Shree Saras Spices & Food P.Ltd., Ahmedabad V. The ACIT.,(OSD)Circle-8, Ahmedabad

ITA 1220/AHD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63066 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-09-2012
• Assessment Year: 2009-2010
• Appeal Filed On: 04-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A TIRKEY
• Assessee Lawyers: U S BHATI
• Keywords: Opportunity of being heard; Earning of tax free income; Proportionate interest; Retrospective amendment; Onus to prove
• Section: 14A; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NOS. 2527/AHD/2010 ASSESSMENT YEARS :2007-08 & ITA NOS. 1220/AHD/2012 ASSESSMENT YEARS :2009-10 SHREE SARAS SPICES & FOOD P. LIMITED A/3, 4 TH FLOOR, CASELA TOWER, SG HIGHWAY, SATELLITE, AHMEDABAD V/S . DY. COMMISSIONER OF INCOME TAX (OSD), CIRCLE-8, AHMEDABAD PAN NO. A A FCS6824G (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI U.S.BHATI, A.R. /BY RESPONDENT SHRI A. TIRKEY, SR. D.R. /DATE OF HEARING 24.09.2012 /DATE OF PRONOUNCEMENT 09.11.2012 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THESE ARE TWO APPEALS FILED BY THE ASSESSEE IN ITA NOS. 2527/AHD/10 & 1220/AHD/12, WHICH HAVE EMANATED FROM THE ORDERS OF CIT(A)-XIV, AHMEDABAD, DATED 21.06.2010 FOR A.Y. 2007-08 & 16.0 4.2012 FOR A.Y. 2009- 10 RESPECTIVELY. THESE TWO APPEALS WERE HEARD TOGE THER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAK E OF CONVENIENCE. THE EFFECTIVE GROUNDS OF BOTH APPEALS ARE AS UNDER: ITA NOS. 2527 /AHD/10 A.Y. 07-08 & 1220 AHD OF 2012 A.Y. 09-10 PAGE 2 GROUNDS OF ITA NO.2527/AHD/2010 (A.Y. 07-08) 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF I NTEREST ON TDS TO THE EXTENT OF RS.1,05,005/-. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE U/S 14A READ WITH RULE 8D AMOUNTING TO RS.22,98,627/-. GROUND OF ITA NO.1220/AHD/2012 (A.Y. 09-10) 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE AMOU NTING TO RS.3,62,210/- U/S 14A OF THE INCOME TAX ACT, READ W ITH RULE 8D OF THE INCOME TAX RULES, 1962. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE AMOU NTING TO RS.3,20,600/- U/S 36(1)(III) OF THE INCOME TAX ACT, 1961. 2. THE FIRST GROUND OF APPEAL IN A.Y. 07-08 IS AGAI NST CONFIRMING DISALLOWANCE OF INTEREST ON TDS TO THE EXTENT OF RS . 1,05,005/-. THE A.O. OBSERVED THAT THE ASSESSEE HAS CLAIMED INTEREST ON TDS OF RS.1,05,005/-. THE SHOW CAUSE NOTICE WAS GIVEN TO THE ASSESSEE. THE APPELLANT WAS AGREED TO PROPOSE THE ADDITION BEFORE THE A.O. BEF ORE THE LD. A.O., THE APPELLANT AGREED TO MAKE THE ADDITION OF RS.1,05,00 5/-, EVEN THEN, HE CHALLENGED THIS ISSUE BEFORE THE CIT(A) WHO HAD DIS MISSED THE APPEAL ON PAGE NO.2 OF THE APPEAL ORDER ON THE REASONING THAT INTEREST PAID BY THE APPELLANT ON TDS CAN ONLY BE IN ONE CIRCUMSTANCE, I .E. LATE PAYMENT OF TDS TO ITA NOS. 2527 /AHD/10 A.Y. 07-08 & 1220 AHD OF 2012 A.Y. 09-10 PAGE 3 THE GOVERNMENT TREASURY. THE APPELLANT UTILIZED GO VERNMENT FUND AND PAID INTEREST ON DELAYED PAYMENT OF TDS WHICH IS COMPENS ATORY IN NATURE OF ENJOYMENT OF GOVERNMENTS SUCH AMOUNT WHICH WAS DUE TO GOVERNMENT AS PER DUE DATE AFTER DEDUCTION. HE ALSO RELIED IN CA SE OF EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT (1997) 224 ITR 627 (SC). SIMILARLY THE INTEREST ON LATE PAYMENT OF DIRECT TAXES IS NOT ALL OWABLE AS DEDUCTION AS HELD IN CASE OF BHARAT COMMERCE & INDUSTRIES LTD. V. CIT (198) 230 ITR 733 (SC). 3. NOW THE MATTER IS BEFORE US. THE ASSESSEE RELIE D IN CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT (SUPRA) AND ALSO IN SERVICE TAX APPEAL IN ITA NO. 4113/DEL/2009 (DEL) IN CASE OF DCIT VS. MESSEE DUSSELDORF INDIA (P) LTD ., WHEREIN INTEREST PAID ON LATE DEPOSIT, A SERVICE TA X IN GOVERNMENT ACCOUNT IS ALLOWED AS DEDUCTION. ACCORDINGLY, HE PRAYED THAT THE INTEREST PAID ON LATE PAYMENT OF TDS IS ALLOWABLE. AT THE OUTSET, LD. D. R. RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 4. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BE LOW AND HEARD THE ARGUMENTS FROM BOTH THE SIDES. THE ASSESSEE DEDUCT ED TDS BUT PAID LATE IN GOVERNMENT EXCHEQUER, THE APPELLANT USED THE GOVERN MENT MONEY FOR ITS OWN PURPOSES AND INTEREST ON LATE PAYMENT OF TDS IS COMPENSATORY AS HELD IN CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT(SUPRA). THEREFORE, WE DISMISS THE APPEAL ON THIS GROUND. 5. THE SECOND GROUND IS CONFIRMING THE DISALLOWANCE U/S.14A READ WITH RULE 8D AMOUNTING TO RS.22,98,627/- IN A.Y. 07-08 A ND AT RS.3,62,210/- IN FIRST GROUND FOR A.Y. 09-10. THE A.O. FOUND IN A.Y . 07-08 THAT THE ASSESSEE ITA NOS. 2527 /AHD/10 A.Y. 07-08 & 1220 AHD OF 2012 A.Y. 09-10 PAGE 4 HAD TAKEN LOAN OF RS.1,34,07,801/- AS ON 31.03.2007 AND HAD PAID INTEREST TO THE TUNE OF RS.21,82,204/-. THE APPELLANT HAD MADE INVESTMENTS OF RS.2,40,80,000/- AS ON 31.03.2007 AND EARNED TAX FR EE INCOME ON IT. THE LD. A.O. HAD GIVEN REASONABLE OPPORTUNITY OF BEING HEAR D WHICH WAS AVAILED BY THE ASSESSEE WHO HAS WORKED OUT DISALLOWANCE U/S. 1 4A READ WITH RULE 8D AT RS.20,43,821/-. THE LD. A.O. ALSO RELIED ON VARIOU S CASE LAWS MENTIONED AT PAGE NOS. 2 & 3 OF THE ASSESSMENT ORDER AND REJECTE D THE CONTENTION OF THE APPELLANT. THE LD. A.O. HAD RE-WORKED THE DISALLOW ANCE U/S.14A READ WITH RULE 8D WHICH WAS DISCUSSED WITH THE APPELLANTS A. R., WHO HAD ACCEPTED THE MISTAKE COMMITTED BY THEM IN THE WORKING PROVIDED T HEMSELVES. THE A.O. CALCULATED TOTAL DISALLOWANCE UNDER RULE 14A AT RS. 22,98,627/-. SIMILAR FINDINGS FOR A.Y. 09-10 HAVE BEEN GIVEN BY THE A.O. AND DISALLOWANCES WERE WORKED OUT AT RS.3,62,210/- U/S. 14A READ WITH RULE 8D. 6. THE ASSESSEE EVEN ACCEPTED THE WORKING BEFORE TH E A.O., CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD DISMISSED THE APPE AL FOR A.Y. 07-08, THE OPERATIVE PORTION OF THE ORDER IS AS UNDER: 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE APPELLANT. I AM NOT INCLINED TO ACCEPT THE CONTENTIONS OF THE APPELLANT. THE HON. ITAT SPECIAL BENCH, MUMBAI IN THE CASE OF M/S. DAGA CAPITAL MANAGEMENT PVT. LTD., AND OTH ERS VIDE ITS ORDER DT: 20-10-2008 EXAMINED THE BACKGROUND WHICH LED TO THE INSERTION OF THE SECTION 14A BY THE FINANCE ACT, 20 01 WITH RETROSPECTIVE EFFECT FROM 01-04-1962. IT ALSO CONSI DERED THE MEMORANDUM EXPLAINING THE PROVISION IN THE FINANCE BILL, 201 (248 ITR (ST) 195) AND CIRCULAR NO. 14 252 ITR (ST ) 65. IT ALSO ITA NOS. 2527 /AHD/10 A.Y. 07-08 & 1220 AHD OF 2012 A.Y. 09-10 PAGE 5 CONSIDERED THE HEYDON'S RULE ALSO KNOWN AS ' MISCHI EF RULE' AND HELD A) SECTION 14A HAS OVERRIDING EFFECT OVER ALL OTHER SECTIONS ALLOWING DEDUCTION (PAPRA 17.7 OF THE ORDER) B) SUB-SECTION (2) & (3) OF SEC. 14A ARE PROCEDURAL IN NATURE AND HENCE RETROSPECTIVE. (PARA 18 OF THE ORDER) C) ON GOING THROUGH SUBSECTION (1), IT CAN BE CLEAR LY NOTICED THAT THE EXERCISE OF MAKING DISALLOWANCE STARTS WITH FIRSTLY TRACING OUT THE EXEMPT INCOME AND THEN INITIATING THE PROCESS O F WORKING OUT THE EXPENDITURE INCURRED IN RELATION TO SUCH EXEMPT INCOME. (PARA 22 OF THE ORDER) D) ALL THE DIRECT AND INDIRECT EXPENSES ARE DISALLO WABLE UNDER 14A, WHICH HAVE ANY RELATION WITH THE INCOME NOT CHARGEA BLE TO TAX UNDER DIE ACT. (PARA 23.7 OF THE ORDER). E) THE ONUS TO PROVE THAT THE EXPENDITURE WAS INCUR RED IN THE TAXABLE BUSINESS OPERATION AND NOT THE EXEMPT INCOM E IS UPON THE ASSESSEE (PARA23.12 OF THE ORDER). F) THE DISCUSSION ABOUT THE APPORTIONMENT OF DIRECT OR INDIRECT EXPENDITURE TOWARDS TAXABLE AND EXEMPT INCOME HAS B ECOME ACADEMIC IN VIEW OF RULE 8D WHICH PRESCRIBES MECHAN ISM FOR WORKING OUT THE DISALLOWANCE U/S. 14A. THE ASSESSIN G OFFICER IS BOUND TO ADOPT RULE 8D FOR MAKING DISALLOWANCES U/S . 14 A, WHERE HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLA IM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE (PARA 23.12 OF THE ORDER). E) SECTION 14A IS APPLICABLE IN THE CASES WHERE THE EXEMPT INCOME IS INCIDENTAL TO MAIN BUSINESS OF ASSESSEE. (PARA 26 OF THE ORDER). THE APPELLANT EXCEPT STATING THAT NO EXEMPT INCOME IS CLAIMED DURING THE PREVIOUS YEAR, FAILED LO SUBSTANTIATE TH E FACT THAT OUT OF THE HUGE BORROWING OF RS. 1.34 CRORE AS ON 31-03-07 , NO AMOUNT WAS UTILISED FOR MAKING INVESTMENT AMOUNTING TO RS. 2.41 CRORE AS ON 31-03-07. IT IS, THEREFORE, BEYOND DOUBT THA T OUT OF THE CLAIM OF INTEREST OF RS. 21,82,204/- NONE OF ITS PO RTION RELATED TO THE BORROWED FUND UTILISED FOR SUCH INVESTMENT. EV EN IF APPELLANT'S ARGUMENT IS ACCEPTED FOR THE TIME BEING THAT DURING ITA NOS. 2527 /AHD/10 A.Y. 07-08 & 1220 AHD OF 2012 A.Y. 09-10 PAGE 6 THE PREVIOUS YEAR, NO EXEMPT INCOME IS CLAIMED BUT THE INTEREST PAID ON BORROWED CAPITAL BEING UTILISED FOR MAKING INVESTMENT AND EXPENDITURE INCURRED IN THE FORM OF INDIRECT COST ( ESTABLISHMENT AND OVERHEAD EXPENSES) HAS TO BE IDENTIFIED AND TO BE DISALLOWED SINCE THE SAME ARE NOT INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF BUSINESS OF THE APPELLANT. THE ONUS IS ON APPELLANT TO WORK OUT OR SEPARATE OUT SUCH INTEREST AND EXPENDIT URE. CONSIDERING THE DIRECT JUDGEMENT OF HON'BLE ITAT, D ELHI (SB) 124 TTJ 577 AND RATIO OF DAGA CAPITAL MANAGEMENT, SUPRA , THE A.O. IS FULLY JUSTIFIED IN MAKING SUCH DISALLOWANCE U/S. I4A OF THE ACT R.W.R. 8D. THE GROUND OF APPEAL IS, THEREFORE, REJ ECTED. FOR A.Y. 2009-10, THE CIT(A)S FINDING IS AS UNDER: 2.3 DECISION I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND T HE SUBMISSIONS GIVEN BY THE APPELLANT. DISALLOWANCE U/S. 14A THE APPELLANT HAS SUBMITTED THAT DISALLOWANCE U/S. 14A HAS ALREADY BEEN MADE FOR A. Y. 2007-08. THE APPEL LANT HAD NOT MADE ANY NEW INVESTMENT DURING THE YEAR, THEREFORE, NO DISALLOWANCE IS CALLED FOR. THE APPELLANT HAD SUFFI CIENT INTEREST FREE FUNDS FOR MAKING THE INVESTMENT. THE SUBMISSIO N OF THE APPELLANT IS NOT ACCEPTABLE AS THE DISALLOWANCE OF THE EXPENSES PERTAINING TO THE INVESTMENT IN TAX EXEMPT ASSETS U /S. 14A IS TO BE MADE OUT OF THE EXPENSES CLAIMED BY THE APPELLAN T IN THE PROFIT AND LOSS ACCOUNT. THE DISALLOWANCE IS DETERM INED AFTER TAKING INTO ACCOUNT THE INTEREST EXPENSES AND THE A DMINISTRATIVE ITA NOS. 2527 /AHD/10 A.Y. 07-08 & 1220 AHD OF 2012 A.Y. 09-10 PAGE 7 EXPENSES AFTER APPLYING RULE 8D. THE DISALLOWANCE HAS TO BE MADE EVERY YEAR AS LONG AS THERE IS AN EXPENDITURE WHICH IS INCURRED FOR EARNING THE TAX EXEMPT INCOME AND THE EXPENDITURE HAS NOT BEEN DISALLOWED BY THE APPELLANT HIMSELF FR OM THE EXPENSES CLAIMED BY HIM. THE CLAIM OF THE APPELLANT THAT THERE WAS A REDUCTION IN THE UNSECURED LOANS IS ALSO OF N O AVAIL AS THE DISALLOWANCE HAS BEEN MADE BY THE A.O. AFTER CONSID ERING THE INTEREST EXPENSES THAT HAVE BEEN INCURRED IN BORROW ING THAT LOAN. THE CLAIM OF THE APPELLANT THAT THERE IS NO SUFFICI ENT INTEREST FREE FUNDS INCLUDING CAPITAL RESERVE IS OF NO HELP AS IT IS NOTED THAT THE INVESTMENT AS PER BALANCE SHEET ON 31/03/2009 WAS R S.2.37 CRORES AND THE SHAREHOLDER FUNDS WERE AT RS.2.52 CR ORES. THE CLAIM CANNOT BE ACCEPTED AS THE APPELLANT HAS NOT B EEN ABLE TO ESTABLISH THE NEXUS BETWEEN INTEREST FREE FUNDS AND THE INVESTMENT MADE IN TAX EXEMPT ASSETS. IT IS ALSO N OTED THAT THE DISALLOWANCE WHICH WAS MADE LAST YEAR HAS BEEN ACCE PTED BY THE APPELLANT AS THERE IS NO APPEAL ON RECORD. FURTHER, THE APPLICATION OF RULE 8D HAS ALSO BEEN J UDICIALLY SETTLED BY VARIOUS COURT AND IT HAS BEEN HELD THAT IT IS APPLICABLE FROM A. Y. 2008-09 ONWARDS. THE A.O. HAS ALSO GIVEN FINDING REGARDING THE APPLICATION OF INTEREST BEARING FUNDS FOR MAKING THE INVESTMENT IN SHARES AND EARNING THE DIVIDEND THERE ON. THE RELIANCE PLACED BY THE APPELLANT ON CERTAIN JUDICIA L ITA NOS. 2527 /AHD/10 A.Y. 07-08 & 1220 AHD OF 2012 A.Y. 09-10 PAGE 8 PRONOUNCEMENTS IS RESPECTFULLY DISTINGUISHED AS THE JUDGMENTS ARE PRIOR TO THE PERIOD FROM WHICH THE RULE 8D HAS BEEN BROUGHT IN THE ACT. THEREFORE, THE SAME ARE NOT APPLICABLE TO THE CASE OF THE APPELLANT. THE DISALLOWANCE MADE BY THE A.O. U /S. 14A OF THE ACT IS, THEREFORE, UPHELD. 7. NOW THE ASSESSEE IS BEFORE US. LD. D.R. RELIED UPON THE ORDER OF CIT(A). LD. A.R. CONTENDED THAT NO EXPENDITURE INC URRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THEREFORE, THE RULE 8D IS NOT APPLICABLE IN ITS CASE. THE EXPENDITURE CLAIMED BY HIM IS ALLOWABLE U/S. 28 TO 37 OF THE IT ACT. HOWEVER, THEY HAVE CA LCULATED THE DISALLOWANCES U/S.14A BEFORE THE A.O. AT RS. 20,43,821/-. HE FUR THER CONTENDED THAT RULE 8D IS NOT APPLICABLE FOR A.Y. 07-08. HE ARGUED THA T SECURED LOAN REDUCED DURING THE YEAR. THE ASSESSEE HAD INTEREST FREE F UND AS SHARE CAPITAL AT RS.5 LACS, SHARE APPLICATION MONEY OF RS. 67.35 LACS AND RESERVE AND SURPLUS RS.22.27 LACS. NO INTEREST BEARING FUND USED IN IN VESTMENT IN SHARES. THE INVESTMENT IN SHARE HAS INCREASED FROM 2.2 CRORE FR OM 2.40 CRORES DURING THE YEAR WHICH IS INCREASED BY RS. 18 LACS WHEREAS THE APPELLANT RECEIVED SHARE APPLICATION MONEY DURING THE YEAR AT RS.67.35 LACS. THUS, NO DISALLOWANCE IS TO BE MADE ON ACCOUNT OF SECTION 14A. HE ALSO RELI ED IN CASE OF ACIT VS. AQUAGEL CHEMICALS PVT. LTD., BHAVNAGAR, IN ITA NO. 3533/AHD/2008 FOR A.Y. 05-06 WHEREIN CO-ORDINATE B BENCH ON IDENTICAL FACTS, HAD DISMISSED THE APPEAL OF THE REVENUE. SIMILAR ISSUE DEALT BY CO-O RDINATE C BENCH IN CASE OF SAGAR DRUGS & PHARMACEUTICALS (P) LTD. VS. ACIT, RA NGE-8, IN ITA NO. ITA NOS. 2527 /AHD/10 A.Y. 07-08 & 1220 AHD OF 2012 A.Y. 09-10 PAGE 9 3170/AHD/2009 FOR A.Y. 06-07. IT WAS HELD THAT DISALLOWANCE ON ADMINISTRATIVE EXPENSES CANNOT BE MADE PRIOR TO 07-08 UNLESS THERE IS A DIRECT NEXUS ESTABLISHED BY THE A.O. RULE 8D IS EFFECTIVE FROM A.Y. 08-09 WHICH CANNOT BE APPLIED FOR A.Y. 07-08. THEREFORE, THE CIT(A) WAS NOT RIGHT IN CONFIRMING THE DISALLOWANCE MADE UNDER RULE 8D OF THE IT RULE FROM ADMINISTRATIVE EXPENSES UNLESS OF COURSE A DIRECT NEXUS IS ESTABLI SHED WHICH HAS NOT BEEN DONE IN THE PRESENT CASE. ACCORDINGLY, THE ADDITIO N MADE BY THE A.O. AND CONFIRMED BY THE CIT(A), MAY BE DELETED. 8. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BE LOW AND GONE THROUGH THE CASE LAWS CITED BY THE APPELLANT. THE APPELLAN T HAD CHALLENGED THE ACTION OF THE A.O. ON THE REASONING THAT RULE 8D IS NOT AP PLICABLE FOR A.Y. 07-08, HAD CONFIRMED THE VIEW BY THE HONBLE BOMBAY HIGH COURT DECISION IN CASE OF GODREJ & BOYCE VS. DCIT. HONBLE BOMBAY HIGH COURT HELD THAT RULE 8D IS PROSPECTIVE NOT RETROSPECTIVE. THEREFORE, IT IS AP PLICABLE FOR A.Y. 08-09. THE A.O. CAN DISALLOW THE EXPENSES U/S.14A BUT NEXUS HA S TO BE ESTABLISHED BY HIM. IN THE PRESENT CASE, THERE IS NO NEXUS HAS BE EN ESTABLISHED BY THE A.O. HE SIMPLY CALCULATED THE DISALLOWANCE BY APPLYING T HE RULE 8D WHICH IS APPLICABLE FROM THE A.Y. 08-09. ACCORDINGLY, WE AL LOW THE APPEAL OF THE ASSESSEE. 9. FOR A.Y. 09-10, THE RULE 8D IS APPLICABLE AND IT IS MANDATORY ON THE PART OF THE A.O. TO CALCULATE THE DISALLOWANCE UNDER RUL E 8D ON THE BASIS OF FORMULA PRESCRIBED IN RULE 8D. AS THE APPELLANT DID NOT POINT OUT ANY DEFECT IN THE COMPUTATION PROVIDED BY THE A.O., AT ANY STAGE. THEREFORE, THE ITA NOS. 2527 /AHD/10 A.Y. 07-08 & 1220 AHD OF 2012 A.Y. 09-10 PAGE 10 DISALLOWANCE MADE BY THE A.O. IN A.Y. 09-10, IS CON FIRMED. THE ASSESSEES APPEAL IN A.Y. 09-10 IS DISMISSED. 10. THE REMAINING GROUND IN A.Y. 09-10 IS AGAINST C ONFIRMING DISALLOWANCE AMOUNTING TO RS.3,20,600/- U/S. 36(1)(III) OF THE I T ACT. THE A.O. FOUND THAT THE ASSESSEE DID NOT CHARGE ANY INTEREST FROM FOLLO WING PERSONS: (I) VIDIT TRADLINK RS.5 LACS (II) G.R. ASSOCIATES RS. 4,80,000/- (III) IMPACT IMPEX RS. 11 LACS (IV) PRANJEE PROPERTIES P. LTD. RS. 30 LACS THE A.O. HAD GIVEN REASONABLE OPPORTUNITY OF BEING HEARD TO JUSTIFY THE INTEREST FREE ADVANCES TO THE ABOVE PERSONS. THE A PPELLANT HAD TAKEN LOAN OF RS.3,93,48,407/- ON WHICH INTEREST OF RS.27,50,253/ - WAS PAID. THE REASONING OF THE A.O. WAS THAT FROM ONE HAND HE IS PAYING INT EREST ON LOANS BUT ON ANOTHER HAND HE IS NOT CHARGING INTEREST ON INTERES T FREE LOANS. THE LD. A.O. AFTER CONSIDERING THE ASSESSEES REPLY, CALCULATED THE INTEREST ON ABOVE INTEREST FREE ADVANCES AT RS.3,20,600/- AND DISALLO WED U/S. 36(1)(III) OF THE IT ACT. 11. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE A SSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO HAS ALSO CONFIRMED THE ADD ITION. THE OPERATIVE PORTION IS AS UNDER: THE DISALLOWANCE U/S.36(1)(III) HAS BEEN MADE BY T HE A.O. AS THE APPELLANT HAD MADE INTEREST FREE ADVANCES OU T OF THE INTEREST BEARING FUNDS. THE APPELLANT HAS NOT BEEN ABLE TO CLEARLY PROVE THE NEXUS BETWEEN THE INTEREST FREE ADVANCES AND THE INTEREST FREE FUNDS. IT HAS ALSO NOT BEEN ABLE TO ESTABLISH THAT THE ITA NOS. 2527 /AHD/10 A.Y. 07-08 & 1220 AHD OF 2012 A.Y. 09-10 PAGE 11 ADVANCES WERE OUT OF PURPOSE OF BUSINESS AND NO REA SON FOR NOT CHARGING THE INTEREST HAS BEEN GIVEN. THE DISALLOW ANCE MADE BY THE A.O. IS, THEREFORE, UPHELD. THE APPELLANT HAS ALSO SUBMITTED THAT THERE WAS A D OUBLE DISALLOWANCE OF INTEREST U/S.14A AS WELL AS U/S.36( 1)(III) OF THE ACT. THE CLAIM OF THE APPELLANT IS WITHOUT ANY BASIS. T HE DISALLOWANCE U/S.14A IS MADE OUT OF THE INTEREST PAID BY THE APP ELLANT BY WORKING OUT THE PROPORTIONATE INTEREST WHICH CORRES PONDS TO THE INVESTMENT MADE IN SHARES. SIMILARLY, THE DISALLOW ANCE U/S. 36(1)(III) IS MADE BY WORKING OUT THE PROPORTIONATE INTEREST CORRESPONDING TO THE INTEREST FREE LOANS GIVEN BY T HE APPELLANT OUT OF THE INTEREST BEARING FUNDS. THEREFORE, BOTH THE DISALLOWANCES HAVE NO OVERLAPPING AND HAVE RIGHTLY BEEN MADE SEPA RATELY BY THE A.O. THE GROUND OF APPEAL IS ACCORDINGLY DISMISSED. 12. NOW THE MATTER IS BEFORE US. LD. COUNSEL FOR T HE APPELLANT CONTENDED THAT THE UNSECURED LOAN HAD BEEN REDUCED FROM 1.79 CRORE TO 1.38 CRORE. HE HAS ALSO DRAWN OUR ATTENTION ON PAGE NOS. 44,45,47 & 48 AND CLAIMED THAT ADVANCES WERE MADE IN EARLIER YEAR. THE ASSESSEE H AS INTEREST FREE FUND BY WAY OF SHARE CAPITAL, RESERVES AND SURPLUS, SHARE A PPLICATION MONEY. THE INTEREST FREE ADVANCES WERE GIVEN TO MAINTAIN THE B USINESS RELATION AND FOR BUSINESS EXPEDIENCY. FURTHER, HE ALSO RELIED ON RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM.) AND TORRENT FINANCIE RS VS. ACIT, 73 TTJ 624 (AHD.) AND SUBMITTED THAT IT HAS TO BE PRESUMED THAT THE E NTIRE INVESTMENTS HAVE COME FROM ITS OWN FUND AND NOT A PART OF THE B ORROWED CAPITAL HAS GONE IN MALTING INVESTMENT. THE LD. A.O. HAD NOT ESTABL ISHED THE NEXUS BETWEEN INTEREST BEARING LOAN AND INTEREST FREE ADVANCES. THEREFORE, THIS ADDITION IS ITA NOS. 2527 /AHD/10 A.Y. 07-08 & 1220 AHD OF 2012 A.Y. 09-10 PAGE 12 NOT WARRANTED. FROM THE SIDE OF THE REVENUE, LD. D .R. VEHEMENTLY RELIED ON THE ORDERS OF THE CIT(A) AND A.O. 13. WE HAVE PERUSED THE RIVAL CONTENTIONS AND SUBMI SSION AND HEARD THE ARGUMENTS FROM BOTH THE SIDES. IT IS FACT THAT THE ASSESSEE HAD NOT CHARGED ANY INTEREST IN CASE OF PRANJEE PROPERTIES P. LTD. ON RS.30 LACS AND IMPACT IMPEX ON RS. 11 LACS, WHICH WERE ADVANCED DURING TH E YEAR. REMAININGS WERE ADVANCED IN EARLIER YEARS. THE APPELLANT HAD VARIOUS INTEREST FREE FUNDS AVAILABLE IN FORM OF SHARE CAPITAL, RESERVE SURPLUS , SHARE APPLICATION MONEY SUBSTANTIALLY. FURTHER, THE UNSECURED LOAN HAD BEE N GONE DOWN BY RS.40 LACS COMPARED TO PRECEDING YEAR. THERE IS NO DIRECT NEX US HAS BEEN ESTABLISHED BY THE A.O. THAT INTEREST FREE ADVANCES GIVEN OUT O F LOAN TAKEN ON INTEREST. THUS, WE HAVE CONSIDERED VIEW THAT THE ADDITION MAD E BY THE A.O., CONFIRMED BY THE CIT(A) IS NOT WARRANTED. ACCORDINGLY, WE DE LETE THE ADDITION. 14. IN THE COMBINED RESULT, ASSESSEES APPEALS ARE PARTLY ALLOWED. THESE ORDERS PRONOUNCED IN OPEN COURT ON 09.11.2012 SD/- SD/- ( MUKUL KR. SHRAWAT ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ITA NOS. 2527 /AHD/10 A.Y. 07-08 & 1220 AHD OF 2012 A.Y. 09-10 PAGE 13 ) , 12( ; STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 02, 05 & 06.11.2012 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE XXX 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 06.11.2012 4) DATE OF CORRECTION ,, ,, 5) DATE OF FURTHER CORRECTION XXX 6) DATE OF INITIAL SIGN BY MEMBERS 09.11.2012 7) ORDER UPLOADED ON ,, ,, 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 09.11.2012