ACIT, Cuttack V. Krishna Coke Indian Pvt. Ltd, Cuttack

ITA 392/CTK/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52448 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2011
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 19-12-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 02-09-2011
• Court: TRIBUNAL
• Department Lawyers: IS AGAINST
• Keywords: Deemed to accrue or arise in india; Proportionate interest; Fair market value; Notional interest
• Section: 43B

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 392/CTK/2011 AND C.O.NO.25/CTK/2011 (ASSESSMENT YEAR 2008 - 09) (FILED BY THE ASSESSEE ) ASST.COMMISSIONER OF INCOME - TAX,CUTTACK. VERSUS KRISHNA COKE INDIA PVT. LTD., GANGAMANDIR SQUARE, CUTTACK. PAN: AACCK 3728 N (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI A.BHATTACHARJEE, D R FOR THE RESPONDENT SHRI A.K.AGARWALLA, A R DATE OF HEARI NG : 19.12.2011 DATE OF PRONOUNCEMENT : 22.12.2011 ORDER SHRI K.K.GUPTA, AM : THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) WHO WAS UNJUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO DELETE T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 40A(2 )( B) OF THE INCOME - TAX ACT,1961 AMOUNTING TO 16,80,000. THE REVENUE ALSO AGITATES THE ACTION OF THE LEARNED CIT(A) IN CONSIDERING THE CASE OF THE ASSESSEE ON THE BASIS OF EXPLANATION BROUGHT ON RECORD WITH RESPECT TO NOTIONAL INTEREST DISALLOWED BY THE ASSESSING OFFICER ON ACCOUNT OF FUNDS DIVERTED FOR NON - BUSINESS PURPOSES WITHOUT CHARGING OF INTEREST AT 3,25,492 WHICH THE LEARNED CIT(A) REDUCED THE DISALLOWANCE TO 7,134. 2. THE ASSESSEE RESPONDENT, IN ITS CROSS OBJECTION, IS OBJECTING TO THE LEARNED CIT(A) SUSTAINING THE ADDITION/DISALLOWANC E OF 7,134 ON THE SECOND ISSUE AGITATED BY THE REVENUE BEFORE US AS ABOVE O N THE FACTS AND CIRCUMSTANCES AS MENTIONED IN THE ASSESSMENT ORDER WHICH DID NOT REQUIRE EXPLANATION TO THE LEARNED CIT(A) VIOLATING THE PROVISIONS OF RULE 46A. IN ADDITION THERETO THE ASSESSEE RESPONDENT IS ALSO OBJECTING TO THE LEARNED ITA NO.392/CTK/2011 2 CIT(A) CONFIRMING THE ADDITION OF 74,274 UNDER THE PROVISIONS OF SECTION 2(24)(X). 3. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY MANUFACTURI NG LOW ASH METALLURGICAL COKE. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER EXAMINED 3CD REPORT UNDER THE PROVISIONS OF SECTION 44AB WHEN HE LD THAT THE PAYMENT OF EMPLOYEES SHARE OF PROVIDENT FUND HAD BEEN DEPOSITED BEYOND A PERIOD OF ONE MONT H EACH TOTALLING 74,2474 FOR WHOLE OF THE YEAR. HE HELD THE SAME AS DEEMED INCOME IN THE HANDS OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 2(24)(X). THE ASSESSING OFFICER CONSIDERED THE REMUNERATION TO THE DIRECTORS WHEN HE OBSERVED THAT THE DIRECTORS HAVE BEEN PAID IN EXCESS TO THE FAIR MARKET VALUE OF THE SERVICES RENDERED BY THE DIRECTORS INVOKING THE PROVISIONS OF SECTION 40A(2 )( B). COMPARING THE SAME OF THE EARLIER YEAR HE DISALLOWED A SUM OF 16,80,000. HE ALSO OBSERVED IN THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD PAID INTEREST TO THE BANK AND ALSO PAID INTEREST ON UNSECURED LOANS WHEN HE OBSERVED THAT A SUM OF 25 LAKHS EACH WERE ADVANCED TO SMT. DEEPA KANDOI AND SRI PAWAN KUMAR KANDOI AS NON - INTEREST BEARING LOAN. HE HELD THE FUNDS AVAILABLE TO THE ASSESSEE FROM INTEREST PAID FUNDS WHICH PROPORTIONATE INTEREST HE DISALLOWED AMOUNTING TO 3,25,492. 4. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONSIDERED THE CASE OF THE ASSESSEE APPELLANT BEFORE HIM BY HOLDING THE DISALLOWANCE U/S.40A(2 )( B) IN VIEW THAT THE ASSESSEE HAD CONTINUOUSLY INCREASED ITS TURNOVER AND THE RETURN OF INCOME OVER A PERIOD OF THE EARLIER TWO YEARS HAD BEEN INCREASING THEREFORE, THE ASSESSING OFFICER WAS NOT ITA NO.392/CTK/2011 3 JUSTIFIED IN MAKING ADHOC DISALL OWANCE. AS NO MATERIAL EVIDENCE FOR A FAIR MARKET VALUE OF REMUNERATION PAID TO THE DIRECTORS HA D BEEN BROUGHT ON RECORD, HE DELETED THE SAME. ON THE ISSUE OF NOTIONAL INTEREST TO BE DISALLOWED ON THE FUNDS DIVERTED TO NON - INTEREST BEARING LOANS, HE COMPUT ED THE NEXUS OF INTEREST BEARING FUNDS AVAILABLE VIS - - VIS THE NON - INTEREST BEARING FUNDS AS EVIDENT FROM THE LEDGER ACCOUNT AND BANK STATEMENTS, HE RESTRICTED THE DISALLOW ANCE TO 8 DAYS INTEREST FROM 24.3.2008 TO 30.3.2008 WHEN THE LOAN OF 25 LAKHS EACH WERE GIVEN. HE RESTRICTED THE ADDITION TO 7,134. ON THE ISSUE WITH RESPECT TO EMPLOYEES SHARE OF PF U/S.2(24)(X), HE HELD THAT THE BENEFIT OF EXTENSION OF TIME AFTER THE DUE DATE CANNOT BE GIVEN IN RESPECT OF DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND AUTHORITIES . 5. THE REVENUE IS IN APPEAL AND THE ASSESSEE HAS FILED THE CROSS OBJECTION AS PER THE ISSUES MENTIONED EARLIER. 6. THE LEARNED DR POINTED OUT THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF 16, 80,000 INSOFAR AS HE DID NOT CONSIDER THE BASIS WHICH LED TO THE DISALLOWANCE OF THE SAME BY THE ASSESSING OFFICER U/S.40A(2 )( B). HE SUBMITTED THAT INCREASE IN TURNOVER WAS NOT CORRESPONDING TO THE ENTITLED REMUNERATION TO THE DIRECTORS TO CLAIM EXCESS REM UNERATION AGAINST WHICH NO DOCUMENTARY EVIDENCE HAS BEEN BROUGHT ON RECORD. WITH RESPECT TO THE DELETION OF THE AMOUNT OF INTEREST ON INTEREST FREE ADVANCE BY RESTRICTING IT TO 8 DAYS, THE LEARNED DR POINTED OUT THAT A NEW EXPLANATION HAS BEEN BROUGHT ON R ECORD THAT THE LOAN HAD BEEN GIVEN ON 24.3.2008 WAS NOT BEFORE THE ASSESSING OFFICER , WHICH MAY KINDLY BE CONSIDERED IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT. ITA NO.392/CTK/2011 4 7. THE LEARNED COUNSEL FOR THE ASSESSEE IN RESPECT TO THE SUBMISSIONS OF THE LEARNED DR O N THE REVENUES APPEAL SUBMITTED THAT IT WAS NOBODYS CASE THAT THE DIRECTORS ARE NOT ENTITLED TO REMUNERATION VIOLATING THE PROVISIONS OF SECTION 40A(2)(B) INSOFAR AS NO COMPARISON HAS BEEN BROUGHT ON RECORD AS THE DIRECTORS ARE ENTITLED TO A HIGHER REMU NERATION IN ACCORDANCE WITH THE BOARD RESOLUTION WHEN THE SHARE HOLDERS ALLOW REMUNERATION TO THE DIRECTORS IN A GENERAL MEETING WHICH COULD NOT BE SUBJECTED FOR CONSIDERATION AS EXCESSIVE OR UNREASONABLE. THE LEARNED CIT(A) THEREFORE, CONSIDERED THE REASO NABLENESS OF HIGHER REMUNERATION TO THE DIRECTORS WHO ARE BOTH WORKING DIRECTORS ON THE BASIS OF RETURN OF INCOME WHEN THE TURNOVER INCREASED FROM 45 CRORES TO 101 CRORES IN THE IMPUGNED YEAR. THEREFORE, THE OPINION OF THE ASSESSING OFFICER WAS DEMOLIS HED BY THE LEARNED CIT(A) INSOFAR AS THE OPINION WAS BASED ON THE LEGITIMATE NEEDS OF THE BUSINESS, WHICH CANNOT BE CONSIDERED AS EXCESSIVE FOR INVOKING THE PROVISIONS OF SECTION 40A(2)(B) WAS DELETED BY THE LEARNED CIT(A) WAS JUSTIFIED . THE ASSESSING OFFI CER DID NOT BRING ANY MATERIAL ON RECORD TO HOLD THE SAME AS DISALLOWABLE UNDER THE PROVISIONS OF SECTION 40A(2)(B). 8. WITH RESPECT TO THE NOTIONAL INTEREST DISALLOWABLE ON INTEREST FREE LOAN, HE SUBMITTED THAT THE LEARNED CIT(A) WAS JUSTIFIED IN COMPUT ING THE ACTUAL INTEREST PERTAINING TO THE IMPUGNED ASSESSMENT YEAR WHEN THE LOANS HAD BEEN ADVANCED ON 24.3.2008 BY RESTRICTING THE NOTIONAL INTEREST DISALLOWABLE ON THE TOTAL INTEREST CLAIMED FOR 8 DAYS ONLY . HOWEVER, THE ASSESSEE HAS FILED A CROSS OBJECT ION STATING THAT THE LEARNED CIT(A) ERRED IN CONSIDERING THE DATE OF ADVANCE AS 24.3.2008 WHEN ACTUALLY COMPUTATION REQUIRES RE - COMPUTATION OF THE PROPORTIONATE DISALLOWANCE ASSUMING BUT NOT ACCEPTING THAT THE UNSECURED LOANS ARE ADVANCED FROM INTEREST BEA RING FUNDS. THERE WAS NO ITA NO.392/CTK/2011 5 VIOLATION OF RULE 46A AS CLAIMED BY THE LEARNED DR. THE ASSESSEE HAD EARNED INCOME OF 2.17 CRORES WHICH WAS SUFFICIENT TO ADVANCE 50 LAKHS. 9. COMING TO THE OBJECTION OF THE ASSESSEE RESPONDENT, THE LEARNED COUNSEL FOR THE ASS ESSEE CONTINUED THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE ADDITION/DISALLOWANCE OF 74,270 U/S.2(24)(X), WHEN THE ISSUE IS SETTLED BY HONBLE APEX COURT IN THE CASE OF CIT V. VINAY CEMENT LIMITED, REPORTED IN 213 CTR 268. THE LEARNED CIT(A) CONSIDERE D THAT FIRST INCOME WAS TO BE RECOGNIZED IN THE HANDS OF THE ASSESSEE BEING THE EMPLOYEES SHARE WHICH WAS NOT NOTED BY THE ASSESSING OFFICER AS PER THE CHART REPRODUCED BY HIM ON PAGE 2 OF HIS ORDER. A PERUSAL OF THE SAME WOULD INDICATE THAT THE SAME HAS B EEN PAID WITHIN ONE MONTH OF DEDUCTION THEREFORE DID NOT VIOLATE THE PROVISIONS OF THE PROVIDENT FUNDS ACT AT ALL. THE LEARNED CIT(A) THEREFORE ERRED IN HOLDING THAT IT WAS DISALLOWABLE U/S.43B WHEN THE ASSESSING OFFICER HAS CATEGORICALLY NOTED THAT THE DI SALLOWANCE WAS ONLY U/S.2(24)(X) WHEN HE MISDIRECTED HIMSELF TO DISALLOW TWELVE MONTHS TOTAL PAYMENT NOT REMAINING UNPAID AT THE END OF THE YEAR. HE CONTRADICTED HIMSELF BY HOLDING THE PAYMENT OF ONE MONTH DELAYED TO NEXT MONTH ATTRACTS PROVISION OF SECTIO N 2(24)(X) WAS NOT CONSIDERED ON THE BASIS OF HONBLE APEX COURTS DECISION QUOTED ABOVE. IT WAS NOT THE CASE OF THE ASSESSING OFFICER TO STEP INTO THE SHOES OF THE PROVIDENT FUNDS COMMISSIONER ASKING FOR PAYMENT OF INTEREST OR PENALTY ON THE DELAYED PAYME NT WHEN THE I.T.ACT PROVIDES FOR SUCH PAYMENT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43B AND U/S.2(24)(X) R.W.S. 36(1)(VA). THIS WOULD INDICATE THAT THE AMOUNT ONLY REMAIN ED UNPAID O N 31 ST MARCH COULD BE CONSIDERED FOR DISALLOWANCE IF AT ALL WAS DEL AYED. ITA NO.392/CTK/2011 6 10. WITH RESPECT TO THE SECOND ISSUE RAISED BY THE ASSESSEE IN THE CROSS OBJECTION, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN APPARENT MISTAKE HAS BEEN COMMITTED BY THE LEARNED CIT(A) IN HOLDING THE FUNDS GIVEN INTEREST FREE ON 24.3.200 8 WHICH MAY KINDLY BE DIRECTED TO BE VERIFIED INSOFAR AS THE INTEREST FREE FUNDS WERE AVAILABLE TO THE ASSESSEE ON 24 TH MARCH, 2008. 11. THE LEARNED DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND THE LEARNED CIT(A) ON THE ISSUES RAISED BY THE ASSESSE E IN ITS CROSS OBJECTION FOR HIS PART OF THE SUBMISSIONS . 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD . ON CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUES INVOLVED, WE ARE INCLINED TO HOLD THAT THE LEARNED CIT(A) WAS ABLE TO DISTINGUISH THE EXCESSIVENESS AND UNREASONABLENESS ON PAYMENTS TO THE DIRECTORS AS REMUNERATION WHICH THE ASSESSING OFFICER CONSIDERED EXCESSIVE AND UNREASONABLE ON THE BASIS OF FINDINGS AS NOTED BY HIM WHICH WERE ALSO CONSIDERED BY THE LEARNED CIT(A) IN THE SAME SPIRIT FOR HOLDING IT AS REASONABLE. WE DO NOT FIND ANY INFIRMITY IN THE SAME INSOFAR AS THERE WAS NO BENCHMARK FOR THE ASSESSING OFFICER TO INVOKE THE PROVISIONS OF SECTION 40A(2)(B) OTH ERWISE. HOWEVER, ON THE PRAYER OF THE LEARNED DR , THE COPY OF THE BOARD RESOLUTION CONFIRMED BY THE SHARE HOLDERS IN THE GENERAL MEETING IS REQUIRED TO BE FURNISHED TO THE ASSESSING OFFICER IN ORDER TO CONSIDER THE EXCESSIVENESS OR UNREASONABLENESS DULY SU PPORTED BY THEIR JOINT RESOLUTION IN REQUIREMENT TO THE COMPANIES ACT BE PRODUCED BEFORE THE ASSESSING OFFICER FOR VERIFICATION , WHO IS DIRECTED TO DELETE THE SAME AS CONSIDERED BY THE LEARNED CIT(A) . ITA NO.392/CTK/2011 7 13. WITH RESPECT TO THE SECOND ISSUE RAISED BY THE REV ENUE, WE ARE INCLINED TO HOLD THAT THE LEARNED CIT(A) WAS WITHIN HIS RIGHT TO DELETE THE DISALLOWANCE OF PROPORTIONATE INTEREST PARTLY FROM 3,25,492 TO 7,134 BY HOLDING A VIEW THAT THE AMOUNT OF INTEREST FREE LOAN WAS GIVEN ON 24.3.2008. THE LEARNED CO UNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE FUNDS WERE ACTUALLY AVAILABLE AS ASSESSEES OWN INCOME ON WHICH TAX WAS BEING PAID THEREFORE CANNOT BE CONSIDERED FOR NEXUS BETWEEN ADVANCING OF INTEREST BEARING FUNDS TO NON - INTEREST BEARING FUNDS. THE LEARNED DR HAS NOT BEEN ABLE TO POINT OUT VIOLATION TO RULE 46A, IF ANY, INSOFAR AS WE ARE OF THE CONSIDERED OPINION THAT HAVING FILED RETURN OF INCOME AT 2.17 CRORES THE SUM OF 50 LAKHS WAS AVAILABLE TO THE ASSESSEE FOR GIVING INTEREST FREE ADVANCE. IN OUR C ONSIDERED VIEW, 7,134 DOES NOT REQUIRE RE - CONSIDERATION THEREFORE THE GROUND RAISED BY THE REVENUE IS DISMISSED AND THE GROUND RAISED BY THE ASSESSEE - RESPONDENT IN ITS CROSS OBJECTION IS ALLOWED. 14. ON THE LAST ISSUE, BEING TH E ISSU E OF CONFIRMATION OF ADDIT IO N OF 74,270 U/S.2(24)(X), WE ARE OF THE CONSIDERED VIEW THAT THE HONBLE APEX COURT DECISION AS RELIED UPON IS SQUARELY APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE IN VIEW OF THE ASSESSING OFFICER MISDIRECT ING HIM SEL F TO BRING TO TAX THE TOTAL 12 MONTHS PAYMENTS INSPITE OF NOTING THAT THE DELAY IN PAYMENT FOR EACH MONTH WAS FOR ALL THE TWELVE MONTHS AND ACTUALLY NOTHING WAS OUTSTANDING INSOFAR AS THE INCOME COULD NOT HAVE REMAINED AS INCOME FOR A PARTICULAR MONTH IN A RUNNING ACCOUNT OF EMPLOYEES CONTRIBUTION, THE EMPLOYEES SHARE BECOME S DEDUCTION FOR THE NEXT MONTH AS ADVANCE PAYMENT. THEREFORE, THE DISCLOSURE IN THE AUDIT REPORT RATHER LEAN S IN FAVOUR OF THE ASSESSEE TO THE EXTENT THAT THE SAID SUM COULD NOT HAVE BE EN DISALLOW ED AMOUNTING TO 74,240 WHEN THE LAST AMOUNT HAS ITA NO.392/CTK/2011 8 BEEN PAID ON 9.6.2008 BEFORE THE DUE DATE OF FILING THE RETURN I.E., 30.10.,2008 . THE LEARNED CIT(A), THEREFORE, MISDIRECTED HIMSELF TO HOLD THAT THE DISALLOWANCE BEING EMPLOYEES CONTRIBUTION IS GOVERNED BY THE PROVISIONS OF SECTION 43B R.W.S. 36(1)( V A) WOULD JUSTIFY DISALLOWANCE BEING 19,410 OUTSTANDING AS ON 31.03.2008 . WE ARE OF THE CONSIDERED VIEW THAT THE FACTS AS HAVE BEEN BROUGHT ON RECORD BY BOTH THE AUTHORITIES HAVE BEEN MISINTERPRETED. THE DISALLOWANCE OF 74,250 IS, THEREFORE, DIRECTED TO BE DELETED BY SETTING ASIDE THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED WHEREAS THE CROSS OBJECTION FILED BY THE ASSESSEE RESPO NDENT IS FULLY ALLOWED. SD/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 22.12.2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: ASST.CO MMISSIONER OF INCOME - TAX,CUTTACK 2. THE RESPONDENT: KRISHNA COKE INDIA PVT. LTD., GANGAMANDIR SQUARE, CUTTACK. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.