LMP Motors Pvt.Ltd., Baroda V. The ACIT.,Circle-1(2), Baroda

ITA 1101/AHD/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1141 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-08-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 13-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: M K PATEL
• Keywords: Business expenditure; Question of law; Capital receipt; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER 1. ./ I.T.A. NO.1101/AHD/2011 AY 2004-05 2. ./ I.T.A. NO.1102/AHD/2011 AY 2005-06 3. ./ I.T.A. NO.1354/AHD/2011 AY 2006-07 LMP MOTORS PVT.LTD. SURAJ PLAZA SAYAJIGUNJ BARODA / VS. THE DCIT CICLE-1(2) AAYAKAR BHAVAN RACE COURSE, BARODA ' ./ ./ PAN/GIR NO. : AAACL 3413 H ( '% / APPELLANT ) .. ( &''% / RESPONDENT ) '% ( / APPELLANT BY : SHRI M.K. PATEL, AR &''% ) ( / RESPONDENT BY : SHRI NARENDRA SINGH, SR.DR * ) / DATE OF HEARING 24/08/2015 +,-. ) / DATE OF PRONOUNCEMENT 31/08/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS BUNCH OF APPEALS BY THE ASSESSEE IS DIRECTED AGAINST THE SEPARATE ORDERS OF THE LD.COMMISSIONER OF INCOME TA X(APPEALS)-IV, BARODA [CIT(A) IN SHORT] ALL IDENTICALLY DATED 11/02/20 11 PERTAINING TO ASSESSMENT YEARS (AYS) 2004-05, 2005-06 & 2006-07. IDENTICAL GROUNDS ARE RAISED IN AYS 2004-05 & 2005-06 EXCEPT CHANGE OF FIGURE AND IN AY 2006-07 EXCEPT GROUND NO.6 ALL ARE IDENTI CAL AS WERE RAISED IN ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 2 - AYS 2004-05 & 2005-06. THEREFORE, ALL THESE APPEAL S WERE TAKEN UP TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.1101/AHD/2011 FOR AY 2004-05. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED CIT(APPEALS) ERRED IN DISREGARDING THE DETAILED SUBMISSIONS MADE BY THE APPELLANT COMPANY ON DISALL OWANCE OF INTEREST U/S.36(I)(III) INCLUDING THE FUND FLOW. 2. THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT THE DECISION OF S.A.BUILDERS LIMITED VS. CIT 288 ITR 001 IS NOT APP LICABLE TO THE CASE OF THE APPELLANT COMPANY. 3. THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT I NTEREST U/S.36(I)(III) WAS DISALLOWABLE EVEN IN CASE WHERE AN AMOUNT HAVE BEEN PAID TO THE ASSOCIATE CONCERNS IN THE PRECEDING YEAR AND NO DIS ALLOWANCE WAS MADE IN PRECEDING YEARS. 4. THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT T HE DISALLOWANCE U/S.36(I)(III) CAN BE MADE EVEN IN CASE WHERE THE A DVANCES HAVE BEEN GIVEN TO SISTER CONCERN OUT OF CURRENT ACCOUNT WITH BANK ON WHICH NO INTEREST WAS PAID FOR THE COMPANY. 5. THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING DIS ALLOWANCE OF RS.66,44,817/- U/S.36(I)(III) OF THE ACT. 6. THE LEARNED CIT(APPEALS) ALSO CONFIRMING THE AD HOC DISALLOWANCE OF RS.312635/- OUT OF VARIOUS EXPENSES. 7. THE APPELLANT COMPANY CRAVES LEAVE TO ADD, ALTE R OR AMEND ANY OF THE GROUNDS MENTIONED ABOVE. ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 3 - 2.1. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 15/12/2006; THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE ADDITION(S) ON DISALLOWANCE OF INTEREST COST OF RS. 70,78,411/-, DISALLOWANCE OF INTEREST COST ON CAPITAL WORK-IN-PR OGRESS OF RS.1,57,797/-, DISALLOWANCE OF CLUB FEES OF RS.5,4 00/- AND DISALLOWANCE OF EXPENSES OF RS.3,12,635/-. AGAINST THE SAID ASS ESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, PARTLY ALLOWED THE APPEAL; THEREBY LD.CIT(A) CONFIRMED THE DISALLOWANCE OUT OF INTERES T EXPENDITURE TO THE EXTENT OF RS.66,44,817/- AND CONFIRMED OTHER DISALL OWANCES MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST COST ON CAPITAL WORK-IN-PROGRESS, CLUB FEES AND THE EXPENSES IN PERSONAL NATURE. AGGRIEV ED BY THE ORDER OF THE LD.CIT(A), ASSESSEE IS FURTHER IN APPEAL BEFORE US. 3. AT THE TIME OF HEARING, THE LD.COUNSEL FOR TH E ASSESSEE SUBMITTED THAT HE DOES NOT WISH TO PRESS GROUND NO.6. THE LD.SR.D R HAS NO OBJECTION. THEREFORE, IN VIEW OF THE STATEMENT MADE BY THE LD. COUNSEL FOR THE ASSESSEE, GROUND NO.6 IS DISMISSED AS NOT PRESSED. 4. GROUND NO.7 IS GENERAL IN NATURE WHICH REQUIRE N O INDEPENDENT ADJUDICATION. ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 4 - 5. GROUND NOS.1 TO 5 ARE INTER-CONNECTED AND ARE AG AINST THE CONFIRMATION OF DISALLOWANCE OF INTEREST EXPENDITUR E TO THE EXTENT OF RS.66,44,817/-. THE LD.COUNSEL FOR THE ASSESSEE ARGUED AT LENGTH. HE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTI FIED IN MAKING THE DISALLOWANCE OF INTEREST EXPENDITURE. HE SUBMITTED THAT THE ASSESSEE HAD ADVANCED OUT OF ITS INTEREST-FREE FUNDS/MONEY TO IT S SISTER-CONCERNS FOR COMMERCIAL EXPEDIENCY. HE SUBMITTED THAT EVEN OTHE RWISE ALSO, THE ACTION OF THE AUTHORITIES BELOW IS NOT JUSTIFIED ON ACCOUNT OF THE FACT THAT THE ADVANCES RELATED TO EARLIER YEARS AND IN THE EA RLIER YEARS, THE REVENUE HAS NOT MADE SUCH DISALLOWANCES. THE LD.COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE REVENUE HAS NOT PLACED ANY MATER IAL ON RECORD AS TO WHY THEY ARE TAKING A DIFFERENT STAND THAN TAKEN IN THE EARLIER YEARS. HE SUBMITTED THAT THERE IS NO NEW BORROWINGS DURING YE AR UNDER APPEAL. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT INTEREST-FREE FUNDS TO MAKE ADVANCES TO ITS SISTER-CONCERNS. HE DREW OUR ATTENTION TOWARDS PAGE NO.12 OF THE PAPER-BOOK OF THE ASSESSEE TO BUT TRESS THE CONTENTION THAT BORROWINGS HAVE BEEN REDUCED FROM THE EARLIER YEARS. HE FURTHER SUBMITTED THAT BEFORE LD.CIT(A), A FUND FLOW STATEM ENT WAS GIVEN, BUT THE LD.CIT(A) HAS NOT CONSIDERED THE FUND FLOW STATEMEN T. HE SUBMITTED THAT UNDER THESE FACTS, THE ACTION OF THE AUTHORITIES BE LOW DESERVES TO BE SET ASIDE. HE FURTHER PLACED RELIANCE ON THE JUDGEMENT OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF S.A.BUILDERS LTD. VS. CIT(APPEALS) & ANR. REPORTED AT (2007) 288 ITR 01 ( SC). THE ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 5 - LD.COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE ON THE JUDGEMENT OF THE HONBLE MUMBAI HIGH COURT RENDERED IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LIMITED REPORTED AT (2009) 313 ITR 340(MUM) AND ALSO RELIED ON THE JUDGEMENT OF HONBLE HIGH COURT OF GUJARAT RENDERED IN THE CASE OF CIT VS. RAGHUVIR SYNTHETICS LTD. REP ORTED AT (2013) 354 ITR 222(GUJ.). THE LD.COUNSEL FOR THE ASSESSEE ALS O PLACED RELIANCE ON THE JUDGEMENT OF HONBLE KARNATAKA HIGH COURT RENDE RED IN THE CASE OF CIT VS. SRIDEV ENTERPRISES REPORTED AT (1991) 192 I TR 165 (KAR.). THE LD.COUNSEL FOR THE ASSESSEE FURTHER PLACED RELIANCE ON THE DECISION OF THE COORDINATE BENCH (ITAT C BENCH AHMEDABAD) RENDER ED IN THE CASE OF M/S.KINARIWALA AUTOMAT MFG.PVT.LTD. VS. ITO IN I TA NO.2472/AHD/2009 FOR AY 2003-04, DATED 08/01/2010, AND DECISION IN THE CASE OF RAVJI & CO. VS. DCIT IN ITA NO.1745/AHD /1995 FOR AY 1990-91, DATED 23/01/2001. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADVANCES WERE THE OPENING BALANCE OF THE P REVIOUS YEAR AND THE BORROWED FUNDS HAVE BEEN PAID DURING THE YEAR UNDER APPEAL. THE BORROWINGS HAS REDUCED IN THE YEAR UNDER APPEAL. T HESE FACTOR GOES TO SHOW THAT THERE WAS NO REASON FOR THE AUTHORITIES B ELOW TO MAKE DISALLOWANCE OF INTEREST. 5.1. ON THE CONTRARY, THE LD.SR.DR VEHEMENTLY OPPOS ED THE SUBMISSIONS OF THE LD.COUNSEL FOR THE ASSESSEE AND SUBMITTED TH AT THE ASSESSEE HAD INVESTED FUNDS AVAILABLE IN THE OTHER ASSETS, THERE FORE IT CANNOT BE CONCLUDED THAT ONLY INTEREST-FREE FUND WAS UTILIZED FOR THE PURPOSE OF ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 6 - GIVING INTEREST-FREE FUNDS TO ITS SISTER-CONCERNS. HE FURTHER SUBMITTED THAT NO MATERIAL IS PLACED ON RECORD SUGGESTING THAT ON THE DATE OF ADVANCES THE ASSESSEE WAS HAVING INTEREST-FREE FUND AVAILABL E. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGEMENTS/DECISIONS RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE. AS PER SECTION 36(1)(III) DEDUCTION IS A VAILABLE TO THE ASSESSEE IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF B USINESS OR PROFESSION. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E ASSESSEE HAD BORROWED CAPITAL FOR THE PURPOSE OF BUSINESS, BUT AT THE SAM E TIME, THE ASSESSEE ALSO HAD ADVANCED TO ITS SISTER-CONCERNS INTEREST-FREE F UNDS. THERE IS ALSO NO DISPUTE WITH REGARD TO THE PROPOSITION THAT IN THE EVENT THE ASSESSEE GIVES ADVANCES TO ITS SISTER-CONCERNS WITHOUT CHARGING AN Y INTEREST OUT OF BORROWED FUNDS, IN THAT EVENT THE AO IS JUSTIFIED T O MAKE DISALLOWANCE OF SUCH INTEREST CLAIMED AS DEDUCTION U/S.36(1)(III ) OF THE ACT AS THE BORROWINGS WERE NOT UTILIZED FOR THE PURPOSE OF BUS INESS. BUT IF THE ASSESSEE DEMONSTRATES AND SATISFY THE REVENUE AUTHO RITIES THAT THE ADVANCES EITHER ARE OUT OF INTEREST-FREE FUNDS AVAI LABLE WITH THE ASSESSEE OR THE ADVANCES MADE TO THE SISTER-CONCERNS ARE FOR THE PURPOSE OF COMMERCIAL EXPEDIENCY. IN THE CASE IN HAND, THE CO NTENTION OF THE LD.COUNSEL FOR THE ASSESSEE ARE THREE FOLDS; FIRSTL Y, THE ADVANCES ARE GIVEN OUT OF THE INTEREST-FREE FUNDS AVAILABLE WITH THE A SSESSEE, SECONDLY, THE ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 7 - ADVANCES HAVE BEEN GIVEN FOR THE BUSINESS PURPOSES AND THIRDLY, THE ADVANCES RELATE TO EARLIER YEARS AND IN EARLIER YEA RS, THE REVENUE HAS NOT MADE DISALLOWANCE OF INTEREST EXPENDITURE. IN SUPP ORT OF THE SUBMISSION, THE ASSESSEE HAD RELIED UPON THE JUDGEMENT OF THE H ONBLE HIGH COURT OF KARNATAKA RENDERED IN THE CASE OF CIT VS. SRIDEV EN TERPRISES [SUPRA]. IN THAT CASE, IT WAS HELD BY THE HONBLE HIGH COURT TH AT IT WOULD NOT BE EQUITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND NOW IN RESPECT OF THE AMOUNTS WHICH WERE THE SUBJECT-MATTER OF PRE VIOUS YEAR ASSESSMENTS. THE RELIANCE IS ALSO PLACED ON THE JU DGEMENT OF HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF C IT VS. RAGHUVIR SYNTHETICS LTD.(SUPRA), WHEREIN THE HONBLE JURISDI CTIONAL HIGH COURT HELD AS UNDER:- THE TRIBUNAL HAS CORRECTLY APPROACHED THE ISSUE WH ICH HAS BEEN PROPOSED IN THE PRESENT TAX APPEAL. WHEN THERE WAS NO EVIDE NCE BROUGHT ON RECORD BY THE DEPARTMENT FOR THE TRIBUNAL TO HOLD OTHERWISE T HAN WHAT HAS BEEN CONCLUDED BY WAY OF ANY MATERIAL, WE HOLD THAT THE ISSUE IS APPROPRIATELY CONCLUDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. WE MAY REFER TO THE JUDGMENT OF THE APEX COURT AT T HIS STAGE GIVEN IN CASE OF S.A.BUILDERS LTD. V. CIT REPORTED IN [2007] 288 ITR 1 (SC) WHERE THE QUESTION WAS WHETHER INTEREST ON FUNDS BORROWED BY THE ASSESSEE TO GIVE AN INTEREST-FREE LOAN TO SISTER CONCERN SHOULDBE ALLOW ED AS DEDUCTION AND THE APEX COURT RULED THUS (PAGES 7 AND 8): WE HAVE CONSIDERED THE SUBMISSION OF THE RESPECTIV E PARTIES. THE QUESTION INVOLVED IN THIS CASE IS ONLY ABOUT THE AL LOWABILITY OF THE INTEREST ON BORROWED FUNDS AND HENCE WE ARE DEALING ONLY WITH THAT QUESTION. IN OUR OPINION, THE APPROACH OF THE HIGH COURT AS WELL AS THE AUTHORITIES BELOW ON THE AFORESAID QUESTION WAS NOT CORRECT. ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 8 - XXX IN OUR OPINION, THE HIGH COURT IN THE IMPUGNED JUDG MENT, AS WELL AS THE TRIBUNAL AND THE INCOME TAX AUTHORITIES HAVE AP PROACHED THE MATTER FROM AN ERRONEOUS ANGLE. IN THE PRESENT CASE , THE ASSESSEE BORROWED THE FUND FROM THE BANK AND LENT SOME OF IT TO ITS SISTER CONCERN (A SUBSIDIARY) ON INTEREST FREE LOAN. THE T EST, IN OUR OPINION, IN SUCH A CASE IS REALLY WHETHER THIS WAS DONE AS A MEASURE OF COMMERCIAL EXPEDIENCY. XXX THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS AN EXPRES SION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT B USINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NO T HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. XXX WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COUR T IN CIT VS. DALMIA CEMENT (BHARAT) LTD. (2002) 254 ITR 377, THA T ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPEND ITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABL Y CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF T HE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PROFIT . THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIE S MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEWPOINT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALREADY STATED ABOVE, WE HAVE TO SE E THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONCERN FROM THE POI NT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIE W WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. ACCORDINGLY, THE QUESTION IS ANSWERED IN FAVOUR OF THE ASSESSEE BY THE APEX COURT. IN THIS TAX APPEAL IT IS TO BE SPECIFIED HER E THAT CONSIDERING THE ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 9 - MATERIAL ON RECORD AND KEEPING IN VIEW SUBSTANTIAL INTEREST FREE FUNDS AND BUSINESS EXPEDIENCY THAT THE CIT(A) AND TRIBUNAL HE LD THE ISSUE IN FAVOUR OF ASSESSEE. THERE IS ABSOLUTELY NO PERVERSITY IN SUCH FINDINGS. ON THE CONTRARY, THEY ARE CONFORMING TO THE WELL LAID DOWN GUIDING PRINCIPLE ON THE SUBJECT. IN THE PREMISE, QUESTION OF LAW NEEDS TO BE ANSWERED IN FA VOUR OF ASSESSEE AND AGAINST THE REVENUE. TAX APPEAL IS DISMISSED ACCORD INGLY AND STANDS DISPOSED OF. 6.1. THE HONBLE JURISDICTIONAL HIGH COURT HAS ALS O TAKEN NOTE OF THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CA SE OF S.A.BUILDERS VS. CIT(SUPRA) AND THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. DALMIA CEMENT (BHARAT) LTD. (2002) 254 ITR 377( DELHI). DURING THE COURSE OF HEARING THE LD.COUNSEL FOR THE ASSESS EE SUBMITTED THE FACT THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST-F REE FUNDS AT THE TIME OF ADVANCES MADE TO ITS SISTER-CONCERNS CAN BE VERIFIE D FROM ITS RECORDS. THE LD.SR.DR HAS NO OBJECTION TO THIS PROPOSAL. TH EREFORE, AFTER TAKING INTO CONSIDERATION AND LOOKING TO THE TOTALITY OF T HE FACTS OF THE CASE AND IN THE LIGHT OF THE AFORESAID JUDICIAL PRONOUNCEMEN TS AS RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE, WE HEREBY SET ASIDE TH E ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE ISSUE BACK TO THE FILE OF THE AO FOR LIMITED PURPOSE OF VERIFICATION. THE AO WOULD VERI FY FROM THE RECORDS PLACED BEFORE HIM THAT THE FACT OF AVAILABILITY OF INTEREST-FREE FUNDS FOR THE PURPOSE OF MAKING ADVANCES TO ITS SISTER-CONCER NS. IN CASE, THE AO FINDS THAT THE ASSESSEE WAS HAVING SUFFICIENT INTER EST-FREE FUNDS AVAILABLE FOR MAKING ADVANCES TO ITS SISTER-CONCERNS, THE AO WOULD DELETE THE ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 10 - DISALLOWANCE. HOWEVER, THE AO WOULD ALSO VERIFY WH ETHER THE BORROWED FUNDS HAD BEEN UTILIZED FOR BUSINESS PURPOSES OR NO T. IN THE EVENT OF THE MIXED FUNDS, IF AT THE TIME OF MAKING ADVANCES THE ASSESSEE HAD BOTH THE BORROWED FUNDS AS WELLS AS THE INTEREST-FREE FUNDS, THE AO WOULD VERIFY THE QUANTUM OF ADVANCES MADE BY THE ASSESSEE. IF T HE AO FINDS THAT THE AMOUNT OF INTEREST-FREE FUNDS WAS HIGHER THAN THE A DVANCES MADE, IN THAT EVENT, THE AO WOULD DELETE THE ADDITION MADE ON AC COUNT OF DISALLOWANCE OF INTEREST ON BORROWED FUNDS. THUS, GROUND NOS.1 TO 5 ARE ALLOWED FOR STATISTICAL PURPOSES. AS A RESULT, AS SESSEES APPEAL IN ITA NO.1101/AHD/2011 FOR AY 2004-05 IS PARTLY ALLOWED F OR STATISTICAL PURPOSES. 7. NOW, WE TAKE UP ASSESSEES APPEAL IN ITA NO.1102 /AHD/2011 FOR AY 2005-06. THE ASSESSEE HAS RAISED FOLLOWING GROU NDS OF APPEAL:- 1. THE LEARNED CIT(APPEALS) ERRED IN DISREGARDING THE DETAILED SUBMISSIONS MADE BY THE APPELLANT COMPANY ON DISALL OWANCE OF INTEREST U/S.36(I)(III) INCLUDING THE FUND FLOW STATEMENT. 2. THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT THE DECISION OF S.A.BUILDERS LIMITED VS. CIT 288 ITR 001 IS NOT APP LICABLE TO THE CASE OF THE APPELLANT COMPANY. 3. THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT I NTEREST U/S.36(I)(III) WAS DISALLOWABLE EVEN IN CASE WHERE AN AMOUNT HAVE BEEN PAID TO THE ASSOCIATE CONCERNS IN THE PRECEDING YEAR. 4. THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT T HE DISALLOWANCE U/S.36(I)(III) CAN BE MADE EVEN IN CASE WHERE THE A DVANCES HAVE BEEN ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 11 - GIVEN TO SISTER CONCERN OUT OF CURRENT ACCOUNT ON WHICH NO INTEREST IS PAID BY THE APPELLANT COMPANY. 5. THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING DIS ALLOWANCE OF RS.54,76,790/- U/S.36(I)(III) OF THE ACT. 6. THE LEARNED CIT(APPEALS) ALSO CONFIRMING THE AD HOC DISALLOWANCE OF RS.261500/- OUT OF VARIOUS EXPENSES. 7. THE APPELLANT COMPANY CRAVES LEAVE TO ADD, ALTE R OR AMEND ANY OF THE GROUNDS MENTIONED ABOVE. 7.1. THE FACTS AND GROUNDS ARE IDENTICAL TO THE FAC TS OF AY 2004-05 IN ASSESSEES OWN CASE(SUPRA). THE RESPECTIVE REPRESE NTATIVES OF THE PARTIES HAVE ADOPTED THE ARGUMENTS THAT WERE IN THE AY 2004 -05. THEREFORE, TAKING A CONSISTENT VIEW, GROUND NOS.1 TO 5 ARE AL LOWED FOR STATISTICAL PURPOSES. THE AO IS DIRECTED TO DECIDE THE ISSUE I N THE LIGHT OF THE DIRECTION GIVEN IN PARA-6.1 OF THIS ORDER. 7.2. GROUND NO.6 IS DISMISSED AS NOT PRESSED BY THE LD.COUNSEL FOR THE ASSESSEE. GROUND NO.7 IS GENERAL IN NATURE. AS A RESULT, ASSESSEES APPEAL IN ITA NO.1102/AHD/2011 FOR AY 2005-06 IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. 8. LASTLY, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.1354/AHD/2011 FOR AY 2006-07, WHEREIN FOLLOWING GROUNDS HAVE BEEN RAISED:- ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 12 - 1. THE LEARNED CIT(APPEALS) ERRED IN DISREGARDING THE SUBMISSIONS MADE BY THE APPELLANT COMPANY ON DISALLOWANCE OF IN TEREST U/S.36(I)(III) INCLUDING THE FUND FLOW STATEMENT. 2. THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT THE DECISION OF S.A.BUILDERS LIMITED VS. CIT 288 ITR 001 IS NOT APP LICABLE TO THE CASE OF THE APPELLANT COMPANY. 3. THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT I NTEREST U/S.36(I)(III) WAS DISALLOWABLE EVEN IN CASE WHERE AN AMOUNT HAVE BEEN PAID TO THE ASSOCIATE CONCERNS IN THE PRECEDING YEAR. 4. THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT T HE DISALLOWANCE U/S.36(I)(III) CAN BE MADE EVEN IN CASE WHERE THE A DVANCES HAVE BEEN GIVE TO SISTER CONCERN OUT OF CURRENT ON WHICH NO INTEREST IS PAID BY THE APPELLANT COMPANY. 5. THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING DIS ALLOWANCE OF RS.46,31,906/- U/S.36(I)(III) OF THE ACT. 6. THE LEARNED CIT(APPEALS) ALSO CONFIRMING THE A DDITION OF RS.8000000 MADE BY THE ASSESSING OFFICER BEING INTE R COMPANY BALANCE WRITTEN BACK AND FURTHER HELD THAT THE SAME WAS TAX ABLE. 7. THE APPELLANT COMPANY CRAVES LEAVE TO ADD, ALTE R OR AMEND ANY OF THE GROUNDS MENTIONED ABOVE. 8.1. GROUND NOS.1 TO 5 ARE IDENTICAL AS WERE RAISED IN ITA NO.1101/AHD/2011 FOR AY 2005-06(SUPRA). FOR THE SA ME REASONING, IN THIS YEAR ALSO, THESE GROUNDS ARE ALLOWED FOR STATI STICAL PURPOSES. THE AO IS DIRECTED TO DECIDE THE ISSUE IN THE LIGHT OF THE DIRECTION GIVEN IN PARA- 6.1 OF THIS ORDER. ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 13 - 8.2. APROPOS TO GROUND NO.6, THE LD.COUNSEL FOR TH E ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MA KING ADDITION AND CONFIRMING THE SAME. THE LD.COUNSEL FOR THE ASSESS EE SUBMITTED THAT FROM THE SISTER-CONCERNS, THE ASSESSEE HAD OBTAINED ADVA NCES OF RS.80 LACS WHICH WERE SUBSEQUENTLY WRITTEN BACK. IT WAS INTER COMPANY BALANCE WRITTEN BACK OUGHT TO HAVE BEEN TREATED AS CAPITAL RECEIPT. HOWEVER, THE AUTHORITIES BELOW TREATED THE SAME AS INCOME OF THE ASSESSEE. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE LO ANS ARE NOT LIABLE FOR TAX EVEN U/S.41(1) OF THE ACT. 8.3. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT BEFORE AO, THE ASSESSEE HAS NOT PLACED ANY EVIDENCE IN SUPPORT OF ITS CONTENTION. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS DECIDED THE ISSUE IN PARA-3.2 OF HIS ORDER, BY OBSERVING AS UNDER:- 3.2. I HAVE CONSIDERED THE MATER. TO ASCERTAIN TH E NATURE OF TRANSACTION, THE A.R. WAS ASKED TO FILE COPY OF LEDGER ACCOUNTS OF THE PARTIES SINCE THE TIME OF TAKING THE AFORESAID AMOUNTS FROM SISTER-CONCERN S. SUCH LEDGER ACCOUNTS WERE NOT FILED BY THE A.R. THE NATURE OF TRANSACTI ONS WAS NOT EXPLAINED BEFORE THE ASSESSING OFFICER ALSO. ON THE OTHER HA ND, AMOUNT OF RS.80,00,000/- WAS WRITTEN BACK TO THE P&L ACCOUNT FOR THE YEAR OF THE APPELLANT. ON THESE FACTS, APPELLANTS CONTENTION THAT THE SAID AMOUNT WAS CAPITAL RECEIPT IN NATURE CANNOT BE ACCEPTED. FURT HER, IN THE CASE OF T.V.SUNDARAM IYENGER & SONS LTD. (1996) 222 ITR 344 (SC), SUPREME COURT HELD THAT IF AN AMOUNT IS RECEIVED IN THE COURSE OF TRADING TRANSACTION, EVEN THOUGH IT IS NOT TAXABLE IN THE YEAR OF RECEIPT AS BEING OF REVENUE CHARACTER, THE AMOUNT CHANGES ITS CHARACTER, WHEN THE AMOUNT B ECOMES ASSESSEES OWN ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 14 - MONEY. THE COURT HELD THAT DEPOSITS RECEIVED FROM CUSTOMERS IN THE COURSE OF BUSINESS, UNCLAIMED BALANCES TRANSFERRED BY ASSESSE E TO HIS P&L ACCOUNT WERE ITS TRADING RECEIPT, EVEN THOUGH DEPOSITS WERE INITIALLY TREATED AS CAPITAL RECEIPT. AMOUNTS IN QUESTION OF RS.80,00,000/- WER E WRITTEN BACK TO P&L ACCOUNT BY THE APPELLANT ITSELF AS INCOME AND THE N ATURE OF AMOUNTS WRITTEN BACK HAS NOT BEEN EXPLAINED WITH EVIDENCE. IN THIS SITUATION, ASSESSING OFFICERS ACTION IN TAXING SUM OF RS.80,00,000/- AS APPELLANTS INCOME U/S.28 IS UPHELD. 9.1. HOWEVER, THE CONTENTION OF THE ASSESSEE IS TH AT THESE ARE THE LOANS FROM THE SISTER-CONCERNS AND CANNOT BE LIABLE TO BE TAXED. WE FIND THAT THE LD.CIT(A) HAS FOLLOWED THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS. T.V.SUNDARAM IYENGA R & SONS LTD. REPORTED AT (1996) 222 ITR 344(SC). THE CONTENTI ON OF THE LD.COUNSEL FOR THE ASSESSEE IS THAT THE FACTS ARE DISTINGUISHA BLE IN THE PRESENT CASE AS IN THAT CASE IT WAS TRADING A RECEIPT, BUT IN THE P RESENT CASE THESE ARE THE LOANS BY THE SISTER-CONCERNS BEING CAPITAL IN NATUR E. SINCE THE EVIDENCE IN SUPPORT OF THIS CONTENTION WAS NOT FURNISHED BEF ORE THE AO, THEREFORE, IT WOULD BE APPROPRIATE THAT THE ISSUE BE RESTORED TO THE FILE OF AO FOR VERIFYING THE CLAIM OF THE ASSESSEE THAT THE IMPUGN ED AMOUNT WAS NOT A TRADING RECEIPT. THE AO WOULD VERIFY THE NATURE OF AMOUNT AND IN CASE IT IS FOUND THAT IT WAS NOT A TRADING ADVANCE, THEN TH E AO WOULD DELETE THE SAME. THUS, THIS GROUND OF ASSESSEES APPEAL IS ALL OWED FOR STATISTICAL PURPOSES. 10. GROUND NO.7 IS GENERAL IN NATURE WHICH REQUIRE NO INDEPENDENT ADJUDICATION. ITA NOS.1101,1102 & 1354 /AHD/2011 LMP MOTORS P.LTD. VS. DCIT AYS 2004-05, 2005-06 & 2006-07 RESPECTIVELY - 15 - 11. IN THE COMBINED RESULT, ALL THE THREE APPEALS O F THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON MONDAY, THE 31 ST DAY OF AUGUST, 2015 AT AHMEDABAD. SD/- SD/- ( ) ( ) ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 31/ 08 /2015 2.., .../ T.C. NAIR, SR. PS !'#$#%! / COPY OF THE ORDER FORWARDED TO : 1. '% / THE APPELLANT 2. &''% / THE RESPONDENT. 3. 345 6 / CONCERNED CIT 4. 6 ( ) / THE CIT(A)-IV, BARODA 5. 7 8 &45 , 45. , 3 / DR, ITAT, AHMEDABAD 6. 8:; <* / GUARD FILE. / BY ORDER, '7 & //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 24.8.15 (DICTATION-PAD 25- PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27/31.8.15 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.31.8.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31.8.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER