTAINING A LOAN AS AGAINST BANKING FORMALITIES AND FUNDS WERE LIKE A DEPOSIT IN BANK ACCOUNT OF THE ASSESSEE. THEREFORE, THE FACTS OF T HIS CASE ARE SIMILAR. IN ALTERNATIVE, THE LD. A.R. SUBMITTED THAT IN ASSESSM ENT YEAR 2007-08 AND 2008- 09 IN THE ASSESSEES OWN CASE TRIBUNAL HAS ALLOWED THE INTEREST PAYMENT AT THE RATE OF 18% BUT THIS JUDGMENT RELATES TO THAT YEAR ONLY. 6. ON THE OTHER HAND, THE LD. D.R. RELIED UPON THE ORDER OF REVENUE AUTHORITY. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT THE ISSUE IN CONTROVERSY IS DECIDED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.1906/M/2013 M/S. SHYAM CHEMICALS PVT. LTD. 3 A.Y. 2007-08 & 2008-09 IN ITA NOS.7477/M/2010 & 421 0/M/2012 WHEREIN IT HAS BEEN HELD THAT 18% INTEREST IS JUSTIFIED. THER EFORE, RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO TO TAKE THE INTEREST RAT E @ 18% AND REWORK THE INTEREST. ACCORDINGLY, WE ALLOW THIS GROUND OF THE ASSESSEE. GROUND NO.3 8. GROUND NO.3 RELATES TO DISALLOWANCE OF GRATUITY OF EMPLOYEES UNDER SECTION 40A(7). THE AO HAS PERUSED THE RECORD AND FOUND THAT ASSESSEE HAS DEBITED A SUM OF RS.1,51,290/- TOWARDS LIC OF GROUP GRATUITY FOR EMPLOYEES. HOWEVER, ON PERUSAL, IT IS SEEN THAT SUCH EXPENSE I S ALLOWED UNDER SECTION 47B ONLY FOR AN APPROVED GRATUITY FUND BUT THE PERMISSI ON OF COMMISSIONER OR CHIEF COMMISSIONER OF INCOME TAX WAS NOT OBTAINED, THEREFORE, IT WAS DISALLOWED. DURING THE COURSE OF HEARING, THE LD. A.R. SUBMITTED THAT ASSESSEE HAS APPLIED FOR APPROVAL OF CHIEF COMMISSIONER. TH E LD. A.R. SUBMITTED THAT THE PAYMENTS TOWARDS THE FUND WERE PAID REGULARLY B Y THE ASSESSEE SINCE 1978. THE FUND WAS APPROVED BY INCOME TAX DEPARTMENT SINC E THEN. THE ASSESSEE HAS PROVIDED NECESSARY AGREEMENT WITH LIC DURING TH E COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER, THE AO HAS DISALLOWED A SUM OF RS.1,51,290/- PAID BY THE ASSESSEE FOR WANT OF APPROVAL. THE ASSESSEE SU BMITTED THAT THE INCOME TAX DEPARTMENT WAS ACCEPTING THE FUND SINCE 1978 AND NO WHERE IN THE PAST OR SUBSEQUENT YEAR SUCH DISALLOWANCE WAS MADE BY THE D EPARTMENT, THEREFORE, IT MAY BE ALLOWED. 9. THE LD. D.R. RELIED UPON THE ORDER OF THE REVENU E AUTHORITY. 10. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT ASSESSEE HAS PAID RS.1,51,290/- TOWARDS LIC GROUP G RATUITY FOR EMPLOYEES. THE FUND WAS APPROVED BY INCOME TAX DEPARTMENT SINC E 1978. THE DEPARTMENT WAS ALLOWING THIS EXPENDITURE REGULARLY BUT IN THIS YEAR THERE WAS NO APPROVAL FROM THE INCOME TAX DEPARTMENT. THE LD . A.R. SUBMITTED THAT ITA NO.1906/M/2013 M/S. SHYAM CHEMICALS PVT. LTD. 4 ASSESSEE HAS REPEATEDLY REQUESTED THE CHIEF COMMISS IONER FOR THE SAME BUT THE APPROVAL HAS NOT BEEN GIVEN. 11. HAVING HEARD BOTH THE PARTIES, WE FIND THAT THE ASSESSEE HAS SUBMITTED THE EVIDENCE BEFORE US THAT ASSESSEE HAS BEEN PAYIN G THE GRATUITY AMOUNT SINCE 1978 AND ASSESSEE HAS ALSO GIVEN REMINDER FOR THE R ENEWAL OF THE SAME BUT THE CHIEF COMMISSIONER HAS NOT GIVEN THE APPROVAL. THE REFORE, IN THE INTEREST OF JUSTICE, WE RESTORE THIS MATTER BACK TO THE AO. TH E AO IS DIRECTED TO ALLOW THE CLAIM AFTER MAKING THE ENQUIRY FROM THE CHIEF COMMI SSIONER, AHMEDABAD. 12. ACCORDINGLY, WE ALLOW THIS GROUND OF THE ASSESS EE. GROUND NO.4 13. THE NEXT GROUND RELATES TO DISALLOWANCE OF INTE REST OF RS.6 LAKHS. THE AO FOUND THAT ASSESSEE COMPANY HAS SHOWN A CAPITAL WORK IN PROGRESS AMOUNTING TO RS.68,97,062/- AS ON 31.03.06 IN BOOKS OF ACCOUNT. THE ASSESSEE WAS ASKED TO PROVE THE SOURCE OF INVESTMENT IN SUCH ASSETS. BUT THE ASSESSEE HAS NOT GIVEN ANY DETAIL OF PAYMENT MADE BY THE ASS ESSEE EITHER FROM LOAN OR FROM HIS OWN CAPITAL. FURTHER, IT WAS SEEN IN THE BALANCE SHEET THAT ASSESSEE HAS TAKEN LOAN FROM THE BANK AND ASSESSEE WAS HAVIN G MIXED FUND IN BOOKS OF ACCOUNT. THE ASSESSEE DID NOT FURNISH ANY EXPLANAT ION, THEREFORE, AO HAS DISALLOWED THE INTEREST OF RS.6 LAKHS. 14. THE LD. CIT(A) HAS CONFIRMED THE SAME. 15. THE LD. A.R. SUBMITTED THAT ASSESSEE HAS USED R S.6 LAKHS FOR THE PURPOSE OF MAKING INVESTMENT IN OFFICE PREMISES. FOR INVES TMENT IN OFFICE BUILDING, ASSESSEE HAS NOT TAKEN ANY LOAN FROM OUTSIDE. THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS IN FORM OF CAPITAL. THE ASSESS EE SUBMITTED THAT INTEREST PAID BY OVERDRAFT CANNOT BE DISALLOWED ON THE GROUND THA T ASSESSEE HAS GIVEN INTEREST FREE ADVANCE TO SISTER CONCERN WHEN ASSESS EE HAD SUFFICIENT INTEREST FREE ITA NO.1906/M/2013 M/S. SHYAM CHEMICALS PVT. LTD. 5 FUND AVAILABLE IN FORM OF CAPITAL, SUNDRY CREDITORS AND INTEREST FREE LOAN FROM THE OTHER PARTY TO COVER UP THE INTEREST FREE ADVAN CE. HE RELIED UPON THE DECISION OF NIRMA INDUSTRIES LTD. VS. ACIT (2005) 9 5 ITD 199 (AHD) (SB) AND ALSO RELIED UPON THE DECISION OF CIT VS. BRITANNIA INDUSTRIES LTD. (2005) 198 CTR (CAL) 426. 16. THE LD. D.R. RELIED UPON THE REVENUE AUTHORITIE S. 17. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT THE AO HAS DISALLOWED THE INTEREST OF RS.6 LAKHS ON THE GROUND THAT BORROWED MONEY WERE USED FOR MAKING THE INVESTMENT IN OFFICE PREMISES. THE ASSESSEE HAS TAKEN THE CONTENTION THAT FOR MAKING THE OFFICE BUILDING THE ASSESSEE HAS NOT TAKEN LOAN FROM OUTSIDE AND ASSESSEE HAD OWN IN TEREST FREE FUNDS AVAILABLE WITH IT AND THE ASSESSEE HAS TAKEN THE CREDIT FACIL ITY AGAINST STOCK AND DEBTOR. THIS BEING SO, WHATEVER AMOUNT GIVEN BY THE BANK IS CLOSELY MONITORED AND IT MAY NOT BE PROPER TO SAY THAT THE AMOUNT SANCTIONED BY THE BANK IS DIVERTED TO SISTER CONCERN THROUGH THE SAME ACCOUNT IS VIOLATIO N OF CREDIT TERMS WITHOUT ANY PROOF. HENCE, THIS GROUND OF THE ASSESSEE IS A LLOWED. GROUND NO.5 18. GROUND NO.5 RELATES TO DISALLOWANCE MADE BY THE AO OF RS.7,22,007/- BEING COMMISSION PAID ON EXPORT. DURING THE ASSESS MENT PROCEEDINGS, ASSESSEE WAS ASKED TO JUSTIFY THE PAYMENT OF COMMIS SION TO THE PARTIES AND JUSTIFY THE CLAIM OF CORRESPONDENCE WITH OTHER MATE RIAL AVAILABLE FOR PROVIDING SERVICES IN CONNECTION WITH THE EXPORTS MADE BY THE ASSESSEE. THE ASSESSEE HAS NOT GIVEN ANY SUPPORTING DOCUMENT AND PROOF AND THE EXIGENCY FOR PAYING SUCH COMMISSION AND TDS ALSO WAS NOT DETECTED. THEREFOR E, COMMISSION EXPENSES WERE DISALLOWED. LD. A.R. SUBMITTED THAT ASSESSEE FILED THE LEDGER EXTRACT OF CONCERNED PARTY TO WHOM THE COMMISSION WAS PAID. HO WEVER, THE COMMISSION WAS NOT PAID IN THIS YEAR. THE ASSESSEE WAS PAYING COMMISSION SINCE LAST SO MANY YEARS REGULARLY. THE COMMISSION WAS PAID IN R EGULAR COURSE OF EXPORT ITA NO.1906/M/2013 M/S. SHYAM CHEMICALS PVT. LTD. 6 BUSINESS. THE ASSESSEE IS AN EXPORTER OF COPPER IT EMS WHICH REQUIRES MARKETING EFFORTS AND UPDATES & FEEDBACKS FROM THE CUSTOMERS WHO ARE SPREAD OVER VAST AREAS. THE ASSESSEE HAS TO APPOINT A LOC AL AGENT OVERSEAS SO AS TO KEEP THE ASSESSEE IN TOUCH WITH THE COMPETITIVE OVE RSEAS MARKETS. THE LD. A.R. SUBMITTED THAT AS PER THE CBDT CIRCULAR NO.786 DATED 07.02.2003 WHICH CLARIFIED THAT NO TAX IS REQUIRED TO BE DEDUCED UND ER SECTION 195 ON EXPORT COMMISSION AND RELATED CHARGES PAYABLE TO NON RESID ENTS FOR THE SERVICE RENDERED ABOVE, THEREFORE, IT MAY BE ALLOWED. 19. THE LD. D.R. RELIED UPON THE REVENUE AUTHORITIE S. 20. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT CBDT CIRCULAR NO.786 DATED 07.02.2000 WHICH CLARIFI ES THAT THE TDS WAS NOT REQUIRED TO BE DEDUCTED AND AS A CONSEQUENCE NO DIS ALLOWANCE CAN BE MADE UNDER SECTION 40(A)(I) IN RESPECT OF THOSE PAYMENTS . WE FIND THAT THE SIMILAR ISSUE HAD COME UP BEFORE THE ITAT, LUCKNOW BENCH IN THE CASE OF ACIT VS. S.K. INTERNATIONAL VIDE ITA NO.757/LKW/2014 (A.Y. 2 011-12) WHEREIN THE TRIBUNAL HAS ALLOWED THE CLAIM BY OBSERVING AS UNDE R: 9. AS PER THE ABOVE DISCUSSION, WE HAVE SEEN THAT EVEN AFTER CONSIDERING CIRCULAR NO.7/2009, DATED 22.10.2009 AS PER WHICH CIRCULAR N O.786 DATED 7.2.2000 WAS WITHDRAWN, IT COMES OUT THAT IN THE FACTS OF THE PR ESENT CASE, NO TDS WAS REQUIRED TO BE DEDUCTED BECAUSE AS PER THIS CIRCULAR IN THE CASE OF PAYMENT OF COMMISSION TO FOREIGN AGENTS, NOTHING WAS REQUIRED TO BE SEEN AND EXAMINED AND IT COULD BE CONCLUDED THAT NO TDS WAS REQUIRED TO BE DEDUCTED. NOW IN THE ABSENCE OF THIS CIRCULAR, SUCH DECISION HAS TO BE TAKEN AFTER EXAMI NING THESE ASPECTS AS WHETHER THE PAYMENT WAS MADE IN INDIA OR OUTSIDE ETC. SINCE , IN THE PRESENT CASE, THIS IS NOT A CASE OF REVENUE THAT THE SERVICES WERE RENDERED I N INDIA OR THE PAYMENT WAS MADE IN INDIA AND THE INCOMES IN THE HANDS OF THE N ON-RESIDENT AGENT CAN BE CONSIDERED AS DEEMED AS ACCRUE OR ARISE IN INDIA BY WAY OF OPERATION OF SECTION 9(1), NO DISALLOWANCE CAN BE MADE U/S 40(A)(I) OF T HE ACT. WE HAVE ALSO CONSIDERED THE EXPLANATION TO SECTION 9(2) AND HAVE SEEN THAT THIS EXPLANATION ALSO HAS NO RELEVANCE IN THE PRESENT CASE AND THEREFORE, WE DEC LINE TO INTERFERE IN THE ORDER OF THE CIT (A). ITA NO.1906/M/2013 M/S. SHYAM CHEMICALS PVT. LTD. 7 21. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.07.2017. SD/- SD/- (N.K. PRADHAN) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 07.07.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.