M/s Chittosho Motors, Patiala V. ACIT, Patiala

ITA 324/CHANDI/2015

• Counselvise Citation: 32421514 RSA 2015
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 06-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Proportionate interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES DB CHANDIGARH BEFORE SHRI H.L. KARWA, HONBLE VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.324/CHD/2015 ASSESSMENT YEAR:2009-10 M/S CHITTOSHO MOTORS, VS. ACIT SIRHIND ROAD CIRCLE PATIALA PATIALA PAN NO. AACFC8334M (APPELLANT) (RESPONDENT) APPELLANT BY : SH. TEJ MOHAN SINGH RESPONDENT BY : SH. S.K. MITTAL DATE OF HEARING : 10/09/2015 DATE OF PRONOUNCEMENT : 10/09/2015 ORDER PER RANO JAIN, A.M. THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER PASSED BY THE CIT(A), PATIALA, DT. 27/02/2015 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AS WELL AS ON FACTS IN UPHOLDING T HE ADDITION OF RS. 16,309/- MADE ON ACCOUNT OF ALLEGED DIFFEREN CE IN VALUATION OF CLOSING STOCK OF SPARE PARTS AND LUBRI CANTS WHICH IS ARBITRARY AND UNJUSTIFIED. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS FURTHER ERRED IN LAW AS WELL AS ON FACTS IN UPH OLDING THE DISALLOWANCE OF RS. 6,39,320/- ON ACCOUNT OF PROPOR TIONATE INTEREST ON INTEREST FREE ADVANCES TO WHICH IS ARBI TRARY AND UNJUSTIFIED. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN NOT APPRECIATING THE BUSINESS EXIGENCI ES AND COMMERCIAL EXPEDIENCY IN RESPECT OF THE AFORE MENTI ONED ADVANCES IN THE CORRECT PERSPECTIVE AND AS SUCH THE ORDER PASSED IS ARBITRARY AND UNJUSTIFIED. 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) HAS FURTHER ERRED IN UPHOLDING AN AD-HOC ADDITION O F RS. 2 1,00,000/- OUT OF GENERAL EXPENSES CLAIMED AT RS. 6 ,35,739/- WHICH IS ARBITRARY AND UNJUSTIFIED. 5. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS FURTHER ERRED IN LAW AS WELL AS ON FACTS IN UPH OLDING THE AD-HOC ADDITION OF RS. 50,000/- OUT OF PRINTING AND STATIONARY ACCOUNT WHICH IS ARBITRARY & UNJUSTIFIED. 6. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS FURTHER ERRED IN UPHOLDING THE CHARGING OF INTE REST UNDER SECTION 234-A & 234-B OF THE ACT WHICH IS NOT CHARG EABLE IN THE FACTS OF THE CASE. 7. THAT THE ORDER OF THE LD. COMMISSIONER OF INCOM E TAX (APPEALS) IS ERRONEOUS, ARBITRARY, OPPOSED TO LAW A ND FACTS OF THE CASE AND IS, THUS, UNTENABLE. 3. LD. COUNSEL OF THE ASSESSEE PREFERRED NOT TO PRE SS THE GROUND NO. 1 BEFORE US, THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. 4. GROUND NO. 2 AND 3 RELATES TO THE DISALLOWANCE O F RS. 6,39,320/- ON ACCOUNT OF PROPORTIONATE INTEREST ON INTEREST FREE ADVANCES. 5. THE AO OBSERVED THAT THE ASSESSEE HAS ADVANCED A N AMOUNT OF RS. 1,16,24,007/- DURING THE YEAR UNDER CONSIDERATION T O ITS SISTER CONCERN M/S CHITTOSHO FINANCE AND ITS PARTNERS / EMPLOYEES ON V ARIOUS DATES, BUT NO INTEREST WAS CHARGED BY THE ASSESSEE ON THESE ADVANCES. THE AO ALSO OBSERVED THAT THE ASSESSEE HAD PAID HUGE AMOUNT OF INTEREST ON BO RROWED FUNDS. THE AO FURTHER HELD THAT THERE IS NO COMMERCIAL EXPEDIENCY IN THE TRANSACTIONS AND THEREAFTER RELYING ON THE CASE OF M/S ABHISHEK INDU STRIES PVT. LTD. 286 ITR 1 (P&H) ADDED RS. 6,39,320/- BY DISALLOWING PROPORTIONATE I NTEREST UNDER SECTION 36(1)(III)@11%. 6. THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A ), WHO CONFIRMED THE SAID DISALLOWANCE RELYING ON THE ORDER OF THE TRIBU NAL IN ASSESSEES OWN CASE IN AN EARLIER YEAR ON SIMILAR FACTS. 7. DURING THE COURSE OF HEARING OUR ATTENTION WAS I NVITED TO THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO. 1129/CHD/2012 DT. 17/09/2014. IN THE BACKGROUND OF THE SIMILAR FACTS THE TRIBUNAL VIDE ITS ORDER AT PAGE 7 PARA 12 HELD AS UNDER: 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND DO NOT AGREE WITH THE SUBMISSION OF LD. COUNSEL FOR THE 3 ASSESSEE BECAUSE NO BUSINESS PURPOSE OR EXPEDIENCY HAS BEEN BROUGHT BEFORE US. ADMITTEDLY, THE ASSESSEE W AS HAVING INTEREST BEARING FUNDS GIVEN TO THE SISTER C ONCERN AND PARTNERS WITHOUT CHARGING INTEREST, THEREFORE, PROP ORTIONAL DISALLOWANCE HAS TO BE MADE IN THE LIGHT OF THE RA TIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES (SUPRA). IN THAT CASE IT WAS HELD AS UNDER:- (I) THAT THE SHARE CAPITAL IS MEANT TO BE USED FO R PRODUCTIVE USE IN THE BUSINESS. IF THE SHARE CAPITA L, ACCORDING TO THE ASSESSEE, WAS SURPLUS AND IT COULD PART WITH THE SAME TO ITS SISTER CONCERN FOR NON-BUSINESS PURPOSE WITH OUT ANY INTEREST, THERE WAS NO NEED TO RAISE THE LOANS TO T HAT EXTENT AND THE AMOUNT OF SUCH SHARE CAPITAL SHOULD HAVE BE EN UTILISED FOR THE PROJECT ITSELF. IN CASE THE ASSESS EE HAD NOT ADVANCED LOANS TO ITS SISTER CONCERN ON INTEREST-FR EE BASIS, EVEN IF THE ALLEGED SURPLUS AMOUNT COULD NOT BE REP AID TO THE FINANCIAL INSTITUTION BEFORE THE SCHEDULED DATE AS FAR AS THE TERM LOAN WAS CONCERNED, THE INTEREST BEING PAID BY THE ASSESSEE ON THE WORKING CAPITAL COULD HAVE CERTAINL Y BEEN SAVED TO THAT EXTENT. THE BORROWING OF THE FUNDS BY THE COMPANY TO THAT EXTENT WAS NOT FOR THE PURPOSE OF B USINESS AND THERE WAS NOTHING ON RECORD TO SUGGEST THAT AMO UNTS WERE ADVANCED TO THE SISTER CONCERNS TO ADVANCE SOM E BUSINESS OBJECT. ACCORDINGLY, THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION OF THE INTEREST ON THE BORROWINGS T O THE EXTENT THOSE WERE DIVERTED TO SISTER CONCERNS OR OT HER PERSONS WITHOUT INTEREST. THEREFORE, FOLLOWING THE ABOVE DECISION WE CONFIRM THE ADDITION AND UPHOLD THE ORDER OF LD. CIT(A). SINCE NO CHANGE IN THE FACTS, DURING THE RELEVANT A SSESSMENT YEAR, WAS BROUGHT TO OUR NOTICE RESPECTFULLY FOLLOWING THE ORDER OF T HE TRIUBNAL IN ASSESSEES OWN CASE IN THE PRECEDING YEAR WE CONFIRM THE DISALLOWA NCE AND UPHOLD THE ORDER OF THE LD. CIT(A). 8. IN THE RESULT GROUND NO. 2 & 3 ARE DISMISSED. 9. GROUND NO. 4 RELATES TO ADDITION OF RS. 1 LAC MA DE BY THE AO ON ACCOUNT OF GENERAL EXPENSES. THE AO OBSERVED THAT THE ASSES SEE HAS DEBITED A SUM OF RS. 6,35,739 ON ACCOUNT OF GENERAL EXPENSES DURING THE YEAR. WHEN THE ASSESSEE WAS ASKED TO PRODUCE THE BILLS WITH COMPLETE DOCUME NTARY EVIDENCES, IT SHOWED ITS INABILITY TO PRODUCE THE SAME AND CLAIME D THAT THE BILLS AND VOUCHERS HAD BEEN MISPLACED. THEREFORE, THE AO MADE AN ADDITION OF RS. 1,00,000/- ON ESTIMATE BASIS. 10. ON APPEAL BEFORE THE LD. CIT(A) THE ASSESSEE RA ISED THE SIMILAR CONTENTION, BUT THE DISALLOWANCE WAS CONFIRMED BY T HE FIRST APPELLATE AUTHORITY. 4 11. DURING THE COURSE OF HEARING BEFORE US SAME PLE A WAS AGAIN TAKEN BY THE ASSESSEES COUNSEL. WE HAVE HEARD THE RIVAL SUBMISS IONS AND PERUSED THE MATERIAL ON RECORD. LOOKING TO THE QUANTUM OF TOTAL GENERAL EXPENSES BEING 6,35,739/-, AND THE TURNOVER OF THE ASSESSEE BEING RS. 85,77,81,936/- DISALLOWANCE OF RS. 1,00,000/- SEEMS TO BE ON A HIG HER SIDE. WE THEREFORE DIRECT THE AO TO RESTRICT THE SAID DISALLOWANCE TO RS. 50, 000/. THE GROUND OF THE APPEAL IS DECIDED ACCORDINGLY. 12. GROUND NO. 5 RELATES TO DISALLOWANCE OF RS. 50, 000/- OUT OF PRINTING AND STATIONARY ACCOUNT. THE TOTAL EXPENSES ON ACCOUNT O F PRINTING AND STATIONARY INCURRED BY THE ASSESSEE WERE 9,13,725/-. 13. THE AO WAS OF THE VIEW THAT EXPENSES ON ACCOUNT OF PURCHASE OF STATIONARY & PRINTING MATERIAL WAS HUGE WITH NO STO CK AT THE END OF THE YEAR AND MADE AN ADDITION OF RS. 50,000/- ON ESTIMATE BASIS. 14. BEFORE THE LD. CIT(A) THE CONTENTION OF THE ASS ESSEE WAS THAT THE EXPENSES WERE INCURRED ON PRINTING OF BILLS, VOUCHE RS, STORE SLIPS, COLORED PAMPHLETS OF THE PRODUCT, STATIONARY FOR BOOKS & PA MPHLETS FOR VARIOUS SCHEMES RUN BY CHITTOSHO MOTOR. IT WAS ALSO CONTENDED THAT THE ASSESSEE DID NOT KEEP STOCK OF PRINTING & STATIONARY ITEMS. SINCE WHATEVE R WAS LEFT ON 31 ST MARCH HAVE VERY MINIMAL VALUE OR NO VALUE. HOWEVER, THE LD. CI T(A) DID NOT FIND SUBSTANCE IN THIS SUBMISSION AND CONFIRMED THE DISALLOWANCE. 15. DURING THE COURSE OF HEARING BEFORE US THE SAME PLEA WAS RAISED BY THE LD. COUNSEL FOR THE ASSESSEE. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE IS AN AUTHORIZED DEALER OF HERO HONDA MOTORS LTD. AND TRADES IN HERO HONDA PRODUCTS AT PATIALA AND ALSO DEALER OF M ARUTI CAR AT MOHALI A BRANCH OFFICE. DURING THE YEAR IT HAS SHOWN GROSS P ROFIT OF RS. 3,37,21,611/- ON SALES OF RS. 85,77,81,936/-. WITH SUCH A HUGE AMOUN T OF TURNOVER. WE DO NOT SEE ANY REASON TO MAKE AN ARBITRARY DISALLOWANCE OF RS. 50,000/- OUT OF THE PRINTING AND STATIONARY EXPENSES WHICH HAVE UNDOUBTEDLY BEIN G INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WE THEREFO RE DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS. 50,000/- ON ACCOUNT OF PRINTING & STATIONARY. 5 17. GROUND NO. 5 IS ALLOWED IN FAVOUR OF THE ASSESS EE. 18. GROUND NO. 6 RELATES TO CHARGING OF INTEREST UN DER SECTION 234A AND 234B. AT THE TIME OF HEARING OF THE APPEAL, BOTH THE PART IES AGREED THAT THIS GROUND OF APPEAL IS CONSEQUENTIAL IN NATURE AND WE HOLD ACCOR DINGLY. 19. GROUND NO. 7 IS OF GENERAL IN NATURE AND DOES N OT NEED SEPARATE ADJUDICATION. 20. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/09/2015 SD/- SD/- (H.L. KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 10/09/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR