JCIT,, Ludhiana v. M/s Malwa Industries Ltd.,, Ludhiana

ITA 1169/CHANDI/2009 | 2006-2007
Pronouncement Date: 28-02-2011 | Result: Dismissed

Appeal Details

RSA Number 116921514 RSA 2009
Assessee PAN AABCM1287D
Bench Chandigarh
Appeal Number ITA 1169/CHANDI/2009
Duration Of Justice 1 year(s) 2 month(s) 11 day(s)
Appellant JCIT,, Ludhiana
Respondent M/s Malwa Industries Ltd.,, Ludhiana
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 28-02-2011
Date Of Final Hearing 23-09-2010
Next Hearing Date 23-09-2010
Assessment Year 2006-2007
Appeal Filed On 17-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL: A BENCH: CH ANDIGARH BEFORE HONBLE SHRI D K SRIVASTAVA AM AND HONBLE MS. SUSHMA CHOWLA JM ITA NO. 1169/CHANDI/2009 ASSESSMENT YEAR: 2006-07 J.C.I.T. V M/S MALWA INDUSTRIES LTD. RANGE-VII 230-A INDUSTRIAL AREA-A LUDHIANA LUDHIANA PAN: AABCM1287D APPELLANT BY: SHRI N.K.SAINI DR RESPONDENT BY: SHRI M.L.JOSHI ORDER D K SRIVASTAVA: THE APPEAL FILED BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 3.9.2009. THE APPEAL RELATES TO ASSESSMENT YEAR 2006-07. GROUND NO.1 TAKEN BY THE DEPARTMENT READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT (A)-II. LUDHIANA HAS ERRED IN DELETING THE ADDITION OF RS.8 23 502/- MADE BY THE AO FOR INTEREST FREE ADVANCE GIVEN TO THE SUBSIDIAR Y COMPANY. 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD GIVEN INTEREST FREE A DVANCES AMOUNTING TO RS.94.34 CRORES TO ITS SUBSIDIARY COMPANIES. THE ASSESSING O FFICER THEREFORE PROPOSED TO DISALLOW INTEREST ATTRIBUTABLE TO THESE ADVANCES. I N REPLY THE ASSESSEE FILED WRITTEN SUBMISSIONS IN THIS BEHALF IN WHICH FOLLOWI NG SUBMISSIONS WERE MADE: YOU HAVE PROPOSED TO DISALLOW PROPORTIONATE INTERE ST ON AMOUNT OF INTEREST FREE ADVANCE OF RUPEES 94.34 LACS TO SUBSI DIARY COMPANY IN THIS REGARD IT IS RESPECTFULLY SUBMITTED THAT OUR COMPAN Y IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF DENIM FABR IC AND GARMENTS IN THE DOMESTIC AND OVERSEAS MARKET. THE DEMAND FOR THE D ENIM GARMENTS WITHIN AND OUTSIDE INDIA WAS GROWING. THE DISMANTL ING QUANTITATIVE RESTRICTIONS ON EXPORT OF FABRIC AND APPAREL TO USA AND EUROPE HAVE THROWN UP MORE OPPORTUNITIES TO OUR COMPANY. IN ORDE R TO LEVERAGING ITS M/S MALWA INDUSTRIES LTD. I.T.A.NO. 1169/CHANDI/2009 2 RELATIONSHIP WITH LARGE APPAREL BUYERS GLOBALLY TH E COMPANY HAS ACQUIRED HOLDING STAKE IN COMPANY ENGAGED IN MANUFACTURING OF JEANS WEAR AND EXPORTING IN U.S. TO LEADING BRANDS AND IN COMPANY ENGAGED IN DYEING & WASHING OF GARMENTS AND SUPPLYING TO TOP LEADING BR ANDS OF ITALY. THE PURPOSE FOR DOING BUSINESS THROUGH SUBSIDIARY COMPA NIES WAS ONLY TO IMPROVE THE BOTTOM LINE OF THE MALWA INDUSTRIES. I N BRIEF THAT THE FUNDS WERE GIVEN OUT OF INTERNAL CASH ACCRUALS & SURPLUS FUNDS FOR THE PURPOSES OF THE BUSINESS OF THE COMPANY. IN VIEW OF ABOVE F ACTS YOU ARE HEREBY REQUESTED THAT DISALLOWANCE OUT OF INTEREST PAID MA Y NOT BE MADE. 3. THE AO DID NOT ACCEPT THE AFORESAID SUBMISSIONS. HE FELT THAT THE MERE FACT THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES TO THE SISTER CONCERNS WAS BY ITSELF SUFFICIENT FOR MAKING DISALLOWANCE OF INTERE ST AND ACCORDINGLY DISALLOWED INTEREST AMOUNTING TO RS.8 23 502/-. 4. AGGRIEVED BY THE ORDER PASSED BY THE ASSESSING O FFICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONE R OF INCOME-TAX (A) UPON WHICH THE LEARNED COMMISSIONER OF INCOME-TAX (A) DE CIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A.BUILDERS V. CIT. 5. AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONE R OF INCOME-TAX (A) THE DEPARTMENT IS NOW IN APPEAL BEFORE THIS TRIBUNAL. I N SUPPORT OF APPEAL IT WAS SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME-T AX (A) HAS NOT RECORDED ANY FINDING AS TO WHETHER ANY BUSINESS PURPOSE WAS ACTU ALLY SERVED BY GIVING INTEREST-FREE ADVANCES TO THE SISTER CONCERNS. 6. IN REPLY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (A). HE SUBMITTED THAT THE ASSESSEE HAD EXPLAINED BEFORE THE ASSESSING OFFICER THE BUSINESS PURPOSE WHICH WAS SERVED BY GIVING THE IMPUGNED INTEREST FREE ADV ANCES TO THE SUBSIDIARY COMPANIES AND THAT THE ASSESSING OFFICER HAS NOT RE BUTTED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE HIM IN THIS REGARD. 7. WE HAVE HEARD BOTH THE PARTIES. WE HAVE ALREADY REPRODUCED THE REPLY GIVEN BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. THE ASSESSEE HAS EXPLAINED THE BUSINESS PURPOSE THAT WAS SERVED BY GIVING INTE REST FREE ADVANCES TO THE M/S MALWA INDUSTRIES LTD. I.T.A.NO. 1169/CHANDI/2009 3 SUBSIDIARY COMPANIES. IT WAS FOR THE ASSESSING OFFI CER EITHER TO ACCEPT OR REBUT THE AFORESAID SUBMISSIONS. THE ASSESSING OFFICER HA S NOT REBUTTED THE AFORESAID SUBMISSIONS. IN THIS VIEW OF THE MATTER THE LEARNED COMMISSIONER OF INCOME-TAX (A) WAS JUSTIFIED IN DECIDING THE ISSUE IN FAVOUR O F THE ASSESSEE FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN S.A.BUILDE RS LTD. VS. CIT 288 ITR 1 (SC). GROUND NO.1 IS DISMISSED. 8. GROUND NO.2 READS AS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT (A)- II. LUDHIANA HAS ERRED IN DELETING THE ADDITION OF RS.10 36 299/- MADE BY THE AO U/S 40A (2) (B) ON ACCOUNT OF EXCESS PRICE P AID FOR PURCHASE OF COMBER COTTON WASTE. 9. THE FACTS OF THE CASE GIVING RISE TO THE AFORESA ID GROUND ARE THAT THE ASSESSEE WAS FOUND TO HAVE MADE PAYMENTS TO ITS SIS TER CONCERNS M/S MALWA COTTON SPINNING MILLS LTD. FOR PURCHASES AMOUNTING TO RS.1 03 62 994/-. THE RELATIONSHIP OF THE ASSESSEE COMPANY WITH THE AFORE SAID SISTER CONCERN IS WELL COVERED BY SECTION 40A(2)(B). THE ASSESSEE SUBMITT ED BEFORE THE ASSESSING OFFICER THAT THE COTTON WASTE WAS PURCHASED BY THE ASSESSEE COMPANY AT COMPARABLE RATES AT WHICH SIMILAR PURCHASES WERE MA DE FROM OTHER PARTIES AND THEREFORE THE PROVISIONS OF SECTION 40A(2) COULD N OT BE APPLICABLE TO ITS CASE. THE ASSESSING OFFICER HOWEVER NOTED THAT THE ASSE SSEE HAS PURCHASED 38 685 KGS OF COTTON FROM THE SAID SISTER CONCERN FOR A SU M OF RS.13 68 150/- AT AVERAGE RATE OF RS.35.37 PER KG. HE FURTHER FOUND THAT PUR CHASES OF 27 380 WERE MADE FROM OUTSIDE PARTIES AT AN AVERAGE RATE OF RS.33.63 PER KG. THE ASSESSING OFFICER THEREFORE INFERRED THAT THE PURCHASES WER E MADE AT HIGHER RATES FROM M/S MALWA COTTON SPINNING MILLS LTD. IN THIS VIEW OF THE MATTER THE ASSESSING OFFICER DISALLOWED 10% OF THE PURCHASES MADE FROM M /S MALWA COTTON SPINNING MILLS LTD. UNDER SECTION 40A(2)(B) OF THE ACT. 10. AGGRIEVED BY THE ORDER PASSED BY THE ASSESSING OFFICER THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (A). THE LEARNED COMMISSIONER OF INCOME-TAX (A) HAD DECIDED THE ISSUE AS UNDER : I HAVE CAREFULLY CONSIDERED CONTENTION OF THE LEAR NED COUNSEL FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. DUR ING APPEAL PROCEEDINGS M/S MALWA INDUSTRIES LTD. I.T.A.NO. 1169/CHANDI/2009 4 THE APPELLANT HAS FURNISHED DETAILS OF PURCHASES MA DE BY THE APPELLANT FROM M/S MALWA COTTON SPINNING MILLS LTD. THE ASSES SING OFFICER HAS COMPARED ONLY THE PURCHASES MADE BY THE APPELLANT I N THE MONTH OF AUGUST 2005 ONLY. HOWEVER AS PER THE DETAILS FURNI SHED BY THE APPELLANT WHICH ARE GIVEN IN ANNEXURE-A OF THIS ORDER IT IS ONLY IN THIS MONTH THAT THE AVERAGE RATE OF PURCHASES MADE FROM THE SAID CO NCERN IS SHOWN TO BE HIGHER THAN THE AVERAGE PURCHASE RATE MADE FROM OTH ER PARTIES. IN THE OTHER MONTHS THE PURCHASES MADE FROM THE SISTER CO NCERN ARE AT AVERAGE PRICE LOWER THAN THAT AT WHICH THE PURCHASES WERE M ADE FROM THE OTHER PARTIES. FOR THE MONTH OF JULY & AUGUST BILL-WISE D ETAILS WERE FURNISHED FOR PURCHASES MADE FROM BOTH M/S MALWA COTTON SPINNING MILLS LTD. (MCSM) AND FROM OUTSIDE PARTIES. THESE DETAILS ARE ALSO GI VEN IN ANNEXURE-B AND ANNEXURE-C TO THIS ORDER RESPECTIVELY. AS RIGHTL Y POINTED OUT BY THE LEARNED COUNSEL THESE PURCHASES MADE FROM MCSM IN CLUDED 3210 KGS OF RAW COTTON PURCHASED FOR RS.1 55 685/- AT AN AVERAG E RATE OF RS.48 50 PER KG AND WHICH IS INCLUDED IN THE DETAILS OF PURCHASE S OF COMBER WASTE MADE BY THE APPELLANT FROM THE SAID SISTER CONCERN. IF T HIS PURCHASE IS TAKEN OUT THE AVERAGE RATE OF PURCHASES OF COMBER WASTE MADE FROM THE SAID SISTER CONCERN COMES TO RS.34 17 PER KG. I AGREE WITH T HE LEARNED COUNSEL THAT THIS IS QUITE COMPARABLE WITH THE AVERAGE RATE OF P URCHASE OF SIMILAR MATERIAL I.E. COMBER WASTE ETC. MADE FROM OUTSIDE P ARTIES AT RS.33.63 PER KG. EVEN OTHERWISE FROM THESE DETAILS IT BECOMES Q UITE CLEAR THAT THE RATES VARIED FROM DAY TO DAY. THE PURCHASES MADE FROM TH E SISTER CONCERN CANNOT BE SAID TO BE AT RATES HIGHER THAN THOSE AT WHICH PURCHASES ARE MADE FROM OUTSIDE PARTIES IF THESE RATES ARE COMPAR ED KEEPING IN VIEW THE RELEVANT DATES OR NEARBY DATES. IT IS FURTHER SEE N THAT FOR MAKING THIS DISALLOWANCE THE A.O. HAS JUST CONSIDERED THE AVERA GE PURCHASE RATE FOR PURCHASES OF RS.13 68 150/- AND CAME TO THE CONCLUS ION THAT PURCHASES OF THE ENTIRE AMOUNT OF RS.1 0362 992/- HAVE BEEN MADE AT A PRICE 10% HIGHER THAN THAT AT WHICH PURCHASES ARE MADE FROM O UTSIDE PARTIES. THERE IS NO SCOPE IN THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT TO MAKE SUCH DISALLOWANCE ON THE ABOVE BASIS. FOR MAKING SUCH D ISALLOWANCE THE POSITION OF PURCHASES MADE ON DAY TO DAY BASIS WAS REQUIRED TO BE COMPARED WITH THE POSITION OF PURCHASES MADE FROM O UTSIDE PARTIES ON OR M/S MALWA INDUSTRIES LTD. I.T.A.NO. 1169/CHANDI/2009 5 AROUND SAME DATES. THIS HAS SOMEHOW NOT BEEN DONE. THEREFORE THE DISALLOWANCE MADE ON THE ABOVE GROUND IS NOT SUSTAI NABLE. FURTHER POINTED OUT BY THE LD. COUNSEL IN THE WRITTEN SUBMI SSIONS SIMILAR ADHOC ADDITION MADE BY THE A.O. @ 10% U/S 40(A)(B) OF THE ACT WAS DELETED BY THE CIT(A) IN APPEAL IN THE ASSESSMENT YEAR 2005-06 IN THIS CASE AND THAT THIS WAS UPHELD BY THE HON'BLE ITAT. THEREFORE KE EPING IN VIEW THE ABOVE DISCUSSED POSITION THE DISALLOWANCE MADE BY T HE A.O. CANNOT BE HELD TO BE JUSTIFIED AND IT IS ACCORDINGLY DELETED. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 12. AGGRIEVED BY THE ORDER PASSED BY THE COMMISSION ER OF INCOME-TAX (A) THE DEPARTMENT IS NOW IN APPEAL BEFORE THIS TRIBUNAL. IN SUPPORT OF THE APPEAL THE LD. D.R. RELIED UPON THE ORDER PASSED BY THE ASSESS ING OFFICER. 13. IN REPLY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (A) 14. WE HAVE HEARD BOTH THE PARTIES. THE LEARNED COM MISSIONER OF INCOME-TAX (A) HAS RELIED UPON HIS OWN ORDER FOR ASSESSMENT YE AR 2005-06 IN WHICH SIMILAR ADDITION MADE BY THE ASSESSING OFFICER WAS DELETED BY HIM AND HIS ORDER ON APPEAL WAS CONFIRMED BY THIS TRIBUNAL. THE DEPARTM ENT HAS NOT BEEN ABLE TO REBUT THE FINDINGS RECORDED BY THE LEARNED COMMISSI ONER OF INCOME-TAX (A) FOR DELETING THE IMPUGNED ADDITION. IN THIS VIEW OF THE MATTER HIS ORDER IN THIS BEHALF IS CONFIRMED. GROUND NO.2 IS DISMISSED. 15. GROUND NO.3 READS AS UNDER: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT (A)- II. LUDHIANA HAS ERRED IN DELETING THE ADDITION OF RS.16 99 133/- MADE BY THE AO U/S 37 (1) BEING EXPENDITURE OF CAPITAL NATU RE SHOWN UNDER THE HEAD BANK CHARGES. 16. DURING THE COURSE OF SCRUTINY THE ASSESSING OF FICER NOTICED THAT THE ASSESSEE HAD CLAIMED A SUM OF RS.16 99 133/- TOWARD S BANK CHARGES. HE FOUND THAT THE AFORESAID EXPENSES WERE INCURRED FOR GETTI NG TERM LOAN SANCTIONED. HE THEREFORE PROPOSED TO DISALLOW THE AFORESAID E XPENDITURE ON THE GROUND THAT IT WAS IN THE NATURE OF CAPITAL EXPENDITURE. IN RE PLY THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE IMPUGNED BANK CHARGES WERE INCURRED FOR M/S MALWA INDUSTRIES LTD. I.T.A.NO. 1169/CHANDI/2009 6 AVAILING WORKING CAPITAL AND THAT SIMILAR EXPENSES WERE BEING INCURRED YEAR AFTER YEAR. THE ASSESSING OFFICER HOWEVER DID NOT ACCEP T THE AFORESAID SUBMISSIONS AND CONSEQUENTLY DISALLOWED A SUM OF RS.16 99 133/- OUT OF BANK CHARGES. 17. AGGRIEVED BY THE ORDER PASSED BY THE ASSESSING OFFICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONE R OF INCOME-TAX (A). THE LEARNED COMMISSIONER OF INCOME-TAX (A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS : I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE LD. COUNSEL FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. THE SE EXPENSES HAVE BEEN INCURRED BY THE APPELLANT ON ACCOUNT OF THE PROCESS ING FEE PAID TO THE BANK TO PROCESS THE WORKING CAPITAL FACILITY AND LEAD BA NK FEE PAID TO BANK IN CONSIDERATION OF THEIR SERVICES WHICH ARE RECURRING IN NATURE. AS POINTED OUT BY THE LD. COUNSEL SIMILAR DISALLOWANCE WAS MAD E DURING THE ASSESSMENT YEAR 2005-06 ALSO IN THE CASE OF THE APP ELLANT AND DELETION OF THE SAME IN APPEAL BY THE CIT(A) WAS UPHELD BY THE HON'BLE ITAT. KEEPING IN VIEW THE ABOVE DECISION OF THE HON'BLE J URISDICTIONAL BENCH OF ITAT THE DISALLOWANCE OF RS.16 99 133/- IS DELETED AND THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 18. AGGRIEVED BY THE ORDER PASSED BY THE COMMISSION ER OF INCOME-TAX (A) THE DEPARTMENT IS NOW IN APPEAL BEFORE THIS TRIBUNAL. 19. IN SUPPORT OF THE APPEAL THE LEARNED D.R. RELI ED UPON THE ORDER PASSED BY THE ASSESSING OFFICER. 20. IN REPLY THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (A). 21 WE HAVE HEARD BOTH THE PARTIES. THE LEARNED COMM ISSIONER OF INCOME-TAX (A) HAS GIVEN COGENT REASONS FOR DELETING THE IMPUG NED ADDITION. HE HAS FOLLOWED HIS OWN ORDER FOR ASSESSMENT YEAR 2005-06 IN WHICH SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED AND ON A PPEAL THE ORDER OF THE COMMISSIONER OF INCOME-TAX (A) WAS CONFIRMED BY THI S TRIBUNAL. THE LEARNED D.R. HAS NOT REBUTTED THE FINDINGS RECORDED BY THE COMMISSIONER OF INCOME-TAX M/S MALWA INDUSTRIES LTD. I.T.A.NO. 1169/CHANDI/2009 7 (A) IN THIS BEHALF. IN THIS VIEW OF THE MATTER TH E ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (A) IS CONFIRMED. GROUN D NO.3 IS DISMISSED. 22. GROUND NOS.4 AND 5 ARE GENERAL IN NATURE AND T HEREFORE DO NOT REQUIRE INDEPENDENT ADJUDICATION. 23. IN VIEW OF THE FOREGOING THE APPEAL FILED BY T HE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON 28 FEBRUARY 2011 SD/- SD/- (SUSHMA CHOWLA) (D K SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBE R CHANDIGARH: THE 28 FEBRUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE D.R. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT CHANDIGARH