Commissioner Of Income Tax-I, Chandigarh v. Shri Amit Jain

ITA No. 928 of 2008 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 928 of 2008 Date of Decision: 6.7.2011 Commissioner of Income Tax-I, Chandigarh ....Appellant. Versus Shri Amit Jain ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL,ACTING CHIEF JUSTICE. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel,for the appellant.for the appellant. None for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order dated 31.3.2008 passed by the Income Tax AppellateTribunal, Chandigarh, Bench “A” (hereinafter referred to as “theTribunal”) in ITA No. 36/Chandi/2007, relating to the assessment year2003-04, claiming the following substantial questions of law:- (a).Whether on the facts and in the circumstances of thecase, the Hon'ble ITAT erred in considering theevidence submitted by the assessee before thelearned CIT(Appeals) in contravention to thecase, the Hon'ble ITAT erred in considering theevidence submitted by the assessee before thelearned CIT(Appeals) in contravention to the provisions of Income Tax Rules, 1962, without givingan opportunity to the Assessing Officer for verificationand giving his comments on the said evidence? (b)Whether on the facts and in the circumstances of thecase, the Hon'ble ITAT erred in deleting the additionmade on account of disallowance of interest oninterest free advances to the sister concerns?” 2.Briefly stated, the facts necessary for adjudication asnarrated in the appeal are that the assessee was dealing in thebusiness of handlooms and handicrafts and filed his return of income on1.12.2003 declaring loss of Rs.25,85,435/- including brought forwardloss of Rs.22,39,070/-. The case was processed under Section143(1)(a) of the Act on 24.1.2004. The case was taken up for scrutinyand notice under Section 143(2) of the Act was issued to the assessee.The Assessing Officer made the following additions on account ofvarious disallowances as under:- Accordingly, the assessment under Section 143(3) of the Act was madeon 2.12.2005 at nil income. Feeling aggrieved, the assessee took thematter in appeal before the Commissioner of Income Tax (Appeals) [inshort “the CIT(A)”] who vide order dated 20.10.2006 allowed the appealwhile deleting the additions made by the Assessing Officer except disallowance on account of continental and immigration expensesamounting to Rs.1,60,000/-. The grievance of the revenue was that theassessee had furnished fresh evidence before the CIT(A) on which noremand report was called from the Assessing Officer. In other words,the evidence produced before the CIT(A) was never confronted to theAssessing Officer. Feeling aggrieved against the order of the CIT(A),the department filed an appeal before the Tribunal challenging the issueof disallowances made on account of Export Promotion Expenses,Personal/other Business Expenses and Interest on non-businessloans/advances. The Tribunal vide order dated 31.3.2008 upheld theorder of the CIT(A) deleting the disallowances amounting toRs.9,36,225/- on account of export promotion expenses andRs.4,28,563/- on account of interest on non-business loans/advances.However, the disallowance made on account of personal/other businessexpenses 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 theTribunal. The relevant conclusions in paras 7 to 9 relating to exportpromotion 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 learnedD.R. Smt. Sukhwinder Khanna supported the order ofthe Assessing Officer and submitted that no detailwas filed by the assessee before the AssessingOfficer substantiate that the expenses wereconnected with the business. She further submittedthat the assessee furnished fresh evidence before the learned Commissioner of Income-tax (A) whoadmitted the same without calling the remand reportfrom the Assessing officer and even no verificationwas done by the learned Commissioner of Income-tax (A). Therefore, deletion made was not justified. 8.In his rival submissions, the learned counselfor the assessee Sh. Sanjay Mehtani reiterated thesubmissions made before the authorities below. Hefurther submitted that all the vouchers wereexamined by the Assessing Officer and only afterexamining the vouchers, he pointed out that a sum ofRs.80,100/- was spent by Mr. Sanjay Jain. It wasfurther submitted that the similar expenses, i.e., theexpenses incurred for the exhibition and spent by theassessee in the preceding year were allowed by theAssessing Officer. In support of the abovecontention, copy of the order for assessment year2001-02 was filed by the learned counsel for theassessee. He accordingly submitted that the learnedCIT(A) was fully justified in deleting the additionmade by the Assessing Officer. 9.We have considered the submissions of boththe parties and carefully gone through the materialavailable on record. In the present case, it is noticedthat the detail furnished by the assessee as regard tothe nature of expenses had been discussed by the Assessing Officer in para-2 of the assessment orderdated 2.12.2005. The explanation of the assesseewas that a sum of Rs.6,61,600/- was spent for buyingforeign exchange which was needed for visit to UK,France, German, Belgium and Holland. Another sumof Rs.96,275/- was spent by the assessee, those,expenses were incurred through Paul Merchants Ltd.In support of the above, the assessee furnished acertificate from the said Paul Merchants Ltd.,however, the Assessing Officer no where commentedupon the said certificate. The explanation of theassessee as regard to the visit of Mr. Sanjay Jain,brother of the assessee was that, he visited foreigncountries for holding exhibition, product display, etc.The aforesaid contention has not been rebutted atany stage. Therefore, it cannot be said that theexpenses incurred by the assessee were notconnected with his business. In that view of thematter, we are of the opinion that the learnedcommissioner of Income-tax (A) rightly deleted theaddition made by the Assessing Officer. It is alsorelevant to point out that the amount spent by theassessee to purchase foreign currency was utilizedfor arranging the exhibition in France, UK, Belgiumand Holland between September, 2002 to October,2002 in support of which a certificate from Paul Merchants Ltd. was furnished by the assessee beforethe Assessing Officer, has not been doubted. We,therefore, considering the totality of the facts do notsee any infirmity in the order of the Commissioner ofIncome-tax (A) on this issue. 10 to 15XXXXXX Merchants Ltd. was furnished by the assessee beforethe Assessing Officer, has not been doubted. We,therefore, considering the totality of the facts do notsee any infirmity in the order of the Commissioner ofIncome-tax (A) on this issue. 10 to 15XXXXXX 16.After considering the submissions of both theparties, it is noticed that the assessee had obtainedbank limits from Punjab National Bank, which wereutilized for the purpose for which those were availed,i.e., for packing credit and book debts. Against thebank loan of Rs.81.80 lacs the assessee was havingdebtors of Rs.149.05 lacs which clearly establishedthat there was no diversion of funds since the bankloans were utilized for the purpose for which thosewere sanctioned. In the instant case, there was noevidence that the interest bearing funds were notutilized for business purpose or those were divertedfor another purpose than the purpose for which thosewere availed. It is also noticed that similardisallowance made by the Assessing Officer andconfirmed by the Commissioner of Income-tax (A)was deleted by the ITAT, Chandigarh Bench, videorder dated 3.10.2005 in assessee's own case forassessment year 2001-02 in I.T.A. No. 1033/Chandi/2004 (copy available on record). We, therefore, for the sake of consistency also do not see any infirmityin the order of the learned Commissioner of Income-tax (A) who rightly deleted the addition made by theAssessing Officer.” 3.We have heard learned counsel for the revenue. Noneappears on behalf of the assessee despite service. 4.Learned counsel for the revenue submitted that the CIT(A)as well as the Tribunal had reversed the findings as recorded by theAssessing Officer without affording any opportunity to the AssessingOfficer to evaluate the material produced by the assessee before theappellate authorities. It was also submitted that the CIT(A) and theTribunal had not referred to any evidence before upsetting the finding ofthe Assessing Officer in respect of both the additions, i.e. expenses onforeign trips of Shri Sanjay Jain and interest on interest free advancesto the sister concerns. 5.There is considerable force in the submission of thelearned counsel for the revenue. The Assessing Officer disallowed theaforesaid expenses as claimed by the assessee. We find that the orderpassed by the CIT(A), which in appeal was affirmed by the Tribunalcannot be justified being in contravention of the provisions of theIncome Tax Rules as no opportunity was provided to the AssessingOfficer for verification or giving his comments on the evidence producedby the assessee before the appellate authority. Further, a perusal ofthe order passed by the CIT(A) shows that before upsetting the finding,the CIT(A) had not referred to any reason to demolish the groundsrecorded by the Assessing Officer for disallowing the export promotion ITA No. 928 of 2008 -8- expenses relating to foreign trips of Sh. Sanjay Jain and interest oninterest free advances to the sister concerns. Further, issue regardinginterest on interest free advances to sister concern would depend uponfacts and circumstances of each year independently. 6. Accordingly, we allow the appeal and remand the case tothe CIT(A) to decide the same afresh in accordance with law. (AJAY KUMAR MITTAL) JUDGE July 6, 2011gbs (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE