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TMI Blog2019 (7) TMI 1904X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of par boiled rice and its byproducts and had filed its return of income to the tune of ₹ 5,68,070/- which was processed u/s 143 of the Act and ultimately resulted into the additions of ₹ 90,83,010/- on account of disallowance u/s 36(1)(iii) of the Act, ₹ 1,25,00/- on account of disallowance of expenditure qua computer, ₹ 5,73,443/- on account of disallowance of expenditure u/s 40A(3) and proviso to Sec.40A(3A) of the Act and ₹ 4,18,143/- on account of depreciation on fixed assets. The assessee challenged the assessment order before the Ld. CIT(A) who partly affirmed the said additions made by the Assessing Officer, against which the assessee has filed the instant appeal before us. 3. Having heard the parties at length and perused the material available on record. The assessee has raised the following grounds of appeal challenging the impugned order. 1. The orders passed by the Commissioner of Income Tax (Appeal) vide orders dated 21.02.2014 are illegal, uncalled for and against the law facts. 2. The Commissioner of Income Tax (Appeal) has made additions merely on conjectures and surmises without any legal basis. 3. That, assessment f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the order of the A.O. may kindly be set aside and the grounds of appeal of the appellant may kindly be head in favour of the appellant. 4. Ground No. 1 2 does not require any adjudication as the same are formal in nature. 5. Ground No.3 is a legal ground, which we will decide after decision on the merit. 6. Ground No.4 relates to the disallowance of interest of ₹ 90,83,010/-. As per Revenue case, it was noticed that the assessee has advanced ₹ 2,97,54,333/- to Ms. Bhagwati Lacto Vegetarian Exports Pvt. Ltd., ₹ 33,50,000/- to M/s Pawan Kumar Co. and ₹ 35,12,624/- to M/s. Rahul Udyog. Though the assessee had received interest from M/s. Rahul Udyog and M/s. Bhagwati Lacto Vegetarian Exports Pvt. Ltd. in the preceding year i.e. Financial Year: 2008-09 relevant to A.Y.2009-10 to the tune of ₹ 3,38,152/- and ₹ 3,20,334/- respectively, however no interest was charged during the year under consideration, for the advances outstanding and advances made during the year. Though the assessee claimed to have paid the said amount as a security amount for business expediencies, however, could not find favour from the Assessing Officer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, it was agreed that the milling of paddy shall be done by the Assessee and consideration is fixed for the milling of paddy @ ₹ 9,00 per MT of paddy up to packing of rice as per requirement of the second party (M/s. Bhagwati Lacto Vegetarian Export Pvt. Ltd.) and no separate amount will be paid by the second party to the first party. The assessee therefore, claimed that the assessee has paid the security amount on various occasions to M/s. Bhagwati Lacto Vegetarian Export Pvt. Ltd. (sister concern of the assessee) for doing the job work and therefore, for the business expediency. Further the assessee claimed that during the F.Y: 2010-11, the assessee has done the milling of the paddy received from M/s. Bhagwati Lacto Vegetarin Export Pvt. Ltd. and received ₹ 74,21,040/- by way of job work of paddy. The assessee also involved in selling/purchase of rice from each other frequently in subsequent years. The assessee has also drawn our attention to the circular No.19/2017 dated 12/06/2017 and submitted that the CBDT Board has considered the aspect qua advances made by the company to sister concern and adjusted against the dues for job work done by the sister concern and he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn did with this money, in order to decide whether it was for commercial expediency, but that has not been done. 32. It is true that the borrowed amount in question was not utilised by the assessee in its own business, but had been advanced as interest- free loan to its sister concern. However, in our opinion, that fact is not really relevant. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxx 36. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilise the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, it is obvious that a holding company has a deep interest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eved and no part of interest paid on loans could be disallowed 6.7 Now coming to the instant case, It is an admitted fact that in the immediate proceeding year, the assessee had received the interest on the amount given to the aforesaid companies i.e., M/s. Bhagwati Lacto Vegetarian Exports Pvt. Ltd. and M/s Rahul Udyog to the tune of ₹ 3,38,152/- and ₹ 3,20,334/- respectively. During the financial year, the assessee has made a milling agreement with M/s Bhagwati Lacto Vegetarian Export Pvt. Ltd. on 15.11.2009 and secured the stock of paddy and did the milling work subsequently, which is also not in dispute as it is clearly reflects from para no.4 of the impugned order to the effect that the assessee has received ₹ 74,21,040/- by way of job work of paddy during the subsequent Financial Year 2010- 11, hence in our considered view the aforesaid facts substantiate the relation of business between the assessee and M/s. Bhagwati Lacto Vegetarian Export Pvt. Ltd effective from the date of signing of the milling agreement i.e, 15.11.2009 or receipt of paddy for milling, whichever is earlier. During the financial year under consideration, the assessee has advanced an amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tarting the date of signing of the milling agreement i.e, 15.11.2009 or receipt of paddy for milling starting October, 2009. Hence, for the said 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. The matter is accordingly set-aside to the file of the AO to recompute the disallowance so made by him in light of above directions. 6.8 While coming to the advance given to the M/s. Rahul Udyog, the assessee also relied upon the certificate issued by M/s Rahul Udyog to the effect that they have business dealing with M/s Bhagwati Rice Mills, Ferozepur Cant. (the assessee herein) and are helping it in purchase of paddy from the market, that's why they keep fund from them. Funds transferred in F.Y.2009-10 were transferred for the same purpose and account was settled before 31st March, 2010. The assessee except showing the certificate, failed to produce any document to authenticate the business/commercial expediency with M/s. Rahul Udyog, hence, considering the test laid down in the case of S.A Builders (supra), we are not convinced that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the judgment passed by the ITAT Bench, Jaipur in the case of DCIT vs. Mayur Sales, decided on 10th March, 2000 (ITA No.1887/JP/1992) wherein it has been held that payments made to Truck Drivers for freight and octroi charges falls under exceptional circumstances mentioned in Rule 6DD(j), and cannot be disallowed u/s 40A(3) of the Act. The Co-ordinate Bench also relied upon the CBDT Circular, 220, dated 31st May, 1997. Further, the assessee also relied upon the decision of the ITAT, Delhi(A) Bench in the case of Smt. Nilan Lal vs. DCIT decided on 10.05.2000 (2000) 19 CCH 0157 (Delhi Trib.) and submitted that the Tribunal has accepted that it is a general practice that the transporters do not accept the payments otherwise than in cash. Further, the assessee also relied upon the decision of the jurisdictional High Court in the case of CIT vs. Bal Kirshan Jagdish Chand (ITA No.156 of 1996, decided on 12 July, 2007) (2007) 164 taxmann.com 0459 (P H), wherein while deciding the reference/substantial question of law as to whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that various cash payments made to one party on one day were not requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er notice nor opportunity of being heard was given to the assessee/appellant to raise the objection if any, qua transfer of the file, as it is mandatory provisions of the law and well settled that assessment proceedings cannot be transferred without giving an opportunity of being heard to the assessee and therefore, the assessment framed is without jurisdiction and illegal void ab initio, resultantly no addition is sustainable. The Revenue Department refuted the claim of the assessee by submitting that there is bar u/s 124(3) of the Act on raising objection qua jurisdiction after 30 days of serving the statutory notices, however the assessee claimed that bar of section 124(3) of the Act is not applicable to the instant case. On specific query by the Bench qua transfer of the case from ACIT, Ward-III to ITO, Ward-III(2) u/s. 127 of the Act, the Revenue Department failed to bring on record the order u/s 127 of the Act, however, submitted that the case was transferred as per order dated 27.07.2011 u/s 120 of the Act by the Chief Commissioner of Income Tax, Amritsar. We realized that though it is a debatable issue, however at this juncture we are not inclined to adjudicate the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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