ACIT 15(3), MUMBAI V. GLOBAL ENERGY FOOD INDUSTRIES, MUMBAI

ITA 5337/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88536 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 09-02-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 01-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEVENDRA MEHTA
• Assessee Lawyers: PAVAN KUMAR BEER LA
• Keywords: Business income; Commercial expediency
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI , ,, , !' !' !' !' '''# '''# '''# '''#$ $$ $ % % % % BEFORE SHRI B R BASKARAN, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 5076/MUM/2013 (ASSESSMENT YEAR: 2010-11) M/S GLOBAL ENERGY FOOD INDUSTRIES, C/O M/S RAVI & DEV, CHARTERED ACCOUNTANTS, 601, A WING, AURUS CHAMBERS, BEHIND MAHINDRA TOWERS, S.S. AMRUTWAR MARG, WORLI, MUMBAI -400 013 .: PAN: AAGFG 0732 R VS DCIT-15(3), MUMBAI -400 007 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEVENDRA MEHTA RESPONDENT BY : SHRI PAVAN KUMAR BEERLA ITA NO. : 5337/MUM/2013 (ASSESSMENT YEAR: 2010-11) ACIT-15(3), R. NO. 122, MATRU MANDIR, 1 ST FLOOR, TARDEO ROAD, MUMBAI -400 007 VS M/S GLOBAL ENERGY FOOD INDUSTRIES, C/O AIR LINK HOTEL, 75, NEHRU RD NR. SANTACRUZ AIR PORT, VILE PARLE (EAST), MUMBAI -400 057 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PAVAN KUMAR BEERLA RESPONDENT BY : SHRI DEVENDRA MEHTA /DATE OF HEARING : 09-02-2015 ! / DATE OF PRONOUNCEMENT : -03-2015 & & & & ORDER '''# '''# '''# '''# , , , , : :: : PER VIVEK VARMA, JM: CROSS APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THE DEPARTMENT AGAINST THE ORDER OF CIT(A) 26, MUMBAI, DATED 10.05.2013, WHEREIN THE FOLLOWING GROUNDS HAVE BEEN TAKEN: M/S GLOBAL ENERGY FOOD INDUSTRIES ITA 5076/M/2013 ITA 5337/M/2013 2 ITA NO. : 5076/MUM/2013 : APPEAL BY THE ASSESSEE : 1.0 THE ORDER PASSED BY THE LEARNED COMMISSIONER O F INCOME-TAX (APPEALS) 26, MUMBAI, PARTLY CONFIRMING THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE INCOME-TA X ACT,1916, IS BOTH BAD-IN-LAW AND BAD-IN-FACTS. DISALLOWANCE OF INTEREST : RS. 6,65,581/- 2.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ERRED IN LAW AS WELL AS IN FACTS IN PARTLY CONFIRMI NG THE DISALLOWANCE OF INTEREST BY THE ASSESSING OFFICER O N ACCOUNT OF INTEREST-FREE ADVANCE GIVEN TO ITS SISTE R CONCERN. 3.0 THE ASSESSEE MAY BE ALLOWED TO ADD, AMEND, ALTE R OR RAISE ADDITIONAL GROUNDS OF APPEAL. 4.0 THE ASSESSEE PRAYS FOR JUSTICE. ITA NO. : 5337/MUM/2013 : APPEAL BY THE DEPT. : 1. THE HONBLE CIT(A) ERRED IN LAW AS WELL AS IN F ACTS IN NOT TREATING THE INTEREST RECEIVED ON SECURITIES AN D INTEREST RECEIVED ON MARGIN MONEY AS INCOME FROM OT HER SOURCES AND ALLOWING IT AS BUSINESS INCOME WHILE COMPUTING PROFIT DERIVED FROM EXPORT OF EOU FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 19B IF THE ACT. 2. THE HONBLE CIT(A) ERRED IN LAW AS WELL AS IN FA CTS IN HOLDING THAT SALE OF BARDANA (PACKING MATERIAL FOR RAW MATERIAL) HAS A DIRECT AND IMMEDIATE NEXUS WITH EXP ORT BUSINESS OF EOU. 3. THE HONBLE CIT(A) ERRED IN LAW AS WELL AS IN FA CTS IN ALLOWING THE SALE PROCEEDS OF BARDANA (PACKING MATE RIAL FOR RAW MATERIAL) WHILE COMPUTING PROFIT DERIVED FR OM EXPORT OF EOU FOR THE PURPOSE OF COMPUTING DEDUCTIO N UNDER SECTION 10B OF THE ACT. 2. AT THE TIME OF HEARING, THE AR POINTED OUT THAT THE ISSUE RAISED IN THE APPEALS BY THE ASSESSEE AS WELL AS BY THE DEPARTMENT ARE NOW COVERED BY THE ORDERS OF THE CO-O RDINATE BENCHES AT MUMBAI, IN ASSESSEES OWN CASES IN ITA NO. 1702/MUM/2002 AND ITA NO. 1779/MUM/2012. 3. THE AR POINTED OUT THAT ISSUE OF DISALLOWANCE OF INTERES T ON ACCOUNT OF INTEREST FREE ADVANCE GIVEN TO SISTER CONC ERN HAS BEEN DEALT WITH IN ITA NO. 1702/MUM/2012 AT PARAS 7 TO 7.3, WHEREIN IT WAS OBSERVED, THE AO NOTED THAT THE ASSESSEE HAD ADVANCED LOAN AMOUNTING TO RS.5 LAKHS TO AN ASSOCIATE CONCERN BY NAME OF M/S KABISCO AGRO FOODS (I) PVT. LTD. THE AO M/S GLOBAL ENERGY FOOD INDUSTRIES ITA 5076/M/2013 ITA 5337/M/2013 3 DISALLOWED RS.40,000I- OUT OF INTEREST PAID ON ACCO UNT OF SISTER CONCERN. HE CALCULATED THE INTEREST AT THE R ATE OF 8%. 7.2 IN APPEAL, LEARNED CIT(A) CONFIRMED THE ACTION OF THE AO. HOWEVER, THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED THAT THE ADVANCE WAS GIVEN FOR ITS COMMERC IAL PURPOSE. SIMILAR CONTENTION WAS RAISED BEFORE THE TRIBUNAL ON BEHALF OF THE ASSESSEE 7.3 AFTER CONSIDERING THE SUBMISSION, WE FOUND THAT THE DISALLOWANCE WAS NOT JUSTIFIED AS THE ASSESSEE HAS SUFFICIENT FUND TO ADVANCE THE MONEY TO ITS SISTER CONCERN, WHICH WAS GIVEN FOR COMMERCIAL PURPOSES. T HE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS, REPORTED IN 288 ITR 1, HAS HELD THAT IF THE ADVANCE S ARE GIVEN FOR COMMERCIAL EXPEDIENCY, THEN DISALLOWANCE OF INTEREST IS NOT JUSTIFIED. IN THE PRESENT CASE, THE ADVANCES WERE GIVEN OUT OF PROFIT OF THE YEAR. THEREFORE, NO DISALLOWANCE SHOULD HAVE BEEN MADE AS THE ADVANCES WERE NOT GIVEN OUT OF BORROWED FUNDS. EVEN AND OTHERWISE, THE DISALLOWANCE CANNOT BE MADE AS THE ADVANCES WERE GIVEN FOR COMMERCIAL EXPEDIENCY. ACCORDINGLY, WE DELETE THE ADDITION OF RS.40,000/-. 4. SIMILARLY IN ITA NO. 1779/MUM/2012, IT HAS BEEN OBSERVED, GROUND NO.2 RELATES TO CONFIRMING THE DISALLOWANCE OF RS.47,8691- MADE BY THE AD BY DISALLOWING THE INTER EST AT THE RATE OF 18%. 3.1 DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTIC ED THAT THE ASSESSEE HAS MADE INTEREST FREE ADVANCES T O ITS SISTER CONCERN OF RS-5 LAKHS TO M/S KABISCO AGRO FO OD INDIA PVT. LTD. AND RS.70,00,000/- TO SHRI NARAYAN DAS J.. PAGRANI, THE AD OBSERVED THAT THE ASSESSEE HAS BORROWED FUNDS AND OUT OF BORROWED FUNDS THE ASSESS EE HAS MADE ADVANCES OF RS.75,00,000/-. ACCORDINGLY, H E :19 DISALLOWED A SUM OF RS.6 LAKHS AT THE RATE OF 8 %. 3.2 IN APPEAL, LEARNED CIT(A) RESTRICTED THE DISALLOWANCE TO RS. 47,869/- BY OBSERVING THAT THE AO HAS NOT WORKED OUT THE DISALLOWANCE PROPERLY AS PROPORTIONATE DISALLOWANCE HAS TO BE MADE. ACCORDIN GLY. HE RESTRICTED THE ADDITION TO RS.47,869/-. 3.3 AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FOUND THAT THE ASSESSEE DESE RVES TO SUCCEED ON THIS ISSUE IN PART. IT IS SEEN THAT A SUM OF RS.5 LAKHS WAS ADVANCED IN EARLIER YEAR TO M/S KABI SCO AGRO FOOD INDIA PVT. LTD. OUT OF PROFIT OF EARLIER YEAR. IT IS FURTHER SEEN THAT A SUM OF RS.41 IAKHS WAS ADVANCED DURING THE YEAR UNDER CONSIDERATION OUT OF EXPORT PROCEEDS RECEIVED BY THE ASSESSEE IT MEANS THAT THE ASSESSEE HAS ADVANCED THE AMOUNT TO ITS SISTER CONC ERN OUT OF THE PROFIT OF THE YEAR. THEREFORE, IN OUR VI EW, ON THIS AMOUNT, DISALLOWANCE OF INTEREST WAS NOT JUSTI FIED. HOWEVER, A SUM OF RS.29 IAKHS WAS ADVANCED ON 28-3- 2008 OUT OF PACKING CREDIT LIMITS OBTAINED BY THE M/S GLOBAL ENERGY FOOD INDUSTRIES ITA 5076/M/2013 ITA 5337/M/2013 4 ASSESSEE, THEREFORE, ON THIS AMOUNT, THE DISALLOWAN CE HAS TO BE MADE. AS PER WRITTEN SUBMISSION, DISALLOW ANCE OF RS.2545/HAS BEEN WORKED OUT BY THE ASSESSEE, THEREFORE, TO THIS EXTENT, THE ADDITION IS SUSTAINE D. WE ORDER ACCORDINGLY. 5. THE AR, THEREFORE, PLEADED THAT THE DISALLOWANCE BE DELETED. 6. THE DR ACCEPTED THE FACT THAT THE ISSUE IS IDENTICALLY COVERED BY THE ORDERS IN ASSESSEES OWN CASES. 7. IN THESE CIRCUMSTANCES WE SET ASIDE THE ORDER OF TH E CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE DISALLOWANCE AS MADE. 8. WE, THEREFORE, ALLOW THE APPEAL AS FILED BY THE ASSESSEE. 9. THE AR ALSO POINTED OUT THAT THE GROUNDS AS RAISED BY THE DEPARTMENT ARE ALSO DEALT WITH AND HELD TO BE IN FAVOUR OF THE ASSESSEE IN THE SAME ITAS AS MENTIONED ABOVE, IN THE CA SES OF THE ASSESSEE. 10. THE DR ACCEPTED THAT THE ISSUES AS RAISED ARE CO VERED BY THE ITATS ORDERS IN ASSESSEES OWN CASE IN FAVOUR OF TH E ASSESSEE. 11. RESPECTFULLY FOLLOWING THE ORDERS IN ITA NO. 1702/MUM/2012 & ITA NO. 1779/MUM/2012, WE SUSTAIN THE ORDERS OF THE CIT(A), CONSEQUENTIALLY, REJECTING THE GROUND S AS RAISED BY THE DEPARTMENT. 12. APPEAL AS FILED BY THE DEPARTMENT IS DISMISSED. M/S GLOBAL ENERGY FOOD INDUSTRIES ITA 5076/M/2013 ITA 5337/M/2013 5 13. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED AN D APPEAL FILED BY THE DEPARTMENT IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 04/03/2015. SD/- SD/- ( ) ( '''# '''# '''# '''# ) % % % % & & & & % % % % (B R BASKARAN) ( VIVEK VARMA ) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 04/03/2015 '/ COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT(A) -26, MUMBAI. 4) THE CIT-15, MUMBAI/CIT -15, MUMBAI. 5) / THE D.R. G BENCH, MUMBAI. 6) ()* + COPY TO GUARD FILE. ,%- / BY ORDER / / TRUE COPY / / . / / 0 , '1! , 2 3 DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN, SR.PS