JCIT (OSD) CIRCLE-8(3)(1), MUMBAI V. M/s. TRIDOSS LABORATORIES PRIVATE LTD., MUMBAI

ITA 1489/MUM/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0065 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: E
• Next Hearing Date: 27-09-2022
• Assessment Year: 2002-2003
• Appeal Filed On: 07-03-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Retrospective amendment; Additional evidence; Reason to believe
• Section: 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘E‘ BENCH MUMBAI BEFORE: SHRI M.BALAGANESH, ACCOUNTANT MEMBER & SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No.1489/Mum/ 2018 (Asse ssment Year :2002-03) JCIT(OSD), Circle-8(3)(1) Mumbai. Dy. Commissioner of Income-Tax, Circle-8(3)(1), Mumbai. Vs. M/s. Tridoss Laboratories Pvt Ltd., 167, Ready Money Terrace, Dr. Annie Besant Road, Worli, Mumbai-400018 PAN/GIR No.AAACT5014H (Appellant) .. (Respondent) ITA No.1462/Mum/ 2018 (Asse ssment Year :2002-03) M/s. Tridoss Laboratories Pvt Ltd., 167, Ready Money Terrace, Dr. Annie Besant Road, Worli, Mumbai- 400018 Vs. JCIT(OSD), Circle-8(3)(1) Mumbai. Dy. Commissioner of Income- Tax, Circle-8(3)(1), Mumbai. PAN/GIR No.AAACT5014H (Appellant) .. (Respondent) Assessee by Shri M.P.Lohia / Nikhil Tiwari Revenue by Shri Chintamani V. Divgankar Date of Hearing 28/09/2022 Date of Pronouncement 20/10/2022 आदेश / O R D E R PER M. BALAGANESH (A.M): These cross appeals in ITA No. 1489/Mum/2018 & 1462/Mum/2018 for A.Y.2002-03 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-14. Mumbai in appeal No.CIT(A)- ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 2 14/IT-69/05-06 dated 29/12/2017 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 21/03/2005 by the ld. Asstt Commissioner of Income Tax Central Circle-14, Mumbai (hereinafter referred to as ld. AO). 2. The only common issue to be decided in these cross appeals with regard to allowability of interest paid on borrowed funds u/s.36(1)(iii) of the Act or alternatively allowability of interest u/s.37 of the Act. 3. We have heard rival submissions and perused the material available on record. The assessee is engaged in the business of manufacturing the pharmaceutical products. The return of income for the A.Y.2002-03 was filed by the assessee on 31/10/2002 declaring loss of Rs.4,75,10,750/-. During the course of assessment proceedings, the ld. AO observed that assessee had given interest free loans and advances to various parties as under:- Sr. No. Name of the party Amount (Rs) Interest Received 1 Juzar Khorakiwala / Nishreen Khorakiwala 6,21,80,033 77,72,504 2 Akbarallys Furniture Centre 11,50,000 1,35,283 3 Fabliau Estate Development Private Limited 59,03,45,492 4 Tahseel Hire Purchase Co Private Limited 45,69,72,962 5 Zeigter Investment Private Limited 23,56,26,077 6 Zaahid Holdings & Investment Private Limited 12,61,37,495 7 Jinita Estate Development Private Limited 6,63,71,800 ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 3 8 Palanpur Holdings & Investment Limited 3,57,53,086 9 Everest Construction 36,35,574 10| PYX Laboratories Limited 25,25,000 11 Filigree Estate Development Private Limited 30,12,721 12 Ernie Estate Development Private Limited 18,84,567 13 Yurt Estate Development Private Limited 4,16,039 14 Shravan Construction 1,19,083 15 Akbarallys Ebrahimji 20,00,000 16 Balata Estate Development Private Limited 3,050 17 Gabbro Estate Development Private Limited 93,195 18 Exurbia Estate Development. Pvt. Ltd 3,050 Total 1,58,82,29,226 3.1. Out of the above, in respect of parties listed in Serial Nos. 3-18, during the year under consideration, no interest was charged by the assessee on the advances. The assessee had paid interest amounting to Rs.6.52 Crores of loans borrowed by it as under:- Interest on term loan – Rs.1.93 Crores Interest on bank finance and other companies - Rs.4.59 Crores Total Rs.6.52 Crores ========== 3.2. The ld. AO observed that assessee on one hand had paid interest on its borrowed funds and on the other hand had given interest free advances to various parties. This, in the opinion of the ld. AO, was considered as diversion of borrowed funds for non-business purposes. The ld. AO also observed that in respect of parties listed in Sr. No.1 & 2 ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 4 above, the assessee had charged interest @12 / 12.5%, as the case may be. The ld. AO observed that the borrowed funds had been diverted by the assessee by giving interest free advances to various parties which is meant for non-business purposes. Accordingly, he proceeded to disallow the entire interest expenditure amounting to Rs.6.52 Crores u/s.36(1)(iii) of the Act. 3.3. The assessee pleaded that it had charged interest on majority of the loans and advances given to parties listed above and had earned Rs. 12.08 Crores as interest income in A.Y.2001-02 and offered to tax. Accordingly, the proportionate interest that was disallowed u/s.36(1)(iii) of the Act in A.Y.2001-02 worked out to Rs.14.53 lakhs in respect of 4 parties on whom interest was not charged by the assessee. The assessee pleaded that the companies to whom the advances were made by it, its networth had become negative and accordingly, there was no hope for recovery of interest income from those parties. Moreover, those companies had also approached the assessee company with a request not to charge interest for the financial year under consideration. Pursuant to that request, the assessee has decided in its Board of Directors meeting not to charge interest on the said loans. The assessee placed on record the copy of the Board Resolution and correspondences from the borrowing parties in this regard before the ld. AO. The main crux of the submission of the assessee is that even the principal amount was doubtful of recovery and hence, the assessee was forced to decide not to charge any interest on the said loans during the year under consideration. Accordingly, the assessee defended that the observation of the ld. AO that borrowed funds were diverted for giving interest free advances is incorrect. The assessee also pleaded that there were fresh loans granted during the year to some of the parties to whom loans were given in ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 5 earlier years, there were also substantial repayments made by those parties during the year. The assessee submitted the movement of loans given and repayment made during the year as under:- No. Party name Op. Bal Loan Given Repayment Cl. Bal 1 Juzar Khorakiwala / Nishreen Khorakiwala 6,21,80,033 NA NA 6,21,80,033 2 Akbarallys Furniture Centre 11,50,000 NA NA 11,50,000 Total of loan given where interest was charged (A) 6,33,30,033 3 Fabliau Estate Development Private Limited 55,89,49,492 19,68,82,000 16,54,86,000 59,03,45,492 4 Tahaseel Hire Purchase Co. Private Limited 55,44,55,725 18,94,69,000 28,69,51,763 45,69,72,962 5 Zeigler Investments Private Limited 13,51,57,225 28,88,51,000 18,83,82,149 23,56,26,076 6 Zaahid Holdings & tnvesments Private Limited 3,03,10,496 9,66,50,000 8,23,000 12,61,37,496 7 Jinita Estate Development Private Limited 47 6,63,71,753 - 6,63,71,800 8 Palanpur Holdings & Invesments Private Limited 86 3,60,37,000 2,84,000 3,57,53,086 9 Everest Construction (Refer Note) 36,35,575 - - 36,35,575 10 PYX Lab. Ltd. (Refer Note) 25,25,000 - - 25,25,000 11 Filigree Estate Development Private Limited 28,17,721 1,95,000 - 30,12,721 12 Ernie Estate Development Pvt. Ltd. 18,84,567 - - 18,84,567 13 Yurt Estate Development Private Limited 1,000 4,15,039 - 4,16,039 14 Shravan Construction (Refer Note) 1,19,083 - - 1,19,083 15 Akbarallys Ebrahimji (Refer Note) 11,50,000 8,50,000 - 20,00,000 16 Balata Estate Development Private Limited 3,050 - - 3,050 17 Gabro Estate Development Private Limited 96,695 - 3,500 93,195 18 Exurbia Construction 36,35,575 - 36,32,525 3,050 Total of loan given where interest was waived (B) 1,29,47,41,337 87,57,20,792 64,55,62,937 1,52,48,99,192 Total (A) + (B) 1,58,82,29,225 Note Interest disallowance made in AY 2001-02 ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 6 3.4. The aforesaid movement goes to prove that only in respect of certain parties as mentioned in the note, no interest was received by the assessee and hence, disallowance of interest was indeed made in A.Y.2001-02. As stated earlier this goes to prove that the other advances made by the assessee were fetching interest income to the assessee in A.Y. 2001-02 and hence that was accepted to be for business purposes by the ld. AO. In respect of some parties, the assessee had chosen not to charge any interest income during the year under consideration only because of bad financial position of the borrowers. Hence, the ld. AO himself accepted upto A.Y.2001-02 that wherever interest income has been earned from the parties, those loans and advances were meant for business purposes of the assessee. The main submission of the assessee is that once the funds are used for business purposes how can there be disallowance u/s.36(1)(iii) of the Act. The assessee pleaded that only real income should be taxed and wherein in respect of loans and advances given to certain parties when recovery of principal itself is doubtful, there is no question of recovering any interest from those parties. Accordingly, there cannot be any proportionate interest disallowance u/s.36(1)(iii) on notional basis. Reliance in this regard was placed on the decisions of the Hon’ble Supreme Court in the case of E.D. Sassoon & Co. Ltd., vs. CIT reported in 26 ITR 27; CIT vs. Shoorji Vallabhdas& Co., reported in 46 ITR 144; Godhra Electricity Co. Ltd., vs. CIT reported in 225 ITR 746; CIT vs. Bokaro Steel Ltd., reported in 236 ITR 315; CIT vs. Sarabhai Holdings Pvt. Ltd., reported in 307 ITR 89, among others. 3.5. The assessee also, on without prejudice basis, submitted that in any case out of the total interest payment of Rs.6.52 Crores, a sum of Rs.1.93 Crores was paid as interest on term loans which could not have been used for granting interest free loans or for any other purposes ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 7 except for specific defined purposes for which term loans were sanctioned. Hence, in any case, the term loan funds should not be considered as common fund available with the assessee for granting interest free loans and advances to the parties and consequently the disallowance of interest should be reduced atleast to that extent of Rs.1.93 Crores. Further, the assessee pleaded, on without prejudice basis, that it had earned 1.38 Crores of interest income on loans granted and had offered the same during the year under consideration. That sum of 1.38 Crores should also be given credit while considering the disallowance of interest. In other words, assessee on without prejudice basis requested for restricting the disallowance of interest to Rs.3.21 Crores as against 6.52 Crores as under:- Total interest paid on borrowed funds - Rs.6.52 Crores Less Interest paid on term loan - Rs.1.93 Crores Less interest income earned on loans Granted - Rs.1.38 Crores Total Rs.3.21 Crores 3.6. The assessee also submitted that the financial position of the borrowers had also been mentioned in the notes to balance sheet of the assessee company. The assessee even filed additional evidences before the ld. CIT(A) stating the crucial fact that in respect of parties listed in Sr. Nos. 3-6 which totals to 140.89 Crores of advances had been subsequently merged with M/s. Dartmour Holdings Pvt. Ltd., vide order of the Hon’ble Bombay High Court dated 24/06/2005 and that post-merger, the loans had been taken over by M/s. Dartmour Holdings Pvt. Ltd from the four parties listed in Sr. No.3-6 in the aforesaid table, and that those loans had started fetching interest income to the assessee from ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 8 A.Y.2005-06 / 2006-07 onwards, as the case may be. The assessee pleaded for admission of these additional evidences before the ld. CIT(A) as it turned out to be a subsequent development post completion of assessment proceedings. The assessee also furnished further additional evidences before the ld. CIT(A) that these four borrowers listed in Sr.No.3-6 of the aforesaid table had not correspondingly claimed any interest expenditure as deduction in their returns of income for A.Y.2002- 03 to A.Y.2004-05. These additional evidences were duly admitted by the ld. CIT(A) and forwarded to the ld. AO for his comments. Since, no remand report was received from the ld. AO despite giving sufficient time, the ld. CIT(A) proceeded to adjudicate the said additional evidences on his own. The assessee submitted that from the financial statements of M/s. Dartmour Holdings Pvt. Ltd.,(merged entity) for A.Y.2006-07, an interest of Rs.3,18,54,320/- was reflected as interest payable to assessee company herein and that the assessee company had offered interest income from the said party from A.Y. 2006-07 onwards. 3.7. The ld. CIT(A) upheld the disallowance of interest in respect of loans/advances to the following parties in the same fashion as it was upheld in A.Y.2001-02:- (i) Everest Construction (Sr.No.9 of the table) (ii) Pyx Laboratories (Sr. No.10 of the table) (iii) Shravan Construction (Sr.No.14 of the table) (iv) Akbarallys Ebrahimji (Sr. No.15 of the table) 3.8. The ld. CIT(A) also observed that the assessee during the year had advanced fresh loan of Rs.8,50,000/- to Akbarallys Ebrahimji. Since the advances given to these four parties were held to be for non-business purposes in A.Y.2001-02, the ld. CIT(A) upheld the interest disallowance ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 9 proportionately in respect of these four parties for the year under consideration also. 3.9. The ld. CIT(A) categorically gave an observation in page 12 top para of his order that merely because no interest was charged on certain advances by the assessee during the year under consideration, it cannot be stated that the said advances were made for non-business purposes of the assessee. Having said so, the ld. CIT(A) concludes that he was not satisfied with the bonafides of the explanation given by the assessee for not charging interest from these parties. The ld. CIT(A) examined the financials of the four parties listed in Sr. No.3-6 of the table and observed that during the year under consideration three parties had incurred losses and one party had earned net profit during the year under consideration. The details of the same are under:- Name of the Party Net Profit / (loss) 1. Zaahid Holdings & Investments Pvt. Ltd., Rs.7,65,327/- 2. Tahseel Hire Purchase Co. Pvt. Ltd., (Rs.89,48,623/-) 3. Zeigler Investments Pvt. Ltd., (Rs.24,09,183/-) 4. Fabilau Estate Development Pvt. Ltd., (Rs.22,84,32,983/-) 3.10. The ld. CIT(A) observed that all these four members are group companies of the assessee company. The ld. CIT(A) also observed that despite knowing the fact that the financial health of these four companies are not sound, the assessee company had proceeded to advance further loan of Rs.2327.86 lakhs during the year under consideration. Accordingly, he concluded that unilateral action of the assessee of not charging interest on loans given to these four parties cannot be accepted and hence, it has to be construed as advance given for non-business ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 10 purposes of the assessee warranting proportionate interest disallowance u/s.36(1)(iii) of the Act. 3.11. No specific findings were given by the ld. CIT(A) in respect of other parties for confirming the disallowance of interest. 3.12. However, the ld. CIT(A) agreed to the fact that interest on term loans paid by the assessee in the sum of Rs.1.93 Crores could not be utilized for advancing interest free loans to these parties. Similarly, the ld. CIT(A) agreed to the fact that the interest income earned by the assessee of Rs. 1.38 Crores should be given credit while disallowing the proportionate interest expenditure. However, the ld. CIT(A) finally directed the ld. AO to restrict the disallowance of interest to Rs.3.21 Crores as against Rs.6.52 Crores made in the assessment. Aggrieved, both the assessee as well as the Revenue is in appeal before us for their respective portion of the grievances. 3.13. We find that in respect of interest income earned by the assessee in the sum of Rs.1.38 Crores to be given credit while disallowing the interest as directed by the ld. CIT(A), the Revenue has not preferred any appeal before us. Hence, that aspect had attained finality from the order of the ld. CIT(A). The Revenue has contested only the action of the ld. CIT(A) in granting relief to the extent of interest paid on term loan in the sum of Rs.1.93 Crores. 3.14. We find that in respect of loans given by the assessee to Everest Construction, Pyx Laboratories, Shravan Construction & Akbarallys Ebrahimji, these were subject matter of disallowance of interest u/s.36(1)(iii) of the Act by the ld. AO in A.Y.2001-02 itself vide order ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 11 u/s.143(3) of the Act dated 18/03/2004. The ld. AR made a statement from the Bar that this assessment has been accepted by the assessee and no appeal has been preferred before the ld. CIT(A). Hence, we hold that interest disallowance should continue in respect of these four parties for the year under consideration also. 3.15. In respect of advances given to four parties listed in Sr. No.3-6 of the table totaling to Rs.140.89 Crores, we find that assessee had given proper explanation as to why it was forced to decide not to charge interest from these parties. It is an admitted fact that assessee had been charging interest from these four parties up to A.Y.2001-02 and has been offering such interest income to tax up to A.Y.2001-02 and accordingly, the advances made to these four parties were accepted by the Revenue as meant for business purposes of the assessee. Merely because no interest is charged during the year under consideration, it cannot be said that advances made to these four parties had lost its character of having construed as meant for business purposes. In any case, we find that the ld. AR had rightly placed reliance on the decision of the Hon’ble Karnataka High Court in the case of CIT vs. Sridev Enterprises reported in 192 ITR 165 where it has been held that once the loans or advances has been accepted to be made for business purposes in earlier year, no disallowance of interest u/s.36(1)(iii) of the Act could be made in respect of opening balance of same loans on proportionate basis. Hence, we direct the ld. AO to completely delete the disallowance of interest made on the opening balance account of such loans (i.e. loans given to parties listed in sl.no. 3 to 6 of the table) in view of the decision of the Hon’ble Karnataka High Court referred to supra. However, it is a fact that assessee had made further advance to very same four parties during the year. It is also a fact that assessee had recovered substantial sums from ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 12 the said four parties during the year totaling to Rs.64.17 Crores as is evident from the movement of loans given and repaid during the year which is reflected in the table mentioned hereinabove. Further, in respect of these four parties i.e. parties listed in Sr. No.3-6 of the table, we find that assessee had placed on record the certified copy of the Board Resolution dated 07/03/2002 wherein it had decided to waive the charging of interest for the year under consideration pursuant to the request made by these four parties vide their written request made by these parties to the assessee expressing their bad financial condition and accordingly expressing their inability to service the interest. These documents are enclosed in pages 44-46 of the paper book filed before us. Further, we find that these four companies had been subsequently merged with M/s. Dartmour Holdings Pvt. Ltd., It is a fact that M/s. Dartmour Holdings Pvt. Ltd., had started paying interest to the assessee from A.Y.2005-06 / A.Y.2006-07 onwards and assessee had duly offered the said interest income in subsequent years. We find that assessee had placed due evidences on record by furnishing the financial statements of all these four entities for the year under consideration before the ld. CIT(A). Considering the financial sickness of these four parties, the assessee had passed a Board Resolution dated 07/03/2002 and decided not to charge any interest from these four parties. When these evidences are staring on us, it is incorrect on the part of the ld. CIT(A) to say that no evidences were furnished by the assessee to prove the financial sickness of these four parties. The financial statements of these four parties are reflected from pages 65-84 of the paper book. In fact, the assessee company in its notes on accounts in Schedule 14 vide point No.4 had duly stated that the loans given by it includes Rs.15204.62 Lakhs given to companies having negative net worth and Rs.25.25 lakhs given to a company where legal action has been initiated for recovering the ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 13 loan and accordingly no provision has been made as against these loans. This fact is also qualified by the statutory auditor in his statutory audit report stating that - subject to this non-provision of doubtful advances, financial statements of the assessee company is true and fair. We further hold that the reliance placed by the ld.AR on the decision of Hon’ble Supreme Court in the case of CIT vs Sarabhai Holdings (P) Ltd reported in 307 ITR 89 (SC) squarely supports the case of the assessee. The Head Notes and observations of the Hon’ble Supreme Court in the said case is reproduced hereunder for the sake of convenience:- Section 5 of the Income-tax Act, 1961 - Income - Accrual of - Assessment year 1980-81 - Assessee-company had transferred its industrial unit to its subsidiary company, 'E Ltd.' for certain consideration with effect from 1-3-1977 - In terms of sale agreement, part of sale consideration was to be paid in eight equal instalments starting from 1-10-1979 and interest was payable at rate of 11 per cent per annum on balance sale consideration which would remain unpaid from time-to-time - Subsequently, E Ltd. proposed for modification in terms of payment and requested that part of sale consideration would be payable as and when demanded by assessee without interest and balance of sum would be payable in five annual instalments and interest would be charged on deferred sale consideration from 1-7-1979 instead of 1-3-1977 - Assessee, by a resolution dated 30-6-1978, accepted proposal of 'E Ltd.' - For relevant assessment year, assessee did not include amount of interest accrued on deferred sale consideration in view of its resolution dated 30-6-1978 - Assessing Officer, however, included amount of interest accrued on deferred sale consideration in assessee's total income - On appeal, Tribunal held that amount of interest could not be included in income of assessee since resolution dated 30-6-1978 had been passed prior to commencement of relevant accounting year which was from 1-7- 1978 to 30-6-1979 and, therefore, it could not be said that interest had accrued to assessee - Whether on facts, findings of Tribunal were correct in law - Held, yes HELD The genuine nature of the resolution was not and could not be disputed. It was found that the letter dated 15-6-1978 had been complied with by 'E Ltd.' in providing an adequate security of the payable amounts. There was nothing to dispute or suspect the genuineness of the transaction. The whole transaction would have to be viewed in that backdrop. In the commercial world, the parties are always free to vary the terms of the contract. Merely because by resolution dated 30-6-1978, the assessee had agreed to defer the payment of interest, it would not mean that it had tried to evade the tax. What is material in the tax jurisprudence is the evasion of the tax, not the beneficial lawful adjustment therefor. Considering the genuine nature of the transaction, based on the letter ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 14 dated 15-6-1978 and the resolution dated 30-6-1978, it could not be said that the whole transaction was in order to evade the tax. [Para 23] There was also no dispute that the assessee was following the mercantile system of accounting, and that the accounting year for the assessment year 1980-81 was from 1-7-1978 to 30-6-1979. The High Court had correctly held and confirmed the Tribunal's finding that insofar as the accrued interest for the assessment year 1979-80 was concerned, since the interest had already accrued to the assessee, it could not be wiped out later on by passing a resolution dated 30-6-1978. The interest indeed had accrued in the accounting year which began from 1-7-1977 to 30-6-1978 and, as such, the subsequent passing of the resolution could not have resulted into wiping out that accrual. The assessee could not have refused to pay tax on that. Insofar as the assessment year 1980-81 was concerned, the interest had not accrued and before it had accrued, the assessee had deferred the same by passing a resolution dated 30-6-1978. Thus, there was a full scope for the assessee to adjust the interest or as the case may be, to defer the same which it did. Therefore, there was no ill-intention on the part of the assessee to evade the tax. [Para 24] The assessment for the assessment year 1980-81 was finalized by the Tribunal by holding that the interest could not be included. Therefore, the said interest could not be treated as an income, so as to compel the assessee to pay advance tax on the same. Therefore, there was no justification for a show-cause notice under section 274, read with section 273(2)(a ), on the ground that the assessee had deliberately filed an untrue estimate of the advance tax which he had known or reason to believe to be untrue. The Tribunal as well as the High Court were right in holding the transaction to be genuine. [Para 25] The High Court's finding, that the law permits the contracting parties to lawfully change their stipulations by mutual agreement and, therefore, the assessee and the vendee had no legal impediment in modifying the terms of their contract, was correct, in law; the further finding of the High Court, that the resolution could not be given any retrospective effect so as to facilitate evasion of tax liability that had already arisen for the assessment year 1979-80, was also correct. The High Court's finding that it being a valid stipulation, changed the mode of payment from the date of the resolution and, therefore, under the changed mode of payment adopted under the resolution dated 30-6-1978, no interest was to accrue during the accounting period from 1-7-1978 up to 30-6-1979 and, therefore, the reasoning of the Tribunal on that count appeared to be correct, as regards the assessment year 1980-81 was concerned was correct. Since no interest had accrued in the accounting year 1-7-1978 to 30-6-1979, there could arise no question of relinquishment of interest for any commercial expediency. There was no such question because a party could not relinquish income that had not accrued at all. The High Court had correctly found that in view of the categorical stipulation that interest would be payable on the deferred consideration amount in respect of the sale, which became effective from 1-3- 1977, the interest started accruing on that time basis from 1-3-1977 determined by the amount outstanding from time-to-time and the rate applicable, which both were stipulated in clearest possible terms in the deed of assignment dated 28-6- 1977 and the agreements which preceded it. The High Court had assessed the ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 15 facts correctly and had further observed that what already accrued during the accounting year 1-7-1977 to 30-6-1978 could not be nullified by the resolution dated 30-6-1978. However, the same rule could not be applicable to the subsequent accounting year, when the interest had not accrued. Therefore, the finding of the High Court was to be confirmed. [Para 26] 3.16. Considering the aforesaid facts and respectfully following the decision of Hon’ble Supreme Court, we hold that assessee was duly justified in not charging interest in respect of these four parties i.e. parties listed in Sr. No.3-6 of the aforesaid table during the year under consideration. Hence, the ld. AO is hereby directed to delete the disallowance of interest on proportionate basis in respect of loans given to these four parties. 3.17. In respect of remaining loans outstanding from parties listed in Sr. No.7,8,11,12,13,16 & 17 of the table, we find that the total loan outstanding of these parties worked out to Rs.10.75 Crores. In this regard on perusal of the balance sheet of the assessee company, we find that assessee has got own funds Rs.58.02 Crores (Rs.61.60 – Rs.8.58 Crores), which would cover the interest free advances given to the aforesaid parties. Hence, by placing reliance on the decision of the Hon’ble Jurisdictional High Court in the case of Reliance Utilities and Power Ltd., reported in 313 ITR 340 and in the case of HDFC Bank Ltd., reported in 366 ITR 505, we direct the ld. AO to delete the interest disallowance made in respect of advances given to parties listed in Sr.No.7,8,11,12,13,16, 17 & 18 of the table above. 3.18. The grounds raised by the assessee and by the Revenue are disposed off in the above mentioned manner. ITA No. 1489/Mum/2018 & ITA No.1462/Mum/2018 M/s. Tridoss Laboratories Pvt Ltd., 16 4. In the result, appeal of the assessee is partly allowed and appeal of the Revenue is partly allowed. Order pronounced on 20/10/2022 by way of proper mentioning in the notice board. Sd/- (RAHUL CHAUDHARY) Sd/- (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 20/ 10 /2022 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary / Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy//