The ACIT, Circle-1, RAJKOT-GUJARAT V. Rolex Rings Pvt. Ltd., RAJKOT-GUJARAT

ITA 599/RJT/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89155 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-03-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 06-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: RD LALCHANDANI
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ./ ITA NO.599/RJT/2012 WITH CO NO.02/RJT/2013 / ASSTT. YEAR: 2005-06 ACIT, CIR.1 RAJKOT. VS ROLEX RINGS PVT. LTD. KOTHARIYA, GONDAL ROAD RAJKOT. PAN : AACCR 3790 B / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI AVINASH KUMAR, DR ASSESSEE BY : SHRI R.D. LALCHANDANI, ADVOCATE / DATE OF HEARING : 20/03/2015 / DATE OF PRONOUNCEMENT: 27/03/2015 / O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE AS SESSEE AGAINST THE ORDER OF THE CIT(A)-II, RAJKOT DATED 29.8.2012. 2. THE GROUND NO.1 OF THE APPEAL READS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.49,85,967/- MADE BY THE AO U/S.43B OF THE IT ACT AS INCOME OF THE F.Y.2005-06 WAS TO B E OFFERED IN THE YEAR ITSELF IN WHICH IT HAS BEEN EARNED, THIS I S NOT AT ALL LOGICAL OR TENABLE TO KEEP THE PART OF INCOME AS PROVISION IN THE YEAR IN WHICH IT HAS BEEN EARNED AND OFFER THE SAME IN THE FOLLOWING /NEXT YEAR AS OTHER INCOME. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, ITA NO.599/RJT/2012 WITH CO 2 IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS SHOWN RS .81,85,031/- AS SALES TAX PAYABLE AS ON 31.3.2005 AND THE ASSESSEE PRODUC ED CHALLANS FOR PAYMENT OF RS.31,99,064, BEFORE THE DUE DATE OF FUR NISHING OF RETURN OF INCOME. THUS, THE AO AFTER ALLOWING RS.31,99,064/- FROM RS.81,85,031/- MADE ADDITION OF BALANCE AMOUNT OF R S.49,85,967/- UNDER SECTION 43B OF THE ACT. 4. ON APPEAL, THE CIT(A) DELETED THE ENTIRE ADDITIO N OF RS.49,85,967/- BY OBSERVING THAT A SUM OF RS.46,84, 387/- AS SET OFF HAS BEEN CREDITED UNDER THE HEAD OF OTHER INCOME IN THE SCHEDULE-8 OF THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED ON 31.3.2006, AND CONSEQUENTLY, SUBMISSION OF THE ASSESSEE THAT RS.46 ,84,387/- WAS NOT PAYABLE AS ON 31.3.2005, AND THEREFORE, THE PROVISI ON OF SECTION 43B IS NOT APPLICABLE, IS ACCEPTABLE. 5. BEFORE US, THE DR SUPPORTED THE ORDER OF THE AO, AND AR SUPPORTED THE ORDER OF THE CIT(A). 6. WE FIND THAT DISALLOWANCE MADE BY THE AO ON ACCO UNT OF NON- PAYMENT OF SALES-TAX LIABILITY BEFORE THE DUE DATE OF FURNISHING OF RETURN OF INCOME WAS OF RS.49,85,967/- WHICH WAS DELETED B Y THE CIT(A) ON THE GROUND THAT THE ASSESSEE HAS SET OFF LIABILITY OF RS.46,84,387/- AGAINST PURCHASES OF SUBSEQUENT YEAR. WE FIND THAT NO REASON HAS BEEN GIVEN BY THE CIT(A) FOR DELETING THE DISALLOWANCE T O THE EXTENT OF RS.3,01,580/- (RS.49,85,967/- MINUS RS.46,84,387/-) . THUS, THE DELETION OF DISALLOWANCE TO THE EXTENT OF RS.3,01,5 80/- CANNOT BE SUSTAINED. 7. FURTHER, WE FIND THAT NO MATERIAL HAS BEEN BROUG HT ON RECORD BY THE CIT(A) TO SHOW THAT IT WAS LEGALLY ALLOWABLE TO THE ASSESSEE TO SET OFF ITS SALES-TAX LIABILITY AGAINST THE PURCHASES M ADE IN SUBSEQUENT PERIOD. NO MATERIAL IN THIS RESPECT COULD BE BROUG HT BEFORE US BY EITHER ITA NO.599/RJT/2012 WITH CO 3 OF THE PARTIES. THE AO ALSO MADE NO DISCUSSION ON T HIS ISSUE IN THE ASSESSMENT ORDER. 8. IN OUR CONSIDERED VIEW, IF IT IS LEGALLY PERMISS IBLE TO THE ASSESSEE UNDER THE RELEVANT SALES TAX LAW TO MAKE THE PAYMEN T OF EARLIER LIABILITY BY SET OFF AGAINST THE PURCHASES OF SUBSEQUENT PERI OD, THEN THE PAYMENT SO MADE UPTO THE DUE DATE OF FURNISHING OF RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT SHOULD NOT BE DISAL LOWED UNDER SECTION 43B OF THE ACT. HOWEVER, MERELY BECAUSE THE ASSESS EE HAS SHOWN THE UNPAID SALES-TAX LIABILITY OF ONE PERIOD IN THE SUB SEQUENT YEAR THAT WILL NOT ABSOLVE THE ASSESSEE FROM THE RIGOURS OF SECTIO N 43B OF THE ACT. 9. IN THESE CIRCUMSTANCES, WE REMIT THIS MATTER BAC K TO THE FILE OF THE AO FOR PROPER VERIFICATION, AND THEREBY ADJUDIC ATION AFRESH BY PASSING A SPEAKING ORDER IN THE LIGHT OF THE DISCUS SIONS MADE HEREINABOVE. NEEDLESS TO MENTION, THE AO SHOULD AL LOW REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE ADJUD ICATING THE ISSUE AFRESH. THUS, THIS GROUND OF THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSE. 10. GROUND NO.2 OF THE APPEAL OF THE REVENUE READS AS UNDER: 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.9,08,886/- OUT OF INTER EST EXPENSES AS THE AO IN HIS ORDER HAS CATEGORICALLY MENTIONED THA T HE HAS NOTICED THAT ADVANCES TO THE VARIOUS DIRECTORS OF R S.82,87,599/- WERE MADE FROM THE BANK ACCOUNT OF THE APPELLANT OU T OF INTEREST BEARING FUNDS AND THUS HE ESTABLISHED DIRECT NEXUS BETWEEN INTEREST BEARING FUNDS AND INTEREST FREE ADVANCE. 11. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT DURING THE YEAR THE ASSESSEE COMPANY HAS MADE ADVANCES TO THE DIRECTORS AGGREGATING TO RS.82,87,599/- ON WHICH NO INTEREST WAS CHARGED. THE AO ALSO NOTICED THAT THE ASSESSEE HAS RAISED MONEY FROM BANK, ON WHICH IT IS PAYING 11% INTEREST WHEREAS NO INTEREST WAS CHARGED FROM ITA NO.599/RJT/2012 WITH CO 4 THE DIRECTORS ON THE FUNDS ADVANCED TO THEM. THE A O ALSO OBSERVED THAT THE FUNDS HAVE BEEN GIVEN FROM THE BANK ACCOUN T OF THE ASSESSEE OUT OF INTEREST BEARING FUNDS RECEIVED, AND THEREFO RE, THERE IS A DIRECT NEXUS BETWEEN THE INTEREST BEARING FUNDS AND INTERE ST FREE ADVANCES. HE, THEREFORE, DISALLOWED INTEREST AT THE RATE OF 1 1% ON THE AMOUNT ADVANCED TO THE DIRECTORS, AND THEREBY MADE ADDITIO N OF RS.9,08,886/- TO THE INCOME OF THE ASSESSEE. 12. ON APPEAL, THE CIT(A) DELETED THE DISALLOWANCE HOLDING AS UNDER: 4.2 I HAVE CAREFULLY CONSIDERED THE FINDINGS GIVE N BY THE ASSESSING OFFICER IN PARA-6 OF THE ASSESSMENT ORDER WHEREIN HE HAS HELD THAT THERE IS A DIRECT NEXUS BETWEEN INTER EST BEARING FUNDS AND INTEREST FREE ADVANCES OF RS.82,87,599/- MADE TO THE DIRECTORS. HOWEVER, THE ASSESSING OFFICER HAS FAIL ED TO BRING ON RECORD THE EVIDENCE OF THE DIRECT NEXUS BEING CLAIM ED BY HIM. FROM THE DETAILS FILED IN THE PAPER-BOOK, IT IS SEE N THAT SUFFICIENT SHARE CAPITAL OF RS.12 CRORES WHICH IS INTEREST FRE E FUND, IS AVAILABLE WITH THE APPELLANT. IT IS ALSO A FACT TH AT THE DIRECTORS ARE PAID DIRECTORS WORKING AS EMPLOYEES OF THE COMPANY. THEREFORE, THE ADVANCES MADE TO THEM SHOULD BE TREATED AS ADVA NCES TO THE EMPLOYEES. CONSIDERING THE FACTS OF THE CASE AND TH E DECISIONS RELIED UPON BY THE APPELLANT, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION MADE OF RS.9,08,886/- OUT OF IN TEREST EXPENSES. THUS, THIS GROUND OF APPEAL IS ALLOWED. 13. BEFORE US, THE DR SUPPORTED THE ORDER OF THE AO AND AR SUPPORTED THE ORDER OF THE CIT(A). 14. WE FIND THAT THE CIT(A) DELETED THE DISALLOWANC E OF INTEREST ON ACCOUNT OF INTEREST FREE LOANS GIVEN TO THE DIRECTO RS FOR TWO REASONS; FIRSTLY, NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO TO ESTABLISH DIRECT NEXUS BETWEEN THE INTEREST BEARING FUNDS AND INTEREST FREE ADVANCES TO THE DIRECTORS, AND INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS MUCH MORE THAN THE INTEREST FREE ADVAN CES GIVEN TO THE DIRECTORS, AND SECONDLY, THE DIRECTORS WERE EMPLOYE ES OF THE ASSESSEE ITA NO.599/RJT/2012 WITH CO 5 COMPANY, AND THE ADVANCES TO THEM WERE IN THE NATUR E OF ADVANCES TO THE EMPLOYEES, AND CONSEQUENTLY OUT OF COMMERCIAL C ONSIDERATION. 15. BEFORE US, DR SIMPLY RELIED UPON THE ORDER OF T HE AO. 16. WE FIND THAT THE DR COULD NOT BRING ANY MATERIA L TO SHOW THAT THERE WAS ANY DIRECT NEXUS BETWEEN THE INTEREST BEA RING FUNDS AND INTEREST FREE ADVANCES IN QUESTION TO THE DIRECTORS , AND NO ERROR IN THE FINDINGS OF THE CIT(A) TO THE EFFECT THAT THE INTER EST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE MUCH MORE THAN THE INTEREST FREE ADVANCES, COULD BE POINTED OUT BY THE DR. 17. FURTHER, NO MATERIAL WAS BROUGHT BEFORE US BY T HE DR TO SHOW THAT THE DIRECTORS TO WHOM THE INTEREST FREE ADVANC ES WERE GIVEN, WERE NOT EMPLOYEES OF THE COMPANY, AND WERE NOT PAID THE SALARY BY THE ASSESSEE-COMPANY. NO MATERIAL WAS ALSO BROUGHT BE FORE US TO SHOW THAT THE ADVANCES IN QUESTION WERE NOT GIVEN OUT OF THE COMMERCIAL CONSIDERATION BY THE ASSESSEE COMPANY. IN THE CIRC UMSTANCES, WE FIND NO GOOD REASONS TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS HEREBY CONFIRMED, AND THE GROUND NO.2 OF THE REVENU E IS DISMISSED. 18. IN THE CROSS OBJECTION THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE APPELLANT HAD SHOWN THE OUTSTANDING SALES T AX LIABILITY AS INCOME IN ASSESSMENT YEAR 2006-07. IN THE ALTERN ATE THE APPELLANT SUBMITS THAT THE INCOME IN ASSESSMENT YEA R 2006-2007 SHOULD BE REDUCED TO THAT EXTENT. 19. AS THE ISSUE OF DISALLOWANCE UNDER SECTION 43B OF T HE ACT IN THE REVENUES APPEAL, HAS BEEN RESTORED BACK TO THE FIL E OF THE AO, THIS GROUND OF CROSS OBJECTION IS ALSO RESTORED TO THE F ILE OF AO FOR ADJUDICATION IN THE LIGHT OF DISCUSSION IN RESPECT OF THE REVENUES ITA NO.599/RJT/2012 WITH CO 6 GROUND OF APPEAL. THUS, THIS GROUND OF CROSS OBJEC TION IS ALLOWED FOR STATISTICAL PURPOSE. 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSE AND CROSS OBJECTION OF THE ASSE SSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON FRIDAY THE 27 TH MARCH, 2015 AT RAJKOT. SD/- SD/- ( SHAILENDRA KUMAR YADAV ) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 27/3/2015