RELIABLE ENGINEERING INDUSTRIES, Nagpur V. JCIT RG-8, Nagpur

ITA 91/NAG/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1641 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 11-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Assessee Lawyers: S C THAKAR; C J THAKAR

Judgement Text

1 ITA NO. 91/NAG/2013 . IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T. A. NO. 91 /NAG/2013 ASSESSMENT YEAR : 200 9 10. M/S RELIABLE ENGINEERING INDUSTRIES, JT. COMMISSIONER OF 56, CENTRAL AVENUE, NEAR DARSHAN TOWER, V/S. INCOME TAX, RANGE 8, NAGPUR. NAGPUR. PAN AADFR4034Q. APPELLANT RESPONDENT. APPELLANT BY : SHRI C.J. TH AKAR & SHRI S.C. THAKAR. RESPONDENT BY : SHRI NARENDRA KANE. DATE OF HEARING : 31 - 08 - 2015. DATE OF PRONOUNCEMENT : 24 TH SEPT. , 2015. O R D E R PER SHRI SHAMIN YAHYA, A.M . THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) 19, MUMBAI (CAMP OFFICE NAGPUR) DATED 11 12 2012 AND PERTAINS TO ASSESSMENT YEAR 2009 10. 2. THE FIRST ISSUE RAISED IS THAT THE LEARNED CIT(APPEALS) ERRED IN MAKING AN ADDITION OF ` 21,76,635/ . 2 ITA NO. 91/NAG/2013 . 3. IN THIS CASE THE ASSESSEE IS A CONTRACTOR CUM MANUFACTURER. THE ASSESSING OFFICER FOUND THAT THE BALANCE SHEET OF THE ASSESSEE AS ON 31 03 2009 SHOWED THE FOLLOWING: LIABILITIES AMOUNT ` ASSETS AMOUNT RS PARTNERS CAPITAL ACCOUNT. 33193240 ADVANCE TO RELIABLE WIRES AND ENGINEERING P. LTD. 28742700 UNSECURED LOAN 73600 INVESTMENT & DEPOSITS 915788 CURRENT LIABILITIES & PROVISIONS. 36838976 CURRENT ASSETS, LOAN & ADVANCES. 35002905 PROVISIONS 40000 OTHER ADVANCES INCLUDING ADVANCE I.T. & BUSINESS ADVANCE. 4422687 FIXED ASSETS. 1724136 FROM THE ABOVE THE ASSESSING OFFICER CONCLUDED THAT THE ASSETS SIDE OF THE BALANCES REVEALED THAT UNSECURED LOAN , CURRENT LIABILITY AND PROVISIONS HAVE BEEN UTILIZED FOR FIXED ASSETS, INVESTMENTS AND DEPOSITS AND CURRENT ASSETS LOAN AND ADVANCES. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ENTIRE TRADE LIABILITY HAS BEEN UTILIZED FOR ACQUISITION OF THE BUSINESS ASSETS. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS ADVANCED AN AMOUNT OF ` 2,87,42,700/ TO M/S RELIABLE WIRES & ENGINEERING P. LTD. A ND IS NOT CHARGING INTEREST THEREON. THE ONLY FUND AVAILABLE WITH THE ASSESSEE IS THE CAPITAL ACCOUNT OF THE PARTNERS FOR MAKING ADVANCE TO M/S RELIABLE WIRES & ENGINEERING P. LTD. THAT T HE ASSESSEE FIRM IS PAYING INTEREST @ 12% ON CAPITAL OF THE PARTNERS. TH AT T HE ASSESSEE FIRM HAS THUS ADVANCED INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSE. THAT I NTEREST 3 ITA NO. 91/NAG/2013 . ON THE AMOUNT EQUIVALENT TO THE AMOUNT ADVANCED TO M/S RELIABLE WIRES & ENGINEERING P. LTD. I S NOT FOR THE PURPOSE OF THE BUSINESS AND THE SAME HAS TO BE DISALLOWED. ACCORDINGLY THE ASSESSING OFFICER MADE DISALLOWANCE OF ` 21,76,635/ . 4 . UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) CONFIRMED THE ADDITION. 5 . AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 6 . WE HAVE HEARD BOTH THE COUNSEL AN D PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE S HRI C.J. THAKAR SUBMITTED THAT INTEREST HAS BEEN PROVIDED TO THE PARTNERS CAPITAL AS PER THE PARTNERSHIP DEED. HE CLAIMED THAT INTEREST PAYMENT IS AN ADJUSTMENT IN ALLOCATION OF SHARES OF PROFITS OF PARTNERS. SHRI THAKAR SUBMITTED THAT IN SUCH A SITUATION THERE CAN BE NO CASE THAT PARTNERS CAPITAL HAS BEEN DIVERTED FOR NON BUSINESS PURPOSES. SHRI THAKAR REITERATED THAT THE ASSESSING OFFICERS PRESUMPTION THAT LIABILITIES, UNSECURED LOAN ETC. HAVE B EEN UTILIZED FOR ACQUISITION OF FIXED ASSETS AND FUNDS FROM PARTNERS CAPITAL ACCOUNT HAS BEEN USED FOR GIVING INTEREST FREE ADVANCES HAS NO LEGS TO STAND. LEARNED COUNSEL SUBMITTED THAT THE GENERAL LY ACCEPTED PRESUMPTION IS THAT CAPITAL ACCOUNT IS UTILIZ ED FOR ACQUISITION OF FIXED ASSETS. HERE THE ASSESSING OFFICER HAS MA DE A REVERSE PRESUMPTION WHICH HAS NO LEGALITY. LEARNED COUNSEL FURTHER REFERRED TO THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V/S. PREM HEAVY ENGINEERING WORKS (P) L TD. 285 ITR 54. 7 . PER CONTRA LEARNED D.R. SHRI NARENDRA KANE RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT THE ASSESSEE HAD PAID INTEREST ON THE CAPITAL OF THE PARTNERS OF THE FIRM AND THE ASSESSEE HAS ALSO GIVEN INTEREST FREE ADVANCE S. 4 ITA NO. 91/NAG/2013 . HENCE HE CLAIMED THAT THE DISALLOWANCE OF INTEREST HAS BEEN DIRECTLY DONE BY THE AUTHORITIES BELOW. 8 . UPON CAREFUL CONSIDERATION WE FIND THAT IT IS UNDISPUTED THAT THE ASSESSEE HAS SUFFICIENT NON INTEREST BEARING FUNDS AVAILABLE TO COVER THE INTEREST FREE ADVANCES GIVEN. WE FIND THAT THE PRESUMPTION MADE BY THE ASSESSING OFFICER THAT THE FIXED ASSETS WERE ACQUIRED OUT OF LOAN FUNDS AND NOT PARTNERS CAPITAL ACCOUNT IS A STRANGE PRESUMPTION AND IS TOTALLY AGAINST GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND BUSINESS PRACTICES IN THIS REGARD. THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS TO MAKE THE ADVANCE S TO THE SISTER CONCERN. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S. RELIANCE UTILITY & POWER LTD. IN INCOME TAX APPEAL NO. 1398 OF 2008 ORDER DATED 09 01 2009 HAS EXPOUNDED THAT WHERE THE ASSESSEE HAD ITS OWN FUNDS AS WELL AS BORROW ED FUNDS AND IT ADVANCED FUNDS TO ITS SISTER CONCERN, THE PRESUMPTION CAN BE MADE THAT THE ADVANCES FOR NON BUSINESS PURPOSES HAVE BEEN MADE OUT OF THE OWN FUNDS AND THAT THE BORROWED FUNDS HAVE NOT BEEN USED FOR THIS PURPOSE. ACCORDINGLY THE DISALLOWANCE OF INTEREST ON THE BORROWED FUNDS IS NOT JUSTIFIED. THIS MEANS THAT WHEN THE SOURCES OF FUND ARE MIXED THE PRESUMPTION IS THAT INTEREST FREE FUND HAS BEEN USED AS PER THE DESIRE OF THE ASSESSEE. BASED UPON THIS CASE LAW WE FIND THAT THE ASSESSEE HAS ADEQU ATE INTEREST FREE FUNDS TO COVER UP THE INTEREST FREE ADVANCES GIVEN. HENCE NO DISALLOWANCE FOR DIVERTING OF INTEREST BEARING FUNDS IS CALLED FOR. MOREOVER ACCORDINGLY WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND DECIDE THE ISSUE IN F AVOUR OF THE ASSESSEE. 9 . THE NEXT ISSUE RAISED IS THAT THE LEARNED CIT(APPE A LS) ERRED IN MAKING ADDITION OF ` 7,25,000/ . 5 ITA NO. 91/NAG/2013 . 10. ON THIS ISSUE THE ASSESSING OFFICER NOTED THAT ON EXAMINATION OF THE LEDGER ACCOUNT OF SHRI GAJANAN TIWARI IN THE BOOKS OF ACC OUNTS OF THE ASSESSEE, IT IS SEEN THAT THE AMOUNT OF ` 7,25,000/ HAS BEEN PAID TO HIM DURING THE FINANCIAL YEAR. THE ASSESSEE ARGUED THAT THE PAYMENT OF ` 7,25,000/ HAS BEEN PAID TO LABOURERS THROUGH SHRI GAJANAN TIWARI AND CHARGED TO REVENUE ACCOUNT. CO NSIDERING THE ASSESSEES SUBMISSIONS AND THE SUBMISSIONS OBTAINED FROM SHRI GAJANAN TIWARI PRODUCED BY THE ASSESSEE, THE ASSESSING OFFICER HELD AS UNDER : THE ENTIRE CIRCUMSTANCES SUGGEST THAT SHRI GAJANAN TIWARI WAS SUB CONTRACTOR OF THE ASSESSEE. ARGUMENT OF THE ASSESSEE THAT SHRI GAJANAN TIWARI WAS MAKING PAYMENT TO LABOURERS AT RAILWAY SITE AT BHANDARA ON BEHALF OF M/S RELIABLE ENGINEERING INDUSTRIES IN GOOD FAITH AND AS A GRATUITOUS ACT DOES NOT CARRY FORCE. SHRI GAJANAN TIWARI WAS GETTING SALARY OF ` 6,500/ P.M. FROM HIS EMPLOYERS NAMELY M/S WANDILE CONSTRUCTION. FINANCIAL POSITION OF SHRI TIWARI DOES NOT SUGGEST THAT HE CAN DO THE SERVICES FOR THE AS SESSEE WITHOUT CHARGING ANY REMUNERATION OR SERVICE CHANGES. SHRI TIWARI TRAVELLED BHANDARA TO NAGPUR (TO AND FRO) 17 18 TIMES DURING THE FINANCIAL YEAR. SHRI TIWARI WAS SURELY A SUB CONTRACTOR FOR THE ASSESSEE. THE ASSESSEE MADE THE PAYMENT OF ` 7,25,00 0/ TO SHRI GAJANAN TIWARI AS SUB CONTRACTOR WITHOUT DEDUCTING TAX AT SOURCE. THE PAYMENT OF ` 7,25,000/ TO SHRI TIWARI IS CAUGHT WITHIN THE MISCHIED OF PROVISIONS OF 40(A)(IA) OF THE I.T. ACT. THE AMOUNT OF ` 7,25,000/ BEING PAYMENT TO SUB CONTRACTOR WI THOUT DEDUCTING TAX AT SOURCE IS DISALLOWED. 1 1 . LEARNED CIT(APPEALS) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER HOLDING THAT TDS HAS NOT BEEN DEDUCTED FROM THE AMOUNTS PAYABLE AND HENCE DISALLOWANCE UNDER SECTION 40(A)(IA) WAS UPHELD. AGAINST THE ABOVE ORDER, ASSESSEE IS IN APPEAL BEFORE US. 6 ITA NO. 91/NAG/2013 . 1 2 . LEARNED COUNSEL OF THE ASSESSEE SHRI C.J. THAKAR SUBMITTED THAT SHRI GAJANAN TIWARI WAS NOT AT ALL A SUB CONTRACTOR. HE SUBMITTED THAT HE WAS A FRIEND OF ANOTHER PARTNER OF THE ASSESSEE AND HE OUT OF FR IENDSHIP ONLY HEL PED THE ASSESSEE IN MAKING PAYMENTS ON THEIR BEHALF TO THE LABOURERS. HENCE HE SUBMITTED THAT NO DISALLOWANCE UNDER SECTION 40(A)(IA) NEEDS TO BE MADE ON ACCOUNT OF NON DEDUCTION OF TDS OF PAYMENTS MADE TO HIM. 1 3 . LEARNED D.R. SHRI NAREND RA KANE, ON THE OTHER HAND, SUBMITTED THAT THE AUTHORITIES BELOW WERE QUITE CORRECT IN HOLDING THAT SHRI GAJANAN TIWARI WAS A SUB CONTRACTOR AND PAYMENTS MADE THROUGH HIM CALLED FOR DEDUCTION OF TDS. HENCE HE SUBMITTED THAT THE ORDERS OF THE AUTHORITIES BELOW MAY BE UPHELD. 1 4 . UPON CAREFULLY CONSIDERATION, WE FIND THAT THE CLAIM OF THE ASSESSEE THAT SHRI GAJANAN TIWARI WAS A FR IEND AND HE WAS MAKING PAYMENT TO LABOURERS ON BEHALF OF ASSESSEE SO MANY TIMES FREE OF COST DOES NOT BEAR COGENCY. HENCE WE FIND THAT THE LEARNED CIT(APPEALS) HAS PASSED A WELL REASONED ORDER AND IT DOES NOT NEED ANY INTERFERENCE. ACCORDINGLY WE UPHOLD THE SAME. 15. IN THE RESULT, THE APPEAL FIL ED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF SEPT., 2015. SD/ SD/ (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 24 TH SEPT. , 2015. 7 ITA NO. 91/NAG/2013 . COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER WAKODE ASSISTANT REGISTRAR, ITAT, NAGPUR