MEASAGE.TAU AGRO SALES PRIVATE LIMITED, FARIDKOT V. INCOME TAX OFFICER WARD-3(4), FARIDKOT

ITA 325/ASR/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4351 (ITAT-AMRITSAR)
• Duration Of Justice: 3 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 06-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Additional evidence; TDS; Bogus
• Section: 37; 40A(3); 143(3); 36 (1) (iii); 194C; 143(1); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13, 2014-15 & 2015-16 M/s Tau Agro Sales Pvt. Ltd. Bhollu Wala Road Faridkot. [PAN:-AABCT6131D] (Appellant) Vs. ITO-Ward 3(2), Ferozepur. (Respondent) Appellant by Sh.T.N. Singla, CA. Respondent by Ms. Amanpreet Kaur, Sr. DR. Date of Hearing 19.09.2022 Date of Pronouncement 22.09.2022 ORDER Per Bench: The batch of instant appeals of the assessee was filed against the order of the ld. Commissioner of Income Tax (Appeals), Bathinda, [in brevity the CIT(A)] are identical and having separate orders that were passed u/s 250 (6) of the Income Tax Act, 1961 (in brevity the Act) for A.Ys. 2012-13, 2014-15 & 2015-16. The impugned orderswere originated from the order of the ld. Income Tax Officer, I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13 & 2014-15 to 2015-16 2 Ward-3(2) Ferozepur, (in brevity the AO). The orders were passed u/s 143(3) of the Act.The assessee stated at the outset that, the relevant factual backdrop as well as the issues involved in all the cases are identical.Facts, for convenience, are being taken ITA No.323/Asr/2019, for A.Y. 2012-13 as lead case as per request of the ld. Counsel. Only ITA No. 324/Asr/2019 has one different ground which will be adjudicated end of the order. 2. The assessee has raised the following grounds which is reproduced as below:- “1. That the order of Learned C.I.T. (Appeals) is bad and against the facts and Law. 2. That the Learned C.I.T. (Appeals) has wrongly upheld addition of Rs. 3,49,750/- out of Interest expense. 3. That the Learned C.I.T. (Appeals) has wrongly upheld Rs. 416256/- u/s 40A(3). 4. That the Learned C.I.T. (Appeals) has wrongly upheld addition of Rs. 10,00,000/- on account of share application money. 5. That the Learned C.I.T. (Appeals) has wrongly upheld disallowance of telephone expense and car/scooter expense amounting to Rs. 32,995/-. 6. That the appellant craves leave to add, alter, amend or withdraw any grounds of appeal before the final hearing.” 3. The brief fact of the case is thatthe assessment was completed, and the addition was made in different heads. The assessee had paidinterest related to the I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13 & 2014-15 to 2015-16 3 unsecured loan creditors @18%. The ld. AO reduced it to @12% & also, the ld. AO disallowed balance interest u/s 36(1)(iii) of the Act @ 6% on the reason that assessee was paying higher interest in relation to bank interest. In the appeal the loan interest was enhanced @15%&disallowance of interest @3% interest by the order of CIT(A). 3.1 In the next ground the disallowance was made u/s 40A(3) for payment of freight related purchasing the agricultural product. The amount of Rs.4,16,256/- is added back with the total income. 3.2.In other issue, Rs.10 lac was added back with the total income of the assessee on account of share application money which was converted to loan and said loan was not mentioned in the tax audit record. So, the loan amount of Rs.10 lac from directors was added back with the total income of the assessee. 3.3. In other issue the ld. AO disallowed 1/5 expenses of the car, scooter, motorcycle, telephone and depreciation on car which was used for director’s personal expenses. Aggrieved assesseefled an appeal before the ld. CIT(A) the ld. CIT(A) reduced the addition related to disallowance of expenses on estimated basis. In appeal the disallowances are reduced to 1/10 th of total expenses. The assessee filed an appeal before the ld. CIT(A). The CIT(A) partly allowed the appeal of the assessee. I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13 & 2014-15 to 2015-16 4 4. Aggrieved assessee filed appeal before us for judicious consideration. 5. The ld. Counsel, Mr. T.N.Singla vehemently argued and submitted the written submission with the compendium of judgments which are kept in record. During hearing ground no. 1 is not pressed by the ld. Counsel. 5.1. The ld. Counsel, Mr. T.N.Singla filed additional evidence before the bench t substantiate the claim of assessee. The additional evidence are as follows: - i) Copy of Certificate from Panchayet ii) Copy of Affidavit of Sh. Sham Sundar, director of M/s Tau Agro Sales Private Limited. iii) Certificate from Chartered Accountant (in short CA) for acceptance of mistake in Tax Audit Report. 6. Ground No. 2,interest paid to relatives & associates of the directors @18% for the last many years related to unsecured loan creditors. The AO allowed 12% interest on comparing the interest rates of banks and disallowed balance interest @6% under section 36(l)(iii), on the plea that the bank interest was lesser. The assessee could have more loan from the banks. He also cited a single case of the lender to whom 9% interest was given. Since beginning due to certain family circumstances this single lender gave loan @ 9% interest. Otherwise, rate of interest of Bank was more than 18% on unsecured loans given without I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13 & 2014-15 to 2015-16 5 security.The CIT(A) allowed 15% of interest and disallowed 3% of the interest paid. Interest @18% is paid for all the years & accepted by the department in the Assessment completed under section 143(3) for Assessment year 10-11, Paper Book Page no. 34-36. Also, during Assessment year 11-12 & 13-14, the same rate of interest was accepted in assessment &completed under section 143(1) of the act. Therefore, concept of consistency has not been followed. 6..1. In this context Mr Singla respectfully relied of the following judgments which are placed before the bench:- i) M/s Raj Traders vs. ITO, Ward-1(3), Jabalpur, ITA No-91/JAB?2013 date of order-04/04/2016. The relevant paragraph is extracted as below:- “12.............We find that the disallowance has been made by the Assessing Officer on account of interest paid to relatives under sec. 40A(2) of the Act. We find that the Assessing Officer has brought no material on record to show that howthe interest paid by the assessee was excessive by comparing it with the market rate of interest on loan on the date of taking of the loan by the assessee. In absence of the same, in our considered view, the disallowance made by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals) cannot be sustained in law, hence, we set aside the orders of the lower authorities and delete the disallowance of interest expenditure of Rs. 41,467/- and allow the ground of appeal of the assessee.” I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13 & 2014-15 to 2015-16 6 ii)High Court of Punjab & Haryana in the case ofCommissioner of Income- taxv.Pankaj Munjal Family Trust[2010] 326 ITR 286 (Punjab & Haryana); “Held:- Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital - Assessment years 1983-84, 1984-85, 1986-87 and 1988-89 - Where assessee-trust had taken a loan at 16 per cent from family concerns which was utilized by it for purchase of 4 per cent non-cumulative preference shares, merely because assessee had invested said borrowed amount for purchase of 4 per cent, non-cumulative preference shares, it could not be presumed that said transaction was colourable because no person with ordinary prudence will borrow money at 16 per cent and invest same for purpose of 4 per cent non-cumulative preference shares” 6.2. The ld. Sr.DR argued and relied on the orders of revenue authorities. 7. Ground no. 3, expenses related payment of freight was paid in cash by assessee which are disallowed under section 40A(3). The ld. Counsel argued & placed the fact that assessee having factory in remote area in village Bholuwal, where no banking facility is available. In additional evidence the assessee has filed Certificate of Panchayat with English version & Affidavit of director of company which are enclosed as Page 31-33 of Paper book. By the additional evidence the ld. Council ought to place that there is no banking facility in factory area. The payments are mainly of freight paid for the purchase of agricultural product. Tthe genuinity of which is accepted & no defect was found in GR & bills of the freight produced before AO. Bills of freight are at Page no. 122-135 of APB& detail of freight account is at 118-121 pages of Paper book. I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13 & 2014-15 to 2015-16 7 The amount of Rs.35,270 on 13/02/2012 is for two bills of freight credited to the supplier M/s Mahaveer Foods no payment for these was made in cash-APB Pageno.136-139. Vouchers are at page no.171. The other observation regarding non-deduction of TDS under section 194-C is not applicable in this case as no oral or written agreement or contract was there. 7.1. Mr Singla has respectfully relied on judgement of High Court of Punjab and Haryanain the case of Commissioner of Income-tax, Chandigarhv.BhagwatiSteels[2011] 198 Taxman 275 (Punjab & Haryana); “Re: Question No. 1. On the first question, the Tribunal recorded a categorical finding of fact that there was no material on record to prove any written or oral agreement between the assessee and the recipients of goods for transportation or carriage thereof. The Tribunal had further observed that there was no material to show that the payments of freight had been made in pursuance to a contract of transportation of goods for a specific period, quantity or price. The aforesaid fact being an essential feature to test the applicability of section 194C of the Act as considered by Division Bench of this Court in the case of CIT (TDS) v. United Rice Land Ltd.[2010] 322 ITR 594 1. A further finding of fact is that the freight payment is Rs. 1,72,723 and none of the individual payment exceeded Rs. 20,000. It was also not disputed that the payments were made on the basis of individual GRs issued by the truck owners for each trip separately. Although aggregate of payments of two truck owners during the assessment year exceeded Rs. 20,000 which would still not lead to deduction of tax at source because there was no contract for a specific period,....” I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13 & 2014-15 to 2015-16 8 7.2. The ld. Sr. DR argued & relied on the observation of the revenue authorities&had not made any strong objection about acceptance of additional evidence. There is no any contrary judgment was filed against the submission of assessee. 8. Ground No. 4, the ld. Counsel further argued that Shri Sham Sunder & Shri Rakesh Kumar were having credit balances as unsecured loans as opening balances, the Account Ledgers are annexed in APB Page no. 141 & 144. Out of these Rs.5,00,000 each was transferred on 01/04/2011 of both these persons to Share Application Money account. No payment or fresh credit of this amount was received during the year. The ld. AO or ld. CIT(A) has not pointed out any such fresh credit or receipt during the year. The Chartered Accountant in Tax Audit report in Annexure A, clause 24 of Form 3CD mentioned the details of such transfers to the Share Application Money Account during the year but inadvertently skipped to fill detail of transfer of funds of these two persons to the share application money from unsecured loans. Mr Singla mentioned that the Assessee cannot be penalized for any error or omission of the Auditor, when the documentary evidence or books speak otherwise. The certificate from the Chartered Accountant regarding acceptance of I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13 & 2014-15 to 2015-16 9 mistake is attached in APB page no.169which was submitted now as additional evidence. 8.1. The ld. Sr. Dr. argued & relied on the observation of the revenue authorities & had not made any strong objection about acceptance of additional evidence. 9 Ground No.5, Mr. Singla argued that the ld. AO disallowed l/5th of car/ scooter/ motorcycle expenses, Telephone expenses, Depreciation on car as Director's personal expenses on estimate basis without pointing out any specific defect in these expenses, details on APB pages 150-168.CIT(A) reduced it to half of l/5th on estimate basis.Directors are agents of the company and any such facility can be added as perks in their hands and no such disallowance to be made in the hands of company. These expenses are 0.04% of sales. 9.1. The ld. Sr. DR argued and relied on the order of the revenue authorities. 10. We heard the rival submission and considered the documents available in the record and respectfully observed the orders of the different Courts. As per ground No-2, the assessee in his business availed unsecured loan with interest @ 18%. The ld. AO compared this loan transaction with the HDFC Bank. But this comparable is not accepted because this is related to secured loan. The comparison should be in I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13 & 2014-15 to 2015-16 10 same entity level and same circumstances. Accordingly, the interest payment in the loan creditors @ 18% is accepted. During assessment the ld. AO disallowed interest u/s 36(1)(iii) @ 6 % but the 36 (1) (iii) will be applicable only for the loan debtors or advanced debtors in comparison with utilisation of loan fund, not for loan-creditors. So, the entire addition in this head is quashed. 10.1. With regard toGround-3, the assessee paid the freight for purchasing agricultural product. The freight is included in the bill amount and related with the purchase value. Also, the assessee submitted the certificate from Panchayat where it is clear that there is no bank for completing the banking transaction for payment to the transporter. This cash payment is covered under Rule 6DD(J) of the Income Tax Rule 1962. So, the addition u/s 40 A(3) is uncalled for. The claim was also made by the ld. AO that no deduction TDS u/s 194C of the Act related to payment of freight but the assessee has submitted the judgment of jurisdictional High Court and respectfully considering the order of Hon’able High Court, the addition u/s 40A(3) is liable to be rejected. 10.2. All the other issue in Ground no-4, related to loan by converting share application money amount of Rs.10 lac was duly missed out from the tax audit report. The mistake was duly rectified by the CA and copy of the certificate are I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13 & 2014-15 to 2015-16 11 enclosed. Only tax audit report is not a sufficient for adjudicated the issue. The books of account is relevant for analysis the issue. The ld. Sr. DR had not made any strong objection in particular issue.In the ledger account of the assessee the balance of loan is reflected. Mere, observation of Tax Audit report is not serving the purpose. So, the addition made amount of Rs.10 lac is liable to be quashed. 10.3. In ground no-5 related to rejectionof expenses by both the revenue authorities is not accepted in the reason that there is no specific findings by both the revenue authorities. The disallowance cannot be done on the adhoc basis where the total expenses are .04% of the total turnover. The ld. CIT(A) is equally fallacious since the expenses are extremely useful for furtherance and growth of any business, leave aside the assessee's business. No worthwhile argument has been advanced by the ld. CIT(A) as to why he has treated this expense as bogus. It has been held in a plethora of judgments that any expense that goes towards better understanding and/or management of one's business is an expense allowable u/s 37 of the Act. It has also been held that it is not for the AO to step into the shoes of a businessman and dictate to him how he should run his business. In support, reliance was placed on the following decisions namely, CIT v. Kohinoor Paper Products [1997] 92 I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13 & 2014-15 to 2015-16 12 Taxman 316/226 ITR 220 (MP), Dinesh Mills Ltd vs. CIT, 254 ITR 673 (Guj). Therefore, the disallowance of expensesamount of Rs. 32,995/- is quashed. ITA 324/Asr/2019 11. Ground No. 3, Disallowance u/s 36(l)(iii): In argument ld. Counsel placed that the Appellant Company has purchased goods for Rs.4.22 Crore in AY 14-15. The Company gave advance to its Associate concern namely Tau Agro Tech Pvt. Ltd. for purchase of material for Appellant & during the year the said company had credit balances in the books of appellant during some period at APB page 105 to 109. This shows that the payment was made for purchase of goods, i.e. for purposes of business. The company had capital, share application money & free reserves of Rs. 2.91 crore ( Para-8. page 4) & had sufficient own funds to advance the funds to Associate concern.Further these funds were not used for creation of any capital asset & cannot be disallowed u/s 36(l)(iii). Moreover, no such disallowance is made in AY 2015-16 in assessment made u/s 143(3). 11. We heard the rival submission & relied on the documents available in the record. The assessee had not paid the amount to any non-income bearing fund. The entire amount was utilised for regular business transaction. The section 36(l)(iii) is I.T.A. Nos. 323 to 325/Asr/2019 Assessment Years: 2012-13 & 2014-15 to 2015-16 13 not applicable for assessee. The ld Sr. Dr. in argument relied on order of the ld. CIT(A). The addition is liable to quashed. 12. In the result the ground no. 3 of ITA- 324/Asr/2019 is allowed. Ground no-6 of ITA No- 323/Asr/2019 is general in nature. The rest of grounds of appeals of the assessee is mutatis mutandis similar with the ITA No- 323/Asr/2019. 13. In the result, ITA Nos. 323, 324 and 325/Asr/2019 are allowed. Order pronounced in the open court on 22.09.2022 Sd/ Sd/- (Dr. M. L. Meena) (ANIKESH BANERJEE) Accountant Member Judicial Member AKV Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order