THE ACIT, CIRCLE - 1, Rajahmundry V. Gowthami Bio Energies Ltd., Tanuku

ITA 238/VIZ/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1181 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 15-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A NARAYANA RAO
• Keywords: Unexplained expenditure; Earning of tax free income; Notional interest
• Section: 142(1); 14A; 133(6); 69; 12

Judgement Text

ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.238/VIZAG/2014 ( / ASSESSMENT YEAR: 2010-11) ACIT, CIRCLE - 1 RAJAHMUNDRY VS. M/S. GOWTHAMI BIO ENERGIES LTD. TANUKU [PAN: AAB CG 3278N ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI A. NARAYANA RAO, DR / RESPONDENT BY : SHRI C. SUBRAHMANYAM, AR / DATE OF HEARING : 11.04.2016 / DATE OF PRONOUNCEMENT : 29.04.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), VISAKHAPATNAM DATED 26.6.2014 AND IT PERTAI NS TO THE ASSESSMENT YEAR 2010-11. ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF GENERATION AND SALE OF POWER. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE ASS ESSMENT YEAR 2010-11 ON 28.9.2010 DECLARING TOTAL INCOME OF ` 1,11,72,941/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY UNDER CASS. ACCORDINGLY , NOTICE U/S 143(2) & 142(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CAL LED AS 'THE ACT') DATED 23.7.2012 WERE ISSUED. IN RESPONSE TO THE NO TICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FURNISHED THE RELEVANT INFORMATION. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS PURCHASED HUSK FROM VARIOUS PERSONS, THEREFORE, TO ASCERTAIN THE C ORRECTNESS OF THE PURCHASES CLAIMED BY THE ASSESSEE, ISSUED A LETTER TO THE SUPPLIERS OF HUSK AND CALLED FOR INFORMATION U/S 133(6) OF THE A CT. IN RESPONSE TO THE SUMMONS ISSUED BY THE A.O., OUT OF THE 8 SUPPLI ERS, 5 WERE CONFIRMED THE TRANSACTIONS WITH THE ASSESSEE, WHICH WERE CORRELATED WITH THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND FOUN D TO BE CORRECT. IN RESPECT OF REMAINING 3 SUPPLIERS, THEY HAVE FILED A LETTER ON 25.12.2012 AND DENIED HAVING ANY TRANSACTIONS WITH THE ASSESSE E COMPANY AND ALSO STATED THAT THEY ARE NOT IN A POSITION TO FURNISH T HE REQUIRED INFORMATION. THEREAFTER, THE A.O. ISSUED A SHOW CAUSE NOTICE AND ASKED TO EXPLAIN WHY THE PURCHASES TO THE EXTENT OF ` 1,09,64,497/- SHALL NOT BE ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 3 DISALLOWED. IN RESPONSE TO THE SHOW CAUSE NOTICE, T HE ASSESSEE HAS SUBMITTED THAT IT HAS PURCHASED THE HUSK FROM THE P ARTIES AND MADE THE PAYMENT THROUGH BANKING CHANNEL. THE ASSESSEE HAS S UBMITTED THE DETAILS OF PURCHASES ALONG WITH PURCHASE BILLS, GAT E PASSES AND WEIGHMENT SLIPS AND ALSO BANK STATEMENTS FOR HAVING PAID THE AMOUNT THROUGH ACCOUNT PAYEE CHEQUES. THE ASSESSEE FURTHE R SUBMITTED THAT THOUGH IT HAS PURCHASED THE MATERIAL FROM THE PARTI ES, THEY HAVE DISOWNED THE SUPPLY OF MATERIALS ON THE APPREHENSIO N THAT THE DEPARTMENT MAY PROBE THEIR ACTIVITIES, THEREFORE, D ENIED THE TRANSACTIONS. THE A.O. AFTER CONSIDERING THE EXPLA NATIONS FURNISHED BY THE ASSESSEE HELD THAT THE ASSESSEE HAS NOT PROVED THE GENUINENESS OF THE PURCHASES. THE A.O. FURTHER HELD THAT THE ASSES SEE HAS FAILED TO DISCHARGE THE ONUS CAST UPON IT BY FURNISHING NECES SARY PROOF OF HAVING PURCHASED THE HUSK FROM THE PARTIES. THE SUPPLIERS OF THE GOODS HAVE CATEGORICALLY STATED THAT THEY HAVE NOT SUPPLIED TH E GOODS TO THE COMPANY. THE A.O. FURTHER HELD THAT THOUGH ASSESSE E CLAIMS TO HAVE PAID THE AMOUNT BY WAY OF CHEQUE PAYMENTS, MAKING P AYMENTS BY CHEQUE ALONE WOULD NOT PROVE THE TRANSACTIONS TO BE GENUINE. WHEN THE SUPPLIERS SPECIFICALLY DISOWNED THE TRANSACTION S, THE ASSESSEE COULD NOT PROVE THE PURCHASES EFFECTIVELY AND COULD NOT C OUNTER THE DENIAL OF ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 4 THE PARTIES. WITH THESE OBSERVATIONS, DISALLOWED T HE TOTAL PURCHASE OF ` 1,09,64,497/- AND ADDED BACK TO THE INCOME OF THE A SSESSEE. 3. SIMILARLY, DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS MADE INVESTMENTS IN V ARIOUS COMPANIES, THEREFORE, ISSUED A SHOW-CAUSE NOTICE DATED 21.12.2 012 AND ASKED TO EXPLAIN WHY DISALLOWANCE U/S 14A OF THE ACT SHALL N OT BE MADE. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUB MITTED THAT IT HAS NOT UTILIZED THE BORROWED FUNDS FOR THE PURPOSE OF INVESTMENT IN GROUP COMPANIES. IT WAS FURTHER STATED THAT THE INVESTME NTS HAVE BEEN MADE IN PREVIOUS FINANCIAL YEARS, THEREFORE, THE QUESTIO N OF DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT BY INVOKING RULE 6D OF THE INCOME TAX RULES, 1962 DOES NOT ARISE. THE A.O. AFTER CONSIDE RING THE SUBMISSIONS OF THE ASSESSEE HELD THAT THE ASSESSEE HAS BORROWED FUNDS, WHICH WAS UTILIZED FOR MAKING INVESTMENTS IN OTHER COMPANIES. THOUGH ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME, IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT NOT ONLY DIRECT EXPENDITURE, BUT ALS O INDIRECT EXPENDITURE ALSO NEEDS TO BE DISALLOWED, THEREFORE, BY APPLYING THE PROVISIONS OF RULE 6D OF THE INCOME TAX RULES, 1962 DISALLOWED INTERES T PAID ON BANK LOAN. 4. SIMILARLY, THE A.O. NOTICED THAT THE ASSESSEE HA S MADE INVESTMENT OF ` 60 LAKHS FOR PURCHASE OF MAJORITY SHARES IN M/S. WE ST MOUNTAIN ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 5 POWER PVT. LTD. SINCE, ASSESSEE HAVING BORROWED F UNDS, THE A.O. ISSUED A SHOW CAUSE NOTICE AND ASKED TO EXPLAIN WHY THE INTEREST PAID ON BORROWED FUNDS SHALL NOT BE DISALLOWED FOR DIVER SION OF FUNDS TO OTHER THAN BUSINESS PURPOSES. IN RESPONSE TO THE SHOW CA USE NOTICE, THE ASSESSEE SUBMITTED THAT IT HAS PAID THE AMOUNT TOWA RDS PURCHASE OF SHARES OF M/S. WEST MOUNTAIN POWERS PVT. LTD. SINCE , THE TRANSACTION COULD NOT MATERIALIZE, THE COMPANY HAS RETURNED A S UM OF ` 38 LAKHS DURING THE SUBSEQUENT FINANCIAL YEAR AND THE REMAIN ING AMOUNT HAS BEEN SHOWN AS LOAN. IT WAS FURTHER SUBMITTED THAT T HE BORROWED FUNDS ARE NOT UTILIZED FOR THE PURPOSE OF GIVING ADVANCE TO THE COMPANY, THEREFORE, THE QUESTION OF DISALLOWANCE OF INTEREST DOES NOT ARISE. THE A.O. AFTER CONSIDERING THE EXPLANATIONS FURNISHED B Y THE ASSESSEE, HELD THAT THE ASSESSEE HAS DIVERTED THE BORROWED FUNDS F OR THE PURPOSE OF OTHER THAN THE BUSINESS, THEREFORE, DISALLOWED 12% INTEREST ON BALANCE OUTSTANDING AMOUNT OF ` 22 LAKHS AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS PURCHASED HUSK FOR THE PURPOSE OF GENER ATION OF POWER AND ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 6 THE PAYMENT HAS BEEN MADE THROUGH BANKING CHANNELS. THE ASSESSEE FURTHER SUBMITTED THAT THE SUPPLIERS HAVE DENIED TH E TRANSACTIONS ON THE APPREHENSION THAT THE DEPARTMENT MAY PROBE THEIR AF FAIRS. THE ASSESSEE HAS FURNISHED THE PROOF OF PURCHASE BILLS, WEIGHMEN T SLIPS AND GATE PASSES ALONG WITH LEDGER EXTRACT COPIES OF THE SUPP LIERS. THE ASSESSEE FURTHER SUBMITTED THAT THE PAYMENT HAS BEEN MADE BY ACCOUNT PAYEE CHEQUES AND THE BANKS HAVE CONFIRMED THAT THE PAYME NT HAS BEEN CREDITED TO THE RESPECTIVE SUPPLIERS ACCOUNT. IN SPITE OF FURNISHING THE RELEVANT DETAILS, THE A.O. HAS DISOWNED THE EVIDENC ES FILED BY THE ASSESSEE AND MADE ADDITIONS, SIMPLY FOR THE REASON THAT THE SUPPLIERS HAVE DENIED THE TRANSACTIONS. SIMILARLY, AS REGARDS THE DISALLOWANCE OF INTEREST U/S 14A OF THE ACT, THE ASSESSEE SUBMITTED THAT INVESTMENTS ARE NOT MADE DURING THE RELEVANT FINANCIAL YEAR. IT WA S FURTHER SUBMITTED THAT THE ASSESSEE IS HAVING ITS OWN FUNDS TO COVER UP THE INVESTMENTS IN OTHER COMPANIES. WHEN THE A.O. HAS NOT PROVED THE D IRECT NEXUS BETWEEN THE BORROWED FUNDS AND INVESTMENT IN OTHER COMPANIES, INTEREST CANNOT BE DISALLOWED U/S 14A OF THE ACT. AS REGARDS THE ADDITION OF NOTIONAL INTEREST OF ` 2,64,000/- IS CONCERNED, THE ASSESSEE SUBMITTED THAT IT HAS ADVANCED A SUM OF ` 60 LAKHS TOWARDS PURCHASE OF SHARES OF M/S. WEST MOUNTAIN POWER PVT. LTD. SINCE, THE DEAL COULD NOT MATERIALIZE, THE AMOUNT HAS BEEN RECOVERED FROM THE PARTY IN THE NEXT ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 7 YEAR. OUT OF THE TOTAL ADVANCE OF ` 60 LAKHS, THE COMPANY HAS RETURNED ` 38 LAKHS AND THE BALANCE AMOUNT HAS BEEN KEPT UNDE R LOANS AND ADVANCES ACCOUNT. IT WAS FURTHER SUBMITTED THAT IT HAS ADVANCED THE MONEY OUT OF ITS OWN FUNDS, THEREFORE, THE A.O. WAS NOT CORRECT IN DISALLOWING THE INTEREST. 6. THE CIT(A), DURING THE COURSE OF APPELLATE PROCE EDINGS, FORWARDED THE EVIDENCES FILED BY THE ASSESSEE SUCH AS PURCHAS E BILLS, GATE PASSES, WEIGHMENT SLIPS AND CHEQUE PAYMENT DETAILS TO THE A SSESSING OFFICER FOR HIS VERIFICATION. THE A.O., AFTER MAKING NECESSARY ENQUIRIES SUBMITTED HIS REMAND REPORT DATED 29.1.2014 AND CONFIRMED THA T THE CLAIM MADE BY THE ASSESSEE WITH REGARD TO THE PURCHASE OF HUSK IS FOUND TO BE GENUINE. THE CIT(A) AFTER CONSIDERING THE DETAILS F ILED BY THE ASSESSEE AND ALSO TAKEN INTO ACCOUNT THE REMAND REPORT OF TH E A.O., DIRECTED THE A.O. TO DELETE THE ADDITIONS OF ` 1,09,64,497/- TOWARDS HUSK PURCHASES. SIMILARLY, AS REGARDS THE DISALLOWANCE OF INTEREST U/S 14A OF THE ACT, THE CIT(A) HELD THAT THE INFORMATION FURNISHED BY THE A SSESSEE CLEARLY SHOWS THAT THE IMPUGNED INVESTMENTS IN THE SISTER CONCERN S WAS NOT MADE FROM LOAN FUNDS. IT WAS FURTHER HELD THAT THE INVES TMENTS WERE NOT MADE DURING THE SUBJECT FINANCIAL YEAR. WHEN THE LOAN F UNDS ARE NOT UTILIZED FOR THE PURPOSE OF MAKING INVESTMENTS AND IMPUGNED INVESTMENTS ARE ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 8 NOT MADE DURING THE SUBJECT FINANCIAL YEAR, THE DIS ALLOWANCE OF INTEREST ON BORROWED FUNDS AND OTHER INDIRECT EXPENDITURE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D OF THE INCOME TAX RULES, 1962 DOES NOT ARISE. WITH THESE OBSERVATIONS, THE CIT(A) DIRECTED THE A.O. TO DELETE THE ADDITIONS MADE U/S 14A OF TH E ACT. AS REGARDS THE DISALLOWANCE OF INTEREST OF ` 2,64,000/-, THE CIT(A) HELD THAT THE DETAILS FILED BY THE ASSESSEE CLEARLY SHOWS THAT THE ADVANC E MADE BY THE ASSESSEE IS IN THE REGULAR COURSE OF BUSINESS AND A LSO THE PARTY IS NOT A RELATED PARTY TO THE ASSESSEE. IT WAS FURTHER HELD THAT THE ASSESSEE HAS NOT INVESTED THE BORROWED FUNDS FOR THE PURPOSE OF PURCHASE OF SHARESS. THE A.O. WAS NOT JUSTIFIED IN DISALLOWING THE INTER EST, THEREFORE, DIRECTED THE A.O. TO DELETE THE ADDITIONS. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 7. THE FIRST ISSUE CAME UP FOR OUR CONSIDERATION IS ADDITIONS TOWARDS PURCHASE OF HUSK. THE A.O. DISALLOWED A SUM OF ` 1,09,64,497/- TOWARDS UNEXPLAINED EXPENDITURE U/S 69 OF THE ACT. ACCORDING TO A.O. THE ASSESSEE HAS NOT PROVED THE GENUINENESS OF THE TRANSACTIONS. THE SUPPLIERS OF THE HUSK HAVE CATEGORICALLY DENIED HAV ING ANY TRANSACTIONS WITH THE ASSESSEE AND ALSO NOT FURNISHED ANY DETAIL S, WHEN SPECIFICALLY ASKED TO FURNISH THE DETAILS U/S 133(6) OF THE ACT. THE A.O. FURTHER HELD ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 9 THAT THOUGH ASSESSEE CLAIMS TO HAVE MADE THE PAYMEN T BY WAY OF CROSSED CHEQUES, THE REQUIRED DETAILS OF CHEQUE NUM BERS AND BANK BRANCH DETAILS HAVE NOT BEEN FURNISHED. WHEN THE PAR TIES HAVE DENIED THE TRANSACTIONS, IT IS THE RESPONSIBILITY OF THE A SSESSEE TO PROVE BEYOND DOUBT THAT THE TRANSACTION IS GENUINE. THE ASSESSE E NEITHER FURNISHED ANY PROOF WITH REGARD TO THE IDENTITY OF THE SUPPLI ERS NOR PRODUCED THE PARTIES TO VERIFY THE GENUINENESS OF THE TRANSACTIO NS. IN THE ABSENCE OF NECESSARY DETAILS, THE A.O. HELD THAT THE TRANSACTI ON OF PURCHASE OF HUSK IS NOT GENUINE. IT IS THE CONTENTION OF THE ASSESSE E THAT WHEN THE A.O. HAS ACCEPTED THE TRANSACTIONS TO BE GENUINE AFTER V ERIFYING THE DETAILS FURNISHED BY THE ASSESSEE, THE DEPARTMENT CANNOT RA ISE ANY OBJECTIONS DURING THE PROCEEDINGS BEFORE THE TRIBUNAL. THE ASS ESSEE HAS PROVED TRANSACTIONS TO BE GENUINE. WHEN ALL THE DETAILS SUC H AS PURCHASE BILLS, GATE PASSES, WEIGHMENT SLIPS AND PAYMENT DETAILS HA VE BEEN FURNISHED BEFORE THE A.O., THE A.O. CANNOT DISALLOW THE AMOUN T MERELY BECAUSE THE PARTIES HAVE DENIED THE TRANSACTIONS. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. THE A.O. MADE DISALLOWANCE OF HUSK PURCHASE FOR THE REASON THAT THE ASSESSEE HAS NOT PROVED THE GEN UINENESS OF THE TRANSACTIONS. THE A.O. WAS OF THE OPINION THAT THE PARTIES HAVE DENIED ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 10 THE TRANSACTION WITH THE ASSESSEE AND ALSO NOT FURN ISHED ANY INFORMATION WHEN CALLED FOR U/S 133(6) OF THE ACT. THE A.O. FU RTHER HELD THAT THOUGH ASSESSEE CLAIMS TO HAVE MADE THE PAYMENT BY ACCOUNT PAYEE CHEQUES, THE DETAILS WITH REGARD TO THE NAME AND ADDRESS OF THE BANK BRANCH AND IDENTITY OF THE PARTIES HAVE NOT BEEN PROVED. THER EFORE, OPINED THAT THE TRANSACTION IS NOT GENUINE. IT IS THE CONTENTION O F THE ASSESSEE THAT IT HAS PURCHASED THE HUSK FROM THE SUPPLIERS AND FURNI SHED NECESSARY PROOF OF PURCHASE BILLS ALONG WITH GATE PASSES AND WEIGHMENT SLIPS. THE ASSESSEE FURTHER CONTENDED THAT THE PAYMENT HAS BEE N MADE BY ACCOUNT PAYEE CHEQUES AND THE BANK HAVE ISSUED A CE RTIFICATE AND CONFIRMED THAT THE PAYMENT HAVE BEEN CREDITED TO TH E RESPECTIVE PARTYS ACCOUNT. THE SUPPLIERS HAVE DENIED THE TRANSACTION S ON THE APPREHENSION THAT THE DEPARTMENT MAY PROBE THEIR AF FAIRS. JUST BECAUSE THE PARTIES HAVE DENIED THE TRANSACTIONS, THE GENUI NENESS OF THE TRANSACTIONS CANNOT BE DOUBTED. WE FIND FORCE IN T HE ARGUMENT OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAS PROVE D THE TRANSACTIONS BY FURNISHING NECESSARY EVIDENCES BEFORE THE ASSESS ING OFFICER AS WELL AS CIT(A). THE A.O. IN THE REMAND PROCEEDINGS CONFI RMED HAVING VERIFIED THE PURCHASES ALONG WITH NECESSARY SUPPORT ING DOCUMENTS AND FOUND THAT THE TRANSACTION IS GENUINE. THOUGH, THE PARTIES DISOWNED THE TRANSACTION, THE ASSESSEE PROVED THE TRANSACTION WI TH NECESSARY ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 11 DOCUMENTS. THEREFORE, WE ARE OF THE VIEW THAT THE A .O. IS NOT CORRECT IN DISALLOWING THE PURCHASES. THE CIT(A) DURING THE AP PELLATE PROCEEDINGS, HAVE EXAMINED THE DETAILS FILED BY THE ASSESSEE AND ALSO DIRECTED THE A.O. TO EXAMINE THE DETAILS FURNISHED BY THE ASSESS EE WITH REFERENCE TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE A.O. AF TER CAUSING ENQUIRIES SUBMITTED THAT THE CLAIM MADE BY THE ASSESSEE IS GE NUINE. THE CIT(A), AFTER CONSIDERING THE RELEVANT DETAILS FILED BY THE ASSESSEE AND ALSO TAKEN INTO ACCOUNT THE REMAND REPORT OF THE A.O. DE LETED THE ADDITIONS. WE DO NOT SEE ANY ERROR OR INFIRMITY IN THE ORDER PA SSED BY THE CIT(A). HENCE, WE INCLINED TO UPHOLD THE ORDER PASSED BY TH E CIT(A) AND REJECT THE GROUND RAISED BY THE REVENUE. 9. THE NEXT ISSUE CAME UP FOR OUR CONSIDERATION IS DISALLOWANCE OF INTEREST U/S 14A OF THE ACT. THE A.O. DISALLOWED A SUM OF ` 12,38,592/- BY INVOKING THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS U TILIZED THE BORROWED FUNDS FOR THE PURPOSE OF MAKING INVESTMENT IN SISTE R CONCERNS. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS USED OWN FUN DS FOR THE PURPOSE OF INVESTMENT IN SISTER CONCERNS AND IT HAS NOT USED A NY BORROWED FUNDS. THE ASSESSEE FURTHER CONTENDED THAT THE INVESTMENTS WERE NOT MADE DURING THE RELEVANT FINANCIAL YEAR. THEREFORE, NO DISALLOWANCE CAN BE ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 12 MADE U/S 14A OF THE ACT. WE FIND FORCE IN THE ARGU MENTS OF THE ASSESSEE FOR THE REASON THAT THE A.O. HAS NOT MADE OUT HIS CASE THAT THE ASSESSEE HAS DIVERTED THE BORROWED FUNDS FOR THE PU RPOSE OF INVESTMENTS IN SISTER CONCERNS. THE ASSESSEE HAS P ROVED THAT IT HAS SUFFICIENT INTERNAL RESOURCES FOR THE PURPOSE OF IN VESTMENT IN SISTER CONCERNS. THE CIT(A) AFTER CONSIDERING THE RELEVANT DETAILS DELETED THE IMPUGNED ADDITIONS. WE DO NOT SEE ANY REASONS TO IN TERFERE WITH THE ORDER OF THE CIT(A). HENCE, WE INCLINED TO UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUND RAISED BY THE REVENUE. 10. THE THIRD ISSUE CAME UP FOR OUR CONSIDERATION I S DISALLOWANCE OF INTEREST OF ` 2,64,000/- CALCULATED @ 12% ON THE OUTSTANDING LOA N AMOUNT OF ` 22 LAKHS. THE A.O. WAS OF THE OPINION THAT THE AS SESSEE HAS UTILIZED THE BORROWED FUNDS FOR THE PURPOSE OF ADVANCING LOANS, THEREFORE, DISALLOWED THE INTEREST OF RS. 2,64,000/ - @ 12% ON LOAN AMOUNT OF RS. 22,00,000/-. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS GIVEN ADVANCE IN THE NORMAL COURSE OF BUSINESS AND ALSO THE PARTY IS NOT A RELATED PARTY. THE ASSESSEE FURTHER CONTENDE D THAT IT HAS SUFFICIENT INTERNAL ACCRUALS FOR THE PURPOSE OF ADV ANCING MONEY AND NOT UTILIZED THE BORROWED FUNDS FOR THE PURPOSE OF ADVA NCE. THEREFORE, THE A.O. WAS NOT CORRECT IN DISALLOWING THE INTEREST. WE FIND FORCE IN THE ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 13 ARGUMENTS OF THE ASSESSEE THAT THE ASSESSEE HAS ADV ANCED A SUM OF ` 60 LAKHS FOR THE PURPOSE OF PURCHASE OF SHARES OF M /S. WEST MOUNTAIN POWERS PVT. LTD. SINCE, THE DEAL COULD NOT MATERI ALIZE THE COMPANY HAS RETURNED THE MONEY DURING THE NEXT FINANCIAL YEAR. THEREFORE, THE A.O. WAS NOT CORRECT IN DISALLOWING THE NOTIONAL INTERES T ON THE REASON THAT THE ASSESSEE HAS DIVERTED THE INTEREST BEARING FUND S FOR THE PURPOSE OF ADVANCE. ON PERUSAL OF THE DETAILS AVAILABLE ON REC ORD, WE FIND THAT THE ASSESSEE HAS SUFFICIENT INTERNAL ACCRUALS TO COVER UP THE ADVANCE. IT IS NOT A CASE OF A.O. THAT THERE WAS A DIRECT NEXUS BE TWEEN THE BORROWED FUNDS AND LOANS AND ADVANCES. UNLESS, THE A.O. PRO VES THAT THE ASSESSEE HAS DIVERTED THE INTEREST BEARING FUNDS, N O DISALLOWANCE CAN BE MADE TOWARDS INTEREST. THE CIT(A) AFTER CONSIDERING THE RELEVANT DETAILS DIRECTED THE A.O. TO DELETE THE ADDITIONS. WE DO NO T SEE ANY ERROR OR INFIRMITY IN THE ORDER PASSED BY THE A.O. HENCE, W E INCLINED TO UPHOLD THE ORDER OF CIT(A) AND REJECT THE GROUND RAISED BY THE REVENUE. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 29 TH APR16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 29.04.2016 ITA NO.238/VIZAG/2014 M/S. GOWTHAMI BIO ENERGIES LIMITED, TANUKU 14 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ACIT, CIRCLE-1, RAJAHMUNDRY 2. / THE RESPONDENT M/S. GOWTHAMI BIO ENERGIES LTD ., POST BOX NO.7, PYDIPARRU, TANUKU, WEST GODAVARI DISTRICT. 3. + / THE CIT, VISAKHAPATNAM 4. + ( ) / THE CIT (A), VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM