JTCIT (OSD) RG 8(3), MUMBAI V. UNITED INK & VARNISH P.LTD, MUMBAI

ITA 3835/MUM/2012

• Counselvise Citation: 383519914 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 27-08-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 30-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ANIL SATNE IZRFKHZ DH LS
• Keywords: Additional evidence
• Section: 68

Judgement Text

UNITED INK & VARNISH CO. PVT. LTD - 1 - VK;DJ VIHYH; VF/KDJ.K ,Q U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI JH JKTSUNZ FLAG YS[KK LNL; ,OA JH FOOSD OEKZ] U;KF; D LNL; DS LE{K BEFORE SHRI RAJENDRA SINGH ACCOUNTANT MEMBER AND SH RI VIVEK VARMA, JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO. 3835/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2003-04 JTCIT (OSD) RG 8(3) ASSISTANT COMMISSIONER OF INCOME TAX,-8(3), ROOM NO. 217, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400 020. CUKE@ VS. UNITED INK & VARNISH CO. PVT. LTD. 37-40, PARANJPE B SCHEME, SUBHASH ROAD, VILE PARLE (EAST) MUMBAI- 400 057. PAN:- AAACV0086F VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VIHYKFKHZ DH VKSJ LS @ ASESSEE BY SHRI ANIL SATNE IZR;FKHZ DH VKSJ LS @ REVENUE BY MRS AMRITA MISRA VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 14.3.2012 OF CIT(A) FOR THE ASSESSMENT YEAR 2 003-04. THE REVENUE IN THIS APPEAL HAS RAISED DISPUTES ON TWO D IFFERENT GROUNDS WHICH RELATE TO DISALLOWANCE OF INTEREST U/ S 40A(2)(B) AND ADDITION U/S 68 OF THE IT ACT. 2. WE FIRST TAKE UP THE DISPUTE RELATING TO DISALLO WANCE OF INTEREST U/S 40A(2)(B). THE AO NOTED THAT THE ASSES SEE HAD MADE LQUOKBZ DH RKJH[K @ DATE OF HEARING 31-10-2013 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 31-10-2013 UNITED INK & VARNISH CO. PVT. LTD - 2 - PAYMENT OF INTEREST OF RS. 42,34,061/- TO FOUR SIST ER CONCNERS FOR DELAYED PAYMENT OF CONSIDERATION IN RESPECT OF GOOD S AND SERVICES OBTAINED FROM THE SISTER CONCERNS AS PER H E DETAILS GIVEN BELOW:- (I). DSV CHEMICALS PVT. LTD RS. 24,25,511 (II) SATHAYE INKS & ROLLERS P LTD RS. 6,58,710 (III) UNITED INKS AND CHEMICALS P LTD RS. 4,66,41 6 (IV) UNITED SPECIALITY INKS P LTD. RS. 6,83,427 TOTAL RS. 42,34,061 2.1 THE ASSESSEE EXPLAINED THAT THE INTEREST HAD BE EN PAID DUE TO DELAY IN PAYMENT OF OUTSTANDING FOR THE TRANSACT IONS MADE WITH THESE SISTER CONCERNS. THE AO HOWEVER NOTED TH AT THE ASSESSEE HAD NOT PAID ANY INTEREST TO ANY OTHER PAR TIES OTHER THAN SISTER CONCERNS AND, THEREFORE, THE EXPENDITUR E INCURRED ON ACCOUNT OF INTEREST WAS EXCESSIVE COMPARED TO MARKE T VALUE AND ACCORDINGLY HE DISALLOWED THE CLAIM OF INTEREST U/S 40A(2)(B) OF THE IT ACT. 2.2. IN APPEAL, THE ASSESSEE SUBMITTED BEFORE CIT(A ) THAT THE CONCERNS WERE REGULAR SUPPLIERS OF THE COMPANY AND MORE THAN 50% OF MANUFACTURING COST WAS SUPPLIED BY THEM. THE INTEREST HAD BEEN PAID FOR LATE PAYMENT FOR PURCHASES AND PR OCESSING CHARGES. THE INTEREST PAID BY ASSESSEE HAD BEEN DEC LARED AS INCOME BY THE SISTER CONCERNS WHICH WERE REGULARLY ASSESSED TO TAX. IT WAS ALSO SUBMITTED THAT THE AO HAD NOT MADE OUT ANY CASE AS TO HOW THE PAYMENTS WERE EXCESSIVE OR UNRE ASONABLE. CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTIONS. IT W AS OBSERVED BY HIM THAT SUPPLY TO THE EXTENT OF ABOUT 50% HAD ALSO BEEN TAKEN UNITED INK & VARNISH CO. PVT. LTD - 3 - FROM OUTSIDERS TO WHOM NO INTEREST HAD BEEN PAID. T HEREFORE, FINDING GIVEN BY THE AO THAT PROVISIONS OF SECTION 40A(2)(B) WERE APPLICABLE, COULD NOT BE IGNORED. HOWEVER CIT(A) FU RTHER OBSERVED THAT THE INTEREST ON DELAYED PAYMENT TO THE SISTER CONCERNS MAY HAVE BEEN CONSIDERED BY THE SAID CONCERNS IN THE PR ICE AND, THEREFORE, DISALLOWANCE OF ENTIRE INTEREST WAS NOT JUSTIFIED. CIT(A), THEREFORE, RESTRICTED THE DISALLOWANCE TO 20% OF IN TEREST AT RS. 8,46,812/- AND DELETED THE BALANCE ADDITION MADE BY AO, AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE TRIBUNAL. 2.3 BEFORE US THE LEARNED AR FOR THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES, WHEREAS LEARNED DR STRONGLY DEFENDED THE ORDER OF ASSESSING OFFICER. 2.4 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE O F INTEREST PAID TO SISTER CONCERNS IN RESPECT OF SUPPLIES MADE BY T HEM U/S 40A(2)(B) BEING EXCESSIVE COMPARED TO MARKET VALUE. THERE IS A CLEAR FINDING OF BOTH AO AND CIT(A) THAT OUTSIDE PA RTIES HAD ALSO SUPPLIED GOODS AND SERVICES TO ASSESSEE TO WHOM NO INTEREST HAD BEEN PAID FOR DELAYED PAYMENTS. THEREFORE, PAYMENTS OF INTEREST TO SISTER CONCERNS IS APPARENTLY EXCESSIVE COMPARED TO MARKET VALUE. CIT(A) HAS HOWEVER ALLOWED RELIEF ON THE GRO UND THAT INTEREST PAYMENT MADE HAVE BEEN INBUILT INTO THE PR ICE CHARGED BY THE SISTER CONCERNS BUT WE SEE NO MATERIAL TO S UPPORT THE FINDING OF CIT(A) THAT PRICES CHARGED BY THE SISTER CONCERNS WERE FAVOURABLE TO THE ASSESSEE COMPARED TO OTHER PARTIE S. THE ORDER OF CIT(A) GIVING RELIEF CANNOT BE UPHELD. IN OUR VI EW THIS ASPECT REQUIRES FRESH CONSIDERATION AT THE LEVEL OF AO AS THE SAME HAD UNITED INK & VARNISH CO. PVT. LTD - 4 - NOT BEEN EXAMINED EITHER BY AO OR BY CIT(A). WE, TH EREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY AND DETAI LED EXAMINATION AND AFTER ALLOWING OPPORTUNITY OF HEARI NG TO THE ASSESSEE. 3. THE SECOND DISPUTE IS REGARDING ADDITION MADE OF RS. 90,20,019/- U/S 68 OF THE IT ACT. THE AO NOTED THAT THE ASSESSEE HAD TAKEN LOAN OF RS. 10,00,000/- FROM MUMBAI MAZDO OR SABHA AND RS. 80,20,019/- FROM BETTER VALUE LEASING & FIN ANCE CO. LTD,. THE ASSESSEE COULD NOT FILE CONFIRMATIONS AND , THEREFORE, THE AO ADDED THE SUM OF RS. 90,20,019/- AS INCOME OF TH E ASSESSEE U/S 68 OF THE IT ACT. OUT OF THE SAID ADDITION, THE SUM OF RS. 10,00,000/- ON ACCOUNT OF MUMBAI MAZDOOR SABHA WAS CONFIRMED BY CIT(A) BUT ADDITION ON ACCOUNT OF BETT ER VALUE LEASING & FINANCE CO. LTD. WAS DELETED. IN RELATION TO BETTER VALUE LEASING & FINANCE CO. LTD., IT WAS SUBMITTED B EFORE CIT(A) THAT THE ASSESSEE HAD CERTAIN HIRE PURCHASE AGREEME NT WITH THIS CONCERN IN CONNECTION WITH WHICH THE LOAN HAD BEEN TAKEN. THE ASSESSEE FILED CONFIRMATION FROM THE SAID CONCERN A LONG WITH THE HIRE PURCHASE AGREEMENT. THE ASSESSEE ALSO FILED CO PY OF ACCOUNT IN THE BOOKS OF BETTER VALUE LEASING & FINANCE CO. L TD. AS WELL AS THE COPY OF SAID CONCERN IN THE BOOKS OF THE ASS ESSEE. SINCE THE ASSESSEE HAD FILED SOME ADDITIONAL EVIDENCES. 3.1 CIT(A) FORWARDED THE DETAILS TO THE AO FOR REMA ND REPORT. THE AO IN THE REMAND REPORT SUBMITTED THAT THERE WA S NO LOAN GIVEN BY THE BETTER VALUE LEASING & FINANCE CO. LTD. TO THE ASSESSEE. IN REPLY THE ASSESSEE SUBMITTED BEFORE CI T(A) THAT THE UNITED INK & VARNISH CO. PVT. LTD - 5 - REPORT OF AO WAS GROSSLY ERRONEOUS AS THE ASSESSEE HAD FURNISHED CONFIRMATION FROM THE LENDING COMPANY AS WELL AS HIRE PURCHASE AGREEMENT TO SHOW THAT THERE HAS BEEN ACTU AL RECEIPT OF LOAN FOR HIRE PURCHASE OF MACHINERY AND PAYMENT OF LOAN IN INSTALLMENTS TO THE LENDER. THE TRANSACTIONS HAVE B EEN RECORDED BOTH BY THE ASSESSEE AND THE LENDER IN THE BOOKS OF ACCOUNTS. THE ASSESSEE HAD ALSO FURNISHED THE BANK STATEMENT SHOWING THE RECEIPT OF LOAN TAKEN AND PAYMENT OF MONTHLY INSTAL LMENTS. THE AO WAS, THEREFORE, NOT CORRECT IN STATING THAT THE LOAN HAD NOT BEEN TAKEN. 3.2 CIT(A) ON CONSIDERATION OF REPLY OF THE ASSESSE E OBSERVED THAT THE ASSESSEE HAD FILED CONFIRMATION REGARDING THE LOANS TAKEN AND ALSO FILED THE HIRE PURCHASE AGREEMENT A ND CONFIRMATION WITH PAN NO. THE ASSESSEE HAD, THEREFO RE, DISCHARGED THE INITIAL BURDEN OF PROVING THE TRANSA CTIONS. THE DOCUMENTS PLACED ON RECORD CLEARLY SHOWED THAT THE ASSESSEE HAD OBTAINED FINANCE AGAINST THE EXISTING ASSETS. T HEREFORE, THE AO WAS NOT CORRECT IN STATING THAT NO LOAN WAS GIVE N BY BETTER VALUE LEASING & FINANCE CO. LTD. CIT(A) FURTHER OBSE RVED THAT IN CASE THE AO WAS NOT SATISFIED, HE HAD NECESSARY POW ERS TO VERIFY THE MATTER WITH THE PARTY BUT NO VERIFICATION OR AN Y ADVERSE MATERIAL HAD BEEN PLACED ON RECORD. CIT(A), THEREFO RE, DELETED THE ADDITION OF RS. 80,80,019/-, AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE TRIBUNAL. 3.3 BEFORE US THE LEARNED AR FOR THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES THAT IT H AD FILED CONFIRMATION WITH PAN NO. AS WELL AS HIRE PURCHASE AGREEMENT UNITED INK & VARNISH CO. PVT. LTD - 6 - WITH BETTER VALUE LEASING & FINANCE CO. LTD. THE ASS ESSEE HAD ALSO FILED COPIES OF THE LEDGER ACCOUNT OF THE PART Y IN THE BOOKS OF THE ASSESSEE AS WELL AS THE LEDGER COPY OF THE ASSE SSEES ACCOUNT IN THE BOOKS OF THE OTHER PARTY. DETAILS OF RECEIP TS AND PAYMENT OF FINANCE TAKEN FROM BETTER VALUE LEASING & FINANCE CO. LTD. BOTH AS PER BOOKS OF ACCOUNTS AND AS PER BANK AS WE LL AS RECONCILIATION HAD ALSO BEEN FILED WHICH WAS DULY M ENTIONED IN REPLY DATED 15.2.2012 BEFORE CIT(A) A COPY OF WHICH WAS AVAILABLE AT PAGES 75 TO 80 OF THE PAPER BOOK. THE ASSESSEE HAD FILED THE CONFIRMATION FROM BETTER VALUE LEASING & FINANCE CO. LTD. DATED 18-10-2007 COPY OF WHICH WAS AVAILABLE AT PAGE 68 O F THE PAPER BOOK. THE PAN NO. OF THE SAID PARTY HAD ALSO BEEN G IVEN BEFORE THE AO, DETAILS OF WHICH ARE AVAILABLE AT PAGE 32 O F THE PAPER BOOK. THE ASSESSEE HAD, THEREFORE, DISCHARGED THE B URDEN OF PROVING THE LOAN TRANSACTIONS BY FILING NECESSARY D ETAILS AND EVIDENCE. THE ADDITION MADE WAS, THEREFORE, NOT JUS TIFIED. THE LEARNED DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF ASSESSING OFFICER. 3.4 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ADDITION OF RS. 80,20,019/- ON ACCOUNT OF LOAN TAKEN FROM BETTER VALUE LEASING & F INANCE CO. LTD. U/S 68 OF THE IT ACT. THE AO HAD MADE THE ADDI TION ON THE GROUND THAT THE ASSESSEE HAD NOT FILED CONFIRMATION . HOWEVER NECESSARY DETAILS AND EVIDENCE IN SUPPORT OF THE TR ANSACTIONS HAD BEEN FILED BEFORE CIT(A) WHICH HAD ALSO BEEN SENT T O THE AO FOR VERIFICATION AND REPORT. THE ASSESSEE HAS FILED CON FIRMATION FROM THE PARTY ALONG WITH PAN NO. OF THE PARTY WHICH HAV E BEEN PLACED ON RECORD. THE ASSESSEE HAS ALSO FILED COPY OF LEDG ER ACCOUNT IN UNITED INK & VARNISH CO. PVT. LTD - 7 - THE BOOKS OF THE ASSESSEE AS WELL AS COPY OF THE AS SESSEES ACCOUNT IN THE BOOKS OF THE OTHER PARTY. COPY OF TH E BANK ACCOUNT IN WHICH THESE TRANSACTIONS WERE RECORDED H AD ALSO BEEN FILED ALONG WITH RECONCILIATION STATEMENT. THE LOAN TAKEN BY THE ASSESSEE WAS AS PER HIRE PURCHASE AGREEMENT, COPY O F WHICH HAD ALSO BEEN FILED. THEREFORE, REPORT OF THE AO THAT T HERE WAS NO LOAN TAKEN OR THAT THE LOAN TAKEN WAS NOT EXPLAINED SATI SFACTORILY IS NOT CORRECT. THE ASSESSEE HAD DISCHARGED THE BURDEN OF EXPLAINING THE TRANSACTIONS SATISFACTORILY WITH SUP PORT OF DOCUMENTARY EVIDENCES. WE, THEREFORE, SEE NO INFIRM ITY IN THE ORDER OF CIT(A) IN ALLOWING RELIEF TO THE ASSESSEE. THE ORDER OF CIT(A) IS THEREFORE CONFIRMED. 4. IN THE RESULT APPEAL OF THE REVENUE IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 31-10-2013 SD/- SD/- (VIVEK VARMA) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 31-10-2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI