Tc/119/2007 Of Commissioner Of Income Tax v. South India Corpn

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN Tax Case (Appeal) Nos.119 and 120 of 2007 South India Corporation (Agencies) Limited,36-40, Armenian Street,Chennai-600 001. ../Respondent Respondent Appeals under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Madras, 'B' Benchdated 25.11.2005 made in I.T.A.Nos. 692/Mds/2000 and 885/Mds/2000for the assessment year 1994-95. against the order of theCommissioner of Income-TAx (Appellate) Chennai 600 024 dated18.02.2000 and made in ITA NO. 82/97-98 against the order of theAssistant Commissioner of Income Tax Central Circle – I (5) Madras– 600 034 dated 21.03.1997 and made in PAN/GIR NO./ 47-004-CY-6956 For Appellant : Mr.J.Narayanaswamy Standing Counsel for IT The present appeals are directed against the order of theIncome Tax Appellate Tribunal, Madras, 'B' Bench dated 25.11.2005made in I.T.A.Nos. 692/Mds/2000 and 885/Mds/2000 for the assessmentyear 1994-95, raising the following common substantial questions oflaw: 1.Whether in the facts and circumstances of the case, theTribunal was right in deleting the addition on account ofreceivable interest on amounts advanced to the subsidiarycompany M/s.Pearl Ships Ltd., without interest?Tribunal was right in deleting the addition on account ofreceivable interest on amounts advanced to the subsidiarycompany M/s.Pearl Ships Ltd., without interest? 2.Whether in the facts and circumstances of the case, the https://hcservices.ecourts.gov.in/hcservices/ Tribunal was right in holding that the payment ofincentives to Dock Labour Board workers had to be allowedas a deduction? 3.Whether in the facts and circumstances of the case, theTribunal was right in holding that inclusion of interestfrom Sundaram Industries for the amounts advanced by theassessee had to be deleted? 4.Whether in the facts and circumstances of the case, theTribunal was right in deleting the 20% of the value of thetools that was written off even though the written offtools had a scrap value of 20%? and 5.Whether in the facts and circumstances of the case, theTribunal was right in deleting the disallowance made inrespect of the interest/clearing and handling receipts,stevedoring receipts, agency fees, service charges thatwere brought to tax on the basis of accrual system eventhough the assessee was following mercantile system ofaccounting? 2.1. The Assessing Officer, while completing the assessmentfor the assessment years 1994-95 made additions on account ofreceivable interest on amounts advanced to the subsidiary companyM/s.Pearl Ships Ltd., without interest; (ii) disallowed the 50% ofclaimed deduction of payment of incentives to dock labour boardworkers; (iii) inclusion of notional interest from SundaramIndustries as the assessee company had lent monies interest free;(iv) addition of 20% of the value of the tools that was written offas the written off tools had a scrap value of 20%; and (v)interest/clearing and handling receipts, stevedoring receipts,agency fees, service charges were brought to tax based in accrualsystem of accounting which is the system of the accounting followedby the assessee. 2.2. On appeal by the assessee, the Commissioner of Income Tax(Appeals) partly allowed the appeal and partly dismissed theappeal. Being aggrieved, the assessee as well as the Revenuepreferred appeals before the Tribunal, which allowed the appeals infavour the assessee. Hence, the present appeals by the Revenueraising the questions of law referred to above. 3.1. The first substantial question of law raised is, whetherin the facts and circumstances of the case, the Tribunal was rightin deleting the addition on account of receivable interest onamounts advanced to the subsidiary company M/s.Pearl Ships Ltd.,without interest? 2.2. On appeal by the assessee, the Commissioner of Income Tax(Appeals) partly allowed the appeal and partly dismissed theappeal. Being aggrieved, the assessee as well as the Revenuepreferred appeals before the Tribunal, which allowed the appeals infavour the assessee. Hence, the present appeals by the Revenueraising the questions of law referred to above. 3.1. The first substantial question of law raised is, whetherin the facts and circumstances of the case, the Tribunal was rightin deleting the addition on account of receivable interest onamounts advanced to the subsidiary company M/s.Pearl Ships Ltd.,without interest? 3.2. The assessee company advanced amounts, free of interest, toits subsidiary company, M/s.Pearl Shipping Ltd.. The AssessingOfficer found that the subsidiary company made substantial profitsduring the relevant assessment year and there is no reason for the assessee to advance interest free loans to its subsidiary companyborrowing funds from market incurring heavy outlay on interest andaccordingly disallowed 12% interest. The Commissioner of IncomeTax (Appeals), on appeal, sustained the said disallowance. 3.3. The Tribunal, finding that the issue is covered in favourof the assessee by the order of the Tribunal in assessee's own casefor the earlier assessment years, and moreover, there is nexusbetween the activities of the assessee and its subsidiaries,directed to delete the addition made by the authorities below andheld in favour of the assessee. 3.4. In the instant case, the Tribunal, after careful analysisof the materials available on record found that no fresh loan wasgiven by the assessee to its sister concern during the relevantassessment year and moreover, similar claim of allowance ofinterest paid on borrowings as interest referable to the advancesgiven to subsidiary company was allowed during the earlierassessment years, and the same remains unchallenged till date. Inour considered opinion, such finding given by the Tribunal based onvalid materials, does not warrant interference. 4.1. The second question raised is, whether in the facts andcircumstances of the case, the Tribunal was right in holding thatthe payment of incentives to Dock Labour Board workers had to beallowed as a deduction? 4.2. The assessee paid incentives to Dock Labour Board workersin order to achieve maximum output, but 50% of the same wasdisallowed by the assessing officer finding that the payments werenot fully vouched by the persons stated to have received theamounts. 4.3. The Commissioner of Income Tax (Appeals), referring tothe conclusion arrived at by his predecessors for the earlierassessment year, held that nature of the payment is unverifiableand that the amounts expended in the earlier years, when comparedto that claimed by the assessee during the assessment year inquestion, is not unjustifiably different and held the issue infavour of the assessee. The said view was, on appeal, confirmed bythe Tribunal following assessee's own case for the earlierassessment years. 4.4. The first appellate authority as well as the Tribunalfound that there is no breach of law in making payments which wereessentially incidental to the carrying of the appellant's businesswith a view to earning profits, and such finding given by both theauthorities, after wading through the materials available onrecord, in our considered opinion, needs no interference. 5.1. The third question raised in this appeal is, whether inthe facts and circumstances of the case, the Tribunal was right inholding that inclusion of interest from Sundaram Industries for theamounts advanced by the assessee had to be deleted? 4.4. The first appellate authority as well as the Tribunalfound that there is no breach of law in making payments which wereessentially incidental to the carrying of the appellant's businesswith a view to earning profits, and such finding given by both theauthorities, after wading through the materials available onrecord, in our considered opinion, needs no interference. 5.1. The third question raised in this appeal is, whether inthe facts and circumstances of the case, the Tribunal was right inholding that inclusion of interest from Sundaram Industries for theamounts advanced by the assessee had to be deleted? 5.2. The assessee had advanced an amount to M/s.SundaramIndustries. In the said advance, the assessee had not charged anyinterest. The Assessing Officer finding that for earlier assessmentyears interest @18% was disallowed on the sum advanced, disallowedthe interest claim of the assessee. Against the disallowance, theassessee filed an appeal to the Commissioner of Income Tax(Appeals), who following earlier orders deleted the addition madeby the Assessing Officer. On further appeal by the Revenue, theTribunal allowed the assessee's claim. 5.3. Mr.Narayanaswamy, learned standing counsel for theRevenue fairly concedes that this issue is covered by the decisionof this Court in assessee's own case, viz., judgment dated31.8.2006 made in T.C.(A) Nos.262 to 267 of 2006 and 1231 to 1237of 2006, in favour of the assessee. In the said decision, thisCourt, finding that the assessee has a lot of business action withthe subsidiaries and carrying on various activities through thesubsidiaries, that there is a factual finding that the assesseehad its own free reserves and funds used mainly for runningexpenses, that there was no correlation made by the Revenue thatthe money borrowed was actually given to its subsidiaries, deletedthe addition towards interest. 5.4. The said decision in assessee's own case, favouring theassessee, is applicable to the case on hand in all fours. Hence,this question of law raised needs no consideration. 6.1. The challenge raised in the fourth question is, whetherin the facts and circumstances of the case, the Tribunal was rightin deleting the 20% of the value of the tools that was written offeven though the written off tools had a scrap value of 20%? 6.2. The assessee had debited a total expenditure ofRs.7,01,143/- as loose tools written off. The Assessing Officer,while permitting the write off in principle held that 20% of thevalue of the tools so written off was realisable as scrap value anddisallowed the claim to that extent. 6.3. On appeal, the Commissioner of Income Tax (Appeals),observing that the assessee would bring such income from sale ofscrap in to the profit and loss account as and when such scrap issold, deleted the disallowance made by the Assessing Officer. The Tribunal, confirmed the order of the Commissioner of Income Tax(Appeals), following the earlier order of the Tribunal inassessee's own case, wherein it has been held that toolsnecessarily wear out consequent to use and become unusable. 6.4. The reasoning of the Commissioner of Income Tax (Appeals),which was confirmed by the Tribunal, was based on appreciation ofthe materials on record, which revealed that the assessee had notsold such tools and if and when such tools are sold, the same wouldbe brought into the profit and loss account. Such finding, based onappreciation facts, in our considered opinion, warrantsinterference. Hence, this substantial question of law needs noconsideration. Tribunal, confirmed the order of the Commissioner of Income Tax(Appeals), following the earlier order of the Tribunal inassessee's own case, wherein it has been held that toolsnecessarily wear out consequent to use and become unusable. 6.4. The reasoning of the Commissioner of Income Tax (Appeals),which was confirmed by the Tribunal, was based on appreciation ofthe materials on record, which revealed that the assessee had notsold such tools and if and when such tools are sold, the same wouldbe brought into the profit and loss account. Such finding, based onappreciation facts, in our considered opinion, warrantsinterference. Hence, this substantial question of law needs noconsideration. 7.1. The last question raised for our consideration is,whether in the facts and circumstances of the case, the Tribunalwas right in deleting the disallowance made in respect of theinterest/clearing and handling receipts, stevedoring receipts,agency fees, service charges that were brought to tax on the basisof accrual system even though the assessee was following mercantilesystem of accounting? 7.2. The assessee company has been maintaining its books ofaccounts on mercantile system of accounting except for interest,clearing and handling receipts, steves receipts, agency fees andservice charges, which were maintained on receipt basis. TheAssessing Officer held that the accrual basis of accounting was tobe compulsorily followed and accordingly, brought the income undervarious heads to tax on mercantile basis. 7.3. The Commissioner of Income Tax (Appeals), following itsearlier order, wherein it was held that since the method ofaccounting regularly employed by the assessee for income taxpurpose in respect of the subject sources was cash, there is nonecessity to change over to mercantile system, deleted the additionmade by the Assessing Officer and directed him to re-compute theincome as per the method of accounting regularly employed by theassessee. 7.4. The Tribunal, following its earlier order in assessee's owncase, upheld the order of the Commissioner of Income Tax (Appeals)deleting the addition made by the Assessing Officer. 7.5. The Tribunal had consistently held the above issue in favourof the assessee and the Revenue had accepted the earlier order andthe counsel for the Revenue not produced any material or evidencebefore us to take a different view. When a consistent view hasbeen taken by the Tribunal, there is no error or infirmity in theorder of the Tribunal and it does not require interference andhence no substantial question of law arises for consideration. In the result, finding no substantial question of law arisingfor our consideration, these appeals are dismissed. No costs.Sasi Sd/Asst.Registrar/true copy/Sub Asst.Registrar To: 1.The Assistant Registrar,Income Tax Appellate TribunalMadras Bench "B", Rajaji BhavanBesant Nagar, Chennai 90 2.The Commissioner of IncomeTax (Appeals)-II, Chennai. 3. The Assistant Commissioner of Income-TaxIncome Tax, Circle -I(5) Chennai. 4. The Commissioner of Income-Tax,Chennai 5.The Deputy Commissioner of Income Tax, Circle-I(5) Chennai. + one cc to Mrs. Pushya Sitaraman, Advocate sr no. 11537 Tax Case (Appeal) Nos.119 and 120 of 2007 NG(CO)NM(20.03.07)