ACIT, Ludhiana V. M/s Golden Enterprises, Ludhiana

ITA 724/CHANDI/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51532 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 11-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Commercial expediency; Revenue expenditure
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE MS SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 724/CHD/2011 ASSESSMENT YEAR 2007-08 ACIT, CIRCLE-I, V M/S GOLDEN ENTERPRISES, LUDHIANA. HIGH COURT-24, PHASE-VI, FOCAL POINT, LUDHIANA. PAN: AACFG-8370K (APPELLANT) (RESPONDENT) DEPARTMENT BY: SMT. JAISHREE SHARMA ASSESSEE BY : SHRI SUDHIR SEHGAL DATE OF HEARING : 05.10.2011 DATE OF PRONOUNCEMENT : 17.10.2011 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER DATED 13.05.2011 PASSED BY THE LD. CIT(A)-II LUDHIANA U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'TH E ACT'). 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUND OF APPEAL: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF DISALLOWANCE OF INTEREST ON INTEREST FREE ADVANCE TO SHRI AMARJIT SINGH WHEN THE ASSESSEE HAS FAILED TO PROVE THE BUSINESS EXPEDIENCY OF MAKING SUCH ADVANCE. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO REDUCE INTEREST DISALLOWANCE FROM 15% TO 12% ON INTEREST FREE ADVANCE TO SHRI HARJIT SINGH WITHOUT GIVING ANY COGENT REASON. 2 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.4,52,700/- ON ACCOUNT OF MACHINERY REPAIR EXPENDITURE WHEN THE AO HAS HELD THAT ALL THE MACHINES ARE INDEPENDENT MACHINES REQUIRING REPLACEMENT AND HENCE THE EXPENDITURE IS CAPITAL IN NATURE. 4. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF CASH PAYMENTS U/S 40A(3) WHEREAS THE PAYMENTS RELATE TO SINGLE BILL AND SINGLE DAY BUT CASH PAYMENTS HAVE BEEN SHOWN TO BE MADE ON DIFFERENT DATES TO CIRCUMVENT THE LAW. 5. THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 6. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 3. IN GROUND NO.1 & 2, THE REVENUE CONTENDED THAT T HE CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE DI SALLOWANCE OF INTEREST IN THE CASE OF SHRI AMARJIT SINGH AND REDU CING THE DISALLOWANCE FROM 15% TO 12% IN THE CASE OF SHRI HA RJIT SINGH WITHOUT ANY COGENT REASONS. THE LD.DR PLACED REL IANCE ON THE ORDER OF THE AO AND ALSO REFERRED TO PAGE 3 & 6 OF THE PAPER BOOK. LD. AR PLACED RELIANCE ON THE ORDER OF THE CIT(A). 4. WE HAVE CAREFULLY PERUSED THE FACT SITUATION OF THE PRESENT CASE AND RIVAL SUBMISSIONS INCLUDING THE PAPER BOOK FILED BY THE ASSESSEE. FOR THE ASSESSMENT YEAR UNDER CONSID ERATION, THE ADVANCES GIVEN TO THE SUPPLIERS STANDING IN THE BAL ANCE-SHEET WERE TO THE TUNE OF RS.53,64,575/- AND OUT OF SUCH ADVANCES, AN AMOUNT OF RS.4,25,000/- EACH WAS GIVEN TO SHRI A MARJIT SINGH AND SHRI HARJIT SINGH FOR THE SUPPLY OF HUSK IN THE FINANCIAL YEAR 2005-06. THE AO REJECTED THE EXPLAN ATION FILED BY THE ASSESSEE AND HELD THAT THE ASSESSEE FAILED T O ESTABLISH THE ELEMENT OF COMMERCIAL EXPEDIENCY IN GIVING THE SAID 3 ADVANCES. THE AO PLACING RELIANCE ON THE DECISION IN THE CASE OF ABHISHEK INDUSTRIES DISALLOWED INTEREST AT 15% O N THE ABOVE AMOUNT. THE CIT(A) DELETED SUCH DISALLOWANCE OF IN TEREST IN THE CASE OF SHRI AMARJIT SINGH AND REDUCED THE DISALLOW ANCE OF INTEREST FROM 15% TO 12% IN THE CASE OF SHRI HARJI T SINGH. THE ASSESSEE CONTENDED BEFORE THE AO THAT SUCH ADVANCES WERE GIVEN FOR THE SUPPLY OF HUSK AND HENCE IT INVOLVES AN ELEMENT OF BUSINESS EXPEDIENCY. IT WAS HELD BY THE AO THAT TH ERE IS NO BUSINESS TRANSACTION BETWEEN THE ASSESSEE AND SHRI AMARJIT SINGH. THE COPY OF ACCOUNTS OF SHRI AMARJIT SINGH IN THE BOOKS OF ACCOUNT OF THE ASSESSEE APPELLANT SHOWS TOTAL PU RCHASE OF RS.14.90 LACS MADE IN THE FINANCIAL YEAR 2004-05. SUBSEQUENTLY, IN THE FINANCIAL YEAR 2005-06, THE AS SESSEE MADE AN ADVANCE OF RS.4,25,000/- TO THE SAID PARTY. THE CONTENTION OF THE ASSESSEE THAT SHRI AMARJIT SINGH HAS SINCE E XPIRED, HAS NOT BEEN DENIED BY THE AO WHICH LED TO NON-RECOVERY OF THE OUTSTANDING ADVANCES FROM HIS HEIRS. 5. HAVING REGARD TO THE FACT SITUATION OF THE PRESE NT CASE, IT IS EVIDENT THAT THE ASSESSEE HAD BUSINESS CONNECTIO N WITH SHRI AMARJIT SINGH AND THE REVENUE HAS FAILED TO BRING O N RECORD ANY MATERIAL ESTABLISHING THEIR CONCLUSION. THEREFORE, THE DISALLOWANCE MADE BY THE AO CANNOT BE UPHELD. CONS EQUENTLY, THE FINDINGS OF THE CIT(A) ARE UPHELD IN THIS CASE. 6. ON A CONSIDERATION OF FACTUAL MATRIX OF THE CASE , THE REVISION OF DISALLOWANCE OF INTEREST FROM 15% TO 12 % IN THE CASE OF SHRI HARJIT SINGH IS REASONABLE AND IN CONSONANC E WITH THE RELEVANT FACTS OF THE CASE. HOWEVER, THE REVENUE H AS FAILED TO BRING ON RECORD EVIDENCE TO PROVE UN-REASONABLENESS OF SUCH 4 REDUCTION OF INTEREST FROM 15% TO 12%. THEREFORE, FINDINGS OF THE LD. CIT(A) ARE UPHELD. ACCORDINGLY, BOTH THESE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 7. IN GROUND NO.3, THE REVENUE CHALLENGED THE FINDI NGS OF THE CIT(A) ON FACTS AND IN LAW PERTAINING TO DELETION O F ADDITION OF RS.4,52,700/- ON ACCOUNT OF MACHINERY REPAIRS EXPEN DITURE. THE LD. AR, IN THE COURSE OF PRESENT APPELLATE PR OCEEDINGS AND IN THE COURSE OF SUBMISSIONS FILED BEFORE THE CIT(A ) CONTENDED THAT THE IMPUGNED EXPENDITURE PERTAINS TO REPLACEME NT OF WORN- OUT PARTS OF THE MACHINERY. THE AO HAS FAILED TO R EBUT SUCH CONTENTION OF THE ASSESSEE. THE SUBMISSION MADE BE FORE THE AO ALSO SPEAKS OF THE NATURE OF SUCH EXPENDITURE. THE PURCHASES MADE BY THE ASSESSEE COMPRISED OF PARTS OF EXISTING MACHINERY. THELD CIT(A) HAS CITED A NUMBER OF DECISIONS INCLUD ING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT V HERO CYCLES P.LTD. (2009) 311 ITR 349 (P&H). 8. WE ARE OF THE CONSIDERED OPINION THAT EXPENDITUR E INCURRED ON THE REPLACEMENT OF PARTS OF THE EXISTING MACHINE RY ARE PATENTLY REVENUE EXPENDITURE. THEREFORE, THE FINDI NGS OF THE CIT(A) ARE UPHELD AND THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 9. IN GROUND NO.4, THE REVENUE CONTENDED THAT CIT(A ) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION ON ACC OUNT OF DISALLOWANCE OF CASH PAYMENTS U/S 40A(3) OF THE ACT . THE ASSESSEE'S CONTENTION BEFORE THE AUTHORITIES BELOW CLEARLY INDICATES THAT THE IMPUGNED EXPENDITURE WAS INCURRE D ON VARIOUS DATES AND NOT ON A SINGLE DATE. CONSEQUENTL Y, THE 5 PROVISIONS OF SECTION 40A(3) OF THE ACT ARE NOT APP LICABLE. LD. CIT(A), ON APPRECIATION OF THE RELEVANT DETAILS AND THE FINDINGS OF THE AO, DELETED THE ADDITION. THE FACTUAL MATRI X OF THE CASE CLEARLY REVEALS THAT THE AO HAS FAILED TO PROVE BEY OND DOUBT THAT THE PAYMENTS HAVE ACTUALLY BEEN MADE BY THE AS SESSEE ON A SINGLE DAY AND SUCH ONUS CAST ON THE REVENUE REMAIN S TO BE DISCHARGED. THE PROVISIONS OF SECTION 40A(3) CLEAR LY CONTEMPLATE THAT ANY EXPENDITURE IN RESPECT OF WHIC H A PAYMENT OR AGGREGATE OF PAYMENT MADE TO A PERSON IN A DAY A ND NOT AGGREGATE OF PAYMENTS MADE TO ANY PERSON ON DIFFERE NT DATES. THEREFORE THE CASE OF THE ASSESSEE DOES NOT FALL UN DER SECTION 40A(3) OF THE ACT. ACCORDINGLY, THIS GROUND OF APP EAL OF THE REVENUE IS ALSO DISMISSED. 10. GROUND NOS. 5 & 6 ARE GENERAL IN NATURE AND NEE D NO SEPARATE ADJUDICATION. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH OCTOBER,2011. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17 TH OCT.,2011 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT ,DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH