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Income Tax Appellate Tribunal, JAIPUR BENCHES “B”, JAIPUR
Before: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 245/JP/2020
ORDER PER: SANDEEP GOSAIN, J.M. This appeal has been filed by the assessee against the order of the ld. CIT(A), Ajmer dated 19/11/2019 for the A.Y. 2014-15 wherein following grounds have been taken.
1. That, the learned Commissioner of Income Tax (Appeals)-Ajmer, (Appellate Authority) has grossly erred on the facts and on the law in sustaining assessment order of the Income Tax Officer, Ward- 4(2), Jaipur (Assessing authority) dated 27/12/2016 by which he disallowed interest Rs. 22,06,319/- paid as expenditure in connection with business activities with certain suppliers of goods, job workers for manufacturing of goods of the appellant and added in the returned income, thus, the impugned assessment order as well as appellate order both are against the provisions of the Act, bad in law, erroneous and liable to be quashed, and addition of Rs. 22,06,319/ liable to be deleted, hence, the same 2 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO may kindly be deleted, and the interest paid may kindly be allowed as business expenditure u/s 36(1)(iii) of the Act.
2. That, the Learned Appellate Authority has grossly erred on the facts and on the law in sustaining assessment order of the Assessing authority dated 27/12/2016 by which he disallowed interest Rs. 22,06,319/- paid as expenditure for getting supply of goods / getting done job work in regular manner from the other parties, and added in the returned income, it is further clarified that these are not loans, and are relating to business transactions. thus, the impugned assessment order as well as appellate order, both are against the provisions of the Act, bad in law, erroneous and liable to be quashed and addition of Rs. 22,06,319/ liable to be deleted, hence, the same may kindly be deleted, and the interest paid may kindly be allowed as business expenditure u/s 36(1)(iii) of the Act.
3. That, the Learned Appellate Authority has grossly erred on the facts and on the law in sustaining assessment order of the Assessing authority dated 27/12/2016 by which he disallowed interest of Rs. 45,130/- partly on borrowings to the Bajaj Finance Ltd. thus, the impugned assessment order as well as appellate order both are against the provisions of the Act, bad in law, erroneous and liable to be quashed and addition of Rs. 45,130/ liable to be deleted, hence, the same may kindly be deleted and the interest paid may kindly be allowed as business expenditure u/s 36(1)(iii) of the Act.
That, we are assuming that the impugned appellate order has been served on 29/12/2019 within ten days from the date of order, as per our memory and records we have not received the appellate order, we came to know about the appellate order from the web portal of the department and the order has been downloaded from the web portal of the department, hence, the appeal is beyond limitation as prescribed under the provisions of the I.T. Act’ 1961, However, an application for condonation of delay u/s 253(5) has been filed along with this appeal separately, therefore, the delay of 24 days may kindly be condoned for adjudication of the appeal.
3 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO 5. That, the appellant reserves its right to add, amend, alter or deletion any ground/s of appeal on or before hearing of the case.” 2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
There is delay of 50 days in filing this appeal, for which the assessee filed an application for condonation of delay and the contents of application for condonation of delay reads as under: “With reference to the above referred subject, I beg to state that I am director of the company and case of the company for the assessment year 2014-15 was argued by our consultant (Chartered Accountant) before the Commissioner of Income Tax (Appeals)-Ajmer and was awaiting for the appellate order.
That, due to heavy loss in the Company in which I am as director had to start business in another commodity at Swroop Ganj (Abu) and used to live there with my family and come to Jaipur casually in two-three months / major festivals.
That, I came to know about the appellate order dated 19/11/2019 of the Commissioner of Income Tax (Appeals)-Ajmer through web portal of the Income Tax department on 11/03/2020, because on that day I login the portal in my persona cases relating to the assessment years 2014-15 and 2015-16 and thereafter login in the case of the Company.
That, after having received the order as above, I took legal consultancy from advocates and came to decide to file an appeal before the Hon'ble Income Tax Appellate Tribunal.
4 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO 3. That, although, as per my memory and records we have not received the appellate order till now, However, I am assuming normal ten days from the date of order i.e. 19/11/2019 and service thereof on 29/11/2019.
4. That, the dispute is regarding question of law which is very important for adjudication by your honour.
That, in view of the above facts and circumstances of the case, it is clearly apparent that I could not submit the appeal in time limit as prescribed under section 253(3) of the Act on the reasons which were beyond our control, in support of the above facts an affidavit duly signed and notarized is enclosed herewith.
Therefore, it is humbly prayed that the delay caused on the above reasons may kindly be condoned delay of 50 days only in submitting the appeal, the appeal may kindly be granted for adjudication in the interest of natural justice and oblige.”
4. On the other hand, the ld DR could not rebut the facts submitted by the assessee before us for seeking condonation of delay.
We have considered the rival submissions as well as relevant material on record. As regards the sufficiency of cause for filing the appeals belatedly, it is settled principles of law that the Courts have to take liberal approach while interpreting the expression ‘sufficient cause’ for condonation of delay. In case of Collector, Land Acquisition Vs. Mst. Katiji (1987) 167 ITR 471, the Hon’ble Supreme Court has laid down the principle that the power to condone the delay provided under the 5 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO statute is to enable the Courts to do substantial justice to the parties by disposing of the matter on merits, therefore, while considering the matters for condonation of delay, the law must be applied in a meaningful manner which subserves ends of justice and technical considerations should not come in the way of cause of substantial justice. There is no quarrel that the explanation and reasons explained for delay must be bonafide and not merely a device to cover an ulterior purpose such as laches on the part of the litigant or an attempt to save limitation in the underhand way. If the party who is seeking condonation of delay has not acted in malafide manner and reasons explained are factually correct then the Court should be liberal in construing the sufficient cause and lean in favour of such party. A justice-oriented approach has to be taken while deciding the matter for condonation of delay. However, this does not mean that a litigant gets free right to approach the court at its will.
If we apply the settled principles as laid down by the Hon’ble Supreme Court as well as other courts on the facts of the present case we find that the assessee has explained cause of delay, therefore, in the facts and circumstances of the case, we condone the delay of 50 days in filing the present appeal and admit the appeal for hearing.
6 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO 7. The brief facts of the case are that the assessee company is engaged in the business of manufacturing of MS Bars, MS Angles, sections and channels etc. Return of income was electronically filed on 26/11/2014 declaring total income of Rs. 10,89,570/-, which was processed U/s 143(1) of the Income Tax Act, 1961 (In short, the Act). The case of the assessee was selected for scrutiny through CASS and necessary notices were issued and served upon the assessee. The assessee filed its reply and finally the assessment was completed U/s 143(3) of the Act on 27/12/2016 determining total income of the assessee at Rs. 34,48,960/- by making additions/disallowances.
Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of both the parties and material placed on record, upheld the disallowance of interest of Rs. 22,04,319/- and disallowance of interest of Rs. 45,130/-.
9. Being aggrieved by the order of the ld. CIT(A), the assessee has preferred the present appeal before the ITAT on the grounds mentioned above.
Grounds No. 1 and 2 of the appeal raised by the assessee are interrelated and interconnected and relates to challenging the order of the ld. CIT(A) in confirming the disallowance of Rs. 22,06,319/-. In this 7 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO regard, the ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the contents of the same are as under: “That the appellant-assessee is a Pvt. Ltd. Company registered with the Registrar of Companies, Rajasthan in the year 1995 has been dealing in manufacturing and selling thereof in all kinds of Iron and Steel such as Round Bars, MS Angle, Sections, Channels etc. the appellant-Company was consisted by two director namely Rajesh Natani and Shri Babu Lal Natani during the period under consideration, That, the appellant-assessee has been dealing in purchases of raw material from various dealers within the State of Rajasthan as well as outside the State of Rajasthan also, sales to various dealers within the State of Rajasthan as well as dealers of outside the State of Rajasthan also, apart from the manufacturing by itself, looking to the urgency of finished goods for sale to others purchased as well as got done job work from other job workers also namely Natani Steel Industries Neelkanth Industries (Pvt.) Ltd. That, during the course of business looking to the business/commercial expediency the appellant-assessee advanced in terms of business/ Commercial expediency to other Companies i.e. sister companies as well as sister firms/concerns for maintaining business relations with them i.e. purchasing of raw material, getting done job worksalso, We are pleased to explain regarding each suppliers/job worker as under;- NATANI STEEL INDUSTRIES (a) That, the Natani Steel Industries (NSI) is job worker as well as supplier of goods also to the appellant-assessee, the NSI did job work 8 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO regarding manufacturing of goods since the financial year 2009-10 to 2011-12 because according to the market conditions the appellant- assessee got done job work and purchased goods for sale, for your kind perusal a year wise statement of the Job Work and sale to NSI has been submitted before your honour on 20/09/2021 at page number 7, statement of account from page numbers 8 to 27 of the said paper book, apart from the above complete details of raw material issued for job work and received the finished goods for the financial years 2009- 10, 2010-11 and 2012-13 are enclosed here with as Annexures B-1 to B- 34 (Raw Material issued and finished goods recd.). apart from the getting done job work, sold goods in the financial year 2012-13, the sales have been reported to the Commercial Taxes Department through its required statutory quarterly returns in the prescribed Form VAT-10 along with attachments thereof in the Form VAT-07A (Summery details of purchases from registered dealers) and Form VAT-08A (Summery details of sales to registered dealers as well as unregistered persons), the quarter wise detail is reproduced here under:- Sl. Asst. Year Name of Form VAT-07A Form VAT-08A No. the quarter (Summery of (Summery of purchases) sales) Excluding Excluding tax tax 1st 1. 2010-11 532510 2nd 2 0 0 3 TOTAL 532510 2nd 4 2011-12 0 18373987 3rd 5 0 10297054 6 TOTAL 0 28671041 1st 7 2012-13 0 7573004 2nd 8 0 13350476 3rd 9 0 15822263 4th 10 3403832 2507456 11 TOTAL 3403832 3,92,53,199 9 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO It is clarified that purchases/sales in the paper have been declared gross amount including tax, whereas, the above table is bare amount excluding tax on purchases as well as sales also.
(b) It is further more clarified that the appellant-assessee adjusted the output tax liability on sale from Input Tax Credit because the appellant- assessee paid taxes on it’s purchases from registered dealers of the State of Rajasthan under the Rajasthan Value Added Tax Act, 2003 and/or deposited, as the case may be. It is further more clarified that the appellant-assessee was maintaining a running account of all the transactions of job work as well as purchases/sale also and payments (Considerations) as well as advances in the business expediency, if any, for your kind perusal and satisfaction we have submitted a summary statement and copies of accounts of the NSI in the books of accounts of the appellant-assessee since the assessment year 2010-11 to 2014-15 in the paper book at page numbers 7 to 27.
It is further more clarified that the NSI is sister concern of the appellant as one of the directors (Rajesh Natani) of the appellant-assessee is also partner in the NSI, and all the transactions were purely business transaction in the business expediency.
It is further more clarified that the assessing authority as well as the appellate authority has not pointed out any advances to the NSI without any business expediency i.e other than business purposes i.e for personal purposes.
It is further more clarified that some time remained credit balance of the NSI and sometimes remained debit balance, in both the situations there 10 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO was no any transaction of interest either debit or credit because it was a current account of business instead of loan account.
It is further more pointed clarified that out of the outstanding of Rs. 99,48,395/- as on 31/03/2014 Rs. 55,82,683/- was opening balance as on 01/04/2013, hence, the addition of interest on Rs. 99,48,395/- far away from the facts of the case. SUPREME META CAST (PVT.) LTD. (a) That, the Supreme Meta Cast (PVT.) Ltd. (SMCPL) is supplier of goods (raw material-Ingots) to the appellant-assessee, the SMCPL has been supplying goods since financial year 2010-11 and was maintaining a running account of transactions of purchases/sale and payments (Considerations) as well as advances in the business/Commercial expediency, if any, for your kind perusal and satisfaction we have submitted a summary statement and copies of accounts of the SMCPL in the books of accounts of the appellant-assessee since the assessment year 2010-11 to 2014-15 in form of paper book on 20/09/2021 at page numbers 28 to 37.
Apart from the above sold goods to the SMCPL, the sales have been reported to the Commercial Taxes Department through its required statutory quarterly returns in the prescribed Form VAT-10 along with attachments thereof in the Form VAT-07A (Summery details of purchases from registered dealers) and Form VAT-08A (Summery details of sales to registered dealers as well as unregistered persons), the quarter wise detail is reproduced here under:- Sl. Asst. Year Name of Form VAT-07A Form VAT-08A No. the (Summery of (Summery of quarter purchases) sales) Excluding tax Excluding tax 1st 1. 2010-11 0 0 4th 2 2010-11 5693174 204949 11 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO 3 TOTAL 5693174 204949 1st 4 2011-12 1595955 0 2nd 5 2011-12 3421507 0 3rd 6 2011-12 4105556 0 4th 7 2011-12 9987378 0 8 TOTAL 1,91,10,396 0 1st 9 2012-13 11941216 0 2nd 10 2012-13 9569510 132810 3rd 11 2012-13 241619 0 12 TOTAL 2,17,52,345 132810 It is clarified that purchases/sales in the paper have been declared gross amount including tax, whereas, the above table is bare amount excluding tax on purchases as well as sales also.
It is further more clarified that the appellant-assessee adjusted the output tax liability on sale from Input Tax Credit because the appellant- assessee paid taxes on it’s purchases from registered dealers of the State of Rajasthan under the Rajasthan Value Added Tax Act, 2003 and/or deposited in cash, as the case may be. It is further more clarified that the appellant-assessee was maintaining a running account of all the transactions of purchases / sales also and payments (Considerations) as well as advances in the business expediency, if any, for your kind perusal and satisfaction we have submitted a summary statement and copies of accounts of the SMCPL in the books of accounts of the appellant-assessee since the assessment year 2011-12 to 2014-15 in the paper book at page numbers 28 to 37.
It is further more clarified that the SMCPL is sister concern of the appellant as one of the directors (Rajesh Natani) of the appellant- assessee is also director in the SMCPL and all the transactions were purely business transaction in the business expediency.
12 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO It is further more clarified that the assessing authority as well as the appellate authority has not pointed out any advances to the SMCPL without any business expediency i.e other than business purposes i.e for personal purposes.
It is further more clarified that some time remained credit balance of the SMCPL and sometimes remained debit balance, in both the situations there was no any transaction of interest either debit or credit because it was a current account of business instead of loan account.
It is further more clarified that out of the outstanding of Rs. 87,26,342/- as on 31/03/2014 Rs. 54,06,309/- was opening balance as on 01/04/2013, hence, the addition of interest on Rs. 87,26,342/- far away from the facts of the case.
It is further brought to your kind notice that the assessing authority as well as the appellate authority has not pointing out any advances to the other business concerns without any business expediency i.e other than business purposes i.e. for personal purposes.
It is further more clarified that although there was no any transaction of purchases/sale during the period under consideration but the SMCPL requested to the appellant for some advance for the business so that it can run the business smoothly and will supply goods to the appellant subsequently. The appellant-assessee took in to consideration request of the SMCPL and further advanced Rs.34,20,033/- in the business expediency for the continuation of the business purposes.
13 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO That, the Neelkanth Industries (PVT.) Ltd. (NIPL) is supplier of goods to the appellant-assessee, the NIPL has been supplying goods since financial year 2010-11 and was maintaining a running account of transactions of purchases/sale and payments (Considerations) as well as advances in the business/Commercial expediency, if required, for your kind perusal and satisfaction we have submitted a summary statement and copies of accounts of the NIPL in the books of accounts of the appellant-assessee since the assessment year 2010-11 to 2014-15 in form of paper book on 20/09/2021 at page numbers 1 to 6.
Apart from the above the appellant-assessee sold goods to the NIPL, the sales have been reported to the Commercial Taxes Department through its required statutory quarterly returns in the prescribed Form VAT-10 along with attachments thereof in the Form VAT-07A (Summery details of purchases from registered dealers) and Form VAT-08A (Summery details of sales to registered dealers as well as unregistered persons), the quarter wise detail is reproduced here under:- Sl. Asst. Year Name of the Form VAT-07A Form VAT-08A No. quarter (Summery of (Summery of purchases) sales) Excluding tax Excluding tax 1st 1. 2010-11 259435 0 2nd 2 2010-11 0 0 3rd 3 2010-11 419664 0 4 TOTAL 6,79,099 0 4th 5 2011-12 1252429 0 6 TOTAL 1252429 0 4th 7 2012-13 0 26030 8 0 9 TOTAL 0 26030 It is clarified that purchases/sales in the paper have been declared gross amount including tax, whereas, the above table is bare amount excluding tax on purchases as well as sales also.
14 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO It is further more clarified that the appellant-assessee adjusted the output tax liability on sale from Input Tax Credit because the appellant- assessee paid taxes on it’s purchases from registered dealers of the State of Rajasthan under the Rajasthan Value Added Tax Act, 2003 and/or deposited in cash, as the case may be. It is further more clarified that the appellant-assessee was maintaining a running account of all the transactions of purchases / sales also and payments (Considerations) as well as advances in the business expediency, if any, for your kind perusal and satisfaction we have submitted a summary statement and copies of accounts of the NIPL in the books of accounts of the appellant-assessee since the assessment year 2010-11to 2014-15 in the paper book at page numbers 1 to6.
It is further more clarified that the NIPL is sister concern of the appellant- assessee as one of the directors (Rajesh Natani) of the appellant- assessee is also director in the NIPL and all the transactions were purely business transaction in the business expediency.
It is further more clarified that the assessing authority as well as the appellate authority has not pointed out any advances to the NIPL without any business expediency i.e other than business purposes i.e for personal purposes.
It is further more clarified that out of the outstanding of Rs. 30,16,987/- as on 31/03/2014, Rs. 28,33,805/- was opening balance as on 01/04/2013, we would like to have your kind attention further more that the appellant-assessee was to pay Rs. 4,58,500/- to Arihant Engineering Works and Rs. 3,58,262/- to Om Steel Enterprises total amounting to Rs. 8,16,818/-, for making payments of both the dealers the appellant- 15 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO assessee transferred Rs. 10,00,000/- to NIPL on 17/05/2013 out of this amount of Rs. 10,00,000/- the NIPL has made payments to both the above creditors of the appellant-assessee, this fact can be verified from the account statement of the NIPL in the books of accounts of the appellant-assessee which is available before your honour at page number 6 of the paper book submitted on 20/09/2021. Thus, it is crystal clear that the amount of Rs. 10,00,000/- was advanced in the business/commercial expediency only. Hence, the addition of interest on Rs. 30,16,987/- far away from the facts of the case.
It is further more clarified that although there was no any transaction of purchases/sale during the period under consideration but the NIPL requested to the appellant for some advance for the business so that it can run the business smoothly and will supply goods to the appellant- assessee subsequently. The appellant-assessee took in to consideration request of the NIPL and further advanced Rs.10,00,000/- in the business expediency for the continuation of the business purposes, However, out of the Rs. 10,00,000/- Rs. 8,16,818/- used in payments to two creditors, thus, net advance during the year remained Rs. 1,83,182/ only (10,00,000 – 8,16,818. We would like to have your kind attention that the assessing authority disallowed interest paid on loan to bank (CC Limit) Rs 65,37,685/-, Term Loan Rs. 3,64,011/- and to others Rs. 9,90,371/- total amounting to Rs. 79,11,256/- under section 36 (iii). On perusal of the sub-Section (iii) of Section 36, three ingredients are required for allowing interest paid which are as under;- 1. There should be borrowing of funds 2. Borrowing should be for business purpose, and 3. There should be payment of interest.
16 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO That, the appellant fulfills all the above three conditions, as the appellant- assessee borrowed the funds from the bank as well as other, the borrowing was for the business purposes only and interest thereon was paid to the Bank as well as to others also, That, such matters have come before the Hon’ble Supreme Court in various cases and upheld the view taken by the Hon’ble Delhi High Court in the case of CIT Vs Dalmia Cement (Bharat) Ltd. reported in (2002) 175 CTR Del 559, The ld. AR has also relied on the following judicial pronouncements: (i) S.A. Builders Ltd. Vs Commissioner of Income Tax (Appeals), Chandigarh and Others, order dated 14/12/2006 reported in AIR 2007 SC 482, (2007)1 SCC 781, MANU/SC/8798/2006. (ii) Commissioner of Income Tax Vs Vijay Solvex Ltd. (2015) 274 CTR (Raj.) 384. (iii) Commissioner of Income Tax Vs Rajeev Lochan Kanoria, (1994) 208 ITR 616 (Cal) (iv). Commissioner of Income Tax Vs Sanghi Finance and Investment Ltd. (2005) 273 ITR 268 (MP) Thus, in view of the above facts and circumstances of the case all are the business transactions either of purchases/sale/Job work as well as payments/receipts through banks as the case may be in the business/Commercial expediency. In the business transaction neither the appellant-assessee paid any interest on delay payments against consideration to the above suppliers on their sale/Job Works, if any, nor charged any interest from them on delay payments received either as sale consideration or advances in connection with the commercial expediency.
17 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO Without prejudice to the above it is further pointed out that the learned appellate authority observed in his appellate order from line number 7 of para number 4.3 at age number 7 as “Further, the appellant has not been able to show that the interest free advances were given for business purposes. Therefore, the disallowance of interest of Rs. 22,06,319/- made by the A.O. is hereby confirmed.” It is pointed out that the appellate authority did not go in to rout of the facts and passed the order on the facts as mentioned in the assessment order by the assessing authority. Looking to the facts and circumstances of the case it is crystal clear that the outstanding towards the various above debtors are in the form of outstanding of business transactions as well as advances in the Commercial expediency.”
On the other hand, the ld. DR has vehemently supported the order of the lower authorities and submitted that the ld. CIT(A) has passed a well reasoned order discussing all the material facts and circumstances of the case.
We have heard the rival contentions of both the parties and have also gone through the written submissions filed by the assessee. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. As per facts of the present case, we observed that the assessee is deriving its income from manufacturing and trading of all kinds of Iron and Steel such as MS Bars, 18 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO MS Angles, Sections and Channels etc. The assessee filed its return of income on 26/11/2014 declaring net taxable income of Rs. 10,89,570/-.
We observed from perusal of the record that the assesse took a short loan credit (SLC) of Rs. 50 Lakh from the formerly State bank of Bikaner and Jaipur which subsequently merged with State Bank of India, Branch-Ram Nagar, Shastri Nagar, Jaipur and there was over draft of Rs. 29,78,648/- over and above the CC limit for the business purposes during the assessment year under consideration. The assessee advanced in terms of business to other companies as well as firms for maintaining business relations with them i.e. purchasing, getting done job works and trading relations. It is further clarified that there was no any advances out of this new loan of Rs. 79,78,648/- as above other than the business expediency. Due to the business terms and conditions, the assessee did not charge any interest on advances out of own funds on account of having business interest in those Companies as well as firms also. The business advances towards such concerns remained outstanding as under:- Sl. Name of concern Opening Closing Difference No. balance balance 1. Natani Steel 52,83,683/- 99,48,395/- 43,65,712/- Industries 2. Supreme Meta Cast 54,06,309/- 87,26,342/- 33,20,033/- (Pvt.) Ltd. 3. Neelkanth Industries 28,33,805/- 30,16,987/- 1,83,182/- (Pvt.) Ltd. 4. TOTAL 78,68,927/- 19 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO Short term loans as on Short term loans as on Increase in loans 31/03/2014 31/03/2013 Rs. 5,71,66,591/- Rs. 4,91,87,943/- Rs. 79,78,648/-
From the facts of the present case, we further observe that the A.O. had not allowed deduction as business expenditure of interest paid on borrowings which had been given to other companies as well as firms in connection with the continuation of business i.e business expediency.
It is an undisputed fact that the assessee is a Pvt. Ltd. Company registered with the Registrar of Companies, Rajasthan in the year 1995 has been dealing in manufacturing and selling thereof in all kinds of Iron and Steel such as Round Bars, MS Angle, Sections, Channels etc. . The assessee company was consisted by two directors namely Rajesh Natani and Shri Babu Lal Natani during the period under consideration. The assessee has been dealing in purchases of raw material from various dealers within the State of Rajasthan as well as outside the State of Rajasthan also, sales to various dealers within the State of Rajasthan as well as dealers of outside the State of Rajasthan also, apart from the manufacturing by itself, looking to the urgency of finished goods for sale to others purchased as well as got done job work from other job workers also namely Natani Steel Industries Neelkanth Industries (Pvt.) Ltd. 20 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO 16. During the course of business looking to the business/commercial expediency the assessee advanced in terms of business/Commercial expediency to other Companies i.e. sister companies as well as sister firms/concerns for maintaining business relations with them i.e. purchasing of raw material, getting done job works also. The Natani Steel Industries (NSI) is job worker as well as supplier of goods also to the assessee. The NSI did job work regarding manufacturing of goods since the financial year 2009-10 to 2011-12 because according to the market conditions the assessee got done job work and purchased goods for sale. The assessee has submitted year wise statement of the Job Work and sale to NSI which is at page number-7 of the paper book and statements of account which are at page numbers 8 to 27 of the paper book. Apart from the above, complete details of raw material issued for job work and received the finished goods for the financial years 2009-10, 2010-11 and 2012-13 are also attached as Annexures B-1 to B-34 (Raw Material issued and finished goods recd.). Apart from the getting done job work, sold goods in the financial year 2012-13, the sales have been reported to the Commercial Taxes Department through its required statutory quarterly returns in the prescribed Form VAT-10 along with attachments thereof in the Form VAT- 07A (Summery details of purchases from registered dealers) and Form 21 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO VAT-08A (Summery details of sales to registered dealers as well as unregistered persons), the quarter wise detail is reproduced here under:- Sl. No. Asst. Year Name of Form VAT-07A Form VAT-08A the (Summery of (Summery of sales) quarter purchases) Excluding tax Excluding tax 1st 1. 2010-11 532510 2nd 2 0 0 3 TOTAL 532510 2nd 4 2011-12 0 18373987 3rd 5 0 10297054 6 TOTAL 0 28671041 1st 7 2012-13 0 7573004 2nd 8 0 13350476 3rd 9 0 15822263 4th 10 3403832 2507456 11 TOTAL 3403832 3,92,53,199 From the above chart, it can be clarified that purchases/sales in the paper have been declared gross amount including tax, whereas, the above table is bare amount excluding tax on purchases as well as sales also.
It is further clarified that the assessee adjusted the output tax liability on sale from Input Tax Credit because the assessee paid taxes on it’s purchases from registered dealers of the State of Rajasthan under the Rajasthan Value Added Tax Act, 2003 and/or deposited, as the case may 22 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO be. It is further more clarified that the assessee was maintaining a running account of all the transactions of job work as well as purchases/sale also and payments (Considerations) as well as advances in the business expediency. Copies of summary statement and copies of accounts of the NSI in the books of accounts of the assessee for the A.Y. 2010-11 to 2014- 15 are at page numbers 7 to 27 of the paper book.
We further observed that the NSI is sister concern of the assessee as one of the directors (Rajesh Natani) of the assessee is also partner in the NSI, and all the transactions were purely business transaction in the business expediency. Both the lower authorities had not pointed out any advances to the NSI without any business expediency i.e. other than business purposes i.e for personal purposes. Some time remained credit balance of the NSI and sometimes remained debit balance, in both the situations there was no any transaction of interest either debit or credit because it was a current account of business instead of loan account. It was pointed out that out of the outstanding of Rs. 99,48,395/- as on 31/03/2014 Rs. 55,82,683/- was opening balance as on 01/04/2013, hence, the addition of interest on Rs. 99,48,395/- far away from the facts of the case.
23 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO 19. We also observed from perusal of the record that the Supreme Meta Cast (PVT.) Ltd. (SMCPL) is supplier of goods (raw material-Ingots) to the assessee, the SMCPL has been supplying goods since financial year 2010- 11 and was maintaining a running account of transactions of purchases/sale and payments (Considerations) as well as advances in the business/Commercial expediency. Copies of summary statement and copies of accounts of the SMCPL in the books of accounts of the assessee for the assessment year 2010-11 to 2014-15 are at page numbers 28 to 37 of the paper book. Apart from the above sold goods to the SMCPL, the sales have been reported to the Commercial Taxes Department through its required statutory quarterly returns in the prescribed Form VAT-10 along with attachments thereof in the Form VAT-07A (Summery details of purchases from registered dealers) and Form VAT-08A (Summery details of sales to registered dealers as well as unregistered persons), the quarter wise detail is reproduced here under:-
Sl. No. Asst. Name of Form VAT-07A Form VAT-08A Year the (Summery of (Summery of sales) quarter purchases) Excluding tax Excluding tax 1st 1. 2010-11 0 0 4th 2 2010-11 5693174 204949 3 TOTAL 5693174 204949 1st 4 2011-12 1595955 0 2nd 5 2011-12 3421507 0 3rd 6 2011-12 4105556 0 4th 7 2011-12 9987378 0 8 TOTAL 1,91,10,396 0 24 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO 1st 9 2012-13 11941216 0 2nd 10 2012-13 9569510 132810 3rd 11 2012-13 241619 0 12 TOTAL 2,17,52,345 132810 From the above chart, it can be clarified that purchases/sales in the paper have been declared gross amount including tax, whereas, the above table is bare amount excluding tax on purchases as well as sales also.
It is to further point out that the assessee adjusted the output tax liability on sale from Input Tax Credit because the assessee paid taxes on it’s purchases from registered dealers of the State of Rajasthan under the Rajasthan Value Added Tax Act, 2003 and/or deposited in cash, as the case may be. It is further more clarified that the assessee was maintaining a running account of all the transactions of purchases / sales also and payments (Considerations) as well as advances in the business expediency, copies of summary statement and copies of accounts of the SMCPL in the books of accounts of the assessee for the assessment year 2010-11 to 2014-15 are at page numbers 28 to 37 of the paper book. It is also pointed out that the SMCPL is sister concern of the assessee as one of the directors (Rajesh Natani) of the assessee is also director in the SMCPL and all the transactions were purely business transaction in the business expediency. Both the lower authorities had not pointed out any advances to the SMCPL without any business expediency i.e. other than business 25 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO purposes i.e. for personal purposes. Some time remained credit balance of the SMCPL and sometimes remained debit balance, in both the situations there was no any transaction of interest either debit or credit because it was a current account of business instead of loan account. It was also pointed out that that out of the outstanding of Rs. 87,26,342/- as on 31/03/2014 Rs. 54,06,309/- was opening balance as on 01/04/2013. It is also necessary to mention that both the lower authorities had not pointed out any advances to the other business concerns without any business expediency i.e. other than business purposes i.e. for personal purposes. There was no any transaction of purchases/sale during the period under consideration but the SMCPL requested to the assessee for some advance for the business so that it can run the business smoothly and will supply goods to the assessee subsequently. The assessee took into consideration request of the SMCPL and further advanced Rs.34,20,033/- in the business expediency for the continuation of the business purposes.
We further observed that the Neelkanth Industries (PVT.) Ltd. (NIPL) is supplier of goods to the assessee, the NIPL has been supplying goods since financial year 2010-11 and was maintaining a running account of transactions of purchases/sale and payments (Considerations) as well as advances in the business/Commercial expediency, if required. Copies of summary statement and copies of accounts of the NIPL in the books of 26 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO accounts of the assessee for the assessment year 2010-11 to 2014-15 are at page numbers 01 to 06 of the paper book. Apart from the above the assessee sold goods to the NIPL, the sales have been reported to the Commercial Taxes Department through its required statutory quarterly returns in the prescribed Form VAT-10 along with attachments thereof in the Form VAT-07A (Summery details of purchases from registered dealers) and Form VAT-08A (Summery details of sales to registered dealers as well as unregistered persons), the quarter wise detail is reproduced here under:-
Sl. Asst. Year Name Form VAT-07A Form VAT-08A No. of the (Summery of (Summery of sales) quarter purchases) Excluding tax Excluding tax 1st 1. 2010-11 259435 0 2nd 2 2010-11 0 0 3rd 3 2010-11 419664 0 4 TOTAL 6,79,099 0 4th 5 2011-12 1252429 0 6 TOTAL 1252429 0 4th 7 2012-13 0 26030 8 0 9 TOTAL 0 26030 27 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO From the above chart, it can be clarified that purchases/sales in the paper have been declared gross amount including tax, whereas, the above table is bare amount excluding tax on purchases as well as sales also.
We further observed that the assessee adjusted the output tax liability on sale from Input Tax Credit because the assessee paid taxes on it’s purchases from registered dealers of the State of Rajasthan under the Rajasthan Value Added Tax Act, 2003 and/or deposited in cash, as the case may be. It is further submitted that the assessee was maintaining a running account of all the transactions of purchases / sales also and payments (Considerations) as well as advances in the business expediency, if any. The NIPL is sister concern of the assessee as one of the directors (Rajesh Natani) of the assessee is also director in the NIPL and all the transactions were purely business transaction in the business expediency. Both the lower authorities had not pointed out any advances to the NIPL without any business expediency i.e other than business purposes i.e for personal purposes. It is further pointed out that out of the outstanding of Rs. 30,16,987/- as on 31/03/2014, Rs. 28,33,805/- was opening balance as on 01/04/2013. It is important to note here that the assessee was to pay Rs. 4,58,500/- to Arihant Engineering Works and Rs. 3,58,262/- to Om Steel Enterprises total amounting to Rs. 8,16,818/-, for making payments of both the dealers the assessee transferred Rs. 28 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO 10,00,000/- to NIPL on 17/05/2013 out of this amount of Rs. 10,00,000/- the NIPL has made payments to both the above creditors of the assessee. This fact can be verified from the account statement of the NIPL in the books of accounts of the assessee which is available at page number 6 of the paper book submitted on 20/09/2021. Thus, it is crystal clear that the amount of Rs. 10,00,000/- was advanced in the business/commercial expediency only. It is further noted that although there was no any transaction of purchases/sale during the period under consideration but the NIPL requested to the assessee for some advance for the business so that it can run the business smoothly and will supply goods to the assessee subsequently. The assessee took into consideration request of the NIPL and further advanced Rs.10,00,000/- in the business expediency for the continuation of the business purposes. However, out of Rs. 10,00,000/- Rs. 8,16,818/- used in payments to two creditors, thus, net advance during the year remained Rs. 1,83,182/ only (10,00,000 – 8,16,818.).
We further observed that A.O. disallowed interest paid on loan to bank (CC Limit) Rs 65,37,685/-, Term Loan Rs. 3,64,011/- and to others Rs. 9,90,371/- total amounting to Rs. 79,11,256/- U/s 36 (iii) of the Act. For ready reference, Section 36(iii) of the Act is reproduced here under:-
29 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO “36 (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession :
Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset (whether capitalised in the books of account 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.
Explanation.—Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause; From perusal of the above sub-section, three ingredients are required for allowing interest paid which are as under;- 1. There should be borrowing of funds 2. Borrowing should be for business purpose, and 3. There should be payment of interest. The assessee fulfills all the above three conditions, as the assessee borrowed the funds from the bank as well as other, the borrowing was for the business purposes only and interest thereon was paid to the Bank as well as to others also. In this regard, we draw strength from the decision of the Hon’ble Supreme Court in the case of S.A. Builders Ltd. Vs Commissioner of Income Tax (Appeals), Chandigarh and Others, order dated 14/12/2006 reported in AIR 2007 SC 482, (2007)1 SCC 781, MANU/SC/8798/2006 wherein it was held as under:
20. We agree with the view taken by the Delhi High Court in CIT V. Dalmia Cement (Bhart) Ltd. MANU/DE/0309/2002 :[2002] 254 ITR 377 30 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO (Delhi) that once it is established that there was nexus between expenditure and the purpose of the business (which need not necessarily be the business the assessee itself), the revenue cannot justifiably claim to put itself in the arm-chair of businessmen 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 businessmen can be compelled to maximize its profit. The Income Tax Authorities must put themselves in the shoes of the assesse and see how to prudent businessmen would act. The authorities must not look at the matter from their own view point but that of a prudent businessmen. As already stated above, we have to see the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits.
“22. In view of the above, we allow the appeals and set aside the impugned judgments of the High Court, The Tribunals and other authorities and remand the matter to the Tribunal for a fresh decision, in accordance with law and in the light of the observations made above. We also make it clear that we are not setting aside the order of the Tribunal or other Income Tax Authorities in relation to the other points dealt with by these authorities, except the point of deduction of interest on the borrowed funds. We also draw strength from the decision of the Hon’ble Rajasthan High Court in the case of Commissioner of Income Tax Vs Vijay Solvex Ltd. (2015) 274 CTR (Raj.) 384, wherein judgment of the Hon’ble Apex court in the case of S.A. builders has been followed. The relevant abstract of the judgment of the Hon’ble Jurisdictional High court is reproduced here under:-
“8. It may be that the assessee on account of business expediency advanced money to sister concerns or other concerns at a lower rate of interest or did not charge interest that by itself does not prove that the assessee diverted interest-bearing loans to the said firms. An assessee is 31 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO required to run business looking to the commercial expediency and several other factors.
Apex Court, in the case of S.A. Builders Ltd. vs. CIT MANU/SC/8798/2006 : (2006) 206 CTR (SC) 631 : (2007) 288 ITR 1 (SC), after considering what is commercial/business expediency, has observed as under: "The expression 'commercial expediency' is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency." 9.1 The Hon'ble apex Court further observed in the above judgment as under: "To consider whether one should allow deduction under s. 36(1)(iii) of interest paid by the assessee on amounts borrowed by it for advancing to a sister concern, the authorities and the Courts should examine the purpose for which the assessee advanced the money and what the sister concern did with the money. That the borrowed amount is not utilized by the assessee in its own business but had been advanced as interest-free loan to its sister concern is not relevant. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Once it is established that there was nexus between the expenditure and purpose of the business (which need not necessarily be the business of the assessee itself) the Revenue cannot justifiably 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 his profits."
15. In view of the authoritative pronouncement of the apex Court and other judgments referred supra, in our view, the assessee admittedly had its own funds, as referred to earlier, and admittedly such funds/reserves being substantially higher than, even otherwise, the advances to the debtors, no notional interest or hypothetical interest could have been 32 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO disallowed on such facts. The Revenue has failed to prove nexus. In our view, the Tribunal has correctly appreciated the facts and law. In view of our observations hereinabove, the Tribunal was correct in deleting the notional interest, disallowed by the AO at Rs. 5,80,215 and accordingly, the appeal is decided against the Revenue and in favour of the assessee. No costs.” Thus, in view of the above facts and circumstances of the case all are the business transactions either of purchases/sale/Job work as well as payments/receipts through banks as the case may be in the business/Commercial expediency. In the business transaction neither the assessee paid any interest on delay payments against consideration to the above suppliers on their sale/Job Works, if any, nor charged any interest from them on delay payments received either as sale consideration or advances in connection with the commercial expediency.
Considering the totality of facts and circumstances of the case, mater placed on record and the case laws relied upon by the ld. AR, we found merit in the contentions raised by the assessee and the ld. DR has not brought on record any new material to rebut or controvert the submissions and documents placed before us, therefore, we direct to delete the disallowances confirmed by the ld. CIT(A). We order accordingly. Hence, Ground No. 1 and 2 of the appeal are allowed.
33 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO 25. Ground No. 3 of the appeal raised by the assessee relates to challenging the order of the ld. CIT(A) in confirming the disallowance of interest to Bajaj Finance Ltd. at Rs. 45,130/-.
Having considered the rival contentions and carefully perused the material placed on record. From perusal of the record, we noticed that the assessee has taken finance from Baja] Finance Limited in 2011. The repayment was made accordingly to the monthly installment. As per the provisions, the assessee has debited TDS deducted on the interest paid in the account of the company. The total TDS for the year ended 31-03-2012 was Rs.32033/- and for the year ended on 31-03-2013 was Rs.13097/-. The assessee time and again required M/s Bajaj Finance Limited to reimburse the same. However, in spite of the repeated request no such reimbursement of the tax deducted at source was made. Accordingly during the year claimed the amount of TDS of Rs.49234/- as interest in the profit & loss account. As the non recovery of the same is decided during the year, the same is current year expenditure and allowable during the year. However, the interest was deposited in the year under consideration, it must be allowed in any one of the years either the year under consideration on account of payment or in the preceding year being the relevant year, if the expenditure is allowed in this year under consideration even though there would be no any loss of revenue to the department 34 ITA 245/JP/2020_ Natani Rolling Mills Pvt. Ltd. Vs ITO because the rate of tax is one and the same for both the assessment years. Considering the totality of facts and circumstances of the case, we direct to delete the disallowance confirmed by the ld. CIT(A).
Ground No.4 of the appeal raised by the assessee relates to condoning the delay. We have already condoned the delay in filing the present appeal by giving a finding in earlier paragraphs of this order, therefore, there is no need to adjudicate the same afresh.
In the result, this appeal of the assessee is allowed.
Order pronounced in the open court on 23rd November, 2021.
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