The ITO, Ward-6(4), Ahmedabad V. M/s. Packaging Products, Ahmedabad

ITA 264/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85860 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-03-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 01-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD , MH MHMH MH BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI N. S. SAINI, ACCOUNTANT MEMBER. ITA. NO.264/AHD/2011 (ASSESSMENT YEAR:2001-02) INCOME TAX OFFICER, WARD-6(4), C. U. SHAH BUILDING, ASHRAM ROAD, AHMEDABAD APPELLANT VS. M/S. PACKAGING PRODUCTS, PLOT NO.413, GIDC ESTATE, VATVA, AHMEDABAD RESPONDENT PAN: AADFP3499F /BY APPELLANT : SHRI B. L. YADAV, SR. D.R. /BY RESPONDENT : SHRI TUSHAR HEMANI, A.R. !' /DATE OF HEARING : 11.03.2015 #$% !' /DATE OF PRONOUNCEMENT : 27.03.2015 ITA NO. 264/AHD/11 A.Y. 01-02 [ITO VS. M/S. PACKAGING PRODUCTS] PAGE 2 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XI, AHMEDABAD, DATED 30.11.2010 FOR A.Y. 2001-02 ON THE FOLLOWING GROUND: 1) THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRE D IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.7,26,568/- BEING INTEREST ON INVESTMENT IN JOINT VENTURE. 2. ASSESSEE HAD BEEN ENGAGED IN BUSINESS OF MANUFAC TURING OF CORRUGATED BOXES. ASSESSING OFFICER DISALLOWED THE INTEREST OF RS.7,26,568/-. ONLY ISSUE BEFORE US WITH REGARD TO THIS DISALLOWANCE OF INTEREST OF RS.7,26,568/-. IN FIRS T ROUND, ITAT VIDE ITS ORDER DATED 18.05.2007 DIRECTED THE ASSESS ING OFFICER TO EXAMINE ONE JOINT VENTURE AGREEMENT AND SECONDLY TO ASCERTAIN WHETHER ASSESSEE HAS SHOWN INCOME FROM JO INT VENTURE IN SUBSEQUENT YEARS. AS STATED ABOVE ASSES SEE IS ENGAGED IN BUSINESS OF MANUFACTURING OF CORRUGATED BOXES. DUE TO HEAVY COMPETITION, ASSESSEE WAS LOOKING FOR NEW BUSINESS OPPORTUNITIES. IT CAME ACROSS A PROPOSAL TO DEVELOP AGRICULTURAL PRODUCES IN CONTROLLED CONDITIONS USIN G LATEST TECHNOLOGY. HAVING EVALUATED THE VIABILITY OF PROP OSAL, ASSESSEE DECIDED TO GO AHEAD WITH IT AND THEREFORE IT ENTERED INTO A JOINT VENTURE AGREEMENT FOR PURPOSE WITH M/S . KAVITAN ITA NO. 264/AHD/11 A.Y. 01-02 [ITO VS. M/S. PACKAGING PRODUCTS] PAGE 3 AGRO ON 14 TH MAY, 1996. AS PER BROAD TERMS OF AGREEMENT , ASSESSEE WAS IN THE ROLE OF PROVIDING FINANCE FOR A SPECIFIED INCOME WHILE OTHER VENTURE M/S KAVITAN AGRO WAS TO ARRANGE FOR LAND, TECHNOLOGY, DEVELOP FARMING, TAKE CARE OF DAY TO DAY BUSINESS ACTIVITIES, MARKET PRODUCTS, MAINTAIN ACCO UNTS, ETC. THE RELEVANT CLAUSES OF AGREEMENT ARE RE-PRODUCED H EREUNDER:- CLAUSE 1. THIS AGREEMENT IS SPECIFICALLY AN AGREEM ENT OF JOINT VENTURE AND THE PARTIES HERETO SHALL NOT ACT AS AN AGENT OF ANOTHER. IN SHORT THIS AGREEMENT IS NOT A PARTNERSHIP AGREEMENT. CLAUSE 2. THIS AGREEMENT SHALL COME INTO FORCE WIT H EFFECT FROM 14 TH DAY OF MAY, 1996. CLAUSE 3. THE PARTY OF THE FIRST PART SHALL BE RESPONSIBLE TO PROVIDE JOINT VENTURE BUSINESS FINANCE OF RS 50 LACS DURING THE PHASED PERIOD UPTO 31-03-2000. CLAUSE 4. IN CONSIDERATION OF PROVIDING THE FINANC E, THE PARTY OF THE FIRST PART SHALL BE ENTITLED TO A SUM OF 15% OF THE JOINT VENTURE TURNOVER EFFECTED AFTER 01-04-2000 AND THIS CONSIDERATION SHALL BECOME DUE ON 31 ST MARCH 2001 AND THEREAFTER EVERY YEAR ON 31 ST MARCH. IT IS SPECIFICALLY AGREED THAT THE PART OF THE FIRST PART SHALL HAVE NO RIGHT OR CLAIM WHATSOEVER FOR ANY CONSIDERATION FOR TURNOVER EFFECTED IN JOINT VENTURE UPTO 31- 03-2000. CLAUSE 5. THE PARTY OF THE FIRST PART SHALL HAVE F IRST CHARGE AND LIEN ON ALL CLAIMS, DUES AND ASSETS OF JOINT VENTURE BUSINESS. ITA NO. 264/AHD/11 A.Y. 01-02 [ITO VS. M/S. PACKAGING PRODUCTS] PAGE 4 AS PER STIPULATION OF AGREEMENT M/S KAVITAN AGRO AR RANGED FOR LAND, DEVELOPED THE FARM INCLUDING GREEN HOUSE, BOR E WELL, ETC AND COMMENCED FARMING ACTIVITIES. ASSESSEE PROVIDE D FINANCE TO JOINT VENTURE BUSINESS AS PER STIPULATION OF AGR EEMENT. AS PER BALANCE SHEET OF KAVITAN AGRO AS ON 31.03.1997, POSITION EMERGED AS UNDER: 1. THE APPELLANT HAD INVESTED AN AMOUNT OF RS. 22,81,064 AS AGAINST RS.50,00,000 STIPULATED IN THE AGREEMENT. 2. AS AGAINST THAT A SUM OF RS.24,63,130 WAS INVEST ED BY THE CO-VENTURER IN THE BUSINESS OF DEVELOPMENT OF FARM. 3. OUT OF THE TOTAL INVESTMENT A SUM OF RS 59,393 W AS INVESTED BY WAY OF FINANCING THE LOSS IN THE NATURE OF RECURRING EXPENSES ON DEVELOPMENT OF AGRICULTURAL PRODUCE. DESPITE BEST EFFORTS ON PART OF BOTH VENTURERS, JOI NT VENTURE BUSINESS LOST A HUGE SUM OF RS. 0.59 LACS DURING IT S FIRST YEAR OF OPERATIONS. AS AGAINST TOTAL EXPENSES OF RS.66,351 /- INCURRED ON AGRICULTURE PRODUCES, IT COULD REALIZE MEAGER SALE OF RS.6,958/- OF AGRICULTURAL PRODUCE. AS PER TERMS OF ITS AGREEMEN T OF ASSESSEE WAS NOT ENTITLED TO ANY INCOME DURING YEAR UNDER CO NSIDERATION. ASSESSING OFFICER WHILE MAKING ASSESSMENT CALCULATE D INTEREST @ 18% ON AMOUNT INVESTED BY ASSESSEE IN JOINT VENTU RE BUSINESS TILL 31.03.2001. ASSESSING OFFICER HAS DIS ALLOWED INTEREST TREATING THIS INVESTMENT AS A NON-BUSINESS INVESTMENT ITA NO. 264/AHD/11 A.Y. 01-02 [ITO VS. M/S. PACKAGING PRODUCTS] PAGE 5 MADE BY ASSESSEE. WHILE IN FIRST ROUND, REMANDING THE MATTER BACK TO ASSESSING OFFICER, ITAT GAVE FOLLOWING DIRE CTIONS : 'WE IN THE INTEREST OF JUSTICE, THINK IT JUST AND P ROPER TO SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BA CK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO R E-DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER CONSIDERI NG THE JOINT VENTURE AGREEMENT ENTERED INTO BY THE ASSESSE S AND ALSO THE FACT WHETHER THE ASSESSES HAS SUBSEQUENTLY SHOWN THE INCOME FROM JOINT VENTURE AS AGREED. WE ORDER ACCORDINGLY' ACCORDING TO PARA 5 OF ASSESSING OFFICER, ASSESSEE COULD NOT FULFILL THE TERMS AND CONDITIONS LAID DOWN IN JOINT VENTURE AGREEMENT DATED 14.05.1996 ENTERED INTO WITH KAVITAN AGRO AND ASSESSEE HAD NOT SHOWN ANY INCOME SUBSEQUENTLY. ACCORDING T O ASSESSEE, REMUNERATION WAS BASED ON SALES TURNOVER OF THE FIRM. THERE WAS NO SALES TURNOVER OF SAID FIRM, NO INCOME ACCRUED TO ASSESSEE. AS PER CLAUSE 1 OF AGREEMENT, WHEREIN IT WAS MENTIONED THAT AGREEMENT WAS NOT IN NATURE OF PARTNERSHIP IN FACT, IT WAS A SIMPLE JOINT VENTURE AGREEMENT WHEREIN BOTH PARTIES WERE TO TAKE AWAY THEIR SHARES OF INCOME AS PER STIPULATION AND WERE SUPPOSED TO OFFER THE S AME IN ITS OWN HAND FOR TAXATION. AS PER PARA 5.2 OF ASSESSME NT ORDER, ASSESSEE COULD NOT FURNISH ANY EVIDENCE TO SUBSTANT IATE ITS CLAIM THAT INVESTMENT WAS NOT MADE OUT OF BORROWED FUNDS. BALANCE SHEET OF ASSESSEE WERE FURNISHED TO ASSESSI NG OFFICER, WHEREFROM IT WAS OBSERVED THAT IT HAD ONLY TWO SECU RED LOANS, ONE BEING TERM LOAN FOR ACQUISITION OF FIXED ASSETS OF CORRUGATED BOXES MANUFACTURING UNIT AND ANOTHER BEING WORKING CAPITAL ITA NO. 264/AHD/11 A.Y. 01-02 [ITO VS. M/S. PACKAGING PRODUCTS] PAGE 6 FINANCE AGAIN FOR CORRUGATED BOXES MANUFACTURING UN IT. THUS, NO SPECIFIC BORROWINGS WERE RAISED FOR THE PURPOSE OF ITS BUSINESS ACTIVITY. ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTION OF ASSESSEE AND MADE ADDITION IN QUESTIO N. 3. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AU THORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF O F ASSESSEE AND HAVING CONSIDERED THE SAME, CIT(A) GRANTED RELI EF TO ASSESSEE. SAME HAS BEEN OPPOSED ON BEHALF OF REVEN UE INTER ALIA SUBMITTED THAT CIT(A)(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.7,26,568/- BEING INTEREST ON INV ESTMENT IN JOINT VENTURE. ACCORDINGLY, ORDER OF CIT(A)(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. ON OTHER HA ND, LEARNED AUTHORIZED REPRESENTATIVE SUPPORTED THE ORDER OF CI T(A). 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERI AL ON RECORD WE FIND THAT TRIBUNAL IN FIRST ROUND DIRECTE D THE ASSESSING OFFICER TO EXAMINE I. JOINT VENTURE AGREEMENT AND II. TO ASCERTAIN WHETHER ASSESSEE HAS SHOWN INCOME FROM JOINT VENTURE IN SUBSEQUENT YEARS. 4.1 WITH REGARDS TO FIRST POINT, CONTENTION OF ASSE SSEE HAS BEEN THAT ASSESSING OFFICER MERELY STATED THAT ASSE SSEE CONTRIBUTED FUNDS AS PARTNER. HE FAILED TO CONSIDE R THE CONTENTS OF JOINT VENTURE AGREEMENT. PERUSAL OF AG REEMENT SHOWS THAT AGREEMENT WITH M/S. KAVITAN AGRO DATED ITA NO. 264/AHD/11 A.Y. 01-02 [ITO VS. M/S. PACKAGING PRODUCTS] PAGE 7 14.05.1996 IS TITLED JOINT VENTURE BUSINESS AGREEM ENT. CLAUSE 1 OF AGREEMENT STATES THAT AGREEMENT IS ONE OF JOINT VENTURE AND IS NOT A PARTNERSHIP AGREEMENT. IN ACC ORDANCE WITH CLAUSE 4 OF SAID AGREEMENT, ASSESSEE WAS ENTIT LED TO 15% OF TURNOVER (AND NOT ANY SHARE IN PROFITS/LOSSES, WHICH IS KEY ELEMENT OF ANY PARTNERSHIP). CLAUSE 12 OF AGREEMEN T SPECIFICALLY STATES THAT ASSESSEE SHALL HAVE NO RIG HT OR CLAIM IN PROFIT OR LOSS OF JOINT VENTURE BUSINESS. 4.2 AS REGARDS INCOME FROM JOINT VENTURE IN SUBSEQU ENT YEAR, STAND OF ASSESSEE HAS BEEN THAT SINCE BUSINESS NEVE R TOOK OF AND NO TURNOVER WAS AFFECTED, QUESTION OF SHOWING I NCOME FROM JOINT VENTURE BUSINESS DID NOT ARISE. JUST BECAUSE , THERE WAS NO PROFIT, EXPENDITURE COULD NOT BE ALLOWED. 4.3 AS REGARDS SOURCE OF FUNDS, IT WAS STAND OF ASS ESSEE THAT AT THE END OF YEAR, INVESTMENT IN JOINT VENTURE BUS INESS WAS RS.40,36,494/-. BALANCE SHEET, SECURED LOAN WERE M ACHINERY LOAN, CAR LOAN AND HYPOTHECATION LOAN. THUS, NO BO RROWING WAS MADE FOR INVESTMENT IN JOINT VENTURE BUSINESS. INVESTMENT WAS ONLY OUT OF BUSINESS FUNDS. IN FACTS AND CIRCU MSTANCES, ASSESSING OFFICERS ACTION IN DISALLOWING INTEREST @ 18% ON NOTIONAL BASIS WAS NOT FOUND IN ACCORDANCE WITH LAW AND CIT(A) WAS JUSTIFIED IN HOLDING THAT AGREEMENT WAS IN JOINT VENTURE AGREEMENT FOR THE PURPOSE OF BUSINESS. THE REFORE, DISALLOWANCE IN QUESTION WAS FOUND UNWARRANTED AND SAME ITA NO. 264/AHD/11 A.Y. 01-02 [ITO VS. M/S. PACKAGING PRODUCTS] PAGE 8 WAS RIGHTLY DELETED BY CIT(A). THIS REASONED FINDI NG OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 5. AS A RESULT, APPEAL FILED BY THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 27 TH DAY OF MARCH, 2015. SD/- SD/- (N. S. SAINI) (SHAILENDR A KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD: DATED 27/03/2015 TRUE COPY S.K.SINHA & & & & ' ' ' ' ('% ('% ('% ('% / COPY OF ORDER FORWARDED TO:- 1. +, / REVENUE 2. / ASSESSEE 3. // 0 / CONCERNED CIT 4. 0- / CIT (A) 5. '45 , , / DR, ITAT, AHMEDABAD 6. 589 :; / GUARD FILE. BY ORDER / & ,