The ACIT, Circle-10, Ahmedabad V. Shri Amit Kiritbhai Patel, Ahmedabad

ITA 2929/AHD/2011

• Counselvise Citation: 292920514 RSA 2011
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 25-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA
• Keywords: Gift; Business income; Principle of natural justice; Commercial expediency; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI D.K.TYAGI , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 2929/AHD/2011 ASSESSMENT YEAR :2008-09 ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-10, AHMEDABAD V/S . SHRI AMIT KIRITBHAI PATEL PROP.M/S. MEET ENTERPRISES PAN NO. A FJPP0163R (APPELLANT) .. (RESPONDENT) BY APPELLANT MS. SURBHI SHARMA, SR. D.R /BY RESPONDENT SHRI S.N.DIVETIA, A.R. /DATE OF HEARING 04.06.2012 /DATE OF PRONOUNCEMENT 22.06.2012 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS REVENUES APPEAL ARISES OUT OF ORDER OF CI T(A)-XVI, AHMEDABAD, ORDER DATED 07.09.2011 FOR ASSESSMENT YEAR 2008-09. THE GROUNDS OF APPEAL ARE AS UNDER: (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF SALES P ROMOTION EXPENSES OF RS.6,38,529/-. (2) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE OF INTEREST OF RS.3,71,632/-. ITA NO. 2929/AHD/2011 A.Y.2008-09 PAGE 2 2. THE FIRST GROUND OF APPEAL IS AGAINST DISALLOWAN CE OF RS. 6,38,529/- ON ACCOUNT OF SALES PROMOTION EXPENSES. THE A.O. OBSE RVED ON PAGE NO.2 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS DEBITED RS. 17,98,912/- BEING SALES PROMOTION EXPENSES. IN THIS ACCOUNT, THE ASSESSEE HAD PURCHASED GOLD ARTICLES OF RS. 10,98,825/- FROM M/S. KUNDANLAL JEW ELLERS AND A DEBIT ENTRY OF RS. 7,00,087/- TOWARDS GOLD CHAIN BEING TRANSFERRED FROM MEET MARKETING WAS MADE. THUS, A TOTAL SUM OF RS.17,98,912/- WAS MADE TOWARDS SALES PROMOTION EXPENSES. THE A.O. ASKED TO FURNISH THE DETAIL OF THE PARTIES WHO HAVE RECEIVED GOLD CHAIN. THE TOTAL 105 PARTIES WE RE THERE WHO HAD BEEN DISTRIBUTED GOLD CHAIN AS SALES PROMOTION EXPENSES. IT IS FOUND THAT OUT OF 105 PARTIES 14 PARTIES WERE NOT IN ANY DEALING OF BUSIN ESS WITH THE ASSESSEE. IN CASE OF 65 PARTIES, GIFT VALUED AS A PERCENTAGE OF SALES WAS VERY HIGH. THE A.O. OBSERVED IN PARA NOS. 4.2 & 4.3 AS UNDER:- 4.2 I HAVE CAREFULLY CONSIDERED THE ISSUE AS DISCU SSED ABOVE VIS--VIS THE EXPLANATION FURNISHED BY THE ASSESSEE IN HIS LE TTER DATED 14/12/2010 VIDE PARA. 1.1 HAVE ALSO CAREFULLY CONSIDERED THE M ATERIAL AVAILABLE ON THE RECORD. ON OVERALL PERUSAL TWO ASPECTS OF THE ISSUE OF SALES PROMOTION EXPENSES COMES TO THE FORE I.E. GOLD CHAI NS BEING DISTRIBUTED TO 40 PARTIES ALTHOUGH NO SALES WERE BEING MADE FOR THE ASSESSEE BY THESE PARTIES AND TO OTHER PARTIES OUT OF 65 TO WHO M GOLD CHAINS BEING DISTRIBUTED ON DISPROPORTIONATE BASIS. AS REGARDS GOLD CHAINS BEING DISTRIBUTED BY THE ASSESSEE TO THE 65 PARTIES AS SA LES PROMOTION, IT IS NOTICED THAT IN NUMBER OF CASES THE GIFT VALUE AS A PERCENTAGE OF SALE IS ITA NO. 2929/AHD/2011 A.Y.2008-09 PAGE 3 VERY HIGH. IN SOME CASES THE % OF GIFT IS MUCH MOR E THAN AVERAGE G/P OF THE ASSESSEE. INSTANCES OF SUCH GIFTS ARE DETAIL ED HEREUNDER: SR. NO. PARTYS NAME NO. OF CHAINS WEIGHT IN GMS. TOTAL SALES GIFT VALUE % OF GIFT VALUE TO SALE 1. OM BHAVANI ELECTRONIC 2 21.78 55781 24154 43.30 2. STAR TV (DHOLKA) 2 21.78 86198 24154 28.02 3. TIRUPATI ELECTRONICS 1 12.25 92089 13585 14.75 4. PATEL ELECTRONICS 1 12.25 61030 13585 22.26 5. MAHADEV ELECTRONICS 1 9.53 45612 10568 23.17 6. ABHINAV SALES & SERVICE 1 9.53 82106 10568 12.87 7. S.K. SALES 1 9.53 61640 10568 17.15 8. PATEL SALES 1 9.53 78192 10568 13.52 9. DEV ELECTRONICS 1 9.53 52337 10568 20.19 10. GAYATRI SALES CORP. 2 19.06 34038 21137 62.10 649023 149455 FROM THE ABOVE TABLE, IT CAN BE SEEN THAT AS AGAINS T TOTAL SALES MADE BY THESE PARTIES AGGREGATING RS. 6,49,023/- THE ASSESS EE HAS GIVEN AWAY GIFTS AMOUNTING TO RS. 1,49,455/- AS SALES PROMOTIO N EXPENSES WHICH IS APPROX: 23 %. FURTHER THE ASSESSEE HAS ALSO ADMIT TED THAT THEY HAVE NOT MAINTAINED ANY CRITERIA FOR GIVING THE GIFTS TO THE PARTIES THROUGH WHOM GOODS WERE SOLD. IN SO FAR AS THE CONTENTION OF THE ASSESSEE THAT, THE BENEFITS OF WHICH (I.E. DISTRIBUTION OF GIFTS) ARE AVAILABLE IJN THE ENTIRE LIFE CYCLE OF OUR BUSINESS IS NOT TENABLE I N EYES OF LAW SINCE ANY EXPENDITURE INCURRED, THE BENEFIT FROM WHICH IS AGA ILABLE IN THE ENTIRE LIFE CYCLE IS IN THE NATURE OF CAPITAL EXPENDITURE AND N OT REVENUE EXPENDITURE. FURTHER THE ASSESSEE HAS CONTENDED TH AT THE EXPENDITURE IS INCURRED FOR HAVING LONG LASTING BUSINESS RELATI ONSHIP. THIS CONTENTION OF THE ASSESSEE IS ALSO NOT CORRECT AND MAINTAINABL E IN VIEW OF THE FACT ITA NO. 2929/AHD/2011 A.Y.2008-09 PAGE 4 THAT NEITHER ANY SALES HAVE BEEN EFFECTED IN THE CU RRENT ASSESSMENT YEAR NOR ANY SALES IS EFFECTED IN A.Y.2009-10 AND N OT EVEN UPTO THE DATE OF LAST HEARING IN THE CASE OF THE ASSESSEE AN Y SALES HAVE BEEN MADE TO THE SAID 40 PARTIES. IT IS ALSO PERTINENT TO MENTION THAT THE G.P. IS ONLY 10% OF THE TOTAL TURNOVER AND CONSIDERING T HIS ASPECT, THE PROPORTION OF THE EXPENDITURE TO GET SALES FROM THE PARTIES TO WHOM ASSESSEE HAS DISTRIBUTED GIFTS AS SALES PROMOTION I S NOT ONLY EXCESSIVE BUT MUCH MORE THAN THE G.P. THEREFORE, SUCH CLAIM O F EXPENDITURE IS UNJUSTIFIED AND UNREASONABLE AND EXCESSIVE, AND THE REFORE CANNOT BE ALLOWED FULLY. 4.3 IN VIEW OF THE OVERALL FACTS AND CIRCUMSTANCES DISCUSSED ABOVE AND ALSO IN THE INTEREST OF NATURAL JUSTICE AND IN ALL FAIRNESS, INSTEAD OF DISALLOWING THE ENTIRE EXPENDITURE, EXPENDITURE WIT H RESPECT TO THE GOLD CHAINS BEING DISTRIBUTED TO 40 PARTIES WHO HAVE NEI THER MADE ANY SALES DURING THE CURRENT PREVIOUS YEAR NOR IN THE SUBSEQU ENT YEARS AND / OR UP TO THE DATE OF FINAL HEARING IN THE CASE OF ASSESSE E ARE TREATED AS UNREASONABLE AND BOGUS. ASSESSEE HAS NEITHER PRODU CED ANY CONFIRMATION FROM THE SAID PARTIES NOR ANY OTHER PR OOF TO ESTABLISH THAT SUCH EXPENDITURE HAS BEEN INCURRED IN RELATION TO H IS BUSINESS. EVEN OTHERWISE THIS EXPENDITURE CANNOT BE ALLOWED AS IT IS NOT RELATED TO SALES OF THE RELEVANT F.Y. AS ASSESSEE HAS NOT MADE ANY S ALES TO SUCH PARTIES EITHER IN RELEVANT F.Y. IN ANY SUBSEQUENT F.Y. AND THEREFORE NOT ONLY THE CLAIM OF THE ASSESSEE THAT IT IS TO MAINTAIN LONG T ERM RELATIONSHIP IS REJECTED BUT ALSO THE EXPENSES ARE HELD TO BE NOT F OR BUSINESS PURPOSE AND ACCORDINGLY DISALLOWED. ACCORDINGLY SALES PROM OTION EXPENSES CLAIMED TO THE EXTENT OF GOLD CHAINS DISTRIBUTED TO THE 40 PARTIES WHICH WORKS OUT AT RS.6,38,529/- (575.77 GMS. X RS.1109/- PER GM.) IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSE SSEE. PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT ARE INITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME. ITA NO. 2929/AHD/2011 A.Y.2008-09 PAGE 5 3. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE FILED FIRST APPEAL BEFORE CIT(A)-XVI, AHMEDABAD, WHO HAD ADJUDICATED T HIS ISSUE ON PAGE NOS. 2 TO 6 OF APPEAL ORDER, DELETED THE ADDITION BY OBS ERVING THE FOLLOWING:- 3.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD. COUNSEL AND ALSO GONE THROUGH THE FINDING OF THE ASSESSING OFFI CER RECORDED IN PARA- 4 OF THE ASSESSMENT ORDER. IT IS AN ADMITTED FACT THAT THE APPELLANT HAD INCURRED EXPENDITURE OF RS.17,98,912/- IN PROCURING GOLD CHAINS AND DEBITED IN THE BOOKS OF ACCOUNT AS SALES PROMOTION EXPENSES. THESE THE GOLD CHAINS WERE DISTRIBUTED AMONGST THE DEALER S. THE APPELLANT HAD FILED THE DETAILS TO WHOM THE GOLD CHAINS WERE DISTRIBUTED. THESE CHAINS WERE DISTRIBUTED TO 105 DEALERS. THE DETAIL S OF NAMES OF THE BUSINESS CONCERNS, COMPLETE MAILING ADDRESSES OF TH E DEALERS, WEIGHT OF GOLD CHAIN AND THE VALUE OF THE CHAIN INDIVIDUAL LY GIVER WERE FILED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICE R HAD NEVER REQUIRED ANY FURTHER DETAILS BECAUSE HE HAD ALLOWED THE EXPE NDITURE INCURRED ON GOLD CHAINS DISTRIBUTED TO 65 DEALERS ONLY ON THE B ASIS OF AFORESAID DETAILS. THEREFORE, IT IS UNREASONABLE TO HOLD THA T ASSESSEE HAD NEITHER PRODUCED ANY CONFIRMATION FROM THE SAID PARTIES NOR ANY OTHER PROOF TO ESTABLISH THAT SUCH EXPENDITURE HAD BEEN INCURRED I N RELATION TO HIS BUSINESS. IF HE WAS REQUIRED THE CONFIRMATIONS THE N HE OUGHT TO HAVE CALLED FOR THE EXPLANATION OF THE APPELLANT AND IN SUCH AN EVENTUALITY, THE CONFIRMATIONS FROM CONCERNED PERSONS WOULD HAVE BEEN PLACED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICE R HAD NOT CONSIDERED THE FACT THAT EFFECTING THE SALES IN THE YEAR UNDER CONSIDERATION CANNOT BE THE CRITERIA FOR SALES PROM OTION EXPENSES. IT CAN BE FOR MAINTAINING THE PAST, PRESENT OR FUTURE BUSINESS RELATIONSHIP. THE LD. COUNSEL HAD BROUGHT ON RECORD THAT THE GOLD CHAINS WERE DISTRIBUTED TO 105 PARTIES/DEALERS OUT OF 106 PARTI ES/DEALERS WITH WHOM THE APPELLANT HAD DEALT WITH IN PAST 7 YEARS PRECED ING THE FINANCIAL YEAR ITA NO. 2929/AHD/2011 A.Y.2008-09 PAGE 6 UNDER CONSIDERATION I.E. SINCE INCEPTION OF HIS BUS INESS. IN FACT, THE APPELLANT HAS COMPLETED SUCCESSFUL 7 YEARS OF BUSIN ESS AND ON SUCH OCCASION, KEEPING IN VIEW THE CO-OPERATION RECEIVED FROM THE DEALERS IN THE PAST AND EXPECTING CONTINUANCE OF SUCH CO-OPERA TION/BUSINESS DEALINGS, IT WAS DECIDED AS A MATTER OF BUSINESS EX PEDIENCY TO DISTRIBUTE GOLD CHAINS TO ALL THE DEALERS ON SUCH O CCASION. THUS, THE EXPENSES WERE INCURRED PURELY ON FOUNDATION OF COMM ERCIAL EXPEDIENCY FOR PAST / FUTURE SUCCESS OF THE BUSINESS APPARATUS OF THE APPELLANT. IT WAS DIFFICULT TO FIX PARTICULAR CRITERIA FOR SUCH C HAIN DISTRIBUTION. HOWEVER, THE GOLD CHAINS OF DIFFERENT VALUE/WEIGHT WERE GIVE N ON THE BASIS OF PAST SALE/ CO-OPERATION/ REMITTAREES BY THE CONCERNED DE ALERS. I DO NOT AGREE WITH THE FINDING OF THE ASSESSING OFFICER THA T EXPENDITURE INCURRED IN GIVING CHAINS TO 40 DEALERS WERE UNREASONABLE AN D BOGUS. THE ASSESSING OFFICER HAD NOT BROUGHT ANY MATERIAL ON R ECORD THAT THE EXPENDITURE IS BOGUS. THE BILLS AND VOUCHERS WERE FILED. THE COMPLETE DETAILS ALONGWITH ADDRESSES OF THE RECIPIENTS OF GO LD CHAINS WERE GIVEN THEN HOW IT CAN BE SAID THAT THE EXPENDITURE IS BOG US. CONSIDERING THE FACTS OF THE CASE, I AM OF THE OPINION THAT THE EXP ENDITURE FOR SALES PROMOTION WAS INCURRED FOR THE COMMERCIAL EXPEDIENC Y AND NO PART OF IT WAS DISALLOWABLE. THE ASSESSING OFFICER WAS THUS N OT JUSTIFIED IN DISALLOWING PART OF THE SALES PROMOTION EXPENSES BY HOLDING THE SAME AS UNREASONABLE AND BOGUS. THE DISALLOWANCE IS DES ERVED TO BE DELETED AND DELETED ACCORDINGLY. THE FOURTH GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 4. NOW THE REVENUE IS IN APPEAL BEFORE US. LD. D.R . MS. SURBHI SHARMA CONTENDED THAT THERE WAS NO OCCASION TO GIVE GOLD C HAIN TO THE PARTIES WHATEVER EVIDENCE SUBMITTED BEFORE THE A.O., WERE N OT MATCHING WITH THE SALES FIGURE OF THE PAST AS WELL AS FUTURE. IN SOM E CASE, THE GIFT VALUE WAS ITA NO. 2929/AHD/2011 A.Y.2008-09 PAGE 7 MORE THAN SALES MADE WITH THAT PARTY. WHATEVER DET AILS FURNISHED BY THE ASSESSEE WERE NOT COMPLETE WITH JUSTIFICATION OF TH E DISTRIBUTION OF GOLD CHAIN. 5. ANOTHER SIDE, LD. A.R. MR. S.N. DIVETIA CONTEND ED THAT IT WAS SEVENTH YEAR OF THE ASSESSEE. THE ASSESSEE WAS DEALING IN SALE OF ELECTRONICS ITEMS. IT WAS NECESSARY FOR THE ASSESSEE TO ADVERTISE AGGR ESSIVELY BY PROVIDING INCENTIVE TO THE DEALERS TO GET MORE BUSINESS IN FU TURE. THE ASSESSEE SUBMITTED ALL THE DETAILS AND PARTICULARS OF THE RE CIPIENTS OF THE GOLD CHAIN AT THE TIME OF ASSESSMENT PROCEEDING. HE AGAIN FILED THE COPY OF LETTER DATED 25.11.2010 SUBMITTED TO THE A.O. ALONGWITH FULL DET AIL OF THE EXPENSES OF GOLD CHAIN. A COPY OF MEET ENTERPRISE BILL NO.2, DATED 17.05.2007 FOR RS. 69,000/- OF MAVERICK MANAGEMENT, COPY OF WRITTEN SUBMISSION BEFORE THE CIT(A), COPY OF REPLY DATED 08.12.2010 TO THE A.O. AND COPY OF R EPLY DATED 14.12.2010 TO THE A.O. WITH DETAILS OF DISTRIBUTION OF GOLD CHAIN , COPY OF BALANCE ACCOUNT OF MEET ENTERPRISE, COPY OF BALANCE SHEET FOR A.Y. 200 8-09 AND CLAIMED THAT THESE EXPENSES FOR BUSINESS EXPEDIENCY. 6. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BE LOW AND GONE THROUGH THE DETAILS OF SALES PROMOTION EXPENSES AND ARGUMEN TS OF BOTH SIDES. THE ASSESSEE HAS GIVEN FULL DETAILS OF EXPENSES OF THE GOLD CHAIN. THE EXPENDITURE WERE INCURRED TO GET THE MORE BUSINESS AND ATTRACT THE CUSTOMERS. THE A.O. HAD ALLOWED SIMILAR EXPENSES IN CASE OF 65 DEALERS. THE APPELLANT HAD COMPLETED SUCCESSFUL SEVEN YEARS OF BUSINESS AN D ON SUCH OCCASION, HE HAD DISTRIBUTED THE GOLD CHAIN FOR THEIR OPERATION IN BUSINESS IN PAST AND FUTURE. THEREFORE, WE ARE OF THE CONSIDERED VIEW T HAT THIS EXPENSE IS FOR ITA NO. 2929/AHD/2011 A.Y.2008-09 PAGE 8 BUSINESS EXPEDIENCY AS SALE PROMOTION EXPENSES. TH US, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE REVENUES APPEA L. 7. THE SECOND GROUND OF APPEAL IS AGAINST DISALLOWA NCE OF INTEREST AT RS. 3,71,632/-. THE A.O. HAD OBSERVED IN PARAGRAPH NO. 5. THAT THE ASSESSEE HAD DEBITED AN INTEREST OF EXPENSES RS. 9,91,332/- AND ADVANCES OF RS. 73,31,224/- TO THAT SISTER CONCERN M/S. MEET MARKET ING WHICH IS AN ASSOCIATE CONCERN OF THE ASSESSEE COVERD UNDER THE PROVISIONS OF SECTION 40A(2)(B) OF THE IT ACT BESIDES RS. 3,06,053/- TO VARIOUS OUTSID E PARTIES. THE A.O. NOTICED THAT THE ASSESSEE HAD PAID INTEREST OF LOAN @ 12% O N LOANS TAKEN & 4% ON ADVANCE AND GIVEN TO M/S. MEET MARKETING. THEREFOR E, THE A.O. HAD GIVEN REASONABLE OPPORTUNITY TO THE ASSESSEE AND CONSIDER ED THE ASSESSEES REPLY. THE ASSESSEES EXPLANATION WAS NOT FOUND CONVENIENC E TO THE A.O., THEREFORE, HE ESTIMATED DISALLOWANCE OF INTEREST AT RS. 6,10,9 38/- AFTER GIVING CREDIT OF INTEREST RECEIVED ON UNSECURED LOANS OF RS. 3,71,63 4/-. HE MADE THE ADDITION OF RS. 3,71,634/- IN THE INCOME OF THE ASSESSEE. 7. THE ASSESSEE FILED FIRST APPEAL BEFORE LD. CIT(A )-XVI, AHMEDABAD. IN PARAGRAPH NO. 4 OF THE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- 4.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD. COUNSEL AND ALSO GONE THROUGH THE FINDING OF THE ASSESSING OFFI CER RECORDED IN PARA- 5 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER H AD NOT CORRECTLY EXAMINED THIS ISSUE. IT IS NOT CORRECT TO SAY THAT THE APPELLANT HAS MADE ADVANCES OF RS.73,31,224/- TO THE SISTER CONCERN M/ S. MEET MARKETING ON WHICH ONLY 4% INTEREST WAS CHARGED. IT INCLUDES THE OPENING BALANCE OF RS. 38,91,035/- AND THE MONTHLY COMMISSION ACCRU ED TO THE ASSESSEE FOR THE WORK DONE FOR M/S MEET MARKETING A PPROXIMATELY FOR ITA NO. 2929/AHD/2011 A.Y.2008-09 PAGE 9 RS. 54 LAKHS. IF THE AMOUNT OF COMMISSION OF RS. 5 4.00 LAKHS IS DEDUCTED FROM ADVANCES ACCOUNT AS NO INTEREST IS PA YABLE ON COMMISSION, THE ACTUAL AMOUNT OF ADVANCE WILL BE MU CH LOWER AND INTEREST RECEIVABLE WILL WORK OUT TO RS. 5,21,088/- AS AGAINST RS. 8,79,747/- CALCULATED BY THE ASSESSING OFFICER. I AGREE WITH THE CONTENTION OF THE LD. COUNSEL THAT OUT OF THE RECEI VABLE INTEREST OF RS. 5,21,088/- THE APPELLANT HAD ALREADY DECLARED INTER EST OF RS.2,68,809/- SO, DIFFERENCE COMES TO RS. 2,52,279/-. AT THE SAM E TIME APPELLANT HAS INTEREST FREE FUND, I.E. OWN CAPITAL OF RS. 26,31,5 23/- AND IF INTEREST IS CALCULATED ON THAT AS PAYABLE @ 12 %, IT COMES TO R S.2,89,962/- WHICH WAS HIGHER THEN DIFFERENCE OF INTEREST RECEIVED AND RECEIVABLE AMOUNT OF RS. 2,52,279/-. THE ASSESSING OFFICER COULD NOT ESTABLISHED LIVE LINK BETWEEN THE BORROWED FUNDS AND THE ADVANCES GIVEN T O SISTER CONCERN AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT I N THE CASE OF RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM.) WHEREIN IT WAS CLEARLY HELD VIDE PARA-10 OF THE DECISION THAT IF THERE ARE FUNDS AVAILABLE BOTH, INTEREST-FREE AND OVER DRAFT AND/OR LOANS ARE TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST- FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS ARE SUFFICIENT TO MEET THE INVESTMENTS. IN T HE INSTANT CASE SAID PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING S OF FACT, BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. [PARA 10]. THIS DECISION WAS FURTHER FOLLOWED BY THE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. ASHOK COMMERCIAL ENTERPRISE. OTHERWISE ALSO, THE I SSUE DISALLOWANCE OF INTEREST IS REVENUE NEUTRAL. BOTH THE CONCERN A RE PAYING TAX IN THE SAME TAX BRACKET. IF THE ASSESSEE WOULD HAVE CHARG ED HIGHER RATE OF INTEREST, THE INCOME OF THE SISTER CONCERN WAS TO B E REDUCED TO THAT EXTENT. THE PROPRIETORS OF BOTH THE CONCERNS ARE R EAL BROTHERS AND VIRTUALLY, THE BUSINESS OF THE SISTER CONCERN WAS A LSO RUN BY THE PROPRIETOR OF THE APPELLANT CONCERN AND THUS THE CH ARGING OF LESSER INTEREST WAS ON ACCOUNT OF COMMERCIAL EXPEDIENCY AN D NO INTEREST WAS ITA NO. 2929/AHD/2011 A.Y.2008-09 PAGE 10 DISALLOWABLE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS 288 ITR 1 (SC). THE ASSESSIN G OFFICER WAS THUS NOT JUSTIFIED IN DISALLOWING THE PROPORTIONATE INTE REST ON THE GROUND THAT INTEREST FROM SISTER CONCERN WAS CHARGED AT LESSER RATE. THE DISALLOWANCE SO MADE IS THEREBY DELETED. THE FIFT H GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 8. NOW THE REVENUE IS IN APPEAL BEFORE US. LD. D.R . ARGUED THAT THE ASSESSEE HAD BORROWED MONEY @ 12% WHEREAS HE CHARGE D 4% RATE OF INTEREST ON AMOUNT ADVANCES TO SISTER CONCERN WHICH LEAD TO DIVERT INTEREST BEARING FUND TO THE LESS INTEREST BEARING ADVANCES. THEREFORE, ADDITION SHOULD BE CONFIRMED, WHEREAS, THE LD. A.R. RELIED UPON OR DER OF THE CIT(A) AND CLAIMED THAT LD. CIT(A) HAD ANALYZED THE WHOLE ISS UE AND HAD GIVEN CLEAR CUT FINDING IN FAVOUR OF THE ASSESSEE , HAS TO BE SUSTA INED. 9. WE HAVE PERUSED THE CIT(A) ORDER AND ARGUMENT OF BOTH THE SIDE. THE ASSESSEE HAD INTEREST FREE FUND IN FORM OF CAPITAL OF RS.26,31,523. OPENING BALANCE OF M/S. MEET MARKETING WAS 38,91,635/-. TH E APPELLANT WAS WORKING ON COMMISSION BASIS CONCERN IN MEET MARKETING. THE CONCERN HAS PAID COMMISSION TO THE TUNE OF RS. 54 LACS TO THE APPELL ANT. AT THIS AMOUNT OF COMMISSION OF RS. 54 LACS IS REDUCED FROM THE ADVAN CES ACCOUNT. THE ACTUAL AMOUNT WOULD BE MUCH LOWER. THERE WAS NO DIRECT NE XUS HAS BEEN ESTABLISHED BY A.O. BETWEEN INTEREST BEARING FUND T O INTEREST FREE ADVANCES. THE ASSESSEE RELIED UPON THE DECISION OF HONBLE BO MBAY HIGH COURT, IN CASE OF RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 340 (BOM.), WHICH WAS IN CASE OF INVESTMENT MADE FOR EXEMPTED INCOME. BO TH CONCERN ARE IN SAME ITA NO. 2929/AHD/2011 A.Y.2008-09 PAGE 11 TAX BRACKET. IT APPEARS THAT THERE IS NO LEAKAGE O F REVENUE. THEREFORE, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE APP EAL OF REVENUE. 10. IN THE RESULT, ON BOTH ISSUES, THE REVENUES AP PEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- (D.K.TYAGI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ; STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 11.06.2012 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE XXXX 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 12.06.2012 4) DATE OF CORRECTION 12.06.2012 5) DATE OF FURTHER CORRECTION 6) DATE OF INITIAL SIGN BY MEMBERS 7) ORDER UPLOADED ON 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON ITA NO. 2929/AHD/2011 A.Y.2008-09 PAGE 12