SCOTTISH CHEMICAL INDUSTRIES, MUMBAI V. ACIAT 19(1), MUMBAI

ITA 41/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1963 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 05-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Assessee Lawyers: N B KHANDELWAL
• Keywords: Proportionate interest
• Section: 40A(3); 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH , MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND ASHWANI TANEJA , AM ITA NO . 41 /MUM/ 2015 (A.Y: 201 0 - 1 1 ) SCOTTISH CHEMICAL INDUSTRIES SPAN CENTRER, 5 TH FLOOR, SOUTH AVENUE, SANTA CRUZ(W), MUMBAI - 400054 VS. THE ASST. CO MMISSIONER OF INCOME TAX 19(1), PIRAMAL CHAMBER, ROOM NO. 320, LALBAUG, MUMBAI - 400012 APPELLANT .. RESPONDENT ASSESSEE BY .. SHRI N.B. KHANDELWAL REVENUE BY .. MISS. ANUPAMA SINGLA DATE OF HEARING .. 2 4 - 11 - 2016 DATE OF PRONOUNCEMENT .. 24 - 11 - 2016 O R D E R PER MAHAVIR SINGH , JM : THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF CIT (A) - 30 , MUMBAI IN APPEAL NO. CIT (A) - 30/ACIT - CIRCLE19(1)/IT - 27/13 - 14 DATED 09 - 10 - 2014 . THE ASSESSMENT WAS FRAMED BY ACIT CIRCLE - 19(1), MUMBAI FOR THE A . Y . 201 0 - 1 1 VIDE ORDER DATED 28 - 03 - 2013 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTEREST OF RS.17,06,326/ - OUT OF INTEREST BEARING ADVANCES AND LOANS. FOR THIS ASSESSEE HAS RAISED FOLLOWING GROUND NO. 1: - 1. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTEREST OF RS.17,06,326/ - U/S 36(1)(III) IGNORI NG THE STATEMENT OF INTEREST FREE FUND AGAINST INTEREST FREE LOANS & ADVANCES. 3. BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT, DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED FROM THE ACCOUNTS OF THE ASSESSEE I.E. THE PROFIT AND LOSS A/C AND BALANCE SHEET THAT THE ASSESSEE DEBITED INTEREST ON UNSECURED LOAN AMOUNT TO THE EXTENT OF RS.12,52,466/ - , BANK INTEREST ON ACCOUNT OF EPC OF RS.54,82,770/ - AND BANK INTEREST ON ACCOUNT TO AAEC OF RS.9,77,667/ - . THE AO , ON PERUSAL OF BALANCE SHEET , NOTICED THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS TO RELATED PARTIES NAMELY KAMAL KHANDELWAL (HUF), KAMAL KAHNDELWAL (LOAN), RISHABH KHANDELWAL (HUF), SARITA KHANDELWAL, SCOTT ITA NO. 41 /MUM/2015 2 MATAULLCX P. LTD, ETC. AMOUNTING TO RS.8,83,07,058/ - . THE AO REQUIRED THE ASSE SSEE TO EXPLAIN AS TO WHY PROPORTIONATE INTEREST PAID ON UNSECURED LOANS AND BANK BE NOT DISALLOWED AS THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS TO RELATED PARTIES. THE AO WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND HE DISALLOWED PROPORT IONATE EXPENSES CLAIMED BY ASSESSEE U/S 36 (I) (III) OF THE ACT AMOUNTING TO RS.17,06,326/ - . AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF THE AO BY OBSERVING AS PARA 3.3.1 AS UNDER: - 3.3.1 1 HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND FIND THAT AS PER THE APPELLANT'S OWN STATEMENT, INTEREST FREE CAPITAL FUND AVAILABLE WAS RS.2,30,70,739/ - , WHILE INTEREST FREE LOAN AND ADVANCES MADE BY THE FIRM IS RS.2,42,80,190/ - , I.E. IN EXCESS OF THE INTEREST FREE FUN DS AVAILABLE. THE APPELLANT'S CONTENTION THAT ADVANCES OF RS.1,10,87,000/ - MADE TO SISTER CONCERN M/S. SCOTTISH CHEMICAL & FLUXES WERE FOR DEVELOPING THE MANUFACTURING AND BUSINESS LOCALLY WITH THE INTENTION TO MERGE TWO BUSINESSES AND THUS, THE ADVANCES M ADE, TO THEM WERE FOR BUSINESS PURPOSE AND OUT OF BUSINESS EXPEDIENCY CANNOT BE ACCEPTED IN THE LIGHT OF THE FACT THAT BOTH THE CONCERNS ARE SEPARATE ENTITIES AND THE AO'S FINDING THAT INTEREST BEARING FUNDS HAVE BEEN SIPHONED OFF TO MAKE INTEREST FREE ADV ANCES TO SISTER CONCERNS AND FIRMS AND INDIVIDUALS HAS NOT BEEN CONTROVERTED , AT THE ASSESSMENT OR APPELLATE STAGE. DURING THE COURSE OF APPELLATE PROCEEDINGS ALSO THE APPELLANT HAS NOT FURNISHED CASH FLOW' STATEMENT TO SHOW THAT INTEREST FREE LOAN AVAI LABLE TO THE EXTENT OF RS.2,30,70,739, HAS BEEN TRANSFERRED FOR INTEREST FREE LOANS AND ADVANCES. I, THEREFORE, DO NOT FIND ANY MERIT IN THE SUBMISSION OF THE APPELLANT AND IN THE LIGHT OF THESE FACTS, HOLD THAT THE CASE LAWS DISCUSSED BY THE A O . FULLY APP LY TO THE FACTS OF THE APPELLANT'S CASE. ACCORDINGLY, T UPHOLD THE DISALLOWANCE OF INTEREST ON PROPORTIONATE' BASIS WHICH I FIND IS ON SCIENTIFIC BASIS. THIS GROUND OF APPEAL IS, THEREFORE, DISMISSED. AGGRIEVED, ASSESSEE CAME IN SECOND APPEAL BEFORE TRIBU NAL . 4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE FOR THE FIRST TIME FILE D CO MPUTATION OF NET INTEREST FREE FUNDS AVAILABLE WITH IT AND INTEREST FREE ADVANCES OF RELAT ED PARTIES FROM NO INTEREST WAS CHARGED. WHEN THIS W AS CONFRONTED TO LEARNED SENIOR DR, SHE STATED THAT THESE WERE NEVER VERIFIED BY THE LOWER AUTHORITIES AND AT THIS STAGE IT IS NOT POSSIBLE TO VERIFY THE SAME . O N THIS, THE LEARNED COUNSEL FOR THE ASSESSE E FAIRLY AGREED THAT THE ISSUE CAN BE REMAND ED BACK TO THE FILE OF THE AO FOR EXAMINATION OF INTEREST FREE FUNDS VIS - - VIS INTEREST BEARING LOANS ON WHICH ASSESSEE HAS CLAIMED INTEREST. IN VIEW OF TH ESE FACTS , WE FEEL THAT THIS ISSUE NEEDS RE - CONSIDERATION AT THE LEVEL OF THE AO AFRESH. NEEDLESS ITA NO. 41 /MUM/2015 3 TO SAY THAT THE AO WILL NOT GET INFLUENCED BY EARLIER ASSESSMENT ORDER OR THE ORDER OF THE CIT(A) BECAUSE BOTH ARE SET ASIDE. HENCE, WE DIRECT THE AO TO EXAMINE THE EVIDENCES AFRESH DENOVO. ACCORDINGLY, THIS ISSUE IS REMANDED BACK TO THE FILE OF THE AO AND ALLOWED FOR STATISTICAL PURPOSE. 5. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ADDITION MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT. FOR THI S ASSESSEE HAS RAISED FOLLOWING ROUND NO.2: - 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITIONS OF RS.2,58,041/ - U/S 41(1) IGNORING THAT THE APPELLANT RECOGNIZED IT AS CREDITORS AND LIABILITY NOT CEASED TO EXIST . 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE ASSESSMENT ORDER THAT THERE ARE SUNDRY CREDITORS OUTSTANDING IN THE BALANCE SHEET AMOUNTING TO RS.3,73,13,000/ - . ON FURTHER PERUSAL OF LIST OF CREDITORS, AO NOTICED THAT THERE WERE OUT STANDING BALANCES IN THE CASE OF FOLLOWING CREDITORS: - NAME OF CREDITORS AMOUNT OUTSTANDING AS ON 31.03.2010 DR. BALANCE AS ADVANCE REMARK AS ON 31.03.2010 1. EMCO SHIPPING CO. 50,220/ - NIL CURRENT BALANCE LESS THAN YEAR OLD 2. MAHAN INSUR 18,861/ - LEDGE R A/C ATTACH THERE IS NO SUCH BAL UNDER MOHAN INSR 3. JUPITER SHIPPING AGENCY 2,58,041/ - 2,00,000/ - THEY ARE REGULAR CLEARING AGENTS & LIABILITY NOT CEASED THESE WERE AMOUNTING T O RS.3,27,942 / - AND WERE OUTSTANDING SINCE VERY LONG. THE AO MADE ADDIT ION OF THESE OUTSTANDING CREDITORS AMOUNTING TO RS.3,27,942/ - RELATING TO THESE THREE PARTIES BY INVOKING THE PROVISION OF SECTION 41(1) OF THE ACT BY STATING THE REASON THAT THE ASSESSEE HAS FAILED TO PROVE THE EXISTENCE OF THE BALANCES FOR THE REASON THA T THIS HAS NOT BEEN CLAIMED FOR SEVERAL YEARS BY THE ABOVE PERSON S AND LYING IN THE BOOKS AS UNCLAIMED. AGGRIEVED, NOW ASSESSEE PREFERRED THE APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ADDITION IN THE NAME OF EMCO SHIPPING CO. AMOUNTING TO RS. 50,220/ - A ND MAHAN INSUR AMOUNTING TO RS. 18,861/ - BUT SUSTAINED THE ADDITION IN THE NAME OF JUPITER SHIPPING AGENCY ITA NO. 41 /MUM/2015 4 AMOUNTING TO RS.2,58,041/ - . FURTHER, THE CIT(A) FOUND THAT THREE OTHER AMOUNTS OF RS. 22,299 / - IN THE NAME OF JUPITER SHIPPING AGENCY, RS.602.13/ - IN THE NAME OF JUPITER SHIPPING AGENCY, AND RS. 18,861/ - IN THE NAME OF JUPITER SHIPPING AGENCY WHICH IS ALSO OUTSTANDING. BUT ASSESSEE EXPLAINED THAT THESE HAVE BEEN SET OFF AGAINST OLD BALANCES. ACCORDING TO CIT (A) , THE ASSESSEE COULD NOT EXPLAINED OUTSTA NDING AMOUNT OF RS.2,00,000/ - AND HENCE HE CONFIRMED THE ADDITION MADE BY AO U/S 41(1) OF THE ACT. AGGRIEVED, NOW ASSESSEE PREFERRED APPEAL BEFORE TRIBUNAL. 7. NOW BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE FIRST OF ALL ARGUED THAT THESE AMOUNTS WERE OUT STANDING AS ON THE DATA IN HIS NAME OF JUPITER SHIPPING AGENCY AND MOREOVER THESE PAYMENTS ARE CLEARED ON 10 - 12 - 2010 VIDE CHEQUE NO.549288 ISSUED TOWARDS PREVIOUS YEAR OPENING AMOUNT ADJUSTED AGAINST ADVANCE PAY MENT BY JUPITER SHIPPING AGENCY. T O PROVE HIS POINT, HE FILED COPY OF ACCOUNT AND PAYMENT MADE BY CHEQUE AND ARGUED THAT ONCE THE ASSESSEE ADMITTED THIS LIABILITY AND PAID IN THE SUBSEQUENT YEAR , T HIS LIABILITY CANNOT BE SAID TO HAVE NOT IN EXIST ENCE AND CEASED TO EXIST. ACCORDINGLY, WE ARE OF THE VI EW THAT AO HAS WRONGLY INVOKE D THE PROVISION OF SECTION 41(1) OF THE ACT AND HENCE WE DELETE THE ADDITION. THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 8. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ADDITION OF RS. 1 ,26,100/ - ON ACCOUNT OF CASH PAYMENTS MADE TO CREDIT OR THAKKAR POPATLAL VELJI SALES LTD. BY INVOKING THE PROVISION OF SECTION 40A (3) OF THE ACT. FOR THIS ASSESSEE HAS RAISED FOLLOWING GROUND NO.3: - 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITIONS OF RS.1,26,100/ - U/S 40A(3) RELYING ONLY ON LEDGER ACCOUNT SUBMITTED BY CREDITOR THAKKAR POPATLA VELJI SALES LTD. U/S 133(6) IGNORING LEGER A/C COPY OF APPELLANTS BOOKS AND ENTRIES IN BANK STATEMENT OF APPELLANT. . 9. WE HAVE HEARD RIVAL CONTENTIONS AND GO NE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US STATED THAT FACTUALLY THIS STATEMENT OF THE AO AND CIT(A) IS INCORRECT THAT ASSESSEE HAS MADE PAYMENT BY WAY OF CASH EXCEEDING RS. 20,000 / - OR MORE THAN 20,0 00/ - . THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT COPY OF LEDGER A/C OF THAKKAR POPATLAL VELJI SALES LTD. FOR THE PERIOD OF 01 - 04 - 2009 TO 31 - 03 - 2010 WAS NEVER CONFRONTED TO THE ASSESSEE. IT WAS ALSO ARGUED BY THE LEARNED COUNSEL FOR THE ITA NO. 41 /MUM/2015 5 ASSESSEE THAT , IN CASE , OPPORTUNITY IS ALLOWED TO ASSESSEE AND THE COPY OF ACCOUNT IS CONFRONTED TO HIM, HE WILL ANSWER THE QUERIES OF THE AO. ON QUERY FROM THE BENCH THE LEARNED SR. DR HAS NO OBJECT ED SETTING ASIDE THE ISSUE TO THE FILE OF THE AO. AFTER HEARING BOTH TH E SIDES AND GO ING THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE, WE REMAND THE MATTER BACK TO THE FILE OF AO FOR FRESH EXAMINATION. THEREFORE, WE SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND REMAND THE MATTER BACK TO THE FILE OF THE AO FOR FRESH ADJUDIC ATION ON THIS ISSUE. NEEDLESS TO SAY THAT THE AO WILL CONFRONT THESE DOCUMENTS TO THE ASSESSEE. THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE . ORDE R PRONOUNCED IN THE OPEN COURT ON 24 - 11 - 2016 . S D/ S D/ ( ASHWANI TANEJA ) (MAHAVIR SINGH) ACCOUNTANT MEM B E R JUDICIAL MEMBER MUMBAI, DATED: 24 - 11 - 2016 SUDIP SARKAR /SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A ), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//