Vikas Plasticizers Pvt. Ltd., V. ITO, Ward-17(3),

ITA 3998/DEL/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1067 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-10-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 09-09-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANISH GUPTA
• Keywords: Business expenditure; Proportionate interest
• Section: 43B; 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI BEFORE SHRI D.R.SINGH, JM AND SHRI R.C.SHARMA, AM ITA NO.3998/DEL/2004 ASSESSMENT YEAR : 2001-02 M/S VIKAS PLASTICIZERS PVT.LTD., 34/1, EAST PUNJABI BAGH, NEW DELHI. PAN NO.AAACV2273R. VS. INCOME TAX OFFICER, WARD-17(3), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SALIL AGGARWAL, ADVOCATE. RESPONDENT BY : SHRI MANISH GUPTA, DR. ORDER PER R.C.SHARMA, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A) DATED 7.7.2004 FOR AY 2001-02, IN THE MATTER OF ORDER PAS SED U/S 143(3) OF THE IT ACT. 2. FIRST GRIEVANCE OF THE ASSESSEE RELATES TO DISAL LOWANCE OF INTEREST OF RS.2,03,321/- ON ACCOUNT OF INTEREST PAID ON UNSECU RED LOANS. FACTS IN BRIEF ARE THAT ASSESSEE WAS ENJOYING INTEREST BEARING FUNDS. IN THE COURSE OF ASSESSMENT, THE AO OBSERVED THAT ASSESSEE HAD ADVANCED FUNDS TO SIS TER CONCERN WITHOUT CHARGING ANY INTEREST, HE THEREFORE DISALLOWED PROPORTIONATE INTEREST PAYABLE ON THE UNSECURED LOANS TAKEN FOR THE PURPOSE OF BUSINESS. CONTENTION OF THE ASSESSEE WAS THAT IT HAD SOLD MACHINES TO THE TUNE OF RS.45.67 L AKHS TO ITS SISTER CONCERN DURING AY 1998-99 TO 2000-01, AS A RESULT OF SUPREME COURT ORDER FOR CLOSURE OF POLLUTING UNITS IN 1997. AGAINST THE SALE OF THESE MACHINERIES, SOME OF THE PAYMENTS WERE RECEIVED AND THE BALANCE WAS ADJUSTED AGAINST THE PURCHASES TO BE MADE FROM THE SAME SISTER CONCERN. AS PER LEARNED AR, NO ADVANCE WAS GIVEN DURING THE YEAR AND THE AO HAS WRONGLY ALLEGED THAT ADVANCE WAS GIVEN. HE DRAWN OUR ATTENTION TO THE CREDIT BALANCE IN THE AC COUNT OF SISTER CONCERN AS AT THE BEGINNING OF THE YEAR AND AS AT THE END OF THE YEAR WHEREIN THERE WAS NO ITA-3998/D/2004 2 DIFFERENCE, MEANING THEREBY THAT NO ADVANCE WAS GIV EN DURING THE YEAR UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT EVEN IN T HE PRECEDING YEARS, THE ASSESSEE WAS HAVING SURPLUS FUNDS OF HIS OWN AND THE ADVANCE IF ANY WAS GIVEN OUT OF THOSE FUNDS, THEREFORE NO DISALLOWANCE ON ACCOUNT OF INTE REST PAYABLE ON THE LOANS TAKEN FOR THE PURPOSE OF BUSINESS IS TO BE MADE. LEARNED DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THERE IS NO DISPUTE TO THE WELL SETTLED LEGAL PROPOSITION THAT ADVANCE MADE TO SIST ER CONCERN WITHOUT CHARGING ANY INTEREST, IF NOT FOR THE PURPOSE OF BUSINESS, INTER EST ATTRIBUTABLE TO SUCH ADVANCE CAN BE DISALLOWED IF THE SAME IS GIVEN OUT OF THE INTER EST BEARING FUNDS AVAILED BY THE ASSESSEE. IF THE ADVANCE IS ARISING OUT OF THE BUS INESS TRANSACTION, NO DISALLOWANCE IS WARRANTED, WHEN THE SAME IS PROVED AS A BUSINESS NECESSITY. IN THE INSTANT CASE, IT APPEARS THAT CREDIT BALANCE IN THE ACCOUNT OF SI STER CONCERN WAS ON ACCOUNT OF SALE OF OLD MACHINERY AND NOT OUT OF ANY ADVANCE GI VEN IN CASH OR BY CHEQUE. IT WAS A TRANSACTION NECESSITATED DUE TO THE ORDER OF THE SUPREME COURT FOR CLOSURE OF POLLUTING UNITS. WE ALSO FOUND THAT ASSESSEE WAS A LSO MAKING PURCHASES OF PRODUCTS MANUFACTURED BY THE SAME SISTER CONCERN AN D FOR WHICH PAYMENT WAS TO BE MADE TO IT. OUT OF THE SALE PROCEEDS OF OLD MAC HINE AND THE AMOUNT PAYABLE THEREON WAS ADJUSTED EITHER BY RECEIPT OF PAYMENT O R THROUGH PURCHASES MADE FROM THE SISTER CONCERN. ACCORDINGLY, WE DO NOT FIND AN Y MERIT IN THE ACTION OF LOWER AUTHORITIES FOR MAKING ANY DISALLOWANCE OUT OF THE FUNDS BORROWED FOR THE PURPOSE OF BUSINESS. 4. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO DISALL OWANCE OF RS.2,54,154/- ON ACCOUNT OF HOUSE TAX PAID DURING THE YEAR IN RESPEC T OF THE PREMISES TAKEN ON RENT AND USED FOR COMMERCIAL PURPOSES SINCE 1989. THE L OWER AUTHORITIES OBSERVED THAT LIABILITY TO PAY HOUSE TAX IS ON THE OWNER OF THE P ROPERTY, THEREFORE DISALLOWANCE WAS MADE IN THE HANDS OF THE ASSESSEE EVEN THOUGH A CTUAL PAYMENT WAS MADE BY THE ASSESSEE. WE HAVE CONSIDERED THE RIVAL CONTENT IONS AND FOUND FROM THE RECORD ITA-3998/D/2004 3 THAT ASSESSEE HAS TAKEN A COMMERCIAL PREMISES ON RE NT, AS PER THE TERMS OF THE RENT DEED, THE ASSESSEE WAS TO PAY HOUSE RENT AND OTHER CHARGES. EVEN THOUGH THE HOUSE TAX SO PAID WAS PERTAINING TO THE EARLIER YEARS, SI NCE THE SAME WAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AND ALSO PAID D URING THE YEAR AND THE SAME WAS CLAIMED AS EXPENDITURE BY DEBITING IN THE PROFI T AND LOSS ACCOUNT, NO DISALLOWANCE IS WARRANTED. UNDISPUTEDLY THE ASSESS EE HAS ACTUALLY PAID THE SAME AND CLAIMED IT AS BUSINESS EXPENDITURE. SINCE THE EXPENSES WERE NECESSARILY INCURRED IN THE COURSE OF BUSINESS AND AS PER THE T ERMS OF THE RENT/LEASE AGREEMENT, THERE IS NO JUSTIFICATION FOR DISALLOWING THE SAME MERELY ON THE PLEA THAT SUCH TAX LIABILITY IS PAYABLE BY THE OWNER OF THE PROPERTY. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE DISALLOWANCE. 5. NEXT GRIEVANCE RELATES TO DISALLOWANCE OF SALES TAX OF RS.1,34,369/- PAID DURING THE YEAR. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND FROM THE RECORD THAT ASSESSEE HAS CLAIMED ADDITIONAL SALES TAX DEMAND OF RS.1,34,369/- PAID DURING THE YEAR, WHICH WAS CLAIMED TO BE ALLOWABLE U/S 43B OF THE IT ACT. THE AO OBSERVED THAT OUT OF THE PAYMENT SO MADE, A SUM OF RS.2,000/ - WAS ON ACCOUNT OF PENALTY FOR THE YEAR 1997-98 AND THAT ADDITIONAL DEMAND WAS DUE TO NON SUBMISSION OF FORMS AND CORRESPONDING INTEREST ON SUCH DEMAND. T HE AO OBSERVED THAT SALES TAX IS PAYABLE BY THE PARTY TO WHOM SALES HAVE BEEN MAD E AND SINCE THE ASSESSEE HAS NOT SHOWN ANY RECEIPT OF AMOUNT ON ACCOUNT OF SALES TAX, NO DEDUCTION CAN BE ALLOWED EVEN IF PAID DURING THE YEAR BY THE ASSESSE E. THE CIT(A) CONFIRMED THE ACTION OF THE AO. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND THAT PAYMENT OF SALES TAX OF RS.1.34 LAKHS WAS CLAIMED U/S 43B. ACTUAL P AYMENT WAS NOT DISPUTED, THEREFORE SAME IS TO BE ALLOWED ON THE BASIS OF ACT UAL PAYMENT AND DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE OBSERVATION OF THE AO THAT ASSESSEE WAS TO RECEIVE ITA-3998/D/2004 4 PAYMENT FROM THE BUYER TO WHOM GOODS WERE SOLD, IS RELEVANT ONLY IN THE YEAR OF ACTUAL RECEIPT ON ACCOUNT OF SUCH SALES TAX IF ANY. WE ACCORDINGLY DIRECT THE AO TO ALLOW PAYMENT OF SALES TAX EXCEPT RS.2,000/- WHICH WAS PERTAINING TO THE PENALTY FOR THE YEAR 1997-98 IN VIEW OF EXPLANATION TO SECT ION 37 OF THE IT ACT. THE DEPARTMENT IS AT LIBERTY TO BRING TO TAX THE AMOUNT OF SALES TAX SO PAID IF COLLECTED BY THE ASSESSEE IN THE SUBSEQUENT YEARS AND THE ASS ESSEE IS ALSO DIRECTED TO OFFER THE SAME AS INCOME IN THE SUBSEQUENT YEARS IF ANY A MOUNT IS COLLECTED ON THIS ACCOUNT. THE AMOUNT OF PENALTY CANNOT BE ALLOWED S INCE IT WAS FOR INFRINGEMENT OF LAW, WHICH IS GUIDED BY EXPLANATION TO SECTION 3 7 AND CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. WE DIRECT ACCORDINGLY. 8. THE GROUND TAKEN WITH REGARD TO DISALLOWANCE OF RS.3,892/- BEING 1/10 TH OF THE CAR EXPENSES AND RS.2,000/- OUT OF TELEPHONE EX PENSES, ON THE PLEA OF PERSONAL USE. AS PER OUR CONSIDERED VIEW, NO DISALLOWANCE C AN BE MADE IN THE HANDS OF THE ASSESSEE BEING A CORPORATE ENTITY ON ACCOUNT OF PER SONAL USE IN VIEW OF THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGINEERING CO. LTD. 121 TAXMAN 43 WHEREIN IT WAS HELD THAT N O DISALLOWANCE OUT OF EXPENSES ON ACCOUNT OF INVOLVEMENT OF PERSONAL ELEM ENT CAN BE MADE, IN THE CASE OF AN ASSESSEE BEING A CORPORATE ENTITY. AS THE AS SESSEE IN THE INSTANT CASE IS A CORPORATE ENTITY, WE DO NOT FIND ANY JUSTIFICATION FOR MAKING ANY DISALLOWANCE ON ACCOUNT OF CAR AND TELEPHONE EXPENSES. ACCORDINGLY , AO IS DIRECTED TO DELETE THE SAME. 9. IN THE RESULT, THE APPEAL IS ALLOWED IN PART, IN TERMS INDICATED HEREINABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2009. SD/- SD/- (D.R.SINGH) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30.10.2009. VK. ITA-3998/D/2004 5 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR