M/s. Paliwal Infrastructure Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1292/DEL/2015

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1669 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 05-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Proportionate interest; Notional interest; Commercial expediency; Rule 8D; Set aside
• Section: 143(3); 14A; 37(1); 143(1); 80IA; 43; 48; 13; 32

Judgement Text

ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 1 OF 18 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: F: NEW DELHI) BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER ITA NO:- 3572/DEL/2014 ( ASSESSMENT YEAR: 2009-10) M/S PALIWAL INFRASTRUCTURE PVT. LTD., B-14, GREATER KAILASH-I, NEW DELHI. VS. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-14, NEW DELHI. PAN NO: AABCR7764E APPELLANT RESPONDENT ITA NO:- 1292/DEL/2015 ( ASSESSMENT YEAR: 2010-11) M/S PALIWAL INFRASTRUCTURE PVT. LTD., B-14, GREATER KAILASH-I, NEW DELHI. VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 14(1), NEW DELHI. PAN NO: AABCR7764E APPELLANT RESPONDENT ASSESSEE BY : SHRI K. SAMPATH, ADV. AND SHRI V. RAJA KUMAR, ADV. REVENUE BY : SHRI SURENDER PAL, SR. DR CONSOLIDATED ORDER PER ANADEE NATH MISSHRA, AM (A) THE AFOREMENTIONED APPEALS BY THE ASSESSEE ARE TAK EN UP TOGETHER FOR THE SAKE OF CONVENIENCE AND BREVITY; AND ARE HEREBY DISPOSED OFF THROUGH THIS CONSOLIDATED ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 2 OF 18 ORDER. GROUNDS TAKEN IN THESE APPEALS OF ASSESSEE ARE AS UNDER: ITA NO.- 3572/DEL/2014 1. THAT THE ORDER OF THE LEANED COMMISSIONER OF IN COME TAX (APPEALS) IS AGAINST LAW AND FACTS. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) I N PASSING EX-PARTE ORDERS WITHOUT A VALID SERVICE OF NOTICE OF HEARING ON TH E APPELLANT AND WITHOUT ANY REPORT FROM THE A.O. IS HIGHLY ARBITRARY, ILLEGAL, VOID AND UNCALLED FOR. 3. THAT IN THE FACTS AND CIRCUMSTANCE OF THE CASE O F THE APPELLANT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONFIRMING DISALLOWANCE OF RS. 56450224/- U/S 14A READ WITH RULE 6D IN RESP ECT OF INVESTMENT MADE BY THE APPELLANT COMPANY AS PARTNER IN M/S ABHITEX INTERNATIONAL, PANIPAT WHERE INVESTMENT WAS MADE FOR THE BUSINESS CONSIDER ATION ONLY IS ALTOGETHER ARBITRARY, AGAINST THE PROVISIONS LAID UNDER LAW IL LEGAL AND UNCALLED FOR. ITA NO. 1292/DEL/2015 1. THAT THE ORDER OF THE LEANED INCOME TAX OFFICER IS AGAINST LAW AND FACTS. 2. THAT IN THE FACTS AND CIRCUMSTANCE OF THE CASE OF THE APPELLANT THE ORDER OF THE INCOME COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING DISALLOWANCE OF RS. 4,28,65,241/- U/S 36(1)(III) IN RESPECT OF I NVESTMENT MADE BY THE APPELLANT COMPANY AS PARTNER IN M/S ABHITEX INTERNA TIONAL, PANIPAT WHERE INVESTMENT WAS MADE FOR THE BUSINESS CONSIDERATION ONLY IS ALTOGETHER ARBITRARY, AGAINST THE PROVISIONS LAID UNDER LAW IL LEGAL AND UNCALLED FOR. (B) FIRST WE TAKE UP ITA NO.- 3572/DEL/2014. THE CORE ISSUE IN ITA NO. 3572/DEL/2014 FOR ASSESSMENT YEAR 2009-10 IS REGARD ING DISALLOWANCE AMOUNTING TO RS. 5,64,50,224/- UNDER SECTION 14A OF INCOME TAX A CT, 1961 (I.T. ACT, FOR SHORT). THE ASSESSING OFFICER PASSED ASSESSMENT ORDER DATED 2.12.2011 UNDER SECTION 143(3) OF I.T. ACT, WHEREIN DISALLOWANCE AMOUNTING TO RS. 5,64,50,220/- WAS MADE UNDER SECTION 14A OF I.T. ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 (I.T. RULES, FOR SHORT); WHICH INCLUDED DISALLOWANCE OF RS. 5,41,45, 279/- ( ON ACCOUNT OF INTEREST WHICH ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 3 OF 18 IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCO ME OR RECEIPT). THE ASSESSEE FILED APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (A PPEALS)-XVII. THE LD. CIT(A) PASSED EX-PARTE ORDER DATED 01.04.2014 WHEREBY, SHE DISMISSED THE ASSESSEES APPEAL AND CONFIRMED THE ENTIRE AFORESAID DISALLOWANCE OF RS. 5,65,50,220/- INCLUDING THE AFORESAID RS. 5,41,45,279/- ON ACCOUNT OF INTEREST. THE PRESENT APPEAL BEFORE US VIDE ITA NO. 3572/DEL/2014 HAS FILED BY THE ASSESSEE AG AINST THE AFORESAID IMPUGNED APPELLATE ORDER DATED 01.04.2014 OF THE LD. CIT(A) FOR ASSESSMENT YEAR 2009-10. (C) NOW COMING TO ITA NO. 1292/DEL/2015 FOR ASSESSMENT YEAR 2010-11, BRIEFLY STATED, THE FACTS ARE, THAT ASSESSING OFFICER PASSE D ASSESSMENT ORDER UNDER SECTION 143(3) OF I.T. ACT WHEREIN THE DISALLOWANCE OF RS. 4,28,65,241/- WAS MADE BY DISALLOWING INTEREST EXPENSES UNDER SECTION 36(1)(I II) OF I.T. ACT. THE ASSESSEE FILED APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (A PPEALS) -7, WHO, VIDE IMPUGNED APPELLATE ORDER DATED 20.01.2015 DISMISSED THE ASSE SSEES APPEAL AND CONFIRMED THE AFORESAID ADDITION OF RS. 4,28,65,241/-. THE PRESE NT APPEAL BEFORE US VIDE ITA NO. 1292/DEL/2015 HAS BEEN FILED BY THE ASSESSEE AGAINS T THE AFORESAID IMPUGNED APPELLATE ORDER DATED 20.01.2015 OF THE LD. CIT(A). (D) AT THE TIME OF HEARING BEFORE US ON 09.12.2019, TH E LD. COUNSEL FOR ASSESSEE PLACED RELIANCE ON ORDER DATED 08.02.2016 OF CO-ORD INATE BENCH OF ITAT, DELHI IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2007-08 & 2008-09 VIDE ITA NOS.- 1978 & 1979/DEL/2011. THE RELEVANT PORTION OF THE AFORESA ID ORDER DATED 08.02.2016 OF CO- ORDINATE BENCH OF ITAT, DELHI, IS REPRODUCED AS UND ER FOR THE EASE OF REFERENCE: ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 4 OF 18 3. FIRST WE WILL DEAL WITH THE APPEAL FOR THE ASSE SSMENT YEAR 2007-08 IN ITA NO. 1978/DEL/2011. THE ONLY EFFECTIVE GROUND RAISED IN THIS APPEAL READS AS UNDER: THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) IN CONFIRMING DISALLOWANCE OF INTEREST OF RS.3,63,74,5 05/- IN RESPECT OF INVESTMENT MADE BY THE APPELLANT IN M/S ABHITEX INT ERNATIONAL, PANIPAT, WHICH WAS MADE FOR BUSINESS CONSIDERATION ONLY, HENCE IS ALTOGETHER ARBITRARY, AGAINST THE PROVISIONS LAID U NDER LAW, ILLEGAL AND UNCALLED FOR. 4. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF OPERATION AND MAINTENANCE OF INDUSTRIAL PARK WHI CH HAD BEEN BUILT BY M/S RMZ CORP HOLDINGS PVT. LTD. AND WAS ACQUIRED BY THE ASSESSEE IN THE YEAR 2005. THE ASSESSEE HAD BEEN DERIVING INCOME FROM TH E UNITS LOCATED IN THE INDUSTRIAL PARK. DURING THE YEAR UNDER CONSIDERATIO N THE ASSESSEE HAD RECEIVED GROSS RECEIPT OF RS.28,59,81,773/- AFTER INCLUDING OTHER INCOMES, THE ASSESSEE ARRIVED AT GROSS TOTAL INCOME OF RS.6,81,02,483/- O N WHICH DEDUCTION U/S 80IA(4)(III) OF THE ACT AMOUNTING TO RS.4,49,07,385 /- WAS CLAIMED AND TAXABLE INCOME OF RS.2,31,95,098/- WAS ARRIVED. THE ASSESSE E HAD FILED RETURN OF INCOME ON 10.06.2008 BY DECLARING TAXABLE INCOME OF RS.2,31,95,100/- WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 196 1 (HEREINAFTER REFERRED TO AS THE ACT) ON 19.03.2009. LATER ON, THE CASE WAS S ELECTED FOR SCRUTINY. THE AO ASKED THE ASSESSEE TO FURNISH VARIOUS DETAILS TO SUBSTANTIATE ITS CLAIM OF DEDUCTION. THE ASSESSEE FURNISHED COPIES OF APPROVA L TAKEN FROM MINISTRY OF COMMERCE & INDUSTRY, CBDT NOTIFICATION AND LEASE AG REEMENTS WITH TENANTS ETC. THE AO OBSERVED THAT THE ASSESSEE HAD INVESTED RS.40,87,02,301/- AS ON 31.03.2007 IN ONE OF ITS PARTNERSHIP FIRM, NAMELY, M/S ABHITEX INTERNATIONAL AND THE DETAILS REVEALED THAT THOSE FUNDS WERE DIRE CTLY ADVANCED FROM ABN AMRO LOAN ACCOUNT AS UNDER: ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 5 OF 18 5. FROM THE ABOVE DETAILS, THE AO NOTED THAT THE AS SESSEE HAD INVESTED RS.34,41,77,955/- AS ON 01.04.2006 IN M/S ABHITEX I NTERNATIONAL AND THERE WAS ADDITIONAL TRANSFER OF FUNDS DURING THE CURRENT YEA R TO THE TUNE OF RS. 6,45,24,346/-. THUS, TOTAL OUTSTANDING BALANCE AS O N 31.03.2007 CAME TO RS.40,87,02,301/-. ACCORDING TO THE AO THERE WAS CL EAR NEXUS FOR DIVERSION OF FUNDS TO THE ASSOCIATE CONCERN OF THE ASSESSEE. HE FURTHER OBSERVED THAT THE PARTNERSHIP DEED OF M/S ABHITEX INTERNATIONAL REVEA LED THAT NO INTEREST WAS PAYABLE TO THE ASSESSEE FOR THE CAPITAL CONTRIBUTED BY IT. WHEREAS THE ASSESSEE HAD FULLY BORNE THE INTEREST AND FINANCE CHARGES ON ITS OWN ACCOUNT WHICH WAS CLEARLY DETRIMENTAL TO THE INTEREST OF THE REVENUE. THE AO DISALLOWED PROPORTIONATE INTEREST ON THE FUNDS TRANSFERRED TO THE SISTER CONCERN, TREATING THE SAME FOR NON-BUSINESS PURPOSES. THE AO FUND THA T THE ASSESSEE HAD PAID INTEREST @ 8.9% (ON AN AVERAGE) TO THE ABN AMRO BAN K. ACCORDINGLY, DISALLOWANCE OF RS.3,63,74,505/- WAS MADE AND ADDED TO THE INCOME OF THE ASSESSEE. 6. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ACTION OF THE AO WAS NOT JUSTIFI ED AS THE SAME WAS NOT BASED ON PROPER APPRECIATION OF FACTS AND WAS IN VI OLATION OF LEGAL POSITION ON THE ISSUE. IT WAS FURTHER SUBMITTED THAT THE BORROW INGS FROM THE BANK GOT REDUCED FROM RS.136 CRORES AS ON 31.03.2006 TO RS.1 24 CRORES AS ON 31.03.2007 AND THE ASSESSEE HAD NON-INTEREST BEARIN G FUNDS OF RS.34,67,15,55/- DURING THE FINANCIAL YEARS 2005-06 AND RS.31,68,35,357/- DURING THE FINANCIAL YEAR 2006-07. IT WAS STATED TH AT THE ASSESSEE HAD ALSO CASH FLOW FUNDS AVAILABLE WITH RESPECT OF DEPRECATI ON ON FIXED ASSETS AMOUNTING TO RS.12.30 CRORES AND RS.11.60 CRORES DU RING THE PERIODS RELEVANT TO THE ASSESSMENT YEARS 2006-07 AND 2007-08 RESPECT IVELY. THE RELEVANT PORTION OF THE SUBMISSIONS OF THE ASSESSEE HAS BEEN REPRODUCED BY THE LD. CIT(A) IN PARA 7 AT PAGE NOS. 17 TO 20 OF THE IMPUG NED ORDER WHICH READ AS UNDER: ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 6 OF 18 7. BEFORE ME, THE LD. AR FOR THE APPELLANT HAS SUB MITTED THAT THE ACTION OF THE AO WAS NOT JUSTIFIED AS THE SAME WAS NOT BAS ED ON PROPER APPRECIATION OF FACTS AND WAS IN VIOLATION OF LEGAL POSITION ON THE ISSUE. IT WAS SUBMITTED THAT THE BORROWING FROM THE BANK GOT REDUCED FROM RS.136 CRORES AS ON 31.03.2006 TO 124 CRORES AS ON 31.03.2007. IT WAS FURTHER SUBMITTED THAT THE APPELLANT HAD NON INTERE ST BEARING FUNDS OF RS.34,67,15,557/- DURING THE F. Y. 2005-06 AND NON INTEREST BEARING FUNDS OF RS.31,68,35,3577/- DURING F. Y. 2006-07 AS UNDER: IT WAS SUBMITTED THAT BESIDES THE ABOVE NON INTERES T BEARING FUNDS, THE APPELLANT HAD ALSO DURING F.Y 05- 06 AND 06-07 THE CASH FLOW FUNDS AVAILABILITY W.R.T. DEPRECIATION OF FIXED ASSETS RS .12.30 CR IN A.Y. 2006-07 AND RS.11.60 CR IN A.Y. 2007-08 ASSTT. YEAR. FOR TH E SAKE OF CONVENIENCE, THE RELEVANT PORTION OF THE LD. AR'S SUBMISSION IS REPRODUCED AS UNDER: 'THAT THE AO'S OBSERVATIONS ON THE DISALLOWANCE OF BANK INTEREST AMOUNTING TO RS.3,63,73,505 STAND REPRODUCED AT PAG ES 9-10 OF THE PAPER BOOK. THE LEARNED AO HAS PROCEEDED TO DISALLO W THE SAID AMOUNT WHILE CALCULATING THE SAME AT AN AVERAGE INTEREST R ATE OF 8.9% ON THE CLOSING OUTSTANDING OF RS.40,87,02,301 WITHOUT CONS IDERING THE DATES AND PERIOD OF THE AMOUNTS GOING AS DEBIT AND THE CREDIT S DURING THE YEAR. THE LEARNED AO WHILE MAKING THIS ADDITION/DISALLOWANCE HAS NEITHER CONSIDERED NOR MADE A MENTION OF ONE WORD W.R.T APP ELLANT'S SUBMISSIONS MADE IN COURSE OF ASSESSMENT PROCEEDINGS AND ALSO M ADE IN WRITTEN REPLY BEFORE HIM. YOUR HONOUR, AS HAS BEEN MENTIONED/, ST ATED IN OPENING PARA ABOVE WITH REGARD TO SUBMISSIONS MADE EARLIER VIDE PAGES 10-12 OF THE PAPER BOOK, IN ADDITION THE COMMERCIAL EXPEDIENCY I S FURTHER EXPLAINED/SUBSTANTIATED WHICH SQUARELY COVERS THE I SSUE IN ASSESSEE/APPELLANT'S FAVOUR TO PROVE THAT NO DISALL OWANCE OUT OF INTEREST WAS CALLED FOR: A) BRIEF FACTS THAT M/S RMZ CORP. HOLDINGS PRIVATE LTD. THE MILLEN IA, TOWER B, LEVEL 12-14, NO. 1&2, MURPHY ROAD, ULSOOR, WERE THE OWNER S OF- (I) LAND, BUILDING AND OTHER FACILITIES AT PLOT NOS.14 AND 15, ROAD NO #2 HITEC CITY LAYOUT, SURVEY NO.64 (PART), MADHAPUR VILLAGE, SERILINGAMPALI MANDAL, RANGA REDDY DISTRICT HYDERAB AD(AP) 500081 (II) THE ABOVE PROPERTY WAS APPROVED BY ANDHRA PRADESH I NDUSTRIAL INFRASTRUCTURE CORPORATION LTD. FOR COMMERCIAL PURP OSES(IT PARK). FOR THE PURPOSE/OBJECTIVE OF ACQUIRING THE OWNERSHIP/SHARE HOLDING OF SAID COMPANY, PALIWAL GR OUP IN PANIPAT MADE THE INVESTMENT WHILE ACQUIRING THE SHA RES IN THE ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 7 OF 18 NAMES OF-(A) PALIWAL OVERSEAS PVT. LTD. (B) PALIWAL INDUSTRIES (P) LTD. (C) SH.AVINASH CHANDER SHARMA (D) SMT. RANI PA LIWAL W/O. SH.AVINASH CHANDER SHARMA (E) SH. ABHISHEK PALIWAL S/O. SH. AVINASH CHANDER SHARMA. ALL THE ABOVE MENTIONED ASS ESSEES MADE THE RESPECTIVE INVESTMENTS FROM THEIR ACCOUNTS /RESOURCES WHICH INCLUDED IN THE CASE OF C,D,& E, THE WITHDRAW ALS MAINLY FROM M/S. ABHITEX INTERNATIONAL, PANIPAT, A PARTNER SHIP FIRM IN WHICH ALL THREE WERE PARTNERS. (III) THAT THE TOTAL INVESTMENT IN ACQUIRING THE SHARES W AS TO THE TUNE OF RS. 86,99,85,000/-. DETAILS W.R.T. THE SAID INVE STMENT AND RESPECTIVE WITHDRAWALS ARE CONTAINED IN THE COPIES OF ACCOUNTS PRODUCED. THE PAIDUP CAPITAL OF M/S. RMZ FUTURA(NOW PRESENT NAME AS M/S. PALIWAL INFRASTRUCTURE) WAS RS.45 LAKH S ONLY AS AGAINST WHICH THE ABOVE MENTIONED FIVE PERSONS OF P ALIWAL GROUP INCLUDING TWO COMPANIES INVESTED THE AMOUNT AS STAT ED ABOVE I.E. RS.86,99.85,000/- WHICH FINDS PLACE IN THE RES PECTIVE BALANCE SHEETS OF ALL THE FIVE ASSESSEES. YOUR HONOUR, THE PAID UP SHARE VALUE REMAINED THE SAME AS PER THE BALANCE SHEET OF THE APPELLANT COMPANY. (IV) THAT THE AMOUNT WAS MADE AVAILABLE BY M/S PALIWAL INFRASTRUCTURE, THE APPELLANT COMPANY TO M/S. ABHIT EX INTERNATIONAL, PANIPAT WAS IN LIEU OF COMMERCIAL EX PEDIENCY ONLY I.E. THE MANAGEMENT OF THE COMPANY & FIRM BELONG TO SAME GROUP OF FAMILY MEMBERS ONLY AND THE INVESTMENT WAS WITHDRAWN AT ONE STAGE FROM SAID FIRM ONLY AS MENTIONED IN PA RA(I) ABOVE BY THREE PARTNERS. (B) COMMERCIAL EXPEDIENCY YOUR HONOUR, HAVING STATED THE RELEVANT FACTS IN BR IEF AS ABOVE AND FROM THE STATEMENT OF RELEVANT ACCOUNTS IT WOULD BE AMPLY CLEAR THAT AT ONE STAGE AMOUNT WAS WITHDRAWN FOR ACQUIRING SHA RES BY THREE INDIVIDUALS I.E. PARTNERS OF M/S. ABHITEX INTERNATI ONAL, PANIPAT WHICH WAS A COMMERCIAL EXPEDIENCY TO EXPAND AND LATER ON THE AMOUNT CAME BACK FROM M/S. PALIWAL INFRASTRUCTURE PVT. LTD . (EARLIER NAME M/S. RMZ FUTURA). BOTH THE EVENTS I.E. WITHDRAWAL & RECEIPTS ARE TWO SIDES OF SAME COIN I.E. COMMERCIAL EXPEDIENCY. HOPE YOUR HONOUR WILL SURELY APPRECIATE THE SAME ALONGWITH TH E SUBMISSIONS ALREADY MADE VIDE PAGES 9-12 OF PAPER BOOK. YOUR HONOUR, IN THE SUBMISSIONS ALREADY MADE AND MA DE ABOVE IT MAY BE WORTH MENTIONING & RELYING UPON- AN IMPORTAN T CASE LAW-A RECENT JUDGEMENT FROM A LARGER BENCH OF HON'BLE PB. & HR. HIGH COURT IN ITR NO.169 & 170 OF 1996 ORDER DT.1.2.2011 (COPY ATTACHED). THE MOST RELEVANT PARA FOR REFERENCE TO THE CONTEXT AND CONSIDERATION IS PARA 11 OF THIS JUDGEMENT WHICH IS REPRODUCED HEREUNDER:- '11. LEARNED COUNSEL FURTHER SUBMITTED THAT THE OPI NION OF DIFFERENT PERSONA WITH REGARD TO THE FACT AS TO WHETHER A PAR TICULAR TRANSACTION IS TO BE ENTERED INTO OR NOT WOULD BE SUBJECTIVE AN D DIFFERS FROM ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 8 OF 18 EACH OTHER. THE ASSESSING OFFICER MAY LOOK AT THE F ACTS FROM A CONSERVATIVE POINT OF VIEW WHEREAS THE ASSESSES MAY HAVE TO LOOK FOR A BROADER ASPECT KEEPING IN VIEW LONG TERM PLAN NING. MANY A TIMES, TO KEEP THE FLAG FLYING, THE GROUP COMPANIES HAVE TO BE SUPPORTED WITH FUNDS FROM FINANCIALLY HEALTHY COMPA NIES. THE MANNER IN WHICH THE TRANSACTION HAS BEEN ENTERED IN TO BY THE ASSESSEE CAN AT THE BEST BE TERMED AS TAX PLANNING, BUT IN NO WAY IT CAN BE OPINED AS TAX EVASION. TAX PLANNING IS PERMI SSIBLE. RELIANCE FOR THE PURPOSE WAS PLACED UPON M/S. MCDOWELL AND C OMPANY LIMITED V. COMMERCIAL TAX OFFICER, (1985) 154 ITR 1 48 AND UNION OF INDIA V. AZADI BACHAO ANDOTAN(2003) 263 ITR 706.' BESIDES THE ABOVE RELEVANT PARA IN THE JUDGEMENT TH ERE ARE TWO PARAS EXTRACTED FROM APEX COURT DECISION IN- SA BUILDERS LIMITED V. COMMISSIONER OF INCOME TAX(APPEALS) AND ANOTHER (2007) 288 ITR 1 , WHEREIN THE HON'BLE S.C. HAD AGREED PER DECISION OF JURISDICTIONAL DELH I H.COURT(CIT V. DALMIA CEMENT(BHARAT) LIMITED 254 ITR 377. SIR, PARA 31 & PARA 32 SA BUILDERS JUDGEMENT(SUPRA) STAND EXTRACTED AT PAGE 14 OF PB. & HR. HIGH COURT CASE THE COPY OF WHICH AS STATED ABOVE IS ENCLOSED. THES E TWO PARAS READ AS- '31. WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COURT IN CIT VS. DALMIA CEMENT(BHARAT) LTD. (2002) 174 CTR (DEL) 188 : (2002) 254 ITR 377(DEL) THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS(WHICH N EED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENU E CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESS MAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECID E HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PRO FIT. THE IT AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIE S MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALREADY STATED ABOVE, WE HAVE TO SEE THE TRANSFE R OF THE BORROWED FUNDS TO A SISTER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER T HE AMOUNT WAS ADVANCED FOR EARNING PROFITS. 32. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPI NION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT ALL DEPENDS ON THE FACTS AND CIR CUMSTANCES OF THE RESPECTIVE CASE.' IN VIEW OF ABOVE IT IS PRAYED THAT DISALLOWANCE OF INTEREST OUT OF BANK INTT. DESERVES TO BE DELETED IN THE FACTS AND CIRCUMSTANC ES STATED AND EXPLAINED.' 7. IT WAS FURTHER SUBMITTED BEFORE THE LD. CIT(A) T HAT THE INVESTMENT WAS MADE IN M/S ABHITEX INTERNATIONAL, PANIPAT, FOR THE COMM ERCIAL EXPEDIENCY AND THAT THE ASSESSEE HAD RECEIVED SHARE PROFITS OF RS.39,24 ,346/- AS ON 31.03.2007. THE RELEVANT SUBMISSIONS OF THE ASSESSEE WERE AS UN DER: ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 9 OF 18 7.1 THE LD. AR FURTHER SUBMITTED THAT THE INVESTME NT WAS MADE IN ABHITEX INTERNATIONAL BECAUSE OF COMMERCIAL EXPEDIENCY AND THE APPELLANT HAS RECEIVED SHARE PROFITS OF RS.39,24,346/- FROM M/S A BHITEX INTERNATIONAL AS ON 31.03.2007. FOR THE SAKE OF CONVENIENCE, THE REL EVANT PORTION OF THE LD. ARS SUBMISSION FILED VIDE LETTER DATED 29.03.2011 ARE REPRODUCED AS UNDER: (3) THAT ENTIRE SHARE HOLDING OF RMZ CORP. HOLDING S (P) LTD. I.E. 45000 SHARES OF RS.100/- WAS ACQUIRED BY PALIWAL GROUP IN FIVE NAMES AS UNDER: NO. OF SHARE AMOUNT M/S PALIWAL INDUSTRIES (P) LTD. 18000 34,79,94 ,000/- M/S PALIWAL OVERSEAS (P) LTD. 9000 17,39,97,00 0/- AVINASH CHANDER SHARMA 6750 13,04,97,750/- RANI PALIWAL W/O 6750 13,04,97,750/- SHRI AVINASH CHANDER SHARMA ABHISHEK PALIWAL S/O SHRI AVINASH CHANDER SHARMA 4500 8,69,98,500/- 45000 86,99,85,000 THAT THE ABOVE INVESTMENT IN SHARES WAS DONE AS PER DETAILS & COPIES PRODUCED BEFORE YOUR HONOUR ON 28.03.2011. YOUR HON OUR, HAVING ACQUIRED THE ENTIRE SHAREHOLDING OF RMZ CORP. HOLDINGS (P) LTD. BY THE ABOVE PERSONS, THE SAME COMPANY WAS THUS A SISTER CONCERN OF THE GROUP AND VICE VERSA. THAT COPY OF ROC RETURN IS ALSO PRODUCED. (4) THAT THE APPELLANT/ASSESSEE M/S PALIWAL INFRAS TRUCTURE HAD ENTERED INTO AS A PARTNER IN M/S ABHITEX INTERNATIONAL, PANIPAT W.E .F. 01.04.2006. COPY OF PARTNERSHIP DEED AS DESIRED IS PRODUCED HEREWITH. T HAT THE COPIES OF ACCOUNT FOR PERIOD ENDING 31.03.2007 ALSO BEARS OUT OF THE SHARE PROFIT ENTRY OF RS.39,24,346/- AS ON 30.03.2007. IT IS HOPED THAT ABOVE INFORMATION/CLARIFICATION S OUGHT WILL MEET THE DESIRED COMPLIANCE BY THE APPELLANT. 8. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE CONFIRMED THE DISALLOWANCE MADE BY THE AO BY OBSERVING IN PAR A 8 OF THE IMPUGNED ORDER AS UNDER: 8. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE ASSESSMENT ORDER. MY OBSERVATIONS ON THIS ISSUE ARE AS UNDER: (I) I FIND THAT THE APPELLANT COMPANY BECAME PARTNE R IN ABHITEX INTERNATIONAL DURING THE YEAR TO THE EXTENT OF 12% SHARE IN PROFI T. IT CONTRIBUTED RS.45,81,77,955/- AS SHARE CAPITAL IN THE SAID FIRM , OUT OF WHICH RS.5,34,00,000/- WERE WITHDRAWN DURING THE YEAR. TH E SAID CONTRIBUTION WAS MADE OUT OF BORROWED FUNDS FROM THE ABN AMRO BANK. THE AO DISALLOWED THE PROPORTIONATE INTEREST OF RS.3,63,73,505/-PAYABLE T O THE SAID BANK AGAINST THE AFORESAID BORROWED FUNDS. THE AO FURTHER OBSERVED T HAT IT WAS A DIVERSION OF FUNDS TO THE GROUP CONCERN WITHOUT HAVING ANY BUSIN ESS PURPOSE. (II) THE LD. AR EMPHASIZED THAT IT WAS NOT A CASE O F DIVERSION OF BORROWED FUNDS BUT IT WAS INVESTMENT AS CAPITAL IN THE FIRM M/S ABHITEX INTERNATIONAL IN WHICH THE APPELLANT COMPANY WAS PARTNER OF SHARE PR OFIT TO THE EXTENT OF 12%. HE FURTHER EMPHASIZED THAT THE SAID INVESTMENT WAS MADE FOR BUSINESS ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 10 OF 18 PURPOSE AND IN THE LIGHT OF COMMERCIAL EXPEDIENCY. IT WAS ALSO SUBMITTED THAT CONTRARY TO THE AO'S OBSERVATIONS, THE BORROWING FR OM THE BANK GOT REDUCED FROM RS.136 CRORES AS ON 31.03.2006 TO 124 CRORES A S ON 31.03.2007. HENCE, THE DISALLOWANCE OF THE INTEREST OF RS.3,63,73,505/ - WAS NOT JUSTIFIED AND THE SAME IS REQUIRED TO BE DELETED. (III) ON CONSIDERATION OF THE FACT, I FIND THAT THE APPELLANT DIVERTED THE BORROWED FUNDS AGAINST WHICH THE INTEREST WAS PAYAB LE. I FURTHER FIND THAT THE APPELLANT DID NOT EARN ANY INTEREST INCOME FROM THE SAID GROUP CONCERN M/S ABHITEX INTERNATIONAL. ON THE CONTRARY, I FIND THAT THE APPELLANT HAS EARNED THE SHARE PROFIT OF RS.39,24,346/-BEING PARTNER IN THE SAID FIRM. THE SHARE PROFIT AMOUNTING TO RS.39,24,346/- WAS A TAX FREE INCOME I N THE HAND OF THE APPELLANT. IN THIS SITUATION, THE PROVISION OF SECT ION 14A OF THE I.T. ACT, 1961 IS APPLICABLE IN THIS CASE. (IV) I FURTHER FIND THAT THE APPELLANT HAS EARNED T HE SHARE PROFIT OF RS.39,24,346/-FROM THE SAID FIRM OF M/S ABHITEX INT ERNATIONAL BEING PARTNER AND SUCH PROFIT IS EXEMPT FROM TAX IN THE HAND OF T HE APPELLANT. THUS, THE AO WAS JUSTIFIED TO DISALLOW THE INTEREST OF AMOUNTING TO RS.3,63,73,505/- WHICH WAS AN EXPENDITURE FOR THE EARNING OF EXEMPTED INCO ME. THOUGH, THE AO DID NOT MENTION THE PROVISION OF SECTION 14A I.T. ACT, 1961 WHILE DISALLOWING THE SAID INTEREST OF RS.3,63,73,505/- YET THE PROVISION OF SECTION 14A IS CLEARLY APPLICABLE. HENCE, THE DISALLOWANCE MADE BY THE AO OF RS.3,63,73,505/-IS UPHELD U/S14A OF THE I.T. ACT, 1961. (V) I FURTHER FIND THAT THE APPELLANT IS ENTITLED F OR DEDUCTION U/S 80IA(4)(III) OF THE I.T. ACT, 1961. THE AO IS DIRECTED TO DETERMINE THE QUANTUM OF DEDUCTION AFTER CONSIDERING THE DISALLOWANCE OF INTEREST OF R S.3,63,73,505/- AS UPHELD IN THIS ORDER IN PRECEDING PARA AND ALLOW THE SAME ON REVISED INCOME AFTER GIVING THE APPEAL EFFECT. (VI) I FURTHER FIND THAT THE PROVISION OF SECTION 1 15JB IS ALSO APPLICABLE IN THIS CASE. THE AO IS DIRECTED TO RE-COMPUTE THE BOOK PRO FIT AS PER LAW AFTER GIVING THE APPEAL EFFECT TO THIS ORDER. THIS GROUND OF APPEAL IS DISPOSED OFF IN THE MANNER INDICATED ABOVE. 9. NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL F OR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND FURTHER SUBMITTED THAT THE ASSESSEE BORROWED THE FUNDS FROM THE BANK AND L ENT SOME OF IT TO ITS ASSOCIATE CONCERN AS CAPITAL CONTRIBUTION FOR BECOM ING THE BUSINESS PARTNER. THEREFORE, THE TEST WAS TO BE APPLIED WHETHER THIS WAS DONE AS A MEASURE OF COMMERCIAL EXPEDIENCY AND IF IT WAS SO, THE INTERES T SHOULD HAVE BEEN ALLOWED. IT WAS FURTHER STATED THAT THE ASSESSEE ALONGWITH I TS SHAREHOLDERS HELD 88% SHARE IN M/S ABHITEX INTERNATIONAL AND THE BALANCE 12% HAD BEEN HELD BY THE DAUGHTERS OF THE PROMOTERS OF THE ASSESSEE COMPANY, HENCE, THE ASSESSEE COMPANY AND THE FIRM ARE UNDER THE SAME MANAGEMENT. IT WAS CONTENDED THAT THE INTENTION OF THE ASSESSEE WAS NOT TO REDUCE INC IDENCE OF INCOME TAX BY DOING SO, BECAUSE THE PROFITS OF THE INDUSTRIAL PAR K ARE ELIGIBLE FOR 100% DEDUCTION UNDER CLAUSE (III) OF SUB-SECTION (4) OF SECTION 80IA OF THE ACT, WHEREAS ITS ASSOCIATE CONCERNS PROFITS ARE FULLY T AXABLE. IT WAS FURTHER ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 11 OF 18 CONTENDED THAT EVEN IF THE ADDITION HAS BEEN MADE I T WILL NOT ATTRACT ANY TAX INCIDENCE BECAUSE THE CLAIM OF DEDUCTION U/S 80IA(4 )(III) IS ALLOWABLE. IT WAS STATED THAT THE ASSESSEE MADE THE INVESTMENT IN M/S ABHITEX INTERNATIONAL, AS PARTNERS CAPITAL FOR EXCLUSIVELY FOR BUSINESS CONS IDERATION AND THERE WAS NO LOSS OF REVENUE FROM THIS INVESTMENT TO THE INCOME TAX DEPARTMENT. IT WAS FURTHER STATED THAT IF M/S ABHITEX INTERNATIONAL HA D TAKEN LOAN FROM THE BANK BY NOT ACCEPTING CAPITAL FUNDS FROM THE ASSESSEE, T HE RETURNED LOSS HAD BEEN RS.96,28,134/- INSTEAD OF RETURNED INCOME OF RS.3,3 5,98,390/- DECLARED BY THE FIRM AS PER FOLLOWING CALCULATION: SECURED LOANS FROM BANK FOR WORKING CAPITAL AS ON 31.03.2007 RS.84,03,24,249/- INVESTMENT BY P. INFRA IN PARTNERS CAPITAL AS PER ORDER OF P. INFRA ASSTT. YEAR 2007-08 RS.48,40,77,480/- RETURNED INCOME OF THE FIRM ASSTT. YEAR 2007-08 RS.3,35,98,390/- INTEREST ON ABOVE INVESTMENT AS PER ORDER I/TAX ASSTT. ORDER OF RS.4,32,26,524/ - P. INFRA. (PRESUMING LOAN WAS TAKEN BY THE FIRM FROM BANK) NET INCOME/LOSS (-) RS.96,28,134/ 10. IT WAS SUBMITTED THAT IF THE ASSESSEE HAD NOT T AKEN LOAN FOR ITS INVESTMENT IN M/S ABHITEX INTERNATIONAL, IT WOULD HAVE TO PAY THE INCOME TAX ON THE SAME RETURNED INCOME OF RS.5,88,57,074/- AS BUSINESS INC OME OF THE ASSESSEE IS EXEMPT U/S 80IA(4)(III) OF THE ACT AS PER THE FOLLO WING CALCULATION: INCOME FROM INDL. PARK CLAIMED RS.6,21,06,011/- ADD INTEREST ON LOAN (PRESUMING THAT IF INVESTMENT WAS NOT MADE BY P.INFRA IN ABHITEX INTERNATIONAL IT HAD TO PAY LESS INTEREST TO BANK) RS.4,32,26,5 24/- NET BUSINESS INCOME RS.10,53,32,535/- EXEMPTION U/S 80IA(4)(III) RS.10,53,32,535/- RETURNED INCOME FROM OTHER SOURCES RS.5,88,57,074 / 11. IT WAS STATED THAT THE ASSESSEE WAS HAVING THE SURPLUS FUNDS ON ACCOUNT OF DEPRECIATION, RENT RECEIPTS AND NET PROFIT WHICH WE RE SUFFICIENT FOR MAKING THE INVESTMENT IN THE PARTNERSHIP FIRM AS A PARTNER. IT WAS CONTENDED THAT THE INVESTMENT IN THE PARTNERSHIP FIRM WAS MADE FOR THE BUSINESS EXIGENCY, THEREFORE, THE DISALLOWANCE MADE BY THE AO WAS NOT JUSTIFIED. THE RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF HERO CYCLES (P) LTD. VS CIT (CENTRAL), LUDHIANA (2015) 4 3 SCD 134 (COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON THE RECORD). 12. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS DALMIA CEMENT (B.) LTD. REPORTED AT 254 ITR 377. IT WAS EMPHASIZED THAT INTEREST FREE FUNDS WERE AVAILABLE WITH THE AS SESSEE COMPANY WHICH WERE USED AS A CONTRIBUTION OF CAPITAL IN THE PARTNERSHI P FIRM. THEREFORE, THE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE LD . CIT(A) ON ACCOUNT OF NOTIONAL INTEREST WAS NOT JUSTIFIED. THE RELIANCE W AS PLACED ON THE FOLLOWING CASE LAWS: ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 12 OF 18 CIT (CENTRAL), LUDHIANA VS ROCKMAN CYCLE INDUSTRIES (P.) LTD. 238 CTR 363 COMMISSIONER OF INCOME-TAX VS. EXCEL INDUSTRIES LT D. 358 ITR 295 13. IN HER RIVAL SUBMISSIONS THE LD. DR STRONGLY SU PPORTED THE ORDERS OF THE AUTHORITIES BELOW AND REITERATED THE OBSERVATIONS M ADE BY THE LD. CIT(A) IN THE IMPUGNED ORDER. SHE FURTHER SUBMITTED THAT THE ASSE SSEE EARNED SHARE PROFITS OF RS.31,24,346/- FROM M/S ABHITEX INTERNATIONAL BE ING PARTNER AND SUCH PROFIT WAS EXEMPT FROM TAX IN THE HANDS OF THE ASSESSEE, T HEREFORE, THE AO WAS JUSTIFIED IN DISALLOWING THE PROPORTIONATE INTEREST AMOUNTING TO RS.3,63,73,505/- WHICH WAS AN EXPENDITURE FOR THE E ARNING OF EXEMPTED INCOME AND THAT THE AO DID NOT MENTION THE PROVISIO NS OF SECTION 14A OF THE ACT YET, THE PROVISIONS OF SAID SECTION WERE CLEARL Y APPLICABLE AS HAS BEEN HELD BY THE LD. CIT(A). 14. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CA SE, IT IS NOTICED THAT THE ASSESSEE HAD ENTERED AS A PARTNER IN M/S ABHITEX IN TERNATIONAL, PANIPAT W.E.F. 01.04.2006 HAVING 12% SHARE IN PROFIT AND CONTRIBUT ED RS.45,81,77,955/- AS SHARE CAPITAL IN THE SAID FIRM OUT OF WHICH 5,34,00 ,000/- WAS WITHDRAWN DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE MADE THE INVESTMENT IN LIEU OF COMMERCIAL EXPEDIENCY I.E. TO MANAGE THE FIRM BELON GING TO THE SAME GROUP TO WHICH THE ASSESSEE BELONGED. IN THE INSTANT CASE, T HE ASSESSEE EARNED A PROFIT OF RS.39,24,346/- FOR THE YEAR ENDING ON 31.03.2007 FROM THE PARTNERSHIP FIRM IN WHICH IT WAS HAVING 12% SHARES. THE LD. CIT(A) M ENTIONED THAT THE SAID PROFIT WAS A TAX FREE INCOME IN THE HANDS OF THE AS SESSEE, THEREFORE, THE PROVISIONS OF SECTION 14A OF THE ACT WERE APPLICABL E. IN OUR OPINION, THE PROVISIONS OF SECTION 14A OF THE ACT WERE NOT APPLI CABLE TO THE FACTS OF THIS CASE BECAUSE THE PROFIT EARNED, WAS TAXED IN THE HA NDS OF THE PARTNERSHIP FIRM IN WHICH THE ASSESSEE IS A PARTNER, SO, IT COULD NO T BE SAID THAT NO TAX WAS PAID ON THE ABOVE SAID SHARE PROFIT EARNED BY THE ASSESS EE. THE AO MADE THE DISALLOWANCE OF RS.3,63,73,505/- BY PRESUMING THAT SAID INTEREST WAS TO BE PAID @ 8.9% ON THE CLOSING OUTSTANDING BALANCE OF R S.40,87,02,301/- IN THE PARTNERSHIP FIRM M/S ABHITEX INTERNATIONAL. HOWEVER , HE DID NOT CONSIDER THIS VITAL FACT THAT THE INVESTMENT WAS MADE BY THE ASSE SSEE DUE TO COMMERCIAL EXPEDIENCY AND NOT TO EARN ANY INTEREST, THIS INVES TMENT HAS BEEN MADE BY THE ASSESSEE AS A CONTRIBUTION OF CAPITAL IN THE PARTNE RSHIP FIRM IN WHICH THE ASSESSEE ENTERED AS A PARTNERSHIP FOR ACQUIRING OWN ERSHIP. IN THE PRESENT CASE, IT IS ALSO NOTICED THAT FOR THE YEAR UNDER CO NSIDERATION, THE ASSESSEE WAS HAVING INTERNAL ACCRUAL IN THE FORM OF DEPRECIATION AMOUNTING TO RS.11.60 CRORES AND ALSO HAVING A SURPLUS FUND AMOUNTING TO RS.31.68 CRORES, SO, IT CANNOT BE SAID THAT WHOLE OF THE INVESTMENT AMOUNTI NG TO RS.40,87,02,301/- WAS OUT OF THE BORROWED FUNDS. THEREFORE, THE LD. C IT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE AO FOR MAKING THE DISA LLOWANCE BY PRESUMING THAT THE INTEREST @ 8.9% AMOUNTING TO RS.3,63,73,505/- W AS TO BE PAID BY THE ASSESSEE ON THE AMOUNT CONTRIBUTED AS A PARTNERS C APITAL IN THE FIRM M/S ABHITEX INTERNATIONAL. IN THE PRESENT CASE, WHATEVE R INTEREST BEARING FUNDS WERE RAISED BY THE ASSESSEE FROM THE AB AMBRO BANK WERE UTILIZED IN THE BUSINESS FOR THE BUSINESS PURPOSES AND EVEN THE INV ESTMENT IN PARTNERSHIP FIRM M/S ABHITEX INTERNATIONAL WAS MADE FOR BUSINESS EXI GENCY. THEREFORE, THE ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 13 OF 18 DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE LD . CIT(A) WAS NOT JUSTIFIED AS THE INTEREST PAID BY THE ASSESSEE, IF ANY, ON TH E FUNDS RAISED FOR BUSINESS PURPOSE WAS ALLOWABLE U/S 36(1)(III) OF THE ACT. ON A SIMILAR ISSUE THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS DAL MIA CEMENT (B.) LTD. (SUPRA) HELD AS UNDER: UNDER SECTION 37(1) OF THE INCOME-TAX ACT, 1961, T HE JURISDICTION OF THE REVENUE IS CONFINED TO DECIDING THE REALITY OF THE BUSINESS EXPENDITURE, VIZ., WHETHER THE AMOUNT CLAIMED AS DEDUCTION WAS FACTUAL LY EXPENDED OR LAID OUT AND WHETHER IT WAS WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF THE BUSINESS. IT MUST NOT, HOWEVER, SUFFER FROM THE VICE OF COLLUSIV ENESS OR COLOURABLE DEVICE. THE REASONABLENESS OF THE EXPENDITURE COULD BE GONE INTO ONLY FOR THE PURPOSE OF DETERMINING WHETHER, IN FACT, THE AMOUNT WAS SPE NT. ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND TH E PURPOSE OF THE BUSINESS, THE REVENUE CANNOT JUSTIFIABLY CLAIM TO P UT ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE H AVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE CO MPELLED TO MAXIMIZE HIS PROFITS. IT HAS BEEN FURTHER BEEN HELD: THAT IF ALL THE REQUISITE CONDITIONS IN SECTION 36 (1)(III) FOR ALLOWANCE OF INTEREST WERE FULFILLED, IT WAS NOT POSSIBLE AND OPEN FOR TH E REVENUE TO MAKE A PART DISALLOWANCE, UNLESS THERE WAS A POSITIVE FINDING R ECORDED THAT A PART OF THE AMOUNT BORROWED WAS NOT USED FOR THE PURPOSES OF TH E ASSESSEES BUSINESS. 15. RECENTLY THEIR LORDSHIPS OF THE HONBLE APEX CO URT IN THE CASE OF HERO CYCLES (P) LTD. VS CIT (CENTRAL), LUDHIANA VIDE JUD GMENT DATED NOVEMBER 5, 2015 IN CIVIL APPEAL NO. 514 OF 2008 REPORTED AT (2 015) 43 SCD 134 OBSERVED AS UNDER: INSOFAR AS LOANS TO THE SISTER CONCERN / SUBSIDIAR Y COMPANY ARE CONCERNED, LAW IN THIS BEHALF IS RECAPITULATED BY THIS COURT IN TH E CASE OF 'S.A. BUILDERS LTD. V. COMMISSIONER OF INCOME TAX ( APPEALS) AND ANOTHER' [2007 (288) ITR 1 (SC)]. AFTER TAKING NOTE OF AND DISCUSSING ON THE SCOPE OF COMMERCIAL EXPEDIENCY, THE COURT SUMMED UP THE LEGAL POSITION IN THE FOLLOWING MANNER:- 26. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN E XPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESS MAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE B EEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSI NESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. 27. NO DOUBT, AS HELD IN MADHAV PRASAD JATIA V. CIT [1979 (118) ITR 200 (SC)], IF THE BORROWED AMOUNT WAS DONATED FOR SOME SENTIMENTAL OR PERSONAL REASONS AND NOT ON THE GROUND OF COMMERCIAL EXPEDIE NCY, THE INTEREST THEREON COULD NOT HAVE BEEN ALLOWED UNDER SECTION 36(1)(III ) OF THE ACT. IN MADHAV PRASAD'S CASE [1979 (118) ITR 200 (SC)], THE BORROW ED AMOUNT WAS DONATED ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 14 OF 18 TO A COLLEGE WITH A VIEW TO COMMEMORATE THE MEMORY OF THE ASSESSEE'S DECEASED HUSBAND AFTER WHOM THE COLLEGE WAS TO BE N AMED, IT WAS HELD BY THIS COURT THAT THE INTEREST ON THE BORROWED FUND I N SUCH A CASE COULD NOT BE ALLOWED, AS IT COULD NOT BE SAID THAT IT WAS FOR CO MMERCIAL EXPEDIENCY. 28. THUS, THE RATIO OF MADHAV PRASAD JATIA'S CASE [ 1979 (118) ITR 200 (SC)] IS THAT THE BORROWED FUND ADVANCED TO A THIRD PARTY SH OULD BE FOR COMMERCIAL EXPEDIENCY IF IT IS SOUGHT TO BE ALLOWED UNDER SECT ION 36(1)(III) OF THE ACT. 29. IN THE PRESENT CASE, NEITHER THE HIGH COURT NOR THE TRIBUNAL NOR OTHER AUTHORITIES HAVE EXAMINED WHETHER THE AMOUNT ADVANC ED TO THE SISTER CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY. 30. IT HAS BEEN REPEATEDLY HELD BY THIS COURT THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS WIDER IN SCOPE THAN THE EXP RESSION FOR THE PURPOSE OF EARNING PROFITS VIDE CIT V. MALAYALAM PLANTATIONS LTD. [1964 53 ITR 140 (SC), CIT V. BIRLA COTTON SPINNING AND WEAVING MILLS LTD. [1971 82 ITR 166 (SC)], ETC. IN THE PROCESS, THE COURT ALSO AGREED THAT THE VIEW TAKEN BY THE DELHI HIGH COURT IN 'CIT V. DALMIA CEMENT (B.) LTD.' [2002 (254) ITR 37 7] WHEREIN THE HIGH COURT HAD HELD THAT ONCE IT IS ES TABLISHED THAT THERE IS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF) , THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE R OLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. IT FURTHER HELD THAT NO BUSINESSMAN CAN BE COMPELLED T O MAXIMIZE HIS PROFIT AND THAT THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD AC T. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BU T THAT OF A PRUDENT BUSINESSMAN. APPLYING THE AFORESAID RATIO TO THE FACTS OF THIS C ASE AS ALREADY NOTED ABOVE, IT IS MANIFEST THAT THE ADVANCE TO M/S. HERO FIBRES LI MITED BECAME IMPERATIVE AS A BUSINESS EXPEDIENCY IN VIEW OF THE UNDERTAKING GI VEN TO THE FINANCIAL INSTITUTIONS BY THE ASSESSEE TO THE EFFECT THAT IT WOULD PROVIDE ADDITIONAL MARGIN TO M/S. HERO FIBRES LIMITED TO MEET THE WORK ING CAPITAL FOR MEETING ANY CASH LOSES. IT WOULD ALSO BE SIGNIFICANT TO MENTION AT THIS ST AGE THAT, SUBSEQUENTLY, THE ASSESSEE COMPANY HAD OFFLOADED ITS SHARE HOLDING IN THE SAID M/S. HERO FIBRES LIMITED TO VARIOUS COMPANIES OF OSWAL GROUP AND AT THAT TIME, THE ASSESSEE COMPANY NOT ONLY REFUNDED BACK THE ENTIRE LOAN GIVE N TO M/S. HERO FIBRES LIMITED BY THE ASSESSEE BUT THIS WAS REFUNDED WITH INTEREST. IN THE YEAR IN WHICH THE AFORESAID INTEREST WAS RECEIVED, SAME WAS SHOWN AS INCOME AND OFFERED FOR TAX. ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 15 OF 18 INSOFAR AS THE LOANS TO DIRECTORS ARE CONCERNED, I T COULD NOT BE DISPUTED BY THE REVENUE THAT THE ASSESSEE HAD A CREDIT BALANCE IN THE BANK ACCOUNT WHEN THE SAID ADVANCE OF RS.34 LAKHS WAS GIVEN. REMARKAB LY, AS OBSERVED BY THE CIT (APPEAL) IN HIS ORDER, THE COMPANY HAD RESERVE/ SURPLUS TO THE TUNE OF ALMOST 15 CRORES AND, THEREFORE, THE ASSESSEE COMPA NY COULD IN ANY CASE, UTILIZE THOSE FUNDS FOR GIVING ADVANCE TO ITS DIREC TORS. ON THE BASIS OF AFORESAID DISCUSSION, THE PRESENT A PPEAL IS ALLOWED, THEREBY SETTING ASIDE THE ORDER OF THE HIGH COURT AND RESTO RING THAT OF THE INCOME TAX APPELLATE TRIBUNAL. 16. IN THE PRESENT CASE ALSO THE ASSESSEE COMPANY M ADE THE CONTRIBUTION IN THE PARTNERSHIP FIRM M/S ABHITEX INTERNATIONAL WHER EIN IT WAS HAVING 12% SHARE. THE AMOUNT WAS INVESTED KEEPING IN VIEW THE BUSINESS EXPEDIENCY AS THE GROUP TO WHICH THE ASSESSEE BELONGED ACQUIRE TH E ENTIRE SHARE HOLDINGS OF RMZ CORPORATION HOLDINGS PVT. LTD., SO IT WAS NOT A CASE OF DIVERTION OF BORROWED FUND, RATHER IT WAS INVESTMENT AS A CAPITA L IN THE FIRM M/S ABHITEX INTERNATIONAL FOR THE BUSINESS PURPOSES AND IN THE LIGHT OF COMMERCIAL EXPEDIENCY. THEREFORE, BY KEEPING IN VIEW THE RATIO LAID DOWN OF THE HONBLE JURISDICTIONAL HIGH COURT AND THE HONBLE APEX COUR T IN THE AFORESAID REFERRED TO CASES, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF INTEREST MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) WAS NOT JUSTIFIED. IN THAT VIEW OF THE MATTER THE IMPUGNED DISALLOWANCE IS DELETED. 17. IN ITA NO. 1979/DEL/2011 FOR THE ASSESSMENT YEA R 2008-09, THE FACTS ARE IDENTICAL AS WERE INVOLVED IN ITA NO. 1978/DEL/2011 FOR THE ASSESSMENT YEAR 2007-08, THE ONLY DIFFERENCE IS IN THE FIGURE OF TH E DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A). THEREFORE, OUR FINDINGS GIVEN IN FORMER PART OF THIS ORDER SHALL APPLY MUTATIS MUTANDIS FOR THE ASSESSMENT YEAR 2008- 09. 18. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLO WED. (D.1) THE LD. COUNSEL FOR ASSESSEE FURTHER SUBMITTED THAT DURING ASSESSMENT YEARS 2009-10 AND 2010-11, WITH WHICH WE ARE CONCERNED IN THE PRESENT APPEALS BEFORE US, NO TAX- FREE INCOME HAS BEEN EARNED BY THE ASSESSEE , AND ALSO, THERE ARE NO FRESH ADVANCES. THE LD. COUNSEL FOR ASSESSEE RELIED ON T HE ORDERS OF HONBLE DELHI HIGH COURT IN THE CASES OF PRINCIPAL COMMISSIONER VS. DL F HOME DEVELOPERS LTD. (2019) 411 ITR 0378 (DELHI) AND PRINCIPAL COMMISSIONER VS. IL & FS ENERGY DEVELOPMENT COMPANY LTD. [2017] 84 TAXMANN.COM 186 (DELHI). RELYING ON THE AFORESAID PRECEDENTS, THE LD. ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 16 OF 18 COUNSEL FOR ASSESSEE SUBMITTED THAT THE AFORESAID A DDITIONS MADE BY THE ASSESSING OFFICER FOR ASSESSMENT YEARS 2009-10 AND 2010-11 AN D CONFIRMED BY THE LD. CIT(A) VIDE AFORESAID ORDERS DATED 01.04.2014 AND 20.01.20 15 OF LD. CIT(A) SHOULD BE DELETED. THE LEARNED DEPARTMENTAL REPRESENTATIVE ( LD. DR, FOR SHORT) CONTENDED THAT WE NOW HAVE THE BENEFIT OF THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME T AX [2018] 91 TAXMANN.COM 154 (SC), WHICH WAS NOT AVAILABLE AT THE TIME OF WHEN T HE IMPUGNED APPELLATE ORDERS DATED 01.04.2014 AND 20.01.2015 OF THE LD. CIT(A) WERE PA SSED. HE FURTHER SUBMITTED THAT THE RATIO OF THE AFORESAID ORDER IN THE CASE OF MAX OPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA) SHOULD BE APPLIED. HOWEVER, REPRESENTATIVES OF BOTH SIDES, (LD. DR FOR REVENUE AS WELL AS LD. COUNSEL FOR ASSESSEE] SUBMITTED THAT THE RELEVANT FACTS NECESSARY FOR APPLICATION OF THE RATIO OF THE DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA), PRINCIPAL COMMISSIONER VS DLF HOME DEVELOPERS LTD. (SUPRA) AN D PRINCIPAL COMMISSIONER VS IL & FS ENERGY DEVELOPMENT COMPANY LTD. (SUPRA) ARE NOT ENTIRELY DISCERNIBLE FROM THE RECORDS. REPRESENTATIVES OF BOTH SIDES LD. DR FOR REVENUE AS WELL AS LD. COUNSEL FOR ASSESSEE, WERE IN AGREEMENT THAT ALL RELEVANT FACTS ARE NOT READILY AVAILABLE; AND BOTH SIDES, THEREFORE, SUBMITTED THAT THE ISSUES IN DISP UTE IN BOTH APPEALS MAY BE REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ORDE R, IN ACCORDANCE WITH LAW, HAVING REGARD TO THE RELEVANT FACTS AND CIRCUMSTANCE; AND AFTER TAKING INTO CONSIDERATION AFORESAID PRECEDENTS, NAMELY ORDER DATED 08.02.2016 OF CO-ORDINATE BENCH OF ITAT, DELHI IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2 007-08 & 2008-09 VIDE ITA NOS.- 1978 & 1979/DEL/2011; PRINCIPAL COMMISSIONER VS. D LF HOME DEVELOPERS LTD. (SUPRA), ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 17 OF 18 PRINCIPAL COMMISSIONER VS. IL & FS ENERGY DEVELOPMEN T COMPANY LTD. (SUPRA) AND MAXOPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME T AX (SUPRA). AS BOTH SIDES HAVE AGREED AT THE TIME OF HEARING BEFORE US, THAT ALL T HE RELEVANT FACTS REQUIRED FOR ADJUDICATING THE ISSUES IN DISPUTE ARE PRESENTLY NO T AVAILABLE ON RECORD AND ALSO; BOTH AS SIDES HAVE SUBMITTED THAT THE ISSUES IN DISPUTE IN BOTH THE APPEALS SHOULD BE REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR F RESH ORDER IN ACCORDANCE WITH LAW, HAVING REGARD TO THE RELEVANT FACTS AND CIRCUMSTANC E; AFTER TAKING INTO CONSIDERATION THE AFORESAID PRECEDENTS. IN VIEW OF THE FOREGOING, AND AS BOTH SIDES HAVE AGREED AT THE TIME OF HEARING BEFORE US, WE SET ASIDE THE IMPUGNE D APPELLATE ORDERS DATED 01.04.2014 AND 20.01.2015 OF THE LD. CIT(A) AND RES TORE THE ISSUES IN BOTH THE APPEALS TO THE FILE OF THE ASSESSING OFFICER FOR PASSING FR ESH ORDER AS PER LAW AFTER CONSIDERING THE AFORESAID PRECEDENTS NAMELY ORDER DATED 08.02.2 016 OF CO-ORDINATE BENCH OF ITAT, DELHI IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2 007-08 & 2008-09 VIDE ITA NOS.- 1978 & 1979/DEL/2011; PRINCIPAL COMMISSIONER VS. D LF HOME DEVELOPERS LTD. (SUPRA), PRINCIPAL COMMISSIONER VS. IL & FS ENERGY DEVELOPMEN T COMPANY LTD. (SUPRA) AND MAXOPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME T AX (SUPRA). (F) IN THE RESULT, BOTH APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 11/12/19. SD/- SD/- (AMIT SHUKLA) (ANADEE NATH MISS HRA) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED: 11/12/19 POOJA/- ITA NOS.- 3572/DEL/ 2014 AND 1292/DEL/2015. M/S PALIWAL INFRASTRUCTURE PVT. LTD. PAGE 18 OF 18 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER