Cochin Surfactants P.Ltd, Aluva V. The ACIT, Cochin

ITA 301/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81359 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 16-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 26-06-2014
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: POLY VARGHESE
• Keywords: Reasonable cause; Notional interest; Commercial expediency; Condonation of delay
• Section: 143(3)

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NO. 301/COCH/2014 ASSESSMENT YEAR : 2007-08 COCHIN SURFACTANTS P. LTD., PLOT NO. 63, INDUSTRIAL DEVLOPMENT AREA, BINANIPURAM P.O., EDAYAR, ALUVA, KOCHI-683 502. [PAN: AACCC 1191R] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), KOCHI. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI POLY VARGHESE, CA REVENUE BY SHRI K.K.JOHN, SR. DR DATE OF HEARING 16/10/2014 DATE OF PRONOUNCEMENT 14/11/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 29-01-2010 PASSED BY THE CIT(A)-II, KOCHI FOR THE ASSESSMENT YEAR 2007- 08 . 2. THERE WAS A DELAY OF 48 DAYS IN FILING THE ABOVE APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL. THE ASSESSEE HAS FIL ED A PETITION SEEKING CONDONATION OF DELAY AND ALSO HAS FILED AN AFFIDAVI T EXPLAINING THE REASONS FOR DELAY IN FILING THE APPEAL BEFORE THE TRIBUNAL WITHIN THE DUE DATE. THE I.T.A. NO.301/COCH/2014 2 ASSESSEE SUBMITTED THAT THE ORDER OF THE CIT(A) AGA INST THE APPEAL FILED BY HER WAS RECEIVED ON 10/03/2014. HOWEVER THESE PAPE RS COULD NOT BE SIGNED AND SUBMITTED WITHIN THE TIME AS SHE WAS OUT OF STATION FOR BUSINESS PURPOSES FOR THE PERIOD FROM 05/05/2014 TO 24/06/20 14. THEREFORE, THE ASSESSEE SUBMITTED THAT THE DELAY OCCURRED DUE TO R EASONS BEYOND HER CONTROL AND THERE WAS NO WILLFUL LATCHES OR OMISSIO NS OR NEGLECT ON THE PART OF THE ASSESSEE IN FILING THE APPEAL WITHIN THE DUE DATE. THE ASSESSEE PLEADED THAT THE DELAY MAY BE CONDONED AND THE APPE AL ADMITTED. 3. THE LD. DR HAS NOT RAISED ANY SERIOUS OBJECTION FOR CONDONATION OF DELAY IN FILING THE APPEAL BY THE ASSESSEE. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. WE FIND THAT THERE EXISTS REASONABLE CAUSE FOR NOT FILING T HE APPEAL IN TIME AND THE REASONS ADVANCED BY THE ASSESSEE FOR THE DELAY ARE BONA FIDE. BEING SO, WE CONDONE THE DELAY IN FILING THE APPEAL BY THE ASSES SEE AND ADMIT THE APPEAL FOR ADJUDICATION. 5. THE FIRST ISSUE RELATES TO THE ADDITION OF RS. 6 ,07,096/- ON THE FINDING THAT THE AMOUNT HAS NOT BEEN REDUCED FROM THE ADVAN CES. I.T.A. NO.301/COCH/2014 3 6. THE BRIEF FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF STEAM ACTIVATED COCONUT SHELL ACTIVA TED CARBON. THE RETURN OF INCOME WAS FILED FOR THE ASSESSMENT YEAR 2007-08 ON 31-10-2007 DECLARING A TOTAL INCOME OF RS.77,41,598/-. THE AS SESSING OFFICER COMPLETED THE ASSESSMENT VIDE ORDER U/S. 143(3) OF THE I.T. A CT DATED 21/12/2009 AT A TOTAL INCOME OF RS.1,15,54,015/-. THE ASSESSING OF FICER DISALLOWED THE ADVANCE RECEIVABLE WRITTEN OFF BY OBSERVING AS FOLL OWS: ON FURTHER VERIFICATION IT IS SEEN THAT THE ASSESS EE HAS DEBITED ADVANCE RECEIVABLE WRITTEN OFF OF RS.6,07,096/-. I T IS EXPLAINED BY THE AUTHORIZED REPRESENTATIVE THAT IT IS THE ADVANCE GI VEN TO THE WORKERS WHO ARE MAKING THE PITS. HOWEVER, DUE TO INSUFFICI ENT EVIDENCES AND INADEQUATE EXPLANATIONS THE EXPENDITURE CLAIMED BY THE ASSESSEE IS DISALLOWED AND ADDED BACK TO THE INCOME DECLARED. D ISALLOWANCE RS.6,07,096/-. 7. ON APPEAL, THE CIT(A) OBSERVED THAT THESE PAYMEN TS RELATED TO ADVANCE TO VARIOUS PARTIES TO SUPPLY AND MAKE PITS FOR THE MANUFACTURING OF ACTIVATED CARBON WHO DID NOT TURN UP TO DO THE WORK AND THEREFORE, THE ASSESSEE HAS WRITTEN OFF THESE DEBTORS. ACCORDING T O THE CIT(A) , IN VIEW OF THE SPECIFIC PROVISION OF SEC. 36(1)(VII) OF THE AC T, IF DEBT IS ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNTS, THE SAME IS ALLOWABLE ONLY IF THE CORRESPONDING AMOUNT IS ALSO REDUCED FROM THE ADVANCES. SINCE TH E ASSESSEE HAS NOT REDUCED THE AMOUNT FROM THE ADVANCES, THE CIT(A) JU STIFIED THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS. 6.07,096/-. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. I.T.A. NO.301/COCH/2014 4 8. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD ADVAN CED CERTAIN AMOUNTS TO VARIOUS PARTIES TO SUPPLY AND MAKE PITS FOR THE MANUFACTURING PROCESS OF ACTIVATED CARBON. ACCORDING TO THE LD. AR, THE PARTIES DID NOT TURN UP IN SPITE OF THE BEST EFFORTS EITHER TO CARR Y OUT THE WORK OR SUPPLY THE RAW MATERIALS AND THE DEBTORS ARE ALSO NOT TRACEABL E AND THEREFORE, THE DEBTS HAVE BECOME REALLY BAD. HENCE, THE LD. AR SUB MITTED THAT THE ASSESSEE HAD NO OTHER OPTION BUT TO WRITE OFF THE D EBT AND ACCORDINGLY, THE DEBTS WERE ACTUALLY WRITTEN OFF THE BOOKS OF THE AS SESSEE AND HENCE, THE CLAIM OF DEDUCTION U/S. 36(1)(VII) SHOULD BE ALLOWE D. 9. ON THE OTHER HAND, THE LD DR SUBMITTED THAT THE ASSESSEE HAS NOT WRITTEN OFF THE DEBTS IN THE BOOKS OF ACCOUNTS AND THEREFORE, DEDUCTION U/S. 36(1)(VII) SHALL NOT BE ALLOWED. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ARGUMENT OF THE LD. AR IS CONTRARY TO THE FACTS BROUGHT ON RECORD. WE ARE NOT SURE WHETHER THE DEBTS WERE ACTUALLY WRI TTEN OFF IN THE BOOKS OF ACCOUNTS OR NOT. IF THE ASSESSEE HAS ACTUALLY WRIT TEN OFF THE DEBTS IN THE BOOKS, THE SAME IS TO BE ALLOWED. ACCORDINGLY, WE REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE AC COUNTS AND DECIDE IN I.T.A. NO.301/COCH/2014 5 ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTU NITY OF HEARING TO THE ASSESSEE. 11. THE NEXT GROUND IS WITH REGARD TO THE DISALLOWA NCE OF INTEREST ON LOAN OF RS. 2,82,650/- GIVEN TO SISTER CONCERNS. 12. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSES SING OFFICER DISALLOWED THE LOAN GIVEN TO THE SISTER CONCERNS FOR THE REASO N THAT DURING THE YEAR THE ASSESSEE-COMPANY HAD DIVERTED INTEREST BEARING FUND S OF RS.34 LAKHS TO ITS SISTER CONCERN. SINCE THE INTEREST BEARING FUNDS W ERE DIVERTED FOR INTEREST FREE NON-BUSINESS PURPOSE, A PROPORTIONATE PORTION OF INTEREST AMOUNT TO RS.2,82,650/- WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 13. ON APPEAL, THE CIT(A) OBSERVED THAT SINCE THE A SSESSEE HAS ADVANCED AN AMOUNT OF RS.34,00,000/- TO ITS SISTER CONCERNS, THEREFORE, THE INTEREST BEARING FUNDS HAVE BEEN DIVERTED FOR INTER EST FREE NON-BUSINESS PURPOSES. THE CIT(A) RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF PHALTAN SUGAR WORKS LTD. VS. CWT (208 I TR 989) AND ON THE DECISIONS OF THE KERALA HIGH COURT IN THE CASE OF CIT VS. V.I. BABY & CO. (254 ITR 248) AND IN POPULAR VEHICLES AND SERVICES LTD. VS. CIT (325 ITR 523). FOLLOWING THE ABOVE KERALA HIGH COURTS DECI SION, THE CIT(A) I.T.A. NO.301/COCH/2014 6 CONFIRMED THE ADDITION OF RS.2,82,650/- MADE BY THE ASSESSING OFFICER. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 14. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD A DVANCED AN AMOUNT OF RS.34 LAKHS TO MFAR CARBON P. LTD. ACCORDING TO THE LD. AR, THE COMPANY IS CLOSELY ASSOCIATED WITH THE ACTIVITIES OF THE ASSES SEE AND THE LOAN WAS GIVEN FOR THE BUSINESS PURPOSES OF THE SISTER CONCERN AND ALSO FOR THE COMMERCIAL EXPEDIENCY. THE LD. AR SUBMITTED THAT IN THE ABSENC E OF ANY FINDINGS THAT THE LOAN WAS GIVEN FOR NON-BUSINESS PURPOSES, OR FO R THE PERSONAL BENEFITS OF THE DIRECTOR(S), OR ANY OTHER PERSONAL USE, IT H AS TO BE HELD THAT THE LOAN WAS GIVEN FOR THE PURPOSE OF BUSINESS. FOR THIS, HE RELIED ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. DALMIA CEMENT (P) LTD. (254 ITR 377) WHEREIN IT WAS HELD THAT IF THERE IS INTER CONNECTION BETWEEN THE ASSESSEES BUSINESS AND THAT OF THE PERSON TO WHOM SUCH ADVANCE IS MADE, THEN SUCH ADVANCE IS TO BE REGARDED AS BEING FOR TH E BUSINESS PURPOSES AND THE INTEREST ON BORROWINGS IS DEDUCTIBLE U/S. 36(1) (III) OF THE ACT. 15. THE LD. DR STRONGLY RELIED ON THE ORDER OF THE CIT(A). 16 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. THE LD. AR SUBMITTED BEFORE US THAT THE ASSESSEE HAS ADVANCED INTEREST FREE FUNDS GENERATED FROM THE BUSINESS TO THE SISTER CONCERNS ON ACCOUNT OF BUSINESS I.T.A. NO.301/COCH/2014 7 EXPEDIENCY AND THERE IS NO PAYMENT OF ANY INTEREST ON BORROWED FUNDS ON THIS COUNT. BEING SO, ANY NOTIONAL INTEREST CAN NOT BE DISALLOWED. IN OUR OPINION, THE FACTS BROUGHT ON RECORD DOES NOT SUGGE ST THE UTILIZATION OF INTEREST FREE FUNDS ADVANCED TO THE SISTER CONCER NS. IN VIEW OF THE ABOVE, WE DIRECT THE ASSESSEE TO PLACE NECESSARY EVIDENCE WHICH SUGGESTS THAT INTEREST FREE FUNDS HAVE BEEN ADVANCED TO THE SISTE R CONCERNS ON ACCOUNT OF BUSINESS EXPEDIENCY. ACCORDINGLY, WE REMIT THIS IS SUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE ABOVE DIRECTION AND DECI DE THE ISSUE IN ACCORDANCE WITH LAW, AFTER GIVING REASONABLE OPPORT UNITY TO THE ASSESSEE OF HEARING. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 14-11-2014. SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 14 TH NOVEMBER,2014 GJ COPY TO: 1. COCHIN SURFACTANTS (P) LTD., PLOT NO. 63, INDUST RIAL DEVELOPMENT AREA, BINANIPURAM P.O., EDAYAR, ALUVA, KOCHI-683 502. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(2), KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I, I.T.A. NO.301/COCH/2014 8 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN