I.T.O. WARD - 2,KHAMGAON, Khamgaon V. M/S SHRI HANUMAN ONION TRADING CO.,

ITA 534/NAG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7662 (ITAT-NAGPUR)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R NINAWE
• Keywords: Unexplained investment
• Section: 69

Judgement Text

1 ITA NO. 534/NAG/2016. IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. NO. 53 4 /NAG/2016 ASSESSMENT YEAR : 20 08 - 09 . THE INCOME - TAX OFFICER, M/S SHRI HANUMAN ONION WARD - 2, KMANGAON. VS. TR A DING COMPANY, NANDURA. PAN A ANFS0617G . APPELLANT. RESPONDENT. APPELLANT BY : SHRI A.R. NINAWE. RESPONDENT BY : SHRI VIJAY CHANDAK. DATE OF HEARING : 1 5 - 12 - 2016 DATE OF PRONOUNCEMENT : 10 TH JANUARY, 2017. O R D E R. T HIS APPEAL BY THE R EVENUE IS DIRECTED AGAINST ORDER OF L EARNED CIT(APPEALS) - I, NAGPUR DATED 29/7/2016 AND PERTAINS TO ASSESSMENT YEAR 2008 09 . THE GROUNDS OF APPEAL READ AS UNDER 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.30,87,940/ - MADE BY THE ASSESSING OFFICER U/S 69 OF THE I.T. ACT, 1961. 2. THE LD. CIT(APPEALS) HAS ERRED IN SO DELETING THE ADDITION OF RS.30,87,940/ - WITHOUT APPRECIATING THE FACT THAT DESPITE SUFFICIENT OPP ORTUNITIES THE ASSESSEE COULD NOT ADDUCE ANY EVIDENCE BEFORE THE ASSESSING OFFICER THAT THE SAID STOCK WAS RECORDED IN THE ASSESSEES BOOKS OF ACCOUNT. 3. ON THE FACTS AND CIRCUMSTANCES SOF THE CAE THE LD. CIT(APPELS) HAS ERRED IN DELEING THE ADDITION OF RS.3 ,02,400/ - MADE BY THE ASSESSING OFFICER U/S 36(1)(III) OF THE I.T. ACT, 1961. 4. THE LD. CIT(APPEALS) HAS ERRED IN SO DELETING THE ADDITION OF 2 ITA NO. 534/NAG/2016. RS.3,02,400/ - WITHOUT THERE BEING ANY EVIDENCE THAT THE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE TO HANUMAN TRAC TOR AND TWO OTHERS WERE DUE TO BUSINESS EXPEDIENCY AND MERELY BECAUSE IT WAS SO STATED TO BE BY THE ASSESSEE. 2. A PROPOS THE FIRST ISSUE RELATING TO DELETING THE ADDITION OF RS. 30,87,940 / - . THE BRIEF FACTS ON THIS ISSUE LE A DING TO THE DISALLOWANCE BY THE A SSESSING OFFICER ARE AS UNDER : THE ASSESSEE IS A FIRM CONSISTING OF FIVE PARTNERS. THE FIRM DERIVES INCOME FROM TRADING OF ONION, CHILLIES AND ADAT ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON PERUSAL OF THE BALANCE SHEET, THE AO FOUND THAT THE A SSESSEE FIRM HAS SHOWN RECEIVABLES OF RS.3,81,928/ - FROM BEST COLD STORAGE PVT. LT D., NANDURA. THE AO ASKED THE ASSESSEE TO EXPLAIN THE RECEIVABLES FROM THE SAID CONCERN. THE A SSESSEE EXPLAINED THAT THE AMOUNT REPRESENTS THE ADVANCE RENT PAID TO THE BEST COLD STORAGE PVT. LTD. AS THE FIRM HAS KEPT THE STOCK OF CHILLY WITH THE SAID CONCERN. THE AO, THEREFORE, ISSUED A LETTER TO BEST COLD STORAGE PVT. LTD. TO GIVE DETAILS OF GOODS BELONGING TO THE ASSESSEE STORED IN ITS STORAGE. THE BEST COLD STORAGE PVT. LT D. FURNISHED THE DETAILS OF MATERIAL BELONGING TO THE ASSESSEE STORED IN ITS STORAGE WHICH IS REPRODUCED IN PARA 5.1 OF THE ASSESSMENT ORDER. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE GOODS KEPT IN THE BEST COLD STORAGE BELONG TO THE ASSESSEE, THE AGRI CULTURIST, AND THE BUYERS AND SUPPLIERS OF THE CHILLIES. THE ASSESSEE FURTHER SUBMITTED THAT THEY MAINLY PLAY A ROLE OF FACILITATOR IN RESPECT OF OTHERS GOODS SINCE THEY HAVE TO PROVIDE SERVICES TO THEIR AGRICULTURAL CLIENTS. THE BEST COLD STORAGE PVT. LTD ., SUBMITTED TO THE AO THE DETAILS OF 1934 BAGS OF RED CHILLY OF 40 KG EACH KEPT WITH IT BY THE ASSESSEE. MEANWHILE, THE AO ALSO ISSUED A LETTER TO THE ASSESSEE ENCLOSED WITH THE COPY OF STOCK STATEMENT OF 1934 BAGS OF RED CHILLY RECEIVED FROM BEST COLD ST ORAGE PVT. LTD. , CALLING FOR THE DE T AILS OF STOCK KEPT BY THE ASSESSEE WITH BEST COLD STORAGE PVT. LTD. ALONG WITH THE PURCHASE BILLS ETC. I N RESPONSE THERETO, THE ASSESSEE FILED HIS REPLY VIDE LETTER DTD. 24.10.2010 WHICH IS REPRODUCED IN PARA - 3 ITA NO. 534/NAG/2016. 5.1 ON PG.NO.2 AND 3 OF THE ASSESSMENT ORDER. THE AO HAVING NOT BEEN SATISFIED WITH THE EXPLANATION FILED BY THE ASSESSEE ISSUED ANOTHER LETTER CALLING FOR DETAILS OF STOCK KEPT WITH THE SAID CONCERN. THE ASSESSEE FILED ANOTHER SUBMISSION WHICH IS REPRODUCED IN P ARA 5.2 OF THE ASSESSMENT ORDER. THE ASSESSEE SUBMITTED BEFORE AO THAT THE STOCK LYING IN STORAGE WAS ACCOUNTED IN THE BOOKS AND IS SHOWN IN STOCK AS IS VERIFIABLE FROM THE PURCHASE SHEETS, SALE AND STOCK. THE ASSESSEE FURTHER SUBMITTED THAT THE GOODS WERE OUT OF OPENING STOCK AND KEPT TILL IT WERE FINALLY DELIVERED TO THE BUYERS, THEREFORE, THE STORAGE CHARGES WERE LYING AS ADVANCE. THE AO IN PARA 5.3 HAS RECORDED A FINDING THAT THE ASSESSEE H A S NOT PRODUCED ANY EVIDENCE REGARDING THE OWNERSHIP OF STOCK A ND THEREFORE, INFERRED THAT THE STOCK SUBMITTED BY BEST COLD STORAGE PVT. LTD. IS UNACCOUNTED STOCK OF THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTED BEFORE THE AO THE DETAILS OF OPENING BALANCE, PURCHASES, SALES AND CLOSING STOCK. THE ASSESSEE PLEADED BEFOR E THE AO THAT THE STOCK LYING IN BEST COLD STORAGE PVT. LTD. IS OUT OF THE OPENING STOCK BUT THE AO HAS DISCARDED THE CONTENTION OF THE ASSESSEE BY STATING THAT NO EVIDENCE OF OPENING STOCK KEPT WITH COLD STORAGE IS FURNISHED BY THE ASSESSEE. THE AO THERE FORE, TREATED THE ENTIRE STOCK VALUED AT RS.30,87,940/ - KEPT IN THE BEST COLD STORAGE AS UNEXPLAINED INVESTMENT IN STOCK PURCHASED DURING THE YEAR AND ACCORDINGLY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE U/S 69 AS UNEXPLAINED INVESTMENT IN CHILL IES. 3. UPON ASSESSEE S APPEAL LEARNED CIT (APPEALS) ELABORAT E LY CONSIDERED THE SUBMISSIONS AND G AVE THE FINDING THAT THE AFORESAID STOCK OF RED CHI L LIES WITH THE B EST C OLD S TORAGE WERE OUT OF OPENING STOCK WITH THE ASSESSEE AND THE SAME WERE EARLIER PURCHASED FROM M /S M AHESHWARI T RADING COMPANY, G UNTUR. THE CIT (APPEALS) ALSO OBSERVED THAT ALL THE RELEVANT SUBMISSIONS WERE BEFORE THE A SSESSING O FFICER. THE LEARNED CIT (APPEALS ) F URTHER OBSERVED THAT AO HAS NOT TAKEN ANY STEPS TO VERIFY THE SUBMISSIONS OF THE ASSESSEE. ACCORDINGLY THE 4 ITA NO. 534/NAG/2016. LEARNED CIT (APPEALS) DELETED THE ADDITION. IN THIS REGARD I MAY GAINFULLY REFER TO THE FOLLOWING OBSERVATIONS OF THE L EARNED CIT (APPEALS): 7.2 I T IS NOT DISPUTED THAT 1934 BAGS EACH OF 40 KG OF RED CHILLIES WERE LYING IN THE BEST COLD STORAGE. THE APPELLANT HAS ADMITTED THE OWNERSHIP OF THE STOCK AND CONTENDED THAT OUT OF THE 1834 BAGS 594 BAGS OF CHILLY WERE PUT IN THE BEST COLD STORAGE DURING TH E RELEVANT FINANCIAL YEAR. THE APPELLANT ALSO SUBMITTED THAT 1555 BAGS (680.09 QUINTALS) WERE KEPT IN STORAGE BETWEEN THE PERIOD 23.04.2004 TO 10.05.2004. THEREFORE, DU R ING THE ASSESSMENT PROCEEDINGS, THE APPELLANT SUBMITTED BEFORE THE AO THAT THE STOCK IN BEST COLD STORAGE WAS OUT OF OPENING STOCK. THE APPELLANT HAS FURTHER SUBMITTED THAT THE STOCK OF 1472 BAGS STORED IN BEST COLD STORAGE WAS REPACKED AND AGAIN STORED IN COLD STORAGE ON 01.05.2007. THE APPELLANT HAS FURNISHED THE MOVEMENT DETAILS OF RED CH ILLY AS PER PAPER BOOK NO. 1. THE AR OF THE APPELLANT IN SUPPORT OF HIS CONTENTION HAS SUBMITTED THE AUDIT REPORTS FOR THE RELEVANT FINANCIAL YEAR 2004 - 05 TO 2008 - 09, GIVING THE QUANTITATIVE DETAILS OF STOCK AS UNDER : ASSTT. YEAR STOCK IN QUINTALS OPENING CLOSING 2005 - 06 - 1839/484 2006 - 07 1839/484 2517/38 2007 - 08 2517/38 707/00 2008 - 09 707/00 336/64 ON PERUSAL OF THE AUDITED ACCOUNTS, IT IS SEEN THAT THE OPENING SOCK OF 707.00 QUINTALS WAS IN EXCESS OF THE STOCK OF 593.59 QUINTALS OF 1340 BAGS. THE APPELLANT IN SUPPORT OF HIS CLAIM HAS ALSO ENCLOSED THE QUANTITATIVE DETAILS OF STOCK MOVEMENT. THE APPELLANT HAS ALSO FURNISHED THE MONTH - WISE CONSOLIDATED STATEMENT O F RED CHILLIES IN QUINTALS PREPARED ON THE QUANTITATIVE DETAILS OF STOCK MAINTAINED. THUS, THE APPELLANT HAS DEMONSTRATED THAT THE STOCK AVAILABLE AT ANY TIME IN HIS BOOKS WAS MUCH MORE THAN THE STOCK SHOWN IN THE BEST COLD STORAGE. THEREFORE, THE CONTENT ION RAISED BY THE APPELLANT THAT THE STOCK KEPT IN COLD STORAGE WAS REFLECTED IN THE OPENING STOCK, COUPLED WITH THE FACT THAT THE STOCK AS PER BOOKS WAS MORE THAN THE STOCK REFLECTED IN THE STOCK 5 ITA NO. 534/NAG/2016. STATEMENT SUPPLIED BY BEST COLD STORAGE, THE AO IS NOT JUS TIFIED TO ADD THE VALUE OF THIS STOCK U/S 69 CARRIED SUBSTANTIAL FORCE. 7.3 THE LD. AO IN PARA - 3 OF THE ASSESSMENT ORDER HAS RECORDED A FINDING HAT THE BOOKS OF ACCOUNT & OTHER RELEVANT DOCUMENTS HAVE BEEN AUDITED AS REQUIRED UNDER THE PROVISIONS OF SECT ION 44 OF THE I.T. ACT. THE LD. AO IN PARA - 4 OF THE ASSESSMENT ORDER HAS FURTHER RECORDED A FINDING THAT THE ASSESSEE HAS PRODUCED ALL THE DETAILS CALLED FOR INCLUDING THE AUDITED BOOKS OF ACCOUNT DURING THE ASSESSMENT PROCEEDING AND THE SAME WERE VERIFIE D. IT IS THUS QUITE MANIFEST FROM THE ABOVE FINDINGS THAT THE LD. AO HAS EXAMINED ALL THE MATERIAL DETAILS INCLUDING THE AUDITED BOOKS OF ACCOUNT OF THE APPELLANT AND ACCEPTED THE SAME WITHOUT FINDING ANY INFIRMITY. THE APPELLANT HAS CONTENDED BEFORE THE A O THAT THE STOCK KEPT WITH THE BEST COLD STORAGE IS OUT OF OPENING STOCK. HOWEVER, THE LD. AO HAS NOT CONDUCTED ANY SORT OF VERIFICATION OF OPENING AND CLOSING STOCK WITH REFERENCE TO PURCHASE AND SALES TO ASCERTAIN THE ACTUAL STOCK STATUS OF THE APPELLANT AND COMPARE THE SAME WITH THE STOCK LYING WITH THE THE LD. AO HAS ALSO NOT BROUGHT OUT A CASE AS TO HOW THE STOCK LYING WITH THE BEST COLD STORAGE IS OUTSIDE THE BOOKS UNLESS HE HAD EXAMINED THE PURCHASES AND SALES OF CHILLIES WITH REFERENCE TO THE OPENING AND CLOSING STOCK AND WITHOUT FINDING ANY INFIRMITY IN THE BOOKS OF ACCOUNT. THE LD. AO HAVING NOT DONE THE RELEVANT EXERCISE TO ARRIVE AT A DEFINITE FINDING OF A FACT, THE GENERAL INFERENCE DRAWN BY THE LD. AO MERELY ON THE BASIS OF STOCK STATEMENT SUPPLIED BY BEST COLD STORAGE THAT THE SAME IS OUTSIDE THE BOOKS IS NOT SUSTAINABLE IN THE EYES OF THE LAW. IN VIEW THEREOF, THE ADD ITION MADE BY THE LD. AO BASED ON SURMISES AND GUESS WORK IN THE ABSENCE OF ANY CORROBORATIVE EVIDENCE IN HAND IS DIRECTED TO DELETED. 4. A GAINST ABOVE ORDER R EVENUE IS IN APPEAL BEFORE THE ITAT. 5. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. I FIND THAT UPON EXAMINATION OF THE RECORDS THE LEARNED CIT (APPEALS) HAS GIVEN A FINDING THAT THE STOCK OF RED CHILLIES LYING WITH B EST C OLD S TORAGE WAS OUT OF THE OPENING STOCK OF THE ASSESSEE AND CANNOT BE SAID TO BE A N UNACCOUNTED PURCHASE. HENCE I FIND THAT THE ABOVE ORDER OF L EARNED CIT (APPEALS) IS COGENT ONE AND DOES NOT NEED ANY INTERFERENCE. I FIND THAT LEARNED CIT(APPEALS) HAS GIVEN THE FINDING AFTER ELABORATELY EXAMINING THE CASE RECORDS. I DO NOT FIND ANY INFIRMITY IN THE 6 ITA NO. 534/NAG/2016. FINDINGS OF THE LEARNED CIT(APPEALS). 6 . ACCORDINGLY I UPHOLD THE ORDER OF L EARNED CIT(APPEALS) AND THIS ISSUE IS DECIDED IN F AVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE. 7 . APROPOS THE SECOND ISSUE OF DELETION OF ADDITION OF RS.3 02 400 / - . B RIEF FACTS ON THIS ISSUE ARE AS UNDER : THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS DEBITED INTEREST OF RS.3,91,572/ - IN THE P&L A/C. THE AO FURTHER FOUND THAT THE ASSESSEE HAS SHOWN THE DEBIT BALANCE OF RS.23.20 LACS IN THE NAME OF HANUMAN TRACTORS, NANDUR A. THIS AMOUNT OF LOAN TO HANUMAN TRACTOR IS GIVEN FREE OF INTEREST. THE AO FURTHER NOTED THAT THERE WAS DEBIT BALANCE OF RS.1 LAC EACH SHOWN IN THE NAME OF SONAL AGRO CENTRE, NANDURA AND VENKATESH TRADERS, NANDURA WHICH IS ALSO FREE OF INTEREST. THUS, TH E AO FOUND THAT THE APPELLANT HAS DEBITED INTEREST @ 12% IN THE P&L A/C IN RESPECT OF SECURED AND UNSECURED INTEREST BEARING BORROWED FUNDS BUT NO INTEREST HAS BEEN CHARGED FROM THE ABOVE PARTI E S. THE AO THEREFORE, DISALLOWED THE INTEREST @ 12% P.A. ON THE BORROWED FUNDS IN PROPORTION TO THE INTEREST FREE LOANS OF RS.25.20 LACS. / - 8 . UPON ASSESSEE'S APPEAL L EARNED CIT(APPEALS) DELETED THE ADDITION BY ACCEPTING THE ASSEESSEE S SUBMISSION THAT THE ADVANCES WERE MADE OUT OF BUSINESS EXPEDIENCY. THE LEARNED C IT(APPEALS) HELD AS UNDER : ON CAREFUL EXAMINATION OF THE MATERIAL FACTS AS EMANATED FROM THE SUBMISSIONS OF THE AR OF THE APPELLANT, IT IS SEEN THAT AR HAS MAINLY CONTENDED THAT THE IN T EREST FREE ADVANCES TO HANUMAN TRACTORS OF RS.23.20 LACS AND RS.2 LACS TO TWO OTHER PARTIES ARE GIVEN OUT OF BUSINESS EXPEDIENCY. THE LOAN ADVANCED TO HANUMAN TRACTORS AS FEE OF INTEREST IS STATED TO BE FOR ITS FARM VEHICLE SUPPLY AND SERVICE BUSINESS. THE APPELLANT HAS FURTHER SUBMITTED THAT SONAL AGRO AND VENKATESH TRADERS SUPPORT THE BUSINESS OF THE APPELLANT AND THE INTEREST FREE LOAN GIVEN TO THEM FOR SHORT TERM GET COMPENSATED BY THE BUSINESS WITH WHICH THEY SUPPORT APPELLANT. THE APPELLANT IN SUPPORT OF HIS CLAIM HAS RELIED ON THE 7 ITA NO. 534/NAG/2016. DECISION OF HON. MADRAS HIGH COURT IN THE CASE OF CIT VS. PUDUKOTTAI CO. PVT. LTD. (1972) 84 ITR 788 (MAD.) WHEREIN IT HAS BEEN HELD THAT ONCE IT IS CONSIDERED THAT LOAN BORROWED ARE FOR THE PURPOSES OF BUSINESS THEN U/S 36( I)(III) INTEREST PAID IS AN ALLOWABLE EXPENDITURE. THE AR HAS ALSO RELIED ON THE DECISION OF CIT VS. INDIAN EXPLOSIVE LTD. (1991) 192 ITR 144 (CAL.), CIT VS. COIMBATORE SALEM TRANSPORT (P) LTD. ( 1966) 619 ITR 480 (MAD.) WHEREIN IT HAS BEEN HELD THAT WITHOU T CORRELATING THE INTEREST FREE LOAN TO THE BORROWED CAPITAL, NO DISALLOWANCE CAN BE MADE. THE RATIO IS APPLICABLE TO THE FACTS AND THE CASE OF THE PRESENT APPELLANT. IN VIEW OF THE ABOVE, IT IS SEEN THAT THE EXPLANATION FILED BY THE APPELLANT IS REASONABL E AND SUPPORTED BY THE JUDICIAL DECISIONS. THE APPELLANT HAS UTILISED THE BORROWED FUNDS FOR ITS BUSINESS PURPOSE. THE INTEREST FREE BORROWED FUNDS GIVEN BY THE APPELLANT ARE EXPLAINED TO BE IN CONNECTION WITH THE BUSINESS EXPEDIENCY. THEREFORE THE ADDITIO N MADE BY THE AO IS DIRECTED TO BE DELETED IN THE ABSENCE OF ANY EVIDENCE CONTRARY TO THE RECORDS. 9 . AGAINST ABOVE ORDER R EVENUE IS IN APPEAL BEFORE THE ITAT. 10 . UPON HEARING BOTH THE COUNSEL AND PERUSING THE RECORDS I FIND THAT THERE IS NO INFIRMITY I N THE FINDING OF LEARNED CIT (APPEALS) . LEARNED CIT(APPE A LS) HAS GIVEN A FINDING THAT THE ADVANCES WERE FOR BUSINESS EXPEDIENCY AS THE PARTIES WERE IN THE FARM VEHICLE AND SUPPLY BUSINESS RELATED TO THE ASSESSEE. THE SHORT TERM ADVANCE TO THEM IS COMPENSA TED BY BUSINESS PROVIDED BY THEM. ACCORDINGLY I UPHOLD THE SAME. 11. IN THE RESULT THIS APPEAL FILED BY THE R EVENUE IS STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF JANUARY., 2017. SD/ - ( SHAMIM YAHYA) ACCOUNTANT MEMBER. NAGPUR, DATED: 10 TH JANUARY, 2017. 8 ITA NO. 534/NAG/2016. COPY FORWARDED TO : 1. M/S SHRI HANUMAN ONION TRADING COMPANY. STATION ROAD, NANDURA, DIST. BULDHANA. 2. I.T.O., WARD - 2, KMANGAON. 3. C.I.T. - I , NAGPUR. 4. CIT(APPEALS), - I , NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGIS TRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. WAKODE.