Kailash Motors Co., Kanpur V. Income Tax Officer-2(2), Kanpur

ITA 86/LKW/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4412 (ITAT-LUCKNOW)
• Duration Of Justice: 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-05-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 29-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAKESH GARG SHRI AMIT NIGAM
• Keywords: Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCHA, LUCKNOW BEFORE SHRI. P. K. BANSAL, ACCOUNTANT MEMBER AND SHRI ABY T VARKEY, JUDICIAL MEMBER ITA NO.86/LKW/2016 ASSESSMENT YEAR:2003-04 KAILASH MOTORS CO. 84/105, G.T. ROAD KANPUR V. ITO-2(2) KANPUR TAN/PAN:AAACK5542L (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAKESH GARG, ADVOCATE RESPONDENT BY: SHRI AMIT NIGAM, D.R. DATE OF HEARING: 26 05 2016 DATE OF PRONOUNCEMENT: 08 06 2016 O R D E R PER P.K. BANSAL, A.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A), DATED 1.12.2015 BY TAKING THE FOLLOWING GROUNDS OF APPEAL:- 1. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF RS.1 ,50,000/- ON ACCOUNT OF REBATE/COMMISSION PAID ON SALE OF SCOOTER AND THREE WHEELERS, WHICH ADDITION IS AR BITRARY, WITHOU T ANYT5ASIS AND BE DELETED. 2. BECAUSE THE ENTIRE REBATE/COMMISSI ON PAID ON SALE OF SCOOTER AND THREE WHEELERS BEING DUL Y VOUCHED AND SUPPORTED BY RECEIPTS AND/OR ACKNOWLEDGMENTS , THERE WAS NO REASON FOR THE CIT(A) TO UPHOLD THE ADDITION OF RS.1,50,000/-, THE ADDITION MADE IS CONTRARY TO FA CTS AND BE DELETED. :-2-: 3. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF RS.2,28,000/- OUT OF INTEREST ACCOUNT BEING RELATABLE TO INVESTMENT IN FLAT AT VIMA BIHAR TREATING THE INTEREST PAID AS FOR NON BUSINESS PURPOSES. 4. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF RS.1,50,115/- OUT OF INTEREST ACCOUNT BEING RELATABLE TO INVESTMENT IN STERLI NG RESORTS INDIA LTD. TREATING THE INTEREST PAID AS FOR NON BUSINESS PURPOSES. 5. BECAUSE THE CIT(A) HAS FAILED TO APPRECIATE THE EXPLANATION AND SUBMISSIONS THAT NO INVEST MENT HAS BEEN MADE BY THE ASSESSEE IN THE FIATS VIMA BI HAR AND STERLING REPORTS, WHICH INVESTMENTS WERE RECOVERED AGAINS T, DEBITS DUE FROM PERSONS, AND AS SUCH NO PART OF INTEREST SHOULD OUGHT TO HAVE BEEN DISALLOWED. 6. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN ISSUING DIRECTIONS UNDER SECTION 150(1) OF THE ACT READ WITH SECTION 153(3)(II) FOR MAKING DISALLOWANCES IN THE EARLIER YEARS, IN RESPECT OF INTEREST, WHICH DIRECTIO NS ARE CONTRARY TO FACTS, BAD IN LAW AND BE EXPUNGED AND DELETED. 7. BECAUSE THE CIT(A) HAS ERRE D ON FACTS AND IN LAW NOT APPRECIATING THE FACTS THAT THE SI MILAR QUERY REGARDING INTEREST AND ITS ALLOWABILITY BEING RAISED IN THE PRECEDING YEAR WHICH DULY EXPLAINED WAS ACCEPTED THE PRINCIPLE OF CONSISTENCY IS APPLICABLE AND NO DISALLOWANCE SHOULD HAVE BEEN MADE. 2. GROUNDS NO.1 AND 2 RELATE TO UPHOLDING THE DISALLOWANCE OF RS.1.50 LAKHS. :-3-: 3. THE FACTS RELATING TO THE SAID DISALLOWANCE ARE THAT THE ASSESSING OFFICER NOTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAS DEBITED A SUM OF RS.5,99,133/- TOWARDS REBATE AND COMMISSION DETAILED AS UNDER:- 1) REBATE AND COMMISSION PAID TO EMPLOYEES RS.2,47,415/- 2) REBATE AND COMMISSION TO BROKERS RS.26,775/- 3) REBATE AND COMMISSION TO PARTIES RS.3,24,943/- RS.5,99,133/- 4. THE ASSESSING OFFICER ASKED TH E NAME AND ADDRESS OF THE PERSONS TO WHOM REBATE AND COMMIS SION HAS BEEN PAID. THE ASSESSEE FURNISHED THE NAME AND ADDRESS OF THE ENTITIES, TO WHOM THE COMMISSION HAS BEEN PAID. THE ASSE SSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAS NOT SUBMITTED THE NA ME AND ADDRESS OF THE PERSONS, THEREFORE, HE DISALLOWED 50% OF THE EXPENSES AMOUNTING TO RS.2,99,567/-. 5. THE ASSESSEE WENT IN APPEAL BE FORE THE LD. CIT(A). THE LD. CIT(A), AFTER EXAMINING THE BILLS A ND VOUCHERS, REDUCED THE DISALLOWANCE TO RS.1.50 LAKHS. 6. WE HAVE HEARD THE RIVAL SUBM ISSIONS AND GONE THROUGH THE ORDERS OF THE TAX AUTHORIT IES BELOW. WE AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE IS DEALING IN BAJAJ SCOOTERS, FOR WHICH THERE IS A COMPET ITION IN THE MARKET. THE ASSESSEE IS BOUND NOT TO SELL THE SCOOTERS AT A PREDETERMINED PRICE GIVEN BY THE BAJAJ AUTO LIMITED. THE ASSESSEE, TO ACHIEVE THE TARGET, HAD TO GIVE COMMISSION TO THE EMPLOYEES AND BROK ERS. NOT ONLY THIS, THE ASSESSEE HAS TO GIVE DISCOUNT TO THE PURCHASER OF THE SCOOTERS AND WHENEVER SUCH DISCOUNT IS GIVEN, CHE QUE IS ISSUED IN FAVOUR OF THE CUSTOMER. THE ASSESSEE RAISED BILL FOR TH E FULL AMOUNT BUT DEBI TED THE DISCOUNT UNDER :-4-: THE HEAD REBATE AND CO MMISSION TO THE PARTIES . THE COMMISSION TO THE STAFF AND BROKERS ARE GIVEN ON PER PIECE BASIS. THE ASSESSEE HAS SUBMITTED COMPLETE DETAILS OF THE NA MES, ETC. OF THE PARTIES TO WHOM COMMISSION HAS BEEN GIVEN. WE NOTE D THAT THE LD. CIT(A) CONFIRMED THE DISALLOWANCE ON AD HOC BASIS, AS THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS ON THE HIGHER SIDE. THE EXPENDITURE, IN OUR OPINION, HAS BEEN INCURR ED FOR THE PURPOSE OF BUSINESS AND DURING THE COURSE OF BUSINESS. THE BUSIN ESS EXPEDIENCY DEMANDS SUCH EXPENDITURE TO BE INCURRED. WE, THEREF ORE, DELETE THE SAID DISALLOWANCE. THUS GROUNDS NO.1 A ND 2 STAND ALLOWED. 7. GROUNDS NO.3 AND 4 RELATE TO TH E DISALLOWANCE OF INTEREST BY THE ASSESSING OFFICER FOR A SUM OF RS.2.28 LAKHS AND RS.1,50,115/-. 8. THE FACTS RELATING TO BOTH THE DISALLOWANCES ARE THAT THE ASSESSING OFFICER NOTED TH AT THE ASSESSEE HAD MADE INVESTMENT IN FLAT AT BIMA VIHAR AMOUNTING TO RS.19 LAKHS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THIS INVESTME NT DOES NOT HAVE ANY RELEVANCE TO THE BUSINESS OF THE ASSESSEE AND THE SAID FLAT HA S BEEN GIVEN TO SHRI PREM PRAKASH GUPTA CLAIMED TO BE A DEVELOPMENT O FFICER OF INSURANCE COMPANY. THE ASSESSING OFFICER DID NOT AGREE WITH TH E PLEA OF THE ASSE SSEE THAT SHRI PREM PRAKASH GUPTA IS PROV IDING GOOD FACILITY TO THE ASSESSEE-FIRM IN RESPECT OF INSURANCE DONE BY IT. SHRI PREM PRAKSH GUPTA WAS NOT AN EMPLOYEE OF THE ASSESSEE, THEREFORE, THE ASSESSING OFFICER DISALLOWED A SUM OF RS.2.28 LAKHS CALCULATED @ 12% OF RS.19 LAKHS BY OBSERVING AS UNDER:- THE QUESTION OF ALLOWING INTEREST UNDER SECTION 36(1)(III) ARISES ONLY WHEN THERE IS AN INTENT FO R DOING SOME KIND OF BUSINESS. ASSESSEE HAS MADE INVESTMENT IN THE FLAT, NO INCOME WHATSOEVER HAS BEEN RECEIVED FROM THE INVESTMENT OF FLAT AMOUNTING TO RS.19 LAKHKS. THE INVESTMENT IS THER EFORE, TREATED FOR NON-BUSINESS :-5-: PURPOSE. ON THE OTHER HAND, THE ASSESSEE IS PAYING HEAVY INTEREST FOR OBTAINING DEPOSITS AN D FUNDS FROM VARIOUS PERSONS. HENCE, THE PROPORTIONATE INTERE ST @ 12% ON RS.19 LAKHS I.E. RS.2.28 LAKHS IS BEING DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 9. SIMILARLY WE NOTED THAT THE AS SESSING OFFICER FOUND FROM THE BALANCE SHEET THAT THE ASSESSEE MA DE INVESTMENT IN STERLING HOLIDAY RESORTS LTD. FOR RS.12,50,960/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT THIS INVESTMENT IS NOT FOR THE PUR POSES OF BUSINESS AND, THEREFORE, HE DISALLOWED THE INTEREST AMOUNTI NG TO RS.1,50,115/- BY OBSERVING AS UNDER:- INVESTMENT MADE ON THE STERLING HOLIDAY RESORTS IS NOT FOR THE PURPOSE OF BUSINESS AND THEREFORE, THE INTEREST THEREON IS NOT ALLOWABLE WITHIN THE ME ANING OF SECTION 36(1)( III). ACCORDINGLY, THE INVESTMENT IN STERLING HOLIDAY RESORT LTD. AMOUNTING TO RS.12,50,960/- IS BEING TREATED AS INVESTMENT MADE FOR OTHER THAN BUSINESS PURPOSES. THUS PROPORTI ONATE INTEREST ON RS.12,50,960/- @ 12% I.E. RS.1,50,115/- IS BEIN G DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 10. THE ASSESSEE WENT IN APPEAL BE FORE THE LD. CIT(A). THE LD. CIT(A) CONFIRMED THE DISALLOWANCE. 11. AFTER HEARING THE RIVAL SUBMIS SIONS AND GOIN G THROUGH THE ORDERS OF THE TAX AUTHORITIES BELOW, WE NOTED THAT THIS IS NOT A CASE WHERE THE ASSESSEE HAS BORROWED MONEY AND HAS CLAIMED DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT IN RESPECT OF INTEREST PAID ON BORROWING. IT IS A CA SE WHERE THE ASSESSING OFFICER HIMSELF ASSUMED AS IF THE ASSESSEE HAS PAID INTEREST ON THE BORROWING AND ACCORDINGLY HE DISALLOWED INTEREST UNDER SECTION 36(1)(III) OF THE ACT. WHEN THE ASSESSEE HAS NOT CLAIMED ANY INTEREST WHILE COMPUTING ITS INCOME, NO :-6-: QUESTION OF ANY DISALLOW ANCE UNDER SECTION 36(1)(III) OF THE ACT ARISES. WE, THEREFORE, SET ASID E THE ORDER OF THE LD. CIT(A) AND DELETE THE DISALLOWANCE MADE IN RESPECT OF INTE REST AMOUNTING TO RS.2.28 LAKHS AND RS.1,50,115/-. THUS GROUNDS NO.3 AND 4 STAND ALLOWED. 12. GROUND NO.4 IS ARGUMENTATIVE A ND RELATES TO GROUNDS NO.3 AND 4, THEREFORE IT DOES NOT REQUIRE ANY ADJUDICATION. 13. GROUND NO.6 IS AGAINS T ISSUING OF DIRECT IONS UNDER SECTION 150(1) READ WITH 153(3)(II) OF THE ACT BY THE LD. CIT(A). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE NOTED THAT THE LD. CIT(A), WHILE DISALLOWING INTEREST UNDER SECTION 36(1)(III) OF THE ACT, ISSUED DIRECTION TO THE ASSESSING OFFICER UNDER SECTION 153(3) (II) OF THE ACT TO TAKE SUITABLE ACTION UNDER SECTION 150(1) OF THE ACT TO BRING INTE REST DISALLOWED WI THIN THE PURVIEW OF THE INCOME-TAX IN THE EARLIER ASSESSMENT YE ARS. SINCE WE HAVE ALREADY DELETED THE DISALLOWANCE, TH EREFORE, WE ARE BOUND TO REVERSE THE DIRECTIONS GIVEN BY THE LD. CIT(A) AND WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. THUS THIS GROUND STANDS ALLOWED. 15. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN TH E OPEN COURT ON 8.6.2016. SD/- SD/- [ABY T VARKEY] [P. K. BANSAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:8 TH JUNE, 2016 JJ:0306 :-7-: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR