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Crustum Products Private Limited, Hyderabad v/s Dy. CIT, Circle-1(2), Hyderabad


Company & Directors' Information:- CRUSTUM PRODUCTS PRIVATE LIMITED [Active] CIN = U15410TG2005PTC046115

Company & Directors' Information:- P P PRODUCTS PVT LTD [Active] CIN = U32305WB1991PTC051091

Company & Directors' Information:- K K PRODUCTS LIMITED [Active] CIN = U31300DL1991PLC045521

Company & Directors' Information:- K B PRODUCTS PRIVATE LIMITED [Active] CIN = U51909MH2007PTC169627

Company & Directors' Information:- K G PRODUCTS PRIVATE LIMITED [Active] CIN = U51909PB2007PTC031201

Company & Directors' Information:- S S P PRODUCTS PRIVATE LIMITED [Active] CIN = U22110WB1974PTC210201

Company & Directors' Information:- M L B PRODUCTS PRIVATE LIMITED [Active] CIN = U74899DL1990PTC040990

Company & Directors' Information:- M M PRODUCTS LIMITED [Strike Off] CIN = U28994DL1992PLC050955

Company & Directors' Information:- M P K PRODUCTS PVT LTD [Active] CIN = U26919AS1994PTC004183

Company & Directors' Information:- G K PRODUCTS PRIVATE LIMITED [Active] CIN = U74899DL1991PTC043260

Company & Directors' Information:- N R PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U51109AS1998PTC005561

Company & Directors' Information:- C L PRODUCTS INDIA LIMITED [Active] CIN = U51909DL2002PLC116975

Company & Directors' Information:- K. S. A. PRODUCTS PRIVATE LIMITED [Active] CIN = U51220PB2014PTC039023

Company & Directors' Information:- D. R. PRODUCTS PRIVATE LIMITED [Active] CIN = U52320DL2011PTC213508

Company & Directors' Information:- R S PRODUCTS PRIVATE LIMITED [Active] CIN = U74899DL1989PTC036603

Company & Directors' Information:- R R PRODUCTS PRIVATE LIMITED [Active] CIN = U24249HR1999PTC034291

Company & Directors' Information:- I G PRODUCTS PRIVATE LIMITED [Active] CIN = U74999WB2012PTC183503

Company & Directors' Information:- J S R PRODUCTS PRIVATE LIMITED [Active] CIN = U31908DL2007PTC170841

Company & Directors' Information:- C F C PRODUCTS PRIVATE LIMITED [Active] CIN = U28129DL1998PTC095531

Company & Directors' Information:- M S PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U74899DL1993PTC055125

Company & Directors' Information:- B R PRODUCTS PRIVATE LIMITED [Active] CIN = U31909DL1999PTC100727

Company & Directors' Information:- S P B PRODUCTS LIMITED [Active] CIN = U51909DL1996PLC082631

Company & Directors' Information:- G K D PRODUCTS PRIVATE LIMITED [Active] CIN = U15431WB1998PTC086840

Company & Directors' Information:- M B R PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U17111WB1993PTC060806

Company & Directors' Information:- P D PRODUCTS PRIVATE LIMITED [Active] CIN = U23201DL2000PTC108462

Company & Directors' Information:- S K M PRODUCTS PRIVATE LIMITED [Active] CIN = U18101DL1998PTC093415

Company & Directors' Information:- H R PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U74899DL1978PTC009183

Company & Directors' Information:- V S PRODUCTS PRIVATE LIMITED [Active] CIN = U36900DL2008PTC185445

Company & Directors' Information:- H K PRODUCTS LIMITED [Active] CIN = U51900GJ2015PLC085457

Company & Directors' Information:- S R K PRODUCTS PRIVATE LIMITED [Active] CIN = U51221KA1989PTC010032

Company & Directors' Information:- G M PRODUCTS PRIVATE LIMITED [Active] CIN = U74899DL1991PTC044687

Company & Directors' Information:- V T N PRODUCTS PVT LTD [Active] CIN = U51109WB1996PTC080094

Company & Directors' Information:- W S T Q PRODUCTS PRIVATE LIMITED [Active] CIN = U31300DL1999PTC102655

Company & Directors' Information:- J M K PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U24246OR2005PTC008446

Company & Directors' Information:- G S T PRODUCTS (INDIA) PRIVATE LIMITED [Strike Off] CIN = U31909TN2006PTC059575

Company & Directors' Information:- S M P PRODUCTS PRIVATE LIMITED [Active] CIN = U25200DL2009PTC190965

Company & Directors' Information:- S N S PRODUCTS PRIVATE LIMITED [Active] CIN = U15490DL2005PTC142749

Company & Directors' Information:- U B PRODUCTS PRIVATE LIMITED [Active] CIN = U51224DL2002PTC116457

Company & Directors' Information:- A AND A PRODUCTS PRIVATE LIMITED [Active] CIN = U21098MP2004PTC017128

Company & Directors' Information:- V J PRODUCTS PRIVATE LIMITED [Active] CIN = U36900GJ2011PTC065252

Company & Directors' Information:- S AND A PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U51311DL1991PTC042938

Company & Directors' Information:- S AND G PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U51909DL1982PTC014843

Company & Directors' Information:- B P PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U24241WB1999PTC089499

Company & Directors' Information:- D AND P PRODUCTS LIMITED [Amalgamated] CIN = U99999MH1951PTC008422

Company & Directors' Information:- S D H PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U55204KA2006PTC040734

Company & Directors' Information:- V M PRODUCTS PRIVATE LIMITED [Active] CIN = U24100DL2014PTC266679

Company & Directors' Information:- E C A PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U27209TN1987PTC014022

Company & Directors' Information:- G S PRODUCTS LIMITED [Strike Off] CIN = U25191UP1989PLC010483

Company & Directors' Information:- A R K PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U24231UP1978PTC004606

Company & Directors' Information:- S. M. PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U17299DL1966PTC004634

Company & Directors' Information:- R. M. R. PRODUCTS PRIVATE LIMITED [Active] CIN = U74999MH2017PTC298120

Company & Directors' Information:- P & Q PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U51909DL2014PTC269162

Company & Directors' Information:- H T PRODUCTS PVT LTD [Strike Off] CIN = U29266WB1981PTC033424

Company & Directors' Information:- PRODUCTS (INDIA) LTD [Strike Off] CIN = U31901WB1961PLC024991

Company & Directors' Information:- M PRODUCTS & CO PVT LTD [Strike Off] CIN = U51909WB1956PTC023215

    ITA No. 946 of 2019

    Decided On, 06 January 2021

    At, Income Tax Appellate Tribunal Hyderabad

    By, THE HONOURABLE MRS. P. MADHAVI DEVI
    By, JUDICIAL MEMBER & THE HONOURABLE MR. A. MOHAN ALANKAMONY
    By, ACCOUNTANT MEMBER

    For the Assessee: P. Murali Mohana Rao, Advocate. For the Revenue: Rohit Mujumdar, DR.



Judgment Text

A. Mohan Alankamony, Accountant Member1. This appeal is filed by the assessee against the order of the ld. CIT (A)-1, Hyderabad in appeal No. 0002/CIT(A)-1, Hyd/2016-17/2018-19, dated 29/08/2018 passed U/s. 143(3) r.w.s 250(6) of the Act for the AY: 2013-14.2. The assessee has raised six grounds in its appeal however, the cruxes of the issues are that: -(i) The Ld. CIT (A) has erred in upholding the order of the Ld.AO who had made an addition of Rs. 15,61,749/- towards proportionate interest on interest free advances extended U/s. 36(1)(iii) of the Act.(ii) The Ld. CIT (A) has erred in upholding the order of the Ld.AO who had made an addition of Rs. 2,73,183/- being the disallowance of interest paid on late payment of TDS Rs. 1,19,167/- and the penalty levied thereon amounting to Rs. 1,54,016/- invoking the provisions of section 37(1) of the Act.3. The brief facts of the case are that the assessee is a Private Limited Company engaged in the business of manufacturing and selling the products of Bread Stalk, filed its return of income for the AY 2013-14 on 28/09/2013 admitting total loss of Rs. 1,39,15,934/- under normal provisions and book loss of Rs. 1,72,74,712/- U/s. 115JB of the Act. Initially the return was processed U/s. 143(3) of the Act and thereafter, the case was selected for scrutiny under CASS and the assessment was completed on 24/3/2016 U/s. 143(3) of the Act wherein the Ld. AO made addition of Rs. 15,61,749/- being the disallowance of proportionate interest towards interest free advances U/s. 36(1)(iii) of the Act and Rs. 2,73,183/- being the aggregate amount of interest and penalty paid towards late payment of TDS U/s. 37(1) of the Act. On appeal, the Ld. CIT (A) confirmed the order of the Ld. AO.4. Ground No.(i): Disallowance of proportionate interest on interest free advances amounting to Rs. 15,61,749/- U/s. 36(1)(iii) of the Act.5. During the course of scrutiny assessment proceedings, it was observed by the Ld. AO that the assessee had extended interest free advance to its sister concerns aggregating to Rs. 7,81,85,990/-. The Ld. AO opined that the proportionate interest on the interest free loan extended has to be disallowed as per section 36(1)(iii) of the Act. The Ld. AO relied on various decisions rendered by higher judiciary while arriving at such decision. Accordingly, he worked out the disallowance at Rs. 15,61,749/- and added to the income of the assessee. On appeal, the Ld. CIT (A) confirmed the order of the Ld. AO by agreeing with his view.6. At the outset, the Ld. AR submitted before us that the assessee had own funds in the form of capital and reserves which is more than the amount advanced to its sister concerns as interest free loans. The Ld. AR further submitted that, since the own fund of the assessee was non-interest-bearing, addition cannot be made invoking the provisions of section 36(1)(iii) of the Act for extending interest free loans from such fund to its sister concerns. It was therefore pleaded that the addition made may be deleted. The Ld. DR on the other hand vehemently argued in support of the orders of the Ld. Revenue Authorities and prayed for confirming the same.7. We have heard the rival submissions and carefully perused the materials on record. On perusing the balance sheet of the assessee, we find that assessee company's paid-up equity share is Rs. 4 Crs and total net reserves and surplus is Rs. (-) 1,57,10,956/- as on 31/3/2013 (paper book page no.43). Thus, the capital of the assessee company has eroded to Rs. 2,42,89,044/- (400,00,000 - 1,57,10,956). Hence, the interest free fund owned by the assessee as on 31/3/2013 is only Rs. 2,42,89,044/-. Therefore, the claim of the Ld. AR that the assessee had extended interest free loan out of its non-interest-bearing fund is only partially correct. At the same time, it is also obvious that the Ld. AO has not considered the interest free fund available with the assessee during the period of interest free loan extended to its sister concern. Needless to mention that addition cannot be made in the hands of the assessee U/s. 36(1)(iii) of the Act for extending interest free loan from its non-interest-bearing fund. Therefore, in the interest of justice, we hereby remit the matter back to the file of the ld. AO to compute the proportionate interest with respect to the interest-bearing fund extended to the assessee's sister concern and thereafter pass appropriate order in accordance with law and merit based on our observations mentioned herein above.8. Ground No.(ii): Disallowance of interest towards late payment of TDS Rs. 1,19,167/- on penalty of Rs. 1,54,016/- U/s. 37(1) of the Act.9. From the facts of the case, it is apparent that the Ld. Revenue Authorities have disallowed the interest and penalty paid by the assessee towards late payment of TDS aggregating to Rs.2,73,183/- by invoking the provisions of section 37(1) of the Act. Provisions of section 37(1) of the Act is reproduced herein below for reference: -"Section 37(1):- Any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". [(Explanation-1)] - For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.]10. From the above it is apparent, that any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law shall not be allowed to be claimed as deduction. In the case of the assessee, the late payment of TDS a

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nd the penalty levied towards the late payment of TDS cannot be treated as an offence or an act prohibited by law. These are only damages thrust on the assessee for non-payment of dues to the Revenue within the stipulated period provided under the Act. Therefore, the Ld. Revenue Authorities has erred in invoking the provisions of section 37(1) of the Act in the case of the assessee. Hence, we hereby direct the Ld. AO to delete the addition made of Rs. 2,73,183/- in the hands of the assessee towards interest and penalty paid for late payment of TDS.11. In the result, appeal of the assessee is partly allowed for statistical purposes as indicated herein above.
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