The ACIT, Circle-5, Baroda V. M/s. Hindusthan Earth Movers Pvt.Ltd., Baroda

ITA 1545/AHD/2009

• Counselvise Citation: 154520514 RSA 2009
• Duration Of Justice: 2 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 15-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMIR TEKRIWAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Opportunity of being heard; Corroborative evidences; Commercial expediency
• Section: 43B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, B BENCH .., , ! ..'#$%, & ' BEFORE S/SHRI T.K. SHARMA, JUDICIAL MEMBER AND A.K. GARODIA , ACCOUNTANT MEMBER ITA NO. APPELLANT RESPONDENT 1545/AHD/2009 A.Y. 2005-2006 ACIT, CIR.5 BARODA. VS. M/S.HINDUSTHAN EARTH MOVERS P. LTD. ASHWAMEGH-II, SAMRAJYA COMPLEX AKOTA-MUNJMAHUDA ROAD BARODA 390 020. PAN : AACH 8593 A 1546/AHD/2009 A.Y.2005-2006 ACIT, CIR.5 BARODA. VS. M/S. JAYRAJ ESTATE PVT. LTD. ASHWAMEGH-II, SAMRAJYA COMPLEX AKOTA-MUNJMAHUDA ROAD BARODA 390 020. PAN : AACJ 5505 E ( ) * / REVENUE BY : SHRI SAMIR TEKRIWAL , -. ) * / ASSESSEE BY : SHRI S.N. SOPARKAR /,0 ) .&/ DATE OF HEARING : 15 TH OCTOBER, 2011 1#2 ) .&/ DATE OF PRONOUNCEMENT : 16 TH NOVEMBER, 2011 / O R D E R 1545 AND 1546/AHD/2009 -2- PER A.K. GARODIA, ACCOUNTANT MEMBER : BOTH THESE APPEALS ARE FILED BY THE REVENUE WHICH ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF LEARNED CIT(A)-V, BARODA IN THE CASE OF T WO DIFFERENT ASSESSEES I.E. M/S.HINDUSTAN EARTH MOVERS P. LTD. FOR A.Y.20 05-2006 AND M/S.JAYRAJ ESTATE PVT. LTD. FOR A.Y.2005-2006. BOT H THESE APPEALS ARE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP THE APPEAL IN THE CASE OF M/S. HINDUSTAN EARTH MOVERS P. LTD. IN ITA NO.1545/AHD/2009. THE GROUN DS NO.1 AND 2 OF THIS APPEAL READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 22,26,426/- MADE ON ALTERNATIVE GROUNDS ON ACCOUNT OF INTEREST ATTRI BUTABLE TO LOAN/DEPOSITS TO PARTIES COVERED U/S.40A(2)(B) OF T HE ACT WITHOUT APPRECIATING THE FACT THAT ON ONE SIDE THE ASSESSEE HAD BORROWED FUNDS ON WHICH HE WAS PAYING INTEREST AND ON THE OT HER HAND IT HAD DIVERTED INTEREST-LADEN FUNDS FOR NON-BUSINESS PURP OSE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT TH AT HAD THE ASSESSEE NOT DIVERTED INTEREST LADEN FUNDS FOR NON- BUSINESS PURPOSE, IT WOULD NOT HAVE BORROWED FUNDS ON WHICH IT WAS PA YING INTEREST. 3. THE BRIEF FACTS ARE THAT IT IS NOTED BY THE AO I N PARA-3 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS CLAIMED INTE REST EXPENDITURE OF RS.1,25,17,326/- IN RESPECT OF INTEREST PAYABLE TO CHAROTAR NAGRIK SAHAKARI BANK LTD. THE AO HAS FURTHER NOTED THAT T HE INTEREST AMOUNT WAS DEBITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT, BUT IT WAS NOT PAID TO THE BANK DURING THE YEAR UNDER CONSIDERATIO N. ON THIS BASIS, IT WAS HELD BY THE AO THAT AS PER THE PROVISION OF SECTION 43B OF THE ACT, NO DEDUCTION IS ALLOWABLE ON ACCOUNT OF THIS INTEREST IN THE PRESENT YEAR. THEREAFTER, THE AO HAS FURTHER NOTED THAT EVEN IN T HE SUBSEQUENT YEAR 1545 AND 1546/AHD/2009 -3- WHEN THE PAYMENT IS MADE BY THE ASSESSEE TO THE BAN K, THEN ALSO, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF RS.18,23,208/ - ONLY BECAUSE THIS AMOUNT OF RS.125.17 LAKHS INCLUDED INTEREST PERTAIN ING TO THE PRIOR PERIOD TO THE EXTENT OF RS.84,67,692/- AND THEREFORE, THE DEDUCTION IS NOT ALLOWABLE IN THE PRESENT YEAR. THE AO FURTHER NOTE D THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION IN THE YEAR OF PAYMENT F OR THE AMOUNT OF RS.22,26,426/- ALSO BECAUSE THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCE OF RS.75.84 LAKHS ON WHICH NO INTEREST WAS CHARGED. ON THIS POINT, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT THE AS SESSEE WAS HAVING PAID UP SHARE CAPITAL OF RS.1,99,00,000/- AND RESER VES AND SURPLUS OF RS.10,52,87,499/- AND HENCE, SUCH INTEREST FREE ADV ANCE GIVEN BY THE ASSESSEE IS OUT OF INTEREST FREE FUND AVAILABLE WIT H THE ASSESSEE. BUT THE AO DID NOT ACCEPT THIS CONTENTION BY OBSERVING THAT THE ASSESSEE HAS FAILED TO PROVIDE ANY EVIDENCE OR ONE TO ONE ACCOUN T RELATING TO THE RESERVES AND SURPLUS ACCOUNT AND THE APPLICATION TH EREOF BY WAY OF INTEREST FREE ADVANCES TO THE RELATED PARTIES. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) WHO HAS HELD THAT THE AO WAS NOT JUSTIFIED IN OBSERVING THAT THE DEDUCTION IS NOT ALLOWABLE TO TH E ASSESSEE TO THE EXTENT OF RS.22,26,426/- FOR THE REASON THAT THE INTEREST FREE ADVANCE WAS GIVEN BY THE ASSESSEE TO THE RELATED PARTIES. THIS WAS H ELD BY THE LEARNED CIT(A) ON THE BASIS THAT THE AO HAS COMPUTED PROBAB LE INTEREST PAYABLE OR CHARGEABLE, BUT SINCE NO AMOUNT WAS PAID BY THE SISTER CONCERN OR RECEIVED BY THE ASSESSEE, THEREFORE THE DECISION OF THE AO CANNOT BE UPHELD. NOW, THE REVENUE IS IN APPEAL BEFORE US. 5. THE LEARNED DR SUPPORTED THE ASSESSMENT ORDER. HE ALSO SUBMITTED THAT NO FUND FLOW STATEMENT HAS BEEN SUBMITTED BY T HE ASSESSEE BEFORE THE 1545 AND 1546/AHD/2009 -4- AUTHORITIES BELOW AND EVEN BEFORE THE TRIBUNAL IN S UPPORT OF THIS CONTENTION THAT THE INTEREST FREE ADVANCES WERE GIV EN OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. 6. REGARDING WORKING OF THE DISALLOWANCE MADE BY TH E AO, HE DRAWN OUR ATTENTION TO PAGE NO.5 OF THE ASSESSMENT ORDER BEING ANNEXURE-A WHEREIN THE AO HAS WORKED OUT THE INTEREST IN RESPE CT OF INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE TO THE RELATED PARTI ES. HE SUBMITTED THAT THE AO HAS FIRST WORKED OUT THE APPLICABLE RATE OF INTEREST AT THE RATE OF 10.5% AND THEREAFTER, THE INTEREST BEARING BORROWE D FUNDS UTILISED BY THE ASSESSEE, FOR GIVING SUCH INTEREST FREE ADVANCES, H AVE BEEN WORKED OUT BY THE A.O. IN PROPORTION TO THE INTEREST BEARING BORR OWED FUNDS TO THE TOTAL AVAILABLE FUNDS AND THE SAME WAS WORKED OUT AT RS.2 ,12,04,066/- AND THEN BY APPLYING THE INTEREST RATE OF 10.5% ON THIS INTEREST BEARING BORROWED FUND USED BY THE ASSESSEE FOR GIVING INTER EST FREE ADVANCES, THE AO HAS WORKED OUT THE DISALLOWABLE INTEREST AT RS.2 2,26,426/-. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE DELHI HIG H COURT IN THE CASE OF PUNJAB STAINLESS STEEL INDS. VS. CIT AS REPORTED IN 324 ITR 396. 7. AS AGAINST THIS, THE LEARNED AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A). HE ALSO SUBMITTED THAT THER E WAS NO DISALLOWANCE IN EARLIER YEAR AND HENCE, NO DISALLOWANCE SHOULD B E MADE IN THE PRESENT YEAR. HE ALSO SUBMITTED THAT THE INTEREST FREE FUN D AVAILABLE WITH THE ASSESSEE IS MORE THAN THE INTEREST FREE ADVANCE GIV EN BY THE ASSESSEE AND THEREFORE, NO DISALLOWANCE IS CALLED FOR. REGARDIN G THE DETAILS OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, HE HAS DRAW N OUR ATTENTION TO PAGE NO.51 OF THE PAPER BOOK BEING THE COPY OF THE AUDIT ED BALANCE SHEET AS ON 31-3-2005. AS PER THE BALANCE SHEET, THE INTEREST FREE ADVANCE IN THE FORM OF SHARE CAPITAL AND RESERVE AND SURPLUS IS TO THE EXTENT OF RS.1251.87 1545 AND 1546/AHD/2009 -5- LAKHS WHEREAS THE INTEREST FREE ADVANCES GIVEN BY T HE ASSESSEE IS ONLY RS.759.84 LAKHS AND HENCE, NO DISALLOWANCE IS JUSTI FIED. IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON THE JUDGMEN T OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF IN COME-TAX VS RELIANCE UTILITIES AND POWER LTD. (BOM), 313 ITR 3 40 AND ALSO ON THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT RENDERED I N THE CASE OF COMMISSIONER OF INCOME-TAX VS PREM HEAVY ENGINEERIN G WORKS P. LTD. AS REPORTED IN 285 ITR 554. RELIANCE WAS ALSO PLAC ED ON THE TRIBUNAL DECISION CITED AT 73 TTJ 624. ONE MORE CONTENTION WAS RAISED THAT THE INTEREST FREE ADVANCES WERE FOR BUSINESS PURPOSE AN D HENCE, FOR THIS REASON ALSO NO DISALLOWANCE IS CALLED FOR AND IN SU PPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS, 288 ITR 1 (SC). REGARDING THE JUDGM ENT OF HONBLE DELHI HIGH COURT CITED BY THE REVENUE, IT WAS STATED THAT THE JUDGMENT IS NOT APPLICABLE TO THE PRESENT CASE BECAUSE THE FACTS AR E DIFFERENT. 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE RECORD AND ALSO GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW AND THE JUDGMENTS CITED BY BOTH THE PARTIES. WE FIND THAT IN THE ASSE SSMENT ORDER, IT IS NOTED BY THE AO THAT THE ASSESSEE HAD MADE THIS SUBMISSIO N THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IS MORE THAN THE INTEREST FREE ADVANCE GIVEN BY THE ASSESSEE AND THEREFORE, NO DIS ALLOWANCE IS CALLED FOR. BUT A CLEAR FINDING IS GIVEN BY THE AO THAT T HE ASSESSEE HAS FAILED TO PROVIDE ANY EVIDENCE OR ONE-TO-ONE ACCOUNT RELATING TO SURPLUS FUND AVAILABLE WITH THE ASSESSEE AND APPLICATION THEREOF BY WAY OF INTEREST FREE ADVANCE TO THE RELATED PARTIES. IN THE WORKING OF THE DISALLOWANCE WORKED OUT BY THE AO AT RS.22,26,426/-, THE AO HAD WORKED OUT THAT INTEREST BEARING BORROWED FUNDS WERE USED TO THE EXTENT OF R S.212.04 LAKHS FOR THE PURPOSE OF GIVING INTEREST FREE ADVANCES OF RS.759. 84 LAKHS AND HENCE, IT 1545 AND 1546/AHD/2009 -6- IS SEEN THAT THE AO ACCEPTED TO THE EXTENT OF RS.54 7.80 LAKHS THAT INTEREST FREE ADVANCES WERE GIVEN BY THE ASSESSEE OUT OF INT EREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE TOTAL INTEREST FR EE FUNDS AVAILABLE WITH THE ASSESSEE AS PER THE BALANCE SHEET AVAILABLE AT PAGE NO.51 OF THE PAPER BOOK IS RS.1251.87 LAKHS, AGAINST WHICH, THERE IS A DEBIT BALANCE OF PROFIT AND LOSS ACCOUNT OF RS.254.89 LAKHS AND HENCE, THE NET OWN FOUND AVAILABLE WITH THE ASSESSEE IS ONLY RS.996.98 LAKHS . THE ASSESSEE HAS USED AN AMOUNT OF RS.12.25 LAKHS FOR FIXED ASSETS A ND RS.38 LAKHS FOR INVESTMENTS. IN ADDITION TO THIS, THERE ARE CURREN T ASSETS ALSO BEING STOCK- IN-TRADE, WORK-IN-PROGRESS, SUNDRY DEBTORS AND CASH & BANK BALANCE ETC. AND HENCE, THIS CANNOT BE SAID THAT THE ENTIRE INTE REST FREE FUND AVAILABLE WITH THE ASSESSEE WERE USED BY THE ASSESSEE FOR THE PURPOSE OF GIVING INTEREST FREE ADVANCES TO THE RELATED PARTIES. 10. NOW, WE EXAMINE THE APPLICABILITY OF JUDGMENT O F THE HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. R ELIANCE UTILITIES PVT. LTD. (SUPRA). IT IS HELD BY THE HONBLE BOMBA Y HIGH COURT THAT IF THE INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE IS S UFFICIENT TO MEET ITS INVESTMENT AND AT THE SAME TIME, THE ASSESSEE HAD R AISED A LOAN, IT CAN BE PRESUMED THAT THE INVESTMENT WERE FROM THE INTEREST FREE FUNDS AVAILABLE AND IN THE PRESENT CASE ALSO EVEN AFTER REDUCING TH E DEBIT BALANCE OF P& L ACCOUNT OF RS.25.89 LAKHS, NET INTEREST FREE FUND A VAILABLE WITH THE ASSESSEE IS MORE THAN THE INTEREST FREE ADVANCES GI VEN BY THE ASSESSEE AND HENCE, AS PER THIS JUDGMENT OF HONBLE BOMBAY HIGH COURT, IT HAS TO BE ACCEPTED THAT THE INTEREST FREE FUNDS WERE USED BY THE ASSESSEE FOR GIVING INTEREST FREE ADVANCES. THE AO HAS ALSO ACCEPTED T HIS CONTENTION IN PART TO THE EXTENT OF RS.547.80 LAKHS OUT OF TOTAL INTER EST FREE ADVANCE OF RS.759.84 LAKHS. BUT AS PER THE JUDGMENT OF THE HO NBLE BOMBAY HIGH COURT, THIS CLAIM OF THE ASSESSEE HAS TO BE ACCEPTE D THAT THE ENTIRE INTEREST 1545 AND 1546/AHD/2009 -7- FREE ADVANCES WERE GIVEN BY THE ASSESSEE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. REGARDING THE JUDGMEN T OF HONBLE DELHI HIGH COURT CITED BY LD. DR, WE FIND THAT THIS IS NO T APPLICABLE IN THE PRESENT CASE AS FACTS ARE DIFFERENT. IN THAT CASE THERE WAS DIRECT NEXUS OF INTEREST FREE ADVANCES AND INTEREST BEARING BORROWE D FUNDS AND ONLY ARGUMENT OF THE ASSESSEE ARE COMMERCIAL EXPEDIENCY WHICH WAS NOT ESTABLISHED. IN THE PRESENT CASE THERE IS NO SUCH NEXUS. IN VIEW OF THIS, WE FEEL THAT NO INTERFERENCE IS CALLED FOR IN THE O RDER OF THE LEARNED CIT(A), THUS, THE GROUND NO.1 AND 2 OF THE REVENUE ARE REJECTED. 11. GROUND NOS.3 AND 4 OF THE REVENUES APPEAL READ S AS UNDER: 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRE4D IN RESTRICTING ADDITION OF RS. 9,94,724/- MADE ON ACCOUNT OF DISALLOWANCE U/S.40(A)(IA) OF THE ACT TO RS.5,16,035/- BY ADMITTING FRESH EVIDENCE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN ADMITTING FRESH EVIDENCE THA T TOO WITHOUT GIVING THE DEPARTMENT AN OPPORTUNITY OF CROSS-VERIF Y THEM THEREBY VIOLATING THE PROVISIONS OF RULE 46A. 12. BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED BY THE AO IN PARA-4 OF THE ASSESSMENT ORDER THAT THE ASSESSEE WAS ASKED TO SUB MIT THE DETAILS OF TDS DEDUCTED FROM VARIOUS EXPENSES ALONG WITH DETAILS O F PAYMENT THEREOF IN THE GOVERNMENT ACCOUNT. IN REPLY, IT WAS STATED BY THE ASSESSEE BEFORE THE AO THAT DISALLOWANCE UNDER SECTION 40(A)(IA) WAS RE QUIRED TO BE MADE TO THE EXTENT OF RS.2,84,596/- IN RESPECT OF ADMINISTR ATIVE EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT. IT WAS FURTHER NOTED THAT APART FROM THIS ADDITION OF RS.2,84,596/- PROPOSED BY THE ASSESSEE, ON FURTHER VERIFICATION OF DETAILS OF EXPENDITURE, IT WAS FOUND THAT THE AS SESSEE HAS CLAIMED ITAT FEES OF RS.20,015/- AND PROFESSIONAL FEES OF RS.2,4 7,000/-. THE AO 1545 AND 1546/AHD/2009 -8- FURTHER NOTED THAT IT WAS FOUND ON VERIFICATION THA T NO TAX WAS DEDUCTED UNDER SECTION 194J OF THE ACT BECAUSE NO EVIDENCE I N THIS REGARD HAS BEEN FILED BY THE ASSESSEE. HE FURTHER NOTED THAT FOR T HE ADMINISTRATIVE EXPENDITURE AMOUNTING TO RS.4,43,113/- BEING CONSUL TANT FEE THE ASSESSEE FAILED TO FILE SUPPORTING EVIDENCES FOR COMPLIANCE OF TDS PROVISIONS. ON THIS BASIS, THE AO MADE DISALLOWANCE OF THESE EXPEN DITURE ALSO, THE TOTAL OF WHICH IS RS.7,10,128/-, IN ADDITION TO THE DISAL LOWANCE PROPOSED BY THE AO, WHICH IS RS.2,84,596/-. IN THIS MANNER, THE AO MADE TOTAL ADDITION OF RS.9,94,724/- UNDER SECTION 40(A)(IA) OF THE ACT . 13. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LEARNED CIT(A) WHO UPHELD THE DISALLOWANCE UNDE R SECTION 40(A)(IA) TO THE EXTENT OF RS.5,16,035 INSTEAD OF RS.9,94,724 /- AND IN THIS MANNER, HE ALLOWED RELIEF OF RS.4,78,689/-. NOW, THE REVEN UE IS IN APPEAL BEFORE US. 14. IT IS SUBMITTED BY THE LEARNED DR OF THE REVENU E THAT FRESH EVIDENCES WERE FURNISHED BEFORE THE CIT(A) BY THE A SSESSEE AND NO REMAND REPORT IS CALLED FOR FROM THE AO IN THIS REG ARD BY THE CIT(A) AND HENCE, THE ORDER OF THE LEARNED CIT(A) IS NOT SUSTA INABLE AND THE MATTER SHOULD BE RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION. AS AGAINST THIS, THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTE D THE ORDER OF THE CIT(A). 15. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORIT IES BELOW. WE FIND THAT THIS CLAIM WAS MADE BY THE ASSESSEE BEFORE THE LEARNED CIT(A) FOR THE FIRST TIME THAT ONLY PROPORTIONATE EXPENDITURE OF THE CLAIM HAS BEEN DEBITED BY THE ASSESSEE TO THE P&L ACCOUNT AND THER E WAS NO SUCH CLAIM 1545 AND 1546/AHD/2009 -9- MADE BEFORE THE AO IN THE COURSE OF ASSESSMENT PROC EEDINGS. NO REMAND REPORT HAS BEEN OBTAINED BY THE LEARNED CIT(A) ON T HIS ISSUE FROM THE AO AND HENCE, WE ARE OF THE CONSIDERED OPINION THAT TH IS ISSUE SHOULD GO BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION AFTER EXAMINATION ON THE PART OF THE AO THAT ONLY PROPORTIONATE EXPENDITURE WAS D EBITED BY THE ASSESSEE TO THE P&L ACCOUNT. WE, THEREFORE, SET AS IDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION. THE ASSESSEE HAS TO BRING EVID ENCES ON RECORD BEFORE THE AO IN SUPPORT OF ITS CONTENTION THAT PROPORTION ATE EXPENDITURE ONLY WERE DEBITED TO THE P&L ACCOUNT AND NOT THE TOTAL A MOUNT OF EXPENSES OUT OF ITAT FEES OF RS.20,015/- AND PROFESSIONAL FEES O F RS.2.47 LAKHS AND CONSULTANT FEE OF RS.4,43,113/- TOTALING TO RS.7,1 0,128/- BECAUSE FOR THE BALANCE AMOUNT OF RS.2,84,596/-, DISALLOWANCE WAS M ADE BY THE AO ON THE BASIS OF THE SUBMISSION OF THE ASSESSEE ITSELF. TO THE EXTENT, OUT OF TOTAL EXPENDITURE OF RS.7,10,128/-, NO DEDUCTION WA S ACCOUNTED OR CLAIMED BY THE ASSESSEE IN THE PRESENT YEAR, DISALL OWANCE SHOULD BE REDUCED TO THAT EXTENT IN THE PRESENT YEAR. SUCH D ISALLOWANCE SHOULD BE MADE IN THAT YEAR IN WHICH THE DEDUCTION HAS BEEN C LAIMED BY THE ASSESSEE AS PER THE METHOD OF ACCOUNTING FOLLOWED B Y IT WITHOUT COMPLYING WITH THE TDS PROVISIONS. THE AO SHOULD P ASS NECESSARY SPEAKING ORDER, AS PER THE ABOVE DISCUSSION AFTER P ROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO.3 AND 4 OF THE REVENUES APPEAL STANDS ALLOWED FOR STATISTICAL PUR POSE. 16. IN THE RESULT, APPEAL OF THE REVENUE STANDS PAR TLY ALLOWED FOR STATISTICAL PURPOSE. 17. NOW WE TAKE UP SECOND APPEAL WHICH IS IN THE CA SE OF M/S.JAYRAJ ESTATE PVT. LTD. THE GROUNDS RAISED IN THIS APPEAL READ AS UNDER: 1545 AND 1546/AHD/2009 -10- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 97,63,371/- MADE ON ALTERNATIVE GROUNDS ON ACCOUNT OF INTEREST ATTRI BUTABLE TO LOAN/DEPOSITS TO PARTIES COVERED U/S.40A(2)(B) OF T HE ACT WITHOUT APPRECIATING THE FACT THAT ON ONE SIDE THE ASSESSEE HAD BORROWED FUNDS ON WHICH HE WAS PAYING INTEREST AND ON THE OT HER HAND IT HAD DIVERTED INTEREST-LADEN FUNDS FOR NON-BUSINESS PURP OSE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT TH AT HAD THE ASSESSEE NOT DIVERTED INTEREST LADEN FUNDS FOR NON- BUSINESS PURPOSE, IT WOULD NOT HAVE BORROWED FUNDS ON WHICH IT WAS PA YING INTEREST. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS ERRED IN RESTRICTING ADDITION OF RS.2 ,85,464/- MADE ON ACCOUNT OF DISALLOWANCE U/S.40(A)(IA) OF THE ACT TO RS.9,710/- BY ADMITTING FRESH EVIDENCE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN ADMITTING FRESH EVIDENCE THA T TOO WITHOUT GIVING THE DEPARTMENT AN OPPORTUNITY OF CROSS-VERIF Y THEM THEREBY VIOLATING THE PROVISIONS OF RULE 46A. 17. IT IS AGREED BY BOTH THE SIDES THAT THE ISSUES INVOLVED IN THIS CASE ARE SIMILAR TO THE CASE IN THE CASE OF M/S.HINDUSTA N EARTH MOVERS P. LTD. (SUPRA) AND THE SAME MAY BE DECIDED ON THE SIMILAR LINE. 18. THE GROUND NOS.1 AND 2 OF THE REVENUES APPEAL IN THAT CASE WERE REJECT BY US AS PER PARA 10 ABOVE BY FOLLOWING THE JUDGMENT RENDERED IN THE CASE OF CIT VS. RELIANCE UTILITIES PVT. LTD. (S UPRA) IN THE PRESENT CASE ALSO, THE DETAILS OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE AT PAGE NO.32 OF THE PAPER BOOK, AS PER THE ORIGINAL B ALANCE SHEET FOR THE YEAR 31-3-2005. AS PER THIS, THERE IS CAPITAL OF R S.1 LAKH. THERE IS MINUS BALANCE OF RESERVES & SURPLUS OF RS.(-)134.40 LAKHS . THIS GOES TO SHOW THAT THE ENTIRE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE TO THE RELATED PARTIES OF RS.142.93 LAKHS IS OUT OF INTEREST BEARI NG BORROWED FUNDS AND 1545 AND 1546/AHD/2009 -11- HENCE, DISALLOWANCE MADE BY THE AO ON THIS COUNT IS JUSTIFIED AND THE ORDER OF THE LEARNED CIT(A) FOR DELETING THE SAME I S NOT SUSTAINABLE BECAUSE NO INTEREST FREE FUND IS AVAILABLE WITH THE ASSESSEE FOR GIVING INTEREST FREE ADVANCES TO THE RELATED PARTIES. IN VIEW OF THIS, BECAUSE OF DIFFERENCE SET OF FACTS, THIS ISSUE IS DECIDED AGAI NST THE ASSESSEE. GROUND NO.1 AND 2 OF THE REVENUE ARE ALLOWED. 19. REGARDING GROUND NO.3 AND 4, WE HAVE RESTORED T HE MATTER BACK TO THE FILE OF THE AO AS PER PARA 15 IN THE CASE OF HI NDUSTAN EARTH MOVERS P. LTD. (SUPRA). ON SIMILAR LINE, IN THIS CASE ALSO, THIS ISSUE IS RESTORED BACK TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS. GRO UND NO.3 AND 4 STAND ALLOWED FOR STATISTICAL PURPOSE. 20. IN THE RESULT, THE APPEAL OF THE REVENUE IN THE CASE OF M/S.HINDUSTAN EARTH MOVERS PVT. LTD. STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSE WHEREAS THE REMAINING APPEAL IN THE CASE OF JAYRAJ ESTATE PVT. LTD. STANDS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD./- SD./- ( .. /T.K. SHARMA) /JUDICIAL MEMBER ( ..'#$% /A.K. GARODA) & /ACCOUNTANT MEMBER ORDER PRONOUNCED ON 16.11.2011 SD./- SD./- (A.K. GARODIA) (D. K. TYAGI) AM JM 1545 AND 1546/AHD/2009 -12- COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD 1. DATE OF DICTATION : 24-09-2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER. : 31-09-2011 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P.S./P.S : 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT. : 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER MEMBER : 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P.S./P.S. : 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK. : 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. : 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER. : 10. DATE OF DESPATCH OF THE ORDER :