DCIT, Saharanpur v. SMC Power Generation Ltd., Saharanpur

ITA NO. 542/DEL/2010 A.Y. 2007-08 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T.A. NO. 542/DEL/2010 A.Y. 2007-08 DEPUTY COMMISSIONER OF INCOME TAX VS. M/S S.M.C. POWER GENERATION LTD. CIRCLE SAHARANPUR 654 BOMANJI ROAD SAHAR ANPUR (PAN: AACCS3066B) [APPELLANT] (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : MRS. ROLEE AGARWAL SR. DR ORDER PER SHAMIM YAHYA AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 27.11.2 009 AND PERTAINS TO ASSESSMENT YEAR 2007-08. 2. THE FIRST ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE OVERLOAD CHARGES OF RS. 10893 20/- PAID TO THE RAILWAYS. 3. THE ASSESSEE IN THIS CASE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF SPONGE IRON BILLET AND BLOOMS AND POWER GENERATION. DURING THE COURSE OF ASSESSMENT THE ASSESSING OFFICER OBS ERVED ASSESSEE HAD DEBITED THE AMOUNT OF RS. 1039320/- ON ACCOUNT OF FINE AND PENALTY UNDER THE HEAD SELLING & DISTRIBUTION EXPENSES. IT WAS EXPLAINED BY THE ASSESSEE THE SAID ITA NO. 542/DEL/2010 A.Y. 2007-08 2 AMOUNT HAD BEEN PAID TO THE RAILWAYS AUTHORITIES FO R OVERLOADING OF BILLET WHICH WAS LOADED FROM PLANT AT JHARSUGUDA ORISSA TO B.O. AT MANDI GOVINDGARH. IT WAS FURTHER STATED THAT THE EXPENSES ARE CHARGED AS OVE R-WEIGHING CHARGES AND NOT AS FINE AND PENALTY. IT WAS FURTHER CLAIMED THAT THE EXPENSES HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER DID NOT ACCEPT THESE CONTENTIONS AND PLACED RELIANCE OF THE EXPLANATION (1) OF SECTION 37 OF THE ACT AND DISALLOWED THE PAYMENT. 4. BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS ) THE ASSESSEE INTER-ALIA CLAIMED AS UNDER:- IN VIEW OF THE PROVISION U/S 37(1) OF THE IT ACT 1961 THE SAID EXPENDITURE IS NEITHER FOR THE PURPOSE OF OFFENCE NOR ANY PURPOSE WHICH IS PROHIBITED BY LAW. THESE WERE SIMPLY OVE R LOADING CHARGES HAVING PURELY COMMERCIAL IN NATURE AND ALSO PAID IN THE NORMAL COURSE OF BUSINESS. ANY CHARGES PAID FOR OVERLOADI NG OF GOODS TO RAILWAY AUTHORITIES IS NOT AN OFFENCE OR PROHIBITE D BY LAW. RELIANCE IS PLACED IN THE CASE OF WESTERN COALFIELDS VS. A C(IT) IT. AT NAGPUR DATED 30.6.2009 APPEAL NO. ITA NO. 261/NAG.2008 AS SESSMENT YEAR 2003-04. 4.1 CONSIDERING THE ABOVE LD. COMMISSIONER OF INC OME TAX (APPEALS) DELETED THE DISALLOWANCE. 5. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 6. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E AND PERUSED THE RECORDS. NONE APPEARED ON BEHALF OF THE ASSESSEE . UPON CAREFUL CONSIDERATION ITA NO. 542/DEL/2010 A.Y. 2007-08 3 WE FIND THAT THE SAID PAYMENT HAS BEEN MADE BY THE ASSESSEE TO THE RAILWAYS PURSUANT TO THE BILL RAISED BY THE RAILWAY WHEREI N UNDER CHARGES OF RS. 1087520/- ON ACCOUNT OF OVER LOADING WERE PAID. WE ARE IN AGREEMENT WITH THE REASONING OF THE LD. COMMISSIONER OF INCOME TAX (A PPEALS) THAT THESE ARE SIMPLY OVERLOADING CHARGES AND ARE NOT FINE FOR ANY OFFEN CE. HENCE THESE EXPENSES ARE DULY ALLOWABLE U/S 37 OF THE IT ACT. HENCE WE DO N OT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY WE CONFIRM THE SAME. 7. THE NEXT ISSUE RAISED IS THAT LD. COMMISSIONER O F INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF RS. 1 80 000/- MA DE BY THE ASSESSING OFFICER ON PROPORTIONATE INTEREST BASIS. 8. ON THIS ISSUE ASSESSING OFFICER NOTED THAT ASSE SSEE HAS GIVEN INTEREST FREE LOAN TO TWO PARTIES VIZ. (I) M/S TRI HIRING CO. RS. 10 00 000/- & (II) SH. PC MAHAPAR RS. 5 00 000/-. 8.1 IT WAS EXPLAINED TO THE ASSESSING OFFICER THAT ASSESSEE HAS GIVEN INTEREST FREE ADVANCES FOR PROVIDING OF HYBA HEAVY VEHICLE ON MONTHLY HIRE BASIS FOR THE PURPOSE OF SMOOTHLY LIFTING CARRYING TRANSPORTING OF RAW MATERIAL INSIDE THE PLANT. HENCE NO INTEREST WAS CHARGED. THE ASSESSING OFFI CER DID NOT ACCEPT THIS CONTENTION ON THE GROUND THAT THE ASSESSEE IS PAYIN G HUGE INTEREST ON LOAN FROM BANK AND DIRECTORS. HENCE HE DISALLOWED RS. 1 80 00 0/- ON PROPORTIONATE BASIS AGAINST THE INTEREST PAID. 8.2 BEFORE THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) IT WAS SUBMITTED THAT THE ASSESSEE COMPANY ALSO HAD SUFFICIENT EQUIT Y RESERVE AND SURPLUS ITA NO. 542/DEL/2010 A.Y. 2007-08 4 AMOUNTING TO RS. 83.86 CRORES OUT OF WHICH DIFFEREN T INVESTMENTS HAD BEEN MADE. IT WAS ALSO CLAIMED THAT THERE IS NO NEXUS BETWEEN THE INTEREST BEARING BORROWED CAPITAL AND INTEREST FREE ADVANCES GIVEN. IT WAS F URTHER REITERATED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT ADVANCE W AS ESSENTIAL FOR SMOOTH RUNNING OF THE BUSINESS AS PER THE PREVAILING CONDI TIONS OF MARKET AND WAS WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. HENCE IT W AS CLAIMED THAT THE INTEREST FREE ADVANCES WERE MADE TO PARTIES FOR COMMERCIAL E XPEDIENCY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND PROFESSION AND HENC E WERE ALLOWABLE. RELIANCE IN THIS REGARD WAS PLACED IN THE CASE OF SA BUILDERS LTD. VS. LD. COMMISSIONER OF INCOME TAX (APPEALS) (2007) 158 TAXMAN 74 (SC). 8.3 CONSIDERING THE ABOVE LD. COMMISSIONER OF INCO ME TAX (APPEALS) DELETED THE DISALLOWANCE. 8.4 AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 8.5 UPON CAREFUL CONSIDERATION WE FIND THAT THE PL EA OF THE ASSESSEE HAS SUFFICIENT COGENCY THAT ADVANCE WAS MADE FOR COMMER CIAL EXPEDIENCY. MOREOVER IT IS ALSO NOT THE CASE THAT THE RECIPIENTS OF THE ADVANCES ARE RELATED TO ASSESSEE COMPANY OR ITS DIRECTORS. FURTHER MORE WHEN IT IS FOUND THAT THERE WAS COMMERCIAL EXPEDIENCY IN GRANTING THOSE INTEREST FR EE ADVANCES NO DISALLOWANCE IN THIS REGARD NEEDS TO BE MADE AND IT DRAWS SUPPO RT FROM THE APEX COURT DECISION RELIED UPON BY THE LD. COMMISSIONER OF INC OME TAX (APPEALS) IN THE CASE OF SA BUILDERS (SUPRA). FURTHER THE ASSESSEE HAS SUBMITTED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT ASSESSEE ALSO HAD SUFFICIENT EQUITY RESERVE AND SURPLUS TO MAKE THE FINANCES. IN THIS B ACKGROUND WE DO NOT FIND ANY ITA NO. 542/DEL/2010 A.Y. 2007-08 5 INFIRMITY OR ILLEGALITY IN THE ORDER OF THE LD. COM MISSIONER OF INCOME TAX (APPEALS). HENCE WE AFFIRM THE SAME. 9. THE LAST ISSUE RAISED IS THAT LD. COMMISSIONER O F INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF RS. 5 00 000/- MADE ON ACCOUNT OF NON-FURNISHING OF BILLS VOUCHERS EXPENSES. 9.1 IN THIS REGARD THE ASSESSING OFFICER NOTED TH AT ON VERIFICATION OF EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT HE FOUND THAT SOME OF THE EXPENSES WERE NOT SUPPORTED WITH COMPLETE BILLS AND VOUCHERS. THE A SSESSING OFFICER DID NOT GIVE THE DETAILS THEREOF REPORTEDLY FOR THE SAKE OF BREV ITY. HE FURTHER NOTED THAT AFTER DISCUSSION THAT SH. SC AGGARWAL MD OF THE COMPANY REASONABLE DISALLOWANCE OF RS. 5 00 000/- IS MADE FOR UNVERIFIABLE NATURE OF EXPENSES. 9.2 UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCO ME TAX (APPEALS) NOTED THAT ALTHOUGH DISALLOWANCE OUT OF EXPENSES ARE UPHE LD IN PRINCIPLE BUT THE AMOUNT OF DISALLOWANCE IS ON HIGHER SIDE. HENCE ON ESTIMATE BASIS HE REDUCED THE DISALLOWANCE FROM RS. 5 00 000/- TO RS. 1 00 0 00/- . 9.3 AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 9.4 FIRSTLY WE FIND THAT THE GROUND IS RAISED BY TH E REVENUE CONTAINS AN ERROR IN AS MUCH AS LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DELETED RS. 4 00 000/- AND NOT RS. 5 00 000/-. SECONDLY THE ADDITION MAD E BY THE ASSESSING OFFICER WAS TOTALLY ON ADHOC BASIS. HE HAS NOT POINTED OUT ANY SPECIFIC DEFICIENCY AND THE DISALLOWANCE HAD BEEN MADE BY HIM ONLY ON SURMISES. IT IS A SETTLED LAW THAT NO ADDITION CAN BE MADE ON SURMISES AND CONJECTURES. A CCORDINGLY WE DO NOT FIND ITA NO. 542/DEL/2010 A.Y. 2007-08 6 ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). HENCE WE AFFIRM THE SAME. 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/04/201 0 UPON CONCLUSION OF THE HEARING. SD/- SD/- [C.L. SETHI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 05/04/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES