PHOENIX COMTRADE P. LTD, MUMBAI V. ITO WD 4(3)(1), MUMBAI

ITA 6594/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0397 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 10-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MALATHI SRIDHARAN
• Keywords: Depreciation; Initiation of penalty proceedings; Commercial expediency; Unabsorbed depreciation; Capital expenditure
• Section: 143(3); 234B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K , MUMBAI BEFORE S HRI B.R. BASKARAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 6594 /MUM/20 1 6 ASSESSMENT YEAR: 2011 - 2012 M/S PHOENIX COMTRADE PVT. LTD., OFFICE NO. 403, 4 TH FLOOR, SWAPNA SIDDHI, AKURLI R OAD, KANDIVALI (EAST), MUMBAI CITY MH - 400101 PAN: AADCP7954N VS. THE ITO, WARD 4(3)(1), AAYAKAR BHAVAN, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI PRADEEP DINODIA/ R.K. KAPOOR/REKHA DHAMANKA R /RAVI KUMAR (AR) RESPONDENT BY : SMT. M ALATHI SRIDHARAN (DR) DATE OF HEARING: 06/07 /201 7 DATE OF PRONOUNCEMENT: 21 / 0 8 /201 7 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER DATED 23/08/2016 PASSED BY LD. CIT (APPEALS ) - 9 , MUMBAI FOR THE A S S ESSMENT YEAR 2011 - 2012 , WHEREBY THE LD. CIT(A) HAS DISMISSED THE APPEAL FILED BY THE APPELLANT/ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143(3) RE A D WITH SECTION 92CA OF THE INCOME TAX ACT, 1961 ( FOR SH ORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF TRADING IN AGRICULTURE COMMODITIES AND EXPORT OF RICE , CH IC KPEAS , TURMERIC AND IMPORT OF MINERALS , FI LED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011 - 12 2 ITA NO. 6594/MUM/2016 ASSESSMENT YEAR: 2011 - 2012 DECL ARING THE TOTAL INCOME AS NIL. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE DECLARED PROFIT OF RS. 4,09,79,938/ - , HOWEVER, SET OFF AGAINST BUSINESS LOSSES FOR THE YEAR 2009 - 10 . THE ASSESSEE PAID TAX U/S. 115 JB OF THE ACT. SINCE THE ASSESS EE HAD CLAIMED INTEREST EXPENSE OF RS 24,73,653/ - , THE AO ASKED TO FURNISH THE DETAILS. ACCORDINGLY, THE ASSESSEE SUBMITTED THAT THE COMPANY HAD PAID INTEREST @ 18 % TO THE CREDITORS IN TERMS OF THE AGREEMENT. THE AO REJECTED THE CONTENTION OF THE ASSESSEE AND MADE PARTIAL DISALLOWANCE U /S. 37 TO THE TUNE OF RS. 7,76,007/ - ON AD HOC BASIS AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE . THE AO ALSO REJECTED THE CLAIM OF UNABSORBED DEPRECIATION HOLDING THAT THERE IS NO BUSINESS LOSS FOR THE ASSESSMENT YEAR 2009 - 10 REMAINING TO BE SET OFF. 3. AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) IN FIRST APPEAL. THE LD. CIT(A) AFTER HEARING THE ASSESSEE DISMISSED THE APPEAL AND CONFIRMED THE ACTION OF THE A.O 4 . THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) ON THE FOLLOWING EFFECTIVE GROUNDS: - 1. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON THE FACTS OF THE ASSESSEES CASE IN UPHOLDING THE DISALLOWANCE MADE BY THE LD. AO U/S 3 7 OF THE INCOME TAX ACT, 1961 OF RS. 7,76,077/ - ON WHOLLY ILLEGAL, ERRONEOUS AND UNTENABLE GROUNDS. 2. THAT THE LD. CIT (A) IN UPHOLDING THE DISALLOWANCE OF RS. 7,76,077/ - DONE BY THE LD. AO HAS FAILED TO APPRECIATE THAT THE INTEREST PAID BY THE ASSESSEE TO ITS UNRELATED CREDITORS @ 18% WAS MADE IN THE NORMAL COURSE OF BUSINESS AND ON THE TERMS AS MUTUALLY AGREED BETWEEN THE PARTIES, BEING WHOLLY FOR THE PURPOSE OF BUSINESS NOT EXCESSIVE. 3. THAT THE LEARNED A.O. AND LD. CIT (A) HAS GROSSLY ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE IN NOT 3 ITA NO. 6594/MUM/2016 ASSESSMENT YEAR: 2011 - 2012 ADJUDICATING ON THE GROUND OF CLAIM OF THE ASSESSEE WITH REGARD TO THE ALLOWANCE OF THE ADJUSTMENT OF UNABSORBED BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION OF THE INCOME TAX ACT WHILE DETERMININ G THE TAXABLE INCOME FOR THE CURRENT YEAR. 4. THAT THE HONBLE ITAT MAY BE PLEASED TO DIRECT THE LD. AO TO GRANT THE ASSESSEE THE ALLOWANCE OF THE ADJUSTMENT OF UNABSORBED BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION OF THE INCOME TAX ACT WHILE DETERMI NING THE TAXABLE INCOME FOR THE CURRENT YEAR AS PERMITTED IN LAW. 5. THAT THE A.O. AND LD. CIT (A) HAS ERRED IN LAW IN COMPUTING THE INTEREST U/S 234B AND 234C ON THE ALLEGED TAX PAYABLE. 6. THAT THE LD. A.O. AND LD. CIT (A) HAS ERRED IN LAW IN INITIATING PENA LTY PROCEEDINGS U/S 271(1)(C) FOR ALLEGED CONCEALMENT OF INCOME. 5. BEFORE US, T HE LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS WRONGLY CONFIRMED THE PARTIAL DISALLOWANCE MADE BY THE AO. IN FACT THE COMPANY HAD PAID INTEREST TO THE CREDITO RS FOR DELAYED PAYMENT AS PER THE TERMS OF CONTRACT . AS PER THE TERMS OF CONTRACT, A) IF THE BUYER MAKES THE PAYMENT WITHIN 7 TO 10 DAYS FROM THE DATE THE BILL , THEN HE CAN AVAIL CASH DISCOUNT AT THE RATE OF 2% ON THE BILL AMOUNT , B) I F THE BUYER MAKES PAY MENT BETWEEN 11 TO 20 DAYS FROM THE DATE OF BILL THEN HE CAN AVAIL CASH DISCOUNT AT THE RATE OF 1% ON THE BILL AMOUNT , C) I F THE BUYER MAKES PAYMENT AFTER 20 DAYS BUT BEFORE 30 DAYS THEN NO CASH DISCOUNT IS AVAILABLE FOR THE BUYER. BUT IF THE BUYER FAILS T O MAKE PAYMENT WITHIN 30 DAYS FROM THE DATE OF BILL THEN INTEREST AT THE RATE 18 % PER ANNUM IS CHARGEABLE FROM THE BUYER. THE ASSESSEE HAS PAID THE INTEREST TO THE CREDITORS @ 18% AS THE ASSESSEE COULD NOT MAKE PAYMENT WITHIN 30 DAYS AS STIPULATED UNDER TH E CONTRACT. THE LD. COUNSEL FURTHER SUBMITTED THAT THE AO HAD PROPOSED IDENTICAL DISALLOWANCE OF INTEREST ON DELAYED PAYMENTS TO THE CREDITORS IN SUBSEQUENT A.Y. 2012 - 13. THE ASSESSEE OBJECTED THE SAME BEFORE THE DRP AND THE SAME WAS DELETED TREATING 4 ITA NO. 6594/MUM/2016 ASSESSMENT YEAR: 2011 - 2012 THE S AID EXPENSES HAVE BEEN INCURRED EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. FURTHER T HE LD. COUNSEL RELYING ON THE LAW LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. PANIPAT WOOLEN AND GENERAL MILLS CO. LTD. (2002 TIOL - 906 - IT) AND THE HONBLE KERALA HIGH COURT IN CIT VS. CATHOLIC SYRIN BANK LTD. 265 ITR 177 (KERALA) SUBMITTED THAT THE FINDING OF THE LD. CIT(A) ARE CONTRARY TO THE PRINCIPLES OF LAW LAID DOWN IN THE ABOVE REFERRED CASES THEREFORE THE IMPUGNED ORDER IS LIABLE TO BE SET ASIDE. 6. PER CONTRA , THE LD. DEPARTMENT REPRESENTATIVE (DR) RELYING ON THE CONCURRENT FINDING OF THE AUTHORITIES BELOW SUBMITTED THAT THERE IS NO INFIRMITY IN THE ORDER THE LD. CIT(A) AS THE INTEREST PAID BY THE ASSESSEE IS HIGHER THAN THE MARKET INTEREST RATE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL ON RECORD. VIDE GROUND NO 1 &2 THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF PARTIAL DISALLOWANCE MADE BY THE AO ON THE AMOUNT OF INTEREST PAID BY THE ASSESSEE ON DELAYED PAYMENTS. WE NOTICE THAT THE PAYMEN T OF AMOUNT MADE BY THE ASSESSEE IS NOT IN DISPUTE AND THE AO HAS ONLY DISALLOWED THE PARTIAL PAYMENT MAINLY ON THE GROUND THAT THE INTEREST PAID @ 18% BY THE ASSESSEE IS HIGHER THAN THE MARKET RATE. WE NOTICE THAT AS PER THE TERMS OF CONTRACT THE ASSESSEE WAS REQUIRED TO PAY 18% INTEREST ON THE TOTAL PAYMENT MADE BEYOND 30 DAYS. SECTION 37 SAYS THAT ANY EXPENDITURE , NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE CAPITAL EXPENDITURE OF PERSONAL EXPENSES OF THE ASSESSEE, LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OR PROFESSION SHALL BE IN CIT PUNJAB, HARYANA, JAMMU KASHMIR, H.P, U.T CHANDIGARH VS. PANIPAT WOOLEN GENERAL MILLS CO. LTD. (SUPRA) THE HONBLE SUPREME COURT HAS HELD THAT ONCE IT IS ACCEPTED THAT THE TRANSACTION HAS BEEN ENTERED INTO FOR COMMERCIAL EXPEDIENCY, THEN THE QUESTION OF QUANTUM DOES NOT ARISE. THE HONBLE J & K 5 ITA NO. 6594/MUM/2016 ASSESSMENT YEAR: 2011 - 2012 HIGH COURT IN CIT VS. NEW ALPINE FORESTS ( IT REF. NO 2/1977) AND THE HONBLE KERALA HIGH COURT IN CIT VS. CATHOLIC SYRIN BANK LTD. (SUPRA) H AVE HELD THAT INTEREST PAID ON DELAYED PAYMENTS BEING COMPENSATORY IN NATURE I S ALLOWABLE EXPENDITURE. WE FURTHER NOTICE THAT THE ASSESSEE HAS NOT PAID THE INTEREST ABOVE THE RATE AGREED WITH THE PARTIES CONCERNED. MOR EOVER, T HE DRP HAS DELETED THE IDENTICAL ADDITION MADE BY THE AO IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2012 - 13 . 8. SO , IN VIEW OF THE FACTS OF THE CASE AND THE PRINCIPLES OF LAW LAID DOWN BY THE HONBLE SUPREME COURT AND THE HONBLE HIGH COURTS, DI SCUSSED ABOVE, WE HOLD THAT THE LD. CIT(A) HAS WRONGLY UPHELD THE PARTIAL DISALLOWANCE OF THE CLAIM MADE BY THE ASSESSEE. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND ALLOW TH ESE GROUND S OF THE APPEAL OF THE ASSESSEE. 9. G ROUND NO 3&4 PERTAIN TO SETTING OFF OF UNABSORBED DEPRECIATION AND BUSINESS LOSS. WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO ALLOW SET OFF OF UNABSORBED DEPRECIATION AND BUSINESS LOSS IN ACCORDANCE WITH THE LAW. 10. GROUND NO S. 3 & 4 PERTAIN TO INTEREST U/S 234B AND 234C OF THE ACT AND INITIATION OF PENALTY PROCEEDINGS RESPECTIVELY. SINCE THE ISSUE INVOLVED IN GROUND NO 3 IS CONSEQUENTIAL AND GROUND NO 2 IS PREMATURE, WE DO NOT CONSIDER IT NECESSARY TO ADJUDICATE THE SAME. 4 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2011 - 2012 IS TREATED AS ALLOWED. ORDE R PRONOUNCED IN THE OPEN COURT 21 ST AUGUST , 2017 . SD/ - SD/ - ( B.R. BASK ARAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 21 / 0 8 / 2017 6 ITA NO. 6594/MUM/2016 ASSESSMENT YEAR: 2011 - 2012 NISHANT VERMA SR.PS / COPY OF T HE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI