M/s Asia Cycles Industries, Ludhiana V. DCIT, Ludhiana

ITA 774/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8522 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 09-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 07-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Proportionate interest; Corroborative evidences; Commercial expediency; Onus to prove
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NOS.773 & 774/CHD/2015 (ASSESSMENT YEARS : 2008-09 & 2009-10) M/S ASIA CYCLES INDUSTRIES. VS. THE D.C.I.T., B-41, PHASE-VI, FOCAL POINT, CENTRAL CIRCLE-II, LUDHIANA. LUDHIANA. PAN: AAFFA9696P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 09.02.2016 DATE OF PRONOUNCEMENT : 11.02.2016 O R D E R PER RANO JAIN, A.M . : THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-5, LUDHIANA, EACH DATED 25.8.2015 FOR ASSESSMENT YEARS 2008-09 AND 20 09- 10 RESPECTIVELY. THE APPEAL BEFORE THE CIT (APPEAL S) WAS AGAINST THE ORDER OF THE ASSESSING OFFICER MADE UND ER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHOR T THE ACT). 2 ITA NO.773/CHD/2015 : 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAD GIVEN ADVANCES TO M/S J.V. ST EEL TRADERS AS UNDER : DATE PARTICULARS TYPE OF DEBIT CREDIT ENTRY 01.04.2007 OPENING BALANCE 13.07.2007 THE KARNATAKA BANK LTD. RECEIPT 65,59,764 50,00,000 CH.NO.954017 27.07.2007 THE KARNATAKA PAYMENT 50,0 0,000 BANK A/C 879, CH.NO.525133 09.01.2008 THE KARNATAKA PAYMENT 20 ,00,000 BANK A/C 879 CH.NO.525150 10.03.2008 THE KARNATAKA RECEIPT 27,00,000 BANK A/C 879 CH.NO.954325 TOTAL 1,35,59,764 77,00,000 CLOSING 58,59,764 BALANCE 3. THE ASSESSEE HAD ALSO PAID INTEREST OF RS.25,69,289/- DURING THE YEAR. THE EXPLANATION OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT DURI NG THE YEAR AN AMOUNT OF RS.65,59,764 HAS BEEN DUE FROM M/ S J.V. STEEL TRADERS IN RESPECT OF CERTAIN PURCHASES TO BE MADE FROM IT. THE SUBMISSION OF THE ASSESSEE WAS T HAT LAST YEAR IT HAD GIVEN M/S J.V. STEEL TRADERS SOME ADVANCE PAYMENT FOR PURCHASE OF RAW MATERIAL AND TH EN SOME GOODS WERE SUPPLIED BY HIM AND COULD NOT BE SUPPLIED THE GOODS IN TOTO AND THEN AN AMOUNT OF RS .50 LACS WAS RETURNED BY HIM IN THE NEXT YEAR AFTER LOT OF 3 EFFORTS. IT WAS A TRADE ADVANCE TO BIND THE SUPPLI ER TO SUPPLY THE GOODS AT REASONABLE PRICE SINCE THE PRIC ES IN STEEL FLUCTUATES VERY MUCH. THE LEDGER ACCOUNT OF THE EARLIER YEAR WAS FILED BEFORE THE ASSESSING OFFICER AND IT WAS SUBMITTED THAT SINCE IT WAS AN ADVANCE MADE DUE TO BUSINESS EXPEDIENCY, NO ADDITION UNDER SECTION 36(1 )(III) OF THE ACT CAN BE MADE. REJECTING THE CONTENTION O F THE ASSESSEE THE ASSESSING OFFICER HELD THAT INTEREST F REE ADVANCES WERE GIVEN TO M/S J.V. STEEL TRADERS AND A PROPORTIONATE DISALLOWANCE CALCULATED @ 7% RATE OF INTEREST AMOUNTING TO RS.4,70,913/- WAS MADE. 4. BEFORE THE LEARNED CIT (APPEALS) AGAIN THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED. AFTER CONSIDERING THE SUBMISSIONS, THE LEARNED CIT (APPEALS) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 5. AGGRIEVED, THE ASSESSEE HAS COME IN APPEAL BEFORE US, RAISING THE FOLLOWING GROUNDS : 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ADDITION AS MADE BY THE ASSESSING OFFICER TO THE TUNE OF RS. 4,70,913/- U/S 36 (1)(III) OF THE INCOME TAX ACT, 1961 . 2. THAT THE WORTHY CIT (A) HAS ALSO ERRED IN NOT CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, BASE D ON DOCUMENTARY EVIDENCES THAT THE AMOUNT OUTSTANDING TOWARDS M/S J.V. STEEL TRADERS WAS FOR THE BUSINESS PURPOSE AND, AS SUCH, NO DISALLOWANCE WAS CALLED FOR. 4 3. THAT THE WORTHY CIT (A) HAS ALSO ERRED IN NOT CONSIDERING THE JUDGMENTOF M/S BRIGHT ENTERPRISES O F THE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT IN IT NO.224 OF 2013. 4. THAT THE ADDITION AS SUSTAINED IS AGAINST THE FAC TS AND CIRCUMSTANCES OF THE CASE. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL BEFORE THE APPEAL IS FINALLY HEARD OR DISPOSED OFF. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US, REFERRING TO THE LEDGER ACCOUNT OF M/S J .V. STEEL TRADERS PLACED IN THE PAPER BOOK, WHICH IS AN ACCOU NT FROM THE PERIOD 1.4.2005 TO 31.3.2008, THAT THE M/S J.V. STEEL TRADERS IS A REGULAR SUPPLIER AND PURCHASES W ERE BEING MADE FROM IT REGULARLY. IT IS NOT A SISTER C ONCERN OF THE ASSESSEE. ADVANCE WAS GIVEN TO IT IN ORDER TO BIND IT TO MAKE SUPPLIES AT REASONABLE PRICE. THEREFORE, I T WAS ARGUED THAT ADVANCE WAS MADE FOR COMMERCIAL EXPEDIE NCY AND PRAYER WAS MADE TO DELETE THE ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 36(1)(III) OF THE A CT. RELIANCE WAS PLACED ON THE LATEST JUDGMENT OF THE H ON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES (P) LTD. VS. CIT IN CIVIL APPEAL NO.514 OF 2008, DATED 5.11.2015 AND IN THE CASE OF S.A. BUILDERS VS. CIT(A) & AANR. (2007 ) 288 ITR 1 (SC). ANOTHER ARGUMENT RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT SINCE THE ASSESSE E WAS HAVING SUFFICIENT OWNED FUNDS, THE PRESUMPTION IS T HAT THESE ADVANCES WERE MADE OUT OF THE OWNED FUNDS AND NO DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT CA N BE 5 MADE. FOR THIS, RELIANCE WAS PLACED ON THE JUDGMEN T OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F BRIGHT ENTERPRISES PVT. LTD. VS. CIT IN ITA NO.224 OF 2013 (O&M) DATED 24.7.2015. 7. THE LEARNED D.R. RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. FROM THE PERUSAL OF THE ORDER OF THE LEARNED CIT (A PPEALS), WE SEE THAT HE HAS GIVEN HIS FINDINGS AT PARA 2.3, WHICH READ AS UNDER : 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, THE B ASIS OF ADDITION MADE BY THE ASSESSING OFFICER AND THE ARGUMENTS OF THE AR DURING THE COURSE OF APPELLATE PROCEEDINGS. THE APPELLANT IS ENGAGED IN MANUFACTURI NG AND TRADING OF BICYCLE PARTS AND IS PURCHASING SHEET CO IL PLATE FROM M/S J.V STEEL TRADERS. THE APPELLANT HAD PAID INTEREST OF RS. 25,69,289/-. THE APPELLANT RECEIVED RS. 50,00,000/- FROM THE SAID PARTY ON 13.07.2007 AND THEREAFTER AGAIN PAID RS.50,00,000/- AND RS. 20,00,000/- TO THE SAID PARTY ON 27.07.2007 AND ON 09.01.2008 RESPECTIVELY. THE ASSESSING OFFICER HELD IT TO BE AN INTEREST FREE ADVANCE FOR NON-BUSINESS PURPOSES. WHILE HOLDING SO THE ASSESSING OFFICER OBSERVED THAT IN T HE EARLIER YEAR, RS.1,00,00,000/-WAS GIVEN IN THE MONT H OF SEPTEMBER 2006 WHEREAS GOODS WORTH RS. 34,40,236/- ONLY WERE RECEIVED IN THE MONTH OF JANUARY 2007 AND NO GOODS WERE RECEIVED THEREAFTER. THEREFORE, THE ASSE SSING OFFICER HELD THAT THE BALANCE AMOUNT CANNOT BE TREA TED AS ADVANCE FOR THE PURPOSE OF PURCHASING GOODS BUT IS IN THE 6 NATURE OF AN INTEREST FREE LOAN. THE AR HAS SUBMITT ED THAT THE ITEM BEING PURCHASED FROM THE SAID PARTY I S VERY IMPORTANT TO THE APPELLANT AND IN ORDER TO SECURE R EGULAR SUPPLY, CERTAIN ADVANCE IS GIVEN. HOWEVER, THE ASSE SSING OFFICER HAS RIGHTLY OBSERVED THAT THE ITEM SOLD BY M/S J.V STEEL TRADERS IS NOT ANY UNIQUE ITEM WHICH IS NOT AVAILABLE IN THE MARKET FOR WHICH THE APPELLANT HAD TO PAY IN ADVANCE. NEITHER HAS THE APPELLANT PRODUCED ANY SUCH EVIDENCE NOR HAS HE MADE ANY SUCH PLEA. HENCE, NO JUSTIFICATION OF THE ADVANCE IS PROVED AND THE BUSIN ESS PURPOSE FOR THE ADVANCE IS NOT MADE OUT. THE AR HAS SUBMITTED DURING THE APPELLATE PROCEEDINGS THAT, AT TIMES, ADVANCE IS GIVEN, BUT THAT DUE TO NON AVAILABILITY OF MATERIAL OR DUE TO SOME OTHER REASON I.E RATES ETC. THE MATERIAL COULD NOT BE SUPPLIED DURING THE YEAR UNDE R CONSIDERATION AND THEREFORE THE SUBSTANTIAL AMOUNT WAS TAKEN BACK FROM THE PARTY AND IN SUBSEQUENT YEARS MATERIAL WAS PURCHASED FROM THE PARTY. HOWEVER, NO EVIDENCE HAS BEEN FURNISHED TO PROVE THE SAID SUBMISSION OF THE APPELLANT REGARDING NON AVAILABIL ITY OF MATERIAL. FURTHER, THE APPELLANT HAS NOT GIVEN THE DETAILS OF THE 'OTHER REASONS' AND THERE IS NO PROOF REGARDING THE RATES' GIVEN AS A REASON BY THE APPELLANT FOR NOT M AKING THE PURCHASES. SINCE, THE APPELLANT HAS NOT BEEN AB LE TO JUSTIFY THE REASONS GIVEN BY HIM IN THE SHAPE OF NO N AVAILABILITY OF MATERIAL AND OTHER REASONS AND IN T HE ABSENCE OF ANY SUPPORTING EVIDENCE TO PROVE ITS CLA IM, THE SAME CANNOT BE ACCEPTED. FURTHER, AS RIGHTLY HE-ID BY THE ASSESSING OFFICER, THE APPELLANT HAS NOT BEEN ABLE TO PROVE THAT THE SAID MATERIAL COULD NOT BE BOUGHT FROM ELSEWHERE AND THE APPELLANT WAS CONSTRAINED TO BUY IT FROM M/S J.V STEEL TRADERS ALONE. THUS, THE APPELLA NT HAS NOT BEEN ABLE TO JUSTIFY THE COMMERCIAL EXPEDIENCY FOR MAKING THE SAID ADVANCE AS THERE IS NO PLAUSIBLE EXPLANATION TO PROVE THE SAME. GIVEN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER WAS JUSTIFIED IN HOLDING THAT THE APPELLANT HAS MADE A INTEREST 7 FREE ADVANCE TO M/S J.V STEEL TRADERS AND THE PROPORTIONATE INTEREST WAS RIGHTLY DISALLOWED BY TH E ASSESSING OFFICER. THESE GROUNDS OF APPEAL ARE ACCORD INGLY DISMISSED. 9. WE ARE NOT IN AGREEMENT WITH THE OBSERVATIONS O F THE LEARNED CIT (APPEALS). FROM THE PERUSAL OF TH E LEDGER ACCOUNT OF M/S J.V. STEEL TRADERS, IT IS QUITE CLEA R THAT IT IS A REGULAR SUPPLIER OF THE ASSESSEE SINCE 1.4.200 5. THE PURCHASES WERE BEING MADE AND PAYMENTS WERE GIVEN I N REGULAR COURSE OF BUSINESS. EVEN THE ADVANCE GIVEN DURING THE YEAR IS AN ADVANCE AGAINST PURCHASES. I T IS ALSO NOT IN DISPUTE THAT OF M/S J.V. STEEL TRADERS IS NOT RELATED TO THE ASSESSEE. THE OBSERVATIONS OF THE L EARNED CIT (APPEALS) THAT THE ITEM SOLD BY OF M/S J.V. STE EL TRADERS IS NOT A UNIQUE ITEM IS NOT RELEVANT TO THE ISSUE IN QUESTION. IT IS THE PRUDENCE OF BUSINESSMAN HOW TO RUN HIS BUSINESS, THE DEPARTMENT CANNOT DICTATE ITS TER MS AS HOW TO DEAL WITH THE PARTIES. IT IS NONE OF THE DEPARTMENTS CONCERN AS TO WHEN THE ADVANCE HAS TO BE GIVEN TO SUPPLIER AND WHEN NOT. THERE IS NO NEED F OR THE LEARNED CIT (APPEALS) TO ASK THE ASSESSEE THE EVIDE NCE TO PROVE THE OTHER REASONS FOR GIVING ADVANCES. THE RE MAY BE THOUSANDS OF REASONS FOR GIVING SUCH ADVANCES, W HICH THE ASSESSEE IS NOT OBLIGED TO ANSWER TO THE DEPART MENT, IT IN HIS BUSINESS ACUMEN ACCORDING TO WHICH HE TAKES THESE BUSINESS DECISIONS. IT IS NOT IN DISPUTE THAT M/S J.V. STEEL TRADERS IS A REGULAR SUPPLIER AND ADVANCES HA VE BEEN GIVEN DURING THE REGULAR COURSE OF BUSINESS. 8 REGULAR DEBIT AND CREDIT ENTRIES ARE APPEARING IN T HE LEDGER ACCOUNT. THE PURCHASES WERE MADE IN THE EAR LIER AS WELL AS SUBSEQUENT YEARS. THESE REASONS ARE ENO UGH TO PROVE THAT ADVANCE WAS MADE OUT OF COMMERCIAL EXPEDIENCY. RELIANCE PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE ON THE JUDGMENT OF HON'BLE SUPREME COU RT IN THE CASE OF HERO CYCLES (SUPRA) IS NOT OUT OF PLAC E. 9.1 IN VIEW OF THE ABOVE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE UNDER SECTION 3 6(1)(III) OF THE ACT. ITA NO.774/CHD/2015 : 10. THE GROUND NOS.1, 2 AND 3 RAISED BY THE ASSESSEE RELATE TO ADDITION UNDER SECTION 36(1)(III ) OF THE ACT. 11. THE ISSUE IN THESE GROUNDS IS SIMILAR TO THE ISSUE IN GROUNDS NOS.1, 2 AND 3 RAISED BY THE ASSE SSEE IN ITA NO.773/CHD/2015 AND THE FINDINGS GIVEN IN ITA NO.773/CHD/2015 SHALL APPLY TO THIS CASE ALSO WITH EQUAL FORCE. 12. THE GROUND NO.4 RAISED BY THE ASSESSEE IS AGAINST THE ORDER OF THE LEARNED CIT (APPEALS) IN SUSTAINING THE DISALLOWANCE OF RS.1,26,873/- CLAIME D BY THE ASSESSEE ON TOUR EXPENSES. DURING THE ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ONE O F THE TRIPS HAD BEEN MADE BY SHRI RAJESH ARORA, WHO IS NO T AN 9 EMPLOYEE OF THE ASSESSEE, NOR ANY COMMISSION HAS BE EN EARNED BY HIM DURING THE YEAR. SINCE THE ASSESSEE COULD NOT SUBSTANTIATE THAT THE EXPENSES WERE INCURRED WH OLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS, AN AM OUNT OF RS.4,26,873/- WAS DISALLOWED. 13. BEFORE THE LEARNED CIT (APPEALS), IT WAS SUBMITTED THAT THE ASSESSEE IS HAVING BUSINESS IN M AY COUNTRIES INCLUDING SUDAN AND EGYPT, WHERE THE ASSE SSEE HAS SENT SHRI RAJESH ARORA, AN AGENT WHO WORKS FOR VARIOUS PARTIES ON COMMISSION BASIS. IN ORDER TO E XPAND AND INCREASE THE BUSINESS, IT WAS DECIDED TO HIRE A COMMISSION AGENT AND WORK THROUGH HIM, BUT HE WAS UNABLE TO FETCH ANY BUSINESS, THEREFORE, NO COMMISS ION WAS PAID TO HIM. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LEARNED CIT (APPEALS) UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER STATING THAT HE IS NEITHER AN EMPLOYEE NOR AN AGENT OF THE ASSESSEE . THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE EXP ENSES. 14. AGGRIEVED BY THIS, THE ASSESSEE HAS COME IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSE SSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES, WHILE THE LEARNED D.R. RELIED ON THE O RDER OF THE ASSESSING OFFICER AS WELL AS OF THE LEARNED CIT (APPEALS). 15. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES 10 BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. WE ARE IN AGREEMENT WITH THE FINDINGS OF THE LEARNE D CIT (APPEALS) THAT THE ONUS TO PROVE THE FOREIGN TRIP E XPENSES IS UPON THE ASSESSEE, WHICH IT HAS NOT BEEN ABLE TO DO. THE REQUIREMENTS FOR ALLOWABILITY OF EXPENSES OF TH ESE KIND ARE THAT THESE ARE TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. NO MATTE R WHO HAD GONE FOR THE TRIP, WHETHER HE WAS AN EMPLOYEE O R NOT, IF ASSESSEE WOULD HAVE BEEN ABLE TO PROVE WITH EVID ENCES THAT THE TRIP WAS FOR BUSINESS PURPOSES THE EXPENSE S WOULD HAVE BEEN ALLOWABLE. THE ASSESSEE KEPT ON SA YING THAT THE EXPENSES WERE INCURRED FOR BUSINESS PURPOS ES, BUT HAS NOT BEEN ABLE TO SUBSTANTIATE THE SAME WITH DOCUMENTARY EVIDENCE. IN SUCH CIRCUMSTANCES, WE AR E NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LEAR NED CIT (APPEALS). THE GROUND IS DECIDED AGAINST THE ASSES SEE. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.773/CHD/2015 IS ALLOWED AND THE APPEAL IN ITA NO.774/CHD/2015 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF FEBRUARY, 2016. SD/- SD/- (H.L. KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 11 TH FEBRUARY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH