M/s STI (India) Ltd., V. The ACIT, 5(1),

ITA 104/IND/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5918 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 02-08-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 13-03-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K K SINGH
• Assessee Lawyers: M C MEHTA; HITESH CHIMNANI CAS
• Keywords: Reopening of assessment; Invalid notice; Gift; Business income; Business expenditure; Opportunity of being heard; Fair market value; Difference of opinion; Notional interest; Commercial expediency; Reason to believe; Change of opinion
• Section: 43B; 143(3); 147; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI B.R.KAUSHIK, ACCOUNTANT MEMBER PAN NO. : AAECS3348C I.T.A.NO.104, 385, 494/IND/2008 & 349/IND/2009 A.Y. : 2003-04, 2004-05, 2002-03 & 2005-06 M/S. S.T.I.(INDIA) LIMITED, ACIT, PLOT NO.1, SONVAY INDUSTRIAL AREA, VS 5(1), RANGE 5, RAU-PITHAMPURMLINK ROAD, MHOW INDORE. APPELLANT RESPONDENT APPELLANT BY : S/SHRI M. C. MEHTA AND HITESH CHIMNANI, CAS RESPONDENT BY : SHRI K.K. SINGH CIT DR O R D E R PER B. R. KAUSHIK, A.M. ALL THESE FOUR APPEALS OF THE ASSESSEE INVOLVE SIMI LAR ISSUES, THEREFORE, THESE APPEALS ARE DECIDED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. I.T.A.NO. 104/IND/2008 A. Y. 2003-04: 2. WE SHALL FIRST TAKE UP I.T.A.NO. 104/IND/2008 FOR A SSESSMENT YEAR 2003-04, BECAUSE THE ISSUES WERE DECIDED BY THE LD. CIT(A) IN THE APPEAL FOR ASSESSMENT YEAR 2003-04 AS PER HIS ORDER DATED 29.1 1.2007 AND IN OTHER ASSESSMENT YEARS, THE ORDER DATED 29.11.2007 OF THE LD.CIT(A) HAS BEEN RELIED UPON. 3. FIRST GROUND OF APPEAL IS REPRODUCED BELOW :- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN NOT ALLOWING PROPER OPPORTUNITY OF BEING HEARD 2 AND DECIDED THE APPEAL WITHOUT PROPERLY APPRECIATIN G THE FACTS OF THE CASE. 4. THIS GROUND OF APPEAL WAS NOT PRESSED BY THE LD.CO UNSEL FOR THE ASSESSEE DURING THE COURSE OF HEARING BEFORE US. TH IS GROUND OF APPEAL IS, THEREFORE, REJECTED. 5. THE SECOND GROUND OF APPEAL IS REPRODUCED BELOW :- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN DISALLOWING RS. 6,33,55,586/- OU T OF INTEREST PAID BEING 13.50 % IN RESPECT OF INTEREST FREE ADVANCE, WITHOUT APPRECIATING THE FACT THAT SUCH ADVANCES WERE GIVEN IN THE PAST YEARS AND THAT TOO OUT OF INTEREST FREE FUNDS AVAIL ABLE WITH THE ASSESSEE FROM TRADE CREDITORS. 6. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE FILED RE TURN OF INCOME ON 29 TH NOVEMBER, 2003, DECLARING LOSS OF RS. 17,49,37,890/ -. THE AO OBSERVED THAT THE ASSESSEE HAD ADVANCED INTEREST FREE LOANS AMOUNTING TO RS. 46.93 CRORES TO DIFFERENT SISTER CONCERNS INCLUDING S.T.I. POWER LI MITED. THE SUBMISSION OF THE ASSESSEE THAT THE ADVANCES IN QUESTION WERE GIVEN I N EARLIER YEARS OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ON ACCOUNT O F CASH CREDITORS WAS REJECTED BY THE ASSESSING OFFICER. THE AO OBSERVED THAT AS PER THE BALANCE SHEET OF THE ASSESSEE, THE ASSESSEE HAD TAKEN SECURED LOANS AND UNSECURED LOANS OF RS. 2,40,87,19,000/- AND UNSECURED LOANS OF RS. 14,73,7 3,000/- ON WHICH INTEREST OF RS. 25,92,31,000/- HAS BEEN CLAIMED BY THE ASSESSEE . ACCORDING TO THE AO, THE FUNDS ON WHICH INTEREST HAD BEEN PAID WERE DIVERTED BY THE ASSESSEE TO ITS SISTER CONCERNS WITHOUT CHARGING ANY INTEREST AND THE EXPE NDITURE ON ACCOUNT OF INTEREST TO THE EXTENT OF FUNDS WERE DIVERTED TO TH E SISTER CONCERN COULD NOT BE 3 CONSIDERED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE O F BUSINESS OF THE ASSESSEE. THE AO FURTHER OBSERVED THAT THE EXPENDITURE ADMISS IBLE TO THE ASSESSEE DURING THE RELEVANT ACCOUNTING PERIOD WOULD BE THE EXPENDI TURE WHICH HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING THE INCOME OF T HE ASSESSEE AND THE EXPENDITURE ON ACCOUNT OF INTEREST TO THE EXTENT TH E BORROWED FUNDS WERE DIVERTED TO THE SISTER CONCERNS, HENCE NOT UTILIZED FOR THE PURPOSE OF BUSINESS, WAS INADMISSIBLE. HE, THEREFORE, HELD THAT PROPORTI ONATE INTEREST EXPENDITURE WAS LIABLE TO BE DISALLOWED. ACCORDINGLY, HE DISALLOWED INTEREST @13.5% OF RS.46.93 CRORES AND MADE AN ADDITION OF RS.6,33,55,586/- TO THE INCOME OF THE ASSESSEE. 7. THE LD. CIT(A) REQUIRED THE ASSESSEE TO FILE THE DE TAILS OF INTEREST FREE LOANS/ADVANCES PROVIDED TO THE SISTER CONCERNS, THE SOURCES THEREOF AND THE DOCUMENTARY EVIDENCE IN SUPPORT OF THE CLAIM THAT L OANS/ADVANCES TO SISTER CONCERNS WERE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, BUT THE ASSESSEE FAILED TO COMPLY AND IT WAS NOT POSSIBLE T O VERIFY THE CLAIM OF THE ASSESSEE. THE LD. CIT(A), THEREFORE, HELD THAT THE INTEREST BEARING FUNDS BORROWED BY THE ASSESSEE COULD NOT BE CONSIDERED AS UTILIZED FOR THE PURPOSE OF BUSINESS TO THE EXTENT INTEREST FREE ADVANCES WERE GIVEN TO SISTER CONCERNS. HE ALSO OBSERVED THAT THE ASSESSEE FAILED TO ESTABLISH THE COMMERCIAL EXPEDIENCY FOR GIVING INTEREST FREE ADVANCES TO SISTER CONCERNS. T HE LD. CIT(A), RELYING ON THE DECISION IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LIMITED, (2008) 286 ITR 1 ( P & H ), CONFIRMED THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER. 8. DURING THE COURSE OF HEARING OF THE APPEAL, THE ASS ESSEE REITERATED THE SUBMISSIONS TAKEN BEFORE THE LOWER AUTHORITIES. IT WAS CONTENDED THAT (I) THE ASSESSEE COMPANY HAD NOT MADE ANY ADVANCES TO ASSOCIATED CONCERNS IN ASSESSMENT YEAR 2001-02. HOW EVER, 4 DURING THE ASSESSMENT YEAR 2002-03, INTEREST FREE A DVANCES AMOUNTING TO RS. 4668.52 LAKHS WERE GIVEN TO ASSOCI ATE CONCERNS, WHICH WERE MARGINALLY INCREASED TO RS. 46 93.00 LAKHS DURING THE ASSESSMENT YEAR 2003-04; (II) THE AMOUNT RECOVERED FROM THE SUNDRY DEBTORS, LOANS AND ADVANCES DURING THE ASSESSMENT YEAR 2002-03 WAS GIV EN TO ASSOCIATE CONCERNS WITHOUT INTEREST; (III) DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2 003-04, THE INTEREST FEE LOANS AND ADVANCES TO ASSOCIATE CO NCERNS WERE MARGINALLY INCREASED BY RS.25 LAKHS AND THE OUTSTANDING ADVANCE, LOANS AND SUNDRY DEBTORS ALSO REMAINED NEARLY THE SAME AS IN ASSESSMENT YEAR 2002-03; (IV) THE SECURED AND UNSECURED LOANS WERE MAINLY UTILIZE D FOR ACQUIRING FIXED ASSETS; (V) THE ASSESSEE RECOVERED LOANS AND ADVANCES AND OUTST ANDING AMOUNTS FROM SUNDRY DEBTORS, WHEREAS IT WITHHELD TH E PAYMENT TO SUNDRY CREDITORS AND THE SURPLUS FUND AV AILABLE WITH THE ASSESSEE WERE, THUS GIVEN TO THE SISTER CO NCERNS AS INTEREST FREE LOANS AND ADVANCES; (VI) THE LOWER AUTHORITIES FAILED TO APPRECIATE THE FORE GOING FACTS AND DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE T HAT THE INTEREST BEARING SECURED AND UNSECURED LOANS WERE I NVESTED FOR ACQUIRING THE FIXED ASSETS OF THE ASSESSEE, THA T THE INTEREST FREE LOANS AND ADVANCES TO SISTER CONCERNS WERE GIV EN OUT OF RECOVERIES OF OUTSTANDING DEBTORS, LOANS AND ADVANC ES ETC. 5 AND THE SURPLUS FUNDS AVAILABLE, WITH THE ASSESSEE BY WITHHOLDING PAYMENTS TO ITS TRADE CREDITORS. 9. THE LD. COUNSEL RELIED ON THE DECISION IN THE CASE OF SARVODAYA KELA GROUP, BURHANPUR VS. ITO, WD. 2, KHANDWA,(1997) 25 ITC 409. HE SUBMITTED THAT THE CONDITIONS REQUIRED TO BE SATISFIED TO ENA BLE THE ASSESSEE TO CLAIM DEDUCTION U/S 36(1)(III) IN RESPECT OF INTEREST ON BORROWED CAPITAL ARE THAT (I) THE CAPITAL MUST HAVE BEEN BORROWED ; (II) IT MUST HAVE BEEN BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION OF THE ASSESSEE A ND (III) THE AMOUNT SHOULD HAVE BEEN PAID BY WAY OF INTEREST. HE ALSO SUBMITTE D THAT THE I.T.A.T. AS PER ITS ORDER DATED 12 TH OCTOBER, 2007 IN ITAT NO.266/IND./2001 IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 1997-98, HAS REJECTED THE APPEAL OF THE DEPARTMENT AGAINST THE DELETION OF ADDITION ON ACCOUNT OF INTE REST FREE INTER-CORPORATE ADVANCES GIVEN TO M/S. S.T.I. POWERS AND M/S. R.B.G . INVESTMENT. IT WAS FURTHER CONTENDED THAT THE I.T.A.T. IN ITS ORDER DATED 12 TH OCTOBER ,2007,(SUPRA) HAS CONSIDERED THE DECISIONS IN THE CASES OF (I) D & H SECHERON LIMITED, 142 ITR 529, (II) CIT VS. GOPIKRISHNA MUDLIAR, 47 ITR 469, AND (III) S.A. BUILDERS LIMITED VS. CIT, (2007) 288 ITR 1 ( S.C.). THE LD. COUNSEL, THEREFORE, VEHEMENTLY CONTENDED THAT THERE WAS NO JUSTIFICATIO N FOR THE LD.CIT(A) TO CONFIRM THE ADDITION OF RS. 6,33,55,586/- MADE BY T HE ASSESSING OFFICER TO THE INCOME OF THE ASSESSEE. 10. THE LD. CIT DR SUPPORTED THE ORDER OF THE LD.CIT(A) . HE POINTED OUT THAT THE ASSESSEE HAS ITSELF ADMITTED THAT IT RECOV ERED THE OUTSTANDING DEBTS, LOANS AND ADVANCES, BUT WITHHELD THE PAYMENT TO THE CREDI TORS AND THE FUNDS OF THE BUSINESS WERE, THUS, UTILIZED FOR GIVING INTEREST F REE ADVANCES TO SISTER CONCERNS. HE, THEREFORE, REITERATED THAT THE FUNDS OF THE BUS INESS HAVE BEEN GIVEN TO SISTER 6 CONCERNS AS INTEREST FREE LOANS AND ADVANCES. IT WA S ALSO CONTENDED THAT THE NEXUS BETWEEN THE BORROWED FUNDS AND ADVANCES NEED NOT BE ESTABLISHED AND HAD THE ASSESSEE UTILIZED THE SURPLUS FUNDS OF THE BUSINESS GENERATED BY RECOVERING THE OUTSTANDING DEBTS, FOR REPAYING THE LOANS TAKEN BY IT, THE INTEREST LIABILITY TO THAT EXTENT WOULD HAVE BEEN REDUCED. H E ALSO CONTENDED THAT NO PRUDENT BUSINESSMAN WOULD DIVERT ITS BUSINESS FUNDS TO GIVE INTEREST FREE ADVANCES TO SISTER CONCERNS INSTEAD OF REPAYING ITS LOANS INCURRING HEAVY INTEREST LIABILITY. HE ALSO INVITED REFERENCE TO THE FINDING S OF THE LD.CIT(A) IN THE IMPUGNED ORDER THAT THE ASSESSEE HAD FAILED TO FILE THE RELEVANT DETAILS AND PROVE ANY COMMERCIAL EXPEDIENCY FOR GIVING THESE LOANS TO SISTER CONCERNS. ACCORDING TO THE LD. CIT DR, THE DECISION IN THE CASE OF S.A. BUILDERS (SUPRA) IS OF NO HELP TO THE ASSESSEE, BECAUSE THE HON'BLE APEX COURT IN THAT CASE HELD THAT THE RELEVANT FACT TO DECIDE THE ISSUE IS WHETHER THE AS SESSEE ADVANCED THE AMOUNT TO ITS SISTER CONCERN AS A MEASURE OF COMMERCIAL EXPED IENCY, THAT THE ALLOWABILITY OF THE INTEREST ON BORROWED LOAN WAS ADVANCED BY TH E ASSESSEE TO ITS SISTER CONCERN DEPENDED ON THE FACTS AND CIRCUMSTANCES OF EACH CASE AND SINCE IN THE CASE OF THE ASSESSEE, IT COULD NOT BE ESTABLISHED T HAT THE INTEREST FREE ADVANCES WERE GIVEN FOR COMMERCIAL EXPEDIENCY, THE LD.CIT(A) , WITH DUE RESPECT, WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY TH E A.O. HE ALSO SUBMITTED THAT IT WAS HELD IN THE CASE OF CIT VS. ABHISHEK IN DUSTRIES (SUPRA) THAT THE ONUS WAS ON THE ASSESSEE TO SATISFY THE AO THAT THE LOAN S RAISED BY IT WERE USED FOR THE PURPOSE OF ITS BUSINESS AND IF IT TRANSPIRED THAT T HE ASSESSEE HAD ADVANCED CERTAIN FUNDS TO SISTER CONCERNS OR ANY OTHER PERSONS WITHO UT ANY INTEREST, THERE WOULD BE A VERY HEAVY ONUS ON THE ASSESSEE TO DISCHARGE B EFORE THE AO TO THE EFFECT THAT INSPITE OF PENDING TERM LOAN AND WORKING CAPIT AL LOAN ON WHICH THE ASSESSEE 7 WAS INCURRING LIABILITY TO PAY INTEREST, THERE WAS JUSTIFICATION TO ADVANCE LOANS TO SISTER CONCERNS FOR NON-BUSINESS PURPOSE WITHOUT AN Y INTEREST. HE ALSO POINTED OUT THAT THE SUBMISSION OF THE ASSESSEE THAT THE SE CURED AND UNSECURED LOANS WERE INVESTED INTO THE FIXED ASSETS, WAS NOT CORREC T, BECAUSE THE FUNDS OF THE BUSINESS CAME IN A COMMON KITTY AND THE MONEY RECEI VED AS SHARE CAPITAL OR AS TERM LOAN OR AS WORKING CAPITAL LOAN OR AS SALES PR OCEEDS DID NOT HAVE DIFFERENT COLOUR, AND THAT ALL THE RECEIPTS IN THE BUSINESS H AD THE COLOUR OF BUSINESS RECEIPTS AND HAD NO SEPARATE IDENTIFICATION. HE ALS O SUBMITTED THAT THE EARLIER DECISION OF THIS BENCH FOR THE ASSESSMENT YEAR 1997 -98 IN THE CASE OF THE ASSESSEE AS PER ORDER DATED 12 TH OCTOBER, 2007(SUPRA) WAS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE, BECAUSE IN THAT CASE, THE ADVANCES GIVEN TO SISTER CONCERNS WERE FOR COMMERCIAL EXPEDIENCY, WHE REAS THE COMMERCIAL EXPEDIENCY COULD NOT BE ESTABLISHED FOR THE ADVANCE S GIVEN DURING THE YEAR UNDER CONSIDERATION. HE ALSO SUBMITTED THAT NOTWITH STANDING THE ABOVE, WITH DUE RESPECT, SINCE THE DECISION IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES (SUPRA) WAS SQUARELY APPLICABLE TO THE ADMITTED FACTS OF TH E CASE OF THE ASSESSEE, THE I.T.A.TS DECISION FOR A.Y. 97-98 (SUPRA), WITH DUE RESPECT, CAN NOT BE GIVEN PRECEDENCE OVER THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT. 11. WE HAVE CAREFULLY CONSIDERED THE ISSUE, IN VIEW OF THE ORDERS OF THE AUTHORITIES BELOW, MATERIALS PLACED ON RECORD AND T HE RIVAL SUBMISSIONS. THE LD. COUNSEL FOR THE ASSESSEE HAS ADMITTED THAT THE ASSE SSEE RECOVERED THE OUTSTANDING LOANS, ADVANCES AND OTHER DUES AND WITHHELD THE PAY MENT TO CREDITORS. THUS, THE EXTRA FUNDS WERE AVAILABLE WITH THE ASSESSEE OUT OF WHICH THE AMOUNT IN QUESTION WAS ADVANCED TO ITS SISTER CONCERNS WITHOUT CHARGIN G ANY INTEREST. WE ARE, THEREFORE, OF THE CONSIDERED OPINION THAT THE BUSIN ESS FUNDS OF THE ASSESSEE HAVE 8 BEEN DIVERTED TO THE SISTER CONCERNS FOR GIVING LOA NS AND ADVANCES WITHOUT CHARGING ANY INTEREST AND THE ASSESSEE FAILED TO ES TABLISH ANY COMMERCIAL EXPEDIENCY OR BUSINESS ADVANTAGE DERIVED BY IT. THE SUBMISSION OF THE LD. CIT DR THAT NO PRUDENT BUSINESSMAN WOULD DIVERT ITS BUS INESS FUNDS FOR GIVING INTEREST FREE FUNDS TO SISTER CONCERNS WITHOUT ANY COMMERCIAL EXPEDIENCY BY INCURRING HEAVY COST OF INTEREST ON SECURED AND UNS ECURED LOANS, IS CONSIDERED CORRECT. WE ARE ALSO OF THE CONSIDERED OPINION THAT THE SHARE CAPITAL AND SECURED LOANS HAVE NOT ONLY BEEN UTILIZED FOR ACQUIRING FIX ED ASSETS, BUT THE UNSECURED LOANS AND PART OF THE CAPITAL AND SECURED LOANS HAV E ALSO BEEN USED AS WORKING CAPITAL FOR THE DAY TO DAY RUNNING OF THE BUSINESS AND HEAVY INTEREST HAS ALSO BEEN PAID ON UNSECURED LOANS. THE LD. COUNSEL FOR T HE ASSESSEE IN THE WRITTEN SUBMISSIONS FILED ON 10 TH MAY, 2010, HAS ADMITTED THAT THE INTEREST FREE LOA NS AND ADVANCES WERE NOT GIVEN TO ASSOCIATE CONCERNS I N THE ASSESSMENT YEAR 2001- 02 WHEREAS DURING THE ASSESSMENT YEAR 2002-03, THE INTEREST FREE ADVANCES AMOUNTING TO RS. 4668.52 LAKHS WERE GIVEN TO THE SI STER CONCERNS, WHICH INCREASED TO RS.4693.00 LAKHS IN ASSESSMENT YEAR 20 02-04. THUS, THE INTEREST FREE ADVANCES IN QUESTION ARE NOT THE SAME AS WERE CONSIDERED BY THE I.T.A.T. IN THEIR ORDER DATED 12 TH OCTOBER,2007, FOR ASSESSMENT YEAR 1997-98. IT IS A LSO OBSERVED THAT THE I.T.A.T. IN ITS ORDER DATED 12 TH OCTOBER, 2007, HAS NOT CONSIDERED THE DECISION IN THE CASE OF CIT VS. ABHI SHEK INDUSTRIES LIMITED (SUPRA). IT IS FURTHER OBSERVED THAT THE GROUND OF APPEAL OF THE DEPARTMENT ON THIS ISSUE WAS REJECTED ON THE BASIS OF THE FINDING OF THE LD. CIT(A) THAT THE LOANS WERE GIVEN TO SISTER CONCERNS FOR COMMERCIAL EXPEDI ENCY, WHEREAS IN THE YEAR BEFORE US, THE LD.CIT(A) HAS GIVEN A CLEAR FINDING THAT DESPITE SPECIFIC REQUISITION TO FILE THE EVIDENCE TO ESTABLISH THE C OMMERCIAL EXPEDIENCY IN GIVING 9 THE INTEREST FREE LOANS IN QUESTION TO THE SISTER C ONCERNS, THE ASSESSEE FAILED TO FILE ANY EVIDENCE AND ESTABLISH THE COMMERCIAL EXPEDIENC Y. IT IS ALSO OBSERVED THAT THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LIMITED (SUPRA) HAS HELD AS UNDER :-(HEAD NOTES) THAT THE ONLY THING SUFFICIENT TO DISALLOW THE INTE REST PAID ON THE BORROWING TO THE EXTENT THE AMOUNT IS LENT TO A SISTER CONCERN WITHOUT CARRYING ANY INTEREST FOR NON-BUSIN ESS PURPOSES WOULD BE THAT THE ASSESSEE HAS SOME LOANS OR OTHER INTEREST BEARING DEBTS TO BE REPAID. IN CASE THE AS SESSEE HAD A SURPLUS WHICH, ACCORDING TO IT, COULD NOT BE REPA ID PREMATURELY TO ANY FINANCIAL INSTITUTION, IT WOULD EITHER BE REQUIRED TO BE CIRCULATED AND UTILIZED FOR THE PURP OSE OF BUSINESS OR TO BE INVESTED IN A MANNER IN WHICH IT GENERATES INCOME AND NOT DIVERTED TOWARDS SISTER CONCERNS FRE E OF INTEREST. THIS WOULD RESULT IN NOT PRESENTING THE T RUE AND CORRECT PICTURE OF THE ACCOUNTS OF THE ASSESSEE AS AT THE COST BEING INCURRED BY THE ASSESSEE, THE SISTER CONCERN WOULD BE ENJOYING THE BENEFITS THEREOF. THERE SHOULD BE NEXU S BETWEEN THE USE OF BORROWED FUNDS FOR THE PURPOSE OF BUSINE SS TO CLAIM DEDUCTION U/S 36(1)(III) OF THE ACT. THAT BEI NG THE POSITION, THERE IS NO ESCAPE FROM THE FINDING THAT INTEREST BEING PAID BY THE ASSESSEE TO THE EXTENT THE AMOUNT S ARE DIVERTED TO SISTER CONCERNS ON INTEREST FREE BASIS ARE TO BE DISALLOWED. 10 12. WITH DUE RESPECT, THE DECISION IN THE CASE OF S.A. BUILDERS (SUPRA) IS OF NO HELP TO THE ASSESSEE, BECAUSE THE HON'BLE APEX C OURT HAS CLEARLY HELD AS UNDER :-(HEAD NOTES) IN ORDER TO DECIDE WHETHER INTEREST ON FUNDS BORROWED BY THE ASSESSEE TO GIVE AN INTEREST FREE L OAN TO A SISTER CONCERN (E.G., A SUBSIDIARY OF THE ASSESSEE) SHOULD BE ALLOWED AS A DEDUCTION U/S 36(1)(III) OF THE INCOME -TAX ACT,1961, ONE HAS TO ENQUIRE WHETHER THE LOAN WAS G IVEN BY THE ASSESSEE AS A MEASURE OF COMMERCIAL EXPEDIENCY. 13. SINCE THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE INTEREST FREE LOANS AND ADVANCES WERE GIVEN TO SISTER CONCERNS BECAUSE OF C OMMERCIAL EXPEDIENCY, THE PRINCIPLE LAID DOWN BY THE HON'BLE APEX COURT IN TH E CASE OF S.A. BUILDERS SUPPORTS THE CASE OF THE REVENUE. 14. IT IS ALSO OBSERVED THAT THE LOANS HAVE BEEN GIVEN BY THE ASSESSEE TO ITS GROUP CONCERNS AND THE PROVISIONS OF SECTION ARE SQ UARELY APPLICABLE TO THE CASE OF THE ASSESSEE. THE RELEVANT PORTION OF SECTION 40 A OF THE I.T. ACT, 1961 IS REPRODUCED BELOW: 40A. (1) THE PROVISIONS OF THIS SECTION SHALL HAVE EFF ECT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PRO VISION OF THIS ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEA D PROFITS AND GAINS OF BUSINESS OR PROFESSION. (2)(A) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REF ERRED TO IN CLAUSE (B) OF THIS SUB-SECTION, AND THE [ASSESSING] OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REG ARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHIC H THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESS IVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. [* * *] 11 (B) THE PERSONS REFERRED TO IN CLAUSE (A) ARE THE FOLLOWING, NAMELY: (I) WHERE THE ASSESSEE IS AN ANY RELATI VE OF THE ASSESSEE; INDIVIDUAL (II)WHERE THE ASSESSEE IS A ANY DIRECTO R OF THE COMPANY, PARTNER COMPANY, FIRM, ASSOCIATION OF THE FIRM, OR MEMBER O F THE AS SO OF PERSONS OR HINDU UNCIATION OR FAMILY, OR ANY RELAT IVE OF DIVIDED FAMILY SUCH DIRECTOR, PARTNER OR MEMBER; (III)ANY INDIVIDUAL WHO HAS A SUBSTANTIA L INTEREST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE, OR ANY RELATIVE OF SUCH INDIVIDUAL; (IV)A COMPANY, FIRM, ASSOCIATION OF PERS ONS OR HINDU UNDIVIDED FAMILY HAVING A SUBSTANTIAL INTEREST IN THE BUSINESS OR PR OFESSION OF THE ASSESSEE OR ANY DIRECTOR, PARTNER OR MEMBER OF SUCH COMPANY, FIRM, ASSOCIATION OR FAMILY, OR ANY RELATIVE OF SUCH DIRE CTOR, PARTNER OR MEMBER; (V)A COMPANY, FIRM, ASSOCIATION OF PERSO NS OR HINDU UNDIVIDED FAMILY OF WHICH A DIRECTOR, PARTNER OR MEMBER, AS THE CASE MA Y BE, HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE; OR ANY DIRECTOR, PARTNER OR MEMBER OF SUCH COMPANY, FIRM, ASSOCIATION OR FAMILY OR ANY RELATIVE OF SUCH DIRECTOR, PARTNER OR MEMBER; (VI)ANY PERSON WHO CARRIES ON A BUSINESS OR PROFESSION, (A) WHERE THE ASSESSEE BEING AN INDIVIDUAL, OR ANY RELATIVE OF SUCH ASSESSEE, HAS A SUBSTANTIAL INTEREST IN THE BUSINES S OR PROFESSION OF THAT PERSON; OR (B) WHERE THE ASSESSEE BEING A COMPANY, FIRM, ASSO CIATION OF PERSONS OR HINDU UNDIVIDED FAMILY, OR ANY DIRECTOR OF SUCH COM PANY, PARTNER OF SUCH FIRM OR MEMBER OF THE ASSOCIATION OR FAMILY, O R ANY RELATIVE OF SUCH DIRECTOR, PARTNER OR MEMBER, HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THAT PERSON. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION, A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTEREST IN A BUSINESS OR PROFESSION, IF, (A) IN A CASE WHERE THE BUSINESS OR PROFESSION IS CARRIED ON BY A COMPANY, SUCH PERSON IS, AT ANY TIME DURING THE PREVIOUS YEA R, THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIX ED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN P ROFITS) CARRYING NOT LESS THAN TWENTY PER CENT OF THE VOTING POWER; AND (B) IN ANY OTHER CASE, SUCH PERSON IS, AT ANY TIME DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER C ENT OF THE PROFITS OF SUCH BUSINESS OR PROFESSION. 15. IT IS VERY CLEAR FROM THE PLAIN READING OF THE PROVISIONS OF SECTION 40A(2)(B) THAT THE INTEREST FREE ADVANCES HAVE BEEN GIVEN BY THE ASSESSEE TO THE CONCERNS COVERED U/S 40A(2)(B) OF THE ACT AND TO TH E EXTENT THE EXPENDITURE HAS BEEN INCURRED ON PAYMENT OF INTEREST WITHOUT ANY CO MMERCIAL EXPEDIENCY AND 12 FOR THE BENEFIT OF THE GROUP CONCERNS, SO MUCH OF T HE INTEREST IS LIABLE TO BE DISALLOWED AND NOT TO BE ALLOWED AS A DEDUCTION U/S . 40A(2)(A) OF THE ACT. 16. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE DISALLOWAN CE OF RS. 6,33,55,586/- ON ACCOUNT OF INTEREST AND NO INTERFERENCE IS CALLED F OR IN HIS DECISION ON THIS, WHICH IS CONFIRMED. THE SECOND GROUND OF APPEAL OF THE AS SESSEE IS, ACCORDINGLY, REJECTED. 17. THE THIRD GROUND OF APPEAL IS AGAINST THE DECI SION OF THE LD.CIT(A) IN CONFIRMING THE DISALLOWANCE OF PRIOR PERIOD EXPE NSES OF RS. 47,71,068/- MADE BY THE ASSESSING OFFICER. 18. THE LD. COUNSEL CONTENDED THAT THE LIABILITY F OR PAYMENT OF THESE EXPENSES WAS CRYSTALLIZED DURING THE YEAR. THE LD. SENIOR D.R. RELIED ON THE DECISION OF THE LOWER AUTHORITIES AND SUBMITTED THA T THE EXPENDITURE WAS INCURRED IN EARLIER YEARS AND SINCE THE ASSESSEE WAS MAINTAI NING BOOKS OF ACCOUNT ON MERCANTILE BASIS IT WAS REQUIRED TO MAKE THE PAYMEN T THEREOF OR PROVIDE FOR THE EXPENDITURE IN THE RELEVANT ACCOUNTING PERIOD WHEN THE EXPENDITURE WAS INCURRED AND SINCE THE LIABILITY WAS NOT SUCH AS HAD NOT BEE N ASCERTAINED IN THE EARLIER YEAR, THERE WAS NO JUSTIFICATION FOR THE ASSESSEE T O CLAIM THESE EXPENSES FOR THE PRIOR PERIOD, DURING THE ACCOUNTING PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. HE ALSO SUBMITTED THAT THE LD.CIT(A) HAS ALSO OBSERVED IN PARA 4.2 OF HIS ORDER THAT THE ASSESSEE COULD NOT ESTABL ISH THAT THE LIABILITY FOR THE PRIOR PERIOD EXPENSES, CLAIMED DURING THE YEAR UNDER CONS IDERATION, CRYSTALLIZED DURING THE YEAR ITSELF. HE POINTED OUT THAT THE AO HAS GIVEN INSTANCES OF THE EXPENSES AT PAGE 3 OF THE ASSESSMENT ORDER DATED 30 TH MARCH, 2006, AND THE LD.CIT(A) HAS ALSO TAKEN NOTE OF THE SAME IN PARA 4 .1 AT PAGES 5 OF HIS IMPUGNED 13 ORDER. THE LD. CIT D.R. POINTED OUT THAT ON PERUSAL OF THE DETAILS GIVEN BY THE ASSESSING OFFICER, IT WAS VERY CLEAR THAT THE EXPEN DITURE WAS INCURRED PRIOR TO 1 ST APRIL, 2002, AND THAT, THE EXPENDITURE, THEREFORE, WAS NOT RELEVANT TO FINANCIAL YEAR 2002-03 AND THE CLAIM HAS BEEN RIGHTLY DISALLO WED FOR ASSESSMENT YEAR 2003-04. 19. WE HAVE CAREFULLY CONSIDERED THE ISSUE, IN VIE W OF THE ORDERS OF THE AUTHORITIES BELOW, MATERIALS PLACED ON RECORD AND R IVAL SUBMISSIONS. THE LD. COUNSEL HAS PLACED THE DETAILS OF PRIOR PERIOD EXPE NSES ALONGWITH RELEVANT SUPPORTING DETAILS AT PAGES 49 TO 149 OF HIS COMPIL ATION FILED ON 9 TH FEBRUARY, 2010. ON CAREFUL PERUSAL OF THE BILLS FILED IT IS N OTICED THAT THE BILLS WERE ISSUED PRIOR TO 1 ST APRIL, 2002, AND THE CLAIM HAS BEEN MADE BY THE AS SESSEE ON THE BASIS OF DETAILS OF OUTSTANDING BILLS SENT BY THE PARTIES ON THE SUBSEQUENT DATES IN FINANCIAL YEAR 2002-03. IT IS VERY CLEAR THAT THE E XPENDITURE HAS BEEN INCURRED IN FINANCIAL YEAR 2002-03 AND THE ASSESSEE SHOULD HAVE EITHER MADE THE PAYMENT OR PROVIDED FOR THE SAME IN THE RELEVANT ACCOUNTING PE RIOD. THE CLAIM CANNOT BE ALLOWED IN THIS YEAR ONLY BECAUSE THE RELEVANT DETA ILS OF THE UNPAID OUTSTANDING BILLS OF EARLIER YEARS WERE SENT BY THE PARTIES IN THE SUBSEQUENT YEAR. WE, THEREFORE, SEE NO JUSTIFICATION FOR ALLOWING THE CL AIM OF THE ASSESSEE. THE DECISIONS OF THE LOWER AUTHORITIES ON THIS ISSUE AR E CONSIDERED CORRECT. THIS GROUND OF APPEAL IS ALSO REJECTED. 20. AS PER GROUND NO.4, THE ASSESSEE HAS OBJECTED TO THE DECISION OF THE LD. CIT(A) IN SUSTAINING THE DISALLOWANCE OF RS.1 L AKH OUT OF TRAVELING, CONVEYANCE, THE VEHICLE RUNNING AND MAINTENANCE EXP ENSES ON ESTIMATE BASIS WITHOUT PIN POINTING ANY SPECIFIC DISCREPANCIES. 14 21. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE AD HOC DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN ERRONEOUSLY SUSTAINED BY THE LD. CIT(A). HE POINTED OUT THAT SIMILAR AD HOC DISALLOWANCES IN THE CASE OF THE ASSESSEE HAVE BEEN DELETED BY THE LD. CIT(A) AS PER HIS DECISION FOR ASSESSMENT YEAR 1998-99 AND THE I.T.A.T. AS PER ITS ORDER DATED 12 TH OCTOBER, 2007, HAS DISMISSED THE APPEAL OF THE DEPARTMENT. 22. THE LD. CIT DR POINTED OUT THAT THE ASSESSEE C LAIMED EXPENDITURE OF RS.78,39,079/- ON ACCOUNT OF TRAVELING CONVEYANC E, VEHICLE RUNNING AND MAINTENANCE EXPENSES. SINCE THE EXCLUSIVE USE OF VE HICLE FOR BUSINESS PURPOSES WAS NOT ESTABLISHED AND LOG BOOK WAS NOT MAINTAINED , THE AO DISALLOWED AN ESTIMATED AMOUNT OF RS. 1 LAKH OUT OF VEHICLE EXPEN SES FOR NON-BUSINESS PURPOSES. THE LD. CIT(A) SUSTAINED THE ADDITION FOR THE REASON THAT THE ONUS WAS ON THE ASSESSEE TO ESTABLISH THAT THE VEHICLES WERE USED ONLY FOR THE PURPOSE OF BUSINESS AND SINCE THE RELEVANT RECORDS HAD NOT BEE N PRODUCED, IT WAS NOT POSSIBLE TO VERIFY THAT THE VEHICLES WERE USED ONLY FOR THE PURPOSE OF BUSINESS. 23. WE HAVE CAREFULLY CONSIDERED THE ISSUE, IN VIE W OF THE ORDERS OF THE AUTHORITIES BELOW, MATERIALS PLACED ON RECORD AND R IVAL SUBMISSIONS. THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE FAILED TO EST ABLISH THAT THE VEHICLES WERE EXCLUSIVELY USED FOR BUSINESS PURPOSES AND THE DISA LLOWANCE HAS BEEN MADE FOR ONLY 1.2 % OF THE TOTAL EXPENDITURE, WHICH CANNOT B E CONSIDERED UNREASONABLE DISALLOWANCE, LOOKING TO THE FACT THAT THE USE OF V EHICLE FOR THE PURPOSES OTHER THAN THE BUSINESS CANNOT BE RULED OUT. IT IS ALSO S EEN THAT THE ISSUE OF DISALLOWANCE OF VEHICLE EXPENSES FOR THE NON BUSINE SS USE HAS NOT BEEN CONSIDERED THE SUBJECT MATTER OF APPEAL BEFORE THE I.T.A.T. IN ITS DECISION FOR ASSESSMENT YEAR 1998-99. WE, THEREFORE, SEE NO REAS ON TO INTERFERE WITH THE 15 DECISION OF THE LD. CIT(A), WHICH IS UPHELD. THIS G ROUND OF APPEAL IS ALSO REJECTED. 24. FIFTH GROUND OF APPEAL IS AGAINST THE DECISION OF THE LD.CIT(A) IN SUSTAINING THE DISALLOWANCE OF RS. 25,000/- OUT OF SALES PROMOTION EXPENSES ON AD HOC BASIS. 25. THE ASSESSEE CLAIMED EXPENDITURE OF RS. 1,10,8 85/- ON VARIOUS ITEMS OF GIFTS ETC. AND FOR ENTERTAINMENT. THE ASSE SSEE COULD NOT ESTABLISH THAT THE EXPENDITURE WAS INCURRED ONLY ON CUSTOMERS AND PROSPECTIVE BUYERS. THE A.O. DISALLOWANCE OF RS.25,000/- OUT OF ARTICLES PU RCHASED FOR PRESENTATION MADE BY THE ASSESSING OFFICER WHICH WAS CONFIRMED BY THE LD. CIT(A). 26. THE LD. COUNSEL POINTED OUT THAT SIMILAR ADDIT ION MADE BY THE A.O. FOR ASSESSMENT YEAR 1998-99 WAS DELETED BY THE LD. CIT(A) AND THE I.T.A.T. AS PER ITS ORDER DATED 12 TH OCTOBER, 2007, SUSTAINED THE DISALLOWANCE. 27. THE LD. CIT DR POINTED OUT THAT DURING THE YEA R, THE ASSESSEE FAILED TO GIVE ANY DETAILS OF EXPENDITURE IN SUPPORT OF IT S CLAIM WHEREAS IN ASSESSMENT YEAR 1998-99, THE LD. CIT(A) WAS SATISFIED THAT THE EXPENDITURE WAS FOR THE PURPOSE OF BUSINESS AND THE FACTS OF THIS YEAR WERE DIFFERENT BECAUSE THE LD. CIT(A) HAS GIVEN A CLEAR FINDING THAT THE ASSESSEE FAILED TO GIVE ANY DETAILS BEFORE THE AO OR THE LD. CIT(A). HE CONTENDED THAT IN ABSENCE OF ANY DETAILS, WHATSOEVER THE AO WAS LEFT WITH NO CHOICE, BUT TO M AKE THE ESTIMATED DISALLOWANCE, WHICH HAS BEEN RIGHTLY CONFIRMED BY T HE LD. CIT(A). 28. IT IS SEEN ON PERUSAL OF THE DETAILS OF SALES PROMOTION EXPENSES AT PAGE 26 OF THE PAPER BOOK FILED ON 25 TH NOVEMBER, 2009, THAT AN AMOUNT OF RS.1,06,932/-, OUT OF TOTAL CLAIM OF RS.1,10,070/-, HAS BEEN DEBITED ON 31 ST MARCH,2003, AS EXPENDITURE AT DELHI OFFICE. NO FURT HER DETAILS ARE AVAILABLE. THE 16 NATURE OF EXPENDITURE IS ALSO NOT KNOWN. IN ABSENCE OF ANY DETAILS TO JUSTIFY THE EXPENDITURE, THE LOWER AUTHORITIES, IN OUR CONSIDER ED OPINION HAVE BEEN VERY FAIR IN DISALLOWING AND CONFIRMING THE DISALLOWANCE OF R S. 25,000/- ONLY. SINCE THE ASSESSEE HAS FAILED TO GIVE ANY DETAILS WHATSOEVER OF THE EXPENDITURE BEFORE THE LOWER AUTHORITIES, THE DECISIONS RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE ARE OF NO HELP TO THE ASSESSEE. WITH DUE RESPECT, THE D ECISION DATED 12 TH OCTOBER, 2007, FOR ASSESSMENT YEAR 1998-99 IS ALSO BASED ON THE FINDING GIVEN BY THE LD. CIT(A) THAT THE DISALLOWANCE WAS NOT WARRANTED, WHE REAS IN THIS CASE, THE LD.CIT(A) HAS CLEARLY STATED THAT DESPITE SPECIFIC OPPORTUNITY, THE ASSESSEE FAILED TO GIVE THE DETAILS, BILLS, VOUCHERS OR ANY OTHER E VIDENCE TO JUSTIFY ITS CLAIM. THIS GROUND OF APPEAL IS ALSO REJECTED. 29. THE APPEAL OF THE ASSESSEE IS DISMISSED. I.T.A.NO. 385/IND/2008 A. Y. 2004-05: 30. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGA INST THE ORDER DATED 2 ND MAY, 2008, OF THE LD.CIT(A). 31. THE FIRST GROUND OF APPEAL IS AGAINST THE DECI SION OF THE LD.CIT(A) IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 6 ,33,55,586/- ON ACCOUNT OF INTEREST FREE ADVANCES OF RS. 46.93 CRORES GIVEN TO DIFFERENT SISTER CONCERNS WITHOUT ANY COMMERCIAL EXPEDIENCY. 32. THE SUBMISSION OF THE LD.COUNSEL FOR THE ASSES SEE, FACTS OF THE CASE, THE SUBMISSION OF THE LD. CIT D.R. AND OTHER SUCH M ATERIAL ARE SIMILAR TO THOSE FOR ASSESSMENT YEAR 2003-04. FOLLOWING OUR DECISION IN ASSESSMENT YEAR `2003- 04 AS PER DISCUSSION ABOVE, WE UPHOLD THE ACTION OF THE LD. CIT(A). 33. THE ALTERNATIVE PLEA OF THE ASSESSEE IS THAT T HE ASSESSEE HAS ALREADY DISALLOWED INTEREST OF RS.39,19,41,147/- OUT OF TOT AL INTEREST CLAIMED AT 17 RS.39,24,33,000/- AND, THEREFORE, FURTHER DISALLOWA NCE OF RS.6,33,55,586/- WAS NOT CALLED FOR. THE LD. CIT(A) HELD THAT THE AFORE STATED ALTERNATIVE PLEA WAS UNTENABLE. ACCORDING TO HIM THE DISALLOWANCE U/S 43 B OF THE ACT WAS FOR THE REASON THAT THE ASSESSEE HAD NOT MADE THE PAYMENT O F INTEREST WITHIN THE PRESCRIBED TIME LIMIT AND, THEREFORE, THE CLAIM WAS TO BE ALLOWED ONLY WHEN THE PAYMENT IS ACTUALLY MADE. 34. THE LD. COUNSEL REITERATED THE SUBMISSIONS TAK EN BEFORE THE LD. CIT(A) AND THE LD. CIT DR SUPPORTED THE ORDER OF TH E LD. CIT(A). 35. ON A CAREFUL CONSIDERATION OF THE ISSUE, WE AR E OF THE CONSIDERED OPINION THAT THE PROVISIONS OF SECTION 43B OF THE I NCOME-TAX ACT,1961, SPECIFICALLY PROVIDE THAT THE EXPENDITURE SPECIFIED U/S 43B IS TO BE ALLOWED AS A DEDUCTION ONLY IF IT HAS BEEN PAID BEFORE THE PRESC RIBED TIME LIMIT. THE DISALLOWANCE U/S 36(1)(III) READ WITH SECTION 37 MA DE BY THE ASSESSING OFFICER IS FOR THE AMOUNT, WHICH HE HAS NOT CONSIDERED AS E XPENDITURE ADMISSIBLE TO THE ASSESSEE, BECAUSE THE INTEREST BEARING LOANS OR THE FUNDS OF THE BUSINESS OF THE ASSESSEE HAVE BEEN DIVERTED TO THE SISTER CONCERNS BY WAY OF INTEREST FREE ADVANCES WITHOUT ANY COMMERCIAL EXPEDIENCY. THUS, T HERE IS NO CONFLICT BETWEEN THE PROVISION OF SECTION 43B AND SECTION 36 (1)(III) OF THE ACT, BECAUSE THE CLAIM OF INTEREST TO THE EXTENT ADMISSIBLE IS T O BE ALLOWED TO THE ASSESSEE ON THE BASIS OF ACTUAL PAYMENT. IF THE ENTIRE AMOUNT O F INTEREST NOT PAID WITHIN THE PRESCRIBED PERIOD HAS BEEN ADDED BACK AS THE DISALL OWANCE U/S 43B OF THE INCOME-TAX ACT,1961, THEN THE ENTIRE AMOUNT INCLUDI NG THE INTEREST NOT ALLOWABLE U/S 36(1)(III) OF THE I.T. ACT STANDS ADDED BACK TO THE INCOME OF THE ASSESSEE AND IF THE AMOUNT OF DISALLOWANCE IS AGAIN ADDED, IT WO ULD NO DOUBT GIVE RISE TO DOUBLE ADDITION. THE AO IS, THEREFORE, DIRECTED TO SEPARATELY, WORKOUT AND ADD TO 18 THE INCOME OF THE ASSESSEE THE INTEREST DISALLOWED BY HIM ON ACCOUNT OF DIVERSION OF INTEREST BEARING FUNDS TO THE SISTER C ONCERNS WITHOUT COMMERCIAL EXPEDIENCY. HE SHOULD ALSO SEPARATELY WORK OUT THE EXPENDITURE ON INTEREST LIABLE TO BE ALLOWED TO THE ASSESSEE U/S. 36(1)(III ) OF THE I.T. ACT FOR THE PURPOSE OF ADDING IT BACK TO THE INCOME OF THE ASSESSEE AS PER THE PROVISIONS OF SECTION 43B OF THE INCOME-TAX ACT,1961, WHICH WOULD BE ALLO WED IN THE YEAR OF PAYMENT AS PER PROVISIONS OF SECTION 43B OF THE ACT . THUS, THE TOTAL ADDITION ON ACCOUNT OF DISALLOWANCE U/S.36(1)(III) OF THE I.T. ACT AND THE DISALLOWANCE U/S. 43B OF THE I.T. ACT, SHOULD NOT EXCEED THE TOTAL CL AIM OF EXPENDITURE ON ACCOUNT OF INTEREST MADE BY THE ASSESSEE FOR THE ACCOUNTING PERIOD UNDER CONSIDERATION. THE ALTERNATIVE PLEA OF THE ASSESSEE IS, THEREFORE, ALLOWED AS DISCUSSED ABOVE. THIS GROUND OF APPEAL IS THEREFORE DECIDED ACCORDIN GLY. 36. NEXT GROUND OF APPEAL IS AGAINST CONFIRMATION OF DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS. 47,39,220/-. 37. THE FACTS ARE SIMILAR TO THE FACTS OF THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2003-04. WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2003- 04, WE HAVE SUSTAINED THE DISALLOWANCE AND CONFIRME D THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE. FOLLOWING THE SAME LINE OF ARGUMENTS AND IN VIEW OF THE SIMILARITY OF FACTS AND THE RIVAL SUBMISSIONS, THIS GROUND OF APPEAL OF THE ASSESSEE IS REJECTED. 38. THIRD GROUND OF APPEAL IS AGAINST THE DECISION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 1 LAKH OUT OF TR AVELING, CONVEYANCE AND THE VEHICLE RUNNING AND MAINTENANCE EXPENSES ON ESTIMAT ED BASIS. 39. THE ASSESSEE DURING THE YEAR CLAIMED THE EXPEN DITURE OF RS. 2,68,169/- UNDER THIS HEAD. THE LD.CIT(A) AS PER DI SCUSSION IN PARA 3 AT PAGE 9 19 TO 12 OF HIS ORDER, REJECTED THE PLEA OF THE ASSESS EE THAT AD HOC DISALLOWANCE WAS NOT CALLED FOR IN THE CASE OF THE COMPANY. THE DISA LLOWANCE OF RS. 1 LAKH MADE BY THE ASSESSING OFFICER FOR USE OF VEHICLES FOR NO N-BUSINESS PURPOSE WAS ACCORDINGLY SUSTAINED BY THE LD. CIT(A). 40. THE FACTS OF THE CASE ARE SIMILAR TO THOSE OF ASSESSMENT YEAR 2003- 04 ON THIS ISSUE. FOLLOWING OUR ORDER FOR ASSESSMEN T YEAR 2003-04 AND DETAILED REASONS GIVEN BY THE ASSESSING OFFICER IN HIS IMPUG NED ASSESSMENT ORDER AND THE DECISIONS RELIED UPON, WE SEE NO REASON TO INTE RFERE WITH THE DECISION OF THE LD.CIT(A), WHICH IS CONFIRMED. THIS GROUND OF APPEA L IS REJECTED. 41. THE NEXT GROUND OF APPEAL IS AGAINST THE DISAL LOWANCE OF RS. 15,000/- OUT OF SALES PROMOTION EXPENSES MADE ON AD HOC BASIS. 42. THE AO OBSERVED THAT THE ASSESSEE HAD DEBITED RS. 38,943, WHICH PERTAINED TO VARIOUS ITEMS OF GIFTS AND EXPENDITURE ON ENTERTAINMENT. SINCE IT WAS NOT VERIFIABLE FROM THE RECORDS OF THE ASSESSEE AS TO WHETHER THE EXPENDITURE WAS EXCLUSIVELY INCURRED ON CUSTOMERS,, THE AO MADE ESTIMATED DISALLOWANCE OF RS. 15,000/-. THE ASSESSEE FILED DETAILS OF EXPENDI TURE BEFORE THE LD.CIT(A). HOWEVER, THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER FOR THE REASON THAT THE ASSESSEE FAILED TO PROVE TH AT THE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS ONLY. 43. WE HAVE CONSIDERED THIS ISSUE IN OUR DECISION FOR THE ASSESSMENT YEAR 2003-04. IT IS OBSERVED THAT IN ASSESSMENT YEA R 2003-04, THE ASSESSEE HAD FILED TO GIVE ANY DETAILS WHATSOEVER, BEFORE THE LO WER AUTHORITIES AND ALMOST ENTIRE EXPENDITURE WAS DEBITED ON ACCOUNT OF DELHI OFFICE EXPENSES. HOWEVER, FOR THIS YEAR, THE ASSESSEE HAS GIVEN THE DETAILS O F THE EXPENDITURE, WHICH ARE DISCUSSED AT PARA 4.3 OF THE ASSESSMENT ORDER. IT I S OBSERVED THAT THE EXPENDITURE 20 OF RS.32,400/- WAS INCURRED ON 18 TH FEBRUARY, 2004, FOR BUSINESS PROMOTION ( HOTEL BILL ). SIMILARLY, THE EXPENDITURE OF RS. 5,1 00/- ON 30 TH JUNE, 2004 IS ON ACCOUNT OF MARRIAGE GIFT. IT COULD NOT, HOWEVER, BE ESTABLISHED THAT THE HOTEL EXPENSES AND MARRIAGE GIFTS WERE FOR THE PURPOSE OF BUSINESS. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) IS, THEREFORE SUSTAINED. THIS GROUND OF APPEAL IS ALSO REJECTED. 44. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. I.T.A.NO. 494/IND/2008 A.Y. 2002-03 : 45. THIS APPEAL HAS BEEN FILED AGAINST THE ORDER D ATED 14 TH AUGUST, 2008, OF THE LD.CIT(A). 46. THE FIRST GROUND OF APPEAL IS AGAINST THE DECI SION OF THE LD.CIT(A) IN CONFIRMING THE ACTION OF THE AO IN REOPENING THE ASSESSMENT U/S 147 OF THE INCOME-TAX ACT,1961, BY ISSUING NOTICE U/S 148 OF T HE INCOME-TAX ACT,1961. 47. IT WAS CONTENDED THAT ALL THE NECESSARY DETAIL S WERE FURNISHED WITH THE RETURN OF INCOME AND THE REASSESSMENT ORDER U/S 147 READ WITH SECTION 143(3) OF THE INCOME-TAX ACT,1961, DATED 23 RD NOVEMBER, 2007, THE REASSESSMENT WAS, THEREFORE, MADE IN PURSUANCE OF A N INVALID NOTICE ISSUED U/S 148 OF THE INCOME-TAX ACT,1961, WHICH SHOULD HAVE B EEN DECLARED INVALID, BUT THE LD. CIT(A) HAS FAILED TO GIVE ANY FINDING ON TH E VALIDITY OF THE ASSESSMENT U/S 147 READ WITH SECTION 143 OF THE INCOME-TAX ACT,196 1, AND REJECTED THE GROUND OF THE ASSESSEE TAKEN BEFORE HIM AGAINST REOPENING OF ASSESSMENT SUMMARILY BY OBSERVING THAT THE GROUND WAS GENERAL IN NATURE AN D DID NOT REQUIRE ADJUDICATION. 21 48. DURING THE COURSE OF HEARING OF THE APPEAL, TH E LD. COUNSEL REITERATED THE SUBMISSIONS TAKEN BEFORE THE LOWER AUTHORITIES. THE LD. CIT DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 49. THE LD. CIT DR SUBMITTED THAT THE ASSESSMENT W AS REOPENED FOR DISALLOWING THE INTEREST OF RS.5,66,22,276/- @ 12 % ON THE INTEREST FREE ADVANCES OF RS. 46,68,52,303/- GIVEN TO SISTER CONC ERNS, THAT THE ASSESSMENT HAD NOT BEEN FINALIZED U/S 143(3) OF THE INCOME-TAX ACT ,1961, IN THE CASE OF THE ASSESSEE AND THE RETURN FILED ON 31 ST OCTOBER, 2002, DECLARING LOSS OF RS.31,36,47,755/- FOR ASSESSMENT YEAR 2002-03 HAS B EEN PROCESSED U/S 143(1)(A) OF THE INCOME-TAX ACT,1961, ON 10 TH MARCH 2003 AND THE AO WAS JUSTIFIED IN REOPENING THE ASSESSMENT IN VIEW OF THE FINDINGS GI VEN IN THE ASSESSMENT FOR ASSESSMENT YEAR 2003-04, WHEREIN HE HAS DISALLOWED THE SIMILAR INTEREST ON ACCOUNT OF INTEREST FREE LOANS GIVEN TO SISTER CONC ERNS. 50. WE HAVE CAREFULLY CONSIDERED THE ISSUE, IN VIE W OF THE ORDERS OF THE AUTHORITIES BELOW, MATERIALS PLACED ON RECORD AND R IVAL SUBMISSIONS. AS RIGHTLY POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, TH E LD. CIT(A) HAS NOT DEALT WITH THE GROUND OF APPEAL TAKEN BEFORE HIM BY THE ASSESS EE AGAINST THE REOPENING OF ASSESSMENT U/S 147 OF THE INCOME-TAX ACT,1961. IT I S ALSO CORRECT THAT THE ISSUE GOES TO THE VERY ROOT OF THE MATTER AND THE LD. CIT (A) SHOULD HAVE FIRST ADJUDICATED THE GROUND TAKEN BY THE ASSESSEE ON THI S ISSUE. HOWEVER, THE GROUND, IN OUR CONSIDERED OPINION, IS IN THE NATURE OF LEGA L SUBMISSION, WHICH DOES NOT REQUIRE ANY VERIFICATION OF FACTS AND, THEREFORE, W E CONSIDER IT PROPER TO DECIDE THE ISSUE AT OUR STAGE INSTEAD OF RESTORING THIS IS SUE TO THE FILE OF THE LD. CIT(A). 51. IT IS SEEN THAT THE AO ISSUED NOTICE U/S 148 O F THE INCOME-TAX ACT,1961, AND FINALIZED THE ASSESSMENT U/S 143(3) R EAD WITH SECTION 147 OF THE 22 INCOME-TAX ACT,1961, AS PER ORDER DATED 23 RD NOVEMBER, 2007, DISALLOWING THE INTEREST OF RS. 5,66,22,276/- ON ACCOUNT OF INTERES T FREE LOANS AND ADVANCES GIVEN TO GROUP CONCERNS. THERE IS NO DISPUTE THAT THE RET URN FILED BY THE ASSESSEE ON 31 ST OCTOBER, 2002, HAD BEEN PROCESSED U/S 143(1)(A) OF THE INCOME-TAX ACT,1961, ON 10 TH MARCH,2003 AND THE AO HAS NOT TAKEN UP ASSESSMENT U/S 143(3) OF THE INCOME-TAX ACT,1961. THE AO, THEREFOR E, DID NOT HAVE ANY OCCASION TO APPLY HIS MIND TO THE INFORMATION CONTA INED IN THE DOCUMENTS, COPIES OF THE RELEVANT ACCOUNTS AND OTHER DETAILS F ILED WITH THE RETURN OF INCOME. ADMITTEDLY, THE AO HAD DISALLOWED THE INTEREST ON S IMILAR FACTS, WHILE FINALIZING THE ASSESSMENT U/S 143(3) OF THE INCOME-TAX ACT,196 1, FOR ASSESSMENT YEAR 2003-04 IN THE CASE OF THE ASSESSEE AND SIMILAR DIS ALLOWANCES WERE ALSO MADE FOR SUBSEQUENT ASSESSMENT YEARS I.E. ASSESSMENT YEA R 2004-05 AND 2005-06. THE ACTION OF THE AO HAS BEEN UPHELD BY THE LD. CIT(A). WE HAVE ALSO CONFIRMED THE DISALLOWANCES MADE BY THE ASSESSING OFFICER AND UPH ELD THE ORDER OF THE LD. CIT(A) AS PER OUR ORDER IN ASSESSMENT YEAR 2003-04 IN THE CASE OF THE ASSESSEE, AS PER DISCUSSION IN THE FOREGOING PARAGRAPHS. THUS , IT CANNOT BE SAID THAT THERE WAS ONLY A CHANGE OF OPINION ON THE PART OF THE AO OR THE VIEW TAKEN BY THE ASSESSING OFFICER WAS NOT LEGALLY CORRECT. THE A.O. IN OUR CONSIDERED OPINION HAD REASON TO BELIEVE THAT THE INCOME OF THE ASSESS EE FOR THE ASSESSMENT YEAR 2002-03 HAD ESCAPED ASSESSMENT WITHIN THE SCOPE AND MEANING OF SECTION 147 OF THE I.T. ACT. THE HONBLE APEX COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS P. LTD. (2007) 291 ITR 500(SC) HAS HE LD THAT THERE BEING NO ASSESSMENT U/S.143(1)(A) OF THE I.T. ACT, THE QUEST ION OF CHANGE OF OPINION DOES NOT ARISE. THE ISSUE HAS, THUS, BEEN SETTLED AND SI NCE THE RETURN HAS BEEN PROCESSED U/S 143(1)(A) OF THE INCOME-TAX ACT,1961, AND THE AO HAS NOT 23 FINALIZED THE ASSESSMENT U/S 143(3) OF THE INCOME-T AX ACT,196., THE ACTION U/S 147, CANNOT BE CHALLENGED ONLY FOR THE REASON THAT THE RELEVANT DETAILS WERE ENCLOSED WITH THE RETURN OF INCOME AND THERE WAS NO FRESH INFORMATION IN POSSESSION OF THE AO. WE, THEREFORE, UPHOLD THE ASS ESSMENT ORDER U/S 143(3) READ WITH SECTION 147 OF THE INCOME-TAX ACT, 1961, DATED 23 RD NOVEMBER,2007. THIS GROUND OF APPEAL IS DISMISSED. 52. GROUND NO.2 OF APPEAL IS AGAINST THE ACTION OF THE LD.CIT(A) IN CONFIRMING THE ADDITION OF RS. 5,66,22,276/- MADE B Y THE ASSESSING OFFICER. 53. IT IS CONTENDED THAT THE AO HAS CHARGED NOTION AL INTEREST ON INTEREST FREE ADVANCES BY ALLEGING THAT THERE WAS NO REASON NOT TO CHARGE INTEREST AT THE SAME RATE ON THE INTEREST FREE LOANS ADVANCED BY TH E ASSESSEE. IT HAS ALSO BEEN CONTENDED THAT THERE WAS NO PROVISION IN THE INCOME -TAX ACT,1961, ENABLING THE AO TO CHARGE NOTIONAL INTEREST ON INTEREST FREE ADV ANCES, THAT THE NOTIONAL INTEREST WAS, THEREFORE, WRONGLY CHARGED BY THE ASS ESSING OFFICER AND THE ADDITION FOR THAT REASON MADE TO THE INCOME OF THE ASSESSEE SHOULD BE DELETED. 54. IT IS SEEN ON PERUSAL OF THE ASSESSMENT ORDER T HAT THE AO HAS OBSERVED THAT THE ASSESSEE PAID INTEREST @ 12 % AND THERE WAS NO REASON NOT TO CHARGE INTEREST AT THE SAME RATE ON THE INTEREST FREE LOAN OF RS.5, 66,22,276/- GIVEN TO THE GROUP CONCERNS, BUT THE AO HAS FURTHER OBSERVED THAT BUT FOR THE INTEREST FREE LOANS AND ADVANCES TO SISTER CONCERNS, THE LIABILITY OF THE A SSESSEE FOR PAYMENT OF INTEREST TO THAT EXTENT WOULD HAVE REDUCED. THE INTEREST OF RS.46,68,52,303/- WAS DISALLOWED BY THE ASSESSING OFFICER OUT OF THE CLAI M OF THE ASSESSEE FOR EXPENDITURE ON ACCOUNT OF INTEREST. IT CANNOT, THER EFORE, BE SAID THAT THE AO HAS CHARGED NOTIONAL INTEREST ON THE ADVANCES, BECAUSE THE AO HAS, IN FACT, DISALLOWED THE EXPENDITURE ON ACCOUNT OF INTEREST, FOR THE REASON THAT THE 24 ASSESSEE HAD DIVERTED THE INTEREST BEARING FUNDS TO THE SISTER CONCERNS WITHOUT CHARGING ANY INTEREST THEREON AND WITHOUT ANY COMME RCIAL EXPEDIENCY. 55. THE LD. CIT(A) UPHELD THE ACTION OF THE AO FOL LOWING HIS ORDER DATED 2 ND MAY, 2008, IN ASSESSMENT YEAR 2004-05. THE SUBMISS IONS OF THE ASSESSEE HAVE BEEN DULY TAKEN INTO CONSIDERATION BY US IN DECIDING THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2003-04. THE FACTS OF THE CASE, THE RIVAL SUBMISSIONS AND THE CASE LAWS RELIED UPON BY BOTH T HE SIDES ARE ALSO ON SIMILAR LINES AND, THEREFORE, FOLLOWING OUR ORDER FOR A.YR. 2003-04, WE SEE NO REASON TO INTERFERE WITH THE DECISION OF THE LOWER AUTHORITIE S. 56. THE ALTERNATE PLEA OF THE ASSESSEE IS THAT THE INTEREST AS DISCUSSED ABOVE CANNOT BE DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE BECAUSE THE ENTIRE CLAIM ON ACCOUNT OF INTEREST PAYABLE DURING THE RELEVANT ACCOUNTING PERIOD HAS NOT BEEN ALLOWED AS DEDUCTION IN VIEW OF THE PR OVISION OF SECTION 43B OF THE INCOME-TAX ACT, 1961. IT IS CONTENDED THAT SINCE TH E ENTIRE AMOUNT OF INTEREST OF RS.39.19 CRORES HAS BEEN ADDED BACK TO THE INCOME O F THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR AND THE CLAIM HAS BEEN REJ ECTED BY THE LD. CIT(A), THE FURTHER ADDITION ON ACCOUNT OF DISALLOWANCE OF INTE REST PAYABLE ON THE AMOUNT DIVERTED TO SISTER CONCERNS AS INTEREST FREE LOANS AND ADVANCES WOULD RESULT IN DOUBLE ADDITION, WHICH SHOULD NOT BE PERMITTED. 57. THE LD. CIT(A) HAS HELD THAT THE PLEA OF THE A SSESSEE WAS NOT TENABLE BECAUSE THE EXPENDITURE ON INTEREST DISALLO WED U/S 43B OF THE INCOME- TAX ACT,1961 WAS TO BE ALLOWED IN THE YEAR OF PAYME NT. 58. WE HAVE ALREADY DECIDED THIS ISSUE WHILE DECID ING THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2004-05. FOLLOWING OUR ORDER FOR ASSESSMENT YEAR 2004-05, WE DIRECT THE AO TO TAKE ACTION AS PER OUR DIRECTIONS GIVEN IN 25 ASSESSMENT YEAR 2004-05. THIS GROUND OF APPEAL IS A CCORDINGLY DECIDED AS PER DISCUSSION IN OUR ORDER FOR A.YR. 2004-05. 59. THE APPEAL IS PARTLY ALLOWED. I.T.A.NO. 349/IND/2009 A. Y. 2005-06 : 60. THIS APPEAL HAS BEEN FILED AGAINST THE ORDER D ATED 16 TH MARCH, 2009, OF THE LD.CIT(A). 61. THE ASSESSEE FILED RETURN OF INCOME ON 31 ST OCTOBER, 2005, DECLARING LOSS OF RS. 19,30,73,905/-. THE AO FINALIZED THE AS SESSMENT AT A LOSS OF RS. 13,16,16,130/- AS PER ASSESSMENT ORDER DATED 19TH D ECEMBER, 2007, U/S 143(3) OF THE INCOME-TAX ACT,1961. THE LD.CIT(A) AS PER TH E IMPUGNED ORDER DATED 16 TH MARCH, 2009, DISMISSED THE APPEAL OF THE ASSESSEE. HENCE, THIS APPEAL. 62. THE FIRST GROUND OF APPEAL IS AGAINST DISALLOW ANCE OF RS.34,202/- CONFIRMED BY THE LD. CIT(A) OUT OF PRELIMINARY EXP ENSES OF RS.1,71,279/-. THE ASSESSEE HAD CLAIMED PRELIMINARY EXPENSES OF RS.1,7 1,279/-. THE TOTAL EXPENSES UNDER THIS HEAD WERE RS.6,85,087/- ONLY, 1/5 TH OF WHICH WAS ADMISSIBLE AS PER THE PROVISIONS OF THE ACT AND THE EXCESS CLAIM OF R S.34,262/- WAS DISALLOWED BY THE ASSESSING OFFICER. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO. AS PER PROVISIONS OF SECTION 35-D OF THE INCOME-TAX ACT, 1 961, ONLY 1/5 TH PRELIMINARY EXPENSES IS TO BE ALLOWED FOR FIVE SUCCESSIVE YEARS . SINCE THE AO HAS ALREADY ALLOWED 1/5 TH EXPENDITURE, WE SEE NO REASON TO INTERFERE WITH TH E DECISION OF THE LOWER AUTHORITIES. THIS GROUND OF APPEAL IS REJECTE D. 63. THE NEXT GROUND OF APPEAL IS AGAINST DISALLOWA NCE OF INTEREST OF RS.14,39,191/-. 26 64. IT HAS BEEN CONTENDED THAT FOR DISALLOWANCE OF ANY INTEREST, THE NEXUS HAS TO BE PROVED BY THE DEPARTMENT, WHICH WAS NOT DONE IN THIS CASE AND THE DISALLOWANCE WAS, THEREFORE, WRONG. 65. THE AO OBSERVED THAT THE ASSESSEE HAD ADVANCED INTEREST FREE LOAN OF RS.46.923 CRORES. THE LOANS ARE CLAIMED TO HAVE BEEN RECEIVED BY THE ASSESSEE ON 14 TH MARCH, 2005. THE AO FURTHER OBSERVED THAT THE ASSE SSEE HAD OBTAINED A TERM LOAN OF RS. 83.82 CRORES AND RS. 77.02 CRORES FROM STATE BANK OF INDIA AND RS. 7.10 LAKHS FROM SARASWAT COOP. BANK. THE ASSESS EE HAS ALSO TAKEN WORKING CAPITAL LOAN OF RS. 42.72 CRORES. THE TOTAL INTERES T PAID ON THESE LOANS @ 13.5 % PER ANNUM WAS CLAIMED AS EXPENDITURE. THE AO DISALL OWED THE INTEREST OF RS. 6,07,15,687/- ON ACCOUNT OF INTEREST @ 13.5 % PER A NNUM ON THE INTEREST FREE ADVANCES AND LOANS OF RS. 46.93 CRORES FOR 11-1/2 M ONTHS I.E. FROM 1.4.2004 TO 14.3.2005. 66. THE LD.CIT(A) CONFIRMED THE ACTION OF THE AO F OLLOWING HIS DECISION FOR ASSESSMENT YEAR 2004-05 AS PER HIS ORD ER DATED 2 ND MAY, 2008. HE, HOWEVER, DIRECTED THAT THE AO SHOULD VERIFY THE CLA IM OF THE ASSESSEE THAT THE ASSESSEE HAD MADE TOTAL PAYMENT OF INTEREST OF RS.1 4,39,191/-. HE, THEREFORE, DIRECTED THE AO TO ACCORDINGLY RESTRICT THE DISALLO WANCE OF INTEREST CLAIMED ON THE BORROWED FUNDS. 67. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSE SSEE, THE FACTS OF THE CASE AND THE SUBMISSION OF THE LD. CIT DR ARE ON SI MILAR LINES AS THAT OF ASSESSMENT YEAR 2003-04 AND 2004-05. THE REVENUE HA S NOT COME IN APPEAL AGAINST THE DECISION OF THE LD. CIT(A) . THEREFORE, FOLLOWING OUR DECISION FOR ASSESSMENT YEARS 2003-04 AND 2004-05, WE SEE NO REA SON TO INTERFERE WITH THE DECISION OF THE LD.CIT(A). THIS GROUND OF APPEAL IS REJECTED. 27 68. THE THIRD GROUND OF APPEAL IS AGAINST DISALLOW ANCE OF RS. 16,220/- OUT OF INTEREST EXPENSES FOR THE REASON THAT THE EX PENDITURE WAS PENAL IN NATURE. 69. THE LD. COUNSEL SUBMITTED THAT THE INTEREST WA S PAID FOR DELAYED PAYMENT OF DUES AND THERE WAS NO INFRACTION OF ANY STATUTORY PROVISIONS. IT IS SEEN FROM PARA 4 OF THE ASSESSMENT ORDER THAT THE A O HAS STATED THAT THE INTEREST PAYMENT OF RS. 16,220/- WAS PENAL IN NATURE. THE LD .CIT(A) REJECTED THE SUBMISSION OF THE ASSESSEE THAT THE INTEREST PAYMEN T WAS COMPENSATORY IN NATURE AND HENCE ALLOWABLE AS BUSINESS EXPENDITURE. THE DE TAILS OF PAYMENT TO INSURANCE, PROVIDENT FUND AUTHORITIES AND EXCISE DU TY HAVE NOT BEEN FILED. IT IS NOT POSSIBLE TO ACCEPT THE STATEMENT OF THE LD. COU NSEL OF THE ASSESSEE THAT THE INTEREST WAS COMPENSATORY IN NATURE. IN ABSENCE OF DETAILS, IT IS ALSO NOT POSSIBLE TO ASCERTAIN AS TO HOW MUCH INTEREST IS COMPENSATIO N FOR WITHHOLDING THE DUES AND HOW MUCH AMOUNT WAS PAID AS STATUTORY PENALTY. THE ISSUE IS, THEREFORE, RESTORED TO THE A.O. WITH THE DIRECTION THAT HE SHO ULD DECIDE THIS ISSUE AFRESH AFTER EXAMINING THE RELEVANT ORDERS AND GIVING PROP ER OPPORTUNITY TO THE ASSESSEE. THIS GROUND OF APPEAL OF THE ASSESSEE IS, THEREFORE, ALLOWED FOR STATISTICAL PURPOSES. 70. THE NEXT GROUND OF APPEAL IS AGAINST DISALLOWA NCE OF RS.3,91,610/- OUT OF PRIOR PERIOD EXPENSES. 71. THE ISSUE HAS BEEN DISCUSSED IN DETAIL IN OUR ORDER FOR ASSESSMENT YEAR 2003-04. BOTH THE SIDES AGREED THAT THE FACTS ARE SIMILAR TO THOSE FOR A.YR. 2003-04. THEREFORE, FOLLOWING OUR DECISION FOR A.YR . 2003-04, WE SUSTAIN THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRME D BY THE LD. CIT(A). THIS GROUND OF APPEAL IS REJECTED. 72. THE NEXT GROUND OF APPEAL IS AGAINST DISALLOWA NCE OF RS.2 LAKHS. 28 73. THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS.85, 08,987/- ON CONVEYANCE, VEHICLE RUNNING AND MAINTENANCE EXPENSE S. IN ABSENCE OF EVIDENCE TO PROVE THAT THE EXPENDITURE WAS INCURRED EXCLUSIV ELY FOR THE PURPOSE OF BUSINESS, THE AO MADE THE DISALLOWANCE OF RS. 2 LAK HS, WHICH WAS CONFIRMED BY THE LD. CIT(A). THE ISSUE HAS BEEN DISCUSSED IN DET AIL AT PARA 5 AT PAGES 10 TO 14 OF THE ASSESSMENT ORDER. THE LD.CIT(A) OBSERVED THA T THE AO IN EARLIER YEARS HAD DISALLOWED THE EXPENDITURE OF RS. 1 LAKH FOR PERSON AL USE OF VEHICLES AND THIS YEAR HE HAS DISALLOWED RS. 2 LAKHS OUT OF EXPENDITU RE OF RS. 85,08,987/-. THE LD.CIT(A) CONFIRMED THE ADDITION IN VIEW OF THE DIS CUSSION IN PARA 5 OF HIS ORDER. 74. THE FACTS OF THE CASE ARE SIMILAR TO THOSE IN EARLIER YEARS. THE DISALLOWANCE OF RS. 1 LAKH HAS BEEN CONFIRMED BY US IN EARLIER YEARS. THERE IS NO SUBSTANTIAL INCREASE IN THE CLAIM MADE BY THE ASSES SEE AND THE AO HAS NOT GIVEN REASONS TO JUSTIFY THE DISALLOWANCE OF RS. 2 LAKHS. HOWEVER, LOOKING TO THE FACTS THAT IN ABSENCE OF DETAILS FOR USE OF VEHICLES, IT CANNOT BE SAID THAT THE EXPENDITURE IS WHOLLY FOR THE PURPOSE OF BUSINESS A ND THERE IS NO ELEMENT OF PERSONAL OR NON-BUSINESS USE. THE DISALLOWANCE IS, THEREFORE, RESTRICTED TO RS.1 LAKH. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 75. NEXT GROUND OF APPEAL IS AGAINST DISALLOWANCE OF RS. 10,000/- OUT OF TOTAL CLAIM OF RS. 60,000/- UNDER THE HEAD SALE S PROMOTION EXPENSES. 76. NEITHER THE ASSESSEE HAS FILED ANY DETAILS NOR THE AO HAS GIVEN ANY BASIS FOR MAKING THE DISALLOWANCE. FOLLOWING HIS OR DERS IN EARLIER YEARS, THE LD. CIT(A) HAS ALSO CONFIRMED THE ACTION OF THE A.O. LO OKING TO THE SMALLNESS OF THIS ADDITION, WE CONSIDER IT FAIR AND REASONABLE T O DELETE THE AD HOC ADDITION. THIS GROUND OF APPEAL IS ALSO ALLOWED. 29 77. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. 78. IN VIEW OF THE FOREGOING DISCUSSION, THE APPEA L IN I.T.A.NO.104/IND/2008 FOR ASSESSMENT YEAR 2003-04 I S DISMISSED AND APPEALS IN (I) I.T.A. NO.385/IND/2008 FOR ASSESSMENT YEAR 2004 -05, (II) I.T.A.NO.494/IND/2008 FOR ASSESSMENT YEAR 2002-03 A ND (III) I.T.A.NO.349/IND/2009 FOR THE ASSESSMENT YEAR 2005- 06 ARE PARTLY ALLOWED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 6 TH SEPTEMBER, 2010. SD/- SD/- (JOGINDER SINGH) (B.R.KAUSHIK) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 6 TH SEPTEMBER, 2010. CPU* COPY FORWARDED TO THE: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR. ASSISTANT REGISTRAR