ACIT CENT. CIR. 3(2), CENT. RANGE - 3, MUMBAI V. EUROTECH CYLINDERS PVT. LTD., NAVI MUMBAI

ITA 2866/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9022 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 20-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Assessee Lawyers: P DANIEL
• Keywords: Depreciation; Bad and doubtful debts; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI RAM LAL NEGI , JM ITA NO. 2866 /MUM/ 2017 (ASSESSMENT YEAR: 2012 - 13 ) DY. CIT - CC 3(2) CENTRAL RANGE - 3, ROOM NO. 1913, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400 021 VS. M/S. EUROTECH CYLINDERS PVT. LTD. EL - 29, TTC INDUSTRIAL AREA, MAHAPE, MUMBAI - 400 701 PAN/GIR NO. AABCE 4390 B ( APPELLANT ) : ( RESPONDENT ) & CO NO. 269/MUM/2018 (ARISING OUT OF ITA NO. 2866 /MUM/ 2017) (ASSESSMENT YEAR: 2012 - 13 ) M/S. EUROTECH CYLINDERS PVT. LTD. EL - 29, TTC INDUSTRIAL AREA, MAHAPE, MUMBAI - 400 701 VS. DY. CIT - CC 3(2) CENTRAL RANGE - 3, ROOM NO. 1913, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400 021 ( CROSS OBJECTOR ) : ( RESPONDENT ) REVENUE BY : SHRI D. G. PANSARI ASSESSEE BY : SHRI P. DANIEL DATE OF HEARING : 09.10.2018 DATE OF PRONOUNCEMENT : 11.12 .2018 O R D E R PER SHAMIM YAHYA, A. M.: THIS IS AN APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARISING OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 51 , MUMBAI (LD.CIT(A) FOR SHORT) DATED 30.01.2017 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y.) 2012 - 13. REVENUES APPEAL : 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 36(1)(III) OF THE I. T. ACT OF RS.1,30,02,160/ - WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS DIVERTED INTEREST BEARING BORROWED FUNDS TO ADVANCE INTEREST FREE LOANS/ADVANCES TO SISTER CONCERNS AND, 2 ITA NO.2866/MUM/2017 & CO NO. 269/MUM/2018 THEREFORE, THE SAID EXPENDITURE WAS RIGHTLY DISALLOWED BY THE ASSESSING OFFICER U/S. 36(1)(III) OF THE I.T. INCOME TAX ACT, 1961, 1961. 2. ON THE FACTS AND IN T HE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 36(1)(III) OF THE I. T. ACT OF RS.1,30,02,160/ - WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS DIVERTED INTEREST BEARING BORR OWED FUNDS TO ADVANCE INTEREST FREE LOANS/ADVANCE FAILED TO PROVE THE COMMERCIAL EXPEDIENCY IN ADVANCING INTEREST FREE LOANS AND ADVANCES TO SISTER CONCERN. 3. BRIEF FACTS OF THE CASE ARE AS THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING O F HIGH PRESSURE SEAMLESS/COMPRESSED NATURAL GAS CYLINDERS (CNG) AND VALVES. THE RETURN DECLARING AN INCOM E OF RS . 2,73,95,546/ - WAS FILED ON 03/09/2012. THE CASE WAS PICKED UP FOR SCRUTINY AND NOTICE U/S. 143(2) DATED 22.08.2013 WAS ISSUED AND SERVED UPON T HE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O.) NOTICED THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOANS OF RS.11.76 CRS. T O SISTER CONCERNS ETC. WHILE THE ASSESSEE WAS PAYING INTEREST ON LOANS TAKEN BY IT FROM THE FINANCIAL INSTITUTIONS. IN FACT THE ASSESSEE HAD PAID INTEREST OF RS. 1,30,02,160/ - TO THE IDBI BANK AT THE INTEREST RATE OF 13.25% DURING THE YEAR. THE AO ACCORDINGLY HELD THAT THE ASSESSEE HAD DIVERTED INTEREST BEARING FUNDS AS INTEREST FEE ADVANCES T O SISTER CONCERNS AND THEREFORE RELYING UPON THE RATIO OF THE HON'BLE MADRAS HIGH COURT JUDGMENT IN THE CASE OF CIT VS. M.S. VENKATESWARAN 222 ITR 163, HE DISALLOWED ENTIRE INTEREST CLAIMED OF RS . 1,30,02,160/ - U/S. 36(L)(III) OF THE AC T. BESIDES, THE A.O. ALSO DISALLOWED BAD DEBTS AMOUNTING TO RS.4,53,883/ - IN RESPECT OF M/S. BEIJING TANHAI INDUSTRY CO. LTD. 4. UPON THE ASSESSEES APPEAL, THE LD. CIT(A) NOTED THE FOLLOWING SUBMISSIONS OF THE ASSESSEE: WE ARE EXPLORING VARIOUS BUSINESS OPPORTUNITIES. IN THIS PROCESS , WE HAVE RECEIVED VARIOUS BUSINESS PROPOSALS FOR JOINT VENTURE ACTIVITIES. AT THE SAME TIME, WE ARE INTENDING TO PARTICIPATE IN FEW PROPOSED JOINT VENTUR'ES WITH OTHER ENTITIES. SUCH PROPOSED JOINT VENTURES REQUIRED MOVE MENT OF FUNDS , IN THE NATURE OF CURRENT ACCOUNT AND DOES NOT ENVISAGE ANY INTEREST. 3 ITA NO.2866/MUM/2017 & CO NO. 269/MUM/2018 WE HAVE A GROUP OF PEOPLE WHO ARE INTERESTED IN JOINT VENTURE ACTIVITY AND THE OTHER SIDE, THERE ARE PARTIES WHO ARE READY TO CARRY OUT IMPLEMENTATION OF PROPOSED JOINT VENTURE ACTIVITIES AND IN ORDER TO FACILITATE SUCH PROPOSED JOINT VENTURE ACTIVITIES, THE MOVEMENT OF FUNDS HAVE BEEN CARRIED OUT. THE QUESTION OF INTEREST ARISES BETWEEN THE PARTIES ONLY WHEN THERE ARE LOANS AND TERMS STIPULATE SO. THERE IS NO SUCH CASE IN THESE TRANSACTION. FURTHER, THE SURPLUS FROM PROFIT AND LOSS A/C WITH US ARE MORE THAN THE FUNDS ADVANCED FOR PROPOSED JOINT VENTURE ACTIVITIES. WE WOULD LIKE TO DRAW YOUR ATTENTION TO OUR NET - WORTH FOR A.Y.2012 - 13 WHICH IS AS MENTIONED BELOW: SR. NO PARTICULARS AMOUNT 1. PAID - UP CAPITAL 1,00,000/ - 2. FREE RESERVES 24,19,09,799/ - 3. SURPLUS FROM PROFIT AND LOSS A/C 1,69,73,634/ - TOTAL 25,8 9, 8 3,433/ - THE INTEREST FREE LOANS AND ADVANCES AS MENTIONED BY LEARNED ASSESSING OFFICER IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 IS RS.11, 76,00, 000 / - . FROM THE AUDITED FINANCIAL STATEMENTS, WHICH ARE ACCEPTED BY THE LEARNED ASSESSING OF FICER, THERE IS THE INTEREST FREE INFLOW OF FUNDS OF RS. 20,25,90,844/ - (31.03.2012 RS. 26,05,90,844 RS. 11,76,00,000/ - ) AS MENTIONED IN SCHEDULE 7 LOANS AND ADVANCES (COPY OF THE SAID SCHEDULE IS ENCLOSED HEREWITH), WE HAVE TAKEN INTEREST FREE LOANS FROM T HE HOLDING COMPANY WHICH AMOUNTS TO RS. 26, 05,90,844/ - . THE LEARNED ASSESSING OFFICER DID NOT APPRECIATE THAT SUM OF RS.1 1,76,00,000/ - BEING INTEREST FREE ADVANCES GIVEN (AS PER PARA 4 OF THE ASSESSMENT ORDER) JK & S - DIRECT NEXUS WITH THE INTEREST FREE ADVAN CE OF RS. 26,05,90,844 RECEIVED BY THE APPELLANT. THIS DOES NOT TRIGGER ANY DISALLOWANCE OF INTEREST U/S 36(L)(III). FURTHER, WHEN THE NET OWNED FUNDS AND BORROWED FUNDS BOTH ARE IN EXISTENCE, THEN IT IS TO BE PRESUMED THAT THE INVESTMENT/LOANS AND ADVANCE ARE SOURCEDFROM NET OWNED FUNDS. HENCE, WHEN THE ENTIRE INVESTMENT/LOANS AND ADVANCES AMOUNT ARE SOURCED FROM OWN FUNDS/NET WORTH, INTEREST EXPENSES CANNOT BE DISALLOWED FOR WHICH WE RELY ON THE FOLLOWING MENTIONED JUDGEMENT: A) THE SUPREME COURT DECISION IN CASE OF: MUNJAL SALES CORPORATION VS CJT (2008) 298 ITR 298 (SC), DATED: 19.02.2008 B) THE CALCUTTA HIGH COURT DECISION IN CASE OF: WOOLCOMBERS OF INDIA LIMITED VERSUS CIT (CENTRAL), CALCUTTA J1982] 134ITR219, 23 CTR 204, (DATED: 12.02.1981) C) THE MADRAS HIGH COURT DECISION IN CASE OF: COMMISSIONER OF INCOME - TAX VERSUS MS VENKATESWARAN [1996] 222 ITR 163, 141 CTR 510 (DATED: 19.01.1996) IN THE ABOVE MENTIONED JUDGMENT, THE LOAN AND ADVANCES GRANTED BY THE ASSESSE IS M UCH HIGHER THAN THE NET OWNED FUNDS, DUE TO WHICH THE HONOURABLE 4 ITA NO.2866/MUM/2017 & CO NO. 269/MUM/2018 HIGH COURT HAS GIVEN DECISION IN FAVOUR O F R E V E N U E A N D AGAINST THE ASSESSE. HENCE, THIS DECISION CANNOT BE APPLIED IN OUR CASE AS THE NET OWNED FUNDS IN OUR CASE IS MUCH HIGHER THAN THE INTEREST FREE LOANS AND ADVANCES GIVEN. HENCE, WHEN THE NET OWNED FUNDS AND BORROWED FUNDS BOTH ARE IN EXISTENCE, THEN IT IS TO BE PRESUMED THAT THE INVESTMENT/LOANS AND ADVANCE ARE GIVEN FROM NET OWNED FUNDS. APPLYING THE ABOVE FACTS IN OUR CASE, WE WOULD LIKE TO HUMBLY SUBM IT THAT THE TOTAL LOAN AND ADVANCES OF RS. 1,76,00, 000 / - IS SOURCED FROM THE NET OWNED FUNDS OF25,89,83,433/ - . THUS, INTEREST EXPENSES OF 1,30,02,160/ - KINDLY BE ALLOWED U/S 36(L)(III) OF THE INCOME TAX ACT, 1961'. 5. CONSIDERING THE ABOVE, THE LD. CIT(A ) DELETED THE ADDITION BY INTER ALIA PLACING RELIANCE UPON THE FOLLOWING CASE LAWS: 1. HON'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF M/S. RELIANCE POWER AND UTILITIES LTD. VS. CIT 313 ITR 340 2. HONBLE SUPREME COURT DECISION IN THE CASE OF MUNJAL SALES CORPN. VS. CIT 298 ITR 298 3. HONBLE CALCUTTA HIGH COURT DECISION IN THE CASE OF WOOLCOMBERS OF INDIA LTD. VS. CIT 134 ITR 219 6. WE MAY GAINFULLY REFER TO THE LD. CIT(A) ORDER AS UNDER: 6. I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMISSIONS AND CONTENTIONS OF THE ASSESSEE AS ALSO THE ORDER OF THE AO. FROM THE FACTS OF THE CASE, IT APPEARS THAT ASSESSEE HAD INTEREST FREE FUNDS TO THE TUNE OF RS.1,00,000/ - + RS. 24,19,09,799/ - IN THE FORM OF PAID UP CAPITAL AND FREE RESERVES. BESID ES, THE ASSESSEE CLAIMS THAT IT HAD EARNED PROFITS OF RS.1,69,73,634/ - DURING THE YEAR. THE ASSESSEE HAS ALSO ARGUED THAT IT HAD RECEIVED INTEREST FREE FUNDS OF RS.26,05,90,844/ - FROM VARIOUS CONCERNS AS PER SCHEDULE 7 TO THE BALANCE SHEET. THUS, INTEREST FREE FUNDS AVAILABLE WERE CLAIMED TO BE MUCH MORE THAN THE INTEREST FREE ADVANCES OF RS.11.76 CRS. GIVEN BY THE ASSESSEE TO THE ABOVE MENTIONED CONCERNS. DURING THE COURSE OF APPE LLATE PROCEEDINGS, I ASKED THE L D. AR TO SUBMIT A FUND FLOW STATEMENT AND EST ABLISH SOME CONNECTION BETWEEN RECEIPT OF INTEREST FREE FUNDS AND GIVING INTEREST FREE ADVANCES. THE L D.AR IN THIS REGARD FILED THE FOLLOWING CHART FOR CLARITY: - S.N O. PARTICULARS DATE RECEIPT AMT. REED. S . NO . PARTICULARS DATE PAYMENT AMT. PAID 1 P. DALAI & CO. 11/04/2011 1600000 1 KALASH TEX TRADING P. LTD. 15/04/2011 4800000 2 KALASH TEX TRADING P. LTD. 23/03/2011 10000000 3 NIT IN FIRE PROTECTION INDS, LTD. 23/08/2011 3000000 5 ITA NO.2866/MUM/2017 & CO NO. 269/MUM/2018 4 NIT IN FIRE PROTECTION INDS. LTD. 23/08/2011 7000000 5 NITIN FIRE PROTECTION INDS. LTD. 24/08/2011 3900000 6 NITIN FIRE PROTECTION INDS. L TD. 06/09/2011 1000000 2 STUPENDOR TRADERS P. LTD. 28/09/2011 10000000 3 KALASH TEX TRADING P. LTD. 31/08/2011 5000000 4 MANISH INVESTORS 19/09/2011 5000000 D MANISH INVESTORS 22/09/2011 7000000 7 NITIN FIRE PROTECTION INDS. LTD. 07/10/2011 20000000 8 NITIN FIRE PROTECTION INDS. LTD. 18/11/2011 40000000 6 KALASH TEX TRADING P. LTD. 21/11/2011 40000000 9 NITIN FIRE PROTECTION INDS. LTD. 21/12/2011 10000000 7 KALASH TEX TRADING P. LTD. 31/12/2011 3800000 8 STUPENDOR TRADERS P. LTD. 15 / 11/2011 20000000 1 7. FROM THE ABOVE CHART, IT IS CLEAR THAT THE ASSESSEE HAD RECEIVED A SUM OF RS.9.97 CR. FROM DIFFERENT CONCERNS FREE OF INTEREST AND HAD GIVEN INTEREST FREE ADVANCES TO VARI OUS CONCERNS TO THE TUNE OF RS. 9.24 CRS. OUT OF SUCH FUNDS AVAILABLE. THEREFORE, THE CLAIM OF THE ASSESSEE TO THAT EXTENT APPEARS TO BE GENUINE AND WITHOUT ANY QUESTIONS. IN RESPECT OF BALANCE AMOUNT GIVEN AS INTEREST FREE LOANS ALSO IT CAN BE SAID THAT AS THE ASSESSEE HAD EARNED SIGNIFICANT PROFITS DUR ING THE YEAR AND HAD ALSO OTHER INTEREST FREE FUNDS AVAILABLE WITH IT , THEREFORE, IT CAN BE SAID THAT NO INTEREST BEARING FUNDS WERE DIVERTED FOR GIVING INTEREST FREE ADVANCES. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE POWER AND UTILIT IES LTD. 313 ITR 340 DATED 09/01/2009 HAS EXAMINED THIS ISSUE IN GREAT DETAIL AND HELD THAT WHEN INTEREST FREE FUNDS IN NATURE OF GENERAL RESERVES AND PAID UP CAPITAL WERE MORE THAN THE INTEREST FREE LOANS AND ADVANCES, THEN IT MAY BE ASSUMED THAT SUCH ADV ANCES WERE GOING OUT OF INTEREST FREE FUNDS. FOR CLARITY, THE RELEVANT PORTION OF THE JUDGEMENT OF THE HON'BLE COURT IS REPRODUCED AS UNDER: - '8. WE HAVE HEARD LEARNED COUNSEL FOR BOTH THE PARTIES. IN OUR OPINION THE VERY BASIS ON WHICH THE REVENUE HAD SOU GHT TO CONTEND OR ARGUE THEIR CASE THAT THE SHAREHOLDER S FUNDS TO THE TUNE OF OVER RS. 172 OWES WAS UTILISED FOR THE PURPOSE OF FIXED ASSETS IN TERMS OF THE BALANCE SHEET AS ON 31ST MARCH, 1999, IS FALLACIOUS. FIRSTLY, WE ARE NOT CONCERNED WITH THE BALANCE SHEET AS OF 31ST MARCH, 1999. WHAT WOULD BE RELEVANT WOULD BE BALANCE SHEET AS ON 31ST MARCH, 2000. APART FROM THAT , THE LEARNED COUNSEL HAS BEEN UNABLE TO POINT OUT TO US FROM THE BALANCE SHEET THAT THE BALANCE SHEET AS ON 31ST MARCH, 1999 SHOWED THAT THE SHAREHOLDERS FUNDS WERE UTILISED FOR THE PURPOSE OF FIXED ASSETS. TO OUR MIND THE PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET WOULD NOT SHOW WHETHER SHAREHOLDERS FUNDS HAVE, BEEN UTILISED FOR INVESTMENTS. THE ARGUMENT HAS TO BE REJECTED ON THIS COUNT AL SO. 6 ITA NO.2866/MUM/2017 & CO NO. 269/MUM/2018 9. APART FROM THAT WE HAVE NOTED EARLIER THAT BOTH IN THE ORDER OF THE C.I.T. (APPEALS) US ALSO THE APPELLATE TRIBUNAL, A CLEAR FINDING IS RECORDED THAT THE ASSESSEE HAD INTEREST FREE FUNDS OF ITS OWN WHICH H AD BEEN GENERATED IN THE COURSE O F THE YEAR COMMENCING FROM 1 ST APRIL, 1999. APART FROM THAT IN TERMS OF THE BALANCE SHEET THERE WAS A FURTHER AVAILABILITY OF RS.398.19 CRORES INCLUDING RS.180 CRORES OF SHARE CAPITAL. IN THIS CONTEXT, IN OUR OPINION, THE FINDING OF FACT RECORDED BY C.I.T . (APPEALS) AND I.T.A.T. AS TO AVAILABILITY OF INTEREST FREE FUNDS REALLY CANNOT HE FAULTED. 10. IF THERE BE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. (SUPRA) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (S UPRA) WHERE A SIMILAR ISSUE HAD ARISEN.. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RU NNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQ UIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBER'S CASE (SUPRA) THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVER DRAFT ACCOUNT OF THE ASSES SEE AND IN SUCH A CASE IT SHOULD, BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESS EE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FU ND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE C.I.T. (APPEALS) AND I.T.A.T. 11. CONSIDERING THE ABOVE, IN OUR OPINION, THERE IS NO MERIT IN THIS APPEAL WHICH IS ACCORDINGLY DISMISSED THE RATIO OF THE ABOVE JUDGEMENT IS DIRECTLY ON THE ISSUE AND IS APPLICABLE TO THEJACTS OF THE PRESENT CASE. SIMILARLY, THE HON'BLE SUPREME COUR T IN THE CASE OF MUNJAL SALES CORPN. VS. CIT 298 ITR 298 DIRECTED TO DELETE THE DISALLOWANCE MADE BY THE AO U/S. 36(L)(III) IN IDENTICAL CIRCUMSTANCES, WHEN THE ASSESSEE HAD SURPLUS FUNDS AVAILABLE WITH IT . SIMILAR JUDGEMENT HAS BEEN GIVEN BY THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF WOOLCOMBERS OF INDIA LTD. VS. CIT 134 ITR 219. THE RELEVANT PORTION OF THE JUDGEMENT IS REPRODUCED AS UNDER: - 'IN OUR OPINION, IT APPEARS FROM THE FACTS THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY. THE PROFITS WERE 7 ITA NO.2866/MUM/2017 & CO NO. 269/MUM/2018 DEPOSITED WITH THE OVERDRAFT ACCOUNT IT SHOULD BE PRESUMED THAT IN ITS ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IN THIS CONNECTION, LEARNED ADVOCATE FOR THE REVENUE SOUGHT TO URGE BEFORE US THAT THIS CONTENTION, THAT IS TO SAY, WHEN THERE WAS MIXED ACCOUNT AND THE PROFITS WERE SUFFICIENT TO MEET THE TAX LIABILITY FROM THE SAID ACCOUNT THEN THE PRESUMPTION SHOULD NOT BE DRAWN THAT THE T AX LIABILITY WAS MET OUT OF THE OVERDRAFT AND NOT OUT OF THE PRO/IT, WAS NOT AGITATED BEFORE THE TRIBUNAL'. 8. IN VIEW OF THE ABOVE FACTS AND LEGAL POSITION, I HOLD THAT THE ASSESSEE HAD SURPLUS INTEREST FREE FUNDS AVAILABLE WITH IT AND THEREFORE IT COULD BE SAFELY CONCLUDED THAT THE INTEREST FREE ADVANCES GIVEN BY IT WERE FROM SUCH FUNDS AND THEREFORE THE DISALLOWANCE MADE BY THE AO U/S. 36(L)(III) IS UNSUSTAINABLE IN LAW . THE SAME IS, THEREFORE, DIRECTED TO BE DELETED. THUS, GROUND NO. 1 O F THE ASSESSEE IS ALLOWED. 6. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 7. WE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. THE L EARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT AS REGARDS THE ISSUE OF DISALLOWANCE OF INTEREST IS CONCER NED THE SAME WAS DULY COVERED BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. RELIANCE POWER AND UTILITIES LTD. (SUPRA) . THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT SURPLUS FUNDS TO MAKE THE INVESTMENT , HENCE, TH E LEARNED COUNSEL PLEADED THAT THE ORD ER OF LEARNED CIT - A NEEDS TO BE CONFIRMED. 8. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE A.O. 9. UPON CAREFUL CONSIDERATION, WE FIND THAT THE LD. CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE OWN FUNDS TO MAKE THE INTEREST FREE ADVANCES. THIS IS DULY CORROBORATED BY THE FINANCIAL STATEMENT. THIS HAS NOT BEEN DISPUTED. IT IS SETTLED LAW ALSO THAT IN CASE OF M IXED F UNDS RIGHT OF A TTRIBUTION I S WITH THE ASSESSEE. I N THIS VIEW OF THE MATTER, ON THE BASIS OF UNDISPUTED FACT THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND TO MAKE THESE ADVANCES, WE DO NOT FIND ANY INFIRMITY IN THE WELL REASONED ORDER OF THE LD. CIT(A). THE CASE LAW FROM THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF 8 ITA NO.2866/MUM/2017 & CO NO. 269/MUM/2018 RELIANCE POWER AND UTILITIES LTD. (SUPRA) DULY SUPPORT THE PROPOSITION. HENCE, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. ASSESSEES C ROSS OBJECTION : 10 . IN THE CROSS OBJECTION, THE ASSESSEE HAS FILED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) ERRED IN PARTIALLY DISALLOWING BUSINESS PROMOTION EXPENSES TO THE EXTENT OF RS.2,65,050/ - IN THE HANDS OF COMPANY. 2. THE LD. CIT(A) ERRED IN PARTIALLY DISALLOWING CONVEYANCE AND TRAVELLING EXPENSES TO THE EXTENT OF RS. 1,50,000/ - IN THE HANDS OF COMPANY. 3. THE LD. CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY LD. A.O. OF DEPRECIATION ON FURNITURE AND FIXTURES OF RS.6,25,113/ - . 4. THE LD. CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY LD. A.O. OF INTEREST EXPENSES U/S.40(A)(IA) OF RS.1,03,021/ - 11 . BRIEF FACTS OF THE CASE ARE AS UNDER: THE AO MADE DISALLOWANCE OF RS.6,90,292/ - OUT OF BUSINESS PROMOTION EXPENSES AND RS.33,813/ - OUT OF CONVEYANCE AND TRAVELLING EXPENSES ON ADHOC BASIS AS THE ASSESSEE FAILED TO PROVE THAT THESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES AND SOME OF THE BILLS WERE SELF MADE . BESIDE S, THE AO ALSO DISALLOWED DEPRECIATION ON FURNITURE AMOUNTING TO RS.6,25, 113/ - ON THE GROUNDS THAT THE ASSESSEE COULD NOT ESTABLISH THAT THESE ASSETS WERE USED FOR THE PURPOSE OF BUSINESS. APART FROM THE ABOVE, THE AO ALSO DISALLOWED INTEREST OF RS.1,03,0 21/ - PAID TO TATA CAPITAL LTD. U/S. 40A(IA), AS TDS ON THE SAME WAS NOT MADE . 1 2 . UPON THE ASSESSEES APPEAL, THE LD. CIT(A) GRANTED PART RELIEF AND AS REGARDS THE BUSINESS PROMOTION EXPENDITURE, HE LIMITED THE DISALLOWANCE TO RS.2,65,050/ - AND AS REGARD S THE TRAVELLING AND EXPENSES, HE LIMITED THE DISALLOWANCE TO RS.1,50,000/ - . AS REGARDS THE DISALLOWANCE ON ACCOUNT OF DEPRECIATION ON FURNITURE AND FIXTURE, THE LD. 9 ITA NO.2866/MUM/2017 & CO NO. 269/MUM/2018 CIT(A) CONFIRMED THE SAME. THE LD. CIT(A) FURTHER CONFIRMED THE DISALLOWANCE U/S. 40(A)(IA ) ON RS.1,03,021/ - ON ACCOUNT OF INTEREST EXPENDITURE. 1 3 . AGAINST THE ABOVE ORDER, THE ASSESSEE HAS FILED CROSS OBJECTION. 1 4 . T HE LEARNED COUNSEL PLEADED THAT IN CASE OF A CORPORATE ENTITY DISALLOWANCE ON ACCOUNT OF PERSONAL EXPENSES CANNOT BE DONE. FOR THIS PROPOSITION HE PLACED RELIANCE UPON FOLLOWING CASE LAW S: 1) SAYAJI IRON & ENGG. CO. LTD. VS. CIT 253 ITR 749 (GUJ.) 2) ACIT VS. AMTEK AUTO LTD. 112 TTJ 455 1 5 . A S REGARDS THE DISALLOWANCE OF RS.1,03,021/ - MADE BY THE A.O. U /S. 40 (A)(IA) IS CONCE RNED , THE LEARNED COUNSEL PLEADED THAT THE SAID AMOUNT WAS DULY OFFERED BY TATA CAPITAL LTD. HENCE, NO DISALLOWANCE IN THIS REGARD IS CALLED FOR. 1 6 . A S REGARDS THE DEPRECIATION ON FURNITURE IS CONCERNED, THE LD. COUNSEL OF THE ASSESSEE PLEADED THAT THE ASSESSEE HAS DULY INCURRED THE EXPENSES ON FURNITURE WHICH WERE ACQUIRED FOR THE PURPOSE OF BUSINESS. HE SUBMITTED THAT THE ASSESSEE HAS ALSO SUBMITTED CA CERTIFICATE IN THIS REGARD. HENCE , HE CLAIMED THAT THE CLAIM OF DEPRECIATION IS FULLY JUSTIFIED. 17. UPON CAREFUL CONSIDERATION, WE FIND THAT THE DISALLOWANCE ON ACCOUNT OF BUSINESS PROMOTION AND CONVEYANCE AND TRAVELLING EXPENSES HAVE BEEN DONE ON ESTIMATED BASIS ON THE GROUND THAT SOME OF THE VOUCHERS ARE SELF MADE AND ARE NOT PROPER. HENCE, THE A.O. HAD MADE ADHOC DISALLOWANCE WHICH HAS BEEN CONSIDERABLY REDUCED BY THE LD. CIT(A). IN OUR CONSIDERED OPINION, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT( A)S ORDER IN THIS REGARD HAS NO INFIRMITY. 10 ITA NO.2866/MUM/2017 & CO NO. 269/MUM/2018 18. AS REGARDS THE CLAIM OF DEPRECIATION OF FURNITURE IS CONCERNED, WE FIND THAT THE SAID DISALLOWANCE HAS BEEN DONE ON SURMISE AND CONJECTURE . THE ASSESSEE HAS DULY SUBMITTED THE BILLS AND CERTIFICATE OF THE CA THAT THE ASSETS ACQUIRED WERE BEING USED BY THE BUSINESS. THIS HAS NOT BEEN COGENTLY CONTROVERTED. HENCE, WE DIRECT TO D ELETE THE DISALLOWANCE OF DEPRECIATION. AS REGARDS THE DISALLOWANCE ON INTEREST EXPENDITURE U/S.40(A)(IA) IS CONCERNED, WE FIND THAT IT IS NOW SETTLED THAT IF THE RECIPIENT HAS DULY OFFERED/ PAID TAX ON THE AMOUNT RECEIVED, DISALLOWANCE U/S.40(A)(IA) CANNOT BE DENIED. IN THIS CASE, IT HAS NOT BEEN DISPUTED THAT THE SAID AMOUNT OF INTEREST HAS NOT BEEN OFFERED BY TATA CAPITAL LTD. HENCE, TH IS DISALLOWANCE IS ALSO DELETED. 19. IN THE RESULT, THE REVENUES APPEAL STAND DISMISSED AND THE ASSESSEES CO STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 1 . 1 2 . 2 0 1 8 S D / - S D / - ( RAM LAL NEGI ) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 1 1 . 1 2 . 2 0 1 8 ROSHANI , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI