The Commissioner of Income Tax and Others vs Manickbag Automobiles Pvt. Ltd.

Anand Byrareddy, J.—The matters coming on for admission are taken up for final disposal in the following terms.

It is pointed out that similar questions having arise in an appeal in ITA No. 100120/2014, the same is disposed of on 04.08.2015, against the revenue in the following terms:

"Heard the learned counsel for the appellants.

The appellant is the Revenue questioning the concurrent findings of the Commissioner of Income Tax (Appeals), Belgaum, confirmed by the Income Tax Appellate Tribunal, Panaji Bench, Panaji.

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. Hence, it was concluded that there was no business exigency or prudence on the part of the assessee to accept trade advances and the expenditure towards interest payment on such trade advances is not in the business interest of the assessee. In that view of the matter, it was held that the entire interest of Rs. 17,05,610/- towards trade advances is not laid out or expended wholly and exclusively for the purposes of the business of the assessee within the meaning of Section 37(1) of the Income Tax Act, 1961 (hereinafter referred to as ''the Act'') and therefore it was held that it was not an allowable expenditure and tax payable as per computation form was held to be Rs. 6,34,810/-. This order of the Assessing Authority was questioned in an appeal before the Commissioner for Income Tax (Appeals), Belgaum, wherein the Commissioner of Income Tax (Appeals) has placed reliance on a decision of the Honourable Supreme Court in Eastern Investments Ltd. Vs. Commissioner of Income Tax, West Bengal, , wherein the Supreme Court has held thus:

"In the absence of a suggestion of fraud this is not relevant at all for giving effect to the provisions of Section 12(2) of the Income Tax Act. Most commercial transactions are entered into for the mutual benefit of both sides, or at any rate each side hopes to gain something for itself. The test for present purposes is not whether the other party benefited, nor indeed whether this was a prudent transaction which resulted in ultimate gain to the appellant, but whether it was properly entered into as a part of the appellants legitimate commercial undertakings in order indirectly to facilitate the carrying on its business............There are usually many ways in which a given thing can be brought about in business circles but it is not for the Court to decide which of them should have been employed when the Court is deciding a question under Section 12(2) of the Income Tax Act."

Reliance was also placed on a decision of the Bombay High Court in Commissioner of Income Tax Bombay City-II Vs. Bombay Samachar Ltd., Bombay, wherein it is held thus:

"If the capital is used in the year of account and the use is for the purpose of the business of the assessee, it is immaterial whether the user of the capital actually yielded profit or not and it is not open to the department to reject the claim of the assessee in respect of the interest paid on the capital merely because the use of the capital is unremunerative".

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. It is for the assessee to carry on his business and the Tax Department cannot decide how the assessee should carry on his business.

The appellate authority has then concluded that it is not the case of the Assessing Authority that the borrowed capital has been used for non-business purpose or it has been diverted to some sister concern. It was not also the case of the Assessing Authority that the transaction were fraudulent in nature and neither was it the case of the Assessing Authority that the expenditure incurred is capital in nature or the expenditure incurred by the assessee is for a purpose which is an offence or which is prohibited by law. It is not the case of the Assessing Authority that the payment of interest is excessive and unreasonable and therefore the provisions of Section 40A(2) of the Act are attracted. 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(1) or 36(1)(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. In case, such advances are paid out of borrowed capital, the interest on such borrowed capital is an allowable expenditure under Section 36(1)(iii) of the Act. 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 adjusted against the purchases made by the assessee from Tata Motors. Therefore, it was held that the advances paid by the assessee was clearly for business purposes. The view of the Assessing Authority that the assessee had not conducted its business prudently would not be a ground in law for disallowance of an expense and in this fashion had set aside the order passed by the Assessing Authority. This having been challenged by the Revenue before the Income Tax Appellate Tribunal, the view of the Appellate Authority has been confirmed. It is that which is sought to be challenged in the present appeal.

On a close examination of the facts of the case and the tenor of law as stated in Section 36 of the Act, there is no case made out and there is no merit in this appeal and hence, the same is rejected."

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.

Accordingly, the present appeals are rejected at the admission stage, as being covered, as the issue is squarely answered in the earlier appeal.