THE COMMISSIONER OF INCOME TAX / THE ASSISTANT COMMISSIONER OF INCOME, Circle-2, Belgaum v. M/s Manickbag Automobiles Pvt.Ltd
[Citation -2015-LL-0929-74]

Citation 2015-LL-0929-74
Appellant Name THE COMMISSIONER OF INCOME TAX / THE ASSISTANT COMMISSIONER OF INCOME, Circle-2, Belgaum
Respondent Name M/s Manickbag Automobiles Pvt.Ltd.
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 29/09/2015
Judgment View Judgment
Keyword Tags trade advances • interest on trade advances • business expenditure
Bot Summary: The Assessing Authority had formed an opinion that the trade advances from different financiers is actually favouring the financiers because the financiers are getting assured business from the assessee. In view of the law laid down in Bombay Samachar s case supra, it was held that the Assessing Authority cannot step into the shoes of the assessee and decide on behalf of the assessee. The Assessing Authority has accepted that the advances have been made to Tata Motors for supply of vehicles which is the business of the assessee and whether the business is being run prudently or not is none of the conditions for allowing of an expense either under Section 37 or 36(iii) of the Act. The payment of advance to suppliers is a common practice in the market and it is not material whether the advances have been paid out of borrowed capital or from the assessee s own capital. An expense is allowable, as long as, it is incurred for the purpose of the business of the assessee and it is otherwise not barred by express provisions of the Act. As the advance money is paid directly by the financier to Tata Motors on behalf of the assessee, it gets :7: adjusted against the purchases made by the assessee from Tata Motors. The present appeals are squarely covered by the opinion expressed therein and coincidentally, the present appeals are preferred against the very same assessee, who was party in the earlier appeal referred herein above.


:1: IN HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS 29TH DAY OF SEPTEMBER, 2015 PRESENT HON BLE MR.JUSTICE ANAND BYRAREDDY AND HON BLE MRS.JUSTICE S.SUJATHA INCOME TAX APPEAL No.100122/2014 C/W INCOME TAX APPEAL No.100121/2014 Between: 1. Commissioner of Income Tax, Dr.B.R.Ambedkar Road, Belgaum. 2. Assistant Commissioner of Income Tax, Circle-2, Belgaum. Appellants (common ) (By Shri.Y.V.Raviraj, Advocate) And: M/s Manickbag Automobiles Pvt.Ltd., No.360, P.B.Road, Belgaum. PAN: AADCM6259K. Respondent (common) (By Shri.Sangram S.Kulkarni .Adv.) :2: ITA No.100122/2014 is filed under Section 260A of Income Tax Act, 1961 against order dated 26.06.2014, passed in ITA No.367/PNJ/2013 on file of Income Tax Appellate Tribunal, Panaji Bench, Panaji. ITA No.100121/2014 is filed under Section 260A of Income Tax Act, 1961 against order dated 26.06.2014, passed in ITA No.366/PNJ/2013 on file of Income Tax Appellate Tribunal, Panaji Bench, Panaji. These appeals coming on for admission this day, Anand Byrareddy J., delivered following: JUDGMENT matters coming on for admission are taken up for final disposal in following terms. 2. It is pointed out that similar questions having arise in appeal in ITA No.100120/2014, same is disposed of on 04.08.2015, against revenue in following terms: Heard learned counsel for appellants. 2. appellant is Revenue questioning concurrent findings of Commissioner of Income Tax (Appeals), Belgaum, confirmed by Income Tax Appellate Tribunal, Panaji Bench, Panaji. :3: 3. Assessing Authority had formed opinion that trade advances from different financiers is actually favouring financiers because financiers are getting assured business from assessee. Hence, it was concluded that there was no business exigency or prudence on part of assessee to accept trade advances and expenditure towards interest payment on such trade advances is not in business interest of assessee. In that view of matter, it was held that entire interest of Rs.17,05,610/- towards trade advances is not laid out or expended wholly and exclusively for purposes of business of assessee within meaning of Section 37 (1) of Income Tax Act, 1961 (hereinafter referred to as Act ) and therefore it was held that it was not allowable expenditure and tax payable as per computation form was held to be Rs.6,34,810/. This order of Assessing Authority was questioned in appeal before Commissioner for Income Tax (Appeals), Belgaum, wherein Commissioner of Income Tax (Appeals) has placed reliance on decision of Honourable Supreme Court in Eastern Investments Ltd., Vs. Commissioner of :4: Income Tax (20 ITR Page 1 (SC), wherein Supreme Court has held thus: In absence of suggestion of fraud this is not relevant at all for giving effect to provisions of Section 12 (2) of Income Tax Act. Most commercial transactions are entered into for mutual benefit of both sides, or at any rate each side hopes to gain something for itself. test for present purposes is not whether other party benefited, nor indeed whether this was prudent transaction which resulted in ultimate gain to appellant, but whether it was properly entered into as part of appellants legitimate commercial undertakings in order indirectly to facilitate carrying on its business .There are usually many ways in which given thing can be brought about in business circles but it is not for Court to decide which of them should have been employed when Court is deciding question under Section 12 (2) of Income Tax Act. 4. Reliance was also placed on decision of Bombay High Court in Commissioner of Income Tax, Bombay Vs. Bombay Samachar Ltd., Bombay, [74 ITR 723 (1969)] wherein it is held thus: :5: If capital is used in year of account and use is for purpose of business of assessee, it is immaterial whether user of capital actually yielded profit or not and it is not open to department to reject claim of assessee in respect of interest paid on capital merely because use of capital is un remunerative . 5. In view of law laid down in Bombay Samachar s case supra, it was held that Assessing Authority cannot step into shoes of assessee and decide on behalf of assessee. It is for assessee to carry on his business and Tax Department cannot decide how assessee should carry on his business. 6. appellate authority has then concluded that it is not case of Assessing Authority that borrowed capital has been used for non- business purpose or it has been diverted to some sister concern. It was not also case of Assessing Authority that transaction were fraudulent in nature and neither was it case of Assessing Authority that expenditure :6: incurred is capital in nature or expenditure incurred by assessee is for purpose which is offence or which is prohibited by law. It is not case of Assessing Authority that payment of interest is excessive and unreasonable and therefore provisions of Section 40 (2) of Act are attracted. Assessing Authority has accepted that advances have been made to Tata Motors for supply of vehicles which is business of assessee and whether business is being run prudently or not is none of conditions for allowing of expense either under Section 37 (1) or 36 (1)(iii) of Act. payment of advance to suppliers is common practice in market and it is not material whether advances have been paid out of borrowed capital or from assessee s own capital. In case, such advances are paid out of borrowed capital, interest on such borrowed capital is allowable expenditure under Section 36 (1)(iii) of Act. expense is allowable, as long as, it is incurred for purpose of business of assessee and it is otherwise not barred by express provisions of Act. As advance money is paid directly by financier to Tata Motors on behalf of assessee, it gets :7: adjusted against purchases made by assessee from Tata Motors. Therefore, it was held that advances paid by assessee was clearly for business purposes. view of Assessing Authority that assessee had not conducted its business prudently would not be ground in law for disallowance of expense and in this fashion had set aside order passed by Assessing Authority. This having been challenged by Revenue before Income Tax Appellate Tribunal, view of Appellate Authority has been confirmed. It is that which is sought to be challenged in present appeal. 7. On close examination of facts of case and tenor of law as stated in Section 36 of Act, there is no case made out and there is no merit in this appeal and hence, same is rejected. 3. present appeals are squarely covered by opinion expressed therein and coincidentally, present appeals are preferred against very same assessee, who was party in earlier appeal referred herein above. :8: 4. Accordingly, present appeals are rejected at admission stage, as being covered, as issue is squarely answered in earlier appeal. Sd/- JUDGE Sd/- JUDGE MBS/- COMMISSIONER OF INCOME TAX / ASSISTANT COMMISSIONER OF INCOME, Circle-2, Belgaum v. M/s Manickbag Automobiles Pvt.Ltd
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