The Commissioner Of Income Tax-Ii, Ludhiana v. M/S National Auto Roadline Carriers, Ludhiana

ITA No. 705 of 2009 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 705 of 2009 (O&M) Date of Decision: 4.5.2016 The Commissioner of Income Tax-II, Ludhiana Versus ....Appellant. M/s National Auto Roadline Carriers, Ludhiana ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not? 3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE SHEKHER DHAWAN. PRESENT: Mr. Z.S. Klar, Advocate for the appellant. Mr. S.K. Mukhi, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This order shall dispose of two appeals bearing ITA Nos.705 of 2009 and 380 of 2010 as according to learned counsel for theparties, the issues involved are interconnected. For brevity, the facts arebeing extracted from ITA No. 705 of 2009. 2.ITA No. 705 of 2009 has been preferred by the revenueunder Section 260A of the Income Tax Act, 1961 (in short “the Act”)against the order dated 27.4.2009 (Annexure A-3) passed by the Income Tax Appellate Tribunal, Chandigarh Bench “B”, Chandigarh (hereinafterreferred to as “the Tribunal”) in ITA No. 560/Chd/2008, for theassessment year 2003-04. The appeal was admitted by this Court videorder dated 27.7.2010 for considering the questions proposed in para 5 ITA No. 705 of 2009 of the appeal which are to the following effect:- I)Whether on the facts and in law, the Hon'bleITAT was justified in restoring the matter to thefile of the A.O. when the counsel of theassessee agreed to the addition of` 1,30,00,000/- under Section 68 of the Act, onaccount of failure to produce evidence inrespect of credit entries in the capital account ofthe partner? II)Whether on the facts and in law, the Hon'bleITAT was justified in agreeing with the finding ofthe CIT(A) that the accretion to the capitalaccount of the partner in the assessee firm wasduly explained from copies of the accounts ofthe partners in the books of M/s Saini Motorsand M/s Saini Textiles ignoring the findings ofthe Assessing Officer that no evidence wasproduced to explain the credit entries during theassessment proceedings and the objection ofthe Assessing Officer during the appellateproceedings that the entries were not supportedby the Bank accounts? III) Whether on the facts and in law the Hon'bleITAT was legally justified in observing thatcapital accounts of the partners in the firms areduly verifiable from the return of income of thefirms while restoring the issue to the file of the Assessing Officer to verify the records/claim ofthe assessee and to decide as per theprovisions of the Act? IV) Whether on the facts and in law, the Hon'bleITAT was legally justified in observing thatcapital accounts of the partner in the firms areduly verifiable from the return of income of thefirms which have been accepted by thedepartment when no scrutiny assessment hasbeen made in the cases of the firms? V) Whether on the facts and in law, the Hon'bleITAT was legally justified in sustaining thedeletion of addition of ` 6,16,645/- ignoring thefact that the addition has been made by A.O.keeping in view the provisions of Section 40A(2) (a) read with Section 40A(2)(b) of the Act? Assessing Officer to verify the records/claim ofthe assessee and to decide as per theprovisions of the Act? IV) Whether on the facts and in law, the Hon'bleITAT was legally justified in observing thatcapital accounts of the partner in the firms areduly verifiable from the return of income of thefirms which have been accepted by thedepartment when no scrutiny assessment hasbeen made in the cases of the firms? V) Whether on the facts and in law, the Hon'bleITAT was legally justified in sustaining thedeletion of addition of ` 6,16,645/- ignoring thefact that the addition has been made by A.O.keeping in view the provisions of Section 40A(2) (a) read with Section 40A(2)(b) of the Act? 3.Briefly stated, the facts necessary for adjudication of theinstant appeal as narrated therein may be noticed. The assessee filedits return of income on 30.11.2003 for the assessment year 2003-04showing net loss of ` 1,76,14,565/-. The case was taken up for scrutiny.The Assessing Officer framed the assessment under Section 143(3) ofthe Act vide order dated 30.1.2006 (Annexure A-1) by making additionsunder various heads including the additions of ` 1.30 crore on account ofunexplained credits in the capital account of partners and ` 6,16,645/- onaccount of disallowance of interest paid to M/s Saini Car Scheme underSection 40A(2)(b) of the Act. Proceedings for levy of penalty underSection 271(1)(c) of the Act were also initiated. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax(Appeals) [for brevity “the CIT(A)”]. Before the decision by the CIT(A),the Assessing Officer levied penalty amounting to ` 56,19,129/- underSection 271(1)(c) of the Act. The assessee also filed appeal against theorder of penalty before the CIT(A). The CIT(A) vide order dated14.3.2008 (Annexure A-2) deleted the additions of ` 1.30 crore and` 6,16,645/- made by the Assessing Officer. The imposition of penaltywas also set aside vide order dated 17.3.2008. The revenue assailed theorder, Annexure A-2, before the Tribunal and also challenged orderdeleting the penalty. The Tribunal vide order dated 27.4.2009 (AnnexureA-3) restored the issue back regarding addition of ` 1.30 to the file of theAssessing Officer to verify the records/claim of the assessee and todecide the same as per the provisions of the Act. However, regardingaddition of ` 6,16,645/- made by the Assessing Officer on account ofdisallowance of interest under Section 40A(2)(b) of the Act, the Tribunaldismissed the appeal of the revenue. The order of the CIT(A) deletingthe penalty was upheld by the Tribunal vide order dated 30.4.2009.Hence, the instant appeals. 4.We have heard learned counsel for the parties. 5.Regarding question Nos. (I) to (IV) relating to disallowanceof ` 1.30 crore on account of unexplained cash credits in the capitalaccount of partners in ITA No. 705 of 2009, it was noticed by the Tribunalthat there was no dispute that the return of the firm had become final asno proof of filing any appeal had been furnished before the Tribunal.Further, the books of other concerns were not available and were notfurnished during the assessment proceedings. Accordingly, the Tribunalremanded the issue to the file of the Assessing Officer to verify the records of the assessee and to decide the same as per the provisions ofthe Act by affording an opportunity of hearing to the assessee. Theassessee was granted liberty to furnish evidence, if any, to substantiateits claim. 6.Learned counsel for the assessee has produced a copy ofthe assessment order dated 20.12.2010 passed by the AssessingOfficer, whereby the claim of the assessee has been accepted. The saidorder is taken on record. However, it is not disputed by the learnedcounsel for the revenue that after remand, the order was passed on20.12.2010 accepting the version of the assessee. 7.In view of the above, questions No.(I) to (IV) are decidedagainst the revenue and in favour of the assessee. records of the assessee and to decide the same as per the provisions ofthe Act by affording an opportunity of hearing to the assessee. Theassessee was granted liberty to furnish evidence, if any, to substantiateits claim. 6.Learned counsel for the assessee has produced a copy ofthe assessment order dated 20.12.2010 passed by the AssessingOfficer, whereby the claim of the assessee has been accepted. The saidorder is taken on record. However, it is not disputed by the learnedcounsel for the revenue that after remand, the order was passed on20.12.2010 accepting the version of the assessee. 7.In view of the above, questions No.(I) to (IV) are decidedagainst the revenue and in favour of the assessee. 8.Adverting to question No. (V) regarding deletion of additionof ` 6,16,645/- on account of interest paid to M/s Saini Car Schemeunder Section 40A(2)(b) of the Act, the Tribunal had recorded that theamount received by the assessee from Saini Car Scheme were forbusiness purposes. The assessee advanced a sum of ` 17,60,053/- asloans to employees on which no interest was charged. The advancing ofloan to the employees was for business purposes of the assessee. Thefactual matrix was neither controverted by the revenue nor any contrarymaterial was produced before the Tribunal to show that the addition of` 6,16,645/- was wrongly deleted. The relevant findings recorded by theTribunal read thus:- “4.The last ground raised by the Revenue is thatthe first appellate authority erred both on law and onfacts in deleting the addition of ` 6,16,645/- onaccount of disallowance of interest paid to M/s Saini Car Scheme. The learned Sr. DR supported theassessment order whereas the ld. counsel for theassessee defended the impugned order. The crux ofarguments advanced by the assessee is thatnecessary evidence was submitted duringassessment proceedings and the Assessing Officerdid not raise any doubt about the payment. Plea wasalso raised that interest was rightly paid andconsequently justifiable claimed for businesspurposes. This plea of the assessee could not beaccepted on the plea that the same is covered underSection 40A(2)(b) of the Act. On appeal, the learnedfirst appellate authority concluded that the amountreceived by the appellant from Saini Car Schemewere for business purposes of the assessee. Theassessee advanced a sum of ` 17,60,053/- as loansto employees on which no interest was charged. Thelearned first appellate authority has also discussedthe decision in the case of Abhishek Industries (286ITR 1) and the same is not applicable because theappellant has not advanced any interest free loan tosister concern. The advancing of loan to employeeswas for business purposes of the assessee. Thisfactual matrix was neither controverted by the revenuenor brought on record contrary material, consequently,we have not found any infirmity in the impugned order,the same is upheld. This ground of the revenue is dismissed.” 9.In view of the above, there is no error in the approach of theTribunal which may warrant interference by this Court. Accordingly,question No. (V) is also decided against the revenue. Consequently, ITANo. 705 of 2009 is dismissed. In view of the dismissal of ITA No. 705 of2009where the addition has not been sustained, equally the case forimposition of penalty does not arise. Accordingly, ITA No. 380 of 2010 isalso dismissed. (AJAY KUMAR MITTAL) JUDGE May 4, 2016gbs (SHEKHER DHAWAN) JUDGE