Shri Amrutlal H.Mody, Bharuch V. The Income tax Officer,Ward-5, Bharuch

ITA 316/AHD/2009

• Counselvise Citation: 31620514 RSA 2009
• Duration Of Justice: 3 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 16-07-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 30-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV SRDR
• Assessee Lawyers: M J SHAH
• Keywords: Gross profit estimation; Fair market value; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI, A.K.GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.316/AHD/2009 ASSESSMENT YEAR :2005-06 SSHRI AMRUTLAL H MODY PROP. A MODY & COMPANY PANCH FANNAS BHARUCH [ PAN NO.ADGPM 2486H ] V/S . INCOME TAX OFFICER, WARD-5, BHARUCH / APPELLANT .. / RESPONDENT) /BY APPELLANT SHRI M.J. SHAH, AR /BY RESPONDENT SHRI B.L. YADAV, SR-DR /DATE OF HEARING 16-07-2012 /DATE OF PRONOUNCEMENT 21-09-2012 O R D E R PER KUL BHARAT, JUDICIAL MEMBER:- THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-VI, BARODA (C IT(A) FOR SHORT) DATED 10-12-2008 FOR THE ASSESSMENT YEAR (AY) 2005-06. TH E ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE HONORABLE COMMISSIONER OF INCOME TAX (APPEA L)- VI, BARODA HAS ERRED ON FACTS AND IN LAW BY CONFIRM ING THE DISALLOWANCE ON ACCOUNT OF ALLEGED NON CHARGING OF INTEREST ON A DVANCES AMOUNTING TO RS.2,99,180/-. 2. THE HONORABLE COMMISSIONER OF INCOME TAX (APPEAL )-VI, BARODA HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DIS ALLOWANCE MADE BY ASSESSING OFFICER ON ACCOUNT OF SALARY OF RS.1,32,0 00/- PAID TO PERSONS COVERED U/S.40A(2)(B) OF THE INCOME TAX ACT, 1961. ITA NO.316/AHD/2009 A.Y. 2005- 06 SH. AMRUTLAL H MODY V. ITO WD-5, BHARUCH PA GE 2 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADI NG IN IRON BARS, PLYWOOD LAMINATE SHEETS ETC., AND CASE OF THE ASSES SEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRA MED AND WHILE FRAMING THE ASSESSMENT THE ASSESSING OFFICER (AO)MADE ADDITION S ON ACCOUNT OF LOW GROSS PROFIT, NO CHARGING OF INTEREST ON ACCOUNT PA YMENT MADE TO PERSONS SPECIFIED U/S. 40A(2)(B) OF THE ACT. THE ASSESSEE F ILED AN APPEAL BEFORE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION MADE ON ACCOUNT OF LOW GP PROFIT AND SUSTA INED THE ADDITION MADE ON ACCOUNT OF INTEREST DISALLOWANCE AND PARTLY REDUCED THE ADDITION MADE ON ACCOUNT OF PAYMENT MADE TO PERSONS SPECIFIED U/S 40 A(2)(B) OF THE ACT.. 3. THE FIRST GROUND IS AGAINST THE CONFIRMATION OF DISALLOWANCE MADE ON ACCOUNT OF ALLEGED NON-CHARGING OF INTEREST ON ADVA NCES AMOUNTING TO RS.2,99,180/-. LD. COUNSEL FOR THE ASSESSEE, MR. M. J. SHAH SUBMITTED THAT ASSESSEE HAD MADE ADVANCES OF RS.10,14,589/- TO MR. SANJAY A MODI AND OF RS.14,78,576/- TO MR. JAYESH A MODY, PROPRIETOR OF MODY SONS AND SAME WERE ENTIRELY MADE OUT OF PROPRIETORS OWN CAPITAL OF RS.42,17,959/- WHICH IS THE INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE. HE SUBMITTED THAT THE CREDIT BALANCE OF PROPRIETOR IS MUCH MORE THAN THE ADVANCE S AND NO NEXUS IS ESTABLISHED BY THE ASSESSING OFFICER THAT THE ADVAN CES WERE MADE OUT OF THE INTEREST BEARING FUNDS. IN SUPPORT OF THIS CONTENTI ON, HE RELIED UPON THE DECISIONS OF HONBLE ITAT DELHI & CHANDIGARH BENCHE S RENDERED IN THE CASE OF COMEL HANDICRAFTS V. ACIT (2008) 114 TTJ 124 (DEL) AND IN THE CASE OF MUNJAL SALES CORPORATION V. ACIT (2004) 90 TTJ 782 (CHD). HE FURTHER SUBMITTED THAT THE ISSUE IS WELL SETTLED BY THE JUD ICIAL PRONOUNCEMENT THAT IN CASE THE ASSESSEE IS ABLE TO DEMONSTRATE THAT THE A DVANCES AS MADE WERE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE A SSESSEE IN THAT SITUATION, THE INTEREST EXPENDITURE CLAIMED ON THE BORROWED CAPITA L CANNOT BE DISALLOWED. ON THE CONTRARY, LD. SR-DR SUPPORTED THE ORDERS PASSED BY AUTHORITIES BELOW. ITA NO.316/AHD/2009 A.Y. 2005- 06 SH. AMRUTLAL H MODY V. ITO WD-5, BHARUCH PA GE 3 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. SINCE THE LD. COUNSEL FOR THE ASSESSEE HAS DEMONSTRATED THAT INTEREST FREE ADVANCES WERE GIVEN OUT OF THE I NTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. IN THIS VIEW OF THE MATTER AND R ESPECTFULLY FOLLOWING THE DECISION RENDERED IN THE CASE OF TORRENT FINANCE V. ACIT (2001) 73 TTJ 624 (AHD) AND JUDGMENT OF HONBLE APEX COURT RENDERED I N THE CASE OF S.A. BUILDERS LTD. V. CIT 288 ITR 1 (SC) THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 5. NEXT GROUND IS WITH REGARD TO DISALLOWANCE MADE ON ACCOUNT OF PAYMENT MADE TO THE PERSONS SPECIFIED U/S. 40A(2)(B ) OF THE ACT. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT NONE OF THE AUTHORI TIES BELOW HAVE GIVEN A FINDING ON THE REASONABLENESS OF THE EXPENDITURE. S INCE THE EXPENDITURE AS CLAIMED BY THE ASSESSEE IS REASONABLE AND NO DISALL OWANCE WAS CALLED FOR. HE SUBMITTED THAT TOTAL TURNOVER OF THE ASSESSEE IS RS.3,78,45,310/- AND TOTAL PURCHASE OF RS.3,68,45,511//- AND SUBMITTED THAT MR S. DOLLY J MODY IS GRADUATE IN COMMERCE AND LOOKING AFTER THE COLLECTI ON AND PAYMENT FROM THE DEBTORS AND CREDITORS WHILE MRS. YACHANA S MODY IS ALSO GRADUATE IN COMMERCE AND LOOKING INTO THE ACCOUNTS AND OTHER WO RKS OF THE ASSESSEE. HE SUBMITTED THAT IN SUPPORT OF HIS CONTENTION THAT TH E EXPENDITURE IS REASONABLE AND GENUINENESS OF THE EXPENDITURE IS NOWHERE DISPU TED. HE RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT RENDERED I N THE CASE OF RECON MACHINER TOOLS (P) LTD. V. CIT (2006) 155 TAXMAN 252 (KAR). HE SUBMITTED THAT HONBLE HIGH COURT HAS HELD THAT WHERE THE PAY MENT FOR ANY EXPENDITURE IS MADE TO A RELATIVE OR AN ASSOCIATE FALLING WITH IN THE AFORESAID CATEGORY THE ASSESSING OFFICER SHOULD DETERMINE THE REASONABLENE SS FOR THE EXPENDITURE WITH REFERENCE TO THE FAIR MARKET VALUE OF GOODS SE RVICES OR FACILITIES FOR WHICH PAYMENT IS MADE. THE AO SHOULD EXAMINE THE LEGITIMA TE NEED OF THE BUSINESS OR BENEFIT DERIVED BY OR FROM ACCRUING TO THE ASSES SEE FROM SUCH EXPENDITURE. THE AO SHOULD EXERCISE HIS JUDGMENT IN REASONABLE A ND FAIR MANNER. HE RELIED UPON THE JUDGMENT OF HONBLE APEX COURT REND ERED IN THE CASE OF CIT V. ITA NO.316/AHD/2009 A.Y. 2005- 06 SH. AMRUTLAL H MODY V. ITO WD-5, BHARUCH PA GE 4 CHANDULAL KESHAVLAL &CO. (1969) 38 ITR 601 (SC) IN SUPPORT WHEREIN IT HAS BEEN HELD THAT IN DECIDING WHETHER MONEY IS DEDUCTI BLE EXPENDITURE ONE HAS TO TAKE INTO CONSIDERATION THE COMMERCIAL EXPEDIENC Y AND THE PRINCIPLE OF COMMERCIAL TRADING. FURTHER, IN APPLYING THE TEST O F COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER EXPENDITURE IS WHOLLY AND EXCLU SIVELY LAID OUT FOR THE PURPOSES OF BUSINESS, THE REASONABLENESS OF EXPENDI TURE IS TO ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT FROM T HE REVENUE. ON THE CONTRARY, LD. DR SUPPORTED THE ORDERS PASSED BY AUT HORITIES BELOW AND SUBMITTED THAT DISALLOWANCE IS MADE AFTER CONSIDERI NG THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE HAS NOT DEM ONSTRATED HOW AND WHAT KIND OF THE SERVICES WERE RENDERED BY THOSE PE RSONS AND ALSO AS TO HOW BUSINESS PURPOSE WAS SERVED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND GIVEN OUR THOUGHTFUL CONSIDERATION OF THE CONTENTION OF THE RESPECTIVE PARTIES. FROM THE ORDERS OF THE AUTHORIT IES BELOW NEITHER THE ASSESSING OFFICER NOR LD. CIT(A) HAS GIVEN A FINDIN G THAT THE EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS SERVICES AND FACILITIES FOR WHICH THE PAYMENT IS MA DE. IN THIS VIEW OF THE MATTER, THIS GROUND OF ASSESSEES APPEAL IS RESTORE D BACK TO THE FILE OF AO TO DECIDE AFRESH. THE AO SHALL GIVE SUFFICIENT OPPORTU NITY TO THE ASSESSEE AND PASS A SPEAKING ORDER. THIS GROUND OF ASSESSEES AP PEAL IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- (A.K.GARODIA) (KUL BHARAT) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, ITA NO.316/AHD/2009 A.Y. 2005- 06 SH. AMRUTLAL H MODY V. ITO WD-5, BHARUCH PA GE 5 *DKP !- 21/09/2012 '() * +, +, +, +, --. --. --. --. /. /. /. /. / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. ) -2 + + 3 / CONCERNED CIT 4. + + 3- / CIT (A) 5. .67 ---2, + -2 , '() / DR, ITAT, AHMEDABAD 6. 7:; <= / GUARD FILE. BY ORDER/ +, , /TRUE COPY/ >/' ? + -2 , '() * STRENGTHEN PREPARATION & DELIVERY O F ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 18/09 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE NO 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 18/09 4) DATE OF CORRECTION 19/09 5) DATE OF FURTHER CORRECTION 6) DATE OF INITIAL SIGN BY MEMBERS 19/09 7) ORDER UPLOADED ON 21/09 8) ORIGINAL DICTATION PAD-PART HAS BEEN ENCLOSED IN THE FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 21/09