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Income Tax Appellate Tribunal, JODHPUR BENCH,
Before: SHRI SANDEEP GOSAIN & SHRI MANOJ KUMAR AGGARWAL
IN THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER ITA No. 190/JODH/2019 (Assessment Year: 2014-15) D.C.I.T. Vs. M/s Kanda Edible Oil Pvt. Ltd. Circle, E 173, Udyog Vihar Sriganganagar. Sriganganagar. PAN No. AACCK 7754 Q
C.O. No. 16/JODH/2019 (Arising out of ITA No. 190/JODH/2019 (Assessment Year: 2014-15) M/s Kanda Edible Oil Pvt. Ltd. cuke D.C.I.T. Vs. E 173, Udyog Vihar Circle, Sriganganagar. Sriganganagar. PAN No. AACCK 7754 Q Objector iRespondent Revenue by Shri A.S. Yadav, JCIT DR Assessee by Shri P.C. Parwal, CA Date of Hearing 04.11.2020 Date of Pronouncement 01/02/2021
O R D E R PER BENCH These are the appeal filed by the Revenue and the Cross-Objection filed by the assessee against the order of Ld. CIT(A), Bikaner dated 19.03.2019 for AY 2014-15, wherein the department in its appeal and assessee in its appeal have raised following grounds of appeal:
2 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. “Grounds of Revenue’s Appeal 1. On the facts and in the circumstances of the case the Ld.CIT(A) has erred in deleting the addition of Rs.58,36,270/- made on account of non- charging of interest on the diverted funds of Rs.3,41,83,432/- to 9 Debtors, ignoring the fact that the assessee paid interest on the said amount and that neither any goods were supplied by debtors to the assessee nor the amount was returned to the assessee. 2. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.2,06,35,380/- made by the AO after rejecting the books of accounts of the assessee on the basis of documents impounded during survey proceedings which showed that assessee is indulged in crushing unrecorded Sarson and the selling the same out of books.
Grounds of Assessee’s Cross objection 1. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance u/s 40A(2)(b) of Rs.3,14,702/- on account of alleged excess interest paid to the related party. 2. The Ld. CIT(A) has erred on facts and in law in confirming the ad hoc disallowance of mustard oil expenses and other expenses of Rs.1,50,000/- by holding that the personal use cannot be ruled out.” 2. The hearing of the appeal and cross objection was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
The brief facts of the case are that the assessee is engaged in the manufacturing and trading of mustard oil and Khal. A survey was carried out at the business premises of the assessee on 08.10.2014. In the assessment order, AO has made a reference of short cash and short stock found in
3 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. survey but no adverse inference has been drawn in the assessment order for the same. However, the additions have been made on other issues which were challenged by the assessee before Ld. CIT(A). The Ld. CIT(A) allowed relief on certain issues and upheld the addition on certain issues. Accordingly, the department has filed an appeal on the issues where additions are deleted and assessee has filed cross-objection on the issues where additions are confirmed.
Firstly, we take up the departmental appeal and thereafter the cross objection of the assessee. In the first ground of appeal the department has challenged the deletion of addition of Rs.18,93,577/- made by the AO on account of non-charging of interest from debtors. The AO observed that assessee has claimed interest expenses of Rs.1,93,90,810/- but has not charged any interest from the debtors. Thus, assessee had diverted interest bearing funds to persons from whom no interest has been charged. Accordingly, he calculated notional interest at the rate of 18% per annum in respect of following parties and disallowed Rs.58,36,270/- out of the interest expenses by applying section 36(1)(iii) of the Act.
4 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. Particulars Closing balance (Rs.) Interest @ 18% pa (Rs.) Anami Build Mart 50,00,000/- 4,26,570/- Sh. Maruti Nadan 50,00,000/- 4,38,900/- Nirav Enterprises 70,00,000/- 18,64,110/- Rishu Arora 15,00,000/- 2,47,500/- Smt. Rukmani 20,00,000/- 1,77,540/- SSP traders 10,00,000/- 1,80,000/- Sahal commodities (P) Ltd 1,21,14,717/- 23,99,270/- Gujrat Agro Processors 2,82,994/- 50,940/- Baraja Kali Bhandar Contoi 2,85,721/- 51,440/- Total 58,36,270/- 5. The Ld. CIT(A) at Para 3.5 of its order after considering the submission of assessee observed that advance on which notional interest has been computed is for purpose of business or out of interest free funds. The AO has not brought any evidence that assessee has charged interest from these parties and not disclosed in the books. Notional interest cannot be brought to tax for which he referred to the decision of Hon’ble Supreme Court in case of CIT Vs. Shoorji Vallabhdas And Co. (1962) 46 ITR 144 and Hon’ble Gauhati High Court in case of B and A Plantations and Industries Ltd. Vs. CIT 242 ITR 22. Accordingly, he deleted the addition made by the AO.
The Ld. A.R appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also filed a written submission and has further submitted that the advance given to the
5 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. above parties were on account of business transaction/commercial expediency/out of surplus funds for which he prepared a table as below:-
Amount of Particulars interest Reason for advance disallowed Sh. Maruti 4,38,900/- The assessee has given an advance of Rs. Nadan 50,00,000/- on 03.10.2013 for purchase of mustard seed in next 3 months. However, this party neither supplied mustard seed nor repaid the amount advanced. This party is not related to the assessee. The AO has also not brought any evidence that assessee has received interest from these parties or the advance is given for personal purpose. Hence, disallowance of notional interest on such advance is uncalled for and be deleted. Nirav 18,64,110/- This represents the money advanced for Enterprises purchase of soybean but due to dispute neither goods supplied by him nor full money received back. The assessee made continuous follow up with the party for refunding the money. However, only part amount is received. In support of the same related documents were produced. This party is not related to the assessee. The AO has also not brought any evidence that assessee has received interest from this party or the advance is given for personal purpose. Hence, disallowance of interest by computing notional interest on such advance is uncalled for. SSP traders 1,80,000/- The assessee has given an advance of Rs. 10,00,000/- on 22/02/2013 for purchase of mustard seeds. However, this party neither supplied mustard seed nor repaid the amount advanced. This party is not related to the assessee. The AO has also not brought any evidence that assessee has received interest from these parties or the advance is given for personal purpose. Hence, disallowance of interest by computing notional interest on such advance is uncalled for.
6 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. Sahal 23,99,270/- This amount represents the profit earned in commodities NCDEX in FY 2012-13 for Rs. 1,46,19,330/- (P) Ltd and offered for tax but not received from the party. Out of that during the year only an amount of Rs. 25,04,613/- is received. Thus, this is not an advance but income earned by the assessee and already offered for tax and receivable from debtor. Accordingly, on such amount disallowance of interest made by the AO by computing notional interest is uncalled for. Gujrat Agro 50,940/- This represents the outstanding of part processors amount of sales made in FY 2008-09. The Baraja assessee had made various follow up but has not received the amount. Even the recovery of principal is doubtful. Hence on such outstanding, disallowance of interest made by the AO by computing notional interest is uncalled for. Kali Bhandar 2,85,721/- This represents the outstanding of part Contoi amount of sales made in FY 2008-09. The assessee had made various follow up but has not received the amount. Even the recovery of principal amount is doubtful. Hence on such outstanding, disallowance of interest made by the AO by computing notional interest is uncalled for. Anami Build 426570/- The total amount of advance outstanding to Mart these 3 parties works out to Rs. 35,00,000/- .The same was given out of the interest free RishuArora 247500/- funds of Rs. 2,70,82,157/- as on 31.03.2013. Smt. 177540/- Thus no interest bearing fund has been Rukmani diverted for giving advance to these parties. Accordingly, the disallowance of interest made by computing notional interest is uncalled for.
6.1 The Ld. A/R further submitted that income tax is a tax on real income. No tax can be imposed on an amount which is not earned. There is no provision in the Income Tax Act to make disallowance out of interest by computing notional interest on the business debtors/advances. The assessee
7 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. is otherwise having interest free funds of Rs.2,70,82,157/- as on 31-03-2013 which is much more than the above advances. Hence the disallowance made by the AO by applying section 36(1)(iii) of the Income Tax Act, 1961 is not as per law. He placed reliance on the decisions referred in the order of Ld. CIT(A) (supra).
The Ld. D/R relied on the order of AO by arguing that assessee has not filed any evidence linking that own funds have been utilised for giving the interest free advance or any evidence that interest is not charged from these parties.
We have heard the Ld. Counsels of both the parties and have perused the material placed on record. 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. We find that AO has calculated the notional interest on the closing balance in the name of above parties. None of these parties are related to the assessee. There is no evidence that interest has been charged from these parties but not disclosed in the books. The Hon’ble Supreme Court in case of CIT Vs. Shoorji Vallabhdas And Co. (1962) 46 ITR 144 has held that income tax is a levy on income. No doubt, the Income-
8 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income, if income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a "hypothetical income " which does not materialize. In this case also, the assessee has given detailed reasons and the nature of outstanding balance in respect of above parties as tabulated supra. No interest has been charged from these parties. Considering the entirety of the facts, we uphold the finding of Ld. CIT(A) and dismiss the ground of department.
In the second ground of appeal the department has challenged the deletion of addition of Rs.2,06,35,380/- made on account of unrecorded production and out of book sales. The fact of this ground is that assessee is engaged in the manufacturing and trading of mashed oil and Khal. During the year under consideration, the assessee declared yield of mustard oil at 33.68% as against 32.99% in the last year and 34.77% in the subsequent year. AO observed that the yield as per DIP File impounded during survey upto the month of August, 2013 is 33.938%, in the subsequent year the yield is 34.77% and therefore the book version of production is not acceptable and is liable to be rejected u/s 145(3). He further observed that average electricity unit consumed for the month of June 2013 for crushing
9 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. one quintal of Sarson is 11.61 units whereas it ranges between 11.61-17.71 units on month to month basis. Accordingly, by considering average consumption of electricity unit at 11.61, he worked out the quantity of mustard seed crushed at 100021.09 quintal whereas seed crushed as per the books was 94005.39 quintals. Thus, AO concluded that assessee crushed unaccounted mustard seeds to the extent of 6015.70 quintals and by applying the declared yield percentage he worked out an addition of Rs.2,06,35,380/- calculated as under:-
Name of Yield (%) Quantity Average sale Addition product rate M/seed oil 33.68 2026.08 Rs. 7000/- per 1,41,82,560/- qtl. M/seed cake 65.01 3910.80 Rs. 1650/- per 64,52,820/- qtl. Total 2,06,35,380/-
The Ld. CIT(A) in para 4.8-4.11 after considering the explanation of assessee held that assessee has maintained day to day books of accounts along with stock register. AO has not pointed out any defect in the books, in survey no unaccounted purchase or sales was found, difference in the yield as per the DIP file has been properly explained, variation in electricity consumption on month to month basis depends on various factors, yield is comparable with earlier years, in AY 13-14 AO in the assessment completed u/s 263/143(3) after the date of the present order has not made any
10 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. addition on the basis of variation in electricity consumption, decision of Rajasthan High court on similar facts are in favour of the assessee and therefore, he deleted the addition made by the AO.
The Ld. D/R relied on the order of AO by arguing that there is variation in the average unit of electricity consumed for crushing 1 quintal of Sarson from 11.61 per unit to 17.81 per unit. The assessee has not given any cogent reason for such wide variation in the electricity consumption from one to one basis and therefore, the AO has rightly made the addition on account of sale of suppressed production as worked out in the assessment order. The Ld. CIT(A) without appreciation of facts has deleted the addition and therefore, the order of AO be restored.
The Ld. A/R of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and has also filed a written submission and submitted that the assessee maintains day to day books of accounts along with day to day stock register which are subject to audit. These books are duly audited. The quantitative details have been duly verified by the statutory auditor and the tax auditor. In survey the stock register was found. No unaccounted purchase or sale or production was found in survey. Even the AO has not brought any material on record to allege that assessee
11 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. is indulged in unaccounted purchase sale or production. The yield declared by the assessee as compared to the last year though it is less as compared to the subsequent year but considering the fact that assessee deals in agriculture produce, the yield cannot be constant on year to year basis. The minor variation in the yield percentage upto the month of August 2013 as per DIP file impounded in survey at 33.938% vis a vis the annual yield of 33.68% declared by the assessee is on account of fact that during winter season there is more moisture in the seeds which reduces the yield. In any case the AO himself has accepted the yield of 33.68% declared by the assessee in working out the addition made by him and therefore such minor difference is otherwise not relevant. Therefore for such insignificant discrepancies as alleged by the AO the rejection of books of accounts is not justified as held by the Hon’ble Rajasthan High Court in case of PCIT vs. Bhawani Silicate Industries (2016)236 Taxman 596. In these facts the Ld. CIT(A) has rightly held that the rejection of the books of accounts by the AO is not justified. Against this finding the department has not taken any specific ground of appeal. Hence, for this reason itself the ground of the department is liable to be dismissed.
12 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. 12.1 The Ld. A/R further submitted that the comparative position of the quantity of mustard seeds crushed, mustard oil and cake produced and the shortage is as under:-
Particulars AY 2012-13 AY 2013-14 AY 2014-15 Quantity Yield Quantity Yield Quantity Yield (Quintals) (%) (Quintals) (%) (Quintals) (%) INPUT Mustard Seed 159581.1 82031 94005.39 OUTPUT Mustard Oil 54421 34.10% 27058.7 32.99% 31663.08 33.68% Mustard Cake 103461.32 64.83% 53933.3 65.75% 61112.76 65.01% Shortage 1847.27 1.06% 1039 1.27% 1229.55 1.31% It is argued that the yield percentage and shortage is comparable with the earlier years. The slight variation is on account of the fact that mustard seed is an agricultural product, quality of which cannot be same in every lot. In any case the yield percentage for the year is better as compared to the earlier year and therefore, higher yield percentage declared in subsequent year cannot be a basis for rejection of books of accounts.
12.2 The Ld. A/R further argued that the only reason given by the AO for presuming the unaccounted production is on account of variation in the electricity consumption on month to month basis. He took the electricity consumption for the month of June 2013 at 11.61 units per qtl. as base and wherever electricity unit consumption is more, he presumed that assessee had crushed more quantity of Sarson and made addition for estimated sale
13 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. price of the same. This is incorrect because the consumption of electricity units varies on month to month basis would depend upon the moisture content in the seed, machine breakdown, extra electricity consumed on start of machine/plant if it is not run continuously, inefficiency of labour and various other factors on which assessee has no control. Hence variation in the electricity consumption cannot be a basis for assuming the unrecorded production for which he placed reliance on the following cases:- i. CIT Vs. Sulabh Marbles (P.)Ltd 165 Taxman 258 (Raj.) ii. St. Teresa's Oil Mills Vs. State of Kerala 76 ITR 365 (Ker.) iii. Prem Cables (P) Ltd. Vs. Asstt. CIT 56 ITD 0382 (JP) iv. ACIT Vs. Khambhata Family Trust 67 ITD 0411 (Ahd.) v. Rakesh Kumar Jayantilal Vs. ACIT 55 ITD 0097 (Ahd.) (TM) vi. G. K. Auto Vs. ACIT, ITA No. 616/JP/05 dated 23.3.2007
12.3 Finally the Ld. A/R submitted that for AY 2013-14, the ld. PCIT, Bikaner vide order u/s 263 dated 20.03.2018 set aside the assessment order with the direction to AO to pass the assessment order afresh after proper examination of the issues mentioned in that order. Subsequent to these directions the AO has raised an issue about the variation in the electricity unit consumed for crushing per quintal mustard seeds on month to month basis but after considering the explanation a lump sum addition of Rs.3,00,000/- was made to mitigate the possible leakage of revenue. This
14 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. order was passed on 29.12.2018 i.e. after completion of the assessment order for the year under consideration. Thus, when in the immediately previous year this issue was raised but no charge of unrecorded productions levied against the assessee, on the same facts, the charge of unrecorded production levied against the assessee in the year under consideration is whimsical and on surmises and conjectures. 13. We have heard the Ld. Counsels of both the parties and have perused the material placed on record. 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. We note that in this case a survey was carried out on 08.10.2014. In the assessment order the AO has not referred to any tangible material for any suppressed production or sales outside the books of accounts. The minor variation in the yield of mustard oil cannot be as basis for rejection of books of accounts when assessee has maintained day to day books along with the stock register. Therefore, the Ld. CIT(A) has right held that the rejection of books is not justified by referring to the decision of Hon’ble Rajasthan High Court reported in 236 Taxman 596. The department has not taken any specific ground against the finding of CIT(A) where the rejection of books of accounts by the AO was held
15 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. unjustified. We further note that the addition is made on the basis of electricity consumption on crushing of per quintal mustard seeds in the month of June, 2013 where the consumption was lowest. This is on assumption only as neither any document for purchase of unaccounted Sarson nor production or sales thereof is brought on record by the AO. For variation in the electricity consumption assessee has filed the detailed explanation which is acceptable. The decision of Rajasthan High Court in case of CIT Vs. Sulabh Marbles Pvt. Ltd. 165 Taxman 258 support the case of assessee inasmuch as in this case also the AO by taking the amount paid by the assessee for electricity consumption as base assumed the actual production to be more then what is disclosed and made the addition. It was held that where AO has not pointed out any defect in the books of accounts of the assessee or method of accounting followed by the assessee and there was no material placed on the record to show any instance of suppression of sale or inflation of purchase by the assessee, AO was wrong in drawing adverse inference against assessee by only referring to the electricity expenses. We also note that on same facts the AO in the assessment completed u/s 263/ 143(3) for AY 2013-14 on 29.12.2018, i.e. after passing of the above order did not make any addition on the basis of electricity consumption variation by giving the following finding:-
16 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd..
“The reply of the assessee has been considered and the same has not been found to be acceptable because parameters like efficiency, seasonal factor, moisture content etc remain almost same for the months of July and august, still there is difference of nearly one unit of average consumption of electricity units for crushing per quintal of mustard seeds between these two months. No explanation on this query has been offered. Further, the assessee has contended that production is average of two units having different stock levels, different labour and different efficiency, but details of above parameters of two units have not been submitted to substantiate its claim. In view of above discussion, lump-sum addition of Rs. 3,00,000/- is made on this issue to mitigate possible leakage of revenue on this issue.”
Considering all these facts, the decision of Hon’ble Rajasthan High Court and the subsequent order passed for AY 2013-14, we concur with the finding of Ld. CIT(A) qua this issue and dismissed the ground of department.
Now we take the cross objection of assessee.
In the first ground of cross objection the assessee has challenged the disallowance of Rs.3,14,702/- made u/s 40A(2)(b) of the Act on account of excess interest paid to the related parties.
The fact of this ground is that during assessment proceedings AO referred to the TPO for determination of Arm’s Length Price of Specified Domestic transactions undertaken by the assessee. The TPO vide order u/s
17 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. 92CA(3) dated 29.06.2017 held that assessee has paid interest to related persons @ 12%-24% whereas ALP of interest is 12.83%. He therefore calculated the excess interest paid at Rs.3,14,702/-. This amount was disallowed by the AO.
The Ld. CIT(A) at Para 2.3 of the impugned order held that interest payment to relatives @ 18%-24% is excessive and therefore uphold the disallowance made by the AO.
The Ld. A.R of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and has further submitted that the TPO in its order has observed that average SBI PLR rate for FY 13-14 is 9.83% to which he added 300 basis point on account of unsecured loan and risk factor to work out the ALP of interest at 12.83%. This working is not correct in as much as the SBI PLR (Prime Lending Rate) effective from 07.11.2013 was 14.75%. However, the TPO instead of taking SBI PLR has taken the SBI Base Deposit rate which was 9.83%. Therefore, the rate worked out by the TPO is factually incorrect. Even after considering the SBI PLR rate at 14.75% and making adjustment on account of unsecured loan and risk factor at 300 basis point the ALP of the interest would work out at 17.75%.
18 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. 17.1 The Ld. A/R further submitted that the assessee has paid interest @ 12%, 15%, 18% and 24% on the loans raised by him depending upon his requirement and need. In respect of these loans assessee has not to undergo any formalities, not to provide any security, interest is to be paid on yearly basis and not on quarterly basis as in case of banks and these loans are for long duration with no fixed term of repayment. Therefore considering these factors interest paid to certain persons @ 18% or 24% is reasonable and at Arm’s Length. In case of ACIT Vs. Shirish Maganlal Ravani (2013) 91 DTR 289 (Rajkot) (Trib.) (TM) assessee paid interest @18% p.a. on unsecured loans raised by him from his wife, sons and his own HUF. AO disallowed interest @6% u/s 40A(2)(b) as excessive. It was held that it is a matter of common knowledge that interest on unsecured loans is normally more than the interest payable on secured loans since in order to get secured loan from bank, assessee has to undergo a number of formalities and to give security to the satisfaction of the bank whereas this impediment does not normally exist in the case of unsecured loans. Further, the Revenue could not cite any instance wherein assessee on unsecured loan account, other than his relatives account, has paid interest at less than 18% p.a. Therefore, disallowance of excessive interest u/s 40A(2) made by the AO by considering 12% as reasonable rate of interest
19 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. cannot be sustained, more so when no such disallowance has been made in the earlier years. Hence, the disallowance made is unjustified.
17.2 The Ld. A/R alternatively argued that even if it is held that interest rate of 18% is reasonable, the disallowance in respect of the persons to whom interest is paid @ 24% would work out as under:-
Name of Rate at Total ALP of Difference person which interest interest interest paid applying 18% paid Sh. Adhitya 24% 34,038/- 25,529/- 8,510/- Goyal Sh. Akshya 24% 24,640/- 18,480/- 6,160/- Goyal Smt. Surbhi 24% 13,109/- 9,832/- 3,277/- Goyal Smt. Radhika 24% 5,09,417/- 3,82,062/- 1,27,354/- Goyal Total 5,81,204/- 4,35,903/- 1,45,301/-
The Ld. D/R on the other hand relied on the orders of lower authorities.
We have heard the Ld. Counsels of both the parties and have perused the material placed on record. We have also gone through the orders passed by the revenue authorities. We note that the TPO while determining the ALP of interest at 12.83% has considered the average SBI PLR rate at 9.83%. This rate is for SBI deposit rate and not for SBI lending rate. The Ld.
20 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. A/R has produced before us the SBI prime lending rate chart according to which on 07.11.2013 this rate is 14.75% and therefore, making adjustment on account of unsecured loan and risk factor at 300 basis point as done by the TPO, the ALP of interest rate would work out at 17.75%. Therefore, considering the interest rate at 18% as reasonable, the disallowance works out at Rs.1,45,301/- as per the table given above. The AO is directed to verify the same and give the consequent relief to the assessee. Thus, this ground of CO is partly allowed.
In the second ground of cross objection, the assessee has challenged the disallowance of mustard oil expenses and other expenses of Rs.1,50,000/. The fact of this ground is that during the year assessee has debited mustard oil settlement expenses of Rs.3,35,586/-, car expenses of Rs.4,83,793/-, telephone expense of Rs.2,51,390/- and depreciation on vehicle at Rs.4,83,793/-. The AO observed that the expenses on mustered oil settlement account are not fully verifiable and personal use of vehicle and car cannot be ruled out. Accordingly, he made lumpsum disallowance of Rs.1,50,000/- out of the above expense.
The Ld. CIT(A) confirmed the disallowance by holding that assessee could not controvert the finding of the AO.
21 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. 22. The Ld. A/R argued that during the assessment proceedings assessee had submitted ledger and supporting vouchers for all the expenses claimed. Mustard oil settlement expenses represent quality claim and shortage which is supported by debit or credit note. The AO has not pointed out any specific item of expenses/claim which are not supported, hence, lump sum disallowance out of these expenses are uncalled for. It was further submitted that in case of company, no disallowance on account of personal use of vehicle and car can be made. For this purpose reliance has been placed on the following cases:-
i. ACIT Vs. Ganpati Enterprises Ltd. (2013) 142 ITD 118 (Delhi) (Trib.) ii. CIT Vs. Oracle India (P) Ltd. 199 Taxman 181 (Del) (HC) iii. Arthur & Anderson & Co. Vs. ACIT (2010- TIOL-416-ITAT) iv. Seasons Catering Services (P) Ltd. Vs. DCIT 43 DTR 397 (Del) (Trib) v. Metallizing Equipment Co. (P.) Ltd. Vs. ACIT 70 TTJ 365 (Jodh.) vi. CIT Vs. Dinesh Mills Ltd. 148 Taxman 76 (Guj.) vii. Surya Credits Ltd. vs. DCIT 22 Tax World 90 (Jaipur Bench)
The Ld. D/R on the other hand relied on the order of lower authorities.
We have heard the Ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us
22 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. and we have also gone through the orders passed by the revenue authorities. From the assessment order we note that AO has not made a sweeping remark that assessee has not tender any explanation to justify the mustard oil settlement expenses claimed at Rs.3,35,586/- and no record for personal use of telephone and log book for car and other vehicles has been kept. Before CIT(A), it stated that the ledger account and supporting voucher of all expenses were submitted and the mustard oil settlement expenses is supported by debit/ credit note. However, the Ld. CIT(A) has upheld the disallowance stating that A/R could not controvert the finding of AO. Thus, we find that assessee has given reasonable explanation in support of mustard oil settlement expenses and the expenses claimed in respect of telephone expenses, car expenses and depreciation. In case of a company, disallowance on account of personal use of telephone or vehicle should not be made as held by the Coordinate bench in case of Metallizing Equipment Co. (P.) Ltd. Vs. ACIT 70 TTJ 365 (Jodh.). Otherwise also, no lump sum disallowance can be made as held in various cases referred above. In these facts of the case, the lump sum disallowance of Rs.1,50,000/- is directed to be deleted. This ground of CO is allowed.
In the result, appeal of the revenue is dismissed and CO of the assessee is partly allowed.
23 ITA 190/Jodh/2019 & CO 16/Jodh/2019 DCIT Vs M/s Kanda Edible Oil P Ltd.. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962 by placing the details on the notice board. Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : Jodhpur Dated 01/02/2021 *Ranjan Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT (A) 5. The DR 6. Guard File Assistant Registrar Jodhpur Bench