ACIT, Varanasi V. M/s Malti Rugs, Bhadohi

ITA 175/ALLD/2011

• Counselvise Citation: 17520714 RSA 2011
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 02-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP CHAUHAN
• Assessee Lawyers: A K THUKRAL
• Keywords: Business expenditure; Loose papers; Commercial expediency
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH, ALLAHABAD BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.175/A/2011 ASSESSMENT YEAR: 2009-10 ASSTT. COMMISSIONER OF INCOME TAX, VS. M/S MALTI RU GS, CENTRAL CIRCLE, VARANASI. GYANPUR ROAD, BHADOHI. (PAN : AAPFM 6411 L). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANDEEP CHAUHAN, CIT D.R. RESPONDENTS BY : SHRI BHUPENDRA SHAH, C.A. & SHRI A.K. THUKRAL, C.A. DATE OF HEARING : 06.11.2012 DATE OF PRONOUNCEMENT : 10.12.2012 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 20.06.2011 PASSED BY THE LD. CIT(A), VARANASI FOR THE ASSESSME NT YEAR 2009-10. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1 THE LD. CIT(A) WAS NOT JUSTIFIED IN LAW AND ON F ACTS IN DELETING THE ADDITION OF RS.47,61,908/- MADE ON ACCOUNT OF D ISALLOWANCE OF INTEREST U/S 36(I)(III) OF THE ACT, WITHOUT APPRECI ATING THE FACT THAT THE INTEREST FREE LOAN ADVANCED TO SISTER CONCERN, WAS NOT FOR BUSINESS PURPOSE AND HENCE THE PROPORTIONATE DISALLOWANCE OF INTEREST DEBITED TO P & L A/C WAS JUSTIFIED. ITA NO.175/A/2011 A.Y. 2009-10 2 2. THE LD. CIT(A) WAS NOT JUSTIFIED IN LAW AND ON F ACTS IN DELETING THE ADDITION OF RS.47,61,908/- MADE ON ACCOUNT OF D ISALLOWANCE OF INTEREST U/S 36(I)(III) OF THE ACT, WITHOUT APPRECI ATING THE FACT THAT NO COMMERCIAL EXPEDIENCY WARRANTED THE ASSESSEE TO ADV ANCE SUCH HUGE INTEREST FREE ADVANCE WHEN SUCH ASSETS COULD BE UTI LISED FOR ASSESSEES BUSINESS PURPOSES. 3. THAT THE ORDER OF THE LD. CIT(A) DESERVES TO BE VACATED AND THE ASSESSMENT ORDER PASSED BY THE A.O. BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO AMEND ANY ON E OR MORE OF THE GROUNDS OF THE APPEAL AS STATED ABOVE AS AND WH EN NEED FOR DOING SO MAY ARISE. 3. THE BRIEF FACTS OF THE CASE ARE THAT A SEARCH AN D SEIZURE OPERATION UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) WAS CONDUCTED IN THE RESIDENTIAL AND BUSINESS PREMISES OF M/S. CARPE T INTERNATIONAL, M/S. CARPET INTERNATIONAL PVT. LTD., BHADOHI, ITS DIRECTORS, IT S PARTNERS, ITS SISTER CONCERNS AND OTHER GROUP CASES ON 11.02.2009. THE WARRANT OF AU THORIZATION FOR SEARCH OF RESIDENTIAL AND BUSINESS PREMISES WAS ISSUED BY THE DIRECTOR OF INCOME TAX (INV.), KANPUR ON 03.02.2009 WHEREAS CONSEQUENTIAL WARRANT OF AUTHORIZATION FOR SEARCH OF LOCKERS WAS ISSUED BY THE DIRECTOR OF INCOME TAX (INV.), KANPUR ON 20.02.2009 & 25.02.2009. DURING THE COURSE OF SEARCH, VARIOUS LOOSE PAPERS, DOCUMENTS, FDRS. AND COMPUTERS ETC. AS PER ANNEXURES TO THE VA RIOUS PANCHANAMAS DRAWN WERE FOUND AND SEIZED. THE ASSESSEES RETURN OF IN COME FOR THE A.Y. 2009-10 WAS FILED ON 18.08.2010 IN ITR-5, DISCLOSING TOTAL INCO ME OF RS.47,00,890/-. ITA NO.175/A/2011 A.Y. 2009-10 3 4. DURING THE ASSESSMENT PROCEEDINGS THE A.O. NOTIC ED THAT INTEREST FREE LOAN OF RS.2,54,20,000/- WERE GIVEN TO THE FOLLOWING SISTER CONCERNS:- (PAGE NO.2 OF AO) 1) M/S CHAMPA DYEING PVT. LTD RS.1,00,00,000.00 2) SMT. MALTI DEVI BARANWAL RS. 75,00,000.00 3) M/S SUMAN GARMENTS RS. 4,20,000.00 4) SRI YOGEOSH PD. BARANWAL RS. 7,50,000.00 RS.2,54,20,000.00 5. THE A.O. DISALLOWED INTEREST CLAIM OF RS.47,61,9 08/- ON THE GROUND THAT THE ASSESSEE FAILED TO OFFER REASONABLE AND SUFFICIENT PROOF TO SHOW THAT ADVANCES GIVEN INVOLVED COMMERCIAL EXPEDIENCY. 6. THE CIT(A) DELETED THE ADDITION AS UNDER :- (PAG E NOS.5 & 6) I HAVE CONSIDERED THE RIVAL CONTENTIONS AND THE EV IDENCES AND PRODUCED BY THE ASSESSEE DURING APPELLATE PROCEEDIN GS. I FIND THAT THE ASSESSEE HAD SUFFICIENT OWN FUND APART FROM ITS BOR ROWINGS. IN FACT THE BORROWING WAS NOT DIVERTED TO INTEREST FREE ADV ANCES TO FAMILY MEMBERS AND SISTER CONCERN. MOREOVER, IT IS FOUND THAT ASSESSEE HAS RECEIVED INTEREST ON FDR @ 11.12% AS AGAINST INTERE ST ON LOAN AT 8% WHICH SHOWS THAT THERE IS NO INFIRMITY OF GIVING AN Y PORTION OF HIS SURPLUS FUND WITHOUT INTEREST. THE RATIO OF SUPREM E COURT CASE LAW (SUPRA) REGARDING COMMERCIAL EXPEDIENCY IS TO BE APPLIED IN CASE THE INTEREST BEARING LOAN IS DIVERTED TO INTEREST F REE ADVANCES TO SISTER CONCERN. THIS INTERPRETATION HAS WIDELY BEEN LAID DOWN IN CASE OF CIT VS. GAUTAM MOTORS (2010) 194 TAXMAN 29 CITED BY THE ASSESSEE SINCE THE ASSESSING OFFICERS FINDING IS BASED ON WRONG F OOTING OF THE CASE LAW AND THE FACT THAT THE ASSESSEE ADVANCED THE INT EREST FREE LOAN OUT OF ITS OWN SURPLUS FUND, THE ADDITION CANNOT SURVIV E AND IS HEREBY DELETED, ITA NO.175/A/2011 A.Y. 2009-10 4 7. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORDS PERUSED. THERE IS NO DISPUTE ABOUT FOLLOWING FACTS SUBMITTED BEFORE THE CIT(A) BY THE ASSESSEE. THE CIT(A) NOTED THIS FACT AT PAGE NO.4 OF HIS ORDER AS UNDER :- (PAGE NO.4) THAT OUT OF ASSESSEES INTRODUCED CAPITAL OF RS.19 ,96,36,000/- THE INVESTMENT WAS MADE IN FDR AT RS.10,00,00,000/- AND THE ASSESSEE STILL HAD A SURPLUS FUND OF RS.9,96,36,000 /- AFTER PURCHASE OF FDR OUT OF WHICH RS.2,54,20,000/- ONLY WAS GIVEN AS INTEREST FREE LOAN TO THE SISTER CONCERNS. THUS, THERE IS NO DIV ERSION OF INTEREST BEARING LOAN TO THE SISTER CONCERNS BUT ASSESSEES OWN SURPLUS CAPITAL WAS DIVERTED AND THERE IS NO CASE WHERE COMMERCIAL EXPEDIENCY IS TO BE ESTABLISHED,. AS SUCH THE IMPUGNED ADDITION OF RS.47,61,908/- DESERVES TO BE QUASHED. COPIES OF ACCOUNT OF THE A SSESSEE REFLECTING THE ABOVE FACTS. 8. WE FIND THAT UNDER THE FACTS AND CIRCUMSTANCES O F SUCH CASES, I.T.A.T. MUMBAI BENCH IN THE CASE OF H.P. SHAH & CO. IN ITA NO.3694/M/2006, ORDER DATED 15.01.2009 HAS LAID DOWN A FORMULA THAT IF IN TEREST-FREE FUNDS ARE GIVEN TO SISTER CONCERNS OUT OF OWN FUNDS, NO DISALLOWANCE I S WARRANTED. THE RELEVANT ABSTRACT OF THE ORDER IS REPRODUCED BELOW:- 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED RECORD. THE CRUX OF THE MATTER TO BE CO NSIDERED BY US IS IN RESPECT OF ALLOWABILITY OF INTEREST EXP ENDITURE UNDER SECTION 36(1)(III) OF THE ACT WHERE INTEREST BEARING BORROWED FUNDS AND OWN CAPITAL HAS LOST ITS SEPARA TE IDENTITY AS BOTH ARE MIXED. SECTION 36 OF THE ACT OCCURS IN CHAPTER IV WHICH DEALS WITH THE COMPUTATION OF TOTAL INCOME AN D IT IS A PROVISION WHICH RELATES TO THE COMPUTATION OF INCOM E EARNED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION'. THE DEDUCTION CONTEMPLATED BY THE SECTION IS IN REL ATION TO ITA NO.175/A/2011 A.Y. 2009-10 5 THE EXPENDITURE WHICH COULD PROPERLY BE REGARDED AS NECESSARY FOR THE PURPOSE OF THE BUSINESS OR PROFES SION. EXPENDITURE INCURRED ON ACCOUNT OF COMMERCIAL EXPED IENCY FOR THE PURPOSE OF BUSINESS WOULD BE ALLOWABLE UNDE R THIS PROVISION. THE EXPENDITURE TO BE ALLOWED MUST HAVE A NEXUS WITH THE BUSINESS OF THE ASSESSEE. IF THE EXPENDITU RE INCURRED IS OSTENSIBLY INCURRED FOR THE BUSINESS, BUT IF IN REALITY IS NOT FOR THE PURPOSE OF BUSINESS THEN SUCH EXPENDITURE I S NOT ALLOWABLE. 4.1 SECTION 36(1) (III) OF THE ACT REFERS TO 'THE A MOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR TH E PURPOSES OF THE BUSINESS OR PROFESSION'. THE CAPITAL BORROWE D SHOULD BE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. IT IS IMPLICIT IN THIS PROVISION THAT THE CAPITAL SO BORROWED SHOU LD NOT ONLY BE INVESTED IN THE BUSINESS, BUT THAT THE AMOUNT BO RROWED SHOULD CONTINUE TO REMAIN IN THE BUSINESS. SO LONG AS THE AMOUNT BORROWED IS USED IN THE BUSINESS, THE INTERE ST PAID ON SUCH BORROWING IS AN EXPENDITURE WHICH IS REQUIRED TO BE DEDUCTED IN THE COMPUTATION OF THE INCOME FROM THE BUSINESS. THE INTEREST PAYABLE ON THE CAPITAL BORROWED IS A L IABILITY WHICH CONTINUES TILL SUCH TIME AS THE AMOUNT BORROW ED IS REPAID. SUCH INTEREST IS ALLOWABLE UNDER THE PROVIS ION ONLY FOR THE REASON THAT THE AMOUNT ON WHICH INTEREST IS PAI D CONTINUES TO BE USED IN THE BUSINESS AND THE PAYMENT OF SUCH INTEREST IS, THEREFORE, NECESSARY FOR THE PURPOSE OF RUNNING THE BUSINESS. 4.2 THE OBJECT OF THE PROVISION IS NOT TO ENABLE AN ASSESSEE TO MAKE A LARGE BORROWING AND CREATE A LIABILITY FO R PAYMENT OF INTEREST THEREON NOT ONLY IN THE YEAR IN WHICH T HE BORROWING WAS MADE, BUT THE SUBSEQUENT YEARS AS WEL L, KEEP THE LOAN OUTSTANDING AND THEREAFTER, DIVERT THE AMO UNT BORROWED BY TAKING IT OUT OF THE BUSINESS BY GIVING IT INTEREST- FREE TO OTHERS LIKE SISTER CONCERNS AND RELATIVES O R FOR PERSONAL USE., BUT CONTINUE TO PAY INTEREST OUT OF THE INCOME OF THE BUSINESS AND CLAIM THE AMOUNT OF INTEREST PA ID AS A BUSINESS EXPENDITURE. THE PAYMENT OF INTEREST ON TH E AMOUNT NOT USED IN THE BUSINESS CANNOT BE REGARDED AS A BU SINESS EXPENDITURE AS THE BUSINESS DOES NOT DERIVE ANY BEN EFIT BY THE OUTGOING BY WAY OF INTEREST ON AN AMOUNT WHICH IS N O LONGER IN THE BUSINESS, BUT HAD BEEN DIVERTED FROM THE BUS INESS. THIS ITA NO.175/A/2011 A.Y. 2009-10 6 PROVISION, THEREFORE, CANNOT BE CONSTRUED AS ENABLI NG AN ASSESSEE TO BURDEN THE BUSINESS WITH INTEREST EVEN WHILE TAKING THE AMOUNT INITIALLY BORROWED FOR THE BUSINE SS, BUT SUBSEQUENTLY TAKEN OUT OF THE BUSINESS BY DIVERTING IT AS INTEREST-FREE LOANS TO SISTER CONCERNS AND RELATIVE S OR FOR PERSONAL USE. 4.3 THE AMOUNT BORROWED FOR THE BUSINESS REMAINS A LIABILITY FOR THE BUSINESS TILL ITS DISCHARGE. THE FACT THAT THE AMOUNT BORROWED MAY HAVE BEEN INVESTED IN THE PURCH ASE OF MACHINERY OR UTILISED AS WORKING CAPITAL OR USED IN ANY OTHER WAY DOES NOT IN ANY WAY AFFECT THE LIABILITY FOR RE PAYMENT OF THE AMOUNT BORROWED. SO LONG AS THE MONEY BORROWED IS USED IN THE BUSINESS, INTEREST PAID ON SUCH BORROWING IS A PROPER CHARGE ON THE BUSINESS AND IS ALLOWABLE AS EXPENDIT URE. UNDER SECTION 36(1)(III) OF THE ACT, AMOUNTS DIVERT ED NOT BEING USED FOR THE PURPOSES OF THE BUSINESS, INTERE ST RELATING TO THE AMOUNT DIVERTED OUT OF THE BUSINESS CANNOT B E TREATED AS A PERMISSIBLE DEDUCTION IN THE COMPUTATION OF IN COME. ON MANY OCCASIONS THE ASSESSEE TAKE STAND THAT ONCE TH E AMOUNT BORROWED IS FOUND TO HAVE BEEN USED FOR SOME TIME I N THE BUSINESS, THEN SUBSEQUENT DIVERSION IS OF NO CONSEQ UENCE, BUT SUCH STAND OF THE ASSESSEE CANNOT BE ACCEPTED. THE LEGISLATIVE LANGUAGE OF SEC. 36(1)(III) OF THE ACT IS VERY AS CLEAR EXPRESSION BORROWED FOR THE PURPOSE OF THE BUSINES S IS USED. THE AMOUNT BORROWED MUST CONTINUE TO BE USED FOR THE PURPOSES OF THE BUSINESS AND THE FACT THAT IT WAS U SED FOR SOME POINT OF TIME, BUT LATER DIVERTED WOULD NOT EN TITLE THE ASSESSEE TO CLAIM THE INTEREST PAID ON THE BORROWIN G AS A DEDUCTION UNDER SEC.36(1)(III) EVEN AFTER SUCH DIVE RSION. IN CASES WHERE DIVERSION OCCURS IMMEDIATELY AFTER THE BORROWING AND THE BORROWED AMOUNTS ARE NOT INVESTED IN THE BU SINESS AT ALL, BUT DIVERTED FOR OTHER PURPOSES, THEN THERE SH OULD NOT BE ANY CLOUD OF DOUBT THAT INTEREST PAID ON SUCH BOR ROWED AMOUNTS IS NOT ALLOWABLE DEDUCTION. THE FACTUM OF D EFERMENT, IN CASES WHERE SUCH DIVERSION OF FUNDS FROM THE BUS INESS IS CLEARLY ESTABLISHED FROM THE FACTS ON RECORD, DOES NOT ENTITLE THE ASSESSEE TO CLAIM THE BENEFIT OF DEDUCTION IN R ESPECT OF INTEREST PAID ON THE AMOUNTS BORROWED BUT NOT PRESE NTLY USED IN ITS BUSINESS. THE TIME AT WHICH THE DIVERSION TA KES PLACE IS NOT THE ONLY RELEVANT CRITERION BUT IT IS THE FACT OF THE ITA NO.175/A/2011 A.Y. 2009-10 7 DIVERSION WHICH IS MATERIAL AND ONCE IT HAS BEEN SH OWN THAT THERE HAS BEEN DIVERSION OF INTEREST ON THE AMOUNT BORROWED, BUT SUBSEQUENTLY DIVERTED WOULD NOT QUALIFY FOR DED UCTION. ANY VIEW TO THE CONTRARY WOULD NOT IN THE LEAST SUB SERVE THE OBJECT OF THE LEGISLATIVE PROVISION, BUT IT WOULD O NLY OPEN THE GATES FOR THE ASSESSEES TO BORROW MERRILY AND AFTER OSTENSIBLY USING IT IN THE BUSINESS FOR A SHORT PERIOD AND AT A SUBSEQUENT POINT OF TIME DIVERT THE FUNDS IN WHOLE OR PART, FO R NON- BUSINESS PURPOSES AND CONTINUE TO CLAIM THE INTERES T ON THE BORROWING AS A DEDUCTIBLE ITEM OF EXPENDITURE. THE OBJECTS OF THE SECTION WOULD NOT IN ANY WAY BE ADVANCED BY THE ADOPTION OF SUCH A VIEW. IF A BUSINESS FOR WHICH THE INTERES T PAID IS CLAIMED AS A DEDUCTION HAS NOT BENEFITED DURING THE YEAR FROM THE CAPITAL BORROWED BY SUCH BORROWED AMOUNT BEING USED IN THE BUSINESS, SUCH INTEREST CANNOT BE REGARDED AS E XPENDITURE FOR THE PURPOSES OF THE BUSINESS. THE ASSESSEE MAY NOT EVEN WHILE USING BORROWED FUNDS FOR ITS PERSONAL PURPOSE S AND NOT BUSINESS PURPOSES CLAIM DEDUCTION OF THE INTEREST P AID ON THE BORROWING. IN ANY CASE IF THE ASSESSEE TAKES STAND THAT IT IS BUSINESS EXPEDIENCY THEN, HEAVY BURDEN LIES ON THE ASSESSEE TO PROVE SUCH CONTENTION AND SAID CONTENTION IS TO BE EXAMINED BY APPLYING DEFERENT CRITERIA. 4.4 A REAL PROBLEM ARISES IN CASES WHERE FUNDS ARE PUMPED OUT OF BUSINESS WHICH ARE COMPRISE OF BOTH TYPE OF FUNDS, BORROWED AS WELL AS OWN FUNDS FOR NON-BUSINESS PURP OSES. IN ALL SUCH CASES WHERE MIXED FUNDS ARE USED FOR BOTH BUSINESS AND OTHER THAN BUSINESS PURPOSES, THERE IS NO PRESU MPTION THAT MONEYS USED FOR OTHER PURPOSES CAME OUT OF BOR ROWED FUNDS. IT CAN BE SAID THAT INTEREST FREE FUNDS GIVE N ARE OUT OF OWN FUNDS TO THE EXTENT OF CAPITAL AND RESERVES, AN D THIS PROPOSITION IS SUPPORTED BY THE DECISION OF HONB LE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. GOPIKRISH NA MURLIDHAR, 47 ITR 469 (AP) AND IN THE SAID CASE THE IR LORDSHIPS ACCEPTED THE CONTENTION THAT THE ASSESSEE IS ENTITLED TO WITHDRAW FROM CAPITAL. THE FACTS OF THAT CASE AR E THAT THE ASSESSEE IS A HINDU UNDIVIDED FAMILY CARRYING ON BU SINESS ON AN EXTENSIVE SCALE WITH A CAPITAL OF NEARLY RS. 20, 00,000 (TWENTY LAKHS). DURING THE YEAR ENDED 9TH NOVEMBER, 1950, THE ASSESSEE MADE LARGE BORROWINGS FOR PURPOSES OF HIS BUSINESS AND PAID INTEREST AMOUNTING TO RS. 93,611 ON SAID ITA NO.175/A/2011 A.Y. 2009-10 8 BORROWINGS. DURING THE COURSE OF THAT YEAR, THE ASS ESSEE WITHDREW FROM THE BUSINESS FROM TIME TO TIME AMOUNT OF RS. 1,77,984 FOR HIS PERSONAL EXPENSES. THE INCOME-TAX OFFICER DISALLOWED A SUM OF RS. 13,500 ON PRORATA, REPRESEN TING THE INTEREST ELEMENT RELATING TO RS. 1,77,984, SINCE HE WAS OF VIEW THAT AMOUNT OF RS. 1,77,984 WITHDREW WAS MADE IN TH E NAME OF THE BUSINESS BUT USED FOR HIS PERSONAL PURPOSES. ACCORDING TO HIM, MONEY WAS WITHDRAWN FROM THE BOOKS OF ACCOU NT TO MEET THE PERSONAL EXPENDITURE OF THE ASSESSEE AND, AS THIS SUM OF MONEY WAS NOT ACTUALLY USED FOR THE BUSINESS, TH E INTEREST PAID THEREON COULD NOT BE ALLOWED AS PERMISSIBLE DE DUCTION. 4.5 THE RELEVANT FINDING OF THE COURT IS REPRODUCED BELOW:- WE DO NOT THINK THAT WE CAN GIVE EFFECT TO THIS ARGUMENT. INDISPUTABLY, THESE AMOUNTS WERE BORROWED ONLY FOR THE PURPOSE OF BUSINESS OF THE FAMILY. THE ASSESSEE DREW OUT FROM TIME TO TIME VARIOUS SUMS OF MONEY AGGREGATING TO RS. 1,77,984/- FROM THE BUSINE SS. IT IS NOT A CASE WHERE ANY PARTICULAR SUM PURPORTIN G TO BE BORROWED ON BEHALF OF THE BUSINESS WAS SPENT FOR HOUSEHOLD EXPENSES. THIS IS A CASE WHERE THE LOANS WERE TAKEN FOR CARRYING ON THE BUSINESS BUT THE FAMILY U SED TO WITHDRAW SOME AMOUNTS FROM THE BUSINESS WHENEVER OCCASIONS AROSE. THE FAMILY WAS SURELY ENTITLED TO WITHDRAW FROM THE CAPITAL SUPPLIED BY IT WITH THE R ESULT OF THE CAPITAL BEING DEPLETED. THERE IS, THEREFORE, NO SUBSTANCE IN THE SUBMISSION THAT THE FACT THAT PART OF THE AMOUNT BORROWED WAS LATER ON USED FOR PERSONAL EXPENSES, WOULD DEPRIVE THE ASSESSEE OF THE BENEFIT S. 4.6 FROM THE ABOVE JUDGMENT OF HONBLE ANDHRA PRADE SH HIGH COURT WE FIND THAT THE ASSESSEE HAS RIGHT TO R EPLACE HIS OWN CAPITAL WITH BORROWED FUNDS WHICH WERE ALREADY USED FOR THE PURPOSE OF BUSINESS IN ACQUIRING ASSETS AND OTH ER. WITH THE HELP OF THIS RATIO OF THE JUDGMENT SUCH PROBLEM CAN BE RESOLVED BY EXAMINATION AND ANALYSES OF FINANCIAL S TATEMENTS PREPARED ON THE BASIS OF BOOKS OF ACCOUNT MAINTAINE D BY THE ASSESSEE. IT IS WELL ACCEPTED PROPOSITION THAT FOR THE PURPOSE OF ASCERTAINING PROFIT AND GAINS, THE NORMAL PRINCI PLES OF ITA NO.175/A/2011 A.Y. 2009-10 9 COMMERCIAL ACCOUNTING SHOULD BE APPLIED, SO LONG AS THEY DO NOT CONFLICT WITH ANY EXPRESS STATUTORY PROVISIONS AS HELD BY THE HONBLE SUPREME COURT IN CIT VS. U.P. STATE IND USTRIAL DEVELOPMENT CORPORATION, 225 ITR 703(SC). THUS SUCH PROBLEM CAN BE RESOLVED BY ANALYZING STATEMENT OF A CCOUNTS AND IN PARTICULAR BALANCE-SHEET. WHERE DETAILS OF O WN CAPITAL, BORROWED FUNDS AND INTEREST FREE FUNDS GIVEN OR UTI LIZED FOR OTHER PURPOSES ARE AVAILABLE. THERE IS NO MUCH DIFFICULTIES IN EXAMINATION OF RIG HT TO REPLACE OWN CAPITAL TO BORROW FUNDS IN CASE OF INDI VIDUAL AND PARTNERSHIP FIRM. BUT IN THE CASE OF COMPANY, CAPIT AL IS FUND OF PUBLIC/ SHARE HOLDERS WHICH IS MANAGED BY THE BO ARD OF DIRECTORS. IN THE CASE OF COMPANY THERE ARE CERTAIN RESTRICTIONS UNDER THE COMPANIES ACT IN USE OF CAPI TAL/FUND FOR PERSONAL BENEFITS. SUCH REPLACEMENT IS REQUIRED TO BE AUTHORIZED BY PROPER RESOLUTION AND MUST BE IN CONF ORMITY WITH THE PROVISIONS OF COMPANIES ACT AND RULES AND REGULATIONS OF REGULATORY BODIES. SAME ARE REQUIRED TO REFLECT IN THE FINANCIAL STATEMENTS PREPARED ON THE BASIS O F AUDITED BOOKS OF ACCOUNT. THE AUDITOR IS ALSO REQUIRED TO P OINT OUT SUCH REPLACEMENT/UTILIZATION OF FUNDS. IF FUNDS ARE DIVERTED IN CONTRAVENTION OF STATUTORY PROVISIONS, THEN SAME MA Y BE SUBJECT TO LEGAL AND PENAL CONSEQUENCES UNDER THE C OMPANIES ACT AND OTHERS. THE ONUS IS ON THE ASSESSEE TO FURN ISH THE RELEVANT MATERIAL REGARDING REPLACEMENT OF BORROWED FUNDS BY OWN CAPITAL AND INTEREST FREE FUNDS AVAILABLE WI TH THE ASSESSEE. 9. IN THE CASE UNDER CONSIDERATION, IT IS ADMITTED FACT THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS. WE, THEREFORE, FIND T HAT NO DISALLOWANCE IS WARRANTED. THE CIT(A) HAS RIGHTLY DELETED THE ADDI TION THOUGH ON SOME OTHER AND DIFFERENT REASONS. THE ORDER OF CIT(A) ON THE ISSU E IS CONFIRMED. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ITA NO.175/A/2011 A.Y. 2009-10 10 (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, ALLAHABAD BENCH, ALLAHABAD 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, ALLAHABAD TRUE COPY