Income Tax Appellate Tribunal - Amritsar
Asstt. Commissioner Of Income Tax, ... vs Nasa Agro Industries Pvt. Ltd, Fazilka on 7 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNA
AMRITSAR BENCH; AMRITSAR
BEFORE SH.T.S. KAPOOR, ACCOUNTANT MEMBER AND
SH.SANJAY GARG, JUDICIAL MEMBER
I.T.A. No.553(Asr)/2015
Assessment Year: 2012-13
Asst. CIT, Vs. Nasa Agro Industries Private
Bathinda. Limited,
Village Painchanwali,
Tehsil & Distt. Fazika.
PAN:AAACN7050J
(Appellant) (Respondent)
Appellant by: Sh. Vedpal Singh, DR.
Respondent by: Sh. P.K. Anand, CA.
Date of hearing: 28/11/2016
Date of pronouncement: 07/02/2017
ORDER
PER T.S. KAPOOR, AM:
This is an appeal filed by Revenue against the order of ld. CIT(A), Jammu, dt.20.08.2015 for Asst. Year: 2012-13.
2. The Revenue has taken following grounds of appeal.
"1. On the facts and circumstances of the case the CIT(A), Bathinda has erred in allowing the appeal of the assessee and deleting the addition made u/s 36(l)(iii) without appreciating the fact that assessee has failed to prove that interest bearing funds available with the assessee have been used for purpose of business as held by Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Abhishek Industries Ltd. in 286 ITR 1.
2. On the facts and circumstances of the case the CIT (A), Bathinda has erred in deleting the additions made u/s 37(1) of the Act, by observing that the AO should have rejected books of account for making such adhoc additions whereas in the case of M/s Luxmi Rice Mills the Hon'ble ITAT, Amritsar vide its order passed in I.T.A. No. 438(ASR)/2013 dated 27.03.2014 has 2 ITA No.553/Asr/2015 Asst. Year: 2012-13 confirmed such additions made without rejecting the books of accounts.
3. The CIT(A) has not appreciated the fact that the assessee failed to discharge onus to prove commercial expediency in investing the interest bearing loans in the share capital of the new venture and hence disallowances u/s 36(1)(iii) was rightly made by AO."
3. The ld. DR heavily placed his reliance on the order of Assessing Officer whereas the ld. AR relied upon the order of ld. CIT(A) and also relied upon the synopsis along with written submission filed before ld.
CIT(A).
4. We have heard the rival parties and have gone through the material placed on record. We find that the assessee company is engaged in the business of manufacturing and trading of Rice Bran Oil. During the assessment proceedings, the Assessing Officer made an addition of Rs.41,03,565/- on account of disallowance of claim of interest u/s 36(1)(iii) of the Act and another addition of Rs.3,49,523/- was made on account of disallowance of 1/6th from the vehicle expense. Further an addition of Rs.1,00,000/- was made on ad hoc basis towards alleged generation of scrap which occurred due to expenditure on machinery repairs.
5. Aggrieved with the order, the assessee filed appeal before ld. CIT(A) and submitted various submissions. The ld. CIT(A) deleted the additions by holding as under:
(i) Addition u/s 36(1)(iii) of the Act.3 ITA No.553/Asr/2015
Asst. Year: 2012-13
9. So for as the AO's refrain regarding the proviso appended to section 36 (1)(iii) of the Act is concerned, it is apparent that it is a misplaced observation. This proviso merely states that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of accounts or not) for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. The appellant company had invested interest free funds in procuring the shares of another private limited company. It cannot therefore be said that such investment pertained to the extension of the business of the appellant company, notwithstanding the appellant's submissions in the assessment proceedings to this effect. The same appears to have been stated in a different context of the two companies having common shareholding.
10. Adverting now to the purposive test of 'commercial expediency' for allowance of deduction u/s 36(1 )(iii) of the Act, it is seen that there is a large convergence of opinion of the various courts including the jurisdictional High Court as also the reported in 288 ITR 1, has unambiguously held that if the borrowed funds advanced to a sister concern or subsidiary or any third party are for commercial expediency and not for a personal benefit of the directions, the expenditure is allowable under section 36(1 )(iii) of the Act. Echoing the same, a division bench of the Jurisdictional High Court in CIT Vs Marudhar Chemicals and Pharmaceuticals (P) Ltd, 319 ITR 75, extracted the relevant paragraphs of the S.A. Builders case in-extenso and after remanding the matter, expressly directed the Tribunal to consider the matter in the light of the principles laid down by the Supreme Court in the said case.
11. The appellant's case meets the aforesaid test of commercial expediency. Commercial expediency "for the purpose of business" has been successively and consistently held by various courts to be wider in scope than the expression "for the purpose of earning income, profits or gains". The appellant company had subscribed to the shares of another related Private Limited Company M/s Sampurn Agri. Ventures Pvt. Ltd. with the aid of interest free funds. The said company is an agro based unit which processes the agro-waste or residue of paddy called paddy straw which results in the manufacture of Bio fertilizers, Bio Nutrients and Bio Gas which is utilized in the generation of electricity. Pursuant to such investment by the appellant company, it stands to gain by supply of power produced by M/s Sampurn Agri. Ventures Pvt. Ltd, on subsidized rates. Besides, the appellant company also stands relieved of its social and environmental requirement/stipulation of treating of effluents produced by it as the effluents shall be utilized by M/s Sampurn Agri. Ventures Pvt. Ltd in the process of decomposition of bio products. Commercial expediency and purpose of business in such an investment by the appellant company is, thus, adequately met. It would be unfair to treat the purposivenes of investment as philanthropic or dictated for personal gains, as suggested by the Assessing Officer in the assessment order. In the light of the aforesaid, it is held that the appellant is entitled to the deduction u/s 4 ITA No.553/Asr/2015 Asst. Year: 2012-13 36(1)(iii) of the Act. The Assessing Officer is, thus, directed to delete the said addition.
(ii) Addition on account of vehicle expenses and other expenses.
12. Challenging the ad hoc addition of Rs.3,49,523/- on account of vehicle repair and maintenance and Rs.1,00,000/- on account of generation of scrap consequent to machinery repairs, it has been stated, inter alia, by the appellant that the such ad hoc addition without pointing out specific aberrations and without applying the provisions of section 145(3) of the Act have been consistently disapproved by the Hon'ble ITAT Amritsar Bench. The case of M/s Shubh Distributors, Ferozepur City in ITA No. 229(ASR)/2010 was cited in which the Hon'ble Tribunal followed the decision of the Hon'ble jurisdictional High Court of P&H in the case of CIT Karnal Vs Satish Kumar Mittal to the effect that without invoking the provisions of section 145(3), no adhoc additions can be made. Considering the submission of the appellant and the observations of the Hon'ble ITAT Amritsar, both the aforesaid impugned additions are directed to be deleted.
13. The ground of appeal pertaining to initiation of penalty proceeding u/s 271(1)(c) of the Act is rejected on account of non- maintainability of the same, as the appellant is not prejudiced merely on initiation of the penalty proceedings."
We find that ld. CIT(A) has passed an elaborate and speaking order. The ld. CIT(A) has held that appellant company had subscribed to the shares of another related Private Limited Company M/s Sampurn Agri Ventures Pvt. Ltd. with the aid of interest free funds. He has also held that the said company was an agro based unit which processed the agro-waste or residue of paddy called paddy straw which resulted in the manufacture of Bio fertilizers. He has further held that pursuant to such investment the assessee stands to gain by supply of power produced by M/s Sampurn Agri Ventures Pvt. Ltd, on subsidized rates. We find that the ld.
CIT(A) has rightly held that Assessing Officer has wrongly relied on the case of CIT vs. Abhishek Industries Ltd. reported 286 ITR 01 (P&H). The 5 ITA No.553/Asr/2015 Asst. Year: 2012-13 ld. DR was not able to controvert any of the findings recorded by ld.
CIT(A). We find that the aggregate of interest free funds available as on 31.03.2012 with the assessee were to the tune of Rs.927.40 lacs, which fact has been noted at page 3 of his order. The Assessing Officer has not negated the existence of interest free funds and has just held that had assessee not invested this amount in the share capital of M/s Sampurn Agri Ventures Pvt. Ltd, it would have earned interest of Rs.41.03 lacs.
We further find from the submissions made before the Assessing Officer that assessee had raised additional funds to the tune of Rs.442.46 lacs for making investments in the Sampurn Agri Venture Pvt. Ltd. The Assessing Officer has not negated the raising of additional interest free funds. The Hon'ble Supreme Court of India in the case of Hero Cycle Pvt.
Limited vs. CIT has held that where the assessee had made investment out of its interest free funds, no disallowance u/s 361(1)(iii) can be made.
The operative part of the Hon'ble Supreme Court has reproduced below.
"Insofar as the loans to Directors are concerned, it could not be disputed by the Revenue that the assessee had a credit balance in the Bank account when the said advance of Rs.34 lakhs was given. Remarkably, as observed by the CIT(Appeal) in his order, the company had reserve/surplus to the tune of almost 15 crores and, therefore, the assessee company could in any case, utilize those funds for giving advance to its Directors."
6. In view of the above, the Ground Nos.1 & 3 are dismissed.
7. Now coming to Ground No.2, we find that Assessing Officer had made ad hoc disallowance. The ld. CIT(A) has held that Assessing Officer was not empowered to make ad hoc addition without pointing specific 6 ITA No.553/Asr/2015 Asst. Year: 2012-13 abbreviation and without applying the provisions of Sec.145(3) of the Act.
In this respect the ld. CIT(A) has relied upon the case law of M/s Shubh Distributors Ferozepur City in ITA No.229(Asr)/2010. The ld. CIT(A) has also followed the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Satish Kumar Mittal to the fact that without complying with the provisions of Sec.145(3) no ad-hoc additions can be made. We find that similar ad-hoc disallowances has been deleted by various Benches of Tribunal. For the sake of completeness a few orders passed by various Courts/ Tribunal are mentioned below.
(i) 73 ITR (1969)192(P&H)- Jhandu Mal Tara Chand Rice Mills vs. CIT
(ii) 106 TTJ(2006) 6169Delhi) ACIT Vs. Allied Construction
(iii) 119 TTJ (2008) 434 (Jabalpur)- Vindhya Teleink Ltd. Vs. CIT (Jab)
(iv) 123 TTJ (2009) 246 (Jod)- Om Parkash Joshi Vs. ITO
(v) 130 TTJ (2010) 301 (Mum)-Intervet India (P) Ltd. Vs.ACIT
(iv) 133 TTJ (2010) 2 (Agra)-ITO Vs. Mayur Agarwal
(vi) 134 TTJ (2010) 559 (Del)-Seasons Catering Services (P) Ltd. Vs. DCIT
(vii) 141 TTJ (2011) 75 (Chd)-Babu Jewellers Vs. ITO(UO)
(viii) 94 TTJ(2005)91071(Del)- Bajrang Lal Bansal Vs. DCIT
(ix) 254 ITR (2002) 216 (SC)-J.J. Enterprises Vs. CIT
(x) 298 ITR (2008) 203 (Raj)-Laxmi Engineering Ind. Vs. ITO In view of the above decisions, we do not find any infirmity in the order of ld. CIT(A), therefore, Ground No.2 is also dismissed.
8. In nutshell, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 07/02/2017.
Sd/- Sd/-
(SANJAY GARG) (T.S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 07/02/2017
/PK/Ps
7 ITA No.553/Asr/2015
Asst. Year: 2012-13
Copy of the order forwarded to:
1. The Assessee:
2. The
3. The CIT(A),
4. The CIT,
5. The SR DR, ITAT, Amritsar.
True copy
By order