M/s Torry Harris Sea Foods Ltd, Alappuzha V. DCIT, Alappuzha

ITA 586/COCH/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9555 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 29-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 21-04-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S C SONKAR
• Assessee Lawyers: R SRINIVASAN
• Keywords: Business income; Deemed to accrue or arise in india; Commercial expediency
• Section: 80HHC; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI T.R. S00D AND SHRI N.VIJAYAKUMARAN I.T.A.NOS.542 & 586/COCH/2008 ASST. YEARS:2003-04 & 2004-05 M/S. TORRY HARRIS SEA FOODS LTD., ALLEPPEY. PA NO.AAACT 7603H VS. THE DY. COMM ISSIONER OF INCOME-TAX, CIRICLE-1, ALLEPPEY. (APPELLANT) ( RESPONDENT ) APPELLANT BY SHRI R. SRINIVASAN, C.A. RESPONDENT BY SHRI S.C. SONKAR, CIT.,DR O R D E R PER N.VIJAYAKUMARAN,J.M: THESE APPEALS ARE BY THE ASSESSEE FOR THE ASSESSME NT YEARS 2003-04 AND 2004-05. THE APPEALS ARE DIRECT ED AGAINST THE ORDERS OF THE CIT(APPEALS)-IV, KOCHI DA TED 13-3- 2008 AND 31-3-2008, RESPECTIVELY. 2. BOTH THE APPEALS ARE PROJECTING THE SAME GROUNDS . THEREFORE, THESE APPEALS WERE HEARD TOGETHER AND AR E BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. FOR THE PURPOSE OF DISCUSSION, WE AR E TAKING THE APPEAL FOR THE ASSESSMENT YEAR 2003-04, WHICH R ATIO OF ITA NOS. 542 &586/COCH/2008 2 THE DECISION IS FOLLOWED BY THE LD. CIT(APPEALS) IN THE SUBSEQUENT YEAR OF APPEAL. 3. THE ASSESSEE IS A COMPANY AND IN THE BUSINESS OF SEA FOOD EXPORTS. THE FIRST ISSUE IS ON THE DISALLOWA NCE OF INTEREST ON ACCOUNT OF ALLEGED DIVERSION OF FUNDS F OR NON BUSINESS PURPOSES. FOR THE ASSESSMENT YEAR 2003-0 4, THE ASSESSEE HAD INCURRED AN AMOUNT OF RS.79,49,756/- O N ACCOUNT OF INTEREST PAID TO BANK, AT THE SAME TIME THE INTEREST FREE ADVANCES WERE MADE TO M/S. LALJI ENTE RPRISES AND M/S. COIR TRADING CO. PVT. LTD. IN THE ASSES SMENT YEAR 2004-05 SIMILAR ADVANCE WAS MADE TO M/S. LALJI ENTE RPRISES, WHICH IS A CONCERN OF ONE OF THE DIRECTORS OF THE A SSESSEE COMPANY. THE ASSESSING OFFICER BY RELYING ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF V. I. BABY 254 ITR 248 AS WELL AS THE DECISION OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. -286 ITR 01 FOUND THAT THE ADVANCES WERE FOR NON-BUSINESS PU RPOSES PARTICULARLY THE APPELLANT ADVANCED THESE AMOUNTS T O THE FIRM OF ONE OF THE DIRECTORS OF THE ASSESSEE COMPAN Y FOR NON BUSINESS PURPOSES. ON APPEAL, BEFORE THE LD. CIT( APPEALS) IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT SHR I S. LALJI IS THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY, I S THE ITA NOS. 542 &586/COCH/2008 3 PROPRIETOR OF M/S. LALJI ENTERPRISES. THAT PROPRI ETARY CONCERN IS SUPPLYING ICE TO THE ASSESSEE COMPANY. THEREFORE, IT WAS ARGUED THAT IT WAS IN THE COURSE OF THE SUPPLY OF ICE, THE ADVANCES WERE MADE. SO ALSO IS THE CONTENTION IN THE CASE OF COIR TRADING CO. THE LD . CIT(APPEALS) WAS OF THE VIEW THAT ON PERUSAL OF THE LEDGER ACCOUNT OF M/S. LALJI ENTERPRISES, IT WAS FOUND THA T ALMOST EVERY MONTH THERE ARE DEBIT CASH PAYMENTS TO THIS A CCOUNT. THE TOTAL VALUE OF ICE PURCHASED FROM M/S. LALJI EN TERPRISES DURING THE ENTIRE PERIOD WAS ONLY RS.18,60,000/-, W HEREAS THE DEBIT BALANCE IN ITS ACCOUNT CONSISTENTLY FAR E XCEEDED THIS AMOUNT THROUGHOUT THE YEAR. THE ASSESSING OF FICER AND THE CIT(APPEALS) WAS OF THE VIEW THAT THERE IS NO C OMMERCIAL JUSTIFICATION FOR SUCH AN ADVANCE. SIMILARLY, LED GER ACCOUNT OF COIR TRADING CO. REFLECTS THAT TRANSFERS WERE MA DE, FOR WHICH NO ADEQUATE EXPLANATION HAS BEEN PUT FORTH BY THE APPELLANT. HOWEVER, IT WAS ARGUED BEFORE THE AUT HORITIES AND EVEN BEFORE US THAT THE DEBIT BALANCES WERE ON ACCOUNT OF EXCEEDING THE BILL DISCOUNTING LIMIT OF THE ASSE SSEE COMPANY BUT IT IS NOT SUPPORTED BY ADEQUATE MATERIA LS. THEREFORE, THE LD. CIT(APPEALS) WAS OF THE VIEW THA T THESE ADVANCES WERE MADE AS A MEASURE OF COMMERCIAL EXPEDIENCY, IS NOT JUSTIFIED. THUS, ACCORDING TO TH E LD. ITA NOS. 542 &586/COCH/2008 4 CIT(APPEALS) THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS VS. CIT 288 ITR 01, THE ONL Y ANGLE IN WHICH THIS ISSUE IS TO BE ADDRESSED IS TO FIND OUT THE PURPOSE FOR WHICH THE APPELLANT ADVANCED THE MONEY AND WHAT THE SISTER CONCERN DID WITH THE MONEY IN ORDER TO DECID E WHETHER IT WAS FOR COMMERCIAL EXPEDIENCY. BUT THE ASSESSEE FAILS THE TEST OF COMMERCIAL EXPEDIENCY, SINCE IT HAS NOT BEE N ESTABLISHED BEYOND DOUBT THAT THE ADVANCES WERE MAD E OUT OF BUSINESS CONSIDERATION AND THAT SUCH MONEY ADVAN CES HAVE BEEN UTILIZED BY THE SISTER CONCERN FORM SOME BUSINESS PURPOSES. THEREFORE, THE LD. CIT(APPEALS) JUSTIFI ED THE DISALLOWANCE AND THE ADDITION. IN THE RESULT THIS GROUND WAS DECIDED AGAINST THE ASSESSEE BY THE LD. CIT(APP EALS). AGGRIEVED BY THIS ORDER, THE ASSESSEE IS IN APPEAL BEFORE US FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PRECEDE NTS. THE TEST OF COMMERCIAL EXPEDIENCY AS LAID BY THE HO NBLE SUPREME COURT IN THE CASE S.A. BUILDERS, CITED SUPR A, WHEREIN THE HONBLLE APEX COURT IN PARA.26 HELD THA T THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT ITA NOS. 542 &586/COCH/2008 5 BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. T HE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LE GAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSINESS E XPENDITURE IF IT WAS INCURRED ON THE GROUND OF COMMERCIAL EXPE DIENCY. THE DECISION OF THEE HONBLE SUPREME COURT IN THE C ASE OF MADHAV PRASAD JATIA 118 ITR 200 WHEREIN THE HON BLE SUPREME COURT LAID DOWN THE RATIO THAT WHEN IT COUL D NOT BE SAID THAT IT WAS COMMERCIAL EXPEDIENCY, THE INTERES T ON THE BORROWED FUND IN SUCH A CASE COULD NOT BE ALLOWED. HENCE, THE ISSUE WHICH HAS TO BE ADJUDICATED IS WHETHER TH E ALLEGED ADVANCE BY THE ASSESSEE TO THE PROPRIETORY CONCERN OF THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY IS THE AD VANCE MADE OUT OF COMMERCIAL EXPEDIENCY. THE TEST OF COMMERCIAL EXPEDIENCY HAS TO BE FULFILLED TAKING IN TO THE NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF TH E BUSINESS. WHEN ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSI NESS WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE A SSESSEE ITSELF, THE REVENUE CANNOT SIT IN THE ARM CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRE CTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE. THE PRINCIPLE BEHIND IS THAT NO BUSI NESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT. SIMILARL Y, THE ITA NOS. 542 &586/COCH/2008 6 EXPRESSION FOR THE PURPOSE OF BUSINESS IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING PROFIT. SO THE ALLEGED ADVANCE WILL COVER UNDER THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS, CITED S UPRA AND WE HAVE TO REJECT THE CLAIM OF THE ASSESSEE. NO M ATERIAL IS AVAILABLE TO SUGGEST THAT THE TEST OF COMMERCIAL EX PEDIENCY HAS BEEN PROFITED WITH THE SUFFICIENT NEXUS WITH TH AT OF THE ASSESSEES BUSINESS, SO AS TO PROVE THAT THESE ARE PRUDENT APPROACH OF A BUSINESSMAN THAT SUCH ADVANCES WERE M ADE AS A MEASURE OF COMMERCIAL EXPEDIENCY, WHICH ULTIMA TELY BENEFITTED THE ASSESSEE COMPANY IS ABSENT IN THE CA SE BEFORE US. IT IS IN FACT ABSENT FOR THE ASSESSMEN T YEARS. 2003-04 AND 2004-05. THERE IS NO ADEQUATE EXPLANA TION AT ALL BY THE ASSESSEE PARTICULARLY WHEN THE ASSESSING OFFICER HAS FOUND THAT ICE PURCHASED FROM THE PROPRIETORY C ONCERN DURING THE ENTIRE PERIOD WAS RS.18,60,000/- WHEREAS THE DEBIT BALANCE IN THIS ACCOUNT CONSISTENTLY FAR EXCE EDED THIS AMOUNT THROUGHOUT THE YEAR. 5. COMING TO THE DISALLOWANCE WITH REFERENCE TO TH E COIR TRADING COMPANY, WHICH IS A SISTER CONCERN OF THE A SSESSEE, THE AUTHORITIES FOUND THAT NO ADEQUATE EXPLANATION HAS BEEN PUT FORTH BY THE ASSESSEE. THE CONTENTION OF THE ASSESSEE ITA NOS. 542 &586/COCH/2008 7 THAT THE DEBIT BALANCES WERE ON ACCOUNT OF EXCEEDIN G THE BILL DISCOUNTING LIMIT OF THE ASSOCIATE COMPANY ALSO NOT SUPPORTED BY ADEQUATE MATERIALS PLACED ON RECORD. THESE FINDINGS OF THE LD. CIT(APPEALS) HAS NOT BEEN CONTR OVERTED BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE THE TRIB UNAL ALSO AND THERE IS NO IMPROVEMENT IN THE CASE, EVEN BEFOR E THE TRIBUNAL ALSO. THAT BEING THE POSITION, THE FINDIN GS RENDERED BY THE AUTHORITIES BELOW IS JUSTIFIED AND IT IS IN ACCORDANCE WITH LAW. THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF V.I. BABY 254 ITR 248 WHEREIN THE HONB LE JURISDICTIONAL HIGH COURT HELD THAT SO LONG AS THEE ASSESSEE IS NOT A BENEFICIAL OF THE INVESTMENTS MADE BY THE PARTNERS, THE RELATIVES AND SISTER CONCERNS, AND SO LONG AS T HE ADVANCES ARE INTEREST FREE, THE ASSESSING OFFICER I S PERFECTLY JUSTIFIED IN DISALLOWING THE INTEREST IN PROPORTION TO THE ADVANCES MADE. THE QUANTUM OF DISALLOWANCE OF INT EREST IN PROPORTION TO THE ADVANCE IS NOT BEFORE US. OF CO URSE IT WAS NOT CONTESTED AT ALL AND THERE IS NO QUARREL OVER T HIS QUANTUM. HENCE, WE ARE OF THE VIEW THAT THE ORDER OF THE AUTHORITIES IS TO BE CONFIRMED BY REJECTING THE ARG UMENTS OF THE LD. COUNSEL FOR THE ASSESSEE. HENCE, GROUND NO S. 2 AND 3 FOR THE ASSESSMENT YEAR 2003-04 IS DECIDED AGAINS T THE ASSESSEE AND GROUND NOS. 1 AND 2 FOR THE ASSESSMENT YEAR ITA NOS. 542 &586/COCH/2008 8 2004-05 RELATING TO THE ABOVE DISALLOWANCE OF INTER EST ARE ALSO DECIDED AGAINST THE ASSESSEE. 6. COMING TO THE OTHER COMMON ISSUE OF DEDUCTION U/S.80HHC OF THE I.T. ACT, AFTER CONSIDERING THE RI VAL SUBMISSIONS, WE CONFIRM THE FINDINGS OF THE AUTHORI TIES BELOW ON THE SIMPLE REASON THAT THE EXPORT TURNOVER OF TH E ASSESSEE EXCEEDS RS. 10 CRORES. THEREFORE, PROVIS O INSERTED TO SUB SECTION (3) OF SECTION 80HHC IS NOT FOR THE BENEFIT OF THE ASSESSEE. HENCE, WE JUSTIFY THE ACT ION OF THE AUTHORITIES THAT DEPB RECEIPTS WILL NOT BENEFIT 80H HC FOR BOTH THE ASSESSMENT YEARS IN VIEW OF THE ABOVE EXCE EDED EXPORT TURN OVER. THEREFORE, GROUND NO5 FOR THE ASSESSMENT YEAR 2003-04 AND GROUND NO.3 FOR THE ASSESSMENT YEAR 2004-05 ARE DECIDED AGAINST THE ASS ESSEE AND IN FAVOUR OF THE REVENUE. 7. COMING TO THE ISOLATED GROUND FOR THE ASSESSMENT YEAR 2003-04, I.E. GROUND NO.4, WHICH IS IN RESPECT OF T REATING THE UNEXPLAINED PURCHASE CREDIT ASSESSED AS INCOME UNDE R OTHER SOURCE INSTEAD OF INCOME FROM BUSINESS. ITA NOS. 542 &586/COCH/2008 9 8. ON THIS ISSUE, WE HAVE CONSIDERED RIVAL SUBMISSI ONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PRECEDENTS. SECTION 69 IS A DEEMING PROVISION AND AS PER THAT SECTION IN RESPECT OF INVESTMENT RECORDED IN T HE BOOKS AND OFFERS NO EXPLANATION, OR THE EXPLANATION OFFER ED IS NOT SATISFY TO THE ASSESSING OFFICER THEN THE ENTIRE OF SUCH INVESTMENT IS DEEMED TO BE THE INCOME OF THE ASSESS EE FOR THE RELEVANT FINANCIAL YEAR. SUCH DEEMED INCOME I S ASSESSABLE UNDER THE HEAD OTHER SOURCES AND NOT A S BUSINESS INCOME. ASSESSEE CANNOT TAKE THE BENEFI T AS THE EXPLANATION OFFERED IS NOT SATISFACTORILY EXPLAINED ; INVESTMENT U/S.69 IS TO BE TREATED AS BUSINESS INC OME IS NOT SUSTAINABLE IN LAW. IF WE ACCEPT THE ARGUMENT OF THE LD. COUNSEL, THEN IT WILL DEFEAT THE ENTIRE PURPOSE AS ENVISAGED U/S.69. FIRST OF ALL, IT IS DEEMED INCOME ONLY AN D IS ASSESSABLE UNDER THE HEAD OTHER SOURCES. IT IS ALSO FURTHER FOUND BY THE AUTHORITIES THAT IT IS NOT THE INCOME UNDER THE HEAD SALARY OR HOUSE PROPERTY OR PROFITS AND G AINS OF BUSINESS. THEREFORE, WE REJECT THE CONTENTION O F THE LD. COUNSEL THAT UN-PROVED PURCHASE CREDIT WHICH WAS AS SESSED U/S.69 PAR-TAKES THE CHARACTER OF TRADING RECEIPTS. THIS IS NOT AT ALL TENABLE IN THE EYE OF LAW, WHICH IS REQU IRED TO BE REJECTED AT ITS THRESHOLD. ACCORDINGLY, WE REJECT THE ITA NOS. 542 &586/COCH/2008 10 CONTENTION OF THE LD. COUNSEL AND UPHOLD THE FINDIN GS OF THE LD. CIT(APPEALS) ON THIS ISSUE ALSO. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. SD/- SD/- (T.R. SOOD) (N.VIJAYKUMARAN) ACCOUNTANT MEMBER JUDICIAL M EMBER ERNAKULAM, DATED THE 11 TH AUGUST,2010. PM. COPY FORWARDED TO: 1. M/S. TORRY HARRIS SEA FOODS LTD.,CHUNGOM, ALLEPPEY. 2. THE DY. COMMISSIONER OF INCOME-TAX, CIRICLE-1, ALLE PPEY. 3. CIT(A)-IV, KOCHI. 4. CIT, KOTTAYAM. 5. D.R.