Dcit Cir 36 Kolkata Kolkata v. Sri Rikhab Chand Jain Kolkata

In The Income Tax Appellate Tribunal A Benc H Kolkata Before Shri A T Varkey Jm Dr A L Saini Am Ita No 1129 Kol 2015 Assessment Year 2011 12 Dcit Cir 36 Kolkata Aayakar Bhawan Poorva 8 Th Floor 110 Shantipally Kolkata 700 107 Vs Sri Rikhab Chand Jain C O M S T T Ltd 2 Nd Floor 10 Ezzie Mansion Pollock Street 2 Nd Floor Kolkata 1 Pan Gir No Aeypj 0493 A Revenue Assessee Co No 47 Kol 2015 A O Ita No 1129 Kol 2015 Assessment Year 2011 12 Sri Rikhab Chand Jain C O M S T T Ltd 2 Nd Floor 10 Ezzie Mansion Pollock Street 2 Nd Floor Kolkata 1 Vs Dcit Cir 36 Kolkata Aayakar Bhawan Poorva 8 Th Floor 110 Shantipally Kolkata 700 107 Pan Gir No Aeypj 0493 A Assessee Revenue Assesseeby Shrisallongyaden Addl Cit Respondent By Shris M Surana Advocate Date Of Hearing 22 09 2017 Date Of Pronouncement 22 12 2017 O R D E R Per Dr Arjun Lal Saini Am The Captioned Appeal Filed By The Revenue And Cross Objections Filed By The Assessee Pertaining To Assessment Year 2011 12 Is Directed Against The Order Passed By The Ld Commissioner Of Income Tax Appea Ls 10 Kolkata Dated Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 2 22 2 12 06 2015 Which In Turn Arises Out Of An Order Pa Ssed By The Assessing Officer U S 143 3 Of The Income Tax Act 1961 Hereinafter Referred To As The Act Dated 27 03 2014 2 First We Take Revenues Appeal In Ita No 1129 K Ol 2015 A Y 2011 12 Wherein The Grounds Of Appeal Raised By The Revenue Reads A S Under 1 On The Facts And Circumstances Of The Case The Cit A Has Erred In Deleting The Disallowances Of Rs 1 12 07 224 Made By The Ao Correctly U S 40 A Ia Of The Income Tax Act 2 On The Facts And Circumstances Of The Case The Cit A Has Erred In Deleting The Disallowances Of Rs 1 95 30 660 Made By The A O U S 14 A Read With Rule 8 D Of The It Act 3 The Assessee Craves The Leave To Make Any Additi On Alteration Modification Of Ground At The Appellate Stage 3 First Ground Raised By The Revenue Relates To Di Sallowance Of Rs 1 12 07 224 Made By The Ao U S 40 A Ia Of Th E Income Tax Act 3 1 The Brief Facts Qua The Issue Are Thatthe Asses See Is A Sole Proprietor Of M S Tt Industries Which Is The Owner Of Tt Brand By Way O F Its Franchisees Who Use The Brand Tt The Assessee Earns Royalty Income The Tt Brand Is Well Known Brand In Hosiery And Undergarments Both In India And Arou Nd The Globe The Manufacturing Of Tt Products Is Done By Different F Ranchisees Throughout India The Assessee Gets Royalty For Use Of The Said Tt Brand From Its Franchisees For Increasing Sales And To Earn A Higher Royalty The Assessee Distributes Advertisement Material Like Canvas Bag And Big Um Brella Air Bag Set Banners And Flex Boards Banners Bags Umbrella Tt Printed Pen S Calendars Etc In Addition To This Dealers Are Encouraged To Achieve Higher Sale S Target In Competitive Markets By Allowing Them Target Achievement Gifts Like Tv Ginnis Silver Coins Etc For Brand Promotion Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 3 33 3 The Assessee In The Previous Year Has Incurred Rs 14 94 297 Against Advertisement Expense And Rs 82 83 604 Purchase Advertisement Material After Realizing 30 24 563 From His Franchisees The As Sessee Had Given Advertisement Contracts To Various Agencies For Advertising In Ma Gazines Newspapers Etc Further The Assessee Had Incurred Expense In P Urchase Of Advertisement Materials Like Air Bags Umbrella Dangler Diaries And Note Pads Etc On Which Tt Was Printed The Details Of Advertisement Material Are As Under Name Of Party Amount Paid In Rs Nature Of Expens E Cray Data Services Pvt Ltd 15 66 746 Tt Company Tea Brand Posters Calendars And Flex Boards Translight Boards Tamanna Traders Pvt Ltd 30 74 721 Canvas Bag And Big Umbrella Umbrella Air Bag Set And Big Umbrella Banners Banners And Flex Boards Jsb Business Pvt Ltd 43 08 477 Banners Non Woven Bags Canvas Hawker Bags Woven Carry Bag Calendars Flex Board And Convas Bag Cloth Banners Gojendra Sandesh 5 000 Lal Bahadur Shastri Hockey Tournament Committee 18 200 Trophy Unique Plastic Industries 17 078 Shoulder Bag Ankur Trading Company 20 50 080 Jute Bags Flex Board Cloth Banners Pad Neelapu Rajesh 2 07 200 Pen Primetime Communications 60 665 Buses Advertisement Tt Innerwear During The Assessment Proceedings It Was Clarified By The Assessee That The Finance Act 1995 Has Enlarged The Scope Of Income Tax Deduction At Source By Making Various Amendments In Regard To The Changes Introduced Through The Finance Act 1995 A Number Of Queries Have Been Re Ceived From The Various Associations And Professionals Bodies On The Scope Of Tax Deduction At Source To Clarify The Central Board Of Direct Taxes Issued A Public Circular In The Form Of Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 4 44 4 Question Answers Vide Circular No 715 Dated 8 8 19 99 The Relevant Applicable Part Is Given Below Question Whether Section 194 C Would Apply In Respe Ct Of Supply Of Printed Material As Per Prescribed Specifications Answer Yes The Clarification By The Board Is Explanatory One Not Curative To The Provision Of The Section 194 C It Means The Above Payments On Accoun T Advertisement Come Within The Purview Of The Provisions Of Section 194 C So T He Assessee Should Have Made Tds At The Time Of Credit Or Payment Whichever Is Earlier During The Assessment Proceedings The Assessing Of Ficer Noted That Assessee Has Debited Expenses Under The Head Advertisement Mater Ial But The Assessee Did Not Deduct Tds On Advertising Material On Which Tt Ha S Been Printed Whereas Considering The Fact That It Was The Nature Of Job Work Therefore The Assessing Officer Asked The Assessee That Why Tds Has Not Bee N Deducted On Advertisement Material In Response To The Same Vide Letter Dated 18 03 20 14 The Assessee Submitted Before The Ao Following 1 The Assessee Has Purchased Advertisement Materia L E G Umbrellas Bags Pen Pad Etc Valuing Rs 82 84 Lacs For Distributi Ng To The Customers 2 That The Payment Was For Outright Purchase Of Ma Terials And Not For Execution Of Any Contract The Transaction Constitu Ted Transaction Of Purchase And Sale Of Goods And Involves No Element Of Execution Of Any Contract Provisions Of Section 194 C Cannot Be Stre Tched To Circumscribe Transaction Of Purchase Of Goods 3 That No Contract For Job Is Involved As Every Ma Terial Purchased And Supplied Bears The Logo Tt 4 The Big Companies Like Bata Always Purchases And Sell Goods By Providing Therein Logo On All Goods And They Are In Fact Tran Sactions Of Purchase And Sale Section 194 C Cannot Be Applied For Outright Purchase Of Materials 5 That Cit A In Appeal Against Assessment Order For A Y 2009 10 Has Held Inter Alia That No Contracts Exists Between The Par Ties Concerned Which Can Be Said To Be Covered U S 194 C Of The I T Act As The Transaction Between Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 5 55 5 Parties Is Purely In The Nature Of Sale And Purchas E And Provision U S 194 C Is Not Attracted In Such Transaction Of Purchase Of Ad Vertising Material 6 That Parties Concerned From Whom Advertising Materi Al Have Been Purchased Have Fully Paid The Tax On Their Income A S Per Copies Of I T Acknowledgement For The A Y 2011 12 7 In View Of The Above Facts You May Kindly Allow The Advertising Expenses Fully Incurred For The Purpose Of Business However The Assessing Officer Did Not Accept The C Ontention Of The Assessee The Ao Observed That It Is Important To Categorical Ly Look Into The Nature Of Expenses And How They Are Treated As Job Work And W Hy Tds U S 194 C Should Be Deducted The Ao Observed That Purchase Of Umbre Lla Diary Pads Danglers Etc And Tt Is Printed On The Material That Has Be En Purchased Assessee Was Right In Claiming That Printing Cost Is Miniscule C Ompared To Cost Of Material However It Must Be Taken Into Account That Printin G Of Tt Logo Or Mark Can Only Be Done Only If The Material Supplier Is Asked To D O So And That Constitutes The Job Work Hence Material Is Supplied An Order With A Specification That Tt Should Be Printed On It Hence Section 194 C Is Attracted Therefore Sums Paid To The Following Parties Attract Section 194 C Name Of Party Amount Paid In Rs Nature Of Expense Cray Data Services Pvt Ltd 15 66 746 Tt Company Tea Brand Posters Calendars And Flex Boards Translight Boards Tamanna Traders Pvt Ltd 30 74 721 Canvas Bag And Big Umbrella Umbrella Air Bag Set And Big Umbrella Banners Banners And Flex Boards Jsb Business Pvt Ltd 43 08 477 Banners Non Woven Bags Canvas Hawker Bags Woven Carry Bag Calendars Flex Board And Canvas Bag Cloth Banners Ankur Trading Company 20 50 080 Jute Bags Flex Board Cloth Banners Pad Neelapu Rajesh Kumar 2 07 200 Pen Total 1 12 07 224 Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 6 66 6 Therefore Total Disallowance Of Rs 1 12 07 224 Was Made By Ao Against Advertisement Material U S 40 A Ia Of The I T Ac T 1961 3 2 Aggrieved By The Addition Of Rs 1 12 07 224 M Ade By Ao Against Advertisement Material U S 40 A Ia Of The I T A Ct 1961 The Assessee Filed An Appeal Before The Cit A Who Has Deleted The Addit Ion The Ld Cit A Observed That These Expenses Were Claimed For Poster Calendar F Lex Board Umbrella Air Bag Hawker Bags Cloth Banner Pad Jute Bags And Pens Etc The Ao Had Treated These Payments As Job Work Charges To Various Persons Tre Ated As Contractors By The Ao Whereas The Assessee Claimed These Expense As Purch Ase Price For Procurement Of Various Materials The Cit A Observed That Assessee Had Claimed That The Expenditure Was Not Consideration For Works Contrac T But Were For Purchase Of Various Materials To Be Used In Advertising Activit Y The Same Issue On Almost Identical Facts Came Up In Assessment Year 2009 10 And 2010 11 Also The Cit A In These Assessment Years Had Decided The Issue In Favour Of The Assessee Since The Cit A Decided The Issue In Favour Of Assessee In Preceding Previous Years Therefore He Did Not Take A Different View In The C Urrent Assessment Year 2011 12 Therefore Cit A Following The Decision Of The Pre Decessor Cit A In The Said Two Previous Years Deleted The Addition U S 40 A Ia O F The Act 3 3 Not Being Satisfied With The Order Of Cit A T He Revenue Is In Appeal Before Us The Ld Dr For The Revenue Has Primarily Reiterated The Stand Taken By The Assessing Officer Which We Have Already Noted In O Ur Earlier Para And Is Not Being Repeated For The Sake Of Brevity On The Othe R Hand Ld Counsel For The Assessee Defended The Order Passed By The Cit A 3 4 We Have Given A Careful Consideration To The Ri Val Submissions We Note That The Expenses Were Claimed By The Assessee For Post Er Calendar Flex Board Umbrella Air Bag Hawker Bags Cloth Banner Pad Jute Bags And Pens Etc The Ao Had Treated These Payments As Job Work Charges To V Arious Persons Treated As Contractors By The Ao Whereas The Assessee Claimed These Expense As Purchase Price For Procurement Of Various Materials We Note That The Assessee Had Claimed That The Expenditure Was Not Consideration For Work S Contract But Were For Purchase Of Various Materials To Be Used In Advertising Acti Vity The Same Issue On Almost Identical Facts Came Up In Assessment Year 2009 10 And 2010 11 Also Where The Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 7 77 7 Cit A Used To Delete Said Additions On Identical F Acts The Cit A In These Assessment Years Had Decided The Issue In Favour Of The Assessee And The Department Did Not File The Appeal Following The P Rinciple Of Consistency We Are Of The View That In The Assessment Year Under Consider Ation The Department Can Not Take A Different View We Note That The Cit A Has Been Consistently Accepting That No Disallowance Should Be Made Under Section 40 A Ia Of The Act Therefore We Uphold The Order Of The Ld Cit A Following The Ru Le Of Consistency For That We Rely On The Order Of The Honble Supreme Court In Radhas Oami Satsang Vs Cit 193 Itr 321 Sc We Also Note That The Said Issue Of The Assessee Is Fully Covered By The Judgment Of The Coordinate Bench In Assessee S Own Case In Ita No 907 Kol 2013 A Y 2009 10 Wherein It Was Held That The Assessee Had Made Payments For Purchase Of Material And Had Admittedly Not Supplied The Materi Als To The Job Worker And Hence The Same Would Not Fall Under The Definition Of Wo Rk As Per Section 194 C Of The Act Hence There Is No Violation Of Section 194 C Warrant Ing Any Disallowance U S 40 A Ia Of The Act Thus Respectfully Following The Decision Of The Co Ordinate Bench In Assessee S Own Case Supra In The Immediately Preceding Assessm Ent Year 2009 10 Whereby The Issues Were Decided In Favour Of The Assessee Compa Ny As Set Out Above We Hold That No Disallowance Under Section 40 A Ia Of The Act Should Be Made Therefore We Confirm The Order Passed By Cit A So We Uphol D The Order Of The Ld Cit A And Dismiss Ground No 1 Raised By The Revenue 3 5 In The Result Appeal Filed By The Revenue In Ground No 1 Is Dismissed 4 Ground No 2 Raised By The Revenue Relates To Addi Tion Of Rs 1 95 30 660 Made By The Ao U S 14 A Read With Rule 8 D Of The It Act 4 1 The Brief Facts Qua The Issue Are That The Asse Ssee Had Disclosed A Dividend Income Of Rs 2 870 Which He Claimed Exempt Incom E U S 10 32 Of The I T Act 1961 In The Light Of Above During The Course Of A Ssessment Proceeding The Assessee Was Asked Why Disallowance U S 14 A Read Wi Th Rule 8 D Should Not Be Made In Response To The Same The Assessee Replied To The Assessing Officer That The Assessee Has Controlling Interest And Is Holdin G Shares Value Of Rs 16 12 Crores Therein And Has Income Therefrom In Form Of Managerial Remuneration Amounting To Rs 38 40 Lacs Royalty Income Of Rs 2 96 Crores Both Assessed As Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 8 88 8 Business Income The Assessee Was Running Two Wind Mills As Priority Industry Projects As Its Proprietor And Generates Electrical Energy Sold Wholly To Tamilnadu Electricity Board Ltd Which Is Also Assessed As Bu Siness Income The Assessee Has No Dividend Income From T T Ltd During The Y Ear The Dividend Income Rs 2 870 Has Been Received From Stock In Trading Of Shares Of Rs 11 90 Lacs Against Which Capital Gain Has Been Assessed And Taxed Sepa Rately The Assessee Was Holding Shares As Controlling Interest Amounting Of Rs 15 89 Crores In M S T T Ltd As On 31 03 2010 And Further Investment Made In Sha Res Of Rs 22 72 Lacs In M S T T Ltd During Financial Year 2010 11 Made Out O F Own Funds The Ao Rejected The Contention Of The Assessee And Held That Assessee Was Holding Shares Of Rs 16 92 Crores As Controlling In Terest In T T Ltd As On 31 03 2011 It Was Immaterial What Had Been The Uti Lization Of Fund As Regards Purchase Of Shares For The Ay 2011 12 What Is Impo Rtant To Know Is A Huge Part Of Borrowed Funds Have Been Utilized For The Purpose O F Acquiring Shares Even In Prior Years And Interest Was Still Being Paid On Those Lo Ans Hence There Is An Expenditure On Those Shares Which Mayor Shall Yield Dividend Income Which Is Exempt The Same Has Been Held In The Case Of Dhanu Ka Sons Vs Commissioner Of Income Tax Central 1 339 Itr 319 Cal The Ao Further Observed That Section 14 A Read With Rule 8 D Applies For All Investments The Income From Which Does Not Or Shall Not Form Part Of The T Otal Income Hence Even If The Shares Have Not Yielded Dividend During The Assessm Ent Year In Question They Are Capable Of Yielding Dividend And Hence Any Expend Iture On Such Investment Is Considered To Be Expenditure Which May Yield An Exe Mpt Income The Ao Noted That Interest Was Not Only On Loan Taken During The Financial Year 2010 11 But Also In Financial Years Preceding To This Therefore As Sessees Claim That No Dividend Income From Tt Limited During The Year Was Not Acc Epted By The Ao And He Computed The Disallowance U S 14 A Read With Rule 8 D As Under Investment As On 31 03 2010 Rs 159718070 Investment As On 31 03 2011 Rs 162410022 Total Rs 322128092 Average Investment Rs 161064046 Asset As On 31 03 2010 Rs 289662600 Asset As On 31 03 2011 Rs 286888906 Total Rs 576551505 Average Asset Rs 288275753 Interest Expense Including Finance Charges Interest On Office Building Loan Rs 19046660 Interest On Loan Rs 13463002 Finance Charges Rs 1005338 Total Interest Expenses Rs 33515000 Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 9 99 9 8 D Ii Rs 33515000 X Rs 161064046 Rs 18725340 Rs 288275753 8 D Iii 0 5 Of Average Investment Rs 161064046 Rs 805320 Total Disallowance U S 14 A Rs 19530660 4 2 Aggrieved By The Order Of Assessing Officer Th E Assessee Filed An Appeal Before The Cit A Who Has Deleted The Addition Mad E By Ao Aggrieved By The Order Of Cit A The Revenue Is In Appeal Before Us T He Ld Dr For The Revenue Has Primarily Reiterated The Stand Taken By The Ass Essing Officer Which We Have Already Noted In Our Earlier Para And Is Not B Eing Repeated For The Sake Of Brevity Whereas The Ld Counsel For The Assesse E Has Defended The Order Passed By The Cit A 4 3 We Have Given A Careful Consideration To The R Ival Submissions We Note That The Assessee Had Claimed That Own Capital Of About Rs 16 Crore Was Utilized For Acquisition Of Tt Shares Including The Capital Of Financial Year 2005 06 The Cash Flow Had Been Shown At Rs 19 12 Crore Therefore T He Assessee Has Proved That Tt Shares Worth Rs 16 12 Crore Has Been Financed Fr Om Own Fund Or Profit Of Business Accumulated In The Past Several Years The Ao Has Failed To Even Point Out Whether Any Dividend Was Received Or Due From T T Shares In The Current Year We Also Note That The Said Issue Is Fully Covered B Y The Coordinate Bench Kolkata In Assessee S Own Case Vide Ita No 907 Kol 2013 A Y 2009 10 Wherein It Was Held That No Disallowance U S 14 A Of The Act Need To Be Made By Invoking The Provisions Of Rule 8 D 2 Ii Of The Rules As The Investments Admittedly Are Business Expediency Investments And Strategic Investments S Ince The Investments Were Held To Be Business Expediency Investments There I S No Case For Making Any Disallowance By Adopting Rule 8 D 2 Iii Of The R Ules Also Thus Respectfully Following The Decision Of The Co Ordinate Bench In Assessee S Own Case Supra In The Immediately Preceding Assessm Ent Year 2009 10 Whereby The Issues Were Decided In Favour Of The Assessee Compa Ny As Set Out Above We Hold That No Disallowance Under Section 14 A Should Be Ma De Therefore We Confirm The Order Passed By Cit A Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 10 1010 10 4 4 In The Result The Appeal Filed By The Revenue In Ground No 2 Is Dismissed 5 Now We Deal With Cross Objection Filed By The A Ssessee Wherein The Assessee Has Raised The Following Grounds Of Appeal 1 That The Ld Cit A Erred In Sustaining Additio N Of Rs 20 00 000 Being Interest Attributed To Alleged Working Capital Employed In W Ind Mill Unit Although The Units Balance Sheet Reflects Outflow By Rs 1 10 Crores To Consolidated Account 2 That The Ld Cit A Erred In Law As Well As On F Acts In Disallowing Claim Amounting To Rs 20 00 000 U S 80 Ia Of The Income Tax Act 3 That The Assessee Craves Leave To Add Alter All Or Any Of The Ground Of Cross Objections 5 1 The Brief Facts Qua The Issue Are That The Asses See Has Two Windmills Plants Unit No 1 And Unit No 2 Windmill Unit No 2 Had Been Established In March 2011 U S 80 Ia Of The I T Act The Profits And Gains From Wi Ndmill Unit No 1 Have Been Claimed As Deduction U S 80 Ia This Is The Second Y Ear In Which The Assessee Has Claimed Deduction U S 80 Ia The Assessee Furnished Before Ao Separate Profit And Loss Accounts And Balance Sheets Of Windmill Units As Well As One Consolidated Balance Sheet One Set Of Accounts Was Reflected A Consolidated Picture Of Assessees Entire Income And Expenditure Thereon T He Other Set Of Accounts Depicted The Exclusive Picture Of Windmill Account Of Unit No 1 And Unit No 2 On Perusal Of Windmill Account Of Unit No 1 It Was O Bserved By The Ao That Assessee Had A Profit Of Rs 32 62 326 From The Unit On Wh Ich He Claimed Deducted U S 80 Ia Further The Assessee Had Booked Only Four Expenses In The Profit And Loss Account Of The Windmill The Details Of Which Is As Under Depreciation Rs 2 38 099 Interest On Windmill Loan Rs 2 20 722 Insurance Charges Rs 36 792 Windmill Expenses Rs 11 76 080 Total Rs 16 71 693 The Interest On Loan For Windmill Has Been Paid To State Bank Of Mysore From Which Loan Was Taken For Purchase Of Fixed Asset For The Windmill Unit The Ao Noted That To Run A Unit Capital Is Required Both For The Pur Chase Of Fixed Asset And Working Capital For Running The Unit On A Day To Day Basis Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 11 1111 11 During The Assessment Proceedings The Assessing Of Ficer Asked The Assessee To Explain Why Expenses On Interest Claimed In The Boo Ks Of Tt Industries Should Not Be Apportioned Between Royalty Segment Capital Gai Ns Segment And Windmill Segment Why The Excess Claim Of Interest Claimed I N The Books Of Tt Industries Should Not Be Disallowed And Added Back To Total In Come In Response To The Same The Assessee Submitted The Followings I That Audited Profit Loss Balance Sheet Of W Ind Mill For The Year Ended 31 03 2011 Together With Reports U S 10 Ccb Wa S Filed By The Assessee Ii That Audited Profit Loss A C Truly Reflects The Facts That Operation Of Wind Mill Does Not Require Any Work Force But Day To Day Maintenance And Repairing Whenever Required Is Done By Suzlon I Nfrastructure Services Ltd Who Has Been Paid As Follows Wind Mill Expenses Service Charges 4 43 215 Repairs Maintenance 8 51 230 12 95 045 Less Cenvat Credit Taken 1 18 965 11 76 080 The Assessee Submitted That In Addition To Above N O Other Working Expenses Are Required To Be Incurred For Operation And Running Of Wind Mills Except Insurance Expenses Rs 36 792 And I Nterest On Secured Loan Taken From Bank Of Mysore Rs 22 20 722 Iii That Wind Mills Are Automatically Operated By Natural Winds I E No Operators Are Required For Operation Electricity So Generated Is Automatically Transmitted To The Connected Electric Towers Of Tamilnadu Electricity Board Ltd For Utilization The Tamilna Du Electricity Board Sends Monthly Reports Of Units Of Electricity Manuf Actured By The Wind Mill Thereupon Assessee Raises The Monthly Sales Bills The Audited Profit Loss A C Shows That Assessee Has Billed Sa Les Of Rs 64 34 Lacs During The Year Iv That Ld Acit Vide In Clause No 8 Of Page 9 Of The Last Asstt Order For A Y 2010 11 Had Wrongly Assumed That Wor King Capital Is Required For Running The Wind Mill Unit Without Co Nsidering The Fact That Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 12 1212 12 Receipts Of Sales Amounting To Rs 69 34 Lacs During The Fy Rs 82 59 Lacs 2010 11 Is Suffice To Cover The Above Expens Es And Net Result As Per Profit And Loss Account Is Surplus Of Rs 32 62 L Acs P Y Rs 30 62 Iacs After Providing Depreciation On The Wind Mill For The Year V That Balance Sheet Of Wind Mill No 1 Clearly Reflects That There Was Debit Balance Of Rs 1 10 Crores In Capital Account Which Means Capital Of Wind Mill Unit No 1 Amounting To Rs 1 10 Crores Is Being Used In Other Consolidated Business Of The Assessee And As Such No Other Fund From Consolidated Business Is Used In The Wind Mill Unit Vi That Cash Fund Flow Statement Of Wind Mill For Fy 2010 11 Asst Year 2011 12 As On 31 03 2011 Reflects The Fact That T Otal Out Flow Of Cash Is Covered By Total Cash Inflow From The Wind Mill Uni T No 1 And No Other Loan And Or Fund From Consolidated Account Has Been Used In Wind Mill Business Therefore The Assessee Submitted That Apportionmen T Of Interest Expense To Wind Mill Unit No 1 For Ay 2011 12 Ca Nnot Be Made On Above Facts And Apportionment Of Interest Expense M Ade By Rs 45 67 Lacs In A Y 2010 11 On Similar Facts Was Arbitrary Uncalled For After Getting The Reply From The Assessee The Ao D Id The Analysis Of The Windmill Account Of The Assessee Since Its Inceptio N As Follows Asst Year 2007 08 2008 09 2009 10 2010 11 2011 12 Capital Account 8023269 29827279 27879197 20 361464 11012230 Secured Loan 45242526 37500000 29994606 22484769 149 83977 Sundry Debtor Tamilnadu Electricity Board 18257 233121 627289 1825681 3912222 Profit From Windmill 25065447 27644821 2808166 3061698 3262326 Interest On Secured Loan 216986 4977126 4204513 2966621 2220722 The Ao Observed That From The Above It Was Clear T Hat Since The Beginning I E Ay 2007 08 Assessees Own Fund In W Indmill Unit Had A Negative Balance And Even In The Ay 2011 12 It Is Negative Balance Further Loan Of Rs 6 2 Crore Was Taken From State Bank Of Mysore To Purchase Fixed Asset And The Assessee Has Been Repa Ying The Loan Each Year Such That Principal Amount Has Fallen Substan Tially Over The Six Years It Appears That The Assessee Has Been Utiliz Ing Its Borrowed Funds Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 13 1313 13 Each Year To Repay The Loan Taken From State Bank O F Mysore Even In The Ay 2011 12 Assessee Has Repaid Principal Amount Of Rs 93 49 233 For The Said Loan Moreover Assessee Has Also Paid Rs 22 20 722 As Interest On Loan The Total Of Both Principal And I Nterest Is Rs 1 15 69 955 While The Profit Of Windmill Unit Is Rs 32 62 326 And Proprietors Capital Is Negative Meaning Hereby Th At There Has Been Some Other Source Of Fund For Repayment Of Loan Amount Hence The Assessee Has Not Been Able To Explain The Source Of Fund For Payment Of Principal And Interest Amount Of Loan The Windmill Unit Was Running Under Losses Till Ay 2009 10 Hence There Was No Profit That The Assessee Earned To Run And M Aintain The Unit Further The Assessee While Explaining The Applicat Ion Of Loan Showed That Loan Were Applied In The Windmill Unit As Working C Apital And For Tamil Nadu Electricity Board Amounting To Rs 39 12 871 Hence A Part Of The Loan Reflected In Consolidated Account Of The Asses See Has Been Used By The Windmill Unit No 1 Claiming 80 Ia Deduction Current Asset Consists Of The Following Closing Stock Rs 5302 Stock In Trade Rs 1189955 Sundry Debtors Rs 12691623 Tamil Nadu Electricity Board Rs 3912871 Cash And Bank Balance Rs 3856103 Loans And Advances Rs 35204017 The Ao Noted That Based On The Above It Was Clear That A Part Of The Loan Which Is In The Mixed Fund Has Been Utilized For Running The Windmill Unit And Also Repayment Of Loan Taken From State Bank Of Mysore The Assess Ee Has Neither Apportioned Borrowed Funds For Running The Windmill Unit Nor Ha S Debited Any Interest Expense On Loan Used For Running The Windmill Unit Only In Terest On Loan Taken From State Bank Of Mysore Taken For Purchase Of Fixed Asset H As Been Debited By Doing So Assessee Has Subsidized Its Windmill Unit By Alloca Ting More Expense To Its Other Businesses Thereby Increasing The Profit Of Windmi Ll Unit And Decreasing The Profit Of Other Business Therefore It Is Clear That There H As Been A Wilful Attempt On The Part Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 14 1414 14 Of The Assessee To Increase Profit Of Unit Claiming 80 Ia Deduction And Deflating The Profit Of Other Businesses Thereby Intending To Re Duce His Taxable Income Thereafter The Ao Didthe Calculation Of Interest Exepense For Windmill Unit Which Is As Under Business Receipts Royalty Income Rs 60078562 Bad Debt Recovered Rs 49724 Electricity Sale Wind Mill No 1 Rs 6934020 Electricity Sale Wind Mill No 2 Rs 649 Advertisement Pool A C Rs 3024563 Interest Received From Tt Limited Rs 9925399 Total Business Receipts Rs 80012917 Interest Paid Interest Expense Including Finance Charges Interest On Office Building Loan Rs 19046660 Interest On Loan Rs 13463002 Finance Charges Rs 1005338 Total Interest Expenses Rs 33515000 Interest Apportioned To Windmill Account Electrici Ty Sale X Interest Expense Total Business Receipts Rs 6934020 X Rs 33515000 Rs 80012917 Based On The Above Profit From Windmill Unit Was Re Computed By Ao As Under Profit Of Windmill Unit No 1 As Disclosed By The As Sessee Rs 32 62 326 Less Interest On Windmill For Working Capital Rs 29 04 452 Assessed Profit Of Windmill Unit Rs 3 57 874 This Way The Amount Rs 29 04 452 Was Added Back To Profits And Gains From Other Businesses 5 2 Aggrieved By The Order Of Ao The Assessee File D An Appeal Before The Cit A Who Has Partly Allowed The Appeal Of The Assessee O Bserving The Followings The Ao Has Observed That The Wind Mill Has Been Fi Nanced Heavily By The Borrowings Interest Expenditure Of Rs 3 35 15 000 Has Been Apportioned By The Ao To Wind Mill Unit On Page 19 Of The Assessme Nt Order And The Said Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 15 1515 15 Sum Apportioned Has Been Arrived At Rs 29 04 452 The Ao Has Reduced The Said Disallowed Interest From The Profit Of Win D Mill Claimed As Rs 32 62 326 And Has Thus Assessed The Profit From T He Said Unit At Rs 3 57 874 This Apportionment Has Resulted In The Addition Of Rs 29 04 452 4 1 1 The Ao Has Depicted On Page 17 Of His Order Profit And Various Items In Respect Of Five Assessment Years The Table Sums Up The Account Of The Unit Since Inception As Presented By The Assessee The Ao Has Thus Pointed Out That Even In Assessment Year 2011 12 The Own Fu Nd Is Negative And A Loan Of Rs 6 2 Crore Was Taken From State Bank Of Mysore To Purchase Fixed Assets Or To Repay Earlier Loan In Para 6 4 The Ao Has Observed That A Part Of The Loan From The Fund Was Utilized For Running Wind Mill And For Repayment Of Loan Taken From State Bank Of Mysore It Has Fur Ther Been Noted That No Apportionment Of Borrowings Was Made Towards Wind M Ill The Ao Has Thus Noted That Wind Mill Unit Was Subsidized By Allocat Ing More Expenses To Its Other Business And Thereby Increasing The Profit Of The Wind Mill And Decreasing The Profit Of Other Business According To The A O Section 80 Ia Deduction Has Thus Wrongly Been Claimed Upto The Am Ount Of Rs 29 04 452 4 1 2 The Assessee Vide His Submission Dated 05 06 1 5 In Page 5 In Clause 3 D Has Claimed That The Cash Fund Flow Statement As On 31 03 11 Reflects That The Total Out Flow Of Cash Is Covered By Total Inflow From The Wind Mill And No Other Loan Or Fund From The Consolidated Account Has Been Used In The Wind Mill Business In Support The Ar Pointed Out T O The Balance Sheet Of Wind Mill Ii Wherein Capital Account Debt Of Rs L 10 12 230 Is Shown In Other Words The Ar Relied On The Balance Sheet As O N 31 03 11 Which Shows Negative Capital Account Of About Rs 1 10 00 000 Apparently Indicating Net Cash Out Flow From The Unit I To The Consolidated F Und 4 1 3 After Considering The Reasons And The Formula Adopted For Allocation Of Common Interest Expenses And The Submission Of The Ar On The Point I See That The A O Is Not Entirely Correct In Allocating Common Interest To The Extent Of About Rs 29 Lakh To Unit I At The Same Time The Assessee Is Also Not Correct In Claiming That There Is No Inflow Of Loan From The Consolidated Balance Sheet While Agreeing With The A Os Observ Ation That There Was Some Inflow Of Common Loan To Unit I The Formula A Dopted By The A O For Apportionment Of Interest Suffers From One Defect B Eing That It Completely Ignored The Heavy Borrowings In Unit Ii Where Only Sales Of Rs 649 Has Been Shown But The Un Depreciated Value Of Wind Mill In The Said Unit Ii Is Of About Rs 6 70 Crore The A O Has Ignored Completely This Units Borrowings While Adopting The Formula For Apportionment And Basing I T On Gross Business Receipts The Interest Cost Is The Cost Of Money In Vested And The Formula Adopted By The A O Has Effectively Allocated No Com Mon Interest To Unit Ii Which Is Clearly In More Debt Than The Unit 1 On R Eading The Two Balance Sheet For The Said Units It Can Be Seen That About Rs 2 Crore Of Borrowings From Common Fund Can Be Said To Be In Unit Ii But I N Unit I About Rs 1 5 Crore Of Loan Can Be Said To Find Its Way From The Common Fund To Elaborate It Little More From Rs 19 Crore Of Consolidated Cash F Low As Discussed Herein Before On Allowing About Rs 16 Crore Of Investment In Tt About Rs 3 Crore Of Own Fund Or Profit May Be Said To Be Available For Allocation For Asset Or Activities Other Than Tt Shares The Said Rs 3 Cro Re May Be Considered For Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 16 1616 16 Allocation Between Unit I And Ii And Keeping The Un Depreciated Value Of Wind Mill Assets In Mind It Can Be Seen That In Uni T I Additional Rs 1 5 Crore Of Borrowings Can Be Said To Have Been Utilized From T He Common Borrowings The Assessee Cannot Claim To Have Completely Financ Ed The Unit I From Indicated Secured Loan Of Rs 1 5 Crore As Common B Orrowings And Common Own Fund Along With Profit And Aggregate Depreciati On Leave Very Little To Explain Or Claim That Unit I Wind Mill Has Utilized Only Indicated Secured Loan Keeping In Mind The Fallacy Or Difficulty In The Al Location Formula Adopted By The A O And Unsubstantiated Claim Of The Assessee T Hat There Is No Scope For Further Allocation Of Loan Towards Unit Ii See It R Easonable And Correct To Apportion Borrowings Of About Rs 1 5 Crore To Unit I By Allocating The Said Amount Of Loan Own Fund Or Cash Flow Of About Rs 3 Crore Gets Considered Completely In Unit I As Regards Unit Ii An Allocat Ion Could Have Only Academic Significance As This Unit Is In Heavy Loss Which Gets Set Off Against Profit Of Other Activities And So No Profit Calcula Tion In Respect Of 80 Ia Is Required Of Unit Ii 4 1 4 For The Purpose Of Allocation Of Interest To Wards Unit I Borrowings Common Fund Loans Allocated To The Unit Is Thus Tak En At Rs 1 5 Crore As Discussed Above This Figure Is Arrived On The Last Day Of The Financial Year Unit I Has Cash Flow Of About Rs 35 Lakh In The Cu Rrent Year And This Has To Be Considered For Deriving The Common Loan Utilized In Unit I At The Beginning Of Year Thus Average Fund From The Common Borrowin Gs For The Entire Financial Year Comes To Rs 1 5 35 2 1 68 Crore Taking Average Interest Rate Of 12 Interest On The Said Allocation Comes T O 20 Lakh Thus The Addition On Account Of Allocated Interest Is Restri Cted To Rs 20 Lakh And The Balance Addition Of Rs 9 04 452 Is Deleted In O Ther Words The Profit Of The Unit I As Assessed By The Ao Is Increased By Rs 9 04 452 Which Results In Higher Allowable Deduction U S 80 Ia The Above Deci Sion Has The Impact Of Addition In The Assessed Income Of Rs 20 Lakh As Ag Ainst Rs 29 04 452 Determined By The Ao The Addition Is Restricted To Rs 20 Lakhs And The Balance Rs 9 04 452 Is Deleted The Ground Is Th Us Partly Allowed 5 3 Not Being Satisfied With The Order Of Cit A T He Assessee Is In Appeal Before Us T He Ld Dr For The Revenue Has Primarily Reiterated The Stand Taken By The Assessing Officer Which We Have Already Noted In O Ur Earlier Para And Is Not Being Repeated For The Sake Of Brevity 5 4 On The Other Hand The Ld Counsel For The Asses See Submitted Before Us That As Per The Ld Ao And Cit A The Assessee Used The Amo Unt Of Consolidated Fund For Repayment Of Secured Loan In Wind Mill No 1 And The Said Amount Was Paid From Consolidated Fund Where Interest Have Been Paid By The Assessee Therefore As Per The Ao And Cit A By Repaying The Secured Loan From Borrowed Funds In Consolidated Account The Ao And Cit A Presumed Th At Part Of The Borrowed Funds Were Used For Such Repayment And Thereby Disallowed Part Of The Interest While Calculating The Deduction U S 80 Ia The Ld Counsel Pointed Out Before Us That Both Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 17 1717 17 The Ld Ao And Cit A Have Proceeded On Presumption That The Repayment Was Made Out Of Consolidated Or Mixed Fund And As Such The Borrowed Funds Were Used For Repayment Of Loan In Wind Mill No 1 The Disall Owance Cannot Be Made On Presumption The Counsel Submitted Before Us The Ca Sh Flow Statement Wind Mill Had Debit In Capital Account And Have Received Back Such Debit The Counsel Also Submitted Before Us Consolidated Account The Payme Nt From Consociated Fund Was Made Out Of Receipt Of Royalty Income And Repayment Of Earlier Loans Which Have Been Received Back In The Capital Account The Enti Re Amount Is Therefore Out Of The Receipts Other Than The Secured Loan In Consolidate D Fund Therefore No Part Of The Interest Can Be Attributed To The Secured Loan And As Such Interest Cannot Be Apportioned Moreover The Loans In Consolidated Ac Count Were Taken For Business Expediency And The Entire Interest Was Allowed As B Usiness Expenditure By The Itat In Assessment Year 2009 10 When Entire Amount Was Allowed As Business Expenditure Nothing Remains For Further Disallowan Ce From Interest Account 5 5 We Have Given A Careful Consideration To The Ri Val Submissions We Note That During The Course Of Hearing The Ld Counsel Submit Ted Before Us The Cash Flow Statement Of Tt Industries Wind Mill No 1 Which Is Given Below For Ready Reference Tt Industries Wind Mill No 1 Prop Rikhab Chand Jain Cash Flow Statement For The Year Ended 31 St March 2011 Source Of Fund Amount Application Of Fund Amount Opening Balance Electricity Sale Received Refund From C Fund Nil 6 93 4020 75 00 792 Interest On Wind Mill Loan Insurance Charges Wind Mill Expenses Loan Re Paid Increase In Debtors Further Debts Closing Balance 2 22 0722 36 792 1 17 6080 7 50 0792 2 08 6541 14 13 885 0 00 1 44 34 812 1 44 34 812 We Note That It Is Not A Cash Flow Statement At All Accounting Standard 3 Issued By Icai Provides The Method To Draw The Cash Flow Stat Ement Having Operating Investment And Financing Activities Cash Flow Stat Ement Should Explain On What Account The Cash Is Coming In The Organization And On What Account Cash Is Going Out Side The Organization This Statement Shows El Ectricity Sale In Sources And Decrease In Debtors In Application Which Does Not Have Any Scene What Includes Sri Rikhab Chand Jain Ita No 1129 Kol 2015 Co No 47 Kol 2015 Assessment Year 2011 12 Page Page Page Page 18 1818 18 In Further Debts Of Rs 14 13 885 Has Not Been E Xplained We Also Note That Figures Explained To Assessing Officer And Figures Mentioned In The Above Cited Cash Flow Statement Does Not Tally Considering The Fact Ual Position Explain Above We Are Of The View That Order Passed By The Ld Cit A Does Not Have Any Infirmity And Hence We Confirm The Order Passed By Ld Cit A 5 6 In The Result The Cross Objection Filed By The Assessee Is Dismissed Order Pronounced In The Open Court On This 22 12 20 17 Sd A T Varkey Sd Dr A L Saini Judicial Member Accountant Member Kolkata Dated 22 12 2017 Rs Sps Copy Of The Order Forwarded To By Order Senior Private Secretary Head Of Office D D O I T A T Kolkata Benches Kolkata 1 The Assessee Sri Rikhab Chand Jain 2 The Revenue Dcit Cir 36 Kolkata 3 The Cit A Kolkata 4 Cit 5 Dr Itat Kolkata 6 Guard File True Copy