M/s Bhikka Mal Chhotey Lal, Agra V. A.C.I.T., Circle-2, Agra

CO 19/AGR/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8808 (ITAT-AGRA)
• Duration Of Justice: 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 30-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D SHARMA
• Assessee Lawyers: K K JAIN
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 234/AGRA/2013 ASSTT. YEAR : 2009-10 A.C.I.T.-2, AGRA. VS. M/S. BHIKKA MAL CHOTTEY LA L, 21/167, PUL CHINGA MODI, LOHA MANDI, AGRA. (PAN: AAAFB 9633 Q) C.O. NO. 19/AGRA/2013 (IN ITA NO. 234/AGRA/2013 ) ASSTT. YEAR : 2009-10 M/S. BHIKKA MAL CHOTTEY LAL, VS. A.C.I.T.-2, AGRA . 21/167, PUL CHINGA MODI, LOHA MANDI, AGRA. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI S.D. SHARMA, JR. D.R. ASSESSEE BY : SHRI K.K. JAIN, ADVOCATE DATE OF HEARING : 13.08.2013 DATE OF PRONOUNCEMENT OF ORDER : 23.08.2013 ORDER PER BHAVNESH SAINI, J.M.: THE DEPARTMENTAL APPEAL AS WELL AS THE CROSS OBJEC TION OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-I, AGRA DA TED 26.02.2013 FOR THE ASSESSMENT YEAR 2009-10. ITA NO. 234 & C.O. NO.19/AGRA/2013 2 2. THE REVENUE IN THE DEPARTMENTAL APPEAL CHALLENGE D THE ORDER OF LD. CIT(A) IN RESTRICTING THE ADDITION TO RS.2,40,838/- AGAINS T ADDITION MADE BY THE AO OF RS.38,79,887/- ON ACCOUNT OF DIFFERENCE IN AVERAGE RATE OF INTEREST. THE ASSESSEE IN THE CROSS OBJECTION CHALLENGED THE CONFIRMATION OF ADDITION OF RS.2,40,838/-. 3. THE ASSESSEE IS A FIRM AND THE NATURE OF BUSINES S IS SHIP BREAKING. THE AO NOTED THE DETAILS OF INTEREST PAID AND RECEIVED BY THE ASSESSEE AND IT WAS FOUND THAT THE ASSESSEE PAID INTEREST @ 18% TO 24%. HOWEVER, T HE INTEREST HAS BEEN RECEIVED @ 12%, 15% AND 18% ONLY FROM NEAR ONES AND ONLY 8% FROM BANK. THE AVERAGE RATE OF INTEREST PAID COMES TO 16.9% WHEREAS THE AV ERAGE RATE OF INTEREST RECEIVED IS @ 13.25%. THE DETAILS OF THE SAME ARE NOTED IN THE ASSESSMENT ORDER. THE DIFFERENCE, I.E., 3.66% WAS DEEMED TO HAVE NOT BEEN PAID FOR BUSINESS PURPOSES. ADDITION OF RS.38,79,887/- WAS ACCORDINGLY MADE. TH E ADDITION WAS CHALLENGED BEFORE THE LD. CIT(A) AND WRITTEN SUBMISSION OF THE ASSESSEE IS REPRODUCED IN THE APPELLATE ORDER, IN WHICH IT WAS BRIEFLY POINTED OU T THAT THE AO HAS CONSIDERED ONLY 48 PARTIES FOR WORKING OUT THE AVERAGE RATE OF INTE REST WHEREAS THE ASSESSEE PAID INTEREST TO 329 PARTIES. THEREFORE, THE AO HAS NOT CONSIDERED 281 PARTIES FOR WORKING OUT THE CORRECT RATE OF INTEREST. AVERAGE R ATE OF INTEREST COMPUTED BY THE AO IS, THEREFORE, NOT CORRECT. THE MAXIMUM AMOUNT O F ADVANCE HAS BEEN GIVEN OUT OF THE FUNDS TAKEN @ 12%, 15% AND 18%. IT WAS POINT ED OUT THAT THE RATE OF INTEREST CHARGED IS ALSO SAME. THEREFORE, AVERAGING FORMULA IS INCORRECT. IT WAS ITA NO. 234 & C.O. NO.19/AGRA/2013 3 SUBMITTED THAT NO BORROWED FUNDS HAVE BEEN DIVERTED . ALLEGATIONS OF THE AO ARE NOT SUPPORTED BY ANY MATERIAL. COMPLETE DETAILS WER E FILED TO SHOW THAT THE ADDITION IS WHOLLY UNJUSTIFIED. THE ASSESSEE ALSO R ELIED UPON CERTAIN DECISIONS IN SUPPORT OF HIS CONTENTION. THE LD. CIT(A) CONSIDERE D ALL THE DETAILS OF INTEREST PAID AND RECEIVED IN THE APPELLATE ORDER AND RESTRICTED THE ADDITION TO RS.2,40,838/-. THE FINDINGS OF THE LD. CIT(A) IN PARAS 9.4 TO 9.9 ARE REPRODUCED AS UNDER : 9.4. AFTER GOING THROUGH THE ASSESSMENT ORDER AND EXAMINING THE REMAND REPORT AS WELL AS THE DISCUSSION HELD WI TH THE PRESENT AO, I FIND THAT THE AO HAS NOT BROUGHT OUT ANY DETAILED FACT ON RECORD PROVING THE NEXUS OF THE FUNDS BORROWED WITH THE FU ND GIVEN AS LOANS TO ESTABLISH THAT THE BORROWED FUND WAS DIVERTED AT LESSER RATE OF INTEREST TO SISTER CONCERNS FOR OTHER THAN BUSINESS PURPOSES AND HE HAS ADOPTED A GENERAL METHOD FOR MAKING DISALLOWANCE OF INTEREST PAID BY COMPUTING THE AVERAGE RATE OF INTEREST PAID AND AVE RAGE RATE OF INTEREST RECEIVED AND THEN, DISALLOWING THE INTERES T PAID AT THE RATE OF DIFFERENCE BETWEEN TWO AVERAGE RATES WITHOUT GOING INTO DETAILS OF UTILIZATION OF FUNDS BORROWED AND THE PURPOSE OF GI VING OF LOANS. HE HAS ALSO NOT GIVEN DETAILS OF WORKING OF SUCH AVERA GE RATE OF INTEREST PAID AND RATE OF INTEREST RECEIVED. SUCH METHOD OF DISALLOWANCE OF INTEREST HAS NOT BEEN FOUND TO BE AS PER THE PROVIS ION OF THE INCOME- TAX ACT AS WELL AS VARIOUS DECISIONS OF HON'BLE SUP REME COURT AND HON'BLE HIGH COURTS ON THIS MATTER. EVEN IN THE CAS E OF CIT VS. ABHISHEK INDUSTRIES LTD. (SUPRA), RELIED UPON BY TH E AO IN HER REMAND REPORT, IT HAS BEEN HELD THAT THERE SHOULD BE NEXUS OF USE OF BORROWED FUNDS FOR THE PURPOSE OF BUSINESS TO CLAIM DEDUCTI ON U/S 36(1)(III). THEREFORE, FOR MAKING DISALLOWANCE OF INTEREST CLAI MED U/S 36(1)(III), IT HAS TO BE ESTABLISHED THAT THE FUND BORROWED HAS BEEN DIVERTED FOR NON-BUSINESS PURPOSE. IN THE PRESENT CASE, THOUGH T HE ASSESSEE (APPELLANT) HAS CHARGED INTEREST ON LOANS GIVEN TO SISTER CONCERNS, THE FINDING OF THE AO IS THAT THE RATE OF INTEREST CHAR GED IS LESS THAN THE RATE OF INTEREST PAID. HOWEVER, HE HAS GIVEN HIS FI NDING WITHOUT GOING INTO DETAILS OF THE IMMEDIATE SOURCE OF GIVING OF S UCH LOANS TO SISTER CONCERNS. FOR THIS PURPOSE, IN MY OPINION, NEXUS OF THE FUND GIVEN TO THE SISTER CONCERN WITH BORROWED FUND IS TO BE ESTA BLISHED. IT IS RESPECTFULLY SUBMITTED THAT THE DECISION OF HON'BLE PUNJAB & HARYANA ITA NO. 234 & C.O. NO.19/AGRA/2013 4 HIGH COURT IN CASE OF CIT VS. ABHISHEK INDUSTRIES L TD. (SUPRA) HAS BEEN OVER RULED BY THE HON'BLE SUPREME COURT IN CAS E OF MUNJAL SALES CORPORATION VS. CIT (2008) 298 ITR 298 (SC) IN WHIC H, THE HON'BLE PUNJAB & HARYANA HIGH COURT HAS UPHELD THE DISALLOW ANCE OF INTEREST CLAIMED UNDER SECTION 36(1){III)OF THE ACT BY PLACING RELIANCE ON ITS JUDGMENT IN THE CASE OF C/F VS. ABHISHEK IND USTRIES LTD. (SUPRA) BUT THE HON'BLE SUPREME COURT DELETED THIS ADDITION BY HOLDING THAT THE PROFITS EARNED BY THE ASSESSEE DURING THE RELEV ANT YEAR WERE SUFFICIENT TO COVER THE IMPUGNED LOAN GIVEN TO THE SISTER CONCERN. THEREFORE, IN ORDER TO EXAMINE THE NEXUS OF LOAN GI VEN DURING THE YEAR WITH THE BORROWED FUNDS, I HAVE DECIDED TO EXAMINE THE LEDGER ACCOUNT OF THE PARTIES FROM WHOM THE LOAN WAS TAKEN AND TO WHOM THE LOAN WAS GIVEN WITH BANK LEDGER AND THE UTILISATION OF LOAN TAKEN IN THE BUSINESS OF THE ASSESSEE AND THE PURPOSE OF LOA N GIVEN. 9.5. AS PER THE LEDGER ACCOUNT, ALL THE LOANS GIVE N AT THE RATE OF INTEREST RANGING FROM 12% TO 18% HAVE BEEN FOUND TO BE GIVEN OUT OF FUND BORROWED AT 12% TO 18% AFTER IT WAS DEPOSIT ED IN THE CURRENT ACCOUNT OF THE ASSESSEE{APPELLANT) WITH SBI (CURREN T ACCOUNT NO. 10415000290) , SIF BRANCH, KALANALA BHAVNAGAR AND D URING THE YEAR UNDER CONSIDERATION, SUCH LOANS ARE GIVEN TO O NLY TWO PARTIES I.E. M/S NEUROMED IMAGING CENTRE (P) LTD. AND M/S SHREE KRISHNA SHIP BREAKING INDS. AS VERIFIED BY THE AO ALSO. THE ASSE SSEE(APPELLANT) IS CHARGING RATE OF INTEREST TO M/S NEUROMED IMAGING C ENTER PVT. LTD. AT 12% AND TO M/S SHREE KRISHNA SHIP BREAKING INDUSTRI ES AT RS. 18%. OTHER LOANS ARE OLD LOANS AND THEY HAVE ALREADY BEE N HELD BY ME IN EARLIER YEARS AS GIVEN FOR BUSINESS PURPOSES, EXCEP T LOAN GIVEN TO SHRI RATAN KUMAR JAIN WHICH WAS GIVEN AT THE RATE OF INT EREST LESS THAN THE RATE AT WHICH INTEREST ON OD ACCOUNT WAS BEING PAID TO BANK BUT THIS YEAR, I HAVE FOUND THAT THE ASSESSEE (APPELLANT) HA S PAID RATE OF INTEREST TO BANK ON OD ACCOUNT AT 11.5% , WHILE THE RATE OF INTEREST CHARGED TO SHRI RATAN SINGH IS AT 12% AND HENCE, NO DISALLOWANCE OF INTEREST IS REQUIRED TO BE MADE FOR RATE OF INTERES T CHARGED TO SHRI RATAN SINGH AT 12%. THE LOAN GIVEN TO SHRI RATAN SI NGH HAS ALSO BEEN RECEIVED BACK THIS YEAR. 9.6. IN VIEW OF THE ABOVE FACTS GATHERED BY ME FRO M THE LEDGER ACCOUNT OF THE ASSESSEE(APPELLANT), I HAVE E XAMINED THE PURPOSE OF GIVING OF TWO LOANS AND THEIR SOURCE , W HICH HAVE BEEN FOUND TO BE GIVEN TO TWO PARTIES DURING THE YEAR UN DER CONSIDERATION. THEY ARE SHREE KRISHNA SHIP BREAKING INDUSTRIES AND NEUROMED ITA NO. 234 & C.O. NO.19/AGRA/2013 5 IMAGING CENTRE PVT. LTD. THE ACCOUNT OF SHREE KRISH NA SHIP BREAKING INDUSTRIES IS A RUNNING ACCOUNT BEING MAINTAINED WI TH THE ASSESSEE(APPELLANT) AND IN THIS ACCOUNT SOMETIMES B ALANCE HAS BECOME CREDIT AND SOME TIME DEBIT . THE ACCOUNT WIT H THIS PARTY IS RELATING TO TRADING AS WELL AS FOR THE PURPOSE OF G IVING OF LOAN ALSO BUT RATE OF INTEREST CHARGED ON LOAN GIVEN TO THIS PART Y IS AS HIGH AS 18% THAT IS SAME AS THE RATE OF INTEREST CHARGED TO THE PARTIES FROM WHOM LOANS HAVE BEEN TAKEN. ON EXAMINATION OF BANK LEDGE R, I HAVE FOUND THAT THE LOAN GIVEN TO THIS PARTY IS OUT OF BORROWE D FUND TAKEN AT 15% TO 18%. AS THE LD. AR HAS QUITE REASONABLY EXPLAINE D THE BUSINESS EXPEDIENCY OF GIVING OF LOAN TO THIS PARTY AS BEING RELATED TO THE BUSINESS BEING CARRIED OUT BY THE ASSESSEE(APPELLAN T) COMPANY AND ALSO DOING TRADING WITH IT AND WHENEVER ANY LOAN IS GIVEN TO IT, THE RATE OF INTEREST IS BEING CHARGED AT THE SAME RATE AS IT IS BEING PAID ON THE BORROWED FUND, NO DISALLOWANCE OF INTEREST IS R EQUIRED TO BE MADE ON LOAN GIVEN TO THIS PARTY. 9.7. AS REGARDS TO THE SECOND PARTY, M/S NEUROMED IMAGING CENTRE PVT. LTD., THE LD. AR HAS NOT EXPLAINED ANY BUSINESS EXPEDIENCY OF GIVING LOAN TO THIS PARTY, EXCEPT GIVING A GENER AL EXPLANATION THAT THERE IS INTER-BANKING ACCOUNT WITH THE SISTER CONC ERNS FROM WHOM / TO ADVANCE TAKEN/GIVEN AS AND WHEN NEEDED FOR BUSINESS PURPOSES OF EITHER CONCERNS AND INTEREST CHARGED/PAID AT THE SI MILAR RATE. FOR GIVING OF LOANS TO SISTER CONCERN WITHOUT EXPLAININ G ANY APPARENT BUSINESS PURPOSE, IT HAS BEEN ONLY EXPLAINED BY THE LD. AR THAT THE BUSINESS OF THE ASSESSEE IS NOT FINANCING BUT IS OF SHIP BREAKING AND THE SURPLUS FUNDS DURING THE IDLE PERIOD HAD BEEN A DVANCED TO REDUCE THE BURDEN OF INTEREST AND THIS IS A PRACTICE THROU GHOUT IN THE PAST ACCEPTED BY THE DEPARTMENT. AS NO APPARENT BUSINESS PURPOSE OF GIVING LOAN TO M/S NEUROMED IMAGING CENTRE PVT. LTD . WAS EXPLAINED, I HAVE EXAMINED THE SOURCE OF GIVING OF LOAN TO THI S PARTY TO FIND OUT AS TO HOW BY GIVING LOAN TO THIS PARTY, THE ASSESSE E(APPELLANT) HAS REDUCED ITS BURDEN OF PAYING INTEREST. AS PER THE B ANK LEDGER, THE ASSESSEE(APPELLANT) HAS GIVEN TWO LOANS TO THIS PAR TY. THE FIRST AMOUNT OF RS.1,00,00,000/- HAS BEEN PAID ON 04.07.2008 AND THE SECOND AMOUNT OF RS. 90,00,000/- HAS BEEN PAID ON 08.07.20 08 AND THESE TWO AMOUNTS REMAINED WITH THIS PARTY FOR ABOUT SIX MONT HS TILL MID OF JANUARY 2009 AND AFTER THAT IT WAS RECEIVED BACK THROUGH VARIOUS PAYMENTS MADE BY IT FROM JANUA RY 2009 TILL MARCH 2009. DURING THIS PERIOD, INTEREST HAS BEEN C HARGED TO THIS PARTY @ 12% AND TOTAL INTEREST AMOUNT OF RS.13,69,6 53/- HAS BEEN ITA NO. 234 & C.O. NO.19/AGRA/2013 6 RECEIVED FROM THIS PARTY. ON EXAMINATION OF SOURCE OF GIVING OF THIS LOAN, IT HAS BEEN FOUND THAT THOUGH THIS LOAN WAS G IVEN FROM THE OD ACCOUNT MAINTAINED BY THE ASSESSEE(APPELLANT) BUT B EFORE ISSUING OF CHEQUE OF RS.1,00,00,000/- ON 04.07.2008 TO THIS PA RTY, FOLLOWING LOANS WERE TAKEN AT RATE OF INTEREST OF 15% AND 18% . I- LOAN TAKEN AT THE RATE OF 18% S.NO. DATE NAME OF PARTY GIVING LOAN AMOUNT (RS.) 1 03.07.2008 DIPTI G. SHAH 12,00,000 2 03.07.2008 MANJUBEN G. SHAH 8,00,000 3. 03.07.2008 HITESH C. SHAH 2,00,000 4. 03.07.2008 GAURANG G. SHAH 1,50,000 5. 03.07.2008 MAITREE G. SHAH 1,00,000 6. 03.07.2008 CHIMANLAL M. SHAH 1,00,000 7 03.07.2008 DHARMENDRA V. SHAH 1,00,000 8. 03.07.2008 SHREE KRISHNA SHIP BREAKING INDS 2 9,50,000 9. 03.07.2008 NARENDRA HIMMATLAL SHAH 1,00,000 10. 03.07.2008 STAR SHIP BREAKING CORPN. 15,00,0 00 TOTAL 72,00,000 II LOAN TAKEN AT THE RATE OF 15% 1 03.07.2008 HIREN INDL. GAS SUPPLY PVT. LTD. 5, 50,000 THE ABOVE MENTIONED TOTAL AMOUNT OF RS.77,50,000/- WAS TAKEN AT HIGHER RATE OF INTEREST AND AFTER DEPOSITI NG THIS AMOUNT IN THE OD ACCOUNT, IT IS FURTHER PASSED ON TO M/S. NEU ROMED IMAGING CENTRE PVT. LTD. AT A LESS RATE OF INTEREST OF 12% ON NEXT DATE I.E. 04.07.2009 BY MAKING A PAYMENT OF RS.1,00,00,000/- WITHOUT THERE BEING ANY BUSINESS PURPOSE. BUSINESS EXPEDIENCY OF REDUCING THE INTEREST BURDEN OF THE ASSESSEE(APPELLANT) BY GIVIN G LOAN TO SISTER CONCERNS AS A GENERAL REASON GIVEN BY THE LD. AR IN HIS WRITTEN SUBMISSION JUSTIFYING SUCH LOANS GIVEN TO SISTER CO NCERNS, COULD ALSO NOT EXPLAINED IN THIS CASE BECAUSE BY DEPOSITING TH E FUND BORROWED ON HIGH RATE OF INTEREST JUST FOR ONE DAY IN THE OD ACCOUNT AND THEN ITA NO. 234 & C.O. NO.19/AGRA/2013 7 GIVING THIS AMOUNT AT LOWER RATE OF INTEREST TO THI S SISTER CONCERN , THE INTEREST BURDEN OF THE ASSESSEE WOULD IN FACT INCRE ASE INSTEAD OF DECREASING. THEREFORE, I FIND THAT BY THE ABOVE TRA NSACTION OF TAKING FUND AT HIGHER RATE OF INTEREST AND PASSING ON THIS FUND TO THE SISTER CONCERN AT LESSER RATE OF INTEREST WITHOUT UTILIZIN G IT IN ITS OWN BUSINESS, THE ASSESSEE HAS DIVERTED THIS FUND TO SI STER CONCERN AND HENCE, INTEREST ON THIS BORROWED FUND SHOULD NOT BE ALLOWED U/S 36(1)(III) AT DIFFERENTIAL RATE OF INTEREST TILL TH IS FUND WAS REPAID TO THE ASSESSEE IN JANUARY 2009. 9.8. THE SECOND AMOUNT OF RS.90,00,000/- WAS PAID ON 08.07.2009 AND BEFORE MAKING THIS PAYMENT, THE ASSE SSEE(APPELLANT) RECEIVED AN AMOUNT OF RS. 1,00,00,0001- ON 07.07.20 08 FROM ITS PARTNER SHRI RISHAB KUMAR JAIN ON WHICH, INTEREST I S PAID AT 9% AND HENCE , IF THIS FUND IS GIVEN TO M/S NEUROMED IMAGI NG CENTRE PVT. LTD. AT 12%, IT WOULD RESULT INTO REDUCING THE INTE REST BURDEN OF THE ASSESSEE(APPELLANT) AND HENCE, AS EXPLAINED BY THE LD. AR , IT WOULD SERVE THE BUSINESS EXPEDIENCY OF THE ASSESSEE(APPEL LANT). THEREFORE, NO INTEREST IS REQUIRED TO BE DISALLOWED FOR GIVING OF RS.90,00,000/- TO M/S NEUROMED IMAGING CENTRE PVT. LTD. 9.9. IN VIEW OF MY ABOVE FINDING, INTEREST U/S 36( 1)(III) IS REQUIRED TO BE DISALLOWED ON ACCOUNT OF GIVING OF L OAN OF RS.1,00,00,000/- TO M/S NEUROMED IMAGING CENTRE PVT . LTD. OUT OF FUNDS BORROWED AT THE RATE OF INTEREST OF 15% AND 1 8% AS DISCUSSED IN PARA 9.7. SUCH DISALLOWANCE IS COMPUTED AS UNDER : (I) INTEREST TO BE DISALLOWED ON FUNDS OF RS. 72,00 ,000/- BORROWED AT THE RATE OF 18% AS THE LOAN IS GIVEN AT THE RATE OF 12% FROM 04.07. 2008 TO 15.01.2009 INTEREST TO BE DISALLOWED AT THE RATE OF 6% FOR 196 DAYS (FROM 04.07.2008 TO 15.01.2009), WHICH COMES TO:- = 0.06 X 72.00,000 X 196 = 2,31,978 365 (II) INTEREST TO BE DISALLOWED ON FUNDS OF RS. 5,50 ,000/- BORROWED AT THE RATE OF 15% ITA NO. 234 & C.O. NO.19/AGRA/2013 8 AS THE LOAN IS GIVEN AT THE RATE OF 12% FROM 04.07. 2008 TO 15.01.2009 INTEREST TO BE DISALLOWED AT THE RATE OF 3% FOR 196 DAYS (FROM 04.07.2008 TO 15.01.2009), WHICH COMES TO:- = 0.03 X 5,50,000 X 196 = RS. 8,860/- 365 THUS, TOTAL INTEREST TO BE DISALLOWED OUT OF THE IN TEREST PAID ON BORROWED FUND NOT UTILIZED IN THE BUSINESS OF THE A SSESSEE(APPELLANT) BUT USED IN GIVING LOAN TO THE SISTER A CONCERN WIT HOUT THERE BEING ANY BUSINESS EXPEDIENCY, WOULD COME TO RS. 2,40,838 /- [ RS. 2,31,978/- + RS. 8,860/-]. THEREFORE, THE AO IS DIR ECTED TO DISALLOW PAYMENT OF INTEREST CLAIMED U/S 36(1)(III) TO THE E XTENT OF RS.2,40,838/- INSTEAD OF RS.38,79,887/- DISALLOWED IN THE ASSESSMENT ORDER AND THE ASSESSEE(APPELLANT) ACCORDINGLY, GETS A RELIEF OF RS.36,39,049/- AND ALL THE GROUND TAKEN FROM GROUND NOS. 1 TO 4 ARE PARTLY ALLOWED . GROUND NO. 5 BEING GENERAL IN NATU RE IS NOT REQUIRED TO BE ADJUDICATED UPON SEPARATELY. 4. THE LD. DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE I S COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT, AGRA BENCH IN THE CA SE OF SAME ASSESSEE FOR PRECEDING ASSESSMENT YEAR 2008-09 IN ITA NO. 149/AG R./2012 AND C.O. NO. 32/AGR./2012 AND VIDE ORDER DATED 15.02.2013, THE D EPARTMENTAL APPEAL HAS BEEN DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE H AS BEEN ALLOWED. COPY OF THE ORDER IS PLACED ON RECORD AT PAGE 36 OF THE PAPER B OOK. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. FINDING OF FACT RECORDED BY THE LD. CIT(A) HAVE NOT BEEN DISPUTED THROUGH ITA NO. 234 & C.O. NO.19/AGRA/2013 9 ANY EVIDENCE OR MATERIAL ON RECORD. THE SIMILAR ISS UE WAS CONSIDERED OF DISALLOWANCE OF INTEREST U/S. 36(1)(III) OF THE IT ACT BY THE TRIBUNAL AND THE DEPARTMENTAL APPEAL WAS DISMISSED AND THE CROSS OBJ ECTION OF THE ASSESSEE HAS BEEN ALLOWED IN PRECEDING ASSESSMENT YEAR 2008-09 (SUPRA ). THE FINDING OF THE TRIBUNAL IN PARA 6 TO 8 ARE REPRODUCED AS UNDER : 6. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. THE A.O. HAS DISALLOWED INTEREST CLAIM OF THE ASSESSEE UNDER SECTION 36(1)(III) OF THE ACT. SECT ION 36(1)(III) PROVIDES THAT THE AMOUNT OF THE INTEREST PAID IN RE SPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS IS ALLOWA BLE EXPENSES FOR COMPUTING THE BUSINESS INCOME. IT IS NOT THE CASE OF THE A.O. THAT THE BORROWED FUND WAS NOT UTILISED FOR THE PURPOSES OF BUSINESS. THE APEX COURT IN THE CASE OF DCIT VS. CORE HEALTH CARE LIMITED, 298 ITR 194 (SC) LAID DOWN LAW THAT INTEREST PAID FOR T HE PURPOSE OF BUSINESS UNDER SECTION 36(1)(III) OF THE ACT, THOUG H IT MAY BE FOR THE PURPOSE OF EXPANSION OF THE EXISTING BUSINESS. IN THE CASE UNDER CONSIDERATION, THE CASE OF THE A.O. IS THAT THERE I S A LOSS ON ACCOUNT OF INTEREST PAID AND RECEIVED. THE CIT(A) HAS ALSO WR ONGLY ACCEPTED THE A.O.S VIEW WITHOUT CONSIDERING THE SECTION 36(1)(I II) OF THE ACT. THE LOSS IN THE INTEREST ACCOUNT WAS ON ACCOUNT OF DIFF ERENT RATES CHARGED FROM DIFFERENT PARTIES ON LOANS AND ADVANCES TAKEN AND LOANS AND ADVANCES GIVEN. FOR ALLOWING DEDUCTION UNDER SECTI ON 36(1)(III), IT IS TO BE SEEN WHETHER CONDITIONS STATED IN SECTION 36( 1)(III) HAS BEEN SATISFIED OR NOT. IN THE CASE UNDER CONSIDERATION, WE FIND THAT THE ASSESSEE HAS SATISFIED ALL THE CONDITIONS THAT THE BORROWED FUND WAS USED FOR THE PURPOSE OF BUSINESS AS PRESCRIBED UND ER SECTION 36(1)(III) OF THE ACT. ALSO, AS STATED ABOVE, IT W AS NOT THE CASE OF THE A.O. THAT THE BORROWED FUND WAS NOT UTILISED FOR TH E PURPOSE OF BUSINESS OF THE ASSESSEE. AS REGARDS THE A.O.S VI EW REGARDING LOSS IN INTEREST ACCOUNT ON ACCOUNT OF DIFFERENT RATES CHAR GED BY THE ASSESSEE, WE WOULD LIKE TO REFER THE OBSERVATION OF THE APEX COURT WHICH WAS MADE IN THE CASE OF CIT VS. DHANRAJGIRJI RAJA NARAS INGIRJI, 91 ITR 544 (SC). IT WAS OBSERVED BY THE APEX COURT THAT IT IS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPENDITURE AN ASSESSE E SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPE NDITURE. EVERY BUSINESSMAN KNOWS HIS INTEREST BEST. IN THE CASE UNDER ITA NO. 234 & C.O. NO.19/AGRA/2013 10 CONSIDERATION, THE A.O. AND THE CIT(A) PUT THEIR LE GS TO THE SHOES OF THE ASSESSEE AND DETERMINED THE RATE OF INTEREST PA ID AND CHARGED REASONABLY IN ACCORDANCE WITH THEIR VIEW WHICH IS N OT CORRECT. THE A.O. IS EMPOWERED TO EXAMINE ONLY CONDITION LAID DO WN UNDER SECTION 36(1)(III) OF THE ACT. SINCE THERE IS NO VIOLATION OF CONDITIONS LAID DOWN IN SECTION 36(1)(III) BY THE ASSESSEE, WE THER EFORE, FIND THAT INTEREST CLAIM OF THE ASSESSEE IS FULLY ALLOWABLE A ND WE ALLOW THE SAME. THE ORDERS OF THE A.O. AND THE CIT(A) BOTH A RE SET ASIDE AND ADDITION MADE BY THE A.O. OF RS.24,76,779/- AND ADD ITION OF RS.2,83,302/- SUSTAINED BY THE CIT(A) ARE DELETED. 7. THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN RESPECT OF ADDITION OF RS.2,83,302/- SUSTAINED BY THE CIT(A). SINCE WE SET ASIDE THE ORDER OF CIT(A) AS DISCUSSED ABOVE, IN THE LIGH T OF THE FACT, THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D AND CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. 6. THE AO HAS NOT MENTIONED ANYTHING IN THE ASSESSM ENT ORDER AS TO UNDER WHICH PROVISION, HE HAS MADE ADDITION OF THE DIFFER ENTIAL INTEREST RATE. THE ASSESSEE HAS SPECIFICALLY PLEADED BEFORE THE LD. CIT(A) THAT WHILE TAKING AVERAGE RATE OF INTEREST, THE AO HAS NOT CONSIDERED ALL PARTIES WIT H WHOM THE ASSESSEE HAD BEEN DEALING ON ACCOUNT OF INTEREST. FURTHER, THE LD. CI T(A) HAS GIVEN SPECIFIC FINDING THAT THE AO HAS NOT BROUGHT OUT ANY DETAILED FACTS ON RECORD PROVING NEXUS OF FUNDS BORROWED WITH THE FUNDS GIVEN AS LOAN TO ESTA BLISH THAT THE BORROWED FUNDS WERE DIVERTED AT LESSER RATE OF INTEREST TO SISTER CONCERN OR OTHER THAN BUSINESS PURPOSES. ON THE FACE OF THESE FINDINGS OF FACT REC ORDED BY THE LD. CIT(A) EVEN THE PART ADDITION SUSTAINED BY THE LD. CIT(A) IS NOT JU STIFIED. IN EARLIER YEAR, THE TRIBUNAL HAS ALREADY GIVEN A FINDING THAT THE AO IS EMPOWERED TO EXAMINE THE ITA NO. 234 & C.O. NO.19/AGRA/2013 11 CONDITIONS OF SECTION 36(1)(III) AND ON ACCOUNT OF DIFFERENT RATES OF INTEREST CHARGED BY THE ASSESSEE, THE ORDERS OF THE AUTHORITIES BELO W WERE NOT UPHELD. THE LD. CIT(A) IN CERTAIN PARAS OF HIS ORDER REPRODUCED ABO VE ALSO MENTIONED THAT LOAN WAS GIVEN FOR THE BUSINESS EXPEDIENCY. THEREFORE, C ONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES IN THE LIGHT OF THE DECISION IN E ARLIER YEARS, WE ARE OF THE VIEW THAT THE LD. CIT(A) EVEN SHOULD NOT HAVE SUSTAINED THE PART ADDITION BECAUSE THE AO HAS NOT POINTED OUT AS TO HOW THE CONDITIONS OF SECTION 36(1)(III) HAVE BEEN VIOLATED IN THIS CASE. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. 7. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY