CIT, CHANDIGARH vs. AMIT JAIN, M/S EURO EXPORTS

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 31.3.2008 passed by the Income Tax Appellate Tribunal, Chandigarh, Bench “A” (hereinafter referred to as “the Tribunal”) in ITA No. 36/Chandi/2007, relating to the assessment year 2003-04, claiming the following substantial questions of law:- (a). Whether on the facts and in the circumstances of the case, the Hon'ble ITAT erred in considering the evidence submitted by the assessee before the learned CIT(Appeals) in contravention to the -2- provisions of Income Tax Rules, 1962, without giving an opportunity to the Assessing Officer for verification and giving his comments on the said evidence? (b) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT erred in deleting the addition made on account of disallowance of interest on interest free advances to the sister concerns?”

Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the assessee was dealing in the business of handlooms and handicrafts and filed his return of income on 1.12.2003 declaring loss of Rs.25,85,435/- including brought forward loss of Rs.22,39,070/-. The case was processed under Section 143(1)(a) of the Act on 24.1.2004. The case was taken up for scrutiny and notice under Section 143(2) of the Act was issued to the assessee. The Assessing Officer made the following additions on account of various disallowances as under:- a. Export promotion expenses Rs.9,36,225/- b. Claim of continental & immigration Rs.1,60,000/- expenses. c. Personal/other business expenses Rs.1,91,313/- d. Interest on non-business loans/ Rs.4,28,563/- advances. Accordingly, the assessment under Section 143(3) of the Act was made on 2.12.2005 at nil income. Feeling aggrieved, the assessee took the matter in appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] who vide order dated 20.10.2006 allowed the appeal while deleting the additions made by the Assessing Officer except -3- disallowance on account of continental and immigration expenses amounting to Rs.1,60,000/-. The grievance of the revenue was that the assessee had furnished fresh evidence before the CIT(A) on which no remand report was called from the Assessing Officer. In other words, the evidence produced before the CIT(A) was never confronted to the Assessing Officer. Feeling aggrieved against the order of the CIT(A), the department filed an appeal before the Tribunal challenging the issue of disallowances made on account of Export Promotion Expenses, Personal/other Business Expenses and Interest on non-business loans/advances. The Tribunal vide order dated 31.3.2008 upheld the order of the CIT(A) deleting the disallowances amounting to Rs.9,36,225/- on account of export promotion expenses and Rs.4,28,563/- on account of interest on non-business loans/advances. However, the disallowance made on account of personal/other business expenses amounting to Rs.1,91,313/- at the rate of 25% by the CIT(A) was restricted at the rate of 10% amounting to Rs.21,073/- by the Tribunal. The relevant conclusions in paras 7 to 9 relating to export promotion expenses and in para 16 in respect of interest on non- business loans/advances are noticed below:- “7. Now the Department is in appeal. The learned D.R. Smt. Sukhwinder Khanna supported the order of the Assessing Officer and submitted that no detail was filed by the assessee before the Assessing Officer substantiate that the expenses were connected with the business. She further submitted that the assessee furnished fresh evidence before -4- the learned Commissioner of Income-tax (A) who admitted the same without calling the remand report from the Assessing officer and even no verification was done by the learned Commissioner of Income- tax (A). Therefore, deletion made was not justified.

In his rival submissions, the learned counsel for the assessee Sh. Sanjay Mehtani reiterated the submissions made before the authorities below. He further submitted that all the vouchers were examined by the Assessing Officer and only after examining the vouchers, he pointed out that a sum of Rs.80,100/- was spent by Mr. Sanjay Jain. It was further submitted that the similar expenses, i.e., the expenses incurred for the exhibition and spent by the assessee in the preceding year were allowed by the Assessing Officer. In support of the above contention, copy of the order for assessment year 2001-02 was filed by the learned counsel for the assessee. He accordingly submitted that the learned CIT(A) was fully justified in deleting the addition made by the Assessing Officer.

We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is noticed that the detail furnished by the assessee as regard to the nature of expenses had been discussed by the -5- Assessing Officer in para-2 of the assessment order dated 2.12.2005. The explanation of the assessee was that a sum of Rs.6,61,600/- was spent for buying foreign exchange which was needed for visit to UK, France, German, Belgium and Holland. Another sum of Rs.96,275/- was spent by the assessee, those, expenses were incurred through Paul Merchants Ltd. In support of the above, the assessee furnished a certificate from the said Paul Merchants Ltd., however, the Assessing Officer no where commented upon the said certificate. The explanation of the assessee as regard to the visit of Mr. Sanjay Jain, brother of the assessee was that, he visited foreign countries for holding exhibition, product display, etc. The aforesaid contention has not been rebutted at any stage. Therefore, it cannot be said that the expenses incurred by the assessee were not connected with his business. In that view of the matter, we are of the opinion that the learned commissioner of Income-tax (A) rightly deleted the addition made by the Assessing Officer. It is also relevant to point out that the amount spent by the assessee to purchase foreign currency was utilized for arranging the exhibition in France, UK, Belgium and Holland between September, 2002 to October, 2002 in support of which a certificate from Paul -6- Merchants Ltd. was furnished by the assessee before the Assessing Officer, has not been doubted. We, therefore, considering the totality of the facts do not see any infirmity in the order of the Commissioner of Income-tax (A) on this issue. 10 to 15 XX XX XX

After considering the submissions of both the parties, it is noticed that the assessee had obtained bank limits from Punjab National Bank, which were utilized for the purpose for which those were availed, i.e., for packing credit and book debts. Against the bank loan of Rs.81.80 lacs the assessee was having debtors of Rs.149.05 lacs which clearly established that there was no diversion of funds since the bank loans were utilized for the purpose for which those were sanctioned. In the instant case, there was no evidence that the interest bearing funds were not utilized for business purpose or those were diverted for another purpose than the purpose for which those were availed. It is also noticed that similar disallowance made by the Assessing Officer and confirmed by the Commissioner of Income-tax (A) was deleted by the ITAT, Chandigarh Bench, vide order dated 3.10.2005 in assessee's own case for assessment year 2001-02 in I.T.A. No. 1033/Chandi/ 2004 (copy available on record). We, therefore, for -7- the sake of consistency also do not see any infirmity in the order of the learned Commissioner of Income- tax (A) who rightly deleted the addition made by the Assessing Officer.”

We have heard learned counsel for the revenue. None appears on behalf of the assessee despite service.

Learned counsel for the revenue submitted that the CIT(A) as well as the Tribunal had reversed the findings as recorded by the Assessing Officer without affording any opportunity to the Assessing Officer to evaluate the material produced by the assessee before the appellate authorities. It was also submitted that the CIT(A) and the Tribunal had not referred to any evidence before upsetting the finding of the Assessing Officer in respect of both the additions, i.e. expenses on foreign trips of Shri Sanjay Jain and interest on interest free advances to the sister concerns.

There is considerable force in the submission of the learned counsel for the revenue. The Assessing Officer disallowed the aforesaid expenses as claimed by the assessee. We find that the order passed by the CIT(A), which in appeal was affirmed by the Tribunal cannot be justified being in contravention of the provisions of the Income Tax Rules as no opportunity was provided to the Assessing Officer for verification or giving his comments on the evidence produced by the assessee before the appellate authority. Further, a perusal of the order passed by the CIT(A) shows that before upsetting the finding, the CIT(A) had not referred to any reason to demolish the grounds recorded by the Assessing Officer for disallowing the export promotion -8- expenses relating to foreign trips of Sh. Sanjay Jain and interest on interest free advances to the sister concerns. Further, issue regarding interest on interest free advances to sister concern would depend upon facts and circumstances of each year independently.

Accordingly, we allow the appeal and remand the case to the CIT(A) to decide the same afresh in accordance with law. (AJAY KUMAR MITTAL) JUDGE July 6, 2011 (ADARSH KUMAR GOEL) gbs ACTING CHIEF JUSTICE