Income tax Officer, Abohar V. M/s. Jai Bharat Rice Mills,

ITA 298/ASR/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51206 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 11-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRIK CHAND
• Keywords: Commercial expediency; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: AMRITSAR BENC H: AMRITSAR BEFORE SHRI H L KARWA, VP AND SHRI D K SRIVASTAVA, AM ITA NO. 298/ASR/2009 AY 2005-06 I.T.O. WARD II(4), ABOHAR V. M/S JAI BHARAT RICE MILLS JALALABAD, DISTT. FEROZEPUR PAN: AADFJ 9241 M APPELLANT BY: SHRI AMRIK CHAND RESPONDENT BY: SHRI SUDHIR SEHGAL DATE OF HEARING: 08.12.2011 DATE OF PRONOUNCEMENT: 16.12.2011 ORDER D K SRIVASTAVA : THE APPEAL FILED BY THE DEPARTMENT IS DIRECTED AG AINST THE ORDER PASSED BY THE LD. CIT(A) ON 27.3.2009, ON THE FOLLOWING GROUNDS:- 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 3,24,770/ - BY OBSERVING THAT THE AO HAS FAILED TO PROVE THAT THE AMOUNT WITHDRAWN BY THE APPELLANT FROM THE BANK WAS ADVANCED FREE OF INTEREST AND FURTHER OBSERVING THAT THE AO HAS FAILED TO PROVE THAT THE AMOUNT WITHDRAWN BY THE APPELLANT FROM THE BANK FOR SOME OTHER PURPOSE GETTING BENEFIT OF MORE THAN THE INTEREST PAID THE BANKS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 6,18,969/ - BY OBSERVING THAT THE AO HAS FAILED TO PROVE THAT THE APPELLANT COULD MIL L THE PADDY INTO RICE BY CONSUMING THE CHHILKA GENERATED FROM ITS OWN PAD DY AND DID NOT REQUIRE THE OUTSIDE PURCHASES AND FURTHER OBSERVING THAT THE AO HAS FAILED TO PROVE THAT THE PURCHASES OF BOILER FUEL B Y THE APPELLANT WERE INFLATED. ITO V. JAI BHARAT RICE MILLS ITA NO. 298/ASR/2009 2 3. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) B E SET ASIDE AND THAT OF THE AO BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DISPOSED OFF. 2. THE ASSESSEE IS A RICE SHELLER WITH PARBOILING P LANT. RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 21.9.2005 RETURNING TO TAL INCOME AT RS.1,04,630/. AFTER PROCESSING, THE RETURN WAS SELECTED FOR SCRUT INY AS A RESULT OF WHICH ASSESSMENT U/S 143(3) OF THE INCOME-TAX ACT, 1961 W AS COMPLETED ON 6.12.2007 ASSESSING THE TOTAL INCOME OF THE ASSESSE E AT RS.10,72,770/-. TWO MAJOR ADDITIONS MADE BY THE AO ARE ON ACCOUNT OF D ISALLOWANCE OF RS.3,24,770/- OUT OF INTEREST PAID TO THE BANK AND FURTHER ADDITION OF RS.6,18,969/- ON ACCOUNT OF EXCESSIVE CONSUMPTION OF BOILER FUEL. ON APPEAL, BOTH THE ADDITIONS/DISALLOWANCE MADE BY THE AO WERE DELETED BY THE LD. CIT(A). 3. AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT(A), THE DEPARTMENT IS NOW IN APPEAL BEFORE THIS TRIBUNAL. 4. APROPOS GROUND NO. 1, IT WAS FOUND BY THE AO THA T THE ASSESSEE HAD WITHDRAWN EXCESSIVE CASH FROM THE BANK WHICH HAD B EEN LYING WITH THE ASSESSEE ALMOST THROUGH OUT THE YEAR. THE AO FURTHE R FOUND THAT THE ASSESSEE HAD PAID INTEREST TO THE BANK ON BORROWED CAPITAL. THE AO FELT THAT THE BORROWINGS FROM THE BANK NECESSITATING THE PAYMENT OF INTEREST WERE NOT OUT OF COMMERCIAL EXPEDIENCY IN THE FACE OF THE FACT TH AT THE ASSESSEE WAS RETAINING HUGE CASH AMOUNTING TO RS.43,98,283/- WIT HOUT ANY BUSINESS PURPOSES. HE THEREFORE DISALLOWED INTEREST AMOUNTIN G TO RS.3,24,770/- OUT OF INTEREST PAID TO THE BANK ON CASH CREDIT LIMIT AFTE R APPLYING THE RATE OF 14% ON THE AVERAGE CASH BALANCE OF RS. 23,29,790/- LYING U NUTILIZED THROUGHOUT THE YEAR UNDER APPEAL. ON APPEAL, THE LD. CIT(A) HAS D ELETED THE IMPUGNED ADDITION WITH THE FOLLOWING OBSERVATIONS:- THIS GROUND OF APPEAL RELATES TO DISALLOWANCE OF I NTEREST OF RS. 3,24,770/-. ITO V. JAI BHARAT RICE MILLS ITA NO. 298/ASR/2009 3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND WRITTE N SUBMISSIONS OF THE APPELLANT AND I FIND THAT:- I) THE AO HAS FAILED TO PROVE THAT THE AMOUNT WITHD RAWN BY THE APPELLANT FROM THE BANK FOR SOME OTHER PURPOSE GETT ING BENEFIT OF MORE THAN THE INTEREST PAID TO THE BANKS. I FIND FORCE I N THE ARGUMENTS OF THE A.R OF THE APPELLANT THAT THE AO HAS MADE THE DISAL LOWANCE OF RS. 3,24,770/- OUT OF INTEREST PAID TO THE BANK ON THE BASIS OF PRESUMPTION AND WITHOUT BRINING ANY MATERIAL ON RECORD TO SUPPO RT THE FINDINGS IN THE ASSESSMENT ORDER. II) THE ISSUE OF DISALLOWANCE OF INTEREST WAS DECID ED BY ME AND THE DISALLOWANCE WAS DELETED BY ME ON IDENTICAL FACTS I N THE CASE OF RAMESH BAJAJ PROP. M/S BAJAJ INDUSTRIES, JALALABAD IN APPE AL NO. 123/IT/CIT(A)/BTI/07-08 VIDE ORDER DATED 7.4.2008 A ND THE APPEAL AGAINST THIS ORDER WAS DISMISSED BY THE HONBLE ITA T. IN VIEW OF THE ABOVE SAID FACTS AND LAW I DIRECT T HE AO TO DELETE THE DISALLOWANCE OF INTEREST OF RS. 3,24,770/- MADE OUT OF INTEREST PAID TO THE BANKS. 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CON SIDERED THEIR SUBMISSIONS. THE ASSESSEE HAS PAID INTEREST ON THE BORROWINGS MADE FROM THE BANK AGAINST CASH CREDIT LIMIT GRANTED TO THE ASSES SEE. THE BORROWINGS SO MADE FROM THE BANK WERE WITHDRAWN FROM THE BANK AND KEPT IN CASH WITHOUT ANY UTILIZATION. THE AO HAS WORKED OUT UN-UTILISED CASH AT RS.23,1,790/- THROUGH OUT THE YEAR. IT IS BEYOND COMPREHENSION AS TO WHAT WAS THE COMMERCIAL EXPEDIENCY IN BORROWING THE FUNDS FROM B ANKS WITHOUT UTILIZING THE SAME. NOBODY WOULD BORROW HUGE SUMS OF MONEY FROM THE BANK JUST TO KEEP THE SAME IN CASH WITHOUT ANY UTILIZATION. EVEN BEFO RE US, THE ASSESSEE HAS FAILED TO OFFER ANY SATISFACTORY EXPLANATION IN THI S BEHALF. IN THIS VIEW OF THE MATTER, THE ACTION OF THE AO IN MAKING THE IMPUGNED DISALLOWANCE IS IN ORDER. THE THEORY OF NEXUS APPLIED BY THE LD. CIT(A) FOR DELETING THE IMPUGNED DISALLOWANCE HAS BEEN SPECIFICALLY REJECTED BY THE HON'BLE JURISDICTIONAL HIGH ITO V. JAI BHARAT RICE MILLS ITA NO. 298/ASR/2009 4 COURT IN CIT V. ABHISHEK INDUSTRIES, 286 ITR 1 (P&H ). IN THIS VIEW OF THE MATTER, THE ORDER PASSED BY THE LD. CIT(A) IN THI S BEHALF IS REVERSED AND THAT OF THE AO RESTORED. GROUND NO. 1 TAKEN BY THE DEPAR TMENT IS ALLOWED. 6. APROPOS GROUND NO. 2, THE AO NOTICED THAT THE AS SESSEE HAS CLAIMED CONSUMPTION OF BOILER FUEL (CHHILKA) AT 24.41%. HE ALSO NOTICED THAT THE VOUCHERS PRODUCED IN SUPPORT OF PURCHASE OF CHHILKA WERE NOT AMENABLE TO VERIFICATION. HE THEREFORE DISALLOWED RS.6,18,969/- OUT OF CONSUMPTION OF BOILER FUEL FOR THE REASONS GIVEN BY IN THE ASSESSMENT ORD ER. ON APPEAL, THE LD. CIT(A) HAS DELETED THE IMPUGNED DISALLOWANCE WITH THE FOLLOWING OBSERVATIONS:- I FIND FORCE IN THE CONTENTION OF THE APPELLANT TH AT IN THE CASES OF RICE SHELLERS OF JALALABAD (W) WHO HAS ALSO MILLED THE P ADDY BY USING PACKAGE BOILER THE CHHILKA/BOILER FUEL RANGING FROM 19.06% TO 22.47% HAS BEEN CONSUMED AND FURTHER THAT ALL THE ABOVE SA ID UNIT IS PURCHASED BOILER FUEL FROM OUTSIDE SOURCES IN ADDITION TO CHH ILKA GENERATED FROM ITS OWN MANUFACTURING PROCESS. BUT THE AO HAS GIVEN HI S FINDINGS IN PARA 4.1 OF THE ASSESSMENT ORDER THAT AS PER LOCAL ENQUI RY THE CONSUMPTION OF BOILER FUEL IN PACKAGE BOILER IS 70 QTLS. AGAINST 7 00 QTLS. OF PADDY. THE AO HAS FURTHER GIVEN THE FINDINGS THAT IN THE CASE OF LANKA BASED BOILER 140 QTLS. BOILER FUEL IS SUFFICIENT FOR 700 QTLS. O F PADDY. THUS ACCORDING TO THE AO THE CONSUMPTION OF BOILER FUEL/CHHILKA IN PA CKAGE BOILER IS 10% OF THE PADDY MILLED AND THE SAME IS 20% IN THE CASE OF LANKA BASED BOILER. BUT IN THE CASE OF ASSESSEES HAVING PACKAGE BOILER WHOSE ASSESSMENTS HAS BEEN FRAMED U/S 143(3)BY THE SAME A O OR BY THE ACIT/JCIT THE CONSUMPTION OF BOILER FUEL HAS BEEN A CCEPTED AT 20% OR MORE AND FURTHER NO ADDITION HAS BEEN MADE ON ACCOU NT OF PURCHASES OF CHHILKA FROM OUTSIDE SOURCES. THE AO HAS ALSO DOUBTED THE PURCHASE OF BOILER FUEL BECAUSE VERIFICATION OF THE PURCHASE VOUCHERS OF THE BOILER FUEL IS NOT POSSIBLE AND FURTHER THE APPELLANT DID NOT PRODUCE THE PERSONS FROM WHOM THE BOILER FUEL WAS PURCHASED. BUT THE AO HAS FAILED TO PROVE THAT THE APPELLANT COULD ITO V. JAI BHARAT RICE MILLS ITA NO. 298/ASR/2009 5 MILL THE PADDY INTO RICE BY CONSUMING THE CHHILKA G ENERATED FROM ITS OWN PADDY AND DID NOT REQUIRE THE OUTSIDE PURCHASES . THE FINDING OF THE AO THAT THE APPELLANT REQUIRED 140 QTLS. OF BOILER FUEL FOR MILLING 700 QTLS. OF PADDY IS ALSO AGAINST FACTS BECAUSE WHILE ASSESSING THE CASES OF RICE SHELLER HAVING PACKAGE BOILER THE PERCENTAGE O F CONSUMPTION OF CHHILKA HAS BEEN ACCEPTED UPTO 22.47% BY THE OTHER OFFICERS AND 22.13% BY THE SAME AO AND THUS THE APPELLANT REQUIR ED DOUBLE THE PERCENTAGE OF CHHILKA BECAUSE OF LANKA BASED BOILER BUT THE APPELLANT HAS CONSUMED 24.41% CHHILKA. THUS THE CONSUMPTION OF BOILER FUEL BY THE APPELLANT IS REASONABLE. I FIND THAT THE AO HAS FAILED TO PROVE THAT THE PUR CHASE OF BOILER FUEL BY THE APPELLANT WERE INFLATED AND I FURTHER FIND THAT THE BOILER FUEL FROM WHAT EVER SOURCE IT WAS PURCHASED HAS BEEN USED FOR MILLING OF PADDY. MOREOVER THE ISSUE OF INFLATED PURCHASES OF BOILER FUEL WAS DECIDED BY ME AND THE ADDITION WAS DELETED BY ME ON IDENTICAL FACTS IN THE CASE OF RAMESH BAJAJ PROP. M/S BAJAJ INDUSTRIES, JALALABLAD IN APPEAL NO. 123- IT-CIT(A)/BTI/07-08 VIDE ORDER DATED 7.4.2008 AND T HE APPEAL AGAINST THIS ORDER WAS DISMISSED BY THE HONBLE ITAT. 7. THE FACTS AVAILABLE ON RECORD SHOW THAT THE ASSE SSEE HAS CLAIMED CONSUMPTION OF BOILER FUEL AT 24.41%. PERUSAL OF TH E ASSESSMENT ORDER SHOWS THAT THE PURCHASE OF BOILER FUEL WAS NOT AMENABLE T O VERIFICATION FOR THE REASONS GIVEN IN THE ASSESSMENT ORDER. ACCORDING TO THE FINDINGS RECORDED BY THE LD. CIT(A), THE AO HIMSELF HAS ALLOWED THE CONS UMPTION OF FUEL UP-TO 22.47%. TAKING INTO ACCOUNT THE TOTALITY OF THE FAC TS AND CIRCUMSTANCES OF THE CASE, IT IS CONSIDERED APPROPRIATE TO RESTRICT THE DISALLOWANCE TO RS. 50,000/- OUT OF TOTAL DISALLOWANCE OF RS.6,18,969/- MADE BY THE AO AND CONFIRMED BY THE CIT(A). WE ORDER ACCORDINGLY. THE ORDER PASSED BY THE LD. CIT(A) IN THIS BEHALF STANDS MODIFIED ACCORDINGLY. GROUND NO. 2 TA KEN BY THE DEPARTMENT IS PARTLY ALLOWED. 8. GROUNDS NO. 3 AND 4 TAKEN BY THE DEPARTMENT ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. ITO V. JAI BHARAT RICE MILLS ITA NO. 298/ASR/2009 6 9. APPEAL FILED BY THE DEPARTMENT IS PARTLY ALLOWED . ORDER PRONOUNCED ON 16.12.2011 SD/- SD/- (H L KARWA) (D K SRIVASTAVA) VICE PRESIDENT ACCOUNTANT MEMBER AMRITSAR, 16.12.2011 SURESH COPY TO:- 1. THE APPELLANT, I.T.O. 2. THE RESPONDENT, M/S JAI BHARAT RICE MILLS 3. THE CIT(A), BATHINDA 4. THE LD. CIT, BATHINDA 5. THE D.R., INCOME TAX DEPARTMENT, AMRITSAR