Milton Laminates Ltd., Ahmedabad V. The Dy.CIT.,Circle-4, Ahmedabad

ITA 1944/AHD/2009

• Counselvise Citation: 194420514 RSA 2009
• Duration Of Justice: 2 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 25-04-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 12-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR SRDR
• Keywords: Business expenditure; Proportionate interest; Commercial expediency
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI, A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.1944/AHD/2009 ASSESSMENT YEAR:2005-06 MILTON LAMINATES LTD. CHITRA AMI APARTMENTS, OPP. OLD RBI, ASHRAM ROAD, AHMEDABAD PAN NO.AABCM0398K V/S . DCIT, CIRCLE-4, AHMEDABAD (APPELLANT) .. (RESPONDENT) /BY APPELLANT SMT. URVASHI SHODHAN, AR /BY RESPONDENT SHRI RAHUL KUMAR, SR-DR /DATE OF HEARING 25-04-2012 /DATE OF PRONOUNCEMENT 24-05-2012 O R D E R PER KUL BHARAT, JUDICIAL MEMBER:- THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-VIII, AHMEDABA D DATED 26-02-2009 FOR THE ASSESSMENT YEAR 2005-06. THE ASSESSEE, IN THIS APPEAL HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN CONFIRMING THE ADDITION OF RS.3,10,812 OUT OF INTER EST EXPENDITURE MADE BY THE LEARNED A.O THE SAID ADDITION IS AGAINST LAW , FACTS AND EVIDENCE ON RECORD. 2. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) DID NOT CONSIDER THE SUBMISSIONS OF THE APPELLANT THAT THE INTEREST EXPENDITURE WAS WHOLLY BUSINESS EXPENDITURE AND NO PART OF THER EOF SHOULD HAVE BEEN DISALLOWED. ITA NO.1944/AHD/2009 A.Y. 2005-06 MILTON LAMINATES LTD. V. DCIT, CIR-4 ABD PAGE 2 3. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) DID NOT APPRECIATE THE SUBMISSIONS AND ARGUMENTS THAT THE L EARNED A.O HAVING NOT ESTABLISHED CORRELATION AND DIRECT NEXUS BETWEE N THE AMOUNT GIVEN TO THE SISTER CONCERN AND THE BORROWINGS MADE BY TH E COMPANY MORE SO HE DID NOT APPRECIATE THE CONTENTION OF THE APPELLA NT THAT THE COMPANY HAD INTEREST FREE FUNDS WHICH COULD HAVE BEEN PART OF THE MOUNT GIVEN HENCE WHOLE OF THE EXPENDITURE WAS NOT RELATING TO INTEREST BEARING FUNDS AND THEREFORE RS.3,10,812 DISALLOWED WAS EXCE SSIVE AND NO REASONABLE TO THE FATS AND CIRCUMSTANCES OF THE CAS E. 4. THE APPELLANT SUBMITS THAT EH INTEREST U/S/. 234 B AND 234C HAVE BEEN WRONGLY CHARGED AND HENCE THE SAME MAY KINDLY BE DELETED OR REDUCED. 5. IN VIEW OF ABOVE AND OTHERS THAT MAY BE URGED AT THE TIME OF HEARING THE APPELLANT REQUESTS THAT A. INTEREST OF RS.3,10,812 DISALLOWED MAY KINDLY BE DELETED; B. INTEREST CHARGED U/S. 234B AND 234C MAY KINDLY B E REDUCED; AND C. SUCH OTHER FURTHER RELIEF AND REDUCTIONS BE ALLO WED AS THE FACTS AND CIRCUMSTANCES OF THE CASE SO REQUIRES. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE-COMPAN Y IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF LAMINATES AND PLYWOOD SHEETS, ELECTRICAL INSULATORS, PLYWOOD ETC. THE ASSESSEE FILED ITS RET URN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME AT RS.45 ,55,490/-. SUBSEQUENTLY, THE CASE WAS PICKED UP FOR SCRUTINY AND THE ASSESSM ENT PROCEEDINGS WAS COMPLETED U/S. 143(3) OF THE INCOME-TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT). THE ASSESSING OFFICER MADE DISALLOWANCE OF INTEREST EXPENDITURE CLAIMED U/S. 36(1)(III) OF RS.22,000/- AND RS.3,10, 820/- U/S 36(1)(III) OF THE ACT. THUS, TOTAL DISALLOWANCE OF INTEREST AMOUNTING TO R S.3,10,812/- WAS MADE BY THE AO. AGAINST THIS, THE ASSESSEE FILED APPEAL BEF ORE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE LD. CIT (A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 3. THE ASSESSEE FEELING AGGRIEVED BY THIS ORDER OF LD. CIT(A) HAS FILED THIS APPEAL BEFORE THIS TRIBUNAL. ITA NO.1944/AHD/2009 A.Y. 2005-06 MILTON LAMINATES LTD. V. DCIT, CIR-4 ABD PAGE 3 4. LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, MRS URVASHI SHODHAN VEHEMENTLY ARGUED THAT THE ORDER PASSED BY LD. CIT( A) IS ERRONEOUS AND CONTRARY TO THE JUDICIAL PRONOUNCEMENTS. SHE SUBMIT TED THAT LD. CIT(A) HAS ERRED IN AFFIRMING THE DISALLOWANCE UNDER THE PROVI SIONS OF SECTION 36(1)(III) OF THE ACT IN PRINCIPLE. IT IS SUBMITTED BY THE LD. AR THAT LD. CIT(A) DID NOT CONSIDER THE SUBMISSION OF THE ASSESSEE THAT INTERE ST EXPENSE WAS WHOLLY BUSINESS EXPENDITURE AND NO PART THERETO BE DISALLO WED. IT IS SUBMITTED BY THE LD AR THAT THE ASSESSEE WAS HAVING SUFFICIENT INTER EST FREE RESERVES. IT IS SUBMITTED BY LD. AR THAT MILTON EXPORTS LTD. HAD AN OPENING CREDIT BALANCE OF RS.5,14,255/- AND AFTER ADVANCES GIVEN TO THE SAID COMPANY, THERE WAS DEBIT BALANCE AT THE END OF THE YEAR OF RS.28,60,143/-. T HE AO HAS COMPUTED THE INTEREST @ 12% P.A ON THE DEBIT AMOUNT AND DISALLOWED RS.310, 812/- INTEREST EXPENDITURE AS CLAIMED BY ASSESSEE. THE AO HAS NOT ESTABLISHED ANY DIRECT NEXUS BETWEEN LOAN AND BORROWED FINANCE RECEIVED AN D AMOUNT ADVANCED TO THE SAID COMPANY. LD. AR SUBMITTED THAT ASSESSEE HA S EARNED CASH PROFIT DURING THE YEAR OF RS.1,04,59,353/- BESIDES HAVING SHARE CAPITAL OF RS.2,27,240/- AND FREE RESERVES OF RS.1,64,81,890/- AT THE BEGINNING OF THE YEAR I.E. ON 01-04-2004. THUS, THE TOTAL FUND FREE OF INTEREST WAS OF RS.4,96,87,483/-. IT IS SUBMITTED BY LD. AR THAT AS SESSEE-COMPANY HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE FOR MAKING ADVANCES. THE ORDER OF LD. CIT(A) IS THEREFORE ERRONEOUS. LD. AR RELIED UPON V ARIOUS DECISIONS IN SUPPORT OF HER CONTENTION THAT WHERE NO NEXUS IS ESTABLISHE D BETWEEN THE BORROWED FUND AND ADVANCES, IN SUCH CIRCUMSTANCES NO DISALLO WANCE OF INTEREST CAN BE MADE. LD. AR SUBMITTED THAT IF ADVANCES ARE MADE TO THIRD PARTY WITHOUT INTEREST FROM FUNDS OTHER THAN BORROWING. IT WOULD NOT BE A CASE OF DIVERTING BORROWINGS TO NON-BUSINESS PURPOSE AND SO NO PART O F INTEREST ON BORROWING SHOULD BE DISALLOWED. LD. AR RELIED UPON THE DECISI ON OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. DHAMPUR SUGAR MILLS LTD. (NO.2) (2005) 274 ITR 370 (ALL). IT IS SUBMITTED THAT IN THE CASE OF CIT V. PREM HEAVY ENGINEERING WORKS P. LTD. (2006) 285 ITR 554 (ALL) IT HAS BEEN HELD THAT WHERE SUFFICIENT FUNDS ARE AVAILABLE WITH THE ASSES SEE IN THE FORM OF INTEREST ITA NO.1944/AHD/2009 A.Y. 2005-06 MILTON LAMINATES LTD. V. DCIT, CIR-4 ABD PAGE 4 FREE ADVANCE FROM CUSTOMERS SHARE CAPITAL RESERVES ETC. TO MAKE INTEREST FREE ADVANCE TO SISTER CONCERN AND NO DISALLOWANCE CAN B E MADE IN RELATION TO INTEREST ON BORROWINGS BY ASSESSEE ON THE GROUND TH AT INTEREST FREE ADVANCES WERE GIVEN TO SISTER CONCERN. THIS WOULD BE A CASE WHERE BORROWED MONEY WAS NOT DIVERTED BY ASSESSEE BUT FUNDS OTHER THAN B ORROWINGS HAD BEEN USED IN MAKING THOSE ADVANCES. LD. AR SUBMITTED THAT THE RE WAS NO OCCASION TO MAKE ADDITION SINCE THE ASSESSEE WAS HAVING SUFFICI ENT INTEREST FREE FUNDS AND THE ADVANCES HAVE BEEN MADE OUT OF THIS INTERES T FREE FUND BUT NOT FROM THE BORROWED FUNDS. IT IS ALSO SUBMITTED BY THE LD. AR THAT THE ASSESSING OFFICER HAS GROSSLY FAILED TO ESTABLISH NEXUS BETWE EN THE ADVANCE AND BORROWED FUNDS. THEREFORE, THE LD. CIT(A) GROSSLY E RRED IN CONFIRMING THE ADDITION MADE BY AO. LD. AR ALSO RELIED UPON THE JU DGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN TAX APPEAL NO.820 OF 2 007 IN THE CASE OF CIT VS. RAGHUVIR SYNTHETICS LTD. DATED 05-12-2011 IN SUPPORT HER CONTENTION THAT WHERE NO BORROWED FUNDS ARE UTILIZED FOR GIVING ADV ANCES TO SISTER CONCERN, NO DISALLOWANCES CAN BE MADE OF THE INTEREST EXPENDITU RE CLAIMED BY ASSESSEE. 5. ON THE CONTRARY, LD. SR-DR SHRI RAHUL KUMAR SUPP ORTED THE ORDERS OF AUTHORITIES BELOW AND HE SUBMITTED THAT THERE IS NO ERROR IN THE ORDERS OF AUTHORITIES BELOW AS ASSESSEE HAS NEITHER SUBMITTED THAT THE FUNDS WERE ADVANCED FOR COMMERCIAL EXPEDIENCY NOR DEMONSTRATED THAT SUCH ADVANCES WERE FOR BUSINESS PURPOSE. IT IS SUBMITTED BY LD. D R THAT EVEN IN THE CASE WHERE MIXED FUNDS ARE UTILIZED FOR GIVING ADVANCES TO THE SISTER CONCERN, THE ASSESSEE HAS TO ESTABLISH THE COMMERCIAL EXPEDIENCY IN RESPECT OF SUCH ADVANCES TO THE SISTER CONCERN. IN SUPPORT OF THIS CONTENTION LD. SR-DR PLACED RELIANCE ON THE JUDGMENT OF HONBLE APEX COU RT IN THE CASE OF S.A BUILDERS LTD. V. CIT (2007) 288 ITR 1 (SC), THE JUDGMENT OF HONBLE DELH I HIGH COURT IN THE CASE OF PUNJAB STAINLESS STEEL INDS. V. CIT & ANR. (2010) 324 ITR 396 (DEL), HE ALSO RELIED UPON THE JUDGMENT OF HON BLE KERALA HIGH COURT IN THE CASE OF CIT V. V.I. BABY & CO. (2002) 123 TAXMAN 894 (KER) AND THE ORDER OF HONBLE CO-ORDINATE BENCH IN ITA NO.243/AHD/2011 & 3512/AAHD/2010 ITA NO.1944/AHD/2009 A.Y. 2005-06 MILTON LAMINATES LTD. V. DCIT, CIR-4 ABD PAGE 5 A.Y. 2007-08 IN THE CASE OF INAMULHAQ S IRAKI & ABDULHAQ S IRAKI V. ACIT ORDER DATED 31-01-2012. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS AVAILABLE ON RECORD AND THE JUDGMENTS CITED BY THE PARTIES. T HE CONTENTION OF LD. AR IS THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUND S AND THE ADVANCES WERE GIVEN FROM SUCH FUNDS, THEREFORE NO DISALLOWANCE OF INTEREST EXPENDITURE CLAIMED ON BORROWED FUNDS CAN BE MADE. ON THE OTHER HAND, LD.SR-DR CONTENDED THAT EVEN IN THE CASE WHERE MIXED FUNDS A RE UTILIZED, THE ASSESSEE HAS TO ESTABLISH COMMERCIAL EXPEDIENCY AND DEMONSTR ATE THAT SUCH ADVANCES WERE ESSENTIALLY FOR THE BUSINESS PURPOSES. ON THE OTHER HAND, THE CONTENTION OF LD. AR FOR THE ASSESSEE IS THAT THE ASSESSING OF FICER HAS FAILED TO ESTABLISH ANY NEXUS BETWEEN THE BORROWED FUNDS AND THE FUNDS UTILIZED FOR GIVING ADVANCES TO SISTER CONCERN. THESE TWO RIVAL SUBMISS ION NEEDS TO BE EXAMINED IN THE LIGHT OF JUDICIAL PRONOUNCEMENTS AS RELIED B Y THE RESPECTIVE PARTIES. THE HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD. (SUPRA) HAS CLARIFIED THAT IT WAS NOT THE OPINION OF THE HONBLE SUPREME COURT TH AT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT ALL DEPENDS ON THE FACTS AND CIRCUMSTAN CES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE CREDITORS OF THE SISTER CONCER N UTILIZES THE AMOUNT ADVANCED TO IT IN EVERY CASE INTEREST ON BORROWED L OAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER-CONCERN. IT ALL DE PENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER-CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IF CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MON EY CAN BE SAID TO BE ADVANCED TO A SISTER-CONCERN FOR COMMERCIAL EXPEDIE NCY IN MANY OTHER CIRCUMSTANCES (WHICH NEED NOT BE ENUMERATED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONE Y TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINES S PURPOSES, THE ASSESSEE ITA NO.1944/AHD/2009 A.Y. 2005-06 MILTON LAMINATES LTD. V. DCIT, CIR-4 ABD PAGE 6 WOULD, IN OUR OPINION, ORDINARILY BEEN ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. IN S.A. BUILDERS (SUPRA) THE FACTS NARRATED THAT DURING IN PARA- 5 TO 8 ARE BEING REPRODUCED AS UNDER:- 5. DURING THE COURSE OF THE PROCEEDING FOR THE RELE VANT ASSESSMENT YEAR(S), THE AO UNDER THE IT ACT OBSERVED THAT THE ASSESSEE HAD TRANSFERRED A HUGE AMOUNT OF RS.82 LAKHS TO ITS SUBSIDIARY COMPANY M/S . SAB CREDITS LTD. OUT OF THE CASH CREDIT ACCOUNT OF THE ASSESSEE IN WHICH TH ERE WAS A HUGE DEBIT BALANCE. HE, THEREFORE, HELD THAT SINCE THE ASSESSE E HAD DIVERTED ITS BORROWED FUNDS TO A SISTER-CONCERN WITHOUT CHARGING ANY INTE REST, PROPORTIONATE INTEREST RELATING TO THE SAID AMOUNT OUT OF THE TOTAL INTERE ST PAID TO THE BANK DESERVED TO BE DISALLOWED. ACCORDINGLY, HE DISALLOWED A SUM OF RS.5,66,729/-. 6. THE ASSESSEE PREFERRED AN APPEAL TO THE COMMISSI ONER OF INCOME-TAX (APPEALS) CHANDIGARH [FOR SHORT HEREINAFTER REFERRE D TO AS THE CIT(A)}, WHO VIDE HIS ORDER DT. 15 TH APRIL, 1993 PARTIALLY ACCEPTED THE CLAIM OF THE AS SESSEE. ACCORDING TO THE CIT(A), OUT OF THE TOTAL AMOUNT OF RS.82 LACS ADVANCED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR TO M/S . SAB CREDIT LTD., ONLY A SUM OF RS.18 LACS HAD A CLEAR NEXUS WITH THE BORROW ED FUNDS, AS THE BALANCE AMOUNT HAD BEEN PAID OUT OF THE RECEIPTS FROM OTHER PARTIES TO WHOM NO INTEREST HAD BEEN PAID. ACCORDINGLY, THE CIT(A) DIR ECTED THE AO TO CALCULATE DISALLOWANCE OF INTEREST ONLY RELATING TO THE SUM O F RS.18 LACS, AND THE DISALLOWANCE WAS REDUCED ACCORDINGLY. 7.BOTH THE ASSESSEE AS WELL AS THE REVENUE FILED AP PEALS BEFORE THE INCOME- TAX APPELLATE TRIBUNAL (HEREINAFTER REFERRED TO AS THE TRIBUNAL). THE TRIBUNAL BY ITS ORDER DT. 20 TH JUNE, 2002 ALLOWED THE APPEAL FOR THE REVENUE, AND HELD THAT THE ENTIRE AMOUNT OF RS.82 LACS HAD BEEN ADVAN CED BY THE ASSESSEE BY UTILIZING THE OVERDRAFT ACCOUNT, AND HENCE IT WAS O F THE VIEW THAT DISALLOWANCE MADE BY THE AO WAS JUSTIFIED. ACCORDINGLY, THE APPE AL FILED BY THE REVENUE WAS ALLOWED AND THE APPEAL FILED BY THE ASSESSEE WA S DISMISSED. 8. AGAINST THE ORDER OF THE TRIBUNAL, THE ASSESSEE FILED APPEALS IN THE HIGH COURT WHICH WERE DISMISSED BY THE IMPUGNED JUDGMENT . 7. THE HONBLE DELHI HIGH COURT IN THE CASE OF PUNJAB STAINLESS STEEL INDS. (SUPRA) HAS HELD IN PARA-11 & 12 OF ITS JUDGMENT A S UNDER:- 11. IN VIEW OF THE PROVISIONS CONTAINED IN S. 36(1 )(III) OF IT ACT, THE INTEREST PAID BY THE ASSESSEE IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION IS TO BE ALLOWED AS A DEDUCT ION. HENCE, THE QUESTION TO BE CONSIDERED IN A CASE SUCH AS THE ONE BEFORE US I S AS TO WHETHER THE INTEREST-FREE ADVANCE WAS MADE BY THE ASSESSEE FOR COMMERCIAL EXPEDIENCY OR NOT. IF THE ADVANCES WERE NOT MADE BY THE ASSESS EE FOR A BUSINESS PURPOSE OF THE ASSESSEE FIRM, INTEREST PAID BY THE ASSESSEE ON THAT PART OF THE BORROWED CAPITAL WHICH IS COMMENSURATE WITH THE AMO UNT OF THE INTEREST-FREE ADVANCES EXTENDED BY IT CANNOT BE SAID TO HAVE BEEN PAID FOR THE PURPOSE OF ITS BUSINESS. ITA NO.1944/AHD/2009 A.Y. 2005-06 MILTON LAMINATES LTD. V. DCIT, CIR-4 ABD PAGE 7 12. THE COMMERCIAL EXPEDIENCY, IN OUR VIEW, WOULD I NCLUDE SUCH PURPOSE AS IS EXPECTED BY THE ASSESSEE TO ADVANCE ITS BUSINESS INTEREST AND MAY INCLUDE MEASURES TAKEN FOR PRESERVATION, PROTECTION OR ADVA NCEMENT OF ITS BUSINESS INTERESTS. THE BUSINESS INTEREST OF THE ASSESSEE HA S TO BE DISTINGUISHED FROM THE PERSONAL INTEREST OF ITS DIRECTORS OR PARTNERS, AS THE CASE MAY BE. IN OTHER WORDS, THERE HAS TO BE A NEXUS BETWEEN THE ADVANCIN G OF FUNDS AND BUSINESS INTEREST OF THE ASSESSEE FIRM. THE APPROPRIATE TEST IN SUCH A CASE WOULD BE AS TO WHETHER A REASONABLE PERSON STEPPING INTO THE SH OES OF THE DIRECTORS/PARTNERS OF THE ASSESSEE FIRM AND WORKING SOLELY IN THE INTEREST OF THE ASSESSEE FIRM/COMPANY, WOULD HAVE EXTENDED SUCH INT EREST-FREE ADVANCES. SOME BUSINESS OBJECTIVE SHOULD BE SOUGHT TO HAVE BE EN ACHIEVED BY EXTENDING SUCH INTEREST-FREE ADVANCE WHEN THE ASSES SEE FIRM/COMPANY ITSELF IS BORROWING FUNDS FOR RUNNING ITS BUSINESS. IT MAY NOT BE RELEVANT AS TO WHETHER THE ADVANCES HAVE BEEN EXTENDED OUT OF THE BORROWED FUNDS OR OUT OF MIXED FUNDS WHICH INCLUDED BORROWED FUNDS. THE T EST TO BE APPLIED IN SUCH CASES IS NOT THE SOURCE OF THE FUNDS BUT THE PURPOS E FOR WHICH THE ADVANCES WERE EXTENDED. FURTHER, HONBLE DELHI HIGH COURT IN THE CASE OF PUNJAB STAINLESS STEEL INDS. (SUPRA) IN PARA-14 OF ITS JUDGMENT OBSERVED AS UNDE R:- 14. THE LEARNED COUNSEL FOR THE APPELLANT HAS ALSO REFERRED TO CIT & ANR. VS. TIN BOX CO. (2003) 182 ICTR (DEL) 171 : (2003) 260 ITR 637 (DEL). WE FIND THAT IN THE CASE OF TIN BOX CO. (SUPRA) THE CAPITAL OF THE FIRM AND INTEREST-FREE UNSECURED LOANS AVAILABLE WITH THE APPELLANT FAR EX CEEDED THE AMOUNT ADVANCED TO THE SISTER CONCERN IN ALL THE YEARS UND ER APPEAL. THE QUESTION AS TO WHETHER THE LOANS TO THE SISTER CONCERN WERE EXT ENDED FOR COMMERCIAL EXPEDIENCY OR NOT WAS NEITHER RAISED NOR EXAMINED I N THAT CASE. CONSIDERING THE DECISION OF THE SUPREME COURT IN S.A. BUILDERS (SUPRA), WHAT IS RELEVANT IN SUCH A CASE IS AS TO WHETHER THE LOAN WAS EXTENDED FOR ANY COMMERCIAL EXPEDIENCY OR NOT AND, THEREFORE, IT WOULD BE IMMAT ERIAL WHETHER THE ASSESSEE FIRM HAD INTEREST-FREE FUNDS AVAILABLE TO IT OR NOT. 8. THE HONBLE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITA NO.243/AHD/2011 & ITA NO.3512/AHD/2010 ORDER DATED 31-01-2012 HAS OBSERVED IN PARA-11 AS UNDER:- 11. WE FIND THAT AS PER THIS JUDGMENT OF HONBLE D ELHI HIGH COURT, WHERE MIXED FUNDS ARE USED FOR THE PURPOSE OF GIVING INTE REST FREE ADVANCES, THE ONLY RELEVANT TEST IS AS TO WHETHER SUCH INTEREST F REE ADVANCES ARE DUE TO COMMERCIAL EXPEDIENCY OR NOT. IN THE PRESENT CASE A LSO, THE FUNDS ARE MIXED FUNDS AND THE ASSESSEE COULD NOT ESTABLISH ANY COMM ERCIAL EXPEDIENCY AND HENCE, IN OUR CONSIDERED OPINION, THIS ISSUE IS SQU ARELY COVERD AGAINST THE ASSESSEE BY THIS JUDGMENT OF HONBLE DELHI HIGH COU RT AND RESPECTFULLY FOLLOWING THE SAME, THIS ISSUE IS DECIDED AGAINST T HE ASSESSEE. ITA NO.1944/AHD/2009 A.Y. 2005-06 MILTON LAMINATES LTD. V. DCIT, CIR-4 ABD PAGE 8 FROM THE JUDGMENT OF HONBLE DELHI HIGH COURT IN TH E CASE OF PUNJAB STAINLESS STEEL INDS. (SUPRA) AS FOLLOWED BY THE HONBLE CO-ORDINATE BEN CH IN ITA NO.243/AHD/2011 & ITA NO.3512/AHD/2010 (SUPRA) IT CAN BE GATHERED THAT WHERE MIXED FUNDS ARE USED FOR THE PURPOSE OF GIVING INTEREST FREE ADVANCES, THE TEST OF COMMERCIAL EXPEDIENCY IS REQU IRED TO BE APPLIED. HOWEVER, THE HOBLE JURISDICTIONAL HIGH COURT IN TA X APPEAL NO.829 OF 2007 IN THE CASE OF CIT V. RAGHUVIR SYNTHETICS LTD. HELD AS UNDER:- AS CAN BE NOTED FROM THE ORDER OF THE TRIBUNAL,, T HE ASSESSING OFFICER DISALLOWED THE INTEREST SOLELY ON THE GROUND THAT T HE AS HAD GIVEN INTEREST FREE LOANS TO THE ASSOCIATE CONCERNS, VIZ., R.R. FAMILY TRUST AND SAGAR TEXTILE MILLS AND THIS DISALLOWANCE, IN APPEAL THE CIT(APPE ALS) DELETED BY HOLDING THAT THE AMOUNT ADVANCED TO BOTH R.R. FAMILY TRUST AND S AGAR TEXTILES MILLS WERE NOT GIVEN DURING THE YEAR UNDER CONSIDERATION, BUT THE SAME WAS GIVEN IN THE EARLIER YEARS. CIT(APPEALS) HAD ALSO TAKEN NOTE OF THE FACT THAT THERE WAS SUFFICIENT FUNDS AVAILABLE WITH THE ASSESSEE-RESPON DENT ON WHICH THERE WAS NO INTEREST LIABILITY THAT HAD BEEN INCURRED. IN SU CH CIRCUMSTANCES, RELYING ON THE CASE OF TORRENT FINANCIERS LTD. (SUPRA), IT FOU ND THAT THE DISALLOWANCE WAS NOT JUSTIFIABLE. THE TRIBUNAL ON NOTING THESE DETAILS, IN TERMS HELD THAT THERE WAS NOTHING CONTRARY THAT COULD BE BROUGHT ON RECORD BY THE DEP ARTMENT. THE ASSESSEES EQUITY SHARE CAPITAL RS3.85 CRORES AND RESERVE AND SURPLUS OF RS.5.52 CRORES ALSO WERE NOTED BY THE TRIBUNAL. IT FOUND THAT THE INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE WAS FAR GREATER THAN THE LOAN ADV ANCED TO THE SISTER CONCERNS AND AS A COROLLARY TO THAT, IT CONCLUDED T HAT THE BORROWED MONEY WAS NOT UTILIZED FOR THE PURPOSE OF ADVANCE TO THE SIST ER CONCERNS, AS HAD BEEN NOTED BY THE ASSESSING OFFICER. WHAT HAD WEIGHED WI TH THE TRIBUNAL IS THE FACT THAT THE ENTIRE INTEREST FREE FUNDS INCLUDED OWNER S OWN CAPITAL AND ACCUMULATED PROFITS AND OTHER INTEREST FREE CREDITS AND LOANS AND IF THE TOTAL INTEREST FREE ADVANCES INCLUDING THE DEBIT BALANCE OF THE PARTNERS DID NOT EXCEEDED THE TOTAL INTEREST FREE FUNDS AVAILABLE WI TH THE ASSESSEE, INTEREST WAS NOT DISALLOWABLE MERELY ON ACCOUNT OF THE UTILI ZATION OF THE FUNDS FOR NON- BUSINESS PURPOSES. THUS, AS CAN BE SEEN THE TRIBUNAL ACTUALLY RELIED O N THE FINDINGS GIVEN IN CASE OF TORRENT FINANCIERS LTD. (SUPRA) AND FURTHERMORE THERE WAS NOTHING CONTRARY THAT COULD BE BROUGHT ON RECORD BY THE DEPARTMENT F OR IT TO HOLD OTHERWISE. FACTUALLY, IT FUNDS HUGE FUNDS WERE AVAILABLE WITHO UT ANY INTEREST LIABILITY WITH THE ASSESSEE AND THAT THERE WAS NO EVIDENCE TO HOLD THAT THE BORROWED MONEY WAS UTILIZED FOR THE PURPOSE OF ADVANCE TO TH E SISTER CONCERN. ALL THESE ASPECTS CUMULATIVELY LED THE TRIBUNAL TO HOLD THAT THE DISALLOWANCE MADE ONLY ON THE GROUND THAT ADVANCES WERE GIVEN OUT OF THE B ORROWED FUNDS, HOLDING THE ASSESSEE INELIGIBLE FOR ALLOWANCE OF INTEREST B Y THE ASSESSING OFFICER OF THE SUM OF RS.11.66 LACS WAS NOT SUSTAINABLE. THE T RIBUNAL HAS CORRECTLY APPROACHED THE ISSUE WHICH HAS BEEN PROPOSED IN THE PRESENT TAX APPEAL. WHEN THERE WAS NO EVIDENCE BROUGHT ON RECORD BY THE DEPARTMENT FOR THE ITA NO.1944/AHD/2009 A.Y. 2005-06 MILTON LAMINATES LTD. V. DCIT, CIR-4 ABD PAGE 9 TRIBUNAL TO HOLD OTHERWISE THAN WHAT HAS BEEN CONCL UDED BY WAY OF ANY MATERIAL, WE HOLD THAT THE ISSUE IS APPROPRIATELY C ONCLUDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 9. ADMITTEDLY IN THE CASE IN HAND, THE ASSESSEE HAS BOTH BORROWED AND INTEREST FREE FUNDS. IT IS TRANSPIRED FROM THE BALA NCE-SHEET OF THE ASSESSEE- COMPANY AS ON 31-03-2005 THAT IT HAD SUFFICIENT INT EREST FREE FUNDS. IT IS NOT DISPUTED THAT THE ASSESSEE-COMPANY HAD SUFFICIENT I NTEREST FREE FUND COULD BE USED TOWARDS LOAN AND ADVANCES TO SISTER CONCERN. T HE REVENUE HAS NOT DEMONSTRATED AS TO HOW THE INTEREST BEARING FUNDS H AVE BEEN USED TOWARDS LOAN/ADVANCES TO THE SISTER CONCERN. IN THE ABSENCE OF SUCH FINDING, WE DO NOT AGREE WITH THE CONTENTION OF THE LD. DR THAT IN RES PECT OF LOAN AND ADVANCES TEST OF COMMERCIAL EXPEDIENCY WOULD APPLY DESPITE T HE FACT SUCH ADVANCES ARE MADE OUT OF INTEREST FREE FUNDS OF THE ASSESSEE . IN VIEW OF THE FACT THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RAGHUVIR SYNTHETICS LTD. (SUPRA) HAS APPRECIATED THE VIEW THAT THE ENTIRE IN TEREST FREE FUNDS INCLUDING THE ASSESSEES OWN CAPITAL AND ACCUMULATED PROFITS AND OTHER INTEREST FREE CREDITS AND LOANS AND IF THE TOTAL INTEREST FREE AD VANCES INCLUDING THE DEBIT BALANCE OF PARTNERS DID NOT EXCEED THE TOTAL FREE F UNDS AVAILABLE WITH THE ASSESSEE, INTEREST WAS NOT DISALLOWABLE MERELY ON AMOUNT OF UTILIZATION OF THE FUNDS FOR NON-BUSINESS PURPOSE. IN THE PRESENT CASE ALSO THERE IS NOTHING ON RECORD TO SUGGEST THAT THE LOAN AND ADVANCES EXCEED ED THE INTEREST FREE FUND AVAILABLE WITH ASSESSEE OR SUCH ADVANCES WERE GIVEN OUT OF INTEREST BEARING BORROWED FUND. RESPECTFULLY, FOLLOWING THE RATIO IN THE CASE OF RAGHUVIR SYNTHETICS LTD. (SUPRA) IN TAX APPEAL NO. 829 OF 2007 (SUPRA), WE HEREBY ALLOW THE GROUND OF ASSESSEES APPEAL AND DIRECT TH E ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS.3,10,812/- MADE ON AC COUNT OF INTEREST EXPENDITURE. ITA NO.1944/AHD/2009 A.Y. 2005-06 MILTON LAMINATES LTD. V. DCIT, CIR-4 ABD PAGE 10 10. NEXT GROUND HAS TAKEN BY ASSESSEE IS CONSEQUENT IAL IN NATURE, THEREFORE DOES NOT REQUIRE ANY ADJUDICATION. 11. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- (A.MOHAN ALANKAMONY) (KUL BHARAT) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, *DKP - 24/05/2012 ()* + ,- ,- ,- ,- ../ ../ ../ ../ 0/ 0/ 0/ 0/ / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. *.3 , ,4 / CONCERNED CIT 4. , ,4- / CIT (A) 5. /56 ...3, , .3 , ()* / DR, ITAT, AHMEDABAD 6. 69: ;< / GUARD FILE. BY ORDER/ ,- , /TRUE COPY/ =/ ( > , .3 , ()* + STRENGTHEN PREPARATION & DELIVERY O F ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 17/05 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE NO 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 18/05, 18/05 4) DATE OF CORRECTION 21/05 5) DATE OF FURTHER CORRECTION 21/05, 23/05 6) DATE OF INITIAL SIGN BY MEMBERS 23/05 7) ORDER UPLOADED ON 24/05 8) ORIGINAL DICTATION PAD-PART HAS BEEN ENCLOSED IN THE FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 24/05