M/S Chawla Chemtech Pvt Ltd 8 New Grain Market, V. Income Tax Officer,

ITA 491/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86133 (ITAT-CHANDIGARH)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Rejection of books of accounts; Fair market value
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 491/CHD/2014 ASSESSMENT YEAR : 2008-09 M/S CHAWLA CHEMTECH PVT. LTD., VS. THE INCOME TAX OFFICER, 8, NEW GRAIN MARKET, RAJPURA. WARD RAJPURA. PAN: AABCC2468A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ROHIT GOEL RESPONDENT BY : SHRI S.K.MITTAL, DR DATE OF HEARING : 29.01.2015 DATE OF PRONOUNCEMENT : 30.01.2015 O R D E R PER BHAVNESH SAINI, J.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), PATIALA DATED 28.3.2014 FOR ASSESSMENT Y EAR 2008-09. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. 3. THE LEARNED COUNSEL FOR ASSESSEE DID NOT PRESS G ROUND NO.1 OF THE APPEAL CHALLENGING REJECTION OF BOOKS O F ACCOUNT. THIS GROUND OF APPEAL IS ACCORDINGLY DISMISSED. 2 4. ON GROUND NO.2 THE ASSESSEE CHALLENGED THE ADDIT ION OF RS.9,05,289/- BY ESTIMATING COLD STORAGE RECEIPTS. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER NOTICED DECLINE IN RENT RECEIVED ON ACCOUNT OF STORAGE OF POTATOES. D URING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE SUBMI TTED THAT THE RENT WAS REDUCED IN THIS YEAR AS THERE WAS NOT MUCH ARRIVAL OF CROPS TO BE KEPT IN THE COLD STORAGE IN THIS YEAR. ON FURTHER SCRUTINY, THE ASSESSING OFFICER NOTICED THAT IN THE ASSESSMENT YEARS 2006-07 AND 2007-08, THE ASSESSEE HAS DULY SHOWN THE RENT RECEIVED PER BAG AT RS.31/-. THE R ENT WAS AGAIN RECEIVED AT THE RATE OF RS.31 PER BAG IN ASSE SSMENT YEAR 2010-11. ON THE CONTRARY, IN THE CURRENT YEAR I.E. ASSESSMENT YEAR 2008-09, NO DETAILS OF RENT RECEIVED WAS MENTI ONED IN THE RECEIPTS BOOKS. THUS THERE WAS NO EVIDENCE THAT REN T WAS COLLECTED AT A LESSER RATE PER BAG AS CLAIMED BY TH E ASSESSEE IN THIS YEAR. 5. THE SECOND ISSUE IS THAT THE GROSS RENT WAS RECE IVED AT RS.18,10,855/- WHICH WAS REDUCED TO 15,36,302/- AFT ER ADJUSTING THE RENT RECEIVABLE. IN THIS CONNECTION THE ASSESSEE SUBMITTED THAT THE COMPANY DECIDED TO CHANGE THE SY STEM OF BOOKING OF RENT RECEIVABLE IN THIS YEAR. HOWEVER N O EVIDENCE IN THE FORM OF MINUTES/ RESOLUTION ETC. WAS FURNISH ED. IT WAS ALSO NOTICED THAT THE ASSESSEE HAS BEEN FOLLOWING T HE MERCANTILE SYSTEM OF ACCOUNTING ALL ALONG. IN THI S YEAR ALSO THE SAME METHOD OF ACCOUNTING WAS FOLLOWED AS PER N OTE ATTACHED TO BALANCE SHEET AS ON 31.03.2008. THE A SSESSING OFFICER FURTHER MENTIONED THAT IN THE COPY OF RENT ACCOUNTS, 3 THE ASSESSEE HAS SHOWN SOME AMOUNT OF RENT RECEIVAB LE WHICH WAS HOWEVER ERASED AND NOT LEGIBLE. THEREFORE THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSES SEE AND THE RENT RECEIVED ON ACCOUNT OF STORAGE OF POTATOES WAS TAKEN AT THE RATE OF RS.31 PER BAG. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS UNDER SECTION 145 OF THE INCOME T AX ACT, 1961 AND AS PER DETAILED WORKING REPRODUCED IN THE ASSESSMENT ORDER COMPUTED THE RENT RECEIPT AT RS.1, 24,865/-. SINCE, THE ASSESSEE HAS SHOWN LOSS OF RS.7,80,424/- UNDER THIS HEAD, THE TOTAL ADDITION COMES TO RS.9,05,289/ -. 6. THE LEARNED CIT (APPEALS) ON SAME REASONING AS G IVEN BY THE ASSESSING OFFICER CONFIRMED THE REJECTION OF BO OKS OF ACCOUNT BECAUSE THE RENT RECEIVED WAS NOT PROPERLY MENTIONED IN THE BOOKS OF ACCOUNT AND ALSO CONFIRMED THE ADDI TION ON MERITS. 7. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE AR E OF THE VIEW THAT THE ADDITION IS ON THE HIGHER SIDE. ONC E THE ASSESSEE ACCEPTS THE REJECTION OF BOOKS OF ACCOUNT, WOULD MEAN THAT THE REASONS GIVEN BY THE AUTHORITIES BELO W ARE CORRECT TO SAY THAT THE CORRECT RENT RECEIPTS ARE N OT RECORDED IN THE BOOKS OF ACCOUNT FOR STORAGE OF POTATOES. IT WAS FOUND THAT IN EARLIER YEAR, THE ASSESSEE WAS SHOWING HIGH ER RENT AS WELL AS IN SUBSEQUENT YEAR. FURTHER ON THE GROSS R ENT RECEIVED WAS REDUCED AFTER ADJUSTING THE RENT RECEI VABLE. HOWEVER, NO EVIDENCE IN THIS REGARD WAS PRODUCED. THE ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THA T THE RATE OF STORAGE RENT DEPENDS ON THE CROPS. DURING THE Y EAR THERE 4 WAS NOT MUCH ARRIVAL OF CROPS TO BE STORED IN THE C OLD STORAGE. THEREFORE, THE RENT WAS REDUCED. IT WAS ALSO EXPL AINED THAT IF THE ASSESSEE HAD NOT REDUCED THE RATES, THE CAPACIT Y UTILIZATION WOULD HAVE COME DOWN RESULTING INTO SAM E AMOUNT OF RECEIPT AND THIS COULD HAVE EFFECTED THE DEALING S OF THE ASSESSEE WITH THE REGULAR CUSTOMERS. THE ASSESSEE EXPLAINED THE SAME THROUGH ANNEXURE-1, WHICH IS REPRODUCED IN THE ASSESSMENT ORDER. IT WAS SUBMITTED THAT THOUGH TH E RENT IS REDUCED BUT THE PAYMENT TO THE LABOUR MADE IS ALMOS T THE SAME AS WAS IN THE EARLIER YEARS. HOWEVER, THE SU BMISSION OF THE ASSESSEE WAS NOT ACCEPTED AND THE ADDITION WAS MADE. THE EXPLANATION OF THE ASSESSEE CLEARLY SUGGEST THA T THE DECREASE IN THE ARRIVAL OF POTATOES FOR STORAGE WAS THE MAIN REASON FOR REDUCTION OF THE RENT RECEIPTS. THE COLD STORAGE HAS TO RUN FOR THE WHOLE YEAR IN THE SEASON AND IF THE CAPACITY OF THE COLD STORAGE IS NOT TAKEN CARE, IT WOULD HAVE R ESULTED INTO THE BUSINESS LOSS TO THE ASSESSEE. THE ASSESSING OFFICER HAS NOT EXAMINED THIS ASPECT AND HAS NOT EXAMINED ANY O THER PERSONS RUNNING THE COLD STORAGE AND THE TRADERS DE ALING IN POTATOES. IN THE ABSENCE OF ANY INDEPENDENT ENQUIR Y IN THE MATTER AND THAT THE ASSESSEE HAS NOT MENTIONED THE DETAILS OF THE RENT IN THE RECEIPT BOOK, WOULD SUGGEST THAT SO ME ADDITION IS JUSTIFIED IN THE MATTER. WE ACCORDINGLY, CONFIR M THE ORDER OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT AND MAKING THE ADDITION ON THIS ISSUE. HOWEVER, THE O RDERS OF THE AUTHORITIES BELOW ARE MODIFIED TO THE EXTENT TH AT THE ADDITION OF RS.4 LACS WOULD SERVE THE PURPOSE ON TH IS ISSUE INSTEAD OF ADDITION OF RS.9,05,289/-. THE ASSESS ING OFFICER 5 IS DIRECTED TO RESTRICT THE ADDITION TO RS.4 LACS O N THIS ISSUE AND DELETE THE REMAINING ADDITION. 8. IN RESULT, THE GROUND NO.2 OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9. ON GROUND NO.3, THE ASSESSEE CHALLENGED THE ADDI TION OF RS.1,08,695/- UNDER SECTION 40A(2)(B) OF THE ACT. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS PAID INTEREST @ 18% P.A. TO DIRECTORS OR SHAREHOLDERS OF THE COMPANY COVERED UNDER SECTION 4OA(2)(B). THE ASSESSEE HAS HOWEVER PAID I NTEREST @14.5% ON TERM LOANS. THE ASSESSING OFFICER, THEREF ORE, APPLIED INTEREST RATE @ 14.5% ON THE LOANS TAKEN FR OM THE DIRECTORS /SHAREHOLDERS AND DISALLOWED THE EXCESS I NTEREST. 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY CAN AC CEPT THE LOAN OF THE DIRECTORS, THEIR RELATIVES AND SHAREHOL DERS. IT IS ALSO SEEN THAT DURING THE ASSESSMENT PROCEEDINGS TH E ASSESSEE SUBMITTED THAT INTEREST IS PAID DEPENDING ON AVAILABILITY OF LOANS. THE LEARNED CIT (APPEALS), HOWEVER, NOTED THAT THE SUBMISSIONS OF THE ASSESSEE ARE GENE RAL IN NATURE AND ARE NOT SUBSTANTIATED BY COGENT REASON A S TO WHY HIGHER RATE OF INTEREST IS BEING PAID TO THE DIRECT ORS OR THE SHAREHOLDERS WHEN CHEAPER LOAN IS AVAILABLE FROM T HE BANKS. 11. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE A RE OF THE VIEW THAT ADDITION IS JUSTIFIED IN THE MATTER. IT IS ADMITTED FACT THAT THE ASSESSEE PAID LESSER INTEREST ON TERM S LOAN, HOWEVER, THE INTEREST WAS PAID AT HIGHER RATE TO TH E DIRECTORS 6 OR SHAREHOLDERS WHO ARE COVERED UNDER SECTION 40A(2 )(B) OF THE ACT. THE EXPENDITURE INCURRED ON INTEREST ON UNSE CURED LOANS TAKEN FROM THE DIRECTORS AND SHAREHOLDERS IS, THEREFORE, EXCESSIVE WITH REGARD TO FAIR MARKET VALUE OF THE S AME. IN THE ABSENCE OF ANY EVIDENCE OR MATERIAL ON RECORD E VEN BEFORE THE LEARNED CIT (APPEALS), WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE ASSESSEE. THE SAME IS ACC ORDINGLY, DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JANUARY, 2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH JANUARY, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH