Spectoms Engineering Pvt. Ltd., Vadodara V. The ITO, Ward-2(1)(3), Vadodara

ITA 2522/AHD/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2190 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 15-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MEHUL K PATEL
• Keywords: Business income
• Section: 43B; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENC H (BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 2522/AHD/2017 (ASSESSMENT YEAR: 2013-14) SPECTOMS ENGINEERING PVT. LTD. 114, GIDC, MAKARPURA ROAD, VADODARA V/S INCOME TAX OFFICER WARD- 2(1)(3), VADODARA (APPELLANT) (RESPONDENT) PAN: AACCS 9401Q APPELLANT BY : SHRI MEHUL K. PATEL, AR RESPONDENT BY : SHRI VINOD TANWANI, SR. D.R. ( )/ ORDER DATE OF HEARING : 03 -09-201 9 DATE OF PRONOUNCEMENT : 28 -11-2019 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)-2, VADODARA DATED 20.06.2017 PERTAINING TO A .Y. 2013-14 AND ASSESSEE HAS TAKEN FOLLOWING GROUNDS: ITA NO. 2522 /AHD/2017 . A.Y. 2013-1 4 2 1.0 THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS. 99,143/ - ON ACCOUNT OF DEEMED INTEREST ON THE LOANS AND ADVANCES GIVEN TO THE ASS OCIATE CONCERN. 2.0 THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS. 31,622/ - ON ACCOUNT OF UNPAID SERVICE TAX OF EARLIER YEARS BY ERRONEOUSLY INVOKING THE PR OVISIONS OF SECTION 43B OF THE I T ACT, 1961. 3.0 THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN LAW AND ON FACTS HAS DISMISSED THE GROUND RELATING TO INITIATI ON OF PENALTY PROCEEDINGS UNDER SECTION 271(L)(C) OF THE INCOME TAX ACT, 1961 FOR THE ALLEGED CONCEALMENT AND/OR FURNISHING OF INACCURATE PARTICU LARS OF INCOME. 4.0 THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE CHARGING OF INTEREST UNDER SECTION 234B AND 234C OF THE INCOME TAX ACT, 1961. 5.0 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER , DELETE OR MODIFY THE ABOVE GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HE ARING OF THIS APPEAL. 2. OUT OF THESE FOLLOWING GROUNDS, ASSESSEE HAS REQUE STED NOT TO PRESS GROUND NO. 3. THEREFORE, NOW EFFECTIVE REMAINING GROUNDS A RE 1 & 2 AND WE WOULD LIKE TO DISPOSE OF THE GROUNDS ACCORDINGLY. 3. FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE B USINESS OF PROJECTS ENGINEERS & MANUFACTURING OF CATTLE FEED, POULTRY FEEDS EQUIPME NTS & STORAGE SYSTEMS. 4. ON PERUSAL OF BALANCE SHEET IT IS NOTICED THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS AND ADVANCES OF RS. 8,26,193/- TO FIRMS IN WHICH DIRECTORS ARE PARTNERS. THEREFORE, DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSEE WAS SHOW-CAUSED AS TO WHY INTEREST AT THE RATE OF 1 2% ON INTEREST FREE ADVANCES ITA NO. 2522 /AHD/2017 . A.Y. 2013-1 4 3 TO SISTER CONCERNS SHOULD NOT BE CHARGED AS IT WAS CHARGED IN THE A.Y. 2008-09, 2009-10 , 2010-11 & 2011-12 VIDE ORDERSHEET DATED 2 2/03/2016. IN COMPLIANCE VIDE SUBMISSION DATED 29/03/2016, THE AS SESSEE HAS STATED/EXPLAINED AS UNDER: DURING THE YEAR, COMPANY HAS GIVEN INTEREST FREE AD VANCE RS.8,26,193/- TO M/S TETRA TRACK, ASSOCIATE CONCERNS. THE NOTIONAL INTER EST ON SUCH ADVANCE AMOUNT COMES TO RS.99,143/-. IN THIS MATTER, IT IS SUBMITT ED THAT LOANS HAVE BEEN GIVEN TO THE ASSOCIATE CONCERNS FOR BUSINESS PURPOSES AND NO PART OF THE INTEREST BEARING LOANS TAKEN FROM THE BANK HAVE BEEN DIVERTED TO ADV ANCE INTEREST FREE LOANS TO THE SISTER CONCERNS. THE COMPANY HAD SUFFICIENT FUN DS AT ITS DISPOSAL TO ADVANCE SUCH LOANS. FURTHER SUCH LOANS HAVE BEEN GIVEN IN T HE ORDINARY COURSE OF THE BUSINESS AND SISTER CONCERNS TO WHOM THE LOAN HAS B EEN ADVANCED ARE ALSO TAX PAYING ASSESSEES WHICH HAVE NOT SHOWN ANY EXPENDITU RE ON ACCOUNT OF INTEREST. IT IS SUBMITTED THAT SECTION 36(I)(III) OF THE ACT PROVIDES FOR DEDUCTION OF INTEREST ON MONIES BORROWED FOR COMPUTING BUSINESS INCOME. T HE CONDITIONS THAT NEED TO BE SATISFIED FOR ALLOWANCE OF DEDUCTION UNDER SECTI ON 3DURING THE COURSE OF SCRUTINY, IT WAS OBSERVED THAT SERVICE TAX PAYABLE AS ON 31/03/2013 WAS RS 5,77,24V- . OUT OF THIS LIABILITY, THE ASSESSEE HAS PAID RS 5,45,6I9/-ONLY BEFORE FILLING OF I.T. RETURN. FURTHER, IT WAS OBSERVED TH AT THE ASSESSEE HAS NOD DISALLOWED BALANCE OF RS 31,6227- IN ITS COMPUTATION OF INCOME . THEREFORE, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE BALANCE OF RS 31, 6227- SHOULD NOT BE DISALLOWED AND ADDED BACK TO YOUR INCOME VIDE ORDER SHEET DATED 22/03/2016 . IN RESPONSE, THE ASSESSEE SUBMITTED ITS REPLY VIDE LET TER DATED 29/03/2016, IN WHICH IT DID NOT OBJECT TO THE ABOVE ADDITION. 4.2 AS SUCH, UNPAID SERVICE TAX LIABILITY OF RS 3I,622/- IS ADDED BACK TO THE INCOME OF ASSESSEE.6(I)(III) ARE THAT THE AMOUNT HA S BEEN BORROWED ON WHICH INTEREST HAS BEEN PAID AND SUCH BORROWED AMOUNT HAS BEEN USED FOR THE PURPOSE OF BUSINESS. ITA NO. 2522 /AHD/2017 . A.Y. 2013-1 4 4 5. BUT LD. A.O. WAS NOT AGREE WITH THE CONTENTION OF T HE ASSESSEE AND MADE ADDITION OF RS. 99,143/-. 6. THEREAFTER APPEAL WAS FILED BEFORE THE LD. CIT(A) W HO CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 7. WHEN MATTER CAME BEFORE US FOR HEARING, ASSESSEE CI TED AN ORDER OF CO- ORDINATE BENCH IN ASSESSEES OWN CASE FOR A.YS. 200 6-7, 07-08, 09-10 & 2010- 11 IN ITA NOS. 836/AHD/2012, 06/AHD/2011, 2627/AHD/ 2012 & 562/AHD/2014 WHEREIN IN SIMILAR FACTS AND CIRCUMSTA NCES RELIEF WAS GIVEN TO THE ASSESSEE WITH FOLLOWING OBSERVATIONS: 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD GIVEN LOAN AND ADVANCES TO ITS SISTER CONCERNS TO THE TUNE OF RS. 1,33,33,689/- AS ON 31ST MARCH, 2007 BU T NOT CHARGED ANY INTEREST. THEREFORE, THE ASSESSING OFFICER HAS CHARGED NOTIO NAL INTEREST @ 12% OF RS.16,00,763 ON THE BALANCE OF OUTSTANDING LOAN ON THE GROUND THAT INTEREST BEARING FUNDS WERE ADVANCED TO ITS SISTER CONCERNS. 7. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS SUSTAINED THE ADDITION TO THE EXTENT OF RS. 12, 04,742/- AFTER EXCLUDING THE INTEREST CHARGED OF RS.1,56,262 ON THE CUSTOMER BAL ANCE REPRESENTING SALE MADE EARLIER YEAR OF RS. 13,02,182/-.THE LD. CIT(A) HAS SUSTAINED THE PART OF THE ADDITION ON THE GROUND THAT ASSESSEE HAD GIVEN INT EREST BEARING FUNDS TO ITS SISTER CONCERNS ON WHICH IT WAS PAYING INTEREST TO THE BANK. 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. WE OBSERVED THAT ASSESSEE HAS PROVIDED A LOAN TO ITS SISTER CONCERN AS SUPRA IN THIS ORDER OF RS. 1,33,39,689/-. THE ASSES SEE HAS CHARGED INTEREST ON THE ITA NO. 2522 /AHD/2017 . A.Y. 2013-1 4 5 ABOVE LOAN FROM THE ASSESSMENT YEAR 2002-03 TO 2005 -06. THE ASSESSEE HAS STOPPED CHARGING INTEREST ON THE AFORESAID LOAN ON THE REASONING THAT PRECEDING YEAR INTEREST WAS NOT RECOVERED. ON AN ANALYSIS OF THE ACCOUNTS, IT CAME TO OUR NOTICE THAT ASSESSEE HAS AVAILED LOAN FROM THE BANK S AND FORWARDED THIS LOAN TO SISTER CONCERN FROM WHOM IT HAS NOT RECOGNIZED THE INTEREST INCOME ON THE GROUND THAT SISTER CONCERN HAS STOPPED PAYING ANY I NTEREST TO THE ASSESSEE. IT IS PERTINENT TO OBSERVE THAT THE ASSESSING OFFICER HAS NOT DOUBTED THE GENUINENESS OF THE TRANSACTION I.E. TAKING LOAN FROM THE BANKS AND FORWARDING IT TO THE SISTER CONCERN. THE ASSESSING OFFICER HAS NOT MADE ANY IN QUIRY WHETHER INTEREST EXPENDITURE RELATABLE TO THE LOANS DEDUCTION FROM THE ACCOUNTS AND GIVEN TO THE SISTER CONCERN IS AN ALLOWABLE DEDUCTION OR NOT IN THE PRESENT SCENARIO? WE FURTHER FIND THAT ASSESSEE HAS BEEN FOLLOWING MERCA NTILE SYSTEM OF ACCOUNTING AND AGREED THAT SYSTEM WHILE RECOGNIZING THE INTERE ST INCOME ON ACCRUAL BASIS. IN THE PAST, IT HAS BEEN RECOGNIZED INTEREST INCO ME, HOWEVER, ON ACCOUNT OF ITS NON-REALIZATION, ASSESSEE HAS CLAIMED BAD DEBT OF T HOSE INTEREST INCOMES WHICH HAVE BEEN RECOGNIZED ON ACCRUAL BASIS AND INCLUDED IN THE TAXABLE INCOME AS BAD DEBT OF THE ASSESSEE OF THOSE INTEREST INCOMES HAS BEEN ALLOWED BY THE LD. CIT(A) AND NOT DISPUTED BY THE REVENUE IN FURTHER APPEAL. IN ASSESSMENT YEAR AND SUBSEQUENT YEARS, ASSESSEE HAS STOPPED CHARGING INT EREST AND ACCOUNTING IT IN THE INCOME ON ACCRUAL BASIS. THIS IS NOT A SOUND ACCOUNTING POLICY AS AT OUTSET IT SHOULD HAVE BEEN RECOGNIZED THE SAME AS INCOME ON ACCRUAL BASIS AND THEREAFTER WOULD HAVE GIVEN THE DEDUCTION OF CLAIM OF BAD DEBT WHICH THE ASSESSEE FAILED IN THESE YEARS. FURTHER, WHEN WE V ISUALIZE THIS SITUATION AS A WHOLE TRAVELING FROM THREE ASSESSMENT YEARS, THEN, IT IS OBSERVED THAT INTEREST INCOME WAS RECOGNIZED ON ACCRUAL BASIS AND THEREAFT ER CLAIMED AS A BAD DEBT OF ITS NON-REALIZATION, THIS HAS BEEN ALLOWED BY LD. C IT(A). IF WE REMIT THE ISSUE TO THE FILE TO ASSESSING OFFICER IN SUBSEQUENT YEARS B Y HOLDING THAT INCOME IS TO BE RECOGNIZED ON ACCRUAL BASIS AND THEREAFTER, IT IS T O BE CLAIMED AS BAD DEBT WHETHER ALLOWABLE OR NOT, THEN, TO OUR MIND, IT WIL L BE AN ACADEMIC AND FUTILE ITA NO. 2522 /AHD/2017 . A.Y. 2013-1 4 6 EXERCISE BECAUSE IN REALITY ASSSESSEE HAS NOT RECEI VED ANY INTEREST INCOME FROM ITS SISTER CONCERN. IT IS TO BE RECOGNIZED THAT IN ALL THE AFORESAID THREE YEARS THE INCOME FROM INTEREST ON ACCRUAL BASIS REMAINED UN RECOVERABLE WHICH WAS ALLOWED AS A BAD DEBT. THUS, IN ORDER TO AVOID MULT IPLICITY OF THE PROCEEDINGS, WE ALLOW THE APPEAL OF THE ASSESSEE ON THIS ISSUE ACCO RDINGLY. 8. IN PARITY WITH THE CO-ORDINATE BENCH ORDER IN ASSES SEES OWN CASE IN SIMILAR FACTS AND CIRCUMSTANCES, WE ALLOW THIS GROUND OF AP PEAL OF THE ASSESSEE AND DIRECT ASSESSING OFFICER TO DELETED THE ADDITION OF RS. 99,143/-. 9. NOW WE COME TO GROUND NO. 2 RELATING TO CONFIRMING THE DISALLOWANCE OF RS. 31,622/- ON ACCOUNT OF UNPAID SERVICE TAX OF EARLIE R YEARS BY ERRONEOUSLY INVOKING THE PROVISIONS OF SECTION 43B OF I. T. ACT . 10. DURING THE COURSE DURING THE COURSE OF SCRUTINY, I T WAS OBSERVED THAT SERVICE TAX PAYABLE AS ON 31/03/2013 WAS RS 5,77,241/- . OU T OF THIS LIABILITY, THE ASSESSEE HAS PAID RS 5,45,619/-ONLY BEFORE FILLING OF I.T. RETURN. FURTHER, IT WAS OBSERVED THAT THE ASSESSEE HAS NOT DISALLOWED BALAN CE OF RS 31,622/- IN ITS COMPUTATION OF INCOME. THEREFORE, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE BALANCE OF RS 31,622/- SHOULD NOT BE DISALL OWED AND ADDED BACK TO YOUR INCOME VIDE ORDER SHEET DATED 22/03/2016. IN R ESPONSE, THE ASSESSEE SUBMITTED ITS REPLY VIDE LETTER DATED 29/03/2016, I N WHICH IT DID NOT OBJECT TO THE ABOVE ADDITION. 11. AS SUCH, UNPAID SERVICE TAX LIABILITY OF RS 31,622 /- IS ADDED BACK TO THE INCOME OF ASSESSEE. ITA NO. 2522 /AHD/2017 . A.Y. 2013-1 4 7 12. THEREAFTER APPEAL WAS FILED BEFORE THE LD. CIT(A) W HO CONFIRMED THE ACTION OF THE LD. A.O. AS NO DETAILS WERE FURNISHED BEFORE TH E LOWER AUTHORITIES. 13. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGN ED ORDER AND HEARD BOTH THE PARTIES. BEFORE LD. A.O. IN RESPONSE TO THE NOT ICE, ASSESSEE SUBMITTED IN ITS REPLY LETTER DATED 29 TH OCTOBER, 2016 IN WHICH IT DID NOT OBJECT TO THE AD DITION OF RS. 31,622/- AND EVEN BEFORE LD.CIT(A) AND AS NO DETAILS HAVE BEEN FURNISHED IN SUPPORT OF ITS CONTENTION. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28- 11- 2019 SD/- SD/- (PRADIP KUMAR KEDIA) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 28/11/2019 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD