The DCIT, Circle-2, Surat V. M/s. T.M. Patel Exports, Surat

ITA 897/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6044 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 26-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING: 4.06.10 DRAFTED ON:4.06.2010 ITA NO.897/AHD/2010 ASSESSMENT YEAR : 2006-2007 THE DCIT, CIRCLE-2, SURAT ROOM NO.110, 1 ST FLOOR, AAYKAR BHAVAN, MAJURA GATE, SURAT. VS. M/S. T.M.PATEL EXPORTS X-1147, SURAT TEXTILE MARKET, RING ROAD, SURAT. PAN/GIR NO. : AACFG7304D (A PPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI C.K.MISHRA SR. D.R. RESPONDENT BY: NONE O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, SUR AT DATED 04.12.2009. 2. THE APPEAL FILED BY THE REVENUE IS TIME BARRED B Y THREE DAYS. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS EXPLAIN ED THE REASON FOR DELAY VIDE HIS LETTER NO.SR.AR/TMPE/DBENCH/20 10-11 DATED 04.06.2010 THAT DUE TO PRESSURE OF COLLECTION WORK FOR THE FINANCIAL YEAR ENDING AND DISLOCATION OF FILE, THE APPEAL COU LD NOT BE FILED IN - 2 - TIME. THEREFORE, IT WAS REQUESTED THAT THE DELAY IN FILING OF THE APPEAL MAY BE CONDONED. 3. THE BENCH AFTER CONSIDERING THE EXPLANATION FOR DELAY IN FILING OF THE APPEAL AS EXPLAINED IN THE LETTER BY THE LEA RNED DEPARTMENTAL REPRESENTATIVE WAS OF THE VIEW THAT THE REASON FOR DELAY WAS A PLAUSIBLE ONE AND CONDONED THE DELAY AND ADMITTED T HE APPEAL FOR HEARING. 4. NOTICE OF HEARING WAS SENT TO THE RESPONDENT ASS ESSEE BY REGISTERED POST WITH ACKNOWLEDGEMENT DUE ON 13.05.2 010 AND THE SAME WAS SERVED ON 17.05.2010 AS EVIDENCED BY THE ACKNOWLEDGEMENT CARD OF THE POST OFFICE PLACED ON R ECORD. WHEN THE CASE WAS CALLED FOR HEARING, NONE WAS PRESENT O N BEHALF OF THE ASSESSEE AND NEITHER ANY ADJOURNMENT APPLICATION WA S FILED. THE BENCH WAS OF THE VIEW THAT THE APPEAL CAN BE DISPOS ED OFF IN THE ABSENCE OF THE RESPONDENT ASSESSEE AND THEREFORE, P ROCEEDED TO HEAR THE APPEAL EX-PARTE QUA THE RESPONDENT ASSESSEE AND TO DECIDE THE APPEAL CONSIDERING THE ARGUMENTS OF THE LEARNED DEP ARTMENTAL REPRESENTATIVE AND THE MATERIAL AVAILABLE ON RECORD . 5. THE GROUND NO.1 TAKEN BY THE REVENUE IN THIS APP EAL READS AS UNDER:- 1) ON THE FACTS AND CIRCUMSTANCE OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION MADE BY THE AO OF RS. 6,98,923/- ON ACCOUNT OF DISALLOWING FOREIGN AGENT COMMISSION. - 3 - 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS HELD AS UNDER:- THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE ACIT, CIR-2 SURAT PASSED U/S. 143(3) OF THE I. T. ACT ON 26.12.2008. THERE ARE TWO GROUNDS OF APPEAL, PERTAI NING TO THE DISALLOWANCE OF FOREIGN COMMISSION AND THE ESTIMATION OF INTEREST ON THE DEBIT BALANCE IN THE CAPITAL ACCOUNT OF ONE OF THE PARTNERS. 2. SHRI DENNIS CHOKSI, C. A. & AUTHORISED REPRESENTATIVE (AR), APPEARED ON BEHALF OF THE ASSE SSEE AND PRESENTED ITS CASE ALONG WITH A WRITTEN SUBMISS ION. GROUND NO.L 3. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS CONTESTED THE DISALLOWANCE OF FOREIGN AGENCY COMMISSION OF RS.6,98,923. DECISION 4. THE AO HAS DISALLOWED THE COMMISSION ON T HE SAME GROUNDS AS IN THE YEARS. THE GROUNDS TAKEN BY THE AR IN AGITATING THE ASSESSEE'S CASE HAVE ALSO REMAI NED THE SAME. WHILE DECIDING THE ASSESSEE'S APPEAL FOR THE AY 2004-05 VIDE MY ORDER DATED 28.2,2008 IN CAS/II/480/06-07, I HAVE DISCUSSED THE ISSUE CONCER NING THE ALLOWABILITY OF SUCH FOREIGN COMMISSION IN SUBSTANTIAL DETAIL, AND I HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, AND HAVE FOLLOWED THE SAME WHILE DECIDING THE APPEAL FOR THE A.Y. 2005-06. SINCE THE FACTS OF THE CASE HAVE VIRTUALLY REMAINED THE SAME INCLUD ING THE BUYERS AS ALSO THE AGENTS, AND SINCE THE GROUND S TAKEN BY THE AO HAVE REMAINED IDENTICAL AS ALSO THE GROUNDS TAKEN BY THE AR ON BEHALF OF THE ASSESSEE, I HAVE ABSOLUTELY NO HESITATION IN RELYING ON MY FIND INGS AND CONCLUSIONS IN THE ASSESSEE'S OWN CASE IN THE A YS 2004-05 AND 2005-06. FOLLOWING MY DECISION IN THOSE YEARS, I HOLD THAT THE COMMISSION PAID ON EXPORTS T O THE AGENTS BASED ABROAD, TO THE EXTENT OF RS.6,98,923, COULD NOT HAVE BEEN TREATED AS INCOME OF THE ASSESSEE FOR THE YEAR. THE AO IS THEREFORE DIRECTED TO DELETE THE SA ID ADDITION. - 4 - 7. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENT ATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE I NSTANT CASE, WE FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) DELETED THE ADDITION OF RS.6,98,923/- MADE BY THE LEARNED ASSES SING OFFICER ON ACCOUNT OF FOREIGN AGENTS COMMISSION BY FOLLOWING H IS ORDER PASSED IN THE CASE OF THE ASSESSEE ITSELF FOR THE ASSESSME NT YEAR 2004-05 AND 2005-06. THE LEARNED DEPARTMENTAL REPRESENTATIV E COULD NOT BRING ANY MATERIAL BEFORE US TO SHOW WHY THE ORDER PASSED IN THE CASE OF THE ASSESSEE ITSELF BY THE LEARNED COMMISSI ONER OF INCOME TAX(APPEALS) FOR THE ASSESSMENT YEARS 2004-05 AND 2 005-06 SHOULD NOT HAVE BEEN FOLLOWED BY THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) DURING THE YEAR UNDER CONSIDERA TION. NO DISTINGUISHABLE FACTS OR LAW WAS POINTED OUT. FURTH ER, THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO COULD NOT BRING AN Y MATERIAL ON RECORD TO SHOW THAT THE ORDERS PASSED BY THE LEARNE D COMMISSIONER OF INCOME TAX(APPEALS) IN THE ASSESSMENT YEARS 2004 -05 AND 2005-06 WERE NOT ACCEPTED BY THE REVENUE AND WAS FU RTHER CHALLENGED BEFORE ANY HIGHER AUTHORITY. IN THE ABOV E CIRCUMSTANCES, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IT IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 8. THE GROUND NO.2 TAKEN BY THE REVENUE IN THIS APP EAL READS AS UNDER:- 2) ON THE FACTS AND CIRCUMSTANCE OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION OF RS. 1,03.290/- BEING INTEREST @12% ON DEBIT BALANCE OF THE PARTNERS CAPITAL ACCOUNT. - 5 - 9. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS HELD AS UNDER:- GROUND NO.2 6. THIS GROUND OF APPEAL PERTAINS TO THE ADDITION O F A SUM OF RS.1,03,290 BEING INTEREST @ 12% ON THE DEBI T BALANCE OF RS.8,60,757 IN THE CAPITAL ACCOUNT OF ON E OF THE PARTNERS OF THE ASSESSEE-FIRM. VIEW TAKEN BY THE ASSESSING OFFICER (A.O): 7. THE AO NOTED THAT IN THE CAPITAL ACCOUNT OF SHRI HARISH T. PATEL, THERE WAS A DEBIT BALANCE OF RS.8, 60,757 ON WHICH NO INTEREST HAD BEEN CHARGED BY THE ASSESS EE. ON THE OTHER HAND, INTEREST HAD BEEN PAID ON SECURE D AND UNSECURED LOANS. ACCORDING TO THE AO, THE BORROWING S BY THE SAID PARTNER FROM OUT OF THE FIRM'S FUNDS WH ICH COMPRISED OF SUCH INTEREST BEARING BORROWINGS, COUL D NOT BE RULED OUT. SINCE, THE ASSESSEE WAS UNABLE TO FUR NISH ANY PLAUSIBLE EXPLANATION IN THIS REGARD, THE AO AP PLIED THE INTEREST RATE OF 12% ON SUCH DEBIT BALANCE AND TREATED THE RESULTANT SUM OF RS.1,03,290 AS THE ASSESSEE'S INCOME. SUBMISSIONS OF THE ASSESSEE: 8. IN THE WRITTEN SUBMISSION, IT HAS BEEN CONTENDED BY THE AR THAT THERE WAS AN OVERALL CREDIT BALANCE OF RS.63,68,301 IN THE CAPITAL ACCOUNTS OF THE OTHER PARTNERS. ONLY IN THE ACCOUNT OF SHRI HARISH T. PAT EL, THERE WAS A DEBIT BALANCE OF RS.8,60,757. THEREFORE , NO NOTIONAL INCOME COULD BE COMPUTED IN RESPECT OF THE DEBIT BALANCE IN THE ACCOUNT OF ONLY ONE OF THE PAR TNERS, RELIANCE HAS BEEN PLACED BY THE AR ON THE CASE OF TORRENT FINANCERS VS. ACIT(2001) 73 TTJ 624 (AHD.), WHERE IT HAS BEEN HELD THAT IF THE TOTAL INTEREST-F REE ADVANCES INCLUDING THE DEBIT BALANCES OF PARTNERS D O NOT EXCEED THE TOTAL INTEREST-FREE FUNDS AVAILABLE WITH THE FIRM, NO INTEREST IS DISALLOWABLE ON ACCOUNT OF UTI LISATION OF SUCH FUNDS FOR NON-BUSINESS PURPOSES. IT HAS THE REFORE BEEN ARGUED THAT NO ADDITION COULD BE MADE BY THE A O ON THIS, ACCOUNT. - 6 - DECISION 9. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. I FIND THAT THE AO MADE THE DISALLOWANCE IN A VERY SUMMARY MANNER. THERE IS NO EVIDENCE IN THE ASST. ORDER TO SHOW WHETHER ANY OPPORTUNITY WAS PROVIDED TO THE ASSESSE E: TO EXPLAIN ITS CASE, AND IF SO, WHAT WAS THE EXPLAN ATION FURNISHED. IT HAS BEEN CLAIMED BY THE AR THAT THE A O'S ATTENTION WAS DRAWN TO THE DECISION OF THE ITAT(SUP RA) IN COURSE OF THE ASST. PROCEEDINGS. HOWEVER, THERE IS NO MENTION OF THE CASE-LAW IN THE BODY OF THE ASST. OR DER. THE POINT TO NOTE IS THAT, THE ASSESSEE HAD MORE TH AN SUFFICIENT INTEREST-FREE FUNDS AVAILABLE AT ITS DIS POSAL. ON THE OTHER HAND, IT WAS NOT ESTABLISHED BY THE AO TH AT THERE WAS ANY NEXUS BETWEEN THE INTEREST-BEARING BORROWINGS AND THE DRAWINGS BY THE SAID PARTNER, GI VEN SUCH FACTS AND CIRCUMSTANCES OF THE CASE, I HAVE NO OTHER OPTION BUT TO TAKE THE VIEW THAT THE ADDITION WAS N OT CALLED FOR. THE AO IS THEREFORE DIRECTED TO DELETE THE ADDITION OF RS.1,03,290. 10. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESEN TATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LEA RNED ASSESSING OFFICER OBSERVED THAT THERE WAS DEBIT BALANCE OF RS .8,60,757/- IN THE PARTNERS ACCOUNT NAMELY SHRI HARISH T.PATEL AND I NTEREST WAS PAID BY THE ASSESSEE ON SECURED LOANS AND UNSECURED LOAN S AND NO INTEREST IS CHARGED ON THE AFORESAID DEBIT BALANCE IN THE A CCOUNT OF PARTNER. THE LEARNED ASSESSING OFFICER THEREFORE, CALCULATED THE INTEREST ON THE DEBIT BALANCE IN THE ACCOUNT OF THE PARTNER AT RS.1,03,290/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 11. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVING THAT INTEREST FREE FUND BY WAY OF CREDIT BALANCES IN OTHER PARTNERS ACCOUNT WAS MUCH MORE THAN THE DEBIT BALA NCE IN THE - 7 - ACCOUNT OF ONE PARTNER SHRI HARISH T. PATEL DELETED THE ADDITION OF RS.1,03,290/-. THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) FOLLOWED THE DECISION OF THIS TRIBUNAL IN THE CASE OF TORRENT FINANCERS VS. ACIT (2001) 73 TTJ 624 (AHD). 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE LEARNED ASSESSING OFFICER. 13. WE FIND THAT NO MATERIAL WAS BROUGHT ON RECORD BY THE REVENUE TO SHOW ANY ERROR IN THE FINDING OF THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS) TO THE EFFECT THAT DEBIT BALANC E WAS ALLOWED TO A PARTNER AGAINST THE CREDIT BALANCE OF MUCH MORE A MOUNT AVAILABLE IN THE NAMES OF OTHER PARTNERS IN RESPECT OF WHICH NO INTEREST WAS PAID BY THE FIRM TO THE PARTNERS. THUS, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS). IT IS CONFIRMED AND THE GROUN D OF APPEAL OF THE REVENUE IS DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON THIS 11 TH DAY OF JUNE, 2010. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; ON THIS 11 TH DAY OF JUNE, 2010 PARAS - 8 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-II, SURAT. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 04.06.2010 -------------- ----- 2. DRAFT PLACED BEFORE AUTHORITY 07.06.2010 ---- --------------- 3. DRAFT PROPOSED & PLACED 07.06.2010 ----------- -------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 07.06.2010 ---------- --------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 08.06.2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 11.06.2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 11.06.2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- -----------------