ALPANA DYE-CHEM, MUMBAI V. ITO 19(3)(1), MUMBAI

ITA 8602/MUM/2011

• Counselvise Citation: 860219914 RSA 2011
• Duration Of Justice: 2 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 26-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 20-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASGAR JAIN
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI R.C. SHARMA, (AM) AND SANJAY GARG, (JM) . . , , , ./I.T.A. NO.8602/MUM/2011 ( / ASSESSMENT YEAR : 2006-07) ALPANA DYE-CHEM, 505, CORPORATE CENTRE, NIRMAL LIFE STYLE, LBS MARG, MULUND (W), MUMBAI-400080 / VS. INCOME TAX OFFICER 19(3)-1 MUMBAI. ( / APPELLANT) .. ( ! / RESPONDENT) ./ ' ./PAN/GIR NO. :AAGFA8091H # / APPELLANT BY SHRI DEVENDRA JAIN ! $ # /RESPONDENT BY SHRI ASGAR JAIN % & $ '( / DATE OF HEARING : 26.11.2014 )* $ '( /DATE OF PRONOUNCEMENT : 17.12..2014 / O R D E R PER R.C. SHARMA, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A) DATED 9.9.2011 FOR THE ASSESSMENT YEAR 2006-07 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSES SEE- : 1. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 2,13,587/- BEING INTEREST PAID ON BORROWED FUNDS WH ICH ARE UTILIZED FOR BUSINESS PURPOSE. 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT (A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS. 75000 U/S 40(A)(IA) WHICH ARE ACTUALLY SMALL AMOUNTS PAID TO DIFFERENT PERSONS. I.T.A. NO.8602/M/2011 2 3. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF 50% OF OFFICE RENT, SALARY AND TELEPHONE EXPENSES TO THE TUNE OF RS. 1,24,332/- 4. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT (A) HAS ERRED IN CONFIRMING ADDITION OF OUTSTAN DING EXPENSES AS ON 31.03.2005 TO THE EXTENT OF RS. 7,16,909 U/S 41(1) OF THE ACT INSPITE OF THERE BEING NO CESSATION OF LIABILITY. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTILE DYES. DURING THE COURSE OF SCRUTINY ASS ESSMENT THE AO FOUND THAT THE ASSESSEE HAS TAKEN INTEREST BEARING LOAN OF RS.17 ,20,426/- ON WHICH INTEREST OF RS.2,13,587/- WAS PAID. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOAN OF RS.64,34,743/-. THE AO DISALLOWED THE INTEREST CLAIM OF ASSESSEE U/S 36(1)(III) OF THE INCOME TAX ACT, 1961(THE ACT) ON THE PLEAS THAT ASSESSEE HAD USED INTEREST BEARING LOAN FOR ADVANC ING INTEREST FREE. IT WAS CONTENDED BY THE LD. AR THAT NO FRESH INTEREST BEA RING LOAN WAS TAKEN DURING THE YEAR. AS PER THE LD. AR INTEREST FREE FUND WAS AV AILABLE WITH THE ASSESSEE TO THE TUNE OF RS.73.83 LAKHS, WHICH WAS MORE THAN THE IN TEREST BEARING LOAN OF RS.64.34 LAKHS. ACCORDINGLY, THE PRESUMPTION WAS T O BE DRAWN IN FAVOUR OF THE ASSESSEE THAT NO INTEREST BEARING FUNDS WERE UTILIZ ED FOR NON BUSINESS PURPOSES., FOR THIS PURPOSE, RELIANCE WAS PLACED ON THE DECISI ON OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-T AX V. RELIANCE UTILITIES AND POWER LTD.. [2009] 178 TAXMAN 135 (BOM.). 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ERS OF LOWER AUTHORITIES. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE RECORD. WE FOUND FROM THE RECORD THAT DURING THE YEAR THE ASSE SSEE HAS GIVEN INTEREST FREE FUNDS TO ITS RELATIVES TO THE TUNE OF RS.13.94 LAKH S . HOWEVER, NO FRESH INTEREST FREE FUND WERE RECEIVED BY THE ASSESSEE DURING THE YEAR. THERE IS NO FINDING OF THE LOWER AUTHORITIES WITH REGARD TO THE QUANTUM OF INTEREST FREE FUND AND CAPITAL AVAILABLE WITH THE ASSESSEE. IN THE INTEREST OF JUS TICE AND FAIR PLAY AND IN THE LIGHT OF THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES I.T.A. NO.8602/M/2011 3 AND POWER LTD (SUPRA) WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE NEEDS PROPER VERIFICATION AT THE END OF THE AO. THEREFORE, WE S ET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF AO FOR FRES H DECISION. 6. THE AO HAS DISALLOWED THE ACCOUNTING CHARGES OF RS.75,000/- ON THE PLEA THAT NO TDS WAS DEDUCTED AT SOURCE U/S 40(A)(IA). THE CONTENTION OF THE LD. AR ARE THAT THIS AMOUNT WAS PAID TO THE FOUR PERSONS. PAYMENT TO EACH INDIVIDUAL WAS BELOW RS.20,000/-. THE LIST OF PERSONS TO WHO M THE PAYMENT WAS MADE WAS FILED BEFORE THE LD. CIT(A). WITHOUT COMMENTING ON DETAILS FILED BY THE ASSESSEE, CLAIM WAS DECLINED. WE FOUND THAT THE CIT(A) HAS NOT COMMENTED ON THE LIST OF PERSONS TO WHOM THE ASSESSEE HAS MAD E PAYMENT, NOR ANY REMAND REPORT WAS SOUGHT FROM AO.. TO VERIFY THE FA CTS, IT IS PROPER AND JUST TO RESTORE THIS ISSUE TO THE FILE OF THE AO FOR DECIDI NG THE ISSUE AFRESH. THE ASSESSEE IS ALSO DIRECTED TO FILE LIST OF PERSONS TO WHOM PA YMENT ON ACCOUNT OF A COUNTING CHARGES WAS PAID SO AS TO SUBSTANTIATE THAT THE AM OUNT SO PAID WAS BELOW THE LIMIT PRESCRIBED FOR TDS PURPOSE. WE DIRECT ACCORDI NGLY. 7. THE AO HAS ALSO DISALLOWED RS.1,65,776/- BEING 50% OF THE OFFICE RENT, SALARY AND TELEPHONE EXPENSES ON THE PLEA THAT THE 50% OF THE OFFICE PREMISES WAS USED BY SISTER CONCERN OF THE . 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE RECORD. WE FOUND THAT THE OFFICE PREMISES ARE USED BY THE A SSESSEE ALONG WITH SISTER CONCERNS M/S SUPRIYA DYE CHEM AND M/S NEEL INDUST RIES. THE EXPENSES INCURRED BY ALL THE THEE CONCERNS ARE AS UNDER : ALPANA DYE CHEM. (RS) NEEL INDUSTRIES (RS) SUPRIYA DEY CHEM. (RS.) SALARY 89,000 159,000 1,49,400 TELEPHONE 39,664 62,715 40,819 RENT 120,000 120,000 120,000 IT IS CLEAR FROM THE ABOVE CHART THAT THE EXPENSES HAVE BEEN INCURRED SEPARATELY, THEREFORE, NO DISALLOWANCE ON THE PRESUMPTION OF S HARING IS WARRANTED. WE DIRECT THE AO TO DELETE THE DISALLOWANCE SO MADE B Y HIM. I.T.A. NO.8602/M/2011 4 9. THE AO HAS MADE AN ADDITION U/S 41(1) OF THE AC T AMOUNTING TO RS.7,16,909/- IN RESPECT OF OUTSTANDING EXPENSES A S ON 31.3.2005 WHICH ARE AS UNDER : A) ACCOUNTING CHARGES : RS.2,88,000/-. B) OFFICE RENT : RS.3,90,000/- C) SUNDRY CREDITORS : RS.38,909/- AS PER THE LD. AR THE ABOVE AMOUNT WAS NOT PAID DUR ING THE YEAR DUE TO FINANCIAL CRISES. HOWEVER, MORE THAN 50% AMOUNT WAS PAID BE FORE FILING OF THE RETURN AND BALANCE AMOUNT WAS ALSO PAID IN THE SUBSEQUENT YEA R. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FO UND THAT THE PROVISIONS OF SECTION 41(1) ENVISAGES CESSATION OF LIABILITY FOR WHICH THE ASSESSEE HAS CLAIMED EXPENDITURE IN EARLIER YEARS. AS PER THE LD. AR, THERE WAS NO SECESSION OF LIABILITY AND THE AMOUNT OUTSTANDING WAS PAID IN T HE SUBSEQUENT YEARS. ONCE IT IS FOUND THAT THE AMOUNT SHOWN AS EXISTING LIABILITY AT THE END OF YEAR HAD BEEN PAID IN THE SUBSEQUENT YEAR, NO ADDITION IS WARRANT ED U/S 41(1). KEEPING IN VIEW, THE CONTENTION OF ASSESSEE THAT LIABILITIES W ERE PAID IN THE SUBSEQUENT YEAR, WE RESTORE THIS GROUND BACK TO THE FILE OF THE AO WITH A DIRECTION TO THE ASSESSEE TO SHOW ACTUAL PAYMENT OF THESE LIABILITI ES IN THE SUBSEQUENT YEARS. IF THE AO FOUND THAT THIS AMOUNTS WERE PAID IN THE SUB SEQUENT YEAR NO ADDITION IS WARRANTED U/S 41(1) OF THE ACT. WE DIRECT ACCORDIN GLY. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 17TH DEC , 2014. )* % 0 1 2 17TH DEC, 2014 * $ & 3 SD SD ( / SANJAY GARG) ( . . ,/ R.C. SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER % 5& MUMBAI : 17TH DEC,2014. . . ./ SRL , SR. PS I.T.A. NO.8602/M/2011 5 !'#$ %$&' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT. 3. % 6 ' ( ) / THE CIT(A)- CONCERNED 4. % 7' / CIT CONCERNED 5. 89 ': , ( : , % 5& / DR, ITAT, MUMBAI CONCERNED 6. ; <& / GUARD FILE. % / BY ORDER, TRUE COPY = (ASSTT. REGISTRAR) ( : , % 5& /ITAT, MUMBAI