ITO,Wd-12(3), Kolkata, Kolkata V. M/s S. B. Pigments Pvt. Ltd., Kolkata

ITA 324/KOL/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7473 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 21-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R O BIN CHOUDHURY ADD
• Keywords: Business expenditure; TDS
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE SHRI A.T.VARKEY, JM &DR. A.L.SAINI, AM ./ITA NO.324/KOL/2014 ( / ASSESSMENT YEAR:2009-10) ITO, WARD-12(3), KOLKATA VS. M/S S.B. PIGMENTS PVT. LTD. 212A, SHAKESPEARE SARANI, 2 ND FLOOR, KOLKATA-17. ./ ./PAN/GIR NO.: AADCA 8665 P (ASSESSEE) .. (REVENUE) ASSESSEE BY : SHRI ROBIN CHOUDHURY, ADD. CIT SR. D R RESPONDENT BY : SHRI SUBASH AGARWAL, ADVOCATE / DATE OF HEARING : 25/02/2019 /DATE OF PRONOUNCEMENT : 30/04/2019 / O R D E R PER DR. A. L. SAINI: THE CAPTIONED APPEAL FILED BY THE REVENUE, PERTAIN ING TO ASSESSMENT YEAR 2009-10, IS DIRECTED AGAINST AN ORDER PASSED BY T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XII, KOLKATA (IN SHORT THE LD. CIT(A)], WHICH IN TURN ARISES OUT OF AN ASSESSMENT ORDER PASSED BY THE A SSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) DATE D 27.12.2011. 2. GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS F OLLOWS: 1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING THE EXPENSES OF RS. 71,85,948 /- AS BUSINESS EXPENSES INSTEAD OF BOGUS EXPENSES. M/S S.B. PIGMENTS PVT. LTD. ITA NO.324/KOL/2014 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 2 22 2 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING RS. 4,01,478/- FOR BROKERAGES OR COMMISSION FOR NON- DEDUCTIONS OF TDS U/S 40A(IA). 3. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING THE EXPENSES ON ACCOUNT OF TR AVEL EXPENSES, STAFF WELFARE EXPENSES, REPAIRS, OTHERS AND SALES PROMOTI ON OF RS. 26,39,072/-. 4. BASED ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING THE INTEREST PAID AS AN ALLOW ABLE EXPENDITURE. HOWEVER, THE SAME HAS NOT BEEN UTILIZED FOR PURPOSE OF THE BUSINESS. 3. GROUND NO. 1 RAISED BY THE REVENUE RELATES TO BO GUS EXPENSES OF RS. 71,85,948/- AS BUSINESS EXPENSES INSTEAD OF BOGUS E XPENSES. 4. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER ISSUED NOTICES U/S 133(6) OF THE ACT TO VARIOUS PARTIES FOR THE PURPOSE OF VERIFICATION OF BUSINESS TRANSACTIONS OF THE ASSESSEE. THE NOTICES U/S 133(6) OF THE ACT, ADDRESSED TO THE FOLLOWING PARTI ES COULD NOT BE SERVED BY THE POSTAL AUTHORITY: A) M/S YASHODA DISTRIBUTORS (P) LTD. B) M/S NARMADA DEALCOM P LTD. C) M/S SAGAR VINTRADE P LTD. D) M/S DIVEN TRADING CO. DURING THE COURSE OF HEARING, THE ASSESSEE FURNISHE D NEW ADDRESSES OF THE PARTIES AT SL. NO. 1 TO 3 ABOVE. AGAIN, THE NOTICES WERE SE NT BY AO TO THE NEW ADDRESSES OF THE PARTIES, BUT THESE HAVE BEEN RETURNED BACK UNSERVED AGAIN BY THE POSTAL AUTHORITY. THE MATTER WAS AGAIN INFORMED TO THE AS SESSEE, VIDE A SHOW CAUSE LETTER DATED 09.12.2011. IN RESPONSE, A SUBMISSION WAS MAD E BY ASSESSEE ON 16.12.2011 ENCLOSING SOME DOCUMENTARY EVIDENCES OF THESE PART IES E.G. PAN CARD, LEDGER ACCOUNT, REGISTRATION CERTIFICATE UNDER VAT, COPY O F BANK STATEMENTS OF THE ASSESSEE, BILLS TO PROVE THAT TRANSACTIONS. THE AO NOTICED THAT THESE TRANSACTIONS WERE THERE AT LEAST ON PAPERS ALTHOUGH NO EVIDENCE COULD BE FURNISHED BY ASSESSEE IN SUPPORT OF ITS PHYSICAL EXISTENCE. M/S S.B. PIGMENTS PVT. LTD. ITA NO.324/KOL/2014 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 3 33 3 THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED TO HAV E ENTERED INTO THE FOLLOWING TRANSACTIONS WITH THE PARTIES. NAME OF PARTY HEAD OF EXPENDITURE DETAILS OF EXPENSES AMOUNT DEBITED (IN RS.) AMOUNT PAID DURING F.Y. 2008-09 M/S YASHODA DISTRIBUTORS P LTD. REPAIRS OF PLANT & MACHINERY PURCHASE OF ALUMINIUM TRAY 26,00,000 NIL M/S NARMODADEALCOMM PVT. LTD. DO IRON AND STEEL (M.S.SHEET, M.S. ROD, M. S. CHANNEL, M.S. ANGEL), MATERIAL SUPPLY FOR GENERATOR OVERHAULING, LIFT OVERHAULING ETC. 30,65,156 NIL M/S SAGAR VINTRADE PVT. LTD. DO BOMB KIN DOORS FOR PIGMENT PROJECTS 5,20,000 NIL M/S DIVEN TRADING CO. POWER & FUEL PURCHASE OF COKE 10,00,792 NIL TOTAL 71,85,948 THE FOLLOWING OBSERVATIONS WERE MADE BY THE AO IN RESPECT OF THE ABOVE PARTIES: (A).IN CASE OF M/S YASHODA DISTRIBUTORS PVT. LTD. THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED HUGE NUMBER OF ALUMINIUM TRAYS AND HAS S HOWN THE SAME UNDER THE HEAD REPAIRS, THE REASON OF WHICH IS NOT KNOWN. P URCHASES ARE SHOWN ONLY DURING THE LAST THREE MONTHS OF THE YEAR AND NO PAY MENTS HAVE BEEN MADE DURING THE F.Y. IN CASE OF M/S NARMADA DEALCOM PVT. LTD. PURCHASES OF SUBSTANTIAL VOLUME OF IRON AND STEEL HAVE BEEN CLAIMED DURING THE LAST TWO MON THS OF THE YEAR, THE REASON FOR WHICH IS NOT KNOWN. THE ASSESSEE HAS CLAIMED TO HAV E INCURRED THE FOLLOWING EXPENSES ALSO: MATERIAL SUPPLY FOR GENERATOR OVERHAULING 7,00,000 MATERIAL SUPPLY FOR FORFLIFT OVERHAULING 3,00,000 HYDRAULIC PRESSURE SPARES (TWO BILLS) 5,00,000 TOTAL 15,00,000 THE AO OBSERVED THAT INTHESE BILLS ALL FIGURES AR E ROUND FIGURES AND EXACT DETAILS OF THE ITEMS ARE NOT KNOWN. THESE WERE CLAIMED BY A SSESSEETO BE BILLS FOR M/S S.B. PIGMENTS PVT. LTD. ITA NO.324/KOL/2014 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 4 44 4 MATERIALS ONLY TO AVOID TDS PROVISIONS. THESE HAVE BEEN CLAIMED UNDER THE HEAD REPAIRS BUT IT IS NOT KNOWN WHO DID THE LABOUR JO B WITH THESE HUGE MATERIALS, AS CLAIMED IN THE BILLS OF ALL THESE PARTIES. THEREFORE, THE AO WAS OF THE VIEW THAT THE ASSESSE E ACTUALLY PROCURED BILLS FROM THE PARTIES AVAILABLE IN THE MARKET, WHO ARE ENGAGE D IN GIVING ENTRIES TO THE BUSINESS COMMUNITIES FOR THE PURPOSE OF BOOKING EXP ENDITURES AND TO REDUCE PROFIT. THE ASSESSEE TRIED TO FURNISH SOME DOCUMEN TARY EVIDENCES IN THIS REGARD BUT COULD NOT ESTABLISH THEIR PHYSICAL EXISTENCE. I T IS SURPRISING TO NOTE THAT THE ASSESSEE HAS CLAIMED TO HAVE ENTERED INTO SUCH VOLU MINOUS TRANSACTIONS WITH THE SAID PARTIES, BUT THE PARTIES COULD NOT BE LOCATED PHYSICALLY EITHER BY THE ASSESSEE OR BY THE POSTAL AUTHORITY. THE COMMENTS GIVEN BY T HE POSTAL AUTHORITY ALSO SUGGEST THAT THESE PARTIES NEVER EXISTED PHYSICALLY . THEREFORE, THE AO TREATED BOGUS EXPENDITURE TO THE TUNE OF RS.71,85,948/- AND MADE ADDITION TO THE INCOME OF THE ASSESSEE. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS DELETED THE ADDITION MADE BY ASSESSING OFFICER. 6.WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIAL AVAILABLE ON RECORD. BEFORE US,LD DR FOR THE REVENUE HAS PRIMARILY REITE RATED THE STAND TAKEN BY THE ASSESSING OFFICER WHEREAS, LD COUNSEL FOR THE ASSES SEE DEFENDED THE ORDER PASSED BY THE LD CIT(A). WE NOTE THAT THE ASSESSEE HAS SUB MITTED THE FOLLOWING DOCUMENTS AND PAPERS BEFORE THE ASSESSING OFFICER I N RESPECT OF PURCHASES FROM YASHODA DISTRIBUTORS PVT. LTD., M/S NARMADA DEALCOM M PVT. LTD., M/S SAGAR VINTRADE PVT. LTD. CONFIRMATION LETTERS FROM THE PARTIES. XEROX COPY OF PAN CARD. LEDGER FOR F.Y. 2008-09 AS PER THEIR BOOKS OF ACC OUNTS. XEROX COPY OF VAT REGISTRATION CERTIFICATE. XEROX COPIES OF THE BILLS. M/S S.B. PIGMENTS PVT. LTD. ITA NO.324/KOL/2014 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 5 55 5 LEDGER FOR F.Y. 2008-09 AS PER ASSESSEES BOOKS O F ACCOUNTS. LEDGER FOR F.Y. 2009-10 AS PER ASSESSEES BOOKS O F ACCOUNTS. BANK STATEMENT FOR F.Y. 2009-10 HIGHLIGHTING THE PAYMENT MADE THROUGH BANK. COPIES OF ALL THESE DOCUMENTS, AS SUBMITTED TO LD. A.O. ARE ALSO SUBMITTED BEFORE THE BENCH. WE NOTE THAT THE REASON FOR DISALLOWING THE EXPENSE S BY THE AO IS MAINLY DUE TO THE FACT THAT THE NOTICES U/S 133(6) OF THE ACT, CO ULD NOT BE SERVED TO THE PARTIES, AND THUS THESE PARTIES ARE NON-EXISTENT AND TRANSAC TIONS MADE WITH THEM ARE BOGUS TRANSACTION. THE OTHER OBSERVATION OF THE AO IN THI S REGARD IS THAT THE ASSESSEE ACTUALLY PROCURED BILLS FROM THE PARTIES AVAILABLE IN THE MARKET, WHO ARE ENGAGED IN GIVING ENTRIES TO THE BUSINESS COMMUNITIES FOR THE PURPOSE OF BOOKING EXPENDITURES AND TO REDUCE PROFIT. THE AO IS ALSO O F THE OPINION THAT ALL THESE ARE CLAIMED TO BE BILLS FOR MATERIALS ONLY TO AVOID TDS PROVISIONS. WITH THE ABOVE OBSERVATIONS AND FINDINGS, AND FOLLOWING THE PRINCI PAL LAID DOWN IN A PLETHORA OF JUDGMENTS, THE AO HAS MADE THE IMPUGNED ADDITIONS D ISBELIEVING THE EXPLANATION OF THE ASSESSEE. THE LD COUNSEL FOR THE ASSESSSEE, ON THE OTHER HAND HAS SUBMITTED THAT THE MATERIALS PURCHASED ARE EITHER STORE ITEMS AND USED FOR STORING LIQUID BLUE WHILE DRYING AND THE LIFE SPAN OF SUCH TRAYS IS ONL Y FOR 4-5 USER BECAUSE OF CHEMICAL EFFECT OR MS RODS, CHANNELS ETC WHICH WERE USED FOR REPAIRING OF FACTORY SHED. IT IS ALSO SUBMITTED THAT THERE WERE OVERALL REPAIR OF GENERATOR, FORK LIFTS AND HYDRAULIC PRESSURE. FURTHER ONE DOOR OF KILN WAS AL SO REPLACED DURING THE YEAR. THUS, IT IS ARGUED THAT THE ASSESSEE HAD TO PROCURE THESE ITEMS FOR THE BUSINESS NECESSITY AND THE PROCURED ITEMS WERE DULY USED FOR THE BUSINESS OF THE ASSESSEE. 7. AT THE COST OF REPETITION WE WOULD LIKE TO STATE THAT THE AO HAS DISALLOWED THE CLAIM OF PURCHASES OF THE ITEMS BY TREATING AS BOG US ONLY FOR THE REASON THAT THE NOTICES U/S 133(6) OF THE ACT COULD NOT BESERVED TO THE PARTIES ASSUMING THE PARTIES AS NON-EXISTENT AND TRANSACTIONS MADE WITH THEM AS BOGUS. IN THIS REGARD, THE LD COUNSEL CONTENDED THAT THE ASSESSEE HAS PROD UCED ALL THE REASONABLE EVIDENCES BEFORE THE AO, WHICH SHOWS THAT ASSESSEE MADE GENUINE PURCHASE FROM M/S S.B. PIGMENTS PVT. LTD. ITA NO.324/KOL/2014 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 6 66 6 THEM BY PAYING APPLICABLE VAT. ALL THE PARTIES ARE ASSESSED TO INCOME TAX, AS WELL AS VAT, HENCE IT IS NOT THE CASE OF THE AO THA T ON THE ENQUIRY CONDUCTED BYHIM FROM AO OR SALES TAX AUTHORITY IN RESPECT OF THESE PARTIES ANY ADVERSE MATERIAL/INFORMATION WAS FOUND. THE PAYMENTS OF THE PURCHASE BILLS WERE MADE THROUGH BANKING CHANNELS. THE THREE PARTIES ARE PVT . LTD, COMPANIES, WHOSE MASTER DATA AS PER MCA WEBSITE IS ALSO FURNISHED IN THE PAPER BOOK. THEREFORE , IT IS ARGUED THAT THE OTHER ALLEGATION OF THE AO THAT ASSESSEE PROCURED BILLS FROM THE PARTIES AVAILABLE IN THE MARKET WHO ARE ENGAGED IN GIVING ENTRIES TO THE BUSINESS COMMUNITIES FOR THE PURPOSE OF BOOKING EXPENDITURE AND REDUCE PROFIT', IS NOTHING BUT GENERAL IN NATURE MADE ON HIS OWN SURMISES AND CONJECTURES IN DISREGARDING THE EVIDENCES FURNISHED BY THE ASSESSEE. WE NOTE THAT WITHOUT BRINGING ON RECORD ANY MATERIA L EVIDENCE, THE AO HAS LEVELED THIS ALLEGATION UPON THE ASSESSEE WHICH HAS NO LEGAL SANCTITY AND IS BEING FACTUALLY INCORRECT. WE NOTE THAT THE ASSESSEE HAS FURNISHED ALL REASONABLE EVIDENCES BEFORE AO AND SIMPLY BECAUSE NOTICES U/S 133(6) ISSUED TO THE PARTIES RETURNED BY POSTAL AUTHORITIES WITH REMARK 'NOT KNO WN' OR PARTIES ARE. NOT CO- OPERATING WITH THE ASSESSEE, PURCHASES MADE FROM TH EM CANNOT BE TREATED AS BOGUS OR NOT GENUINE BY DISREGARDING ALL OTHER OVERWHELMI NG EVIDENCES FURNISHED TO THE AO AND BROUGHT ON RECORD. WE NOTE THAT THE JUDGMEN T OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. DIAGNOSTICS V. CIT IN ITA NO. 153 OF 2004 AND THE JUDGMENT OF THE COORDINATE BENCH OF ITAT, KOLKATA I N THE CASE OF DCIT, CIR -12 V. MAPLE EXPORTS PVT. LTD. IN ITA NO. 202/KOL/2012, WHEREIN IT WAS HELD THAT THE TRANSACTIONS HAVING TAKEN PLACE THROUGH PAYMENT BY ACCOUNT PAYEE CHEQUES WITH THE THIRD PARTIES WHO ARE ALSO REGISTERED IN SALES TAX, HAVING VAT NOS. ANY ADDITION MADE IN RESPECT OF THE TRANSACTIONS WITH T HOSE PARTIES CANNOT BE SUSTAINED. THEREFORE, AFTER PERUSING THE ENTIRE FACTS OF THE C ASE INCLUDING THE FINDINGS OF THE ASSESSING OFFICER IN THE IMPUGNED ASSESSMENT ORDER AND RESPECTFULLY FOLLOWING THE JUDGMENTS OF THE JURISDICTIONAL HIGH COURT(SUPRA) A ND COORDINATE BENCH OF ITAT (SUPRA), WE ARE OF THE VIEW THAT THE A.O. IS NOT JU STIFIED IN MAKING THE IMPUGNED DISALLOWANCE OF RS. 71,85,948/- CLAIMED UNDER THE H EAD REPAIRS OF PLANT & M/S S.B. PIGMENTS PVT. LTD. ITA NO.324/KOL/2014 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 7 77 7 MACHINERY AND POWER & FUEL TREATING THE SAME AS BO GUS MERELY ON THE GROUND THAT THE NOTICES U/S 133(6) RETURNED BACK UNSERVED GIVING RISE THE CHARACTER OF THE TRANSACTIONS AS THE BOGUS LIABILITY. THAT BEING SO, WE DECLINE TO INTERFERE WITH THE ORD ER OF ID. C.I T.(A) IN DELETING THE AFORESAID ADDITION S. HIS ORDER ON THESE THISISSUE IS, THEREFORE, UPHELD AND THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 8. GROUND NO. 2 RAISED BY THE REVENUE RELATES TO D ISALLOWANCE OF RS. 4,01,478/- ON ACCOUNT OF NON-DEDUCTION OF TDS ON BROKERAGE AND COMMISSION. 9. WE NOTE THAT THE LD. CIT(A) HAS ALREADY ADJUDICA TED THIS ISSUE AGAINST THE ASSESSEE, THEREFORE THE LD. DR FOR THE REVENUE INFO RMED THE BENCH THAT THIS GROUND RAISED BY THE REVENUE BECOMES INFRUCTUOUS AND NEED NOT TO BE ADJUDICATED. WE NOTE THAT THE LD. CIT(A) HAS ALREADY ADJUDICATED TH IS GROUND AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE, THEREFORE THE GROUND RAISED BY THE REVENUE BECOMESINFRUCTUOUS AND HENCE WE DISMISS THE SAME. 10. GROUND NO. 3 RAISED BY THE REVENUE RELATES TO D ISALLOWANCE OF EXPENSES ON ACCOUNT OF TRAVEL EXPENSES, STAFF WELFARE EXPENSES, REPAIRS, OTHERS AND SALES PROMOTION OF RS. 26,39,072/-. 11. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE A SSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE ADDITION IN RESPECT OF TRAVE LLING EXPENSES OF RS. 12,37,500/-, STAFF WELFARE EXPENSES OF RS.3,18,784/ -, REPAIRS & OTHERS OF RS. 14,37,705/- AND SALES PROMOTION EXPENSES OF RS. 8,8 2,583/- DUE TO MERE BELIEF THAT THE SAID EXPENSES WERE EXCESSIVE AS COMPARED TO THE EARLIER YEAR AND NOT FOR THE PURPOSE OF THE BUSINESS. 12. ON APPEAL BY ASSESSEE, THE LD CIT(A) DELETED TH E ADDITIONS EXCEPT ADDITION ON ACCOUNT OF TRAVELLING EXPENSES OF RS.12,37,500/-. A GGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. M/S S.B. PIGMENTS PVT. LTD. ITA NO.324/KOL/2014 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 8 88 8 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE US, THE LD. DR FOR THE REVENUE, HAS PRIMAR ILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER WHICH WE HAVE ALREADY DISCUSS ED IN OUR EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY AND ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESSEE HAS DEFENDED THE ORDER OF T HE LD CIT(A).WE NOTE THAT THE LD. COUNSEL HAS EXPLAINED THE BUSINESS NECESSITY OF THE EXPENSES AND HAS SUBMITTED THAT THE EXPENSE HAS BEEN INCURRED FOR TH E PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE ISSUE OF DISALLOWANCE OF REPAIR EXPEN SE HAS ALREADY BEEN COVERED IN GROUND NO. 2 OF THE APPEAL. IT IS NOTED THAT THE A. O. HAS MADE THE DISALLOWANCE ON VAGUE REASON THAT THE EXPENSE OF THIS YEAR IS MORE THAN EARLIER YEAR AND THE EXPENSE HAS NOT BEEN INCURRED FOR THE PURPOSE OF TH E BUSINESS OF THE ASSESSEE. HOWEVER, THE A.O. HAS NOT POINTED OUT ANY SPECIFIC INSTANCE TO SUPPORT HIS OBSERVATION HENCE IN VIEW OF THE FOLLOWING DECISION S OF THE COORDINATE BENCHES OF ITAT THE DISALLOWANCE WAS NOT JUSTIFIED: DAMAN LAL DAMODAR DAS MEHTA & SONS VS. ITO 1983 15 TTJ 310. PATWA KIRANIWALA ELECTRONICS VS. ITO 24 TTJ 284. COCA COLA INDIA (P) LTD. VS. CIT (2008) 116 TTJ (PU NE-TRIB) 880. BETA NAPHTOL VS. ACIT (1994) 50 TTJ 374. WE NOTE THAT ASSESSEE HAS PAID FBT ON THESE EXPENSE S. FOR THIS REASON ALSO, THE AO WAS NOT JUSTIFIED IN DISALLOWING THE EXPENSE. WE NOTE THAT HAVING GONE THROUGH THE ORDER OF THE LD. CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A), THEREFORE WE UPHOLD THE O RDER OF THE LD. CIT(A) AND DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE . 14. GROUND NO. 4 RAISED BY THE REVENUE RELATES TO D ISALLOWANCE ON ACCOUNT OF INTEREST PAID WHICH WERE NOT UTILIZED FOR THE PURPO SE OF BUSINESS. 15. THE OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IN RESPECT OF THIS ISSUE IS AS UNDER: FROM THE ABOVE DETAILS IT IS SEEN THAT THE ASSESSE E HAS ACTUALLY ADVANCED INTEREST FREE LOANS TO THE EXTENT AS MENTIONED ABOVE AND AS THERE HAD BEEN NO SIGNIFICANT RE PAYMENT, THE CLOSING BALANCE AS ON 31.03.2009 WA S RS. 9,45,02,003/-. IT IS ALSO SEEN FROM THE DETAILS FOR A.Y.2010-11 ALSO, THERE H AD BEEN ALMOST NO BUSINESS M/S S.B. PIGMENTS PVT. LTD. ITA NO.324/KOL/2014 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 9 99 9 TRANSACTIONS APART FROM INTEREST FREE LOAN TRANSACT IONS. IT IS SEEN FROM THE BALANCE SHEET THAT TOTAL LOANS TAKEN AS ON 31.03.2008 AND 3 1.03.2009 ARE RS. 5,66,92,115/- AND RS. 9,33,58,489/- RESPECTIVELY. T HEREFORE, THERE IS INCREASE OF LOANS TAKEN, AMOUNTING TO RS. 4 CRORES APPROXIMATEL Y, WHEREAS THERE IS INCREASE OF INTEREST FREE LOANS GIVEN, AMOUNTING TO RS. 5.5 CRORES AND SECURITY DEPOSITS OF RS. 1.5 CRORES - ALL WITHOUT HAVING ANY BUSINESS CO NNECTIONS. SO, LOANS TAKEN DURING THE YEAR WERE ACTUALLY UTILIZED FOR ADVANCIN G INTEREST FREE LOANS AND SECURITY DEPOSIT, WHICH ARE UNRELATED TO THE BUSINE SS ACTIVITY OF THE ASSESSEE. THE LOANS WERE TAKEN FROM THE BANKS AND WERE UTILIZED B Y THE ASSESSEE NOT FOR BUSINESS PURPOSES. THE INTEREST PAID BY THE ASSESSE E DURING THE YEAR WAS RS. 77, 89,408/-, WHICH IS CONSIDERED TO BE EXPENDED NOT FO R THE ASSESSEE'S BUSINESS ACTIVITY. RELIANCE IS PLACED ON THE DECISIONS OF K. SOMASUNDARAM &. BROTHERS V. CIT (1999) 238 ITR 939,944-45 (MAD) AND CIT V. WIND OW GLASS LTD. (2003) 179 CTR (CAL) 602, 602-603 WHERE IT HAS BEEN OBSERVED T HAT INTEREST PAID ON THE CAPITAL BORROWED BY THE ASSESSEE-FIRM AND DIVERTED THE SAME AS INTEREST-FREE LOANS TO THE RELATIVES OF ITS PARTNERS IS NOT DEDUCTIBLE. IN THE DECISION OF TIRUPATI TRADING CO. V. CIT (2000) 242 ITR 13, 18 (CAL) IT H AS BEEN OBSERVED THAT WHERE THERE WAS NO EVIDENCE TO PROVE THAT THE AMOUNT HAD BEEN BORROWED FOR PURPOSES OF THE BUSINESS OF THE ASSESSEE, INTEREST ON SUCH B ORROWINGS WAS HELD NOT DEDUCTIBLE. INTEREST ON BORROWED CAPITAL USED FOR A DVANCING INTEREST-FREE LOANS TO SUBSIDIARY COMPANY, LIONS CLUB AND EMPLOYEESCONSUME RS CO-OPERATIVE STORES HAS BEEN HELD NOT DEDUCTIBLE CIT V ORISSA CEMENT L TD. (2002) 258 ITR 365, 368, 369-70 (DEL). IN VIEW OF THE ABOVE, WHOLE SUM OF INTEREST PAID OF RS. 77,89,408/- IS DISALLOWED, BEING NOT INCIDENTAL TO THE ASSESSEE'S BUSINESS ACT IVITY AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE.' 16. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS DELE TED THE ADDITION MADE BY AO. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE US, THE LD. THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER WHICH WE HAVE DISCUS SED IN OUR EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY AND ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE HAS DEFENDED THE ORDER PAS SED BY THE LD CIT(A). WE NOTE THAT THESE GROUNDS OF APPEAL RELATE TO THE ERRONEOU S BELIEF OF THE A.O. THAT THE ADVANCES AND SECURITY DEPOSITS WERE IN DISGUISE INT EREST FREE LOANS GIVEN OUT OF THE LOANS TAKEN FROM THE BANK AND THEREBY DISALLOWANCE OF THE INTEREST EXPENSES OF RS.77,89,408/- BY THE ASSESSING OFFICER REJECTING T HE EXPLANATION FURNISHED BY THE ASSESSEE WHICH IS BAD BOTH IN FACTS AND LAW. WE NOT E THAT ALLOWABILITY OF INTEREST EXPENSES IN BUSINESS SCENARIO IS GOVERNED BY SECTI ON 36(1)(III) OF THE INCOME TAX M/S S.B. PIGMENTS PVT. LTD. ITA NO.324/KOL/2014 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 1 11 10 00 0 ACT. ONE HAS TO SEE THE UTILIZATION OF BORROWINGS M ADE BY THE ASSESSEE. IF BORROWINGS WERE MADE BY THE ASSESSEE AND HAD BEEN U TILIZED FOR THE PURPOSE OF BUSINESS THEN NO DISALLOWANCE OF INTEREST PAID IS C ALLED FOR. 18. WE ARE OF THE VIEW THAT THERE IS CONSIDERABLE F ORCE IN THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT AS THE TERM LOAN WAS FIRST TIME TAKEN FOR ACQUISITION OF FACTORY IN THE ASSESSMENT YEAR 2007-08 AND WAS U TILIZED FOR THAT PURPOSE ONLY, HENCE THE INTEREST OF RS. 65,07,730/- PAID ON THE T ERM LOAN CANNOT BE DISALLOWED. AS REGARD THE INTEREST OF RS. 1,05,553/- PAID ON AU TO LOAN, WE ARE OF THE VIEW THAT AS THE INTEREST WAS PAID ON LOAN TAKEN FOR PURCHASE OF VEHICLE HENCE THE INTEREST PAYMENT OF RS.1,05,553/- IS AN ALLOWABLE EXPENSE. S O FAR AS INTEREST PAID ON PACKING CREDIT LOAN AND INTEREST PAID ON OVER DRAFT AND CASH PAID ACCOUNTS, WE ARE OF THE VIEW THAT THE INTEREST ON AMOUNT WHICH IS US ED FOR THE PURPOSE OF GIVING INTEREST FREE LOAN TO SISTER CONCERN CAN AT MOST BE DISALLOWED. AS PER THE WORKING GIVEN BY THE COUNSEL, THE ASSESSEE HAS PAID INTERES T OF RS.3,18,525/- ON THE AMOUNT UTILIZED FOR THE PURPOSE OF GIVING INTEREST FREE LO AN TO SISTER CONCERN. HENCE, AT THE MOST INTEREST TO THE TUNE OF RS. 3,18,525/- CAN BE DISALLOWED. SINCE, THE WORKING OF RS. 3,18,525/- GIVEN BY THE COUNSEL REQUIRES VERIFI CATION, HENCE THE A.O. IS DIRECTED TO VERIFY THIS WORKING OF RS.3,18,525/- GI VEN BY THE LD COUNSEL IN HIS SUBMISSION. THEREFORE, CONSIDERING THE ABOVE FACTS AND CIRCUMST ANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A), TH EREFORE WE UPHOLD THE ORDER PASSED BY THE LD. CIT(A). 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 30.04.2019 SD/- ( A.T.VARKEY ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; / DATE: 30/04/2019 ( SB, SR.PS ) M/S S.B. PIGMENTS PVT. LTD. ITA NO.324/KOL/2014 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 1 11 11 11 1 COPY OF THE ORDER FORWARDED TO: 1. ITO, WARD-12(3), KOLKATA 2. M/S S.B. PIGMENTS PVT. LTD. 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES