DCIT, Moradabad v. M/s. Paramount Metal Factory, Moradabad

ITA 3694/DEL/2009 | 2006-2007
Pronouncement Date: 30-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 369420114 RSA 2009
Assessee PAN AAEFP3050B
Bench Delhi
Appeal Number ITA 3694/DEL/2009
Duration Of Justice 7 month(s) 30 day(s)
Appellant DCIT, Moradabad
Respondent M/s. Paramount Metal Factory, Moradabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted F
Tribunal Order Date 30-04-2010
Date Of Final Hearing 28-04-2010
Next Hearing Date 28-04-2010
Assessment Year 2006-2007
Appeal Filed On 31-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO.3498/DEL/2009 ASSESSMENT YEAR : 2006-07 M/S PARAMOUNT METAL FACTORY TAVELA STREET MORADABAD. PAN : AAEFP3050B VS. ADDL. CIT RANGE-I ITO PILI KOTHI CIVIL LINES MORADABAD. ITA NO.3694/DEL/2009 ASSESSMENT YEAR : 2006-07 DCIT RANGE-I MORADABAD. VS. M/S PARAMOUNT METAL FACTORY TAVELA STREET MORADABAD. PAN : AAEFP3050B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.K. MISHRA CA REVENUE BY : SHRI H.K. LAL SR. DR ORDER PER I.P. BANSAL JUDICIAL MEMBER THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE DIRECTED AGAINST THE ORDER OF THE CIT (A) DATED 10 TH JUNE 2009 FOR ASSESSMENT YEAR 2006- 07. THE GROUNDS OF APPEAL READ AS UNDER:- ASSESSEES APPEAL 1. THE LD. CIT (A) HAS ERRED IN LAW AND AGAINST TH E FACTS ON BOTH FOR PASSING THE ABOVE ORDER. 2. THE LD. CIT (A) IS HIGHLY UNJUSTIFIED FOR CONFI RMING THE ACTION OF LD. ACIT FOR CONFIRMING THE DISALLOWANCE OF ITA NO.3498/DEL/2009 ITA NO.3694/DEL/2009 2 TELEPHONE EXPENSES THEREOF TO THE EXTENT OF 5% BY A LLEGING THAT IN VIEW OF FACTS OF THE CASE THE A.O. ACTION IS PROPER. WHILE FRINGE BENEFIT TAX HAS BEEN PAID ON THIS AMOU NT. 3. THE LD. CIT (A) IS HIGHLY UNJUSTIFIED AND AGAIN ST THE FACTS FOR CONFIRMING THE DISALLOWANCE OF CAR EXPENSES AND DEPRECIATION ON CAR THEREOF TO THE EXTENT OF 5% BY ALLEGING THAT IN VIEW OF FACTS OF THE CASE THE A.OS ACTION IS PROPER WHILE FRINGE BENEFIT TAX HAS BEEN PAID ON THIS AMOU NT. 4. THE LD. CIT (A) IS HIGHLY UNJUSTIFIED AND AGAIN ST THE FACTS FOR CONFIRMING THE DISALLOWANCE OF FOREIGN TOUR EXP ENSES THEREOF TO THE EXTENT OF 5% BY ALLEGING THAT IN VIE W OF FACTS OF THE CASE THE ACTION OF LD. A.O.S IS JUSTIFIED WHIL E FRINGE BENEFIT TAX HAS BEEN PAID ON THIS AMOUNT. 5. THE ADDITIONAL GROUND (3) OF APPEAL SHALL BE TA KEN AT THE TIME OF HEARING THE APPEAL. REVENUES APPEAL 1. THE COMMISSIONER OF INCOME TAX (APPEAL) BAREIL LY HAS ERRED IN LAW AND FACTS OF THE CASE IN ALLOWING BENE FIT OF SECTION 80IB ON THE AMOUNT OF EXPORT INCENTIVES WHICH WAS RIGHTLY HELD BY THE A.O. AS HAVING NOT BEEN DERIVED FROM TH E BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE. 2. THE COMMISSIONER OF INCOME TAX (APPEAL) BAREIL LY HAS ERRED IN LAW AND FACTS OF THE CASE IN NOT FOLLOWING THE DECISIONS AWARDED BY THE JURISDICTIONAL HIGH COURT IN THE CASES OF M/S MENTHA AND ALLIED PRODUCTS LIMITED 7 M TC 625 ETC. MORE SPECIFICALLY WHEN THE JURISDICTIONAL HIG H COURT ITSELF HAS NOT DISTINGUISHED ITS OWN DECISION IN THE CASE REFERRED TO ABOVE AND HENCE DECISIONS (SUPRA) OUGHT TO HAVE BEE N FOLLOWED BY THE APPELLATE AUTHORITY IN DECIDING THE ISSUE WHICH IS SQUARELY COVERED BY ALL THE DECISIONS MENTIONED AS ABOVE . 3. THE COMMISSIONER OF INCOME TAX (APPEAL) BAREIL LY HAS ERRED IN LAW AND FACTS OF THE CASE IN NOT FOLLOWING THE JURISDICTIONAL ITAT BENCH G DECISION IN ITA NO.74 7/DEL/2007 IN THE CASE OF M/S PARAMOUNT METAL FACTORY FOR THE ASSESSMENT YEAR 2003-04 WHEREIN JURISDICTIONAL BENC H HAS DESIRED EXACTLY THE SAME ISSUE AGAINST THE ASSESSEE . 4. THE COMMISSIONER OF INCOME TAX (APPEAL) BREILL Y HAS ERRED IN LAW AND FACTS OF THE CASE IN ALLOWING RELI EF TO THE ASSESSEE FOR THE SUM OF RS.4 15 212/- ON THE BASIS OF THE DECISION OF THE HONBLE APEX COURT AS REPORTED IN 2 88 ITR . IN ITA NO.3498/DEL/2009 ITA NO.3694/DEL/2009 3 THIS DECISION STRESS HAS BEEN LAID ON THE PRESENCE OF ELEMENT OF COMMERCIAL EXPEDIENCY BETWEEN THE PARTIES. THU S BEFORE APPLYING THE DECISION COMMISSIONER OF INCOME TAX (A) SHOULD HAVE EXAMINED THE IMPORTANT ASPECT IN THIS CASE. AS PER THE RECORD THE LOAN WAS GIVEN TO THE RELATIVES OF THE PARTNERS OF THE ASSESSEE AND NOT TO ANY SISTER CONC ERNS. THUS IN ACTUAL LOANS WERE PURELY PERSONAL IN NATURE RATHER THAN INVOLVING ELEMENT OF ANY COMMERCIAL EXPENDIENC Y. 5. THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEAL) BAREILLY MAY BE SET ASIDE AND THE ORDER O F THE A.O. MAY BE RESTORED. 6. ANY OTHER GROUND WHICH MAY BE TAKEN DURING THE COURSE OF THE APPELLATE PROCEEDINGS. ASSESSEES APPEAL 2. GROUND NOS.1 2 AND 3 WERE NOT PRESSED HENCE T HEY ARE DISMISSED BEING NOT PRESSED. SO AS IT RELATES TO GROUND NO.4 IT W AS SUBMITTED THAT AD HOC DISALLOWANCE OF 10% ON FOREIGN TOUR EXPENSES HAS BE EN MADE BY THE ASSESSING OFFICER. IT HAS BEEN SUSTAINED BY THE CIT (A) TO T HE EXTENT OF 5%. IT WAS SUBMITTED THAT SIMILAR DISALLOWANCE WAS MADE IN THE CASE OF ASSESSEE IN RESPECT OF ASSESSMENT YEAR 2005-06 AND THE SAME HAS BEEN DE LETED BY THE TRIBUNAL VIDE ORDER DATED 31 ST DECEMBER 2009 IN ITA NO.267/DEL/2009. HE HAS PLA CED BEFORE US COPY OF THE SAID ORDER. THE RELEVANT OBSERVATIO NS OF THE TRIBUNAL WHILE DELETING THE ADDITION ARE AS UNDER:- 5. WE HAVE HEARD RIVAL CONTENTIONS AND ARE UNABLE TO APPROVE THE ACTION OF THE DEPARTMENT IN MAKING THE AD HOC D ISALLOWANCE WITHOUT ANY BASIS. IT IS NOBODYS CASE THAT ANY EX PENDITURE INCURRED BY THE ASSESSEE IS FOR NON-BUSINESS PURPOSES. THEY WERE INCURRED ABROAD FOR BUSINESS PURPOSES ONLY. THE ELEMENT OF ANY PERSONAL ENTERTAINMENT IN SUCH AN EXPENDITURE IS NOT BORNE F ROM THE RECORDS. MOREOVER THE ASSESSEE IS AN HUNDRED PERCENT EXPORT ER AND ALL THE EXPENSES ARE INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS. THE DISALLOWANCE IS DELETED. 3. IN THIS VIEW OF THE SITUATION AFTER HEARING BOT H THE PARTIES WE DELETE THE ADDITION SUSTAINED BY THE CIT (A) ON ACCOUNT OF FOR EIGN TOUR EXPENSES AND THIS GROUND OF THE ASSESSEE IS ALLOWED. ITA NO.3498/DEL/2009 ITA NO.3694/DEL/2009 4 REVENUES APPEAL 4. IT WAS THE COMMON CONTENTION OF THE PARTIES THAT GROUND NO.1 2 AND 3 ARE COVERED AGAINST THE ASSESSEE BY THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT 317 ITR 218 (SC) WHE REIN HONBLE SUPREME COURT HAS HELD THAT DEDUCTION U/S 80-IB IS NOT ELIGIBLE O N THE AMOUNT OF EXPORT INCENTIVES. ACCORDINGLY FOLLOWING THE SAID DECISI ON OF HONBLE SUPREME COURT AFTER HEARING BOTH THE PARTIES WE DECIDE THESE GRO UNDS AGAINST THE ASSESSEE AND GROUND NOS.1 2 AND 3 OF THE DEPARTMENTS APPEA L ARE ALLOWED. 5. SO AS IT RELATES TO THE GROUND NO.4 IT WAS SUBM ITTED BY LD. AR THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE E ARLIER ORDER OF THE TRIBUNAL. REFERENCE IN THIS REGARD WAS MADE TO THE ORDER OF T HE TRIBUNAL DATED 29 TH JANUARY 2010 IN ITA NO.3676/DEL/2008 AND 3729/DEL/ 2008 WHEREIN THE ISSUE REGARDING DISALLOWANCE OF INTEREST WAS DEALT WITH B Y THE TRIBUNAL AS FOLLOWS:- 17. GROUND NO.5 OF THE APPEAL READS AS UNDER:- UNDER THE CIRCUMSTANCES OF THE CASE WHETHER CIT(APPEALS) BAREILLLY WAS JUSTIFIED IN ALLOWING RE LIEF OF RS.44 786/- ON ACCOUNT OF DISALLOWANCE MADE BY THE AO WHO FOLLOWED THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S HR SUGAR FACTORY 187 ITR 363 FOR DISALLOWING INTEREST PAID TO BANK. 18. BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED B Y THE ASSESSING OFFICER IN PARA NO.7 OF THE ASSESSMENT ORDER THAT A S PER THE P&L A/C THE ASSESSEE HAS DEBITED A SUM OF RS.16 21 470 /- ON ACCOUNT OF INTEREST PAID TO THE BANK WHEREAS THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS/ADVANCE TO A SISTER CONCERN. IT IS ALSO NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS ALSO FU RNISHED A COPY OF ACCOUNT OF THIS PARTY IN THE BOOKS OF THE ASSESS EE AND AS PER THE SAME THERE IS AN OUTSTANDING BALANCE OF RS.10 48 3 00/- AS ON 31.3.2004. THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY THE PROPORTIONATE INTEREST PAID TO THE BANK SHOULD NOT BE DISALLOWED ON ACCOUNT OF INTEREST FREE LOANS/ADVANCES TO A SIS TER CONCERN. IN REPLY IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THERE WAS A HEAVY INTRODUCTION OF CAPI TAL BY THE PARTNERS DURING THE YEAR UNDER CONSIDERATION AND NO INTEREST ON PARTNERS ITA NO.3498/DEL/2009 ITA NO.3694/DEL/2009 5 CAPITAL HAD BEEN PAID AND THEREFORE NO DISALLOWANC E WAS TO BE MADE OUT OF BANK INTEREST. THE ASSESSING OFFICER WA S NOT SATISFIED AND HE MADE A PROPORTIONATE DISALLOWANCE OF RS.44 7 86/- BY FOLLOWING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH C OURT RENDERED IN THE CASE OF CIT V. HINDUSTAN CONDUCTORS PVT. LTD .; AS REPORTED IN 108 TAXMANN 258. HE HAS ALSO FOLLOWED THE JUDGMENT OF THE HON'BLE ALLAHABAD HIGH COURT WHICH IS THE JURISDICT IONAL HIGH COURT IN THE PRESENT CASE RENDERED IN THE CASE OF CIT V. SARRYA SUGAR MILLS; AS REPORTED IN 201 ITR 181 (ALL.) THAT IN TH E CASE OF HR SUGAR FACTORY; AS REPORTED IN 187 ITR 363 AND ALSO THAT I N THE CASE OF CIT V. GANGA RAO & SONS AS REPORTED IN 185 ITR 324. BE ING AGGRIEVED THE ASSESEE CARRIED THE MATTER IN APPEAL BEFORE THE LD CIT(A). BEFORE LD CIT(A) THE ASSESSEE HAS PLACED RE LIANCE ON THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF SA BUILDERS V. CIT; AS REPORTED IN 288 ITR 1. (SC). TH E LD CIT(A) DELETED THIS DISALLOWANCE BY FOLLOWING THE JUDGMENT OF THE HON'BLE APEX COURT RENDERED IN THE CASE OF SA BUILDERS (S UPRA). IT HAS BEEN OBSERVED BY HIM THAT THERE REMAINS NO CONTROVE RSY ON THE ISSUE BECAUSE THE HON'BLE APEX COURT HAS HELD THAT INTEREST ON FUNDS BORROWED BY THE ASSESSEE TO GIVE INTEREST FRE E LOANS TO A SISTER CONCERN FOR COMMERCIAL EXPEDIENCY SHOULD BE ALLOWED AS A DEDUCTION U/S 36(1)(III) OF THE INCOME TAX ACT 196 1. NOW THE REVENUE IS IN APPEAL BEFORE US. 19. THE LD DR OF THE REVENUE SUPPORTED THE ASSESSME NT ORDER WHEREAS THE LD AR OF THE ASSESSEE SUPPORTED THE ORD ER OF THE LD CIT(A). 20. IT WAS ALSO SUBMITTED BY THE LD AR OF THE ASSES SEE THAT NO NEXUS HAS BEEN PROVED BY THE ASSESSING OFFICER THAT THE BORROWED FUNDS FROM BANK WAS ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERN. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GO NE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE ON A GENERAL BASIS WITHOU T POINTING OUT ANY NEXUS BETWEEN THE INTEREST ON BORROWED FUNDS AN D THE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE TO ITS SISTER C ONCERN. THE LD CIT(A) HAS DELETED THE DISALLOWANCE BY FOLLOWING TH E JUDGMENT OF THE HON'BLE APEX COURT RENDERED IN THE CASE OF SA BUILDERS LTD. (SUPRA). THE LD DR OF THE REVENUE COULD NOT SHOW AS TO HOW THIS JUDGMENT OF THE HON'BLE APEX COURT RENDERED IN THE CASE OF SA BUILDERS LTD. (SUPRA) IS NOT APPLICABLE IN THE PRE SENT CASE AND CONSIDERING ALL THESE FACTS AND CIRCUMSTANCES OF TH E CASE WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD CIT (A) ON THIS ISSUE. WE THEREFORE UPHOLD THE SAME. THIS GROUND OF THE REVENUE IS REJECTED. ITA NO.3498/DEL/2009 ITA NO.3694/DEL/2009 6 6. IN THIS VIEW OF THE SITUATION AFTER HEARING BOT H THE PARTIES AS THE FACTS ARE NOT DISTINGUISHABLE WE FIND NO MERIT IN THIS GROUN D OF THE DEPARTMENTAL APPEAL. ACCORDINGLY THE SAME IS DISMISSED. 7. IN THE RESULT BOTH THE APPEALS ARE PARTLY ALLOW ED IN THE MANNER AFORESAID. . THE ORDER PRONOUNCED IN THE OPEN COURT ON 30.04.20 10. SD- SD/- [SHAMIM YAHYA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 30/04/2010. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES