Assistant Commissioner of Income-tax, Circle -4, Pune V. Prasanna Purple Mobility Solutions Pvt.Ltd, Pune

ITA 367/PUN/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7606 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 05-09-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 19-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VODAL RAJ SINGH
• Keywords: Business expenditure; Proportionate interest
• Section: 143(3); 37(1); 201

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.62/PUN/2018 / ASSESSMENT YEAR : 2013-14 PRASANNA PURPLE MOBILITY SOLUTIONS PRIVATE LIMITED, 396, NEAR AHILYADEVI HIGH SCHOOL, SHANIWAR PETH, MAHARASHTRA 411 030. PAN : AAACO9763H. . / APPELLANT V/S THE DY.COMMISSIONER OF INCOME TAX, CIRCLE 4, PUNE. . / RESPONDENT . / ITA NO.367/PUN/2018 / ASSESSMENT YEAR : 2013-14 THE DY.COMMISSIONER OF INCOME TAX, CIRCLE 4, PUNE. . / APPELLANT V/S PRASANNA PURPLE MOBILITY SOLUTIONS PRIVATE LIMITED, 396, NEAR AHILYADEVI HIGH SCHOOL, SHANIWAR PETH, MAHARASHTRA 411 030. PAN : AAACO9763H. . / RESPONDENT ASSESSEE BY : SHRI NIKHIL MUTHA. REVENUE BY : SHRI VODAL RAJ SINGH. / DATE OF HEARING : 01.08.2019 / DATE OF PRONOUNCEMENT: 16.10.2019 2 / ORDER PER ANIL CHATURVEDI, AM : 1. THESE CROSS-APPEALS FILED BY ASSESSEE AND REVENUE E MANATE OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (A) PUNE 3, DATED 24.11.2017 FOR A.Y. 2013-14. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A PRIVATE LIMITED COMPANY STATED TO BE ENGA GED IN THE BUSINESS OF RUNNING, OPERATING, MANAGING, MAINTAINING AND LETTING ON HIRE VARIOUS FLEET OF BUSES AND OTHER VEHICLES. ASSESSE E ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2013-14 ON 30.09.2013 DECLARING TOTAL LOSS OF RS.2,71,97,713/-. THE CASE WAS SELECT ED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S 143(3 ) OF THE ACT VIDE ORDER DT.26.02.2016 AND THE TOTAL LOSS WAS DETERMINED AT RS.1,60,85,130/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE C ARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.24.11.2017 (IN APPE AL NO.CIT(A), PUNE-3/10121/2016-17) GRANTED PARTIAL RELIEF TO T HE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE A ND REVENUE ARE NOW IN APPEAL BEFORE US. 3. THE GROUND RAISED BY THE ASSESSEE IN ITA NO.62/PUN /2018 FOR A.Y. 2013-14 READS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWA NCE OF INR 22,15,000 AT AN AD-HOC RATE OF 2% OF CERTAIN EXPENSES UNDER S ECTION 37(1) OF THE ACT WITHOUT APPRECIATING THE SAME WERE INCURRED FOR THE PURPOSE OF BUSINESS. 3 4. ON THE OTHER HAND, THE GROUNDS RAISED BY THE REVEN UE IN ITA NO.367/PUN/2018 READS AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ENTIRE ADDITION OF RS. 88,97,580/- MAD E ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES U/S 36(1)(III) OF THE IT ACT, IGNORING THE FACT THAT THE ASSESSEE DID NOT SUBMIT ANY DOCUMENTA RY EVIDENCE TO PROVE THAT INTEREST FREE FUNDS WERE AVAILABLE WITH IT AT THE TIME (DATE) WHEN THE AMOUNTS WERE ADVANCED TO ITS SISTER CONCERNS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAD ALREADY MADE INVESTMENTS IN FIXED ASSETS, OTHER LOANS AND ADVANCES AND CERTAIN OTHER INVESTMENTS AS EVIDENCED FROM THE BALANCE SHEET AND THUS, THE ASSE SSEE WAS NOT HAVING ANY OWNED/INTEREST FREE FUNDS TO BE GIVEN AS LOAN T O ITS 3 SUBSIDIARIES AND TO A PARTNERSHIP FIRM 'RAMJYOTI TRAVELS' TO THE EXTENT OF RS. 4,89,73,646/- AND RS. 1,19,07,769/- RESPECTIVELY. 5. WE FIRST PROCEED TO DECIDE THE ASSESSEES APPEAL IN I TA NO.62/PUN/2018 FOR A.Y. 2013-14. 5.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON PE RUSING THE PROFIT & LOSS ACCOUNT, AO NOTICED THAT ASSESSEE HAS DEBIT ED EXPENSES ON VARIOUS ACCOUNTS AGGREGATING TO RS.11,07,50,032/-, THE DETAILS OF WHICH ARE TABULATED AT PARA 5 OF THE ASSESSMENT ORDER. THE ASSESSEE WAS ASKED TO JUSTIFY THE EXPENSES BY PRODUCING THE RE LEVANT DOCUMENTARY EVIDENCE. THE ASSESSEE HAS FILED THE COPIES OF BILLS AND VOUCHERS. ON PERUSING THE BILLS AND VOUCHERS FURNISHED B Y THE ASSESSEE, AO NOTED THAT THE EXPENSES WERE NOT FULLY VE RIFIABLE BY BILLS AND VOUCHERS AND FEW OF THE VOUCHERS WERE NOT HAVING T HE NAME AND SIGNATURE OF THE RECIPIENTS. AO WAS THEREFORE OF THE VIEW THAT THE PROBABILITY OF NON-BUSINESS EXPENSES CANNOT BE RULED OUT. HE ACCORDINGLY, ON ADHOC BASIS, DISALLOWED 2% ON AGGREGATE E XPENSES AND THUS MADE DISALLOWANCE OF RS.22,15,000/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO UPHE LD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW BEFORE US. 4 6. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFOR E AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE HAD PRODUCED ALL T HE BILLS AND VOUCHERS AND THE OTHER RELEVANT DOCUMENTS. H E SUBMITTED THAT AO HAS PROCEEDED TO DISALLOW THE EXPENSES ON ADH OC BASIS AND HAS NOT POINTED OUT THE SINGLE INSTANCE WHERE THE EXPEN SES ARE NOT FOR THE PURPOSE OF BUSINESS. HE FURTHER SUBMITTED THAT THE DISALLOWANCE WAS MADE ONLY ON THE BASIS OF SURMISES BY CONCLUDING THA T PROBABILITY OF NON-BUSINESS USE OF EXPENSES CANNOT BE RULED OUT. H E FURTHER SUBMITTED SIMILAR DISALLOWANCE WAS MADE BY THE AO IN A.Y. 201 2-13 BUT WHEN THE MATTER WAS CARRIED BEFORE LD.CIT(A), THE DISA LLOWANCE WAS DELETED BY LD.CIT(A). HE FURTHER SUBMITTED THAT NO DISALLO WANCE HAS BEEN MADE IN SUBSEQUENT YEARS IN THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT AND IN SUPPORT OF WHICH HE POINTED TO THE COPY OF THE ASSESSMENT ORDER FOR A.Y. 2014-15 DT.30.12.2016 WHICH IS P LACED AT PAGES 104 & 105 OF THE PAPER BOOK. HE FURTHER SUBMITTE D THAT ON IDENTICAL FACTS IN SUBSEQUENT YEARS NO DISALLOWANCE HAS BE EN MADE AND THE DISALLOWANCE ONLY FOR THE YEAR UNDER CONSIDERAT ION WAS NOT JUSTIFIED. LD. D.R. ON THE OTHER HAND, SUPPORTED THE ORD ER OF LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO DISALLOW ANCE OF EXPENSES ON AD-HOC BASIS. IT IS AN UNDISPUTED FACT T HAT THE ASSESSEE HAD FURNISHED THE REQUISITE DOCUMENTS BEFORE THE AO AND PRODUCED THE BOOKS OF ACCOUNTS. AO HAS PROCEEDED TO MAKE A GE NERAL STATEMENT ABOUT THE EXPENSES BEING NOT VERIFIABLE AS SOME OF THE V OUCHERS ARE SELF-MADE AND THEY DO NOT BEAR NAME AND SIGNATURE OF T HE RECIPIENTS. HE ON THE BASIS OF SUCH SURMISES HAD CONCLUDED THAT TH E PROBABILITY OF THE EXPENSES FOR NON-BUSINESS PURPOSE CANNOT BE RULED OUT AND 5 ACCORDINGLY, HE DISALLOWED RS.2% ON AGGREGATE AMOUNT ON AD-HOC B ASIS. WE FIND THAT NO INSTANCE OF THE EXPENSES BEING FOR NON-B USINESS PURPOSE HAS BEEN POINTED OUT BY THE AO IN THE ASSESSM ENT ORDER. FURTHER, BEFORE US, LD.A.R. HAS CONTENDED THAT NO DISALLOW ANCE OF EXPENSES HAS BEEN MADE EITHER IN SUBSEQUENT YEARS NO R IN EARLIER YEARS. CONSIDERING THE TOTALITY OF THE AFORESAID FACTS, WE AR E OF THE VIEW THAT IN THE PRESENT CASE, NO DISALLOWANCE OF EXPENSES IS C ALLED FOR. WE THEREFORE DIRECT THE DELETION OF ADDITION MADE BY THE AO. THUS, THE GROUND OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . 9. NOW WE TAKE UP THE APPEAL OF REVENUE IN ITA NO.367/P UN/2018 FOR A.Y. 2013-14. 9.1. BOTH THE GROUNDS RAISED BY THE REVENUE ARE INTER -CONNECTED AND THEREFORE CONSIDERED TOGETHER. 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTIC ED THAT ASSESSEE HAD GIVEN INTEREST FREE OF LOAN AT RS.4,89,73,646/ - TO THREE OF ITS SUBSIDIARIES AND RS.1,19,07,769/- TO A PARTNERSHIP FIRM R AMAJYOTI TRAVELS IN WHICH ASSESSEE IS A PARTNER AND THUS HAVING LENT AGGREGATE AMOUNT OF RS.6,08,81,415/-. HE ALSO NOTICED THAT ASSESSEE HAD BORROWED FUNDS AND PAID INTEREST TO AN EXTENT OF RS.2,20,79,653/- THE ASSESSEE WAS ASKED TO ESTABLISH THE BUSINESS EXPEDIENCY AND PURPOSE OF LOANS AND ALSO TO SHOW CAUSE AS TO WHY EQUIVALENT INTE REST SHOULD NOT BE DISALLOWED. THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE AO. AO WAS OF THE VIEW THAT ASS ESSEE HAS FAILED TO ESTABLISH THAT THE FUNDS WERE UTILIZED FOR THE PURP OSE OF 6 BUSINESS AND ACCORDINGLY DISALLOWANCE OF PROPORTIONATE AM OUNT OF INTEREST HAS TO BE MADE U/S 36(1)(III) OF THE ACT. HE THEREA FTER WORKED OUT THE PROPORTIONATE INTEREST DISALLOWANCE AT RS.88,97,580 /- AS PER THE DETAILS TABULATED AT PARA 4.3 OF THE ASSESSMENT ORDE R AND MADE ITS DISALLOWANCE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CAR RIED THE MATTER BEFORE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO AT PARA 6.3.1 OF HIS O RDER AND WHILE DELETING THE ADDITION HE HAS ALSO GIVEN A FINDING THAT ASSESSEE H AS SUFFICIENT INTEREST FREE FUNDS TO ADVANCE TO ITS SISTER CONC ERNS AND IT IS NOT A CASE OF DIVERSION OF INTEREST BEARING FUNDS TO THE SISTER CONCERN S. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW BEFORE US. 11. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF AO AND LD. A .R. ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE AO AN D LD.CIT(A) AND FURTHER SUBMITTED THAT ON IDENTICAL FACTS IN A.Y. 2012 -13, REVENUE HAD CARRIED THE MATTER BEFORE THE TRIBUNAL AND THE TRIB UNAL HAD DISMISSED THE APPEAL OF REVENUE VIDE ORDER DT.23.01.2019 IN ITA NO.158/PUN/2017. HE PLACED ON RECORD THE COPY OF THE ORDER AT PAGES 106 TO 113 OF THE PAPER BOOK. HE FURTHER SUBMITTED THA T NO DISALLOWANCE OF INTEREST HAS BEEN MADE IN SUBSEQUENT YEAR S AND FURTHER WHEN THE ASSESSEE HAS ADEQUATE INTEREST FREE FU NDS THEN A PRESUMPTION IS MADE THAT THE BORROWED FUNDS ARE NOT DIV ERTED FOR THE PURPOSE OF BUSINESS AND FOR THIS PROPOSITION, HE RELIED ON T HE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRIES LTD., REPORTED IN (2017) 86 TAXMANN.COM 24 (BOM). HE FURTHER SUBMITTED THAT AGAINST THE ORDER OF RELIANCE INDU STRIES LTD., (SUPRA), REVENUE HAD FILED SLP BEFORE THE HONBLE APEX COU RT AND THE HONBLE APEX COURT HAS UPHELD THE ORDER OF HONBLE HIGH COURT. HE 7 PLACED ON RECORD THE COPY OF THE ORDER WHICH WAS REPOR TED IN (2019) 410 ITR 466 (SC) AT PAGES 114 TO 116 OF THE PAPER BOO K. HE THUS SUPPORTED THE ORDER OF LD.CIT(A). 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO PROPORTIONATE DISALLOWANCE U/S 36(1)(III) OF THE ACT. IT IS REVE NUES CASE THAT ASSESSEE HAS DIVERTED BORROWED FUNDS TO ITS SISTER CONCERNS AND FOR WHICH NO INTEREST HAS BEEN CHARGED. WE FIND THAT LD.CIT(A ) AFTER CONSIDERING THE FACTUAL POSITION HAS GIVEN A FINDING THAT ASS ESSEE HAD SUFFICIENT INTEREST FREE FUNDS AND IT WAS NOT THE CASE OF DIV ERSION OF FUNDS TO ITS SISTER CONCERNS. TO ARRIVE AT THE AFORESAID CONCLUSION, LD.CIT(A) ALSO RELIED ON THE SUBMISSIONS OF THE ASSESSEE IN T HE CASE OF RELIANCE UTILITIES (SUPRA). BEFORE US, NO FALLACY IN THE FINDINGS OF LD.CIT(A) HAS BEEN POINTED OUT. WE THEREFORE FIND NO REASO N TO INTERFERE WITH THE ORDER OF LD.CIT(A). THUS, THE GROUNDS OF REVENUE ARE DISMISSED. 13. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. 14. TO SUM UP, THE APPEAL OF ASSESSEE IS ALLOWED AND T HE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON 16 TH DAY OF OCTOBER, 2019. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ' / JUDICIAL MEMBER #' / ACCOUNTANT MEMBER PUNE; DATED : 16 TH OCTOBER, 2019. YAMINI 8 $%&'()(& / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. CIT(A)-3, PUNE. PR.CIT-2, PUNE. '#$ %%&',) &', / DR, ITAT, B PUNE; $,-./ GUARD FILE. / BY ORDER , // TRUE COPY // /01%2&3 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE