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Income Tax Appellate Tribunal, “ B ” BENCH, AHMEDABAD
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The two captioned appeals have been filed at the instance of the Assessee against the separate orders of the Commissioner of Income Tax (Appeals)–8, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)- 8/71/13-14 & CIT(A)-8/483/13-14 dated 28-12-2015 & 31-12-2015 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961(here-in-after referred to as "the Act") dated 28-02- 2013 & 03-03-2014 relevant to Assessment Years (AYs) 2010-11 & 2011-12.
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 2 - 2. The issue involve in both these appeals raised by the assessee are common therefore both have been clubbed together for the purpose of brevity, convenience and adjudication.
First we take up ITA No.395/Ahd/2016 pertaining to Asst. Year 2010-11. The assessee has raised the following grounds of appeal: “1. The ld. Commissioner of Income Tax (Appeals)-8, Ahmedabad [CIT(A) for short] has grievously erred in law and on facts in confirming the disallowance of employees' contribution to PF of Rs.16,002/- u/s. 2(24)(x) r.w.s. 36(1)(va) of the Act in total disregard of the facts and settled law. 2. The ld. CIT(A) has grievously erred in law and on facts in confirming the disallowance of commission expenses aggregating to Rs.5,73,985/- paid to the following parties. (i) M/s. Remtel Traders Rs. 3,03,985/- (ii) M/s. Abhinav Minerals Rs. 2,70,000/- 3. The Appellant Company craves leave to add to, alter, amend, modify, substitute, change any of the grounds as and when the occasion may arise.”
The first issue raised by the assessee is that ld CIT(A) erred in confirming the order of AO by sustaining disallowance of Employees Contribution to PF for Rs.16,002/- u/s 2(24)(x) r.w.s. 36(1)(va) of the Act.
On verification of accounts, the AO noticed that the assessee has not deposited the employee’s contribution to PF of Rs.16,002/- within the due date prescribed under the relevant Act. The AO, after considering the judgment of the Hon’ble jurisdictional High Court in the case of Gujarat State Road Transport Corporation, 366 ITR 170 disallowed the
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 3 - claim and added the same to the total income of the assessee. In the first appeal before the ld.CIT(A), disallowance was confirmed. Hence the assessee is further before the Tribunal on this issue.
Heard both the sides and perused the materials available on record. We note that the Tribunal on number occasions has decided the similar issue by following the judgment of jurisdictional High Court in the case of Gujarat State Road Transport Corporation Ltd. (supra) against the assessee. The jurisdictional High Court in the above case held that where assessee did not deposit employees' contribution in the relevant fund before the due date prescribed in Explanation to section 36(1)(va), no deduction would be admissible even though he deposits same before due date under section 43B. Hence we are not inclined to interfere in the order of the Revenue authorities on this issue. Thus the ground of appeal of the assessee is dismissed.
The second issue raised by the assessee in this appeal is that ld. CIT(A) erred in confirming the disallowance of Commission Expenses for Rs.5,73,985/- on account of no services rendered by the commission agents.
The assessee during the year has inter-alia paid commission to the following parties: Sr. Name of the parties Commission No. 1. Remetal Traders Rs.3,03,985/- 2. Abhinav Mineral Chem Rs.2,70,000/-
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 4 - The assessee during the assessment proceedings furnished the details of the parties to whom commission was paid. As such PAN, a copy of credit/debit note specifying the nature of services, address and rate of commission was furnished by the assessee during the assessment proceedings.
The assessee also submitted that the commission was paid to Remetal Traders for arranging the import from the country outside India. The assessee in support of his claim filed the copies of debit note issued by the Remetal Traders.
Similarly, the assessee submitted before the AO that the commission was paid to Abhinav Mineral Chem for procuring orders from M/s Steel Authority of India. The assessee in support of his claim filed the copy of the confirmation from Abhinav Mineral Chem.
The assessee also submitted that the commission was also paid to Abhinav Mineral Chem during the previous year relevant to A.Y. 2009- 10 and the same was allowed in the assessment framed u/s 143(3) of the Act vide order dated 20th December 2011.
However, the AO during the assessment proceedings observed certain facts in detailed as under: 1. There was no copy of the agreement filed by the assessee with commission agents. Therefore, there was no evidence justifying the service rendered by the commission agents.
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 5 - 2. In the absence of an agreement for the commission, the basis of making the payment for the commission expense was not ascertainable.
The payment of commission after deduction of TDS does not prove the genuineness of the expenditure. It is trite law, and therefore the deduction for the expense cannot be allowed merely on the basis of payment. The AO in support of his claim relied on the order of Hon’ble Gauhati High Court in the case of Assam Pesticides vs. CIT reported in 227 ITR 846.
In view of the above, the AO held that the assessee has not substantiated the payment of commission. Therefore, the same was disallowed and added back to the total income of the assessee.
Aggrieved, assessee preferred an appeal to ld. CIT(A) who confirmed the order of AO on the ground that the services rendered by the commission agents remained unverifiable.
Being aggrieved by the order of ld CIT(A) assessee is in the second appeal before us. The ld AR before us filed a paper book comprising of Pages 1 to 85 and drew our attention on the debit note issued by the Remetal Traders. The copies of debit notes issued by Remetal Traders are placed on Page 1 to 10 of the paper book. The ld AR also submitted that the commission was paid to Ramitlal Traders for the arrangement the imports from the parties based outside India. The ld AR in support of his claim drew our attention to the copies of import invoice which are placed on pages 3 to 19 of the paper book. The ld. AR also submitted that all the necessary details about the commission expenses were furnished during
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 6 - the assessment proceedings. The ld AR in support of his claim drew our attention on the order sheet entry made by the AO for the assessment proceedings u/s 143(3) of the Act which is placed on Page 23 & 24 of the paper book.
On the other hand, ld DR before us submitted that there was no evidence filed by the assessee suggesting the services rendered by the commission agents to it. The ld DR vehemently supported the order of authorities below.
We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the commission expenses paid by the assessee to Remetal Traders and Abhinav Mineral Chem.
It was claimed that payment to Remetal Traders was made for importing the goods from the countries outside of India. The assessee has filed the list of the parties from whom the goods were imported during the year.
We also note that the payment was made through banking channel and the same was declared in the income tax return filed by the commission agents. However, a specific query was raised to the ld. AR for the assessee to establish the link between the agent and the foreign parties viz-a-viz service rendered by him but the ld Counsel for the assessee has not filed any document evidencing that commission agent namely Remetal Traders knows the parties which export the goods to the
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 7 - assessee. In our considered view, there has to be some correspondence between the Remetal Traders and the parties from whom the assessee imported the goods. Thus, in our considered view the services rendered by the commission agent namely Remetal Traders has not been substantiated. The payment made by the assessee to the commission agent cannot be the conclusive evidence for allowing the deduction of commission expenses. It is the primary duty of the assessee to justify the services rendered by the commission agents. Thus, in the absence of service rendered by the commission agent, we are inclined to uphold the order of lower authorities. In this regard, we find support and guidance from the judgment of Hon’ble Gauhati High Court in the case of Assam Pesticides vs. CIT (supra), wherein it was held as under: “Mere payment by itself would not entitle an assessee for deduction of the said expenditure unless the same was proved to be paid for commercial consideration. The onus of proof at all relevant time rested upon the assessee. In the absence of any services rendered by the agent, there could not be any valid reason from commercial point of view in making such payment of commission/discount. The increase of the volume of business by itself without anything more did not ipso facto lead to the conclusion that the said increase was relatable to the service rendered by sister concern. The concerned authority on appraisal of fact reached its conclusion which could not be said to be perverse. The law does not prescribe any quantitative test to find out whether the onus in a particular case has been duly discharged. It all depends on the facts and situations of the case. A decision of the final fact finding authority is conclusive and binding. Therefore, the discount /commission paid by the assessee to its sister concern was without any commercial consideration or business expediency and without any services rendered by the sister concern and the agreement in question was sham and only a device to reduce the income of the family by applying to the other members of the family.”
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 8 - Thus, the payment of commission to M/s Remetal Traders is disallowed. In case of commission payment M/s Abhinav Mineral Chem, we note that the payment was made to M/s Abhinav Mineral Chem in the immediate preceding assessment year for procuring orders from Steel Authority of India Ltd. The payment made to Abhinav Mineral Chem was allowed as deduction in the assessment framed u/s 143(3) of the Act vide order dated 20-12-2011. Therefore, in our considered view, disallowances in the year under consideration on account of commission expenses in the identical facts and circumstances cannot be made. Hence, we have no hesitation in reversing the order of authorities below. Thus, the payment of commission to M/s Abhinav Mineral Chem is allowed.
The ground of appeal of the assessee is partly allowed.
Now coming to ITA No.396/Ahd/2016 pertaining to the A.Y. 2011-12. In this appeal, Assessee has raised following grounds of appeal: “1. The ld- Commissioner of Income Tax (Appeals): 8 [for short CIT(A)] has grievously erred in law and on facts in confirming the disallowance of Rs.84,350/- being employees' contribution to PF in total disregard of the facts of the case and settled law. 2. The ld. CIT(A) has grossly erred in law and on facts in confirming the disallowance of interest expense of Rs.8,57,615/- as against admitted disallowance of Rs.4,26,188/- in total disregard of the fact that huge interest free funds in the form of share capital and share premium were available with the Appellant Company. 3. The Appellant Company craves leave to add to, alter, amend, modify, substitute, change any of the grounds as and when the occasion may arise.”
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 9 - 11. The first issue raised by the assessee in this appeal is that ld CIT(A) erred in confirming the disallowance of Rs.84,350/- being Employees Contribution to PF u/s 36(1)(va) r.w.s. 2(24)(x) of the Act.
The identical issue in ITA No. 395/Ahd/2016 has been decided against the assessee by us vide Para No.6 of this order. Thus respectfully following the same we dismiss the ground of appeal of the assessee.
The second issue raised by the assessee in this appeal is that ld CIT(A) erred in confirming the order of AO by sustaining the disallowance of Rs.8,57,615/- on account of interest expenses.
The assessee during the year has claimed interest expenses of Rs.99,23,502/- in its profit and loss account. The AO during the assessment proceedings observed that assessee had diverted its interest- bearing fund to interest-free loans and advances. Therefore, the AO disallowed the proportionate interest expenditure of Rs.8,57,615/- pertaining to interest-free loans and advances and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal to ld CIT(A). Assessee before the ld CIT(A) submitted that it has also received interest free loan. Thus the capital along with interest-free loan exceeds the interest free advance / loan.
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 10 - The assessee also submitted that it had earned cash profit of Rs.51,42,085/- during the year. Therefore, there is no question of making the disallowance of Rs.8,57,615/-. However, the ld CIT(A) confirmed the order of AO by observing as under: “I have considered the assessment order and the submission of the AR. In view of the facts narrated above in the submission, it is evident that the appellant company advanced Rs.2,27,71,507/- to various parties without charging interest, while only Rs.19,31,702/- are received as interest free unsecured loans. The AR could not at all point out as to how a claim is made that part of Rs.2,27,71,507/- are advanced as interest free loans using the borrowed fund of Rs.19,31,702/-. The AR also submitted a self-styled working of interest on cash profit of Rs.51,42,085/- without any base. No accounting policy permits claim of this kind of remission. Borrowed funds of Rs.2,27,71,500/- constitute substantial portion of funds of the appellant company. It has incurred huge expenditure of Rs.99,23,502/- on account of financial charge. Moreover, the AR could not give any justification for proving that source of advancement of part of interest free loans is from receipt of interest free loans. The AO has rightly worked out the interest expense of Rs.8,57,615/- attributable to interest free loans u/s.36(1)(iii) of the IT Act. The AR has not disputed this working. In view of above discussion and in absence of any justification from the appellant for its claim of relief, the addition made by the AO based on logical application of section 36(1)(iii) is confirmed and appeal on this ground is dismissed.”
Being aggrieved by the order of ld CIT(A) assessee is in the second appeal before us.
The Ld AR before us filed a paper book which is running from pages 1 to 99 and submitted that own fund of the assessee exceeds the amount of interest-free loans and advances given to the parties.
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 11 - On the other hand, ld DR vehemently supported the order of authorities below.
We have heard the rival contention and perused the materials available on record. In the present case, the AO has made the disallowance of the interest expenses on the ground that the assessee has diverted interest-bearing fund to interest-free advances/loan. Therefore, the AO disallowed the interest expenses of Rs. 8,57,615/- attributable to the interest-free loan/ advances. The view taken by the AO was subsequently confirmed by the ld CIT(A).
At this juncture, we find to refer the relevant extract of the balance sheet of the assessee as on March 2011, which is given below: SAI FLIPPED COIL LTD. BALANCE SHEET AS AT 31st MARCH 2011 Particulars S Current Year(Rs.) c h. 1. SOURCES OF FUNDS: 1. Share Holders Funds: a) Share Capital A 60720800 b) Reserve & Surplus B 5887223 66608023 2. Loan Funds: Secured Loans C 46283743 Unsecured Loans D 47237847 954104 TOTAL 113845869 APPLICATION OF FUNDS: 1. Fixed Assets II E 9388236 Less: Depreciation 3325893 6062343 2. Investments 0
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 12 -
Current Assets Loans and Advances : a) Inventories F 46793704 b) Sundry Debtors G 177190897 c) Cash & Bank Balance H 17753717 d) Loan & Advances I 31666570.83
On perusal of the above, it is clear that the own fund of the assessee exceeds the amount of interest-free advances/loans. In such circumstances, the Hon’ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 taxmann.com 370 has observed that where sufficient interest-free funds are available to meet the amount of investment then no disallowance on account of interest expenses is warranted under section 14A r.w.r. 8D of Income Tax Rules. The relevant extract of the order is reproduced below: “3. The issue pertains to disallowance under Section 14A of the Act made by the Assessing Officer which was partially deleted by the CIT(A). Such order of CIT(A) gave rise to cross appeals at the hands of the assessee as well as the revenue. Tribunal confirmed the view of the CIT(A) making following observations: "33. We have heard the rival contentions and perused the material on record, The undisputed facts are that during the year the assessee has earned interest of Rs. 17.45 crore on tax free bond and debentures as against which the assessee had suo motu disallowed Rs. 5.53 crore being the interest expenses u/s. 14A as against which the AO has worked out the disallowance of Rs. 32.76 crore. After giving the credit of disallowance of Rs. 5.53 crore made by the Assessee, the AO disallowed Rs. 27.23 crore u/s. 14A. As on 31st March, 2003, the interest free funds available with the assessee was to the tune of Rs. 3404 crore (comprising of share capital of Rs. 230 crore Reserves of Rs. 689 crores and interest free demand deposits and Rs. 2485 crores) as against which the tax free investments were to the
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 13 - tune of Rs. 589 crore. Thus the interest free funds were far in excess of the investments. CIT(A) has given a finding that the facts in AY 2003-04 are identical to the facts of the case in AY 2002-03 and accordingly he has followed the decision of CIT(A) for AY 2002-03. These facts have not been controverted by the Ld. D.R. nor have they brought on record any facts to the contrary. Hon'ble Bombay High Court in case of CIT v. Reliance Utilities & Power Ltd. (supra) has held that if there are interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee has raised a loan it can be presumed that the investments were from interest free funds available. In the present case, since the assessee has suo moto disallowed Rs. 5.53 crore u/s. 14A, respectfully following the decision of Bombay High Court, we are of the view that in the facts of the present case, no further disallowance over and above than what has been disallowed by the Assessee is called for. As far as disallowance of other administrative expenses is concerned, the undisputed fact is that the disallowance has been made by the AO without giving a finding as to how much administrative expenditure has been incurred to earn the exempt income. In the case of Hero Cycles (supra) the Hon'ble High Court has held that the contention of the Revenue that directly or indirectly some expenditure is always incurred which must be disallowed u/s. 14A cannot be accepted. Disallowance u/s. 14A requires finding of incurring of expenditure. In the present case, the AO has presumed that the assessee might have incurred expenditure to earn the exempt income. He has not given any finding of incurring of expenditure. In view of these facts and respectfully following the decision of High Court, we are of the view that no disallowance of administrative expenses can be made. We accordingly direct for the deletion of the addition made by the AO and allow this ground of the assessee." 4. In our opinion the Tribunal has committed no error. Basically the entire disallowance has been made on the basis of facts emerging on record. The Tribunal also relied on the decision of the Bombay High Court in case of CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340/178 Taxman 135. Additionally, we find that the Assessing Officer had, without giving a finding as to how much administrative expenditure have been incurred to earn the exempt income, had made disallowance. In the earlier years also, similar position obtained. That being the fact, no question of law arises.”
ITA Nos.395 & 396/Ahd/2016 Sai Flipped Coils Ltd. vs. ITO A.Ys.2010-11 & 2011-12 - 14 - Thus, given above, we conclude that there is no question of making the disallowance on account of interest expenses in the given facts and circumstances. Thus the ground of appeal of the assessee is allowed.
In the result, both the appeals of the assessee are partly allowed. This Order pronounced in Open Court on 04/09/2018
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