YGC Projects Ltd., Panchkula V. DCIT, Chandigarh

ITA 657/CHANDI/2011

• Counselvise Citation: 65721514 RSA 2011
• Duration Of Justice: 4 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 08-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Proportionate interest
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 657/CHD/2011 ASSESSMENT YEAR: 2007-08 YGC PROJECTS LTD., VS. THE DCIT, PANCHKULA CIRCLE-1(1), CHANDIGARH PAN NO. AAACY2847C & ITA NO. 686/CHD/2011 ASSESSMENT YEAR: 2007-08 THE DCIT, CIRCLE -1 (1), VS. YGC PROJECTS LTD., CIRCLE 1(1), CHANDIGARH CHANDIGARH (NOW AT PANC HKULA) PAN NO. AAACY2847C (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUDHIR SEHGAL RESPONDENT BY : SH. S.K. MITTAL DATE OF HEARING : 16.09.2015 DATE OF PRONOUNCEMENT : 14.10.2015 ORDER PER H.L.KARWA, VP THESE TWO APPEALS BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDER OF CIT(A) CHANDIGARH DATED 31.3.2011 RELATING TO ASSESSMENT YEAR 2007-08. 2. FIRSTLY, WE WILL TAKE UP THE ASSESSEES APPEAL I N ITA NO. 657/CHD/2011. GROUND NO. 1 OF THE APPEAL READS AS UNDER:- 2 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) CHANDIGARH HAS ERRED IN LAW AND FACTS I N UPHOLDING THE ADDITION OF RS. 2,02,046/- ON ACCOUNT INTEREST @ 15% P.A. AGAINST LOWER RATE OF INTEREST PAID BY T HE APPELLANT ON THE BORROWINGS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SSESSING OFFICER NOTICED THAT DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAD GIVEN LOANS AND ADVANCES AMOUNTING TO RS. 13,46 ,974/- TO ITS SISTER CONCERN. THESE ADVANCES WERE GIVEN WITHOUT INTEREST. THE ASS ESSEE WAS USING BORROWED FUNDS AND INTEREST HAS BEEN DEBITED TO THE PROFIT A ND LOSS ACCOUNT ON THESE BORROWED FUNDS. THE ASSESSING OFFICER ISSUED A NOTI CE TO THE ASSESSEE STATING AS TO WHY THE PROPORTIONATE INTEREST ON THESE INTEREST FREE ADVANCES SHOULD NOT BE DISALLOWED. THERE WAS NO RESPONSE FROM THE ASSESSEE . ACCORDINGLY, THE INTEREST @ 15% ON THE AMOUNT OF RS. 13,46,974/- TREATING THE SAME AS AN AVERAGE BALANCE AS INTEREST FREE LOAN GIVEN BY THE ASSESSEE TO ITS SISTER CONCERN WAS DISALLOWED BY THE ASSESSING OFFICER. THEREFORE, AN AMOUNT OF RS. 2,02,046/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION AND , HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI SUDHI R SEHGAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSING OFFICER DISAL LOWED INTEREST AMOUNTING TO RS. 2,02,046/- ON ACCOUNT OF INTEREST FREE LOAN GIV EN TO THE HOLDING COMPANY OF THE ASSESSEE M/S YAMUNA GASES AND CHEMICALS LTD. H E FURTHER SUBMITTED THAT DISALLOWANCE OF INTEREST @ 15% IS ON HIGHER SIDE AS COMPARED TO THE INTEREST APPLIED IN THE CASH CREDIT ACCOUNT OF THE ASSESSEE AS ON 31.3.2007 BY THE S.B.I. 3 WHICH WAS @ STATE BANK ADVANCE RATE I.E. 12.25%. T HE ASSESSEE HAS PRODUCED A CERTIFICATE DATED 15.7.2011 FROM STATE BANK OF INDI A, YAMUNNAGAR BRANCH IN SUPPORT OF THE ABOVE CONTENTION. NO OTHER POINT WA S RAISED OR ARGUED BEFORE US. CONSIDERING THE RATE APPLIED IN THE CASH CREDIT ACC OUNT OF THE ASSESSEE BY SBI @ 12.25% IN THE RELEVANT YEAR, WE ARE OF THE VIEW, TH AT DISALLOWANCE MADE BY THE ASSESSING OFFICER @ 15% APPEARS TO BE ON HIGHER SID E. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE DIR ECT THE ASSESSING OFFICER TO DISALLOW INTEREST @ 13% ON THE AMOUNT OF RS. 13,46, 974/- WHICH WAS GIVEN WITHOUT INTEREST TO SISTER CONCERN. THIS GROUND OF APPEAL STANDS ALLOWED PARTLY. 6. GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) CHANDIGARH HAS ERRED IN LAW AND FACTS IN UPH OLDING THE ADDITION OF RS. 9,57,988/- WITHOUT APPRECIATING THE DIFFICULTIES IN PRODUCING THE RECORD BEFORE LD. DCIT AND NOT CONSID ERING THE RECORD PRODUCED BEFORE THE LD. CIT(A) AND FURTHER C HARGING FRINGE BENEFIT TAX ON ABOVE DISALLOWANCES. 7. THE ASSESSEE CLAIMED BUSINESS PROMOTION EXPENSES AT RS. 9,57,988/-. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FILE THE DETAILS OF THESE BUSINESS PROMOTION EXPENSES. THE ASSESSING OFFICER FURTHER R EQUIRED THE ASSESSEE TO EXPLAIN THE NATURE OF THESE EXPENSES. THE ASSESSEE DID NOT FILE ANY EXPLANATION AND ALSO NO SUPPORTING DOCUMENTS WERE SUBMITTED TO PROVE THE GENUINENESS OF THE EXPENDITURE, THEREFORE, ASSESSING OFFICER DISALLOWE D THE CLAIM OF THE ASSESSEE. 8. ON APPEAL, THE LD. CIT(A) UPHELD THE ORDER OF TH E ASSESSING OFFICER FOR THE REASONS STATED IN PARA 20 OF THE IMPUGNED ORDER. 4 9. AFTER HEARING LD. REPRESENTATIVES OF BOTH THE PA RTIES, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. BOTH THE AUTHORITIE S BELOW HAVE CATEGORICALLY STATED THAT ASSESSEE FAILED TO SHOW THAT THE EXPENS ES CLAIMED BY IT WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINES S. NO EVIDENCE WAS BROUGHT ON RECORD TO PROVE THE GENUINENESS OF THE EXPENSES. W E HAVE ALSO PERUSED THE DETAILS OF BUSINESS PROMOTION EXPENSES. THE ASSESSE E HAS SHOWN VARIED KIND OF EXPENSES AND THERE IS NOTHING ON RECORD TO SHOW THA T THESE EXPENSES HAVE ANY CONNECTION WITH THE BUSINESS OF THE ASSESSEE. THE O NUS WAS ON THE ASSESSEE TO PROVE THAT THE EXPENSES WERE INCURRED WHOLLY AND EX CLUSIVELY FOR THE PROPOSE OF BUSINESS. WE ARE FULLY IN AGREEMENT WITH THE OBSERV ATIONS OF THE CIT(A) THAT IN THE ABSENCE OF ANY COGENT REASONS WHY SUCH HUGE EXP ENSES HAVE BEEN INCURRED AND FURTHER IN THE ABSENCE OF ANY CORRELATION OF EX PENSES WITH THE BUSINESS OF THE ASSESSEE, NO RELIEF CAN BE GIVEN TO THE ASSESSEE. A CCORDINGLY, WE DO NOT SEE ANY MERIT IN THIS GROUND OF APPEAL AND THE SAME IS REJE CTED. ITA NO. 686.CHD/2011- REVENUES APPEAL 10. GROUND NO. 1 OF THE APPEAL READS AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, LD. CIT(A) HAS GRAVELY ERRED IN DELETING T HE ADDITION MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE O F COMMISSION PAID AMOUNTING TO RS. 24,67,41 7/- AS THE DISALLOWANCE WAS RIGHTLY MADE ON THIS ISSUE BEING T HE EXPENDITURE WAS NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AS PER THE PROVISIONS OF SECTIO N 37 OF THE INCOME TAX ACT. 11. THE ISSUE RELATES TO DISALLOWANCE OF COMMISSION OF RS. 24,67,417/-. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SUBMIT T HE AGREEMENT ON THE BASIS OF WHICH COMMISSION WAS PAID AND HOW WAS THE SAME RELA TED TO ITS BUSINESS. IN RESPONSE TO THE ABOVE QUERY, THE ASSESSEE SUBMITTED THAT IT HAD PAID COMMISSION 5 TO M/S ASSOCIATED TRADERS AND MANUFACTURES DELHI AM OUNTING TO RS. 24,67,417/- AFTER DEDUCTION OF TDS ON THE AMOUNT PAID. IT WAS ALSO EXPLAINED THAT THE ASSESSEE HAD STARTED THE NEW BUSINESS OF PROVIDING POWER JOINTING SERVICES TO CUSTOMERS OF POWER COS. THROUGH CALL CENTERS ETC. AND DID NOT HAVE MUCH EXPERIENCE ABOUT THE LINE OF BUSINESS AND THE AREA (DELHI & NCR), THEREFORE, THEY HAD ENGAGED M/S ASSOCIATED TRADERS & MANUFACTURES O F DELHI FOR PROVIDING BUSINESS ON COMMISSION BASIS. IT WAS ALSO STATED T HAT THE COMMISSION PAID WAS 4% OF THE TOTAL TURNOVER OF THE COMPANY. THE ASSESS ING OFFICER REJECTED THE CLAIM OF THE ASSESSEE FOR THE REASONS STATED IN PARS 3.2. AND 3.3 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER CONCLUDED THAT THE AMOUNT IN QUESTION HAS NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS PER THE PROVISIONS OF SECTION 37 OF THE ACT. 12. ON APPEAL, THE CIT(A) DELETED THE ADDITION OBS ERVING AS UNDER:- 6. AFTER TAKING INTO ACCOUNT THE RIVAL CON TENTIONS, 1 FIND THAT THE APPELLANT HAD STARTED NEW BUSINESS AND PAI D COMMISSION TO M/S ASSOCIATED TRADERS & MANUFACTURES OF DELHI FOR PROCURING BUSINESS. I FIND THAT TDS WAS D EDUCTED ON THE COMMISSION PAYMENTS WHICH WERE MERELY 4% OF TOT AL TURNOVER OF THE COMPANY. SINCE THE COMMISSION IS NE ITHER ON THE HIGHER SIDE NOR BOGUS, THE DISALLOWANCE OF THE SAME BY THE AO IN NOT JUSTIFIED. IN FACT THE ASSESSING OFFICER SHOULD HAVE VERIFIED THE AUTHENTICITY OF THE PAYMENT MADE BY S UMMONING THE PARTY FOR RECORDING THE STATEMENT AND EXAMINING THEIR RECORD. SINCE THE DISALLOWANCE HAS BEEN MADE ON A V AGUE FINDING AND FURTHER SINCE THE ASSESSING OFFICER IN A SUBSEQUENT ASSESSMENT YEAR 2008-09 HAS ALREADY ALLOWED 75% OF THE COMMISSION EXPENSES PAID TO THE SAME AGENT, THE ADD ITION IS NOT JUSTIFIED. ON PERUSAL OF THE REASONS FOR RESTRI CTING THE COMMISSION EXPENSES TO 75% OF THOSE CLAIMED, 1 FIND THAT NO REASON HAS BEEN GIVEN FOR TAKING THIS DECISION. 6 13. AFTER HEARING LD. REPRESENTATIVES OF BOTH THE P ARTIES WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE. IT IS AN ADMITTED FACT THAT TDS WAS DEDUCED ON THE COMMISSION PAYMENT. IT IS ALSO NOT T HE CASE OF THE ASSESSING OFFICER THAT THESE ARE BOGUS PAYMENTS. IT IS ALSO E VIDENT FROM THE RECORD THAT ASSESSING OFFICER IN A SUBSEQUENT ASSESSMENT YEAR I .E. 2008-09 HAS ALLOWED THE COMMISSION EXPENSES PAID TO THE SAME PARTY. THUS, TAKING INTO CONSIDERATION THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE PRES ENT CASE, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, WE REJECT GROUND NO. 1 OF THE REVENUES APPEAL. 14. GROUND NOS. 2 & 3 OF THE APPEAL READS AS UNDER :- 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE A DDITION MADE BY THE A.O. ON ACCOUNT OF RENT PAID TO FATHER OF ONE OF THE DIRECTOR OF THE ASSESSEE COMPANY AMOUNTING TO RS. 6,89,720/- AS THE DISALLOWANCE WAS RIGHTLY MA DE ON THIS ISSUE BEING THE EXPENDITURE WAS NOT WHOLLY AND EX CLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AS PER THE PRO VISIONS OF SECTION 37 OF THE INCOME TAX ACT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE AD DITION MADE BY THE A.O. AND NOT APPRECIATING THE FACT THAT THE RENT DEED CANNOT BE EXECUTED ON 30-09-2003 ON THE STAMP PAPER S WHICH WERE PURCHASED ON 10-04-2004. THE RENT DEED IS THUS BOGUS AND AN AFTERTHOUGHT JUST TO REDUCE THE TAX LIABILIT Y OF THE ASSESSEE. MOREOVER THE CERTIFIED COPY OF THE RENT D EED WAS ALSO OBTAINED FROM THE ASSESSEE AND WAS ALSO PLACED ON R ECORD. 15. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAS PAID RENT OF RS. 6,89,720/-. THE ASSESSING OFFICER REQUIRED T HE ASSESSEE TO FURNISH THE ADDRESSES OF THE PERSONS TO WHOM RENT WAS PAID. IN RESPONSE TO THE SAID QUERY, THE 7 ASSESSEE FILED THE REQUISITE INFORMATION. THE ASSE SSING OFFICER NOTICED THAT THE RENT OF RS. 6,89,720/- WAS PAID TO SHRI S.S. SARDAN A, FATHER OF ONE OF THE DIRECTORS OF THE COMPANY. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH THE ORIGINAL RENT DEED. THE ASSESSING OFFICER OBSERVED THAT STAMP PAPER ON WHICH THE RENT AGREEMENT MADE WAS ISSUED BY THE STAMP VENDOR ON 10.4.2004. THE ASSESSING OFFICER OPINED THAT RENT DEED CANNOT BE E XECUTED ON 30.9.2003 ON THE STAMP PAPER WHICH WAS PURCHASED ON 10.4.2004. ACCOR DING TO THE ASSESSING OFFICER, THE SAID RENT DEED WAS BOGUS AND AN AFTERT HOUGHT JUST TO REDUCE THE TAX LIABILITY OF THE ASSESSEE AND THE AMOUNT OF RS. 6,8 9,720/- WAS DISALLOWED 16. ON APPEAL, THE CIT(A) DELETED THE ADDITION OBSE RVING AS UNDER:- 10. AFTER TAKING INTO CONSIDERATION THE RIVAL CONT ENTIONS, I FIND THAT THE APPELLANT WAS PAYING RENT REGULARLY. THE AO DISALLOWED THE RENT ONLY ON THE BASIS OF WRONG MENTION OF DATE ON THE LEASE DEED. THE AO IGNORED ALL THE RELATED F ACTS OF LEASE DEED. THE WRONG DATE WAS MENTIONED DUE TO TYPOGRAPH ICAL ERROR WHILE ON THE OTHER HAND TDS ON ALL THE PAYMEN TS HAVE BEEN REGULARLY DEDUCTED AND DEPOSITED. I FIND NO CO LLUSION OF FACTS AND EXPENSES UNDER THE HEAD ARE HELD TO HAVE BEEN RIGHTLY CLAIMED BY THE APPELLANT. 17. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH T HE PARTIES WE DO NOT FIND ANY VALID GROUND IN INTERFERING WITH THE FINDINGS OF TH E CIT(A) ON THIS ISSUE. IT APPEARS THAT THE ASSESSING OFFICER HAS DISALLOWED T HE PAYMENT OF RENT ON THE BASIS OF WRONG MENTION OF DATE IN THE LEASE DEED. THE LD . COMMISSIONER HAS OBSERVED THAT WRONG DATE WAS MENTIONED DUE TO TYPOGRAPHICAL ERROR WHILE, ON THE OTHER HAND, TDS ON ALL THE PAYMENTS WERE BEING REGULARLY DEDUCTED AND DEPOSITED . IN OUR OPINION, IF THE TDS ON ALL THE PAYMENTS HAVE BE EN REGULARLY DEDUCTED AND DEPOSITED IN TIME, THEN THE RENT DEED CANNOT BE TRE ATED AS BOGUS AND RENT CANNOT 8 BE DISALLOWED ON THE BASIS OF WRONG DATE MENTIONED THE LEASE DEED DUE TO TYPOGRAPHICAL ERROR. WE, THEREFORE, DISMISS THIS GR OUND OF APPEAL. NO OTHER POINT WAS RAISED OR ARGUED BEFORE US. 18. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED PA RTLY AND APPEAL FILED BY THE REVENUE IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 14.10.2015 SD/- SD/- (ANNAPURNA MEHROTRA) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 14 TH OCTOBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR