Income Tax Appellate Tribunal - Indore
The Acit, 3(1), Bhopal vs M/S Oss Aviation Pvt. Ltd., Bhopal on 31 July, 2018
आयकर अपील
य अ धकरण, इ दौर यायपीठ, इ दौर
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCHE, INDORE
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER
AND
SHRI MANISH BORAD, ACCOUNTANT MEMBER
ITA No.795/Ind/2014
Assessment Year:2010-11
Asstt. Commissioner of M/s OSS Aviation Pvt. Ltd. 3/10,
Income Tax 3(1), बनाम/ Sanjay Complex, North T.T. Nagar,
Bhopal Bhopal
Vs.
(Revenue) (Respondent )
P.A. No.AAACO5609A
Revenue by ShriK.G. Goyal, Sr. DR
Respondent by ShriC.P.RawkaCA
Date of Hearing: 19.07.2018
Date of Pronouncement: 31.07.2018
आदे श / O R D E R
PER MANISH BORAD, A.M:
This appeal filed by the Revenue pertaining to A.Y. 2010-11 is directed against the order of Ld. Commissioner of Income Tax(Appeals)-I, Bhopal, (in short 'CIT(A)'), vide appeal No. CIT(A)- I/BPL/IT-279/13-14 order dated 10.10.2014 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(hereinafter called as the 'Act') framed on 26.03.2013 by JCIT- Range-2, Bhopal. The Revenue has raised following grounds of appeal:
OSS Aviation Pvt. Ltd.ITA No.795/Ind/2014
2. Brief stated the facts as culled out from the records are that the appellant is a Private Limited Company engaged in the business of air charter cum ground handling agent for various operators in India. It also provides air charter to various State Government Corporate Production units and political parties in India. The appellant filed its return of income for the Assessment Year 2010- 11 on 27.9.2010 declaring total income of Rs.1,79,84,160/-. The case was selected for scrutiny by issuing notice u/s 143(2) of the Act and the assessment u/s 143(3) of the Act was completed on 26.03.2013 on total income of Rs.2,62,08,880/- after making various additions totalling Rs.82,24,720/-.
3. Aggrieved with the additions the assessee filed an appeal before the appellate authority and partly succeeded. Now the revenue is in appeal before the Tribunal raising following grounds of appeal.
"On the facts and in the circumstances of the case, the Commissioner of Income Tax (Appeal)-I has erred in:
1. Deleting the disallowance of Rs.35,477/- made by the u/s 2(24)(x) of the Act on account delayed payment of employee contribution to PF.
2. Deleting the disallowance of Rs.7,66,563/- made by the AO on interest expenses on account of diversion of borrowed funds for non-business consideration.2
OSS Aviation Pvt. Ltd.
ITA No.795/Ind/20143. Deleting the disallowance of commission payment to the extent of Rs.59,85,000/- made by the AO out of total claim of Rs.70,50,000/-.
Ground No.1
4. Ground No.1 relating to disallowance of Rs.35,477/- made u/s 2(24)(x) of the Act on account of delayed payment of employees contribution to Provident Fund deleted by CIT(A).
5. The Ld. Departmental Representative supported the orders of Ld. Assessing Officer.
6. Per contra The Ld.Counsel for the assessee submitted that Ld. CIT(A) has given elaborated finding on the question of admissibility on Provident Fund contribution based on plethora of judgment. The ld. CIT(A) has referred to more than 10 case laws in which it has been held that disallowance under section 36(15A) cannot be made if the amount has been deposited before the due date of filing of return. Specific reference has been made to Gujarat High Court decision, Commissioner of Income Tax vs Gujarat State Road Transport Corporation, 366 ITR 170. It may kindly be appreciated that the above case law is nearly the latest on the subject matter. Therefore, all the previous decisions found on this subject stand duly considered by the honorable High Court. In view of the above, the disallowance has been rightly deleted by the Ld. Commissioner of Income Tax Appeals.
7. We have heard rival contentions and perused the records placed before us. The revenue is aggrieved with deletion of disallowance 3 OSS Aviation Pvt. Ltd.
ITA No.795/Ind/2014of Rs.35,477/-deleted by Ld.CIT(A) on account of delayed payment of employees contribution to Provident Fund.
8. We observe that the Ld.CIT(A) has deleted the disallowance observing as follows;
"I have carefully considered the submission of the appellant and facts of the case on perusal of the details, it is noticesd that the employer's and employees contributions towards PF were deposited by the appellant within the previous year itself. But there was delay in depositing of PF contribution for the month of April, May & November, 2009 as the amount were deposited beyond the due dates specified under PF Act. There is no dispute as regards employer's contribution because the same was not disallowable as per section 43B of the act being paid within the previous year itself. Now the issue involved is whether the employees' contribution towards PF collected by the appellant is also governed by the provisions of Section 43B of the Act for the purpose of allowing deduction. There is difference of opinion among the Hon'ble High Courts regarding this issue as some of other High Courts have held that employees' contribution to PF collected by an employer also comes within the ambit of Section 438 of the Act whereas some of the High Courts have held that employees' contributions, if not paid before the due date as specified in Explanation below section 36(1)(va) of the Act, cannot be allowed as deduction and the same is to be treated as income u/s 2(24 )(x) of the I.T.ACL In the following cases, it has been held that if the employees' contribution to PF is 4 OSS Aviation Pvt. Ltd.ITA No.795/Ind/2014
deposited before the due date offiling of return of income u/s 139(1) of the Act. the same would be allowable deduction: -
(i) CIT Vs. Nippo Poly Fabric Ltd - 350 ITR 327 (HP)
(ii) CIT Vs. Kicha Sugar Co. Ltd - 356 ITR 351 (Uttarkhand)
(iii) CIT Vs. Spectrum Consultants' India Pvt Ltd - 266 CTR (Karn) 241
(iv) CIT Vs. Hcmla Embroidery Mills Pvt Ltd - 265 CTR (P &II) 57
(v) CIT Vs. Udaipur DugdhUtpadakSahkariSangh Ltd - 265 CTR (Raj) 59
(vi) CIT Vs. State Bank of Bikaner &Jaipur - 363 ITR 70 (Raj)
(vii) EssaeTeraokaPvt Ltd Vs. DCIT - 266 CTR 246 (Kar) (viii) CIT Vs. AIMIL Ltd - 32] IT 508 ((Del) However, in the case of Assam Tribune Vs. CIT 285 ITR -152 (Gau) as well as in another case of Gujarat High Court in CIT Vs. Gujarat State Road Transport Corporation (2014) 366 ITR 170 (CU)) ,it was held that where the assessee deducted employees' contribution towards provident fund [rom the salaries of the employees' but did not deposit the same on or before the due date, the same can be treated as income of the assessee. However, it may be mentioned that the Hon'ble' Karnataka High Court in a recentdecision in the case of EssaeTeraoka (P) Ltd. Vs. DCIT (2014) 366 ITR -408 (Kar) (246) did not agree with the view of Hon'ble Gujarat High Court in the case of CIT vs. Gujarat State Road Transport Corporation (supra) and held that even though the employer did not deposit the employees' contribution to PF and ESI within the stipulated time as contemplated in the respective Acts, but if deposited before the due date contemplated u/s 139(1) of the Act, the same is allowable deduction. Thus, it is clear that there is difference of opinion on this 5 OSS Aviation Pvt. Ltd.ITA No.795/Ind/2014
issue between different High Courts, though majority of the High Courts have decided the issue in support of the claim of the appellant. Now, it has been held by various Courts that if two view are possible the view which is favourable to the assessee must be accepted. In this regard, reference can be made to the decision of Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. (1977) 881TR 192 (SC). Therefore, considering the facts of the case and accepting the favourable view to the appellant, the disallowance of Rs.35,477/- made by AO is deleted."
9. The Ld. Departmental Representative failed to controvert the contentions against the findings of Ld.CIT(A). We therefore in the given the facts and given circumstances of the case and judgments relied by Ld.CIT(A) find no reason to interfere in his findings. In the result Ground No.1 of the revenue is dismissed.
Ground No.2.
10. Ground No.2 relating to disallowance of Rs.7,66,563/- towards interest expenses on account of diversion of borrowed funds for non-business consideration.
11. The Ld. Departmental Representative supported the orders of Ld. Assessing Officer.
12. Per contra the Ld. Counsel for the assessessee submitted that the Assessing Officer has made disallowance on the ground that the Assessee has advanced a sum of Rs. 35843742/- on which no 6 OSS Aviation Pvt. Ltd.
ITA No.795/Ind/2014interest has been charged. The Assessee has explained that the amount under consideration was advance for business purpose only but his explanation did not find favor from the Ld. Assessing Officer. In the first appeal the Ld. Commissioner of Income Tax Appeals has given elaborate findings on the subject running from Page number 7-13 of this order. It is reiterated that the funds were advanced for business purpose only.
Therefore, Hon'ble' Supreme Court decision on S.A. Builders (288 ITR 1 Supreme Court) squarely applies in the instant case as the advances are for business exigency. Even otherwise also, the Balance Sheet of the Assessee may kindly be persued. It clearly reveals that the Assessee has sufficient interest free funds in the form of capital reserve. Therefore, unless direct nexus between interest bearing loans being given interest free; there is no scope of any disallowance. Reference is further invited to Hon'ble Supreme Court decision in case of Munjal Singh Corporation reported in 298 ITR 298 in which Hon'ble Apex Court has held that in view of sufficient interest free funds no disallowance could be made for advances given to sister concerns.
13. Another aspect worth consideration is the nature of liability appearing in the assessee's Balance sheet on account of interest bearing loans. Such loans can be classified as Term loan and Cash credit limit. As regards Term loans, they are sanctioned by the financial institutions for purchase of fixed assets under hypothecation of said assets, no part of the said loan could be available for diversion to other parties. Similarly cash credit limit is 7 OSS Aviation Pvt. Ltd.
ITA No.795/Ind/2014sanctioned by a financial institution in consideration of stock and trade departments maintained by the assessee. In this account all the incoming by way of sales are deposited and whenever needed to effect, purchase the consideration is paid there from obviously no funds could be utilized for diversion to third parties from this account as well.
14. Honorable jurisdictional High Court in the case of Commissioner of Income Tax V/s Alok Paper Industries[138 ITR 0729]. The findings of the honorable court as per para 3 of the order are appended below for:-
"Business expenditure-Interest on borrowed capital-ITO disallowed proportionate interest on the borrowed capital to the extent of debit balance of one partner on which no interest was charged-Tribunal deleted disallowance-Tribunal justified-Though the interest that had been paid to the partners had already been added back to the total income-Hence, the disallowance was not valid"
15. In view of the foregoing para's Learned Commissioner of Income Tax Appeals has righty deleted the disallowance.
16. We have heard rival contentions and perused the records placed before us. The revenue's appeal is regarding deletion of addition of Rs.7,66,563/- by Ld.CIT(A) made by Ld.A.O on account of diversion of borrowed funds for non-business consideration.
8OSS Aviation Pvt. Ltd.
ITA No.795/Ind/201417. We find that the Ld.CIT(A) has deleted the addition and observed as follows;
"5.4 I have carefully considered the submission of the appellant and facts of the case. On perusal of Profit & Loss Account and as claimed by the appellant, it is noticed that the appellant had claimed interest to bank on CC Account at Rs.2,99,590/- and on term loans from bank at Rs.4,66,973/- totaling to RS.7,66,563/-. The A.O. had disallowed the whole of the interest paid to the bank on the ground that interest bearing funds were diverted for non-business purposes. But as explained by the appellant, it is noticed that UBI Term Loan was an old account and the said term loan was obtained for the purchase of airport handling equipment's in earlier years. Therefore, there was no diversion of those fund, during the year under consideration. Similarly, in the case of loan from Chola Mandalam DBF Finance, it is noticed that it was taken in earlier years for the purchase of Tata 207 vehicle, which was used for transportation of aviation fuel. Hence, there was no question of diversion of this loan also. The third bank loan is a cash credit account, which was a working capital loan amounting to Rs.23, 96, 4 27 I-as on 3 1.03.20 I O. Therefore. the interest paid on UBI Term Loan and on the loan taken from Chola Mandalam DBI' Finance cannot be disallowed on the ground that the interest bearing funds were diverted [or non- business purposes because the appellant had actually used these funds in earlier years for the purchase of airport handling equipments and purchase of Tata 207 vehicle for the purpose of business. Now, the only issue remaining is regarding interest of Rs.2,99,590/- paid on Cash Credit Account, which was a working 9 OSS Aviation Pvt. Ltd.ITA No.795/Ind/2014
capital loan. All the business receipts of the appellant were credited in this account and outgoing of expenditure were debited in this account. Further, it is noticed that the appellant had substantial interest free funds in the form of share capital and reserves &surplus, which were far excess of interest free loans and advances shown by the appellant. It is also pertinent to note that it had been explained by the appellant during assessment proceedingsthat all advances were related to business purposes. Thus, the A.O. had also not established any nexus that interest bearing funds were diverted for non-business purposes. Therefore, considering the totality of facts and circumstances as well as the decisions relied upon by the appellant, I am of the view that the AO was not justified in disallowing the interest of Rs.7,66,563/- claimed by the appellant. Therefore the disallowance of Rs.7,66,563/- of interest is deleted".
18. From the perusal of the finding of the Ld.CIT(A) as well as in the light of decisions relied by the Ld. Counsel of the assessee and examining the facts in the instant case, we find that the assessee has taken loans by way of cash credit limit from bank, term loan from bank and other loans from Chola Mandalam DBF Finance and these loans have been taken for the specific business purposes. Nowhere during the course of assessment proceedings as well as proceedings before the first appellate authority and before us the revenue has been able to bring any evidence on records to prove that the interest bearing founds have been diverted to interest free advances.
10OSS Aviation Pvt. Ltd.
ITA No.795/Ind/201419. Further from the perusal of audited balance sheet we find that the assessee at the year end possessed share capital and accumulated profits totalling to Rs.4,15,00,353/- and the alleged interest free loan and advances are only to the extent of Rs.3,58,43,742/- which are less than the accumulated profits and share capitals. From perusal of the list of alleged loans and advances, we find that they have been given in connection to the business of the assessee and are for the business exigencies which do not call for any addition for disallowance of interest expenditure.
20. We therefore in the given facts and circumstances of the case and the revenue being unable to controvert the findings of Ld.CIT(A) find no reasons to make any interference in the findings of Ld. CIT(A) and accordingly dismiss revenue's Ground No.2. Ground No.3
21. Ground No.3 relating to disallowance of commission payment to the extent of Rs.59,85,000/- made by the Ld.A.O out of total claim of Rs.70,50,000/- deleted by CIT(A).
22. The Ld. Departmental Representative supported the orders of Ld. Assessing Officer.
23. Per contra The Ld.Counsel for the assessee submitted that Learned Assessing Officer has disallowed as Rs. 59,85,000/-- this much from Rs. 70,50,000/- this much changed as the sole ground for this disallowance that Assessing Officer's opinion the expenditure was not reasonable. Obviously the action of the Learned Assessing Officer is based on misconstrued operation of statue. The phraseology of section 37 provides for allowability of an 11 OSS Aviation Pvt. Ltd.
ITA No.795/Ind/2014expenditure on the condition
i) The expenditure should not be in the nature described in section 30-36.
ii) It should not be in the nature of capital expenditure.
iii) It should not be personal expense of assessee.
iv) It should laid out or expended.
v) It should be wholly and exclusively for the purpose
of business.
24. From the above description it may kindly be appreciated that all the above condition stands fulfill in the instant case. The assessee has paid commission amounting to Rs. 70,00,000/- to Gurez Security &Allied Services and Travel India Tourism Pvt. Ltd. of Rs.50,000/. The said parties have duly confirmed that receipts said commission have offered the concerned income in their respective returns of income. It may kindly be further appreciated that no enduring benefits have generated or approved to the assessee from above expenditure. It is further submitted that expenditure does not fall within the category of personal expenditure in any manner. The commission has been paid wholly and exclusively for the business purpose as explained and clarified by the assessee as well as the recipient of the commission.
25. In view of the above order of the Learned Commissioner of Income Tax appeal may be sustained.
12OSS Aviation Pvt. Ltd.
ITA No.795/Ind/201426. We have heard rival contentions and perused the records placed before us. The revenue's is appeal regarding deduction of addition of Rs.59,85,000/- by Ld.CIT(A) made by Ld.A.O on account of disallowance of commission payment to the extent of Rs.59,85,000/- out of total claim of Rs.70,50,000/-.
27. We observe that the Ld.CIT(A) deleted the disallowance observing as follows;
"6.4 I have carefully considered the submission of the appellant and facts of the case. I have also perused the relevant assessment records of the appellant for A. Y. 2010-11. The appellant had claimed to have paid Rs.70,00,000/- as commission to Captain Hanif Proprietor of M/s Gurez Security &Allied Services for the services rendered by him or procuring helicopters on hire as well as for getting the booking for helicopters specially with Samajwadi Party during General Elections, 2009. The commission was paid by cheque, after deducting TDS. The A.O. had also verified the facts from Captain Hanif, Proprietor of M/s Gurez Security &Allied Services. Captain Hanif had furnished a copy of agreement entered with the appellant and confirmed that he had received commission of Rs.70,00,000/- from the appellant company for the services rendered by him. He had also furnished copy of Profit &Loss Account, which clearly shows the credit of Rs.70,00,000/-of commission received from the appellant. He had fi led his return of income for A.Y. 2010-11 declaring gross total income at Rs. 79,15,003/- and after claiming deduction under Chapter VIA, the 13 OSS Aviation Pvt. Ltd.ITA No.795/Ind/2014
total income was shown at Rs. 78,15,000/-.Hence Captain Hanif had paid lax on the commission income of Rs. 70,00,000/- received by him. It may also be pertinent to note that rate of tax paid by Captain Hanif was also almost same to tax rate payable by the appellant company. Further, the fact that the appellant had paid commission of Rs.70,00,000/- for the purpose of his business was not in dispute. The genuineness of the expenditure was proved by the appellant. The ld. A.O. had also not disputed the allowability of expenditure u/s 37(1) of the Act, as he had himself allowed the commission to the extent of Rs. 10,60,000/- treating the same as reasonable for the services rendered by Captain Hanif It may not be out of place to mention here that the appellant had furnished working of commission, which was arrived at as per the agreement entered with Captain Hanif The relevant portion of the said agreement regarding payment of commission are as under:-
i. Commission Rs.15,000/- per hour will only be paid for those Helicopter Aircraft that are booked through Capt. A.N. Hanif sources and will be based on per hour basis against total minimum guaranteed flying hours bill to the party.
ii) Commission Rs.12, 000/- per hour will only be paid for those Helicopter Aircraft that 'are obtained through Capt. A.N. Hanifas per the requirement for fulfilling .flying schedule commitment and will be based on per hour against total minimum guaranteed flying hour paid by OSS Aviation to the Operator. "
From the assessment order, it is noticed that the appellant had furnished working of commission paid to Captain Hanif as under: -
14OSS Aviation Pvt. Ltd.
ITA No.795/Ind/2014
S.No. Remarks/Helicopter Basis of Rate (Per Total
Registration Commission Hour) Commission
(Hours Run)
1 VT ERR(Cheetah 135:00 15,000 20,25,000
2 VT-SPN(Bell 407) 120:00 15,000 18,00,000
Total 38,25,000
S.No. Remarks/Helicopter Basis of Rate (Per Total
Registration Commission Hour) Commission
(Hours Run)
1 VT-ERR 86:00 12,000 10,32,000
2 VT-WEX 78:00 12,000 9,36,000
3 VT-EJS 102:30 12,000 12,30,000
Total 31,98,000
Thus, the total amount of commission payable was Rs.70,23,OOO/- (Rs.38.25.000 + Rs.31,98,OOO). The appellant had paid Rs.70,OO,OOO/- as final payment to Captain Hanif. The A.O. made disallowance of Rs.59,5O,OOO/- out of the total commission of Rs.70,OO,OOO/- paid to Captain Hanif on the ground that the commission paid was excessive and unreasonable. But it may be noted that captain Hanif was not a related person and. therefore, the provisions orSection 40A(2)(b) of the 1.T. Act were not applicable in this case. If the expenses have been incurred wholly and exclusively for the business purpose and are allowable u/s 37(1) of the Act. the A.O. cannot disallow a portion of such expenses on the ground that those were excessive and unreasonable except in the cases where the payments are made to related persons as specified u/s 40A(2)(b) of the Act. It has been decided by various Courts including in CIT V:s·. Dalmiya 15 OSS Aviation Pvt. Ltd.ITA No.795/Ind/2014
Cement (P) Ltd. 25-1 ITR 377 ((Del) which has also been approved by the Hon'ble Supreme Court in the case of S.A.Builders288 ITR 1/9 (SC) wherein it was held that once it is established that there was nexus between the expenditure and the purpose of the business, the Revenue cannot justifiable claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. Therefore, the A.O. was not justified in disallowing the part of commission paid to Captain Hanif on the ground that the commission paid was excessive and unreasonable. Similarly, in regard to the commission paid of Rs.50,OOO/- to M/s Travel India Tourism Pvt. Ltd., Bhopal, the A.O. had restricted the allowance of commission to Rs.5,OOO/- as against the payment of Rs.50,OOOI- made by the appellant treating the same as unreasonable and excessive. Once there is no dispute regarding the allowability of expenditure u/s 37(1) of the Act, the A.O. cannot disallow a portion of the expenditure treating the same as excessive and unreasonable putting himself in the position of the businessman or the board of directors. Thus, the disallowance to the extent of Rs.45,OOO/- also cannot be sustained. Therefore, considering the facts and circumstances of the case and legal position on the issue as well as judicial decisions referred to by the appellant in its submission, I am of the opinion that the disallowance of Rs.59,85,OOO/- out of commission paid was not lawful and not justified. Hence, the disallowance of commission to the extent of Rs.59,85,OOO/- is deleted.
28. From the perusal of detailed findings of Ld.CIT(A) there cannot be any dispute to the fact that payment of commission paid to Capt. Hanif 16 OSS Aviation Pvt. Ltd.
ITA No.795/Ind/2014has been paid under written agreement, alleged commission has been offered to tax by Capt. Hanif who is assessed to tax @30%, tax has been duly deducted at source, payment of commission has been made through account payee cheque and the purpose of making the payment is also well established from the agreement as well as the nature of payment which is for procuring the helicopter on hire by a political party.
29. In the given circumstances of the case the assessee has been successful to prove the identity of the claim and genuineness of the expenditure and as the revenue has been unable to bring any new material evidence to controvert the findings of Ld. CIT(A), we are not inclined to make any interference in the findings of Ld.CIT(A). In the result Ground No.3 of the revenue's appeal is dismissed.
30. In the result all appeal of the revenue stands dismissed.
Order was pronounced in the open court on 31.07.2018.
Sd/- Sd/-
(KUL BHARAT) (MANISH BORAD)
JUDICIALMEMBER ACCOUNTANTMEMBER
Indore; दनांक Dated : 31/07/2018
/Dev
Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file.
By order Private Secretary/DDO, Indore 17