DCIT, Ludhiana V. M/s Malwa Industries Ltd., Ludhiana

ITA 578/CHANDI/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7787 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 21-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 578/CHD/2012 ASSESSMENT YEAR: 2008-09 DCIT, C-VII, V M/S MALWA INDUSTRIES LTD. LUDHIANA. 230, INDUSTRIAL AREA-A, LUDHIANA. PAN: AABCM-1287D (APPELLANT) (RESPONDENT) APPELLANT BY : SMT.JAISHREE SHARMA RESPONDENT : NONE DATE OF HEARING : 12.07.2012 DATE OF PRONOUNCEMENT : 26.07.2012 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 07.03.2012 PASSED BY THE LD . CIT(A) U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'TH E ACT'). 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A)-II, LUDHIANA HAS ERRED IN DELETING THE ADDITION OF RS. 1,27,704/- BY INVOKING THE PROVISIO NS OF SECTION 40A (2) (B) OF THE I. T. ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-II, LUDHIANA HAS ERRED IN DELETING THE ADDITION OF RS. 19,48,880/- ON ACCOUNT OF BANK CHAR GES. 3. THAT THE ORDER OF LD, C1T(A), LUDHIANA BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AME ND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 2 3. IN GROUND NO.1, THE REVENUE CONTENDED THAT CIT(A ) ERRED IN DELETING THE ADDITION OF RS.1,27,704/- BY INVOKING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. THE FA CTS OF THE CASE ARE THAT ASSESSEE MADE CERTAIN PAYMENTS TO M/S MALWA COTTON SPINNING MILLS LTD., A SISTER CONCERN OF THE ASSESSEE FOR PURCHASES WORTH RS.73,58,658/-. THE AO, DISALL OWED PAYMENTS U/S 40A(2)(B) OF THE ACT, AMOUNTING TO RS.1,24,704/-. LD. 'DR' PLACED RELIANCE ON ASSESSM ENT ORDER AND LD. 'AR' PLACED RELIANCE ON THE ORDER OF LD. CIT(A). THE LD. CIT(A), ON APPRECIATION OF THE SUBMISSIONS FILED BY THE ASSESSEE, DELETED THE IMPUGNED ADDITION. THE FI NDINGS OF THE LD. CIT(A), ARE AS UNDER : IT IS SEEN THAT THERE ARE WIDE FLUCTUATIONS OF PRI CE OVER THE MONTHS. IT IS ALSO SEEN THAT IN THE MONTH OF JULY 2007 THE AVERAGE RATE PAID TO RELATED CONCERN M/S MALWA COTT ON SPINNING MILLS LTD. IS RS40.54/KG WHILE THE AVERAGE RATE PAI D TO OUTSIDE PARTIES IS RS. 42.64/KG. SIMILARLY IN THE MONTH OF FEB 2008 THE AVERAGE RATE PAID TO RELATED CONCERN M/S MALWA COTT ON SPINNING MILLS LTD. IS RS 36.68/KG WHILE THE AVERAGE RATE PA ID TO OUTSIDE PARTIES IS RS. 41.33/KG. ONLY IN THE MONTH OF MARCH 2008, THE AVERAGE RATE PAID TO RELATED CONCERN IS MORE THAN T HAT PAID TO OUTSIDE PARTY. IN THIS REGARD IT IS SEEN FROM THE A SSESSMENT ORDER THAT DURING THE ASSESSMENT PROCEEDINGS, THE APPELLA NT HAD EXPLAINED THAT THE COMPANY HAD PURCHASED TWO KINDS OF WASTE I.E. COTTON COMBER WASTE AND FLAT WASTE FROM M/S MALWA C OTTON SPINNING MILLS LTD. AND FROM OUTSIDE PARTIES. APPEL LANT HAD FURTHER EXPLAINED THAT COTTON COMBER WASTE IS FINE WASTE AND IS MORE EXPENSIVE THAN FLAT WASTE AND VARIATION IN AVE RAGE PRICE DURING THE MONTH IS BECAUSE PURCHASE PIECE OF COTTO N COMBER WASTE AND FINE WASTE HAVE BEEN TAKEN TOGETHER. TO S EE IF THE COMPANY HAS MADE EXCESS PAYMENT IT WOULD BE IMPORTA NT TO COMPARE THE ITEM WISE PRICES. AS MENTIONED IN THE A SSESSMENT ORDER DETAILS FOR SUCH PURCHASES MADE ON SPECIFIC D ATES OF THE MONTH OF MARCH 2008 FROM RELATED CONCERN AND FROM P ARTIES OTHER THAN, THE SISTER CONCERNS WERE DULY PRODUCED BEFORE THE 3 A.O. AND IT WAS CONTENDED THAT ON THE DATE ON WHICH FLAT WASTE WAS PURCHASED FROM M/S MALWA COTTON SPINNING MILLS LTD. THE RATES OF SAME ITEM PURCHASED FROM OUTSIDE PARTIES W AS HIGHER. HOWEVER, THE AO DID NOT ACCEPT THIS EXPLANATION AND THIS EVIDENCE AND OBSERVED THAT THE ASSESSEE HAS INFLATE D THE PURCHASES MADE FROM M/S MALWA COTTON SPINNING MILLS LTD. IN MY OPINION THE ASSESSING OFFICER WAS NOT JUSTIFIED IN OBSERVING AS ABOVE. I AGREE WITH THE LD. COUNSEL THAT THE MET HOD ADOPTED BY THE A.O. FOR COMPARING THE RATES OF PURCHASES MA DE FROM THE SISTER CONCERNS IS NOT CORRECT METHOD. IN VIEW OF T HE FACT THAT THERE ARE FLUCTUATIONS IN PRICE OF WASTE ON DAY TO DAY BASIS, THE CORRECT METHOD IS TO COMPARE THE RATES OF PURCHASES MADE BY THE APPELLANT FROM SISTER CONCERNS AT A PARTICULAR POIN T OF TIME BY COMPARING THE SAME WITH THE RATES GIVEN FOR THE SIM ILAR GOODS TO OTHER OUTSIDE PARTIES AT THE SAME POINT OF TIME. AS MENTIONED ABOVE THE RELEVANT DETAILS WERE DULY PRODUCED AT TH E TIME OF ASSESSMENT PROCEEDINGS BUT THE AO CHOSE TO IGNORE T HE EVIDENCE. AS SUBMITTED BY THE APPELLANT, DATE WISE AND ITEM- WISE DETAIL OF MATERIAL PURCHASED FROM RELATED CONC ERN AND OUTSIDE INDEPENDENT PARTIES IN THE MONTH OF MARCH 2 008 REVEAL THAT COMPANY HAS NOT PURCHASED ANY ITEM AT HIGHER P RICE FROM ITS RELATED CONCERN AND THE PAYMENT MADE TO MALWA C OTTON SPG. MILLS FOR PURCHASE OF COMBER WASTE AND FLAT WASTE N EITHER EXCESSIVE NOR UNREASONABLE. KEEPING IN VIEW THE ABOVE POSITION, THE ADDITION MA DE BY THE LD. AO OF RS.1,24,704/- ON THIS ACCOUNT IS DELETED. THI S GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 4. HAVING REGARD TO THE FACT-SITUATION OF THE PRESE NT CASE AND THE DETAILED FINDINGS GIVEN BY THE CIT(A), ON APPRECIATION OF THE FACTUAL MATRIX OF THE CASE, AND ALSO AVING REGARD TO THE FINDINGS OF THE AO, WE ARE OF T HE OPINION THAT THERE IS NO INFIRMITY IN THE FINDINGS OF THE C IT(A) AND, HENCE, THE SAME ARE UPHELD. 5. IN GROUND NO.2, REVENUE CONTENDED THAT CIT( A) ERRED IN DELETING ADDITION OF RS.19,48,880/- ON ACCOUNT O F BANK CHARGES. BRIEF FACTS OF THE CASE ARE, THAT IN THE COURSE OF 4 ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE INCU RRED BANK CHARGES FOR THE PROCESSING OF WORKING CAPITAL LOAN, AMOUNTING TORS.19,48,880/-. IN THE OPINION OF THE AO, SUCH CHARGES WERE INCURRED, FOR RAISING OF LOANS AN D, HENCE, HE TREATED SUCH EXPENDITURE AS CAPITAL EXPENDITURE. LD. CIT(A), ON APPRECIATING OF THE SUBMISSION FILED BY THE ASSESSEE APPELLANT, RECORDED FINDINGS IN PARA 6.3 W ITH A VIEW TO APPRECIATING THE FINDINGS OF THE CIT(A), AS CONTAINED IN PARA 6.3 ARE REPRODUCED HEREUNDER : 6.3 I HAVE CAREFULLY CONSIDERED THE APPELLANT'S S UBMISSION AND PERUSED THE ASST. ORDER. THESE EXPENSES HAVE BEEN I NCURRED BY THE APPELLANT ON ACCOUNT OF PROCESSING FEES PAID BY THE APPELLANT TO BANK TO PROCESS THE WORKING CAPITAL FACILITY TO MEET DAY TO DAY REQUIREMENT OF FUNDS WHICH IS RECURRING IN NATURE. FURTHER AS CLAR IFIED IN THE WRITTEN SUBMISSIONS THE FUND BASED AND NON FUND BASED WORKI NG CAPITAL FACILITIES SANCTIONED BY THE BANKS HAD BEEN UTILIZE D BY THE APPELLANT TO MEET THE DAY-TO-DAY REQUIREMENT OF FUNDS FOR BUSINE SS. THE WORKING CAPITAL FACILITIES ARE GENERALLY FOR A PERIOD OF ON E YEAR AND SUCH CHARGES ARE LEVIED BY THE BANKS EVERY YEAR. AS POIN TED OUT BY THE AR OF THE APPELLANT, IT IS SEEN THAT SIMILAR ADDITION HAD BEEN MADE DURING THE ASSTT. YEAR 2005-06 & 2006-07 AND THE AD DITION WAS DELETED BY CIT(A). THE ORDER OF THE CIT(A) HAS BEEN UPHELD BY THE HON'BLE ITAT FOR BOTH THE ASSTT. YEARS IN ITA NO. 6 96/CHANDI/2008 FOR ASSTT. YEAR 2005-06 AND ITA NO. 1169/CHANDI/200 9 FOR ASSTT. YEAR 2006-0 RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE ITAT, THE ADDITION MADE BY THE LD. AO OF RS. 19,48,8807 O N THIS ACCOUNT IS DELETED. THIS GROUND OF APPEAL IS ACCORDINGLY ALLOW ED. 6. LD. CIT(A) REFERRED TO ASSESSMENT YEAR 2005 -06 AND 2006-07 WHEREBY THE ADDITIONS DELETED BY THE CIT(A) WERE UPHELD BY THE ITAT IN ITA NO. 696/CHD/2008 FOR THE ASSESSMENT YEAR 2005-06 AND IN ITA NO. 1169/CHD/200 9 FOR THE ASSESSMENT YEAR 2006-07. LD. CIT(A), FOLLOW ED THE ORDER OF THE TRIBUNAL. 5 7. HAVING REGARD TO THE FINDINGS OF THE CIT(A), WHEREBY ORDERS OF THE TRIBUNAL HAVE BEEN FOLLOWED, THE FIND INGS OF THE LD. CIT(A) ARE UPHELD AND GROUND OF APPEAL OF T HE REVENUE IS DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JULY,2012. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 26 TH JULY,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH