DCIT, Circle-1(1), Hyderabad V. M/s. Agarwal Global Steels (P) Ltd, Secunderabad

CO 79/HYD/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 8007 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 16-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M H NAIK
• Assessee Lawyers: K C DEVADAS
• Keywords: Proportionate interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL M EMBER ITA NO.123/HYD/2012 : ASSESSME NT YEAR 2008-09 DY. COMMI SSIONER OF INCOME - TAX, CIRCLE 1(1), HYDERABAD V/S. M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD ( PAN - AACCA 0516 C) (APPELLANT) (RESPONDENT) CROSS OBJECTION NO.79/HYD/2012 (IN ITA NO.123/HYD/2012 : ASSESSME NT YEAR 2008-09 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD ( PAN - AACCA 0516 C) V/S. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), HYDERABAD ( CROSS OBJECTOR ) (RESPONDENT) DEPARTMENT BY : SHRI M.H.NAIK, ASSESSEE BY : SHRI K.C.DEVADAS DATE O F HEARING 22.8.2012 DATE OF PRONOUNCEMENT 19.10.2012 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE AND THE CROSS-OBJE CTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF T HE CIT(A) II, HYDERABAD DATED 21.11.2011 FOR THE ASSESSMENT YEAR 2008-09. ITA NO.123/HYD/2012 & CO NO.79/H/12 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD 2 REVENUES APPEAL: 2. THE ONLY ISSUE ARISING OUT OF THE GROUNDS RAIS ED BY THE DEPARTMENT IN ITS APPEAL RELATES TO DELETION OF AN ADDITION OF RS.48 LAKHS, WHICH WAS DISALLOWED BY THE ASSESSING OFFICER UNDER S.36(1)(III) OF THE ACT. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AS SESSEE FILED THE RETURN FOR THE ASSESSMENT YEAR UNDER DISPUTE, DECLARING AN INCOME OF RS.66,35,325. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESS ING OFFICER ON VERIFICATION OF THE FINAL ACCOUNTS NOTICED THAT THE ASSESSEE HAS TAKEN SECURED AND UNSECURED LOANS TOTALING TO RS.15.99 CRORES AND RS. 28.06 CRORES AS ON 31.3.2007 AND 31.3.2008 RESPECTIVELY. THE ASSESSEE , DURING THE YEAR, HAS INCURRED EXPENDITURE TOWARDS INTEREST PAYMENT OF RS .2.39 CRORES. THE ASSESSING OFFICER NOTICED THAT HE ASSESSEE HAS ADVA NCED HUGE AMOUNTS TO ONE M/S. AGARWAL STEEL, A PROPRIETARY CONCERN OF ON E SHRI L.N.AGARWAL, WHO ALSO HAPPENS TO BE A PROMOTER OF THE ASSESSEE COMPA NY. ON EXAMINING THE LEDGER ACCOUNT OF M/S. AGARWAL STEEL, THE ASSESSIN G OFFICER FOND THAT THE OPENING BALANCE AS ON 1.4.2007 WAS RS.7,05,46,822 A ND IT CONTINUED TO REMAIN IN THE SAME RANGE TILL FEBRUARY, 2008, AND I T WAS ONLY IN THE MONTH OF MARCH, 2008, WHEN THE ASSESSEE BOOKED SOME HEAVY PU RCHASES, WHICH RESULTED IN A CREDIT BALANCE OF RS.2,68,623. SINCE NO INTEREST WAS CHARGED BY THE ASSESSEE ON THE HUGE OUTSTANDING BALANCE, THE A SSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED UNDER S.36(1)(III) OF THE ACT. THE ASSESSEE EXPLAI NED THAT M/S. AGARWAL STEEL IS A DEALER FOR M/S. STEEL AUTHORITY OF INDIA LIMIT ED. DURING THE YEAR, THE ASSESSEE PURCHASED STEEL WORTH RS.30 CRORES FROM M/ S.AGARWAL STEEL AND THE AMOUNT ADVANCED TO M/S. AGARWAL STEEL WAS IN THE NA TURE OF TRADE ADVANCE. THE ASSESSEE SUBMITTED THAT SINCE THE AMOUNT GIVEN WAS A TRADE ADVANCE, NO ITA NO.123/HYD/2012 & CO NO.79/H/12 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD 3 INTEREST WAS CHARGED. IN THIS REGARD, THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDE RS V/S. CIT(288 ITR 1). 4. THE EXPLANATION SUBMITTED BY THE ASSESSEE DID NOT FIND FAVOUR WITH THE ASSESSING OFFICER. THE ASSESSING OFFICER O BSERVED THAT M/S. AGARWAL STEEL IS THE PROPRIETARY CONCERN OF SRI L.N.AGARWAL , WHO IS NOT ONLY PROMOTER OF THE ASSESSEE COMPANY, BUT THE ENTIRE SHAREHOLDIN G OF THE ASSESSEE COMPANY IS HELD BY THE MEMBERS OF SHRI L.N.AGARWAL FAMILY UNDER DIFFERENT STATUS. THE ASSESSING OFFICER, ON EXAMINING THE TRA DING ACCOUNT AND BALANCE SHEET OF M/S.AGARWAL STEEL NOTICED THAT OUT OF TOTA L TURNOVER OF RS.33 CRORES, THE SALES MADE TO THE ASSESSEE COMPANY WAS TO THE T UNE OF RS.30 CRORES. THE ASSESSING OFFICER CONSIDERING THE FACT THAT THE SALES MADE BY M/S. AGARWAL STEEL TO THE OUTSIDERS WAS NEGLIGIBLE, WHEN COMPARED TO THE HUGE SALES MADE TO THE ASSESSEE, CAME TO THE CONCLUSION THAT THE PROPRIETARY CONCERN WAS CREATED WITH A MOTIVE TO DIVERT THE BOR ROWED AMOUNT FOR THE BENEFIT OF THE SHAREHOLDERS. THE ASSESSING OFFICER FURTHER OBSERVED THAT STEEL IS NOT A SCARCE COMMODITY AND THE ASSESSEE PURCHASE D STEEL WORTH RS.94 CRORES WITHOUT MAKING ANY HUGE ADVANCES, AND HENCE THERE WAS NO NEED FOR THE ASSESSEE TO MAKE HUGE ADVANCE TO M/S. AGARWAL S TEEL FOR PURCHASE OF STEEL. THE ASSESSING OFFICER, THEREFORE, HELD THAT HUGE AMOUNT GIVEN TO M/S. AGARWAL STEEL IN THE GUISE OF TRADE ADVANCE IS NOTH ING BUT BENEFIT TO THE DIRECTORS AND SHAREHOLDERS, AND THE SAID SOURCE WAS CREATED AS A TAX PLANNING DEVICE FOR THE MEMBERS OF SHRI L.N.AGARWAL FAMILY. THE ASSESSING OFFICER HELD THAT NOT ONLY SHRI L.N.AGARWAL, BUT AL SO OTHER DIRECTORS AND SHARE-HOLDERS HAVE DRAWN AMOUNTS FROM TIME TO TIME DEPENDING ON THEIR NEEDS FROM M/S. AGARWAL STEEL. THE ASSESSING OFF ICER CAME TO THE CONCLUSION THAT ON ACCOUNT OF DIVERSION OF BORROWED AMOUNT, THE ASSESSEE WAS MADE TO AVAIL MORE AND MORE OVERDRAFT FACILITY, THEREBY ATTRACTING HEAVY INTEREST AMOUNT, WHICH ULTIMATELY HAD AN EFFECT ON DERIVING LOW PROFITS ITA NO.123/HYD/2012 & CO NO.79/H/12 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD 4 COMPARED TO PRECEDING ASSESSMENT YEAR. THE ASSESSIN G OFFICER HELD THAT THERE IS NO COMMERCIAL EXPEDIENCY IN ADVANCING AMOU NT TO M/S. AGARWAL STEEL. THE ASSESSING OFFICER FINALLY CAME TO A CONC LUSION THAT EVEN ASSUMING THAT THE RATIO OF THE DECISION OF THE HONBLE SUPRE ME COURT IN S.A. BUILDERS CASE (SUPRA) IS APPLICABLE TO TRADE ADVANCES, GIVIN G THE ADVANCE OF RS.7 CRORES, AGAINST AVERAGE PURCHASE OF RS.2.50 CRORES PER MONTH IS NOT A CASE OF COMMERCIAL EXPEDIENCY. THE ASSESSING OFFICER OBSER VED THAT EVEN TAKING A LIBERAL APPROACH, AT BEST, AN AMOUNT OF RS.1 CRORE CAN BE TAKEN AS ADVANCE GIVEN AS NORMAL TRADE PRACTICE, AS BANK RATE OF INT EREST ON THE OUTSTANDING BALANCE, THE INTEREST WORKS OUT TO RS.60 LAKHS, AND IF RS.1 CRORE IS TREATED A TRADE ADVANCE, ON THE BALANCE, THE INTEREST CHARGEA BLE WORKS OUT TO RS.40 LAKHS, WHICH WAS DISALLOWED BY THE ASSESSING OFFICE R UDNERS.36(1)(III) OF THE ACT. 5. THE ASSESSEE CHALLENGED THE ABOVE DISALLOWANCE BY FILING AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE CONTENDED THAT THE AMOUNT ADVANCED TO M/S. AGARWAL STEEL IS IN THE NATURE OF TRADE ADVANCE TOWARDS PURCHASE OF STEEL. THE ADVANCE AMOUNT OF R S.7 CRORES IS ALSO THE OPENING BALANCE AS ON 1.4.2007. IN SUPPORT OF HIS CONTENTION, THE ASSESSEE SUBMITTED THE BALANCE SHEET, PROFIT & LOSS ACCOUNT, COMPUTATION STATEMENT, THE ACCOUNT STATEMENT OF M/S. AGARWAL STEEL FOR FIN ANCIAL YEAR 2006-07 AND 2007-08. THE ASSESSEE ALSO SUBMITTED THE INDIVID UAL ACCOUNT STATEMENT OF SHRI L.N.AGARWAL, TO DRIVE HOME THE POINT THAT THE ASSESSEE HAS REGULAR BUSINESS TRANSACTIONS WITH M/S. AGARWAL STEEL AND T HE MONEY ADVANCED TO M/S. AGARWAL STEEL IS FOR THE PURPOSE OF BUSINESS A ND OUT OF COMMERCIAL EXPEDIENCY. 6. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND EXAMINING THE MATERIAL PRODUCED BEFORE HIM, NOT ICED THAT THE MONEY ITA NO.123/HYD/2012 & CO NO.79/H/12 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD 5 ADVANCED BY THE ASSESSEE TO M/S. AGARWAL STEEL WAS TOWARDS PURCHASE OF STEEL. THE CIT(A) FOUND THAT THE ASSESSEE HAD AN O PENING DEBIT BALANCE WITH M/S. AGARWAL STEEL OF AN AMOUNT OF RS.7 CRORES AS O N 1.4.2007 AND A CLOSING CREDIT BALANCE OF RS.2,68,623 AS ON 31.3.2008. ON EXAMINING THE LEDGER ACCOUNT OF M/S. AGARWAL STEEL RELATING TO FINANCIAL YEAR 2007-08, THE CIT(A) FOUND THAT THERE WERE SUBSTANTIAL TRANSACTIONS BETW EEN THEM. THE ASSESSING OFFICERS CONCLUSION THAT THE PROPRIETARY CONCERN, M/S. AGARWAL STEEL WAS CREATED WITH AN IDEA TO DIVERT FUNDS FOR PERSONAL B ENEFIT OF THE DIRECTOR, WAS NOT SUPPORTED BY ANY COGENT EVIDENCE AND IT IS ONLY BASED ON ASSUMPTIONS AND SURMISES. THE CIT(A) ALSO FOUND THE OBSERVATIO N MADE BY THE ASSESSING OFFICER THAT THE ASSESSEE IN THE GUISE OF TRADE ADV ANCES LENT MONEY TO GROUP CONCERNS, FROM WHICH THE SHAREHOLDERS DRAW, AS AND WHEN THEY NEED FUNDS, IS NOT BASED ON ANY EVIDENCE, SINCE THE ASSESSING O FFICER HAS NOT GIVEN ANY SPECIFIC INSTANCES OF THE WITHDRAWALS MADE BY THE S HAREHOLDERS FROM M/S. AGARWAL STEEL. THE CIT(A) ALSO FOUND THE OBSERVATI ONS MADE BY THE ASSESSING OFFICER TO THE EFFECT THAT THE ASSESSEE H AS DONE SOME WINDOW DRESSING BY BOOKING HEAVY PURCHASES IN THE MONTH OF MARCH, TO BE WITHOUT ANY BASIS AND MERELY ON PRESUMPTIONS AND SURMISES. THE CIT(A) WAS OF THE OPINION THAT SINCE M/S. AGARWAL STEEL IS A DEALER O F STEEL, THE ASSESSEE PURCHASED STEEL FROM M/S. AGAWRAL STEEL AND IN THE PROCESS MADE TRADE ADVANCES, WHICH ARE ADJUSTED AGAINST THE PURCHASES MADE DURING THE YEAR. THE CIT(A) ALSO TOOK NOTE OF THE FACT THAT EVEN THE ASSESSING OFFICER HIMSELF WAS OF THE VIEW THAT THERE MAY BE A NEXUS BETWEEN T HE EXPENDITURE AND THE PURPOSE OF BUSINESS, FOR WHICH REASON, THE ASSESSIN G OFFICER HAS TREATED AN AMOUNT OF RS.1 CRORE TO BE IN THE NATURE OF TRADE A DVANCE, AND DID NOT CONSIDER IT FOR DISALLOWANCE OF PROPORTIONATE INTER EST UNDER S.36(1)(III) OF THE ACT. THE CIT(A) HOWEVER FOUND, THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY BASIS AS TO WHY HE HAS CONSIDERED THE FIGURE OF RS. 1CRORE FOR EXCLUDING THE SAME TOWARDS ADVANCE GIVEN FOR PURCHASE. THE CIT(A) , RELYING ON THE ITA NO.123/HYD/2012 & CO NO.79/H/12 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD 6 DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F S.A.BUILDERS (SUPRA), HELD THAT IT IS NOT FOR THE REVENUE TO DECIDE WHETH ER ANY ADVANCE IS TO BE MADE OR NOT AND HOW MUCH NEEDS TO BE MADE, SINCE TH AT DECISION ALWAYS REMAINS WITH THE BUSINESSMAN AND HAS TO BE LOOKED INTO IN THE BUSINESS PERSPECTIVE. THE REVENUE CAN ONLY EXAMINE THE GENU INENESS OF THE EXPENDITURE AND ALSO THE FACT AS TO WHETHER THE EXP ENDITURE HAS BEEN INCURRED FOR BUSINESS PURPOSE. THE CIT(A) HELD TH AT SINCE THERE WAS BUSINESS CONSIDERATION BETWEEN THE PARTIES AND THE ADVANCE MADE WAS TOWARDS PURCHASES, THE ASSESSING OFFICER CANNOT QUE STION THE REASONABLENESS OF THE AMOUNT ADVANCED ONLY BECAUSE IN ASSESSING OF FICERS VIEW THE PROFIT DISCLOSED FOR THE YEAR IS LOW. ON THE AFORESAID AN ALYSIS, THE CIT(A) HELD THAT THE DISALLOWANCE MADE UNDER S.36(1)(III) CANNOT BE SUSTAINED. HE ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESS ING OFFICER ON THIS ACCOUNT. 7. AGGRIEVED BY THE ABOVE ORDER OF THE CIT(A), THE DEPARTMENT IS IN APPEAL BEFORE US. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITT ED BEFORE US THAT THE ASSESSING OFFICER HAS AMPLE POWER TO LOOK INTO THE REASONABLENESS OF ANY EXPENDITURE AND IT IS FOR THE ASSESSEE TO PROVE THAT THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS ES OF BUSINESS. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTING THE REASONING OF THE ASSESSING OFFICER, SUBMITTED THAT THE ASSESSEE HAS UTILISED THE BORROWED FUNDS FOR GIVING ADVANCES TO A SISTER CONCERN, WHIC H IS A PROPRIETARY CONCERN OF ONE OF THE PROMOTERS OF THE ASSESSEE COMPANY AND THE PROPRIETARY CONCERN HAS BEEN USED AS A CONDUIT TO TRANSFER THE BORROWED FUNDS FOR THE PERSONAL BENEFIT OF THE DIRECTORS AND PROMOTERS OF THE ASSES SEE COMPANY. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT SINCE TH E ASSESSEE HAS FAILED TO ITA NO.123/HYD/2012 & CO NO.79/H/12 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD 7 PROVE THAT THE EXPENDITURE WAS LAID OUT FOR THE PUR POSE OF BUSINESS, THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING PROP ORTIONATE INTEREST UNDER S.36(1)(III) OF THE ACT. IN SUPPORT OF HIS CONTENT IONS, LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE FOLLOWING DECISIONS- (A) ITO V/S. DAGA CAPITAL MANAGEMENT P. LTD. (2009)312 ITR (AT) 1(SB)(MUM) (B) CIT V/S. V.I. BABY AND CO.(254 ITR 248)-KER. (C) CIT V/S. ABHISHEKH INDUSTRIES LTD. (286 ITR 1)-P&H 9. PER CONTRA, LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT ADVANCED IS NOT AN INTERE ST FREE LOAN, BUT ONLY A TRADE ADVANCE. THE ASSESSEE HAS REGULAR TRANSACTIO NS WITH M/S. AGARWAAL STEEL AND THE ADVANCE HAS BEEN GIVEN TO BE ADJUSTE D AGAINST THE PURCHASES TO BE MADE FROM THE PROPRIETARY CONCERN. THE LEARN ED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT IN F ACT THE ENTIRE AMOUNT OF ADVANCE WAS AN OPENING BALANCE AS ON 1.4.2007 AND A FTER ADJUSTMENT OF PURCHASES MADE DURING THE YEAR, AT THE END OF THE Y EAR, I.E. ON 31.3.2008, THERE IS A CLOSING CREDIT BALANCE OF RS.2,68,623. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE INVITED OUR ATTENTION TO THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT, BESIDES EX TRACT OF LEDGER ACCOUNT SUBMITTED IN THE PAPER-BOOK. LEARNED AUTHORISED RE PRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT IT IS NOT IN THE DOMAIN OF THE ASSESSING OFFICER TO DECIDE AS TO WHAT EXPENDITURE A BUSINESSMAN SHOULD INCUR FOR THE PURPOSES OF BUSINESS. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT SINCE THE ADVANCE WAS IN THE NATURE OF TRADE ADVANCE AND WAS FOR THE PURCHASE OF BUSINESS, THE MATTER IS BEYOND THE SCOPE OF THE PROVISIONS OF S.36(1)(III) AND THEREFORE, THE CIT(A) WAS JUSTI FIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. IN SUP PORT OF HIS CONTENTIONS, ITA NO.123/HYD/2012 & CO NO.79/H/12 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD 8 LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O S.A. BUI LDERS V/S. CIT (SUPRA). 10. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED TH E MATERIALS ON RECORD. IT IS AN UNDISPUTED FACT EVIDENT FROM THE MATERIAL ON RECORD THAT THE ASSESSEE MADE PURCHASES FROM TIME TO TIME DURING TH E YEAR FROM M/S. AGARWAL STEEL. IT IS MAINLY FOR THE REASON THAT M/ S. AGARWAL STEEL IS A PROPRIETARY CONCERN OF SHRI L.N.AGARWAL, ONE OF THE PROMOTERS OF THE ASSESSEE COMPANY, AND OTHER SHAREHOLDERS ARE ALSO M AINLY FROM THE FAMILY OF SHRI L.N.AGARWAL, THE ASSESSING OFFICER PROCEEDED T O INFER THAT BORROWED FUNDS OF THE ASSESSEE HAVE BEEN ADVANCED TO M/S. AG ARWAL STEEL, SO AS TO FACILITATE DRAWAL OF FUNDS BY THE PROMOTER AND THE SHAREHOLDERS THEREFROM. THE CONTENTION OF THE ASSESSEE IN THIS REGARD IS TH AT WHAT IS ADVANCED BY IT TO M/S. AGARWAL STEEL IS BY WAY OF TRADE ADVANCE, TO B E ADJUSTED AGAINST THE PURCHASES BEING MADE, AND BEING TRADE ADVANCE, THE DISALLOWANCE MADE IN TERMS OF S.36(1)(III) CANNOT BE SUSTAINED. 11. FROM THE LEDGER ACCOUNT OF M/S. AGARWAL STEE LS, WHICH IS AT PAGE 16 OF THE PAPER-BOOK, IT IS SEEN THAT AS ON 1.4.200 7, THE ASSESSEE HAD AN OPENING DEBIT BALANCE OF RS.7,05,46,822.47. IT IS ALSO EVIDENT FROM THE LEDGER ACCOUNT THAT THE ASSESSEE HAD EFFECTED PURCH ASE FROM M/S. AGARWAL STEEL THROUGH OUT THE YEAR AND AT THE END OF THE YE AR, THERE IS A CLOSING CREDIT BALANCE OF RS.2,68,623.16. FROM THE LEDGER ACCOUNT , IT IS CLEAR THAT THE ALLEGATION OF THE ASSESSING OFFICER TO THE EFFECT T HAT THE ASSESSEE HAD BOOKED HEAVY PURCHASE IN THE MONTH OF MARCH TO REDUCE THE DEBIT BALANCE IS UNSUBSTANTIATED AND WITHOUT ANY BASIS. SIMILARLY, THE OBSERVATION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS DIVERTED BO RROWED FUNDS TO M/S. AGARWAL STEEL FOR ENABLING THE PROMOTER SHRI L.N.AG ARWAL AND OTHER SHARE HOLDERS TO WITHDRAW MONIES TO THEIR BENEFIT IS ALSO WITHOUT ANY BASIS. THE ITA NO.123/HYD/2012 & CO NO.79/H/12 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD 9 ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON R ECORD TO PROVE THAT THE SHAREHOLDERS AND DIRECTORS HAVE IN FACT WITHDREW MO NEY. THEREFORE, THESE ALLEGATIONS MADE BY THE ASSESSING OFFICER ARE BASED ON MERE PRESUMPTIONS AND SURMISES AND HENCE THE SAME CANNOT BE SUSTAINED . 12. WHEN THE ASSESSING OFFICER IS PROCEEDING TO M AKE A DISALLOWANCE UNDER S.36(1)(III), HE MUST BRING SUFFICIENT MATERI AL ON RECORD TO PROVE THAT THE MONEY ADVANCED BY THE ASSESSEE HAS NO NEXUS WIT H THE BUSINESS ACTIVITY OF THE ASSESSEE. THE ASSESSEE HAS BROUGHT MATERIAL ON RECORD TO DISCHARGE THE ONUS CAST UPON IT FOR PROVING THAT THE ADVANCE MADE BY IT IS PURELY A TRADE ADVANCE, HAVING BEEN MADE AGAINST PURCHASES A ND IS PURELY FOR THE PURPOSES OF BUSINESS. THE COPY OF THE LEDGER ACCOUN T CLEARLY DEMONSTRATES THAT THE ASSESSEE HAS REGULAR BUSINESS TRANSACTIONS WITH M/S. AGARWAL STEEL AND THE ADVANCE MADE BY IT HAS BEEN ADJUSTED IN DUE COURSE, AND AT THE END OF THE YEAR, THERE IS A CLOSING CREDIT BALANCE OF R S.2.68 LAKHS. THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE FOR THE AS SESSEE THAT WHAT EXPENDITURE IS REQUIRED TO BE MET HAS TO BE LOOKED INTO FROM THE PERSPECTIVE OF A BUSINESSMAN, HAS SUBSTANTIAL FORCE. A PERSON C ARRYING ON BUSINESS IS THE BEST PERSON TO JUDGE WHAT EXPENDITURE IS TO BE INCU RRED IN THE BEST INTERESTS OF BUSINESS, KEEPING IN VIEW THE COMMERCIAL EXPEDIE NCY. THE ASSESSING OFFICER CERTAINLY CAN RAISE QUESTIONS REGARDING THE GENUINENESS AND REASONABLENESS OF THE EXPENDITURE INCURRED. HOWEVE R, AS LONG AS THERE IS NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE BUSI NESS OF THE ASSESSEE, THE ASSESSING OFFICER CANNOT STEP INTO THE SHOES OF A BUSINESSMAN TO SAY THAT THE EXPENDITURE INCURRED IS NOT REQUIRED IN THE INT ERESTS OF THE BUSINESS. THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS V/S. CIT (SUPRA) HAVE OBSERVED IN NO UNCERTAIN TERMS THAT WHAT IS RELEVAN T IS WHETHER THE AMOUNT ADVANCED BY AN ASSESSEE IS AS A MEASURE OF COMMERCI AL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVAN CED FOR EARNING PROFIT. ITA NO.123/HYD/2012 & CO NO.79/H/12 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD 10 ONCE THE ASSESSEE ESTABLISHES THAT THERE IS NEXUS B ETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS, THE DEPARTMENT WILL NO T BE EMPOWERED TO SIT IN JUDGMENT OVER THE DECISION TAKEN BY THE BUSINESSMAN TO DECIDE WHETHER THE EXPENDITURE INCURRED IS CORRECT OR NOT. MERELY ON THE GROUND THAT THE PROFIT DECLARED BY THE ASSESSEE IS LOW, ONE CANNOT DRAW AN INFERENCE THAT THE EXPENDITURE INCURRED TOWARDS INTEREST IS NOT ALLOWA BLE. FROM THE MATERIAL ON RECORD, IT IS EVIDENT THAT THE MONEY ADVANCED BY TH E ASSESSEE TO M/S. AGARWAL STEEL IS NOT AN INTEREST FREE LOAN, BUT A T RADE ADVANCE. THEREFORE, THE CONCLUSION REACHED BY THE ASSESSING OFFICER WIT HOUT ANY COGENT MATERIAL BROUGHT ON RECORD, IS UNSUSTAINABLE IN LAW. THE D ECISIONS RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ARE NOT APP LICABLE TO THE FACTS OF THE PRESENT CASE SINCE IN THE APPEAL BEFORE US, THE ADVANCE IS IN THE NATURE OF TRADE ADVANCE AND NOT INTEREST FREE LOAN. 13. FURTHER, THE STAND OF THE ASSESSING OFFICER IS ALSO CONTRADICTORY IN VIEW OF THE FACT THAT THE ASSESSING OFFICER HIMSELF HAS FINALLY COME TO A CONCLUSION THAT AN AMOUNT OF RS.1 CRORE CAN BE TREA TED AS A TRADE ADVANCE. BY DRAWING SUCH AN INFERENCE, THE ASSESSING OFFICER ADMITS THE FACT THAT THERE IS A NEXUS BETWEEN THE ADVANCING OF MONEY AND THE B USINESS OF THE ASSESSEE. THE ASSESSING OFFICER HAS ALSO NOT GIVEN ANY REASON, WHY HE CONSIDERS RS.1CRORE TO BE THE AMOUNT WHICH CAN BE T REATED AS TRADE ADVANCE TO M/S. AGARWAL STEEL, AND WHY THE BALANCE SHOULD N OT ALSO BE TREATED AS TRADE ADVANCE. SINCE THE ASSESSING OFFICER HAS MAD E THE DISALLOWANCE BASED ON MERE PRESUMPTIONS AND SURMISES WITHOUT BRINGING SUFFICIENT MATERIAL ON RECORD, TO PROVE THAT THE ADVANCE IS NOT FOR THE PU RPOSE OF BUSINESS, THE CIT(A) WAS CORRECT IN DELETING THE ADDITION MADE. ITA NO.123/HYD/2012 & CO NO.79/H/12 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD 11 ASSESSEES CROSS OBJECTION 14. NOW COMING TO THE CROSS-OBJECTIONS OF THE AS SESSEE, WE MAY NOTE, AT THE OUTSET, THERE IS A DELAY OF 14 DAYS IN THE FILING OF THE CROSS- OBJECTION. ASSESSEE HAS FILED A PETITION SEEKING C ONDONATION OF DELAY. WE ARE SATISFIED WITH THE REASONS PUT FORTH BY THE ASS ESSEE IN THE SAID PETITION, WHICH, ACCORDING TO IT, LED TO THE DELAY IN THE FIL ING OF THE CROSS OBJECTIONS. WE ACCORDINGLY CONDONE THE DELAY AND PROCEED TO DISPOS E OF THE CROSS OBJECTIONS ON MERITS. 15. THE ONLY ISSUE IN THE CROSS-OBJECTIONS OF THE ASSESSEE IS WITH REGARD TO CONFIRMATION OF THE DISALLOWANCE OF RS.4, 40,218 MADE UNDER S.40A(IA) OF THE ACT. 16. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSI NG OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.4,40, 218 TOWARDS PAYMENT OF INTEREST TO CITI CORP FINANCE LTD. THE ASSESSING O FFICER FOUND THAT THE ASSESSEE HAS NOT DEDUCTED ANY TAX UNDER S.194A OF T HE ACT ON THE PAYMENT MADE. SINCE THE PAYEE IS NOT A BANK, THE ASSESSING OFFICER DISALLOWED THE PAYMENT OF RS.4,40,218 UNDER S.40A(IA) OF THE ACT. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE CIT(A). BEFORE THE CIT (A), IT WAS ARGUED BY THE ASSESSEE THAT SINCE THE AMOUNT PAID TOWARDS INSTALM ENT FOR HIRE PURCHASE OF VEHICLE, TDS PROVISION WAS NOT APPLICABLE. THE CIT (A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE, BY HOLDING THAT SINCE T HE PAYMENT MADE IS IN THE NATURE OF INTEREST, TDS PROVISION IS APPLICABLE, AN D AS THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE, DISALLOWANCE MADE IN TERMS OF S.40A(IA) CANNOT BE HELD TO BE UNSUSTAINABLE. ITA NO.123/HYD/2012 & CO NO.79/H/12 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD 12 17. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE AMOUNT PAID TO THE FIN ANCIER TOWARDS INSTALMENT PAYMENT FOR HIRE PURCHASE OF VEHICLES. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT SINC E THE PAYMENTS MADE WERE IN THE NATURE OF INSTALMENTS, THE TDS PROVISIO NS AS CONTAINED UNDER S.194A ARE NOT APPLICABLE. IN THIS REGARD, THE LEAR NED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE LUCKNOW BENCH OF INCOME-TAX APPELLATE TRIBUNAL IN T HE CASE OF COMMERCIAL MOTORS FINANCE LTD. V/S. ACIT (82 ITD 176). THE LEA RNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE IN THE ALTERNATIVE SUBMITTED THAT EVEN ASSUMING THAT THE PAYMENT MADE WAS IN THE NATURE OF INTEREST, SINCE THE PAYMENTS WERE MADE DURING THE RELEVANT PREVIOUS YEA R, NO DISALLOWANCE COULD BE MADE UNDER S.40A(IA) IN VIEW OF THE SPECIA L BENCH DECISION IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V/S. ADDITI ONAL CIT (136 ITD 23)(SB)(VSPTNM). 18. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON TH E OTHER HAND, SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 19. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED TH E MATERIALS ON RECORD. IN THE CASE OF COMMERCIAL MOTORS FINANCE L TD. (SUPRA), RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE, THE LUCKN OW BENCH OF THE TRIBUNAL HAS GONE THROUGH THE HIRE PURCHASE AGREEMENT FURNIS HED BEFORE IT, AND HAS GIVEN A FINDING THAT THE RELEVANT PAYMENT IN THAT C ASE WAS NOT IN THE NATURE OF INTEREST. IN THE ABSENCE OF ANY SUCH AGREEMENT FURNISHED BEFORE US, WE ARE NOT IN A POSITION TO COMMENT ABOUT THE NATURE O F PAYMENT INVOLVED IN THE PRESENT CASE, AND CONSEQUENTLY, THE SAID DECISION O F THE LUCKNOW BENCH RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIV E, HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE. HOWEVER, IT IS SEE N FROM THE RECORD THAT THE ITA NO.123/HYD/2012 & CO NO.79/H/12 M/S. AGARWAL GLOBAL STEELS LTD., HYDERABAD 13 LOWER AUTHORITIES HAVE NOT DISPUTED THE FACT THAT T HE AMOUNT OF RS.4,40,218 WAS PAID BY THE ASSESSEE DURING THE RELEVANT PREVIO US YEAR. THEREFORE, WITHOUT ENTERING INTO THE CONTROVERSY AS TO WHETHER THE NATURE OF PAYMENTS MADE FALLS WITHIN THE TERM INTEREST OR INSTALMEN T ON HIRE PURCHASE OF VEHICLES, SINCE THE AMOUNT HAS BEEN PAID BY THE ASS ESSEE DURING THE RELEVANT PREVIOUS YEAR, NO DISALLOWANCE COULD BE MADE UNDER S.40A(IA) OF THE ACT, IN VIEW OF THE SPECIAL BENCH DECISION IN THE CASE OF M ERILYN SHIPPING AND TRANSPORTS V/S. ADDITIONAL CIT (SUPRA). WE ACCORDI NGLY DELETE THE DISALLOWANCE OF RS.4,40,218 MADE BY THE ASSESSING O FFICER, ALLOWING THE GROUNDS OF THE ASSESSEE IN ITS CROSS OBJECTIONS. 20. IN THE RESULT, REVENUES APPEAL IS DISMISSED A ND ASSESSEES CROSS-OBJECTION IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 19.10.2012 SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED/- 19TH OCTOBER, 2012 COPY FORWARDED TO: 1. M/S. AGARWAL GLOBAL STEELS LTD., 5-4-33, STERLING A PARTMENTS, DISTILLERY ROAD, SECUNDERABAD 500 003. 2. 3. 4 DY. COMMISSIONER OF INCOME-TAX CIRCLE 1(1), HYDERAB AD COMMISSIONER OF INCOME-TAX(APPEALS)-II, HYDERABAD COMMISSI ONER OF INCOME - TAX I, HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S.