DCIT, Lucknow V. M/s. Sahara India (Firm), Lucknow

ITA 129/LKW/2000

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61691 (ITAT-DELHI)
• Duration Of Justice: 11 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 1993-1994
• Appeal Filed On: 26-08-2000
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS REENA S PURI
• Assessee Lawyers: PERCY J PARDIWALLA
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `H : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NOS.1635/LUC./1996 & 129/LUC./2000 (ASSESSMENT YEAR : 1993-94) ACIT, CEN. CIR.III, VS. M/S SAHARA INDIA (FIRM), LUCKNOW. 1, KAPOORTHALA COMPLEX, LUCKNOW. (PAN/GIR NO. N.A.) AND C.O. NO.105/LUC./2004 (ASSESSMENT YEAR : 1993-94) M/S SAHARA INDIA (FIRM), VS. DCIT, CENTRAL CIR.I, LUCKNOW. LUCKNOW. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PERCY J. PARDIWALLA, ADV. REVENUE BY : MRS. REENA S. PURI, SR.(DR) ORDER PER U.B.S. BEDI, J.M. THIS BATCH OF THREE MATTERS COMPRISES OF TWO APPEAL S OF THE DEPARTMENT, ONE AGAINST THE ORDER OF CIT(A)-II, LUCKNOW DATED 7.6.1 996 AND SECOND APPEAL AND THE C.O OF THE ASSESSEE AGAINST THE ORDER OF CIT(A)-II, LUC KNOW DATED 2.6.2000 ALL RELATABLE TO ASSESSMENT YEAR 1993-94. THESE MATTERS PERTAIN TO THE SAME ASSESSEE AND INVOLVE SOME COMMON FACTS, AND WERE HEARD TOGETHER, THEREFORE, B EING DISPOSED OF BY A SINGLE ORDER FOR THE SAKE OF CONVENIENCE. I.T.A NO.1635/LUC./1996 2. THE DEPARTMENT HAS RAISED FOLLOWING THREE EFFECT IVE GROUNDS: 1. THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS O F THE CASE IN DELETING THE ADDITION OF RS.1,50,96,671/- MADE BY T HE ASSESSING OFFICER HOLDING THE FORFEITED DEPOSITS AS REVENUE R ECEIPT OF THE ASSESSEE WITHOUT CONSIDERING THE SUPREME COURTS RE CENT JUDGMENT I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 2 2 IN THE CASE OF CIT VS. LAXMI VILAS BANK LTD. (86 TA XMAN 231), WHEREIN IT HAS BEEN HELD THAT IF THE MONEY DEPOSITE D BY THE CUSTOMERS IS FORFEITED BY THE BANK, IT CONSTITUTES THE BANKS OWN INCOME AND SHOULD BE TAXED ACCORDINGLY AND WITHOUT GIVING MUCH CREDENCE TO THE FACT THAT THE SYSTEM OF TREATING A PART OF THE DEPOSITS AS REVENUE SURPLUS WAS HIMSELF ADOPTED BY THE ASSESSEE UP TO ASSESSMENT YEAR 1983-84. 2. THE CIT(A) HAS FURTHER ERRED IN LAW AND ON FACTS OF THE CASE IN RESTRICTING THE ADDITION OF RS.18,42,636/- ,MADE BY THE ASSESSING OFFICER OUT OF THE TOTAL ADDITION ON THE GROUND OF INTEREST INCOME OF RS.2.64 CRORES SURRENDERED IN FAVOUR OF ASSESSEES SISTER CONCERN AND ITS PARTNERS/DIRECTORS, WITHOUT APPRECIATING TH E FACT THAT THE ASSESSEE HAD ABANDONED INTEREST OF RS.2.64 CRORES I N FAVOUR OF ITS SISTER CONCERN/PARTNERS/DIRECTORS, WHEN IT COULD HA VE EARNED AN INTEREST AMOUNT. 3. THE CIT(A) HAS FURTHER ERRED IN LAW AND ON FACTS OF THE CASE DELETING THE ADDITION OF RS.19,67,27,025/- MADE BY THE ASSESSING OFFICER ON PROTECTIVE BASIS, BEING NOTIONAL AMOUNT OF SERVICE CHARGES COLLECTED ON BEHALF OF SAHARA INDIA SAVINGS AND INVESTMENT CORPN. LTD., BUT NEITHER REFLECTING IT I N THE PROFIT & LOSS ACCOUNT OF THE FIRM NOR CREDITING IT IN THE AC COUNT OF M/S SAHARA INDIA SAVINGS AND INVESTMENT CORPN. LTD., RE LYING ON THE RESOLUTION MADE IN THE MEETING OF THE BOARD OF DIRE CTORS HELD ON 30.3.92 WITHOUT APPRECIATING THE FACT THAT NO COPY OF SUCH RESOLUTION WAS FOUND IN THE OFFICE OF THE REGISTRAR OF COMPANIES, WHICH CLEARLY SUGGESTS THAT THE RESOLUTION WAS AN A FTER THOUGHT MADE POSSIBLE BY THE CONNIVANCE OF THE BOARD OF DIR ECTORS OF THE COMPANY AND THE PARTNERS OF THE SISTER CONCERN FIRM , SOME OF WHICH ARE COMMON. THE CIT(A) FURTHER ERRED IN NOT ACCEPTING THE ASSES SING OFFICERS REASONS FOR REJECTING THE RESOLUTION PASS ED BY DIRECTORS OF THE COMPANY ON 30.3.92, AS IT WAS SIGNED BY THE DIR ECTOR OF THE COMPANY MENTIONING THE NAME OF THE COMPANY AS SAHA RA INDIA FINANCIAL CORPN. LTD. (FORMERLY KNOWN AS SAHARA IND IA SAVINGS AND INVESTMENT CORPORATION LTD.) WHEN ACTUALLY THE NAME OF THE COMPANY WAS CHANGED TO SAHARA INDIA FINANCIAL CORP ORATION LTD. ON 19.11.94. THE CIT(A) HAS FURTHER ERRED IN LAW IN ACCEPTING TH E EXPLANATION OF THE ASSESSEE BASED ON THE PHOTOCOPY OF THE MINUTE BOOK OF THE BOARDS RESOLUTION WHICH WAS NOT FILED BEFORE THE ASSESSING OFFICER. I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 3 3 3. AS REGARDS FIRST GROUND, THE ASSESSING OFFICER H AS STATED THAT HE ASSESSEE WAS EARLIER RUNNING ITS OWN FINANCIAL SCHEMES BUT SAME WERE WOUND UP IN FINANCIAL YEAR 1992-93 AND AN AMOUNT OF RS.1,50,96,671/- BEING THE CLOSING BALANCE OF DEPOSITS COLLECTED BY THE ASSESSEE UNDER VARIOUS SCHEMES WAS TRANSFERRED TO THE PROFIT & LOSS ACCOUNT. SHE HAS STATED THAT WHILE COMPUTING ITS I NCOME FOR INCOME-TAX PURPOSES, THE ASSESSEE HAS TAKEN OUT THE ABOVE AMOUNT AND THAT TH IS ACTION OF THE ASSESSEE WAS NOT CORRECT (AND HAS TO BE REJECTED) BECAUSE FROM ASSES SMENT YEAR 1988-89 ONWARDS, THE DEPARTMENT HAS BEEN TAXING A PART OF THE DEPOSITS A S REVENUE RECEIPT. WITH THIS OBSERVATION, THE ASSESSING OFFICER HAS HELD THAT TH E AMOUNT OF RS.1,50,96,671/- WAS IN THE NATURE OF THE ASSESSEES INCOME. 4. AGGRIEVED BY THIS ORDER, APPEAL WAS FILED AND CI T(A) DELETED THE IMPUGNED ADDITION AS PER PARAS.2, 3 & 4 OF HIS ORDER AS UNDE R: 2. IT WAS SUBMITTED BEFORE ME THAT WHETHER A PART OF DEPOSITS IS INCOME OR NOT HAS BEEN CONSIDERED AT LENGTH BY THE ITAT IN THE CA SE OF M/S SAHARA INVESTMENT INDIA LTD. IN ASSESSMENT YEAR 1991-92 (I.T.A. NO.29 4(ALLD./1995). IT WAS ALSO POINTED OUT THAT THIS ISSUE HAS BEEN AGAIN CONSIDER ED AT LENGTH IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 1992-03 BY THE CIT(A) ( APPEAL NO.26/CIT(A)- 3/LKO/95-96 DATED 27.3.1996) AND FOLLOWING THE ABOV E DECISION OF THE ITAT, IT HAS BEEN HELD THAT NO PART OF THE DEPOSITS CAN BE A SSESSED TO TAX AS REVENUE RECEIPT. THE ASSESSEE WAS, THEREFORE, RIGHT IN EXC LUDING THIS AMOUNT WHILE COMPUTING ITS INCOME FOR INCOME-TAX PURPOSES. THE ADDITION OF RS.1,50,96,671/- IS ACCORDINGLY DIRECTED TO BE DELETED (RELIEF = RS. 1,50,96,671/-) 3. IT WAS ALSO POINTED OUT THAT THE ADDITION OF RS. 1,50,96,671/- HAS IN FACT RESULTED IN DOUBLE ADDITION, BECAUSE THE ASSESSING OFFICER HAS PROCEEDED TO COMPUTE THE ASSESSEES INCOME AS PER PROFIT & LOSS ACCOUNT, WHICH INTER ALIA INCLUDED THE AMOUNT OF RS.1,50,96,671/-. THE SEPAR ATE ADDITION OF THE ABOVE AMOUNT HAS THUS RESULTED IN THE DOUBLE ADDITION OF RS.1,50,96,671/-. 4. ON THE PERUSAL OF THE ASSESSEES PROFIT & LOSS A CCOUNT, I FIND ITS CONTENTION CORRECT. THE ASSESSING OFFICER WOULD, T HEREFORE, NOT ONLY DELETE THE ADDITION OF RS.1,50,96,671/- AS DISCUSSED IN THE PR ECEDING PARA., BUT WOULD FURTHER REDUCE THE ASSESSEES INCOME AS FINALLY COMPUTED BY ANOTHER AMOUNT OF RS.1,50,96,671/- 5. AGGRIEVED BY THIS ORDER OF CIT(A), DEPARTMENT HA S COME UP IN APPEAL AND IT HAS BEEN CONTENDED THAT CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 4 4 IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER HOL DING THE FORFEITED DEPOSITS AS REVENUE RECEIPT OF THE ASSESSEE, WITHOUT CONSIDERIN G THE HONBLE SUPREME COURTS RECENT JUDGMENT IN THE CASE OF CIT VS. LAXMI VILAS BANK LT D., 86 TAXMAN 231, WHEREIN IT HAS BEEN HELD THAT IF MONEY DEPOSITED BY THE CUSTOMERS IS FORFEITED BY THE BANK IT CONSTITUTES BANKS OWN INCOME AND SHOULD BE TAXED ACCORDINGLY A ND WITHOUT GIVING MUCH CREDENCE TO THE FACT THAT THE SYSTEM OF TREATING A PART OF T HE DEPOSITS AS REVENUE SURPLUS WAS HIMSELF ADOPTED BY THE ASSESSEE UP TO ASSESSMENT YEAR 1983- 84. IN ORDER TO SUPPORT THE CONTENTION AS RAISED IN THE MEMORANDUM OF APPEAL AN D REITERATED ABOVE, IT WAS STRONGLY CONTENDED THAT ASSESSEE WAS ITSELF TAKING THIS ITEM AS INCOME UP TO ASSESSMENT YEAR 1983- 84 AND IS OTHERWISE COVERED IN FAVOUR OF THE DEPART MENT BY CASE LAWS CITED. THEREFORE, ORDER OF THE CIT(A) DESERVES TO BE REVERSED, WHICH MAY BE REVERSED. 6. LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHETH ER A PART OF DEPOSIT IS INCOME EARNED HAS BEEN CONSIDERED AT LENGTH BY ITAT IN THE CASE OF SAHARA INVESTMENT (INDIA) LTD. IN ASSESSMENT YEAR 1991-92 IN I.T.A. NO.294/DE L./1995. IT WAS FURTHER CONTENDED THAT THIS ISSUE HAS AGAIN BEEN CONSIDERED FOR ASSES SMENT YEAR 1992-93 BY CIT(A) AND FOLLOWING THE ABOVE SAID DECISION OF ITAT, IT HAS B EEN HELD THAT NO PART OF DEPOSIT CAN BE ASSESSED TO TAX AS REVENUE RECEIPT. THEREFORE, ASS ESSEE WAS RIGHT IN EXCLUDING THIS AMOUNT WHILE COMPUTING ITS INCOME AND ASSESSING OFFICER WA S NOT JUSTIFIED IN TAXING THE SAID INCOME AND CIT(A) HAS JUSTIFIABLY DELETED THE IMPUG NED ADDITION AND ALSO GAVE A DIRECTION TO FURTHER REDUCE THE INCOME WITH RS.1,50 ,96,671/- FROM THE TOTAL INCOME WHICH ACTION NEEDS FURTHER CONFIRMATION. IT WAS THUS PLE ADED FOR CONFIRMATION OF THE IMPUGNED ORDER IN THIS REGARD. 7. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MAT ERIAL ON RECORD AS WELL AS PRECEDENTS RELIED UPON AND FIND THAT AMOUNT OF RS.1 ,50,96,671/-, BEING THE CLOSING BALANCE OF DEPOSITS COLLECTED BY THE ASSESSEE UNDER VARIOUS CLAIMS WAS TRANSFERRED TO PROFIT & LOSS A/C BUT, WHILE COMPUTING ITS INCOME F OR TAX PURPOSE, THE ASSESSEE HAS TAKEN OUT THE IMPUGNED AMOUNT ASSESSING OFFICER HAD MADE THE IMPUGNED ADDITION, AND THE CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE NOT ONLY BY DELETING THE IMPUGNED ADDITION BUT FURTHER DIRECTED THE ASSESSING OFFICER TO FURTHER REDUCE THE INCOME TO THE EXTENT OF RS.1,50,96,671/- FROM TOTAL INCOME DECLAR ED BY THE ASSESSEE. AGAINST SUCH ACTION OF THE CIT(A), DEPARTMENT HAS COME UP IN APP EAL AND IT HAS BEEN PLEADED, WHILE I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 5 5 RELYING UPON HONBLE SUPREME COURT DECISION IN THE CASE OF CIT VS. LAXMI VILAS BANK LTD., REPORTED IN (1996) 220 I.T.R. 305 (SC), THAT THE AMOUNT OF DEPOSIT COLLECTED BY THE ASSESSEE AND LYING AS CLOSING BALANCE UNDER VARIOUS SCHEMES WAS TRANSFERRED BY THE ASSESSEE TO PROFIT & LOSS A/C WHICH IS TRADING RECE IPT BEING ACQUIRED IN NORMAL COURSE OF BUSINESS AND AS SUCH TAXABLE AND CIT(A) IS NOT JUS TIFIED EITHER IN DELETING THE IMPUGNED ADDITION OR IN FURTHER DIRECTING THE ASSESSING OFFI CER TO GIVE FURTHER RELIEF TO THIS EXTENT BY REDUCING IT FROM THE DECLARED INCOME 8. KEEPING IN VIEW THE ENTIRETY OF FACTS AND CIRCUM STANCES AND MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE, IN THIS CASE, HAS WRITTE N BACK UNCLAIMED BALANCE OF RS.1,50,96,671/- TO PROFIT & LOSS A/C, BUT WHILE OF FERING THE INCOME FOR TAXATION, THE ASSESSEE HAS EXCLUDED SUCH AMOUNT FROM THE TOTAL IN COME WHEN IT IS NOT THE CASE OF THE ASSESSEE THAT THERE WAS ANY EXISTING LIABILITY IN T HIS REGARD, IT IS CERTAINLY A TRADING TRANSACTION AS THE AMOUNT IS COLLECTED IN ORDINARY COURSE OF BUSINESS AND UNCLAIAMED AMOUNT BECOMES THE ASSESSEES OWN MONEY HAVING BEEN TAKEN BY THE ASSESSEE TO PROFIT & LOSS A/C. 9. HONBLE SUPREME COURT IN THE CASE OF CIT VS. LAXMI VILAS BANK LTD. AS REPORTED (1996) 220 I.T.R. 305 (SC) : 86 TAXMAN 231 (SC) HAS HELD AS UNDER : HELD, ALLOWING THE APPEAL, THAT THE FINDING OF FAC T WAS THAT THE SECURITIES HAD BEEN PURCHASED AT FACE VALUE. THEIR COST COULD NOT BE ANYTHING LESS THAN THE PRICE WHICH WAS ACTUALLY PAID BY THE BANK. THE BANK WOULD HAVE HANDED OVER THE SECURITIES TO THE CONSTITUENT IF HE HAD NOT DEFAULTED. IN THAT CASE, THE BANK WOULD HAVE BEEN ENTITLED ONLY TO THE BROKERAGE. SINCE THE CONSTITUENT DEFAULTED, THE DEPOSIT AMOUNT WAS FORFEITED AND THE END RESULT OF THE TRANSACTION WAS THAT THE BANK BECAME FULL OWNER OF THE SECURITIES AND THE AMOUNT LYING IN DEPOSIT WITH IT BECAME ITS OWN MONEY. THE FORFEITED AMOUNT WAS THE BANKS INCOME MADE IN THE COURSE OF ITS BANKING BUSINESS AND HAD TO BE ASSESSED ACCORDINGLY IN THE YEAR IN WHICH IT BECAME THE BANK S MONEY. AND IN ANOTHER DECISION IN THE CASE OF CIT VS. KARA M CHAND THAPAR AND OTHERS, 222 I.T.R. 112(SC), SIMILAR VIEW HAS BEEN TAKEN UNDER HEAD NOTES WHICH READS AS FOLLOWS: INCOME AGENCY UNCLAIMED BALANCES ASESSEE ACT ING AS DEL CREDERE AGENT OF COLLIERIES AND ALSO AS AGENT O F PURCHASEERS OF COAL PURCHASERS PAYING FULL FREIGH T TO RAILWAY AMOUNT CLAIMED AND RECEIVED FROM COLLIERY COMPANIES AS UNDER CHARGES FOR UNDERLOADING OF WAGO NS PAYMENTS MADE THEREFROM TO PURCHASERS AS AND WHEN CLAIMED- SURPLUS OVER AQMOUNTS CLAIMED BY PURCHASER S I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 6 6 CREDITED TO PROFIT AND LOSS ACCOUNT AND ASESSED AS INCOME IN EARLIER YEARS AMOUNT RECEIVED IN COURSE OF BUSINESS NO EXISTING LIABILITY TO REPAY AMOUNTS AMOUNTS NOT HELD IN TRUST AMOUNT ASSESSABLE AS IN COME INCOME TAX-TAX ACT, 1922 INCOME TAX ACT, 1961. FURTHER, THE HONBLE SUPREME COURT IN CIT VS. T.V. SUNDARAM IYENGAR AND SON LTD., 222 I.T.R. 344 HAS, TAKING SIMILAR VIEW OBSERVED AND HE LD AS UNDER: HELD, THAT IF A COMMONSENSE VIEW OF THE MATTER WER E TAKEN, THE ASSESSEE, BECAUSE OF THE TRADING OPERATION, HAD BECOME RICHER BY THE AMOUNT WHICH IT TRANSFERRED TO ITS PROFIT AND LOSS ACCOUNT. THE MONEYS HAD ARISEN OUT OF ORDINARY TRADING TRANSACTIONS. ALTHOUGH THE AMOUNTS RECEIVED ORIGIN ALLY WERE NOT OF INCOME NATURE, THE AMOUNTS REMAINED WITH THE ASSESSEE FOR A LONG PERIOD UNCLAIMED BY THE TRADE PARTIES. BY LAPSE OF TIME, THE CLAIM OF THE DEPOSIT BECAME TIME-BARRED AND THE AMOUNT ATTAINED A TOTALLY DIFFERENT QUALITY. I T BECAME A DEFINITE TRADE SURPLUS. THE ASSESSEE ITSELF HAD TREATED THE MONEY AS ITS OW N MONEY AND TAKEN THE AMOUNT TO ITS PROFIT AND LOSS ACCOUNT. THE AMOUNTS WERE A SSESSABLE IN THE HANDS OF THE ASSESSEE. 10. SINCE THE FACTS OF THE CASE IN HAND ARE IN PAR I MATERIA WITH THE FACTS INVOLVED IN THE SAID DECISIONS AND THE ISSUE IS IDENTICAL, T HEREFORE, WE HOLD THAT FORFEITED DEPOSITS ARE REVENUE RECEIPTS OF THE ASSESSEE HAVING BEEN RE CEIVED IN ORDINARY COURSE OF BUSINESS. THEREFORE, APPLYING THE RATIO OF THE ABOVE NOTED DE CISIONS, AND CONSIDERING THE FACT THAT BENEFIT THAT HAD ARISEN BY FORFEITURE OF THE AMOUNT RECEIVED IN EARLIER YEARS AND HAVING NOT BEEN SHOWN TO HAVE CREDITED TO THE PROFIT & LOSS A/ C IN THOSE YEARS HAS A CLOSE AND DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE AND DEFINIT ELY AMOUNTED TO BENEFIT TO THE ASSESSEE IT HAD RESULTED NOT ONLY REDUCING THE LIABILITIES O F THE ASSESSEE AND ENHANCING OF PROFIT OF BUSINESS DURING THE YEAR, BUT ALSO INCREASING ITS C APITAL. THE BENEFIT RECEIVED BY THE ASSESSEE BY APPROPRIATION OF THIS AMOUNT TO ITS PRO FIT & LOSS A/C, IN OUR CONSIDERED VIEW, IS DEFINITELY A BENEFIT CONVERTIBLE INTO MONEY. A S SUCH, AMOUNT OF RS.1,50,96,671/- WAS ASSESSABLE TO TAX U/S 28(IV) OF THE I.T. ACT, 1961 AND CIT(A) WAS NOT JUSTIFIED EITHER IN DELETING THE ADDITION OR ISSUING DIRECTION TO FURTH ER REDUCE THE INCOME TO THIS EXTENT. 11. OUR ABOVE VIEW IS FORTIFIED BY DECISION OF BOMB AY HIGH COURT IN THE CASE OF PROTOS ENGINEER PVT. LTD. VS. CIT (1995) 211 I.T.R. 919 AND MADRAS HIGH COURT DECISION IN THE CASE OF CIT VS. INDIA COMPANY PVT. LTD. (199 7) 139 CTR (MAD.) 315. AS SUCH, I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 7 7 WHILE ACCEPTING THE DEPARTMENTS APPEAL ON THIS ISS UE, WE SET ASIDE THE ORDER OF THE CIT(A) INN THIS REGARD AND RESTORE THAT OF THE ASSE SSING OFFICER IN RELATION TO GROUND NO.1. 12. THE SECOND GROUND RELATES TO DELETION OF ADDITI ON OF RS.19,67,27,025/- BEING NOTIONAL AMOUNT OF SERVICE CHARGES SUPPOSED TO HAVE BEEN COLLECTED BY THE ASSESSEE DURING THE YEAR. THE ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER FOR THE REASONS DISCUSSED IN ASSESSMENT ORDER OF M/S SAHARA INDIA S AVINGS AND INVESTMENT CORPN. LTD. (SISICOL) FOR ASSESSMENT YEAR 1993-94. 13. FACTS IN RELATION TO THIS GROUND INDICATE THAT THE ASSESSEE FILED ITS RETURN FOR ASSESSMENT YEAR 1993-94 ON 25.1.1995; AND IN THIS R ETURN IT DISCLOSED NOT TO HAVE COLLECTED ANY AMOUNT BY WAY OF SERVICE CHARGES; WHI CH IT HAD BEEN DISCLOSING IN THE EARLIER YEARS. THE SERVICE CHARGES WERE BEING COLL ECTED BY THE ASSESSEE IN THE CAPACITY OF AN AGENT OF M/S SISICOL IN TERMS OF THEIR LETTER DA TED 5.12.1987 REPRODUCED BELOW: WE CONFIRM THAT WE HAVE NO OBJECTION TO YOUR COLLE CTING SERVICE CHARGES DIRECTLY FROM THE DEPOSITORS AGAINST DEPOSITS PROVI DED THIS WILL BE FOR EXPENSES INCURRED BY YOU FOR PROVIDING SERVICES TO DEPOSITOR S ONLY. YOU MAY COLLECT BY WAY OF SERVICE CHARGES FROM DEPO SITORS AGAINST DEPOSITS NOT EXCEEDING 15% OF DEPOSITS COLLECTED BY YOU.. 14. IT WAS THE CONTENTION OF THE ASSESSEE AS WELL A S OF M/S SISICOL BEFORE THE ASSESSING OFFICER THAT THIS LETTER WAS SUPERCEDED B Y A BOARD RESOLUTION DATED 30.3.1992 OF M/S SISICOL AND BY THIS RESOLUTION THE ASSESSEE WAS DIRECTED NOT TO COLLECT ANY AMOUNT BY WAY OF SERVICE CHARGES. TO THE ASSESSING OFFICERS ENQUIRY AS TO WHY NO SERVICE CHARGE HAS BEEN COLLECTED BY THE ASSESSEE, IT WAS THUS THE ASSESSEES REPLY THAT THE OLD PRACTICE OF COLLECTING SERVICE CHARGES HAS BEEN DISCONTINUED W.E.F. ASSESSMENT YEAR 1993-94. 15. THE ASSESSING OFFICER HAS NOT ACCEPTED THIS CON TENTION OF THE ASSESSEE. SHE HAS ARGUED THAT THE ASSESSEE WAS PERMITTED TO COLLECT S ERVICE CHARGES IN ORDER TO MEET VARIOUS I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 8 8 EXPENSES ON ACCOUNT OF SERVICES THAT IT WAS SUPPOSE D TO RENDER TO THE DEPOSITORS. THE ASSESSING OFFICER HAS QUESTIONED AS TO HOW THESE EX PENSES WERE MET BY THE ASSESSEE IF IT DID NOT COLLECT SERVICE CHARGES FROM THE DEPOSITORS ? SHE HAS STATED THAT M/S SISICOLS BOARD RESOLUTION DATED 30.3.1992; A COPY OF WHICH H AS BEEN FILED BEFORE THE ASSESSING OFFICER, THE NAME OF M/S OF SISICOL HAS BEEN MENTIO NED AS M/S SIFCOL. THE ASSESSING OFFICER HAS ALSO POINTED OUT THAT THE RES OLUTION DATED 30.3.1992 WAS NOT FOUND IN THE OFFICE OF THE REGISTRAR OF COMPANIES WHEREAS THE RESOLUTION DATED 19.11.1994 CHANGING THE NAME OF THAT COMPANY WAS FOUND IN THE OFFICE OF THE REGISTRAR OF COMPANIES. SHE HAS ALSO POINTED OUT THAT SINCE SOM E OF THE ASSESSEES PARTNERS HAPPEN TO BE DIRECTORS OF M/S SISICOL, THE BOARDS RESOLUTION IS OF COLLUSIVE NATURE. WITH THIS OBSERVATION, THE ASSESSING OFFICER HAS HELD THAT M/ S THAT M/S SISICOLS BOARD RESOLUTION DATED 30.3.1992 IS NOT GENUINE. THE ASS ESSING OFFICER HAS ACCORDINGLY CALCULATED SERVICE CHARGES @ APPROX. 10% OF THE TOT AL COLLECTION MADE BY THE ASSESSEE AND THEREBY MADE AN ADDITION OF RS.19,67,27,025/- T O THE ASSESSEES INCOME. 16. IN APPEAL, ASSESSEE HAS DENIED THESE ALLEGATION S AND IT WAS SUBMITTED BY HIM THAT THE PRACTICE OF COLLECTING SERVICE CHARGES WAS NOT CONSIDERED VERY ETHICAL AND DESIRABLE BY M/S SISICOL BOARD OF DIRECTORS AND RUMOUR WAS AGOG AT THE RELEVANT TIME THAT THE RESERVE BANK OF INDIA IS LIKELY TO PUT A BAN ON THE COLLECTION OF SERVICE CHARGES. IT WAS SUBMITTED THAT IN ORDER TO PRE-EMPT ANY ADVERSE COM MENT BY ANY GOVERNMENT AGENCY ON THE COLLECTION OF SERVICE CHARGES, M/S SISICOLS BO ARD OF DIRECTORS PASSED THE RESOLUTION DATED 30.3.1992 PROHIBITING THE ASSESSEE TO COLLECT THE SERVICE CHARGES. IT WAS SUBMITTED THAT SUBSEQUENTLY THE RESERVE BANK OF IND IA VIDE NOTIFICATION NO.DFC/COC- 69/ED(S-93) DATED 19.4.1993 LAID DOWN THAT THE RESI DUARY NON BANKING COMPANIES ARE NOT SUPPOSED TO CHARGE THE PROCESSING/SERVICE CHARGES F ORM THE DEPOSITORS/SUBSCRIBERS WITHOUT THEIR CONSENT. IT WAS FURTHER POINTED OUT BY THE LD.AR THAT IN ORDER TO ENABLE THE ASSESSEE TO MEET THE EXPENSES ON ACCOUNT OF SERVICE S RENDERED TO THE SUBSCRIBERS, M/S SISICOL HAS PAID SERVICE CHARGES @ 2% OF DEPOSITS T O THE ASSESSEE; AND THAT IN THIS WAY THE ASSESSEE HAS BEEN PAID A SUM OF RS.3,93,45,405/ - DURING THE YEAR; WHICH WAS NOT THERE IN THE EARLIER YEARS. AS REGARDS THE ASSESSING OFF ICERS OBSERVATION THAT THE NAME OF M/S SISICOL WAS CHANGED TO M/S SIFCOL W.E.F. 19.11.1994 BUT IN THE EXTRACT OF BOARD I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 9 9 RESOLUTION DATED 30.3.1992 THE NAME OF THE COMPANY HAS BEEN MENTIONED AS M/S SIFCOL, IT WAS SUBMITTED THAT THE ASSESSING OFFICER S OBSERVATION IS FACTUALLY WRONG. 17. THE LD.AR SUBMITTED THAT TRUE AND CERTIFIED EX TRACT OF THE BOARD RESOLUTION DATED 30.3.1992 WAS FILED BEFORE THE ASSESSING OFFI CER IN FEBRUARY, 1996, BY WHICH TIME THE CHANGE OF NAME HAD ALREADY TAKEN PLACE, AND HEN CE, THE EXTRACT HAD TO BE VERIFIED AND SIGNED BY THE DIRECTORS IN THE NAME OF M/S SIFCOL. A ZEROX COPY OF THE BOARD RESOLUTION DATED 30.3.1992 FILED BEFORE THE ASSESSI NG OFFICER AS WELL AS PHOTOCOPY OF THE RELEVANT RESOLUTION FROM THE MINUTE BOOK WAS ALSO F ILED BEFORE CITA). THE LD.AR ALSO POINTED OUT THAT WHEREAS THE RESOLUTION REGARDING T HE CHANGE OF NAME OF THE ASSESSEE HAD TO BE FILED IN THE OFFICE OF THE REGISTRAR OF COMPA NIES AS PER THE REQUIREMENTS OF THE COMPANIES AS PER THE REQUIREMENTS OF THE COMPANIES ACT, RESOLUTIONS REGARDING DAY-TO- DAY CONDUCT OF AN ASSESSEES BUSINESS ARE NOT SUPPO SED TO BE FILED IN THE REGISTRAR OF COMPANIES OFFICE. HE SUBMITTED THAT IT WAS FOR TH IS REASON THAT THE BOARD RESOLUTION DATED 30.3.1992 WAS NOT FILED IN THE OFFICE OF THE REGISTRAR OF COMPANIES. THE LD.AR FURTHER ARGUED THAT THE ENTIRE ADDITION OF RS.19,67 ,27,025/- IS BASED ON THE FIGMENT OF ASSESSING OFFICERS IMAGINATION AND THAT NO AMOUNT ON ACCOUNT OF SERVICE CHARGES HAS BEEN EVER COLLECTED BY THE ASSESSEE IN THE FINANCIA L YEAR RELEVANT TO THE ASSESSMENT YEAR 1993-94 AND, HENCE, ENTIRE ADDITION OF RS.19,67,27, 025/- MUST BE DIRECTED TO BE DELETED. 18. LD.CIT(A) WHILE CONSIDERING AND ACCEPTING THE P LEA OF THE ASSESSEE HAS CONCLUDED TO HOLD AS PER PARAS.11 TO 15 OF HIS ORDER AS UNDER : 11. I FIND, LD.ARS CONTENTION IS CORRECT. IF THE ASSESSEE HAD BEEN COLLECTING SERVICE CHARGES AS PER M/S SISCOLS LETT ER DATED 5.12.1987, IT DOES NOT MEAN THAT SUCH ARRANGEMENT CAN NEVER BE CH ANGED. THE DOUBT RAISED BY THE ASSESSING OFFICER AS TO HOW THE ASSES SEE HAD BEEN MEETING ITS EXPENSES WHEN IT HAS NOT BEEN ALLOWED TO COLLEC T SERVICE CHARGES ALSO HAS NO BASIS; AS THE APPELLANT HAS BEEN PAID A SUM OF RS.3,93,45,405/- BY M/S SISICOL ON THIS ACCOUNT. THE ASSESSING OFFICER HERSELF HAS NOTED IN THE ASSESSMENT ORDER THAT THE APPELLANT WAS NOT PAI D SERVICE CHARGES EARLIER I.E. IN ASSESSMENT YEARS 1989-90, 1990-91 AND 1991- 92. AS REGARDS THE ASSESSING OFFICERS OBSERVATIONS THAT THE NAME OF M /S FIFCOL IS MENTIONED IN THE BOARD RESOLUTION DATED 30.3.1992, I FIND THAT SAME IS FACTUALLY INCORRECT. THE APPELLANT IS FOUND TO HAV E FILED THE FOLLOWING I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 10 10 EXTRACT OF M/S SISICOLS BOARD RESOLUTION DATED 30. 3.1992 BEFORE THE ASSESSING OFFICER (PAGE 126 OF THE ASSESSMENT RECOR DS OF M/S SISICOL) :- BOARD NOTED THAT SAHARA INDIA WOULD NOT CHARGE DAI LY COLLECTION FACILITY CHARGES FROM ACCOUNT HOLDERS ON DAILY DEPOSIT ACCOU NTS OF SAHARA SAVINGS & INVESTMENT COPORAITON LIMITED W.E.F. 1 ST APRIL, 1992. CERTIFIED TO BE TRUE. FOR SAHARA SAVINGS & INVESTMENT COPORAITON LIMITED (FORMERLY KNOWN AS SAHARA INDIA SAVINGS & INVESTMEN T CORPORATION LTD.) SINCE THE ABOVE RESOLUTION WAS FILED BEFORE THE ASS ESSING OFFICER IN FEB., 1996, BY WHICH TIME THE NAME OF M/S SISICOL WAS CHA NGED TO M/S SIFCOL, SAME HAD TO BE VERIFIED BY THE DIRECTORS FO R AND ON BEHALF OF M/S SIFCOL. THE PERUSAL OF THE RESOLUTION DATED 30.3.1 992 AS APPEARING I THE MINUTE BOOK OF M/S SISICOL (A PHOTOCOPY OF WHICH HA S BEEN FILED BEFORE ME) ALSO SHOWS THAT THE NAME OF M/S SISICOL HAS BEEN CORRECTLY MENTIONED IN THE RESOLUTION. FURTHER, SIMPLY BECAU SE SOME OF THE APPELLANTS PARTNERS HAPPEN TO BE THE DIRECTORS OF M/S SISICOL, IT WOULD NOT LEAD TO THE CONCLUSION THAT ANY TRANSACTION BET WEEN HE APPELLANT AND M/S SISICOL IS INVARIABLY BOGUS AND SHAM; UNLESS TH E TAX IMPLICATION OF THE SAME HAS BEEN ANALYSED AND IT HAS BEEN PROVED T HAT BY RECOURSE TO SUCH TRANSACTION THE TAX HAS BEEN SOUGHT TO BE EVADED. MORE SO, THE ENTIRE ADDITION OF RS.19,67,27,025/- IS PURELY BASED ON AS SESSING OFFICERS GUESS WORK; THERE BEING NOT EVEN AN IOTA OF EVIDENCE TO S HOW THAT THE APPELLANT HAD COLLECTED SUCH A HUGE SUM FROM THE SUBSCRIBERS AND DID NOT ACCOUNT FOR THE SAME IN THE BOOKS. NOT EVEN ONE SUBSCRIBER OR DEPOSITOR HAS BEEN EXAMINED ON THIS ACCOUNT. THE ADDITION OF RS.19,67 ,27,025/- IS ACCORDINGLY DIRECTED TO BE DELETED. (RELIEF RS.19 ,67,27,025/-). 19. AGGRIEVED BY THE ORDER OF CIT(A), DEPARTMENT HS COME UP IN APPEAL AND WHILE RELYING UPON ASSESSING OFFICERS ORDER, IT WAS STRO NGLY PLEADED FOR SETTING ASIDE THE ORDER OF CIT(A) AND RESTORING THAT OF THE ASSESSING OFFIC ER, WHEREAS LD.COUNSEL FOR THE ASSESSEE HAS PLEADED FOR CONFIRMATION OF THE IMPUGN ED ORDER AS THE ENTIRE ADDITION OF RS.19,67,27,025/- IS BASED ON ASSESSING OFFICERS G UESS WORK, AND THERE BEING NOT AN IOTA OF EVIDENCE AND MATERIAL TO SHOW THAT THE ASSESSEE HAS COLLECTED SUCH HUGE SUM FROM SUBSCRIBERS AND DID NOT ACCOUNT FOR THE SAME IN THE BOOKS, SO, ADDITION WAS NOT CALLED FOR I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 11 11 AND CIT(A) IS JUSTIFIED IN CONCLUDING TO DELETE THE ADDITION WHOSE ACTION BEING LEGALLY VALID BE UPHELD. 20. WE HAVE HEARD BOTH THE SIDES AND CONSIDERED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDER OF CIT(A) ON THIS ISSUE RAIS ED IN THIS GROUND CAREFULLY AND FIND THAT CIT(A) HAS DECIDED THIS ISSUE IN VIEW OF FACTS AND CIRCUMSTANCES OF THE CASE AND MATERIAL AVAILABLE ON RECORD BY PROPERLY APPRECIATI NG THE ISSUE RAISED IN THE CASE. NO INFIRMITY OR FLAW HAS BEEN POINTED OUT BY THE LD.DR OR NOTICED IN THIS REGARD. THEREFORE, WHILE CONCURRING WITH THE FINDING OF CIT(A) ON THE ISSUE IN THIS GROUND, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE APPEAL OF THE REVEN UE WITH REGARD TO THIS ISSUE. 21. THE THIRD GROUND RELATES TO AN ADDITION OF RS.2 .64 CRORES ON ACCOUNT OF INTEREST. 22. THE ASSESSING OFFICER HAS STATED THAT THE ASSES SEE HAS ADVANCED INTEREST FREE FUNDS TO THE TUNE OF RS.14.72 CRORES TO THE SISTER CONCERNS/PARTNERS/DIRECTORS ON WHICH INTEREST @ 18% WORKS OUT TO RS.2.64 CRORES. THE AS SESSING OFFICER HAS STATED THAT THIS MUCH AMOUNT OF INTEREST, WHICH THE ASSESSEE COULD HAVE BEEN EARNED, HAS BEEN SURRENDERED/ABANDONED BY IT IN THE FAVOUR OF THE SI STER CONCERNS/PARTNERS/DIRECTORS. THE ASSESSING OFFICER HAS FURTHER STATED THAT THE ASSES SEE HAS PAID INTEREST AS UNDER: INTEREST RS.3,21,580/- INTEREST TO BANKS RS.5,55,913/- INTEREST PAID TO SUBSCRIBERS RS.9,65,143/- RS.18,42,636/- THE ASSESSING OFFICER HAS HELD IN THE ASSESSMENT OR DER THAT THE ABOVE INTEREST OF RS.18,42,636/- DEBITED BY THE ASSESSEE IN ITS PROF IT & LOSS ACCOUNT IS NOT ONLY BEING DISALLOWED; BUT BALANCE OF RS.2.46 CRORES (RS.2.64 CRORES RS.18 LACS) IS ALSO BEING I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 12 12 ADDED TO THE ASSESSEES INCOME. THE AMOUNT HAS BEE N HOWEVER, NOT ADDED WHILE COMPUTING THE ASSESSEES INCOME OF THIS YEAR. 23. ASSESSEE FILED APPEAL AND CHALLENGED SUCH ACTI ON OF ASSESSING OFFICER BEFORE LD.CIT(A) BEFORE WHOM THE LD.AR. HAS ARGUED THAT LA W IS WELL SETTLED THAT NOBODY CAN BE FORCED TO EARN INCOME AND PAY TAX. HE POINTED O UT THAT THIS PRINCIPLE HAS BEEN RECENTLY RENUNCIATED ONCE AGAIN IN 199 I.T.R. 702 (GAUHATI), 198 I.T.R. 415 (ALL.) AND 200 I.T.R. 702 (GAUHATI), 198 I.T.R. 415 (ALL.) AND 200 I.T.R. 710 (BOM.). HE FURTHER SUBMITTED THAT IF THE ASSESSEE HAS CHARGED NO INTEREST FROM PARTNERS/SISTER CONCERN,/DIRECTORS, NO NOTIONAL INTEREST CAN BE CALCULATED AND ADDED TO TH E ASSESSEES INCOME. HE ALTERNATIVELY POINTED OUT THAT OUT OF RS.14.72 CRORES THE ACCUMUL ATED LOSS IN THE PARTNERS ACCOUNT IS RS.10.45 CRORES AND THE REST OF THE AMOUNTS ARE IN THE NATURE OF TRADE BALANCES; AND NOT INTEREST FREE ADVANCES, SO IMPUGNED ADDITION IS NO T SUSTAINABLE AND AS SUCH SHOULD BE DELETED. 24. LD.CIT(A) WHILE CONSIDERING THE APPEAL ON THIS POINT, HAS OBSERVED AND CONCLUDED TO GIVE DIRECTION TO THE ASSESSING OFFICE R AS UNDER: AS FAR AS THE ASSESSING OFFICERS OBSERVATIONS THA T THE AMOUNT OF RS.2.64 CRORES IS IN THE NATURE OF INCOME ABANDONED/SURREND ERED BY THE ASSESSEE IN THE FAVOUR OF SISTER CONCERNS/PARTNERS/DIRECTORS AND THAT SAME MUST BE ADDED TO THE ASSESSEES INCOME IS CONCERNED, I DO A GREE WITH THE LD.AR THAT THE ADDITION MUST BE DELETED. IN THE FIRST PL ACE, RS.14.72 CRORES IS COMPRISED OF AN AMOUNT OF RS.10.45 CRORES WHICH IS ACCUMULATED LOSS IN THE ACCOUNT OF ALL THE PARTNERS OVER A NUMBER OF YE ARS. THIS CERTAINLY CANNOT BE CALLED DIVERSION OF THE APPELLANTS FUNDS THROUGH THE PARTNERS FOR NON-BUSINESS PURPOSES. SECONDLY, LAW IS WELL ESTAB LISHED THAT THE APPELLANT CANNOT BE COMPELLED TO CHARGE INTEREST FO RM SUCH SISTER CONCERNS/PARTNERS ETC. AND INCLUDE THE SAME IN ITS INCOME. WHAT THE ASSESSING OFFICER CAN AT BEST DO IS TO DISALLOW THA T PORTION OF THE INTEREST AS DEBITED IN THE PROFIT & LOSS A/C WHICH CORRESPON DS TO THE INTEREST ON I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 13 13 INTEREST FREE ADVANCES. THE BREAK-UP OF RS.14,73,0 7,544/- HAS BEEN SUBMITTED BEFORE ME AS UNDER: (RS.) 1. ACCUMULATED LOSS AS IN PARTNERS CURRENT A/C 10 ,45,23,833/- 2. ADVANCE WITH PARTY NOT BELONGING TO SAHARA 36,1 3,624/- INDIA GROUP FOR CARRYING OUT NORMAL BUSINESS ACTIVITIES. 3. SAHARA INVESTMENT INDIA LTD., AGAINST COLLECTION 1,05,27,447/- AND MATURITY OF DEPOSIT AS M/S SAHARA INDIA IS AGENT TO SAHARA INVESTMENT INDIA LTD. 4. ADVANCE AGAINST PURCHASE OF CAPITAL ITEMS. 44 ,73,864/- 5. SAHARA INDIA MARKETING AGAINST BUSINESS 2,41, 68,776/- 14,73,07,544/- THE ASSESSING OFFICER WILL HAVE TO ASCERTAIN THE TR UE AND CORRECT NATURE OF THESE BALANCE. IN RESPECT OF THE AMOUNTS WHICH ARE IN THE NATURE OF INTEREST FREE ADVANCES WITHOUT BUSINESS PURPOSE, THE ASSESSI NG OFFICER WOULD CALCULATE INTEREST @ 18% AND DISALLOW SAME OUT OF I NTEREST DEBITED IN THE PROFIT & LOSS A/C; WHICH AS PER DETAILS GIVEN ON PA GE 3 OF THE ASSESSMENT ORDER IS RS.18,42,636/-. AS DISCUSSED IN MY APPELL ATE ORDER I THE APPELLANTS OWN CASE IN ASSESSMENT YEAR 1992-93, AL L THE ABOVE INTEREST PAYMENTS ARE IN THE NATURE OF INTEREST ON BORROWED CAPITAL. IN OTHER WORDS, PROPOSED ADDITION OF RS.2,46 CRORES IS NOT TO BE AD DED TO THE APPELLANTS INCOME. IN THE ORDER GIVING EFFECT TO THIS ORDER, THE DISALLOWANCE ON ACCOUNT OF INTEREST SHOULD NOT EXCEED RS.18,42,636/ -. 25. AGAINST THIS ORDER OF CIT(A) ON THIS ISSUE, DEP ARTMENT HAS COME UP IN APPEAL AND DURING PENDENCY OF APPEAL, ASSESSING OFFICER HAS CA RRIED OUT THE DIRECTION ISSUED BY THE CIT(A), AND PASSED CONSEQUENTIAL ORDER DATED 25.2.1 999 AGAINST WHICH ASSESSEE PREFERRED APPEAL BEFORE FIRST APPELLATE AUTHORITY, WHO PASSED ORDER ON 2.6.2000 AND ANOTHER APPEAL WAS FILED BY DEPARTMENT AND REGISTERED UNDER I.T.A. NO.129/LUC./2000 AND ASSESSEE FILED CROSS OBJECTIONS REGISTERED UNDER C.O. NO.105/LUC./ 2004, ALL THESE MATTERS WERE CONSOLIDATED AND WOULD BE TAKEN UP IN LATER PORTION OF THIS ORDER. 26. FURTHER, IT IS FOUND THAT THE ASSESSEE HAD ALSO FILED APPEAL AGAINST THE ORDER OF CIT(A) DATED 7.6.1996 ON THIS ISSUE, WHICH WAS REG ISTERED AS I.T.A. NO.1517/DEL./1996, AND CAME TO BE DECIDED BY A BENCH OF ITAT, DELHI ON 22.7.2007 ON THE ISSUE OF INTEREST PAYMENT WHEREIN TRIBUNAL HAS CONCLUDED IN PARAS. 5 TO 7 AS UNDER: I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 14 14 5. THE ASSESSEE APPEALED AGAINST BOTH THE ADDITION OF RS.2,64 CRORES AS NOTIONAL INTEREST AND THE DISALLOWANCE OF INTEREST OF RS.18,42,636/-. IT APPEARS THAT DETAILS WRITTEN SUBMISSIONS WERE FILED BEFORE THE CIT(A)-I, LUCKNOW DATED 29.5.1997 AND A COPY OF THE SAME HAS BEEN FILED AT PAGES 12 TO 24 OF THE PAPER BOOK. FROM THESE SUBMISSIONS, IT IS SEEN THAT THE AMOUNT OF INTEREST PAID CONSISTS OF INTEREST OF RS.9,95,143/- PAID TO SUBSCRIBERS, I NTEREST OF RS.5,55,913/- PAID TO BANKS AND OTHER INTEREST OF RS.3,21,580/-. IT HAS BEEN STATED IN THE WRITTEN SUBMISSIONS THAT THE INTEREST PAID TO BANKS WAS IN RESPECT OF MONIES BORROWED FOR THE PURPOSE OF INVESTMENT/FINANCING THE NORMAL ACTI VITIES OF THE ASSESSEE. SO FAR AS THE INTEREST PAID TO SUBSCRIBERS IS CONCERNED, I T WAS SUBMITTED THAT INVITING DEPOSITS FORM THE PUBLIC IS THE VERY BUSINESS OF TH E ASSESSEE, THAT THESE DEPOSITS WERE COLLECTED UNDER VARIOUS SCHEMES, THAT THE FIRM CARRIED ON THE BUSINESS OF PARA-BANKING IN WHICH THE RELATIONSHIP BETWEEN THE DEPOSITOR AND THE ASSESSEE WAS THAT OF A CREDITORS AND DEBTOR AND NOT THAT OF BORROWER AND LENDER, THAT IN ANY CASE IT IS THE ASSESSEES BUSINESS TO RECEIVE DEPOS ITS UNDER THE VARIOUS SCHEMES ON WHICH INTEREST IS TO BE PAID AND THAT EVEN UNDER SE CTION 36(1)(III) THE INTEREST HAS TO BE ALLOWED AS A DEDUCTION. SO FAR AS THE OTHER INTEREST IS CONCERNED, IT WAS SUBMITTED THAT THIS WAS PAID NOT IN RESPECT OF ANY BORROWING BUT ON OUTSTANDING WHICH AROSE IN THE COURSE OF THE CARRYING ON THE BU SINESS. IT WAS ALSO POINTED OUT THAT ON SIMILAR FACTS, THE CIT(A) FOR THE ASSESSMEN T YEAR 1992-93 HAS RESTORED THE ISSUE TO THE ASSESSING OFFICER FOR FULLER EXAMINATI ON AND DECISION. 6. THE CIT(A) HAS NOT REFERRED TO THE WRITTEN SUBMI SSIONS. HE HAS DEALT WITH THE INTEREST ADDITION OF RS.2.64 CRORES AND THE INT EREST DISALLOWANCE OF RS.18,42,636/- TOGETHER. THIS IS IN PARAGRAPHS 12 TO 15 OF HIS ORDER. ULTIMATELY, HE HAS DELETED THE ADDITION OF RS.2,64 CRORES BUT H AS SUSTAINED THE DISALLOWANCE OF THE INTEREST OF RS.18,42,636/-. NO SEPARATE REASON S HAVE BEEN GIVEN BY HIM EXCEPT OBSERVING THAT THE AMOUNT DISALLOWED REPRESE NTED INTEREST IN RESPECT OF INTEREST FREE ADVANCES WHICH CAN BE DISALLOWED. 7. HAVING HEARD THE RIVAL SUBMISSIONS IN RESPECT OF THESE GROUNDS, WE ARE OF THE VIEW THAT THE ISSUE HAS TO BE SET ASIDE AND RES TORED TO THE ASSESSING OFFICER FOR A FRESH DECISION IN THE LIGHT OF THE WRITTEN SUBMIS SIONS FILED BY THE ASSESSEE BEFORE THE CIT(A). THE WRITTEN SUBMISSIONS HAVE NOT BEEN DEALT WITH BY THE CIT(A) NOR HAS THE FACTUAL POSITION BEEN DISCUSSED IN THE ASSE SSMENT ORDER. THE ASSESSEES CLAIM IN THE WRITTEN SUBMISSIONS HAS TO BE VERIFIED AND DECIDED AFRESH AFTER GIVING FULL OPPORTUNITY TO IT IN THE INTEREST OF JUSTICE. ACCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJU DICATION. 27. SINCE THE ISSUE ARISING OUT OF CIT(A) ORDER IN FIRST ROUND IN RELATION TO INTEREST HAS ALREADY BEEN SET ASIDE TO THE ASSESSING OFFICER BY ITAT, THEREFORE, WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER FOR RE-DECI DING IT IN TERMS OF DIRECTION ISSUED BY ITAT, A BENCH VIDE ORDER DATED 22.7.2007 (SUPRA). SO, THIS ISSUE GETS SET ASIDE AND I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 15 15 RESTORED BACK ON THE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATION AS PER DIRECTION ISSUED BY A BENCH. I.T.A. NO.129/LUC/2000 & C.O NO.105/LUC./2004 28. AS REGARDS APPEAL IN I.T.A. NO.129/LUC./2000, P REFERRED BY THE DEPARTMENT AND C.O. NO. 105/LUC./2004 FILED BY THE ASSESSEE ARE C ONCERNED, WE FIND THAT SINCE ORIGINAL ORDER DATED 7.6.96 OF LD.CIT(A) ON THE ISSUE OF IN TEREST RAISED HAS BEEN SET ASIDE IN BOTH THE APPEALS OF ASSESSEE AS WELL AS OF THE DEPARTMEN T AND MATTERS ON THIS ISSUE HAVE BEEN RESTORED TO THE ASSESSING OFFICER FOR RECONSIDERATI ON, THEREFORE, CONSEQUENTIAL ORDERS PASSED BY THE AUTHORITIES BELOW HAVING LOST THEIR FOUNDATION CANNOT SURVIVE AND AS SUCH ARE VACATED AND APPEAL OF THE DEPARTMENT IN I.T.A. NO.129/LUC./2000 AND CROSS OBJECTIONS OF THE ASSESSEE UNDER C.O. NO.105/LUC./2 004 ARE THUS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 18.05.2012. SD/- SD/- (K.D. RANJAN) (U.B.S. BEDI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : MAY 18, 2012 SKB COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-II, LUCKNOW. 5. CIT(ITAT) DEPUTY REGISTRAR, ITAT I.T.A. NOS.1635/LUC./96 & 129/LUC./2000 C.O. NO.105/LUC./2004 (A.Y. : 1993-94) 16 16