Income Tax Appellate Tribunal - Chandigarh
Ito, Patiala vs Sh. Dharam Pal Goyal, Patiala on 25 April, 2017
I N T H E I N C O M E T A X AP P EL L AT E T R I BU N A L
D I VI S I O N B EN C H , C H AN D I G A R H
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND Ms.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No. 119/CHD/2016
Assessment Year : 2011-12
The ITO, Vs Shri Dharam Pal Goyal,
Ward - 4, Kothi No. 1, Aashirwad,
Patiala. Nihal Bagh,
Patiala.
PAN: AGEPP3023E
(Appellant) (Respondent)
Appellant by : Shri Sushil Kumar
Respondent by : Shri Deepak Aggarwal
Date of Hearing : 07.03.2017
Date of Pronouncement : 25.04.2017
O R D E R
PER ANNAPURNA GUPTA,AM This appeal by revenue is directed against the order of ld. CIT(Appeals) Patiala dated 09.12.2015 for assessment year 2011-12.
2. Ground Nos. 1 and 2 raised by the revenue are inter-linked and are, therefore, being taken up together. The grounds read as under :
1. In the facts and the circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs.61,18,200/- made an account of disallowance out of VAT Payable u/s 43B of the Income Tax Act, 1961.
2. In the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not following the decision of the Hon'ble Supreme Court in the case of M/s Chowringhee Sales Bureau (P) Ltd. Vs. CIT (1973) 87 ITR 542 (SC), wherein, the Hon'ble Apex Court has settled the issue.2
3. In the said ground, the revenue has challenged the action of the CIT (Appeals) in deleting the addition made under section 43B of Income Tax Act,1961 ( in short 'the Act') on account of VAT payable amounting to Rs.
61,18,200/-.
4. Brief facts relating to the issue are that during assessment proceedings, Assessing Officer observed that a sum of Rs. 2,32,78,602/- was shown as VAT payable as at the end of the financial year i.e. on 31.03.2011 in the balance sheet in respect of the Patiala branch of the assessee namely M/s Goyal Automobiles, Village Chamerheri. The Assessing Officer further observed that out of the said VAT payable, only a sum of Rs. 1,71,60,430/- was paid by the assessee upto the due date of filing of ITR i.e. upto 30.09.2011 and VAT amounting to Rs. 61,18,200/- was not paid till then. The Assessing Officer made addition of the same by treating the VAT amount received by the assessee as its trading receipt and by holding that the deduction of the same could not be allowed because the assessee failed to deposit the VAT before the due date of filing of return of income as required under section 43B of the Act.
5. The matter was carried in appeal before the CIT (Appeals) where the assessee made detailed submissions reproduced at para 5.1 of the order. The assessee contended before the CIT (Appeals) that its VAT collection had not been routed through its Profit and 3 Loss a/c and had shown it in a separate account reflecting the balance payable in the Balance Sheet. The assessee also submitted that it was merely acting as an agent of the Government collecting VAT and remitting the same to the government. The assessee also submitted that the entire VAT liability had been deposited upto 14.11.2011 which was before the due date of payment to be made under the VAT Act i.e. 20.11.2011. The assessee further relied on a number of decisions of the High Courts in support of its contention that following the mercantile system of account, as per which no tax is debited to the Profit & Loss Account as an expense nor any deduction claimed in respect of the said amount, no question of disallowance under section 43B arises.
6. The CIT (Appeals) after considering the assessee's submissions, deleted the disallowance made relying upon the decision of the Gauhati High Court in the case of India Carbon Ltd. Vs Inspecting Asstt. Commissioner & Anr. (1993) 200 ITR 757 and on the decision of the Delhi High Court in the case of CIT Vs Noble & Hewitt (India) P.Ltd. (2008) 166 Taxman 48 (Del).
7. Before us, the ld. DR filed written submissions of his arguments on the issue dated 09.01.2017 stating that the Assessing Officer had added the amount of VAT payable of Rs. 61,18,200/- as trading receipt as per provisions of Section 145A of the Act which was in 4 accordance with the decision of Hon'ble Supreme Court in the case of M/s Chowringhee Sales Bureau (P) Ltd. Vs CIT (1973) 87 ITR 542. The ld. DR further argued that the CIT (Appeals) had erred in deleting the addition made by following the decision of the Gauhati High Court and the Delhi High Court since the said decision had not distinguished the decision of the Hon'ble Supreme Court in the case of M/s Chowringhee Sales Bureau (P) Ltd. (supra).
7(i) Ld. Counsel for the assessee, on the other hand, relied upon the order of the CIT (Appeals) and further placed reliance on the decision of the jurisdictional High Court in the case of CIT Vs Khushi Ram Bhagwan Dass reported in 296 ITR 720 and pointed out that the said decision clearly stated that sales tax collections accounted for by the assessee following the mercantile system of accounting which remained payable was to be excluded from the assessee's business income and that the assessee was merely a trustee in respect of collection of Central Sales Tax from its customers.
8. We have heard contentions of both the parties, gone through the orders of authorities below and perused the documents referred to before us. We find no infirmity in the order of the CIT (Appeals). The issue in dispute being disallowance of VAT payable which remained unpaid on the due date of filing of return of income, as per the provisions of Section 43B, we find 5 that this issue has been dealt with by a number of High Courts as cited by the ld. counsel for the assessee before us. The CIT (Appeals) has rightly deleted the addition in the present case relying upon the aforesaid decisions i.e. the Gauhati High Court in the case of India Carbon 200 ITR 759 (supra) and CIT Vs Noble & Hewitt India P.Ltd. (supra). Further, we find that no differing decision of the jurisdictional High Court was brought to our notice by the ld. DR. Moreover the Hon,ble Delhi High Court in the case of Noble & Hewitt(supra) has considered and distinguished the judgement of the Calcutta High Court in the case of Chowringhee Sales Bureau (P) Ltd vs CIT(1977) 110 ITR 385 which we find was rendered following the decision of the apex court in Chowringhee Sales Bureau (P) Ltd vs CIT (1973) 87 ITR 542(SC) . Thus we find no merit in the argument of the Ld.DR that the reliance placed by the Ld.CIT(A) on the abovestated judgements of the Hon'ble Gauhati and Delhi High court were misplaced since they had not considered the judgement of the apex court in Chowringhee Sales Bureau(supra) In view of the same, we hold that the issue stands settled in favour of the assessee and no addition on account of VAT payable can be made in the hands of the assessee u/s 43B of the Income Tax Act,1961. We, therefore, uphold the order of the CIT (Appeals) in this regard and dismiss ground No. 1 and 2 raised by the revenue.
6
9. Ground Nos. 3 and 4 raised by the revenue are inter-linked and read as under :
1. In the facts and circumstances of the case and in law, the Ld. CIT(A) has erred deleting the addition of Rs.42,164/- made an account of disallowance u/s 36(l)(iii) of the Income Tax Act, 1961.
2. In the facts and circumstances of the case and in law, the Ld. CIT(A) has erred deleting the addition without appreciating the fact that the assessee has failed to submit any business exigency in this regard during the course of assessment proceedings and appellate proceedings as well.
10. In the said ground, revenue has challenged the deletion of addition of Rs. 42,164/- made under section 36(1)(iii) of the Act.
11. Briefly facts relating to the issue are that during the course of assessment proceedings, Assessing Officer observed that the assessee had given a loan of Rs. 18 lacs to Shri Karan Goyal which was not for any business purpose. The assessee failed to give any explanation in this regard and therefore, Assessing Officer disallowed interest pertaining to the said loan @ 15% per annum amounting to Rs. 42,164/-. The CIT (Appeals) deleted the disallowance made following the decision of the Delhi High Court in the case of Shiv Nandan Buildcon Pvt. Ltd. Vs CIT 60 Taxman 347.
12. Before us, ld. DR relied upon the order of the Assessing Officer and stated that since no business purpose for advancing the interest free loan had been given, the disallowance of interest under section 7 36(1)(iii) of the Act had been rightly made. The ld. counsel for the assessee, on the other hand, relied upon order of the CIT (Appeals) and further stated that it had sufficient own interest free funds for giving said loan and therefore, no disallowance under section 36(1)(iii) of the Act was warranted. The ld. counsel for the assessee relied upon decision of the Apex Court in the case of Hero Cycles (P) Ltd. vs CIT,Central ,Ludhiana in Civil Appeal No.514 of 2008 dt 05-11-15 in this regard.
13. We have heard the rival contentions, perused the orders of the authorities below and gone through the documents referred before us. The issue before us relates to disallowance of interest under section 36(1)(iii) of the Act. The facts which are not disputed in the present case are that the assessee had advanced a loan of Rs. 18 lacs to one Mr. Karan Goyal. It is also not disputed that the assessee had not established the business purpose of advancing the loan. No arguments with respect to this aspect have been raised before us, therefore, it is agreed that there was no business purpose involved in advancing the said loan to Mr. Karan Goyal. The only argument of ld. counsel for the assessee is that it had sufficient own funds which were interest free for the purpose of giving the said loan and in support of this argument, ld. counsel for the assessee has relied upon decision of the Apex Court in the case of Hero Cycles (supra). We are in agreement with the said 8 proposition that where there are sufficient interest free own funds available, the presumption in such case is that the advances have been made out of the same. The jurisdictional High Court in the case of Bright Enterprises Pvt.Ltd. vs CIT Jalandhar (2016) 381 ITR 107(P&H) has laid down the said proposition at para 16 of its order as under :
"16. As we noted earlier, the funds/reserves of the appellant were sufficient to cover the interest free advances made by it of Rs.10.29 crores to its sister company. We are entirely in agreement with the judgment of the Bombay High Court in Commissioner of Income Tax vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340, para-10, that if there are interest free funds available a presumption would arise that investment would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment."
14. The same has been upheld by the Hon'ble Supreme Court in the case of Hero Cycles (supra), also relied upon by the ld. counsel for the assessee. But having said so, we find that it has not been established before us that sufficient interest free own funds were available with the assessee when the said loan was given to Mr. Karan Goyal. No documents bringing out the said facts have been produced before us or even before the lower authorities.
15. In view of the same, we consider it appropriate to restore the issue back to the file of the Assessing Officer to adjudicate the issue afresh in the light of the decision of the jurisdictional High Court and the Apex Court as relied upon by us above and considering the facts of the present case. We may add that the assessee 9 be given due opportunity of hearing in this regard and is free to adduce all evidences on which it wishes to place reliance in support of its contentions. In the light of the above, ground of appeal Nos. 3 and 4 raised by the revenue are allowed for statistical purposes.
16. In the result, the appeal of the revenue is partly allowed.
Order pronounced in the Open Court.
Sd/- Sd/-
(BHAVNESH SAINI) ( ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 25th April, 2017.
'Poonam'
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT,DR
Assistant Registrar,
ITAT/CHD