DCIT, Jaipur V. M/S SHREE MAHALAXMI BIDI TRADING CO., Jaipur

ITA 769/JPR/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59519 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 30-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI
• Assessee Lawyers: T C JAIN
• Keywords: Commercial expediency

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L. KALRA) ITA NO.769/JP/2011 ASSESSMENT YEAR : 2008-2009 DY. COMMISSIONER OF INCOME TAX VS. M/S. SHREE MA HALAXMI BIDI CIRCLE-2, TRADING CO. JAIPUR. JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINOD JOHARI RESPONDENT BY : SHRI T.C. JAIN DATE OF HEARING: 10.01.2012 DATE OF PRONOUNCEMENT: 13.01.2012 ORDER PER SHRI N.L. KALRA, A.M. 1. THE REVENUE HAS FILED AN APPEAL AGAINST ORDER OF LD. CIT (A)-1, JAIPUR DATED 01.06.2011. THE GROUND OF APPEAL RAISED BY REVENUE IS AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LD. CIT (A) IS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS .1,32,64,880/- MADE BY THE AO U/S 36(1)(III) OF THE I.T ACT, 1961. 2. THE ASSESSEE FIRM IS A DISTRIBUTOR OF BIDIES. TH E A.O. NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF INTEREST ON LOANS TO THE EX TENT OF RS.89,68,434/- AND BANK CHARGES AND COMMISSION OF RS.42,96,446/-. THE A.O. NOTICED THAT ASSESSEE HAS RAISED SUBSTANTIAL BORROWINGS DURING THE YEAR BECAUSE THE QUANTUM OF LOANS AT THE END OF YEAR WERE TO THE EXTENT OF RS.3,20,84,771/- AS AGAINST LOAN OF RS.1,73,37,740/ - AT THE BEGINNING OF YEAR. THE A.O. FURTHER NOTICED THAT THE ASSESSEE IS HAVING SUBSTANTIAL CAS H AND BANK BALANCES, FIXED DEPOSIT WITH BANKS AND SUNDRY DEBTORS AND IT SHOWS THAT ASSESSEE DO NO T REQUIRE BORROWED FINDS. THE POSITION OF 2 CASH IN HAND, CURRENT ACCOUNT WITH BANK FIXED DEPOS ITS WITH BANK, SUNDRY DEBTORS AND OF BORROWED FUNDS AS MENTIONED IN THE ASSESSMENT ORDER IS REPRODUCED AS UNDER: SL.NO. ON 31.3.2008 (RS.) ON 31.3.2007 (RS.) 1 CASH IN HAND 5205360/- 4299172/- 2 CURRENT ACCOUNTS WITH BANKS 146299131/- 74770154/- 3 FIXED DEPOSITS WITH BANK 40000000/- 60000000/- 4 SUNDRY DEBTORS NIL NIL TOTAL 191504491/- 139069326/- BORROWED FUNDS 3,20,84,771/- 17337740/- 3. THE A.O. THEREFORE REQUIRED THE ASSESSEE TO JUST IFY THE NEED FOR BORROWING THE INTEREST BEARING LOANS WHEN HUGE SURPLUS ARE AVAILABLE AT TH E DISPOSAL OF COMPANY AND ASSESSEE WAS ALSO STATED TO INDICATE AS TO WHERE THE FUNDS BORROWED H AVE BEEN DEPLOYED IN THE BUSINESS IN THE YEAR IN QUESTION. BEFORE THE A.O. THE ASSESSEE FILED THE FOLLOWING REPLY. IN REPLY WE HAVE TO SUBMIT THAT AT THE END OF THE YEAR, FULL RECOVERIES ARE MADE FROM THE DEBTORS. THUS SUNDRY DEBTORS ARE NIL AS PE R ASSESSEES REGULAR PRACTICE/POLICY. THE FUND SO COLLECTED REMAINS WITH THE ASSESSEE EITHER IN CASH OR IN CURRENT ACCOUNTS WITH BANKS. CERTAIN AMOUNTS ARE DEPOSITED IN SHORT TERM FIXED DEPOSITS WITH BANKS (SAY 45 DAYS) ON WHICH INTEREST IS EARNED BY THE ASSESSEE. THERE ARE NO REGULAR FIXED DEPOSITS. SO FAR AS THE LOAN ARE CONCERNED THEY WERE TAKEN IN EARLIER EAR(S) AND NO FRESH AMOUNTS HAVE BEEN BORROWED AS UNSECURED LOAN WHICH STAND AT RS.32,084,771.75 AS ON 31.3.2008. THE AMOUNTS ARE RETAINED FOR BUSIN ESS PURPOSES. IF THE AMOUNTS AVAILABLE IN CURRENT ACCOUNTS AND FIXED DEPOSIT ARE USED FOR REPAYMENTS OF UNSECURED LOANS, THEN THE ASSESSEE MAY OR MAY NOT B E ABLE TO RECEIVE THE LOANS WHEN NEEDED AFTER A MONTH OR SO. THUS, THE AMOUNTS ARE RETAINED IN THE CURRENT ACCOUNTS WITH BANKS AS WELL AS SHORT TERM FIXED DEP OSITS WITH BANKS AND UNSECURED LOANS ARE NOT PAID BACK IN THE INTEREST O F BUSINESS. WHOLE AMOUNT IS BEING UTILIZED FOR BUSINESS PURPOSES ONLY. 4. ACCORDING TO THE A.O., THE ABOVE REPLY IS VAGUE AND EVASIVE AND NOT ANSWER THE REAL ISSUE I.E. HOW AND WHERE THE BORROWED FUNDS HAVE BEEN UTI LISED IN THE CURRENT YEAR OR IN EARLIER THREE YEARS. THE A.O. AGAIN VIDE LETTER DATED 1.12.2010 W AS ASKED TO GIVE THE FOLLOWING FACTUAL DATA IN 3 THE FOLLOWING FORMAT AND ALSO DETAILS OF LOANS TAKE N IN LAST THREE YEARS I.E. FROM ASSESSMENT YEARS 2005-06. DATE WISE CLOSING FIGURE OF CASH & BANK BALANCE AND LOAN TAKEN WITH THE NAME OF THE BANK AND OTHERS AND TO WHOM BORROWED FUNDS WERE GIVEN. DATE CASH BALANCE BANK BALANCE TOTAL OF CASH & BANK LOAN (AMOUNT) TAKEN DURING THE YEAR NAME OF THE BANKS & OTHERS TO WHOM LOAN GIVEN WITH AMOUNT DETAILS OF LOANS TAKEN IN LAST THREE YEARS THAT I S STARTING FROM A.Y. 2005-06: NAME OF THE BANK AMOUNT OF LOANS DATE WHERE UTILIZE D 5. AGAIN THE SAME REPLY WAS FILED AND THE A.O. THER EFORE DISALLOWED THE CLAIM OF INTEREST OF RS.89,68,434/- AFTER OBSERVING AS UNDER: THE CLAIM ON ACCOUNT OF INTEREST PAID HAS TO BE ALL OWED KEEPING IN VIEW THE PROVISIONS OF SECTION 36(1)(III) AND THE ONUS IS ON THE ASSESSEE TO ESTABLISH WITH FACTS AND FIGURES THAT THE BORROWED FUND ON WHICH I NTEREST HAD BEEN CLAIMED, HAD BEEN UTILIZED FOR THE PURPOSE OF BUSINESS AND, IF T HAT ONUS IS NOT DISCHARGED BY GIVING RELEVANT FACTS AND FIGURES, THEN AMOUNT CANN OT BE ALLOWED AS A DEDUCTION. 6. THE LD. A.O. DISALLOWED RS.42,96,446/- CLAIMED U NDER THE HEAD BANK CHARGES AND COMMISSION AFTER OBSERVING AS UNDER: FURTHER THE ASSESSEE CLAIMED HUGE DEDUCTION ON ACCO UNT OF BANK CHARGES & COMMISSION OF RS.42,96, 446/-. THERE IS NO LOANS FR OM THE BANK FURTHER NOW FUNDS ARE TRANSFERRED EITHER BY ONLINE MECHANISM OR THOUG H PAYABLE AT PAR CHEQUES. THE ASSESSEE HAS FAILED TO PROVE THE BUSINESS USE O F THESE FUNDS. 7. BEFORE THE LD. CIT (A), THE ASSESSEE HAS SUBMITT ED AS UNDER: DETAILS OF INTEREST PAID TO OTHERS 4 RS.51,320/- DATE 1.4.2007 TO 18.1.2008 INTEREST PAID RS.35,34,091/- INTEREST PAID TO OTHERS UNSECURED LOANS RS.1,43,767/- INTEREST PAID TO OTHERS STAFF DEPO SITS RS.52,39,256/- INTEREST PAID TO OTHERS SECURITY DEPOSITS DEALERS. RS.89,68,434/- TOTAL PAID INTEREST TO OTHERS. NO FRESH BORROWINGS HAVE BEEN MADE DURING THE YEAR UNDER CONSIDERATION AS WELL AS PREVIOUS THREE YEARS I.E. FROM ASSESSMENT YEAR 2 005-06 TO ASSESSMENT YEAR 2008-09. IT WAS ALSO EXPLAINED BEFORE THE A.O. THAT DURING T HE ASSESSMENT YEAR 2008-09 NO FRESH BORROWINGS WERE MADE FROM UNSECURED CREDITORS . HOWEVER, CREDIT BALANCES OF TWO PARTNERS WHO RETIRED ON 30.09.2007 AND THERE FORE THE SAME WERE INCLUDED IN THE LIST OF UNSECURED LOANS DURING THE YEAR HAVI NG BEEN SHOWN AS RECEIVED OTHERWISE THAN BY ACCOUNT PAYEE CHEQUES AND AN EXP LANATORY NOTE TO THIS EFFECT WAS ALSO GIVEN BELOW THE ANNEXURE. THIS FACT HAD LE D TO INCREASE IN THE AMOUNT OF UNSECURED LOANS. ALL THE FUNDS HAD ALWAYS BEEN UTILIZED FOR BUSINESS PURPOSES. NO NON-BUSINESS USE OF BORROWED FUNDS HAD BEEN ESTABLISHED BY THE A.O. THE MERE FACT THAT FULL RECOVERIES HAD BEEN MADE FROM THE DEBTORS AT THE EN D OF THE YEAR AND THEREFORE, THE AMOUNTS SHOWN AS CASH IN HAND OR CURRENT ACCOUN TS WITH BANKS OR FIXED DEPOSIT WITH BANKS DID NOT ESTABLISH THE NON-BUSINE SS USE OF FUNDS. THE FIXED DEPOSITS WERE ONLY FOR 45 DAYS AND NOT REGULAR DEPO SITS. WHETHER THE ASSESSEE SHOULD HAVE RETAINED THOSE FUNDS WITH ITSELF FOR US E IN BUSINESS OR SHOULD HAVE RETURNED THEM TO THE LOAN CREDITORS HAD TO BE DECID ED BY THE ASSESSEE IN THE INTEREST OF BUSINESS AND THE ASSESSING OFFICER WAS NOT SUPPOSED TO INTERFERE IN THIS MATTER. RELIANCE WAS ALSO PLACED ON THE FOLLOWING CASE LAWS WHICH WERE DULY PLACED BEFORE THE LEARNED A.O. DURING THE COURSE OF ASSESS MENT PROCEEDINGS:- S.A. BUILDERS V/S C.I.T. (APPEALS) 288 ITR 1 (S.C .) REFER OUR LETTER DT. 08.09.2010 WRITTEN TO A.O. C.I.T. V/S. LALSONS ENTERPRISES 194 TAXMAN 512 (D EL) C.I.T. V/S. GAUTAM MOTORS (2010) 194 TAXMAN 21 (D EL) C.I.T. V/S. GLAXO SMITHKLINE ASIA PVT. LTD. (2010 ) 195 TAXMAN 35 (S.C.) IN VIEW OF THE ABOVE FACTS AND LEGAL POSITION HE SU BMITTED THAT THE DISALLOWANCE OF AMOUNT OF INTEREST OF RS.8968434/- WAS NOT MERITED AND DESERVES TO BE DELETED. 8. THE LD. CIT (A) DELETED THE ADDITION OF RS.89,68 ,434/- AFTER OBSERVING AS UNDER: 5 I HAVE CAREFULLY PERUSED THE ORDER OF AO AND SUBMIS SION AND PAPER BOOK OF THE AR. ON VERIFICATION IT WAS FOUND THAT PAYMENT OF IN TEREST OF RS.89,68,434/- HAS BEEN MADE ON LOANS WHICH WERE STANDING IN THE BOOKS OF THE ASSESSEE FOR THE PAST THREE YEARS. ON PERUSAL OF THE BIFURCATION OF INTER EST PAID TO OTHERS SUBMITTED IN THE PAPER BOOK IT IS SEEN THAT THE INTEREST WAS PAI D ON SECURITY DEPOSITS TO DEALERS, ON STAFF DEPOSITS AND ON UNSECURED LOANS. ALL THESE DEPOSITS ARE RELATED TO THE BUSINESS OF THE ASSESSEE AND THEREFORE, INTEREST PA ID ON THESE DEPOSITS IS COVERED U/S 36(1)(III). THUS THE DISALLOWANCE OF RS.89,68,4 34/- MADE ON A/C OF INTEREST PAID TO OTHERS IS DELETED. 9. IN RESPECT OF DISALLOWANCE OF RS.42,96,446/-, TH E ASSESSEE FILED THE FOLLOWING SUBMISSIONS BEFORE LD. CIT (A). THE LEARNED A.O. HAS GROSSLY ERRED IN DISALLOWING T HE ASSESSEES CLAIM FOR BANK CHARGES AND COMMISSION AMOUNTING TO RS.42,96,446/-. THE EXPENSES IN QUESTION WERE INCURRED AS UNDER:- JAIPUR HEAD OFFICE RS.24,76,640/- UDAIPUR BRANCH RS.18,19,806/- TOTAL RS.42,96,446/- THE EXPENDITURE MAINLY CONSISTS OF THE FOLLOWING EXPENSES:- AMOUNT OF BANK DD CHARGES REIMBURSED TO OUR DEALERS FOR SENDING THE PAYMENT TO US BY DD. THIS PRACTICE IS FOLLOWED SINCE BEGINN ING TO ENCOURAGE THE DEALERS FOR MAKING PAYMENTS BY DD. DD CHARGES PAID TO BANKS IN RESPECT OF AMOUNTS SENT BY US TO THE SUPPLIERS CREDITORS ETC. BANK CHARGES PAID TO BANKS FOR REMITTING THE AMOUNT S TO OUR SUPPLIERS AND OTHERS THROUGH RTGS (SYSTEM NEWLY INTRODUCED BY BANKS FOR EFFECTING FASTER AND EASIER REMITTANCE WHICH WAS ADOPTED BY THE ASSESSEE DURING THE YEAR FOR A PART OF THE YEAR. CASH HANDLING CHARGES PAID TO BANK FOR CASH DEPOSIT ED BY THE ASSESSEE IN THE BANK. OTHER MINOR CHARGES DEBITED BY THE BANKS FOR VARI OUS PETTY SERVICES. DETAILS OF EXPENSES ARE ENCLOSED. ALL THE EXPENSES HAVE BEEN INCURRED IN THE NORMAL COURSE OF BUSINESS; ON THE BASIS OF ABOVE FACTS, HE SUBMITTED THAT DISA LLOWANCE OF BANK CHARGES AND COMMISSION OF RS.42,96,446/- WAS NOT MERITED AND RE QUESTED TO BE DELETED. 6 10. THE LD. CIT (A) HAS DELETED THE ADDITION AFTER OBSERVING AS UNDER: I HAVE CAREFULLY PERUSED THE ORDER OF THE AO AND TH E SUBMISSIONS OF THE AR. IT IS SEEN THAT INTEREST AND COMMISSION PAID TO THE BANK ON BANKING TRANSACTIONS WAS FOR BUSINESS PURPOSES. THESE COMPRISED OF DD CHARGE S AND COMMISSION PAID TO BANK FOR AMOUNTS SENT TO SUPPLIERS. THESE CHARGES A RE CLEARLY FOR BUSINESS PURPOSE AND ARE COVERED U/S 36(1)(III) AND SO DISAL LOWANCE MADE OF RS.42,96,446/- IS DELETED. AS SUCH DISALLOWANCE MAD E BY AO OF RS.13264880/- OF INTEREST CLAIMED BY THE ASSESSEE IS DELETED. 11. WE HAVE HEARD BOTH THE PARTIES. IN THE TAX AUDI T REPORT, THE ASSESSEE IS REQUIRED TO GIVE THE OPENING BALANCE, THE AMOUNT TAKES, REPAID AND T HE BALANCE OUTSTANDING. THE POSITION IS AS UNDER: OPENING AMOUNT RS.1,73,37,740/- AMOUNT RECEIVED RS.2,08,78,489/- AMOUNT REPAID RS.92,90,243/- CLOSING BALANCE RS.3,20,84,771/- 12. AMOUNT RECEIVED IS NOT THE ACTUAL RECEIPT BUT C REDIT BALANCE OF TWO RETIRING PARTNERS WERE SHOWN AS UNSECURED LOANS. 13. WE HAVE ALSO PERSUED THE BALANCE SHEET. THERE I S INCREASE IN PARTNERS CURRENT ACCOUNTS TO THE EXTENT OF RS.8 CRORES, THERE IS INCREASE IN CUR RENT LIABILITIES & PROVISIONS TO BE EXTENT OF RS.26 CRORES. PAGE 38 OF PAPER BOOK SHOWED THAT FIX ED DEPOSITS ARE BEING TAKEN IN THE LAST TWO MONTHS OF THE FINANCIAL YEAR AND ARE ENCASHED IN TH E MONTH OF APRIL. IT APPEARS THAT SUCH DEPOSITS ARE TAKEN TO HELP THE BANK AUTHORITIES TO SHOW THE DEPOSITS AS ON THE LAST DAY OF THE FINANCIAL YEAR. 14. THE HONBLE APEX COURT IN THE CASE OF S.A. BUIL DERS (SUPRA) HAS OBSERVED AS UNDER: WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COUR T IN CIT V. DALMIA CEMENT (B) LTD. [2002] 254 ITR 377 THAT ONCE IT IS ESTABLI SHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSI NESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF) , THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINES SMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HO W MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF T HE CASE. NO BUSINESSMAN CAN 7 BE COMPELLED TO MAXIMIZE HIS PROFIT. THE INCOME-TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FR OM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALREADY STATED ABOVE, WE HAVE TO SEE THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONCERN FROM THE POI NT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER T HE AMOUNT WAS ADVANCED FOR EARNING PROFITS. 15. THE A.O. FROM THE BOOKS OF ACCOUNT COULD HAVE N OTICED AS TO WHETHER THERE ARE SUBSTANTIAL SURPLUSES DURING THE YEAR. THE ASSESSEE HAS PLACED ALL HIS CARDS AND BALANCE SHEET DO NOT INDICATE ANY ASSET WHICH IS NOT FOR THE PURPOSE OF BUSINESS. HENCE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF INTEREST. 16. IN RESPECT OF BANK CHARGES AND COMMISSION, THE ASSESSEE HAS EXPLAINED THE NATURE OF EXPENSES AND DETAILS HAVE BEEN PERSUED BY THE LD. C IT (A). WE THEREFORE FEEL THAT LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.42,96, 440/-. IN THE RESULT THE APPEAL OF REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN OPEN COURT ON 13.01.201 2. SD/- SD/- (R.K.GUPTA) (N.L.KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 13.01.2012 *S.KUMAR* COPY FORWARDED TO:- 1. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-2, JAIP UR. 2. M/S. SHRI MAHALAXMI BIDI TRADING CO. JAIPUR. 3. THE CIT 4. THE CIT(A), 5. THE D/R, ITAT, JAIPUR 6. THE GUARD FILE IN ITA NO.769/JP/2011 BY ORDER A.R., I.T.A.T., JAIPUR