Sh. Madan Lal Bassi, Ludhiana V. DCIT, Ludhiana

ITA 886/CHANDI/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1588 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 15-05-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 29-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: S C JAIN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 886/CHD/2017 ASSESSMENT YEAR: 2011-12 SH. MODAN LAL BASSI, VS. THE DCIT, CENTRAL CIRCLE- 2, C-106, PHASE-V, LUDHIANA FOCAL POINT, LUDHIANA PAN NO. ABFPB7839N (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S.C. JAIN, CA RESPONDENT BY : SH. MANJIT SINGH, SR.DR DATE OF HEARING : 12.07.2018 DATE OF PRONOUNCEMENT : 04.09. 2018 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 09.03.2017 OF THE COMMISSIONER OF I NCOME TAX(A)-5, LUDHIANA [HEREINAFTER REFERRED TO AS CIT(A)] 2. IN THIS APPEAL THE ASSESSEE HAS TAKEN THE FOLLOW ING GROUNDS OF APPEAL:- 1. THAT THE LD. CIT(A) HAS PARTLY DISALLOWED THE INTEREST U/S 36(I)(III) WITHOUT CONSIDERING THI S FACT THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE OWNED CAPITAL AND INTEREST FREE LOANS AND HAS NOT CONSIDERED THE JUDGMENTS ON THIS ISSUE, HENCE, THE DISALLOWANCE MADE U/S 36(I)(III) OF THE INCOME-TAX ACT, 1961. ITA NO. 886/CHD/2017- SH. MADAN LAL BASSI, LUDHIANA 2 2. THAT CIT(A) HAS NOT DELETED THE ADDITION / DISALLOWANCE OF RS. 19,89,342/- GIVEN TO SUNMAC BIKE PVT LTD AND SUCH ADDITION / DISALLOWANCE MAY PLEASE BE DELETED. 3. THAT THE CIT(A) HAS NOT ALLOWED THE EXPENDITURE OF RS. 21,06,000/- PAID TO WORKERS ON THE 25 TH ANNUAL ANNIVERSARY OUT OF TOTAL EXPENDITURE OF RS. 21,28,000/- INCURRED BY THE ASSESSEE UNDER THE WRONG NOTION OF LAW. THE EXPENSES OF RS. 21,06,000/-PAID TO WORKERS AS AWARD ON SILVER JUBILEE MAY PLEASE BE ALLOWED. 3. GROUND NOS. 1 & 2 : THE ASSESSEE THROUGH THESE GROUNDS OF APPEAL HAS AGITATED THE CONFIRMATION OF DISALLOWANC E OF RS. 19,89,342/- U/S 36(I)(III) OF THE INCOME-TAX ACT, 1 961 (IN SHORT 'THE ACT') IN RESPECT OF INTEREST FREE ADVANCES GI VEN TO M/S SUNMAC BIKE PVT. LTD. THE LD. CIT(A) HAS CONFIRMED THE AFORESAID DISALLOWANCE OBSERVING THAT THE ASSESSEE HAD USED INTEREST BEARING FUNDS TO ADVANCE THE AFORESAID LOA NS TO M/S SUNMAC BIKE PVT LTD. HE OBSERVED THAT THE ASSESSEE HAD FAILED TO PROVE THAT IT HAD ITS OWN RESERVES AND SURPLUSES / INTEREST FREE FUNDS AVAILABLE AT THE TIME OF ADVANCEMENT OF AFORE SAID LOANS. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS AN UNDERTAKING WHO IS RUNNING PROPRIETORSHIP CONCERN NAMELY SURAJ UDYOG. THE ASSESSEE IS ALSO DIRECTOR OF M/S SUNMAC BIKE PVT. LTD. THE ASSESSEE IS INVOLVED IN THE BUSINESS OF MANUFACTURING OF SPARE PARTS OF TWO WH EELERS FOUR WHEELERS AND THAT THERE WAS INTER SE DEPENDENCY BET WEEN THE ITA NO. 886/CHD/2017- SH. MADAN LAL BASSI, LUDHIANA 3 ASSESSEES PROPRIETORSHIP CONCERN AND THAT OF M/S SUNMAC BIKE PVT LTD. HE, THEREFORE, HAS STRESSED THAT THE ADVAN CES WERE MADE TO M/S SUNMAC BIKE PVT LTD OUT OF BUSINESS EXPEDIEN CY. THE LD. COUNSEL HAS ALSO FURTHER RELIED UPON THE CASH FLOW STATEMENT FOR THE YEAR UNDER CONSIDERATION SUBMITTING THAT THE AS SESSEE HAD THE AVAILABILITY OF ENOUGH INTEREST FREE FUNDS TO COVER THE AFORESAID ADVANCES MADE TO M/S SUNMAC BIKE PVT LTD. THE LD. C OUNSEL IN THE ALTERNATIVE HAS FURTHER SUBMITTED THAT EVEN OTH ERWISE SOME OF THE ADVANCES WERE MADE OUT OF THE O.D. LIMIT AGAINS T THE SECURITY DEPOSIT OF THE FDRS OF THE ASSESSEE WITH THE BANK A ND THAT THE DIFFERENCE BETWEEN INTEREST EARNED ON FDRS AND INTE REST PAID ON THE LOAN AMOUNT AT THE RATE OF @ 1% ONLY. THAT AT T HE MOST THE DISALLOWANCE OF INTEREST EXPENDITURE U/S 36(1)(III) OF THE ACT CAN BE ONLY @ 1% OF THE INTEREST AND NOT @ 12%, AS HAS BEEN MADE BY THE ASSESSING OFFICER. 5. BOTH THE LD. REPRESENTATIVES OF THE PARTIES HAVE FAIRLY SUBMITTED THAT THE ABOVE POINTS RAISED BY THE LD. C OUNSEL FOR THE ASSESSEE HAVE NOT BEEN LOOKED INTO BY THE LOWER AUT HORITIES WHILE MAKING /CONFIRMING THE AFORESAID DISALLOWANCE U/S 3 6(I)(III) OF THE ACT. IN VIEW OF THIS, THE IMPUGNED ORDER OF THE CIT(A) I S SET ASIDE TO THE EXTENT OF CONFIRMATION OF THIS DISALLO WANCE AND THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFF ICER TO EXAMINE THE AFORESAID CONTENTION RAISED BY THE ASSESSEE AND DECIDE THIS LIMITED ISSUE AFRESH IN ACCORDANCE WITH LAW. ITA NO. 886/CHD/2017- SH. MADAN LAL BASSI, LUDHIANA 4 6. GROUND NO.3: IN THIS GROUND THE ASSESSEE HAS AGITATED THE CONFIRMATION OF DISALLOWANCE OF RS. 21,06,000/- MAD E BY THE ASSESSING OFFICER ON ACCOUNT OF AMOUNT PAID TO WORK ERS ON 25 TH ANNUAL ANNIVERSARY OF THE CONCERN OF THE ASSESSEE. THE FACTS AS BROUGHT OUT BEFORE US ARE THAT ASSESSE E CELEBRATED THE 25 TH ANNIVERSARY OF ITS CONCERN ON 12.3.2011. A FUNCTION WAS ORGANIZED AND CERTAIN AMOUNTS AS INCEN TIVES TO THE OUTSTANDING WORKERS WHO HAVE COMPLETED 5 YEARS OF S ERVICE WITH THE ASSESSEES CONCERN WERE PAID TOTALLING TO RS. 2 1,06,000/-. THE LOWER AUTHORITIES HAVE DISALLOWED / CONFIRMED THE D ISALLOWANCE ON THIS ISSUE OBSERVING THAT THE ASSESSEE COULD NOT ES TABLISH THAT THE SAID EXPENDITURE WAS RELATED TO THE BUSINESS ACTIVI TY OF THE ASSESSEE. FURTHER, THAT THE ASSESSEE HAD SHOWN PAY MENT OF AMOUNT THROUGH CHEQUES, WHEREAS NONE OF THE CHEQUES WAS EN CASHED BY THE WORKERS, RATHER, THE AMOUNT WAS ALLEGEDLY DISBU RSED IN CASH AFTER THE END OF THE FINANCIAL YEAR. THE LD. CIT(A) IN THIS RESPECT OBSERVED THAT THE DISBURSING OF CHEQUES ON THE DAY OF FUNCTION SEEMED TO BE AN AFTERTHOUGHT OF THE ASSESSEE TO BOO K THE EXPENDITURE DURING THIS YEAR AGAINST THE INCOME EAR NED TO AVOID TAX LIABILITY. HE FURTHER OBSERVED THAT EVEN OTHERW ISE AS PER THE PROVISIONS OF SECTION 43B, EXPENDITURE WAS REQUIRED TO BE ALLOWED IN THE YEAR IN WHICH IT WAS ACTUALLY PAID. HENCE, H E CONFIRMED THE AFORESAID DISALLOWANCE OF EXPENDITURE FOR THE YEA R UNDER CONSIDERATION. ITA NO. 886/CHD/2017- SH. MADAN LAL BASSI, LUDHIANA 5 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E ALSO GONE THROUGH THE RECORD. ADMITTEDLY, A FUNCTION WAS ORGANIZED ON 12.03.2011 I.E. A FEW DAYS EARLIER TO THE CLOSE OF THE FINANCIAL YEAR. THE ASSESSEE HAS PLACED ON RECORD AFFIDAVITS OF ALL THE WORKERS WHEREIN THEY HAVE DEPOSED THAT THEY HAVE AC TUALLY RECEIVED THE CHEQUES ON THE DATE OF FUNCTION. HOWEV ER, THEY INSISTED FOR THE PAYMENT OF AMOUNT IN CASH WHICH WA S DISPERSED TO THEM AFTER SOME PERIOD AND BY THE TIME, THE FINANCI AL YEAR WAS CLOSED. IT IS ALSO NOT DISPUTED THAT SUCH TYPE OF A NNUAL ANNIVERSARY FUNCTION WAS ORGANIZED BY THE ASSESSEE EVERY YEAR, HENCE, ORGANIZING OF THE ABOVE ANNUAL ANNIVERSARY FUNCTION ON THE SAID DATE IS NOT BE DOUBTED. EVEN THERE IS NO DOUBT RAIS ED BY THE LOWER AUTHORITIES THAT IT WAS THE 25TH / SILVER JUBILEE A NNIVERSARY OF THE ASSESSEES CONCERN. FURTHER, THE PHOTOGRAPHS OF TH E FUNCTION AND THE AFFIDAVITS OF THE EMPLOYEES PROVE ON THE FILE T HAT THE CHEQUES WERE ACTUALLY DISPERSED ON THE DATE OF FUNCTION. I T IS ALSO NOT DOUBTED ON THE FILE THAT THE AMOUNT HAS BEEN ACTUAL LY PAID BY THE ASSESSEE TO THE WORKERS. FURTHER, IT IS NOT THE CA SE OF THE REVENUE AUTHORITIES THAT THE FUNDS WERE NOT AVAILABLE IN TH E ACCOUNTS OF THE ASSESSEE TO MEET THE CHEQUE AMOUNT. MERELY BECAUSE THE WORKERS DID NOT ENCASH THE CHEQUES BUT INSISTED THAT THE AM OUNT BE PAID IN CASH AND BY THE TIME, THE FINANCIAL YEAR WAS CLOSE D, THAT IN OUR VIEW, IS NOT SUFFICIENT TO HOLD THAT THE ASSESSEE HAD WRONGLY SHOWN THE DISBURSAL OF PAYMENT IN THE YEAR UNDER CO NSIDERATION. ITA NO. 886/CHD/2017- SH. MADAN LAL BASSI, LUDHIANA 6 8. CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE AFORESAID DISALLOWANCE 1OF EXPENDI TURE MADE BY THE LOWER AUTHORITIES IS NOT JUSTIFIED. IN VIEW OF THE ABOVE DISCUSSION, THIS ISSUE IS DECI DED IN FAVOUR OF THE ASSESSEE AND THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES ON THIS ISSUE IS ORDERED TO BE DELETED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 04.09.2018 SD/- SD/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 04.09.2018 RKK COPY TO: THE APPELLANT THE RESPONDENT THE CIT THE CIT(A) THE DR