DCIT, C-5, Ludhiana V. M/s Hero Cycles Ltd., Ludhiana

ITA 1493/CHANDI/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3174 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 25-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C CHANDRAKANTA CIT
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Capital asset; Business income; Earning of tax free income; Notional interest; Commercial expediency; Reason to believe; Rule 8D; Capital Gains
• Section: 143(3); 14A; 143(1); 195; 64; 43; 48; 13; 22; 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH A, CHANDIGARH (VIRTUAL COURT) .., !' .. , # $% BEFORE: SHRI. N.K.SAINI, VP & SHRI , R.L. NEGI, JM ./ ITA NO. 1493/CHD/2017 / ASSESSMENT YEAR : 2011-12 DY. CIT CIRCLE-5, LUDHIANA M/S HERO CYCLES LTD. G.T. ROAD, HERO NAGAR LUDHIANA ./ PAN NO: AAACH4073P / APPELLANT / RESPONDENT CROSS OBJECTION NO. 4/CHD/2018 ( ./ ITA NO. 1493/CHD/2017) / ASSESSMENT YEAR : 2011-12 M/S HERO CYCLES LTD. G.T. ROAD, HERO NAGAR LUDHIANA DY. CIT CIRCLE-5, LUDHIANA ./ PAN NO: AAACH4073P / APPELLANT / RESPONDENT ! ' / ASSESSEE BY : SHRI SUBHASH AGGARWAL, ADVOCATE # ! ' / REVENUE BY : SMT. C. CHANDRAKANTA, CIT $ % ! &/ DATE OF HEARING : 15/04/2021 '()* ! &/ DATE OF PRONOUNCEMENT : 15/06/2021 $&/ ORDER PER N.K. SAINI, VICE PRESIDENT THE APPEAL BY THE DEPARTMENT AND THE CROSS OBJECTIO N BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DT. 09/08/2017 OF LD . CIT(A)-2, LUDHIANA. 2. AT THE FIRST INSTANCE WE WILL DEAL WITH THE APPE AL OF THE DEPARTMENT WHEREIN FOLLOWING GROUNDS HAVE BEEN RAISED. I. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT (A) WAS RIGHT IN DELETING THE DISALLOWANCE OF RS. 1,95,20,4 96/- MADE U/S 14A OF THE ACT WITHOUT ESTABLISHING THE FACT WHETHER OWN FUNDS WER E ACTUALLY USED FOR MAKING 2 INVESTMENTS WHILE IGNORING THE FACT THAT THE ASSESS EE HAS HUGE BORROWINGS ON WHICH INTEREST EXPENSES WERE CLAIMED AND ALSO IGNOR ING THE CBDT CIRCULAR NO. 5 OF 2014? II WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) WAS RIGHT IN DELETING THE DISALLOWANCE OF RS. 8 ,15,40,683/- MADE ON ACCOUNT OF EXCESSIVE COMMISSION EXPENSES WHILE IGNORING THE FACT THAT A CLEAR RELATION EXISTED BETWEEN THE ASSESSEE COMPANY AND THE FIRM, AS A DIRECTOR OF THE ASSESSEE COMPANY WAS ALSO A PARTNER IN THE FIRM CON CERNED? III WHETHER ON THE FACT AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) WAS RIGHT IN DELETING THE DISALLOWANCE U/S 36(1)(II I) OF THE ACT ON ACCOUNT OF ADVANCES MADE TO /DEBIT BALANCES OF M/S HERO EXPORT S AND M/S HERO MOTORS LTD. ON THE GROUND OF SUFFICIENT OWN FUNDS WHILE IGNORIN G THAT THE ASSESSEE HAS HUGE BORROWINGS ON WHICH INTEREST EXPENSES WERE CLAIMED? IV WHETHER ON THE FACT AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) WAS RIGHT IN DELETING THE DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT ON ACCOUNT OF CAPITAL WORK IN PROGRESS ON THE GROUND O F SUFFICIENT OWN FUNDS WHILE IGNORING THAT THE ASSESSEE HAS HUGE BORROWINGS ON W HICH INTEREST EXPENSES WERE CLAIMED? V WHETHER ON THE FACT AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) WAS RIGHT IN DELETING THE DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT ON ACCOUNT OF SHARE APPLICATION MONEY ON THE GROUND OF SUFFICIENT OWN FUNDS WHILE IGNORING THAT THE ASSESSEE HAS HUGE BORROWINGS ON W HICH INTEREST EXPENSES WERE CLAIMED? VI WHETHER ON THE FACT AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) WAS RIGHT IN DELETING THE DISALLOWANCE OF CONSULTAN CY SERVICE EXPENSES WHILE IGNORING THAT THE ASSESSEE HAS NOT PROVED WITH EVID ENCE THE JUSTIFICATION ABOUT THE CONSULTANCY SERVICES AVAILED AND THAT THE SAID PAYMENT WAS WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES? 3. VIDE GROUND NO. 1 THE GRIEVANCE OF THE DEPARTMEN T RELATES TO THE DELETION OF DISALLOWANCE OF RS. 1,95,20,496/- MADE BY THE A.O. BY INVOKING THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 19 61(HEREINAFTER REFERRED TO AS ACT). 4. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 30/09/2011 DECLARING AN INCOME OF RS. 211,15,82,624 /- WHICH WAS PROCESSED AT THE SAME INCOME UNDER SECTION 143(1) OF THE ACT ON 19/03/2013. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE EARNED DIVIDE ND INCOME OF RS. 3 5,13,80,744/-AND LTCG OF RS. 11,57,78,984/- WHICH W ERE CLAIMED EXEMPT UNDER SECTION 10(38) OF THE ACT AND THAT THE ASSESSEE HAD INVESTMENT OF RS. 385,29,95,217/- AND RS. 596,97,35,636/- AS ON 31/03 /2010 AND 31/03/2011 RESPECTIVELY, WHICH WAS NOT INCLUDIBLE IN TOTAL INC OME. THE A.O. ALSO OBSERVED THAT THE ASSESSEE CLAIMED INTEREST EXPENDITURE OF R S. 16,22,73,963/- DURING THE YEAR UNDER CONSIDERATION. HE ASKED THE ASSESSEE TO EXPLAIN AND SUBMIT THE DETAILS OF EXPENDITURE RELATING TO THE EARNING OF T AX FREE INCOME. THE ASSESSEE FURNISHED THE REPLY WHICH HAS BEEN REPRODUCED BY TH E A.O. AT PAGE NO. 2 TO 6 OF THE ASSESSMENT ORDER DT. 31/01/2014 FOR THE COST OF REPETITION THE SAME IS NOT REPRODUCED HEREIN. THE A.O. AFTER CONSIDERING THE S UBMISSION OF THE ASSESSEE INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT RE AD WITH RULE 8D OF THE INCOME TAX RULES 1962. THE A.O. WORKED OUT THE DISALLOWANC E UNDER SECTION 14A OF THE ACT AT RS. 3,27,74,176/-, THE CALCULATIONS ARE GIVE N AT PAGE NO. 15 & 16 OF THE AFORESAID ASSESSMENT ORDER. SUBSEQUENTLY THE A.O. R ECTIFIED THE SAID ORDER AND WORKED OUT THE DISALLOWANCE OF RS. 1,95,20,496/- VI DE ORDER DT. 14/02/2017 PASSED UNDER SECTION 154 OF THE ACT. 5. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND FURNISHED THE WRITTEN SUBMISSION WHICH HAVE BEEN RE PRODUCED BY THE LD. CIT(A) AT PAGE NO. 7 TO 56 OF THE IMPUGNED ORDER. THE SAID SUBMISSIONS OF THE ASSESSEE WERE FORWARDED TO THE A.O. FOR HIS COMMENTS. THE A. O. FURNISHED THE REPORT DT. 06/02/2015 WHICH HAD BEEN REPRODUCED BY THE LD. CI T(A) IN PARA 5.2 AT PAGE NO. 57 TO 64 OF THE IMPUGNED ORDER THE SAID REPORT OF THE A.O. WAS FORWARDED TO THE ASSESSEE WHO FURNISHED THE COUNTER COMMENTS WHI CH HAD BEEN REPRODUCED BY THE LD. CIT(A) IN PARA 5.3 OF THE IMPUGNED ORDER , FOR THE COST OF REPETITION THE AFORESAID SUBMISSIONS AND COMMENTS ARE NOT REPRODUC ED HEREIN. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND REMAND REPORT OF THE A.O. DELETED THE DISALLOWANCE MADE BY THE A.O. BY OBSERV ING IN PARA 5.4 OF THE IMPUGNED ORDER AS UNDER: 4 5.4 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSES SING OFFICER AS MADE BY HIM IN PARA 3 OF THE ASSESSMENT ORDER WHILE MAKING THE IMP UGNED ADDITION. I HAVE ALSO CONSIDERED WRITTEN SUBMISSIONS FILED BY THE ASSESSE E COMPANY THROUGH ITS LEARNED AR VIDE LETTERS DATED 25.07.2014, 18.08.2014, 21.10 .2014, 16.01.2015, 19.05.2016 AND 02.08.2017 ON THE ISSUE UNDER REFERENCE. I HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LEARNED AR OF THE ASSESSEE COMPANY INCLUDING THE ORDERS OF THE HONOURABLE ITAT, CHANDI GARH IN THE CASE OF ASSESSEE COMPANY ITSELF FOR A.YS. 2008-09, 2009-10 AND 2010- 11 AS WELL AS OTHER MATERIAL PLACED BY HIM ON RECORD. ON CAREFUL CONSIDERATION OF THE RIVAL CONTENTIONS, IT HAS BEEN NOTICED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED IN FAVOR OF THE ASSESSEE COMPANY BY THE ORDERS OF THE HONOURABL E ITAT, CHANDIGARH IN ITA NO. 192/CHD./2013 FOR THE A.Y. 2008-09 DATED 29.10. 2015, ITA NO. 314/CHD./2013 FOR THE A.Y. 2009-10 DATED 16.02.2016 AND ITA NOS. 720 & 758/CHD./2014 FOR THE A.Y. 2010-11 DATED 03.04.2017 IN THE CASE OF THE AS SESSEE COMPANY ITSELF AS THE IDENTICAL ADDITION MADE BY THE ASSESSING OFFICER IN A.YS. 2008-09, 2009-10 & 2010- 11 WAS DELETED BY THE HONORABLE JURISDICTIONAL ITAT . AS THE FACTS OF THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION A S FAR AS THE ADDITION UNDER CONSIDERATION IS CONCERNED ARE IDENTICAL TO THE FAC TS OF THE CASE OF THE ASSESSEE COMPANY FOR THE A.YS. 2008-09, 2009-10 & 2010-11 AN D THERE IS NO MATERIAL DIFFERENCE IN THE FACTS, THE RATIO OF THE DECISIONS OF HONORABLE ITAT, CHANDIGARH FOR THE A.YS. 2008-09, 2009-10 & 2010-11 IS SQUAREL Y APPLICABLE TO THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION. SO RESPECTFULLY FOLLOWING THE ORDERS OF THE HONOURABLE ITAT, CHANDIGARH IN THE CA SE OF THE ASSESSEE COMPANY ITSELF FOR THE A.YS. 2008-09, 2009-10 AND 2010-11 ( SUPRA), THE ADDITION OF RS.3,27,74,176/- [WHICH WAS SUBSEQUENTLY REDUCED BY THE ASSESSING OFFICER TO RS. 1,95,20,496/- {RS.3,27,74,176/- (-) RS. 1,32,53,680 /-} VIDE ORDER UNDER SECTION 154 OF THE ACT DATED 14.02.2017] MADE BY THE ASSESSING OFFI CER IN THIS CASE ON ACCOUNT OF DISALLOWANCE OF EXPENSES BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT ON THE GROUND THAT THE ASSESSEE COMPANY HAD MADE INVES TMENT IN SHARES/MUTUAL FUNDS, THE INCOME FROM WHICH IN THE FORM OF DIVIDEN D OR LONG TERM CAPITAL GAINS IS EXEMPT FROM TAX UNDER SECTION 10(38) OF THE ACT IS DIRECTED TO BE DELETED ON THE BASIS OF SAME REASONING AND LOGIC AS ADOPTED BY THE HONOURABLE ITAT, CHANDIGARH IN THE CASE OF THE ASSESSEE COMPANY ITSE LF FOR THE A.YS. 2008-09, 2009- 10 AND 2010-11 WHILE DELETING THE IDENTICAL ADDITIO N IN THESE YEARS. IN THE RESULT, THE GROUNDS NO. 1, 2 AND 2(B) TO 2(1) TAKEN BY THE ASSESSEE COMPANY ARE ALLOWED. 6. NOW THE DEPARTMENT IS IN APPEAL. 7. THE LD. CIT DR REITERATED THE OBSERVATIONS MADE BY THE A.O. AND SUPPORTED THE ASSESSMENT ORDER. 8. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE VIDE EARLIER ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 TO 2010-11 COPY OF WHICH IS PLACED AT PAGE NO. 122 TO 131, 3 TO 22 AND 23 TO 60 RESPECTIVELY OF THE 5 PAPER BOOK. HE ACCORDINGLY SUBMITTED THAT THE LD. C IT(A) RIGHTLY DELETED THE DISALLOWANCE MADE BY THE A.O. BY FOLLOWING THE EARL IER ORDERS OF THE ITAT IN ASSESSEES OWN CASE, THEREFORE THERE IS NO MERIT IN THE APPEAL OF THE DEPARTMENT. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CA SE IT IS NOTICED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE ITAT IN ASS ESSEES FAVOUR IN THE EARLIER AYS 2008-09 TO 2010-11. WE DEEM IT APPROPRIATE TO R EPRODUCE THE FINDINGS OF THE ITAT IN ITA NO. 192/CHD/2013 FOR THE A.Y. 2008-09 W HEREIN VIDE ORDER DT. 29/10/2015 GIVEN AT PARA 9 TO 10 WHICH READ AS UNDE R: 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERE D THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE BALANCE SHEET AND OTHER DOC UMENTS F I LED IN THE PAPER BOOK, WE SEE THAT THE TOTAL INVESTMENT IN SHARES AN D MUTUAL FUNDS AS ON 31.3.2007 WAS OF RS.3,83,82,47,226/- WHILE THE INVESTMENT AS ON 31.3.2008 IS OF RS.4,64,37,73,922. THEREFORE, THERE WAS AN INCREASE OF AROUND RS.80 CRORES IN THE INVESTMENT DURING THE YEAR . WHILE RESERVES AND OWN FUNDS OF THE ASSESSEE COMPANY AS ON 31.3.2008 ARE AMOUNTING TO RS.6,24,18 ,74,854/- . FROM THESE FIGURES, IT IS QUITE CLEAR THAT OWN FUNDS AND RESER VES OF THE ASSESSEE ARE MORE THAN SUFFICIENT TO COVER THE INVESTMENT MADE DURING THE YEAR. IN SUCH A SCENARIO, IT CAN BE VERY CONVENIENTLY PRESUMED THAT ALL THE INVESTME NT HAVE BEEN MADE OUT OF OWN FUNDS. FOR THIS PURPOSE, RELIANCE IS PLACED ON THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF BRIGHT ENT ERPR ISES PVT . LTD. VS. CIT IN ITA NO.624 OF 2013 (O&M) DATED 24.7.2015, WHEREBY IT HAS BEEN HELD AS UNDER : 16. AS WE NOTED EAR L IER , THE FUNDS/RESERVES OF THE APPELLANT WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE BY IT OF RS.1 0.29 CRORES TO ITS SISTER COMPANY. WE ARE ENTIRELY IN AGREEMENT WITH THE JUDG MENT OF THE BOMBAY HIGH COURT IN COMMISSIONER OF INCOME TAX VS. RELIANCE UT ILITIES & POWER LTD., (2009) 313 ITR 340, PARA-10, THAT IF THERE ARE INTEREST FREE F UNDS AVAILABLE A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF THE INT EREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUN DS WERE SUFFICIENT TO MEET THE INVESTMENT. 9. THEREFORE, IN SUCH CIRCUMSTANCES, NO DISALLOWANC E UNDER SECT ION 14A OF THE ACT ON ACCOUNT OF INTEREST CAN BE MADE. THOUGH THE LEARNED COUNSEL FOR THE ASSESSEE HAS MADE ALTERNATIVE SUBMISSIONS ON THE CO MPUTATION MADE BY THE ASSESSING OFFICER UNDER RULE 8D OF THE INCOME TAX RU LES, IN VIEW OF OUR FINDING THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST UNDER SECT I ON 14A AN BE MADE, WE DO NOT FIND ANY NEED TO ADJUDICATE THESE ISSUES. 6 10. AS REGARDS ADMINISTRATIVE EXPENSES, IT IS A FAC T ON RECORD THAT THE ASSESSEE HIMSELF HAD DISALLOWED AN AMOUNT OF RS.2,73,13,827/ - ON ACCOUNT OF EXPENSES INCUR RED FOR EARNING TAX FREE INCOME AND THE ASSES SING OFFICER HAS NOWHERE RECORDED A FINDING AS TO WHY THE DISALLOWANCE SO MA DE BY THE ASSESSEE IS NOT CORRECT. RELIANCE IS PLACED ON THE JUDGMENT OF THE HON'BLE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. DEEPAK MITTAL (2014) 361 ITR 131 TO THE EFF ECT THAT IN THE ABSENCE OF ANY SATISFACTION RECORDED BY THE ASSESSING OFFICER AS TO WHY THE CALCULATION MADE BY THE ASSESSEE IS NOT CORRECT , THE DISALLOWANCE MADE BY HIM ON ACCOUNT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D OF THE INCOME TAX RULES IS NOT AS PER LAW. IN VIEW OF THE ABOVE DISALLOWANCE MADE BY THE ASSES SING OFFICER UNDER SECT ION 14 OF THE ACT READ RULE 8D OF THE INCOME TAX RULES IS DELETED. THE AFORESAID ORDER HAS BEEN FOLLOWED BY THE ITAT I N THE ASSESSMENT YEARS I.E 2009-10 AND 2010-11, WE, THEREFORE DO NO T SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) WHO R IGHTLY DELETED THE DISALLOWANCE MADE BY THE A.O. BY FOLLOWING THE EARLIER ORDERS OF THE ITAT IN ASSESSEES OWN CASE FOR THE A.YS 2008-09 TO 2010-11. 10. VIDE GROUND NO. 2 THE GRIEVANCE OF THE DEPARTME NT RELATES TO THE DELETION OF DISALLOWANCE OF RS. 81540683/- MADE BY THE A.O. ON ACCOUNT OF EXCESSIVE COMMISSION. 11. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE PA ID THE COMMISSION OF RS. 105038419/- TO SOLE SELLING AGENTS. THE A.O. ASKED THE ASSESSEE TO REPLY ON THE FOLLOWING ISSUE: 'A) COMMISSION PAID TO M/S. MUNJAL SALES CORPORATIO N (MSC). (I) TERM ON WHICH COMMISSION IS PAID. (II) PLEASE JUSTIFY THE SERVICES RENDERED BY MSC TO M/S. HERO CYCLES LTD. (III) PLEASE PROVIDE THE QUALIFICATION OF THE EMPLO YEES OF MSC & THEIR NATURE OF JOB. (IV) THERE IS A HEAVY PAYMENT OF SALARIES TO THE DI RECTORS. THEREFORE, WHY NOT THE COMMISSION BEING PAID BE CON SIDERED EXCESSIVE? (V) WHAT IS THE SUBSTANTIAL INTEREST OF THE ASSESSE E IN MUNJAL SALES CORPORATION.' 11.1 IN RESPONSE THE ASSESSEE SUBMITTED AS UNDER: 7 I) THE ASSESSEE COMPANY HAS PAID THE COMMISSION TO M/S. MU NJAL SALES CORPORATION @1% ON THE TOTAL TURNOVER OF CYCLES AND CYCLE PARTS IN INDIA OTHER THAN THE DIRECT TURNOVER, TURNOVER FOR EXPORTS AND TURNOVER TO THE GOVERNMENT DEPARTMENTS. IN THIS REGARD IT IS SUBMITTED AS UNDE R:- THIS FIRM IS ACTING AS A SOLE SELLING AGENT OF ASSE SSEE COMPANY ON THE TERMS AND CONDITIONS DULY APPROVED BY THE COMPANY L AW BOARD, MINISTRY OF CORPORATE AFFAIRS FROM TIME TO TIME U/S 294AA OF THE COMPANIES ACT. THE RATE OF COMMISSION OF 1% ON THE SPECIFIED TURNO VER IS CONTINUING SINCE LAST MANY YEARS .......... THERE IS NO CHANGE IN ANY OF THE TERM & CONDITIONS OF THE COMMISSION PAID TO M/S. MUNJAL SALES CORPORATION IN THIS YEAR AS CO MPARED TO EARLIER YEARS. THE TERMS & CONDITIONS ARE CONSISTENT ............. ALSO NO CHANGE IN ANY OF THE TERMS OF THE PROPOSED AGREEMENT AS WAS FILED BEFORE THE MINISTRY OF CORPORATE AFFAIRS WAS RECOMM ENDED WHICH WAS DULY APPROVED, AFTER THEIR SATISFACTION ABOUT THE PERCEN TAGE OF COMMISSION TO BE PAID TO M/S. MUNJAL SALES CORPORATION. THERE IS NO CHANGE IN THE RATE OF COMMISSION PAID T O M/S. MUNJAL SALES CORPORATION. THE QUANTUM OF COMMISSION DEPENDS UPON THE VOLUME OF THE TURNOVER. II) REGARDING JUSTIFICATION OF SERVICES RENDER BY M /S. MUNJAL SALES CORPORATION IT IS SUBMITTED THAT THIS FIRM IS ACTIN G AS A SOLE SELLING AGENT OF ASSESSEE COMPANY IN RESPECT OF BI-CYCLES PRODUCTS S INCE 1962. M/S. MUNJAL SALES CORPORATION HAD ALSO ACTED AS A SOLE S ELLING AGENT FOR BI- CYCLES PRODUCTS OF OTHER COMPANIES I.E. M/S. HIGHWA Y CYCLE INDUSTRIES LTD, M/S. ROCKMAN CYCLE INDUSTRIES LTD AND M/S. MAJESTIC AUTO LTD. THESE COMPANIES HAD DISCONTINUED THEIR CYCLE PRODUCTS; TH EREFORE NO COMMISSION IS BEING PAID TO M/S. MUNJAL SALES CORPORATION .... ....................... III) A STATEMENT INDICATING THE NAME & QUALIFIC ATION OF EMPLOYEES OF M/S. MUNJAL SALES CORPORATION, AS DESIRED, IS ENCLOSED. ALL THE EMPLOYEES OF M/S. MUNJAL SALES CORPORATION ARE EXPERIENCED EMPLOYEES HAVING COMPLETE KNOWLEDGE ABOUT MARKETING & DEALERS OF CYCLE TRADE. WE WOULD LIKE TO POINT OUT THAT WHILE MOST O F THE EMPLOYEES ARE WELL EDUCATED I.E. GRADUATE/POST GRADUATE AND MBAS, IT I S THE NOT THE EDUCATION LEVEL OF THE EXECUTIVES BUT THEIR RELATIO NSHIP WITH THE DEALERS WHICH MATTERS IN THE CYCLE TRADE AND MOST OF THE EM PLOYEES OF SOLE SELLING AGENTS ARE WITH THE FIRM SINCE DECADES HAVING GOODW ILL WITH THE DEALERS, WHICH IS APPARENT FROM THE INCREASE OF TOTAL TURNOV ER OF CYCLES AND CYCLE PARTS OF THE COMPANY AS COMPARED TO EARLIER YEARS . ........ IV) THE REMUNERATION PAID TO THE DIRECTORS OF THE C OMPANY IS IN RESPECT OF MANY FOLDS OF WORKING OF THE COMPANY OF WHICH ONE OF THE M IS SALES. THE TOTAL TURNOVER OF THE COMPANY FOR THE YEAR UNDER CONSIDERATION IS RS. 2065 CRORES AS COMPARED TO 1729 CRORES OF LAST YEARS. THE TOTAL STRENGTH OF THE EMPLOYEES IS MORE THAN 4000 APPROXIMATELY AND HAVING A NETWORK OF ABOUT 3000 CY CLE & OTHER DEALERS & MORE THAN 1000 VENDORS. IT IS HUMBLY SUBMITTED THAT IT IS NOT PRACTICALLY P OSSIBLE FOR DIRECTORS TO MANAGE ALL THE BUSINESS PROCESSES IN THE PRESENT BU SINESS ENVIRONMENT. IT IS A DELEGATED RESPONSIBILITY. THE DIRECTORS / TOP MANAGEMENT ARE BASICALLY 8 FOR ADMINISTRATIVE WORK AND DECISIONS. MOREOVER THE ORDERS BOOKING AT THE DEALER'S LEVEL CANNOT BE MICRO MANAGED; AT BEST IT CAN BE MANAGED BY A TEAM OF MOTIVATED TOURING STAFF. V) THE ASSESSEE COMPANY ITSELF DOES NOT HAVE ANY IN TEREST IN M/S. MUNJAL SALES CORPORATION AS PER PROVISIONS OF INCOME TAX ACT. SO ME OF THE DIRECTORS ARE PARTNERS IN M/S. MUNJAL SALES CORPORATION. PARTNERS OF MSC ARE HOLDING SHARES IN ASSESSEE COMPANY AS UNDER. THE SHAREHOLDERS / DIREC TORS OF M/S. HERO CYCLES LTD ARE REGULAR & SEPARATE INCOME TAX ASSESSEES AND PAY ING TAXES AT MAXIMUM RATE.' 11.2 THE A.O. WAS NOT SATISFIED FROM THE AFORESAID REPLY OF THE ASSESSEE, HE AGAIN ASKED THE ASSESSEE TO FURNISH THE DETAILS VID E LETTER DT. 09/01/2014 WHICH READ AS UNDER: 'TO THE MANAGING DIRECTOR, M/S. HERO CYCLES LTD., HERO NAGAR, G.T. ROAD, LUDHIANA. SIR, ************** KINDLY REFER TO THE ABOVE. 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE A.Y, 2011-12 UNDER THE I.T. ACT 1961, IT IS SEEN THAT M/S. HERO CYCLES LTD.: (HCL) : HAS PAID COMMISSION AMOUNTS TO RS. 11,58,57,377/- TO SOLE SE LLING AGENTS DURING THE F.Y. 2010-11. TO EXAMINE THE SAME VIDE NOTE SHEET ENTRY DATED 24/10/2013 THE FOLLOWING QUERIES WERE RAISED:- A) COMMISSION PAID TO M/S. MUNJAL SALES CORPOR ATION (MSC) I) TERMS ON WHICH COMMISSION IS PAID. II) PLEASE JUSTIFY THE SERVICES RENDERED BY MSC TO M/S. HERO CYCLE LTD. III) PLEASE PROVIDE THE QUALIFICATION OF THE EM PLOYEES OF MSC & THEIR NATURE OF JOB. IV) THERE IS A HEAVY PAYMENT OF SALARIES TO THE DIR ECTORS. THEREFORE, WHY NOT THE COMMISSION BEING PAID BE CONSIDERED EXCESSIVE. V) WHAT IS THE SUBSTANTIAL INTEREST OF THE ASSESSEE IN M/S. MUNJAL SALES CORPORATION. 11.3 THE A.O. ALSO ASKED THE ASSESSEE TO SUBMIT THE REPLY TO THE FOLLOWING QUERIES: 9 A) FROM THE SELLING EXPENSES AS PER ANNEXURE XVII OF T HE ANNUAL REPORT 2009-10, IT IS SEEN THAT HCL HAS PAID SALES PROMOTI ON OF RS. 11,22,55,232/- AND ADVERTISEMENT & PUBLICITY OFRS. 36,68,85,360/-. IN VIEW OF THE SAME PLEASE JUSTIFY THE PAYMENT OF COMMISSION TO M/S. MU NJAL SALES CORPORATION, WHEN SELLING EXPENSES ARE BEING INCURR ED BY HCL. B) COMMISSION PAID BY THE ASSESSEE TO M/S. MUNJAL SALE S CORPORATION APPEAR TO BE DISPROPORTIONATE TO THE EXPENSES APPEA RING IN THE P & L ACCOUNT OF M/S. MUNJAL SALES CORPORATION. HENCE, IT APPEAR THAT ASSESSEE IS PAYING DISPROPORTIONATELY HUGE COMMISSI ON TO MSC. PLEASE JUSTIFY. C) FROM THE COPY OF AGREEMENT AS SUBMITTED ON PAGES 41 3-414, IT IS SEEN THAT ON 25.04.2007, AGREEMENT OF 26.06.2002 WAS REV IEWED. PLEASE PROVIDE THE DETAILED WORKING ON THE BASIS OF WHICH THE AGREEMENT WAS REVIEWED? FURTHER THE AGREEMENT WAS TO BE REVIEWED IN 2012, WAS IT REVIEWED? THE WORKING DETAILS OF SAME TO BE SUBMITT ED. D) THE PAYMENTS OF COMMISSION BY ASSESSES TO MSC APPEA R TO BE DIVERSION OF PROFITS TO THE FAMILY CONCERNS. IN VIE W OF THE NOTING ON PREVIOUS NOTE SHEETS PLEASE JUSTIFY AS TO WHY THE S AID EXPENSES OF COMMISSION BE ALLOWED TO M/S. HERO CYCLES LTD. 11.4 IN RESPONSE THE ASSESSEE SUBMITTED AS UNDER: 'WITH REFERENCE TO YOUR HONOUR'S QUERIES RAISED VID E LETTER DATED 09.01.2014 PERTAINING TO REPLY SUBMITTED ON 21.11.2013 IT IS S UBMITTED AS UNDER:- QUERY (A)- PAYMENT OF COMMISSION TO M/S MUNJAL SALE S CORPORATION, WHEN SELLING EXPENSES ARE BEING INCURRED BY HCL 1. THE SELLING EXPENSES INCURRED BY THE COMPANY AND COMMISSION PAID TO MSC HAS ALTOGETHER DIFFERENT PURPOSE. THE SELLING EXPEN SES MAINLY COMPRISES OF ADVERTISEMENT AND PUBLICITY, SALES PROMOTION, PACKI NG MATERIAL AND TRADE DISCOUNTS IN ADDITION TO THE COMMISSION PAID TO THE SSA. THE PURPOSE OF ADVERTISEMENT AND PUBLICITY IS AS UN DER: - BRAND BUILDING - CREATING AWARENESS ABOUT NEW LAUNCHES - CREATING AWARENESS ABOUT THE PRODUCT RANGE OF THE C OMPANY - ACTIVITIES OF THE COMPANY TO BOOST THE TRADE THE EXPENSES ON SALES PROMOTION ARE DONE: TO BOOST THE OTHERWISE SLUGGISH MARKET, - TO ARRANGE DEALER CONFERENCE TO MAKE THEM AWARE THE LINE OF COMPANY ACTIVITIES - TO ARREST THE DECLINING TREND OF SALES IN LEAN PERI OD - TO COUNTER THE COMPETITORS STRATEGIES 10 QUERY (B)-COMMISSION PAID TO M/S MUNJAL SALES CORPO RATION APPEAR TO BE DISPROPORTIONATE TO EXPENSES APPEARING IN THE P&L A CCOUNT OF FIRM. IT IS FELT THAT ORIGIN OF THIS QUERY LIES MERELY IN THE FACT THAT BOTH THE ASSESSEES ARE RELATED CONCERNS. IN CASE IT WOULD NO T HAVE BEEN THERE QUERY ITSELF WOULD LOST MUCH OF ITS SHEEN IT IS A COMMERC IAL TRANSACTIONS WHICH IS BASED ON WIN - WIN SITUATION WHEREBY BOTH THE PARTI ES MAKE THEIR BUCK WITHOUT CONSIDERING WHO IS WHAT ................... ...... QUERY (C)-DETAILED WORKING ON THE BASIS ON WHICH TH E AGREEMENT DATED 26.6.2002 REVIEWED. FURTHER THE AGREEMENT WAS TO BE REVIEWED IN 2012, WAS IT REVIEWED? WORKING DETAILS OF SAME IS TO BE SUBMITTED. MSC IS WORKING AS THE SSA OF THE COMPANY FOR MORE T HAN FIVE DECADES. THE BOTH CONCERNS ARE HAND TO GLOVE WITHOUT ANY DISPUTE DURI NG THIS PERIOD. ABOVE ALL THE CUSTOMER ALSO VALUE THE RELATIONSHIP AND COMMITMENT OF BOTH THE CONCERNS WHICH VERY IMPORTANT IN THE EXISTING BUSINESS SCENA RIO. THE TERMS AND CONDITIONS OF APPOINTMENT ARE THE OVER THE YEARS WITHOUT MUCH CHA NGE AND RENEWAL WAS DONE ON JUST AND FAIR BASIS. QUERY (D) -PAYMENT OF COMMISSION TO M/S MUNJAL SALE S CORPORATION APPEARS TO BE DIVERSION OF PROFITS TO THE FAMILY CONCERNS. IT IS WRONG TO ALLEGE THAT THERE IS DIVERSION OF PR OFIT WHEN THERE IS NO MOTIVE BEHIND IT. GENERALLY THESE TYPES OF PRACTICES ARE RESORTED TO WHEN ANY OF THE CONCERN GENERATE PROFITS AT THE LOSS OF REVENUE. IN FACT TH E ASSESSEE END UP IN PAYING HIGHER TAXES BASED ON THE FOLLOWING GROUNDS: - TAX RATE APPLICABLE TO ASSESSEE IS 30% - TAX RATE APPLICABLE TO MSC IS 30% SERVICE TAX ON CO MMISSION IS 10.30% THERE IS NO CHANGE IN THE RATE OF COMMISSION PAID T O M/S. MUNJAL SALES CORPORATION. THE QUANTUM OF COMMISSION DEPENDS UPON THE VOLUME OF THE TURNOVER.. 11.5 THE A.O. WAS ALSO NOT SATISFIED FROM THE AFORE SAID REPLY OF THE ASSESSEE, HE AGAIN ASKED THE ASSESSEE TO FURNISH THE JUSTIFICATI ON OF THE COMMISSION EXPENSES. THE ASSESSEE VIDE REPLY DT. 23/01/2004 SUBMITTED AS UNDER: WITH REFERENCE TO YOUR HONOUR'S LETTER DATED 17.1 .2014 REGARDING COMMISSION PAID TO M/S. MUNJAL SALES CORPORATION, IT IS SUBMIT TED AS UNDER: - 1. THE RATE OF COMMISSION OF 1% ON THE SPECIFIED TU RNOVER IS CONTINUING SINCE LAST MANY YEARS & IT HAD ALWAYS BEEN ACCEPTED WHILE FRAMING THE ASSESSMENT OF M/S. HERO CYCLES LTD FRAMED U/S 1 43(3) AND ALSO IN THE CASE OF M/S. MUNJAL SALES CORPORATION WHICH IS BEING ASSESSED WITH DCTT, CIRCLE V LUDHIANA. THERE IS NO CHANGE IN THE RATE OF COMMISSION PAID T O M/S. MUNJAL SALES CORPORATION. THE QUANTUM OF COMMISSION DEPEND S UPON THE VOLUME OF THE TURNOVER ............................ ...... 11 2. AS ALREADY SUBMITTED THAT THE ASSESSEE COMPANY ENTE RED INTO AN AGREEMENT WITH M/S MUNJAL SALES CORPORATION TO BOOK ORDERS AND RENDERS A VARIETY OF SERVICES TO PROMOTE THE BUSINESS OF THE COMPANY AT MICRO LEVEL 3. MOST OF THE EMPLOYEES OF M/S. MUNJAL SALES CORPORAT ION ARE EXPERIENCED EMPLOYEES HAVING COMPLETE KNOWLEDGE ABOUT MARKETING & DEALERS OF CYCLE TRADE. WE WOULD LIKE TO POINT OUT THAT WHILE MOST O F THE EMPLOYEES ARE WELL EDUCATED .......................................... ..................................... 4. IT IS SUBMITTED THAT IT IS NOT PRACTICAL POSSIBLE F OR DIRECTORS TO MANAGE ALL THE BUSINESS PROCESSES IN THE PRESENT BUSINESS ENVIRONM ENT. IT IS A DELEGATED RESPONSIBILITY. THE DIRECTORS / TOP MANAGEMENT ARE BASICALLY FOR ADMINISTRATIVE WORK AND DECISIONS. MOREOVER THE ORDERS BOOKING AT THE DEALER'S LEVEL CANNOT BE MICRO MANAGED, AT BEST IT CAN BE MANAGED BY A TEAM OF MOTIVATED TOURING STAFF. AS ALREADY SUBMITTED, THAT THE ASSESSEE COMPANY ITS ELF DOES NOT HAVE ANY INTEREST IN M/S MUNJAL SALES CORPORATION. SOME OF T HE DIRECTORS ARE PARTNERS OF M/S. MUNJAL SALES CORPORATION. ALL THE PARTNERS OF M/S. MUNJAL SALES CORPORATION ARE REGULAR INCOME TAX ASSESSEE. EVEN THE SHAREHOLDERS / DIRECTORS OF M/S. HERO CYCLES LTD ARE ALSO REGULAR & SEPARATE INCOME TAX ASSESSEE . AS PER HISTORY OF THIS CASE AS ALREADY EXPLAINED THE COMMISSION PAID IS REASONABLE AND FOR LEGITIMATE BUSINESS NEEDS OF THE COMPANY. . 5. AS ALREADY SUBMITTED, THAT THE ASSESSEE COMPANY ITS ELF DOES NOT HAVE ANY INTEREST IN M/S MUNJAL SALES CORPORATION. SOME OF T HE DIRECTORS ARE PARTNERS OF M/S. MUNJAL SALES CORPORATION. ALL THE PARTNERS OF M/S. MUNJAL SALES CORPORATION ARE REGULAR INCOME TAX ASSESSEE. EVEN THE SHAREHOLDERS / DIRECTORS OF M/S. HERO CYCLES LTD ARE ALSO REGULAR & SEPARATE INCOME TAX ASSESSEE . EVEN OTHERWISE THERE IS NO LOSS TO REVENUE AS THE MSC IS TAXABLE AT SAME RATE. THE COMPANY HAS ALSO ADDITIONALLY PAID SERVICE TAX ON THE AMOUNT OF COMM ISSION @ 10.3% WHICH COMES TO RS. 10818958/-. THEREFORE OTHERWISE ALSO IN NO W AY THE COMPANY OR MSC OR DIRECTORS/PARTNERS HAVE BEEN BENEFITTED BY PAYMENT OF LOW TAXES DUE TO THEIR RELATION WITH THE FIRM MSC. 6. AS EXPLAINED EARLIER AND ALSO OBSERVED BY YOUR HONO UR IN THE LETTER, THE ASSESSEE COMPANY HAD INCURRED THE EXPENDITURE ON AD VERTISEMENT, SALES PROMOTION ETC, TO BUILT UP ITS BRAND TO MAKE THE PE OPLE AWARE OF VARIOUS SALE PROMOTIONS SCHEMES, TO CREATE A AWARENESS ABOUT THE VARIOUS MODELS LAUNCHED BY THE COMPANY FROM TIME TO TIME AND ITS LATEST PRO DUCTS RANGE, TO GIVE A COMPETITION TO OTHER MANUFACTURERS & ALSO TO REMAIN IN THE MARKET. BY BUILDING UP THE BRAND, THE SALE OF PRODUCTS WHICH IS BEING DEAL T BY THE ASSESSEE COMPANY, BY ITSELF, WILL NOT TAKE PLACE UNLESS THERE IS PROP ER CONTACT WITH DEALERS AND THEIR PROBLEMS ARE SOLVED TIME TO TIME AND TO PUSH THEM T O PLACE ORDERS OF BICYCLES WITH THE EMPLOYEES OF SOLE SELLING AGENT. FROM FACTS ALREADY STATED IT IS SUBMITTED THAT EXPE NSES ON ADVERTISEMENT ETC. ARE TOTALLY DIFFERENT IN NATURE WHICH SERVES THE PURPOS ES AT MACRO LEVEL TO CREATE AWARENESS FOR RETAIL CUSTOMERS/PUBLIC AT LARGE AND SOLE SELLING AGENT WORKS AT MICRO LEVEL TO MONITOR DEALERS AND MARKETS. 12 7. THE SERVICES BEING RENDERED BY M/S. MUNJAL SALES CO RPORATION TO M/S. HERO CYCLES LTD IS AS PER AGREEMENT AND SUBMISSIONS MADE BY THE MINISTRY OF CORPORATE AFFAIRS WHICH HAS BEEN ALREADY APPROVED. THE BOARD OF DIRECTORS HAS APPROVED THE RATE OF C OMMISSION AS PER PAST WITHOUT GIVING ANY FURTHER INCREASE. IT IS DIFFICULT TO FORECAST THE TURNOVER OF THE COMPANY FOR THE NEXT FIVE YEARS PAR TICULARLY WHEN THERE IS A KEEN COMPETITION AND MANY NEW MODELS WERE INTRODUCED WIT H CHINESE ORIGIN WITH MUCH LESS RATES. COMMISSION OF ONE PERCENT IS AS PER PAST WORKING AN D BASED ON EARLIER APPROVED AGREEMENT KEEPING IN VIEW THE COMM ERCIAL EXPEDIENCY & THE MARKET TREND ..................... ...... 9. THE EXPENSES HAS BEEN INCURRED BY THE ASSESSEE I N ITS CHARACTER AS A TRADER WHOLLY & EXCLUSIVELY FOR THE PURPOSE OF BU SINESS. THE EVIDENCE OF WORKING BY EMPLOYEES OF M/S. MUNJAL SAL ES CORPORATION ACTING AS SOLE SELLING AGENT HAVE ALREADY BEEN PLAC ED ON RECORD WITH YOUR HONOUR. IT IS WRONG TO ALLEGE THAT THERE IS DI VERSION OF PROFIT WHEN THERE IS NO MOTIVE BEHIND IT ................. ' 11.6 IT WAS FURTHER SUBMITTED AS UNDER: 'DURING THE YEAR, THE ASSESSEE COMPANY HAD PAID COM MISSION TO M/S. MUNJAL SALES CORPORATION AT THE SAME RATE AS OF EARLIER YE ARS AT RS. 115857377/- WHICH INCLUDED AMOUNT OF SERVICE TAX AT RS. 10818958/-. . .. THERE IS NO CHANGE IN THE RATE OF COMMISSION PAID T O M/S. MUNJAL SALES CORPORATION. THE QUANTUM OF COMMISSION DEPENDS UPON THE VOLUME OF THE TURNOVER. THE RATE OF COMMISSION OF 1% ON THE SPECIFIED TURNO VER IS CONTINUING SINCE LAST MANY YEARS & IT HAD ALWAYS BEEN ACCEPTED WHILE FRAM ING THE ASSESSMENT OF M/S. HERO CYCLES LTD FRAMED U/S 143(3) AND ALSO IN THE C ASE OF M/S. MUNJAL SALES CORPORATION WHICH IS BEING ASSESSED WITHACIT, CIRCL E VLUDHIANA.... THE NATURE OF SERVICES RENDERED BY SOLE SELLING AGE NT CANNOT BE MEASURED IN TERMS OF MARKET VALUE WHICH IS NOT A COMMERCIAL IN NATURE.... IT SHOULD BE BORNE IN MIND THAT THERE IS NO EVASION OF TAX THROUGH SUCH SO CALLED DIVERSION OF PROFIT BY EXCESSIVE PAYMENT OF COMMISS ION TO ASSOCIATE CONCERN AS ASSESSEE HAS ALSO PAID ADDITIONAL SERVICE TAX ON CO MMISSION AND ALSO SUCH COMMISSION HAS BEEN TAXED IN HANDS OF M/S MUNJAL SA LES CORPORATION. THERE IS NO DIFFERENCE IN TAX RATE. THE PROVISIONS OF INCOME TA X SHOULD NOT BE APPLIED IN A MANNER WHICH MAY CAUSE HARDSHIP ON BONAFIDE CASES. 11.7 THE A.O. HOWEVER WAS NOT SATISFIED FROM THE SU BMISSION OF THE ASSESSEE AND MADE THE ADDITION OF RS. 8,15,40,683/- BY OBSER VING AS UNDER: 13 THE QUERY REGARDING THE JUSTIFICATION OR WORKING AS TO HOW THE FIGURE OF 1% OF COMMISSION PAID TO MSC BY THE ASSESSEE AS STILL NOT BEEN ANSWERED. THE ASSESSEE IN IT REPLY HAS NEARLY TAKEN THE PLEA THAT THE RATE OF COMMISSION OF 1% IS THE SAME AS OF THE EARLIER YEARS. THE ASSESSEE WERE ASKED TO SUBSTANTIATE THE SERVICE S OF THE EMPLOYEES WITH DETAILS WHICH WAS LEADING TO THE INCREASE IN SALES OF THE ASSESSEE COMPANY. THE ASSESSEE IN ITS REPLY HAS ONLY STATED THAT THE EMPL OYEES OF THE MSC KEEP ON VISITING THE DEALERS TO MAINTAINED THEIR RELATION I N CONNECTION WITH THE BUSINESS DEALINGS. THE ASSESSEE HAS NOT RESPONDED TO THE MAI N QUERY. ALSO REGARDING THE RATIONALE OF COMMISSION BEING PA ID TO THE MSC INSPITE OF PAYMENT OF HEAVY SALARIES TO THE DIRECTORS OF THE C OMPANY. THE REPLY OF THE ASSESSEE IS THAT IT IS NOT POSSIBLE FOR DIRECTORS T O MANAGE ALL THE BUSINESS PROCESSES IN THE PRESENT BUSINESS ENVIRONMENT. THE DIRECTORS/ TOP MANAGEMENT ARE BASICALLY FOR ADMINISTRATIVE WORK AND DECISIONS. MO REOVER THE ORDERS BOOKING AT THE DEALER'S LEVEL CANNOT BE MICRO MANAGED, AT BEST IT CAN BE MANAGED BY A TEAM OF MOTIVATED TOURING STAFF. THIS REPLY ALSO DO ES NOT ANSWER THE POINTED QUERY. REGARDING THE NEXT QUERY OF PAYMENT OF COMMISSION T O MSC WHEN MARKETING EXPENSES OF MORE THAN RS. 48 CRORES ARE BEING INCUR RED BY THE ASSESSEE, THE REPLY OF THE ASSESSEE DOES NOT JUSTIFY THE SAME BUT STATE S THAT THE ABOVE EXPENDITURE IS FOR BRAND BUILDING. REGARDING THE NEXT QUERY THAT THE PRIMARY SERVICES BEING RENDERED BY MSC COULD WELL HAVE BEEN DONE BY OTHER ENTITY AT FAR MORE COM PETITIVE RATES AS NO SPECIAL SERVICE OR CORE SKILL WAS BEING BROUGHT BY MSC, THE ASSESSEE HAS NOT REPLIED TO THE QUERY BUT HAS SUBMITTED THAT THE SERVICES BEING REN DERED BY M/S. MUNJAL SALES CORPORATION TO M/S. HERO CYCLES LTD. IS AS PER AGRE EMENT AND SUBMISSION MADE BY THE MINISTRY OF CORPORATE AFFAIRS WHICH HAS BEEN ALREADY APPROVED. THIS DOES NOT ANSWER THE QUESTION. REGARDING THE NEXT QUERY OF COMMISSION PAID TO M/S. MUNJAL SALES CORPORATION APPEARING TO BE DISPROPORTIONATE TO EXPENSES APPEAR ING IN THE P & L ACCOUNT OF FIRM. THE ASSESSEE MERELY REPEATS THAT THE SAID COM MISSION IS BEING PAID AS THE BOARD OF FACTORS HAS APPROVED THE RATE OF COMMISSIO N. THE REPLY NO WHERE CLARIFIES AS TO WHY COMMISSION EXPENSE ARE BEING PA ID FOR THE PAST 6 YEARS. COMMISSION OF RS. 10.50 CRORES HAS BEEN PAID TO MSC FOR F.Y. 2010-11 WHEN THE TOTAL EXPENSES OF THE MSC ARE ABOUT RS. 2 CRORES. REGARDING THE QUERY THAT THE PAYMENT OF COMMISSION TO M/S. MUNJAL SALES CORPORATION APPEARED TO BE DIVERSION OF PROFITS TO THE FAMILY CONCERNS, THE ASSESSEE HAS NOT DIRECTLY RESPONDED IN ITS LETTER B UT HAS STATED THAT THE EXPENSES HAS BEEN INCURRED BY LHE ASSESSEE IN ITS CHARACTER AS A TRADER WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THUS AS DI SCUSSED IN THIS PARA THE ASSESSEE HAS NOT BEEN ABLE TO SUITABLY JUSTIFY THE PAYMENT O F ABNORMALLY HIGH COMMISSION EXPENSES TO ITS GROUP CONCERN M/S. MUNJAL SALES COR PORATION. TO APPRECIATE THE ISSUE THE P & L ACCOUNT OF M/S. M UNJAL SALES CORPORATION FOR THE YEAR ENDED 31.03.2011 IS SUMMARIZED AS UNDER:- 14 PARTICULARS AMOUNT (RS.) PARTICULARS AMOUNT (RS.) SALARY EXPENSES, GENERAL ADMINISTRATIVE EXPENSES AND FINANCIAL EXPENSES 21055319 BY COMMISSION 105038419 BY INTEREST 16517005 BY DIVIDEND INCOME 65001575 BY RENT INCOME 17500 BY PROFIT ON SALE OF INV. AND FIXED ASSETS 1535054219 NET PROFIT 1702230476 BY AMOUNT WRITTEN BACK 1455446 THUS FROM THE ABOVE IT IS SEEN THAT THOUGH THE COMM ISSION INCOME BEING EARNED BY MSC IS RS. 10,50,38,419/-(NET OF SERVICE TAX) FR OM THE ASSESSEE AND MSC IS ALSO HAVING OTHER INCOME, THE TOTAL EXPENSES OF MSC STAN D AT RS. 2,10,55,319/-. FROM THE ABOVE PROFIT AND LOSS STATEMENT IT IS TO BE NOT ED THAT THE ASSESSEE HAS INCURRED HUGE PROFITS ON SALE OF INVESTMENTS AND FI XED ASSETS. THE EXPENSES INCURRED FOR THE SAME ARE ALSO INCLUDED IN THE TOTA L EXPENSES OF MSC. THUS THE ISSUE BEING RAISED AGAIN AND AGAIN REGARDI NG THE JUSTIFICATION OF COMMISSION EXPENSES BEING PAID BY THE ASSESSEE TO M SC LEADS CLEARLY TO THE CONCLUSION THAT THE COMMISSION EXPENSES ARE HIGHLY EXORBITANT AND UNJUSTIFIABLE . THEREFORE, THE CLAIM OF THE ASSESSEE THAT THE WHOLE OF SAID EXPENSES ARE TO BE ALLOWED IS REJECTED. THE ASSESSEE IN THE ANNEXURE X IX' TO THE TAX AUDIT REPORT STATES THAT THE NET PROFIT/TURNOVER OF THE ASSESSEE COMPANY IS 11.60%. ACCORDINGLY, THE APPROXIMATION OF THE JUSTIFIABLE A MOUNT OF EXPENSES TO BE PAID BY THE ASSESSEE COMPANY TO THE MSC ARE CALCULATED B Y PROVIDING A NET MARGIN OF 11.60% OVER THE EXPENSES OF RS. 2,10,55,319/- IN CURRED BY MSC WHICH COMES TO = 2,10,55,319/- X 111.6% = 2,34,97,736/-. THUS THE EXCESS AMOUNT OF COMMISSION PAID OF RS. 8,15,40,683/- (RS. 10,50,38,419/- - RS. 2,34,97,736/-) IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE AS BEING THE EXPENDITURE NOT WHOLLY AND EX CLUSIVELY FOR THE PURPOSES OF BUSINESS AND IS ADDED BACK TO THE TOTAL INCOME OF T HE ASSESSEE. 12 BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND FURNISHED THE WRITTEN SUBMISSIONS DT. 25/07/2014, 1 9/05/2016 AND 02/08/2017 WHICH HAD BEEN INCORPORATED BY THE LD. CIT(A) IN PA RA 6.1 AT PAGE NO. 67 TO 87 OF THE IMPUGNED ORDER, FOR THE COST OF REPETITION, THE SAME ARE NOT REPRODUCED HEREIN. THE LD. CIT(A) FORWARDED THE WRITTEN SUBMIS SIONS OF THE ASSESSEE TO THE A.O. FOR HIS REPORT. IN RESPONSE THE A.O. FURNISHE D THE REPORT VIDE LETTER DT. 06/02/2015 WHICH HAS BEEN REPRODUCED IN PARA 6.2 OF THE IMPUGNED ORDER FOR THE COST OF REPETITION, THE SAME IS NOT REPRODUCED HEREIN. 15 12.1 THE LD. CIT(A) ASKED THE COUNTER COMMENTS OF T HE ASSESSEE AGAINST THE REPORT OF THE A.O. IN RESPONSE THE ASSESSEE SUBMITT ED VIDED LETTER DT. 19/05/2016 AS UNDER: ISSUE -2 - DISALLOWANCE OF COMMISSION EXPENSE TO MUN JAL SALES CORPORATION - GR.NO.3 (REFER APPEAL NOTES PAGES 33 TO 46) THE AO HAS NOT CONTRADICTED ANY OF THE FACTS MENTION ED IN APPEAL NOTES AT PAGES 33 TO 46. THE A. O. HAS SIMPLY REPEATED THE ISSUE MENTIONED IN THE BODY OF ASSESSMENT ORDER. THE ISSUE IS COVERED BY THE DECISION OF YOUR HONOUR 'S PREDECESSOR IN A. Y. 2010-11. THE OBSERVATION OF THE AO IN HIS REMAND REPORT THAT THE M/S. MUNJAL SALES CORP. AND HERO CYCLES LTD. ARE NOT STRICTLY 'RELATED' AS PER PROVISIONS OF SECTION 40A(2), THEREFORE THE DECISION OF APEX COURT MAY NOT BE APP LIED. IF IT IS CONSIDERED SO, THEN THE DISALLOWANCE CANNOT BE MADE ON THE GROUND BEING 'EXCESSIVE EXPENDITURE' CLAIMED BY THE ASSESSEE COMPANY. REGAR DING ALLOW-ABILITY OF THE REASONABLE EXPENSES BASED ON COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF BUSINESS, THE EXPENDITURE IS FULLY ALLOWABLE. AS FURTHER CONFIRMED BY THE HON'BLE SUPREME COURT IN ASSESSEE'S CASE REPORTED IN (2016) 236 TAXMAN 447 NO BUSINESSMAN BE COMPELLED TO 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 ACT. THE AU THORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. IT IS FURTHER HELD THAT THE REVENUE CANNOT BE JUSTI FIABLY CLAIM TO PUT ITSELF IN ARM CHAIR OF BUSINESSMAN OR IN A POSITION OF BOARD OF D IRECTORS AND ASSUME ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING RE GARD TO CIRCUMSTANCES OF CASE. 12.2 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE, REMAND REPORT OF THE A.O. AND COUNTER COMMENTS OF THE ASSE SSEE DELETED THE ADDITION BY OBSERVING IN PARA 6.4 OF THE IMPUGNED ORDER AS U NDER: 6.4 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSES SING OFFICER AS MADE BY HIM IN PARA 3 OF THE ASSESSMENT ORDER WHILE MAKING THE IMPUGNED ADDITION. I HAVE ALSO CONSIDERED WRITTEN SUBMISSIONS FILED BY T HE ASSESSEE COMPANY THROUGH ITS LEARNED AR VIDE LETTERS DATED 25.07.2014, 18.08 .2014, 21.10.2014, 16.01.2015, 19.05.2016 AND 02.08.2017 ON THE ISSUE UNDER REFERE NCE. I HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LEARNED AR OF THE ASSESSEE COMPANY INCLUDING THE ORDERS OF THE HONOURABLE ITAT , CHANDIGARH IN THE CASE OF ASSESSEE COMPANY ITSELF FOR A.Y. 2010-11 AS WELL AS OTHER MATERIAL PLACED BY HIM ON RECORD. ON CAREFUL CONSIDERATION OF THE RIVAL CON TENTIONS, IT HAS BEEN NOTICED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVE RED IN FAVOR OF THE ASSESSEE COMPANY BY ORDER OF MY LEARNED PREDECESSOR IN OFFIC E IN APPEAL NO. 54/IT/CIT(A)-2/2013-14 DATED 09.06.2014 FOR THE A.Y . 2010-12 AND BY THE ORDER OF 16 THE HONOURABLE ITAT, CHANDIGARH IN ITA NO. 758/CHD. /2014 FOR THE A.Y. 2010-11 DATED 03.04.2017 IN THE CASE OF THE ASSESSEE COMPAN Y ITSELF AS THE IDENTICAL ADDITION MADE BY THE ASSESSING OFFICER IN A.Y. 2010- 11 WAS DELETED BY THE LEARNED CIT(A)-2, LUDHIANA AND HONORABLE JURISDICTI ONAL ITAT. AS THE FACTS OF THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CON SIDERATION AS FAR AS THE ADDITION UNDER CONSIDERATION IS CONCERNED ARE IDENT ICAL TO THE FACTS OF THE CASE OF THE ASSESSEE COMPANY FOR THE A.Y. 2010-11 AND TH ERE IS NO MATERIAL DIFFERENCE IN THE FACTS, THE RATIO OF THE DECISIONS OF THE LEA RNED CIT(A)-2, LUDHIANA AND HONORABLE ITAT, CHANDIGARH FOR THE A.Y. 2010-11 IS SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CON SIDERATION. SO RESPECTFULLY FOLLOWING THE ORDERS OF THE LEARNED CIT(A)-2, LUDHI ANA AND HONOURABLE ITAT, CHANDIGARH IN THE CASE OF THE ASSESSEE COMPANY ITSE LF FOR THE A.Y. 2010-11 (SUPRA), THE ADDITION OF RS.8,15,40,683/- IN THIS C ASE ON ACCOUNT OF DISALLOWANCE OUT OF COMMISSION PAID BY THE ASSESSEE COMPANY TO M /S MUNJAL SALES CORPORATION ON THE GROUND THAT THE COMMISSION PAID IS EXCESSIVE IS DIRECTED TO BE DELETED ON THE BASIS OF SAME REASONING AND LOGIC AS ADOPTED BY THE LEARNED CIT(A)-2, LUDHIANA AND HONOURABLE ITAT, CHANDIGARH IN THE CASE OF THE ASSESSEE COMPANY ITSELF FOR THE A.Y. 2010-11 WHILE DELETING THE IDENTICAL ADDITION IN A.Y. 2010-11. IN THE RESULT, THE GROUNDS NO. 3 AND 3(B) TO 3(D) TAKEN BY THE ASSESSEE COMPANY ARE ALLOWED 13. NOW THE DEPARTMENT IS IN APPEAL. 14. THE LD. CIT DR STRONGLY SUPPORTED THE ASSESSMEN T ORDER PASSED BY THE A.O AND REITERATED THE OBSERVATIONS MADE THEREIN. IT WA S FURTHER SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITI ON MADE BY THE A.O. 15. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S TRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). IT WAS FUR THER SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE EARLIER ORDER OF THE ITA T FOR THE PRECEDING A.Y. 2010- 11 IN ITA NO. 720/CHD/2014 ORDER DT. 03/04/2017. 16. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THA T AN IDENTICAL ISSUE HAVING SIMILAR FACTS WAS INVOLVED FOR THE A.Y. 2010-11 IN ITA NO. 720/CHD/2014 WHEREIN VIDE ORDER DT. 03/04/2017 THE RELEVANT FINDINGS HAV E BEEN GIVEN IN PARA 34 AND 35 WHICH READ AS UNDER: 34. WE HAVE HEARD BOTH THE PARTIES. WE HAVE GONE TH ROUGH THE FINDINGS OF THE LD. CIT (APPEALS) AND WE FIND NO INFIRMITY IN THE S AME. THE LD. CIT (APPEALS) HAS DEALT WITH THE ISSUE IN DETAIL OUT LINING THE FACTS THAT THE SAID AGENT HAD BEEN ACTING AS THE SOLE SELLING OF THE ASSESSEE SINCE 19 62 AND RELEVANT APPLICATION HAD 17 BEEN FIELD TO THE MINISTRY OF CORPORATE AFFAIRS ON ITS REAPPOINTMENT AS SOLE SELLING AGENT ON 29.3.2007 WHICH THE MINISTRY HAD APPROVED ON OLD COMMISSION RATE OF 1% OF TURNOVER . THE LD. CIT (APPEALS) HAS ALSO GIV EN A FINDING THAT THE BOARD OF DI RECTORS HAD ALSO APPROVED THE SAID RATE. THE LD. CI T (APPEALS) HAS FURTHER POINTED OUT THAT THIS RATE OF COMMISSION HAS ALWAYS BEEN AC CEPTED BY THE DEPARTMENT IN THE PAST . THE LD. CIT (APPEALS) HAS ALSO POINTED O UT THE FACT THAT BOTH THE ASSESSEE AND MUNJAL SALES CORPORATION HAD BEEN PAYI NG TAXES AT THE SAME RATE AND THAT MUNJAL SALES CORPORATION WAS NOT A PERSON COVERED U/S 40(A) OF THE ACT . AL L THESE FACTS HAVE NOT BEEN CONT ROVER TED BY THE LD. DR BEFORE US. IN VIEW OF THE ABOVE FACTS, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT (APPEALS) HOLDING THAT THE PAYMENT OF COMMISSION WAS NOT EXCESSIVE SI NCE IT WAS APPROVED BY THE MINISTRY OF CORPORATE AFFAIRS AND BY THE BOARD RESO LUTION AND EVEN ACCEPTED BY THE REVENUE IN THE PAST YEARS AND HAD BEEN PAID AT THE SAME RATE SINCE 1962. THE FACT THAT MUNJAL SALES CORPORATION HAD BEEN PAY ING TAX AT THE SAME RATE AS THE ASSESSEE, THE TRANSACTION WAS REVENUE NEUTRAL T RANSACT ION AND SINCE MUNJAL SALES CORPORATION WAS NOT RELATED PERSON AS PER SEC T ION 40(A) (2) OF THE ACT , THERE WAS NO CASE FOR MAKING ANY DISALLOWANCE AT AL L , AS HELD BY THE HON'BLE APEX COURT IN THE CASE OF GLAXO SMITHKLINE ASIA (P) LTD. (SUPRA) . 35. IN VIEW OF THE SAME WE UPHOLD THE ORDER OF THE LD. CIT (APPEALS) IN DELETING DISALLOWANCE MADE OF COMMISSION AMOUNTING TO RS.7,5 5,25,848/-. THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS DISMISSED. SINCE THE FACTS FOR THE YEAR UNDER CONSIDERATION AR E SIMILAR TO THE FACTS INVOLVED IN THE A.Y. 2010-11, SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DT. 03/04/2017 IN ITA NO. 720/CHD/2014 IN ASSESSEES OW N CASE, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION MADE BY THE A.O. BY FOLLOWING THE EARLIER ORDER OF THE ITAT. WE DO N OT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 17. THE NEXT ISSUE VIDE GROUND NO. (III),(IV), (V) RELATES TO THE DELETION OF DISALLOWANCES OF INTEREST MADE BY THE A.O. UNDER SE CTION36(1)(III) OF THE ACT. 18. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE A.O. MADE VARIOUS DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) O F THE ACT BY OBSERVING IN PARA 5 OF THE ASSESSMENT ORDER DT. 31/01/2014 WHICH READ A S UNDER: DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE DETAILS REGARDING THE DEBTORS AS STANDING IN THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2011 WERE CALLED FOR. COPY OF ACCOUNTS OF THE MAIN DEBTORS WERE ALSO EXAM INED. OUT OF THE SAID DEBIT ACCOUNTS IT WAS SEEN THAT DEBTOR BY THE NAME OF M/S HERO EXPORTS WAS HAVING A DEBIT BALANCE OF RS. 37,554,527/- AS ON 31.03.2011 AND M/S. HERO MOTORS LTD. WAS 18 HAVING A DEBIT BALANCE OF 32,737,039/- AS ON 31.03. 2011. COPY OF ACCOUNTS OF THE SAME IS PLACED ON RECORD. THE DETAILED ANALYSIS OF BOTH THE ACCOUNTS, THE SHOW CAUSES ISSUED TO THE ASSESSEE ON THE ISSUE , THE RE PLIES OF THE ASSESSEE TO THE SAME AND THE FINDINGS AND CONCLUSIONS ABOUT BOTH THE DEB IT ACCOUNTS HAS BEEN DISCUSSED IN THE FOLLOWING PARAS:- (I) DEBIT BALANCE OF M/S HERO EXPORTS:- FROM THE COPY OF THE ACCOUNT OF M/S HERO EXPORTS IN THE BOOKS OF M/S HERO CYCLE'S LIMITED , IT IS SEEN THAT THERE IS A NET OPENING DE BIT BALANCE OF RS. 16,77,59,780/- AS ON 01.04.2010 AND A NET CLOSING DEBIT BALANCE OF RS. 3 ,75,54,527/- AS ON 31.3.2011. IT WAS OBSERVED THAT THOUGH THERE WERE REGULAR TRANSACTION S BETWEEN THE TWO ENTITIES BUT THROUGHOUT THE YEAR, NEITHER THE BALANCE HAS BEEN S QUARED OFF NOR THE DEBIT BALANCE HAS BEEN TURNED INTO CREDIT BALANCE FOR ANY OF THE 365 DAYS IN THE YEAR. THE PAYMENTS RECEIVED BY THE ASSESSEE I.E. M/S HERO CYC LES LIMITED FROM M/S HERO EXPORTS DURING THE YEAR, IN THE SAID ACCOUNT ARE PR OPORTIONATELY TOO SMALL TO THE AMOUNT OUTSTANDING AS ON ANY OF THE DATES ON WHICH THE PAYMENTS WERE RECEIVED. FOR INSTANCE THE FIRST PAYMENT OF RS. 2 CRORES IN T HE ACCOUNT IS RECEIVED ON 19.05.2010 WHEREAS THE OUTSTANDING BALANCE ON THE DATE AFTER T HIS PAYMENT WAS RS. 21,40,98,124/-. A SIMILAR TREND IS SEEN THROUGHOUT THE YEAR THAT PROPORTIONATELY LESS PAYMENTS ARE RECEIVED VIS A VIS THE BALANCE OUTSTAN DING AS ON THE DATE OF RECEIPT OF PAYMENT. ACCORDINGLY, THERE WAS REASON TO BELIEVE THAT THE D EBIT AMOUNT OF M/S HERO EXPORTS WAS ALSO IN THE NATURE OF PROVIDING AN INTEREST FRE E ADVANCE, GIVEN TO M/S HERO EXPORTS BY M/S HERO CYCLES LIMITED, DURING THE F.Y. 2010-11 THE SUBMISSIONS OF THE ASSESSEE WERE CALLED FOR ON THE ISSUE .THEREAFTER, A SHOW CAUSE WAS ISSUED VIDE NOTE SHEET ENTRIES DATED 23.01.2014. THAT AS TO WHY NOT THE DEBIT BALANCE OF M/S HERO EXPORTS AND M/S HERO MOTORS IN THE BOOKS OF THE ASS ESSEE MAY NOT BE CONSIDERED IN THE NATURE OF INTEREST FREE ADVANCE. THE ASSESSEE HAS SUBMITTED ITS REPLY ON 29.01.2014 STATING THAT: 'STATEMENT OF CUSTOMER & VENDOR ACCOUNT OF M/S. HER O EXPORTS CONSOLIDATED IS ENCLOSED. IN THIS REGARD, IT IS SUBMITTED AS UNDER: - I) THE MAIN UNITS OF ASSESSEE COMPANY IS SUPPLYING CYCLES & CYCLE PARTS TO M/S. HERO EXPORTS, G.T. ROAD, LUDHIANA, WHO IS THE MAJOR BUYER OF CYCLES AND CYCLE PARTS OF ASSESSEE COMPANY FOR EXPORTS. M/S. HERO EXPORTS IS ALSO SUPPLYING IMPORTED CYCLE COMPONENTS ETC. TO THE ASSESSEE COMPANY.... II) M/S.HERO EXPORTS IS ALSO SUPPLYING IMPORTED CYC LE COMPONENTS ETC. TO THE ASSESSEE COMPANY FOR WHICH THE BALANCE PAYABLE AS O N 31.03.2010 BY THE ASSESSEE COMPANY TO THIS FIRM IS AT RS. 56572391/- & SECURIT Y A/C AT RS. 2500000/-. IV) FURTHER, ON ANALYZING THE CONSOLIDATED STATEMEN T OF ACCOUNT IT IS EVIDENT THAT THE NET OPENING BALANCE OUTSTANDING WAS AT RS. 16.7 7 CR. THE ASSESSEE COMPANY HAS SOLD THE PRODUCTS TO M/S. HERO EXPORTS WORTH RS. 49 .23 CRORES AGAINST WHICH THE FIRM HAS ALSO MADE PAYMENTS FROM TIME TO TIME. THE NET C LOSING BALANCE AFTER ADJUSTMENTS ON A/C OF VENDOR ACCOUNT IS AT 3.75 CRO RE. 19 V) EVEN OTHERWISE IN THE EXPORT BUSINESS STANDARD N ORMAL RECOVERY PERIOD FROM FOREIGN BUYERS RANGES FROM 90 TO 180 DAYS. AS EXPLA INED ABOVE, THE ASSESSEE COMPANY IS BULK SUPPLIER TO M/S. HERO EXPORTS. THIS PARTY IS EXPORTING ALL THE PRODUCTS UNDER BRAND NAME OF HERO.... VII) THE COMPANY HAS ALWAYS BEEN RECEIVING THE PAYM ENTS FROM M/S HERO EXPORTS IN DUE COURSE BUT ON ACCOUNT OF VARIOUS REASONS MAINLY SUCH AS WORLDWIDE SLOWDOWN OF MARKETS AND LOSSES DUE TO VOLATILE FOREIGN EXCHANGE MARKETS ON ACCOUNT OF FALLING DOLLAR PRICE IN TERMS OF RUPEE, THE FINANCIAL POSIT ION OF THE PARTY TIGHTENED. SUCH UPS & DOWNS ARE NORMAL IN COMMERCIAL FIELDS. THE FUNDS HA S MADE THE PAYMENT TO ASSESSEE COMPANY AS AND WHEN FUNDS AVAILABLE, KEEPI NG IN VIEW THEIR PRIORITIES....' THE ABOVE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED . THE ASSESSEE HAS STATED THAT IT HAS MADE SALES TO M/S HERO EXPORTS. THIS IS A FACT BUT THE MAIN QUESTION AS HOW SUBSTANTIAL DEBIT BALANCE IS ALLOWED NOT TO BE PAID REMAINS UNANSWERED. IN VIEW OF THE ABOVE FINDINGS AND THE SUBMISSIONS O F THE ASSESSEE WE HAVE TO ALSO TAKE INTO CONSIDERATION THE FOLLOWING POINTS AS TO WHY THE SAID DEBIT BALANCE OF M/S. HERO EXPORTS IS TO BE TREATED AS INTEREST FREE ADVA NCE. M/S HERO EXPORTS AND M/S HERO CYCLES LIMITED ARE A PART OF THE HERO GROUP. THIS FACT HAS BEEN STATED IN THE ANNUAL REPORT 2010 -11 OF M/S HERO CYCLES LIMITED, AT PAGE 55 PARA 6: ' 4. ENTERPRISES OVER WHICH KEY MANAGEMENT PERSONNEL & T HEIR RELATIVES ARE ABLE TO EXERCISE SIGNIFICANT INFLUENCE A)... B) FIRMS : - HERO EXPORTS' THUS ; WE SEE THAT BECAUSE ALL THE ABOVE ENTITIES I.E. M/ S HERO CYCLES LIMITED AND M/S HERO EXPORTS, ARE A PART OF THE LARGE HERO GROUP SU CH BENEFICIAL ARRANGEMENT HAS BEEN MADE SO AS TO DIVERT THE INTEREST BEARING FUND S OF THE ASSESSEE FOR THE BUSINESS VENTURES OF M/S HERO EXPORTS. THEREFORE IT FURTHER STRENGTHENS THE CONTENTION THAT, THE SAID DEBTOR M/S HERO EXPORTS HAS UTILIZED THE INTER EST BEARING FUNDS OF THE ASSESSEE FOR ITS OWN BUSINESS PURPOSE. ACCORDINGLY THESE ADVANCE S SHOWN AS DEBIT BALANCES BY THE ASSESSEE ARE IN THE NATURE OF INTEREST FREE LOA NS GRANTED FOR NON BUSINESS PURPOSES. HENCE THERE IS A CLEAR NEXUS BETWEEN THE DEBIT AMOU NT OF M/S HERO EXPORTS NOT BEING RECEIVED BACK BY THE ASSESSEE AND THE UTILIZA TION OF THE CORRESPONDING AMOUNT BY M/S HERO EXPORTS FOR ITS OWN PURPOSE. THE REFORE, THIS IS THE CASE WHEREIN THE ASSESSEE HAS PROVIDED INTEREST FREE ADVANCE, BY NOT RECOVERING THE DEBIT OUTSTANDING BALANCES NOT AT ANY SINGLE DATE THROUGHO UT THE FINANCIAL YEAR 2010-11 FROM M/S HERO EXPORTS. ACCORDINGLY, ON THE BASIS OF THE ABOVE DISCUSSION, THE DEBIT BALANCES IN THE BOOKS OF THE ASSESSEE OF M/S HERO E XPORTS ARE TREATED AS INTEREST FREE-ADVANCES. THE CORRESPONDING INTEREST ON DEBIT BALANCES IS DISALLOWED FROM THE INTEREST EXPENSES AS DEBITED BY THE ASSESSEE U/S 36(L)(III) OF THE INCOME TAX ACT, 1961, 20 CONSIDERING THAT THE ASSESSEE HAS DIVERTED ITS INTE REST BEARING FUNDS TO M/ S HERO EXPORTS. (II) DEBIT BALANCE OF M/S HERO MOTORS LIMITED:- THE ASSESSEE HAS SUBMITTED THE BALANCE DUE FROM SUN DRY DEBTOR OF M/S HERO MOTORS LIMITED AS RS. 3,27,37,039/- AS ON 31.3.2011. THE ASSESSEE HAS FAILED TO SUBMIT ANY JUSTIFIABLE R EPLY OF THE DEBIT BALANCE STANDING IN ITS BOOKS OF M/S. HERO MOTORS LTD. AS MENTIONED EAR LIER, THE SHOW CAUSE TO EXPLAIN AS TO WHY NOT THE AMOUNT OUTSTANDING SHOULD BE TREATED AS INTEREST FREE ADVANCE WAS GIVEN VIDE NOTE SHEET ENTRY DATED 23.01.2014. THE A SSESSEE VIDE ITS SUBMISSION DATED 29.01.2014 HAS STATED AS UNDER:- 'I) REGARDING BALANCE DUE FROM M/ S. HERO MOTORS, IT IS SUBMITTED THAT THE BALANCE DUE FROM THIS PARTY IS ON ACCOUNT OF SUPPLY OF C.R. STRIPS. CONSOLIDATED STATEMENT OF ACCOUNT OF THIS PARTY AS PER BOOKS OF C.R. DIVISION HAS BEEN FILED VIDE LETTER DATED 21.11.2013 AT PAPER BOOK PAGES 391 TO 397. II) ACCOUNTS OF THIS PARTY WITH C.R. DIVISION ARE R UNNING ACCOUNTS WITH REGULAR SUPPLIES AND RECEIPT OF PAYMENTS IN THE NORMAL COURSE. THERE IS NOT EVEN A SINGLE TRANSACTION INVOLVING ANY AMOUNT ADVANCED BY THE ASSESSEE COMPA NY TO M/S. HERO MOTORS IN THIS YEAR I.E. ALL THE TRANSACTIONS ARE ON ACCOUNT OF SUPPLIES MADE TO THIS FIRM. NONE OF THE ENTRY IN THE PARTY'S ACCOUNT REPRESENTS LOANS O R ADVANCE IN THE SHAPE OF MONEY FOR WHICH THE BALANCE IS OUTSTANDING FROM IT. III) THUS THERE IS ONLY A NET BALANCE OF RS. 3.27 C RORE DUE FROM THE PARTY AS ON 31.3.2011, WHICH KEEPING IN VIEW THE NATURE OF TRAD E WITH PARTY AS A BULK PURCHASER IS NORMAL IN COMMERCIAL TERMS. IN CONTINUOUS SUPPLY/SA LES, CUSTOMERS' ACCOUNTS NEVER GET REDUCED TO ZERO OR NEGATIVE THUS, THE ASSESSEE HAS ONCE AGAIN NOT BEEN ABLE TO JUSTIFY AS TO WHY NOT THE DEBIT BALANCES OF M/S. HERO MOTORS LTD. IN THE BOOKS OF THE ASSESSEE MAY NOT BE TREATED AS INTEREST FREE ADVANCES. IT MAY BE NOTED THAT AS IN THE CASE OF M/S HERO EXPORTS, AS DISCUSSED EARLIER, M/S HERO MO TORS LIMITED IS ALSO A PART OF THE LARGER HERO GROUP. THIS FACT HAS BEEN STATED IN THE ANNUAL REPORT 2010- 11 OF M/S HERO CYCLES LIMITED, AT PAGE 55 PARA 1: ENTERPRISES IN WHICH THE COMPANY HAS SIGNIFICANT IN FLUEH HERO MOTORS LIMITED...' ACCORDINGLY ON THE BASIS OF THE ABOVE DISCUSSION , THE CORRESPONDING INTEREST ON THE DEBIT BALANCES IS DISALLOWED FROM THE INTEREST EXPE NSES AS DEBITED BY THE ASSESSEE U/S 36(L)(III) OF THE INCOME TAX ACT 1961, CONSIDER ING THAT THE ASSESSEE HAS DIVERTED ITS INTEREST BEARING FUNDS TO M/S HERO MOTORS LTD. { THE COMPUTATION OF THE INTEREST TO BE DISALLOWED U/S 36(L)III) OF THE INCOME TAX ACT 1961 HAS BEEN CALCULATED ON THE DATE WISE DEBIT BAL ANCES AS STANDING IN THE BOOKS OF THE ASSESSEE. THE RATE OF INTEREST HAS BEEN CALCULATED AS BELOW ON THE BASIS OF 21 ABOVE AND TAKING INTO CONSIDERATION THE AMOUNT OF L OANS OUTSTANDING AS ON 31.03.2011, WEIGHTED AVERAGE INTEREST AS PAID BY TH E ASSESSEE IS ARRIVED AT AS UNDER:- AVERAGE RATE OF INTEREST BANK LOANS 30.12 11.25% FD &ICDS/MIBOR 112.57 4% TO 9% 142.69 MINIMUM (30.12*11.25+112.57*4)/142.69 5.53 MAXIMUM (30.12* 11.25+112,57*9)/142.69 9.47 15.01 AVERAGE RATE OF INTEREST - 5.53%+9.47% = 7.50%} 2 THE DETAILED COMPUTATION OF THE INTEREST ON THE DAI LY DEBIT BALANCES OF M/S HERO EXPORTS AND M/S HERO MOTORS LIMITED IN THE BOO KS OF THE ASSESSEE IS CALCULATED @ 7.50% OF THE AMOUNT OUTSTANDING AND CO MPUTATION OF THE SAME IS AS PER ANNEXURE AL AND A2 OF THIS ASSESSMENT ORDER RESPECTIVELY. ON THE BASIS OF THE SAID COMPUTATION INTEREST CORRESPONDIN G TO THE DEBIT BALANCES OF M/S HERO EXPORTS AMOUNTING TO RS. 1,44,98,637/- (ANNEXURE AL)AND INTEREST CORRESPONDING TO THE DEBIT BALANCES M/S HERO MOTORS LIMITED AMOUNTING TO RS. 24,54,078/- (ANNEXURE A2) IS DISALLOWED U/S 36(L)(III) OF THE I NCOME TAX ACT 1961, CONSIDERING THAT THE ASSESSEE HAS DIVERTE D ITS INTEREST BEARING FUNDS TO M/S HERO EXPORTS AND M/S HERO MOTORS LIMITED AS INTEREST FREE ADVANCE IN THE FORM OF DEBTOR ACCOUNTS. ACCORDINGLY THE INTEREST OF RS. 1,69,52,715/- (RS. 1,44,98,637/- + RS. 24,54,07 8/-) IS DISALLOWED AND ADDED BACK TO THE TAXABLE INCOME OF THE ASSESSEE. PENALTY PROCEEDING U/S 271(L)(C) IS INITIATED SEPAR ATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME AS DISCUSSED ABOVE. B) DISALLOWANCE OF INTEREST U/S 36(L)(III) ON AC COUNT OF ADVANCE TO HERO MOTOR: - DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSE E VIDE ORDER SHEET ENTRY DATED 4.12.2013 ASKED AS TO WHY LOAN OF RS. 60 CRORES (OPE NING BALANCE) WAS GRANTED TO M/S. HERO MOTORS LTD. ON DIFFERENT DATES @6% WHEREA S TO ALL OTHER PARTIES IT HAS BEEN GRANTED @12% TO 15% AND WHY NOT THE DIFFERENTIAL RA TE OF INTEREST BE ADDED TO THE TAXABLE INCOME. ASSESSEE VIDE ITS REPLY DATED 29.01 .2014 HAS STATED THAT:- 'AS PER OUR SUBMISSIONS VIDE LETTER DATED 16.12.201 3 THE COMPANY HAS CHARGED INTEREST ON THIS ACCOUNT @ 6%. THIS A/C HAS BEEN SQ UARED UP ON 30.6.2010. FOR THIS PURPOSE, THE ASSESSEE COMPANY HAS NOT MADE ANY BORR OWING. THIS LOAN HAS BEEN GIVEN OUT OF OWN FUNDS ARISING FROM INTERNAL ACCRUA LS. REGARDING YOUR HONOUR'S QUERY THAT INTEREST CHARGED FROM THE OTHER PARTIES IS 12% TO 15%, IT IS SUBMITTED THAT IT IS THE DISCRETION OF THE ASSESSEE COMPANY TO DECIDE THE RA TE OF INTEREST IN EACH CASE AS PER TERMS MUTUALLY AGREED WITH THE PARTY....' 22 THE REPLY OF THE ASSESSEE IS CAREFULLY CONSIDERED A ND IS FOUND TO BE UNTENABLE. THE ASSESSEE, AS MENTIONED ABOVE HAS GRANTED LOANS AND CHARGED INTEREST RANGING FROM 12% TO 15% ON THE SAME. AS SUBMITTED BY THE AS SESSEE AND MENTIONED ABOVE, NO NOTIONAL INCOME IS BEING CREATED OR ADDED TO THE INCOME OF THE ASSESSEE. HOWEVER, IT IS TO BE AGAIN REITERATED THAT THE ASSE SSEE HAS TAKEN INTEREST BEARING SECURED AS WELL AS UNSECURED LOANS. THE INTEREST ON THE SAME HAS BEEN CALCULATED AS MENTIONED EARLIER @7.50%. THEREFORE, IT IS HELD THAT THE ASSESSEE HAS GRANTED LOAN AT A SUBSIDIZED RATE TO M/S. HERO MOTORS LTD. BECAU SE BOTH THE COMPANIES BELONG TO THE LARGER HERO GROUP AND THE SAID ADVANCE TO M/S. HERO MOTORS LTD. CANNOT BE TERMED TO HAVE BEEN FOR ANY BUSINESS BENEFIT ACCRUI NG DIRECTLY TO THE ASSESSEE. ACCORDINGLY, THE CORRESPONDING INTEREST OF RS. 35,26,029/- @1.5% (7.50% - 6%) ON DAY TO DAY BASIS AS PER ACCOUNT IS DISALLOWED AND ADDED BACK TO THE TAXABLE INCOME OF THE ASSESSEE COMPUTATION OF WHICH IS AS BELOW:- FROM DATE: 01.04.2010 TO 31.3.2011 HERO CYCLES LTD. LUDHIANA M/S HERO MOTORS - INTER CORPORATE DEPOSIT A/,C DATE PARTICULERS DEBIT CREDIT BALANCE NO.OF DAYS INTEREST @7.5% 01.04.2010 OPENING BALANCE 600,000,000 600,000,000 13 1,602,740 13.04.2010 CHEQUE ISSUED 100,000,000 700,000,000 3 431,507 16.04.2010 CHEQUE ISSUED 100,000,000 800,000,000 3 493,151 19.04.2010 CHEQUE ISSUED 100,000,000 900,000,000 2 369,863 21.04.2010 CHEQUE ISSUED 150,000,000 1,050,000,000 70 15,102,740 30.06.2010 CHEQUE DEPOSITED 1060000000 - 91 18,000,000 LESS INTEREST RECEIVED 14473971 DIFF. OF INTEREST 3526029 ACCORDINGLY, THE CORRESPONDING INTEREST OF RS. 35,26,029/- @1.5% (7.50% - 6%) ON DAY TO DAY BASIS AS PER ACCOUNT IS DISALLOWED AND A DDED BACK TO THE TAXABLE INCOME IE ASSESSEE. PENALTY PROCEEDING U/S 271(L)(C) ARE INITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME AS DISCUSSED ABOVE . C) DISALLOWANCE OF INTEREST U/S 36(L)(III) ON WI P:- THE DETAILS REGARDING THE TOTAL CAPITAL WORK IN PRO CESS FOR THE F.Y. 2010-11 WERE CALLED FROM THE ASSESSEE VIDE NOTE SHEET ENTRY DATE D 09.01.2014. NO REPLY TO THE SAME WAS SUBMITTED. THE ASSESSEE WAS ISSUED SHOW CAUSE VIDE NOTE SHEET ENTRY DATED 23.01.2014 REQUESTING TO EXPLAIN AS TO WHY NOT INTEREST BE CAP ITALIZED ON CAPITAL WIP. THE ASSESSEE VIDE ITS REPLY DATED 29.01.2014 HAS SUBMIT TED AS UNDER:- 23 'THE DETAIL OF CAPITAL WORK IN PROGRESS IS ENCLOSED . THIS EXPENDITURE IS MAINLY RELATING TO THE MAIN UNIT AND C.R. DIVISION OF THE COMPANY. IT MAY BE HERE MENTIONED THAT ASSESSEE COMPANY HAS ALREADY CAPITALIZED INTEREST ON CWIP AT RS. 633211/-. NO FUNDS HAVE BEEN BORROWE D FOR THESE PURPOSES NOR HAS ANY BORROWED AMOUNT BEEN UTILISED TO ACQUIRE THE CWIP ................... REGARDING THE TOTAL EXPENDITURE ON CAPITAL WORK IN PROGRESS, IT IS SUBMITTED THAT THIS EXPENDITURE IS ONLY OF ROUTINE TYPE, TOWARDS M ODIFICATIONS/REPLACEMENTS IN THE EXISTING MACHINERY INSTALLED WORTH CRORES OF RUPEES WITH A MOTIVE FOR SMOOTH RUNNING WITH IMPROVED EFFICIENCY IN DAY TO DAY RUNN ING. THEREFORE THIS EXPENDITURE IS NOT IN THE NATURE OF EXTENSION OF EXISTING MACHI NERY ETC. THE COMPANY IS NOT IN THE PROCESS OF INCREASING ITS PRODUCTION CAPACITY A S THE EXISTING CAPACITY IS SUFFICIENT TO MEET THE INCREASED PRODUCTION REQUIRE MENTS OF IT....' THE REPLY OF THE ASSESSEE IS CAREFULLY CONSIDERED A ND IS FOUND TO BE UNTENABLE. AS MENTIONED ABOVE, THE ASSESSEE HAS SUBSTANTIAL AMOUN T OF SECURED AND UNSECURED LOANS IN ITS BALANCE SHEET. ENTIRE MONEY IN THE BUSINESS HAS GONE INTO THE COMMON KITTY. THE ASSESSEE HAS NOT SUBMITTED TH E RATIONALE AS TO WHY LOANS WERE STANDING IN THE BALANCE SHEET WHEN AS PER THE ASSESSEE OWN FUNDS WERE AVAILABLE FOR INVESTMENT. IT IS A MATTER OF FACT TH AT INTEREST EXPENSE OF RS. 16,22,73,963 /- IS BEING CLAIMED IN THE PROFIT AND LOSS ACCOUNT. ACCORDINGLY THE AMOUNT OF INTEREST IS CAPITALIZED ON CAPITAL WORKIN G PROGRESS U/S 36(L)(III) ON ACCOUNT OF BUILDING UNDER CONSTRUCTION AND IS DISAL LOWED. REGARDING THE RATE OF INTEREST, THE SAME IS TAKEN AS 7.50% AS ARRIVED AT EARLIER. THE DETAILED COMPUTATION HAS BEEN PLACED AT ANNEXURE B. THE TOTAL INTEREST TO BE CAPITALIZED, AS PER THE CO MPUTATION COMES TO RS. 8,35,875/-. THE ASSESSEE HAS ALREADY CAPITALIZED AN AMOUNT OF RS. 6,33,212/-. THEREFORE, THE REMAINING AMOUNT OF RS. 2,02,663/- (RS. 8,35,875/- - RS. 6,33,212/- = RS. 2,02,663/-) IS DISALLOWED AND ADDED BACK TO THE TAXABLE INCOME OF THE ASSESSEE. PENALTY PROCEEDING U/S 271(L)(C) IS INITIATED SEPAR ATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME AS DISCUSSED ABOVE. D) DISALLOWANCE OF INTEREST U/S 36(L)(III) ON SH ARE APPLICATION MONEY:- ON THE DETAILS HAS SUBMITTED BY THE ASSESSEE REGARDI NG INVESTMENTS IT IS SEEN THAT THE ASSESSEE HAS INVESTED CERTAIN SUM OF ITS MONEY AS MENTIONED BELOW UNDER THE HEAD SHARE APPLICATION MONEY:- DATE PARTICULARS DEBIT CREDIT BALANCE 01.04.2010 OPENING BALANCE 435000000 435000000 30.06.2010 APP. MONEY REED. BACK FROM RITAMAY BUILD ERS 335000000 100000000 30.06.2010 ADJUSTED TOWARDS 100000000 0 SHARE ALLOTMENT 19.11.2010 RTGS TO M/S. 50000000 50000000 24 HERO MOTORS 02.02.2011 CHEQUE NO. 070573 ISSUED TO M/S. HERO MOTORS 100000000 150000000 TOTAL 585000000 435000000 150000000 CLOSING BALANCE 150,000,000 THE SHARE APPLICATION MONEY THUS ADVANCE BY THE ASS ESSEE APPEARED TO BE IN THE NATURE OF INTEREST FREE ADVANCES. THEREFORE, TH E ASSESSEE WAS ASKED VIDE NOTE SHEET ENTRY DATED 21.01.2014 THAT AS PER THE DETAIL S SUBMITTED BY THE ASSESSEE ON 15.01.2014 (PAGE-1120) SHARE APPLICATION MONEY AS O N 31.03.2010 IS SHOWN AT RS. 43.50 CRORES AND AS ON 31.03.2011 THE SAME WAS AT R S. 15 CRORES. THE ASSESSEE WAS REQUESTED TO SUBMIT THE LEDGER ACCOUNT OF THE S AME AND ALSO TO JUSTIFY AS TO WHY NOT INTEREST U/S 36(L)(III) BE DISALLOWED ON TH E SAME AS THE SAID SHARE APPLICATION MONEY AMOUNT WAS IN THE NATURE OF ADVAN CE FOR NON BUSINESS PURPOSES. THE REPLY TO THE ABOVE WAS TO BE SUBMITTE D ON 23.01.2014. ON 23.01.2014 NO REPLY ON THE ISSUE WAS SUBMITTED BY T HE ASSESSEE. AGAIN VIDE NOTE SHEET ENTRY DATED 23.01.2014 THE AS SESSEE WAS GIVEN A SHOW CAUSE AS TO WHY NOT INTEREST U/S 36(1)(III) BE DISA LLOWED ON THE AMOUNT OF SHARE APPLICATION MONEY HAS ADVANCE BY THE ASSESSEE WHICH WAS STANDING IN ITS BALANCE SHEET DURING THE F.Y. 2010-11, AS THE SAME WAS NOT FOR BUSINESS PURPOSES. THE ASSESSEE HAS SUBMITTED ITS REPLY ON 27.01.2014 WHICH IS AS UNDER: - 'REGARDING YOUR HONOUR'S QUERY DATED 21.01.2014 WIT H REFERENCE TO SHARE APPLICATION MONEY, IT IS SUBMITTED AS UNDER:- THE ASSESSEE COMPANY HAD OPENING BALANCE OF SHARE A PPLICATION MONEY AT RS. 43.5 CRORES OUT OF WHICH RS. 33.5 CRORES WER E REFUNDED ON 30.06.2010. THEREAFTER THE ASSESSEE COMPANY HAS BEE N FURTHER ALLOTTED SHARES OF HERO MOTORS LTD. DURING THE YEAR. THE BAL ANCE B/F SHARE APPLICATION OF RS. 10 CRORE WAS ADJUSTED TOWARDS AL LOTMENT OF THESE SHARES. THE CLOSING BALANCE OF SHARE APPLICATION MO NEY WAS AT RS. 15 CRORES AS ON 31.03.2011. STATEMENT OF SHARE APPLICA TION MONEY IS ENCLOSED. STATEMENT OF SHARES ALLOTTED DURING THE Y EAR IS ALSO ENCLOSED. ALL THESE INVESTMENTS ARE IN THE MAIN UNIT OF COMPANY . ................ ' THE ASSESSEE HAS AGAIN SUBMITTED A REPLY DATED 29.0 1.2014 REGARDING THE ABOVE ISSUE AND HAS STATED:- 'IT IS SUBMITTED THAT THE SHARE APPLICATION MONEY I S PART & PARCEL OF TOTAL INVESTMENTS AND ACCORDINGLY HAVE BEEN SHOWN UNDER H EAD INVESTMENTS IN THE AUDITED BALANCE SHEET OF COMPANY. ACCORDINGLY ARE S PECIFICALLY GOVERNED BY PROVISIONS OF SECTION 14A. THERE IS ALWAYS TIME LAG IN ISSUE OF SHARE CAPITAL DUE TO COMPLETION OF FORMALITIES UNDER COMPANIES ACT. THIS PART OF PROCESS TOWARDS INVESTMENTS OF FUNDS HENCE BY NO STRETCH OF IMAGINA TION SAME MAY BE TREATED AS ADVANCE. IT MAY ALSO BE MENTIONED THAT THE ASSESSEE COMPANY HAS NOT BORROWED ANY AMOUNT FOR MAKING THIS SHARE APPLICATI ON MONEY. THE AMOUNT ADVANCED WAS OUT OF ITS OWN GENERATED SURPLUS FUNDS AND INTERNAL ACCRUALS. AS PER ROUTINE THE ASSESSEE COMPANY PARKS THE SURPLUS TO GENERATE THE INCOME. THE ASSESSEE COMPANY HAD UTILIZED THE SURPLUS AMOUNT FO R THE PURPOSE OF INVESTMENT 25 FOR WHICH SEPARATE RULE 8D HAS BEEN PRESCRIBED UNDE R THE INCOME TAX ACT WHICH IS READ WITH SECTION 14 A FOR DISALLOWANCE OF INTER EST ETC....' THE ASSESSEE'S REPLY HAS BEEN DULY CONSIDERED. BUT THE SAME IS NOT ACCEPTABLE. AS MENTIONED IN THE PRE PARAS THERE ARE HEAVY SECUR ED AND UNSECURED LOANS STANDING IN THE BALANCE SHEET OF THE ASSESSEE ON WH ICH INTEREST PAYMENT ARE BEING MADE AND THE SAID INTEREST IS ALSO BEING CLAI MED IN THE PROFIT AND LOSS ACCOUNT FOR THE A.Y. 2011-12. THEREFORE, IT CANNOT BE DOUBTED THAT THE ASSESSEE HAS DIVERTED ITS INTEREST BEARING FUNDS FOR ADVANCI NG MONEY FOR THE SHARE APPLICATION, AS DISCUSSED ABOVE. ACCORDINGLY, THE I NTEREST U/S 36(L)(III) OF THE INCOME TAX ACT, 1961 IS DISALLOWED AND ADDED BACK T O THE TOTAL INCOME OF THE ASSESSEE. THE COMPUTATION OF THE INTEREST U/S 36(L) (III) IS AS UNDER:- DATE PARTICULARS DEBIT CREDIT BALANCE NO. OF DAYS INTT. @7.5% 01.04.2010 OPENING BALANCE 435000000 435000000 91 8133904 30.06.2010 APP. M ONEY REED. BACK FROM RITAMAY BUILDERS 335000000 100000000 30.06.2010 ADJUSTED TOWARDS SHARE ALLOTMENT 100000000 0 142 0 19.11.2010 RTGS TO M/S. HERO MOTORS 50000000 50000000 75 770548 02.02.2011 CHEQUE NO. 070573 ISSUED TO M/S. HERO MOTORS 100000000 150000000 57 1756849 TOTAL 585000000 435000000 150000000 365 10661301 AMOUNT OF INTEREST TO BE DISALLOWED U/S. 36(L)(III) OF THE INCOME TAX ACT, 1961 REGARDING SHARE APPLICATION MONEY = RS. 1,06,61,301/-. 19. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND FURNISHED THE WRITTEN SUBMISSIONS WHICH HAD BEEN IN CORPORATED IN PARAS 7.1, 8.1, 9.1 AND 10.1 OF THE IMPUGNED ORDER. THE LD. CIT(A) FORWARDED THE AFORESAID SUBMISSIONS OF THE ASSESSEE TO THE A.O. FOR HIS COM MENTS / REPORT. IN RESPONSE, THE A.O. FURNISHED THE REPORTS WHICH ARE INCORPORAT ED IN PARAS 7.2, 8.2, 9.2, AND 10.2 OF THE IMPUGNED ORDER. THE LD. CIT(A) FORWARDE D THE REPORTS TO THE ASSESSEE FOR ITS COMMENTS. IN RESPONSE, THE ASSESSEE FURNISH ED THE COUNTER COMMENTS VIDE LETTER DT. 19/05/2016 WHICH ARE INCORPORATED IN PAR A 7.3, 8.3, 9.3 AND 10.3 OF THE IMPUGNED ORDER, FOR THE COST OF REPETITION THE SAME ARE NOT REPRODUCED HEREIN. 19.1 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO N OF THE ASSESSEE, REMAND REPORT OF THE A.O. AND COUNTER COMMENTS OF THE ASSE SSEE DELETED THE DISALLOWANCES MADE BY THE A.O. UNDER SECTION 36(1)( III) OF THE ACT BY FOLLOWING 26 THE EARLIER ORDER OF THE ITAT IN ITA NOS. 720 & 758 /CHD/2014 FOR THE A.Y. 2010-11 DT. 03/04/2017. THE RELEVANT FINDINGS GIVEN BY THE LD. CIT(A) IN PARA 7.4, 8.4, 9.4 AND 10.4 OF THE IMPUGNED ORDER READ AS UNDER: 7.4 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSES SING OFFICER AS MADE BY HIM IN PARA 3 OF THE ASSESSMENT ORDER WHILE MAKING THE IMPUGNED ADDITION. I HAVE ALSO CONSIDERED WRITTEN SUBMISSIONS FILED BY T HE ASSESSEE COMPANY THROUGH ITS LEARNED AR VIDE LETTERS DATED 25.07.2014, 18.08 .2014, 21.10.2014, 16.01.2015, 19.05.2016 AND 02.08.2017 ON THE ISSUE UNDER REFERE NCE. I HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LEARNED AR OF THE ASSESSEE COMPANY INCLUDING THE ORDERS OF THE HONOURABLE ITAT , CHANDIGARH IN THE CASE OF ASSESSEE COMPANY ITSELF FOR A.Y. 2010-11 AS WELL AS OTHER MATERIAL PLACED BY HIM ON RECORD. ON CAREFUL CONSIDERATION OF THE RIVAL CON TENTIONS, IT HAS BEEN NOTICED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVE RED IN FAVOR OF THE ASSESSEE COMPANY BY ORDER OF MY LEARNED PREDECESSOR IN OFFIC E IN APPEAL NO. 54/IT/CIT(A)-2/2013-14 DATED 09.06.2014 FOR THE A.Y . 2010-12 AND BY THE ORDER OF THE HONOURABLE ITAT, CHANDIGARH IN ITA NO. 758/CHD./2014 FOR THE A.Y. 2010- 11 DATED 03.04.2017 IN THE CASE OF THE ASSESS EE COMPANY ITSELF AS THE IDENTICAL ADDITION MADE BY THE ASSESSING OFFICER IN A.Y. 2010-11 WAS DELETED BY THE LEARNED CIT(A)-2, LUDHIANA AND HONORABLE JURISD ICTIONAL ITAT. AS THE FACTS OF THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION AS FAR AS THE ADDITION UNDER CONSIDERATION IS CONCERNED ARE IDENT ICAL TO THE FACTS OF THE CASE OF THE ASSESSEE COMPANY FOR THE A.Y. 2010-11 AND TH ERE IS NO MATERIAL DIFFERENCE IN THE FACTS, THE RATIO OF THE DECISIONS OF THE LEA RNED CIT(A)-2, LUDHIANA AND HONORABLE ITAT, CHANDIGARH FOR THE A.Y. 2010-11 IS SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CON SIDERATION. SO RESPECTFULLY FOLLOWING THE ORDERS OF THE LEARNED CIT(A)-2, LUDHIANA AND HONOURABLE ITAT, CHANDIGARH IN THE CASE OF THE ASSE SSEE COMPANY ITSELF FOR THE A.Y. 2010-11 SUPRA), THE ADDITION OF RS. 1,69,52,71 5/- IN THIS CASE ON ACCOUNT OF DISALLOWANCE OF INTEREST BY INVOKING PROVISIONS OF SECTION 36(L)(III) OF THE ACT ON THE GROUND THAT THE ASSESSEE COMPANY HAS GIVEN INTEREST FREE LOANS/ADVANCES TO RELATED PARTIES ALLEGEDLY OUT OF BORROWED FUNDS AND THAT TOO FOR NON BUSINESS PURPOSES IS DIRECTED TO BE DELETED ON THE BASIS OF SAME REASONING AND LOGIC AS ADOPTED BY THE LEARNED CIT(A)-2, LUDHIANA AND HONOU RABLE ITAT, CHANDIGARH IN THE CASE OF THE ASSESSEE COMPANY ITSELF FOR THE A.Y . 2010-11 WHILE DELETING THE IDENTICAL ADDITION IN A.Y. 2010-11. IN THE RESULT, THE GROUND NO. 4 TAKEN BY THE ASSESSEE COMPANY IS ALLOWED. 8.4 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSES SING OFFICER AS MADE BY HIM IN PARA 3 OF THE ASSESSMENT ORDER WHILE MAKING THE IMPUGNED ADDITION. I HAVE ALSO CONSIDERED WRITTEN SUBMISSIONS FILED BY T HE ASSESSEE COMPANY THROUGH ITS LEARNED AR VIDE LETTERS DATED 25.07.2014, 18.08 .2014, 21.10.2014, 16.01.2015, 19.05.2016 AND 02.08.2017 ON THE ISSUE UNDER REFERE NCE. I HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LEARNED AR OF THE ASSESSEE COMPANY INCLUDING THE ORDERS OF THE HONOURABLE ITAT , CHANDIGARH IN THE CASE OF ASSESSEE COMPANY ITSELF FOR A.Y. 2009-10 AS WELL AS OTHER MATERIAL PLACED BY HIM ON RECORD. ON CAREFUL CONSIDERATION OF THE RIVAL CON TENTIONS, IT HAS BEEN NOTICED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVE RED IN FAVOR OF THE ASSESSEE COMPANY BY THE ORDERS OF THE HONOURABLE ITAT, CHAND IGARH IN ITA NO. 314/CHD./2013 FOR THE A.Y. 2009-10 DATED 16.02.2016 IN THE CASE OF THE ASSESSEE COMPANY ITSELF AS THE IDENTICAL ADDITION MADE BY TH E ASSESSING OFFICER IN A.Y. 27 2009-10 WAS DELETED BY THE HONORABLE JURISDICTIONAL ITAT. AS THE FACTS OF THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDER ATION AS FAR AS THE ADDITION UNDER CONSIDERATION IS CONCERNED ARE I DENTICAL TO THE FACTS OF THE CASE OF THE ASSESSEE COMPANY FOR THE A.Y. 2009-10 A ND THERE IS NO MATERIAL DIFFERENCE IN THE FACTS, THE RATIO OF THE DECISION OF HONORABLE ITAT, CHANDIGARH FOR THE A.Y. 2009-10 IS SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION. SO RESPECTFULLY FOLLO WING THE ORDER OF THE HONOURABLE ITAT, CHANDIGARH IN THE CASE OF THE ASSE SSEE COMPANY ITSELF FOR THE A.Y. 2009-10(SUPRA), THE ADDITION OF RS.35,26,029/- IN THIS CASE ON ACCOUNT OF DISALLOWANCE OF INTEREST BY INVOKING PROVISIONS OF SECTION 36(L)(III) OF THE ACT ON THE GROUND THAT THE ASSESSEE COMPANY HAS GIVEN LOAN/ADV ANCE TO M/S HERO MOTORS OUT OF BORROWED FUNDS BUT CHARGING INTEREST ONLY @ 6% AS AGAINST INTEREST PAID BY THE ASSESSEE COMPANY ON BORROWED F UNDS @ 7.5% IS DIRECTED TO BE DELETED ON THE BASIS OF SAME REASONING AND LOGIC AS ADOPTED BY THE HONOURABLE ITAT, CHANDIGARH IN THE CASE OF THE ASSE SSEE COMPANY ITSELF FOR THE A.Y. 2009-10 WHILE DELETING THE IDENTICAL ADDITION IN A.Y. 2009-10. IN THE RESULT, THE GROUND NO. 5 OF APPEAL TAKEN BY THE ASSESSEE COMPAN Y IS ALLOWED. 9.4 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSES SING OFFICER AS MADE BY HIM IN PARA 3 OF THE ASSESSMENT ORDER WHILE MAKING THE IMPUGNED ADDITION. I HAVE ALSO CONSIDERED WRITTEN SUBMISSIONS FILED BY T HE ASSESSEE COMPANY THROUGH ITS LEARNED AR VIDE LETTERS DATED 25.07.2014, 18.08 .2014, 21.10.2014, 16.01.2015, 19.05.2016 AND 02.08.2017 ON THE ISSUE UNDER REFERE NCE. I HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LEARNED AR OF THE ASSESSEE COMPANY INCLUDING THE ORDER OF THE HONOURABLE APEX COURT IN THE CASE OF THE ASSESSEE COMPANY ITSELF REPORTED AT (2016) 236 TAXM AN 447 (SC) AS WELL AS OTHER MATERIAL PLACED BY HIM ON RECORD. ON CAREFUL CONSIDE RATION OF THE RIVAL CONTENTIONS, IT HAS BEEN NOTICED THAT THE ISSUE UND ER CONSIDERATION IS SQUARELY COVERED IN FAVOR OF THE ASSESSEE COMPANY BY THE ORD ER OF HONOURABLE APEX COURT IN THE CASE OF THE ASSESSEE COMPANY ITSELF AN D ALSO BY THE ORDER OF THE HONOURABLE PUNJAB AND HARYANA HIGH COURT IN THE CAS E OF M/S BRIGHT ENTERPRISES (P) LIMITED VS. CIT REPORTED AT (2016) 381 ITR 107 (P&H) VIDE WHICH SIMILAR ADDITIONS WERE DELETED. MOREOVER, THE ASSESSEE COMPANY HAS SU FFICIENT INTEREST FREE FUNDS TO PAY SHARE APPLICATION MONEY UNDER CONSIDERATION. AS THE FACTS OF THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATI ON AS FAR AS THE ADDITION UNDER CONSIDERATION IS CONCERNED ARE IDENTICAL TO T HE FACTS OF THE CASE OF THE ASSESSEE COMPANY FOR EARLIER YEARS AND THERE IS NO MATERIAL DIFFERENCE IN THE FACTS, THE RATIO OF THE DECISIONS OF HONOURABLE APE X COURT IN THE CASE OF THE ASSESSEE COMPANY ITSELF REPORTED AT (2016) 236 TAXM AN 447 (SC) AND HONOURABLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF M/S BR IGHT ENTERPRISES (P) LIMITED VS. CIT REPORTED AT (2016) 381 ITR 107 (P&H) VIDE W HICH SIMILAR ADDITIONS WERE DELETED IS SQUARELY APPLICABLE TO THE CASE OF THE A SSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION. SO RESPECTFULLY FOLLOWING THE ORDERS OF THE HONOURABLE APEX COURT IN THE CASE OF THE ASSESSEE COMPANY ITSELF RE PORTED AT (2016) 236 TAXMAN 447 (SC) AND HONOURABLE PUNJAB AND HARYANA HIGH COU RT IN THE CASE OF M/S BRIGHT ENTERPRISES (P) LIMITED VS. CIT REPORTED AT (2016) 381 ITR 107 (P&H) (SUPRA), THE ADDITION OF RS. 1,06,61,301/- IN THIS CASE ON A CCOUNT OF DISALLOWANCE OF INTEREST BY INVOKING PROVISIONS OF SECTION 36(L)(III) OF THE ACT ON THE GROUND THAT THE ASSESSEE COMPANY HAS PAID SHARE APPLICATION MONEY A LLEGEDLY OUT OF BORROWED FUNDS IS DIRECTED TO BE DELETED ON THE BASIS OF SAM E REASONING AND LOGIC AS ADOPTED BY THE HONOURABLE APEX COURT AND HONOURABLE PUNJAB AND HARYANA HIGH COURT WHILE DELETING THE IDENTICAL ADDITIONS. IN THE RESULT, THE GROUNDS NO. 6 AND 6(B) TAKEN BY THE ASSESSEE COMPANY ARE ALLOWED. 28 10.4 I HAVE CONSIDERED THE OBSERVATIONS OF THE AS SESSING OFFICER AS MADE BY HIM IN PARA 3 OF THE ASSESSMENT ORDER WHILE MAKING THE IMPUGNED ADDITION. I HAVE ALSO CONSIDERED WRITTEN SUBMISSIONS FILED BY THE AS SESSEE COMPANY THROUGH ITS LEARNED AR VIDE LETTERS DATED 25.07.2014, 18.08.201 4, 21.10.2014, 16.01.2015, 19.05.2016 AND 02.08.2017 ON THE ISSUE UNDER REFERE NCE. I HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LEARNED AR OF THE ASSESSEE COMPANY INCLUDING THE ORDER OF LEARNED CIT(A)-2, LU DHIANA IN APPEAL NO. 490/IT/CIT(A)-2/LDH/2014-15 DATED 10.03.2016 IN THE CASE OF M/S MUNJAL CASTINGS AND THE ORDERS OF THE HONOURABLE ITAT, CHANDIGARH I N THE CASE OF ASSESSEE COMPANY ITSELF FOR A.YS. 2009-10 AND 2010-11 AS WEL L AS OTHER MATERIAL PLACED BY HIM ON RECORD. ON CAREFUL CONSIDERATION OF THE RIVAL CONTENTIONS, IT HAS BEEN NOTICED THAT THE ISSUE UNDER CONSIDERATION IS SQUAR ELY COVERED IN FAVOR OF THE ASSESSEE COMPANY BY THE ORDERS OF THE HONOURABLE IT AT, CHANDIGARH IN ITA NO. 314/CHD./2013 FOR THE A.Y. 2009-10 DATED 16.02.2016 AND ITA NOS. 720/CHD./2014 FOR THE A.Y. 2010-11 DATED 03.04.2017 IN THE CASE O F THE ASSESSEE COMPANY ITSELF AS THE IDENTICAL ADDITION MADE BY THE ASSESSING OFFI CER IN A.YS. 2009-10 & 2010-11 WAS DELETED BY THE HONORABLE JURISDICTIONAL ITAT. A S THE FACTS OF THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION A S FAR AS THE ADDITION UNDER CONSIDERATION IS CONCERNED ARE IDENTICAL TO THE FAC TS OF THE CASE OF THE ASSESSEE COMPANY FOR THE A.YS. 2009-10 & 2010-11 AND THERE I S NO MATERIAL DIFFERENCE IN THE FACTS, THE RATIO OF THE DECISIONS OF HONORABLE ITAT, CHANDIGARH FOR THE A.YS. 2009-10 & 2010-11 IS SQUARELY APPLICABLE TO THE CAS E OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION. SO RESPECTFULLY FOLLO WING THE ORDERS OF THE HONOURABLE ITAT, CHANDIGARH IN THE CASE OF THE ASSE SSEE COMPANY ITSELF FOR THE A.YS 2009-10 AND 2010-11 (SUPRA), THE ADDITION OF R S. 2,02,663/- IN THIS CASE ON ACCOUNT OF CAPITALIZATION OF INTEREST BY INVOKING P ROVISIONS OF SECTION 36 (I)(III) OF THE ACT AS THE ASSESSEE COMPANY HAS SHOWN HUGE ASSE TS UNDER THE HEAD CAPITAL WORK IN PROGRESS IS DIRECTED TO BE DELETED ON THE B ASIS OF SAME REASONING AND LOGIC AS ADOPTED BY THE HONOURABLE ITAT, CHANDIGARH IN THE CASE OF THE ASSESSEE COMPANY ITSELF FOR THE A.YS. 2009-10 AND 2010-11 WH ILE DELETING THE IDENTICAL ADDITION IN THESE YEARS. IN THE RESULT, THE GROUND NO. 7 TAKEN BY THE ASSESSEE COMPANY IS ALLOWED. 20. NOW THE DEPARTMENT IS IN APPEAL. 21. THE LD. CIT DR STRONGLY SUPPORTED THE ORDER OF THE A.O. AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER DT. 31/01 /2014. 22. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND F URTHER SUBMITTED THAT THE ISSUE UNDER CONSIDERATION HAD ALREADY BEEN DECIDED BY THIS BENCH OF THE ITAT IN ASSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEA R 2010-11 IN ITA NOS. 720 & 758/CHD/2014 WHEREIN ON A SIMILAR ISSUE, THE APPEAL OF THE DEPARTMENT WAS 29 DISMISSED VIDE ORDER DT. 03/04/2017, THE RELEVANT F INDINGS ARE GIVEN IN THE AFORESAID ORDER VIDE PARAS 18,19,23,24,42 AND 43 WH ICH READ AS UNDER: 18. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED TH E MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE ORDER OF THE I.T.A.T., CHANDIGARH BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10. ON PERUSING THE SAME, WE FIND IDENTICAL ISSUE HAS BEEN DEALT WITH BY THE I.T.A.T. WHEREIN AS PER THE FACTS OF THE SAID CASE A LOAN OF RS.10 CRORES HAD BEEN GIVEN TO M/S HERO MOTORS LTD. @ 6%, WHEREAS TO OTHER PERSONS LOAN WAS GRANTED @ 12% TO 15%. THE ASSESSING OFFICER IN THE SAID CASE NOTED THAT THE AVERAGE RATE OF INTERE ST PAYMENT MADE BY THE ASSESSEE ON LOANS RAISED BY IT WAS 7.75% AND, THERE FORE, THE EXCESS INTEREST PAYMENT @ 1.75% ON THE LOANS PAID AS AGAINST INTERE ST RECOVERED FROM M/S HERO MOTORS LTD., WAS DISALLOWED. THE I.T.A.T. IN THE SA ID CASE HAD HELD THAT THE ASSESSEE HAD AMPLY DEMONSTRATED THAT IT WAS A CASH RICH COMPANY HAVING OWN HUGE FUNDS AND IN SUCH A SCENARIO IT COULD BE SAFEL Y PRESUMED THAT THE LOANS WERE GIVEN OUT OF OWN FUNDS. THE I.T.A.T. HAD FURTH ER HELD THAT THE RATE OF INTEREST AT WHICH THE LOAN WAS GIVEN BY THE ASSESSEE BEING A BUSINESS DECISION OF THE ASSESSEE COULD NOT BE CHALLENGED BY THE REVENUE AND FOLLOWED THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. M/S DALMIA CEMENT LTD. (2002) 254 ITR 377. THE I.T.A.T. ALSO OBSERVED THAT THE HO N'BLE SUPREME COURT IN ASSESSEES OWN CASE HAD HELD THAT NO NOTIONAL ADDITION ON ACCO UNT OF LESSER RATE OF INTEREST CHARGED COULD BE MADE. THE RELEVANT FINDINGS OF THE I.T.A.T. AT PARA 16 OF THE ORDER ARE AS FOLLOW: 16. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CA SE ARE THAT THE ASSESSEE HAS GIVEN LOAN OF RS.10 CRORES TO M/S HERO MOTORS LTD. @ 6%. IT HAS AMPLY BEEN DEMONSTRATED BEFORE US THAT THE COMPANY IS A CASH RICH COMPANY AND HAS HUGE OWN FUNDS WHICH GOES TO THE TU NE OF AROUND 652 CRORES, WHILE THE TOTAL LOANS AND ADVANCES GIVEN BY IT ARE AT AROUND 116 CRORES. IN THIS SCENARIO, IT CAN SAFELY BE PRESUMED THAT THE ASSESSEE HAD GIVEN LOANS OUT OF ITS OWN FUNDS. HOWEVER, IN THE S AID CASE, THE ASSESSEE HAD NOT GIVEN INTEREST FREE LOANS, RATHER THE CASE OF THE ASSESSING OFF ICER IS THAT THE INTEREST CHARGED IS AT A LESSER RATE. I T HAS BEEN HELD IN THE CASE OF CIT VS. DALMIA CEMENT LTD. (2002) 254 ITR 377 (D EL) THAT THE REVENUE CANNOT JUSTIF IABLY CLAIM TO PUT ITSELF IN THE ARMC HAIR OF A BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME T HE SAID ROLE TO DECIDE HOW MUCH IS A REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. IT WAS FURTHER HELD THAT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMISE ITS PROFITS. AND THAT THE INC OME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AN D SEE HOW A PRUDENT BUSINESSMAN WOULD WORK. THE AUTHORITIES MUST LOOK A T THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. E VEN THE HON'BLE SUPREME COURT IN ASSESSEES OWN CASE AS REFERRED HE REINABOVE HAD HELD THAT APPLYING THE SAID RATIO TO THE F ACTS OF THE C ASE THAT NO SUCH NOTIONAL ADDITION ON ACCOUNT OF LESSER RATE OF INTEREST CHAR GED CAN BE MADE BY THE ASSESSEE. IN VIEW OF THIS, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION MADE BY HIM. THE GROUND NO.8 IS ALLOWED. 30 19. THE FACTS IN THE PRESENT CASE, WE FIND, ARE IDE NTICAL TO THAT IN ASSESSMENT YEAR 2009-10. IN THE IMPUGNED YEAR THE LOAN GIVEN IS RS. 50 CRORES,RS.10 CRORE BEING ADVANCED IN THE PRECEDING YEAR, WHILE THE PROFIT OF THE ASSESSEE FOR THE IMPUGNED YEAR IS RS.342.98 CRORES. CLEARLY THE ASSE SSEE HAD ENOUGH AND SUFFICIENT OWN FUNDS TO GIVE THE IMPUGNED LOAN AND FOLLOWING T HE DECISION OF THE I.T.A.T. IN ASSESSEES CASE FOR ASSESSMENT YEAR 2009- 10 IT CAN BE SAFELY PRESUMED THAT THE LOAN HAD BEEN GIVEN OUT OF THE OWN FUNDS OF THE ASS ESSEE AND, THEREFORE, CALLED FOR NO DISALLOWANCE TO BE MADE ON ACCOUNT OF INTERE ST. FURTHER HAS HELD BY THE I.T.A.T. IN ASSESSMENT YEAR 2009- 10, THE ASSESSING OFFICER CANNOT SIT IN THE ARM CHAIR OF THE ASSESSEE AND DECIDE THE RATE OF INTERE ST AT WHICH THE LOAN OUGHT TO HAVE BEEN GIVEN AND MOREOVER THE HON'BLE SUPREME CO URT HAS ALSO DELETED THE ADDITION MADE ON ACCOUNT OF NOTIONAL INTEREST EARNE D IN ASSESSEES CASE. IN VIEW OF THE SAME, THE DISALLOWANCE MADE AMOUNTING TO RS. 55,57,069/- ON ACCOUNT OF DIFFERENTIAL INTEREST CHARGED FROM M/S HERO MOTORS LTD. IS THEREBY DELETED. THE GROUND OF APPEAL NO.8 RAISED BY THE ASSESSEE IS, TH EREFORE, ALLOWED IN ABOVE TERMS. 23. BEFORE US, LD. COUNSEL FOR THE ASSESSEE CONTEND ED THAT IDENTICAL ISSUE HAD BEEN DEALT WITH BY THE I.T.A.T., CHANDIGARH BENCH I N ASSESSEES CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.314/CHD/2013 DATE D 16.2.2016 WHEREIN THE DISALLOWANCE MADE HAD BEEN DELETED ON ACCOUNT OF TH E FACT THAT THE ASSESSEE HAD ENOUGH OWN FUNDS FOR THE PURPOSE OF INVESTING I N THE CAPITAL WORK-IN- PROGRESS. THE I.T.A.T. FOLLOWING THE DECISION OF TH E I.T.A.T., CHANDIGARH BENCH IN THE CASE OF DCIT VS. SAMRAT FORGINGS LTD. IN ITA NO.975 /CHD/2011 DATED 24.5.2012 HAD DELETED THE DISALLOWANCE MADE. THE RELEVANT FIN DINGS OF THE I.T.A.T. AT PARA 22-23 OF THE ORDER ARE AS UNDER: 22. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. ON PERUSAL OF THE ORDER OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF SAMART FORGINGS LTD. (SUPRA), WE SEE THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE I.T.A.T. AT PAGE 9 OF THE S AID OR, WHICH READS AS UNDER : '9. THE PROVISIONS OF MAIN SECTION AND THE PROVISO ARE IN RELATION TO THE AMOUNT OF INTEREST PAYABLE ON CAPIT AL BORROWED. THE FIRST JUNCTURE THUS TO BE SEEN IS WHE THER THE ASSESSEE HAD BORROWED ANY CAPITAL FOR THE PURPOSES OF INVESTMENT IN CAPITAL ASSET FOR EXTENSION OF EXISTI NG BUSINESS OR PROFESSION. IN THE FACTS OF THE PRESENT CASE, TH ERE IS NO FINDING BY THE ASSESSING OFFICER IN RESPECT OF THE BORROWALS MADE BY THE ASSESSEE FOR THE PURPOSES OF INVESTMENT IN CAPITAL WORK-IN-PROGRESS. THE ASSESSING OFFICER NOT ED THAT THE ASSESSEE HAD SHOWN CAPITAL WORK-IN-PROGRESS IN ITS BALANCE SHEET AND CONSEQUENTLY COMPUTED DISALLOWANCE IN VIE W OF THE PROVISIONS OF PROVISO TO SECTION 36(L)(III) OF THE ACT.THE CIT (APPEALS) HAS GIVEN THE FINDING THAT NO LOAN HAD BE EN RAISED BY THE ASSESSEE COMPANY FOR THE PURCHASE OF FURNACE OR FOR THE CONSTRUCTION OF BUILDING. THE SAID FINDING OF T HE CIT (APPEALS) HAD NOT BEEN CONTROVERTED BY THE LEARNED D.R. FOR THE REVENUE. FURTHER THE CIT (APPEALS) HAS ALSO NOT ED THAT THE TOTAL INVESTMENT MADE BY THE ASSESSEE DURING TH E YEAR ON 31 CAPITAL WORK-IN-PROGRESS WAS RS.42.46 LACS SPENT ON FURNACE AND RS.33.23 LACS ON THE BUILDING AS AGAINST THE NE T PROFIT OF THE ASSESSEE FOR THE YEAR AT RS.1.97 CRORES. IN VIE W OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE FIND NO MERI T IN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. UPLOADI NG THE ORDER OF THE CIT (APPEALS) WE DISMISS GROUND NO.L R AISED BY THE REVENUE. ' 23.SINCE NO DISTINGUISHING FACTS WERE BROUGHT TO OU R NOTICE DURING THE COURSE OF HEARING, RESPECTFULLY FOLLOWIN G THE ORDER OF THE COORDINATE BENCH, WE ALLOW THIS GROUND OF AP PEAL ' 24. THE FACTS IN THE PRESENT CASE ARE IDENTICAL TO THAT IN THE PRECEDING YEAR. THE INVESTMENTS MADE IN CAPITAL WORK-IN-PROGRESS IN THE IMPUGNED YEAR AMOUNTED TO RS.6,06,85,936/-. THE PROFITS EARNED BY THE ASSESSE E DURING THE IMPUGNED YEAR AMOUNTED TO RS.342.98 CRORES. THUS THE ASSESSEE HAD SUFFICIENT FUNDS FOR THE PURPOSE OF MAKING INVESTMENT IN THE CAPITAL WORK-IN -PROGRESS AND THE DECISION RENDERED IN ASSESSEES CASE FOR ASSESSMENT YEAR 200 9-10 WILL, THEREFORE, SQUARELY APPLY IN THE PRESENT CASE ALSO FOLLOWING WHICH WE H OLD THAT NO DISALLOWANCE OF INTEREST ON ACCOUNT OF INVESTMENT MADE IN CAPITAL W ORK-INPROGRESS IS WARRANTED AND DISALLOWANCE MADE TO THE EXTENT OF RS.2,78,564/ - IS, THEREFORE, DIRECTED TO BE DELETED. GROUND NO.9 OF ASSESSEES APPEAL IS, THEREFORE, ALL OWED IN THE ABOVE TERMS. 42. WE HAVE HEARD BOTH THE PARTIES. WE HAVE GONE TH ROUGH THE ORDER OF THE I.T.A.T. IN ITA NO.493/CHD/2013. AT PARAS 35 AND 36 OF THE SAID ORDER, THE I.T.A.T. HAS AFFIRMED THE FINDINGS OF THE LD. CIT (APPEALS) AND HELD THAT SINCE THE ASSESSEE WAS MAKING CONSISTENT SALE AND PURCHASE FROM THESE TWO CONCERNS, ANY DEBIT BALANCE REMAINING IN THE ACCOUNTS OF THESE CONCERNS CANNOT BE PRESUMED TO BE IN THE NATURE OF LOANS AND ADVANCES AND, THEREFORE, DELETED THE DISALLOWANCE MADE U/S 36(1)(III) OF THE ACT. THE RELEVANT FINDIN GS OF THE I.T.A.T. ARE AS FOLLOWS: 35. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED TH E MATERIAL AVAILABLE ON RECORD. ON PERUSAL OF THE ORDER OF THE LEARNED CIT ( APPEALS), WE SEE THAT HE HAS GIVEN HIS F INDING AT PAGE 19 OF HIS ORDER, WHICH R EADS AS UNDER : THE ISSUE WHICH NEEDS CONSIDERATION IS THAT GIVEN THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE WHETHER ANY INTEREST NEED S TO BE DISALLOWED OUT OF THE INTEREST EXPENDITURE ON THE GROUND THAT THE FUNDS W ERE DIVERTED FOR NON-BUSINESS PURPOSES. IT HAS BEEN DECIDED BY THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. THAT WHERE THE FUNDS OF THE APPELLANT HAD BEEN DIVERTED FOR NON-BUSINESS PURPOSES THEN THE PR OPORTIONATE INTEREST NEEDS TO BE DISALLOWED. HOWEVER THE CASE OF M/S ABHISHEK IND USTRIES LTD. IS APPLICABLE ONLY WHERE ANY AMOUNT WAS ADVANCED AS LOAN. IN THIS REGA RD REFERENCE MAY BE MADE TO THE CASE OF M/S POWER DRUGS LTD. VS. ADDITI ONAL CIT, RANGE-III, CHANDIGARH IN ITA NO.313/CHD/2011. IN THIS ORDER, T HE HON'BLE I.T.A.T., CHANDIGARH OBSERVED AS UNDER :- ON HEARING THE RIVAL CONTENTIONS OF THE PARTIES, WE FIND THAT IT IS AN ADMITTED POSITION THAT THE AMOUNT WAS ADVANCED FOR ACQUISITI ON OF NEW ASSET WHICH WAS CLAIMED TO BE FOR THE FURTHERANCE OF THE BUSINESS A CTIVITY OF THE ASSESSEE BEFORE 32 US. ADMITTEDLY, THE AMOUNT WAS NOT ADVANCED AS A LO AN AND WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN APPLYING THE RAT IO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES (SUPRA). ' THIS OBSERVATION OF THE HON'BLE IT AT WAS ALSO NOTE D BY THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF POWER DRUGS LTD. VS. CIT (2011) 62 DTR(P&H) 276 KEEPING IN VIEW THE AFORESAID DECISIONS OF THE HON' BLE ITAT AND HON'BLE JURISDICTIONAL HIGH COURT, IT IS HELD THAT THE CASE OF M/S ABHISHEK INDUSTRIES LTD. IS NOT APPLICABLE WHERE ANY AMOUNT WAS NOT ADVANCED AS LOAN. IN THE INSTANT CASE, THE UNDISPUTED FACT IS THAT NO AMOUNT OF DEBI T BALANCE IS ON ACCOUNT OF ANY LOAN GIVEN BY THE APPELLANT TO M/S HERO EXPORTS LTD. OR TO M/S HERO MOTORS LTD. THIS FACT HAD BEEN STATED BY THE APPELLANT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS. THE SAME WAS NOT CONTROVERTED BY THE A O. THE AO MERELY HELD THAT IN VIEW OF THE FACT THAT THE THREE COMPANIES A RE GROUP CONCERNS AND IN VIEW OF THE FACT THAT HUGE AMOUNTS WERE OUTSTANDING FROM BOTH M/S HERO EXPORTS LTD. AND M/S HERO MOTORS LTD. THE SAME IS IN THE NATURE OF INTEREST FREE ADVANCE. THIS OBSERVATION OF THE AO IS NOT BASED ON PROPER APPRECI ATION OF FACTS AS DISCUSSED IN THE FINDINGS ABOVE. THE TOTAL SALES TO M/S HERO EXPORTS LTD. WERE OF THE AMOUNT OF RS.68.55 CRORES OUT OF WHICH THE APPELLANT HAD R ECEIVED MORE THAN RS.42.00 CRORES. THUS ABOUT 2/3RD OF THE PAYMENTS ON ACCOUNT OF SALES MADE TO M/S HERO EXPORTS LTD. WERE ACTUALLY RECEIVED BY THE APPELLAN T DURING THE YEAR. KEEPING IN VIEW THE AFORESAID FACTUAL AND LEGAL POS ITION, I HOLD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE PROPORTIONATE INTE REST EXPENDITURE ON DEBIT BALANCE OUTSTANDING IN THE NAMES OF GROUP COMPANIES . THESE GROUNDS OF APPEAL ARE ACCORDINGLY ALLOWED. 36. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF TH E LEARNED CIT (APPEALS) AS IT IS AN UNDISPUTED F ACT THAT THE ASSESSEE WAS MAKING CONST ANT SALE AND PURCHASES FROM THESE TWO CONCERNS AND AMOUNTS OF MONEY COMING AND GOING WERE ON ACCOUNT OF REGULAR BUSINESS OF THE ASSESSEE. DURING THE COU RSE OF BUSINESS IF SOME AMOUNT REMAINS AT THE DEBIT OF THE OTHER COMPANY, THE ASSE SSING OFFICER CANNOT JUST PRESUME IT TO BE IN THE NATURE OF LOANS AND ADVANCE S. HERE ALSO, THE OBSERVATIONS OF THE DELHI HIGH COURT IN THE CASE OF DALMIA CEMEN T LTD. (SUPRA) IS PERTINENT, WHEREBY IT WAS HELD THAT IT IS NOT THE PREROGATIVE OF THE DEPARTMENT TO DICTATE THE TERMS OF THE BUSINESS AND REVENUE CANNOT IMPOSE ITS VIEW ON THE BUSINESSMAN WHEN TO GIVE ANY MONEY AND WHEN TO RECE IVE IT BACK. THE TRANSACTIONS ARE GOING ON WITH THE SISTER CONCERNS ON REGULAR BUSINESS. STEPS ARE BEING MADE AND EVEN IF SOME AMOUNT REMAINS AT THE D EBIT, THE ASSESSING OFFICER CANNOT CONSIDER THE SAME AS LOAN AND CANNOT MAKE AD DITION UNDER SECTION 36(1)(III) OF THE ACT ON THE SAME. 43. SINCE THE FACTS OF THE PRESENT CASE ARE IDENTIC AL TO THAT IN ASSESSMENT YEAR 2009-10 AND NO DISTINGUISHING FACTS WERE BROUGHT TO OUT NOTICE, THE DECISION OF THE I.T.A.T. IN ASSESSMENT YEAR 2009-10 SQUARELY AP PLIES TO THE PRESENT CASE ALSO FOLLOWING WHICH WE CONFIRM THE ORDER OF THE LD. CIT (APPEALS) IN DELETING DISALLOWANCE MADE U/S 36(1)(III) OF THE ACT OF RS.2 ,09,66,994/-. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER IN ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YEAR I.E; 2010-11 IN ITA NO. 720 & 33 758/CHD/2014 DT. 03/04/2017. WE DO NOT SEE ANY VALI D GROUND TO INTERFERE WITH THE FINDINGS GIVEN BY THE LD. CIT(A). 23. LAST ISSUE VIDE GROUND NO. (VI) RELATES TO THE DELETION OF DISALLOWANCE MADE BY THE A.O ON ACCOUNT OF CONSULTANCY SERVICES EXPENSES. 24. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE A.O. MADE THE IMPUGNED DISALLOWANCE BY OBSERVING IN PARA 6 OF THE ASSESSMENT ORDER DT. 31/01/2014 AS UNDER: 6. DISALLOWANCE OF CONSULTANCY SERVICES EXPENSES: - THE ASSESSEE VIDE ITS REPLY DATED 20.11.2013 HAD SU BMITTED THAT IT HAD PAID RS. 34,74,448/- AS CONSULTANCY SERVICES FEES TO M/S. HE RO CORPORATE SERVICES LTD. THE ASSESSEE VIDE NOTE SHEET ENTRY DATED 04.12.2013 WAS REQUESTED TO SUBMIT THE DETAILS OF THE CONSULTANCY SO PROVIDED BY 16.12.201 3. THE ASSESSEE VIDE ITS REPLY DATED 16.12.2013 HAS SU BMITTED A LIST OF SCOPE OF SERVICES TO BE PROVIDED BY HCSL TO THE ASSESSEE COM PANY WHICH IS ABOUT STRATEGIC PLANNING, FINANCIAL MANAGEMENT, HRD ETC. ALSO VIDE LETTER DATED 09.01.2014 (PARA-4) THE ASSE SSEE WAS ASKED TO FURTHER JUSTIFY THE ALLOWABILITY OF THE CONSULTANCY EXPENSES PAY, T HE RELEVANT PARAS OF THE SAID LETTER IS AS BELOW:- 4. 'FURTHER VIDE NOTE SHEET ENTRY DATED 04.12.2013 A Q UERY REGARDING THE JUSTIFICATION OF PAYMENT OF RS. 34,74,448/- AS PAID TO M/S. HERO CORPORATE SERVICES WAS RAISED AND DETAILS REGARDING THE SAME WERE CALL ED FOR. VIDE REPLY DATED 16.12.2013 AS SUBMITTED BY YOUR AUTHORIZE REPRESENT ATIVE A COPY OF INVOICE AND A BRIEF SCOPE OF SERVICES AND TERMS AND CONDITIONS HA S BEEN SUBMITTED. YOU ARE REQUESTED TO FURNISH THE FOLLOWING INFORMATION:- I) THE NATURE OF CONSULTANCY PROVIDED DURING THE F. Y. 2010-11. II) THE WHETHER ANY CONSULTANCY WAS SPECIFICALLY SO UGHT BY M/S. HERO CYCLES LTD. FROM M/S. HERO CORPORATE SERVICES LTD.? IF YES , FOR WHICH AREAS THE CONSULTANCY WAS REQUIRED FOR? PLEASE SUBMITTED THE CORRESPONDENCE FROM YOUR SIDE REGARDING THE SAME. III) IN CONTINUATION OF THE ABOVE PARA PLEASE SUBMI T THE DOCUMENTATION OF THE CONSULTANCY AS PROVIDED BY M/S. HERO CORPORATE SERV ICES LTD. IV) PLEASE JUSTIFY THE QUANTIFICATION OF THE AMOUNT PAID TO M/S. HERO CORPORATE SERVICES LTD. BY YOUR COMPANY FOR THE F.Y. 2010-11' . THE ASSESSEE HAS SUBMITTED ITS REPLY VIDE LETTER DA TED 27.01.2014 AS FOLLOWS:- 'WITH REFERENCE TO YOUR HONOUR'S QUERIES RAISED VID E LETTER DATED 09.01.2014 REGARDING PROFESSIONAL FEE PAID AT RS. 34,74,448/-, IT IS SUBMITTED AS UNDER:- 34 THE ASSESSEE COMPANY HAS ALREADY FILED PHOTOCOPY OF LETTER DATED 02.04.2010 FROM M/S. HERO CORPORATE SERVICE LIMITED (HSCL) GIV ING DETAILS OF SERVICES BEING PROVIDED BY THE PARTY ALONGWITH PHOTOCOPY OF ONE OF THE INVOICE FOR THE QUARTER ENDED SEPTEMBER, 2010 AT PAGES 1073 TO 1075. STATEM ENT OF PARTY'S ACCOUNT HAS ALSO BEEN FILED AT PAGE-380. M/S. HCSL WAS INCORPORATED WITH AN OBJECTIVE TO PRO VIDE, MANAGEMENT ADVISORY SERVICES TO VARIOUS GROUP ENTITIES INSTEAD OF, ENGA GING PROFESSIONALS AT INDIVIDUAL COMPANY/UNDERTAKING LEVEL ON THE CORPORATE BASIS IN THE FILED OF FINANCE, TREASURY, HR, PRODUCT EFFECTIVENESS, EXPANSION OF C LIENTS AND NEW MARKETS, COST REDUCTION PROGRAMS, INCREASE IN PRODUCTIVITY PROGRA MS ETC ....... * IN EVIDENCE OF THE SERVICES TAKEN BY CR DIVISION FR OM HCSL WE ARE ENCLOSING ALONGWITH THE FOLLOWING: AGENDA, MINUTES OF THE MEETING HELD ON 5 TH MAY, 2010 WITH HCSL AND PHOTOCOPIES OF HOTEL BILLS OF THEIR STAY ON 4 TH AND 5 TH MAY 2010. AGENDA AND PHOTOCOPIES OF THE HOTEL STAY BILLS OF E MPLOYEES OF HCSL ON 13/14 JULY, 2010. PHOTOCOPIES OF HOTEL STAY BILLS OF HCSL ON 10/11 AU G. 2010 AND STAY CHARGES OF KORES ENGG. CONSULTANTS THROUGH HCSL ON 25 TH /26 TH OCTOBER, 2010 IN CONNECTION WITH THE ENGINEERING STUDY. PHOTOCOPIES OF THE BRIEF ENGINEERING STUDY TO IMPRO VE THE EQUIPMENT HEALTH AND PROCESSES ARE ALSO ENCLOSED. MINUTES OF THE MEETING HELD ON 20 TH OCTOBER, 2010 WITH HCSL. MINUTES OF THE MEETING HELD ON 25 TH NOVEMBER, 2010. PHOTOCOPIES OF HOTEL STAY OF HCSL ON 14 TH /15 TH DECEMBER, 2010 AND 15 TH FEBRUARY & 16 TH FEBRUARY, 2011. AGENDA AND PAPER ON THE PROGRAMME -'SUPPLIER OF CHO ICE' BY HCSL FOR HERO C.R.D. ORGANIZED ON 22 ND AND 23 RD JANUARY, 2011. PHOTOCOPIES OF TRAVELLING BILLS- 13 TH AND 14< H MAY, 2010/17 TH TO 21 ST APRIL, 2010 OF HERO CRD EMPLOYEES WHO VISITED HCSL OFFICE IN CONNE CTION WITH THE FOLLOW UP ON ABOVE MINUTES OF MEETING.' THE ASSESSEE HAS ALSO GIVEN SECOND SUBMISSION OF EV EN DATE WHICH INCLUDES CERTAIN CORRESPONDENCE AND REPORTS. THE SUBMISSIONS OF THE ASSESSEE, BOTH OF 27.01.2014 IN REFERENCE TO THE NOTE SHEET QUERIES DATED 04.12.2013 AND OF THE LETTER ISSUED F ROM THIS OFFICE DATED 09.01.2014 HAVE BEEN DULY PERUSED AND CONSIDERED. THE ASSESSEE IN ITS SUBMISSION HAS MERELY GIVEN A GENERALIST REPLY REGARDING THE SERVI CES BEING PROVIDED BY HCSL. THE ASSESSEE HAS PRIMARILY SUBMITTED THE HOTEL BILL S, TRAVELLING BILLS AND CERTAIN EMAILS WHICH DO NOT PROVIDE ANY CONCLUSIVE PROOF OF THE CONSULTANCY SERVICES BEING RENDERED BY HCSL TO THE ASSESSEE COMPANY. THE ASSESSEE HAS ALSO SUBMITTED CERTAIN MINUTES OF THE MEETING (PAGES-205 1-2052 OF THE ASSESSEE SUBMISSION) WHICH ARE VAGUE AND DO NOT PROVIDE ANY EVIDENCE OF CONSULTANCY SERVICES PROVIDED BY HCSL TO THE ASSESSEE COMPANY. 35 THE SUBMISSIONS OF THE ASSESSEE ALSO DO NOT REPLY T O THE QUERIES AS RAISED VIDE THIS OFFICE LETTER DATED 09.01.2014. THE NATURE OF CONSU LTANCY AS PROVIDED BY HCSL TO THE ASSESSEE COMPANY HAS STILL NOT BEING REPLIED S O AS TO JUSTIFY THE PAYMENT OF THE SAID EXPENSES FOR THE PURPOSE OF BUSINESS. THE REPL IES OF THE ASSESSEE DO NOT SHOW ANY DOCUMENTARY EVIDENCE OF STRATEGIC PLANNING CONS ULTANCY, FINANCE CONSULTANCY, HRD CONSULTANCY ETC. AS PROMISED BY HC SL BEING PROVIDED TO THE ASSESSEE COMPANY. THE ASSESSEE HAS ALSO NOT REPLIED TO THE QUERY AS TO WHETHER ANY CONSULTANCY WAS SPECIFICALLY SOUGHT BY M/S. HER O CYCLES LTD. FROM M/S. HERO CORPORATE SERVICES LTD. THE ASSESSEE HAS ALSO NOT R EPLIED TO AS TO WHICH AREAS THE CONSULTANCY WAS REQUIRED FOR. ALSO NO CORRESPONDENC E REGARDING THE SAME HAS BEEN SUBMITTED BY THE ASSESSEE. THE ASSESSEE HAS AL SO NOT SUBMITTED THE QUANTIFICATION AND THE METHODOLOGY AS TO HOW THE AM OUNT OF CONSULTANCY AMOUNT PAID OF RS. 34,74,448/- WAS ARRIVED AT. IN V IEW OF THE ABOVE DISCUSSION AND THAT THE ASSESSEE HAS NOT PROVED WITH EVIDENCE THE JUSTIFICATION ABOUT THE CONSULTANCY SERVICES AVAILED AND THAT THE SAID PAYM ENT WAS WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES, THE SAID AMOUNT OF CONSULTANCY EXPENSES OF RS. 34,74,448/- IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 25. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND FURNISHED THE WRITTEN SUBMISSION WHICH HAD BEEN INC ORPORATED IN PARA 11.1 OF THE IMPUGNED ORDER, FOR THE COST OF REPETITION THE SAME IS NOT REPRODUCED HEREIN. 25.1 THE LD. CIT(A) FORWARDED THE WRITTEN SUBMISSIO NS FURNISHED BY THE ASSESSEE TO THE A.O. FOR HIS COMMENTS IN RESPONSE THE A.O. F URNISHED THE REPORT VIDE LETTER DT. 06/02/2015 RELEVANT PORTION OF WHICH READ AS UN DER: SL. NO. CONTENTION COMMENTS 5. THAT THE ID. ADDL. CIT HAS WRONGLY HELD THAT THE ADVISORY FEE PAID TO M/S HERO CORPORATE SERVICE LIMITED IS NOT JUSTIFIABLE FOR BUSINESS PURPOSES DISALLOWED OF RS.34,74,448/- BY NOT FOLLOWING THE CONSISTENCY OF THIS EXPENDITURE BEING ALLOWED IN LAST MORE THAN 15 YEARS. THE LD. ADDL. CIT, HAD PROVIDED AMPLE OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE BUSINESS EXPEDIENCY OF THE EXPENSES. THE ID. A.O. HAD PROVIDED OPPORTUNITY VIDE ORDER SHEET ENTRY DATED 04.12.2013 AND THEN AGAIN ON 09.01.2014 AND HAD RAISED SPECIFIC QUERIES TO WHICH THE ASSESSEE COULD NOT PROVIDE ANY SATISFACTORY REPLY. THUS THE ID. A.O. HAD VERY RIGHTLY MADE THE DISALLOWANCE. THE ISSUE MAY THEREFORE, BE CONSIDERED BY YOUR GOODSELF ON MERITS. 36 25.2 THE SAID REPORT OF THE A.O. WAS FORWARDED TO T HE ASSESSEE BY THE LD. CIT(A) FOR ITS COMMENTS AND THE ASSESSEE IN COUNTER COMMENTS SUBMITTED VIDE LETTER DT. 19/05/2016 AS UNDER: SR.NO.5 - ADVISORY FEE PAID TO M/S. HERO CORPORATE SERVICE LTD. - GR.NO.8 - (REFER APPEAL NOTES PAGES AT 65 TO 79) THE COMPLETE DETAILS WERE SUBMITTED BEFORE THE AO AL ONG WITH NECESSARY EVIDENCE DURING THE ASSESSMENT PROCEEDINGS. PLEASE REFER TO PHOTOCOPIES OF DETAILS AND DOCUMENTS ALREADY FILED BEFORE THE AO A T PAPER BOOK PAGES 361 TO 679. HOWEVER, IT MAY BE MENTIONED THAT UNDER THE SIMILAR CIRCUMSTANCES AND FACTS ADVISORY FEE PAID TO M/S. HERO CORPORATE SERVICE LT D. IN THE A.Y.2012-13, THE AO AFTER DUE CONSIDERATION OF SUBMISSIONS HAS ACCEPTED THE ASSESSEE'S CLAIM. DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF C IT V GLAXO SMITHKLINE ASIA P LTD, 195 TAXMAN 35 IS SQUARELY APPLICABLE. YOUR HON OUR'S PREDECESSOR HAD RELIED UPON THIS DECISION WHILE DECIDING THE ISSUE OF COMM ISSION PAID TO MUNJAL SALES CORPORATION (GNO. 3) BEING TAX NEUTRAL. THE RELIANCE IS ALSO PLACED ON HON 'BLE SUPREME COU RT JUDGMENT REPORTED IN 236 TAXMAN 447 REFER SUPRA IN ASSESSEE'S CASE. 25.3 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE, REMAND REPORT OF THE A.O. AND COUTNER COMMENTS OF THE ASSE SSEE AND BY FOLLOWING THE EARLIER ORDER OF THE ITAT DT. 03/04/2017 FOR THE A. Y. 2010-11 IN ITA NO. 758/CHD/2014 IN ASSESSEES OWN CASE DELETED THE IMP UGNED ADDITION BY OBSERVING IN PARA 11.4 OF THE IMPUGNED ORDER AS UND ER: 11.4 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSESS ING OFFICER AS MADE BY HIM IN PARA 3 OF THE ASSESSMENT ORDER WHILE MA KING THE IMPUGNED ADDITION. I HAVE ALSO CONSIDERED WRITTEN SUBM ISSIONS FILED BY THE ASSESSEE COMPANY THROUGH ITS LEARNED AR VIDE LETTERS D ATED 25.07.2014, 18.08.2014, 21.10.2014, 16.01.2015, 19.05.2016 AND 0 2.08.2017 ON THE ISSUE UNDER REFERENCE. I HAVE FURTHER CONSIDERED VARIOUS JUD ICIAL PRONOUNCEMENTS RELIED UPON BY THE LEARNED AR OF THE ASSES SEE COMPANY AS WELL AS OTHER MATERIAL PLACED BY HIM ON RECORD. ON C AREFUL CONSIDERATION OF THE RIVAL CONTENTIONS, IT HAS BEEN NOTICE D THAT THE ASSESSING OFFICER HAS ALLOWED IDENTICAL EXPENSES IN A.Y . 2012-13 AFTER CONSIDERING THE NATURE OF EXPENSES IN DETAIL. IT HAS A LSO BEEN NOTICED THAT NO SUCH DISALLOWANCE WAS EVER MADE IN EARLIER YEARS. MO REOVER, THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED IN FAVOR OF T HE ASSESSEE COMPANY 37 BY THE ORDER OF THE HONOURABLE ITAT, CHANDIGARH IN ITA N O. 758/CHD./2014 FOR THE A.Y. 2010-11 DATED 03.04.2017 IN THE CASE OF THE ASSESSEE COMPANY ITSELF AS THE IDENTICAL ADDITION MADE BY THE AS SESSING OFFICER IN A.Y. 2010-11 WAS DELETED BY THE HONORABLE JURISDICTIO NAL ITAT. AS THE FACTS OF THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER C ONSIDERATION AS FAR AS THE ADDITION UNDER CONSIDERATION IS CONCERNED ARE IDENTICAL TO THE FACTS OF THE CASE OF THE ASSESSEE COMPANY FOR THE A.YS . 2010-11 AND THERE IS NO MATERIAL DIFFERENCE IN THE FACTS, THE RATIO OF THE DECISION OF HONORABLE ITAT, CHANDIGARH FOR THE A.Y. 2010-11 IS SQUARELY AP PLICABLE TO THE CASE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION. SO RESPECTFULLY FOLLOWING THE ORDER OF THE HONOURABLE ITAT, CHANDIGARH IN T HE CASE OF THE ASSESSEE COMPANY ITSELF FOR THE A.Y. 2010-11 (SUPRA), THE ADDITION OF RS.34,74,778/- IN THIS CASE ON ACCOUNT OF DISALLOWANCE OF CONSULTANCY SERVICES EXPENSES IS DIRECTED TO BE DELETED ON THE BA SIS OF SAME REASONING AND LOGIC AS ADOPTED BY THE HONOURABLE ITAT, CHANDIGARH IN THE CASE OF THE ASSESSEE COMPANY ITSELF FOR THE A.Y. 20 10-11 WHILE DELETING THE IDENTICAL ADDITION IN A.Y. 2010-11. MOREOVER, THE ADDITION MADE IS REVENUE NEUTRAL AS BOTH THE COMPANIES ARE PAYING TAX AT SAME RATE. IN THE RESULT, THE GROUNDS NO. 8 TAKEN BY THE ASSESSEE COMP ANY IS ALLOWED. 26. NOW THE DEPARTMENT IS IN APPEAL. 27. THE LD. DR REITERATED THE OBSERVATIONS MADE BY THE A.O. AND STRONGLY SUPPORTED THE ASSESSMENT ORDER PASSED BY HIM. 28. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT THIS ISSUE HAS ALREADY BEEN ADJUDICATED BY THIS BENCH OF THE ITAT IN ASSESSEES OWN CASE FOR THE A.Y. 2010-11 IN ITA NO. 758/CHD/2014 VIDE ORDER DT. 03/04/2017 IN ASSESSEES FAVOUR, THEREFORE THE LD. CIT(A) WAS JUSTIFIED IN H OLDING THE IMPUGNED ADDITION MADE BY THE A.O. 29. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THA T THE LD. CIT(A) CATEGORICALLY STATED IN PRAA 11.4 OF THE IMPUGNED ORDER THAT THE A.O. HIMSELF ALLOWED THE SIMILAR EXPENSES FOR A.Y. 2012-13 AND NO SUCH DISAL LOWANCE WAS EVER MADE IN THE EARLIER YEARS. THE SAID OBSERVATION OF THE LD. CIT(A) WAS NOT REBUTTED. WE THEREFORE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS GIVEN BY THE 38 LD. CIT(A) AND AS SUCH DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 30. NOW WE WILL DEAL WITH THE CROSS OBJECTION FILED BY THE ASSESSEE IN C.O. NO. 4/CHD/2018. 31. THE ONLY GROUND RAISED IN THIS CROSS OBJECTION READS AS UNDER: THAT THE LEARNED CIT(A)-2, HAS ERRED IN CONFIRMIN G DISALLOWANCE OF RS. 6,03,45,313/- U/S 14 R.W.R 8D WHICH IS AGAINST THE LAW AND FACTS OF THE CASE. 32. FROM THE AFORESAID GROUND IT WOULD BE CLEAR THA T THE GRIEVANCE OF THE ASSESSEE RELATES TO THE CONFIRMATION OF DISALLOWANC E MADE BY THE A.O. UNDER SECTION 14 OF THE ACT R.W.R 8D OF THE INCOME TAX RU LE 1962. AS REGARDS TO THIS ISSUE THE LD. COUNSEL FOR THE ASSESSEE FURNISHED THE WRIT TEN SUBMISSIONS AND CALCULATIONS WHICH READ AS UNDER: INITIALLY THE REVENUE HAD RAISED ONLY TWO GROUNDS OF APPEAL. THEREAFTER SIX GROUNDS OF APPEAL WERE FILED BY THE REVENUE. ALL THE GROUNDS RAISED BY THE REVENUE ARE DULY COVERED BY THE ORDER OF THE HON'BLE TRIBUNAL IN THE EARLIER YEARS TO WHICH REFERENCE HAS BEEN MADE BY THE LD. CIT(A) IN HIS ORDER AND I HAVE FILED COPIES OF THE ORDERS ON WHICH RE LIANCE HAD BEEN PLACED BY THE LD. CIT(A) WHILE ALLOWING RELIEF TO THE ASSESSEE. I HAD ALSO FILED SHORT NOTES ON 05.02.2018 AND AGAIN ON 12.04.2019 ON THIS ISSUE. THE ONLY CONTROVERSIAL ISSUE IS REGARDING DISALLOWANCE MAD E BY THE AO AND DELETED BY THE CIT(A) U/S 14A / RULE 8D, BECAUSE THE APPELLANT HAS ALREADY FILED CO AGAINST SUO-MOTO DISALLOWANCE MADE B Y THE ASSESSEE IN THE COMPUTATION OF INCOME. HOWEVER THE ISSUE NEEDS FRES H SUBMISSIONS WHICH ARE AS UNDER:- THE AO HAS DEALT WITH THIS ISSUE ON PAGES 1 - 16 OF THE O RDER AND HAS MADE THE FOLLOWING DISALLOWANCE IN HIS ORIGINAL ORDER. (SHORT NOTES & BRIEF SYNOPSIS DATED 05.02.2018 AND AGAIN ON 12.04.2019). 39 THUS THE AO IN HIS ORDER U/S 154 REDUCED THE DISALL OWANCE U/S 14A/RULE 8D TO RS.1,95,20,496/- AS AGAINST 3,27,74,176 ORIGINALLY DISALLOWED BY HIM. AVAILABILITY OF OWN FUNDS 31.03.2010 31.03.2011 SHARE CAPITAL 39,82,12,800/- 39,82,12,800/- RESERVES 857,93,84,929/- 950,73,33,507/- TOTAL 897,75,97,729/- 990,55,46,307/- IT IS THIS DISALLOWANCE OF RS. L,95,20,496/-WHICH W AS DELETED BY THE CIT(A) ON THE BASIS OF AVAILABILITY OF OWN FUNDS. NOW RELIANCE IS PLACED ON THE FOLLOWING CASE LAW ON THE ISSUE OF AVAILABILITY OF OWN FUNDS:- ACIT VS. JANAK GLOBAL RESOURCES PVT. LTD ITA NO. 470/2018 A.Y. 2014-15 DATED 16.10.2018 (CHD ) (PB 234 - 257) CIT VS. RELIANCE INDUSTRIES LTD (2019) 410ITR 466 (SC.) DATED 02.01.2019 PR. CTT VS. LIVING MEDIA INDIA LTD (2019) 2 TMI1215 (SC.) DATED 18.02.2019 PR. CIT VS. SINTEX INDUSTRIES LTD (2018) 255 TAXMAN 171 (SC) 40 THE CIT(A) IN HIS ORDER HAS CONSIDERED THE SUO-MOTO DISALLOWANCE OF RS. 6,03,45,313/- WHILE DELETING THE DISALLOWANCE OF RS . 1,95,20,496/-. THE ASSESSEE HAS HOWEVER FILED CO AGAINST THE SUO-MOTO DISALLOWANCE O F RS. 6,03,45,313/- ON DIVIDEND INCOME OF RS. 5,13,80,744/- IN THE RETURN OF INCOME FILED. THE SUBMISSIONS ARE AS UNDER:- THOUGH THE FIGURES OF TOTAL INVESTMENTS (PAGE 15 OF AO) TO BE CONSIDERED FOR DISALLOWANCE ARE NOT CORRECTLY TAKEN BY THE LOWER A UTHORITIES BUT THE SAME WILL NOT MAKE ANY DISALLOWANCE FOR MAKING DISALLOWANCE U NDER RULE 8D(2)(II) BECAUSE OF AVAILABILITY OF OWN FUNDS IS MORE THAN THE INVES TMENTS. IN FACT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED WHICH HAVE YIELDED EXEMPT INCOME (ACB INDIA LTD VS. ACIT 374 ITR 108 DEL) FOR MAKING DISALLOWAN CE UNDER RULE 8D(2)(II) AND RULE 8D(2)(III). AS SUCH THE CORRECT DISALLOWANCE WOULD WORK OUT AS BELOW:- ANNEXURE -1 TOTAL INVESTMENTS AS PER BALANCE SHEET AS ON 31.03. 2010 RS. 571,67,07,994/- INVESTMENTS YIELDED EXEMPT INCOME AND OUTSTANDING A S ON 31.03.2010 RS. 86,35,49,132/- ANNEXURE -2 TOTAL INVESTMENTS AS PER BALANCE SHEET AS ON 31.03. 2011 RS. 870,73,62,564/- INVESTMENTS YIELDED EXEMPT INCOME AND OUTSTANDING A S ON 31.03.2011 RS. 201,65,21,670/- AVERAGE OF INVESTMENTS (86,35,49,132 + 201,65,21,67 0) RS. 144,00,35,401/- DISALLOWANCE @ 0.5% = RS. 72,00,177/- AS AGAINST RS . 2,45,56,827/- SUO-MOTO DISALLOWED BY ASSESSEE . CO NO. 4/2018 THE ASSESSEE HAS FILED CO AGAINST SUO-MOTO DISALLOWA NCE MADE AT RS. 603,45,313/- (ANNEXURE-3) THE DETAILS ARE GIVEN AS PER ANNEXURE 3. THE ASSESSEE IS ENTITLED TO FILE CROSS OBJECTIONS AGAINST THE SUO-M OTO DISALLOWANCE IF THE SAME HAS NOT BEEN CORRECTLY MADE AS PER LAW. RELIANCE IS PLA CED ON VARIOUS JUDGMENTS FILED BEFORE YOUR HONOUR. 1. AS REGARDS THE DISALLOWANCE MADE BY THE ASSESSEE SU O-MOTO UNDER RULE 8D(2)(II) OF RS. 3,57,88,486/- , THE SAME IS NOT SUSTAINABLE AS THE ASSESSEE'S OWN FUNDS ARE MUCH MORE THAN THE INVESTMENTS. 2. AS REGARDS THE DISALLOWANCE MADE BY- THE ASSESSEE S UO-MOTO UNDER RULE 8D(2)(III), THE SAME IS TO BE RESTRICTED TO RS.72,00,177/- AS A GAINST RS. 2,45,56,827/- AND THE ASSESSEE IS ENTITLED TO A RELIEF OF RS. 1,73,56,650 /- 3. THE OBJECTOR IS THUS ENTITLED TO A TOTAL RELIEF OF (RS.3,57,88,486+RS.L,73,56,650) RS.5,31,45,136/-. 41 32.1 IT WAS FURTHER SUBMITTED THAT THERE WAS A MIST AKE IN THE CALCULATION IN THE DISALLOWANCE TO BE MADE UNDER SECTION 14A OF THE AC T R.W.R 8D OF THE INCOME TAX RULES, 1962. HE REQUESTED TO RESTORE THIS LIMIT ED ISSUE TO THE FILE OF THE A.O. FOR VERIFICATION OF THE CALCULATION FURNISHED BY THE AS SESSEE AND TO MAKE THE CORRECT DISALLOWANCE. 33. THE LD. DR COULD NOT CONTROVERT THE AFORESAID C ONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 34. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CONSIDERING THE ABOVE SUBMISSIONS OF BOTH THE PARTIES, THIS LIMITED ISSUE IS RESTORED TO THE FILE OF THE A.O. TO BE ADJUDICATED AFTER CONSIDERING THE AFORESAID SUBMISSIONS AND CALCULATI ON FURNISHED BY THE LD. COUNSEL FOR THE ASSESSEE FIRST TIME BEFORE THE ITAT . 35. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICA L PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 15/06/2021) SD/- SD/- .. .., (R.L. NEGI ) ( N.K. SAIN I) # $%/ JUDICIAL MEMBER / VICE PRESIDENT AG DATE: 15/06/2021 (+ ! ,- .- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. $ / / CIT 4. $ / ()/ THE CIT(A) 5. -23 4, & 4, 67839/ DR, ITAT, CHANDIGARH 6. 38 :%/ GUARD FILE