ACIT, Patiala V. M/s Vishal Coaters Limited, Patiala

ITA 1206/CHANDI/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5004 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 22-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Capital asset; Depreciation; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH B, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.1206/CHD/2016 (ASSESSMENT YEAR : 2010-11) THE A.C.I.T., VS. M/S VISHAL COATERS LIMITED, CIRCLE PATIALA. VILLAGE KHUSROPUR, MAIN ROAD, DISTT. PATIALA. PAN: AABCV2767P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH, SR.DR RESPONDENT BY : SHRI TEJ MOHAN SINGH, ADV. DATE OF HEARING : 14.05.2018 DATE OF PRONOUNCEMENT : 28.05.2018 ORDER PER ANNAPURNA GUPTA, A..M. : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (AP PEALS), PATIALA DATED 30.09.2016, RELATING TO ASSESSMENT YE AR 2010- 11. 2. GROUND NO.1 RAISED BY THE REVENUE READS AS UNDER: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD . CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.15,98,217/- O N ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE ON ACCOUNT OF INVESTMENT IN SHARES. 3. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT DURIN G ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD INVESTED IN THE SHARES OF M/S DSG PAPE RS PVT. LTD. AN AMOUNT OF RS.1,45,29,250/-. THE ASSESSING O FFICER ALSO NOTED THAT THE ASSESSEE HAD PAID INTEREST OF RS.47,59,554/- ON BORROWED CAPITAL. HE, THEREFORE, ASKED 2 THE ASSESSEE TO EXPLAIN AS TO WHY INTEREST PAID O N FUNDS INVESTED IN THE SHARE CAPITAL ON PROPORTIONATE BASI S BE NOT DISALLOWED FOR NOT BEING INCIDENTAL TO ITS BUSINES S APPLYING THE RATIO OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES PVT. LTD., 286 ITR 1. THE ASSESSEE SUBMITTED THAT THE RATIO LAID DOWN IN THE CASE OF ABHISHEK INDUSTRIES PVT. LTD. (SUPRA) DID NOT AP PLY TO THE FACTS OF THE PRESENT CASE SINCE THE ASSESSEE HAD NO T ADVANCED ANY INTEREST FREE LOANS TO ANY OF ITS SIST ER CONCERNS BUT HAD MADE INVESTMENT IN SHARES. THE ASSESSING OFFICER AFTER CONSIDERING THE REPLY FILED BY THE ASSESSEE HELD THAT SINCE THE ASSESSEE HAD FAILED TO PROVE THE COMMERCIAL EXPEDIENCY OF MAKING THE INVESTMENT, THE INTEREST PAID BY THE ASSESSEE ON BORROWED FUNDS TO THE EXTENT OF INVESTMENT MADE BY THE ASSESSEE COULD NOT BE HELD TO BE INCIDENTAL TO THE BUSINESS PURPOSE OF TH E ASSESSEE WITHIN THE MEANING OF SECTION 36(1)(III) O F THE ACT. ACCORDINGLY, THE ASSESSING OFFICER MADE DISALLOWANC E OF RS.15,98,217/- OF THE INTEREST EXPENDITURE U/S 36(1 )(III) OF THE ACT. 4. BEFORE THE LD.CIT(APPEALS) THE ASSESSEE FILED DE TAILED SUBMISSIONS REPRODUCED AT PARA 6.1 OF THE CIT(APPEA LS)S ORDER, PRIMARILY CONTENDING THAT THE INVESTMENT HAD BEEN MADE ON ACCOUNT OF BUSINESS PURPOSE ONLY SINCE THE ASSESSEE COMPANY AND THE COMPANY IN WHICH INVESTMEN T HAD BEEN MADE WERE BOTH ENGAGED IN THE SAME BUSINES S (PAPER MANUFACTURING). IT WAS FURTHER CONTENDED THA T 3 BEING EMPOWERED BY ITS MEMORANDUM AND ARTICLES OF ASSOCIATION TO MAKE THE INVESTMENT OUT OF FREE RES ERVES AND PROFITS THE SAID INVESTMENT HAD BEEN MADE OUT OF I NTEREST FREE FUNDS. THE LD.CIT(APPEALS), AFTER CONSIDERING THE ASSESSEES CONTENTION THAT THE ASSESSEE COMPANY HAD SUBSTANTIAL OWN FUNDS AND INTEREST FREE LOANS, DELE TED THE DISALLOWANCE, FOLLOWING VARIOUS DECISIONS OF THE HO N'BLE JURISDICTIONAL HIGH COURT HOLDING THAT WHERE SUFFI CIENT INTEREST FREE FUNDS ARE AVAILABLE, THE PRESUMPTION IS THAT THE ASSESSEE HAS USED THE SAME TO MAKE THE INVESTME NTS AND NOT USED BEARING FUNDS. RELEVANT FINDINGS OF TH E LD.CIT(APPEALS) AT PARA 6.3 OF HIS ORDER IS AS UNDE R: 6.3 I HAVE GONE THROUGH THE RECORD, WRITTEN SUBMIS SIONS AND FACTS OF THE CASE. THE JUDGEMENTS RELIED ON BY THE AO AND THE APPELLANT HAVE ALSO BEEN PERUSED BY ME. IT IS SEEN THAT THE APPELLANT COMPANY HAD SUBSTANTIAL OWN FUNDS AND INT EREST FREE LOANS. TO BE SPECIFIC, APPELLANT HAD INTEREST FRE E UNSECURED LOANS WORTH RS.52,41,446/, SUBSCRIBED SHAR E CAPITAL WORTH RS.2,09,00,000/-, RESERVE AND SURPLUS WORT H RS.3,52,69,036/-, SUNDRY CREDITORS AND FINALLY PROFITS OF THE COMPANY WORTH RS.52,15,054/-PLUS STATUTORY CLAIM OF DEPRECIATION 60,57,325/-. THE DETAILS OF INTEREST FREE UNSECURED LOANS HAS BEEN FURNISHED. THE CHART REVEAL S THAT THE APPELLANT COMPANY HAS RECEIVED INTEREST FREE LO ANS WORTH RS.2,28,40,272/- IN THIS FINANCIAL YEAR OUT OF WHICH AMOUNTS WORTH RS.2,03,53,260/- WERE REPAID AND UNSECURED LOA NS WORTH RS.52,41,446/-REMAINED OUTSTANDING AS ON 31.03.2010. THIS CLAIM OF APPELLANT W.R.T. OWN FUNDS AN D INTEREST FREE FUNDS HAS NOT BEEN COUNTERED BY THE A O. MOREOVER, THE APPELLANT HAS ALSO AVERRED THAT THE IMPU GNED 'AMOUNTS WERE INVESTED FOR BUSINESS PURPOSES ON ACCO UNT OF BUSINESS EXIGENCY BEING A NORMAL BUSINESS PRACTICE. THE INVESTEE COMPANY IS IN THE SAME LINE I.E. PAPER MANUFACTURING AND IT MADE BUSINESS SENSE TO INVEST IN S UCH COMPANIES KEEPING IN VIEW THE FUTURE EXPANSION PLANS. MOREOVER, THERE IS NO INCOME ARISING FROM SUCH INVESTME NT DURING THE YEAR WHICH IS CLAIMED TO BE EXEMPT.' THIS C LAIM HAS ALSO NOT BEEN COUNTERED BY THE AO. HE HAS DISALLOWED THE INTEREST BY APPLYING THE RATIO OF ABH ISHEK INDUSTRIES LIMITED (SUPRA). IT MAY BE NOTED THAT THE HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES PRIVATE LIMIT ED VS. CIT (2015) 379 ITR 0347 (SC) HAS OVERRULED THE RATIO OF 4 ABHISHEK INDUSTRIES. THE HON'BLE SUPREME COURT HAS APPROVED THE RULING OF HON'BLE DELHI HIGH COURT IN T HE CASE OF CIT VS. DALMIA CEMENT (B) LTD. 2002 254 ITR 377, WHERE IN IT WAS HELD THAT ONCE IT IS ESTABLISHED THAT THERE IS NE XUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS, THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN T HE ARMCHAIR OF THE BUSINESSMAN OR IN THE POSITION OF T HE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HO W MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. IT FURTHER HELD THAT NO BUS INESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT AND THAT THE I NCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT . THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OW N VIEWPOINT BUT THAT OF A PRUDENT BUSINESSMAN. THE HON'BLE JURISDICTIONAL HIGH COURT, IN THE CASE OF CIT VS. KAPSONS ASSOCIATES (2016) 381 ITR 204 (P&H), HAS HELD THAT 'THE ASSESSEE HAD INTEREST-FREE ADVANCES FROM ITS DIRECTORS AND SHAREHOLDERS AND THEIR FAMILY MEMBERS AMOUNTING TO RS.315.11 LACS WHEREAS INTEREST-FREE ADVA NCES MADE BY THE ASSESSING AGGREGATING TO RS.219.7 TO LA KHS AS ON MARCH 31, 2008. IT IS RIGHTLY INFERRED THAT ASSE SSEE HAD ENOUGH INTEREST-FREE FUNDS WHICH WOULD COVER THE INT EREST-FREE ADVANCES AND NO PORTION OF INTEREST PAID ON BOROWED CAPITA L BE DISALLOWED'. THE HON'BLE JURISDICTIONAL HIGH COURT HAS IN A RECENT JUDGEMENT IN THE CASE OF TRIDENT INFOTECH CORPORATIO N LIMITED VS. CIT 385 ITR 335 AND KAPSONS ASSOCIATES (SUPRA), HAS REMANDED THE APPEAL TO THE TRIBUNAL IN VIE W OF THE CLEAR FINDING AND IN VIEW OF THE FACT THAT THERE WERE SURPLUS FUNDS WHICH WERE MORE THAN THE INVESTMENT IN SHARES AS WELL AS INTEREST-FREE LOANS. THE PRESENT LEGA L REGIME ORDAINS THAT WHEN SURPLUS FUNDS LIKE OWN MONEY, FREE RESERVES AND INTEREST-FREE MONEY ARE AVAILABLE, PRESU MPTION IS THAT ASSESSEE HAS NOT USED THE INTEREST-BEARING F UNDS TO MAKE INVESTMENT OR INTEREST FREE ADVANCES IN VIEW OF THE FACTUAL MATRIX AND THE APPLICABLE LEGAL POSITION, IT IS H ELD THAT THE DISALLOWANCE OF INTEREST OF RS.15,98,317/- IS UNC ALLED FOR AND THEREFORE THE SAME IS ORDERED TO BE DELETED. THU S, THIS GROUND OF APPEAL IS ALLOWED. 5. BEFORE US THE LD. DR CONTENDED THAT THE IMPUGNE D INVESTMENT MADE BY THE ASSESSEE WAS NOT FOR BUSINES S PURPOSE ,WHICH FACT HAD BEEN CONFIRMED BY THE I.T.A .T. IN ITS ORDER PASSED IN ASSESSEES OWN CASE FOR ASSESSM ENT YEARS 2008-09 AND 2009-10. COPY OF THE ORDER WAS P LACED BEFORE US. OUR ATTENTION WAS DRAWN TO PARA 7 OF T HE SAID ORDER AND IT WAS POINTED OUT THEREFROM THAT THE ISS UE BEFORE 5 THE I.T.A.T. WAS IDENTICAL BEING DISALLOWANCE OF IN TEREST ON ACCOUNT OF INVESTMENT MADE IN THE SHARE CAPITAL OF M/S DSG PAPERS PVT. LTD. OF RS.4.5 CRORES. THEREAFTER O UR ATTENTION WAS DRAWN TO PARA 9 OF THE SAID ORDER WHE REIN THE I.T.A.T. FOUND THAT SIMILAR DISALLOWANCE HAD BEEN D EALT WITH BY THE I.T.A.T. IN ASSESSEES OWN CASE FOR ASSESSME NT YEAR 2007-08 WHEREIN THE PURCHASE OF THESE SHARES WERE H ELD TO BE NOT FOR BUSINESS PURPOSE AND FOLLOWING THE SAME THE ISSUE HAD BEEN DECIDED AT PARA 10 OF THE ORDER AGAI NST THE ASSESSEE. THE LD. DR FURTHER RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 6. THE LD. COUNSEL FOR ASSESSEE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LD.CIT(APPEALS). 7. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIE S. WE FIND NO MERIT IN THE PRESENT GROUND RAISED BY THE R EVENUE. UNDOUBTEDLY, THE DISALLOWANCE OF INTEREST U/S 36(1) (III) OF THE ACT IN THE PRESENT CASE HAS BEEN MADE ON ACCOUN T OF INVESTMENTS MADE BY THE ASSESSEE BY WAY OF PURCHASE OF SHARES OF M/S DSG PAPERS PVT. LTD. BY DISALLOWING I NTEREST PROPORTIONATE TO THE INVESTMENT SO MADE HOLDING THE INVESTMENT TO BE FOR NON BUSINESS PURPOSE. VIS--V IS THE FINDING OF THE LD.CIT(APPEALS) THAT THE INVESTMENT IS FOR BUSINESS PURPOSE, WE CANNOT AGREE WITH THE SAME, I N VIEW OF THE FINDINGS OF THE I.T.A.T. IN THE PRECEDING Y EAR IN ASSESSMENT YEAR 2008-09 IN ITA NO.281 & 281/CHD/201 3 IN THE CASE OF THE ASSESSEE HOLDING THE VERY SAME INVE STMENT TO BE FOR NON BUSINESS PURPOSE. BUT AS FAR AS THE F INDING OF 6 THE LD.CIT(APPEALS) THAT ON ACCOUNT OF AVAILABILITY OF SUFFICIENT INTEREST FREE FUNDS WITH THE ASSESSEE NO DISALLOWANCE OF INTEREST WAS CALLED FOR, WE ARE IN AGREEMENT WITH THE SAME. THE LD.CIT(APPEALS) HAS RIGHTLY RELI ED UPON VARIOUS DECISIONS OF THE HON'BLE JURISDICTIONAL HIG H COURT IN THIS REGARD AND ALSO THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF HERO CYCLES PVT. LTD. VS. CIT (2015) 379 ITR 347,WHEREIN IT HAS BEEN HELD THAT WHERE THE RE ARE SUFFICIENT INTEREST FREE FUNDS THE PRESUMPTION IS T HAT THE INVESTMENTS/INTEREST FREE ADVANCES HAVE BEEN MADE O UT OF THE SAME, CALLING FOR NO DISALLOWANCE TO BE MADE ON ACCOUNT OF INTEREST U/S 36(1)(III) OF THE ACT. THE LD. DR HAS NOT BROUGHT TO OUR NOTICE ANY CONTRARY DECISION IN THIS REGARD EITHER OF THE JURISDICTIONAL HIGH COURT OR THE SUPR EME COURT. FURTHER THE FACTUAL FINDINGS OF THE LD.CIT(A ) OF THE AVAILABILITY OF SUFFICIENT OWN FUNDS OF THE ASSESS EE BY WAY OF INTEREST FREE UNSECURED LOANS WORTH RS.52.41 LAC S, SHARE CAPITAL WORTH RS.2.09 CRORES, RESERVES & SURPLUS WO RTH RS.3.52 CRORES AND FURTHER PROFITS OF THE COMPANY A S AGAINST THE IMPUGNED INVESTMENTS MADE OF RS.1.45 CR ORES WE FIND HAVE REMAINED UNCONTROVERTED BY THE REVENUE 8. WE, THEREFORE, UPHOLD THE ORDER OF THE LD.CIT(AP PEALS) DELETING THE DISALLOWANCE OF INTEREST MADE AMOUNTIN G TO RS.15,98,217/-. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS, THEREFORE, DISMISSED. 9. GROUND NO.2 RAISED BY THE REVENUE READS AS UNDER : 7 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.9,01,467/- ON ACCOUNT OF DISALLOWANCE OF INTEREST ON BORROWED CAPITAL USE D TO ACQUIRE NEW ASSETS. 10. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY HAD INCURRED EXPENDITURE ON ACQUIS ITION OF CAPITAL ASSET WHICH HAS NOT BEEN PUT TO USE IN T HE YEAR. THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE HAD PAID INTEREST ON BORROWED CAPITAL AMOUNTING TO RS.47,59, 553/-. THE AO ATTRIBUTED THE BORROWED CAPITAL TO THE INVE STMENT IN CAPITAL WORK IN PROGRESS ON PROPORTIONATE BASIS AND ACCORDINGLY MADE DISALLOWANCE OF INTEREST OF RS.9, 01,467/- BY INVOKING THE PROVISO TO SECTION 36(1)(III) OF TH E ACT ON ACCOUNT OF INTEREST PAID ON CAPITAL BORROWED FOR TH E ACQUISITION OF CAPITAL ASSET. 11. BEFORE THE LD.CIT(APPEALS), THE ASSESSEE CHALLE NGED THE AFORESAID DISALLOWANCE CONTENDING THAT THE SAME WAS UN-CALLED FOR SINCE THE ASSESSING OFFICER HAD FAILE D TO SPECIFY WHICH LOAN HAS BEEN USED FOR ACQUIRING THE ASSET & THE DATE ON WHICH THE CAPITAL WAS BORROWED, WHICH W ERE THE BASIC INGREDIENTS FOR INVOKING THE PROVISIONS OF SE CTION 36(1)(III) OF THE ACT. IT WAS CONTENDED THAT THE AS SESSEE COMPANY HAD NOT RAISED ANY LOAN DURING THE YEAR FOR ACQUISITION OF ANY CAPITAL ASSET AND THAT THE FIXED ASSET HAD BEEN ACQUIRED FROM ITS OWN INTEREST FREE FUNDS IN T HE FORM OF UNSECURED LOANS, SHARE CAPITAL, RESERVES & SURPL US AND PROFITS. THE LD.CIT(APPEALS) DELETED THE DISALLOWA NCE MADE HOLDING THAT SINCE NO FRESH LOANS HAD BEEN RAISED D URING 8 THE YEAR AND SUFFICIENT INTEREST FREE FUNDS WERE AV AILABLE WITH THE ASSESSEE FOR MAKING INVESTMENT IN THE FIXE D ASSETS, NO DISALLOWANCE OF INTEREST COULD BE MADE AS PER TH E PROVISO TO SECTION 36(1)(III) OF THE ACT. RELEVANT FINDING S OF THE LD.CIT(APPEALS) AT PARA 7.3 OF HIS ORDER ARE AS UND ER: 7.3 I HAVE GONE THROUGH THE SUBMISSIONS AND CASE LAWS RELIED UPON BY THE APPELLANT AS ALSO THE ASSESSMENT OR DER. IT IS SEEN THAT APPELLANT HAD MADE ADDITION IN FIXED ASS ETS AMOUNTING TO RS.1,75,84,20//-. DURING THE ASSESSMENT PROCEEDINGS, THE AO HELD THAT THE APPELLANT BORROWED FUNDS WHICH HAVE BEEN UTILIZED IN PURCHASING THE FIXED ASS ETS. THE APPELLANT HAD COUNTERED THE ARGUMENT BY ASSERTING TH AT THE A.O. HAS FAILED TO SPECIFY THE SECURED LOAN OR UNSECU RED LOAN UTILISED OR DATE ON WHICH FUNDS WERE BORROWED FOR PURCHASE OF FIXED ASSETS. THE APPELLANT HAD FURTHER ARGUED THAT ASSESSING OFFICER IS NOT JUSTIFIED IN DENYING THE STATUTORY CLAIM OF INTEREST TO THE APPELLANT HAVING ACTUALLY INCURRED ON SECURED AND UNSECURED LOANS U/S 36(1) (III) OF THE INCOME TAX ACT, 1961. THE APPELLANT COMPANY HAS NOT RAI SED ANY FRESH LOAN DURING THE YEAR UNDER CONSIDERATION F OR ACQUISITION OF ANY OF THE CAPITAL ASSETS. THE FIXED ASSETS ACQUIRED DURING THE YEAR UNDER CONSIDERATION ARE ACQUIRED FROM DAY TO DAY ACCRETIONS/RECOVERI ES FROM VARIOUS CLIENTS/PARTIES TO WHOM SALES WERE MADE BY T HE APPELLANT FIRM, INTEREST FREE UNSECURED LOANS WORTH RS.52,41,446/-, SUBSCRIBED SHARE CAPITAL WORTH RS.2,09,00,000/-, RESERVE AND SURPLUS WORTH RS.3,52,69,036/-, SUNDRY CREDITORS AND FINALLY PROFITS OF T HE COMPANY WORTH RS.52,15,054/- PLUS STATUTORY CLAIM O F DEPRECIATION RS.60,57,325/- (AS WELL AS INVESTMENTS IN SHARES MENTIONED IN THE PREVIOUS GROUND). THAT THESE F ACTS WERE DULY EXPLAINED AND BROUGHT FORTH BEFORE THE ID A.O., THAT THE INTEREST FREE FUNDS WERE AVAILABLE WITH TH E APPELLANT FOR MAKING INVESTMENTS IN THE FIXED ASSETS . THE LEARNED ASSESSING OFFICER FAILED TO SPECIFY THE REA SONS FOR NOT ACCEPTING THE CONTENTIONS FILED DURING ASSESSMENT PROCEEDINGS. ALL THESE FACTS ARE CLEARLY ESTABLISHED FROM THE AUDITED STATEMENTS OF ACCOUNTS AS WELL AS COPY OF ACCO UNTS AND CONFIRMATION FILED DURING ASSESSMENT PROCEEDINGS OF THE YEAR UNDER CONSIDERATION. THE ARGUMENTS OF APPELLANT HAS FORCE AND IT IS HELD THAT THE IMPUGNED DISALLOWANCE OF INTEREST OF RS.9,01,467/- IS UNCALLED FOR AND THEREFO RE THE SAME IS ORDERED TO BE DELETED. THUS, THIS GROUND OF A PPEAL IS ALLOWED. 12. BEFORE US, THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER WHILE THE LD. COUNSEL FOR ASSESSE E RELIED UPON THE ORDER OF THE CIT(APPEALS). 9 13. HAVING HEARD THE CONTENTIONS OF BOTH THE PARTIE S WE FIND NO INFIRMITY IN THE ORDER OF THE LD.CIT(APPEAL S). THE LD.CIT(APPEALS) HAS GIVEN A CATEGORICAL FINDING OF FACT THAT NO INTEREST BEARING FUNDS/FRESH LOANS WERE TAKEN BY THE ASSESSEE DURING THE YEAR. THE LD.CIT(APPEALS) HAS A LSO GIVEN A FINDING THAT THE ASSESSEE HAD INTEREST FREE FUNDS IN THE FORM OF UNSECURED LOANS WORTH RS.52,41,446/-, S HARE CAPITAL WORTH RS.2.09 CRORES, RESERVES & SURPLUS WO RTH RS.3,52,69,036/- PLUS PROFITS OF THE COMPANY DURING THE YEAR WHICH WERE SUFFICIENT FOR MAKING INVESTMENT IN CAPITAL WORK IN PROGRESS AMOUNTING TO RS.1.75 CRORES. ALL THE ABOVE FACTS HAVE NOT BEEN CONTROVERTED BY THE REVEN UE BEFORE US. IN VIEW OF THE ABOVE, WE AGREE WITH THE LD.CIT(APPEALS) THAT NO DISALLOWANCE OF INTEREST WA S WARRANTED AS PER THE PROVISIONS OF SECTION 36(1)(II I) OF THE ACT, SINCE NO CAPITAL WAS BORROWED BY THE ASSESSEE FOR ACQUIRING CAPITAL ASSET AND ALSO FOR THE REASON THA T SUFFICIENT OWN INTEREST FUNDS OF THE ASSESSEE WERE AVAILABLE FOR MAKING THE INVESTMENT RAISING THE PRESUMPTION T HAT THE SAID FUNDS WERE USED FOR THE PURPOSE, THUS CALLING FOR NO DISALLOWANCE OF INTEREST, AS HELD BY US IN PARAS 7 & 8 OF OUR ORDER ABOVE WHILE DEALING WITH GROUND NO.1 OF T HE APPEAL. THE ACTION OF THE CIT(A) IN DELETING THE DI SALLOWANCE OF INTEREST OF RS.9,01,467/- MADE U/S 36(1)(III) OF THE ACT IS, THEREFORE, UPHELD. GROUND NO.2 RAISED BY THE REVENUE IS, THEREFORE, DISMISSED. 10 14. GROUND OF APPEAL NO.3 RAISED BY THE REVENUE REA DS AS UNDER: 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2,53,309/- ON ACCOUNT OF EXCESS INTEREST PAID ON UNSECURED LOANS. 15. BRIEFLY STATED, THE ASSESSING OFFICER NOTICED T HAT THE ASSESSEE HAD PAID INTEREST ABOVE @ 12% ON UNSECURE D LOANS OF RS.8,68,000/-.FINDING THE SAME UNREASONABL E HE DISALLOWED EXCESS INTEREST ABOVE 12% WHICH CAME TO RS.2,53,309/-. 16. THE LD.CIT(APPEALS) DELETED THE DISALLOWANCE SO MADE HOLDING THAT THE ASSESSING OFFICER HAD FAILED TO ES TABLISH THAT THE RATE OF INTEREST PAID BY THE ASSESSEE WAS EXCESSIVE AND FURTHER THAT THE ASSESSING OFFICER HAD FAULTED IN ADOPTING 10% RATE WITHOUT GIVING ANY REASON OR BASI S. FURTHER RELYING ON VARIOUS DECISIONS OF THE I.T.A.T . CITED BY THE ASSESSEE, WHEREIN RATE OF 24% INTEREST WAS ALSO HELD TO BE REASONABLE, THE CIT(APPEALS) HELD THAT THERE WAS NO OCCASION FOR MAKING THE IMPUGNED DISALLOWANCE. 17. BEFORE US, THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER WHILE THE LD. COUNSEL FOR ASSESSE E RELIED UPON THE ORDER OF THE LD.CIT(APPEALS). 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND AFTER G OING THROUGH THE ORDERS OF THE AUTHORITIES BELOW WE FIND NO INFIRMITY IN THE RD OF THE CIT(APPEALS). THE BASIS FOR MAKING DISALLOWANCE OF INTEREST IN THE PRESENT CASE IS THE FINDING OF THE ASSESSING OFFICER THAT THE INTEREST IN EXCESS O F 12% WAS 11 UNREASONABLE AND EXCESSIVE. WE AGREE WITH THE LD.CIT(APPEALS) THAT THE ASSESSING OFFICER HAVING G IVEN NO BASIS FOR ARRIVING AT THIS CONCLUSION AND CONSIDERI NG THAT EVEN THE RATE OF 24% OF INTEREST HAS BEEN HELD TO B E REASONABLE BY THE I.T.A.T. IN A NUMBER OF CASES, TH E DISALLOWANCE MADE IS NOT TENABLE. MOREOVER, WE FIND THAT THERE IS NO FINDING THAT THE SAID INTEREST WAS GIVE N TO PARTIES/PERSONS WHO WERE CLOSELY CONNECTED WITH THE ASSESSEE AND WERE PERSONS SPECIFIED AS DEFINED U/S 40A(2)(B) OF THE ACT. WITH NO CLOSE CONNECTION BETW EEN THE ASSESSEE AND THE PERSONS TO WHOM THE LOANS WERE GIV EN, THE ASSESSING OFFICER, WE FIND, IN ANY CASE, COULD NOT HAVE MADE ANY DISALLOWANCE BY HOLDING INTEREST CHARGED AS EXC ESSIVE. SINCE THE POWER TO DO SO IS GIVEN ONLY U/S 40A(2) O F THE ACT WHEREIN IF THE ASSESSING OFFICER IS OF THE OPINION THAT ANY EXPENDITURE MADE BY THE ASSESSEE VIS--VIS SPECIFIE D PERSON IS EXCESSIVE OR UNREASONABLE, HE CAN DISALLOW THE S AME. WITH NO SUCH FINDING IN THE PRESENT CASE WE HOLD TH AT THE DISALLOWANCE IN ANY CASE COULD NOT BE MADE BY HOLDI NG THE INTEREST PAID TO BE EXCESSIVE. IN VIEW OF THE ABOVE , WE HAVE NO HESITATION TO UPHOLD THE ACTION OF THE CIT(APPEA LS) IN DELETING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.2,53,309/-. GROUND OF APPEAL NO.3 RAISED BY THE REVENUE IS, THEREFORE, DISMISSED. 19. GROUND NOS.4 AND 5 ARE INTERLINKED DEALING WITH THE DISALLOWANCE OF INTEREST OF RS.5,63,760/- AND RS.2, 76,245/- ON DEBIT BALANCES SHOWN IN THE NAMES OF M/S VISHAL 12 CASTING AND M/S DSG PAPERS LTD. RESPECTIVELY. THE S AID GROUNDS ARE, THEREFORE, TAKEN UP TOGETHER FOR ADJUD ICATION AND READ AS UNDER: 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD . CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.5,63,760/- ON ACCOUNT OF DISALLOWANCE OF ACCRUED INTEREST ON ACCOUNT OF M/S VISHAL CASTINGS LTD., PATIALA. 5. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2,76,245/- ON ACCOUNT OF DISALLOWANCE OF ACCRUED INTEREST ACCOUNT OF M/S DSG PAPERS PVT. LTD., PATIALA. 20. BRIEF FACTS ARE THAT DURING ASSESSMENT PROCEEDI NGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD DE BIT BALANCE OF RS.46,98,000/- WITH M/S VISHAL CASTINGS AND DEBIT BALANCE OF RS.82,17,052/- FOR TWO MONTHS AND RS.11,19,053/- FOR 10 MONTHS WITH M/S DSG PAPERS LT D. THE ASSESSING OFFICER CALCULATED THE INTEREST @ 12% ON BOTH WHICH AMOUNTED TO RS.5,63,760/- IN THE CASE OF M/S VISHAL CASTINGS AND RS.2,76,245/- IN THE CASE OF M/S DSG P APERS LTD. AND ADDED THE SAME TO THE INCOME OF THE ASSESS EE. 21. THE LD.CIT(APPEALS) DELETED THE DISALLOWANCE MA DE ON FINDING THAT THE ASSESSEE HAD SUFFICIENT OWN INTERE ST FREE FUNDS FOR MAKING THE IMPUGNED INTEREST FREE ADVANCE S TO THE SAID TWO PARTIES. THE LD.CIT(APPEALS) IN THIS R EGARD PLACED RELIANCE ON THE DECISION OF THE HON'BLE JURI SDICTIONAL HIGH COURT IN THE CASE OF TRIDENT INFOTECH CORPORA TION LTD. VS. CIT, 385 ITR 335 AND CIT VS. KAPSONS ASSOCIATE S (2016) 381 ITR 204. RELEVANT FINDING OF THE LD.CIT (APPEALS) AT PARA 10.3 OF HIS ORDER IS AS UNDER: 13 10.3 I HAVE GONE THROUGH THE SUBMISSIONS AND CASE LAW S RELIED UPON BY THE APPELLANT AS ALSO THE ASSESSMENT OR DER. IT IS NOT DISPUTED THAT APPELLANT WAS USING BORROWED F UNDS AND NO INTEREST WAS CHARGED FROM M/S VISHAL CASTING LTD . AND M/S DSG PAPERS PVT. LTD. AT THE SAME TIME, IT IS ALSO U NDISPUTED THAT APPELLANT COMPANY POSSESSED SUBSTANTIAL INTERE ST FREE SUMS IN ITS KITTY FOR MAKING THE INTEREST FREE ADVA NCES. THE INTEREST FREE SUMS POSSESSED BY THE APPELLANT COMPAN Y INCLUDE SUBSCRIBED SHARE CAPITAL WORTH RS.2,09,00,000/- , RESERVE AND SURPLUS WORTH RS.3,52,69,036/-, SUNDRY CR EDITORS WORTH RS.64,15,642/-, ADVANCES RECEIVED WORTH RS.1,87,878/- AND OTHER LIABILITIES WORTH RS.1,51,45 ,173/- (AS WELL AS INVESTMENTS IN SHARES, BORROWED SECURED O R UNSECURED LOANS TO MAKE INVESTMENTS IN THE CAPITAL ASSETS MENTIONED IN THE GROUNDS DISCUSSED ABOVE). THERE WE RE SUFFICIENT NON-INTEREST BEARING FUNDS AVAILABLE WITH THE APPELLANT COMPANY FOR MAKING INTEREST FREE ADVANCE TO M/S VISHAL CASTINGS PATIALA AND DSG PAPERS PVT. LTD. THE ID . A.R. HAS RELIED ON CERTAIN JUDICIAL RULINGS. IT IS NOW A SET TLED LAW THAT WHEN SURPLUS FUNDS LIKE OWN MONEY, FREE RESERVE S AND INTEREST-FREE MONEY ARE AVAILABLE WITH THE APPELLANT, T HE PRESUMPTION IS THAT IT HAS NOT USED THE INTEREST- BE ARING FUNDS TO MAKE INVESTMENT OR INTEREST-FREE ADVANCES. THE HON'BLE JURISDICTIONAL HIGH COURT HAS IN A RECENT JUDGEMENT IN THE CASE OF TRIDENT INFOTECH CORPORATIO N LIMITED VS. CIT 385 ITR 335 AND KAPSONS ASSOCIATES (SUPRA), HIS REMANDED THE APPEAL TO THE TRIBUNAL IN VIE W OF THE CLEAR FINDING AND IN VIEW OF THE FACT THAT THERE WERE SURPLUS FUNDS WHICH WERE MORE THAN THE INVESTMENT IN SHARES AS WELL AS INTEREST-FREE LOANS. THE PRESENT LEGAL REGIME OR DAINS THAT WHEN SURPLUS FUNDS LIKE OWN MONEY, FREE RESERVES AND INTEREST-FREE MONEY ARE AVAILABLE, PRESUMPTION IS TH AT ASSESSEE HAS NOT USED THE INTEREST-BEARING FUNDS TO MAKE INV ESTMENT OR INTEREST-FREE ADVANCES. IN VIEW OF THE FACTUAL MATRIX AND THE APPLICABLE LEGAL POSITION, IT IS HELD THAT THE ADDITIONS ON A/C OF ACCRUED INTERESTS OF RS.5,63,760/- AND RS.2,76,245/- IS UNCALLED FOR AND THEREFORE THE SAME ARE DELETED. THUS , THESE GROUNDS OF APPEAL ARE ALLOWED. 22. BEFORE US, THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND THE LD. COUNSEL FOR ASSESSEE RELIED UPON THE ORDER OF THE CIT(APPEALS). 23. WE HAVE HEARD THE RIVAL CONTENTIONS. WE FIND NO INFIRMITY IN THE ORDER OF THE LD.CIT(APPEALS). THE LD.CIT(APPEALS) HAS DELETED THE DISALLOWANCE ON TH E BASIS OF THE FACTUAL FINDING THAT SUFFICIENT INTEREST FRE E OWN FUNDS WERE AVAILABLE WITH THE ASSESSEE AND RELYING UPON T HE 14 PROPOSITION OF LAW LAID DOWN IN THIS REGARD BY THE JURISDICTIONAL HIGH COURT THAT THE PRESUMPTION IS T HAT THE SAID FUNDS HAVE BEEN USED FOR THE PURPOSE THE SAME CALLING FOR NO DISALLOWANCE OF INTEREST U/S 36(1)(III) OF T HE ACT. WE HAVE DEALT WITH IDENTICAL ISSUE IN GROUND NO.1 OF OUR ORDER AGREEING WITH THE LD.CIT(A) AT PARAS 7 & 8 ABOVE. 24. IN VIEW OF THE SAME, WE HAVE NO HESITATION IN UPHOLDING THE ORDER OF THE LD.CIT(APPEALS) DELETING THE DISALLOWANCE MADE OF INTEREST U/S 36(1)(III) OF THE ACT AMOUNTING TO RS.5,63,760/- AND RS.2,76,245/-. GROU ND NOS.4 AND 5 RAISED BY THE REVENUE ARE ALSO DISMISSE D. 25. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH MAY, 2018 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH