The Asstt. Commissioner of Income Tax, Bathinda V. M/s Nasa Agro Industries Pvt. Ltd, Fazilka

ITA 553/ASR/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8779 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-11-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 27-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VEDPAL SINGH
• Assessee Lawyers: P.K. ANAND
• Keywords: Commercial expediency; Onus to prove
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 271(1)(c); 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 37(1); 73; 13; 145(3); 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNA AMRITSAR BENCH; AMRITSAR BEFORE SH.T.S. KAPOOR, ACCOUNTANT MEMBER AND SH.SANJAY GARG, JUDICIAL MEMBER I.T.A. NO.553(ASR)/2015 ASSESSMENT YEA R: 2012-13 ASST. CIT, BATHINDA. VS. NASA AGRO INDUSTRIES PRIVATE LIMITED, VILLAGE PAINCHANWALI, TEHSIL & DISTT. FAZIKA. PAN:AAACN7050J (APPELLANT) (RESPONDENT) APPELLANT BY: SH. VEDPAL SINGH, DR. RESPONDENT BY: SH. P.K. ANAND, CA. DATE OF HEARING: 28/11/2016 DATE OF PRONOUNCEMENT: 07/02/2017 ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORD ER OF LD. CIT(A), JAMMU, DT.20.08.2015 FOR ASST. YEAR: 2012-13. 2. THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF AP PEAL. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A), BATHINDA HAS ERRED IN ALLOWING THE APPEAL OF THE AS SESSEE AND DELETING THE ADDITION MADE U/S 36(L)(III) WITHOUT A PPRECIATING THE FACT THAT ASSESSEE HAS FAILED TO PROVE THAT INTERES T BEARING FUNDS AVAILABLE WITH THE ASSESSEE HAVE BEEN USED FOR PURP OSE OF BUSINESS AS HELD BY HONBLE PUNJAB & HARYANA HIGH C OURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. IN 286 ITR 1. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE TH E CIT (A), BATHINDA HAS ERRED IN DELETING THE ADDITIONS MADE U /S 37(1) OF THE ACT, BY OBSERVING THAT THE AO SHOULD HAVE REJEC TED BOOKS OF ACCOUNT FOR MAKING SUCH ADHOC ADDITIONS WHEREAS IN THE CASE OF M/S LUXMI RICE MILLS THE HONBLE ITAT, AMRITSAR VID E ITS ORDER PASSED IN I.T.A. NO. 438(ASR)/2013 DATED 27.03.2014 HAS ITA NO.553/ASR/2015 ASST. YEAR: 2012- 13 2 CONFIRMED SUCH ADDITIONS MADE WITHOUT REJECTING THE BOOKS OF ACCOUNTS. 3. THE CIT(A) HAS NOT APPRECIATED THE FACT THAT T HE ASSESSEE FAILED TO DISCHARGE ONUS TO PROVE COMMERCIAL EXPEDI ENCY IN INVESTING THE INTEREST BEARING LOANS IN THE SHARE C APITAL OF THE NEW VENTURE AND HENCE DISALLOWANCES U/S 36(1)(III) WAS RIGHTLY MADE BY AO. 3. THE LD. DR HEAVILY PLACED HIS RELIANCE ON THE OR DER OF ASSESSING OFFICER WHEREAS THE LD. AR RELIED UPON THE ORDER OF LD. CIT(A) AND ALSO RELIED UPON THE SYNOPSIS ALONG WITH WRITTEN SUBMIS SION FILED BEFORE LD. CIT(A). 4. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF RIC E BRAN OIL. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER M ADE AN ADDITION OF RS.41,03,565/- ON ACCOUNT OF DISALLOWANCE OF CLAIM OF INTEREST U/S 36(1)(III) OF THE ACT AND ANOTHER ADDITION OF RS.3, 49,523/- WAS MADE ON ACCOUNT OF DISALLOWANCE OF 1/6 TH FROM THE VEHICLE EXPENSE. FURTHER AN ADDITION OF RS.1,00,000/- WAS MADE ON AD HOC BASIS TOWARDS ALLEGED GENERATION OF SCRAP WHICH OCCURRED DUE TO EXPENDITU RE ON MACHINERY REPAIRS. 5. AGGRIEVED WITH THE ORDER, THE ASSESSEE FILED APP EAL BEFORE LD. CIT(A) AND SUBMITTED VARIOUS SUBMISSIONS. THE LD. CIT(A) D ELETED THE ADDITIONS BY HOLDING AS UNDER: (I) ADDITION U/S 36(1)(III) OF THE ACT. ITA NO.553/ASR/2015 ASST. YEAR: 2012- 13 3 9. SO FOR AS THE AOS REFRAIN REGARDING THE PROVISO APPENDED TO SECTION 36 (1)(III) OF THE ACT IS CONCERNED, IT IS APPARENT THAT IT IS A MISPLACED OBSERVATION. THIS PROVISO MERELY STATES THAT ANY AM OUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITIO N OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITAL IZED IN THE BOOKS OF ACCOUNTS OR NOT) FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET T ILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOW ED AS DEDUCTION. THE APPELLANT COMPANY HAD INVESTED INTEREST FREE FUNDS IN PROCURING THE SHARES OF ANOTHER PRIVATE LIMITED COMPANY. IT CANNO T THEREFORE BE SAID THAT SUCH INVESTMENT PERTAINED TO THE EXTENSION OF THE B USINESS OF THE APPELLANT COMPANY, NOTWITHSTANDING THE APPELLANTS SUBMISSION S IN THE ASSESSMENT PROCEEDINGS TO THIS EFFECT. THE SAME APPEARS TO HAV E BEEN STATED IN A DIFFERENT CONTEXT OF THE TWO COMPANIES HAVING COMMO N SHAREHOLDING. 10. ADVERTING NOW TO THE PURPOSIVE TEST OF COMME RCIAL EXPEDIENCY FOR ALLOWANCE OF DEDUCTION U/S 36(1 )(III) OF THE ACT, IT IS SEEN THAT THERE IS A LARGE CONVERGENCE OF OPINION OF THE VARIOUS COURTS INCLUDING THE JURISDICTIONAL HIGH COURT AS ALSO THE REPORTED IN 2 88 ITR 1, HAS UNAMBIGUOUSLY HELD THAT IF THE BORROWED FUNDS ADVAN CED TO A SISTER CONCERN OR SUBSIDIARY OR ANY THIRD PARTY ARE FOR CO MMERCIAL EXPEDIENCY AND NOT FOR A PERSONAL BENEFIT OF THE DIRECTIONS, T HE EXPENDITURE IS ALLOWABLE UNDER SECTION 36(1 )(III) OF THE ACT. ECH OING THE SAME, A DIVISION BENCH OF THE JURISDICTIONAL HIGH COURT IN CIT VS MA RUDHAR CHEMICALS AND PHARMACEUTICALS (P) LTD, 319 ITR 75, EXTRACTED THE RELEVANT PARAGRAPHS OF THE S.A. BUILDERS CASE IN-EXTENSO AND AFTER REMANDI NG THE MATTER, EXPRESSLY DIRECTED THE TRIBUNAL TO CONSIDER THE MAT TER IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE SA ID CASE. 11. THE APPELLANTS CASE MEETS THE AFORESAID TEST O F COMMERCIAL EXPEDIENCY. COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF BUSINESS HAS BEEN SUCCESSIVELY AND CONSISTENTLY HELD BY VARIOUS COURTS TO BE WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNI NG INCOME, PROFITS OR GAINS. THE APPELLANT COMPANY HAD SUBSCRIBED TO THE SHARES OF ANOTHER RELATED PRIVATE LIMITED COMPANY M/S SAMPURN AGRI. V ENTURES PVT. LTD. WITH THE AID OF INTEREST FREE FUNDS. THE SAID COMPA NY IS AN AGRO BASED UNIT WHICH PROCESSES THE AGRO-WASTE OR RESIDUE OF PADDY CALLED PADDY STRAW WHICH RESULTS IN THE MANUFACTURE OF BIO FERTILIZERS , BIO NUTRIENTS AND BIO GAS WHICH IS UTILIZED IN THE GENERATION OF ELECTRIC ITY. PURSUANT TO SUCH INVESTMENT BY THE APPELLANT COMPANY, IT STANDS TO G AIN BY SUPPLY OF POWER PRODUCED BY M/S SAMPURN AGRI. VENTURES PVT. LTD, ON SUBSIDIZED RATES. BESIDES, THE APPELLANT COMPANY ALSO STANDS RELIEVED OF ITS SOCIAL AND ENVIRONMENTAL REQUIREMENT/STIPULATION OF TREATING O F EFFLUENTS PRODUCED BY IT AS THE EFFLUENTS SHALL BE UTILIZED BY M/S SAMPUR N AGRI. VENTURES PVT. LTD IN THE PROCESS OF DECOMPOSITION OF BIO PRODUCTS. CO MMERCIAL EXPEDIENCY AND PURPOSE OF BUSINESS IN SUCH AN INVESTMENT BY TH E APPELLANT COMPANY IS, THUS, ADEQUATELY MET. IT WOULD BE UNFAIR TO TRE AT THE PURPOSIVENES OF INVESTMENT AS PHILANTHROPIC OR DICTATED FOR PERSONA L GAINS, AS SUGGESTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. I N THE LIGHT OF THE AFORESAID, IT IS HELD THAT THE APPELLANT IS ENTITLE D TO THE DEDUCTION U/S ITA NO.553/ASR/2015 ASST. YEAR: 2012- 13 4 36(1)(III) OF THE ACT. THE ASSESSING OFFICER IS, TH US, DIRECTED TO DELETE THE SAID ADDITION. (II) ADDITION ON ACCOUNT OF VEHICLE EXPENSES AND O THER EXPENSES. 12. CHALLENGING THE AD HOC ADDITION OF RS.3,49,523/ - ON ACCOUNT OF VEHICLE REPAIR AND MAINTENANCE AND RS.1,00,000/- ON ACCOUNT OF GENERATION OF SCRAP CONSEQUENT TO MACHINERY REPAIRS , IT HAS BEEN STATED, INTER ALIA, BY THE APPELLANT THAT THE SUCH AD HOC A DDITION WITHOUT POINTING OUT SPECIFIC ABERRATIONS AND WITHOUT APPLYING THE P ROVISIONS OF SECTION 145(3) OF THE ACT HAVE BEEN CONSISTENTLY DISAPPROVE D BY THE HONBLE ITAT AMRITSAR BENCH. THE CASE OF M/S SHUBH DISTRIBUTORS, FEROZEPUR CITY IN ITA NO. 229(ASR)/2010 WAS CITED IN WHICH THE HONBLE TR IBUNAL FOLLOWED THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT O F P&H IN THE CASE OF CIT KARNAL VS SATISH KUMAR MITTAL TO THE EFFECT THAT WI THOUT INVOKING THE PROVISIONS OF SECTION 145(3), NO ADHOC ADDITIONS CA N BE MADE. CONSIDERING THE SUBMISSION OF THE APPELLANT AND THE OBSERVATION S OF THE HONBLE ITAT AMRITSAR, BOTH THE AFORESAID IMPUGNED ADDITIONS ARE DIRECTED TO BE DELETED. 13. THE GROUND OF APPEAL PERTAINING TO INITIATION OF PENALTY PROCEEDING U/S 271(1)(C) OF THE ACT IS REJECTED ON ACCOUNT OF NON- MAINTAINABILITY OF THE SAME, AS THE APPELLANT IS NO T PREJUDICED MERELY ON INITIATION OF THE PENALTY PROCEEDINGS. WE FIND THAT LD. CIT(A) HAS PASSED AN ELABORATE AND SPEAKING ORDER. THE LD. CIT(A) HAS HELD THAT APPELLANT COMPANY HAD SUBS CRIBED TO THE SHARES OF ANOTHER RELATED PRIVATE LIMITED COMPANY M/S SAMP URN AGRI VENTURES PVT. LTD. WITH THE AID OF INTEREST FREE FUNDS. HE H AS ALSO HELD THAT THE SAID COMPANY WAS AN AGRO BASED UNIT WHICH PROCESSED THE AGROWASTE OR RESIDUE OF PADDY CALLED PADDY STRAW WHICH RESULTED IN THE MANUFACTURE OF BIO FERTILIZERS. HE HAS FURTHER HELD THAT PURSUA NT TO SUCH INVESTMENT THE ASSESSEE STANDS TO GAIN BY SUPPLY OF POWER PROD UCED BY M/S SAMPURN AGRI VENTURES PVT. LTD, ON SUBSIDIZED RATES . WE FIND THAT THE LD. CIT(A) HAS RIGHTLY HELD THAT ASSESSING OFFICER HAS WRONGLY RELIED ON THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. REPORTED 286 ITR 01 (P&H). THE ITA NO.553/ASR/2015 ASST. YEAR: 2012- 13 5 LD. DR WAS NOT ABLE TO CONTROVERT ANY OF THE FINDIN GS RECORDED BY LD. CIT(A). WE FIND THAT THE AGGREGATE OF INTEREST FREE FUNDS A VAILABLE AS ON 31.03.2012 WITH THE ASSESSEE WERE TO THE TUNE OF RS .927.40 LACS, WHICH FACT HAS BEEN NOTED AT PAGE 3 OF HIS ORDER . THE ASSESSING OFFICER HAS NOT NEGATED THE EXISTENCE OF INTEREST FREE FUNDS AND HA S JUST HELD THAT HAD ASSESSEE NOT INVESTED THIS AMOUNT IN THE SHARE CAPI TAL OF M/S SAMPURN AGRI VENTURES PVT. LTD, IT WOULD HAVE EARNED INTERE ST OF RS.41.03 LACS. WE FURTHER FIND FROM THE SUBMISSIONS MADE BEFORE TH E ASSESSING OFFICER THAT ASSESSEE HAD RAISED ADDITIONAL FUNDS TO THE TU NE OF RS.442.46 LACS FOR MAKING INVESTMENTS IN THE SAMPURN AGRI VENTURE PVT. LTD. THE ASSESSING OFFICER HAS NOT NEGATED THE RAISING OF AD DITIONAL INTEREST FREE FUNDS. THE HONBLE SUPREME COURT OF INDIA IN THE C ASE OF HERO CYCLE PVT. LIMITED VS. CIT HAS HELD THAT WHERE THE ASSESSEE H AD MADE INVESTMENT OUT OF ITS INTEREST FREE FUNDS, NO DISALLOWANCE U/S 361(1)(III) CAN BE MADE. THE OPERATIVE PART OF THE HONBLE SUPREME COURT HAS REPRODUCED BELOW. INSOFAR AS THE LOANS TO DIRECTORS ARE CONCERNED, I T COULD NOT BE DISPUTED BY THE REVENUE THAT THE ASSESSEE HAD A CRE DIT BALANCE IN THE BANK ACCOUNT WHEN THE SAID ADVANCE OF RS.34 LAK HS WAS GIVEN. REMARKABLY, AS OBSERVED BY THE CIT(APPEAL) IN HIS O RDER, THE COMPANY HAD RESERVE/SURPLUS TO THE TUNE OF ALMOST 1 5 CRORES AND, THEREFORE, THE ASSESSEE COMPANY COULD IN ANY CASE, UTILIZE THOSE FUNDS FOR GIVING ADVANCE TO ITS DIRECTORS. 6. IN VIEW OF THE ABOVE, THE GROUND NOS.1 & 3 ARE D ISMISSED. 7. NOW COMING TO GROUND NO.2, WE FIND THAT ASSESSI NG OFFICER HAD MADE AD HOC DISALLOWANCE. THE LD. CIT(A) HAS HELD T HAT ASSESSING OFFICER WAS NOT EMPOWERED TO MAKE AD HOC ADDITION WITHOUT P OINTING SPECIFIC ITA NO.553/ASR/2015 ASST. YEAR: 2012- 13 6 ABBREVIATION AND WITHOUT APPLYING THE PROVISIONS OF SEC.145(3) OF THE ACT. IN THIS RESPECT THE LD. CIT(A) HAS RELIED UPON THE CASE LAW OF M/S SHUBH DISTRIBUTORS FEROZEPUR CITY IN ITA NO.229(ASR)/2010 . THE LD. CIT(A) HAS ALSO FOLLOWED THE DECISION OF HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS. SATISH KUMAR MITTAL TO THE FACT THA T WITHOUT COMPLYING WITH THE PROVISIONS OF SEC.145(3) NO AD-HOC ADDITI ONS CAN BE MADE. WE FIND THAT SIMILAR AD-HOC DISALLOWANCES HAS BEEN DEL ETED BY VARIOUS BENCHES OF TRIBUNAL. FOR THE SAKE OF COMPLETENESS A FEW ORDERS PASSED BY VARIOUS COURTS/ TRIBUNAL ARE MENTIONED BELOW. (I) 73 ITR (1969)192(P&H)- JHANDU MAL TARA CHAND RI CE MILLS VS. CIT (II) 106 TTJ(2006) 6169DELHI) ACIT VS. ALLIED CONST RUCTION (III) 119 TTJ (2008) 434 (JABALPUR)- VINDHYA TELEIN K LTD. VS. CIT (JAB) (IV) 123 TTJ (2009) 246 (JOD)- OM PARKASH JOSHI VS. ITO (V) 130 TTJ (2010) 301 (MUM)-INTERVET INDIA (P) LTD . VS.ACIT (IV) 133 TTJ (2010) 2 (AGRA)-ITO VS. MAYUR AGARWAL (VI) 134 TTJ (2010) 559 (DEL)-SEASONS CATERING SERV ICES (P) LTD. VS. DCIT (VII) 141 TTJ (2011) 75 (CHD)-BABU JEWELLERS VS. IT O(UO) (VIII) 94 TTJ(2005)91071(DEL)- BAJRANG LAL BANSAL V S. DCIT (IX) 254 ITR (2002) 216 (SC)-J.J. ENTERPRISES VS. C IT (X) 298 ITR (2008) 203 (RAJ)-LAXMI ENGINE ERING IND. VS. ITO IN VIEW OF THE ABOVE DECISIONS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A), THEREFORE, GROUND NO.2 IS ALSO DISMISSE D. 8. IN NUTSHELL, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07/02/2017 . SD/- SD/- (SANJAY GARG) (T.S. KAPOOR ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 07/02/2017 /PK/PS ITA NO.553/ASR/2015 ASST. YEAR: 2012- 13 7 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: 2. THE 3. THE CIT(A), 4. THE CIT, 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER