M/s Dhananjay Confectionaries Pvt. Ltd. v. Deputy Commissioner of Income Tax 1(1), Indore
[Citation -2016-LL-0929-2]

Citation 2016-LL-0929-2
Appellant Name M/s Dhananjay Confectionaries Pvt. Ltd.
Respondent Name Deputy Commissioner of Income Tax 1(1), Indore
Court ITAT-Indore
Relevant Act Income-tax
Date of Order 29/09/2016
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags reasonable opportunity • interest expenditure • rate of interest • revenue receipt • capital receipt • interest paid • job work
Bot Summary: The Assessing Officer further mentioned that there is an another narration in the 2 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 advise note that the payment is processing advance charges which indicates that the intension of the Principal is to debit the assessee s account on account of processing charges. The learned counsel for the assessee submitted that the amount of Rs. 5 lacs was been received as reimbursement for the cost of boiler and the same has been credited in the machinery account and not charged to the profit and loss account. The assessee has contended that the amount has been credited to the plant and machinery account thereby reduced the cost as per advice letter received from the principal. Reference is again made to the payment advice referred to above, in which there is another narration 6 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 PROCESSIN ADVANCE/CHARGES. Obviously, the intention of the principal is to debit the assessee s account on account of processing charges. Even a copy of account of the assessee in the books of the principal has not been furnished, thus, the claim of the assessee is not accepted. Since the assessee itself had taken credit of the TDS, itself treating the amount as a revenue receipt the A.O. has rightly held it to be revenue receipt and added it to the income of the assessee. After careful consideration of the order of the learned CIT(A) in the sake of the facts of the case and the submissions of the parties, we direct the assessee to furnish a copy of account of the assessee in the books of the principal company i.e. Parle India Company before the Assessing Officer and the Assessing Officer is directed to decide the matter afresh after considering the same and affording the assessee reasonable opportunity of being heard.


ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 IN INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER I.T.A. No. 362/Ind/2016 Assessment Year: 2007-08 M/s Dhananjay Deputy Commissioner of Confectionaries Pvt. Ltd. Vs. Income Tax 1(1) Indore Indore PAN: AABCD0729M Appellant Respondent Appellant by Shri S.S. Deshpande Respondent by Shri Mohd. Javed 24.8.2016 Date of hearing 29.9.2016 Date of pronouncement ORDER PER SHRI D.T. GARASIA, JM This appeal has been filed by assessee against order of learned CIT(A)-I, Indore, dated 29.1.2016. 1 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 2. By way of ground nos. 1 and 1.1 assessee has challenged order of learned CIT(A) whereby order of Assessing Officer making addition of Rs. 5 lacs on account of reimbursement of cost of machinery received from principals was confirmed. 3. brief facts of case are that assessee is company doing business of manufacture of confectionery on job work for Parle India. books of accounts are audited and Balance Sheet was filed. return of income was filed declaring total income of Rs. 21,45,340/-. This was credited in machinery account and no depreciation was claimed. This amount has not been charged in profit and loss account. Assessing Officer remarked that Parle India would debit expenditure account and depreciation would be allowable in hand of assessee. Assessing Officer further mentioned that there is another narration in 2 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 advise note that payment is processing advance charges which indicates that intension of Principal is to debit assessee s account on account of processing charges. Assessing Officer treated this amount as revenue receipt and added it to income of assessee. While framing assessment, Assessing Officer has made addition of Rs.5,00,000/- on account of contribution received from Principal for putting up special machinery for manufacture of confectionery item. On appeal, learned CIT(A) upheld action of Assessing Officer. Now assessee is in appeal before Tribunal. 4. Before us, learned counsel for assessee submitted that amount of Rs. 5 lacs was been received as reimbursement for cost of boiler and, therefore, same has been credited in machinery account and not charged to profit and loss account. He further 3 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 submitted that payment advise and letter dated 25/09/2006 clearly states that payment is made towards reimbursement for boiler installation. He submitted that thus it cannot be treated as revenue receipt on assumption and presumption and as such addition made on this account deserves to be deleted. 5. On other hand, learned DR relied upon orders of authorities below with submission that authorities below have taken correct view only after taking into account each and aspect of case and as such orders of authorities below deserve to be sustained. 6. We have heard both sides. We find that learned CIT(A) has observed as under :- As mentioned above assessee had received Rs. 500000/- from Parle India and had not credited amount to P&L a/c but had 4 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 credited it to asset account. A.O. has observed as under in assessment order :- assessee is carrying on job work for Parle India Ltd. During year it has received sum of Rs. 5,00,000/- on 15.09.2006 which has not been credited to profit & loss account. assessee has credited same in assets a/c. It has been contended that above money has been paid by principal Parle India Ltd. to subsidize machinery used in job work. In support of above, assessee has furnished payment advice. narration given in said advice is 50% reimbursement for boiler installation . assessee has contended that amount has been credited to plant and machinery account thereby reduced cost as per advice letter received from principal. It has 5 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 been further submitted that no depreciation has been charged on above amount of Rs.5,00,000/-. In support of contention, assessee has submitted confirmation letter from its principal certifying that amount paid was to subsidise cost of boiler. assessee s argument is not acceptable. It has its own fixed assets including plant and machinery used in manufacturing of items as per job work agreement with principal. amount received has been subjected to TDS. Even if principal has advised for accounting above amount under head plant and machinery, then also there cannot be any compromise on accounting part. Reference is again made to payment advice referred to above, in which there is another narration 6 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 PROCESSIN ADVANCE/CHARGES . Obviously, intention of principal is to debit assessee s account on account of processing charges. If we look into other side of coin i.e. accounting part of principal, it can very well be perceived that Parle India would debit expenditure account only and not party as account cannot remain standing forever by above amount of Rs.500,000/-. Obviously, same amount is being subject to charge by way of expenditure in hands of principal company and depreciation in hands of assessee. Confirmation submitted by assessee also does not explain issue. Even copy of account of assessee in books of principal has not been furnished, thus, claim of assessee is not accepted. Accordingly, above receipt of 7 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 Rs.5,00,000/- is assessed in hands of assessee as business income During appellate proceedings also A/R reiterated earlier stand that receipt of rs.5,00,000/- was capital receipt. A/R was asked to explain if it was capital receipt why M/s Parle India had done TDS on this amount. A/R was also asked to clarify whether assessee had taken credit of TDS amount as per form 16A issued by M/s Parle India. A/R vide letter dated 29/1/2016 claimed that by mistake Parle India had done TDS on this amount in routine way and assessee had also taken credit of that TDS in routine way. reply of assessee is self contradictory. If this was capital receipt, no TDS should have been done on amount. If M/s Parle India had 8 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 done TDS, it simply meant that it was revenue expenditure for them. Since assessee itself had taken credit of TDS, itself treating amount as revenue receipt A.O. has rightly held it to be revenue receipt and added it to income of assessee. Hence ground no. 1 of appeal is rejected. After careful consideration of order of learned CIT(A) in sake of facts of case and submissions of parties, we direct assessee to furnish copy of account of assessee in books of principal company i.e. Parle India Company before Assessing Officer and Assessing Officer is directed to decide matter afresh after considering same and affording assessee reasonable opportunity of being heard. 9 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 7. Ground no. 2 relates to maintaining addition of Rs.1,14,000/- for alleged excess payment of interest. 8. Briefly stated, Ld AO observed that assessee paid interest to persons covered u/s 40A(2)(b) @ 24% whereas banks are giving interest at 10% to 12%. Assessing Officer, therefore, allowed interest expenditure to said persons @ 12% per annum and accordingly made disallowance of Rs.1,14,000/- being half of total interest paid to relatives. On appeal, learned CIT(A) upheld action of Assessing Officer with following observations :- A.O. has observed that assessee paid interest to person covered u/s 40A(2)(b) where as bank going rate was 10 to 12%. In written submission assessee has mentioned that bank rate was 15 to 18% where as A.O. has mentioned that bank rate was 10-12%. In F.Y. 10 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 2006-07 interest rates were quite low and were around 10 to 12%. Therefore, there is no need to interfere with disallowance made by A.O. Ground no. 2 of appeal is therefore rejected. 9. Against above order of learned CIT(A), assessee is in appeal before Tribunal. 10. Before us, learned counsel for assessee submitted that during relevant year under consideration rate of interest charged by bank s was approximately 15% to 18% on cumulative basis charging same quarterly. assessee borrowed funds which were required for purpose of business and as such disallowance is not warranted. 11. On other hand, learned DR relied upon orders of authorities below. 12. We have heard both sides. After considering rival submissions of parties, we find that learned 11 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 CIT(A) has rightly held that rate of interest at relevant point of time was 10% to 12%. We, therefore, find no infirmity in findings of authorities below and confirm same. This ground is, therefore, dismissed. 10. In result, appeal of assessee stands partly allowed for statistical purposes. order has been pronounced in open Court on 29 September, 2016. Sd/- sd/- (O.P.Meena) (D.T.Garasia) Accountant Member Judicial Member /Dated : 29 September, 2016. Dn/ 12 ITA No. 362/Ind/2016 ITA No. 362/Ind/2016 13 M/s Dhananjay Confectionaries Pvt. Ltd. v. Deputy Commissioner of Income Tax 1(1), Indore
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