Pioneer Furnaces Pvt. Ltd., Anand V. The Income tax Officer, Ward-4(2), Baroda

ITA 525/AHD/2010

• Counselvise Citation: 52520514 RSA 2010
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-08-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 16-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: MAYANK V JHAVERI
• Keywords: Gift; Onus to prove
• Section: 43B; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMADABAD BEFORE SHRI D.K.TYAGI , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 525/AHD/2010 ASSESSMENT YEAR :2004-05 PIONEER FURNACES PRIVATE LTD. SUBHAAG, B-16/17 RAMIN PARK, OLD PADRA ROAD, BARODA V/S . INCOME TAX OFFICER, WARD 4(2), BARODA. PAN NO. AABCP1359B (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI MAYANK V. JHAVERI, A.R. /BY RESPONDENT SHRI RAHUL KUMAR, SR.D.R. /DATE OF HEARING 21.08.2012 /DATE OF PRONOUNCEMENT 28.09.2012 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WHI CH HAS EMANATED FROM THE ORDER OF CIT(A)-III, BARODA, ORDER DATED 2 9.10.2009 FOR ASSESSMENT YEAR 2004-05. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF SALES TAX OF RS.36,036 OF ASSESSMENT YEAR 1998-99 DEBITED TO PRIOR PERIOD ITA NO. 525/AHD/2010 A.Y.: 04-05 PAGE 2 ADJUSTMENT ACCOUNT AND CLAIMED AS DEDUCTION UNDER S . 43B ON ACTUAL PAYMENT BASIS. 2. ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE C OMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADDITI ON OF DEFERRED TAX ASSETS OF RS.19,328 CREDITED TO THE PROFIT AND LOSS ACCOUNT AND THEREFORE DEDUCTED BY THE ASSESSEE IN COMPUTING THE TOTAL INCOME. 3. ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE C OMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF RS.26,856 OUT OF INTEREST PAID ON BORROWINGS ON ACCOUNT OF IN TEREST FREE LOAN OF RS.223,798 GIVEN TO SISTER CONCERN AND DISALLOWANCE OF RS.49,405/- OUT OF INTEREST PAID ON BORROWINGS ON ACCOUNT OF INVEST MENT IN SHARES OF RS.411,701 OF SISTER CONCERN. 4. ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE C OMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF RS.30,708 BEING ONE TENTH OF THE TOTAL EXPENSES OF RS.307,078 . 5. ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE C OMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE OF RS.19,427 OUT OF BUSINESS PROMOTION EXPENSES OF RS.34,999. 6. ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE C OMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING FOR THE PU RPOSE OF COMPUTING BOOK PROFIT UNDER S.115JB OF THE ACT, THE ADDITION OF DEFERRED TAX ASSETS OF RS.19,328 CREDITED TO THE PROFIT AND LOSS ACCOUN T AND THEREFORE ALREADY ADDED TO THE BOOK PROFIT INSTEAD OF RIGHTLY DEDUCTED BY THE ASSESSEE. 2. IN ALL GROUNDS, LD. SR.D.R. RELIED ON THE ORDERS OF AUTHORITIES BELOW. 3. THE FACT OF THE CASE IS THAT THE ASSESSEE COMPAN Y IS ENGAGED IN THE BUSINESS OF DESIGNING, ENGINEERING AND MANUFACTURIN G OF FURNACES ALONG WITH ITS AUXILIARIES AND OTHER RELATED EQUIPMENTS. THE COMPANY MANUFACTURES BY ASSEMBLING PRE-FABRICATED COMPONENTS AND SUB ASSESS MBLIES AND THROUGH ITA NO. 525/AHD/2010 A.Y.: 04-05 PAGE 3 TESTING AT ITS WORK. THE APPELLANT HAD DEBITED IN P&L ACCOUNT PRIOR PERIOD EXPENSES OF RS.36,036/- WHICH WAS SALES TAX PAYMENT ON THE BASIS OF ACTUAL SALES TAX LIABILITY CREATED BY THE AUTHORITY CONCER N FOR THE YEAR 1998-99 IN THE YEAR UNDER CONSIDERATION. BUT THE APPELLANT DID NO T EXPLAIN THE YEAR OF DISALLOWANCE OF SALES TAX BEFORE THE A.O. THEREFOR E, HE MADE ADDITIONS. THE CIT(A) HAS CONFIRMED THE ADDITION AFTER CONSIDERING THE ASSESSEES REPLY BUT THE APPELLANT HAD NOT DEMONSTRATED EITHER BEFORE TH E A.O. OR THE CIT(A) THAT THIS WAS ARREAR PAYMENT OF SALES TAX. AFTER HEARIN G BOTH THE SIDES, THE FACTS OF THE CASE AND COPY OF SALES TAX ORDER PLACED BY THE ASSESSEE AT PAGE NO.40 AND 40A WHICH ARE DEMAND NOTICE OF SALES TAX OFFICE R FOR THE YEAR 1998-99. THEREFORE, WE SET ASIDE THE MATTER TO THE A.O. TO R E-CONSIDER THE EVIDENCE FURNISHED BEFORE US AND AFTER VERIFYING THE FACTS, THE SALES TAX LIABILITY MAY BE ALLOWED. 4. THE ASSESSEE CLAIMED PROVISION FOR TAXATION OF R S.15,350/- IN P&L ACCOUNT AND CREDITED DEFERRED TAX ASSETS OF RS.19,3 28/- AND NET AMOUNT OF RS.3,978/- OF THE BOTH IS ADDED TO THE BOOK PROFIT. FURTHER, THE ASSESSEE HAD DEDUCTED PROVISION FOR TAXATION OF RS.3,978/- IN CO MPUTATION OF THE INCOME. THE A.O. WAS NOT SATISFIED WITH THE REPLY OF THE AP PELLANT. HE MADE THE ADDITION OF RS.34,678/-. THE CIT(A) HAD PARTLY ALL OWED THE APPEAL AS RS.15,350/- PROVISION FOR TAXATION HAS ALREADY BEEN DISALLOWED BY THE ASSESSEE IN COMPUTATION BUT THE REMAINING ADDITION HAS BEEN CONFIRMED BY THE CIT(A) AS ADDITION IS MADE UNDER THE REGULAR PR OVISIONS. LD. COUNSEL FOR THE APPELLANT CONTENDED THAT THE APPELLANT HAD DEBI TED THE PROVISION OF ITA NO. 525/AHD/2010 A.Y.: 04-05 PAGE 4 TAXATION OF RS.15,350/-, DEFERRED TAX ASSETS 19,750 /- TO THE P&L ACCOUNT. THE RESULT NET OF RS.3,978/- WAS ADDED TO THE PROFIT BE FORE TAX OF RS.77,597/-. HE ALSO DRAWN OUR ATTENTION ON PAGE NO.14 OF THE PAPER BOOK IN WHICH DEFERRED TAX ASSETS HAS BEEN SHOWN RS.19,328/-. THE APPELLA NT HAD FOLLOWED THE ACCOUNTING STANDARD ON TAXES OF INCOME. IN EXPLANA TION 1 OF SECTION 115JB WAS RETROSPECTIVELY AMENDED BY THE FINANCE ACT, 200 8 (FROM 01.04.2001) TO PROVIDE THE AMOUNT OF DEFERRED TAX IF ANY SUCH AMOU NT IS CREDITED TO THE P&L ACCOUNT SHALL BE REDUCED IN COMPUTING BOOK PROFIT W HILE NO CHANGES IS MADE TO (A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AN D THE PROVISION THEREFORE IF DEBITED TO THE PROFIT AND LOSS ACCOUNT. THEREFORE, THE PROVISION FOR DEFERRED TAX DEBITED WILL BE COVERED BY INCOME TAX PAID OR P AYABLE, AND THE PROVISION THERE FOR AND WILL NOT BE ALLOWED AS DEDUCTION IN C OMPUTING BOOK PROFIT. THE LD. CIT(A) HAD THOROUGHLY DISCUSSED THIS ISSUE IN H IS ORDER AND REFERRED THE COMPUTATION FILED BY THE ASSESSEE. THEREFORE, WE C ONFIRM THE ORDER OF THE CIT(A). 5. THE LD. A.O. DISALLOWED RS.26,856/- INTEREST PAI D ON BORROWINGS ON ACCOUNT INTEREST FREE LOAN OF RS.2,23,798/- GIVEN T O SISTER CONCERN AND DISALLOWED RS.49,405/- OUT OF INTEREST PAID OF BORR OWINGS ON ACCOUNT OF INVESTMENT IN SHARES OF RS.4,11,701/- OF SISTER CON CERN. THE A.O. HAD GIVEN REASONABLE OPPORTUNITY OF BEING HERD DURING THE COU RSE OF ASSESSMENT PROCEEDING AND THE APPELLANT HAD FILED REPLY VIDE L ETTER DATED 04.09.2006 WHICH WAS NOT FOUND CONVINCING TO THE A.O. HE FOUN D DIRECT NEXUS BETWEEN INTEREST BEARING FUND OUT OF WITHDRAWALS MADE FROM ITS C.C. ACCOUNT AND ITS ITA NO. 525/AHD/2010 A.Y.: 04-05 PAGE 5 DIVERSION AS INTEREST FREE LOAN GIVEN TO ITS GROUP CONCERN. HE HAS RELIED UPON VARIOUS DECISIONS: I. PHALTHAN SUGAR WORKS LTD. VS. CWT (208 ITR 989 B OMBAY) II. CIT VS H.R. SUGAR FACTORY LTD. (187 ITR 363- AL LAHABAD) III. INDIAN METALS & FERRO ALLOYS CO VS. CIT (193 I TR 344-ORISSA) IV. CIT VS. DOCTOR & CO. (180 ITR 627 BOMBAY) V. VIJAYKUMAR MILLS LTD. VS. CIT (194 ITR 197-MADRA S) AND VI. K SOMASUNDARAM & BROSS VS. CIT (238 ITR 939-MAD RAS) IN A.Y. 02-03, THE CIT(A) HAD CONFIRMED THE ADDITIO N UNDER THIS HEAD ON SIMILAR FACTS. THUS, HE DISALLOWED INTEREST EXPEND ITURE OF RS.26,856/-. THE DISALLOWANCE OF INTEREST MADE BY THE THEN LD. A.O. IS CONFIRMED BECAUSE RE- ASSESSMENT ON THE DIRECTION OF ITAT IN A.Y. 02-03 W AS NOT CLEAR AND WHY THE LD. A.O. HAS ACCEPTED THE ASSESSEES PLEA. WHEREAS IN THE YEAR UNDER CONSIDERATION, THE LD. A.O. HAD FOUND DIRECT NEXUS BETWEEN BORROWED FUND FROM C.C. ACCOUNT AND INTEREST FREE LOAN WHICH HAS NOT BEEN REBUTTED BY THE APPELLANT BEFORE THE A.O. AS WELL AS BEFORE HIM. T HE ASSESSEE HAD ACQUIRED SHARE OF RS.4.11 LAC DURING THE YEAR UNDER CONSIDER ATION. THE LD. COUNSEL FOR THE ASSESSEE FURTHER ARGUED THAT THERE IS NO DISPUT E THAT THE APPELLANT HAD GIVEN INTEREST FREE LOAN TO ITS SISTER CONCERN PION EER AUSTENG PVT. LTD. IN THE YEAR. SIMILARLY THE INVESTMENT IN SHARES WAS MADE IN EARLIER YEAR. BOTH THESE AMOUNTS WERE PAID FROM THE CASH CREDIT ACCOUNT. TH IS CASH CREDIT ACCOUNT IS THE MAIN BANK ACCOUNT OF THE APPELLANT AND ALL THE MAJOR TRANSACTIONS INCLUDING RECEIPTS ON SHARE APPLICATION MONEY, RECE IPT ON ACCOUNT OF SALES DEBTORS ETC. AND PAYMENTS FOR PURCHASE, EXPENDITURE S ETC. ARE ALL DONE ITA NO. 525/AHD/2010 A.Y.: 04-05 PAGE 6 THROUGH THIS ACCOUNT. IT IS ALSO NOT DISPUTED THAT THE NON INTEREST BEARING FUND WHICH INCLUDES SHARE CAPITAL AND RESERVES ARE FOR I N EXCESS TO AMOUNT OF LOAN GIVEN AND INVESTMENT IN THE SHARE OF THE SISTER CON CERN. THE APPELLANT HOLDS ALMOST 49% OF THE TOTAL SHARE CAPITAL AND AS ALSO R ECEIVED SIZEABLE ORDERS FROM THE SISTER CONCERN. THESE TWO MATTERS HAD COM E UP BEFORE THE HONBLE TRIBUNAL FOR ITS DECISION FOR THE ASSESSMENT YEAR 0 2-03. THE MATTER WAS REMANDED BACK IN A.Y. 02-03 TO THE A.O. THE LD. A. O. DELETED THE ADDITION BY APPLYING THE DECISION OF TORRENT FINANCIERS. THIS ISSUE WAS ALSO INVOLVED IN A.Y.1998-99. THE HONBLE TRIBUNAL HAD REMANDED BAC K THE ISSUE TO A.O. FOR APPLYING THE PRINCIPLE LAID DOWN BY THE HONBLE SUP REME COURT IN SA BUILDERS LTD. VS. CIT (2007) 288 ITR 1 (SC) . THE LD. A.O., THEREAFTER, DELETED THE ADDITION OF BOTH COUNTS IN HIS ORDER PASSED U/S.143 READ WITH SECTION 254. WE HAVE GONE THROUGH THE FACTS OF THE CASE, EARLIER DE CISION IN ASSESSEES OWN CASE BY THE VARIOUS CO-ORDINATE BENCHES OF AHMADABA D. THE ISSUE IS IDENTICAL TO A.Y. 02-03 AND 98-99. THEREFORE, A.O. IS DIRECTED TO APPLY THE PRINCIPLE LAID DOWN IN THE TORRENT FINANCIERS 73 TTJ 624 (AHD.) AND HONBLE SUPREME COURT DECISION IN CASE OF SA BUILDERS LTD. VS. CIT (SUPRA) AND TAKE DECISION BY ANALYZING THE INTEREST FREE FUND AVAILA BLE AND INTEREST FREE LOAN GIVEN AND TAKE DECISION AS PER LAW. 6. THE A.O. ADDED ONE TENTH OUT OF TELEPHONE EXPENS ES OF RS.30,708/- FOR NON BUSINESS PURPOSES AND PERSONAL USE AS CIT(A) IN A.Y. 02-03 HAS CONFIRMED THE ADDITION UNDER THIS HEAD. LD. CIT(A) HAD NOT FOUND ANY FAULT IN DISALLOWANCE MADE BY THE A.O. AND CONFIRMED THE ADD ITION AS THERE IS NO ITA NO. 525/AHD/2010 A.Y.: 04-05 PAGE 7 CHANGE IN THE BASIC FACTS. THE APPELLANT ARGUED T HAT NO DISALLOWANCE CAN BE MADE UNDER THIS ACT AS COMPANY IS A SEPARATE ENTITY AND DIRECTORS USED TELEPHONE FOR THE PURPOSE OF BUSINESS AND COMMERCIA L EXPENSES BUT IN PAST, THIS ISSUE HAS NOT BEEN BEFORE US AND REASON CITED BY THE APPELLANT HAS NO FORCE. THEREFORE, WE CONFIRM THE ORDER OF THE CIT( A). 7. THE A.O. DISALLOWED RS. 19,427/- OUT OF RS. 34,9 99/- ON ACCOUNT OF PRESENTATION OF ARTICLE WHICH HAD NOT EVIDENCED BY THE PROPER BILL AS DID NOT BEAR THE NAME OF THE ASSESSEE AND GIVEN TO FOREIGN PERSON LIVING/STAYING IN FOREIGN COUNTRIES. THE CIT(A) HAS CONFIRMED THE AD DITION OF THE A.O. BY OBSERVING THAT BILLS WERE NOT IN THE NAME OF COMPAN Y. BEFORE US, THE LD. COUNSEL FOR THE APPELLANT ARGUED THAT THE APPELLANT HAD SUBMITTED PROPER BILL, VOUCHER. BEFORE BOTH THE AUTHORITIES, THE ARTICLES PRESENT WERE REASONABLE CONSIDERING THE SCALE OF OPERATION. IN CASH PURCHA SE, NO NAME OF THE PURCHASER IS BEING MENTIONED, NO DISALLOWANCE WAS M ADE IN EARLIER YEAR. THESE GIFTS WERE GIVEN TO MAINTAIN THE CORDIAL BUSI NESS RELATION WITH CUSTOMERS. THE APPELLANT COMPANY HAS ONGOING TECHN ICAL COLLABORATION WITH GERMAN COMPANIES FOR ABREAST OF THE LATEST TECHNICA L ADVANCES IN ITS FIELD OF OPERATION. THERE IS NO SPECIFIC DENIAL IN THE INCO ME TAX ACT THAT GIFTS MADE TO THE FOREIGNER ARE PROHIBITED. AFTER CONSIDERING BO TH THE SIDES AND THE ORDERS OF THE AUTHORITIES BELOW, THE APPELLANT HAD NOT DISCHA RGED HIS BURDEN TO PROVE THAT EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF BUSINESS, NO EVIDENCE OF COLLABORATION HAD BEEN SHO WN TO US DURING THE ITA NO. 525/AHD/2010 A.Y.: 04-05 PAGE 8 COURSE OF HEARING. WE ALSO FIND THAT THE CIT(A) WA S REASONABLE TO CONFIRM THE ADDITION. ON THIS GROUND, THE ASSESSEES APPEAL IS DISMISSED. 8. THE LD. A.O. ADDED PRIOR PERIOD EXPENSES OF RS.3 6,158/- IN CALCULATING THE BOOK PROFIT. BUT NOT ADDED IN THE COMPUTATION OF INCOME FOR THE REGULAR ASSESSMENT. THEREFORE, HE MADE ADDITION OF PROVISI ON FOR THE CURRENT TAX AND DEFERRED TAX ASSETS OF RS.15,350/- AND RS.19,328/- FOR BOOK PROFIT U/S.115JB AND BOOK PROFIT WAS CALCULATED ON AT RS.1,16,253/- WHEREAS THE APPELLANT HAD CALCULATED THE BOOK PROFIT U/S.115JB BY REDUCING OF RS.19,328/- I.E. DEFERRED TAX ASSETS AFTER ADJUSTING THE PROVISION OF TAX DEB ITED TO THE P&L ACCOUNT OF RS.15,350/- NET AMOUNT OF RS.39,078/- TO THE PROFIT . THE LD. CIT(A) ALLOWED THE APPEAL PARTLY BY RELYING ON HONBLE SUPREME COU RT DECISION IN APOLLO TYRES LTD. V. COMMISSIONER OF INCOME-TAX [2002] 255 ITR 273 (SC). HOWEVER, THE ASSESSEES ARGUMENT HAD BEEN ACCEPTED BY THE LD. CIT(A) THAT THERE WAS DOUBLE ADDITION AND DIRECTED TO THE A.O. TO RE-CALCULATE THE DISALLOWANCE, IF THERE WAS ANY DOUBLE ADDITION. BE FORE US, THE APPELLANTS ARGUMENTS WERE SAME AS GIVEN BEFORE THE CIT(A). TH E BASIC DIFFERENCE IS WHETHER DEFERRED TAX AMOUNT CREATED IN P&L ACCOUNT IS TO BE REDUCED IN COMPUTING BOOK PROFIT WITH LOGIC THAT TAX DEBIT IN P&L ACCOUNT IS ADDED BACK LIKEWISE DEFERRED TAX CREATED TO THE P&L ACCOUNT IS TO BE REDUCED. THE SECTION 115JB IS A CODE BY ITSELF AND BOOK PROFIT I S DEFINED FOR THE PURPOSE OF SCALE THE ADJUSTMENT TO BE MADE TO THE BOOK PROFIT CAN BE ONLY THOSE THAT ARE STATED THEREIN. THE DEFERRED TAX CREDIT HAS NOT BE EN MENTIONED IN DEDUCTION U/S.115JB. THUS, ASSESSEES APPEAL IS DISMISSED ON THIS GROUND. ITA NO. 525/AHD/2010 A.Y.: 04-05 PAGE 9 9. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 28.09.2012 SD/- SD/- ( D.K.TYAGI ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ; STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 19, 20 & 21.09.2012 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE XXX 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 21.09.2012 4) DATE OF CORRECTION 22.09.2012 5) DATE OF FURTHER CORRECTION XXX 6) DATE OF INITIAL SIGN BY MEMBERS 28.09.2012 7) ORDER UPLOADED ON ,, ,, 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 28.09.2012