TaxTMI 
TaxTMI 
2013 (9) TMI 303
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....sement of expenses to consignee agent as commission payment and thereby making the assessee liable for deduction of tax at source. Under the facts and circumstances of the case the assessee is not liable to deduct tax at source as the expenses reimbursed to the consignee agent are the expenses incurred by them on behalf of the assessee company on sales made by them as consignee agent on behalf of assessee company. Hence the Ld. CIT(A) has erred in confirming the Assessing Officer's observation in invoking the provisions of section 40(a)(ia) of the Act. 3. Because the Ld. Assessing officer as well as Ld. CIT(A) has erred in ignoring the legal position that the expenses incurred by the consignee agents on behalf of assessee company are met out by the consignee agent out of sale proceed with them and the expenses incurred are always more than the expenses reimbursed to them by the assessee company, there is no element of income in the hands of consignee agents and hence on this ground also tax at source is not required to be deducted. 4. Because the addition is also wrong and illegal considering the amendment made in section 40(a)(ia) of the Act by the Finance Act, 2011. The ame....
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....x at source, therefore, such expenses are not allowable. The A.O. invoked section 40a(ia) of the Act and made addition of Rs.21,33,377/-. The CIT(A) confirmed the action of the A.O. 5. The Ld. Authorised Representative of the assessee submitted that the issue is squarely covered by the order of I.T.A.T. in another case of M/s. Pee Cee Cosma Sope Limited vs. JCIT in ITA Nos.54/Agra/2013 and 55/Agra/2013 vide order dated 30.04.2013. The ld. Authorised Representative drew our attention on the finding of CIT(A) and submitted that the finding of CIT(A) in the case under consideration and in the case of M/s. Pee Cee Cosma Sope Limited vs. JCIT (supra) are identical. 6. The ld. Departmental Reprehensive relied on the order of A.O. 7. We have heard the ld. Representatives of the parties and records perused. We find that on identical set of facts the issue has already been decided by I.T.A.T., Agra Bench in ITA Nos.54/Agra/2013 and 55/Agra/2013 in the case of M/s. Pee Cee Cosma Sope Limited vs. JCIT (supra). The relevant finding of the I.T.A.T. is reproduced as under :- (Paragraph nos.5 & 6) "5. We have heard the learned Representatives of the parties and records perused. The is....
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....ncurred by him (to be derived on fixed cost structure basis)". That on the receipt of goods by the consignee agents till the sales made by them, the consignee agents incur certain expenses on behalf of the assessee company which are otherwise to be incurred by the assessee company if the assessee company make direct sale at these places. The nature of expenses incurred by the consignee agents and reimbursed by the assessee company as per the agreement executed between them are :- a) Unloading expenses on receipt of goods from the assessee company. b) Loading expenses when the goods are sent by the consignee agents for sale to distributor/dealer/retailer. c) Cartage paid on dispatch of goods/sale to distributor/dealer/retailer. d) Traveling expenses of the staff kept by consignee agents or salary of the sales staff. The consignee agents sent the monthly details of sales on "Sale Patti. On the sale patti the consignee agent deducts their commission on sales and the expenses at the fixed cost rate structure as per Agreement. The assessee company by way of credit note amount for their expenses as pr Sale Patti, though the expenses incurred by the, are much more than the exp....
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....on receipt of goods from the assessee company. b) Loading expenses when the goods are sent by the consignee agents for sale to distributor/dealer/retailer. c) Cartage paid on dispatch of goods/sale to distributor/dealer/retailer. d) Traveling expenses of the staff kept by consignee agents or salary of the sales staff. 1.6 That the consignee agents sent the monthly details of sales on "Sale Patti", copy enclosed (Page No.5 to 29) for kind perusal of your goodself. On the sale patti the consignee agent deducts their commission on sales and the expenses at the fixed cost rate structure as per Agreement. The assessee company by way of credit note amount for their expenses as pr Sale Patti, though the expenses incurred by the, are much more than the expenses accounted for by the assessee company. Copy of their Ledger Account of expenses incurred by them on behalf of assessee company are enclosed (Page No. 30 to 50) in support of the submission that the expenses incur by them are much more than the expenses reimbursed to them by way of credit note. 1.7. It is important to mention here that the expenses incurred by the consignee agents on behalf of the assessee company are ....
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....se the amount added by the A.O. was Rs.21,94,506/- and Rs.16,48,186/-. Since the facts are identical with the facts of the case of M/s Pee Cee Cosma Sope Ltd. (Supra) and that case has been decided after detailed discussion made in Para nos.5 to 5.4 of this order, in the light of the above discussion, the addition of Rs.21,94,506/- and Rs.16,48,186/-are deleted." 8. Since the facts of the case under consideration and the facts of the case decided by the I.T.A.T., Agra Bench in case of M/s. Pee Cee Cosma Sope Limited vs. JCIT (supra) vide order dated 30.04.2013, are identical, to maintain consistency, we follow the above order of I.T.A.T. and in the light of the fact, we set aside the order of Revenue Authorities and delete the addition of Rs.21,33,377/- made by the A.O. invoking provisions of section 40a(ia) of the Act. 9. In the result, appeal of the assessee is allowed. 10. Now we take up ITA No.152/Agra/2013 filed by the Revenue. The brief facts of the case are that the during the assessment proceedings, the A.O. noticed that the assessee has paid interest of Rs.44,43,291/- on loans raised by it. The A.O. further noticed that the assessee has made investment of Rs.5,31,....
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....epresentative further submitted that in the year under consideration, the assessee was having sufficient own funds of which details has been noted by the CIT(A) in his order at page nos.9 & 10 which are as under :- "1. The relevant figures as on 31.03.2009 for consideration of your good self are as under :- Share Capital Rs. 44,50,000/- Reserve and Surplus Rs.16,09,74,771/- Unsecured Loan Nil Secured Loan :- O.D. Limit Rs.3,10,24,143/- Vehicle Loan Rs. 23,06,233/- Rs.3,33,30,376/- Loan Given Rs.1,82,19,091/- Interest received Rs. 79,32,145/- Interest paid Rs. 44,43,291/- Investment in shares Rs.5,31,40,782/-" 14. The ld. Departmental Representative, on the other hand, relied upon the order of A.O. and submitted that own capital and reserve has already been invested in fixed assets/loans, advances, stock in trade and trade debtors etc. as stated in the grounds of appeal. Ld. Departmental Representative submitted that when the owncapital has already been exhausted in investment and the investment made in shares was out of the borrowed fund on which the assessee is not entitled forinterest under section 36(1)(iii) read wit....
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....e assessee is disallowable on the ground that the assessee has used the interest bearing borrowed funds in the investment of shares. The claim of interest on borrowed fund is allowable under section 36(1)(iii) of the Act. According to the said section 36(1)(iii) the amount of interest paid in respect of capital borrowed for the purpose of business or profession is allowable expenses so long as the amount borrowed is used in the business. The interest paid on such borrowing is an expenditure which is required to be deducted in the computation of the income from business. To examine the problem in cases where funds are pumped out of the business which are comprised of both type of funds i.e. borrowed as well as own funds, for non-business purpose. In all such cases where mixed funds are used for business and other than business purposes in such circumstances the I.T.A.T., Mumbai Bench in the case of ACIT vs. H.P. Shah & Co. ITA No.3694/M/2006 order dated 15.01.2009 held that there is no presumptions that money used for other purposes came out of borrowed funds. It can be said that interest free funds given on investment if are out of own funds, i.e. own capital and reserves is suffic....
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.... No.3694/M/2006 order dated 15.01.2009. The relevant finding of the I.T.A.T. in case of ACIT vs. H.P. Shah & Co. (supra) is reproduced asunder:- "4. We have heard the learned representatives of the parties and perused record. The crux of the matter to be considered by us is in respect of allowability of interest expenditure under section 36(1)(iii) of the Act where interest bearing borrowed funds and own capital has lost it's separate identity as both are mixed. Section 36 of the Act occurs in Chapter IV which deals with the computation of total income and it is a provision which relates to the computation of income earned under the head "Profits and gains of business or profession". The deduction contemplated by the section is in relation to the expenditure which could properly be regarded as necessary for the purpose of the business or profession. Expenditure incurred on account of commercial expediency for the purpose of business would be allowable under this provision. The expenditure to be allowed must have a nexus with the business of the Assessee. If the expenditure incurred is ostensibly incurred for the business, but if in reality is not for the purpose of business then....
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....her way does not in any way affect the liability for repayment of the amount borrowed. So long as the money borrowed is used in the business, interest paid on such borrowing is a proper charge on the business and is allowable as expenditure. Under section 36(1)(iii) of the Act, amounts diverted not being used for the purposes of the business, interest relating to the amount diverted out of the business cannot be treated as a permissible deduction in the computation of income. On many occasions the assessee take stand that once the amount borrowed is found to have been used for some time in the business, then subsequent diversion is of no consequence, but such stand of the assessee cannot be accepted. The legislative language of sec. 36(1)(iii) of the Act is very as clear expression "borrowed for the purpose of the business" is used. The amount borrowed must continue to be used for the purposes of the business and the fact that it was used for some point of time, but later diverted would not entitle the assessee to claim the interest paid on the borrowing as a deduction under sec.36(1)(iii) even after such diversion. In cases where diversion occurs immediately after the borrowing an....
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....oposition is supported by the decision of Hon'ble Andhra Pradesh High Court in the case of CIT Vs. Gopikrishna Murlidhar, 47 ITR 469 (AP) and in the said case their Lordships accepted the contention that the assessee is entitled to withdraw from capital. The Facts of that case are that the assessee is a Hindu undivided family carrying on business on an extensive scale with a capital of nearly Rs. 20,00,000 (twenty lakhs). During the year ended 9th November, 1950, the assessee made large borrowings for purposes of his business and paid interest amounting to Rs. 93,611 on said borrowings. During the course of that year, the assessee withdrew from the business from time to time amount of Rs. 1,77,984 for his personal expenses. The Income-tax Officer disallowed a sum of Rs. 13,500 on prorata, representing the interest element relating to Rs. 1,77,984, since he was of view that amount of Rs. 1,77,984 withdrew was made in the name of the business but used for his personal purposes. According to him, money was withdrawn from the books of account to meet the personal expenditure of the assessee and, as this sum of money was not actually used for the business, the interest paid thereon coul....