M/s. Kartar Singh & Sons, Itarsi V. The ACIT, Bhopal

ITA 448/IND/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0093 (ITAT-INDORE)
• Duration Of Justice: 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-09-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 09-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K KARAN
• Assessee Lawyers: R N GUPTA
• Keywords: Depreciation; Set aside
• Section: 80IB; 274; 251

Judgement Text

PAGE 1 OF 8 IN THE INCOME TAX APPELATE TRIBUNAL, INDORE SMC-I BENCH, INDORE BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO.448/IND/2009 AY 2006-07 M/S. KARTAR SINGH & SONS, GANDHI NAGAR, ITARSI (PAN AAGFK 1155 Q) APPELLANT V/S. ACIT-1(1), BHOPAL RESPONDENT ASSESSEE BY SHRI R.N. GUPTA, CA DEPARTMENT BY SHRI V.K. KARAN, ADDL. CIT, DR ORDER THE ABOVE APPEAL FILED BY THE ASSESSEE IS AGAINST T HE ORDER OF LD. CIT(A)-I, BHOPAL DATED 18.6.2009 FOR THE ABOVE AY ON THE FOLL OWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) HAS ERRED AND NOT J USTIFIED IN SUSTAINING THE LUMP SUM DISALLOWANCE MADE BY THE AO AT RS.50,000/-. THE SAID DISALLOWANCE BEING UNJUSTI FIED AND UNLAWFUL, THEREFORE, BE DELETED. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) HAS ERRED AND NOT J USTIFIED IN SUSTAINING THE ADDITION/DISALLOWANCE MADE BY THE AO AT RS.2,62,000/-. THE SAID DISALLOWANCE/ADDITION IS UN JUSTIFIED AND UNLAWFUL AND THEREFORE, BE DELETED. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN OBSERV ING IN PARA (5) OF HIS ORDER THAT THERE IS ADMISSION ON TH E PART OF THE AUTHORISED REPRESENTATIVE THAT THERE IS A JUGGL ERIES OF ENTRIES. THE AUTHORISED REPRESENTATIVE NEVER MADE S UCH ADMISSION WHICH IS VERY MUCH EVIDENT FROM THE SUBMI SSION PAGE 2 OF 8 UNDER GROUND NO. (6) AS FURNISHED BEFORE CIT(A). SU CH INCORRECT FACTUAL OBSERVATION BE KINDLY EXPUNGED. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEVY OF INTEREST U/S 234D IS U NLAWFUL AND HENCE BE CANCELLED. 2. I HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. 3. ON GROUND NO.1, AO DISALLOWED RS.50,000/- UNDER VARIOUS HEAD OF EXPENSES ON THE REASONS THAT ASSESSEE COULD NOT EST ABLISH THAT EXPENSES OUT OF VEHICLE, TRAVELLING, DEPRECIATION O N CAR, TELEPHONE EXPENSES ETC WERE INCURRED ENTIRELY FOR BUSINESS PU RPOSES AND THAT PERSONAL EXPENSES OUT OF THESE EXPENDITURE CANNOT B E RULED OUT. LD. CIT(A) CONFIRMED THE ADDITION. ON CONSIDERATION OF THE RIVAL SUBMISSION, I AM OF THE VIEW THAT IT WAS AN ADHOC ADDITION MADE BY THE AO WITHOUT POINTING OUT ANY SPECIFIC ITEMS OF THE EXPENDITURE WHICH WERE NOT INCURRED FOR BUSINESS PURPOSE. ASSESSEE IS A FIRM A ND IS A ARTIFICIAL PERSON AND AS SUCH, CANNOT HAVE USE OF ANY PERSONAL EXPENDITURE. THE AO HAS NOT MADE OUT ANY CASE THAT PARTNERS HAVE USE D ANY EXPENDITURE FOR THEIR PERSONAL PURPOSES. IN THE ABSENCE OF ANY SPECIFIC INCRIMINATING MATERIAL AGAINST THE ASSESSEE, SUCH DISALLOWANCE CO ULD NOT BE SUSTAINED. I, THEREFORE, SET ASIDE THE ORDERS OF TH E AUTHORITIES BELOW AND DELETE THE ADDITION. AS A RESULT, GROUND NO.1 OF AP PEAL OF THE ASSESSEE IS ALLOWED. PAGE 3 OF 8 4. ON GROUND NOS.2 & 3, ASSESSEE CHALLENGED THE ADD ITION OF RS.2,62,000/- . THE AO NOTED THAT ASSESSEE FIRM M/S. KARTARSINGH & SONS AT HEAD OFFICE, ITARSI IS DOING TRADING ACTIVITIES. HOWEVER , IN THE BRANCHES OF THE ASSESSEE FIRM NAMELY, M/S. GURUNANAK DAL MILLS, ITA RSI, THE MANUFACTURING ACTIVITIES ARE CARRIED OUT AND THE OT HER BRANCH NAMELY, GURUNANAK WAREHOUSING CORPN., ITARSI, ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB OF THE IT ACT. ACCORDING TO THE AO, THE IN TEREST FREE LOANS/FUNDS TOTALLING TO RS.21,85,556/- WAS GIVEN B Y M/S. GURUNANAK DAL MILLS TO GURUNANAK WAREHOUSING CORPN. AND THE C LOSING BALANCE AS ON 31 ST MARCH, 2006 WAS RS.21,85,556/-. IT WAS SUBMITTED B EFORE THE AO THAT THE AMOUNT WAS TRANSFERRED FROM ONE BRANCH TO ANOTHER BRANCH OF THE ASSESSEE FIRM ACCORDING NEED OF THE BRANCH. THEREFORE, IT IS NOT REQUIRED TO PAY ANY INTEREST TO HEAD OFFICE. THE AO , HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND APPLIED T HE INTEREST RATE OF 12% ON THE CLOSING BALANCE AS AT-LEAST INTEREST OF RS.2,62,000/- WOULD HAVE BEEN EARNED BY GURUNANAK DAL MILLS. THE AO ALS O HELD THAT ASSESSEE FIRM SUPPRESSED THE NET PROFIT OF GURUNANA K DAL MILLS BY TRANSFERRING THE FUNDS FOR TAX AVOIDING AND SUBSEQU ENTLY, THE ASSESSEE FIRM CLAIMED DEDUCTION U/S 80IB IN THE WAREHOUSING UNIT. 5. IT WAS SUBMITTED BEFORE LD. CIT(A) THAT IN THE A Y UNDER APPEAL IN THE BUSINESS OF GURUNANAK DAL MILLS, ASSESSEE HAD INCUR RED EXPENDITURE ON INTEREST OF RS.8,15,006/- WHICH WAS CLAIMED AS BUSI NESS EXPENDITURE U/S PAGE 4 OF 8 36(1)(III) OF THE IT ACT, WHICH AMOUNT WAS PAID FOR THE PURPOSE OF THE BUSINESS TO STATE BANK OF INDIA, CASH CREDIT A/C, S HIVANI ARODA, ASHOK KR. BHATIA. THE POSITION OF THE LOAN FROM THE ABOVE PARTIES WAS ALSO EXPLAINED WHICH IS INCORPORATED BY THE LD. CIT(A) I N THE IMPUGNED ORDER AT PAGE 4. THE ASSESSEE ALSO SUBMITTED THAT FINDING OF THE AO ARE WHOLLY INCORRECT, WHO HAS NOT APPRECIATED THE FACTS OF THE CASE IN PROPER PERSPECTIVE. THE COPY OF BALANCE SHEET OF GU RUNANAK DAL MILLS WAS FILED ALONG WITH SCHEDULE TO SHOW THAT THE ASSE SSEE FIRM HAS INTEREST FREE FUNDS AVAILABLE AT RS.1,57,69,639/- ( PARTNERS CAPITAL A/C RS.46,33,498/- + UNSECURED LOAN INTEREST FREE RS.58 ,44,795/- + INTEREST FREE CREDITORS RS.52,91,346/-). IT WAS FURTHER SUBM ITTED THAT ASSESSEE FIRM HAD MADE INVESTMENT IN THE GODOWN FOR STORAGE OF FOOD GRAINS OF THE FARMERS AND INVESTMENT WAS WRONGLY SHOWN IN SCH EDULE H WHICH IS MEANT FOR SUNDRY DEBTORS. THIS INVESTMENT SHOULD HA VE BEEN SHOWN UNDER THE SEPARATE HEAD BEING INVESTMENT MADE IN GU RUNANAK HOUSING CORPN. IT WAS WRONGLY GROUPED. IT WAS ALSO SUBMITTE D THAT DEBTOR IS ALWAYS A THIRD PERSON. THEREFORE, NO DISALLOWANCE C OULD BE MADE AND AO ALSO CANNOT DIRECT THE ASSESSEE TO CHARGE NOTION AL INTEREST BY ONE BRANCH. IT WAS ALSO SUBMITTED THAT THERE CANNOT BE LOAN TO HIMSELF. IT WAS SUBMITTED THAT SINCE AMOUNTS WERE TRANSFERRED F OR THE PURPOSE OF BUSINESS AND THAT BANK LOAN WAS WORKING CAPITAL MEA NT FOR BUSINESS PURPOSES, THEREFORE, NO DISALLOWANCE COULD BE MADE. THE ASSESSEE PAGE 5 OF 8 RELIED UPON DECISIONS OF MP HIGH COURT IN THE CASE OF R.D. JOSHI & CO., 29 ITC 515, DELHI HIGH COURT IN THE CASE OF RAVINDR A SINGH, 133 CTR 183, AND OF SUPREME COURT IN THE CASE OF SHOORJI VA LLABHDAS & CO., 46 ITR 144. IT WAS, THEREFORE, SUBMITTED THAT ADDITION WAS CLEARLY UNJUSTIFIED. THE LD. CIT(A) CONSIDERING THE FACTS O F THE CASE CONFIRMED THE ADDITION AND REJECTED THE CLAIM OF THE ASSESSEE . LD. CIT(A) ALSO NOTED THAT IT WAS A COLOURABLE DEVICE IN TERMS OF A PEX COURTS DECISION IN THE CASE OF MCDOWELL & CO LTD., 22 TAXMAN 11. LD . CIT(A) CONFIRMED THE ORDER OF THE AO AND REJECTED THE APPEAL OF THE ASSESSEE ON THIS ISSUE. 6. LD. COUNSEL FOR ASSESSEE REITERATED THE SUBMISSI ONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT IT WAS NOT LOA N BECAUSE AMOUNT WAS TRANSFERRED BY THE ASSESSEE FIRM FROM ONE BRANC H TO ANOTHER BRANCH. ON THE OTHER HAND, LD. DR RELIED UPON ORDER S OF THE AUTHORITIES BELOW AND SUBMITTED THAT INCOME OF ONE TAXABLE UNIT WAS REDUCED BY NOT CHARGING INTEREST AND INCOME OF UNIT CLAIMING 8 0IB DEDUCTION WAS ENHANCED, THEREFORE, AUTHORITIES BELOW RIGHLTY DISA LLOWED THE INTEREST BEING THE ASSESSEE ADOPTED THE COLOURABLE DEVICE TO AVOID THE PAYMENT OF LEGITIMATE TAXES. 7. I HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT ASSESSEE IS A FIRM HAVING TR ADING ACTIVITIES IN THE HEAD OFFICE. THE ASSESSEE FIRM HAS TWO BRANCHES MAI NLY, GURUNANAK PAGE 6 OF 8 DAL MILLS AND GURUNANAK WAREHOUSING CORPN. THE AMOU NT IN QUESTION IS TRANSFERRED FROM GURUNANAK DAL MILLS BRANCH TO ANOT HER BRANCH OF THE ASSESSEE MAINLY, GURUNANAK WAREHOUSING CORPN. IT IS , THEREFORE, CLEAR FROM THE FACTS OF THE CASE THAT ASSESSEE TRANSFERRE D AMOUNT OF RS.21,81,556/- TO SELF BEING THE AMOUNT TRANSFERRED FROM ONE BRANCH OF ASSESSEE TO ANOTHER BRANCH OF ASSESSEE. THERE IS NO QUESTION OF CHARGING ANY INTEREST BY THE ASSESSEE FIRM FROM THE SELF. THE AUTHORITIES BELOW HAVE THUS NOT APPRECIATED THE FACTS OF THE CA SE PROPERLY. THE ASSESSEE EXPLAINED THAT FOR BUSINESS NEED, AMOUNT W AS TRANSFERRED FROM ONE BRANCH TO ANOTHER BRANCH. WHERE IS A QUEST ION OF CHARGING OR MAKING PAYMENT OF INTEREST IN SUCH CIRCUMSTANCES. T HE ASSESSEE ALSO EXPLAINED THAT INTEREST IS PAID BY GURUNANAK DAL MI LLS BRANCH IN A SUM OF RS.8,15,006/- OUT OF WHICH MAJOR INTEREST IS PAI D TO THE STATE BANK OF INDIA. THE ASSESSEE ALSO EXPLAINED THAT IT HAS INTE REST FREE FUNDS AVAILABLE IN A SUM OF RS.1,57,69,639/-. THE AO HAS NOT GIVEN ANY FINDING THAT BORROWED FUNDS HAVE BEEN DIVERTED TO O THERS WITHOUT INTEREST. NO FINDING IS ALSO GIVEN THAT ANY ADVANCE IS GIVEN TO THIRD PERSON OUT OF BORROWED FUNDS. SINCE NO NEXUS IS PRO VED BETWEEN BORROWED FUNDS AND THE AMOUNT GIVEN TO OTHERS, THER EFORE, THERE WAS NO JUSTIFICATION FOR THE AO TO MAKE THE DISALLOWANC E. SINCE IN THIS CASE, ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AVAILAB LE, THEREFORE, AMOUNT TRANSFERRED FROM ONE BRANCH OF THE ASSESSEE TO ANOT HER BRANCH OF THE PAGE 7 OF 8 ASSESSEE WOULD NOT ESTABLISH THAT BORROWED FUNDS HA VE BEEN DIVERTED FOR NON-BUSINESS PURPOSES. I RELY UPON DECISION OF HONBLE MP HIGH COURT IN THE CASE OF R.D. JOSHI & CO., 251 ITR 332, ALLAHABAD HIGH COURT IN THE CASE OF DHAMPUR SUGAR MILLS, 274 ITR 3 70 AND DECISION OF ALLAHABAD HIGH COURT REPORTED IN 274 ITR 352. IT IS ALSO WELL SETTLED LAW THAT AO CANNOT DIRECT THE ASSESSEE TO MAXIMISE THE PROFIT. HONBLE SUPREME COURT IN THE CASE OF A.RAMAN & CO., 67 ITR 11 HELD THAT LAW DOES NOT OBLIGE A TRADER TO MAXIMISE PROFIT. HONB LE GAUHATI HIGH COURT IN THE CASE REPORTED IN 242 ITR 22 HELD THAT THERE IS NO PROVISION IN INCOME TAX ACT EMPOWERING THE ITO TO INCLUDE IN THE INCOME OF THE ASSESSEE, INTEREST WHICH WAS NOT DUE OR COLLECTED. EVEN IF ONE BRANCH WAS ENTITLED FOR DEDUCTION U/S 80IB OF THE IT ACT W OULD NOT ALLOW TO MAKE DISALLOWANCE OUT OF INTEREST IN THE CASE OF OT HER BRANCH. LD. COUNSEL FOR ASSESSEE HAS DEMONSTRATED THAT INVESTME NT IN ONE OF THE BRANCH SHOULD NOT HAVE BEEN SHOWN AS SUNDRY DEBTOR IS FOUND TO BE JUSTIFIED. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE, I AM OF THE VIEW THAT NO COLOURABLE DEVICE IS ADOPTED BY TH E ASSESSEE TO AVOID ANY LEGITIMATE TAX. I, THEREFORE, DO NOT JUSTIFY TH E ACTION OF THE AUTHORITIES BELOW IN MAKING OR CONFIRMING THE DISAL LOWANCE. THE ORDERS OF THE AUTHORITIES BELOW ARE, THEREFORE, SET ASIDE. THE ENTIRE ADDITION IS DELETED. AS A RESULT, THESE GROUNDS OF APPEAL OF TH E ASSESSEE ARE ALLOWED. PAGE 8 OF 8 8. NO OTHER GROUND IS ARGUED. 9. AS A RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.9.2009. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATE: 24.9.2009 {VYAS}