ACIT, Bhubaneswar V. Kasi Sales & Services Pvt. Ltd, Bhubaneswar

ITA 220/CTK/2012

• Counselvise Citation: 22022114 RSA 2012
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 20-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 04-04-2012
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHYCIT
• Assessee Lawyers: S C BHADRA
• Keywords: Business expenditure; Notional interest
• Section: 12; 142(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , H ONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 220/CTK/2012 / ASSESSMENT YEAR 2008 - 09 ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 2(1), BHUBANESWAR. - - - VERSUS - KASI SALES & SERVICES PVT. LTD., PLOT NO.22, SECTOR A,ZONE B, M.I.E.BHUBANESWAR 751 107 PERMANENT ACCOUNT NUMBER: AABCK 3041 K ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SMT. PARAMITA TRIPATHY,CIT - DR / FOR THE RESPONDENT: / SHRI S.C.B HADRA, DR / DATE OF HEARING: 20.11.2012 / DATE OF PRONOUNCEMENT: 30.11.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THE REVENUE IS IN APPEAL RAISING A SOLITARY ISSUE WHICH READS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN LAW AS WELL AS IN FACT IN DELETING THE ADDITION OF 81,59,030 MADE BY THE AO ON ACCOUNT OF CLUB EXPENSES, EXPENSES ON FOREIGN TRAVEL, DISALLOWANCE U/S.40(A)(IA), EXPENSES CAPITAL IN NATURE, PACKING & FORWARDING CHARGES, EXPENSES ON VEHICLE RUNNING & LOCAL CONVEYANCE, EXPENSES ON EXGRATIA PAYMENT, INTEREST ON SECURED AND UNSECURED LOANS & EXPENSES ON FREIGHT & OCTROI, WHEN THE ASSESSEE COULD NOT SUBSTANTIATE THE CLAIM . 2. THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE TRADING OF SPARE PARTS OF EARTH MOVING MACHINERY BEING THE DEALER OF M/S ATLASCOP LIMITED, AUDCO INDIA LIMITED, TIMKEN INDIA LIMITED AND KSP PUMP. IT IS ALSO ENGAGED IN REPAIR ING AND MAINTENA NCE OF SUCH MACHINERY. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ELECTRONICALLY ON 29.09.2008 SHOWING TOTAL INCOME AT N IL . IT I.T.A.NO. 220/CTK/2012 2 HAS WRONGLY SHOWN DEEMED TOTAL INCOME OF 19,18,551 U/S 115 JB OF THE I.T. ACT, THOUGH IT S TOTAL INCOME AS PER THE STATEMENT OF INCOME FILED AND ON THE BASIS OF SCHEDULE BP OF THE RETURN OF INCOME IS 19,96,330 AND IT HAS PAID THE TAX ACCORDINGLY. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED AND SERVED ON THE ASSESSEE ON 25/09/2009. SUBSEQUENTLY, NOTICE U/S 142(1) AND QUESTIONNAIRE WERE ISSUED TO THE ASSESSEE - COMPANY FOR HEARING AND EXPLAINING THE CA SE . THE ASSESSING OFFICER, DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE - COMPANY HAS MADE AN INVESTMENT OF 3 ,04,17,700 IN LOTUS FOOTWEAR ENTERPRISES (A BRITISH VIRGIN ISLAND BASED COMPANY) DURING THE FINANCIAL YEAR 2007 - 08. AS AGAINST THE SAID INVESTMENT, DURING THE CURRENT FINAN CIAL YEAR THE ASSESSEE COMPANY HAS TAKEN LOANS (UNSECURED & SECURED) OF 2.2 CRORES AND 55 LACS, ON WHICH IT HAS PAID INTEREST @15% ON UNSECURED LOAN AND @ 12 - 15% ON SECURED LOANS. AS THE ASSESSEE - COMPANY IS NOT AN INVESTMENT COMPANY AND IS ENGAGED IN THE BUSINESS OF DEALING IN SPARE PARTS, SALES & SERVICE OF HEAVY EARTH MOVERS, AND ALSO THE LOAN AMOUNTS HAVE NOT BEEN UTILIZED FOR ITS BUSINESS PURPOSE, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INTEREST AMOUNTS DEBITED TO THE P & L A/C TO THE EXTENT OF 33,00,000 ( 15% OF UNSECURED LOAN OF 2.2 CRORES) AND 7,15,000 (AVERAGE RATE OF 13% OF SECURED LOAN OF 55 LACS) ARE TO BE DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE - COMPANY. HE WORKED OUT SUCH AMOUNT AT 40,15,000 AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE - COMPANY. HE ALSO MADE ADDITIONS DISALLOWING THE EXPENSES CLAIMED IN RESPECTIVE HEADS WHEN HE COMPUTED THE TOTAL EXPENSES TO BE DISALLOWED INCLUDING INTEREST AMOUNTING TO 81,59,030. 3. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONSIDERED THE CASE OF THE ASSESSEE APPELLANT BEFORE HIM DEALING WITH THE EXPENSES DISALLOWED , THE MAJOR BEING DISALLOWANCE OF NOTIONAL INTEREST I.T.A.NO. 220/CTK/2012 3 SOUGHT TO BE CONSIDERED BY HIM AS WAS FUNDED TO DEBTORS FREE OF INTEREST FROM BORROWED FUNDS AGAINST WHICH THE ASSESSEE HAD CLAIMED PAYMENT OF INTEREST AMOUN TING TO 52,59,157. THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEE COMPANY WAS NOT AN INVESTMENT COMPANY AND WAS ENGAGED IN DEALING IN BUSINESS OF SALES OF SPARE PARTS AND SERVICE OF HEAVY EARTH MOVERS. THE CLAIM OF DEDUCTION FOR INTEREST NOTIONALLY COULD NOT HAVE BEEN MADE INSOFAR AS THE ASSESSEE HAD INCURRED PAYMENT OF INTEREST UNDER THE PROVISIONS OF SECTION 36(1)(III).THEREFORE, ANALYZING THE BASIS FOR DISALLOWANCE ON THE FACTS AS BROUGHT ON RECORD BY THE ASSESSING OFFICER, THE LEARNED CIT(A) HELD THAT THE INVE STMENTS HAD BEEN MADE AS BUSINESS OF THE ASSESSEE AND THEREFORE, WAS INCURRED FOR THE PURPOSE OF BUSINESS INSOFAR AS THE ASSESSEE APPELLANTS SUBMISSION WAS THAT THERE WAS NO NEXUS BETWEEN THE AMOUNTS BORROWED ON WHICH THE ASSESSEE HAD INCURRED EXPENSES T O THE EXTENT THAT THE INCOME OF THE ASSESSEE WAS MUCH MORE THAN THE AMOUNT INVESTED. IN ANY CASE, THE LEARNED CIT(A) HELD THAT THE ASSESSING OFFICER COULD NOT ESTABLISH THAT THE FUNDS BORROWED WERE FOR THE PURPOSE OF CAPITAL INVESTMENT BY THE ASSESSEE. HE ALSO DELETED THE VARIOUS OTHER DISALLOWANCE SUCH AS CLUB EXPENSE AMOUNTING TO 1,07,046 HOLDING IT THAT THE ENTIRE CLAIM INCLUDED FOODING EXPENSES WAS NOT TO BE ALLOWABLE AND RETAINED 50,000 THERE FROM. WITH RESPECT TO THE FOREIGN TRAVEL EXPENSES, HE HELD THAT THE ASSESSING OFFICER HAD ALLOWED ESTIMATED 30% THEREOF WHEN THERE WAS N O REASON TO HOLD THAT THE REMAINING 70% WAS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ASSESSEES BUSINESS. WITH RESPECT TO THE DISALLOWANCE U/S.40(A)(IA), HE HELD THAT THERE WAS NO REASON FOR THE ASSESSING OFFICER TO INVOKE THE PROVISIONS OF SECTION 194J INSOFAR AS THE AMOUNT WAS PAID TO M/S.EMPIRE INFO AND INT.(P) LTD WHICH WAS THE ASSESSEES SISTER CONCERN AND THE AMOUNT WAS PAID AS SOFTWARE CONSULTANCY CHARGES BEING TRAINING TO THE I.T.A.NO. 220/CTK/2012 4 ASSESSEES STAFF. THE AMOUNT HOWEVER, WAS SUBJECTED TO TDS AND WAS INC OMPLIANCE TO THE PROVISIONS OF SECTION 194J THEREFORE COULD NOT BE DISALLOWED UNDER THE DEEMING PROVISIONS OF SECTION 40(A) (IA).HE ALSO DELETED THE AMOUNT OF 74,000 CONSIDERED BY THE ASSESSING OFFICER AS OF CAPITAL NATURE INSOFAR AS HE HELD THAT THE SOF TWARE IS AN INTEGRAL PART OF THE COMPUTER FOR FUNCTIONING WAS THEREFORE REVENUE NATURE WITHOUT WHICH COMPUTER COULD NOT RUN. WITH RESPECT TO THE PACKING AND FORWARDING CHARGES, HE HELD THAT THE ASSESSEES BUSINESS IS SUCH THAT WHEN HE HAS T RANSPORTED THE SPARE PARTS HE HAS TO PACK THEM IN ACCORDANCE WITH THE TRANSPORTATION RULES WHEN HE HELD THAT THE BILLS RAISED WERE FROM REGULAR PACKERS AND MOVERS WHEN THE ASSESSING OFFICER CHOSE TO DISALLOW A PORTION THEREOF ON ESTIMATION ALONE. HE DELETED THE ADDITION/ DISALLOWANCE OF 5,53,458. HE ALSO DELETED THE EXPENSES ON VEHICLES AND LOCAL CONVEYANCE, EXPENSES ON EXGRATIA PAYMENTS, EXPENSES ON FREIGHT AND OCTR O I BY INDIVIDUALLY HOLDING THAT THEY WERE INCURRED FOR THE BUSINESS OF THE ASSESSEE AND PART SUSTENANCE OF THE EXPENSES CLAIMED WOULD GO TO THE ROOT OF ACCEPTING THE SAME AS FOR THE BUSINESS THEREFORE A PART THEREOF SHOULD HAVE BEEN DISALLOWED ON SPECIFIC FINDINGS BY THE ASSESSING OFFICER. NOW THE APPEAL IS B Y THE REVENUE WHICH MAJOR ISSUE BEING THE DISALLOWANC E OF NOTIONAL INTEREST OUGHT TO HAVE BEEN CHARGED FROM SECURED AND UNSECURED LOANS AGAINST INTEREST PAID ON SECURED LOANS IS TO BE DEALT BEFORE US. 4. THE LEARNED DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND THE LEARNED COUNSEL OF THE ASSESSEE RELIED ON THE ORDER OF THE LEARNED CIT(A) ON THE FACTS AND CIRCUMSTANCES AS HAVE BEEN ENUMERATED THEREIN. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF TH E CASE, WE ARE INCLINED TO UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A) INSOFAR AS HE HAS CONSIDERED THE FACTS BROUGHT I.T.A.NO. 220/CTK/2012 5 ON RECORD BY THE ASSESSING OFFICER IN ITS ENTIRETY TO PROJECT ON THE ASSESSEES SUBMISSION BEFORE HIM. THE MAJOR BEING THE DISALLOWAN CE BEING NOTIONAL INTEREST HAS ALSO BEEN CARRIED OUT BY THE LEARNED CIT(A) INSOFAR AS THE ASSESSING OFFICER HAS TRIED TO COMPUTE THE DISALLOWABILITY OF INTEREST WHICH HAS BEEN MENTIONED ABOVE ON THE BASIS OF FACT OF THE AMOUNT CLAIMED BY THE ASSESSEE IS AS FOLLOWS. THE LEARNED DR HAS TRIED TO EMPHASIZE THAT THE CLAIM OF INTEREST IS ALSO ON FAMILY MEMBERS ADVANCES BEING UNSECURED LOANS BECOMES CONTRARY TO THE ASSESSEE CARRYING ON BUSINESS IN TRADING OF SPARE PARTS. THE LEARNED CIT(A) OUGHT NOT TO HAVE DI VERTED THE ISSUE OF NEXUS TO BE ESTABLISHED INSOFAR AS THE ASSESSING OFFICER CATEGORICALLY NOTED THAT THE INTEREST BEARING LOANS HAVE BEEN DIVERTED TO INTEREST FREE ADVANCES. THE LEARNED CIT(A) ALSO NOTED THAT THERE WAS NO NEXUS ESTABLISHED FOR SUCH DIVE RSION WHICH AGAIN HAS NOT BEEN CONTROVERTED BY THE LEARNED DR AS OF NOW INSOFAR AS THE ESTIMATION OF DISALLOWABILITY OF INTEREST CLEARLY INDICATES THAT THE LOANS WERE OBTAINED FOR THE PURPOSE OF INVESTMENT IN BUSINESS ENTITY WHEN THE SHARES WERE ACQUIRED. THE ASSESSEE HA D SUFFICIENT FUNDS OTHERWISE AND LOANS ARE BEING BROUGHT I.T.A.NO. 220/CTK/2012 6 FORWARD WITHOUT PAYING ANY INTEREST THEREFORE THE FACTS CLEARLY INDICATE THAT THERE WAS NO CAUSE FOR ALARM FOR COMPUTING NOTIONAL INTEREST TO BE DISALLOWED ON LOANS WHICH DO NOT BEAR INTEREST AS THE EARNING TO THE ASSESSEE WAS NOT AS INVESTMENT COMPANY. THE FUNDS HELD BY THE ASSESSEE WERE SUFFICIENT ON ACCOUNT OF SURPLUS RENDERED BY IT FROM ITS OWN BUSINESS. 6 . WITH RESPECT TO THE OTHER DELETIONS, THE LEARNED DR HAS NOT BEEN ABLE TO PO INT OUT THE FINDING OF THE LEARNED CIT(A) WHETHER COULD BE CONSIDERED AS FACTUALLY WRONG INSOFAR AS WE ARE INCLINED TO UPHOLD THAT ESTIMATED DISALLOWANCE FROM THE TOTAL EXPENDITURE RATHER INDICATES THAT THE ASSESSEE HAD CARRIED OUT THE MAJOR PORTION OF TH E EXPENSES FOR ITS BUSINESS WHICH THE ASSESSING OFFICER IS ALSO INCLINED TO ACCEPT. THE LEARNED CIT(A) THEREFORE NOTED THAT ADHOC DISALLOWANCE HAVE TO BE ON SPECIFIC FINDING THAT THE EXPENSES HAVE BEEN INCURRED WITHOUT PROPER BILLS AND VOUCHERS FOR INCURRI NG THEM AS BUSINESS EXPENDITURE. THE REMAINING DELETIONS THEREFORE ARE IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT, WHICH THE LEARNED CIT(A) HAS RIGHTLY CONSIDERED FOR DELETION INSOFAR AS NO CONTROVERTING MATERIAL HAS BEEN BROUGHT ON RECORD BY THE RE VENUE AS OF NOW. IN VIEW THEREFORE, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. S D/ - S D/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 30.11.2012 ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY. I.T.A.NO. 220/CTK/2012 7 - COPY OF THE ORDER FORWARDED T O: 1 . / THE APPELLANT : ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 2(1), BHUBANESWAR. 2 / THE RESPONDENT: KASI SALES & SERVICES PVT. LTD., PLOT NO.22, SECTOR A,ZONE B, M.I.E.BHUBANESWAR 751 107 . 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEA L TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 2 3 .11.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 25.11 .2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FA IR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30.11.2012 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 ..