M/s.Pioneer Motors (Kannur) P. Ltd, Kannur V. The DCIT,Circle-2(1), Kannur

ITA 440/COCH/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3360 (ITAT-COCHIN)
• Duration Of Justice: 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-11-2019
• Assessment Year: 2007-2008
• Appeal Filed On: 29-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Assessee Lawyers: T M SREEDHARAN
• Keywords: Corroborative evidences; Notional interest; Commercial expediency; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI CHANDRA POOJAR I, AM & SHRI GEORGE GEORGE K, JM ITA NO. 4 40 /COCH/201 9 : ASST.YEAR 2007 - 2008 M/S. PIONEERMOTORS (KANNUR) PRIVATE LIMITED KANNOTHUMCHAL KANNUR 670 006. PAN : AAGFP1731K . VS. THE DY.COMMISSIONER OF INCOME - TAX, CIRCLE 2( 1 ) KANNUR . (APPELLANT) (RESPONDENT) APPELLANT BY : SRI. T.M.SREEDHARAN, ADVOCATE RESPONDENT BY : SMT.A.S.BINDHU, SR.DR DATE OF HEARING : 27.11.2019 DATE OF PRONOUNCEMENT : 02.12 . 2019 O R D E R PER GEORGE GEORGE K, JM THIS APPEAL AT THE INSTANCE OF THE ASSESSEE IS DIRECTED AGAINST CIT(A)S ORDER DATED 18.01.2019 . THE RELEVANT ASSESSMENT YEAR IS 2007 - 2008 . 2. THERE IS A DELAY OF 33 DAYS IN FILING THIS APPEAL. THE ASSESSEE HAS FILED A PETITION TO CONDONE THE DELAY AND AN AFFIDAVIT OF THE MANAGING DIRECTOR OF THE ASSESSEE - COMPANY, STATING THEREIN THE REASONS FOR NOT FILING THE APPEAL ON TIME . WE HAVE PERUSED THE REASONS STATED IN THE AFFIDAVIT FILED BY THE MANAGING DIRECTOR OF THE ASSESSEE - COMPANY. WE FIND THAT THERE IS SUFFICIENT CAUSE FOR THE DELAYED FILING OF THE APPEAL AND NO LATCHES CAN BE ATTRIBUTED TO THE ASSESSEE. HENCE, WE CONDONE TH E DELAY OF 33 DAYS IN FILING THIS APPEAL AND PROCEED TO DISPOSE OF THE SAME ON MERITS. ITA NO. 440 / COCH /201 9. M/S. PIONEER MOTORS (KANNUR) PVT. LTD. 2 3. THREE ISSUES ARE RAISED FOR OUR CONSIDERATION, NAMELY (I) WHETHER THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF A SUM OF RS.3 LAKH BEING SUBVENTION EXPENSES; (II) WHETHER THE CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS.10,16,666; AND (III) WHETHER THE CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.3,21,000 BEING DEEMED INTEREST ON FUNDS DIVERTED TO SISTER CONCERN. 4. THE BRIEF FACTS OF THE CASE ARE AS FOLLOW: THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT IS A DEALER FOR HONDA BIKES , APE THREE WHEELERS AND FOUR WHEELERS. FOR THE ASSESSMENT YEAR 2007 - 2008, THE RETURN OF INCOME WAS FILED DECLARING TOTAL INCOME OF RS.15,35,870. THE ASSESSMENT U/S 143(3) OF THE I.T.ACT WAS COMPLETED VIDE ORDER DATED 14.12.2009 DETERMINING THE TOTAL INCOME AT RS.33,75,536. THE ASSESSING OFFICER IN COMPLETING THE ASSESSMENT, MADE THE FOLLOWING ADDITIONS TO THE TOTAL INCOME: - (I) DISALLOWANCE OF SUBVENTION EXPENDITURE OF RS.5,0 0,000. (II) DISALLOWANCE OF EXPENDITURE INCURRED FOR SETTI NG UP OF APE FOUR WHEELER UNIT OF RS.10,16,666. (III) INTEREST ATTRIBUTED TO THE FUNDS DIVERTED TO SISTER - CONCERN AMOUNTING TO RS.3,21,000. 5. AGGRIEVED BY THE ADDITIONS MADE BY THE ASSESSING OFFICER, THE A SSESSEE PREFERRED APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. THE CIT(A) REDUCED THE ADDITION OF SUBVENTION EXPENSES TO RS.3 LAKH FROM RS.5 LAKH MADE BY THE ASSESSING OFFICER. AS REGARDS THE OTHER ITA NO. 440 / COCH /201 9. M/S. PIONEER MOTORS (KANNUR) PVT. LTD. 3 TWO ADDI TIONS, THE CIT(A) CONFIRMED THE VIEW TAKEN BY THE ASSESSING OFFICER. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WE SHALL ADJUDICATE THE ISSUES RAISED AS UNDER: SUBVENTION EXPENSES : 7. THE ASSESSEE HAD CLAIMED AS SUBVENTION EXPENSES A SUM OF RS.11,63,628. ACCORDING TO THE ASSESSEE, THE EXPENSES REPRESENT THE AMOUNTS GIVEN TO THE CUSTOMERS BY WAY OF DISCOUNT AS PER THE INSTRUCTION OF THE SUPPLIERS. THE ASSESSING OFFICER MADE ADHOC DISALLOWANC E OF RS.5 LAKH . THE A.O. HELD THAT THESE EXPENSES ARE SUPPORTED BY ASSESSEES SELF - MADE VOUCHERS ONLY AND THE DETAILS ARE NOT VERIFIABLE WITH SUPPORTING EVIDENCES. ON APPEAL, THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS.3 LAKH AND GRANTED A RELIEF OF RS.2 LAKH AGAINST THE ADDITION . 7.1 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US RAISING GROUND NO. 2 IN THE GROUNDS OF APPEAL . 7.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS THE CLAIM OF THE ASSESSEE THAT SUBVENTION EXP ENSES REPRESENT AMOUNTS GIVEN TO CUSTOMERS BY WAY OF DISCOUNT ETC. AS PER THE INSTRUCTION OF THE SUPPLIERS. LEDGER FOLIO OF THE SUBVENTION EXPENSES IS ENCLOSED IN THE PAPER BOOK FILED BY THE ASSESSEE FROM PAGES 8 TO 19. THE TOTAL EXPENSES INCURRED IS RS.11 ,63,682. THE TOTAL TURNOVER FOR THE YEAR IS RS.24.86 CRORE AND THE TURNOVER INCREASED FOR THE YEAR ITA NO. 440 / COCH /201 9. M/S. PIONEER MOTORS (KANNUR) PVT. LTD. 4 BY RS.1,67,37,327. WE ARE OF THE VIEW THAT IF THE ASSESSEE CAN PROVE BY PRODUCING THE SALE INVOICES THAT THESE SUBVENTION EXPENSES ARE DISCOUNT GIVEN TO THE CUSTOMERS, NECESSARILY, THE DISALLOWANCE IS UNCALLED FOR. FOR EXAMINATION OF THE SAID ISSUE , THE MATTER IS RESTORED TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. THE ASSESSEE SHALL PRODUCE SAMPLE SALES INVOICES FOR THE ABOVE SAID PERIOD TO PROVE THAT T HE DISCOUNTS ARE GIVEN TO THE CUSTOMERS. IT IS ORDERED ACCORDINGLY. HENCE, GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSES. DISALLOWANCE OF EXPENDITURE OF RS.10,16,666 8. THE ASSESSING OFFICER HAD DISALLOWED A SUM OF RS.10,16,666 BY HOLDING THE SAME IS NOT REVENUE EXPENDITURE. THE RELEVANT FINDING OF THE ASSESSING OFFICER READS AS FOLLOW: - DURING THE YEAR THE ASSESSEE STARTED APE FOUR WHEELER UNIT. EVEN THOUGH NO BUSINESS TRANSACTIONS HAVE TAKEN PLACE IN THIS UNIT, THE ASSESSEE HAS CLAIMED ADMINISTRAT IVE EXPENSES OF RS.10,16,666 / - . AS THERE IS NO BUSINESS ACTIVITY CARRIED OUT IN FOUR WHEELER SECTION, AND AS THE EXPENDITURE IS NOT RELATED TO THE CURRENT BUSINESS FROM WHICH INCOME IS RETURNED, THE EXPENDITURE IS NOT ALLOWABLE AND HENCE DISALLOWED. 8 . 1 AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) CONFIRMED THE VIEW TAKEN BY THE ASSESSING OFFICER. THE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOW: - 6 .2 I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT. A NEW UNIT HAS APPARENTLY BEEN SET UP BY THE APPELLANT FOR STARTING ITS FOUR WHEELER DEALERSHIP. DEALERSHIP AGREEMENT IS DATED 08.06.2007 WHICH PERTAINS TO A.Y.2008 - 09. THE APPELLANT HAS ALSO RELIED UPON T HE DECISION OF DHL EXPRESS (I) (P) LTD. V. ACIT (2009) 124 TTJ 108 (MUM.). THE FACTS OF THE TWO ITA NO. 440 / COCH /201 9. M/S. PIONEER MOTORS (KANNUR) PVT. LTD. 5 CASES RELIED UPON BY THE APPELLANT ARE CLEARLY DISTINGUISHABLE FROM THE APPELLANTS CASE. IN THE CASE OF DHL, THE HONBLE HIGH COURT CONCLUDED THAT SETTING UP D ATE AND COMMENCEMENT DATE OF THE BUSINESS WERE DISTINCT IN THE CASE OF ASSESSEE THERE. IN RALLI WOLF LTD. CASE, THE ASSESSEE HAD INCURRED EXPENSES REGARDING PURCHASES IN THE RELEVANT PREVIOUS YEAR, THEREFORE, IT WAS HELD THAT TRADING HAD STARTED. HOWEVER, IN THE CASE BEFORE ME, THE APPELLANT HAS FAILED TO ESTABLISH THAT THE TWO DATES OF SETTING UP OF BUSINESS AND COMMENCEMENT OF BUSINESS ARE DIFFERENT AND THERE IS AN INTERREGNUM PERIOD BEFORE ME GIVES A LIST OF INDIRECT EXPENSES IN WHICH A SUBSTANTIAL PART CONSISTS REPAIRS AND MAINTENANCE (ELECTRICAL) RS.503,581/ - , RENT RS.365,250/ - , REPAIRS AND MA INTENANCE (OTHERS) RS.70,064/ , COMMISSION RECEIVED RS.24,000/ - AND SOME OTHER INDIRECT EXPENSES OF MINOR AMOUNT. ALL THESE EXPENSES APPEAR TO HAVE BEEN INC URRED FOR SETTING UP OF A NEW UNIT ALTOGETHER WHICH CANNOT BE SAID AS EXTENSION OF EXISTING BUSINESS. A NEW PREMISE WAS TAKEN AND A NEW AGREEMENT WAS SIGNED. JUST BECAUSE THE BUSINESS RELATES TO SAME INDUSTRY CANNOT BRING THE APPELLANTS CASE INTO THE CATEG ORY OF EXTENSION OF ITS PRESENT BUSINESS. A NEW AGREEMENT WAS SIGNED WITH FRESH TERMS AND CONDITIONS AND THE BUSINESS IS LOCATED AT A DIFFERENT GEOGRAPHICAL PLACE. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, I UPHOLD THE ACTION OF THE ASSESSING OFFICER AND DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS.10,16,666/ - IS CONFIRMED. THUS, THIS GROUND IS DISMISSED. 8.2 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS A DEALER FOR TWO AND THREE WHEELER FOR HONDA MOTORS AND PIAGGIO VEHICLE PVT. LTD , DURING THE RELEVANT PREVIOUS YEAR. THE ASSESSEE WAS A DEALER OF APE THREE WHEELER VEHICLES WHEN THE SAID SUPPLIER STARTED FOUR WHEELER DIVISION AND THE ASSESSEE WAS APPOINTED AS ITS KANNUR DEALER IN THE FINANCIAL YEAR 2006 - 2007. FOR THE FOUR WHEELER DIVISION, THE ASSESSEE IDENTIFIED A NEW PREMISE AS PER THE REQUIREMENT OF THE MANUFACTURER AND INCURRED VARIOUS EXPENSES FOR ITS SET UP. A COPY OF THE LEDGER EXTRACT IS PLACED ON R ECORD FROM PAGES 3 TO 7 OF THE PAPER BOOK FILED BY THE ASSESSEE. ITA NO. 440 / COCH /201 9. M/S. PIONEER MOTORS (KANNUR) PVT. LTD. 6 8 . 3 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE INCOME TAX AUTHORITIES. 8 . 4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAD CLAIMED AS REVENUE EXPENDITURE A SUM OF RS.10,16,666. THESE ARE EXPENSES INCURRED FOR SETTING UP A DEALERSHIP UNIT AT KANNUR. WE HAVE PERUSED THE DETAILS OF THE EXPENSES, W HICH ARE PLACED IN THE PAPER BOOK FILED BY THE ASSESSEE. IT IS SEEN THAT THE EXPENDITURE CLAIMED ARE BANK CHARGES, BONUS, COMMISSION PAID, SALARY AND WAGES, STAFF WELFARE EXPENSES, ETC. THESE EXPENSES ARE CLEARLY INCURRED FOR SETTING UP A NEW UNIT AND CANNOT BE STATED THAT IT IS AN EXPENDITURE INCURRED FOR EXTENSION OF EX ISTING UNIT. THE NEW PREMISES WERE TAKEN ON LEASE AND NEW AGREEMENTS WERE SIGNED. THE EXPENDITURE INCURRED IS FOR SETTING UP OF A NEW BUSINESS, CANNOT BE ALLOWED AS A REVENUE EXPENDITURE. ACCORDINGLY, WE CONFIRM THE VIEW TAKEN BY THE ASSESSING OFFICER, WHI CH WAS CONFIRMED BY THE CIT(A). IT IS ORDERED ACCORDINGLY. 8 . 5 THEREFORE, GROUND NO.3 RAISED BY THE ASSESSEE IS REJECTED. DIVERSION OF FUNDS TO SISTER CONCERN : 9 . THE ASSESSING OFFICER HAD ATTRIBUTED INTEREST AT THE RATE OF 12.5% ON ADVANCES MADE TO T HE SISTER CONCERN . THE AMOUNT OUTSTANDING FROM SISTER CONCERN AS ON 31.03.2007 WAS RS.25,68,085 . ACCORDINGLY, A SUM OF RS.3,21,000 WAS ADDED AS INCOME FROM OTHER SOURCES BY THE ASSESSING OFFICER . ITA NO. 440 / COCH /201 9. M/S. PIONEER MOTORS (KANNUR) PVT. LTD. 7 9 . 1 AGGRIEVED, THE ASSESSEE RAISED THIS ISSUE BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE VIEW TAKEN BY THE ASSESSING OFFICER. THE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOW: - 7.2. I HAVE CONSIDERED THE SUBMISSIONS. THE BUSINESS EXPEDIENCY CITED BY THE APPELLANT DID NOT APPEAR TO BE RELATED TO THE BUSINE SS OF THE APPELLANT. AS PER ITS OWN SUBMISSIONS, THE FUNDS WERE GIVEN ONLY TO MAKE PAYMENT ON BEHALF OF ITS SISTER CONCERN OR TO COVER ITS DEFAULT IN RESPECT OF BANK LOAN REPAYMENT. THIS WAS BEING DONE BECAUSE THE DIRECTORS OF BOTH COMPANY WERE SAME. THER EFORE, THERE WAS NO COMMERCIAL OR BUSINESS TRANSACTION BETWEEN THE APPELLANT, AND ITS SISTER CONCERN FOR WHICH THESE FUNDS WERE ADVANCED. THEREFORE, THE FACTS OF THE APPELLANT ARE CLEARLY DISTINGUISHABLE FROM THE CASE RELIED UPON BY THE APPELLANT. I HOLD T HAT FUNDS WERE NOT ADVANCED BY THE APPELLANT FOR BUSINESS PURPOSE BUT ONLY TO BAIL OUT ITS SISTER CONCERN IN TIME OF NEED. 9 . 2 THE LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPO RTED THE ASSESSMENT ORDER AND THE ORDER PASSED BY THE CIT(A). 9 . 3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSING OFFICER HAD ATTRIBUTED A NOTIONAL INTEREST OF RS.3,21,000 FOR A SUM OUTSTANDING FROM THE SISTER CONCERN AS ON 31.03.2007. THE ASSESSEE HAS PRODUCED THE LEDGER FOLIO OF M/S.POTHEN & POTHEN AUTOMOBILES PRIVATE LIMITED (THE SISTER CONCERN) FOR THE PERIOD 01.04.2006 TO 31 .3.2007. A PERUSAL OF THE SAME WILL REVEAL THAT A SUM OF RS.27,81,105 IS OPENING BALANCE, WHEREAS, THE CLOSING BALANCE HAS COME DOWN TO RS.25,68,085. THEREFORE, IT IS CLEAR THAT NO FUNDS WERE DIVERTED TO SISTER CONCERN DURING THE RELEVANT ASSESSMENT YEAR. NO ADDITION / DISALLOWANCE WAS MADE ON THIS ACCOUNT IN THE EARLIER ASSESSMENT YEARS OR IN THE SUBSEQUENT ITA NO. 440 / COCH /201 9. M/S. PIONEER MOTORS (KANNUR) PVT. LTD. 8 ASSESSMENT YEARS. MOREOVER, WE FIND THAT M/S.POTHEN & POTHEN AUTOMOBILES PRIVATE LIMITED (SISTER CONCERN) IS AN AUTHORIZED DISTRIBUTOR FOR THREE WHEELER SPARE PARTS FROM TRICHUR TO KASARGODE. SINCE THE ASSESSEE IS DEALING IN APE THREE WHEELERS, IT RECEIVES SPARE PARTS REQUIRED FROM M/S.POTHEN & POTHEN AUTOMOBILES PRIVATE LIMITED AND PROCURING THE SPARE PARTS, ADVANCES WERE GIVEN BY THE ASSESSEE - COMPANY. SO THERE IS ELEMENT OF COMMERCIAL EXPEDIENCY OF SUCH ADVANCES TO THE SISTER CONCERN . S INCE NO FRESH ADVANCES WERE GIVEN DURING THE RELEVANT ASSESSMENT YEAR TO THE SISTER CONCERN AND WHEN NO ADDITION ON THIS ACCOUNT WAS MADE IN THE EARLIER ASSESSMENT YEARS OR IN THE SUBSEQUENT ASSESSMENT YEARS, ACCORDING TO US, NO ADDITION CAN BE MADE ON A NOTIONAL BASIS TO THE INTEREST INCOME UNDER THE HEAD `INCOME FROM OTHER SOURCES. IT IS ORDERED ACCORDINGLY. 9 . 4 THEREFORE, GROUND N O.4 IS ALLOWED. 10 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED ON THIS 02 ND DAY OF DE CEMBER , 2019 . SD/ - SD/ - ( CHANDRA POOJARI ) ( GEORGE GEORGE K. ) ACCOUNTANT MEMBER JUDICIA L MEMBER COCHIN ; DATED : 02 ND DECEMBER , 2019 . DEV A DAS G * ITA NO. 440 / COCH /201 9. M/S. PIONEER MOTORS (KANNUR) PVT. LTD. 9 COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, COCHIN 1. THE APPELLANT . 2. THE RESPONDENT. 3. THE CIT (APPEALS) - K OZHIKODE. 4. THE CIT KOZHIKODE . 5. THE DR, ITAT, COCHIN 6 . GUARD FILE.