DCIT, CHENNAI V. Powermetric Packaging P. Ltd., CHENNAI

ITA 1326/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90713 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 10-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N MADHAVANJCIT
• Assessee Lawyers: T N SEETHARAMAN
• Keywords: Depreciation; Proportionate interest
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . , ' $ , % ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NOS . 1325 &1326/MDS/2013 ( / ASSESSMENT YEARS: 2010-11 TO 2011-12) INCOME TAX OFFICER(OSD) COMPANY CIRCLE-V(2), CHENNAI-34. VS M/S.POWERMATIC PACKAGING PVT. LTD., DP-34, INDUSTRIAL ESTATE, GUINDY, CHENNAI-600 032. PAN:AACCP4735A ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. N.MADHAVAN,JCIT /RESPONDENT BY : MR. T.N.SEETHARAMAN, ADVOCATE /DATE OF HEARING : 3 RD JUNE, 2015 /DATE OF PRONOUNCEMENT : 24 TH JULY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THESE TWO APPEALS ARE FILED BY THE REVENUE AGAINST THE COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) VI, CHENNAI DATED 28.01.2013 FOR THE ASSESSMENT YEA RS 2004-05 AND 2005-06. THE COMMON ISSUE IN BOTH THES E APPEALS OF THE REVENUE IS THAT COMMISSIONER OF INCO ME TAX (APPEALS) ERRED IN DELETING THE DISALLOWANCE OF INT EREST ON ACCOUNT OF DIVERSION OF INTEREST BEARING FUNDS FOR NON- BUSINESS PURPOSES AND TO SISTER CONCERNS WITHOUT CH ARGING INTEREST. 2 ITA NOS.1325 & 1326/MDS/2013 2. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENTS FOR BOTH THESE ASSESSMENT YEARS NOTICED THAT ASSESSEE HAS ADVANCED MONIES TO VARIOUS SISTER CONC ERNS AND NOT CHARGED ANY INTEREST AND AT THE SAME TIME, THE ASSESSEE INCURRED INTEREST EXPENDITURE ON LOANS BO RROWED AND THEREFORE, HE WAS OF THE VIEW THAT ASSESSEE HAS DIVERTED LOANS TO SISTER CONCERNS AND THUS INTEREST EXPENSES INCURRED BY THE ASSESSEE HAVE TO BE DISALLOWED. ON APPEAL COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE HOLDING THAT ADVANCES WERE MADE OUT OF INTERNAL ACCRUALS AND ARE GIVEN FOR THE BUSINESS PURPOSES TO SISTER CONCERNS. HE ALSO OBSERVED THAT SISTER CONCERNS HAV E RETURNED PART OF THE MONIES TO THE ASSESSEE THEREFO RE, HE HELD THAT THERE IS NO DIVERSION OF FUNDS BY THE ASS ESSEE SO AS TO DISALLOW INTEREST EXPENSES. THE REVENUE IS IN AP PEAL BEFORE US. 3. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING INTER EST EXPENDITURE. 3 ITA NOS.1325 & 1326/MDS/2013 4. COUNSEL FOR THE ASSESSEE REFERRING TO CHART FILE D BEFORE US SUBMITS THAT ASSESSING OFFICER FAILED TO CONSID ER THAT ASSESSEE HAS CHARGED INTEREST OF ` 13,88,989 AND ` 19,00,000/- FOR THE ASSESSMENT YEARS 2004-05 AND 20 05-06 AND DISALLOWED GROSS INTEREST OF ` 43,43,618/- AND ` 41,41,619/- WHILE COMPLETING THE ASSESSMENTS. COUN SEL FOR THE ASSESSEE SUBMITS THAT PART OF THE ADVANCES GIVE N TO THE CONCERNS WERE RETURNED DURING THIS ASSESSMENT YEAR, THE AMOUNTS WERE ADVANCED OUT OF OWN FUNDS AND OUT OF T HE AMOUNTS RECEIVED FROM OTHER CONCERNS. COUNSEL FOR THE ASSESSEE SUBMITS THAT RENT AND SELF-GENERATED INCOM E AVAILABLE AS INTEREST FREE SOURCES AND SUCH AMOUNT S WERE GIVEN AS ADVANCES TO THE SISTER CONCERNS ONLY FOR B USINESS PURPOSES. THEREFORE HE SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) IS JUSTIFIED IN DELETING THE D ISALLOWANCE AND THEREFORE PRAYS FOR SUSTAINING HIS ORDER. 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSME NTS DISALLOWED INTEREST EXPENDITURE OF THE ASSESSEE HOL DING THAT ASSESSEE HAS DIVERTED FUNDS TO THE SISTER CONCERNS AND NO 4 ITA NOS.1325 & 1326/MDS/2013 INTEREST WAS CHARGED ON THE ADVANCES GIVEN TO THE S ISTER CONCERNS THEREFORE INTEREST HAS TO BE DISALLOWED. T HE ASSESSING OFFICER APPEARS TO HAVE NOT EXAMINED THE ISSUE IN DETAIL BEFORE MAKING SUCH DISALLOWANCE. THE COMMISS IONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE ON CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE EVIDENCES FURNISHED BY THE ASSESSEE HOLDING THAT TH ERE ARE INTERNAL ACCRUALS FOR THE ASSESSEE TO LEND MONIES T O SISTER CONCERNS AND ASSESSEE ALSO CHARGED INTEREST FROM C ERTAIN CONCERNS, MONIES WERE RETURNED BY THE SISTER CONCER NS TO THE ASSESSEE AND HE HAS ALSO OBSERVED THAT THE ASSESSIN G OFFICER IN FACT TREATED THE INTEREST RECEIVED BY TH E ASSESSEE IN THE ASSESSMENT YEAR 2005-06 AT ` 19,00,000/- AS THE INTEREST PAID BY THE ASSESSEE FOR THE PURPOSE OF CALCULATING DISALLOWANCE WITHOUT PROPERLY EXAMINING. THUS, COMMISSIONER OF INCOME TAX (APPEALS) ELABORATELY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND HAS GIVEN A FINDING THAT ADVANCES FOR SISTER CONCERNS OUT OF IN TEREST FREE ACCRUALS FOR THE BUSINESS OF SISTER CONCERNS AND TH ERE IS NO DIVERSION OF FUNDS OBSERVING AS UNDER:- 5 ITA NOS.1325 & 1326/MDS/2013 4. DISALLOWANCES OF INTEREST ON BANK BORROWALS RS. 43,43,618/- IN AY 2004-05 AND RS. 41,41,679/- FOR A Y 2005- 06 HAVE BEEN CARRIED OUT BY THE AO OBSERVING THAT T HE ASSESSEE COMPANY HAS ADVANCED LOANS TO ITS SISTER C ONCERNS FROM THE BANK BORROWALS. IT IS THE CONTENTION OF TH E AO THAT WHILE THE BANK BORROWALS HAVE SUFFERED INTEREST IN THE HANDS OF THE APPELLANT COMPANY, NO INTEREST HAS BEEN CHAR GED FROM THE SISTER CONCERNS TO WHOM THESE ADVANCES WERE LEN T. 5. IT IS ARGUED IN THE WRITTEN NOTE FILED BEFORE ME , THAT ALL THESE MONIES HAVE BEEN ADVANCED FOR ESTABLISHING OR PROMO TING THE SISTER COMPANIES IN THE LARGER INTEREST OF THE ASSE SSEE COMPANY AND ALSO THAT THE MONIES WERE OUTSTANDING F ROM THE EARLIER YEARS AND ALSO THERE WERE REPAYMENT OR CRED ITS FROM THESE COMPANIES. 6 .IT IS ALSO NOTED BY THE ASSESSING OFFICER THAT ASS ESSEE HAS BUILT ONE GUEST HOUSE AT TIRUPATHI AND THE AMOUNT I NVESTED IN 2004-05 IS ` 61,58,911/-. ASSESSING OFFICER HAS DISALLOWED PROPORTIONATE INTEREST ON THESE INVESTMENTS REASONI NG THAT CONSTRUCTION OF A GUEST HOUSE WITH INTEREST BEARING FUNDS AMOUNTS TO DIVERSION OF MONIES. ACCORDINGLY, HE HAS DISALLOWED P ROPORTIONAL AMOUNT OF INTEREST ON THE MONIES UTILIS ED FOR CONSTRUCTION OF THE GUEST HOUSE. 7. IT IS SUBMITTED BY THE AR THAT THE GUEST HOUSE CONSTRUCTED IN TIRUPATHI IS NOT USED AS A GUEST HOUSE BY THE AP PELLANT COMPANY, BUT THE S A ME HAS BEEN LET OUT TO M/ S LORDS SECURITY MINT LTD., ONE OF THE ASSOCIATE COMPANIES AND THE INCOMES WERE OFFERED AS RENTALS FROM THE SAID PROPE RTY. SINCE THE GUEST HOUSE IS TREATED AS AN ASSET GIVEN ON REN T AND THE INCOMES WERE OFFERED AS INCOME FROM HOUSE PROPERTY, IT IS ARGUED BY THE AR THAT THE AMOUNT INVESTED IN THE CONSTRUCTION CANNOT BE CONSIDERED AS DIVERSION OF THE COMPANY'S FUNDS. A COPY OF THE WRITTEN SUBMISSION ON THE ABOVE GROUNDS IS EXTRACTED HEREUNDER: 'PLEASE REFER TO THE ABOVE APPEALS HEARD ON 27.11.20-12 AND 27.12.2012 AND ADJOURNED FOR FURTHER HEARING TO 10.01.2013. 2. WE CONFIRM THAT IN THE COURSE OF HEARING ON 27.11.2012 WE HAD SUBMITTED SEPARATE COMPILATION OF RELEVANT PAPERS DULY INDEXED AND PAGE NUMBERED WITH NOTES FOR EACH YEAR. 3. THE MAIN ISSUE IN BOTH THE APPEALS RELATES TO DISAL LOWANCE OF INTEREST OF RS.43,43,618/- IN THE ASSESSMENT ORDER FOR A. Y 2004-05 AND RS.41,4'1, 679/- IN THE ASSESSMENT ORDER FOR A. Y 2005-06 ON THE GRO UND THAT BANK BORROWALS HAD BEEN INVESTED IN LORD'S SECURITY MINT LTD, A JOINT VENTURE COMPANY WITH ANDHRA PRADESH INDUSTRIAL DEVELOPMENT CORPORATION LTD (APIDC) FOR SETTING UP A SECURITY MINT FOR MANUFACTURE OF COIN BLANKS AT TIRUPATHI. IN THE GROUNDS OF APPEAL AND CORRESPONDE NCE WITH THE ASSESSING OFFICER IT HAS BEEN URGED THAT THE MEMORA NDUM OF ASSOCIATION OF THE APPELLANT COMPANY CONTEMPLATES ESTABLISHING OR PROMOTING OTHER COMPANIES FOR THE BENEFIT OF THE APPELLANT COMPANY AND THE INVESTMENT IN LORD'S SECURITY MINT LTD HAS BEEN MADE AS PART OF D IVERSIFICATION OF THE APPELLANT'S BUSINESS IN TERMS OF ITS MEMORANDUM OF ASSOCIATION AND THAT THE INVESTMENT IS AN INTEGRAL PART OF THE APPELLANT 'S BUSINESS. 4. IN A LETTER DATED 12.12.2006 FILED BEFORE THE ASSESSING OFFICER IN 6 ITA NOS.1325 & 1326/MDS/2013 CONNECTION WITH THE ASSESSMENT PROCEEDINGS FOR A. Y 2004-05 THE APPELLANT COMPANY HAS SUBMITTED AS FOLLOWS: 'A PERUSAL OF OUR PROFIT & LOSS ACCOUNT WILL REVEAL THAT WE HAD GENERATED CUMULATIVE PROFIT OF RS.1, 79, 18,741/- WHICH REPRESENTS OUR OWN RESOURCES. IT IS TRUE THAT WE HAVE OBTAINED BANK LOANS TO THE TUNE OF RS.4.35 CRORES DURING THE YEAR. YOU WILL NOTICE THAT USING THESE FUNDS WE HAVE CLEARED THE EXISTING BANK LOANS AND USE THE BALANCE AMOUNT FOR THE PURPOSE OF OUR BUSINESS. WE SUBMIT THAT OUR ACCUMULATED RESOURCES AND BORROWINGS HAVE BEEN USED FOR THE PURPOSES OF OUR OWN BUSINESS WHICH INCLUDES OUR INVESTMENT IN THE SHARES OF LORD'S SECURITY MINT LTD LTD. WE FURTHER SUBMIT THAT OUR ENTIRE BORROWALS NEVER BEEN USED FOR BUSINESS PURPOSES AND THUS THERE IS NO CASE FOR DISALLOWANCE OT ANY AMOUNT AS DIVERTED FOR NON-BUSINESS USE'. A COPY OF THE LETTER IS ENCLOSED FOR YOUR READY REF ERENCE. 5. WE MAY MENTION HERE THAT THE APPELLANT COMPANY HAD RENT RECEIPTS OF RS.1,00,00, 144/- AND RS.1, 1426,250/- IN FYS 2003- 04 AND 2004-05 RESPECTIVELY. FURTHER THE SELF GENERATED CUMULATIVE PROFITS AS ON 31.03.2004 AND 31.03.2005 WERE RS.1,79, 18741/- AND RS.2,20,79,017/-. ACCORDINGLY, WE. SUBMIT THAT THE APPELLANT COMPANY HAD AMPLE NON- INTEREST BEARING FUNDS AT ITS DISPOSAL. 6.IN THE ASSESSMENT ORDER FOR A. Y 2004-05 THE ASSESS ING OFFICER HAS DISALLOWED T HE ENTIRE INTEREST CLAIMED (RS.43, 43, 618/-) WHICH INCLUDES BANK CHARGES. IN DOING SO, THE ASSESSING OFFICER HA S, BESIDES REFERRING TO INVESTMENTS IN LORD'S SECURITY MINT LTD HAS ALSO CO NSTRUED COST OF CONSTRUCTION OF THE APPELLANT COMPANY'S GUEST HOUSE AT TIRUPATHI AS DIVERSION OF THE BANK LOANS. A BRIEF REFERENCE HAS ALSO BEEN MADE TO LOANS ADVANCED TO CERTAIN SISTER CONCERNS IN THE EA RLIER YEARS. 5.1 WE SUBMIT HEREWITH A CHART SHOWING PARTICULARS OF TRANSACTIONS DURING THE PREVIOUS YEARS RELEVANT TO THE A. YS 2004-05 & 2005-06 WITH VARIOUS CONCERNS. 5.2 A PERUSAL OF THE CHART WILL SHOW THAT IN THE CA SE OF HELIOS PRIVATE LIMITED THAT OUT OF THE AMOUNTS ADVANCED IN THE EAR LIER YEARS (RS.31,30,407/-) HAVE BEEN RECEIVED BACK IN A. Y 2004-05 AND THE BALANCE STANDS REDUCED FROM RS.93,78,346/- AS ON 01 .04.2004 TO RS.63,48,303/- AS ON 31.03.2005. PARTICULAR S OF TH E ADVANCE IN THE EARLIER YEARS WITH SOURCES ARE AS BELOW: 7 ITA NOS.1325 & 1326/MDS/2013 FINANCIAL YEAR AMOUNT (RS.) SOURCES/REMARKS 1997-98 63,92,918/- RS.55,78,978/- PAID OUT OF RE NT ADVANCE O F RECEIVED ON 0'1.08.97 - BALANCE OUT OF OWN FUNDS 1998-99 1,30,583/- RS.64,888/- PAID OUT OF RENT ADVANCE OF RS.50, 00, 000/ - RECEIVED ON 03.11.98 1999-2000 4,06,290/- OWN FUNDS 2000-01 - (1,05,800/-) ------ 2001-02 23,61,384/- PAID OUT OF KARUR VYSYA BANK LOAN RS.23, 11,257/-* 2002-03 1,92,970/- OUT OF KARUR VYSYA BANK LOAN TOTAL 93,78,346/- *INTEREST PAID TO KVB RECOVERED FROM HELIOS 5.3 PARTICULARS OT THE ADVANCE TO MAXWELL BATTERIES LTD IN THE EARLIER YEARS WITH SOURCES ARE AS BELOW: FINANCIAL YEAR AMOUNT (RS.) SOURCE/REMARKS 1995-96 4,48,871/- OWN FUNDS 1996-97 31,030/- OWN FUNDS 1999-2000 2,59,006/- OWN FUNDS - OUT OF AMOUNT RECEIVED F R PADMANABHAPURAM PLANTATIONS 200-/-02 36,513/- OWN FUNDS TOTAL 7,75,420/- 5.4 IN THE CASE OF P.RAVINDRAN THE BALANCE AS ON 1. 4.2004 ` 30,08,480/- STANDS REDUCED TO ` 16,06,240/- AS ON 31.03.2005 (ON ACCOUNT OF REPAYMENT BY HIM OF ` 16,27,951/-) IN FY 2004-05. PARTICULARS OF ADVANCES TO SRI P.RAVINDRAN IN EARLI ER YEARS WITH SOURCES ARE AS BELOW:- FINANCIAL YEAR AMOUNT (RS.) SOURCES/REMARKS 1997-98 25,000/- OWN FUNDS 1998-99 28,7 5, 000/- * SEE NOTE BELOW 2000-01 6,082/- OWN FUNDS 2001-02 -(17,602/-) -------- 2002-03 1,20,000/- OWN FUNDS TOTAL 30,08,480/- NOTE: OUT OF LOAN FROM ANUSHA INVESTMENTS - RS.27,00,000/- PAID ON 08.07.98 AND RS.2,00,000/- ON 20.07.98; LOAN REPAID OUT OF RENTAL INCOME AND SET TLED BY MAY 99. 5.5 IN THE CASE OF THIRU KUMARAN INFRASTRUCTURE PVT LTD THE AMOUNT ADV ANCED 8 ITA NOS.1325 & 1326/MDS/2013 ORIGINALLY BETWEEN F YS 1999-2000 AND 2002-03 AMOUNTING TO RS.46,29,627/- WAS RECEIVED BACK TO T H E EXTENT OF RS.34,44,463/- DURING F. Y 2003-04 AND THE BALANCE IN THE ACCOUNT AS ON 0'104.2004 STOOD AT RS.11, 85, 164/-. A FURTHER SUM OF RS.35,41, 477/- WAS RECEIVED BACK DURING F Y 2004-05 CONVERTING THE DEBIT BALANCE OF RS.11, 85,164 TO CREDIT BALANCE OF RS.23,56, 313/- AS ON 31.03.2005. 5.6 IN THE CASE OF ASSOCIATED TECHNOLOGIES INTEREST OF RS. 13,88,989/- AND RS. 19, 00, 000/- HAVE BEEN CHARGED IN A Y 2004-05 AND A Y 2005-06 RESPECTIVELY AND CREDITED TO THE BANK INTEREST ACCO UNT (COPIES OF BANK INTEREST ACCOUNT ALREADY SUBMITTED) 6 IN THE LIGHT OF THE ABOVE NARRATION OF FACTS IT CAN BE SEEN THAT THE ASSESSING OFFICER'S REMARKS REGARDING LOANS ADVANCED TO CERTA IN SISTER CONCERNS DOES NOT SUPPORT THE DISALLOWANCE OF ANY INTEREST DURING THE A YS 2004- 05 AND 2005-06 UNDER APPEAL. IT IS SUBMITTED THAT T HE AMOUNTS RECEIVED BACK (RS.34,44,463/-, RS.31,30,407/- AND R S.35,41,477/-) FROM THE SISTER CONCERNS HAVE TO BE TAKEN INTO ACCOUNT AS INTEREST FREE FUNDS AVAILABLE FOR TRANSACTIONS DURING THE PRESENT YEARS. 7 REGARDING THE INVESTMENT IN TIRUPATHI GUEST HOUSE - RS.61,58, 911/- (PLEASE SEE PAGES 22 TO 29 OF THE COMPILATION DATED 26.11.2012) IT IS SUBMITTED THAT THE SAID PREMISES REPRESENTS PROPERT Y / ASSET OF THE APPELLANT COMPANY. ACCORDINGLY, THE AMOUNT INVESTED IN THE CONSTRUCTION CANNOT BE CONSIDERED AS DIVERSION OF THE COMPANY'S FUNDS. MOREOVER UPON COMPLETION OF THE CONSTRUCTION THE PREMISES WAS LENT TO LORD'S SECURITY MINT LTD AND RENT WAS RECEIVED FROM APRIL, 2004 (PLEASE REFER LORD'S SECURITY MINT LTD ACCOUNT AT PAGES 18 TO 22 OF THE COMPILATION DATED 26.11.2012 FOR A Y 2005-06) 8 ON THE QUESTION OF VALIDITY IN LAW OF THE DISALLOWANCE OF INTEREST ON TNEMONEYS INVESTED ADVANCED TO LORD'S SECURITY MINT LTD (AND OTHER SISTER CONCERNS) WE RELY ON THE DECISION OF THE APEX COURT IN S.ABUILDERS VS. CIT (288 ITR -I) AND CIT VS. HOTEL SAVERA [239 ITR 795 (MAD)] AND SUBMIT THAT BASED ON THE RATIO OF THE SAID DECISIONS OF THE APEX COURT AND THE JURISDICTIONAL MADRAS HIGH COURT THE DISALL OWANCE WAS UNJUSTIFIED. 9 IN THE ASSESSMENT ORDER FOR A Y.2005-06 THE ASSESSING OFFICER HAS REFERRED TO THE PROVISIONS OF SECTION 14A OF THE ACT. IT IS SUBMITTED THAT HAVING REGARD TO THE FACT THAT THE APPELLANT COMPAN Y HAS MIXED FUNDS WHICH COMPRISED OF ITS OWN GENERATED CUMULATIVE PROFITS AND THE FURTHE R FACT THAT THE ASSESSING OFFICER HAS NOT BROUGHT OUT A DIRECT CORRELATION BETWEEN THE VARIOUS AMOUNTS INVESTED IN SHARES OF C OMPANIES AND THE INTEREST BEARING BORROWALS, THERE IS NO JUSTIFICATION FOR DISALLOWING THE ENTIRE INTEREST CLAIMED INVOKING THE PROVISION OF S ECTION 14A IN THE MANNER DONE BY THE ASSESSING OFFICER. 10 IN THE NOTES (DATED 26.11.2012) SUBMITTED/OR A.Y2005-06 WE HAVE ALREADY POINTED OUT THE ERRORS IN THE ASSESSMENT OR DER FOR A. Y 2005-06 VIZ., DISALLOWANCE OF THE GROSS INTEREST - RS.41,41 ,6791- WITHOUT CONSIDERING CREDIT OF RS.19,00,000I- IN THE INTERES T ACCOUNT BEING INTEREST CHARGED TO ASSOCIATED TECHNOLOGIES AND THE FURTHER DISAL LOW ANCE OF RS.19,00,0001- ON THE ASSESSING OFFICER'S INCORRECT UNDERSTANDING OF INTEREST OF RS. 19,00,0001- RECEIVED FROM ASSOCIATE D TECHNOLOGIES AS INTEREST PAYMENT AND INCORRECTLY INVOKING SECTION 4 0(A)(IA) OF THE ACT. 11 IT IS PRAYED THAT CONSIDERING THE ABOVE FACTS, S UBMISSIONS AND JUDICIAL DECISION THE COMMISSIONER (APPEALS) MAY BE PLEASED TO DELET E THE DISALL OWANCE OF INTEREST PAID IN BOTH THE ASSESSMENT YEAR S 2004-05 AND 2005-06 AND DECIDE THE ISSUE IN FAVOUR OF THE A PPELLANT COMPANY. 9 ITA NOS.1325 & 1326/MDS/2013 8. GO ING TO THE AY 2005-06 IT IS ARGUED THAT THE INTERES T DISALLOWED BY THE AO AT RS.41,41,679/- ALSO INCLUDES INTEREST REC EIVED OF RS. 19 LAKHS FROM M/S ASSOCIATED TECHNOLOGIES LIMITED (ATL) AND WITHOUT CORRECTLY UNDERSTANDING THE LEDGER ACCOUNTS OF THE BANK INTER EST FURNISHED BEFORE HIM, THE ENTIRE AMOUNT HAS BEEN DISALLOWED. THE AR HAS ARGUED THAT THE DISALLOWANCE OF INTEREST AT THE FIRST INSTANCE CANN OT BE SUSTAINED SINCE THIS ADVANCE WERE PAID TO THE SISTER CONCERNS AS A RUNNING ACCOUNT WITH REPAYMENTS ALSO. FURTHER THE INTEREST MONIES O F RS.19 LAKHS RECEIVED WERE NOT TAKEN INTO CONSIDERATION, RESULTI NG IN A HIGHER DISALLOWANCE. 9, IN THE AY 2004-05, THE AO HAS DISALLOWED THE DEP RECIATION ON THE LIFT AT RS. 53,714/-. THE AR HAS ARGUED THAT THE APPELLA NT COMPANY HAS NOT MADE ANY CLAIM ON DEPRECIATION ON LIFT AND HENCE, T HE DISALLOWANCE IS NOT AT ALL CALLED FOR. 10. FOR GROUND NO. 7 OF AY 2005-06, THE APPELLANT C OMPANY HAS ARGUED THAT THE ADDITION OF RS. 19 LAKHS U/S 40(A)(IA) IS AN ERROR SINCE THESE AMOUNTS REPRESENT INTEREST RECEIPTS AND WERE CREDIT ED TO THE RUNNING ACCOUNT OF M/S ASSOCIATED TECHNOLOGIES LIMITED. WIT H THE HELP OF THE LEDGER ACCOUNTS OF THE BANK INTEREST, IT IS POINTED OUT THAT RS. 19 LAKHS WAS CREDITED AS INTEREST RECEIVED BY GENERAL VOUCHE R NO. 107 BEING THE AMOUNT TRANSFERRED FROM ASSOCIATED TECHNOLOGIES LIM ITED. THE SAME AMOUNT OF RS. 19 LAKHS WAS GIVEN CORRESPONDING TO G ENERAL NATURE BY DEBITING THE ACCOUNT OF M/S ASSOCIATED -TECHNOLOGIE S LIMITED BY ENHANCING THE DEBIT BALANCE IN THEIR ACCOUNT. THE A O HAS ADDED THIS AMOUNT BY WRONGLY CONSIDERING THIS AS PAYMENT OF IN TEREST WITHOUT AFFECTING TDS AND INVOKED THE PROVISIONS OF SEE. 40 (A)(IA). 11. I HAD GONE THROUGH THE FINDINGS GIVEN BY THE AO IN HIS ORDERS AND ALSO THE CHALLENGES PLACED BY THE AR BEFORE ME. GRO UND NOS. 1-7 IN AY 2004-05 AND 3-8 IN AY 2005- 06 ARE ABOUT THE DISALLOWANCE OF INTEREST PAID ON BORROWED FUNDS ADVANCED TO SISTER CONCERNS WITHOUT CHARGING ANY INTEREST. IT IS THE CONTENTION OF THE AR THAT T HE APPELLANT COMPANY HAS LAID OUT THESE MONIES AS ADVANCES TO SISTER CON CERNS IN THE BUSINESS INTEREST OF THE APPELLANT AS NARRATED . IF THE WRITTEN NOTE EXTRACTED ABOVE. IT IS ALSO ARGUED AND DEMONSTRATED THAT THERE ARE RECEIPTS BACK FROM THESE CONCERNS, COMPLIMENTING HI S RESOURCES. IT IS FURTHER POINTED OUT THAT THERE ARE ADEQUATE INTERES T FREE ACCRUALS IN HIS BOOKS TO SUPPORT THESE' ADVANCES AS WELL. THE ARGUM ENT OF THE AR THAT THE INTEREST RECEIVED IN AY 2005-06 AT RS. 19,00,00 0 WAS ALSO TREATED AS INTEREST OUT GO AND THE SAME IS ALSO CLUBBED WIT H DEEMED DISALLOWANCE IS FOUND TO BE FACTUALLY CORRECT, ON V ERIFICATION OF THE LEDGER ACCOUNT OF M/S ATL. FROM THESE ARGUMENTS, IT IS APP ARENT THAT THE AO HAD NOT DILIGENTLY EXAMINED THE ISSUE BEFORE HIM BU T HAD COME TO A SUMMARY CONCLUSION. THE ABOVE ARGUMENTS OF THE AR DO LEND CREDENCE TO THE FACT THAT THE ADVANCES WERE ISSUED OUT OF FREE ACCRUALS AND ARE GIVEN FOR THE BUSINESS PURPOSES, TO HIS SIS TER CONCERNS. SIJL1ILARLY, THE GUEST HOUSE HAS BEEN BUILT AT TIRU PATHI BY INVESTING THE AMOUNT OF RS. 61,58,911 AND THE SAME HAS BEEN G IVEN ON RENT TO LORD'S SECURITY MINT LIMITED. THE INCOMES FROM THE SAID GUEST HOUSE WERE ALSO OFFERED AS INCOME FROM HOUSE PROPERTY. HE NCE, THE OBSERVATIONS OF THE AO THAT THE FUNDS WERE DIVERTED TOWARDS CONSTRUCTION OF GUEST HOUSE IS NOT ON A CORRECT FOO TING FOR DISALLOWING THE INTEREST ON THE SAID FUNDS. ACCORDINGLY, THESE ADDITIONS ARE DIRECTED TO BE DELETED. 10 ITA NOS.1325 & 1326/MDS/2013 6. ON GOING THROUGH THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS), WE DO NOT FIND ANY VALID REAS ON TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INC OME TAX (APPEALS) IN DELETING THE DISALLOWANCE OF INTEREST FOR BOTH THESE ASSESSMENT YEARS. THE REVENUE HAS NOT REBUTTE D THE ABOVE FINDINGS OF THE COMMISSIONER OF INCOME TAX (A PPEALS) WITH ANY EVIDENCE. THEREFORE, WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E DISALLOWANCE OF INTEREST AND REJECT THE GROUNDS OF APPEAL RAISED ON THIS ISSUE. 7. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2004-05 IS THAT COMMISSIONER OF INC OME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF ` 53,714/- IN RESPECT OF DEPRECIATION ON LIFT. THE REVENUE FURTHE R CONTENDED THAT COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO NOTE THAT ADDITION MADE BY THE ASSESSING OFFICER TOWARDS DEPRECIATION ON LIFT WAS ONLY ` 39,247/- WHEREAS COMMISSIONER OF INCOME TAX (APPEALS) GRANTED RELIEF OF ` 53,714/-. THE ASSESSING OFFICER WHILE COMPLETING TH E ASSESSMENT ALLOWED DEPRECIATION OF ` 1,01,071/- EXCLUDING 11 ITA NOS.1325 & 1326/MDS/2013 DEPRECIATION ON LIFT. THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON AS TO WHY HE HAS DENIED DEPRECIATION ON LIFT . THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF IN COME TAX (APPEALS) AND RAISED THE FOLLOWING GROUND BEFO RE THE COMMISSIONER OF INCOME TAX (APPEALS):- 8. THE ASSESSING OFFICER ERRED IN REDUCING THE ADM ISSIBLE DEPRECIATION (EXCLUDING DEPRECIATION ON LIFT) THE A PPELLANTS CLAIM FOR DEPRECIATION DOES NOT INCLUDE DEPRECIATION ALLOWANC E ON LIFT. 8. THE COMMISSIONER OF INCOME TAX (APPEALS) IN PARA 12 OF THE ORDER DIRECTED THE ASSESSING OFFICER TO DELE TE THE ADDITION TO THE EXTENT OF ` 53,714/-. THE ASSESSEE CONTENDED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) TH AT SINCE THE ASSESSEE HAS NOT SHOWN LIFT IN THE DEPRECIATION TABLE, DISALLOWING DEPRECIATION IS INCORRECT. 9. THE REVENUE NOW CONTENDS THAT COMMISSIONER OF INCOME TAX (APPEALS) HAS DIRECTED THE ASSESSING OFF ICER TO DELETE THE ADDITION TO THE EXTENT OF ` 53,714/- AND WHEREAS ADDITION WAS MADE ONLY TO THE EXTENT OF ` 39,267/-. 10. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSEE NEVER CLAIMED DEPRECIATION ON THE LIFT. 12 ITA NOS.1325 & 1326/MDS/2013 11. ON HEARING BOTH THE PARTIES, WE ARE OF THE OPIN ION THAT THIS ISSUE HAS TO BE EXAMINED AFRESH BY THE ASSESSI NG OFFICER IN THE LIGHT OF THE SUBMISSIONS OF THE ASSESSEE THA T THEY HAVE NOT CLAIMED ANY DEPRECIATION ON THE LIFT. WHEN THE ASSESSEE HAS NOT CLAIMED DEPRECIATION THE QUESTION OF DISALL OWANCE OF DEPRECIATION DOES NOT ARISE. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO EXAMINE THIS ISSUE IN THE LIGH T OF THE ASSESSEES SUBMISSION THAT NO DEPRECIATION HAS BEEN CLAIMED ON LIFT. 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JULY, 2015. SD/- SD/- ( # ) ( & (# ) ( CHANDRA POOJARI ) ( CHALLA NAGENDRA PRASAD ) * / ACCOUNTANT MEMBER ( * / JUDICIAL MEMBER ( /CHENNAI, , /DATED 24 TH JULY, 2015 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .