Toyo Springs Ltd., Sonepat V. Addl.CIT, Sonepat

ITA 129/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3682 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 21-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 10-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: S KRISHNAN
• Keywords: Business expenditure; Wrong claim; Notional interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H DELHI) BEFORE SHRI A.D. JAIN AND SHRI SHAMIM YAHYA ITA NO. 129(DEL)2011 ASSESSMENT YEAR: 2007-08 M/S. TOYO SPRINGS LTD., ADDL.COMMISSI ONER OF INCOME TAX, MILES GT RD. RAI, SONEPAT. V. SONEPAT RANGE, SON EPAT, HARYANA. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI S. KRISHNAN, ADVOCATE RESPONDENT BY: MS. MONA MOHANTY, DR ORDER PER A.D. JAIN, J.M . THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2 007-08 AGAINST THE ORDER DATED 26.10.2010 PASSED BY THE LEARNED CIT(A) , ROHTAK, CONFIRMING THE ADDITION OF ` 78,95,116/-, MADE BY THE AO, AS NOTIONAL INTEREST O N AMOUNT OUTSTANDING AGAINST M/S. TOY N TOY INTERNATI ONAL. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTU RE OF SPRINGS AND LOOSE LEAF SPRINGS USED IN THE AUTOMOBILE INDUSTRY. IN THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD, INTER ALIA, GIVEN AN INTEREST FREE LOAN OF ` 6,53,82,634/- TO M/S. TOY N TOY INTERNATIONAL, A SI STER CONCERN OF THE ASSESSEE. SINCE THE ASSESSEE WAS P AYING INTEREST OF ` 1,72,75,112/- ON BORROWED FUNDS, THE AO ASKED IT TO EXPLAIN AS TO WHY ITA 129(DEL)2011 2 INTEREST TO THE EXTENT OF THE LOAN ADVANCED FREE OF CHARGE BE NOT DISALLOWED. THE ASSESSEE SUBMITTED THAT IT HAD TO RECEIVE AN AM OUNT OF ` 6,53,82,634/- FROM M/S. TOY N TOY INTERNATIONAL, AS ON 31.3.2007; THAT ON THE BASIS OF A NEGOTIATION BETWEEN THE ASSESSEE COMPANY AND M/S. T OY N TOY INTERNATIONAL, IT HAD BEEN DECIDED THAT M/S. TOY N TOY INTERNATIONAL WOULD TRANSFER THE OWNERSHIP OF A PUCCA BUILDING, COMPRIS ING OF VARIOUS BLOCKS, TO THE EXTENT OF 1,44,531 SQ.FT. CONSTRUCTED ON A PIE CE OF LAND OF 7.5 ACRES BELONGING TO M/S. VAKSONS REFRACTORIES PVT. LTD. TO THE ASSESSEE; THAT THE SAID AMOUNT OF ` 6,53,82,634/- BE CONSIDERED AS ADVANCE TO M/S. TOY N TOY INTERNATIONAL, WHICH AMOUNT WAS TO BE ADJUSTED AGAI NST THE CONSIDERATION OF ` 8.60 CRORES, FOR WHICH, AN AGREEMENT FOR SALE WAS E XECUTED BETWEEN THE ASSESSEE AND M/S. TOY N TOY INTERNATIONAL ON 2.7.20 07. 3. THE AO, HOWEVER, REJECTED THE CONTENTION OF THE ASSESSEE, OBSERVING THAT THE AGREEMENT FOR SALE RELATED TO F.Y. 2007-08 , WHEREAS THE INTEREST FREE LOAN WAS RELEVANT FOR THE ASSESSMENT YEAR 2007-08, I.E., THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE AO CALCULATED THE INTEREST @ 12% PER ANNUM. THIS AMOUNTED TO ` 78,95,116/-. THE AO DISALLOWED THIS INTEREST. 4. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE AFORESAID ADDITION MADE BY THE AO. 5. THIS IS WHAT BRINGS THE ASSESSEE IN FURTHER APPE AL BEFORE US. ITA 129(DEL)2011 3 6. CHALLENGING THE IMPUGNED ORDER, THE LEARNED COUN SEL FOR THE ASSESSEE HAS CONTENDED THAT THE LD. CIT(A) HAS ERRED IN CONF IRMING THE ADDITION AS NOTIONAL INTEREST ON THE AMOUNT OUTSTANDING; THAT D URING THE YEAR ENDING 31.3.2007, THE ASSESSEE COMPANY HAD TO RECEIVE A SU M OF ` 6,53,82,634.52 FROM ITS SISTER CONCERN, M/S. TOY N TOY INTERNATIO NAL, SONEPAT; THAT ON THE BASIS OF A NEGOTIATION BETWEEN THE ASSESSEE AND M/S . TOY N TOY INTERNATIONAL, M/S. TOY N TOY INTERNATIONAL TRANSF ERRED THE OWNERSHIP OF PUCCA BUILDINGS COMPRISING OF OFFICE BLOCK, MUMTY, WORKING SHEDS/CANTEEN, GENERATOR SHED, TOILETS, STAFF QUARTERS, SITE OFFIC E, COMPRESSOR, GODOWN, BOILER, SCRUP SHED, LABOUR QUARTERS, DRIVER REST RO OMS, GATE POST AND CHECKING ROOM, METER ROOM, DOG HUT, MANDIR, BOUNDARY WALLS, OPEN AREA FLOORING, OVERHEAD WATER TANK, TREATMENT PLANTS, SEPTIC TANK, SOAK PIT, ETC., TUBE WELL, AND GATE, TOTAL MEASURING 1,44,531 SQ.FT, CONSTRU CTED ON LAND MEASURING 7.50 ACRES, SITUATED AT 6.2, BAHALGARH ROAD, SONEPA T, HARYANA, BELONGING TO M/S. VAKSONS REFRACTORIES PVT. LTD.; THAT M/S. TOY N TOY INTERNATIONAL WAS A GARMENT EXPORT ORIENTED UNIT, WHICH CLOSED DOWN D UE TO SUSTAINED LOSSES; THAT THE ASSESSEE HAD GIVEN THE LOAN TO M/S. TOY N TOY INTERNATIONAL, SO AS TO ENABLE IT TO TIDE OVER ITS LOSSES; THAT THOUGH T HE FINAL AGREEMENT WITH M/S. TOY N TOY INTERNATIONAL WAS EXECUTED ON 2.7.2007, A MEMORANDUM OF UNDERSTANDING TO THIS EXTENT WAS EXECUTED ON 12.5.2 006; THAT THEREFORE, THE ITA 129(DEL)2011 4 AMOUNT OUTSTANDING AS ON 31.3.07 WAS TOWARDS ADVANC E FOR PURCHASE OF THE PROPERTY AND SO, THE DISALLOWANCE OF INTEREST WAS W RONGLY MADE BY THE AO AND WRONGLY CONFIRMED BY THE LD. CIT(A); THAT IN FA CT, THE AUTHORITIES BELOW HAVE FAILED TO CONSIDER THAT THE FACTORY PREMISES O F M/S. TOY N TOY INTERNATIONAL WAS AGREED TO BE TRANSFERRED TO THE A SSESSEE, WITH THE SAID ADVANCE BEING ADJUSTED AGAINST THE EVENTUAL SALE CO NSIDERATION, ESTIMATED AT ROUGHLY OF ` 8.50 CRORES; THAT PERTINENTLY, POSSESSION OF THE AF ORESAID PROPERTY WAS ALSO HANDED OVER PHYSICALLY TO THE ASS ESSEE AS ON 12.5.06, THE DATE ON WHICH THE MEMORANDUM OF UNDERSTANDING BETWE EN THE ASSESSEE AND M/S. TOY N TOY INTERNATIONAL WAS EXECUTED; THAT TH E SALE AGREEMENT WAS EXECUTED ON 2.7.07; THAT IT WAS ON 29.8.07 THAT DIS CLOSURE TO THIS EFFECT WAS MADE IN THE ASSESSEES NOTES TO ACCOUNTS, WHEREAS T HE ASSESSMENT ORDER WAS PASSED ON 18.12.09; THAT THE AUTHORITIES HAVE FAILE D TO CONSIDER THAT WHEREAS THEY ARE OF THE VIEW THAT THE SALE AGREEMENT WAS EX ECUTED IN THE NEXT FINANCIAL YEAR AND SO, THE CLAIM OF THE ASSESSEE WA S NOT ACCEPTABLE, THE COMMON DURATION FOR TRANSFER OF EVEN A SMALL RESIDE NTIAL PROPERTY IS OF ABOUT SIX MONTHS, AND IN THE PRESENT CASE, THE PROPERTY W AS A FACTORY PREMISES COVERING AN AREA OF 144531 SQ.FT., CONSTRUCTED ON L AND MEASURING 7.50 ACRES; THAT ALSO, IT WAS A TRANSACTION BETWEEN RELATED P ARTIES, WHERE THE SELLER HAD INSTANTLY HANDED OVER ACTUAL PHYSICAL POSSESSION OF THE PROPERTY, HAVING PUT ITA 129(DEL)2011 5 THE ASSESSEE IN POSSESSION THEREOF; THAT THE TRANSA CTION WAS COMPLETE, WHICH HAS NOT BEEN DISPUTED AT ANY STAGE; THAT IT IS NOWH ERE THE REQUIREMENT OF LAW THAT SUCH AN MOU, AS INVOLVED HEREIN, NEEDS MUST BE EXECUTED ON STAMP PAPER; THAT THE VERACITY OF THE TRANSACTION IS WRIT LARGE IN THE SALE AGREEMENT DATED 2.7.2007, A COPY WHEREOF HAS BEEN APPENDED AT PAGES 4 TO 8 OF THE ASSESSEES PAPER BOOK (APB, FOR SHORT); THAT THE AUTHORITIES BELOW HAVE REMAINED OBLIVIOUS OF THE FACTUM OF RECORDING OF R ECITAL IN THE SALE AGREEMENT, TO THE EFFECT THAT THE SUM STANDING IN A DVANCE WAS BEING ADJUSTED; THAT THE MOU IN QUESTION, EXECUTED ON 12 .5.06, WAS DULY FILED BEFORE THE AO, VIDE LETTER DATED 18.12.09, A COPY W HEREOF IS AT APB 9; THAT THE FACT THAT THE ASSESSEE HAD ITSELF ADDED BACK NO TIONAL INTEREST IN RESPECT OF M/S. TOY N TOY INTERNATIONAL IN THE PRECEDING YEAR IS NOT THE LEAST DETRIMENTAL TO THE ASSESSEES CASE, SINCE IF THE CL AIM HAD BEEN PRESSED IN THE PREVIOUS YEAR, IT WOULD NOT HAVE BEEN ALLOWABLE; TH AT ANYHOW, THE NATURE OF THE ADVANCE ALTERS IN THE INSTANT YEAR, SINCE IN TH E YEAR UNDER CONSIDERATION, THE SUM ADVANCED HAS ACQUIRED THE NATURE OF A PART PAYMENT FOR A COMPLETED TRANSACTION; AND THAT IN THESE FACTS, THE ORDER OF THE LD. CIT(A) BE CANCELLED, WHILE ALLOWING THE APPEAL FILED BY THE ASSESSEE. 7. THE LD. DR, ON THE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. IT HAS BEEN SUBMITTED THAT THE ISS UE OF EXECUTION OF MOU ITA 129(DEL)2011 6 BETWEEN THE ASSESSEE AND M/S. TOY N TOY INTERNATIO NAL WAS RAISED FOR THE FIRST TIME ONLY DURING THE FIRST APPELLATE PROCEEDI NGS; THAT THE STORY OF THE MOU IS EVIDENTLY BUT A COCK AND BULL STORY , SINCE, AS RIGHTLY OBSERVED BY THE LD. CIT(A), THE PURPORTED MOU WAS ON A PLAIN PI ECE OF PAPER, CARRYING NO EVIDENTIARY VALUE AND WAS MERELY A DOCUMENT MANU FACTURED AS AN AFTER THOUGHT, TO BUTTRESS THE ILLEGAL AND FALSE CLAIM OF THE ASSESSEE; THAT THE EXECUTION OF SUCH A DOCUMENT WAS ENTIRELY FEASIBLE, SINCE IT WAS BETWEEN THE ASSESSEE AND ITS SISTER CONCERN; THAT NO PRUDENT PE RSON, WHILE ENTERING INTO A TRANSACTION OF INVOLVING A WHOPPING SUM OF ` 6.53 CRORES, WOULD NOT MAKE IT SURE THAT THE FACTUM OF THE MOU HAVING BEEN ENTERED BEFORE THE SALE AGREEMENT, WAS NOT RECITED IN THE SALE AGREEMENT; T HAT THE ABSENCE OF ANY MENTION OF THE MOU IN THE SALE AGREEMENT IS A CLEAR POINTER TO THE MOU BEING A SHAM DOCUMENT, HAVING BEEN BROUGHT INTO EXI STENCE ONLY TO FURTHER THE NEFARIOUS DESIGN OF THE ASSESSEE, POST EXECUTIO N OF THE SALE AGREEMENT; THAT NON-MENTION OF THE MOU IN THE SALE AGREEMENT I S AGAINST ALL PROBABLE HUMAN CONDUCT AND THIS FACT HAS BEEN WELL TAKEN BY THE LD. CIT(A); THAT THE FACTUM OF THE PURPORTED MOU HAVING BEEN EXECUTED ON PLAIN PAPER IS ALSO AN IMPORTANT CIRCUMSTANCE ACTING AGAINST THE ASSESS EE, INASMUCH AS SUCH A DOCUMENT IS INVARIABLY EXECUTED ON NON-JUDICIAL STA MP PAPER; THAT THE MOU WAS NEVER FURNISHED BEFORE THE AO AND THERE IS NO M ENTION OF IT IN THE ITA 129(DEL)2011 7 ASSESSMENT ORDER; THAT IT WAS ONLY AFTER PASSING OF THE ASSESSMENT ORDER THAT THIS DOCUMENT WAS BROUGHT INTO EXISTENCE TO SUIT TH E STORY CONCOCTED BY THE ASSESSEE; THAT NOT ONLY THIS, THE ASSESSEE, IN THE YEAR UNDER CONSIDERATION, ITSELF DISALLOWED THE INTEREST OF ` 72,00,857/-, IN THE COMPUTATION OF INCOME, ON THE CHARGE FREE LOAN OUTSTANDING AGAINST M/S. T OY N TOY INTERNATIONAL, AS ON 31.3.2006; AND THAT IN THESE FACTS, THERE IS NO MERIT WHATSOEVER IN THE APPEAL FILED BY THE ASSESSEE, WHICH BE DISMISSED WH ILE UPHOLDING THE WELL REASONED ORDER PASSED BY THE LD. CIT(A). 8. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL ON RECORD. THE ISSUE IS AS TO WHETHER THE LD. CIT(A) HAS CORRE CTLY DELETED THE ADDITION. 9. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTU RE OF SPRINGS AND LOOSE LEAF SPRINGS USED IN THE AUTOMOBILE INDUSTRY. IN THE YEAR UNDER CONSIDERATION, THE AO OBSERVED THAT THE ASSESSEE HA D GIVEN AN INTEREST FREE LOAN OF ` 6,53,82,634/- TO ITS SISTER CONCERN, M/S. TOY N TO Y INTERNATIONAL, AS ON 31.3.07; THAT AS AGREED UPON BETWEEN THE ASSE SSEE AND M/S. TOY N TOY INTERNATIONAL, M/S. TOY N TOY INTERNATIONAL T RANSFERRED THE OWNERSHIP OF ITS FACTORY PREMISES, COMPRISING OF NUMEROUS BUI LDINGS AND OTHER ERECTIONS, BUILT ON AN AREA OF 144531 SQ.FT., ON LA ND MEASURING 7.50 ACRES AT SONEPAT. THE ASSESSEE WAS PUT INTO ACTUAL PHYSICA L POSSESSION THEREOF, IN ITA 129(DEL)2011 8 PURSUANCE OF AN MOU TO THIS EFFECT, DATED 12.5.06. A SALE AGREEMENT IN THIS REGARD WAS EXECUTED ON 2.7.07. 10. THE FIRST OBJECTION OF THE AUTHORITIES BELOW I S THAT THE MOU WAS EXECUTED ON A PLAIN NON-JUDICIAL STAMP PAPER AND IT WAS HENCE NOT RELIABLE. IN THIS REGARD, IT IS SEEN THAT THE SALE TRANSACTIO N PER SE HAS NOWHERE BEEN QUESTIONED. IT INVOLVED AN AMOUNT OF ` 6.53 CRORES. NO VIEW, HOWEVER, WITH REGARD THERETO WAS EXPRESSED BY THE AUTHORITIES BEL OW. THE SALE AGREEMENT DATED 2.7.07 IS ON RECORD. IT CANNOT SIMPLY BE WIS HED AWAY, IN THE ABSENCE OF ANY OTHER COGENT EVIDENCE TO DISPROVE IT. FURT HER, THERE IS NO LEGAL REQUIREMENT OF SUCH AN MOU, AS ENTERED BETWEEN THE ASSESSEE AND ITS SISTER CONCERN, M/S. TOY N TOY INTERNATIONAL, BEING EXECU TED ONLY ON NON-JUDICIAL STAMP PAPER. THE TRANSACTION WAS BETWEEN RELATED PARTIES. MOREOVER, IT IS NOT EVINCED FROM THE IMPUGNED ORDER, AS TO HOW THE MOU IS NOT RELIABLE, IN THE FACE OF THE UNDISPUTED SALE AGREEMENT. 11. THE NEXT REASON TAKEN BY THE AUTHORITIES BELOW TO DECIDE AGAINST THE ASSESSEE IS THAT THE SALE AGREEMENT FINDS NO MENTIO N OF THE MOU AND THAT SO, THE MOU WAS CLEARLY AN AFTER-THOUGHT. NOW, A COPY OF THE SALE AGREEMENT DATED 2.7.07, HAS BEEN FILED AT APB PAGES 4 TO 8. 12. PARA ONE THEREOF READS AS FOLLOWS:- ITA 129(DEL)2011 9 THIS DEED OF SALE MADE ON THE 2 ND DAY OF JULY 2007 BETWEEN M/S. TOY N TOY INTERNATIONAL WITH ITS OFFICE AT F 1/3 MO DEL TOWN, DELHI- 110009 THROUGH ITS PARTNER MR. PREM KUMAR SHARMA (H EREINAFTER CALLED THE VENDOR ) OF THE ONE PART AND M/S. TOYO SPRINGS LIMITED, A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 WITH ITS REGISTERED OFFICE AT 20 TH MILES, G.T. KARNAL ROAD, RAI, SONEPAT, HARYANA, THROUGH ITS DIRECTOR, MR. NITIN KUMAR SHAR MA DULY AUTHORIZED BY THE COMPANY (HEREINAFTER CALLED THE PURCHASER) OF THE OTHER PART. WITNESS AS FOLLOWS: IN CONSIDERATION OF THE PAYMENT OF THE SUM OF ` 8,60,00,000/- (EIGHT CRORES, SIXTY LAKHS ONLY) BY THE PURCHASER TO THE V ENDOR OUT OF WHICH A SUM OF ` 6,78,33,038.52 (RUPEES SIX CRORES SEVENTY EIGHT LAK HS THIRTY THREE THOUSAND THIRTY EIGHT AND PAISE FIFTY TWO ONLY) HAS ALREADY BEEN PAID IN ADVANCE (THE RECEIPT WHEREOF T HE VENDOR HEREBY ACKNOWLEDGED AS) AND THE BALANCE IS PAYABLE BY 31 ST DECEMBER, 2007, THE VENDOR AS ABSOLUTE OWNER HEREBY TRANSFERS TO TH E PURCHASER BY WAY OF SALE WHOLE OF THAT PUCCA BUILDING COMPRISING OF OFFICE BLOCK, MUMTY, WORKING SHEDS, CANTEEN, GENERATOR SHED, TOIL ETS, STAFF QUARTERS, SITE OFFICE, COMPRESSOR, GODOWN, BOILER, SCRUP SHED , LABOUR QUARTERS, DRIVER REST ROOM, GATE POST AND CHECKING ROOM AND M ETER ROOM, DOG HUT, MANDIR, BOUNDARY WALLS, OPEN AREA FLOORING, O VERHEAD WATER TANK, TREATMENT PLANTS, SEPTIC TANK, SOAK PIT, ETC. TUBE WELL, AND GATE OF 144531 SQ.FT. CONSTRUCTED ON THE LAND OF 7.50 ACRES SITUATED AT 6.2 BAHALGARH ROAD SONEPAT, HARYANA OF M/S. VAKSON REFR ACTORIES PRIVATE LIMITED MORE PARTICULARLY DESCRIBED IN THE SCHEDULE HERETO AND SHOWN THEREON WITH ITS BOUNDARIES COLOURED RED. 13. IT IS EVIDENT FROM THE ABOVE, THAT THE VENDOR, M/S. TOY N TOY INTERNATIONAL AGREED TO SELL ITS FACTORY PREMISES T O THE ASSESSEE COMPANY FOR A CONSIDERATION OF ` 8,60,00,000/- AND THAT ` 6,53,82,634.52 HAD ALREADY BEEN PAID IN ADVANCE BY THE ASSESSEE TO M/S. TOY N TOY I NTERNATIONAL AND THE RECEIPT THEREOF WAS ACKNOWLEDGED BY M/S. TOY N TOY INTERNATIONAL. THE ITA 129(DEL)2011 10 BALANCE WAS PAYABLE BY 31.12.07. THE FACTORY BUIL DING WAS TRANSFERRED BY M/S. TOY N TOY INTERNATIONAL TO THE ASSESSEE COMPAN Y, BY WAY OF SALE. THE ACTUAL PHYSICAL POSSESSION THEREOF WAS DULY AND UN DISPUTEDLY HANDED OVER TO THE ASSESSEE. SUB-PARA (I) OF PARA 2 OF THE SAI D AGREEMENT STATES AS FOLLOWS:- (I) THE VENDOR HAS HANDED OVER THE PEACEFUL POSSES SION OF THE SAID PROPERTY . 14. IT IS THUS EVIDENT THAT IT WAS THE SUM STANDING IN ADVANCE AMOUNTING TO ` 6,53,82,634.52, WHICH WAS BEING ADJUSTED AGAINST T HE TOTAL SALE CONSIDERATION OF ` 8,60,00,000/- AND THE ASSESSEE WAS PUT IN ACTUAL PH YSICAL POSSESSION OF THE PURCHASED FACTORY PREMISES. IN THESE FACTS, NON-REFERENCE OF THE MOU IN THE SALE AGREEMENT IS NOT AT ALL DETR IMENTAL TO THE CASE OF THE ASSESSEE. THE LD. CIT(A) HAS NOT MADE OUT OTHERWI SE. 15. THE LEARNED CIT(A) HAS FURTHER OBSERVED THAT SI NCE IN THE ASSESSMENT ORDER, THE AO HAS NOT MADE ANY REFERENCE TO THE ALL EGED MOU, IT WAS NEVER THERE BEFORE THE AO AND IT WAS CREATED ONLY LATER, AS AN AFTER-THOUGHT, AS AN ATTEMPT TO MANUFACTURE EVIDENCE BY THE ASSESSEE. I N THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO LETTER DATED 18.12.09(APB PAGE 9), ADDRESSED BY THE ASSESSEE TO THE AO. ITA 129(DEL)2011 11 16. PARA 2 OF THE SAID LETTER DATED 18.12.09 STATES THAT MEMORANDUM OF UNDERSTANDING FOR PURCHASE OF BUILDING AND OTHER AS SETS AS STATED IN OUR LETTER OF EVEN WAS EXECUTED ON 12.5.06 IS ALSO ENCL OSED. 17. THE LD. DR HAS DISPUTED THE ASSERTION OF THE SA ID LETTER DATED 18.12.09 HAVING BEEN FILED BY THE ASSESSEE BEFORE THE AO. 18. SO FAR AS REGARDS THIS ASPECT OF THE MATTER, WE FIND THAT THE COPY OF THE LETTER DATED 18.12.09, I.E., APB 9 DOES NOT CONTAI N ANY ACKNOWLEDGEMENT OF ITS RECEIPT IN THE OFFICE OF THE AO. HOWEVER, NOTH ING MUCH TURNS ON THE MOU, ITSELF. AS OBSERVED HEREINABOVE, THE TRANSACT ION PER SE HAS NOT BEEN DISPUTED. THIS TRANSACTION WAS A TRANSACTION BETW EEN THE RELATED PARTIES, INVOLVING OVER ` 6.5 CRORES. THE ASSESSEE WAS HANDED OVER ACTUAL P HYSICAL POSSESSION OF THE BOUGHT FACTORY PREMISES OF M/S. T OY N TOY INTERNATIONAL AND NOT ONLY THIS, IN ITS NOTES TO ACCOUNTS (APB 3 1), THE AMOUNT OF ` 6,53,82,634.52 WAS SHOWN AS ADVANCE RECOVERABLE FRO M M/S. TOY N TOY INTERNATIONAL, AS ON 31.3.07. 19. LASTLY, THE LD. CIT(A) HAS OBSERVED THAT THE AS SESSEE HAS ITSELF ADDED BACK NOTIONAL INTEREST IN RESPECT OF M/S. TOY N TO Y INTERNATIONAL IN THE PRECEDING YEAR. WE ARE NOT ABLE TO MAKE OUT AS TO HOW THIS WORKS AGAINST THE ASSESSEE. OBVIOUSLY, AS CONTENDED ON BEHALF O F THE ASSESSEE, IF THE CLAIM HAD BEEN PRESSED IN THE PREVIOUS YEAR, IT WOULD HAV E BEEN ALLOWABLE, IN ITA 129(DEL)2011 12 KEEPING WITH S.A. BUILDERS LTD. V. CIT(A) & ANOTHE R, 288 ITR 1(SC), AS PER WHICH, IN ORDER TO DECIDE WHETHER INTEREST ON F UNDS BORROWED BY THE ASSESSEE TO GIVE AN INTEREST FREE LOAN TO A SISTER CONCERN SHOULD BE ALLOWED AS A DEDUCTION, ONE HAS TO ENQUIRE WHETHER THE LAND WA S GIVEN BY THE ASSESSEE AS A MEASURE OF COMMERCIAL EXPEDIENCY, AND IF IT WA S INCURRED FOR COMMERCIAL EXPEDIENCY, THOUGH NOT UNDER ANY LEGAL O BLIGATION, IT IS ALLOWABLE AS A BUSINESS EXPENDITURE. 20. OTHERWISE TOO, UNDISPUTEDLY, IN THE YEAR UNDER CONSIDERATION, THE NATURE OF THE ADVANCE STANDS ALTERED, IT NOW BEING PART PAYMENT OF A COMPLETED TRANSACTION, AS ABOVE. 21. THEREFORE, FINDING THE ORDER OF THE LD. CIT(A) UNSUSTAINABLE IN LAW ON ALL OF THE OBSERVATIONS MADE THEREIN, THE SAME IS H EREBY CANCELLED. THE GRIEVANCE OF THE ASSESSEE IN THIS REGARD IS JUSTIFI ED. THERE IS NOTHING ON RECORD TO DISPROVE THE TRANSACTION AND THEREFORE, T HE CLAIM OF THE ASSESSEE AGAINST DISALLOWANCE OF INTEREST ON THE ADVANCE OF ` 6,53,82,634/- TO M/S. TOY N TOY INTERNATIONAL IS ALLOWED. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.06.2011. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER ITA 129(DEL)2011 13 DATED: 24.06.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR