Asst. Commissioner of Income Tax, Circle-1, Nellore V. M/s. Esveeaar Distilleries Pvt.Ltd., Nellore

ITA 1040/HYD/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8985 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: A V RAGHURAM
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 1040/HYD/2012 ASSESSMENT YEAR: 2009-10 ASST. COMMISSIONER OF INCOME TAX, CIRCLE-I, NELLORE VS M/S. ESVEEAAR DISTILLERS PVT. LIMITED, MAGUNTA LAYOUT, NELLORE [PAN: AABCE 5784 F] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI RAJAT MITRA, DR FOR ASSESSEE : SHRI A.V.RAGHU RAM, AR DATE OF HEARING : 06-01-2015 DATE OF PRONOUNCEMENT : 28-01-2015 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, J.M. : THE APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-GUNTUR DATED 0 7-05-2012. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E-COMPANY IS ENGAGED IN MANUFACTURE OF INDIAN MADE FOREIGN LIQUO R. IT FILED THE E- RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2009- 10 ON 19-09-2010, ADMITTING TOTAL INCOME OF RS.5,11,99,970/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO E XPLAIN AS TO WHY THE INTEREST ATTRIBUTABLE TO THE LOAN FROM ICICI BA NK SHOULD NOT BE DIS- ALLOWED AS THE SAME HAS NOT BEEN PUT TO BUSINESS US E. THE ASSESSEE VIDE LETTER DT.21-12-2011 SUBMITTED THAT THE LOAN F ROM ICICI BANK HAS BEEN FULLY UTILIZED FOR THE BUSINESS PURPOSES OF TH E ASSESSEE AND THAT NO PART OF THE LOAN WAS DIVERTED FOR NON-BUSINESS PURP OSES. IT IS SEEN FROM THE ASSESSMENT ORDER THAT PRAYAG ENTERPRISES LTD., IS RENDERING SERVICES I.T.A. NO. 1040/HYD/2012 M/S. ESVEEAAR DISTILLIERS PVT. LIMITED :- 2 -: AS DELCREDERE AGENT TO THE ASSESSEE FOR A LONG TIME AND IT IS ALSO RENDERING SIMILAR SERVICES TO OTHER DISTILLERIES BO TTLING THE BRANDS OF UB GROUP IN THE STATE OF ANDHRA PRADESH. DURING THE Y EAR UNDER CONSIDERATION, THE ASSESSEE HAS PAID AN AMOUNT OF R S.2,43,12,028/- TO PRAYAG ENTERPRISES LTD., AS DELCREDERE COMMISSION A ND THEREFORE, THE ASSESSING OFFICER OPINED THAT THE TRADE ADVANCE OF RS.43.60 CRORES CANNOT BE SAID TO HAVE ANY CONNECTION TO THE EXISTI NG BUSINESS RELATIONSHIP WITH THE ASSESSEE AND THE ASSESSING OF FICER STATED THAT IT IS DIFFICULT TO BELIEVE EXISTENCE OF BUSINESS PRUDENCY ESPECIALLY WHEN HUGE AMOUNT OF RS.43.60 CRORES OF INTEREST BEARING BORRO WED FUNDS ARE GIVEN AS INTEREST FREE TRADE ADVANCE. 3. BEFORE THE CIT (A), IT WAS SUBMITTED BY THE ASSE SSEE AS FOLLOWS: TRADE ADVANCE OF RS.43.60 CRORES TO M/S.PRAYAG ENTERPRISES LIMITED: M/S.PRAYAG ENTERPRISES P. LTD ., IS THE DELCREDORE AGENT FOR THE ASSESSEE AND OTHER DISTILL ERIES IN ANDHRA PRADESH BOTTLING THE BRANDS OF UNITED SPIRIT S LIMITED (USL). THIS ADVANCE HAD BEEN GIVEN TO ENAB LE M/S.PRAYAG ENTERPRISES LTD., TO STRENGTHEN ITS MARK ETING AND DISTRIBUTION NET WORK IN THE STATE OF ANDHRA PR ADESH AND ALSO TO SCOUT FOR ACQUISITION OF DISTILLERIES I N THE NAME OF THE ASSESSEE. IN VIEW OF THE FACT THAT THE ASSE SSEE ALREADY HAS BUSINESS RELATIONSHIP WITH M/S.PRAYAG A ND ALSO DUE TO THE CLOSE PROXIMITY OF M/S.PRAYAG TO TH E USL TOP BRASS (THE ASSESSEE'S PRINCIPLES) IT IS SUBMITT ED THAT THE ADVANCE OF RS.43.60 CRORES TO M/S.PRAYAG HAS BEEN M ADE ONLY DURING THE COURSE OF ASSESSEE'S BUSINESS AND I S OUT OF COMMERCIAL EXPEDIENCY . 4. IT WAS FURTHER SUBMITTED AS UNDER: A) THE APPELLANT'S BUSINESS RELATIONSHIP WITH PRAYAG COMMENCED SINCE APRIL 1, 2003 WHEN M/S.PRAYAG ENTERPRISES P. LTD., WAS APPOINTED AS THE APPELLANT 'S SALE PROMOTION AGENT/REPRESENTATIVE THROUGHOUT THE STATE OF ANDHRA PRADESH FOR THE SALE OF IML PRODUCTS OF UB G ROUP OF COMPANIES, MANUFACTURED BY THE APPELLANT. AT THAT TIME, THE APPELLANT WAS A PARTNERSHIP FIRM AND LATER ON CONVE RTED INTO A LIMITED COMPANY. B) THIS RELATIONSHIP HAS BEEN CONTINUED THROUGH THE AG REEMENTS DATED OCT 28, 2004, APRIL 1, 2006, APRIL 1, 2009 AN D APRIL 1, 2010 AND IS CONTINUING AS ON DATE. COPIES OF THESE AGREEMENTS ARE ENCLOSED FOR KIND CONSIDERATION. DU RING THIS PERIOD, THE BUSINESS RELATIONSHIP OF THE APPELLANT WITH M/S.PRAYAG HAS BEEN VERY EXTENSIVE BOTH IN VOLUME A ND I.T.A. NO. 1040/HYD/2012 M/S. ESVEEAAR DISTILLIERS PVT. LIMITED :- 3 -: VALUE. LEDGER EXTRACTS OF THE ACCOUNT OF PRAYAG IN THE BOOKS OF THE APPELLANT ARE ENCLOSED IN SUPPORT OF T HE SUBMISSION. C) PRAYAG HAS VERY EFFICIENT AND VAST MARKETING NETWOR K IN THE STATE OF A.P. AND THEREFORE MANY IML MANUFACTUR ERS IN THE STATE OF AP INCLUDING THE UB GROUP OF COMPANIES ENGAGED THEIR SERVICES FOR MARKETING THEIR PRODUCTS. RELEV ANT COPIES OF THE P&L A/C OF PRAYAG SINCE THE FINANCIAL YEAR 2 002-03 ARE ENCLOSED IN SUPPORT OF THE SUBMISSION. BY VIRT UE OF SUCH LONG ASSOCIATION, PRAYAG HAD ATTAINED CONSIDERABLE CLOUT AND INFLUENCE AMONG THE IML MANUFACTURERS IN THE ST ATE OF AP INCLUDING THE UB GROUP OF COMPANIES. D) THE APPELLANT INTENDED TO STRENGTHEN ITS MARKET REA CH AND ALSO ENHANCE ITS MANUFACTURING CAPACITY. WITH THES E OBSERVATIONS, THE APPELLANT APPROACHED ICICI BANK F OR A TERM LOAN AND THE BANK, VIDE THEIR CREDIT AGREEMENT LETTER DT. MARCH 26, 2008 SANCTIONED A TERM LOAN OF RS.130 .00 CRORES TO THE APPELLANT FOR THE PURPOSES STATED THE REIN. E) AS PER THE TERMS OF THE SANCTIONED LOAN, THE APPELL ANT APPLIED THE FUNDS; RS.57.42 CRORES WAS PAID TO M/S.PEARL DISTILLERIES LTD., RS.22.00 CRORES WAS PAID TO M/S.DIADEM ENTERPRISES P. LTD., AND RS.43.60 CRORES WAS PAID TO M/S.PRAYAG ENTERPRISES P. LTD., F) THE APPELLANT INTENDED TO STRENGTHEN ITS MARKET REA CH AND ENHANCE ITS MANUFACTURING CAPACITY BY ACQUIRING MOR E DISTILLERIES AND APPROACHED PRAYAG WITH A MANDATE T O LOOK FOR ACQUISITIONS FOR ITS. PRAYAG AGREED TO UNDERTA KE THE ASSIGNMENT PROVIDED IT IS GIVEN CERTAIN AMOUNT AS A DVANCE WHICH COULD BE USED IMMEDIATELY IF AN ATTRACTIVE OP PORTUNITY ARISES. G) THE ASSESSING OFFICER ACCEPTED THE APPELLANT'S SUBM ISSION THAT THE ADVANCES TO M/S.PEARL DISTILLERIES P. LTD. , AND M/S.DIADEM ENTERPRISES P. LTD., WERE MADE DURING TH E COURSE OF AND FOR THE PURPOSE OF THE APPELLANT'S BU SINESS. AS PER SECTION 36(1)(III) OF THE INCOME TAX ACT, 'T HE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR TH E PURPOSE OF BUSINESS OR PROFESSION' HAS TO BE ALLOWED AS DEDUCT ION. IN THE PRECEDING PARAGRAPH THE APPELLANT HAS UNAMBIGUOUSLY DEMONSTRATED AS TO HOW THE AMOUNT PAID TO PRAYAG IS RELEVANT FOR ITS BUSINESS. THE DECISION OF THE HON'BLE SUPREME COURT IN S.A.BU ILDERS VS. CIT(A) [288 ITR 1] PERFECTLY FITS TO THE FACTS OF T HE APPELLANT'S CASE. 5. THE CIT (A) HELD AS UNDER: I.T.A. NO. 1040/HYD/2012 M/S. ESVEEAAR DISTILLIERS PVT. LIMITED :- 4 -: I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPE LLANT, GONE THROUGH THE ORDER OF THE ASSESSING OFFICER AND ALSO CITATION RELIED ON BY THE APPELLANT. IT IS SEEN FROM THE RE CORDS THAT THE APPELLANT-COMPANY IS ENGAGED IN MANUFACTURE OF INDI AN MADE LIQUOR. IT IS ALSO SEEN FROM THE RECORDS THAT PRAY AG ENTERPRISES LTD., HAS BEEN RENDERING SERVICES TO THE APPELLANT AS DELCREDERE AGENT FOR A LONG TIME FOR WHICH COMMISSION HAS BEEN PAID YEAR AFTER YEAR, ON WHICH THERE IS NO DISPUTE. IT IS AL SO IMPORTANT TO NOTE HERE THAT PRAYAG HAS VERY EFFICIENT AND VAST M ARKETING NETWORK IN THE STATE OF AP AND THEREFORE MANY IML MANUFACTURERS IN THE STATE OF AP INCLUDING THE UB G ROUP OF COMPANIES ENGAGED THEIR SERVICES FOR MARKETING THEI R PRODUCTS. AT THIS POINT OF TIME THE APPELLANT INTENDED TO STR ENGTHEN ITS MARKET REACH AND ENHANCE ITS MANUFACTURING CAPACITY BY ACQUIRING MORE DISTILLERIES AND APPROACHED PRAYAG W ITH A MANDATE TO LOOK FOR ACQUISITIONS FOR IT. PRAYAG AG REED TO UNDERTAKE THE ASSIGNMENT PROVIDED IT IS GIVEN CERTA IN AMOUNT AS ADVANCE WHICH COULD BE USED IMMEDIATELY IF AN ATTRA CTIVE OPPORTUNITY ARISES. PRECISELY, THIS IS THE STAGE W HERE THE APPELLANT HAS APPROACHED ICICI BANK FOR A TERM LOAN AND THE BANK SANCTIONED TERM LOAN OF RS.130.00 CRORES TO TH E APPELLANT FOR THE PURPOSES STATED THERE IN. THESE FUNDS WERE ADVANCED TO THREE PARTIES FOR THE PURPOSE FOR WHICH THE LOAN HA S BEEN OBTAINED, LIKE RS.57.42 CRORES WAS PAID TO M/S.PEAR L DISTILLERIES LTD; RS.22.00 CRORES WAS PAID TO M/S DIADEM ENTERPR ISES P. LTD. NOW AT THE END OF THE FINANCIAL YEAR 2008-09, THE A PPELLANT HAS PAID INTEREST TO ICICI BANK, ON WHICH ALSO THERE IS NO DISPUTE. NOW, THE ASSESSING OFFICER HAS DIES-ALLOWED PROPORT IONATE INTEREST IN AS MUCH AS THE ADVANCE GIVEN TO PRAYAG IS CONCERNED BY OBSERVING THAT INTEREST BEARING BORROW ED FUNDS HAVE BEEN GIVEN AS INTEREST FREE TRADE ADVANCE AND THAT THERE IS NO BUSINESS PRUDENCE. IT IS ALSO OBSERVED BY THE A SSESSING OFFICER THAT THE APPELLANT HAS FAILED TO PRODUCE AN Y EVIDENCE THAT PRAYAG HAS RENDERED ANY OF THE SERVICES DURING THE YEAR FOR WHICH HUGE ADVANCE HAS BEEN GIVEN, WHICH IS PRO TESTED BY THE APPELLANT. GIVEN THE FACTS, CIRCUMSTANCES AND THE JUDICIAL OPI NION, THE APPELLANT SHOULD SUCCEED. THERE IS NO DISPUTE THAT PRAYAG IS AN EXPERT IN MARKETING OF THE APPELLANT'S PRODUCT. APPELLANT AND THE PRAYAG ARE HAVING LONG RELATIONSHIP AS BUSINESS PARTNERS. THE APPELLANT WANTED TO EXPAND ITS MARKET REACH INC LUDING ACQUISITIONS, FOR WHICH PRAYAG HAS READILY ACCEPTED WITH A CONDITION THAT IT NEEDED THE ADVANCE FOR THE JOB. FROM THE TERM LOAN OBTAINED, THE ADVANCE WAS PAID, ON WHICH ALSO THERE IS NO DISPUTE. NOW PROBABLY, THE ASSESSING OFFICER WANTE D TANGIBLE EVIDENCE TO BE SHOWN TO HIM FOR THE SERVICES RENDER ED BY PRAYAG, WHICH COULD NOT BE PRESENTED BEFORE THE ASS ESSING OFFICER IN THE SHAPE THAT MIGHT HAVE IMPRESSED HIM. NONETHELESS, IT IS A FACT THAT PRAYAG HAS BEEN HELP ING THE APPELLANT IN MARKETING ITS PRODUCTS FOR THE LAST MA NY YEARS. NOW, IN AS MUCH AS THE NEW JOB GIVEN TO PRAYAG BY T HE APPELLANT IS CONCERNED ALSO, THERE IS NO DISPUTE. THERE IS ALSO NO DISPUTE THAT PART OF THE TERM LOAN HAS BEEN GIVEN T O PRAYAG FOR I.T.A. NO. 1040/HYD/2012 M/S. ESVEEAAR DISTILLIERS PVT. LIMITED :- 5 -: THE NEW JOB ASSIGNED. NOW, IT APPEARS THAT THE ASS ESSING OFFICER WAS NOT SATISFIED WITH THE JOB DONE BY THE PRAYAG AND AS SUCH NOT ALLOWED THE INTEREST ON TERM LOAN PROPO RTIONATELY. A MOOT QUESTION THAT ARISES HERE IS THAT WHO HAS TO B E SATISFIED WITH THE JOB OF PRAYAG, WHETHER IT IS THE APPELLANT OR THE ASSESSING OFFICER? THE ANSWER IS THE APPELLANT. I N CASE, THE ASSESSING OFFICER IS NOT SATISFIED, THEN WHAT HAS T O BE THE CONSEQUENCE? THE ANSWER IS NO CONSEQUENCE, BECAUSE , IT IS FOR THE APPELLANT TO DECIDE BUT NOT THE ASSESSING OFFIC ER. AS PER THE APPELLANT, THE SERVICES RENDERED SO FAR ARE SATISFA CTORY; HENCE NO INTERFERENCE SHOULD BE TOLERATED FROM THE ASSESSING OFFICER, WITHOUT ASSIGNING COGENT REASONS. SINCE, NO REASON S WERE ASSIGNED BY THE ASSESSING OFFICER FOR HIS DECISION, OR ANY MATERIAL WAS BROUGHT ON RECORD TO COUNTER THE CLAIM OF THE APPELLANT, THE ADDITION MADE BY THE ASSESSING OFFIC ER HAS TO BE DELETED AND THE ASSESSING OFFICER IS DIRECTED ACCOR DINGLY. THE APEX COURT'S DECISION IN THE CASE OF SA BUILDERS IS ON THE POINT AS THE BUSINESS NEXUS HAS BEEN ESTABLISHED AS THE A DVANCE GIVEN WAS TO HELP THE APPELLANT FOR BETTER REACH TO THE CLIENTS AND ALSO HELPING IN ACQUISITIONS BY WAY OF OUTRIGHT PURCHASE OR LONG TERM LEASE OF MANUFACTURING FACILITIES. 6. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. T HE LD DR ARGUED THAT THE REASONS ADVANCED BY THE ASSESSEE ARE VERY VAGUE AND DO NOT JUSTIFY THE CLAIM THAT THE AMOUNT HAS BEEN GIVEN FO R BUSINESS PURPOSES. THE LD DR POINTED OUT THAT HUGE AMOUNT OF RS.43.60 CRORES HAS BEEN GIVEN AS INTEREST FREE ADVANCE FROM THE INTEREST BE ARING BORROWED FUNDS. FURTHER THE ASSESSEE HAS NOT PRODUCED EVIDENCE OF M /S. PRAYAG ENTERPRISES LTD HAVING RENDERED SERVICES FOR WHICH THE TRADE ADVANCE IS TAKEN. 7. WE HAVE HEARD BOTH THE PARTIES. THE SHORT POINT FOR CONSIDERATION IS WHETHER THE ADVANCE OF RS.43.60 CRORES PAID TO M /S PRAYAG ENTERPRISES LTD CAN BE CONSIDERED TO BE IN THE COUR SE OF BUSINESS OR FOR THE PURPOSE OF THE ASSESSEE AND THEREFORE, THE INTE REST PAYABLE ON THE LOANS OBTAINED BY THE ASSESSEE FOR MAKING THESE ADV ANCES IS TO BE ALLOWED U/S 36(1)(III). IT IS NOT DISPUTED THAT THE ADVANCE GIVEN TO M/S PRAYAG ENTERPRISES LTD WAS DIRECTLY OUT OF THE BORR OWING FROM THE BANK. ACCORDING TO THE ASSESSEE M/S PRAYAG ENTERPRISES LT D WAS APPOINTED AS ASSESSEES SALES PROMOTION AGENT/REPRESENTATIVE THR OUGHOUT THE STATE OF ANDHRA PRADESH FOR THE SALE OF IML PRODUCTS OF UB G ROUP OF COMPANIES, MANUFACTURED BY THE ASSESSEE. AT THAT TIME, THE ASS ESSEE WAS A I.T.A. NO. 1040/HYD/2012 M/S. ESVEEAAR DISTILLIERS PVT. LIMITED :- 6 -: PARTNERSHIP FIRM AND LATER ON CONVERTED INTO A LIMI TED COMPANY. THIS RELATIONSHIP HAS BEEN CONTINUED THROUGH THE AGREEME NTS DATED 28.10.2004, 1.4.2006, 1.4.2009 AND 1.4.2010 AND IS STILL CONTINUING. DURING THE PERIOD THE BUSINESS RELATIONSHIP OF THE ASSESSEE WITH M/S PRAYAG ENTERPRISES LTD HAS BEEN VERY EXTENSIVE BOTH IN VOLUME AND VALUE. M/S PRAYAG ENTERPRISES LTD HAS VERY EFFICIEN T AND VAST MARKETING NETWORK IN THE STATE OF ANDHRA PRADESH INCLUDING TH E UB GROUP OF COMPANIES AND IS ENGAGED IN THE SERVICES FOR MARKET ING THEIR PRODUCTS. 8. THE ASSESSEE IN THE COURSE OF HEARING SUBMITTED THAT M/S PRAYAG ENTERPRISES LTD HAS LOT OF CLOUT AND INFLUENCE AMON G THE IML MANUFACTURERS IN THE STATE OF ANDHRA PRADESH AND TH E ASSESSEE HAD INTENDED TO STRENGTHEN ITS MARKET REACH AND ALSO EN HANCE ITS MANUFACTURING CAPACITY. THE ASSESSEE APPROACHED M/S PRAYAG ENTERPRISES LTD WITH A MANDATE TO LOOK FOR ACQUISIT IONS ON BEHALF OF THE ASSESSEE. IT WAS STATED THAT M/S PRAYAG ENTERPRISES AGREED TO UNDERTAKE THE ASSIGNMENT PROVIDED IT IS GIVEN CERTAIN AMOUNT AS ADVANCE WHICH COULD BE USED IMMEDIATELY IF AN ATTRACTIVE OPPORTUN ITY ARISES. 9. WE FIND THAT THE COMPANY HAS BORROWED A TOTAL OF RS.130.00 CRORES OUT OF WHICH RS.57.42 CRORES WAS PAID TO M/S PEARL DISTILLERIES LTD; RS.22 CRORES TO M/S. DIADEM ENTERPRISES P LTD AND R S.43.60 CRORES TO M/S PRAYAG. WHILE THE AO FOUND THAT THE LOANS TO M/ S PEARL DISTILLERIES LTD AND M/S DIADEM ENTERPRISES (P) LTD WERE FOR THE PURPOSE OF BUSINESS, THE AO DID NOT FIND ANY DIRECT DISCERNIBL E REASON FOR GRANTING THE ADVANCE TO M/S PRAYAG ENTERPRISES LTD. THE AO H ELD THAT THE REASONS FOR ADVANCE AS EXPLAINED BY THE ASSESSEE IS VERY VAGUE AND DOES NOT JUSTIFY THE CLAIM OF THE ASSESSEE THAT IT IS FO R THE BUSINESS PURPOSES. THE AO ALSO HELD THAT THE ASSESSEE FAILED TO ESTABL ISH THE COMMERCIAL EXPEDIENCY AND DISALLOWED THE INTEREST AND ADVANCE GIVEN TO M/S PRAYAG ENTERPRISES LTD. I.T.A. NO. 1040/HYD/2012 M/S. ESVEEAAR DISTILLIERS PVT. LIMITED :- 7 -: 10. ON APPEAL, THE CIT (A) CONCLUDED THAT THERE CAN BE NO DISPUTE THAT M/S PRAYAG ENTERPRISES LTD IS AN EXPERT IN MARKETIN G THE ASSESSEES PRODUCTS AND THE ASSESSEE HAD A LONG RELATIONSHIP W ITH M/S. PRAYAG ENTERPRISES LTD, THEREFORE, THE CIT (A) WAS CONVINC ED OF THE COMMERCIAL EXPEDIENCY. THE CIT (A) EVEN STATED THAT THE PERSON TO BE SATISFIED ABOUT THE REASONABLENESS IS THE ASSESSEE AND NOT THE AO A ND EVEN IF THE AO IS NOT SATISFIED WITH THE SERVICES RENDERED BY M/S PRA YAG ENTERPRISES LTD TO THE ASSESSEE, IT IS OF NO CONSEQUENCE. THE CIT (A) CONCLUDED THAT THE AO HAS DISALLOWED WITHOUT ASSIGNING ANY COGENT REASONS AND DELETED THE DISALLOWANCES. 11. IN OUR OPINION M/S PRAYAG ENTERPRISES LTD MAY H AVE CONTINUED ITS RELATIONSHIP WITH THE ASSESSEE IN THE COURSE OF BUS INESS OF THE ASSESSEE, BUT THERE SHOULD BE A VALID REASON AND EXPECTATION THAT THE AMOUNT ADVANCED IS FOR THE PURPOSE OF THE BUSINESS AND THE RECIPIENT IS EXPECTED TO CARRY OUT SOME SPECIFIC ACTIVITIES TO IMPROVE TH E BUSINESS OF THE ASSESSEE. IN THE PRESENT CASE IT HAS BEEN STATED TH AT THE ASSESSEE EXPECTED TO EXPAND THE MARKET REACH. IT WAS FURTHER STATED THAT THE ASSESSEE WAS LOOKING OUT FOR FRESH ACQUISITION OF A DDITIONAL MANUFACTURING FACILITY. THE ASSESSEE HAS NOT EXPLAI NED ELABORATELY AS TO HOW PRAYAG ENTERPRISES LTD IS EXPECTED TO EXPAND IT S MARKET REACH AND ALSO NOT BROUGHT OUT ANY DETAILS OF SPECIFIC DIRECT COMPANIES WHICH HAVE BEEN IDENTIFIED IN CONNECTION WITH FRESH ACQUISITIO N. HENCE, A MERE STATEMENT THAT ADVANCES HAVE BEEN MADE FOR THESE PU RPOSES CANNOT BE ACCEPTED. FURTHER EXAMINATION AS TO THE SPECIFIC S ERVICES EXPECTED TO BE DONE EITHER FOR EXPANDING THE MARKET REACH OR FOR M AKING FRESH ACQUISITION DO NOT APPEAR TO HAVE BEEN MADE BY THE LOWER AUTHORITIES. 12. THE RELIANCE ON THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF S.A. BUILDERS (288 ITR 1) IS NOT CORRECT. I N THAT CASE THE ADVANCE WERE MADE BY THE HOLDING COMPANY TO ITS SUBSIDIARY COMPANY AND HENCE THE APEX COURT HELD THAT AS THE HOLDING COMPANY HAS A DEEP INTEREST IN THE SUBSIDIARY, THE LOAN GIVEN TO SUBSIDIARY FOR BE ING USED IN SUBSIDIARYS BUSINESS SHOULD BE CONSIDERED AS BEING FOR THE PURPOSE OF I.T.A. NO. 1040/HYD/2012 M/S. ESVEEAAR DISTILLIERS PVT. LIMITED :- 8 -: THE HOLDING COMPANYS BUSINESS. IN THIS CASE NO SUC H LOAN HAS BEEN GIVEN BY THE HOLDING COMPANY TO ITS SUBSIDIARIES. F URTHER IN SA BUILDERS (SUPRA) IT HAS BEEN HELD THAT THE BORROWED FUNDS, I F ADVANCED TO A THIRD PARTY, IT SHOULD BE FOR COMMERCIAL EXPEDIENCY IF IT IS SOUGHT TO BE ALLOWED U/S 36()(III) OF THE ACT. HENCE COMMERCIAL EXPEDIEN CY SHOULD BE ESTABLISHED MORE SPECIFICALLY IN THIS CASE WHICH RE QUIRES FURTHER EXAMINATION. THE ASSESSEE IS TO BE MORE SPECIFIC AS TO WHAT THEY EXPECT M/S PRAYAG ENTERPRISES LTD TO DO AND WHAT EXACTLY M /S PRAYAG ENTERPRISES HAS ACHIEVED BY GRANTING OF THESE ADVAN CES OF RS.43.60 CRORES TO THE ASSESSEE. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE MATTER SHOULD BE SET ASIDE TO THE FILE OF THE AO AND THE ASSESSEE SHOULD BE GIVEN ANOTHER OPPORTUNITY TO EXPLAIN IN D ETAIL THE SPECIFIC REASONS AND PURPOSES FOR WHICH THE TRADE ADVANCE OF RS.43.60 CRORES HAS BEEN GIVEN AND WHAT HAS RESULTED FROM THE UTILI SATION OF THE ADVANCE. THEREAFTER THE AO SHALL DECIDE THE ISSUE D E NOVA IN ACCORDANCE WITH LAW. 13. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 28-01-2015. SD/- SD/- (P.M. JAGTAP) (ASHA V IJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED 28 TH JANUARY, 2015 TNMM/VINODAN COPY TO : 1. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-I, 24-2 -438, GNT ROAD, DARGAMITTA, NELLORE 2. M/S.ESVEEAAR DISTILLIERS PVT. LIMITED, D.NO.24-2 -2023, IIND FLOOR, PLOT NO.791, MAGUNTA LAYOUT, NELLORE 3. CIT(A), GUNTUR 4. CIT, GUNTUR 5. D.R. ITAT, HYDERABAD. BY ORDER