M/s Bagmane Developers Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1518/BANG/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73382 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 08-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH YADAV
• Assessee Lawyers: B P SACHIN KUMAR
• Keywords: Cost of acquisition; Commercial expediency; Revised return
• Section: 14A

Judgement Text

ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 1 OF 15 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE A BENCH, BANGALORE BEFORE SHRI N. BARTHVAJASANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K. JUDICIAL MEMBER ITA NOS. 1517 & 1518/BANG/2013 (ASSESSMENT YEARS: 2009-10 & 2010-11) M/S. BAGMANE DEVELOPERS PRIVATE LIMITED, LAKEVIEW BUILDING NO.66/1-4 A-BLOCK, 8 TH FLOOR, BAGMANE TECH PARK, CV RAMAN NAGAR BANGALORE 560 093 PAN: AACCB 1178 M VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(2), 5 TH FLOOR, RASHTROTHANA BHAVAN, NRUPATHUNGA ROAD, BANGALORE 560001 (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI B.P. SACHIN KUMAR, CA DEPARTMENT BY: SHRI OM PRAKASH YADAV, (DR) DATE OF HEARING: 18/12/2013 DATE OF PRONOUNCEMENT: 07/02/2014 O R D E R PER GEORGE GEORGE K. J.M. 1. THESE TWO APPEALS, INSTITUTED AT THE INSTANCE OF THE ASSESSEE, ARE DIRECTED AGAINST THE ORDERS OF THE CI T (A)-I, BANGALORE, DATED 31.7.2013 FOR THE ASSESSMENT YEARS 2009-10 & 2010-11. 2. A COMMON SOLITARY ISSUE RAISED B Y THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS IS THAT, THE CIT (A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDERS OF THE AO WITHOUT APPRECIA TING THE FACT THAT THE ASSESSEE ADVANCED MONEY ONLY TO ITS S ISTER ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 2 OF 15 CONCERNS/DIRECTORS/RELATIVES OF ITS DIRECTORS IN TH E NORMAL COURSE OF BUSINESS AND FOR THE PURPOSES OF ITS BUSI NESS. 2.1. FOR THE ASSESSMENT YEAR 2010-11, YET ANOTHER GROUND RAISED BY THE ASSESSEE IS THAT THE CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE U/S 14A OF THE ACT. HOWEVER, ON A PERUSAL OF THE FINDINGS OF THE CIT (A) FOR THE AY 2010-11 U NDER DISPUTE, IT IS NOTICED THAT THE CIT (A) HAD, IN FACT, DEALT WIT H THE ISSUE ELABORATELY AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT FINDING OF THE CIT (A) READS AS FOLLOWS: 4.4..THERE IS MERIT IN THE APPELLANTS SUBJECTIO N AND THE DISALLOWANCE MADE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES IS DELETED. 2.2 SINCE THE ABOVE ISSUE OF DISALLOWANCE U/S 14A IS DE CIDED IN FAVOUR OF THE ASSESSEE, THIS GROUND IS DISMISSED AS NOT MAINTAINABLE. 2.3. AS THE ISSUE RAISED IN THESE APPEALS IS CO MMON AND PERTAINING TO THE SAME ASSESSEE, FOR THE SAKE OF CO NVENIENCE AND BREVITY, BOTH THE APPEALS WERE HEARD TOGETHER AND D ISPOSED OF IN THIS CONSOLIDATED ORDER. 3. BRIEFLY STATED, THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN PROPERTY DEVELOPMENT AND CONSTRUCTION. THE ASSESSEE FILED ITS RETURNS OF INCOME FOR THE AYS 20 09-10 AND 2010-11 ON 27.02.2010 AND ON 14.10.2010, DECLARING TOTAL INCOMES AT RS.6,30,67,080/- AND RS.42,95,02,180/- R ESPECTIVELY. SUBSEQUENTLY, THE ASSESSEE HAD FILED REVISED RETURN S OF INCOME, ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 3 OF 15 DECLARING TOTAL INCOMES AT RS.3,99,99,150/- AND RS.54,91,82,893/-ON 23.10.2010 AND 26.2.2011 RESPEC TIVELY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED FROM THE BALANCE SHEETS OF THE ASSESSEE THAT THERE WERE SECURED LOANS OF RS.642.38 CRORES AND RS.655.70 CRORES, OUT OF WHICH, ADVANCES TO ITS SISTER CONCERNS WERE IN THE RANGES OF RS. 238.60 CRORES AND RS. 335 CRORES FOR THE AYS 2009-10 & 201 0-11 RESPECTIVELY. ON BEING QUERIED, IT WAS EXPLAINED BY THE ASSESSEE THAT THOSE ADVANCES WERE MADE ON THE PREMISE OF COM MERCIAL EXPEDIENCY. AFTER DUE CONSIDERATION OF THE ASSESSEE S CONTENTIONS AND FOR THE REASONS RECORDED THEREIN, THE AO HAD DI SALLOWED THE INTERESTS ON PRO-RATA BASIS ON ADVANCES MADE TO ITS SISTER CONCERNS TO THE TUNE OF RS.10,92,61,900/- AND RS.16,42,32,367/- FOR THE AYS 2009-10 & 2010-11 RES PECTIVELY. 4. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE FOR BOTH THE AYS UNDER DISPUTE BEFORE THE CIT (A). AFTER TAKING INTO ACCOUNT THE CONTENTIONS PUT-FORTH ON BEHALF OF THE ASSESSEE , DUE PERUSAL OF P & L ACCOUNTS AND BALANCE SHEETS FOR THE RELEVA NT ASSESSMENT YEARS AND EXTENSIVELY QUOTING THE JUDGME NTS OF THE HONBLE HIGH COURT OF KERALA IN THE CASES OF (I) CIT V. MANGALAM PUBLICATIONS INDIA (P) LIMITED (2010) 190 TAXMAN 38 (KER); (II) CIT V. POPULAR VEHICLES & SERVICES LTD (2010) 189 T AXMAN 14 (KER), (III) CIT V. ACCELERATED FREEZE DRYING CO. LTD (2010) 32 4 ITR 316 (KER) AND (IV) CIT V. HARRISONS MALAYALAM LTD (2012) 25 TAXMAN.COM 546 (KER), THE CIT (A) HAD OBSERVED, FOR THE AY 2009-10, THUS: 3.20. IN VIEW OF THE FACTS STATED ABOVE AND CONSIDERING THE LEGAL POSITION CITED ABOVE, THE AO WAS JUSTIFIED IN DISALLOWING PART OF THE INTEREST AS NO N- ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 4 OF 15 BUSINESS PURPOSE AND, THEREFORE, DISALLOWANCE OF INTEREST OF RS.10,92,61,900/- FOR THE ASSESSMENT YE AR UNDER CONSIDERATION IS CONFIRMED . 4.1. LIKEWISE, FOR THE AY 2010-11 TOO, TH E CIT (A), BY CITING THE JUDGMENTS OF HONBLE HIGH COURT OF KERALA (SUPR A) AND FOR IDENTICAL REASONS RECORDED THEREOF, CONFIRMED THE D ISALLOWANCE OF INTEREST OF RS.16,42,32,367/-. 5 AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE US WITH THE PRESENT APPEALS. DURING THE COURSE OF HEARING, THE LEARNED AR SUBMITTED THAT THE APPELLATE ORDERS HAVE BEEN PA SSED IN HASTE WITHOUT PROVIDING SUFFICIENT AND REASONABLE O PPORTUNITIES OF BEING HEARD AND THAT THE CIT (A) ERRED IN CONFIR MING THE STAND OF THE AO WITHOUT APPRECIATING THE FACT THAT THE AS SESSEE ADVANCED MONIES ONLY TO ITS SISTER CONCERNS, DIRECT ORS AND THEIR RELATIVES IN THE NORMAL COURSE OF ITS BUSINESS AND FOR THE PURPOSE OF BUSINESS ONLY. IT WAS, FURTHER, CONTENDED THAT THE CIT (A) HAD FAILED TO CONSIDER THE VARIOUS CASE LAWS RELIED ON BY THE ASSESSEE WHICH WERE SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. IT WAS ALSO CONTENDED THAT THE CIT (A) HAD F AILED TO TAKE COGNIZANCE OF THE FINDINGS OF HONBLE EARLIER BENCH ES OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS ON A SIMILAR ISSUE. TO DRIVE HOME HIS POINTS , THE LEARNED AR HAD PLACED STRONG RELIANCE ON THE FINDINGS OF HO NBLE EARLIER BENCHES OF THIS TRIBUNAL ON AN IDENTICAL ISSUE IN T HE ASSESSEES OWN CASE IN (I) ITA NOS.182, 183, 382 & 383 (BANG)/2010 DATED 3.12.2010 FOR THE AYS 2002-03 TO 2005-96; AND (II) ITA NOS.346/BANG/2012 & 1126/BANG/2011 DATED 7.11.2013 FOR THE AYS 2007-08 & 2008-09. ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 5 OF 15 5.1. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THE ISSUE HAS SINCE BEEN DEALT WITH COMPREHENSIVELY COUPLED WITH COMPARATIVE FIGURES IN THE APPELLATE ORDERS BY THE CIT (A), THE ISSUE NOW RAISED BY THE ASSESSEE DESERVES TO BE REJECTED. IT WAS, FURTHER, PLEADED BY THE LEARNED DR THAT THE FI NDINGS OF THE CIT (A) BACKED WITH JUDICIAL VIEWS ON A SIMILAR ISS UE; THE SAME REQUIRES TO BE SUSTAINED FOR BOTH THE ASSESSMENT YE ARS UNDER CONSIDERATION. 6. WE HAVE CAREFULLY CONSIDERED TH E RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD AND AL SO THE CASE LAWS ON WHICH THE CIT (A) AS WELL AS THE ASSESSEE H AVE PLACED STRONG RELIANCE. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS BEEN CARRYING ON THE BUSINESS AS A DEVELOPER AND BU ILDER. IT WAS ALSO AN UN-DENYING FACT THAT SIZEABLE LANDS SITUATE D AROUND AND OUTSKIRTS OF BANGALORE WERE BROUGHT, THROUGH LEGISL ATION, UNDER THE CATEGORY OF AGRICULTURAL LANDS SO AS TO PREVENT THE BIG INDUSTRIAL COMPANIES FROM EXPLOITING SUCH LANDS FOR NON- AGRICULTURAL USE. TO OVERCOME SUCH RESTRICTIONS PL ACED BY THE LOCAL GOVERNMENT THROUGH THE KARNATAKA LAND REFORMS ACT, ACCORDING TO WHICH, ONLY INDIVIDUALS WERE PERMITTED TO PURCHASE AGRICULTURAL LANDS AND APPLY FOR CONVERSION OF SUCH LANDS WITH THE REGULATORY AUTHORITIES, THE ASSESSEE HAD RESORT ED TO PERSUADE THE INDIVIDUALS BY MAKING ADVANCES TO PURCHASE SUCH AGRICULTURAL LANDS AND SUBSEQUENT CONVERSION OF THE SAME FOR NON-AGRICULTURAL USAGE WHICH WOULD FACILITATE THE A SSESSEE TO USE THEM FOR ITS BUSINESS PURPOSES. WHILE MAKING ADVAN CES TO SUCH INDIVIDUALS, IT IS NOTICED THAT, THE ASSESSEE HAD I NCORPORATED THE ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 6 OF 15 PURPOSES FOR WHICH MONIES ADVANCED, THEIR (INDIVIDU ALS) COMMITMENTS ETC., IN THE AGREEMENTS ENTERED INTO WI TH THEM. SIMILARLY, THE ASSESSEE ALSO ENTERED INTO PROCUREME NT/JOINT VENTURE AGREEMENTS WITH ITS SISTER-CONCERNS AND, AC CORDINGLY, ADVANCED MONIES FOR ACQUIRING THE LANDS FOR FURTHER DEVELOPMENT BY THE ASSESSEE. 6.1. TO ILLUSTRATE FURTHER, THE ASSESS EE HAD ADVANCED MONIES TO ITS SISTER CONCERN BAGMANE LEASING & FI NANCE PVT. LTD [BLFPL] TO PURCHASE AND PROVIDE FITTINGS AND O FFICE EQUIPMENT TO THE PREMISES OF THE ASSESSEE SO AS TO LET OUT THE SAME TO MOTOROLA. ON A PERUSAL OF THE AGREEMENT EN TERED INTO BY THE ASSESSEE WITH ITS SISTER CONCERN, WE HAVE NOTIC ED THAT A CLAUSE CONTAINS THAT THE ASSESSEE WOULD ADVANCE FUNDS TO ITS SISTER CONCERNS TO MEET THE COST OF ACQUISITION OF FITTINGS AND INSTALLATION OF THE SAME, CONSTRUCTION OF BUILDINGS ETC., ANOTHER SALIENT FEATURE WHICH WORTH MENTIONING HERE IS THAT WHILE ADVANCING MONIES TO ITS SISTER-CONCERNS, THE ASSESS EE HAD INVARIABLY INCORPORATED IN THE AGREEMENTS THE INTE NTION AND THE PURPOSES FOR WHICH SUCH MONIES WERE GIVEN. ON A CA REFUL SCRUTINY OF THE AGREEMENTS ENTERED INTO BY THE ASSE SSEE WITH ITS SISTER-CONCERNS, WE HAVE NOTICED THAT THE PURPOSE F OR WHICH MONIES ADVANCED, TERMS AND CONDITIONS HAVE BEEN EXP LICITLY INCLUDED THEREIN. IT IS ALSO APPARENT THAT THE ADV ANCES MADE WERE IN THE COURSE OF BUSINESS AND FOR THE PURPOSES OF COMMERCIAL EXPEDIENCY ONLY. MOREOVER, IT IS NOTEW ORTHY TO MENTION HERE THAT AS ON 31.3.2009, THE BALANCE OF B LFPL IN THE BOOKS OF THE ASSESSEE HAD REDUCED TO RS. 30.28 CROR ES FROM ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 7 OF 15 RS.32.33 CRORES AS ON 31.3.2008 AND IT WAS FURTHER REDUCED TO RS. 27.26 CRORES AS ON 31.3.2010. 6.2. LIKEWISE, SHRI RAJA BAGMANE HAD PURC HASED VARIOUS PLOTS OF AGRICULTURAL LANDS IN HIS INDIVIDUAL CAPAC ITY WHICH WAS SUBSEQUENTLY TRANSFERRED TO THE ASSESSEE. TO ENABL E SHRI RAJA BAGMANE TO PURCHASE SUCH AGRICULTURAL LANDS ON BEHA LF OF THE ASSESSEE, AMOUNTS WERE ADVANCED BY THE ASSESSEE AFT ER DULY ENTERING INTO AGREEMENTS WITH HIM WHEREIN THE TERMS AND CONDITIONS HAVE BEEN DULY DWELT WITH. MOREOVER FOR THE AY 2009- 10, THE BALANCE OF SHRI RAJA BAGMANE IN THE BOOKS O F THE ASSESSEE HAS REDUCED FROM RS.24.44 CRORES AS ON 31. 3.2008 TO RS.21.88 CRORES AS ON 31.3.2009. 6.3. IN THE CASE OF BAGMANE BUILDERS PRIV ATE LIMITED [BBPL], IT WAS NOTICED THAT THE ASSESSEE ENTERED IN TO AN AGREEMENT WITH BBPL, ACCORDING TO WHICH, THE ASSESS EE AGREED TO ADVANCE MONEY TO BBPL TO ACQUIRE PROPERTIES AND CAR RY OUT CONSTRUCTION TILL SUCH TIME BBPL WAS ABLE TO SECURE FINANCE ON ITS OWN. IT WAS ALSO A FACT THAT THE ASSESSEE MADE AN APPLICATION IN THE MONTH OF 2006 TO SET UP A SPECIAL ECONOMIC Z ONE [SEZ] AND AFTER RECEIPT OF APPROVAL FOR SEZ, THE ASSESSEE HAD MADE AN APPLICATION TO TRANSFER THE APPROVAL TO M/S. BAGMAN E BUILDERS PVT LTD WHICH WAS SUBSEQUENTLY APPROVED ON 4.10.201 0. 6.4. IT WAS ALSO EVIDENT FROM THE FACT THAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2010- 11, THERE WAS AN INCREASE IN THE AMOUNTS ADVANCED BY THE ASSE SSEE ON ACCOUNT OF LANDS EXECUTED BY THE ASSESSEE IN FAVOUR OF BBPL TO SET UP SEZ. AS PER THE NORMS PRESCRIBED BY THE AUT HORITIES ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 8 OF 15 CONCERNED, THE ASSESSEE WAS UNABLE TO ENSURE THE RE QUISITE LAND OF 10 HECTARES IN TIME; ACCORDINGLY, A FURTHER TIME WAS GIVEN TO THE ASSESSEE TILL 25.10.2012. THIS CLEARLY EXHIBIT S THAT THE AMOUNTS/LOAN ADVANCED BY THE ASSESSEE WAS FOR COMME RCIAL EXPEDIENCY. 6.5. WE HAVE ALSO NOTICED THAT THE ASSE SSEE HAD ENTERED INTO AN AGREEMENT WITH BAGMANE CONSTRUCTIONS PVT. L IMITED [BCPL] ON 23.9.2005 IN WHICH THE ASSESSEE AGREED TO ADVANCE MONEY TO BCPL TO ACQUIRE PROPERTIES AND CARRY OUT C ONSTRUCTION TILL SUCH TIME BCPL WAS ABLE TO SECURE FINANCE ON I TS OWN. HOWEVER, THE CIT (A) MADE AN OBSERVATION IN HIS FIN DINGS THAT THE AFORESAID AGREEMENT PERTAINS TO FY 2005-06 AND WAS GENERAL IN NATURE. IN THIS CONNECTION, OUR ATTENTION WAS DRAW N BY THE LEARNED AR THAT DURING THE PREVIOUS YEAR RELEVANT T O THE AY 2010-11, BCPL UNDERTOOK THE CONSTRUCTION OF 10 STOR EYED COMMERCIAL COMPLEX AT K.R. PURAM HOBLI AND THAT THE FINAL OCCUPANCY CERTIFICATE WAS ISSUED BY BBMP ON 28.6.20 10. IT WAS, FURTHER, SUBMITTED BY THE LEARNED AR THAT APART FRO M THE FUNDING THE CONSTRUCTION OF THE SAID COMPLEX, THE ASSESSEE ALSO ADVANCED MONEY FOR DEVELOPMENT OF SEZ PROJECT ON OUTER RING ROAD IN TERMS OF THE AFORESAID AGREEMENT. THUS, ACCORDING TO THE LEARNED AR, THE ABOVE NARRATION BELIES THE CIT (A)S OBSERV ATION THAT THE AGREEMENT PERTAINS TO FY 2005-06 AND WAS IN GENERAL IN NATURE. 6.6. WITH REGARD TO THE MONEY ADVA NCED TO CHANDRA DEVELOPERS PVT. LIMITED, [CDPL], OUR ATTENTION WAS DRAWN TO THE FACT THAT CDPL WAS PRIMARILY ESTABLISHED FOR THE PU RPOSE OF ACQUIRING OF LANDS BY WAY OF AUCTIONS AND DEVELOPME NT OF PROPERTIES. IN THIS CONNECTION, OUR REFERENCE WAS DRAWN TO PAGE ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 9 OF 15 3 OF THE AGREEMENT DATED 13.11.2002 ENTERED INTO BE TWEEN CDPL AND THE ASSESSEE WHEREIN IT HAS BEEN TERMED THAT WHEREAS PURSUANT TO THE ABOVE, THE FIRST PARTY [CHANDRA DEVELOPERS] SHALL ASSEMBLE THE PROPERTIES IN THE PERIPHERIES OF OLD MADRAS ROAD AND OTHER AREAS AND CONSTRUCT COMMERCIAL/RESIDENTIAL COMPLEX ON THE LANDS SO ACQUIRED AS PER THE DESIGNS APPROVED BY TH E SECOND PARTY [APPELLANT]. [SOURCE: PAGE 18 OF PB AR] 6.7. IT WAS, FURTHER, SUBMITTED BY TH E LEARNED AR THAT THE INTENTION OF THE ABOVE AGREEMENT WAS TO ACQUIRE THE PROPERTY OF M/S. NGEF LIMITED ON OLD MADRAS ROAD BY AUCTION FOR WHICH THE ASSESSEE HAD ADVANCED THE MONEY TO CDPL. THOUG H CDPL BEING SUCCESSFUL IN THE BIDDING PROCESS, THE CLAIMS RAISED BY NGEFS BANKERS AND EMPLOYEES LED TO LEGAL DISPUTE W HICH WAS DECIDED BY THE HONBLE SUPREME COURT IN FAVOUR OF T HE BANKERS/EMPLOYEES. TO SUBSTANTIATE THE ABOVE NARRA TION, THE LEARNED AR PRODUCED THE FOLLOWING DOCUMENTS FOR OUR PERUSAL IN THE FORM OF PAPER BOOK: (I) BID APPLICATION; (II) COPY OF DD FOR BID AMOUNT (III) COPY OF DD FOR DEPOSIT OF BALANCE AMOUNT WITH KARNATAKA H.C; & (IV) COPY OF SUPREME COURT ORDER. 6.8. IT WAS ALSO SUBMITTED BY THE LEARNED AR THAT CDPL HAD SUCCESSFULLY BID FOR A LAND MEASURING 63.32 ACR ES FROM M/S. CODURAS EXPORTS PRIVATE LIMITED FOR A SUM OF RS.2.5 CRORES ON THE ADVANCED AMOUNT OF RS.2.88 CRORES MADE BY THE A SSESSEE AND THAT THE ADVANCES GIVEN BY THE ASSESSEE WERE UT ILISED BY CDPL TO PARTICIPATE IN THE AUCTION AND SUCCESSFUL B ID FOR THE SUBJECT PROPERTY. IT WAS, FURTHER, SUBMITTED THAT THE POSSESSION ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 10 OF 15 OF THE ABOVE PROPERTY WAS HANDED OVER ON 17.9.2008 WHICH SHOWS THAT THE AGREEMENT WAS STILL IN EXISTENCE AND THAT THE FUNDS USED WERE FOR THE BENEFIT OF THE ASSESSEE. T O AUTHENTICATE THE ABOVE TRANSACTION, THE LEARNED AR HAD FURNISHED THE COPY OF THE ORDER OF THE OFFICIAL LIQUIDATOR, HIGH COURT OF ANDHRA PRADESH AND THE POSSESSION MEMO DATED 17.9.2008 [CO URTESY: PAGES 159 TO 165 OF PB]. 6.9. CONSIDERING THE ABOVE FACTS AND THE D OCUMENTARY EVIDENCES PRODUCED (SUPRA), WE ARE OF THE VIEW THAT THE AMOUNTS ADVANCED BY THE ASSESSEE TO CDPL WAS FOR THE PURPOS E OF COMMERCIAL EXPEDIENCY OF THE ASSESSEE ONLY. 6.10. DURING THE PREVIOUS YEAR RELEVANT TO T HE ASSESSMENT YEAR 2010-11, TWO COMPANIES NAMELY, M/S. BAGMANE PR OPERTIES PVT. LTD AND M/S. BAGMANE ESTATE PRIVATE LIMITED WE RE FLOATED FOR ASSEMBLING LAND AND CONSTRUCTING PROPERTIES THR OUGH THESE ENTITIES BASED ON THE DESIGNS PROVIDED BY THE ASSES SEE. ACCORDING TO THE AGREEMENTS ENTERED INTO WITH THESE COMPANIES, THEY WERE ENTRUSTED WITH THE RESPONSIBILITY OF ARRA NGING PROPERTIES, NEGOTIATE WITH THE OWNERS OF THE LANDS, OBTAINING NECESSARY APPROVALS FROM THE AUTHORITIES CONCERNED AND CARRY OUT CONSTRUCTION BY UTILISING THE FUNDS ADVANCED BY THE ASSESSEE. A SUM OF RS.47.93 CRORES WAS ADVANCED BY THE ASSESS EE TO BOTH THE SISTER CONCERNS SO AS TO ENABLE THEM TO PAY ADV ANCES FOR ACQUIRING THE LANDS AND FOR COMMENCEMENT OF CONSTRU CTIONS. 6.11. AT THIS JUNCTURE, WE WOULD LIKE TO RE FER TO THE FINDINGS OF THE EARLIER BENCHES OF THIS TRIBUNAL IN THE ASSE SSEES OWN CASE ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 11 OF 15 IN (I) ITA NOS. 182, 183, 382 & 383/BANG/2010 DATED 3.12.2010 FOR THE A.YS 2002-03 TO 2005-06 AND (II) ITA NOS.346/BANG/2012 & 1126/BANG/2011 DATED 7.11.2013 FOR THE AYS 2007-08 & 2008-09 WHEREIN AN IDENTICAL ISSU E TO THAT OF THE PRESENT ONE UNDER CONSIDERATION HAS BEEN ELABOR ATELY AND EXHAUSTIVELY DEALT WITH AND CAME TO A DEFINITE CONC LUSION THAT THE INTEREST-FREE LOANS WERE GIVEN TO ITS SISTER C ONCERNS AND OTHERS AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE ABOVE CONCLUSION HAD BEEN ARRIVED AT BY THE EARLIER BENCHES BASED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F S.A. BUILDERS V. CIT REPORTED IN 288 ITR 1 (SC). FOR AP PRECIATION OF FACTS, WE WOULD LIKE TO REPRODUCE THE RELEVANT PORT IONS OF THE JUDGMENT OF THE HONBLE COURT, VERBATIM, AS UNDER: THE INTEREST-FREE LOAN WAS GIVEN TO THE SISTER COMPANY (WHICH IS A SUBSIDIARY OF THE ASSESSEE) AS A MEASURE OF COMMERCIAL EXPEDIENCY, AND IF IT WAS, IT SHOULD HAVE BEEN ALLOWED. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. TH E EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINE SS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. 6.12. FURTHER, IT IS EVIDENT THAT THE LOANS WERE ADVANCED TO MOST OF THE SISTER CONCERNS/DIRECTOR OF THE ASSESSE E RIGHT FROM THE AY 2004-05. THEREFORE, IT WAS A RUNNING ACCOUN T WHICH SISTER CONCERNS/DIRECTOR OF THE ASSESSEE HAD WITH I T. EVEN GOING BY THE IMPUGNED ORDER OF THE CIT(A), IT IS CLEAR TH AT THE LOAN AMOUNTS DUE TO THE ASSESSEE FROM ITS SISTER CONCERN S AND DIRECTOR HAVE BEEN REDUCED SUBSTANTIALLY IN THE ASS ESSMENT YEAR ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 12 OF 15 2009-10 IN COMPARISON WITH THE PREVIOUS ASSESSMENT YEAR, NAMELY, THE AY 2008-09 EXCEPT IN THE CASES OF (I) B AGMANE BUILDERS LTD AND (II) SMT VASUNDHARA RAJA WHERE THE RE WERE MARGINAL INCREASE OF LOAN AMOUNTS OF RS.3,01,90,356 /- AND RS.17,90,448/- RESPECTIVELY. IN THE CASE OF BAGMAN E CONSTRUCTION PRIVATE LTD., THERE WAS A SUBSTANTIAL REDUCTION IN LOAN AMOUNT DUE TO ASSESSEE FROM RS.981,46,17,370/- AS ON 31.3.2008 TO RS.106,09,76,115/- AS ON 31.3.2009. W HEN THERE WERE NO FRESH ADVANCES IN THE CURRENT ASSESSMENT YE AR TO MOST OF THE SISTER CONCERNS/DIRECTOR OF THE ASSESSEE AND ON THE CONTRARY WHEN THERE WAS REDUCTION IN LOAN OUT-STAND ING AS ON 31.3.2009, WE SEE NO REASON FOR ANY DISALLOWANCE OF INTEREST FOR A REASON THAT THE BORROWED FUNDS HAVE BEEN DIVERTED T O SISTER CONCERNS AND THE DIRECTORS OF THE ASSESSEE. AS MEN TIONED EARLIER, THE EARLIER BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AYS 2007-08 AND 2008-09 [SUPRA] HAD CA TEGORICALLY HELD THAT THE AMOUNTS ADVANCED TO ITS SISTER-CONCER NS AND THE DIRECTORS WERE OUT OF COMMERCIAL EXPEDIENCY OF THE ASSESSEE AND IN ITS COURSE OF BUSINESS ONLY. WHILE ARRIVING AT T HE ABOVE CONCLUSION, THE BENCH HAD, IN FACT, KEPT IN VIEW TH E FINDINGS OF THE EARLIER BENCH ON A SIMILAR ISSUE IN THE ASSESSE ES OWN CASE IN ITA NOS. 182, 183, 382 & 383(BNG)/2010 DATED 3.12.2 010 FOR THE AYS 2003-04 AND 2004-05 RESPECTIVELY. 6.13. IN VIEW OF THE FINDINGS OF THE EARLIER BENCH ES OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE PREVIOU S ASSESSMENT YEARS (SUPRA), WE HAVE NOW BEEN LEFT WITH ONLY TO E XAMINE AS TO WHETHER THE FRESH LOANS ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERNS/DIRECTOR(S) IN THE AYS UNDER DISPUTE WERE DIVERTED FOR ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 13 OF 15 NON-BUSINESS PURPOSE. AS MENTIONED EARLIER, THERE WERE NOT MUCH FRESH ADVANCES TO ITS SISTER CONCERNS BY THE A SSESSEE DURING THE AY'S UNDER CONSIDERATION AND ON THE CONT RARY, THERE WAS A REDUCTION IN THE BALANCE LOAN AMOUNTS DUE TO THE ASSESSEE FROM ITS SISTER-CONCERNS/DIRECTORS. EVEN FOR THOSE FRESH ADVANCES IN THE CURRENT ASSESSMENT YEARS, IN VIEW O F THE DISCUSSIONS/REASONING RECORDED IN THE PRECEDING PAR AGRAPH, WE HOLD THAT THOSE ADVANCES TO ITS SISTER-CONCERNS/DIR ECTORS WERE ON ACCOUNT OF COMMERCIAL EXPEDIENCY AND FOR THE PURPOS E OF ITS BUSINESS ONLY. 6.14. THE FOLLOWING JUDICIAL PRONOUNCEMENTS ALSO A FFIRM THE ABOVE VIEW: (I) D & H SECHERON ELECTRODES PVT. LTD V. CIT (1983) 142 ITR 528 (MP) UNDER S. 36(1)(III), TO SUSTAIN A CLAIM FOR DEDUCT ION OF THE AMOUNT OF INTEREST, ALL THAT IS NECESSARY IS THAT T HE CAPITAL MUST HAVE BEEN BORROWED BY THE ASSESSEE; SECONDLY, IT MUST HAVE BEEN BORROWED FOR THE PURPOSE OF THE BUSINESS OR PROFESSION OF THE ASSESSEE AND, THIRDLY, THAT THE A SSESSEE SHOULD HAVE PAID THAT AMOUNT BY WAY OF INTEREST. IN THE INSTANT CASE, THE TRIBUNAL HAS NOT GIVEN ANY FINDIN G HOLDING THAT THE CONDITIONS REQUIRED TO BE SATISFIED UNDER S. 36(1)(III) WERE NOT FULFILLED. THE ONLY GROUND, FOR DISALLOWIN G A PART OF THE INTEREST, GIVEN BY THE TRIBUNAL WAS THAT THE AS SESSEE HAD NOT CHOSEN TO CHARGE INTEREST ON ADVANCES MADE TO T HE THREE CONCERNS. THE CONTENTION URGED ON BEHALF OF THE DEP ARTMENT, IN THE INSTANT CASE, THAT A PART OF THE CAPITAL BOR ROWED BY THE ASSESSEE WAS NOT FOR THE PURPOSE OF THE BUSINESS, C ANNOT BE CONSIDERED BECAUSE THAT IS NOT THE FINDING OF THE T RIBUNAL. ALL THAT THE TRIBUNAL HAS FOUND IS THAT THE ASSESSEE WA S NOT ENTITLED TO CLAIM DEDUCTION IN RESPECT OF A PART OF THE INTEREST, AS THE ASSESSEE HAD NOT CHARGED INTEREST TO THE THR EE SISTER CONCERNS, TO WHOM ADVANCES WERE MADE. THIS GROUND C ANNOT JUSTIFY DISALLOWANCE OF INTEREST. ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 14 OF 15 (II) CIT V. INSOTEX (PRIVATE) LTD. (1984) 150 ITR 0195 ( KAR): THE ASSESSEE HAD A RUNNING BUSINESS. THE CAPITAL B ORROWED BY THE ASSESSEE WAS ADMITTEDLY USED FOR PURCHASING NEW MACHINERY AND LAND. FOR GIVING THE BENEFIT OF S. 36 (1)(III) TO THE ASSESSEE, WHAT IS NECESSARY TO EXAMINE IS WHETHER T HE ASSESSEE HAS USED THE BORROWED CAPITAL FOR THE PURP OSE OF BUSINESS. IF THAT IS FOUND (TO BE) TRUE, THEN, ONE NEED NOT EXAMINE FURTHER AS TO WHETHER THE ASSET PURCHASED F ROM BORROWED CAPITAL HAS BEEN IN FACT USED BY THE ASSES SEE. CALICO& DYEING AND PRINTING WORKS VS. CIT (1958) 34 ITR 265 (BOM) : TC15R.907 FOLLOWED; CHALLAPALI SUGAR LTD. V S. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) DISTINGU ISHED. (III) C.T.DESAI V. CIT (1979) 120 ITR 240 (KAR) 12. SEC. 36(1)(III) OF THE ACT IS ANALOGOUS TO S. 5(E) OF THE MADRAS ACT AND S. 10(2)(III) AND (IV) OF THE INDIAN IT ACT, 1922. HENCE, THE ABOVE PRINCIPLE EQUALLY APPLIES TO THE P RESENT CASE. THERE CAN BE NO DISTINCTION BETWEEN INTEREST PAID O N CAPITAL IF BORROWED BY THE ASSESSEE FOR HIS FILM DISTRIBUTION BUSINESS AND THE INTEREST ON THE CAPITAL FOR THE ACQUISITION OF THE LEASE OF THEATRE FOR CARRYING ON THE BUSINESS OF EXHIBITI ON. BOTH ARE FOR PURPOSES HIS FILM BUSINESS, AND DEDUCTIBLE UNDE R S. 36(1)(III) OF THE ACT WHILE COMPUTING HIS PROFITS A ND GAINS OF BUSINESS. 6.15. WE HAVE ALSO CAREFULLY PERUSED TH E CASE LAWS ON WHICH THE CIT (A) PLACED RELIANCE AND OF THE VIEW T HAT THE HONBLE KERALA HIGH COURT HAD RENDERED THE JUDGMENTS ON THE DIFFERENT SET OF FACTS AND, THUS, THEY CANNOT BE EQUATED WITH THE ISSUE ON HAND. 6.16 IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AND IN CONSONANCE WITH T HE RULINGS OF THE HONBLE COURTS (SUPRA) AND ALSO THE FINDINGS OF THE EARLIER BENCHES OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ITA NOS.1517 AND 1518 OF 2013 BAGMANE DEVELOPERS PV T LTD BANGALORE PAGE 15 OF 15 EARLIER AYS ON A SIMILAR ISSUE (SUPRA), WE ARE OF T HE VIEW THAT THE INTEREST-FREE LOANS GIVEN BY THE ASSESSEE TO ITS SI STER CONCERNS AND OTHERS WAS A MEASURE OF COMMERCIAL EXPEDIENCY. IN SUBSTANCE, THE CIT (A) WAS NOT JUSTIFIED IN CONFIRM ING THE DISALLOWANCE OF INTEREST OF RS.10,92,61,900/- AND RS.16,42,32,367/- FOR THE ASSESSMENT YEARS 2009-10 AND 2010- 11 RESPECTIVELY. 7. IN THE RESULT, THE ASSESSEES APPEALS F OR THE AYS 2009-10 AND 2010-11 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH FEBRUARY, 2014. SD/- SD/- (N. BARTHVAJASANKAR) (GEORGE GEORGE K) VICE-PRESIDENT JUDICIAL MEMBER BANGALORE DATED 7 TH FEBRUARY, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE