Rewale Engineering P. Ltd., Pune V. ACIT, Circle-10, Pune

ITA 548/PUN/2013

• Counselvise Citation: 54824514 RSA 2013
• Duration Of Justice: 2 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 26-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Business expenditure; Additional evidence; Notional interest
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.548/PN/2013 ASSESSMENT YEAR: 2009-10 REWALE ENGINEERING P. LTD., PLOT NO.78/3, S BLOCK, MIDC, BHOSARI, PUNE 411026 . APPELLANT PAN: AAACR8920P VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 10, PUNE. . RESPONDENT APPELLANT BY : SMT. DEEPA KHARE RESPONDENT BY : SHRI B.C. MALAKAR DATE OF HEARING : 12-02-2015 DATE OF PRONOUNCEMENT : 31-03-2015 ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-V, PUNE DATED 17.12.2012 RELATING TO ASSESSMENT YEAR 2009-1 0 PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING DISALLOWANCE OF NOTIONAL INTEREST OF RS.14,43,000/- ON ADVANCES/SHARE APPLICATION MONEY OF RS.1,11,00,000/ - TO M/S. SHRINIVAS MACHINE CRAFTS P. LTD. ON THE GROUND THAT THE SAID ADVANCE WAS FOR ACQUIRING SHARES. HE FAILED TO APP RECIATE THAT THE ADVANCE WAS IN FURTHERANCE OF THE BUSINESS OF T HE ASSESSEE. HE ALSO FAILED TO APPRECIATE THE ARGUMENTS AND CONT ENTIONS ADVANCED IN THIS BEHALF. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR SUBSTITUTE ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESS EE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PRESS COMPONENTS, ASSE MBLY OF DIESEL GENSET ITA NO.548/PN/2013 REWALE ENGINEERING P. LTD 2 AND ENGINEERING WORKSHOP. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD TAKEN INTEREST BEARING SECURED LOANS OF RS.5.35 CRORES FROM BANKS AND UNSECURED LO ANS OF RS.1.56 CRORES, ON WHICH THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE OF RS.2,24,60,594/-. THE ASSESSEE HAD MADE CERTAIN INTEREST FREE ADVANCES AN D THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE TO EXPLAIN AS TO WHY THE I NTEREST DEBITED TO THE PROFIT & LOSS ACCOUNT MAY NOT BE DISALLOWED FOR THE RELEVANT YEAR IN THE ABSENCE OF BUSINESS NEXUS. DESPITE SEVERAL OPPORTU NITIES, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE FAILED TO ESTABLISH THAT THE AMOUNTS HAD BEEN BORROWED AND UTILIZED FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER THUS, OBSERVED THAT THE INTEREST BEARING FUNDS HAD BEEN DIVERTED FOR NON- BUSINESS PURPOSES I.E. PERSONAL ADVANCES TO GROUP M EMBERS AND THE INTEREST INCURRED ON FUNDS WHICH WERE UTILIZED FOR NON-BUSIN ESS PURPOSE, WAS NOT ALLOWABLE AS BUSINESS EXPENDITURE. THEREFORE, THE ASSESSING OFFICER DISALLOWED INTEREST EXPENDITURE IN RESPECT OF THE L OANS ADVANCED FOR NON- BUSINESS PURPOSE. FURTHER, THE ASSESSEE HAD ALSO M ADE INVESTMENT IN SHARES OF M/S. SHRINIVAS MACHINE CRAFTS PVT. LTD. I.E. IN THE FORM OF SHARE APPLICATION MONEY UP TO 30.04.2008 AND THEREAFTER, FOR THE BALA NCE PERIOD OF THE FINANCIAL YEAR, SHARES WERE ALLOTTED WHICH HAD NOT YIELDED AN Y INCOME, HENCE, THE INTEREST ON THE SAME WAS DISALLOWED UNDER SECTION 3 6(1)(III) OF THE ACT AND TOTAL DISALLOWANCE OF RS.22,36,000/- WAS MADE. 4. THE CIT(A) UPHELD THE INTEREST EXPENDITURE RELAT ABLE TO TWO ADVANCES MADE BY THE ASSESSEE I.E. M/S. BISON INDIA LTD. AND SHRI MANOJ AMBIKE. AS REGARDS THE ADVANCE OF RS.1,11,00,000/- TO M/S. SHR INIVAS MACHINE CRAFTS PVT. LTD., THE CIT(A) NOTED THAT THE SAME WAS GIVEN FOR ACQUIRING SHARES, WHICH COULD NOT BE CONSIDERED AS EXPENDITURE IN THE NATUR E OF BUSINESS. THEREFORE, DISALLOWANCE OF INTEREST EXPENDITURE RELATABLE TO T HE SAME WAS UPHELD. THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS.15,47,000/ -. ITA NO.548/PN/2013 REWALE ENGINEERING P. LTD 3 5. THE ASSESSEE IS IN APPEAL AGAINST THE DISALLOWAN CE OF NOTIONAL INTEREST OF RS.14,43,000/- ON ADVANCES / SHARE APPLICATION M ONEY ADVANCED TO M/S. SHRINIVAS MACHINE CRAFTS PVT. LTD. 6. THE PLEA OF THE LEARNED AUTHORIZED REPRESENTATIV E FOR THE ASSESSEE BEFORE US WAS THAT THE ADVANCES WERE MADE TO A SIST ER CONCERN WITH WHOM IT HAD BUSINESS CONNECTION AND MAJOR SALES WERE MADE T O THE SAID PARTY. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE EVIDENCE AT PAGES 13 TO 20 OF THE PAPER BOOK ES TABLISH THAT THE ADVANCES WERE MADE FROM OWN FUNDS OUT OF CURRENT ACCOUNT WIT H THE BANK AND HENCE, NO DISALLOWANCE OF INTEREST IS WARRANTED IN THE CASE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT TH ESE WERE ADDITIONAL EVIDENCES, WHICH WERE NOT FILED BEFORE THE AUTHORIT IES BELOW AND ALSO THIS ASPECT WAS NOT RAISED BEFORE THE ASSESSING OFFICER. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, RELIED ON THE ORDER OF CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING VIDE GROUND OF APPEAL NO.1 IS AGAINST THE D ISALLOWANCE OF INTEREST OF RS.14,43,000/- ON ADVANCES MADE TO M/S. SHRINIVAS M ACHINE CRAFTS PVT. LTD. THE SAID DISALLOWANCE OF INTEREST WAS MADE ON ACCOU NT OF NON-USER OF INTEREST BEARING FUNDS FOR BUSINESS PURPOSES. BEFORE THE AU THORITIES BELOW, THE CONTENTION OF THE ASSESSEE WAS THAT THESE WERE THE BUSINESS ADVANCES AND THEREFORE, NO DISALLOWANCE OF INTEREST WAS CALLED F OR. HOWEVER, BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS RAISED A NEW PLEA THAT FACTUALLY, THERE WAS NO NEXUS BETWEEN THE BORR OWED FUNDS AND THE ADVANCES MADE TO THE SAID PARTIES. IN SUPPORT THER EOF, THE ASSESSEE HAS FURNISHED BY WAY OF ADDITIONAL EVIDENCE THE BANK ST ATEMENT SHOWING WORKING OF BANK ACCOUNT ON THE RELEVANT DATES OF ADVANCES. THE SAID EVIDENCES FILED BY THE ASSESSEE ARE BY WAY OF ADDITIONAL EVIDENCE. HOWEVER, SINCE THE ITA NO.548/PN/2013 REWALE ENGINEERING P. LTD 4 ADDITIONAL EVIDENCE GOES TO THE ROOT OF THE ISSUE, WE ADMIT THE SAME AND RESTORE THE ISSUE BACK TO THE FILE OF CIT(A) TO ADJ UDICATE THE ISSUE AFTER VERIFYING THE DOCUMENTS FURNISHED BY THE ASSESSEE B Y WAY OF ADDITIONAL EVIDENCES. WE REMIT THE ISSUE BACK TO THE FILE OF CIT(A), WHO SHALL DECIDE THE ISSUE AFTER AFFORDING REASONABLE OPPORTUNITY OF HEA RING TO THE ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED FOR STATISTICAL PURPOSES. 9. THE ASSESSEE HAS FURTHER RAISED AN ADDITIONAL GR OUND OF APPEAL WHICH READS AS UNDER:- ADDITIONAL CONCISE GROUND SOUGHT TO BE RAISED: THE LD. AO ERRED IN MAKING AN ADDITION OF CREDITOR S OF RS.4,56,45,562/- 10. THE ASSESSEE HAD RAISED THE ISSUE BEFORE THE CI T(A) VIDE GROUND OF APPEAL NO.2 AGAINST THE SAID ADDITION OF RS.4,56,45 ,562/-. THE BASIS FOR MAKING THE SAID ADDITION WAS THE UN-VERIFIABILITY O F THE SAID CREDITORS. THE ASSESSEE WAS ASKED TO SUBMIT THE FULL NAMES, ADDRES SES AND PAN NUMBERS OF THE CREDITORS. HOWEVER, THE ASSESSING OFFICER NOTE D THAT THE ASSESSEE HAD FAILED TO FURNISH THE DETAILS IN RESPECT OF THE FOL LOWING PARTIES:- 1. JVM STEEL PVT. LTD. 2. MALDAR BARRELS PVT. LTD. 3. DARPAN TRADING COMPANY 4. WESTERN INDUSTRIAL SYNDICATE 5. RASHMI ENTERPRISES 6. PADMAHALAXMI SALE & ALLOY PVT. LTD. 7. ISK TRADING CO. PVT. LTD. 8. MEGHA ENTERPRISES 11. IN THE ABSENCE OF ANY DETAILS BEING FILED, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAID CREDITORS WERE BOGUS AND HAD TO BE ADDED AS UN- VERIFIABLE CREDITORS. HOWEVER, LETTERS WERE SENT T O THE PARTIES AT THE ADDRESSES GIVEN BY THE ASSESSEE CALLING FOR INFORMATION UNDER SECTION 133(6) OF THE ACT, BUT NO RESPONSE WAS RECEIVED. THE ASSESSEE WAS ASKE D TO PRODUCE PARTIES ALONG WITH BOOKS OF ACCOUNT FOR VERIFICATION AND IN THE ABSENCE OF ANY INFORMATION OR PRODUCTION OF PARTIES, THE CREDITORS TO THE EXTENT OF ITA NO.548/PN/2013 REWALE ENGINEERING P. LTD 5 RS.4,56,45,562/- REMAINED UNVERIFIED AND WERE ADDED AS INCOME OF THE ASSESSEE. 12. BEFORE THE CIT(A), THE ASSESSEE DID NOT PRESS T HE SAID GROUND OF APPEAL AND THE SAME WAS DISMISSED AS NOT PRESSED. 13. THE ASSESSEE HOWEVER, BEFORE US HAS FURNISHED A N APPLICATION FOR ADMISSION OF THE ADDITIONAL GROUND OF APPEAL AND AL SO A REQUEST FOR ADMISSION OF ADDITIONAL EVIDENCE, IN THIS REGARD. THE PLEA O F THE ASSESSEE BEFORE US WAS THAT THERE WAS SURVEY AT THE PREMISES OF THE ASSESS EE ON 06.11.2012 AND DURING THE COURSE OF SURVEY, THE MANAGING DIRECTOR OF THE ASSESSEE UNDER PRESSURE AND FEAR ACCEPTED THE FOLLOWING PARTIES AS NON-GENUINE, WHICH WERE SUBJECT OF ADDITION IN THE ASSESSMENT PROCEEDINGS:- 1. RASHMI ENTERPRISES 2. PADMAHALAXMI SALE & ALLOY PVT. LTD. 3. ISK TRADING CO. PVT. LTD. 14. IN RESPECT OF THE OTHER CREDITORS, IT WAS POINT ED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE ADDITION WAS IN RESPECT OF THE CREDIT BALANCE AS ON 31.03.2008, WHICH WAS BROU GHT FORWARD AS ON 01.04.2008 AND SINCE THE TRANSACTION DID NOT PERTAI N TO THE FINANCIAL YEAR 2008-09, THE SAME SHOULD NOT HAVE BEEN ADDED BY THE ASSESSING OFFICER. THE PLEA OF THE ASSESSEE BEFORE US WAS THAT THE LED GER ACCOUNTS FOR THE YEAR WERE PRODUCED BEFORE THE ASSESSING OFFICER. HOWEVE R, IN CONFUSION ARISEN PURSUANT TO THE SURVEY ON 06.11.2012, THE COUNSEL F OR THE ASSESSEE WAS INSTRUCTED NOT TO PRESS THE ABOVE GROUND OF APPEAL BEFORE THE CIT(A), BUT NOW THE ADDITIONAL GROUND OF APPEAL WAS RAISED BEFORE T HE TRIBUNAL FOR ADMISSION AND ADJUDICATION. THE LEARNED AUTHORIZED REPRESENT ATIVE FOR THE ASSESSEE BEFORE US POINTED OUT THAT THE GROUND OF APPEAL WAS NOT PRESSED UNDER MIS- UNDERSTANDING AND CONFUSION AND THE SAME MAY BE SEN T BACK TO THE CIT(A) FOR ADJUDICATION. IN RESPECT OF THE GENUINENESS OF THE CREDITORS, THE ASSESSEE HAS FURNISHED ON RECORD ADDITIONAL EVIDENCE IN THE FORM OF BANK CERTIFICATES FOR ITA NO.548/PN/2013 REWALE ENGINEERING P. LTD 6 PAYMENT TO THE CREDITORS, WHICH WERE FOUND TO BE NO N-GENUINE. HOWEVER, IN RESPECT OF THE CREDITS WHICH HAVE BROUGHT FORWARD F ROM THE PRECEDING YEAR, THE PLEA OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR T HE ASSESSEE WAS THAT NO ADDITION WAS WARRANTED. 15. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF CIT(A). 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE BY WAY OF ADDITIONAL GROUND OF APPEAL HAS RAISED AN ISSUE AGAINST THE ADDITION MADE ON ACCOUNT OF UN-VERIFIABLE CREDI TORS TOTALING RS.4.56 CRORES. THE ASSESSEE HAD RAISED THE SAID ISSUE BEFORE THE C IT(A) VIDE GROUND OF APPEAL NO.2. FROM THE PERUSAL OF PAPER BOOK SUBMIT TED TO THE CIT(A), COPY OF WHICH IS PLACED ON RECORD, WE FIND THAT THE ASSESSE E HAD ALSO SUBMITTED WRITTEN SUBMISSIONS IN THIS REGARD. THE ASSESSEE H AD ALSO FURNISHED CONFIRMATIONS FROM THE SAID PARTIES AND HAS ALSO FU RNISHED THE LEDGER ACCOUNTS OF THE PREVIOUS YEARS, WHICH REFLECT BUSIN ESS TRANSACTIONS WITH THE SAID PARTIES. HOWEVER, THE SAID GROUND OF APPEAL W AS NOT PRESSED BEFORE THE CIT(A) AND HENCE, THE SAME WAS DISMISSED AS NOT PRE SSED. THE PLEA OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US WAS THAT BY SOME CONFUSION, THE SAID GROUND OF APPEAL WAS NOT P RESSED BEFORE THE CIT(A). HOWEVER, CREDITORS WERE GENUINE AND VERIFIABLE. WI TH REGARD TO SOME OF CREDITORS, THE ASSESSEE EXPLAINED THAT PAYMENTS WER E MADE IN THE SUBSEQUENT YEARS, FOR WHICH THE BANK CERTIFICATES HAVE BEEN FU RNISHED BY WAY OF ADDITIONAL EVIDENCES. IN RESPECT OF THE OTHER CREDITORS, IT W AS POINTED OUT THAT THE ADDITION IS NOT WARRANTED SINCE THE CREDIT BALANCE IS THE OPENING BALANCE AS ON 01.04.2008 AND NO TRANSACTION HAS BEEN TRANSACTED D URING THE YEAR. HOWEVER, NO SUCH PLEA WAS RAISED BEFORE THE AUTHORI TIES BELOW. IN THE ENTIRETY OF THE ABOVE FACTS AND CIRCUMSTANCES AND IN THE INT EREST OF JUSTICE, WE DEEM IT FIT TO RESTORE THE ISSUE TO THE FILE OF CIT(A) AND DIRECT THE CIT(A) TO ADJUDICATE ITA NO.548/PN/2013 REWALE ENGINEERING P. LTD 7 THE SAME AFTER VERIFYING THE CONTENTION OF THE ASSE SSEE AND TO DECIDE THE ISSUE IN ACCORDANCE WITH THE LAW, AFTER AFFORDING REASONA BLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ADDITIONAL GROUND OF APPEAL RAIS ED BY THE ASSESSEE IS THUS, ALLOWED FOR STATISTICAL PURPOSES. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 31 ST DAY OF MARCH, 2015. SD/- SD/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 31 ST MARCH, 2015. GCVSR COPY OF THE ORDER IS FORWARDED TO: - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-V, PUNE; 4) THE CIT-V, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE