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2019 (7) TMI 1904 - AT - Income TaxDisallowance of interest - Interest free advances to sister concerns - commercial expediency - HELD THAT - Authorities are under obligation to examine the purpose for which the assessee advanced the money to its sister- concern and what the sister concern did with this money, in order to decide whether it was for commercial expediency. Further the commercial expediency has wide amplitude which may not have been incurred on any legal obligation but still it is allowable as business expenditure if the same is established to be incurred on the grounds of commercial expediency - 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 and to assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. The authorities must not look at the matter from their own view point but has to see that of prudent business man. In assessee case trade advances which are in the nature of commercial transactions would not fall within the ambit of word 'advance', hence as per circular cannot be subjected to any disallowance/addition. It is not in dispute that the assessee has filed the confirmation from M/s. Bhagwati Lacto Vegetarian Export Pvt. Ltd. with regard to the business dealing with the assessee and having received funds as security amount against the paddies stored for milling in assessee's premises during the F.Y.2009-10, which were milled in subsequent F.Y.2010-11 and also paid qua job work of paddy. The company also certified that it also deals with the purchase and sale of rice with the assessee frequently in subsequent years. The assessee has also produced milling agreement dated 15.11.2009 which is relevant for the Asst. year 2010-11 as of the instant case, wherein specifically the terms and conditions have been set out for milling of the paddy and the Department did not doubt either the confirmation from M/s Bhagwati Lacto Vegetarian Export Pvt. Ltd. to the effect that they had the business dealing with the assessee nor the milling agreement submitted by the assessee before the authorities below - for period starting October 2009, addition towards the interest made on the basis of advanced/security amount paid to M/s. Bhagwati Lacto Vegetarian Export Pvt. Ltd. is liable to be deleted. Advance given to the M/s. Rahul Udyog we are not convinced that the assessee had any commercial expediency for paying the security amount therefore, we are not inclined to entertain the Assessee's claim of business expediency qua M/s. Rahul Udyog and thus the decision of the Ld CIT(A) qua addition on account of M/s. Rahul Udyog is sustained. No disallowance of interest u//s 36(1)(iii) can be made for opening balances - See M/S PMS DIESELS VERSUS ADDL. C.I.T. 2017 (12) TMI 1041 - ITAT AMRITSAR Addition of freight paid to truck operators - CIT(A) has affirmed the view of the Assessing Officer by observing that bills of Truck Freight has been raised by the Truck Union and freight has been paid in cash to a single entity which is in violation of provision of section 40A(3) - HELD THAT - Revenue Department determined that the bills have been raised by the Truck Union whereas the assessee has claimed that the payments have been made to individual Truck Operators as per their billties and Truck Numbers, so there is no question of aggregating the figures of freight payable to Truck operator individually. Further despite submitting the billties of Truck, showing truck numbers and payments to them separately, the Assessing Officer has wrongly added the amount. Hence, considering the peculiar facts and circumstances and the rival contention/claim of the assessee and the Revenue Department, we are inclined to remand the instant issue qua freight charges, to the file of the Assessing Officer to decide afresh.
Issues Involved:
1. Legality of the order passed by the Commissioner of Income Tax (Appeal). 2. Additions made on conjectures and surmises. 3. Jurisdiction of the Assessing Officer. 4. Disallowance of interest under Section 36(1)(iii) of the Income Tax Act. 5. Disallowance of freight paid to truck operators. 6. Disallowance of depreciation on fixed assets. Detailed Analysis: 1. Legality of the Order Passed by the Commissioner of Income Tax (Appeal): The assessee contended that the orders passed by the Commissioner of Income Tax (Appeal) were illegal, uncalled for, and against the law and facts. However, the tribunal did not find it necessary to adjudicate this ground as it was considered formal in nature. 2. Additions Made on Conjectures and Surmises: The assessee argued that the Commissioner of Income Tax (Appeal) made additions without any legal basis, relying merely on conjectures and surmises. This ground was also not specifically adjudicated as it was considered formal. 3. Jurisdiction of the Assessing Officer: The assessee challenged the jurisdiction of the Assessing Officer, stating that the case was transferred without issuing a notice or providing an opportunity for a hearing. The Revenue Department argued that there is a bar under Section 124(3) of the Act on raising objections after 30 days of serving statutory notices. However, the tribunal decided not to adjudicate this issue as the case was already decided on merits and partly allowed in favor of the assessee. 4. Disallowance of Interest Under Section 36(1)(iii) of the Income Tax Act: The Revenue disallowed interest of ?90,83,010/- on the grounds that the assessee advanced interest-free loans to sister concerns without commercial expediency. The tribunal referred to the Supreme Court's decision in S.A. Builders Ltd. vs. CIT & Anor., which emphasized examining the purpose of the advances and their commercial expediency. The tribunal found that the advances to M/s. Bhagwati Lacto Vegetarian Export Pvt. Ltd. were for business expediency as evidenced by a milling agreement and subsequent job work. Therefore, the disallowance for this period was deleted, and the matter was remanded to the AO for recomputation. However, the disallowance related to M/s. Rahul Udyog was sustained due to a lack of evidence for commercial expediency. 5. Disallowance of Freight Paid to Truck Operators: The Assessing Officer disallowed ?5,73,443/- under Section 40A(3) of the Act, stating that payments were made in cash exceeding the permissible limit. The assessee argued that payments were made to individual truck operators, not a single entity. The tribunal referred to various judgments, including those from the jurisdictional High Court, which supported the assessee's claim. The issue was remanded to the Assessing Officer to decide afresh based on the provided judgments. 6. Disallowance of Depreciation on Fixed Assets: The assessee challenged the disallowance of ?4,18,143/- against capital incentives, claiming that the subsidy was an incentive to the unit, not for the purchase of fixed assets. However, this ground was not specifically raised during the hearing, and the Revenue did not reply to it. Therefore, the tribunal did not adjudicate this issue. Conclusion: The appeal was partly allowed, with specific issues remanded to the Assessing Officer for fresh consideration. The tribunal emphasized the need to examine the commercial expediency of advances and the proper application of Section 40A(3) regarding cash payments. The issue of jurisdiction was not adjudicated due to the partial allowance of the appeal on merits.
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