M/s J.A.V. Traders, Ludhiana V. ITO, W-4(3), Ludhiana

ITA 891/CHANDI/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5330 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 15-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: YOGESH KUMAR SAXENA
• Section: 143(1)

Judgement Text

S , , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH , !' #! $ % , &' BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.891/CHD/2018 / ASSESSMENT YEAR : 2014-15 M/S JAV TRADERS, OVERLOCK ROAD, OPP. PANESAR MARKET, LUDHJIANA. THE INCOME TAX OFFICER, WARD 4(3), LUDHIANA. ./ PAN NO.AAJFJ7285M / APPELLANT / RESPONDENT /ASSESSEE BY : SHRI YOGESH KUMAR SAXENA ! / REVENUE BY : SMT.CHANDERKANTA, SR.DR '# $ /DATE OF HEARING : 17.01.2019 %&'(# /DATE OF PRONOUNCEMENT: 28.01.2019 &( /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, LUDHIANA (IN SHORT CIT(A) DATED 20.7 .2016 PASSED U/S 250(6) OF THE INCOME TAX AT, 1961 (HEREI NAFTER REFERRED TO AS ACT). 2. AT THE OUTSET, IT WAS POINTED OUT THAT THE ONLY ISSUE RAISED IN THE PRESENT APPEAL PERTAINED TO DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT. DRAWING OUR ATTENTION TO THE FACTS OF THE CASE FROM PARA 3 OF THE CIT(A)S ORDER, IT WAS STATED THAT TH E ASSESSEE FIRM WAS ENGAGED IN THE BUSINESS OF TRADIN G OF ITA NO.1050/CHD/2016 A.Y.2007-08 2 IRON & STEEL AND PLASTIC WINDOWS AND HAD FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING T HEREIN AN INCOME OF RS.4,89,090/- WHICH WAS STATED TO BE PROC ESSED UNDER SECTION 143(1) OF THE ACT AT THE RETURNED INC OME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER HAD NOTICED THAT THE ASSESSEE WAS MAKING IT S PURCHASES FOR TRADING FROM M/S BHAGWATI STEELS, FAR IDABAD. HE ALSO NOTICED THAT WHILE M/S BHAGWATI STEELS, FAR IDABAD, DURING THE YEAR UNDER CONSIDERATION HAD SHOWN NIL B ALANCE RECOVERABLE FROM THE ASSESSEE FIRM IN ITS BOOKS OF ACCOUNTS, THE ASSESSEE FIRM HAD SHOWN AN AMOUNT OF RS.92,83,8 02/- RECOVERABLE FROM M/S BHAGWATI STEELS, FARIDABAD IN ITS BOOKS OF ACCOUNT. WHEN THIS DISCREPANCY WAS CONFRON TED TO THE ASSESSEE, IT WAS CONTENDED THAT M/S BHAGWATI ST EELS, FARIDABAD HAD INADVERTENTLY ADJUSTED ADVANCE PAYMEN TS GIVEN TO IT BY THE ASSESSEE FOR PURCHASES, AGAINST PURCHASES MADE BY ITS SISTER CONCERN, NAMELY M/S J. V. STEELS DUE TO SIMILARITY OF NAMES. HOWEVER, THE EXPLANATION OFFER ED BY THE ASSESSEE FIRM WAS NOT FOUND TO BE SATISFACTORY BY T HE ASSESSING OFFICER, IN THE ABSENCE OF ANY DOCUMENTAR Y EVIDENCE AND AS SUCH HE TREATED AN AMOUNT OF RS.1,10,00,000/- AS INTEREST FREE ADVANCE TO M/S J. V. STEELS ALLEGEDLY OUT OF BORROWED FUNDS AND MADE AN ADDITIO N OF RS.2,36,382/- TO THE RETURNED INCOME OF THE ASSESSE E FIRM ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES TO THI S EXTENT. THE LD.CIT(A) UPHELD THE ORDER OF THE A.O. HOLDING THAT THE ASSESSEE HAD BEEN UNABLE TO SUBSTANTIATE ITS CLAIM THAT THE ADVANCE MADE TO M/S BHAGWATI STEELS WAS IN THE COUR SE OF ITA NO.1050/CHD/2016 A.Y.2007-08 3 CARRYING OUT ITS BUSINESS. RELEVANT FINDING OF THE CIT(A) AT PARA 6.2 OF HIS ORDER IS AS UNDER: 6.2 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSE SSING OFFICER AS MADE BY HIM IN THE ASSESSMENT ORDER WHIL E MAKING THE IMPUGNED ADDITION. I HAVE ALSO CONSIDERED WRITT EN SUBMISSIONS FILED BY THE ASSESSEE FIRM THROUGH ITS LE ARNED AR VIDE LETTER DATED 09.04.2018 ON THE ISSUE UNDER REFERENCE, I HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNC EMENTS RELIED UPON BY THE LEARNED AR OF THE ASSESSEE FIRM A S WELL AS OTHER MATERIAL PLACED BY HIM ON RECORD. ON CAREFUL CONSIDE RATION OF THE ASSESSMENT ORDER, IT HAS BEEN NOTICED THAT T HE ASSESSING OFFICER HAS MADE THE IMPUGNED ADDITION AS THE ASSES SEE FIRM COULD NOT FURNISH ANY DOCUMENTARY EVIDENCE TO SUBST ANTIATE ITS CLAIM THAT THE AMOUNT OF RS.1,10,00,000/- GIVEN BY IT IN ADVANCE FOR MAKING PURCHASES HAD INADVERTENTLY BEEN ADJ USTED BY M/S BHAGWATI STEELS, FARIDABAD AGAINST PURCHASES MADE BY ITS SISTER CONCERN. ON THE OTHER HAND, THE LEARN ED AR OF THE ASSESSEE FIRM HAD ALMOST IDENTICAL STAND AS WAS TAKE N DURING ASSESSMENT PROCEEDINGS. IT WAS ALSO SUBMITTED THAT ALTERNATIVELY THE ADVANCE MAY BE TREATED TO HAS BEEN MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSE E FIRM, THE DETAILS OF WHICH HAVE BEEN GIVEN IN THE WRITTEN SUBMISS IONS AS REPRODUCED ABOVE. ON CAREFUL CONSIDERATION OF TH E RIVAL CONTENTIONS, I AM ALSO OF THE OPINION THAT THE ASSES SEE FIRM COULD NOT ESTABLISH ITS CONTENTION WITH ANY DOCUMENT ARY EVIDENCE, ALTHOUGH SPECIFICALLY CALLED FOR DURING APPEL LATE PROCEEDINGS, THAT THE AMOUNT GIVEN BY IT HAS INADVE RTENTLY ADJUSTED BY M/S BHAGWATI STEELS, FARIDABAD AGAINST PURCHASES MADE BY ITS SISTER CONCERN EVEN DURING AP PELLATE PROCEEDINGS. THE ASSESSEE ALSO COULD NOT ESTABLISH I TS ALTERNATIVE CONTENTION THAT THE INTEREST FREE ADVAN CE HAS BEEN GIVEN OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE A SSESSEE FIRM AS THE TRADE ADVANCES CANNOT BEEN EQUATED WITH INTEREST FREE UNSECURED LOANS UNLESS AND UNTIL PROVED OTHERW ISE. MOREOVER, THE ADVANCES GIVEN TO THE ASSESSEE ARE FOR MAKING PURCHASES. THE ASSESSEE FIRM ALSO COULD NOT ESTABLI SH THAT ADVANCES RECEIVED FROM CUSTOMERS WERE AVAILABLE TO T HE ASSESSEE WHEN ADVANCE TO M S BHAGWATI STEELS, FARID ABAD WERE MADE. THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE ASSESSEE FIRM ARE DISTINGUISHABLE ON FACTS AND AS SUCH HAVE NO APPLICATION IN THE CASE OF THE ASSESSEE FIRM. UNDER SUCH CIRCUMSTANCES, THE ACTION OF THE ASSESSING OFFICER I N MAKING AN ADDITION OF RS.2,36,382/- IN THIS CASE ON ACCOUNT O F DISALLOWANCE OF INTEREST EXPENSES BY TREATING AN AM OUNT OF RS. 1,10,00,000/- AS INTEREST FREE ADVANCE TO ITS SISTER CON CERN ALLEGEDLY OUT OF BORROWED FUNDS CANNOT BE SAID TO BE J USTIFIED. HAVING SAID SO. THE ADDITION OF RS.2,36,382/- MADE BY T HE ASSESSING OFFICER IN THIS CASE IS. THEREFORE. UPHELD. IN THE RESULT, THE GROUND NO. 2 OF APPEAL TAKEN BY THE ASS ESSEE FIRM IS DISMISSED. ITA NO.1050/CHD/2016 A.Y.2007-08 4 3. AGGRIEVED BY THE SAME, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US RAISING FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED BOTH ON THE FACTS AND LAW BY UP-HO LDING THE ADDITION OF RS.2,36,382/- MADE BY THE A.O ON ACCOUN T OF DISALLOWANCE OF INTEREST. THE AO HAS WRONGLY HELD THAT THE APPELLANT-ASSESSE E HAD GIVEN INTEREST FREE ADVANCE OF RS.1,10,00,000/- TO M/S. BHAG WATI STEELS, FARIDABAD OUT OF THE INTEREST BEARING BORROWE D FUNDS. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE APPE LLANT- ASSESSEE HAD GIVEN ADVANCE OF RS.1,10,00,000/- TO T HE AFORESAID FIRM FOR PURCHASE OF IRON AND STEEL PRODU CTS, IN NORMAL COURSE OF THEIR DAY TO DAY BUSINESS. MOREOVE R, THE APPELLANT-ASSESSEE WERE HAVING SUFFICIENT INTEREST F REE FUNDS TO MAKE THE AFORESAID ADVANCE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW BY HOLDIN G THAT RS.1,10,00,000/- WAS GIVEN AS INTEREST FREE ADVANCE TO ITS SISTER CONCERN VIZ. M/S BHAGWATI STEELS, WHEREAS THE APPELLANT/ASSESEE HAD BEEN MAKINGPURCHASES FROM THE AFORESAID CONCERN AS BUYER AND THERE EXISTS RELATION OF SELLER AND BUYER BETWEEN THE APPELLANT ASSESSEE AND THE SA ID FIRM. THE LD CIT(A) HAS THUS FAILED TO APPRECIATE THAT AD VANCE OF RS.1,10,00,000/- WAS MADE AGAINST PURCHASE OF GOODS ON ACCOUNT OF BUSINESS EXPEDIENCY AND HENCE NO DISALLOWA NCE OF INTEREST WAS CALLED FOR. 3. THE APPELLANT-ASSESSEE CRAVES TO ADD OR AMEND ON E OR ALL THE GROUNDS OF APPEAL, IF SO WARRANTED KEEPING IN VIE W OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. DURING THE COURSE OF HEARING BEFORE US, THE LD. COUNSEL FOR ASSESSEE STATED THAT ITS SOLE PRAYER WA S THAT THE DISALLOWANCE SO MADE BE DELETED ON ACCOUNT OF THE FACT THAT THE ASSESSEE HAD UTILIZED ITS OWN INTEREST FREE FUNDS FOR MAKING THE IMPUGNED ADVANCE S. THE LD. COUNSEL FOR ASSESSEE REITERATED THE CONTENT ION MADE BEFORE THE LOWER AUTHORITIES, THAT M/S BHAGWAT I STEELS WAS A PARTY FROM WHICH THE ASSESSEE WAS MAKI NG PURCHASES AND ON VARIOUS OCCASIONS, THE ASSESSEE HA D MADE ITA NO.1050/CHD/2016 A.Y.2007-08 5 PAYMENTS TO IT FROM ITS OVER DRAFT ACCOUNT WHICH M/ S BHAGWATI STEELS HAD INADVERTENTLY CREDITED TO THE A CCOUNTS OF IT TIS SISTER CONCERN WHICH WENT BY A SIMILAR NA ME OF M/S J.V. STEEL TRADERS. THE LD. COUNSEL FOR ASSESSEE PO INTED OUT THAT IMMEDIATELY AFTER MAKING PAYMENT TO M/S BHAGWA TI STEELS FROM THE OVER DRAFT ACCOUNT, THE SISTER CONC ERN HAD ADVANCED SAME AMOUNT TO THE ASSESSEE. OUR ATTENTION WAS DRAWN TO THE COPY OF BANK STATEMENT OF THE ASSESSEE REFLECTING THE SAID FACT AND PLACED AT PAPER BOOK P AGE NOS.22 TO 27 AND ALSO TO THE COPY OF ACCOUNTS OF IT S SISTER CONCERN,I.E M/S J.V. STEEL TRADERS IN THE BOOKS OF THE ASSESSEE, PLACED AT PAPER BOOK PAGE NOS. 28 AND 29. THE LD. COUNSEL FOR ASSESSEE, THEREFORE, CONTENDED THAT CLE ARLY THE INTEREST FREE FUNDS RECEIVED FROM ITS SISTER CONCER N M/S J.V. STEEL TRADERS HAD BEEN UTILIZED FOR MAKING THE IMPU GNED ADVANCES, CALLING FOR NO DISALLOWANCE OF INTEREST U /S 36(1)(III) OF THE ACT. THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT DESPITE POINTING OUT THE SAID FACTS TO THE LO WER AUTHORITIES, WHICH IS EVIDENT FROM THE SUBMISSIONS MADE BEFORE THE CIT(A) REPRODUCED AT PARA 6.1 OF HIS ORD ER, NO FINDING HAD BEEN GIVEN BY HIM IN THIS REGARD. IT WA S THEREFORE, PRAYED THAT THE MATTER BE RESTORED BACK TO THE CIT(A) TO BE DECIDED AFRESH AFTER GIVING HIS FINDIN G ON THE PLEADINGS OF THE ASSESSEE IN THIS REGARD. 5. THE LD. DR DID NOT OBJECT TO THE SAME. 6. IN VIEW OF THE ABOVE, SINCE IT IS AN ADMITTED FA CT THAT THE CIT(A) HAS NOT GIVEN HIS FINDINGS ON THE PLEADI NGS OF THE ITA NO.1050/CHD/2016 A.Y.2007-08 6 ASSESSEE THAT IT HAD USED INTEREST FREE FUNDS RECEI VED FROM ITS SIMILARLY NAMED SISTER CONCERN M/S J.V. STEEL T RADERS FROM WHICH THE IMPUGNED ADVANCE TO M/S BHAGWATI STE ELS HAD BEEN MADE, AND WHICH HAD BEEN DULY SUBSTANTIATE D BY FILING COPY OF BANK STATEMENT OF THE ASSESSEE AND C OPY OF ACCOUNT OF M/S J.V. STEEL TRADERS IN THE BOOKS OF T HE ASSESSEE, WE CONSIDER IT FIT TO RESTORE THIS ISSUE TO THE CIT(A) FOR ADJUDICATION AFRESH. WE DIRECT THE LD.CIT(A) TO CONSIDER AND VERIFY THE CONTENTIONS OF THE ASSESSEE IN THIS REGARD AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW. WE MAY ADD THAT THE ASSESSEE BE GIVEN DUE OPPORTUNITY OF H EARING IN THIS REGARD. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- ' #! $ % (SANJAY GARG ) (ANNAPURNA GUPTA) / JUDICIAL MEMBER &' / ACCOUNTANT MEMBER )' /DATED: 28 TH JANUARY, 2019 * ! * &) *+,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. - $ / CIT 4. - $ ( )/ THE CIT(A) 5. +./ 0 , #0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35' / GUARD FILE &) $ / BY ORDER, 6 ! / ASSISTANT REGISTRAR