DCIT, Bangalore V. M/s Fairy Food Products (P) Limited, Bangalore

ITA 279/BANG/2011

• Counselvise Citation: 27921114 RSA 2011
• Duration Of Justice: 1 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 16-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: E
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.279/BAN G/2011 (ASST. YEAR - 2006-07) THE COMMISSIONER OF INCOME-TAX, CIRCLE-11(3), BANGALORE. . APPELLANT VS. M/S FAIRY FOOD PRODUCTS PVT. LTD., NO.47, EUREKA, CHURCH STREET, BANGALORE-560 001. . RESPONDENT CO NO.20/BANG/2011 (BY ASSESSEEE) REVENUE BY : SHRI SARAVANAN B JCIT, ASSESSEE BY : SHRI R CHANDRASHEKAR, ADVOCATE DATE OF HEARING : 17-04-2012 DATE OF PRONOUNCEMENT : 27-04-2012 O R D E R PER P MADHAVI DEVI, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE REVENUE AND THE CROSS-O BJECTION IS FILED BY THE ASSESSEE. THE APPEAL IS DIRECTED AGAIN ST THE ORDER OF THE ITA NO.279/B/11 & 2 CO NO.20/B/11 COMMISSIONER OF INCOME-TAX - I AT BANGALORE DATED 11.1.2011. THE APPEAL ARISES OUT OF THE ORDER PASSED U/S 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT (A) IN DELETING THE ADDITION MADE ON ACCOUNT OF INTEREST O N PAYMENTS/ADVANCES MADE TO THE SHAREHOLDERS/DIRECTOR S OF THE COMPANY HOLDING THAT PAYMENTS ARE ADVANCED FOR BUSINESS PU RPOSES OF THE ASSESSEE COMPANY AND NOT AS INTEREST FREE ADVANCES TO ITS DIRECTORS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS IN THE BUSINESS OF PROCESSING OF FRUITS AND FRUIT PULP PROCESSED OUT OF MANGOES AND OTHER FRUITS. IT FILED ITS RETURN OF I NCOME FOR THE RELEVANT ASSESSMENT YEAR DECLARING AN INCOME OF RS.82,34,240 /-. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME-TAX ACT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS IN TEREST BEARING LOANS OF RS.11,06,46,238/- TOWARDS UNSECURED LOAN, WHILE THE ASSESSEE HAS ADVANCED RS.3,49,01,621/- WITHOUT INTEREST TO THE D IRECTORS OF THE COMPANY, WHO ARE ALL MEMBERS OF ONE FAMILY. THEREF ORE, HE PROPOSED TO ADD INTEREST ON THESE AMOUNTS DIVERTED TO THE DI RECTORS AND THEIR FAMILY MEMBERS SINCE IT WAS FOUND THAT THE ASSESSEE HAS ENOUGH FUNDS ITA NO.279/B/11 & 3 CO NO.20/B/11 FOR CARRYING ON ITS BUSINESS AND THERE WAS NO NECES SITY TO BORROW ANY SUM FOR ITS BUSINESS IF THE ADVANCE TO THE FAMILY MEMBERS HAD NOT BEEN GIVEN. THE ASSESSEE SUBMITTED ITS EXPLANATION JUSTIFYING THE ADVANCES. HOWEVER THE AO WAS NOT SATISFIED WITH TH E ASSESSEES EXPLANATION AND MADE THE ADDITION OF INTEREST ON TH E ADVANCE AMOUNT GIVEN TO THE DIRECTORS AND THEIR FAMILY MEMBERS @ 1 8%, WHICH WORKS OUT 62,82,255/-. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) STATING THAT TWO OF THE PARTIES TO WHOM THE ADVANCE S HAVE BEEN GIVEN I.E SHRI SYED MATEEN AGA AND SYED TANZEEM AGA ARE THE DIRECTORS OF THE COMPANY AND THAT THE AMOUNT GIVEN TO THEM WAS F OR PROCUREMENT OF MANGOES. THEREFORE, ACCORDING TO THE ASSESSEE, T HEY ARE NEITHER LOANS NOR ADVANCES BUT ARE THE ADVANCES FOR THE PUR CHASE OF MANGOES FOR ASSESSEES BUSINESS. . COPIES OF THE PURCHASE ORDERS ALONG WITH THE LEDGER EXTRACT OF THESE DIRECTORS WERE FILED. AS R EGARDS THE OTHER ADVANCES GIVEN TO SHRI SYED MATEEN AGA AND OTHERS A MOUNTING TO RS.1,80,00,910/- IS CONCERNED, IT WAS SUBMITTED THA T THE SAID AMOUNT HAS BEEN GIVEN AS SHORT TERM CREDIT AND THAT THE SAID AMOUNT WAS REPAID SUBSEQUENTLY. AS REGARDS RATE OF INTEREST C HARGED BY THE AO @ 18% P.A, IT WAS SUBMITTED THAT THE AMOUNT WAS AVAI LED FROM THE LOAN ITA NO.279/B/11 & 4 CO NO.20/B/11 FACILITY OBTAINED FROM JAMMU & KASHMIR BANK LTD., UNDER HEAD PACKING CREDIT FOR WHICH BANK HAD CHARGED 7.5% P. A INTEREST DURING THE RELEVANT ACCOUNTING YEAR AND, THEREFORE, HE PRA YED THAT THE ASSESSING OFFICER SHOULD BE INSTRUCTED TO CONSIDER THE INTEREST @ 7.5% ONLY ON THE ADVANCES TO THE DIRECTORS AND THEIR FAM ILY MEMBERS. THE CIT(A) ACCEPTED THE ASSESSEES CONTENTION THAT THE PAYMENT MADE TO SHRI SYED MATEEN AGA AND SYED TANZEEM AGA WAS FOR T HE PURCHASE OF MANGOES AND, THEREFORE, THEY ARE NOT LIABLE TO P AY ANY INTEREST THEREON. AS REGARDS RATE OF INTEREST CHARGED BY TH E AO ON THE AMOUNT OF SHORT TERM CREDIT ADVANCED TO THE DIRECTORS AN D THEIR FAMILY MEMBERS OF RS.1,80,00,910/-, HE HELD THAT INTEREST CHARGED BY THE AO @ 18% IS JUSTIFIED. 5. AGGRIEVED BY THE RELIEF GIVEN BY THE CIT(A), TH E REVENUE IS IN APPEAL BEFORE US AND THE ASSESSEE HAS RAISED CROSS OBJECTIONS AGAINST THE CONFIRMATION OF THE RATE OF INTEREST BY THE CIT (A). 6. THE LEARNED DR SUPPORTED THE ORDER OF THE AO AN D SUBMITTED THAT THE ADVANCES WERE SHOWN AS OUTSTANDING AT THE END OF THE RELEVANT PREVIOUS YEAR AND, THEREFORE, THE ACCOUNTS OF THE S UBSEQUENT FINANCIAL YEAR ARE TO BE LOOKED INTO, WHILE THE CIT(A) HAS CO NSIDERED THE ITA NO.279/B/11 & 5 CO NO.20/B/11 ASSESSEES CONTENTION AND THE LEDGER EXTRACTS OF TH E RELEVANT PREVIOUS YEAR FOR COMING TO THE CONCLUSION THAT THEY WERE BU SINESS ADVANCES FOR MANGOES WITHOUT EVEN CALLING FOR A REMAND REPOR T FROM THE AO AND HAS ERRONEOUSLY DELETED THE ADDITIONS. THE LEA RNED DR, THEREFORE, SUBMITTED THAT THE ORDER OF THE CIT(A) HAS TO BE SE T ASIDE AND IT SHOULD BE REMANDED BACK TO THE FILE OF THE AO FOR CONSIDER ATION OF THE LEDGER EXTRACTS OF THESE TWO PERSONS FOR THE FINANCIAL YEA R 2006-07. 7. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTH ER HAND SUPPORTED THE ORDER OF THE CIT(A) AND SUBMITTED THA T THE ASSESSEE HAS FILED ALL THE DETAILS BEFORE THE AO AND THE CIT(A) AND, THEREFORE, THERE WAS NO NEED TO REMAND THE MATTER BACK TO THE FILE O F THE AO. 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS, WE FIND THAT THE OUTSTANDING CREDITS W ERE AT THE END OF RELEVANT FINANCIAL YEAR I.E ON 31.3.2006, WHEREAS T HE ASSESSEE HAS PRODUCED THE LEDGER EXTRACTS OF THE PARTIES FOR THE YEAR ENDED 31.3.2006. THEREFORE, AS RIGHTLY POINTED OUT BY TH E LEARNED DR, THE RELEVANT DOCUMENTS TO BE SEEN FOR VERIFYING THE CO NTENTIONS OF THE ASSESSEE THAT THESE ADVANCES WERE FOR PROCUREMENT OF MANGOES WERE THE ACCOUNTS AS ON 31.3.2007. THE CIT(A) HAS CLEAR LY ERRED IN ITA NO.279/B/11 & 6 CO NO.20/B/11 ACCEPTING THE CONTENTIONS OF THE ASSESSEE WITHOUT A NY VERIFICATION. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO SET ASIDE THE ORDER OF THE CIT(A) AND REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING AUTHORITY FOR RECONSIDERATION OF THE ISSUE IN THE L IGHT OF THE ABOVE OBSERVATIONS. 9. THE ASSESSEE IS DIRECTED TO PRODUCE THE LEDGER E XTRACTS OF THE RELEVANT PARTIES FOR THE FINANCIAL YEAR 2006-07 AND THE ASSESSING OFFICER SHALL REDO THE ASSESSMENT AFTER GIVING THE ASSESSEE A FAIR OPPORTUNITY OF HEARING. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 11. COMING TO THE CROSS-OBJECTION OF THE ASSESSEE, WE FIND THAT THE RATE OF INTEREST CHARGED BY THE JAMMU & KASHMIR BAN K LTD., ON THE LOAN ADVANCED TO THE ASSESSEE COMPANY, WHICH HAS BE EN DIVERTED TO THE DIRECTORS OF THE COMPANY, IS 7.5%, WHILE THE AS SESSING OFFICER HAS MADE THE ADDITION OF INTEREST @ 18%. THE DOCUMENTS FILED BY THE ASSESSEE RELATING TO THE CHARGING OF INTEREST BY TH E BANK ALSO NEED VERIFICATION BY THE AO. IN VIEW OF THE SAME, WE SE T ASIDE THE ORDER OF ITA NO.279/B/11 & 7 CO NO.20/B/11 THE CIT(A) ON THIS ISSUE ALSO AND REMIT THE ISSUE B ACK TO THE FILE OF THE AO TO RECONSIDER THE ISSUE IN THE LIGHT OF THE EVID ENCES PRODUCED BY THE ASSESSEE. HOWEVER, IF THE ASSESSEE IS ABLE TO ESTABLISH THE NEXUS BETWEEN THE AMOUNT WHICH WAS BORROWED FROM JAMMU & KASHMIR BANK LTD., AND THE ADVANCES OF RS.1,80,00,910/- TO THE DIRECTORS OF THE COMPANY THEN, THE AO IS DIRECTED TO CHARGE THE SAM E RATE OF INTEREST AS CHARGED BY THE BANK ON THE BORROWED AMOUNTS. 12. IN THE RESULT, THE CROSS-OBJECTION FILED BY THE ASSESSEE IS ALSO ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27TH APR , 2012. SD/- SD/- (JASON P BOAZ) (MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 27/04/2012 COPY TO : 1.THE ASSESSEE 2.THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, I TAT, BANGALORE.