M/s. Kinariwala Automat Mfg. Pvt. Ltd.,, Ahmedabad V. The Income Tax Officer, Ward-4(2), Ahmedabad

ITA 2472/AHD/2009

• Counselvise Citation: [2010] 137 COUNSELVISE.COM (IT) 0228 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 31-12-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 24-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Principle of natural justice; Tax effect; Commercial expediency
• Section: 260A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' (BEFORE S/SHRI T K SHARMA AND D C AGRAWAL) ITA NO.2472/AHD/2009 (ASSESSMENT YEAR:- 2003-04) M/S KINARIWALA AUTOMAT MFG. PVT. LTD., KINARIWALA HOUSE, OPP. K P BOARDING, GULBAI TEKRA, ELLISBRIDGE, AHMEDABAD V/S THE INCOME-TAX OFFICER, WARD-4(2), AHMEDABAD [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI S N SOPARKAR RESPONDENT BY:- SHRI VINOD TANWANI, SR. DR O R D E R PER D C AGRAWAL (ACCOUNTANT MEMBER): THIS IS AN APPEAL BY THE ASSESSEE RAISING THE FOLLOWING GROUNDS:- 1 THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO ON HOLDING THAT INT EREST BEARING FUNDS OF THE APPELLANT HAS BEEN DIVERTED INTO INTER EST FREE FUNDS TO SISTER CONCERNS. 2 THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACTS THAT ADVANCES OR LOANS HAVE BEEN GIVEN TO SISTER CONCERNS OUT OF COMMERCIAL EXPEDIENCY AND FO R THE PURPOSE OF BUSINESS ONLY. 3 THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LD. AO IN DISALLOWING INTEREST @ 12% ON LOAN AND ADVANCES AGAINST 9% CHARGED BY THE APPE LLANT COMPANY TO SISTER CONCERNS. 2 4 BOTH THE AUTHORITIES HAVE FAILED TO APPRECIATE THAT WHAT CAN BE TAXED UNDER THE SCHEME OF THE ACT IS THE REAL INCOM E AND NOT THE NOTIONAL INCOME AS HAS BEEN DONE BY LD. AO. 5 BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN PASSING THE ORDERS WITHOUT PROPERLY APPRECIATING TH E FACT AND THAT HE FURTHER ERRED IN GROSSLY IGNORING VARIOUS SUBMIS SIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPEL LANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IMPUGNED ORDER. THIS ACTION OF BOTH THE AUTHORITIES IS IN CLEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. 6 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ACTION OF THE LD. AO IN LEVYING INTEREST U/S 234B/C/D OF THE ACT. 7 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. 2 THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE MANUFACTURING OF TEX TILE MACHINERY AND ITS SPARE PARTS. THE ONLY ISSUE INVOL VED IN THIS APPEAL IS ADDITION IN RESPECT OF INTEREST DISALLOWE D BY THE AO OUT OF INTEREST PAID ON BORROWED CAPITAL FOR THE REASON THAT THE ASSESSEE HAS NOT CHARGED ANY INTEREST ON AMOUNT ADV ANCED TO SISTER CONCERN VIZ. M/S KINARIWALA RJK INDUSTRIES A ND IT HAS CHARGED INTEREST @ 9% AS AGAINST 15% FROM OTHER TWO SISTER CONCERNS VIZ. M/S UTKARSH FINCAP PVT. LTD. AND M/S KINARIWALA SPINNERS. THE AO ACCORDINGLY MADE AN ADDITION BY DI SALLOWING THE INTEREST @ 15% CORRESPONDING TO THE LOAN ADVANC ED TO FIRST PARTY @ 6% CORRESPONDING TO LOAN ADVANCED TO OTHER TWO PARTIES. 3 3 THE LEARNED CIT(A) CONFIRMED THE DECISION OF THE AO ON THE GROUND THAT THE LOAN APPEARING IN THE ACCOUN T OF SISTER CONCERN DID NOT PURELY REFLECTIVE TO COMMERCIAL EXP EDIENCY. THE ASSESSEE HAS NOT ESTABLISHED THAT THE FUNDS ADVANCE D TO SISTER CONCERN HAVE DIRECTLY COME FROM INTEREST FREE CAPIT AL SUCH AS SHARE CAPITAL, RESERVES AND SURPLUS. HE REJECTED TH E ARGUMENT OF THE ASSESSEE THAT NO TRANSACTION WAS MADE DURING TH E ACCOUNTING YEAR IN QUESTION. 4 AGAINST THIS, THE LEARNED AR SUBMITTED THAT THE BALANCES OUTSTANDING AGAINST THE FIRST PARTY ARE OL D BALANCES, NO NEW MONEY HAS BEEN ADVANCED THIS YEAR TO THEM. THER E IS NO TRADE RELATIONSHIP WITH THAT PARTY. THEREFORE THE B ALANCES ARE TRADE BALANCES OUTSTANDING FROM EARLIER YEARS. IN E ARLIER YEARS ALSO THERE WERE DEBIT BALANCES AGAINST THIS PARTY A ND THE DEPARTMENT HAS NOT DISALLOWED ANY INTEREST OUT OF I NTEREST PAID ON BORROWED CAPITAL ON THIS GROUND. THEREFORE, FOLL OWING THE PRINCIPLES OF CONSISTENCY AS FACTS REMAIN THE SAME, NO DIFFERENT DECISION SHOULD BE TAKEN THIS YEAR. 5 THE LEARNED AR FURTHER SUBMITTED THAT IN RESPECT OF OTHER TWO PARTIES, TOTAL ADVANCES OUTSTANDING AT TH E BEGINNING OF THE YEAR ARE ROUGHLY RS.82 LACS WHEREAS INTEREST FR EE CAPITAL OF THE ASSESSEE IS ABOVE RS.1 CRORE. FURTHER, THEY ARE ALL BROUGHT FORWARD BALANCES AND THE DEPARTMENT HAS NOT DISALLO WED ANY INTEREST IN EARLIER YEARS. THEREFORE, FOLLOWING THE PRINCIPLES OF CONSISTENCY, NO DISALLOWANCE SHOULD BE MADE THIS YE AR ALSO. 4 6 FURTHER, AFTER THE DECISION OF THE HON'BLE SUPRE ME COURT IN THE CASE OF S A BUILDERS VS. CIT (2007) 28 8 ITR 1 (SC), AND THE DECISION OF THE MUMBAI HIGH COURT IN THE CA SE OF CIT VS. RELIANCE UTILITIES AND POWER LIMITED (2009) 313 ITR 340 (MUM), THE ONUS IS ON THE REVENUE TO SHOW THAT INSPITE OF ASSESSEE HAVING INTEREST FREE CAPITAL MORE THAN THE AMOUNT A DVANCED TO SISTER CONCERN, MONEY HAS GONE OUT OF INTEREST BEAR ING BORROWED CAPITAL. HE FURTHER REFERRED TO THE DECISION OF THE ITAT, AHMEDABAD BENCH-B IN THE CASE OF DCIT VS. CORE HEAL TH CARE LTD. [ITA NO.85 AND 86/AHD/2007 FOR AYS 1996-97 AND 1997-98, DECIDED ON 16-10-2009] FOR THE PROPOSITION THAT ONC E THE ASSESSEE HAS SURPLUS RESERVES AND CAPITAL AND INTEREST FREE FUNDS, THEN THE ONUS SHIFTS ON THE REVENUE. AGAINST THIS, THE LEARN ED DR RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW, THE ASSESSEE DESERVES TO SUCCEED. THE POSITION OF ADVANCES TO TH REE PARTIES IS AS UNDER: (I) M/S KINARIWALA RJK INDUSTRIES RS.37,23,804/- (II) UTKARSH FINSCAP PVT. LTD. RS.21,45,711/- (III) KINARIWALA SPINNERS LTD. RS.61,92,329/- IT IS UNDISPUTED FACT THAT THE ASSESSEE HAS TRADING TRANSACTIONS WITH M/S KINARIWALA RJK INDUSTRIES AND BALANCES OUT STANDING ARE TRADE BALANCES. IT IS NOT SHOWN BY THE REVENUE THAT THERE IS AN AGREEMENT WITH THIS PARTY THAT THE ASSESSEE WILL CH ARGE INTEREST ON 5 OUTSTANDING DEBIT BALANCES. WHAT IS SOUGHT TO BE DI SALLOWED IS INTEREST PAID BY THE ASSESSEE ON BORROWED FUNDS AS ACCORDING TO THE REVENUE INTEREST BEARING FUNDS ARE LOGGED / TRA NSFERRED TO SISTER CONCERN FREE OF INTEREST. HOWEVER, ONCE BUSI NESS PURPOSE IS ESTABLISHED AS IN THE PRESENT CASE, THEN THE QUESTI ON OF DISALLOWING ANY INTEREST DOES NOT ARISE IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S A BUILDE RS (SUPRA). 8 IN RESPECT OF OTHER TWO PARTIES EVEN THOUGH IT I S NOT PROVED BY THE ASSESSEE THAT THERE WAS BUSINESS CONN ECTION OR THAT THEY ARE TRADE BALANCES BUT IT IS UNDISPUTED THAT T HE ASSESSEE HAS OUTSTANDING AND ASSESSEE HAS INTEREST FREE CAPITAL MORE THAN OUTSTANDING BALANCES AGAINST THE ABOVE TWO PARTIES. SO FAR AS THE ONUS TO ESTABLISH THE NEXUS BETWEEN INTEREST FREE A DVANCES GIVEN TO SISTER CONCERN AND INTEREST BEARING BORROWED FUN DS IS CONCERNED, IT IS NOW ON THE REVENUE ONCE IT IS SHOW N BY THE ASSESSEE THAT IT HAS SUFFICIENT INTEREST FREE CAPIT AL. THE LEARNED DR HAS SOUGHT TO ARGUE THAT INTEREST FREE CAPITAL I S LOCKED IN OTHER ASSETS AND THEREFORE IT WAS NOT AVAILABLE FOR GIVING AT LOWER RATES OF INTEREST TO THESE TWO SISTER CONCERNS. HOW EVER, IT IS NOT ESTABLISHED WHEN THE ASSESSEE HAD ADVANCED AT LOW I NTEREST TO SISTER CONCERNS OUT OF HIGHER INTEREST BEARING BORR OWED CAPITAL, THAT ASSESSEE DID NOT HAVE SUFFICIENT BALANCE IN TH E BANK AND FOR THAT PURPOSE IT HAS UTILIZED HIGHER INTEREST BEARIN G BORROWED MONEY. WE FOR THE SAKE OF CONVENIENCE REFER TO THE DECISION OF THE TRIBUNAL IN THE CASE OF CORE HEALTH CARE (SUPRA ) WHEREIN PARA-7 TO 12 THEREOF READ AS UNDER: 6 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSING THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW, THE CA SE IS PRIMARILY COVERED BY THE DECISION OF HON'BLE DELHI HIGH COURT IN MANGLAM RICINUS CASE (SUPRA). THE TOTAL INCOME DECLARED AN D ASSESSED FOR THE ASSESSEE FOR THE ASSESSMENT YEAR 1996-97 IS. R.I. (-) RS. 81,30,22,320/- A.I. (-) RS. 37,42,343/- AND FOR ASSESSMENT YEAR 1997-98 IT IS, R.I. (-) RS.124,74,11,325/- A.I. (-) RS. 53,35,24,749/- THEREFORE, APPEAL IS NOT MAINTAINABLE. HON'BLE DEL HI HIGH COURT IN MANGLAM RICINUS LIMITEDS CASE HELD AS UNDER: 4. ON THE BASIS, THE TRIBUNAL CAME TO THE CONCLUSI ON THAT EVEN IF THE ORDER OF THE ASSESSING OFFICER IS UPHELD, THE INCOM E OF THE ASSESSEE WOULD BE NEGATIVE AND, THEREFORE, THE TAX EFFECT WO ULD BE CERTAINLY LESS THAN RS. 1 LAKH. ON THIS BASIS, THE TRIBUNAL DECLI NED TO ENTERTAIN THE APPEAL. THAT IS HOW THE REVENUE IS BEFORE US UNDER SECTION 260A OF THE INCOME-TAX ACT, 1961. 5. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNA L THAT EVEN IF THE ORDER OF THE ASSESSING OFFICER IS UPHELD THE TAX RE COVERY SO FAR AS THE REVENUE IS CONCERNED WOULD BE NIL. IN THE EVENT TH E QUESTION HAS ANY IMPACT ON SUBSEQUENT YEARS, WE LEAVE IT OPEN TO THE REVENUE TO RAISE IT IN THE SUCCEEDING YEARS, IF NEED ARISES. 6. LEARNED COUNSEL FOR THE REVENUE SUBMITS THAT THE TAX EFFECT IS NOT REQUIRED TO BE SEEN BUT THE TAX EFFECT ON THE ISSUE INVOLVED IS TO BE SEEN. THIS PRECISELY WHAT THE TRIBUNAL HAS DONE. WE DO NOT FIND ANY ERROR IN THE VIEW TAKEN BY THE TRIBUNAL. THIS JUDGMENT WAS FOLLOWED BY ITAT, AHMEDABAD BENCH IN DCIT VS. SANBHAV MEDIA LIMITED ITA NO. 2733/A/2006, ASSE SSMENT YEAR 2003-04 PRONOUNCED ON 24-04-2009, WHEREIN, IT IS HE LD THAT IF RETURNED 7 INCOME AND ASSESSED INCOME BOTH ARE NEGATIVE, THEN APPEAL FILED BY THE DEPARTMENT IN LIMINE IS NOT MAINTAINABLE. RESP ECTFULLY FOLLOWING THESE DECISIONS, WE HOLD THAT APPEAL FILED BY THE R EVENUE IN BOTH THE YEARS IS NOT MAINTAINABLE. 8. NOTWITHSTANDING, AT THE INSTANCE OF THE DEPARTME NT THAT THE ISSUE IS OF LEGAL NATURE SHOULD BE CONSIDERED ON MERIT AL SO, WE FIND THAT THE FACTS OF THE CASE ARE SIMILAR TO THE FACTS IN THE C ASE OF YASHVANT S. TEJANI, WHEREIN TRIBUNAL RENDERED TO SEVERAL DECISI ONS AND FINALLY CONCLUDED THAT THE BURDEN CAST ON THE ASSESSEE SHOU LD BE TREATED AS DISCHARGED IF IT IS SHOWN BY THE ASSESSEE THAT IT H AS SUFFICIENT INTEREST FREE CAPITAL OUT OF WHICH IT COULD GIVE INTEREST FR EE ADVANCES. IT IS THEREAFTER, FOR THE REVENUE TO SHOW THAT IN SPITE O F THE ASSESSEE HAVING INTEREST FREE CAPITAL, INTEREST FREE ADVANCES ARE G IVEN OUT OF INTEREST BEARING FUNDS. EVEN, THEREAFTER REVENUE HAS TO MEE T THE ARGUMENT THAT INTEREST FREE ADVANCES WERE GIVEN FOR BUSINESS PURPOSES FOLLOWING THE DECISION OF HON'BLE SUPREME COURT IN SA BUILDER S V/S CIT(A) (2007) 288 ITR 01. ACCORDING TO HON'BLE SUPREME CO URT, IF INTEREST FREE ADVANCES ARE GIVEN FOR BUSINESS PURPOSES, THEN NO DISALLOWANCE OF INTEREST IS REQUIRED TO BE MADE IRRESPECTIVE OF WHE THER THEY ARE GIVEN OUT OF INTEREST FREE CAPITAL OR INTEREST BEARING FU NDS. IN THE PRESENT CASE, REVENUE HAS NOT DISPROVED THE CLAIM OF THE AS SESSEE, ARISING FROM THE DETAILS OF THE INTEREST FREE ADVANCES GIVE N AND REFERRED TO ABOVE IN THE CHART THAT SUCH INTEREST FREE ADVANCES ARE GIVEN FOR BUSINESS PURPOSES. 9. NOTWITHSTANDING, THE REVENUE RELIED ON THE DECIS ION OF HON'BLE PUNJAB AND HARYANA HIGH COURT IN ABHISHEK INDUSTRIE S (SUPRA). THIS DECISION WAS FOLLOWED BY HON'BLE PUNJAB HIGH COURT IN MUNJAL SALES CORPORATION VS. CIT (2008) 298 ITR 288 (P&H) WHICH WAS SUBSEQUENTLY REVERSED BY HON'BLE SUPREME COURT IN M UNJAL SALES CORPORATION V/S. CIT (2008) 298 ITR 298 (SC). THE REFORE, THE DECISION OF HON'BLE PUNJAB AND HARYANA HIGH COURT I N ABHISHEK INDUSTRIES (SUPRA) IS NO LONGER A GOOD LAW. 10. FOR THE SAKE OF CONVENIENCE, WE REPRODUCE PARA 13 TO 16 FROM OUR DECISION IN YASHWANT S. TEJANIS CASE AS UNDER: 13. HE ALSO RELIED ON THE FOLLOWING JUDGMENTS. 8 I. SHREE DIGVIJAY CEMENT CO. LTD V/S CIT 138 ITR 4 5 (GUJ) II. CIT V/S GOPIKRISHNA MURALIDHAR, 47 ITR 469 (AP ), III. CIT V/S HOTEL SAVERA 239 JTR 795 (MAD) IV. GNFC V/S CIT 73 TTJ 787 (AHD), V. SHHIBAUG ENTERPRISES V/S CIT 49 TTJ 554 (AHD) AND VI. TORRENT FINANCIERS V/S CII 73 TTJ 624 (AHD) VII. CIT V/S ALOK PAPER INDUSTRIES 138 JTR 729 VIII. R. V. JOSHI V/S CIT 251 ITR 332 M.P.) 14. WE HAVE HEARD LD. A.R. AND LD. D.R. THE LD. D.R . SUBMITTED THAT ASSESSEE FAILED TO ESTABLISH NEXUS BETWEEN INT EREST FREE FUNDS AND INTEREST FREE ADVANCES GIVEN TO RELATED PERSONS. ON THE OTHER HAND LD. A.R. SUBMITTED THAT NO SUCH DISALLOWANCES WERE MADE IN RESPECT OF ADVANCES TO FIRST 2 PERSONS VIZ. SHRI CHANDUBHAI PA TEL AND KOKILABEN TEJANI TO WHOM ADVANCE IN EARLIER YEAR WERE ALSO GI VEN. SECONDLY, SHRI. MANISH TEJANI IS EMPLOYEE OF THE COMPANY AND ADVANCE IS GIVEN TO STAFF. THIRDLY, ASSESSEE HAS SUFFICIENT INTEREST . FREE FUNDS AS STATED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS). FOLLOWING ADDITIONAL DECISIONS SUPPORT THE CASE OF THE ASSESS EE. TORRENT FINANCIERS V. ACIT (2001) 73 TTJ624 (AHD) CIT. PREM HEA VY ENGG. WORKS (P.) LTD. (2006) 285 I TR 554 CIT. BRITAPINIA INDUSTRIESLTD. (2006) 280 JTR 525 ( CAL) CIT V. RADICO KHAITAN LTD. (2005) 274 ITR 354 (ALL) CIT V. TIN BOX CO. (2003) 260 ITR 637 (DEL) MUNJAL SALES CORPORATION 298 ITR 298 (SC) 15. FINALLY LD. A.R. REFERRED TO THE DECISIONS OF H ONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE SECURITIES AND POWER LIMI TED (2009) 313 ITR 340 BOMBAY FOR THE PROPOSITION THAT PRESUMPTION IS THAT INTEREST FREE ADVANCES WERE GIVEN OUT F INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. 9 16. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION . IT IS BECAUSE INTEREST FREE ADVANCES TO KOKILABEN TEJANI & MAHESH S. TEJANI WERE OLD BALANCES AND NO DISALLOWANCE IN THE PAST HAS BE EN MADE. SECONDLY, SHRI. MANISH TEJANI IS AN EMPLOYEE AND IN TEREST FREE ADVANCES ARE GIVEN TO HIM FOR COMMERCIAL EXPEDIENCY . THIRDLY, LOAN TAKEN FROM BANK ARE APPARENTLY USED FOR PURCHASING PLANT AND MACHINERY AS EXPLAINED BY LD. A.R. NOTWITHSTANDING ASSESSEE HAS INTEREST FREE FUNDS AND ASSESSING OFFICER IS EXPECT ED TO SHOW THAT EXPLANATION FURNISHED BY THE ASSESSEE THAT IT IS ON LY OUT OF INTEREST FREE FUNDS FROM WHICH INTEREST FREE ADVANCES ARE GIVEN I S NOT CORRECT BY POINTING OUT THAT WHEN MONEY WAS GIVEN TO THE FRIEN DLY PERSONS, THE ASSESSEE HAD BUILT UP CASH BALANCES BY BORROWING IN TEREST BEARING LOANS FROM THE BANK OR FROM OTHER PERSONS AND HAD H E NOT BORROWED FUNDS ON INTEREST, HE COULD NOT HAVE GIVEN SUCH ADV ANCES TO FRIENDLY PERSONS WITHOUT INTEREST, AS HE WOULD NOT HAVE ADEQ UATE CASH BALANCE AT THE POINT OF TIME WHEN HE MADE INTEREST FREE ADV ANCES. THE ONUS IS NEVER FIXED, IT GOES ON SHIFTING FROM ASSESSING OFF ICER TO ASSESSEE AND FROM ASSESSEE TO ASSESSING OFFICER, DEPENDING UPON EVIDENCE AND EXPLANATION FURNISHED BY THE PARTIES. IF, THE ASSES SEE HAS FURNISHED AN EXPLANATION THAT IT HAS SUFFICIENT INTEREST FREE AD VANCES, THEN ASSESSEE HAS PRIMA-FACIE DISCHARGED THE ONUS AND IT IS NOW T HE DUTY OF THE ASSESSING OFFICER TO SHOW THAT ASSESSEE DID NOT HAV E SUFFICIENT INTEREST FREE FUND, AVAILABLE AT THE POINT OF TIME WHEN HE H AD GIVEN INTEREST FREE ADVANCES. HE CAN DO SO BY CALLING DIRECTLY OR FROM ASSESSEE. COPIES OF BANK ACCOUNT SHOWING RECEIPT & TRANSFER OF THE FUND S IN QUESTION. MERELY, REJECTING THE EXPLANATION OF THE ASSESSEE I S NOT SUFFICIENT. THE VIEW OF HONBLE BOMBAY HIGH COURT IN RELIANCE UTILI TIES AND POWER LIMITED GIVES CLEAR INDICATION THAT IF ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS, THEN IT SHALL BE PRESUMED THAT INTEREST FREE ADVANCES WAS GIVEN OUT OF INTEREST FREE FUNDS. SUCH PRESUMPTION IS REBUTTABLE AND THE, ASSESSING OFFICER IS EXPECTED TO GIVE HIS FIND ING ON THE AVAILABILITY OF CASH AT THE POINT OF TIME WHEN SUCH INTEREST FRE E ADVANCES ARE GIVEN. F HE CHOOSES NOT TO DO SO THEN HE LOSES THE RIGHT T O MAKE ADDITION. THIS IS EXACTLY WHAT HAS HAPPENED IN THIS CASE. THEREFOR E, ADDITION MADE BY THE ASSESSING OFFICER CANNOT BE JUSTIFIED. AS A RES ULT THIS GROUND OF REVENUE IS REJECTED. 17. FINALLY, APPEAL FILED BY THE REVENUE IS DISMISS ED. 10 12. RESPECTFULLY FOLLOWING ABOVE DECISIONS, WE HOLD THAT EVEN ON MERIT, REVENUE HAS NO CASE. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE DECID E IN FAVOUR OF THE ASSESSEE AS THE REVENUE HAS FAILED TO PROVE THE NEXUS. 9 AS A RESULT, THE APPEAL BY THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 08-01-2 010 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (D C AGRAWAL) ACCOUNTANT MEMBER DATE : 08-01-2010 COPY OF THE ORDER FORWARDED TO : 1. M/S KINARIWALA AUTOMAT MFG. PVT. LTD., KINARIWAL A HOUSE, OPP. K P BOARDING, GULBAI TEKRA, ELLISBRIDGE , AHMEDABAD 2. THE ITO, WARD-4(2), AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VIII, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABA