The ITO, Ward-2, Navsari V. M/s. Hind Marketing Services, Navsari

ITA 1982/AHD/2012

• Counselvise Citation: 198220514 RSA 2012
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 05-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREE
• Assessee Lawyers: S N SOPARKAR
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE SHRI A. MOHAN ALANKAMONY, AM AND SHRI KUL B HARAT, JM) ITA NO.1982/AHD/2012 ( A. Y. 2008-09) THE INCOME TAX OFFICER, WARD- 2, NAVSARI, ROOM NO.107, SWAPNALOK SOCIETY, NR. KALIWADI BRIDGE, NAVSARI VS M/S. HIND MARKETING SERVICE, A-2/3, JK TOWRS, GRID ROAD, KABILPOREN NAVSARI, DIST. NAVSARI, P. A. NO. AACFH 0750 J (APPELLANT) (RESPONDENT) APPELLANT BY SHRI P. L. KUREE, SR. DR RESPONDENT BY SHRI S. N. SOPARKAR, AR DATE OF HEARING: 09-07-2013 DATE OF PRONOUNCEMENT: 14-08-2013 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL IS PREFERRED BY THE REVENUE AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A ), VALSAD IN APPEAL NO. CIT(A)/VLS/88/10-11 DATED 29 TH JUNE, 2012 PASSED U/S 250 READ WITH SECTION 143(3) OF THE INCOME TAX ACT, 1961, FO R THE ASSESSMENT YEAR 2008-09. 2. THE REVENUE HAS RAISED FOUR GROUNDS IN THE APPEA L WHEREIN GROUNDS NO.2, 3 AND 4 ARE GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. THE SOLE SURVIVING GROUND NO.1 IS REP RODUCED HEREIN BELOW FOR REFERENCE:- ITA NO.1982/AHD/2012(AY-2008-09) ITO, W-2,NAVSARI VS M/S. HIND MARKETING SERVICES 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW WHETHER THE LD. CIT(A) IS JUSTIFIED IN ALLOWING RS.12,00,0 00/- ON ACCOUNT OF INTEREST EXPENSES WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE? 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI RM IS ENGAGED IN THE BUSINESS OF TRADING IN FERTILIZERS AND OTHER ITEMS FILED ITS E-RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 24-09-200 8 DECLARING TOTAL INCOME AT RS.2,30,350/- AND VALUE OF FRINGE BENEFIT S OF RS.47,001/- ALONG WITH TAX AUDIT REPORT IN FORM NO.3CB & 3CD U/S 44AB OF THE ACT. THE SAME WAS PROCESSED U/S 143(1) OF THE ACT AND THE RE TURNED INCOME WAS ACCEPTED BY THE REVENUE. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY U/S 143(2) OF THE ACT AND ASSESSMENT ORDER WAS PASSED BY THE LEARNED AO ON 08-09-2010 DETERMINING THE TOTAL INCO ME OF THE ASSESSEE AT RS.18,30,710/- WHEREIN CERTAIN ADDITIONS INCLUDI NG AN ADDITION OF RS.12,00,000/- WAS MADE ON ACCOUNT OF INTEREST EXPE NSES ON THE ADVANCE OF RS.1,00,00,000/- MADE TO M/S. T. J. FERT . PVT. LTD. THE RELEVANT OBSERVATION OF THE LEARNED AO WHILE MAKING THIS ADDITION IS REPRODUCED HEREIN UNDER FOR REFERENCE:- 7.1. ON VERIFICATION OF THE BOOKS OF ACCOUNTS, IT IS NOTICED THAT THE ASSESSEE HAS GRANTED ADVANCE OF RS.1 CRORE TO M/S. T.J. AGRO FERTILIZERS PVT. LTD. WITHOUT CHARGING ANY INTEREST, WHEREAS, A SSESSEE PAID INTEREST TO OTHER PERSONS ON UNSECURED LOAN. VIDE SHOW CAUSE LETTER 12/08/2010, THE ASSESSEE WAS REQUESTED TO EXPLAIN A S TO WHY INTEREST @12% CAN NOT BE CHARGED AND ADDED TO THE TOTAL INCO ME. IN RESPONSE, THE A/R OF THE ASSESSEE ON 07/09/2010 HAS SUBMITTED A COPY OF MEMORANDUM OF UNDERSTANDING ENTERED INTO WITH THE S AID PARTY VIZ. M/S. T. J. AGRO FERTILIZERS PVT. LTD. IT IS PERTINE NT TO MENTION HERE THAT MERE FILING THE COPY OF MEMORANDUM OF UNDERSTANDING DOES NOT ESTABLISH ANY BUSINESS EXIGENCY. IN VIEW OF ABOVE, RS.12,00,000/- BEING INTEREST @12% ON THE ADVANCE OF RS.1 CRORE GR ANTED TO M/S. T. J. FERTILIZERS PVT. LTD. IS ADDED TO THE TOTAL INCOME . [ADDITION OF RS.12,00,000/- ] 3.1 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LEARNED CIT(A). THE LEARNED CIT(A) CONSIDERING THE ASSESSME NT ORDER AND THE ITA NO.1982/AHD/2012(AY-2008-09) ITO, W-2,NAVSARI VS M/S. HIND MARKETING SERVICES 3 SUBMISSION MADE BY THE ASSESSEE BEFORE HIM DELETED THE ADDITION MADE BY THE LEARNED AO. RELEVANT PORTION OF THE FINDINGS OF THE LEARNED CIT(A) IN PARA 7.3 IS REPRODUCED HEREIN UNDER FOR REFERENC E:- 7.3 DECISION : - I HAVE CONSIDERED THE ASSESSMENT ORDER AS WELL THE SUBMISSIONS MADE BY THE ARS. THE ARS HAD SUBMITTED BEFORE ME THE COPIES OF AGREEMENT IN FORM OF MOU BETWEEN THE APPELLANT FIRM AND THE SAID COMPANY M/S. T. J. AGRO FERTILIZE RS PVT. LTD. WHICH WERE ALSO PLACED BEFORE THE AO DURING ASSESSM ENT PROCEEDINGS. IT IS OBSERVED FROM THE ASSESSMENT ORD ER THAT THE AO DID NOT GIVE ANY FINDING OR JUSTIFICATION FOR HI S ACTION OF MAKING ADDITION OF RS.12,00,000/-. HE FAILED TO GIV E ANY COMMENTS ON THE MOU TO JUSTIFY HIS ACTION AND HE AL SO FAILED TO ESTABLISH ANY NEXUS TO PROVE THAT THE APPELLANT HAD UTILIZED THE BORROWED CAPITAL FOR THE PURPOSE OF GIVING DEPOSITS TO THE SAID COMPANY. IT IS WORTH MENTIONING HERE THAT THE APPEL LANT FIRM HAD GIVEN THE IMPUGNED AMOUNT OF RS.1 CRORE BY WAY OF S ECURITY DEPOSIT FOR GETTING EXCLUSIVE MARKETING AND DISTRIB UTORSHIP FOR THE SOUTH GUJARAT TERRITORY AND VARIOUS TERMS AND CONDI TIONS WERE MENTIONED IN THE SAID AGREEMENT. THE AO FAILED TO R EBUT ANY TERMS AND CONDITIONS OF THE SAID AGREEMENT TO PROVE THAT THERE WAS NO BUSINESS EXIGENCY OR COMMERCIAL EXPEDIENCY I N GIVING THE SAID DEPOSIT. IT IS ALSO SEEN FROM THE AUDIT REPORT SUBMITTED BEFORE ME HAT THERE WAS AN OPENING CAPITAL BALANCE OF RS.1 ,04,67,319/- AS ON 31.03.2008. THEREFORE, I FIND JUSTIFICATION I N THE ARGUMENT OF THE ARS THAT THE APPELLANT FIRM HAD SUFFICIENT I NTEREST FREE AND OWN FUND TO COVER THE AMOUNT OF DEPOSIT. AT THE SAM E TIME, THE AO FAILED TO LEAD ANY NEXUS TO ESTABLISH THAT THE B ORROWED FUND WAS UTILIZED TO GIVE DEPOSITS. APART FROM THAT, THE DEPOSIT GIVEN BY THE APPELLANT FIRM WAS NOT AN ADVANCE IN THE NAT URE OF LOAN BUT IT WAS AN ADVANCE GIVEN AS A PART OF BUSINESS A GREEMENT TO ACQUIRE SOLE DISTRIBUTORSHIP RIGHTS AND THEREFORE, IN ABSENCE OF ANY EVIDENCE GIVEN BY THE AO, I AM INCLINED TO BELI EVE THAT THE ADVANCES WERE GIVEN IN NORMAL COURSE OF BUSINESS OU T OF COMMERCIAL EXPEDIENCY. MOREOVER, THE APPELLANT FIRM HAD ITS OWN FUND SUFFICIENT TO COVER THE DEPOSIT AND HENCE I AM INCLINED TO ACCEPT THE CONTENTIONS OF THE AR THAT THERE WAS NO NEXUS TO PROVE THAT THE BORROWED FUNDS WERE UTILIZED FOR NON INTER EST BEARING INVESTMENTS. UNDER SUCH CIRCUMSTANCES, I AM OF THE VIEW THAT THE NOTIONAL ADDITION MADE BY THE AO IS ARBITRARY AND W ITHOUT ESTABLISHING HIS CASE AND HENCE, I DIRECT THE AO TO DELETE THE ADDITION OF RS.12,00,000/-. THUS THIS GROUND OF APP EAL IS ALLOWED. 3.2 AGAINST THIS FINDING OF THE LEARNED CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. ITA NO.1982/AHD/2012(AY-2008-09) ITO, W-2,NAVSARI VS M/S. HIND MARKETING SERVICES 4 4. THE LEARNED DR RELIED ON THE ORDER OF THE LEARNE D AO WHILE AS THE LEARNED AR SUPPORTED THE ORDER OF THE LEARNED CIT(A ) AND RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS RELIANCE UTILITIES AND POWER LTD. REPORTED IN 31 3 ITR 340. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORDE RS OF THE REVENUE AUTHORITIES AND CAREFULLY CONSIDERED THE MATERIALS ON RECORD. FROM THE ORDER OF THE LEARNED AO IT IS APPARENT THAT THE LEA RNED AO HAD NOT LOOKED INTO THE MEMORANDUM OF UNDERSTANDING ENTERED BETWEEN THE ASSESSEE AND M/S. T. J. AGRO FERTILIZERS PVT. LTD., IN ORDER TO EXAMINE THE BUSINESS EXIGENCIES BETWEEN BOTH THE PARTIES. T HE LEARNED CIT(A) HAS LOOKED INTO THIS ASPECT AND HAS GIVEN A CATEGOR ICAL FINDING THAT THERE EXITS BUSINESS EXIGENCIES BETWEEN THE PARTIES. MORE OVER, AS POINTED OUT BY THE LEARNED AR THE ASSESSEE HAD OPENING CAPITAL OF RS.1,04,42,649/- AS ON 01-04-2007 WHICH IS EVIDENCED BY SCHEDULE FOR MING PART OF BALANCE SHEET BEING PLACED AT PAGE NO.6 OF THE PAPE R BOOK FURNISHED BY THE ASSESSEE. THE CASE RELIED BY THE LEARNED AR, SU PRA IS ALSO SQUARELY APPLICABLE TO THE FACTS OF THIS CASE. THEREFORE, CO NSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY REASO N TO INTERFERE IN THE ORDER OF THE LEARNED CIT(A) AND ACCORDINGLY, WE UPH ELD HIS ORDER. THUS, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. 6. THOUGH THE REVENUE HAS NOT RAISED ANY OTHER GROU ND IN ITS APPEAL, HOWEVER, HAS CLAIMED RELIEF, WITH REGARD TO THE LEA RNED CIT(A)S ACTION OF DELETING THE ADDITION OF RS.1,43,060/- AND RS.1,44, 550/- BEING DISALLOWANCE OF ADVERTISEMENT AND SALES PROMOTION E XPENSES RESPECTIVELY. ON PERUSAL OF THE ORDER OF THE LEARNE D AO WE FIND THAT THE LEARNED AO HAS DISALLOWED ADVERTISEMENT EXPENDITURE OF RS.1,43,060/- BECAUSE THE ASSESSEE HAD FAILED TO FURNISH THE NAME AND ADDRESS OF THE ITA NO.1982/AHD/2012(AY-2008-09) ITO, W-2,NAVSARI VS M/S. HIND MARKETING SERVICES 5 RECIPIENTS WHO HAD RECEIVED THE PAYMENTS FOR HAVING RENDERED THE SERVICES OF ADVERTISEMENT TO THE ASSESSEE. SIMILARL Y, THE LEARNED AO DISALLOWED THE SALES PROMOTION EXPENSES OF RS.1,44, 550/- FOR THE SAME REASON. WHEN BOTH THESE ISSUES WERE BROUGHT UP BEFO RE THE LEARNED CIT(A), THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BECAUSE THE LEARNED AO HAD MADE ADDITIONS BY REJECTED THE B OOKS OF ACCOUNTS AND ESTIMATED THE GROSS PROFIT OF THE ASSESSEE. WE FULLY SUBSCRIBE TO THE VIEW OF THE LEARNED CIT(A) THAT, ONCE ADDITION IS M ADE BY ESTIMATION OF GROSS PROFIT, THEN THERE IS NO REASON TO MAKE FURTH ER ADDITION BY DISALLOWANCE OF CERTAIN EXPENDITURES. IF THAT WAS W ARRANTED, THEN SPECIFIC REASONS SHOULD HAVE BEEN CITED BY THE LEARNED AO TH AT THE ESTIMATED GROSS PROFIT WAS EXCLUSIVE OF SUCH INDIVIDUAL ADDIT IONS AND SUCH OVERALL ADDITION WAS JUSTIFIABLE CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS, BOTH THESE ISSUES RAISED BY THE REVENUE ARE ALSO DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14-08-2013. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/- -- - COPY OF THE ORDER FORWARDED TO: ITA NO.1982/AHD/2012(AY-2008-09) ITO, W-2,NAVSARI VS M/S. HIND MARKETING SERVICES 6 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: DIRECT ON COMPUTER 05-08-13 /13-08-12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 13-08-13 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: