Sujag Fine Chemicals Pvt.Ltd., Baroda V. The Income tax Officer,Ward-4(3), Baroda

ITA 2087/AHD/2012

• Counselvise Citation: 208720514 RSA 2012
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 31-05-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 17-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K SINGH
• Keywords: Reopening of assessment; Depreciation; Audit objection; Difference of opinion; Notional interest; Reason to believe; Change of opinion
• Section: 143(3); 32; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 2087 & 2296/AHD/2012 A.Y: 2003-04 SUJAG FINE CHEMICALS P. LTD. 42/6 &7, GIDC ESTATE, AT & POST. NANDESARI, DIST. BARODA. PAN: AADCS 2989J VS ITO WARD 4(3), BARODA. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI D.K. SINGH, SR . D.R. ASSESSEE(S) BY : SHRI SUNIL TALATI, A.R. DATE OF HEARING : 21/06/ 2013 DATE OF PRONOUNCEMENT : 17/09/2013 O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THESE ARE CROSS APPEALS RESPECTIVELY FILED BY THE A SSESSEE AND THE REVENUE DEPARTMENT, EMANATING FROM AN ORDER OF LEAR NED CIT(A)-III, BARODA, DATED 20 TH OF JULY, 2010. THESE TWO APPEALS ARE CONSOLIDATED AND HEREBY DECIDED BY THIS COMMON ORDER. A. ITA NO.2087/AHD/12 (ASSESSEES APPEAL) 2. GROUNDS RAISED BY THE ASSESSEE ARE HEREBY DECIDE D AS FOLLOWS: THE ORDER PASSED BY THE HONBLE COMMISSIONER OF IN COME TAX(A)-III, BARODA IS BAD IN LAW AND CONTRARY TO LEGAL PRONOUNC EMENT. IT BE HELD SO NOW. YOUR APPELLANT SUBMITS THAT THE PROVISIONS OF SECTI ON 147 R.W.S. 148 ARE NOT APPLICABLE IN THE CASE OF YOUR APPELLANT, AS THE SA ME IS BASED ON THE REASONS RECORDED. THE REASON RECORDED IS MERELY A CHANGE OF OPINION AND HENCE, REOPENING IS NOT JUSTIFIED. IT BE HELD SO NOW AND T HE ORDER PASSED BY THE LEARNED AO BE QUASHED. ITA NO.2087 & 2296/AHD /2012 SUJAG FINE CHEMICALS P. LTD. VS. ITO, BARODA A.Y. 2003-04 - 2 - 2.1 ON ACCOUNT OF FOLLOWING REASONS, THE ASSESSMENT PROCEEDINGS FOR A.Y. 2003-04 WERE REOPENED AS UNDER :- SUB:- REASONS FOR REOPENING OF ASSESSMENT U/S. 147 ASST. YEAR 2003-04 REGARDING PLEASE REFER TO YOUR LETTER DATED NIL RECEIVED IN T HIS OFFICE ON 20.4.2010 REQUESTING TO FURNISH THE REASONS FOR REOPENING OF THE ASSESSMENT. THE REASONS FOR RE-OPENING OF THE ASSESSMENT IS MENTIONED HEREU NDER:- IT IS NOTED THAT THE ASSESSEE HAS CLAIMED AND ALLOW ED DEPRECIATION ON GOODWILL. DEPRECIATION ON GOODWILL IS NOT ALLOWABLE AS THE SAME IS NOT A DEPRECIABLE ASSET. IN THESE CIRCUMSTANCES, I HAVE REASON TO BELIEVE TH AT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTIO N 147 OF THE INCOME-TAX ACT, 1961. 2.2 THEREAFTER, A NOTICE U/S. 148 WAS ISSUED ON 10 TH OF MARCH, 2010, STATED TO BE DULY SERVED UPON THE ASSESSEE. IN COMP LIANCE, THE ASSESSEE VIDE A LETTER DATED 22 ND OF MARCH, 2010 HAD ASKED TO GIVE A COPY OF THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT. A CCORDINGLY, THE ASSESSEE WAS HANDED OVER THE REASONS RECORDED. TH E ASSESSEES OBJECTION HAS ALSO BEEN ENTERTAINED BY THE AO. AN A NOTHER FACT HAS ALSO BEEN NOTED BY US THAT ALTHOUGH SEVERAL NOTICES WERE ISSUED TO THE ASSESSEE BUT NO COMPLIANCE WAS MADE; HENCE, THE IMPUGNED ASS ESSMENT ORDER WAS PASSED U/S. 144 R.W.S 147 OF IT ACT, DATED 6.12.201 0. WHEN THIS ISSUE WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, L EARNED CIT(A) HAS CONSIDERED THE CASE OF KELVINATOR OF INDIA LTD., 228 CTR 488 (SC) AND GIRDHAR GOPAL GULATI, 269 ITR 45 (ALD) , AS CITED BY THE ASSESSEE, AND THEREAFTER HELD AS UNDER:- I HAVE CONSIDERED THE APPELLANT SUBMISSIONS. IN THI S CASE, NO ASSESSMENT U/S 143(3) HAD BEEN MADE, HENCE THERE IS NO QUESTION OF CHANGE OF OPINION. HENCE THE DECISIONS CITED BY THE APPELLANTS AR ARE NOT RELEVANT FOR THE PRESENT CASE. THE REASONS RECORDED BY THE AO NOWHER E MENTION ANY AUDIT OBJECTION. FROM THE REASONS RECORDED IT IS EVIDENT THAT THE AO HAS MADE HIS OWN SATISFACTION FOR REOPENING THE ASSESSMENT. ALSO AO HAD THE REASON TO ITA NO.2087 & 2296/AHD /2012 SUJAG FINE CHEMICALS P. LTD. VS. ITO, BARODA A.Y. 2003-04 - 3 - BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. HENCE, THE AOS ACTION IS UPHELD AND THIS GROUND OF APPEAL IS DISMISSED. 3. WE HAVE HEARD BOTH THE SIDES. THE ASSESSMENT YEA R INVOLVED IS A.Y. 2003-04, THEREFORE, A NOTICE IN THE REGULAR MA NNER COULD HAVE BEEN ISSUED BEFORE THE EXPIRY OF THE FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR, I.E., UPTO 31 ST MARCH, 2008. HOWEVER, ADMITTEDLY A NOTICE U/S. 148 WAS ISSUED ON 10 TH OF MARCH, 2010. DUE TO THIS REASON, THE FIRST PROVISO TO SECTION 147 IS TO BE APPLIED ON THESE FACTS. THE FACTS OF THE C ASE, FURTHER, REVEALED THAT THE ASSESSEE HAS FILED THE I NCOME TAX RETURN ON 27.11.2003 DECLARING INCOME OF RS. -22,53,000/-, WH ICH WAS PROCESSED U/S. 143(1) OF THE IT ACT ON 28.4.2004. SINCE, IT W AS NOT A CASE WHERE AN ASSESSMENT WAS COMPLETED AFTER PROPER SCRUTINY OF T HE CASE U/S. 143(3) OF IT ACT, THEREFORE, THERE WAS NO QUESTION OF DUE APP LICATION OF MIND AT THE FIRST INSTANCE; AND THEREFORE, THEERE IS NO QUESTIO N OF CHANGE OF OPINION ON THE PART OF THE AO. RATHER, WHILE PROCESSING U/S. 1 43(1) OF THE IT ACT, THE AO DID NOT EXPRESS ANY OPINION AT ALL AND A RETURN WAS PROCESSED AS SUCH. ACCORDING TO US THE AO HAS NOT APPLIED HIS MIND IN RESPECT OF CLAIM OF DEPRECIATION ON GOODWILL ON THAT OCCASSION. THERE W AS NO REQUISITE INQUIRY IN RESPECT OF THE SAID CLAIM. WE, THEREFORE , HOLD THAT AN INCOME WHICH WAS ALLEGED TO BE CHARGEABLE INTO TAX HAD ESC APED ASSESSMENT, THEREFORE, THE AO HAD A CONVINCING REASON TO BELIEV E THAT THE SAID INCOME ESCAPED ASSESSMENT HENCE LAWFULLY REOPENED THE ASSE SSMENT. THE OBJECTION RAISED IN THIS REGARD ARE HEREBY DISMISSE D. IN THE RESULT, GROUND IS DISMISSED. 4. GROUND NO. 3 IS REPRODUCED BELOW: ITA NO.2087 & 2296/AHD /2012 SUJAG FINE CHEMICALS P. LTD. VS. ITO, BARODA A.Y. 2003-04 - 4 - THE HONBLE CIT(A) HAS ERRED IN CONFIRMING THE WIT HDRAWAL OF THE DEPRECIATION ON GOODWILL AMOUNTING TO RS.2,60,289/- . IT IS SUBMITTED THAT THE GOODWILL IS ELIGIBLE FOR DEPRECIATION AS PER PROVIS IONS OF SECTION 32 OF THE ACT, 1961 AND JUDGMENTS HELD BY VARIOUS COURTS. IT BE CO NSIDERED NOW AND THE AO BE DIRECTED TO ALLOW THE DEPRECIATION AS CLAIMED. 5. IT WAS NOTED BY THE AO THAT THE ASSESSEE HAS CLA IMED DEPRECIATION OF RS.2,60,289/- @ 25% ON THE WDV OF THE GOODWILL. ACCORDING TO THE AO, AS PER THE PROVISION OF SECTION 32 GOODWILL IS NOT AN ASSET ON WHICH DEPRECIATION IS ADMISSIBLE. THE AO HAS ALSO PLACED RELIANCE ON BHARAT T. VYAS, 97 ITD 248 (AHD), WHEREIN IT WAS HELD THAT GOODWILL IS NOT A RIGHT OF SIMILAR NATURE AS DEFINED U/S. 32 (1)(II) OF THE ACT. RESULTANTLY, THE CLAIM OF DEPRECIATION WAS DISALLOW ED. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, T HE ACTION OF THE AO WAS CONFIRMED IN THE FOLLOWING MANNER: I HAVE CONSIDERED THE APPELLANTS SUBMISSIONS. IN THE APPELLATE ORDER DATED 23.08.2011 FOR THE ASSESSMENT YEAR 2006-07 IN APPEL LANTS OWN CASE IN APPEAL NO.CAB/III-124/10-11, I HAVE HELD THAT THE APPELLAN T IS NOT ELIGIBLE FOR DEPRECIATION ON GOODWILL BY STATING AS FOLLOWS: SO FAR AS MERIT OF THE CASE IS CONCERNED THE APPEL LANT HAS FILED A DETAILED SUBMISSION CITING SEVERAL CASE LAWS ALONGWITH THE C OPY OF ACCOUNTS. ALONG WITH THE PAPER BOOK FILED BY THE APPELLANT, THE DEP RECIATION CHART FOR THE ASSESSMENT YEAR 1999-2000 HAS ALSO BEEN FILED. A PE RUSAL OF THIS DEPRECIATION CHART SHOWS THAT THE GOODWILL WAS ALREADY EXISTING AS ON 1.4.1998. DEPRECIATION UNDER SECTION 32 ON AN INTANGIBLE ASSE T IS ALLOWED ONLY IF SUCH INTANGIBLE ASSETS HAS BEEN ACQUIRED BY THE ASSESSEE AFTER 1.4.1998. ANY INTANGIBLE ASSETS ACQUIRED BEFORE THIS DATE DOES NO T QUALIFY FOR DEDUCTION UNDER SECTION 32 OF THE INCOME TAX ACT, 1961. THOUG H THIS FACT IS QUITE EVIDENT FROM THE LANGUAGE USED IN THE SECTION ITSEL F, EVEN THEN RELIANCE CAN BE PLACED ON THE DECISION OF MUMBAI ITAT IN THE CASE O F VYOMIT SHARES STOCKS PRIVATE LIMITED, 106 ITD 408 (MUM) IN WHICH IT HAS BEEN HELD THAT ANY INTANGIBLE ASSET ACQUIRED BEFORE 1.4.1998 IS NOT EL IGIBLE FOR DEPRECIATION. IN SUCH CIRCUMSTANCES AS THE GOODWILL OF THE APPELL ANT IS NOT ELIGIBLE FOR DEPRECIATION AT ALL THE OTHER GROUNDS TAKEN BY THE ASSESSEE AS WELL AS THE LEGAL CONTENTIONS RAISED BY IT BECOME INFRUCTUOUS AND NED D NOT ANY ADJUDICATION. FOLLOWING THE ABOVE ORDER, IT IS HELD THAT THE APPE LLANT IS NOT ELIGIBLE FOR DEPRECIATION ON GOODWILL. HENCE THIS GROUND OF APPE AL IS DISMISSED. ITA NO.2087 & 2296/AHD /2012 SUJAG FINE CHEMICALS P. LTD. VS. ITO, BARODA A.Y. 2003-04 - 5 - 6. WE HAVE HEARD BOTH THE SIDES. FROM THE SIDE OF T HE REVENUE, LEARNED DR, MR. D.K. SINGH HAS ARGUED THAT SECTION 32 PRESCRIBES THAT AN ASSET IS REQUIRED TO BE ACQUIRED ON OR AFTER 1 ST DAY OF APRIL 1998 IN THE NATURE OF COPY RIGHT, LICENCES, KNOW HOW ETC. HE HA S RAISED TWO ARGUMENTS. THE FIRST ARGUMENT WAS THAT GOODWILL I S NOT IN THE NATURE OF THE ASSETS AS DEFINED U/S. 32(1)(II) OF THE IT ACT. HIS SECOND OBJECTION WAS THAT THE ASSET IN QUESTION, I.E., GOODWILL WAS NOT IN EXISTENCES WHEN THE ASSESSEE COMPANY HAD TAKEN OVER THE ERSTWHILE F IRM. HE HAS ALSO PLACED RELIANCE ON VYOMIT SHARES, STOCKS & INVESTME NTS P. LTD. VS. DCIT, 106, ITD 408 (MUM). 7. ON THE OTHER HAND, FROM THE SIDE OF THE RESPONDE NT ASSESSEE, LEARNED AR, MR. SUNIL TOLOTI APPEARED AND PLACED RE LIANCE ON SMIFS SECURITIES, 348 ITR 302 (SC), B. RAVEENDRAN PILLAI VS. CIT, 332 ITR 531 (2011) (KER) AND CIT VS. HINDUSTAN COCA COLA BE VERAGES (P) LTD. (DELHI), 331 ITR 192 (2011) . 8. FACTS OF THE CASE HAVE REVEALED THAT THE ASSESSE E HAD TAKEN OVER THE BUSINESS OF A PARTNERSHIP FIRM, NAMELY, SUJAG FINE CHEMICALS. THE ASSESSEE COMPANY WAS FORMED ON 19.2.1999. IN SUPPOR T A CERTIFICATE OF INCORPORATION IS PLACED ON RECORD. THE GOODWILL WAS ACQUIRED BY THE ASSESSEE IN THE ASSESSMENT YEAR 1999-2000 WHEN THE FIRM, AS A GOING CONCERN, WAS TAKEN OVER BY THE COMPANY/ APPELLANT A LONG WITH ALL THE ASSETS. AT THE TIME OF ACQUISITION, THE GOODWILL AS AN ASSET WAS PURCHASED FROM THE FIRM FOR A CONSIDERATION OF RS.24,67,926/- . THEREAFTER FOR A.Y. 1999-00, 2000-01 AND 2001-02, THE ASSESSEE COMPANY HAD CLAIMED ITA NO.2087 & 2296/AHD /2012 SUJAG FINE CHEMICALS P. LTD. VS. ITO, BARODA A.Y. 2003-04 - 6 - DEPRECIATION @ 25% AS INFORMED BY LEARNED AR, MR. S UNIL TALATI. THE WDV FOR THE YEAR UNDER CONSIDERATION IS RS.10,47,15 7/- OVER WHICH THE DEPRECIATION @ 25% AMOUNTING TO RS.2,60,289/- WAS C LAIMED. ON ACCOUNT OF THESE FACTS, WE HEREBY HOLD THAT THE GOO DWILL WAS ACQUIRED AFTER 1 ST DAY OF APRIL, 1998 AS REQUIRED U/S. 32(1)(II) OF T HE ACT. NOW THE ONLY QUESTION LEFT FOR OUR C ONSIDERATION IS THAT WHETHER GOODWILL CAN BE CONSIDERED FOR GRANT OF DEPRECIATIO N. IN THIS REGARD, A LATEST DECISION OF HONBLE HIGH COURT PRONOUNCED IN THE CASE OF CIT VS. SMIFS SECURITIES, 348 ITR 302 IS RELEVANT WHEREIN IT WAS HELD AS UNDER: THE ASSESSING OFFICER HELD THAT GOODWILL WAS NOT A N ASSET FALLING UNDER EXPLANATION 3 TO SECTION 32(1) OF THE INCOME TAX, A CT, 1961 (THE ACT, FOR SHORT). WE QUOTE HEREINBELOW EXPLANATION 3 TO SECTION 32(1) OF THE ACT: EXPLANATION 3- FOR THE PURPOSES OF THIS SUB-SECTIO N, THE EXPRESSIONS ASSETS AND BLOCK OF ASSETS SHALL MEAN (A) TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PL ANT OR FURNITURE; (B)INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COPY RIGHTS, TRADE- MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS O R COMMERCIAL RIGHTS OF SIMILAR NATURE: EXPLANATION 3 STATES THAT THE EXPRESSIONASSET SHA LL MEAN AN INTANGIBLE ASSET, BEING KNOW-HOW, PATENTS, COPYRIGH TS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF SIMILAR NATURE. A READING THE WORDS ANY OTHER BUS INESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE IN CLAUSE (B) OF EXPLANATION 3 INDICATES THAT GOODWILL WOULD FALL UNDER THE EXPRES SION ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF A SIMILAR NATURE:. THE PRINCIPLE OF EJUSDEM GENERIC WOULD STRICTLY APPLY WHILE INTERPRE TING THE SAID EXPRESSION WHICH FINDS PLACE IN EXPLANATION 3(B). IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT GOOD WILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32 (1) OF THE ACT . 9. EARLIER IN THE CASE OF B. RAVEENDRAN PILLAI, 332 ITR 531 (KERALA), THE HONBLE HIGH COURT HAS ALSO HELD THAT THE GOODW ILL IS CERTAINLY COMPARABLE WITH TRADE MARK, FRANCHISEE, COPY RIGHT, ETC., HENCE, ENTITLED FOR THE DEPRECIATION. RESPECTFULLY FOLLOWING THESE DECISIONS WHEREIN THE ITA NO.2087 & 2296/AHD /2012 SUJAG FINE CHEMICALS P. LTD. VS. ITO, BARODA A.Y. 2003-04 - 7 - DOCTRIN OF EJUSDEM GENERIC IS APPLIED AND HELD THAT THE GOODWILL IS OF LIKE NATURE OF INTANGIBLE ASSET AS PRESCRIBED, THEREFORE , WE HEREBY HOLD THAT UNDER THE TOTALITY OF THE FACTS AND CIRCUMSTANCES O F THE CASE THE ASSESSEE IS ENTITLED FOR THE CLAIM OF DEPRECIATION ON THE DW V OF THE GOODWILL FOR THE YEAR UNDER CONSIDERATION. GROUND RAISED IN THIS REGARD IS HEREBY ALLOWED. 10. GROUND NO.4 IS REPRODUCED BELOW: THE HONBLE CIT(A) HAS ERRED IN CONFIRMING THE DIS ALLOWANCE OF INTEREST OF RS.2,12,507/-, BEING INTEREST @ 12% ON ADVANCES MAD E TO SISTER CONCERN AMOUNTING TO RS.17,70,891/-. YOUR APPELLANT SUBMITS THAT THERE IS NO PROVISION IN THE ACT TO CHARGE NOTIONAL INTEREST AN D HENCE, THE CIT(A) IS NOT JUSTIFIED TO CONFIRM SUCH ADDITION. IT BE HELD SO N OW AND THE ADDITION MADE BE DELETED. WITHOUT PREJUDICE TO THE ABOVE YOUR APPELLANT SUBMI TS THAT THE RATE OF INTEREST CHARGED @ 12% P.A. IS VERY HARSH AND SAME BE CONSID ERED AT BANK RATE OF 9% RECEIVED BY YOUR APPELLANT ON FD FROM UNION BANK OF INDIA. 10.1 ON SCRUTINY OF BALANCE SHEET, IT WAS NOTED THA T THE ASSESSEE HAD ADVANCED A SUM OF RS.17,70,891/- TO ITS SISTER CONC ERN WITHOUT CHARGING ANY INTEREST. ON THE OTHER HAND, THE ASSESSEE HAD P AID INTEREST OF RS.8,32,472/- ON THE SECURED AND UNSECURED LOANS. T HE AO HAS CALCULATED THE INTEREST @ 12% AND ADDED A SUM OF RS.2,12,507/- IN THE TOTAL INCOME OF THE ASSESSEE BY FOLLOWING THE CASE OF STATE BANK OF TROVANCE, 158 ITR 102 (SC) AND WESTERN INDIA OIL DISTRIBUTING CO. , 206 ITR 359 (BOM). WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPEL LATE AUTHORITY, THE ACTION OF THE AO WAS CONFIRMED IN THE FOLLOWING MANNER: I HAVE CONSIDERED THE APPELLANTS SUBMISSION AND T HE AOS OBSERVATIONS. IN THIS CASE THE AO HAS SPECIFICALLY ASKED THE APPELLA NTS TO PROVE THE NEXUS BETWEEN THE INTEREST FREE ADVANCES MADE AND THE INT EREST FREE FUND AVAILABLE WITH THE APPELLANT. BUT THE APPELLANT HAS FAILED TO DO SO. IT HAS ONLY FILED GENERAL EXPLANATION REGARDING AVAILABILITY OF INTER EST FREE FUND WITH IT. UNDER SUCH CIRCUMSTANCES, THE APPELLANTS CONTENTIONS ARE NOT ACCEPTABLE. HENCE THE ADDITION MADE BY THE AO IS UPHELD AND THIS GROUND D ISMISSED. ITA NO.2087 & 2296/AHD /2012 SUJAG FINE CHEMICALS P. LTD. VS. ITO, BARODA A.Y. 2003-04 - 8 - 11. FROM THE SIDE OF THE REVENUE, LEARNED DR HAS PL ACED RELIANCE ON K. SOMASUNDRAM & BROTHERS VS. CIT, 238 ITR 939 (MAD ) AND CIT VS. ORISSA CEMENT LTD., 258 ITR 365 (DEL), CIT VS. H.R. SUGAR FACTORY PVT. LTD., 187 ITR 363 (ALD), CIT VS. ABHIS HEK INDUSTRIES LTD, 286 ITR 1 (P&H). 11.1 ON THE OTHER HAND, FROM THE SIDE OF THE ASSESS EE, LEARNED AR HAS PLACED RELIANCE ON THE SUBMISSION MADE BEFORE LEARN ED CIT(A), RELEVANT PORTION IS REPRODUCED BELOW: FROM THE DETAILS OF INTEREST PAID DURING THE YEAR IT MAY BE OBSERVED THAT OUT OF TOTAL PAYMENT OF INTEREST OF RS. 8.32 LACS, YOUR APPELLANT HAS PAID RS. 5.99 LACS TO THE BANK FOR CASH CREDIT ACCOUNT WHICH IS S PECIFICALLY REQUIRED TO BE USED IN INVESTMENT IN STOCKS AND DEBTORS. THE BALA NCE AMOUNT OF RS. 2.33 LACS IS PAID TO THE PROMOTER ON THE DEPOSIT MADE BY HIM FOR MARGIN MONEY PROVIDED TO THE BANK. YOUR APPELLANT HAS TAKEN INT EREST FREE DEPOSIT OF RS. 204.04 LACS FROM THE DIRECTORS AND SHAREHOLDERS AND NO INTEREST HAS PAID DURING THE YEAR. THIS IS EVIDENT FROM THE COPY OF T HE INTEREST PAID ACCOUNT FILED HEREWITH. IN VIEW OF THESE FACTS IT IS CRYST AL CLEAR THAT INTEREST FREE DEPOSITS HAVE BEEN ADVANCE TO SISTER CONCERN AND HA S NO INTEREST IS CHARGED AND NO ADDITION CAN BE MADE ON PRESUMPTION PARTICUL ARLY WHEN THE AO HAS NOT PROVED ANY NEXUS BETWEEN BORROWED FUNDS AND AMO UNT ADVANCE. 12. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES WE HAVE NOTED THAT THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE INT EREST FREE DEPOSITS TO THE TUNE OF RS.204.04 WERE AVAILABLE. THE ASSESSE HAS C LAIMED THAT THE SAID INTEREST FREE DEPOSITS WERE ADVANCED TO THE SISTER CONCERN. THE OTHER CONTENTION OF THE ASSESSEE IS THAT IN THE PAST THE ASSESSEE HAD MADE ADVANCE TO SISTER CONCERN BUT NO SUCH DISALLOWANCE WAS EVER MADE. THE ASSESSEE HAS ALSO ALLEGED THAT THERE WAS A DIRECT N EXUS OF INTEREST FREE FUNDS, VIZ-A-VIZ, INTEREST FREE ADVANCE. BUT THE FA CT IS THAT NO SUCH ACCOUNT IS PLACED BEFORE US THROUGH WHICH IT COULD BE PROVED THAT THE ITA NO.2087 & 2296/AHD /2012 SUJAG FINE CHEMICALS P. LTD. VS. ITO, BARODA A.Y. 2003-04 - 9 - INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE HAV E BEEN DIRECTLY HANDED OVER TO THE SISTER CONCERN. ON THE CONTRARY, THE AL LEGATION OF THE REVENUE DEPARTMENT IS THAT THE ASSESSEE HAD FAILED TO PROVE THE DIRECT NEXUS BETWEEN THE INTEREST FREE FUNDS AVAILABLE AND THAT THOSE VERY FUNDS WERE ADVANCED TO THE SISTER CONCERN. THE ASSESSEE HAS ON LY PROVED THAT THE INTEREST FREE FUNDS WERE AVAILABLE BUT WHETHER THOS E WERE ACTUALLY ADVANCED IS NOT EMERGING FROM THE FACTS OF THE CASE . IN OUR CONSIDERED OPINION, IF THE ASSESSEE IS RELYING UPON THE THEORY OF DIRECT NEXUS THEN THE ONUS IS ON THE ASSESSEE TO ESTABLISH THE SAME. MERE LY BY STATING THAT THE FUNDS ARE AVAILABLE, NO PRACTICAL PURPOSE IS SERVED UNLESS AND UNTIL THROUGH BANK STATEMENTS IT IS ESTABLISHED THAT THE INTEREST FREE FUNDS HAVE ACTUALLY BEEN DISBURSED TO THE SISTER CONCERN. IN C ERTAIN PRECEDENTS, EVEN THE COURTS HAVE HELD THAT IF THE ASSESSEE HAS SUFFI CIENT INTEREST FREE BANK BALANCE, OTHER THAN INTEREST BEARING FUNDS, THEN HE HAS TO PROVE THAT OUT OF THOSE INTEREST FREE BANK BALANCE TRANSFERRED THE FUNDS TO A SISTER CONCERN. IN THE ABSENCE OF ANY DIRECT EVIDENCE, WE ARE AFFIRMING THE FINDINGS OF THE REVENUE AUTHORITIES. FURTHER, WE AR E ALSO NOT INCLINED TO INTERVENE WITH THE FINDINGS OF THE REVENUE AUTHORIT IES THAT THE CHARGE OF INTEREST @ 12% WAS REASONABLE. ON BOTH THE COUNTS, THE GROUND RAISED BY THE ASSESSEE IS HEREBY DISMISSED. 13. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. B. ITA 2296/AHD/2012 (REVENUES APPEAL) 14. GROUND NO.1 IS REPRODUCED BELOW: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.15, 66,564/- BEING SECURED LOAN ITA NO.2087 & 2296/AHD /2012 SUJAG FINE CHEMICALS P. LTD. VS. ITO, BARODA A.Y. 2003-04 - 10 - RECEIVED FROM SHRI SURESH SHETH, WITHOUT APPRECIATI NG THE FACT THAT THE ASSESSEE HAD FAILED TO PROVE THE CREDITWORTHINESS O F THE TRANSACTION. 15. THE AO HAD MADE AN ADDITION IN RESPECT OF A LOA N OF RS.15,66,564/- RECEIVED FROM MR. SURESH B. SHETH. I T WAS NOTED BY THE AO THAT THE SAID DEPOSITOR HAD MAINTAINED TWO ACCOU NTS ONE WAS DEPOSIT ACCOUNT AND THE OTHER WAS PROMOTER ACCOU NT. IN THE ABSENCE OF CONFIRMATION ETC., THE IMPUGNED ADDITION WAS MADE. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHO RITY, IT WAS INFORMED THAT MR. SURESH B. SETH IS THE PROMOTER AND THE INV ESTMENT WAS MADE OUT OF HIS BANK WITHDRAWALS. IT WAS INFORMED THAT HE WA S FILING THE RETURN REGULARLY. CONSIDERING THOSE FACTS, LEARNED CIT(A) HAS DELETED THE ADDITION. 16. WE HAVE HEARD BOTH THE SIDES. WE HAVE FOUND THA T THE ASSESSEE HAS ESTABLISHED THE IDENTITY, CREDIT WORTHINESS OF THE SAID PROMOTER, THEREFORE, LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITION. WE HAVE ALSO NOTED THAT THE REVENUE DEPARTMENT HAS NOT DISPUTED THE FACT TH AT THE SAID PROMOTER IS ALSO ASSESSED TO TAX AT ITO WARD-2(4), BARODA. O N ACCOUNT OF THESE FACTS, WE HEREBY AFFIRM THE FINDINGS OF THE LEARNED CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 17. GROUND NO.2 IS REPRODUCED BELOW: ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.17, 01,940/- BEING 20% OF VARIOUS EXPENSES VIZ WAGES, ADMINISTRATIVE EXPENSES , INTEREST & MISC. EXPENSES, WITHOUT APPRECIATING THE FACT THAT THE AS SESSEE HAD FAILED TO THE SUBSTANTIVE ITS CLAIM WITH SUPPORTING DOCUMENTARY E VIDENCES AT THE TIME OF ASSESSMENT PROCEEDINGS. ITA NO.2087 & 2296/AHD /2012 SUJAG FINE CHEMICALS P. LTD. VS. ITO, BARODA A.Y. 2003-04 - 11 - 18. THE AO HAS MADE AN AD HOC 20% DISALLOWANCE IN R ESPECT OF CERTAIN EXPENSES, SUCH AS WAGES, ADMINISTRATIVE EXP ENSES, MISC. EXPENSES ETC. OUT OF TOTAL EXPENDITURE OF RS.85,09,703/-, TH E AO HAS DISALLOWED 20% AMOUNTING TO RS.17,01,940/-, WHICH WAS ADDED IN THE INCOME OF THE ASSESSEE. WHEN THE MATTER WAS CARRIED BEFORE THE LE ARNED CIT(A), HE HAS HELD THAT THERE WAS NO RATIONALE FOR THE IMPUGNED A D HOC DISALLOWANCE. RATHER, IT WAS NOTED THAT ABOUT 95% EXPENDITURE WER E THROUGH CHEQUE. LEARNED CIT(A) HAS GRANTED RELIEF IN THE FOLLOWING MANNER:- I HAVE CONSIDERED THE APPELLANTS SUBMISSIONS AND T HE AOS OBSERVATIONS. THE AO WAS NOWHERE STATED IN THE REMAND REPORT THAT EVEN D URING THE COURSE OF REMAND PROCEEDINGS, THE APPELLANT COULD NOT EXPL AINED THESE EXPENSES WITH THE HELP OF DOCUMENTARY EVIDENCES. THE APPELLANTS BOOKS OF ACCOUNTS ARE AUDITED AND IT HAS ALSO BEEN ABLE TO SHOW THAT ABOU T 95% OF THE EXPENSES ARE THROUGH CHEQUES. SINCE THE AO HAS NOT BROUGHT ON RE CORD ON ANY REASON FOR MAKING SUCH AD HOC DISALLOWANCE, HENCE SUCH DISALLO WANCE CANNOT BE SUSTAINED. ACCORDINGLY, THESE DISALLOWANCE ARE DIRE CTED TO BE DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 19. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES AND CONSIDERING THE FINDINGS ON FACTS GIVEN BY THE LEARNED CIT(A), WE H EREBY HOLD THAT NO INTERFERENCE IS REQUIRED. IN THE RESULT, THIS GROUN D OF THE REVENUE IS HEREBY DISMISSED. 20. TO SUM UP, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED AND THE APPEAL OF THE REVENUE IS DISMISSED. SD/- SD/- (T.R. MEENA) (MUKUL KR. SHRAW AT) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 17/09/2013 PRABHAT KR. KESARWANI, SR.P.S. TRUE COPY ITA NO.2087 & 2296/AHD /2012 SUJAG FINE CHEMICALS P. LTD. VS. ITO, BARODA A.Y. 2003-04 - 12 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A)-III, AHMEDABAD 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, (DY./ASSTT.REGISTRAR) ITAT, AHMEDABAD