The Assistant Commissioner of Income Tax, Jalandhar V. M/s Max India Ltd., Nawanshahr

ITA 243/ASR/2016

• Counselvise Citation: 24320914 RSA 2016
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 29-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHAWANI SHANKER
• Keywords: Depreciation; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. (CAMP AT JALANDHAR) BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.243(ASR)/2016 ASSESSMENT YEAR:2010-11 PAN: AABCM1204G JT. COMMR. OF INCOME TAX VS. M/S. MAX INDIA LIMITED , CIRCLE-II, JALANDHAR. NAWANSHAHR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. BHAWANI SHANKER, DR RESPONDENT BY: NONE DATE OF HEARING: 29/06/2016 DATE OF PRONOUNCEMENT: 12/07/2016 ORDER PER A.D. JAIN, JM: THIS IS THE DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2010-11, AGAINST THE ORDER DATED 26.02.2016, PASSED BY THE LD. CIT(A)-1, JALANDHAR. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) HAS ERRED IN AW AS WELL AS ON FACTS IN D ELETING THE ADDITION OF RS.2,54,48,151/- MADE BY THE A.O. ON AC COUNT OF DISALLOWANCE OF INTEREST FREE ADVANCES TO ITS SUBSI DIARIES. 2. THAT WHILE DELETING HE ABOVE ADDITION OF RS.2,54 ,48,151/- LD. CIT(A) HAS ERRED ON FACTS AS WELL AS IN LAW BY IGNO RING THE FACT THAT THERE WAS NO COMMERCIAL EXPEDIENCY IN ADV ANCING INTEREST FREE LOANS BY THE ASSESSEE TO ITS SISTER C ONCERNS. 3. THAT WHILE DELETING HE ABOVE ADDITION OF RS.2,54 ,48,151/- LD. CIT(A) HAS ERRED ON FACTS AS WELL AS IN LAW BY IGNO RING THE FACT THAT THERE WAS NO ONE HAND NO INTEREST HAD BEE N RECEIVED ON ADVANCES GIVEN INTEREST FREE TO ITS SIS TER CONCERNS ITA NO.243(ASR)/2016 A.Y 2010-11 2 AND ON THE OTHER HAND INTEREST HAD BEEN PAID BY THE ASSESSEE TO THE FINANCIAL INSTITUTIONS AND OTHERS. 2. THE FACTS OF THE CASE ARE THAT DISALLOWANCES U/S 36(L)(III) OF THE INCOME-TAX ACT AND OF LEGAL AND PROFESSIONAL EXPENS ES WERE MADE BY THE AO AT RS.2,54,48,151 AND RS.63,36,028/-, RESPECTIVE LY, IN THE ASSESSMENT ORDER. THE REASONING AND FACTUAL BACKGRO UND GIVEN IN THE ASSESSMENT ORDER IS AS FOLLOWS :- I) INTEREST FREE ADVANCES TO SUBSIDIARIES : PROM THE PERUSAL OF BALANCE SHEET, IT IS SEEN THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS TO ITS SISTER CONCERNS AND SUBSIDIARIES, THE DETAIL OF WHICH IS PROVIDED IN THE TABLE BELOW : SR.NO. NAME OF COMPANY AMOUNT O/S AS ON MAR - 09 (IN RS.) AMOUNT O/S AS ON MAR- 10 (IN RS.) 1 MAX ATEEV LIMITED 67,406,470 67698173 2 MAX HEALTH STAFF INTERNATIONAL LIMITED 181,428,704 182281604 3 NEEMAN MEDICAL INTERNATIONAL (ASIA) LIMITED 88,804,987 90997412 4 TOTAL 337,640,161 340977189 THE PERUSAL OF ABOVE DETAIL SHOWS THAT ADVANCES ARE OUTSTANDING IN THE NAMES OF ABOVE SUBSIDIARIES THROUGH OUT THE YEAR. T HERE IS NO BUSINESS TRANSACTION OF ANY NATURE AGAINST THE ADVANCE GIVEN TO THE ABOVE MENTIONED CONCERNS. THE ASSESSEE CONCERN HAS ADVANCED LOANS TO THE ABOV E SISTER CONCERNS/SUBSIDIARIES FROM WHOM NO INTEREST HAS BEE N RECEIVED. THESE ADVANCES HAVE BEEN OUTSTANDING FOR WHOLE OF THE YEA R AND NO BUSINESS TRANSACTIONS HAVE BEEN DONE IN LIEU OF THESE ADVANC ES. THE COUNSEL OF THE ASSESSEE WAS ASKED TO SUBMIT THE DETAIL OF NATURE OF ABOVE TRANSACTIONS AND WHETHER ANY INTEREST NEEDS T O BE DISALLOWED ON THE SAME FOR ADVANCES GIVEN FOR NON-BUSINESS PURPOS ES. THE COUNSEL IN HIS REPLY (PLACED ON RECORD) SUBMITTED THAT THE AFORESA ID LOANS WERE SOURCED ITA NO.243(ASR)/2016 A.Y 2010-11 3 OUT OF THE SURPLUS INTEREST FREE FUNDS AND WERE GIV EN FOR THE PURPOSE OF BUSINESS. THE ABOVE CONTENTION OF THE COUNSEL OF THE ASSESSEE CAN NOT BE ACCEPTED BECAUSE THE ASSESSEE CONCERN HAS ALSO RECEIVED LOAN S FROM FINANCIAL INSTITUTIONS ON WHICH INTEREST HAS BEEN PAID. IF TH E ASSESSEES CONTENTION IS TO BE ACCEPTED THEN THERE WAS NO NEED TO RAISE INTE REST BEARING FUNDS ON WHICH LARGE INTEREST HAS BEEN PAID. IF THE ASSESSEE S CONTENTION OF AVAILABILITY OF SURPLUS FUNDS IS ACCEPTED THEN WHY DID THE ASSESSEE CHARGE INTEREST @ 7.5% FROM ONE OF ITS SISTER CONCERN I.E. M/S PHARMA X CORPN. LTD. THE ASSESSEE HAS CHARGED INTEREST FROM ONE OF ITS S ISTER CONCERNS AND NOT FROM OTHERS AND NO REASON HAS BEEN ASCRIBED FOR THE SAME. IF THE THEORY OF SURPLUS FUNDS HAS TO BE ACCEPTED THEN THE ASSESSEE SHOULD HAVE GIVEN EQUAL TREATMENT TO ALL SISTER CONCERNS BY NOT CHARG ING INTEREST FROM ANY OF THEM AND NOT GIVING PREFERENTIAL TREATMENT TO ONE A GAINST OTHERS. IN LIGHT OF THIS THE ASSESSEE'S THEORY REGARDING SURPLUS FUNDS CAN NOT BE ACCEPTED. THERE IS NO COMMERCIAL EXPEDIENCY IN ADVANCING INTE REST FREE LOANS TO THE SISTER CONCERNS. ON ONE HAND NO INTEREST HAS BEEN R ECEIVED ON ADVANCES GIVEN INTEREST FREE TO THE SISTER CONCERNS AND ON T HE OTHER HAND INTEREST HAS BEEN PAID TO FINANCIAL INSTITUTIONS AND OTHERS THER EBY ARTIFICIALLY DECREASING THE PROFITS OF THE CONCERN. A MORE COMME RCIALLY EXPEDIENT ACTION WOULD HAVE BEEN TO USE THE SURPLUS FUNDS IF ANY AVA ILABLE FOR REPAYMENT OF LOANS OF THE ASSESSEE CONCERN TAKEN FROM FINANCI AL INSTITUTIONS RATHER THAN ADVANCING THEM INTEREST FREE TO SISTER CONCERN /SUBSIDIARIES. THE ISSUE OF INTEREST FREE ADVANCES IN THE CASE OF ASSESSEE IS TO BE DECIDED IN LIGHT OF THE DECISION OF HONBLE PUNJAB & HARYAN A HIGH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. THE HONBLE HIGH CO URT HAS HELD IN THE ABOVE MENTIONED CASE THAT 'ONCE IT IS BORN OUT FROM THE RECORD THAT THE ASSESSEE HAD BORROWED CERTAIN FUNDS ON WHICH LIABIL ITY TO PAY TAX IS BEING INCURRED AND ON THE OTHER HAND, CERTAIN AMOUNTS HAD BEEN ADVANCED TO SISTER CONCERNS OR OTHERS WITHOUT CARRYING ANY INTE REST AND WITHOUT ANY BUSINESS PURPOSE, THE INTEREST TO THE EXTENT THE AD VANCE HAD BEEN MADE WITHOUT CARRYING ANY INTEREST IS TO BE DISALLOWED U NDER SECTION 36(I)(III) OF THE ACT. EVEN THE RATIO OF THE JUDGMENT IN THE CASE OF M/S S . A. BUILDER LTD. VS. COMMISSIONER OF INCOME TAX (2006) 206 CTR (SC) 631 APPLIES TO THIS CASE. THE HONBLE SUPREME COURT IN THE ABOVE MENTIONED CA SE HAS HELD THAT IF THE INTEREST FREE LOAN WAS GIVEN TO THE SISTER CONC ERN WITHOUT ANY MEASURE OF COMMERCIAL EXPEDIENCY IT SHOULD BE DISALLOWED. T HERE IS NO COMMERCIAL EXPEDIENCY INVOLVED IN ADVANCING INTEREST FREE LOAN S TO SUBSIDIARIES. THE COUNSEL CONTENTION THAT BY LENDING INTEREST FREE AD VANCE TO ITS SUBSIDIARIES COMPANIES, THE ASSESSEE WAS FURTHERING ITS BUSINESS INTEREST IS WITHOUT MUCH SUBSTANCE AND CAN NOT BE RELATED TO ANY COMMER CIAL EXPEDIENCY IN THE NEAR FUTURE. 'COMMERCIAL EXPEDIENCY CAN NOT BE RELATED TO SOME HAPPENING IN THE DISTANT FUTURE THE RESULT OF WHICH CAN NOT BE FORESEEN AT ALL. ITA NO.243(ASR)/2016 A.Y 2010-11 4 IN LIGHT OF ABOVE DISCUSSION, INTEREST HAS TO BE DI SALLOWED TO THE EXTENT OF INTEREST FREE LOANS GIVEN. THE AVERAGE OUTSTANDING LOAN DURING THE ASSTT. YEAR 2010-1 / WAS RS. 339308674/-. THE ASSESSEE HAS CHARGED INTER EST @ 7.5% FROM ITS SISTER CONCERN I.E. M/S PHARMAX CORPN . LTD. EVEN IF THE BENEFIT OF SOME DOUBT REGARDING THE AVAILABILITY OF SURPLUS FUNDS IS GIVEN TO THE ASSESSEE, IT WOULD BE VERY REASONABLE AND JUDIC IOUS TO APPLY THE RATE OF 7.5% FOR MAKING THE DISALLOWANCE U/S 36(L)(III). THIS IS THE SAME RATE AT WHICH ASSESSEE HAS CHARGED INTEREST FROM ITS SISTER CONCERN. HENCE, THE DISALLOWANCE UNDER THIS HEAD COMES TO RS. 25448151/ -. (II) RECEIPT OF SUBSIDY : DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT THE ASSESSEE HAD RECEIVED RS. 50,00,000/- AS SUBSIDY FR OM THE DIRECTOR OF INDUSTRIES, GOVT, OF PUNJAB DURING THE ASSESSMENT Y EAR 2008-09. THE SAME HAD BEEN ACCOUNTED FOR AS CAPITAL RESERVE IN T HE BOOKS OF ACCOUNTS. THE COUNSEL WAS ASKED TO FURNISH THE DETAIL REGARDI NG THE NATURE OF SUBSIDY. THE COUNSEL OF THE ASSESSEE WAS ASKED TO J USTIFY AS TO WHETHER THE VALUE OF SUBSIDY HAS BEEN REDUCED FROM THE COST OF FIXED ASSETS. THE REPLY OF THE COUNSEL IS PLACED ON RECORD. THE REPLY OF THE COUNSEL OF THE ASSESSEE HAS BEEN P ERUSED AND IT IS FOUND THAT THE VALUE OF SUBSIDY HAS NOT BEEN REDUCED FROM THE COST OF FIXED ASSETS. A PERUSAL OF EXPLANATION 10 TO SECTION 43 S HALL BE NECESSARY BEFORE PROCEEDING FURTHER WHICH READS AS UNDER: 'WHERE A PORTION OR THE COST OF AN ASSET ACQUIRED B Y THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMEN T OR A STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY AN Y OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHA TEVER NAME CALLED), THEN, SO MUCH OF THE COST AS IS RELATABLE TO SUCH S UBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL C OST OF THE ASSET TO THE ASSESSEE IN ABOVE CIRCUMSTANCES, IT IS CLEAR THAT THE VALUE OF CAPITAL SUBSIDY RECEIVED OF RS. 50,00,000/- SHOULD HAVE BEEN REDUCE D FROM THE VALUE OF PLANT & MACHINERY. AS THE DEPRECIATION TO THE EXTEN T OF 15% HAS ALREADY BEEN REDUCED IN ASSESSMENT ORDER FOR ASSTT YEAR 200 8-09 AND A.Y 2009- 10 THIS YEAR DISALLOWANCE OF DEPRECIATION SHALL BE ON THE BALANCE AMOUNT EQUIVALENT TO RS.541875/-. . KEEPING IN VIEW THE PROVISIONS OF LAW AND THE CLEAR WORDING OF EXPLANATION 10 TO SECTION 43, THE NECESSARY DISALLOWANCE OF RS. 541875/- SHALL BE MADE AND ADDED TO THE INCOME OF THE ASSESSEE. (III) PAYMENT TO EROS ENDOSURGERY: DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT AN AMOUNT OF RS. 6346028/- HAS BEEN PAID AS PROFESSION AL FEES TO EROS ENDOSURGERY, THE COUNSEL OF THE ASSESSEE WAS ASKED TO JUSTIFY THE ABOVE ITA NO.243(ASR)/2016 A.Y 2010-11 5 PAYMENT IN RELATION TO THE BUSINESS OF THE ASSESSEE . THE COUNSEL IN HIS REPLY SUBMITTED AS UNDER: THE ASSESSEE COMPANY INCURRED EXPENDITURE AMOUNTIN G TO RS. 63,46,028/- FOR PROFESSIONAL FEES PAID TO EROS ENDO SURGERY DURING THE PREVIOUS YEAR ENDED 31.3.2010. THE FEE WAS PAID FOR PROVIDING ADVICE TO THE ASSESSEE COMPANY ON SETTING UP OF COLLEGES FOR PROVIDING HEALTHCARE EDUCATION AND UNDERTAKING MEDICAL RESEARCH. (PLEASE NOTE THAT THOUGH THE CONTRACTED VALUE OF SERVICES IS RS. 5,00,00,000/-, ONLY RS. 63,46,028/- HAVE BEEN CLAIMED AS EXPENSE DURING THE YEAR), WITH A VIEW TO EXPAND ITS HEALTH CARE BUSINESS, AN AIM WHICH IS WELL WITHIN T HE PURVIEW OF THE OBJECTS AUTHORIZED BY ITS MEMORANDUM AND ARTICLES OF ASSOCIATION, THE ASSESSEE COMPANY HAD IDENTIFIED THE PARTY - EROS ENDOSURGERY TO EXPLORE THE POSSIBILITY OF EXPANDING IN THE SAME LINE OF BU SINESS. THEREFORE, THE ASSESSEE COMPANY INCURRED EXPENDITURE IN THE NATURE OF LEGAL AND PROFESSIONAL EXPENSES.' THE REPLY OF THE COUNSEL HAS PERUSED THE SAME IS NO T FOUND TO BE ACCEPTABLE. THE CONTENTION OF THE ASSESSEE IS THAT THE ABOVE EXPENDITURE HAS BEEN INCURRED TO EXPLORE THE POSSIBILITY OF EXT ENSION IN THE HEALTH CARE BUSINESS. THE COUNSEL HAS FURTHER QUOTED THE MEMORA NDUM OF ASSOCIATION WHERE SIMILAR OBJECTIVES HAVE BEEN WRITTEN. THE QUE STION HERE IS NOT WHETHER THE ASSESSEE HAS ONE OF ITS OBJECTIVES ' TO EXPLORE THE HEALTH CARE BUSINESS BUT WHETHER THE BUSINESS IS ALREADY RUNNIN G OR NOT TO CLAIM EXPENDITURE AS REVENUE EXPENDITURE. AT PRESENT THE ASSESSEE COMPANY ITSELF IS NOT INTO HEATH CARE BUSINESS. AN EXPENDITURE INCURRED FOR SETTING UP OF NEW BUSINESS CANNOT BE CONSIDERED AS REVENUE EXPENDITURE. JUST BECAUSE ONE OF THE OBJ ECTIVES IS TO BE EXPLORE THE POSSIBILITY OF ESTABLISHING HEALTH CARE BUSINES S, IT DOES NOT MEAN THAT ANY EXPENDITURE INCURRED FOR THE SAME PURPOSE CAN B E CONSIDERED AS REVENUE EXPENDITURE. IT HAS BEEN HELD IN THE CASE OF CITI FINANCIAL CONS UMER FINANCE INDIA LTD. VS. ADDL. CIT (ITAT, DEL) 33 SOT 414 THAT COMMENCE MENT OF BUSINESS IS RELEVANT FOR ALLOWANCE OF EXPENDITURE U/S 37 AND NO T SETTING UP OF THE BUSINESS. EXPENDITURE INCURRED PRIOR TO COMMENCEMEN T OF BUSINESS IS CAPITAL EXPENDITURE. IT HAS BEEN HELD IN THE CASE OF ORIENT COSMETICS LT D. VS DCIT (ITAT, MAD) 74 ITD 135 THAT EXPENDITURE INCURRED TILL COMMERCIA L PRODUCTION STARTS IS CAPITAL EXPENDITURE. IT HAS BEEN HELD IN THE CASE OF AKZO NOBEL CAR REFI NISHES INDIA (P) LTD. VS DCIT (ITAT, DEL) 25 SOT 226 THAT CARRYING OUT BUSIN ESS WILL REQUIRE ACTIVITY SYSTEMATICALLY AND CONTINUOUSLY. IT HAS BEEN FURTHE R HELD THAT IF ASSESSEE IS IN A POSITION TO DELIVER GOODS, IT MEANS THAT TH E BUSINESS IS SET UP. STEPS LIKE INCORPORATION OF COMPANY, APPOINTMENT OF DIREC TOR ETC. ARE PRELIMINARY THINGS IN THE DIRECTION OF SETTING UP OF BUSINESS. NO OFFICE SPACE, NO SPACE ITA NO.243(ASR)/2016 A.Y 2010-11 6 FOR STORAGE OF GOODS ETC. DURING THE YEAR MEANS THA T THE ASSESSEE HAS NOT SET UP ITS BUSINESS; IT WAS NOT ENTITLED FOR DEDUCT ION OF EXPENSES. IT HAS BEEN HELD IN THE CASE OF ITO VS OMNI GLOBE I NFORMATION TECHNOLOGIES INDIA (P) LTD. (ITAT, DEL) 131 ITD 280 THAT A BUSINESS IS SET UP WHEN IT REACHES A STAGE WHERE IT IS IN A POSITIO N TO PROCURE BUSINESS AND NOT BEFORE THAT. EXPENSES INCURRED TILL SETTING UP OF BUSINESS IS CAPITAL EXPENDITURE. IT HAS BEEN HELD IN THE CASE OF INDIAN OXYGEN LTD. VS CIT (CAL) 164 ITR 466 TRADE WINGS LTD. VS CIT (BOM) 185 ITR 267 THAT EXPENSES INCURRED FOR THE PURPOSE OF LAUNCHING A NEW PROJECT OR INITI ATING A NEW LINE OF BUSINESS SEPARATE FROM THE EXISTING BUSINESS CANNOT BE HELD TO BE REVENUE EXPENDITURE INCURRED IN CONNECTION WITH THE EXISTIN G BUSINESS. IT HAS BEEN HELD IN THE CASE OF TRIVENI ENGINEERING WORKS LTD VS CIT (DEL) 232 ITR 639 CIT VS AMBICA MILLS LTD (GUJ) 236 ITR 9 21 MAC INDUSTRIAL PRODUCTS LTD. VS ACIT (ITAT, CHENNAI TM) 101 ITD 191 THAT AMOUNT SPENT ON PROJECT REPORT TO SET UP A NEW UNIT IS CAP ITAL EXPENDITURE. IT HAS BEEN HELD IN THE CASE OF TRADEWINGS LTD. VS CIT (BOM) 185 ITR 267 GENERAL SALES LTD VS ACIT (ITAT, DEL) 59 TTJ 489 TH AT EXPENDITURE IN CONNECTION WITH EXPLORING FEASIBILITY OF SETTING UP NEW LINE OF BUSINESS IS CAPITAL EXPENDITURE. IN ABOVE CIRCUMSTANCES THE EXPENDITURE OF RS. 63460 28 IN THE NATURE OF PROFESSIONAL FEE PAID TO EROS ENDOSURGERY FOR EXPLO RING THE POSSIBILITY OF SETTING UP HEALTH CARE BUSINESS IS TREATED AS CAPIT AL EXPENDITURE AND ADDED TO THE INCOME OF THE ASSESSEE. 3. THE LD. CIT(A) ALLOWED THE ASSESSEES APPEAL. 4. THE LD. DR HAS CONTENDED THAT THE LD. CIT(A) HA S ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.2,54,48,151/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST FREE ADVANCES TO ITS SUBSIDIARIES. HE FURTHER SUBMITTED THAT THE LD. CIT(A) HAS ALSO ERRE D IN IGNORING THE FACT THAT THERE WAS NO COMMERCIAL EXPEDIENCY IN ADVANCIN G INTEREST FREE LOANS BY THE ASSESSEE TO ITS SISTER CONCERNS. HE ALSO STA TED THAT THE LD. CIT(A) HAS NOT TAKEN INTO CONSIDERATION THE FACT THAT ON T HE ONE HAND NO ITA NO.243(ASR)/2016 A.Y 2010-11 7 INTEREST HAD BEEN RECEIVED ON ADVANCES GIVEN INTERE ST FREE TO ITS SISTER CONCERNS AND ON THE OTHER HAND INTEREST HAD BEEN PAID BY THE ASSESSEE TO THE FINANCIAL INSTITUTIONS AND OTHERS. 5. NONE HAS PUT IN APPEARANCE BEFORE US ON BEHALF O F THE ASSESSEE. HOWEVER, WRITTEN SUBMISSIONS, HAVE BEEN FILED. 6. THE ARGUMENTS OF THE LD. DR AND THE WRITTEN SUBM ISSIONS OF THE ASSESSEE HAVE BEEN CONSIDERED. THE LD. CIT(A), ALLO WING THE ASSESSEES APPEAL, OBSERVED AS FOLLOWS: 5. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER FA CTS OF THE CASE AND THE PAPER BOOK FILED. I HAVE ALSO GONE THROUGH THE ORDER OF HON'BLE ITAT IN ASSESSEE'S OWN CASE IN AY 2008-09. IN THE A Y 2008-09 THE ISSUE WAS IDENTICAL THOUGH THE AMOUNTS DIFFER. THE HON'BL E ITAT IN THE CASE OF ASSESSEE ITSELF FOR AY 2008-09 HAS HELD AS UNDER (R ELEVANT PART REPRODUCED) 'WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E FACTS OF THE CASE. AS REGARDS THE ARGUMENTS OF THE ID. DR THAT U SE OF FUNDS BY SUSBSIDIARY COMPANIES CANNOT BE SAID TO BE ADVANCE OF THE HOLDING COMPANY, THE LD. COUNSEL FOR THE ASSESSEE LAID EMPH ASIS ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F S. A. BUILDERS LTD. (SUPRA) WHEREIN IT HAS BEEN CATEGORICALLY HELD THAT IF A COMPANY HOLDS A DEEP BUSINESS INTEREST IN ITS SISTER CONCER N/SUBSIDIARY COMPANY AND BORROWED FUNDS ARE GIVEN TO SUPPORT SUC H COMPANY AND HAVE BEEN USED BY THE LATER FOR ITS BUSINESS PU RPOSES, IT COULD BE SAID THAT THE AMOUNT HAS BEEN ADVANCED BY THE PA RENT COMPANY ON THE GROUND OF COMMERCIAL EXPEDIENCY AND THE INTE REST EXPENDITURE INCURRED IN THE HANDS OF HOLDING COMPAN Y SHALL BE ALLOWABLE DEDUCTION U/S 36(L)(II) OF THE ACT. THE FACTS OF THE PRESENT CASE ARE THAT THE ASSESSEE COMPANY HAD GIVEN INTEREST FREE LOANS AND ADVANCES AGGREGATING TO RS. 2297.83 LACS UPTO THE END OF THE RELEVANT YEAR INCLUDING RS . 704 LACS DURING THE RELEVANT YEAR TO THREE SUBSIDIARY COMPANIES OF THE ASSESSEE. THE AO DID NOT MAKE ANY DISALLOWANCE IN RESPECT OF EXPENDITURE INCURRED ON BORROWED FUNDS U/S 36(L)(II) OF THE ACT IN RELATION TO INTEREST FREE LOANS AND ADVANCES GIVEN TO THE AFORE SAID THREE SUBSIDIARY COMPANIES IN THE EARLIER YEARS. THE ISSU E ARISING IN THE PRESENT APPEAL I.E. WHETHER INTEREST EXPENDITURE IN CURRED ON ROWED ITA NO.243(ASR)/2016 A.Y 2010-11 8 FUNDS RELATING TO/ATTRIBUTABLE TO INTEREST FREE ADV ANCE GIVEN TO THE SUBSIDARY COMPANIES IS WABLE BUSINESS U/S 36(L)(II) OF THE ACT OR NOT HAS BEEN RAISED FOR THE FIRST TIME IN THE ASSESSMEN T DER PASSED FOR THE IMPUGNED YEAR. THE ARGUMENTS OF THE ASSESSEE AGAINST THE AFORESAID DISALLOWANCE MADE BEFORE THE AO ARE THAT (I) ON THE FIRST PLACE CONSIDERING SUBSTANTIAL INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY DURING THE IMPUGNED YEAR AS ALSO IN EARLIER YEARS, PRESUMPTION HAS BEEN DRAWN THAT INTEREST FREE LOANS/ADVANCES TO SUB SIDIARY COMPANIES HAVE BEEN GIVEN OUT OF INTEREST FREE FUND S AND NOT FROM BORROWED FUNDS AND CONSEQUENTLY INTEREST. EXPENDITU RE CANNOT BE DISALLOWED ON THE GROUND OF BORROWED FUNDS BEING GI VEN TO SUBSIDIARY COMPANIES U/S 36(1) (II) OF THE ACT, (II ) INTEREST FREE ADVANCES WERE GIVEN OUT OF COMMERCIAL EXPEDIENCY SI NCE THE SAID COMPANIES WERE FACING FINANCIAL CRUNCH AND WERE THE REFORE IN DIRE NEED OF FUNDS OF THE ASSESSEE COMPANY DUE TO DEEP I NTEREST IN CONTINUANCE OF SUCH COMPANIES WHICH WERE ITS SUBSID IARIES, GAVE THE AFORESAID INTEREST FREE ADVANCES, WHICH HAD TO BE REGARDED AS BEEN GIVEN FOR THE PURPOSES OF BUSINESS OF THE ASSE SSEE COMPANY AND HENCE ALLOWABLE AS DEDUCTION U/S 36(I)(II) AND (HI) IN ANY CASE, NO DISALLOWANCE U/S 36(L)(III) CAN BE MADE IN RELAT ION TO THE OPENING BALANCE OF LOANS/ADVANCES GIVEN TO SUBSIDIARY COMPA NIES IN VIEW OF THEIR NO FINDING IN EARLIER YEARS AND THAT THE L OANS/ADVANCES WERE GIVEN OUT OF BORROWED FUNDS IN THOSE YEARS. WE HAVE PERUSED THE CASH FLOW STATEMENT OF THE ASSE SSEE COMPANY FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND IT IS OBSERVED THAT DURING THE RELEVANT YEAR THE ASSESSEE COMPANY HAD R ECEIVED SUBSTANTIAL PROCEEDS FROM PREFERENTIAL ISSUE OF SHA RES CAPITAL AGGREGATING TO RS. 99999.98 CRORES AND IT ALSO RECE IVED DIVIDEND INCOME OF RS. 166.13 CRORES FROM VARIOUS INVESTMENT S. THE ASSESSEE COMPANY ALSO PROVIDED SUMMARY OF CASH FLOW STATEMEN T FOR THE IMPUGNED YEAR WHEREIN AFTER CONSIDERING THE INTERES T FREE FUNDS AND APPLICATION THEREOF TOWARDS VARIOUS INVESTMENTS MADE IN SUBSIDIARY COMPANIES, IN MUTUAL FUNDS AND AFORESAID INTEREST FREE LOANS OF RS. 7.04 CORES GIVEN TO SUBSIDIARY COMPANI ES, THE ASSESSEE IS LEFT WITH SURPLUS INTEREST FREE FUNDS OF RS. 53. 86 CRORES. THE AFORESAID ESTABLISHES THAT INTEREST FREE FUNDS AVAI LABLE WITH THE ASSESSEE WERE SUFFICIENT FOR THE AF ORESAID INVESTMENTS AND INTEREST FREE ADVANCES WHICH HAS NOT BEEN DISPUTED BY THE AO OR THE LD. C/T(A). WE HAVE ALREADY HELD THAT THE ASESSEE COMPA NY FOR THE ASSESSEE COMPANY FOR THE ASSESSMENT YEARS 2001-02 T O 2006-07 IN OUR ORDER DATED 08.03.2013 THAT IN CASE OF MIXED PO OL FUNDS, PRESUMPTION SHOULD BE DRAWN IN FAVOUR OF THE ASSESS EE REGARDING UTILIZATION OF INTEREST FREE FUNDS OR BORROWED FUND S IN A MANNER WHICH IS MOT FAVORABLE TO ASSESSEE COMPANY. IN VIEW OF THE SAME, IT IS TO BE PRESUMED THAT INTEREST FREE FUNDS AVAILABL E WITH THE ASSESSEE COMPANY DURING THE IMPUGNED YEAR WERE UTIL IZED FOR GIVING INTEREST FREE ADVANCES OF RS. 7.04 CRORES GI VEN TO THE ITA NO.243(ASR)/2016 A.Y 2010-11 9 SUBSIDIARY COMPANIES AND THEREFORE, THERE IS NO NEX US OF INTEREST EXPENDITURE INCURRED DURING THE YEAR WITH THE AFORE SAID LOANS/ADVANCES GIVEN TO THE SUBSIDIARY COMPANIES, W ARRANTING DISALLOWANCE U/S 36(L)(II) OF THE ACT. AS REGARDS INTEREST FREE ADVANCES GIVEN BY THE ASSE SSEE COMPANY TO THE SUBSIDIARY COMPANIES IN EARLIER YEARS, IT WA S SUBMITTED WITH REFERENCE TO OVERALL FUND FLOW POSITION THAT THE AF ORESAID LOANS AND ADVANCES WERE GIVEN OUT OF SURPLUS INTEREST FREE FU NDS AVAILABLE WITH THE ASSESSEE COMPANY IN THOSE YEARS AND CONSEQ UENTLY NO PART OF THE INTEREST EXPENDITURE WARRANTS DISALLOWA NCE U/S 36(I)(II) OF THE ACT. ALTHOUGH, WE HAVE DECIDED IN THE APPEAL S OF THE ASSESSEE COMPANY FOR THE ASSESSMENT YEARS 2001-02 T O 2006-07 (SUPRA) IN THE CONTEXT OF DISALLOWANCE EXPENDITURE U/S 14A OF THE ACT AND OBSERVED THAT THE ASSESSEE COMPANY HAD SUFF ICIENT SURPLUS INTEREST FREE FUNDS TO MAKE INVESTMENTS, HOWEVER, W ITHOUT GOING INTO THE CLEAR THAT LOANS/ADVANCES HAVE BEEN MADE O UT OF INTEREST BEARING BORROWED FUNDS THAT THE ALTERNATIVE PLEA FO R CONTESTING DISALLOWANCE U/S 36(L)(III) THAT LOAN WAS GIVEN ON ACCOUNT OF COMMERCIAL, EXPEDIENCY WILL HAVE RELEVANCE. IN VIEW OF THE AFORESAID DISCUSSIONS, THE DISALLOWANCE OF INTEREST EXPENDITURE MADE U/S 36(I)(III) OF THE ACT IS DIRECTED TO BE DE LETED AND THIS GROUND OF THE ASSESSEE IS ALLOWED. 6. IN THE A.Y. UNDER QUESTION I.E. A.Y. 2010-11, THE FACTS REMAIN THE SAME. THE ITONBLE ITAT IN THEIR ORDER FOR A.Y. 200 8-09 HAS RELIED ON THEIR OWN ORDER FOR A.Y. 2001-02 TO 2006-07. THE HO NBLE ITAT HAS GIVEN RELIEF TO THE ASSESSEE ON TWO COUNTS I.E. BY HOLDING THAT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE SUFFICI ENT FOR ADVANCING INTEREST FREE AMOUNTS AND THIS FACT WAS NOT IN DISP UTE, ALSO BY HOLDING THAT THE PLEA THAT THE LOAN WAS GIVEN ON ACCOUNT OF COMMERCIAL EXPEDIENCY WOULD HAVE RELEVANCE, AS HELD IN THE CAS E OF M/S S.A BUILDERS LTD V/S CIT 288 ITR 1 (S.C.). 7. IN VIEW OF THE ABOVE, SINCE THE FACTS ARE SIMILAR TO THOSE IN A.Y. 2008- 09, RESPECTFULLY FOLLOWING THE ORDER OF HONBLE ITA T IN 1TA NO. 274(ASR) 2012, REPRODUCED IN THE SUBMISSION MADE BY THE ASSESSEE AT PARA 1.4 AT PAGE 2 AND 3 OF THIS ORDER. I HEREBY DE LETE THE DISALLOWANCE OF RS.2,54,48,151 MADE BY THE AO U/S 3 6(1)(III). 7. IT IS SEEN THAT THE LD. CIT(A) HAS FOLLOWED THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, WHEREIN, THE TRIBUNAL ORDER FOR THE ASSESSMENT YEARS 2011-02 TO 2006-07, ON SIMILAR FACTS, WAS FOLLOWED, HOLDING THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE SUFFICIENT FOR ADVANCING INTEREST FR EE AMOUNTS TO ITS ITA NO.243(ASR)/2016 A.Y 2010-11 10 SUBSIDIARIES. THIS, EVIDENTLY, IS ENTIRELY IN KEEPI NG WITH THE DECISION OF THE HONBLE SUPREME COURT, IN THE CASE OF M/S. S.A . BUILDERS LTD. VS. CIT, 288 ITR 1 (SC), LOAN HAVING BEEN ADVANCED FOR COMMERCIAL EXPEDIENCY . THE SAID TRIBUNAL ORDER HAS NOT BEEN S HOWN TO HAVE BEEN UPSET ON APPEAL. THEREFORE, NO FAULT CAN BE FOUND WITH THE ACTION OF THE LD. CIT(A) IN FOLLOWING THE SAME UNDER SIMILAR FAC TS AND CIRCUMSTANCES. ACCORDINGLY, LD. CIT(A)S ORDER IS CONFIRMED AND TH E GRIEVANCE OF THE REVENUE IS REJECTED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 /07/ 2016. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER /SKR/ DATED: 12/07/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. MAX INDIA LTD; NAWANSHHAR 2. THE HCIT, CIR.II, JALANDHAR 3. THE CIT(A), JLR 4. THE CIT, JLR 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.