The Jt.CIT.,(OSD), Circle-7, Ahmedabad V. Shri Hitendra Ugarchand Gadhecha, HUF, Ahmedabad

ITA 1658/AHD/2006

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7754 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-06-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 05-07-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Rejection of books of accounts; Capital asset; Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' (BEFORE S/SHRI P K BANSAL AND MAHAVIR SINGH) ITA NO.1658/AHD/2006 (ASSESSMENT YEAR: 2003-04) THE JOINT COMMISSIONER OF INCOME-TAX (OSD), CIRCLE-7, AHMEDABAD V/S HITENDRA UGARCHAND GADHECHA (HUF), AHMEDABAD [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI JAYANT JHAVERI, SR. DR RESPONDENT BY:- SHRI VIVEK CHAVDA O R D E R PER P K BANSAL (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A ) DATED 27/04/2006 FOR ASSESSMENT YEAR (AY) 2003-04, BY TAK ING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL: 1 THE LD. CIT(A)-XIII, AHMEDABAD HAS ERRED IN LAW AND ON FACTS WHILE DELETING THE ADDITION MADE ON ACCOUNT OF LOW GP OF RS.10,36,281/-. 2 THE LD. CIT(A)-XIII, AHMEDABAD HAS ERRED IN LAW AND ON FACTS WHILE DELETING THE ADDITION MADE ON ACCOUNT OF UNDE RSTATEMENT OF SALE PRICE IN RESPECT OF GOLD SOLD TO SISTER CONCER N OF RS.9,64,000/-. 3 THE LD. CIT(A)-XIII, AHMEDABAD HAS ERRED IN LAW AND ON FACT WHILE ALLOWING RELIEF OF RS.4,72,906/- OUT OF ADDIT ION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES UNDER SECTION 36(1)(III). 2 2 THE BRIEF FACTS RELATING TO GROUND NO.1 ARE THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS DISCL OSED G.P. RATE OF 0.81% AS AGAINST OP. RATE OF 1.30% OF THE PRECED ING YEAR. THE AO FOUND THAT DURING THE COURSE OF A SURVEY ULS.133 A CARRIED OUT IN THE PREMISES OF THE ASSESSEE ON 29.10.2002, II W AS FOUND THAT THE ASSESSEE HAD SOLD GOODS WORTH RS.72,05,693/- WI TH A MANIPULATED SALE INVOICE WHEREIN THERE WAS OVERWRIT ING REGARDING THE DATE OF BILL. THE ORIGINAL DATE ON TH E BILL OF 12.10.2002 HAS BEEN CHANGED TO 22.10.2002 BY OVERWR ITING. SIMILARLY, THERE WAS AN OVERWRITING REFLECTED IN PA GE 10 OF THE STOCK REGISTER. SO ACCORDING TO THE ASSESSING OFFIC ER THE BOOKS OF ACCOUNTS OF THE ASSESSEE DID NOT REFLECT THE TRUE A ND CORRECT STATE OF AFFAIRS OF THE BUSINESS. HENCE, THE AO CONCLUDED THAT THE BOOK RESULTS OF THE ASSESSEE COULD NOT BE ACCEPTED. FURT HER THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS INDUL GED IN GIVING TEMPORARY LOAN OF HIS GOLD BULLION IN HUGE QUANTITY TO HIS ASSOCIATES ON JANGAD BASIS WILHOUL ISSUING PROPER S ALE BILLS. THE PERSONS RECEIVING SUCH GOODS HAVE RETAINED THE GOOD S FOR A PERIOD OF TIME OF TWO TO THREE MONTHS AND THE SAME QUANTITY OF GOLD WAS LATER ON RETURNED TO THE ASSESSEE. SO DURI NG THE INTERVENING PERIOD OF 2 TO 3 MONTHS, THE ASSESSEES GOLD BULLION WAS IN THE POSSESSION OF A THIRD PARTY, A BUSINESS ASSOCIATE WHO COULD MAKE USE OF THE SAME AS LIQUID CASH FOR THE S AID PERIOD OF 2 TO 3 MONTHS. THE ASSESSING OFFICER HAS DISCUSSED TH E DETAILS OF SAMPLE LOAN OF GOLD BULLION ETC. IN PAGE 3 OF THE A SSESSMENT ORDER. FURTHER IT WAS FOUND THAT THE ASSESSEE HAS P URCHASED GOODS WORTH RS.3,54,29,450/- AND FROM M/S. H. KUMAR GEMS CO. THE ASSESSEE HAD PURCHASED GOODS WORTH RS.7,71,79,050/- WHO WERE 3 ASSOCIATED CONCERNS COVERED BY THE PROVISIONS OF SE CTION 40A(2)(B) OF THE ACT AND THE ASSESSEE HAS NOT PRODU CED ANY EVIDENCE TO PROVE THAT THE PURCHASES FROM THESE PAR TIES ARE AT PREVAILING MARKET RATE. THEREFORE, THE ASSESSING OF FICER REJECTED THE G.P. RATE OF 0.81% DISCLOSED BY THE ASSESSEE AN D ADOPTED G.P. RATE OF 1.30% WHICH WAS THE GP RATE OF IMMEDIATELY PRECEDING YEAR AND MADE ADDITION OF RS.10,36,281/-. WHEN THE MATTER WENT IN APPEAL BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULT FOR THE FOLLOWING REASONS: (A) SINCE THE BUSINESS OF GOLD BULLION AND GOLD J EWELLERY WERE DIFFERENT BUSINESSES, THE OVERALL 0.?. RATE SHOULD NOT HAVE BEEN WORKED OUT AND COMPARED WITH EARLIER YEAR. THE CHAR T ANNEXED HEREWITH SHOWS THAT THE UP. IN GOLD JEWELLERY BUSIN ESS HAS REDUCED TO 3.55% FROM 11.02% IN THE LAST YEAR I.E. A FALL B Y 7.45%. IN CASE OF GOLD BULLION BUSINESS IT IS REDUCED TO 0.41% FROM 1 .64% I.E. BY 1.23% COMPARED TO THE LAST YEAR. IT WILL BE NOTICED THAT THERE IS SUBSTANTIAL INCREASE IN THE TURNOVER OF GOLD JEWELL ERY BUSINESS I. E. BY 50.57%, WHICH HAS REDUCED THE G.P. RATE. (EXHIHA). (B) THE A.O. HAS FAILED TO APPRECIATE THAT INCREAS E IN PRICES OF GOLD BULLION AND JEWELLERY IN F.Y. 2001-02 IS MUCH HIGHE R THAN THE INCREASE IN F.Y. 2002-03 HENCE, THE G.P. IS HIGHER IN F.Y. 2001-02 AND LOWER IN F.Y. 2002-03. SINCE THE STOCK AND INITIAL PURCHASES IN THE LAST YEAR WERE AT A LOWER PRICE AND THE MARKET STARTED I NCREASING, THE PROFIT ALSO WENT UP. BUT IN THE CURRENT YEAR THE PURCHASES WERE AT A HIGHER PRICE AND THE INCREASE WAS NOT SUBSTANTIAL SO THE P ROFIT MARGIN HAS REDUCED. THE COMPARATIVE CHART SHOWING AVERAGE PRIC ES IS ATTACHED HEREWITH. (EXHIBJIJ. (C) THIRDLY THE APPELLANT IS MAINTAINING COMPLETE Q UANTITY RECORD AND HENCE, THE BOOK RESULT COULD NOT BE REJECTED. D) IN CASE OF GOODS GIVEN ON JANGAD, THE SALES BIL LS ARE NEVER ISSUED TO THE PARTY BECAUSE THE SAME ARE ON APPROVAL AND O NLY AFTER THE APPROVAL IS RECEIVED SALES 1LS ARE TO BE ISSUED. 4 (E) THE CONTENTION OF A.O. THAT THE PURCHASES FROM H. KUMAR GEMS PVT. LTD. WERE NOT AT PREVAILING MARKET RATE IS LIA BLE TO BE REJECTED BECAUSE, THE LOWER PRICE THAN THE MARKET RATE WOULD INCREASE G.P. RATE RATHER THAN DECLINING IT. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING AS UNDER: 2.2 1 HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHO RIZED REPRESENTATIVE CAREFULLY AND HAVE GONE THROUGH THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS REJECTED THE BOOK RESULTS AND ESTIMATED OP. ON (LIE GROUND THAT THERE IS FALL IN GP, SECONDLY DURING THE COURSE OF SURVEY IN THE PREMISES OF THE APPELLANT IT WAS FOUND THAT THE APP ELLANT HAS SOLD GOODS WORTH RS.72,05,693/- WITH A MANIPULATED SALE INVOICE WHEREIN THE DATE HAS BEEN OVERWRITTEN AND THERE WAS OVERWRI TING IN THE STOCK REGISTER FURTHER THE APPELLANT HAS GIVEN TEMPORARY LOAN OF ITS GOLD BULLION IN HUGE QUANTITIES TO ITS ASSOCIATES ON JAN GAD BASIS WITHOUT ISSUING PROPER SALE BILLS AND THERE ARE HUGE PURCHA SES FROM THE ASSOCIATED CONCERNS AND THE APPELLANT HAS NOT PRODU CED ANY EVIDENCE TO PROVE THAT THE PURCHASES FROM THE RELATED PARTIE S ARC AT THE PREVAILING MARKET RATE. AS REGARDS THE G,P. RATE, T HE AUTHORIZED REPRESENTATIVE HAS CONTENDED THAT THE OVERALL G.P. RATE CANNOT BE COMPARED WITH EARLIER YEAR AS THE APPELLANT HAS TWO TYPES OF BUSINESS I.E. TRADING IN GOLD BULLION AND TRADING IN GOLD JE WELLERY. THE AUTHORIZED REPRESENTATIVE HAS FURNISHED SEPARATE TR ADING ACCOUNTS FOR BOTH BUSINESS DURING THE COURSE OF APPEAL HEARING. ACCORDING TO HIM IN GOLD BULLION TRADING .THE G.P. HAS FALLEN BY 1.23% FROM G.P. OF 1.64 % OF LAST YEAR WHEREIN IN GOLD JEWELLERY BUSINESS, TH E GP HAS FALLEN TO 7.45%. THE FALL IN G.P. IN GOLD JEWELLERY BUSINESS IS DUE TO SUBSTANTIAL INCREASE IN TURNOVER WHERE THE TURNOVER HAS INCREAS ED BY 50.57% IN THE YEAR UNDER CONSIDERATION OVER THAT OF THE PRECE DING YEAR I.E. INCREASE IN TURNOVER IS FROM RS.1.79 CRORES TO RS.2 .70 CRORES. ANOTHER REASON FOR FALL IN GP. HAS BEEN EXPLAINED AS BEING DUE TO THE FACT THAT THE PRICE VARIATION WAS HIGHER IN F.Y. 2001-02 I.E. THE PRECEDING YEAR THAN IN THE YEAR UNDER CONSIDERATION. FROM THE COMP ARATIVE CHART SHOWING AVERAGE PRICES AS PER PAGE 10 OF THE PAPER BOOK IT IS NOTICED THAT IN THE PRECEDING YEAR ,THE OPENING STOCK OF GO LD BULLION WAS VALUED AT THE AVERAGE RATE OF RS.425/- PER GRAM AND THE AVERAGE RATE VARIED FROM RS.425/- PER GRAM TO RS.501/- PER GRAM WHEREAS IN THE 5 YEAR UNDER CONSIDERATION, THE AVERAGE RATE OF PURCH ASE VARIED FROM RS.501/- TO RS.529/- PER GRAM. THUS THE PRICE VARIA TION WAS LESS IN THE YEAR UNDER CONSIDERATION WHICH HAS CAUSED THE FALL IN GP IN GOLD BULLION. SIMILARLY, IN GOLD JEWELLERY THE PRICE VAR IATION WAS FROM RS.456/- PER GRAM TO RS.586/- PER GRAM IN FY 2001-0 2 WHEREAS IN THE YEAR IN APPEAL IT VARIED FROM RS.505/- TO RS.586/-. IN THE YEAR UNDER CONSIDERATION THE OPENING STOCK WAS VALUED AT RS.58 6/- PER GRAM AND THE AVERAGE PURCHASE RATE WAS RS.505/- AND THE AVER AGE SALE WAS AT RS.540/- PER GRAM. THE APPELLANT HAS GOT AUDITED BO OKS OF ACCOUNTS AND NO ADVERSE COMMENTS HAVE BEEN MADE BY THE AUDIT ORS IN THE TAX AUDIT REPORT REGARDING THE BOOKS OF ACCOUNTS NOR AN Y DISCREPANCIES IN PURCHASE AND SALES HAVE BEEN FOUND BY THE AO. THE O VER WRITING OF THE DATE IN THE SALE BILL CAN NOT BE A SUFFICIENT G ROUND FOR REJECTION OF BOOKS OF ACCOUNTS AS THERE IS NO OMISSION OF SALES. AS REGARDS THE PURCHASES FROM THE SISTER CONCERNS, THE AR SUBMITTE D THAT THE BULLION RATES USED TO VARY DURING THE DAY AND THE PURCHASES HAVE BEEN MADE AT THE MARKET RATES. FROM THE COMPARATIVE CHART OF PUR CHASES FROM THE SISTER CONCERN OF THE APPELLANT I.E. H KUMAR GEMS P VT. LTD. AND OTHER PARTIES SUBMITTED BY THE AR AS PER PAGE 62 OF PAPER BOOK, IT IS OBSERVED THAT THE BULLION RATES HAVE VARIED ON DIFF ERENT DATES AND ON THE DATES ON WHICH PURCHASES HAVE BEEN MADE FROM H KUMAR GEMS PVT. LTD., THERE ARE NO PURCHASES FROM OTHER PARTIE S EXCEPT ON ONE SINGLE DATE I.E. ON 2.7.2002 WHERE THE APPELLANT HA S PURCHASED BULLION FROM H KUMAR GEMS PVT. LTD. AT THE RATE OF RS.5,247 /- FOR 10 GRAMS AS COMPARED TO RS.5,213/- FOR 10 GRAMS PURCHASED FROM CHOKSHI PRADIPKUMAR MANILAL & BRO. THERE IS A VARIATION OF 0.6% WHICH HAS BEEN EXPLAINED BY THE AR AS INTRA DAY VARIATION IN THE BULLION RAT. AS REGARDS THE GOODS GIVEN ON JANGAD, THE SAME HAVE BE EN ACCOUNTED AS SALES ON CONFIRMATION FROM THE PARTIES, SO NO ADVER SE VIEW CAN BE TAKEN ON THIS ISSUE. CONSIDERING THE ABOVE FACTS AN D THE FACT THAT NO DISCREPANCY HAS BEEN FOUND BY THE AO WHICH IS MATER IAL TO REJECTION OF BOOKS OF ACCOUNTS, REJECTION OF BOOKS OF ACCOUNT S MADE BY THE AO IS HELD TO BE NOT JUSTIFIED AND AS THE APPELLANT HA S EXPLAINED THE REASONS FOR FALL IN GP SUPPORTED BY AUDITED BOOKS O F ACCOUNTS, THE ESTIMATE MADE BY THE AO AND CONSEQUENT ADDITION TO GP IS DELETED. 3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND, PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY HELD THAT THE ASSESSEE HAS GOT AUDITED BOOK S OF ACCOUNTS 6 AND NO ADVERSE COMMENTS HAVE BEEN MADE BY THE AUDIT ORS IN THE TAX AUDIT REPORT REGARDING THE BOOKS OF ACCOUNTS NO R ANY DISCREPANCIES IN PURCHASE AND SALES HAVE BEEN FOUND BY THE AO. THE OVER WRITING OF THE DATE IN THE SALE BILL CAN N OT BE A SUFFICIENT GROUND FOR REJECTION OF BOOKS OF ACCOUNT S AS THERE IS NO OMISSION OF SALES. WE, THEREFORE, DO NOT FIND ANY I NFIRMITY IN THE ORDER OF THE CIT(A) AND ACCORDINGLY UPHOLD THE ORDE R OF THE CIT(A). THUS, THE GROUND TAKEN BY THE REVENUE STAND S DISMISSED. 4 THE FACTS RELATING TO GROUND NO.2 ARE THAT THE A O FOUND THAT THE ASSESSEE HAD SOLD GOLD OF 40000 GRAM S TO M/S H KUMAR GEMS PVT. LTD., SISTER CONCERN AT THE RATE OF RS.5020/- OF 10 GRAMS, WHEREAS THE SELLING PRICE WAS RS.5261/- T O RS.5380/- PER 10 GAMS IN RESPECT OF OTHER PARTIES. THE AO, TH EREFORE, MADE THE ADDITION OF RS.9,64,000/- ON THE GROUND THAT TH E ASSESSEE HAS INDULGED IN UNDER SELLING OF GOODS TO ASSOCIATE CON CERN. WHEN THE MATTER WENT IN APPEAL BEFORE THE CIT(A), THE CI T(A) DELETED THE ADDITION BY OBSERVING AS UNDER: 3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AR C AREFULLY AND HAVE GONE THROUGH THE OBSERVATIONS OF THE AO IN THE ASSE SSMENT ORDER. AS CONTENDED BY THE AR THERE IS NO EVIDENCE WITH THE A O TO PROVE THAT THE RELATED CONCERN I.E. M/S H KUMAR GEMS PVT. LTD. HAS PAID EXTRA PRICE TO THE APPELLANT OVER AND ABOVE WHAT HAS BEEN STATED IN THE SALE BILL. FURTHER THE QUANTITY SOLD TO M/S H KUMAR GEMS PVT. LTD. IS 40,000 GRAMS WHICH IS 20 TIMES THE QUANTITY SOLD TO CHOKSHI RANCHHODLAL KISHORDAS. ON ACCOUNT OF BULK SALES THE APPELLANT HAS SOLD AT LOWER PRICE TO M/S H KUMAR GEMS PVT. LTD. IN ABSENCE OF ANY PROOF THAT EXTRA PRICE / CONSIDERATION HAS BEEN PAI D BY THE PARTY, NO ADDITION CAN BE MADE ON PRESUMPTION FOR UNDER SELLI NG OF GOODS. ACCORDINGLY, THE ADDITION OF RS.9,64,000/- MADE BY THE AO IS DELETED. 7 5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND, PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE FIND THAT THE ASSESSEE HA S CONTENDED BEFORE THE CIT(A) THAT THERE IS NO EVIDENCE WITH TH E AO TO PROVE THAT THE RELATED CONCERN I.E. M/S H KUMAR GEMS PVT. LTD. HAS PAID EXTRA PRICE TO THE ASSESSEE OVER AND ABOVE WHA T HAS BEEN STATED IN THE SALE BILL. FURTHER THE QUANTITY SOLD TO M/S H KUMAR GEMS PVT. LTD. IS 40,000 GRAMS WHICH IS 20 TIMES TH E QUANTITY SOLD TO CHOKSHI RANCHHODLAL KISHORDAS. ON ACCOUNT O F BULK SALES THE ASSESSEE HAS SOLD AT LOWER PRICE TO M/S H KUMAR GEMS PVT. LTD. IN ABSENCE OF ANY PROOF THAT EXTRA PRICE / CO NSIDERATION HAS BEEN PAID BY THE PARTY, NO ADDITION CAN BE MADE ON PRESUMPTION FOR UNDER SELLING OF GOODS. WE, THEREFORE, DO NO FI ND ANY ILLEGALITY OR INFIRMITY IN THE ORDER OF THE CIT(A). WE ACCORDINGLY, CONFIRM THE ORDER OF THE CIT(A) IN DEL ETING THE ADDITION OF RS.9,64,000/- MADE BY THE AO. THUS, THI S GROUND TAKEN BY THE REVENUE STANDS DELETED. 6 AS REGARDS THE LAST GROUND RELATING TO ALLOWANCE OF RELIEF OF RS.4,72,906/- OUT OF THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES U/S 36(1)(III), I T WAS THE COMMON CONTENTION OF THE PARTIES THAT THE ISSUE IS DULY COVERED BY THE DECISION OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.2601/AHD/2004 FOR AY 2001-02. 7 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND, PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH TH E ORDER OF 8 THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR AY 200 1-02 IN ITA NO.2601/AHD/2001, IN WHICH THIS TRIBUNAL VIDE ORDER DATED 27/03/2009 HAS DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE AND DELETED THE ADDITION, BY OBSERVING AS UNDER:- 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE FAI RLY STATED THAT AS REGARDS TO THE DISALLOWANCE OF INTEREST ON ADVANCE MADE TO NTC, I.E. GEM-HEER NON-TRADING ASSOCIATION AND THE ISSUE IS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE TRIBUNALS DECISION IN ASSESSEES OWN CASE IN ITA NO.1231/AHD/2004 DATED 06-06-2008 FOR ASSESSMENT YEAR 2000-01, I.E. IMMEDIATELY PRECEDING YEAR. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT IT IS SAME FIN DING AND THE FACTS BEING EXACTLY SAME. ON QUERY FROM THE BENCH, LD. DEPARTM ENTAL REPRESENTATIVE ALSO CONCEDED THE POSITION. WE FIND FROM THE TRIBU NALS ORDER THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE VIDE PAR A-2.2 TO 5, WHICH READ AS UNDER:- 2.2 DURING THE COURSE OF APPEAL HEARING, THE AUTHO RIZED REPRESENTATIVE WAS ASKED TO GIVE A DATE-WISE CHART GIVING THE SOUR CE OF FUNDS AND THE BORROWALS AND THE ADVANCES MADE TO GEM-HEER NON-TRA DING ASSOCIATION. THE AUTHORIZED REPRESENTATIVE WAS ASKED TO PRODUCE THE EVIDENCES TO SHOW THAT MOST OF THE ADVANCES WERE MADE OUT OF COL LECTION FROM DEBTORS AND SALES EXCEPT FOR THE ABOVE FOUR ADVANCES CITED ABOVE IN PARA 2.1 WHICH HAVE BEEN MADE OUT OF BORROWED FUNDS. THE AU THORIZED REPRESENTATIVE PRODUCED THE BANK BOOK OF THE APPELL ANT SHOWING THE COLLECTION FROM SALES AND DEBTORS WHICH WAS VERIFIE D. THE AUTHORISED REPRESENTATIVES CLAIM WAS FOUND ACCEPTABLE THAT ON MOST OF THE DATES THE ADVANCES WERE MADE OUT OF THE COLLECTION FROM SALES AND DEBTORS EXCEPT FOR THE ABOVE FOUR ADVANCES WHICH HAVE BEEN MADE OU T OF THE BORROWED FUNDS. THEREFORE, AS PER THE WORKING GIVEN BY THE A PPELLANT, THE DISALLOWANCE OF INTEREST IF TO BE MADE ON THE GROUN D THAT THE BORROWED FUNDS HAVE DIRECT NEXUS WITH THE ADVANCE MADE TO GE M-HEER NON-TRADING ASSOCIATION COMES TO RS.22,900/-, BUT AS CONTENDED BY THE AUTHORISED REPRESENTATIVE AND RELYING ON THE RATIO OF THE CASE S CITED BY THE AUTHORISED REPRESENTATIVE, I AM INCLINED TO HOLD TH AT AS THE APPELLANT HAS MADE ADVANCES IN THE COURSE OF BUSINESS TO ACQUIRE A CAPITAL ASSET BY WAY OF OFFICE / SHOP PREMISES IN THE PROPOSED COMMERCIA L BUILDING, THE INTEREST SHOULD BE ALLOWED AS REVENUE EXPENDITURE. THERE IS ALSO A DECISION OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CHEMCROWN (INDIA) LTD. REPORTED IN 133 TAXMAN 579 WHEREIN IT WAS HELD THAT IF THE E XPENDITURE INCURRED OUT OF BORROWED FUNDS IS AN ADVANCE FOR ACQUIRING A FIX ED ASSET AND IS MADE PURSUANT TO A NEGOTIATION UNDERTAKEN IN PREVIOUS YE AR AS A CONDITION FOR OBTAINING LEASE, THEN IT WOULD BE ENTITLED TO BENEF IT OF SECTION 36(1) (III) OF THE ACT. SIMILARLY IN THE FOLLOWING CASES IT HAS BE EN HELD THAT EXPENDITURE INCURRED ON BORROWALS FOR SETTING UP OF NEW FACTORY INTER CONNECTED WITH THE BUSINESS IS ALLOWABLE UNDER SECTION 36(1)(III) OF T HE ACT. 9 1) PREM SPG. & WVG., MILLS CO. LTD. VS. CIT REPORT ED IN 98 ITR 20 (ALLAHABAD). 2) ADDL. CIT VS. ANILINE DYESTUFFS & PHARMACEUTICA L (P) LTD., REPORTED IN 138 ITR 943 (BOMBAY) SIMILARLY IT WAS HELD BY CALCUTTA HIGH COURT IN THE CASE OF TETRON COMMERCIAL LTD. VS. CIT REPORTED IN 261 ITR 422 (CALCUTTA) THAT WHETHER THE DEDUCTION UNDER SECTION 36(1)(III) IS AVAILABLE OR NOT IS DEPENDENT ON THE QUESTION WHETHER THE CAPITAL BORROWED IS FOR TH E PURPOSE OF THE BUSINESS OF THE ASSESSEE. IF IT IS FOUND THAT THE CAPITAL WAS BORROWED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE, THE IN TEREST PAYABLE THEREON, IS ADMISSIBLE UNDER THE SAID SECTION. IT IS IMMATER IAL WHETHER THE SAME IS IN THE NATURE OF CAPITAL EXPENDITURE OR REVENUE EXPEND ITURE. IF THE EXPENDITURE IS A BUSINESS EXPENDITURE RELATES TO ANY OF THE STA GE OF THE BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE, WHETHER AN ISO LATED TRANSACTION OR NOT, IT IS ADMISSIBLE FOR DEDUCTION UNDER THE SAID SECTI ON. A BUSINESS COMMENCES WITH THE ACTIVITIES UNDERTAKEN EVEN AT TH E PREPARATORY STAGE FOR SETTING UP OF THE BUSINESS. ACQUISITION OF IMM OVABLE PROPERTY FOR BEING USED IN THE BUSINESS BY BORROWED CAPITAL ENTITLES T HE ASSESSEE TO CLAIM BENEFIT OF THE SECTION ON THE INTEREST PAID THEREON , EVEN IF THE ASSET ACQUIRED IS NOT UTILIZED FOR THE PURPOSE OF BUSINES S INTEREST PAID THEREON, EVEN IF THE ASSET ACQUIRED IS NOT UTILIZED FOR THE PURPOSE OF BUSINESS IN THE RELEVANT PREVIOUS YEAR. IN VIEW OF THE ABOVE CASE LAWS, THE ENTIRE INTEREST PAID ON BORROWED FUNDS INVESTED FOR MAKING ADVANCE TO ACQUIRE A CAPITAL ASSET SHALL BE ALLOWABLE, ACCORDINGLY, EVEN THE DIS ALLOWANCE OF INTEREST OF RS.22,900/- IS NOT REQUIRED TO BE MADE. THEREFORE, I DELETE THE ENTIRE DISALLOWANCE OF INTEREST OF RS.6,96,505/- AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 5. AT THE OUTSET, IT IS NOTICED FROM THE ABOVE FACT S THAT THE ASSESSEE HAS BOOKED OFFICE PREMISES WITH THE GEM-HEER NON-TR ADING ASSOCIATION, WHICH WAS CONSTRUCTING A COMMERCIAL COMPLEX IN AHME DABAD. THE ASSESSEE HAD MADE DEPOSITS WITH THE ABOVE NTC FOR T HE PURCHASE OF OFFICE PREMISES AND IN NO WAY THE AMOUNT CAN BE TRE ATED AS INTEREST FREE ADVANCE IN THE SHAPE OF LOANS. IN VIEW OF THE FACT S AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER. ACCORDINGLY, WE CONFIRM THE ORDER OF THE CIT(A) AND THIS ISSUE OF T HE REVENUES APPEAL IS DISMISSED. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE A SSESSEE AND AGAINST THE REVENUE, WE DISMISS THIS ISSUE IN THE APPEAL OF THE REVENUE. AS REGARDS TO THE ADVANCES MADE BY THE ASSESSEE INTEREST FREE AT RS.10 LAKHS TO SMT. DHARMISTHA GADHECHA AND RS.8 LAKHS MADE TO MEENA TE X. THE ASSESSING OFFICER HAS DISALLOWED THE INTEREST TO TH E EXTENT OF RS.43,972/- AND THE SUM OF RS.14,795/- RESPECTIVELY. THEREAFTER , CIT(A) DELETE THE 10 ENTIRE DISALLOWANCE OF INTEREST OF RS.36,95,789/- B EING INTEREST NOT CHARGED FROM THE NTC, IN ADDITION TO DISALLOWANCE OF INTERE ST RELATING TO ADVANCE TO SMT.DHARMIATHA GADHECHA OF RS.43,972/- AND MEENA TE X OF RS.14,795/-. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE IN TEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IS MORE THAN THE INTERE ST FREE ADVANCE. THE ASSESSEE SUBMITTED THE DETAILS OF INTEREST FREE FUN DS LYING WITH THE ASSESSEE AS PER THE BALANCE-SHEET AS ON 31-03-001 A ND WHICH READS AS UNDER:- 1.BALANCE IN CAPITAL ACCOUNT RS. 59,90,089/- 2.. H.KUMAR GEMS INTL. (EXPORT) RS. 34,19,067/- 3. H.KUMAR GEMS. INCOME. (IMPORT) RS.1,64,15,605/- 4. H.KUMAR GEMS. INCOME. (EXPORT) RS. 8, 64,04/- THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTR OVERT THE SAME THAT THE ASSESSEE HAS THE ABOVEMENTIONED INTEREST FREE F UNDS AVAILABLE WITH IT. AS THE INTEREST FREE FUNDS ARE AVAILABLE WITH THE A SSESSEE AND RESPECTFULLY FOLLOWING THE HON'BLE APEX COURTS DECISION IN THE CASE OF MUNJAL SALES CORPORATION V. CIT AND ANOTHER (2008) 298 ITR 298 (SC), WHEREIN THE HEAD-NOTE IS EXTRACTED HEREIN:- UNDER THE INCOME-TAX ACT, 1961, AFTER AMENDMENT OF THE ACT BY THE FINANCE ACT, 1992, IN ORDER THAT INTEREST PAID ON B ORROWINGS CAN BE ALLOWED AS A DEDUCTION IN COMPUTING THE BUSINESS PR OFITS, EVERY ASSESSEE, INCLUDING A FIRM, HAS TO ESTABLISH, IN THE FIRST IN STANCE, THAT IT WAS ALLOWABLE UNDER SECTION 36(1)(III); AND, IN THE CASE OF A FIR M, FURTHER THAT THE AMOUNT DOES NOT EXCEED THE LIMIT FIXED BY SECTION 40(B)(IV ). HELD, HOWEVER, ON THE FACTS, IN THIS CASE, THAT SINCE TH E ASSESSEE HAD BORROWED THE MONEYS FROM ITS PARTNERS AS EARLY AS 1 991, AND THE APPELLATE TRIBUNAL HAD HELD THAT THE LOANS WERE GIVEN BY THE PARTNERS FOR BUSINESS PURPOSES AND THE INTEREST DID NOT EXCEED 18 PER CEN T, PER ANNUM SIMPLE INTEREST, THE ASSESSEE-FIRM WAS ENTITLED TO DEDUCTI ON OF INTEREST ON THE BORROWINGS FOR THE ASSESSMENT YEARS 1993-94 TO 1997 -98. HELD ALSO, THAT SINCE THE OPENING BALANCE OF THE PROFIT S OF THE ASSESSEE- FIRM AS ON APRIL 1, 1994, WAS RS.1.91 CRORES, AND T HE PROFITS WERE SUFFICIENT TO COVER THE LOAN GIVEN TO A SISTER CONCERN OF RS.5 LAKHS ONLY, THE APPELLATE TRIBUNAL OUGHT TO HAVE HELD THAT THE LOAN GIVEN WAS FROM THE ASSESSEES OWN FUNDS. ACCORDINGLY, WE CONFIRM THE ORDER OF CIT(A) DELETIN G THE ADDITION AND THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 11 RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH IS TRIBUNAL, WE UPHOLD THE ORDER OF THE CIT(A) IN THIS REGARD AND D ISMISS THE GROUND TAKEN BY THE REVENUE. 8 IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 24-07- 2009 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (P K BANSAL) ACCOUNTANT MEMBER DATE : 24-07-2009 COPY OF THE ORDER FORWARDED TO : 1. HITENDRA UGARCHAND GADHECHA (HUF), 103, SAMRUDDH I, OPP. OLD HIGH COURT, ASHRAM ROAD, AHMEDABAD 2. THE JOINT COMMISSIONER OF INCOME-TAX (OSD), CIRC LE-7, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XIII, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABA