M/s S.D. Marketing Co., Ludhiana V. ITO, W-III(3), Ludhiana

ITA 596/CHANDI/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6469 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 01-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK KHANNA
• Assessee Lawyers: Y K SAXENA
• Keywords: Depreciation; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B CHANDIGARH BEFORE SHRI N.K. SAINI, VICE PRESIDENT & SHRI R.L NEGI, JUDICIAL MEMBER ./ ITA NO. 596/CHD/2019 / ASSESSMENT YEAR : 2013-14 M/S S.D. MARKETING CO., 413, 4 TH FLOOR, K-10 TOWER, FERAOZE GANDHI MARKET, LUDHIANA THE ITO, WARD III (3), LUDHIANA ./PAN NO: ABSFS1819G APPELLANT /RESPONDENT HEARING THROUGH VIDEO CONFERENCING /ASSESSEE BY : SHRI Y.K. SAXENA, ADVOCATE / REVENUE BY : SH. ASHOK KHANNA, ADDL. CIT /DATE OF HEARING : 13.01.2021 / DATE OF PRONOUNCEMENT : 08.04.2021 / ORDER PER R.L. NEGI, JUDICIAL MEMBER: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST T HE ORDER DATED 11.02.2019 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, LUDHIANA (FOR SHORT THE CIT(A)], FOR THE ASSESSMEN T YEAR 2013-14 WHEREBY, THE LD. CIT(A) HAS PARTLY ALLOWED THE APPE AL OF THE ASSESSEE FILED AGAINST THE ASSESSMENT ORDER PASSED U/S 143(3 ) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT'). 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING TOTAL 2 596-CHD-2019- M/S S.D. MARKETING CO., LUDHIANA INCOME OF RS.26,75,690/- THE CASE WAS SELECTED FOR SCRUTINY AND THE AO PASSED THE ASSESSMENT ORDER U/S 143(3) OF THE ACT D ETERMINING THE TOTAL INCOME OF RS. 71,00,314/- MAKING ADDITION OF RS. 39 ,04,797/- ON ACCOUNT OF DISALLOWANCE U/S 36(1)(III) OF THE ACT A LONG WITH OTHER ADDITIONS. THE ASSESSEE CHALLENGED THE ASSESSMENT O RDER PASSED BY THE AO. THE LD. CIT(A) AFTER HEARING THE ASSESSEE PARTL Y ALLOWED THE APPEAL AND REDUCED THE DISALLOWANCE ON ACCOUNT OF EXPENSES DEBITED UNDER THE HEAD CAR EXPENSE, INSURANCE, TELEPHONE EXPENSES AND DEPRECIATION FROM 1/5 TH TO 1/8 TH AND DISALLOWANCE OF EXPENSES DEBITED ON ACCOUNT OF FREIGHT, CARTAGE INWARD, REBATE & DISCOUNT AND TEMP O EXPENSES FROM 3 LAKH TO 1 LAKH, HOWEVER, UPHELD THE ADDITION OF RS. 39,04,797/- ON ACCOUNT OF DISALLOWANCE U/S 36(1)(III) OF THE ACT. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 3. THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER B Y RAISING THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING DISALLOWANCE OF INTEREST U/S 36(L)(III) AMOUNTING TO RS.39,04,79 7/- MADE BY THE AO ON AMOUNT ADVANCED, WHICH WAS COMPUTED @15% ON THE MONTHLY BALANCES. THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT THE PARTNERS OF THE FIRM WERE HAVING SUFFICIENT NON 3 596-CHD-2019- M/S S.D. MARKETING CO., LUDHIANA INTEREST-BEARING FUNDS OF RS.6.58 CRORES APPROX. OU T OF WHICH NON INTEREST BEARING LOANS AND ADVANCES OF RS. 3.35 CRORES WERE OUTSTANDING SINCE THE F.YR.2009-10. THE LD. CIT(A) HAS ALSO FAILED TO APPRECIATE THAT N O SUCH DISALLOWANCE WAS MADE IN THE PRECEDING ASSESSMENT YEARS ON ACCOUNT OF NON-RECOVERABLE OUTSTANDING LOANS AND ADVANCES 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFOR E US THAT THE LD. CIT(A) HAS WRONGLY UPHELD THE ADDITION OF R S.39,04,797/- MADE ON ACCOUNT OF DISALLOWANCE OF PROPORTIONATE IN TEREST U/S 36(1)(III) OF THE ACT IN RESPECT OF THE AMOUNTS OUT STANDING IN THE NAME OF SH. RADHEY SHAM POPLI, M/S. G.D. ENTERPRISE S, M/S. PARVATI TEXTILES, M/S LOVESH ARORA AND SH. F C GOYA L. THE LD. COUNSEL POINTED OUT THAT THE CIT(A) HAS AFFIRMED TH E ACTION OF THE AO IGNORING THE CONTENTION OF THE ASSESSEE THAT THE DEBIT BALANCES IN THE BOOKS OF THE ASSESSEE FIRM IN RESPE CT OF RADHY SHAM POPLI AMOUNTING TO RS. 7,13,438, PARVATI TEXTI LES AMOUNTING TO RS. 29,90,000/- LOVISH ARORA AMOUNTING TO RS. 9, 50,000/- AND M/S. G.D. EXPORT AMOUNTING TO RS. 2,06,48,500/- HAD BEEN ADVANCED OUT OF THE RESERVE CAPITAL OF THE PARTNERS AND OUTSTANDING SINCE ACCOUNTING PERIOD 2010-11. FURTHE R, ADVANCE OF 4 596-CHD-2019- M/S S.D. MARKETING CO., LUDHIANA RS. 73,00,000 TO SH. FC GOYAL WAS GIVEN DURING THE ACCOUNTING PERIOD 2011-12. THE LD. COUNSEL FURTHER SUBMITTED T HAT DURING THE RELEVANT PERIOD, THE CAPITAL RESERVES OF THE PA RTNERS WERE MORE THAN THE ADVANCES MADE. THE LD. COUNSEL POINTE D OUT THAT THESE ADVANCES/DEPOSITS/INVESTMENTS PERTAIN TO THE PRECEDING YEARS I.E., EARLIER TO THE YEAR RELEVANT TO THE ASS ESSMENT YEAR UNDER CONSIDERATION. THE LD. COUNSEL PLACING RELIAN CE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F HERO CYCLES P LTD VS. CIT (CENTRAL) LUDHIANA IN CIVIL APPEAL NO 514 OF 2008, JUDGMENT OF THE HONBLE PUNJAB AND HARYANA HIGH COU RT IN THE CASE OF MUNJAL SALES CORPORATION VS. ASSTT. CIT (2004) 90 T TJ (CHD) 782 , JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 178 TAXMAN 135 (BOM) , AND VARIOUS DECISIONS OF THE ITAT, SUBMITTED THAT THE FINDINGS OF THE LD. CIT(A) ARE CONTRARY TO THE LAW LAID DOWN BY THE COURTS/ TRIBUNAL IN THE AFORESAID CASES. THE LD. CO UNSEL INVITED OUR ATTENTION TO THE COPY OF AUDITED ACCOUNT, TO PO INT OUT THAT THE AGGREGATE OF OPENING INTEREST FREE CAPITAL FUND S OF THE PARTNERS AS ON 31.03.2012 WAS 7,37,08,229/- AND CLO SING BALANCE AS ON 31.03.2013 WAS RS. 6,58,79,641/-. THESE FACTS ESTABLISH THAT 5 596-CHD-2019- M/S S.D. MARKETING CO., LUDHIANA THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FU NDS IN THE FORM OF CAPITAL RESERVES OF THE PARTNERS TO COVER THE IN TEREST FREE ADVANCES MADE BY THE ASSESSEE. THE LD. COUNSEL FURT HER SUBMITTED THAT NO DISALLOWANCE WAS MADE BY THE AO D URING THE RELEVANT ASSESSMENT YEARS AS THE ASSESSEE HAD SUFFI CIENT INTEREST FREE CAPITAL TO MAKE THE ADVANCES. THE LD. COUNSEL ACCORDINGLY SUBMITTED THAT THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) IS NOT SUSTAINABLE IN LAW. 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE SUPPORTING THE ORDER PASSED BY THE LD. CIT(A) SUBMI TTED THAT SINCE THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM DURING THE ASSESSMENT PROCEEDINGS AND THE APPELLATE PROCEEDING S, THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY T HE AO. 6. WE HAVE PERUSED THE MATERIAL ON RECORD INCLUDING THE CASES RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE AND THE AUTHORITIES BELOW. THE ASSESSEE HAS ASSAILED THE AC TION OF THE LD. CIT(A) ON TWO GROUNDS I.E., THAT THE ADVANCES AND B ORROWINGS DO NOT PERTAIN TO THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION BUT THE SAME WERE MADE IN THE EARLIER YEARS AND SINCE NO DISALLOWANCE WAS MADE IN THE RELEVANT ASSE SSMENT YEAR, 6 596-CHD-2019- M/S S.D. MARKETING CO., LUDHIANA THE LD. CIT(A) OUGHT TO HAVE DELETED THE ADDITION S O MADE BY THE AO. SECONDLY, THE ASSESSEE HAS CONTENDED THAT AT TH E TIME OF MAKING ADVANCES THE ASSESSEE HAD SUFFICIENT NON-INT EREST-BEARING FUNDS IN THE FORM OF CAPITAL RESERVES OF THE PARTNE RS. 6. AS CONTENDED BY THE LD. COUNSEL, THE ASSESSEE HA S REFLECTED THE OUTSTANDING DEBIT BALANCE IN RESPECT OF SH. RAD HEY SHAM POPLI AMOUNTING TO RS. 7,13,483/-, M/S PARVATI TEXT ILES AMOUNTING TO RS. 29,90,000/-, SH. LOVISH ARORA AMOUNTING TO 9 ,50,000/- AND SH. FAQIR CHAND GOYAL AMOUNTING TO 73,00.000/- IN A NNEXURE H UNDER THE HEAD INVESTMENT AND DEPOSITS AS ON 31-0 3-2013 IN ITS BOOKS OF ACCOUNT, WHICH IS AT PAGE 45 OF THE PAPER BOOK. SIMILARLY, DEBIT BALANCE IN RESPECT OF M/S G.D. EXP ORT (INDIA) AMOUNTING TO RS. 2,06,48,500/- HAS BEEN REFLECTED I N ANNEXURE K UNDER THE HEAD LOANS AND ADVANCES AS ON 31.03.2013 , WHICH IS AT PAGE 47 OF THE PAPER BOOK. FURTHER IN THE BALANCE S HEET OF THE FIRM, INTEREST FREE CAPITAL OF THE PARTNERS VIZ ASH ISH ARORA AND DHITI ARORA AS ON 31.03.2013 HAS BEEN SHOWN AS RS. 6,11,97,264/- AND 46,82,377.88/- RESPECTIVELY. AS PER THE COPY OF AUDITED REPORT DATED 29.09.2012 IN RESPECT OF BOOKS OF ACCO UNT OF THE ASSESSEE FOR ACCOUNTING PERIOD 2011-12 RELEVANT TO THE 7 596-CHD-2019- M/S S.D. MARKETING CO., LUDHIANA ASSESSMENT YEAR 2012-13, CAPITAL OF ASHISH ARORA WA S RS. 6,99,36,180/- AND DHITI ARORA WAS RS. 37,72,049.73/ - AS ON 31.03.2012. COPY OF BALANCE SHEET AS ON 31.03 2012, CONTAINING THE SAID ENTRIES IS AVAILABLE AT PAGE 65 OF THE PAP ER BOOK. THESE FACTS ESTABLISH THAT THE OUTSTANDING DEBIT ENTRIES DO NOT PERTAIN TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE ASSESSEE HAD SUFFICIENT INTEREST FREE CAPITAL TO MEET THESE ADVA NCES DURING THE YEARS WHEN THESE ADVANCES WERE MADE. 7. THE AUTHORITIES BELOW HAVE NEITHER GIVEN ANY COG ENT REASONS FOR REJECTING THE CONTENTION OF THE ASSESSE E BASED ON THE AUDITED BOOKS OF ACCOUNT NOR BROUGHT ON RECORD ANY EVIDENCE TO REBUT THE CONTENTION OF THE ASSESSEE. THERE IS NO E VIDENCE ON RECORD TO ARRIVE AT THE CONCLUSION THAT THE ADVANCE S IN QUESTION WERE MADE DURING THE YEAR RELEVANT TO THE ASSESSMEN T YEAR UNDER CONSIDERATION AND THE ASSESSEE HAD UTILIZED THE INT EREST-BEARING FUNDS FOR GIVING INTEREST FREE LOANS TO THE ABOVE F IVE PARTIES. HENCE, WE FIND MERIT IN THE ARGUMENTS OF THE LD. CO UNSEL FOR THE ASSESSEE THAT THE IMPUGNED ORDER IS NOT SUSTAINABLE IN LAW. FURTHER, WE ARE OF THE CONSIDERED VIEW THAT THE IMP UGNED ORDER IS CONTRARY TO THE EVIDENCE ON RECORD AND ALSO AGAI NST THE SETTLED 8 596-CHD-2019- M/S S.D. MARKETING CO., LUDHIANA PRINCIPLES OF LAW. ACCORDINGLY, WE SET ASIDE THE IM PUGNED ORDER PASSED BY THE LD. CIT(A) AND DIRECT THE AO TO DELET E THE ADDITION OF RS. 39,04,797/- MADE ON ACCOUNT OF DISALLOWANCE U/S 36 (1)(III) OF THE ACT ORDER PRONOUNCED ON 08.04.2021. SD/- SD/- ( N.K. SAINI) (R.L.NEGI) / VICE PRESIDENT / JUDICIAL MEMBER DATED : 08.04.2021 . . / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. / CIT 4. ( )/ THE CIT(A) 5. , , / DR, ITAT, CHANDIGARH 6. / GUARD FILE / BY ORDER, / ASSISTANT REGISTRAR