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TMI Blog2017 (9) TMI 1699X X X X Extracts X X X X X X X X Extracts X X X X ..... rinting charges, loading and unloading charges, payment of rent and interest - Held that:- Punjab and Haryana High Court in the case of CIT, Ludhiana Vs. Deputy Chief Accounts Officer, Markfed Khanna Branch [2008 (2) TMI 260 - PUNJAB AND HARYANA HIGH COURT] has held that when assessee had purchased printed packing material from manufacturer for purpose of packing of its finished products and no raw material was supplied by it to manufacturer for manufacturing such packing materials transaction was a “contract of sale” and not a “works contract” and therefore it was outside the purview of Sec.194C of the Act. We are of the view that no disallowance u/s 40(a)(ia) of the Act was called for on the payment of printing charges paid by the assessee. With respect to the other expenses on which the disallowance has been confirmed by CIT(A), before us, assessee has not placed any material to controvert his findings and therefore to the extent of such disallowance, no interference to the order of Ld.CIT(A) is called for. X X X X Extracts X X X X X X X X Extracts X X X X ..... r of AO, assessee carried the matter before Ld.CIT(A), who upheld the order of AO by holding as under : "2.1 The appellant is a firm stated to be engaged in manufacturing and selling of tobacco products. The Assessing Officer found that during the year, the appellant had debited bank interest of ₹ 8,59,079/- on bank loan availed by it. However, he also found that the appellant had given huge interest free advances amounting to ₹ 1,27,34,934/- to its sister concern, namely, Heera Enterprises. Drawing the inference that interest bearing funds availed from banks may have been diverted for making such interest free advances, the appellant was called upon by the Assessing Officer to explain reason for not disallowing the interest expenditure claimed, holding that such funds availed were not used for the purpose of business. Responding to the Assessing Officer's query, the appellant denied that interest bearing funds were diverted for giving advances to the sister concern, citing that the firm had sufficient capital to the tune of ₹ 21,05,598/-. However, the Assessing Officer rejected the contention of the appellant noting that the capital balance available with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or vocation. The assessee has to satisfy the assessing authority that he is entitled to obtain deduction in accordance with the taxing statute. The burden is on the assessee to. prove that a particular class of income is exempt from taxation. The burden is on the Revenue authorities to show that the income is liable to tax under the statute; but the onus of showing that a particular class of income is exempt from taxation lies on the assessee. To earn the exemption, the assessee has to establish that his case clearly and squarely falls within the ambit of the exempting provisions of the Act. The principles equally apply in cases of deductions claimed. Once the assessee claims any such interest as deduction in their books of account the onus is always on the assessee to satisfy the Assessing Officer that whatever loans were raised by the assessee were for the purpose of business. If in the process of examination of genuineness of such deduction, it transpires that the assessee has advanced certain funds to sister concerns charging no interest, there would be a very heavy onus on the assessee to discharge before the Assessing Officer to the effect that in spite of outstanding loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof for non-business purposes is not at all a factor in considering the issue of allowability of Section 36(1)(iii). Rather, there should be nexus of use of borrowed funds for the purpose of business to claim deduction under Section 36(1)(iii) of the Act". 2.3.2 It is the matter of record that the appellant has taken term loans and cash credit loans from the bank amounting to ₹ 74,96,527/- which are outstanding as on 1.4.2007 and the appellant has claimed interest expenditure of ₹ 8,59,079/- which has been debited to the P&L account. Interest amounting to ₹ 2,76,021/- has also been paid to other financial institutions. Thus, the total interest outgoing are to the tune of ₹ 11,35,100/-. The appellant owns fixed assets amounting to ₹ 1,13,63,260/- after depreciation as on 31.03.2007. However, huge interest free advance ₹ 1,27,34,934/- has been made to its sister concern, M/s Hira Enterprises. As against the same, the average balance of partners capital stands at ₹ 21,05,597/-. The figures therefore, clearly show that the appellant did not have sufficient interest free funds at its disposal and the bank loans of ₹ 74,96,527/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court in S.A.Builders Ltd. Vs CIT (288 ITR 1) has held that the correct approach to the issue of grant of deduction u/s 36(1)(iii) would be to examine whether the amount advanced to the subsidiary or associated company or any other party was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. It was held that if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes (which need not necessarily be the business of the assessee itself), the assessee would, ordinarily be entitled to deduction of interest on its borrowed loans. Having laid down the test for determination of the allowability of deduction u/s 36(1)(vii) the Apex Court set aside the matter to be decided afresh. This decision of the Supreme Court overruled a host of High Court decisions to the contrary which gave a limited interpretations to the scope of the phrase "for the purposes of business or profession" used in section 36(1)(iii). This decision overruled the Bombay High Court decisions in the case of Phaltan Sugar Works Ltd. reported in 208 ITR 989 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round of appeal no.1 is thus partly allowed, subject to these remarks." Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us. 4. Before us, Ld.A.R. reiterated the submissions made before AO and Ld.CIT(A). He further placed reliance on the decision of Hon'ble Apex Court in the case of S.A. Builders Vs. CIT reported in (288 ITR 1). Ld.D.R. on the other hand, supported the order of AO and Ld.CIT(A) and further submitted that assessee has not pointed out any commercial expediency and the necessity of advancing the loan to its sister concern. He thus supported the order of lower authorities. 5. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to disallowance of interest on the interest free amounts advanced to sister concern. We find that Ld.CIT(A) while granting partial relief to the assessee has noted that as against the interest free advance of ₹ 1.27 crores to its sister concern M/s. Hira Enterprises, the average balance of partner capital stood at around ₹ 21,00,000/- meaning thereby that the assessee did not have sufficient interest free funds at its disposal for advancing the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c contract for the printing work and the charges were being paid as per work done on rate basis. It is stated that for different types of work, different rates were offered and charged. He insisted that these transactions were of routine nature and no contract was involved and therefore, TDS provisions were attracted. ii) Tobaco Processing charges : The Ld.A.R. submitted that the Tobacco processing charges of ₹ 3,11,134/- was paid to M/s. Fulabai Govindchand of Bhardan (Gujarat State) and break of such charges was furnished as under : ₹ 10,160/- Processing Dalali ₹ 2,13,360/- Processing charges ₹ 800/- Sutali ₹ 73,660/- Transportation charges ₹ 2,994/- Truck loading charges ₹ 10,160/- Processing Dalali ₹ 3,11,134/- Total The Ld.A.R. pointed out that out of total charges paid of ₹ 3,11,134/- processing charges were only to the extent of ₹ 2,13,360/- while expenditure to the tune of ₹ 97,774/- pertained to other charges as above. According to the A.R. the said amount of ₹ 97,774/- needed to be excluded from the disallowance made. iii) Transport charges (Rs.1,18,333/-) It was stated that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which squarely falls within the definition of a works contract / sub-contract as specified in section 194C. No relief as sought for can be accorded to the appellant on account of these two additions. 3.3.1 Regarding the transportation charges paid to Deepak Transport Agency Ltd. of ₹ 1,18,333/-, the original copies of the bills that were shown to me and photocopies of which are placed at pages 12 - 17 of the paper book, show that there is mention of letter dt.15.05.2006 of ACIT, Circle 1(2) Hyderabad, directing non-deduction of TDS for the period 01.04.2006 to 31.03.2007. In view of these facts, the appellant was fully justified in not deducting the TDS on transportation charges paid to this party. Thus, the appellant is held entitled to relief of only ₹ 1,18,333/- out of the total disallowance made u/s 40(a)(ia). Ground of appeal No.2 is thus partly allowed, subject to these remarks." Aggrieved by the order of Ld.CIT(A), assessee carried the matter before Ld.CIT(A). 7. Before us, Ld.A.R. reiterated the submissions made before AO and Ld.CIT(A) and with respect to disallowance of printing charges submitted that in the present case the assessee had purchased printing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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