ACIT, Ludhiana V. M/s Malwa Industries Ltd., Ludhiana

ITA 932/CHANDI/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90228 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 30-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: M L JOSHI
• Keywords: Opportunity of being heard; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 932/CHD/2013 ASSESSMENT YEAR: 2009-10 THE ACIT, VS M/S MALWA INDUSTRIES LTD., CIRCLE VII, INDUSTRIAL AREA-A, LUDHIANA. LUDHIANA. PAN: AABCM1287D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K.MITTAL RESPONDENT BY : SHRI M.L.JOSHI DATE OF HEARING : 30.06.2015 DATE OF PRONOUNCEMENT : 02.07.2015 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS)-II LUDHIANA DATED 17.07.2 013 FOR ASSESSMENT YEAR 2009-10. 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE FINDINGS OF AUTHORITIES BEL OW. 3. ON GROUND NO. 1, REVENUE CHALLENGED THE DELET ION OF ADDITION OF RS. 4,37,333/- ON ACCOUNT OF DISALLO WANCE OF INTEREST. THE FACTS OF THE CASE ARE THAT ASSESS EE ADVANCED INTEREST FREE ADVANCES TO ITS SUBSIDIARY C OMPANY AND CLAIMED THAT SAME WAS GIVEN OUT OF INTERNAL CAS H ACCRUALS AND SURPLUS FUNDS OF THE COMPANY ALLEGEDLY FOR 2 THE PURPOSE OF BUSINESS OF THE COMPANY. THE ASSESS ING OFFICER WAS NOT CONVINCED WITH THE VIEW OF THE ASSE SSEE AND HELD THAT ASSESSEE COMPANY HAD MADE HUGE BORROWINGS FROM THE BANKS FOR WHICH INTEREST HAD BE EN PAID AND DIVERTED THE SAME BORROWINGS TO ITS SUBSID IARY COMPANY. THE ASSESSING OFFICER, THEREFORE, DISALLO WED INTEREST AMOUNTING TO RS.4,37,333/- AND MADE ADDITI ON ACCORDINGLY. 4. THE ASSESSEE FILED WRITTEN SUBMISSIONS BEFORE LD. CIT(APPEALS) WHICH IS QUOTED IN THE IMPUGNED ORDER IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF DENIM FABRICS AND GARMENTS IN THE DOMEST IC AND OVERSEAS MARKET. THE DEMAND FOR DENIM GARMENTS WIT HIN AND OUTSIDE INDIA WAS GROWING. THE ASSESSEE, IN OR DER TO HAVE RELATIONSHIP WITH GLOBAL BUYERS, ACQUIRED HOLD ING STAKES IN THE COMPANY ENGAGED IN MANUFACTURING OF J EANS WEAR AND EXPORTING IN U.S. TO LEADING BRANDS. THE PURPOSE FOR DOING BUSINESS THROUGH SUBSIDIARY COMPA NY WAS ONLY TO IMPROVE THE TOP LINE OF THE ASSESSEE CO MPANY I.E. MALWA INDUSTRIES. IT WAS SUBMITTED THAT FUNDS WERE GIVEN OUT OF INTERNAL CASH ACCRUALS AND SURPLUS FUN DS OF THE ASSESSEE COMPANY AND SAME WERE USED BY THE SUBSIDIARY COMPANY FOR BUSINESS PURPOSES. THE ASSE SSEE RELIED UPON DECISION OF THE HON'BLE SUPREME COURT I N THE CASE OF S.A. BUILDERS VS CIT 288 ITR 1. IT WAS ALS O SUBMITTED THAT SIMILAR ADDITION WAS MADE FROM ASSESSMENT YEARS 2005-06 TO 2008-09 AND THE ENTIRE 3 ADDITION HAS BEEN DELETED BY LD. CIT(APPEALS) AND A LSO CONFIRMED BY THE TRIBUNAL. THE LD. CIT(APPEALS) NO TED THAT HE HAS SIMILARLY DELETED THE ADDITION VIDE HIS ORDER DATED 07.03.2012 IN ASSESSMENT YEAR 2008-09. THE L D. CIT(APPEALS) ALSO NOTED THAT DEPARTMENT FILED SECON D APPEAL BEFORE ITAT CHANDIGARH BENCH AGAINST THE ORD ER DATED 07.03.2012 AND THE TRIBUNAL VIDE ORDER DATED 26.07.2012 IN ITA 578/2012 HAS UPHELD THE ORDER OF THE LD. CIT(APPEALS) AND ACCORDINGLY ADDITION WAS DELET ED BY LD. CIT(APPEALS). 5. THE LD. COUNSEL FOR THE ASSESSEE FILED COPY O F THE ORDER OF THE TRIBUNAL DATED 26.07.2012 IN ITA 578/2 012 IN WHICH DEPARTMENTAL APPEAL WAS DISMISSED. THE LD . DR SUBMITTED THAT THIS ISSUE WAS NOT IN APPEAL BEFORE THE TRIBUNAL, THEREFORE LD. CIT(APPEALS) WRONGLY APPLIE D THE ABOVE DECISION OF THE TRIBUNAL AND SHOULD NOT HAVE DELETED THE ADDITION. THE LD. COUNSEL FOR THE ASSE SSEE ALSO ADMITTED BEFORE US THAT THIS ISSUE WAS NOT RAISED I N THE DEPARTMENTAL APPEAL IN ITA 578/2012 (SUPRA) FOR ASSESSMENT YEAR 2008-09. 6. CONSIDERING THE ABOVE SUBMISSIONS OF BOTH THE PARTIES, WE ARE OF THE VIEW THE MATTER REQUIRES RE- CONSIDERATION AT THE LEVEL OF THE LD. CIT(APPEALS). THE LD. CIT(APPEALS) FOLLOWED HIS ORDER FOR ASSESSMENT YEAR 2008- 09 DATED 07.03.2012 WHICH, ACCORDING TO HIM WAS ALS O UPHELD BY THE TRIBUNAL VIDE ORDER DATED 26.07.2012 IN ITA 578/2012. HOWEVER, THE FACT REMAINED THAT THIS ISS UE WAS 4 NOT RAISED IN DEPARTMENTAL APPEAL IN ASSESSMENT YEA R 2008-09. THEREFORE, THERE IS NO QUESTION OF FOLLOW ING THE ORDER OF THE TRIBUNAL FOR DELETING THE ADDITION AND ALLOWING THE APPEAL OF THE ASSESSEE. SINCE THE LD. CIT(APPEALS) HAS NOT DECIDED THIS GROUND ON MERITS AND WRONGLY FOLLOWED THE ORDER OF THE TRIBUNAL DATED 26.07.2012, THEREFORE, WE SET ASIDE THE ORDER OF TH E LD. CIT(APPEALS) AND RESTORE THIS ISSUE TO HIS FILE WIT H DIRECTION TO RE-DECIDE THIS GROUND ON MERITS STRICT LY IN ACCORDANCE WITH LAW BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 1 OF APPEAL OF THE REVENUE IS, THUS, ALLOWED FOR STAT ISTICAL PURPOSES. 7. ON GROUND NO. 2, REVENUE CHALLENGED THE DELET ION OF ADDITION OF RS. 2,13,904/- UNDER SECTION 40A(2)( B) OF THE INCOME TAX ACT ON ACCOUNT OF EXCESS PRICE PAID FOR PURCHASE OF COMBER COTTON WASTE. 8. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESS EE MADE CERTAIN PAYMENTS TO M/S MALWA COTTON SPINNING MILLS LTD., A SISTER CONCERN OF THE ASSESSEE FOR PURCHASE S WORTH RS.32,46,984/-. THESE PAYMENTS OF PURCHASES ARE COVERED BY SECTION 40A(2)(B) OF THE ACT. THE ASSES SING OFFICER, THEREFORE, PROCEEDED TO EXAMINE THE ISSUE OF DISALLOWANCE UNDER THESE PROVISIONS. BEFORE THE ASS ESSING OFFICER, IT WAS EXPLAINED THAT ASSESSEE COMPANY PUR CHASED TWO KINDS OF WASTES I.E. COTTON COMBER WASTE AND FL AT WASTE FROM M/S MALWA COTTON SPINNING MILLS LTD. AND THE 5 PURCHASES WERE MADE FROM THE SAID COMPANY AT THE PREVALENT MARKET RATES. THE ASSESSING OFFICER, HOW EVER, DISALLOWED RS. 2,13,904/- CONSIDERING EXCESS PAYMEN T. THE ASSESSEE'S WRITTEN SUBMISSIONS ARE REPRODUCED I N THE APPELLATE ORDER IN WHICH THE ASSESSEE EXPLAINED THA T DISALLOWANCE IS UNJUSTIFIED AS THE ASSESSING OFFICE R HAS NOT COMPARED THE PRICE OF THE COTTON WASTE PAID TO RELATED CONCERN WITH THE PRICE CHARGED FOR SIMILAR MATERIAL BY INDEPENDENT UNRELATED PARTIES IN THE OPEN MARKET. T HE ASSESSING OFFICER HAS FAILED TO MAKE OUT ANY EXCESS IVE OR UNREASONABLE PAYMENT HAVING REGARD TO THE FAIR MARK ET VALUE OF THE GOODS FOR WHICH PAYMENT IS MADE. IT W AS SUBMITTED THAT ASSESSEE PURCHASED WASTE DURING THE ASSESSMENT YEAR UNDER APPEAL FROM OUTSIDE PARTIES A LSO AND PRICES WERE MAINLY SIMILAR. THE ASSESSING OFFI CER HAS NOT MADE OUT ANY CASE OF EXCESSIVE PURCHASES. IT W AS SUBMITTED THAT IN THE ASSESSMENT YEAR 2005-06 TO 2008-09, ENTIRE ADDITION HAS BEEN DELETED BY THE LD . CIT(APPEALS) AND CONFIRMED BY THE ITAT. 9. THE LD. CIT(APPEALS) FOUND THAT SIMILAR ADDIT ION HAS BEEN DELETED BY HIM IN ASSESSMENT YEAR 2008-09 VIDE HIS ORDER DATED 07.03.2012 AND DEPARTMENTAL SECOND APPEAL HAS BEEN DISMISSED BY THE TRIBUNAL VIDE ORDE R DATED 26.07.2012 IN ITA 578/2012. FOLLOWING HIS OR DER AND ORDER OF THE TRIBUNAL, LD. CIT(APPEALS) DELETED THE ADDITION. 6 10. ON CONSIDERATION OF THE ABOVE FACTS, WE FIN D THAT LD. CIT(APPEALS) WAS JUSTIFIED IN DELETING THE ADDI TION. THE SIMILAR ISSUE ARISE IN ASSESSMENT YEAR 2008-09 IN WHICH LD. CIT(APPEALS) DELETED THE ENTIRE ADDITION ON IDENTICAL FACTS AND THE ORDER OF LD. CIT(APPEALS) H AS BEEN CONFIRMED BY THE TRIBUNAL BY DISMISSING THE DEPARTM ENTAL APPEAL IN ITA 578/2012 DATED 26.07.2012 FOR ASSESSM ENT YEAR 2008-09. THE ISSUE IS, THEREFORE, COVERED IN F AVOUR OF THE ASSESSEE BY EARLIER ORDER OF THE TRIBUNAL. THE DEPARTMENTAL APPEAL HAS THUS, NO MERIT AND IS ACCOR DINGLY DISMISSED. 11. ON GROUND NO. 3, REVENUE CHALLENGED THE DELE TION OF ADDITION OF RS. 24,81,378/- ON ACCOUNT OF BANK CHARGES. THE FACTS ARE THAT THE ASSESSING OFFICER NOTED THAT ASSESSEE INCURRED BANK CHARGES FOR PROCESSING OF WORKING CAPITAL LOAN AMOUNTING TO RS. 24,81,378/-. THE ASSESSING OFFICER HELD THAT THESE CHARGES WERE INCU RRED FOR RAISING OF LOAN AND THEREFORE, CANNOT BE ALLOWE D AS REVENUE EXPENDITURE. THE ASSESSEE'S WRITTEN SUBMISS ION IS REPRODUCED IN THE APPELLATE ORDER IN WHICH THE ASSE SSEE BRIEFLY EXPLAINED THAT PAYMENT ON ACCOUNT OF PROCES SING CHARGES TO THE BANK WERE MADE TO PROCESS THE WORKIN G CAPITAL LOAN APPLICATION OF THE COMPANY. THE FUND BASED AND NON FUND BASED WORKING CAPITAL FACILITIES WERE SANCTIONED BY THE BANK FOR MEETING DAY-TODAY REQUIR EMENT OF THE FUNDS FOR THE BUSINESS OF THE COMPANY. IT W AS, THEREFORE, REVENUE EXPENDITURE. THE ASSESSEE RELIE D UPON DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F INDIA 7 CEMENTS LTD. 60 ITR 52. IT WAS ALSO SUBMITTED THAT SIMILAR DISALLOWANCE WAS DELETED BY THE LD. CIT(APP EALS) IN ASSESSMENT YEAR 2005-06 AND 2008-09 AND ORDER OF TH E LD. CIT(APPEALS) HAS BEEN UPHELD BY THE TRIBUNAL. THE LD. CIT(APPEALS), SIMILARLY FOLLOWING HIS ORDER FOR ASS ESSMENT YEAR 2008-09 DATED 07.03.2012 AS UPHELD BY THE TRIB UNAL VIDED ORDER DATED 26.07.2012 IN ITA 578/2012 (SUPRA ) DELETED THE ADDITION. 12. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF ITAT CHANDIGARH BENCH FOR ASSESSMENT YEAR 2008-09 IN WHICH IN ITA 578/2012, T HE TRIBUNAL DISMISSED THE DEPARTMENTAL APPEAL VIDE ORD ER DATED 26.07.2012 (SUPRA). THERE IS THUS, NO INFIRM ITY IN THE ORDER OF THE LD. CIT(APPEALS) IN DELETING THE A DDITION. THIS GROUND OF THE REVENUE IS THEREFORE, DISMISSED. 13. IN THE RESULT, DEPARTMENTAL APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JULY,2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 ND JULY,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH