M/s. Samrat Feed Mills, Siliguri V. JCIT, Range - 2, Siliguri

ITA 312/KOL/2009

• Counselvise Citation: 31223514 RSA 2009
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 18-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-03-2009
• Court: TRIBUNAL
• Department Lawyers: G MONDAL
• Assessee Lawyers: S K TULSIYAN
• Keywords: Depreciation; Business expenditure; Commercial expediency
• Section: 37

Judgement Text

1 , A , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- A, KOL KATA [ . . . . . .. . , ,, , . .. . ! ! ! !. .. . , , , , '# ] BEFORE SHRI B.R.MITTAL, JUDICIAL MEMBER & SRI C.D. RAO, ACCOUNTANT MEMBER $ $ $ $ / ITA NOS. 312/KOL/09 & 2144/K/10 %& '( / ASSESSMENT YEARS 2005-06 & 2007-08 M/S. SAMRAT FEED MILLS, SILIGURI. (PAN-AAOFS5732R) JCIT, RANGE-2/DCIT, CIRCLE-2, SILIGURI. (+, / APPELLANT ) - % - - VERSUS - (/0+,/ RESPONDENT ) +, 1 2 '/ FOR THE APPELLANT: / SRI S.K. TULSIYAN /0+, 1 2 ' / FOR THE RESPONDENT: / SRI G. MONDAL '3 / ORDER ( . . . . . .. . ), (B.R.MITTAL), JUDICIAL MEMBER : THE ASSESSEE HAS FILED THESE APPEALS FOR ASSESSME NT YEARS 2005-06 AND 2007-08 AGAINST THE ORDERS OF LD. C.I.T.(A), SILIGURI DATED 15/12/2008 & 03/9/2010 RESPECTIVELY. AS SOME COMMON GROUNDS ARE RAISED IN THESE TWO APPE ALS BY THE ASSESSEE, THEY ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR TH E SAKE OF CONVENIENCE. ITA NO. 312 (KOL) OF 2009 (A.Y. 2005-06) : 2. FOR THE ASSESSMENT YEAR 2005-06, THE ASSESSEE H AS RAISED THE FOLLOWING GROUNDS : 1. THE ORDERS PASSED BY THE LOWER AUTHORITIES ARE CAPRICIOUS, ARBITRARY, UNREASONED, INVALID AND BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LOWER AUTHORITIES, EVEN AFTER ADMITTING THAT THE PARTNERS OF THE APPELLANT FIRM H AVE DEEP INTEREST IN THE ASSOCIATE FIRM VIZ. M/S SAMRAT AGRO INDUSTRIES, AND EVEN AFTER DISCUSSING THE NATURE OF BUSINESS CONNECTIONS BETWEEN THE APPELLAN T AND THE SAID CONCERN, ERRED IN OVERLOOKING THE POINT OF COMMERCIAL EXPEDIENCY I N THE LOANS AND ADVANCES GRANTED BY THE APPELLANT TO THE OTHER CONCERN. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LOWER AUTHORITIES ERRED IN NOT FOLLOWING THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. (288 ITR 1) AND ON THE OTHER HAND, IN FOLLOWIN G THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF PHALTAN SUGAR WORK S LTD. (208 ITR 989) 2 WITHOUT CARING TO NOTE THAT THE SAID DECISION STAND S OVER-RULED BY THE SUPREME COURT IN THE CASE OF S. A. BUILDERS LTD. (SUPRA). 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED A.O. ERRED IN MAKING PROPORTIONATE DISALLOWANCE TO THE EXTENT OF RS. 19,25,659/- OUT OF THE INTEREST PAYMENTS MADE TO THE BANK AND THE LEARNED CIT(A) ERRED IN CONFIRMING THE SAID DISALLOWANCE. 5. WITHOUT ANY PREJUDICE TO THE ABOVE GROUNDS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LOWER AUTHORITIES FAILED TO NOTE T HAT ALMOST THE ENTIRE AMOUNT OF LOANS AND ADVANCES HAD BEEN MADE TO THE ASSOCIATE F IRM M/S SAMRAT AGRO INDUSTRIES IN THE EARLIER YEAR AND THAT IN THAT YEA R NO DISALLOWANCE HAD BEEN MADE OUT OF INTEREST PAYMENTS ON THAT ACCOUNT SIGNIFYING THEREBY THAT MAKING OF LOANS AND ADVANCES HAD BEEN ACCEPTED TO BE IN CONNECTION WITH THE BUSINESS AFFAIRS OF THE APPELLANT. 3. IN THE AFORESAID GROUNDS, THE SOLE ISSUE INVOL VED IS WHETHER THE LD. C.I.T.(A) WAS JUSTIFIED IN CONFIRMING THE PROPORTIONATE ADDITION TO THE EXTENT OF RS.19,25,659/- OUT OF THE INTEREST PAYMENTS MADE TO THE BANK ON THE GROUN D THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOAN TO ITS SISTER CONCERN OUT OF THE FUND BORROWED FROM THE BANK AND INTEREST PAID THEREON. THE A.O. OBSERVED THAT THE ASSESSEE HAD ADVANCED HUGE AMOUNT TO ITS SISTER CONCERN M/S. SAMRAT AGRO INDUSTRIES ( SAI) AND THE CLOSING BALANCE AS ON 31/3/2005 STOOD AT RS.1,24,45,012/-. HE FURTHER OB SERVED THAT SAI WAS SHOWN AS A DEBTOR FOR RS.50,85,126/- IN THE BOOKS OF THE ASSES SEE, BUT NO INTEREST WAS CHARGED ON THE AMOUNTS GIVEN TO SAI, WHEREAS THE ASSESSEE HAS DEBITED INTEREST OF RS.26,36,316/- IN ITS P/L ACCOUNT. THE A.O. OBSERVED THAT FOUR PARTNE RS WERE COMMON TO THE ASSESSEE- FIRM AND SISTER CONCERN, WHICH IS LOCATED IN THE IN DUSTRIAL BACKWARD DISTRICT ENTITLED TO CLAIM DEDUCTION U/S. 80-IB OF THE ACT. THAT THE ASS ESSEE-FIRM HAS SUBSTANTIAL INTEREST IN SAI BOTH THE FIRMS ARE MANUFACTURER OF ANIMAL FEED AND SELL THEM UNDER THE SAME BRAND NAME. ON EXAMINATION OF THE BANK STATEMENT OF THE A SSESSEE-FIRM, THE A.O. OBSERVED THAT IN THE F.Y. 2003-04 RELEVANT TO A.Y. 2004-05, THE ASSESSEE-FIRM HAD ADVANCED LOAN AND ALSO INCURRED EXPENSES ON BEHALF OF SAI OUT OF THE OVERDRAWN FROM ITS C.C. ACCOUNT. THE A.O. FURTHER OBSERVED THAT THE DEBIT BALANCE IN THE BANK ACCOUNT AS ON 31/3/2004 WAS RS.2,49,44,073/- AND AMOUNT RECEIVABL E FROM SAI WAS RS.1,27,40,353/-. AFTER SOME NOMINAL REPAYMENT DURING THE YEAR UNDER CONSIDERATION, THE OUTSTANDING BALANCE AS ON 31/3/2005 REMAINED RS.1,24,45,012/-, BUT DEBIT BALANCE IN C.C. ACCOUNT 3 STOOD AT RS.2,43,20,847/-, ON WHICH INTEREST OF RS. 26,36,316/- WAS PAID DURING THE YEAR UNDER CONSIDERATION. IT WAS EXPLAINED BY THE ASSESS EE TO THE A.O. THAT THE BANK LOAN WAS TAKEN FOR THE PURPOSE OF BUSINESS AND OUT OF ITS OW N RESOURCES, MONEY WAS ADVANCED TO SAI TO WHOM THE ASSESSEE USED TO SUPPLY SEMI-FINISH ED GOODS FOR FURTHER PROCESSING TOWARDS MARKETABLE PRODUCTS. THEREFORE, THE ACTIVI TIES OF SAI ARE INTEGRALLY CONNECTED TO ITS OWN BUSINESS AND THE AMOUNT WAS ADVANCED TO SAI BY WAY OF COMMERCIAL EXPEDIENCY. IT WAS FURTHER SUBMITTED BEFORE THE A.O . THAT THE HAD DEEP INTEREST IN SAI AND IS THUS ENTITLED TO THE DEDUCTION OF INTEREST C HARGED BY THE BANK. RELIANCE WAS PLACED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS VS. C.I.T. [288 I.T.R. 1 (SC)]. THE A.O., HOWEVER, WAS NOT CONVINC ED WITH THE EXPLANATION OF THE ASSESSEE AND HELD THAT BY PAYING INTEREST ON BEHALF OF SAI, THE ASSESEE HAS REDUCED THEIR PROFIT, WHEREAS SAI EARNED HIGHER PROFIT WITHOUT PAYING ANY TAX AS THEY CLAIMED EXEMPTION U/S. 80-IB OF THE ACT. THE A.O., HOWEVER, HAS ACCEPTED T HE ADVANCE OF RS.50,85,126/- FOR COMMERCIAL EXPEDIENCY, BUT DISALLOWED THE PROPORTIO NATE INTEREST OF RS.19,25,659/- BY APPLYING THE RATE OF INTEREST AT 15%. 4. BEFORE THE LD. C.I.T.(A) THE ASSESSEE REITERATE D THE SUBMISSIONS MADE BEFORE THE A.O. IT WAS FURTHER SUBMITTED THAT DURING THE ASSES SMENT YEAR UNDER CONSIDERATION, THE ASSESSEE SUPPLIED SEMI-FINISHED PRODUCTS TO SAI TO THE TUNE OF RS.83,89,992/- AND THE SAME HAS BEEN REFLECTED IN THE BOOKS OF THE ASSESSE E AS DEBIT ENTRIES FOR SALE OF GOODS AND AT THE SAME TIME THE SAID AMOUNT IS APPEARING I N THE BOOKS OF THE ASSESSEE AS CREDIT ENTRIES FOR PURCHASE OF GOODS. IT WAS CONTENDED TH AT THE AFORESAID TRANSACTIONS MADE BY THE ASSESSEE AS WELL AS SAI ARE IN THE NATURE OF PU RE BUSINESS ACTIVITIES PERFORMED BY THEM. IT WAS, THEREFORE, SUBMITTED BEFORE THE LD. C .I.T.(A) THAT THE ESTIMATED DISALLOWANCE OF INTEREST OF RS.19,25,669/- MADE BY THE A.O. WAS CONTRARY TO THE FACTS ON RECORD, HYPOTHETICAL AND ARBITRARY IN NATURE AND IS LIABLE TO BE DELETED. THE LD. C.I.T.(A) OBSERVED THAT THE A.O. HAS ALREADY CONSIDERED THE A MOUNT OF RS.50,85,126/- GIVEN TO SAI FOR THE PURPOSE OF BUSINESS AND NO ADVERSE VIEW WAS TAKEN. BUT REGARDING THE BALANCE ADVANCE OF RS.1,24,45,012/-, THE LD. C.I.T. (A) OBSERVED THAT THE ASSESSEE COULD NOT ESTABLISH THAT THIS ADVANCE HELPED THE ASSESSEE TO INCREASE HIS INCOME IN ANY MANNER. THE LD. C.I.T.(A) RELYING ON THE DECISIONS IN THE C ASES OF CIT VS. MOTOR GENERAL FINANCE 4 LTD. [255 ITR 449 (DEL)], CIT VS. V.I. BABY & CO. [ 254 ITR 245 (KER)], PHALTAN SUGAR WORKS LTD. VS. CIT [208 ITR 989 (BOM)] AND CIT VS. H.R. SUGAR FACTORY (P) LTD. [187 ITR 367 (ALL.)] HELD THAT THE A.O. HAS RIGHTLY DISA LLOWED THE INTEREST PAYABLE ON THE AMOUNT ADVANCED TO SAI WITHOUT ANY INTEREST. THE A CTION OF THE A.O. WAS, THEREFORE, CONFIRMED. HENCE THIS APPEAL BY THE ASSESSEE. 5. DURING THE COURSE OF HEARING, THE LD. A/R SUBMI TTED THAT THE A.O. DISALLOWED INTEREST OF RS.19,25,659/- BY CONSIDERING THE INTER EST @ 15% ON AN ESTIMATED BASIS ON THE GROUND THAT THE ASSESSEE PROVIDED INTEREST-FREE ADVANCES TO ITS SISTER CONCERN. THE LD. A/R SUBMITTED THAT THE SUM OF RS.1,27,40,353/- WAS OPENING BALANCE BROUGHT FORWARD FROM PRECEDING ASSESSMENT YEAR AND IN THE A SSESSMENT YEAR UNDER CONSIDERATION, I.E. A.Y. 2005-06, THERE WAS NO ADDI TIONAL ADVANCE MADE BY THE ASSESSEE AND RATHER THERE WAS A REPAYMENT OF RS.3 LAKHS APPR OXIMATELY AND AS ON 31/3/2005, A SUM OF RS.1,24,45,012/- WAS OUTSTANDING. HE SUBMITT ED THAT IN THE PRECEDING ASSESSMENT YEAR NO DISALLOWANCE WAS MADE BY THE DEPARTMENT. T HE LD. A/R SUBMITTED THAT THERE WAS COMMON BANK ACCOUNT MAINTAINED BY THE ASSESSEE IN WHICH ALL THE RECEIPTS WERE CREDITED AND THUS THERE IS NO NEXUS BETWEEN THE BOR ROWINGS AND ADVANCES. REFERRING TO TAX AUDIT REPORT SUBMITTED BEFORE THE TRIBUNAL, HE SUBMITTED THAT THE ASSESSEE-FIRM WAS HAVING ITS OWN CAPITAL OF MORE THAN RS. 5 CRORES AN D, THEREFORE, IT CANNOT BE SAID THAT THERE WAS DIVERSION OF BORROWED FUNDS TO INTEREST-F REE ADVANCE TO SAI. THE LD. A/R REFERRED THE DECISION OF I.T.A.T., KOLKATA BENCH DA TED 06/1/1993 IN ITA NOS.2961, 2962/K/91 & 493/K/92 IN THE CASE OF MOKALBARI KONOI TEA ESTATES P. LTD., A COPY OF WHICH HAS BEEN FILED, AND SUBMITTED THAT IN THE SAI D CASE THE TRIBUNAL DECIDED THAT NO DISALLOWANCE OF BANK INTEREST COULD BE MADE IF THER E WAS A COMMON BANK ACCOUNT IN WHICH ALL THE RECEIPTS WERE CREDITED AND THE LOAN W AS ALSO ADVANCED OUT OF IT. THE LD. A/R FURTHER RELYING ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT (SUPRA) SUBMITTED THAT IF THERE IS A C OMMON BANK ACCOUNT AND THE MONEY IS BORROWED FOR BUSINESS PURPOSES AND THERE IS ALSO AN ADVANCE DUE TO BUSINESS EXIGENCY, NO DISALLOWANCE OF INTEREST CAN BE MADE. THE LD. A /R SUBMITTED THAT BOTH THE FIRMS, I.E. ASSESSEE-FIRM AS WELL AS SISTER CONCERN, TO WHOM TH E ASSESSEE HAS GIVEN ADVANCE, ARE DOING SOME BUSINESS AT SAME PLACE UNDER THE SAME BR AND AND THUS THE ADVANCE WAS 5 GIVEN BY THE ASSESSEE TO ITS SISTER CONCERN, SAI, D URING THE COURSE OF BUSINESS TRANSACTION. THE LD. A/R FURTHER SUBMITTED THAT TH E A.O. HAD MADE DISALLOWANCE ON THE GROUND THAT INTEREST BEARING LOAN WAS DIVERTED TO I NTEREST-FREE ADVANCE TO SISTER CONCERN, WHICH IS ELIGIBLE FOR DEDUCTION U/S. 80-IB OF THE A CT. HE FURTHER SUBMITTED THAT THE ASSESSEE IS NOT ENTITLED FOR ANY DEDUCTION U/S. 80- IB OF THE ACT AND IF ANY DISALLOWANCE IS TO BE MADE IN RESPECT OF THE DEDUCTION ALLOWABLE TO THE SISTER CONCERN, IT COULD BE CONSIDERED IN THE HANDS OF THE BORROWER CONCERN, VI Z. SAI AND ON THAT ACCOUNT NO DISALLOWANCE CAN BE MADE IN THE HANDS OF THE ASSESS EE. THE LD. A/R SUBMITTED THAT THE DISALLOWANCE OF INTEREST U/S. 36(1)(III) OF THE ACT IS NOT JUSTIFIED. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE FURTHER SUBMITTED THAT T HE DECISION OF HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD. (SUPRA) CITED BY THE LD. A/R HAD BEEN CONSIDERED BY THE LD. C.I.T.(A) AND ONLY AFTER CONSIDERING THE SAID DECIS ION, THE DISALLOWANCE OF INTEREST HAS BEEN MADE AS THE ASSESSEE HAS GIVEN BORROWED MONEY TO THE SISTER CONCERN WITHOUT CHARGING INTEREST AND WHEREAS THE ASSESSEE HAS PAID INTEREST TO THE BANK TO REDUCE ITS PROFIT. HE ALSO SUBMITTED THAT THE SISTER CONCERN OF THE ASSESSEE HAS ALSO NOT PAID TAX, BECAUSE IT IS ENTITLED FOR DEDUCTION U/S. 80-IB OF THE ACT. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ORDER OF THE LD. C.I.T.(A) SHOULD BE CONFIRMED. 7. WE HAVE HEARD THE PARTIES AND CAREFULLY GONE TH ROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE DOCUME NTS FILED IN THE PAPER BOOK AND AVAILABLE ON RECORD. THE UNDISPUTED FACTS ARE THAT ASSESSEE-FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF CATTLE FEED. ITS SISTER CONCERN SAI, SITUATED IN THE INDUSTRIAL BACKWARD DISTRICT AND WHICH IS ENTITLED TO DEDUCTIO N U/S. 80-IB OF THE ACT, IS ALSO MANUFACTURER OF SAME KIND OF ANIMAL FEED AND SELL U NDER THE SAME BRAND NAME. IT IS ALSO OBSERVED FROM THE ORDER OF LD. C.I.T.(A) THAT DURIN G THE YEAR UNDER APPEAL, THE ASSESSEE SUPPLIED SEMI-FINISHED PRODUCTS TO SAI TO THE TUNE OF RS.83,89,992/- AND SAI COMPLETED THE PRODUCTS TO MARKETABLE CONDITION. THAT IN THE I MMEDIATELY PRECEDING ASSESSMENT YEAR TO THE ASSESSMENT YEAR UNDER CONSIDERATION, TH E ASSESSEE MADE INTEREST-FREE ADVANCE TO ITS SISTER CONCERN SAI AND THE OPENING BALANCE O F THE YEAR UNDER CONSIDERATION BROUGHT FORWARD FROM EARLIER YEAR WAS TO THE TUNE O F RS.1,27,40,353/-. THAT DURING THE 6 ASSESSMENT YEAR UNDER CONSIDERATION, THERE WAS NO F URTHER ADVANCE MADE BY THE ASSESSEE TO SAI AND AT THE SAME TIME THERE WAS A REPAYMENT O F LOAN OF RS.3 LAKHS APPROX., WHICH HAS RESULTED IN CLOSING BALANCE AS ON 31/3/2005 IN THE SUM OF RS.1,24,45,012/-. IT IS STATED BY THE DEPARTMENT THAT THE SISTER CONCERN OF THE ASSESSEE-FIRM ENJOYS EXEMPTION U/S 80-IB OF THE ACT AND HENCE BY PROVIDING INTERES T-FREE ADVANCE, PROFIT OF THE SAID FIRM HAS BEEN AUGMENTED. ON THE OTHER HAND, IT WAS THE CONTENTION OF THE ASSESSEE THAT INTEREST-FREE ADVANCE TO SISTER CONCERN WAS MADE DU E TO BUSINESS EXIGENCY AND HENCE NO DISALLOWANCE OF INTEREST ON PRESUMPTION BASIS CAN B E MADE IN THE HANDS OF THE ASSESSEE. NOW LET US EXAMINE ON THE FACTS AND CIRCUMSTANCES O F THE CASE WHETHER THE MONEY ADVANCED TO SISTER CONCERN WAS FOR COMMERCIAL EXPED IENCY AND WHETHER THE DEPARTMENT HAS ESTABLISHED A LINK BETWEEN THE BORROWINGS AND T HE ADVANCES MADE TO THE SISTER CONCERN TO JUSTIFY THE DISALLOWANCE OF INTEREST CLA IMED BY THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT THE PRODUCTS WHICH THE ASS ESSEE-FIRM AND SISTER CONCERN MANUFACTURE ARE ANIMAL FEED AND THE SALES ARE EFFEC TED UNDER THE SAME BRAND NAME. IT IS ALSO NOT DISPUTED BY THE DEPARTMENT THAT SEMI-FINIS HED GOODS ARE SUPPLIED BY THE ASSESSEE TO SAI FOR FURTHER PROCESSING TOWARDS MARK ETABLE PRODUCTS AND THE ASSESSEE- FIRM INCURS EXPENDITURE ON BEHALF OF ITS SISTER CON CERN AS AND WHEN REQUIRED. THEREFORE, THERE IS NO DENYING THE FACT THAT THE ACTIVITIES OF BOTH THESE FIRMS ARE CONNECTED TO EACH OTHER AND THUS WE FIND FORCE IN THE CONTENTION OF T HE LD. A/R THAT THE ASSESSEE-FIRM HAS COMMON INTEREST IN PROMOTING BUSINESS OF SAI AS IT OPERATES UNDER SAME BRAND. THE I.T.A.T., MUMBAI BENCH IN THE CASE OF RAMKISHIN TEX TILES P. LTD. VS. ITO [(2011) 9 ITR (TRIB) 321 (MUM)] HAS DEALT WITH A SIMILAR ISSU E. IN THAT CASE THE A.O. NOTICED THAT THE ASSESSEE HAD TAKEN INTEREST-BEARING UNSECURED L OANS AND PAID INTEREST ON SUCH LOANS. THE ASSESSEE ALSO ADVANCED INTEREST-FREE FUNDS TO I TS SISTER CONCERN AND IT WAS EXPLAINED BEFORE THE DEPARTMENT THAT THE CONCERN HAD CREDIT B ALANCE IN THE BEGINNING OF THE YEAR AND THAT IN THE PAST WHENEVER THE ASSESSEE BORROWED FUNDS FROM SISTER CONCERNS, THE ASSESSEE NEVER PAID INTEREST IN RESPECT OF THE SAME . THE A.O. DISALLOWED THE INTEREST, WHICH WAS UPHELD BY THE LD. C.I.T.(A). ON APPEAL, T HE TRIBUNAL HELD AS UNDER :- THAT IT WAS COMMERCIALLY EXPEDIENT FOR THE ASSESSEE , PARTICULARLY AS EVIDENT FROM THE NATURE OF TRANSACTIONS IN THE STATEMENTS OF ACC OUNTS TO GRANT INTEREST-FREE LOANS TO A SISTER CONCERN WHEN IT HAD AVAILED OF SU CH INTEREST-FREE LOANS FROM THE 7 ASSESSEE IN PAST. THE RECIPROCITY OF TRANSACTIONS WAS NOT IN DISPUTE NOR WAS THE FACT THAT THE ASSESSEE BENEFIT FROM THE SAME. THE INTEREST WAS DEDUCTIBLE. 7.1. FOR CLAIMING DEDUCTION U/S. 36(1)(III) OF THE ACT, THE BASIC REQUIREMENTS ARE - I) THE MONEY (CAPITAL) MUST HAVE BEEN BORROWED BY THE ASSESSEE; II) IT MUST HAVE BEEN BORROWED BY THE ASSESSEE F OR HIS BUSINESS, PROFESSION OR VOCATION; AND III) THE ASSESSEE MUST HAVE BEEN PAID INTEREST ON THE AMOUNT AND CLAIMED IT AS AN ALLOWANCE. THEREFORE, THE LANGUAGE USED IN SUB-SEC.(III) OF SE C.36(1) OF THE ACT IS THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR TH E PURPOSE OF THE BUSINESS OR PROFESSION. IT HAS BEEN HELD BY VARIOUS COURTS THAT THE EXPRESS ION FOR THE PURPOSE OF THE BUSINESS IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURP OSE OF EARNING PROFITS. FURTHER, IT HAS BEEN LAID DOWN IN VARIOUS CASES THAT IT IS NOT NECE SSARY THAT THE BUSINESS MAY BE CARRIED ON IN THE YEAR IN WHICH THE CAPITAL WAS BORROWED. IT IS SUFFICIENT THAT THE MONEY WAS UTILIZED FOR THE PURPOSE OF BUSINESS. HONBLE GUJA RAT HIGH COURT IN THE CASE OF DCIT VS. CORE HEALTH CARE LTD. [251 I.T.R. 61 (GUJ.)] HA S HELD THAT SEC.36(1)(III) OF THE ACT NOWHERE STIPULATES THAT BORROWING HAS TO BE ON REVE NUE ACCOUNT. FOR GIVING THE BENEFIT OF SEC.36(1)(III) OF THE ACT TO THE ASSESSEE, WHAT IS NECESSARY TO EXAMINE IS WHETHER THE ASSESSEE HAS USED THE BORROWED CAPITAL FOR THE PURP OSE OF BUSINESS. IF THAT IS FOUND TO BE TRUE, THEN ONE NEED NOT EXAMINE AS TO WHETHER THE A SSET PURCHASED WITH THE BORROWED CAPITAL HAS BEEN, IN FACT, USED BY THE ASSESSEE. T HE LD. A/R OF THE ASSESSEE RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD . VS. CIT (SUPRA) AND STATED THAT SEC. 36(1)(III) OF THE ACT TALKS ABOUT FOR THE PURPOSE OF BUSINESS AND NOT FOR THE PURPOSE OF PROFIT AND, THEREFORE, ONCE IT IS FOUND THE MONEY WAS ADVANCED TO SISTER CONCERN FOR COMMERCIAL EXPEDIENCY, NO ATTEMPT BE MADE TO DI SALLOW ANY PART OF INTEREST. WE FEEL IT PRUDENT TO QUOTE THE RELEVANT FINDING OF HONBLE AP EX COURT AS UNDER :- IN ORDER TO DECIDE WHETHER INTEREST ON FUNDS BORROW ED BY THE ASSESSEE TO GIVE AN INTEREST FREE LOAN TO A SISTER CONCERN (E.G., A SUB SIDIARY OF THE ASSESSEE) SHOULD BE ALLOWED AS A DEDUCTION UNDER SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961, ONE HAS TO ENQUIRE WHETHER THE LOAN WAS GIVEN BY THE ASSESS EE AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE EXPRESSION COMMERCIAL EXPEDIENCY IS ONE OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF 8 BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURR ED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. DECISIONS RELATING TO SECTION 37 WILL ALSO BE APP LICABLE TO SECTION 36(1)(III) BECAUSE IN SECTION 37 ALSO THE EXPRESSION USED IS FOR THE PURPOSE OF THE BUSINESS. FOR THE PURPOSE OF BUSINESS INCLUDES EXPENDITURE VOLUNTARI LY INCURRED FOR COMMERCIAL EXPEDIENCY, AND IT IS IMMATERIAL IF A THIRD PARTY A LSO BENEFITS THEREBY. IN VIEW OF ABOVE AND CONSIDERING THE AFORESAID DECI SIONS OF HONBLE APEX COURT AND GUJARAT HIGH COURT, IN OUR CONSIDERED OPINION, THE ASSESSEE HAS ESTABLISHED THE COMMERCIAL EXIGENCY IN ADVANCING INTEREST-FREE LOAN TO ITS SISTER CONCERN. 7.2. NOW COMING TO THE OTHER OBJECTION OF THE DEPA RTMENT THAT INTEREST-FREE ADVANCE WAS GIVEN TO SAI OUT OF BORROWED FUND ONLY, WE ON P ERUSAL OF THE AUDITED ACCOUNTS PLACED BEFORE US OBSERVE THAT THE PARTNERS CAPITAL AS ON 31 ST MARCH, 2005 OF THE ASSESSEE-FIRM WAS REFLECTED AT RS.5,26,63,410/- AND SECURED LOAN WAS SHOWN AT RS.2,43,20,487/-. THE AMOUNT ADVANCED TO THE SISTE R CONCERN STOOD AT RS.1,24,45,012/- AS ON 31/3/2005 AFTER ADJUSTMENT OF REPAYMENT OF LO AN OF RS. 3 LAKHS APPROX. BY SAI. IT IS THUS EVIDENT THAT THE ASSESSEE-FIRM WAS HAVING S UFFICIENT FUND OF ITS OWN TO ADVANCE MONEY. FURTHER, THE CONTENTION OF THE ASSESSEE THAT IT MAINTAINS A MIXED ACCOUNT WITH THE BANK WHERE ALL THE RECEIPTS ARE CREDITED IS TO BE CONTROVERTED BY THE DEPARTMENT. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. ASHOKE CHARITY TRUST [135 ITR 556 (CAL)] HELD THAT IN THE CASE WHERE THERE WAS A COMM ON FUND, INTO WHICH ALL THE RECEIPTS OF THE ASSESSEE WERE DEPOSITED AND UTILIZED FOR MEE TING THE EXPENSES, THE INCOME-TAX ACT DID NOT AUTHORIZE AN APPORTIONMENT OF THE EXPEN DITURE BETWEEN THE DIFFERENT HEADS OF RECEIPTS AND TO MAKE A DISALLOWANCE OF A PORTION OF THE EXPENDITURE ON THE GROUND THAT IT WAS REFERABLE TO A NON-TAXABLE RECEIPT OF T HE ASSESSEE. IN THIS CONNECTION, WE ALSO REFER TO THE DECISION OF HONBLE CALCUTTA HIGH COUR T IN THE CASE OF BRITISH PAINTS (INDIA) LTD. VS. CIT [190 ITR 196 (CAL)] WHEREIN THE ISSUE WAS PAYMENT OF INCOME-TAX OUT OF THE OVERDRAFT ACCOUNT IN WHICH ALL THE SALE PROCEED S AND RECEIPTS DURING THE YEAR COVERING THE PROFITS OF THE ASSESSEE WERE DEPOSITED . THE HONBLE COURT FOLLOWING THE RATIO OF ITS EARLIER DECISION IN THE CASE OF INDIAN EXPLOSIVES LTD. VS. CIT [147 ITR 392 (CAL)] HELD THAT NO PART OF THE INTEREST PAID BY TH E ASSESSEE ON THE OVERDRAFT ACCOUNT CAN 9 BE DISALLOWED ON THE GROUND THAT THE INCOME-TAX HAD ALSO BEEN PAID OUT OF THE OVERDRAFT ACCOUNT. THE AFORESAID DECISIONS OF HONBLE CALCUTT A HIGH COURT WOULD GO TO ESTABLISH THAT IN A CASE WHERE THERE IS MIXED FUND, NO ATTEMP T SHOULD BE MADE TO BIFURCATE THE SAME FOR THE PURPOSE OF APPLYING THE PROVISIONS OF SEC. 36(1)(III) OF THE ACT. IN THE CASE BEFORE US, IT IS NOT DISPUTED THAT ALL THE SALE PRO CEEDS/RECEIPTS OF THE ASSESSEES BUSINESS ARE DEPOSITED IN THE BANK WHERE THE ASSESSEE ENJOYS OVERDRAFT FACILITIES. THE DEPARTMENT, IN OUR OPINION, HAS NOT ESTABLISHED THAT THE AMOUNT ADVANCED TO THE SISTER CONCERN CAME ONLY OUT OF THE BORROWED FUND, WHEREAS THE ASSESSEE HAS ESTABLISHED THAT IT HAD SUFFICIENT FUNDS APART FROM BORROWINGS FROM WHICH THE ADVANCE COULD HAVE BEEN MADE. 7.3. THE NEXT OBJECTION OF THE DEPARTMENT WAS THAT THE ASSESSEE BY PAYING INTEREST ON BEHALF OF SAI HAS REDUCED ITS PROFIT, WHEREAS SAI E ARNED HIGHER PROFIT WITHOUT PAYING ANY TAX AS THEY ARE ENTITLED TO EXEMPTION U/S. 80-IB OF THE ACT. THE LD. A/R SUBMITTED THAT THERE WAS NO SUCH FINDING RECORDED IN THE CASE OF SAI, WH EREIN AS PER SEC. 80-IA(10) OF THE ACT, THE A.O. HAD THE POWER TO RECOMPUTE THE PROFIT OF S AI IN SUCH AN EVENTUALITY. HE ALSO SUBMITTED THAT FOR THE PURPOSE OF SEC. 80-IB OF THE ACT, THE PROVISIONS OF SEC. 80-IA(10) OF THE ACT ARE ANALOGOUS. SEC. 80-IA(10) OF THE ACT R EADS AS UNDER :- (10) WHERE IT APPEARS TO THE ASSESSING OFFICER THAT, OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELI GIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OT HER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSIN ESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PRO FITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE ASSESSING O FFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSE OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. SEC. 80-IA(10) OF THE ACT IS CORRESPONDING TO SEC. 80-IB OF THE ACT. ON READING OF THE AFORESAID SEC. 80-IA(10) OF THE ACT, IT IS EVIDENT THAT IF THE A.O. FINDS THAT THE ASSESSEE HAS ARRANGED THE TRANSACTIONS WITH ANY OTHER PERSON IN SUCH A MANNER THAT IT PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH M IGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, HE IS EMPOWERED TO TAKE THE AMOU NTS OF SUCH PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED BY THE ASSES SEE ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES, FOR THE PURPOSE OF DEDU CTION UNDER THIS SECTION. WE OBSERVE THAT ALTHOUGH THE DEPARTMENT HAS ALLEGED THAT THE ASSESSEE BY PAYING INTEREST ON BEHALF OF 10 SAI HAS REDUCED ITS PROFIT, WHEREAS SAI EARNED HIGH ER PROFIT WITHOUT PAYING ANY TAX AS THEY ARE ELIGIBLE FOR EXEMPTION U/S. 80-IB OF THE ACT, B UT IT HAS NOT BEEN BROUGHT ON RECORD OR DISCUSSED IN THE ORDERS OF THE AUTHORITIES BELOW WH ETHER THERE WAS ANY SUCH ACTION IN TERMS OF SEC. 80-IA(10) OF THE ACT TAKEN BY THE A.O. IN T HE CASE OF SAI, FOR WHICH HE HAD THE SCOPE AS PER THE SAID SECTION. 7.4. CONSIDERING THE TOTALITY OF THE FACTS AND CIR CUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE LD. C.I.T.(A) WAS NOT J USTIFIED IN UPHOLDING THE ACTION OF THE A.O. IN MAKING DISALLOWANCE OF INTEREST OF RS.19,25 ,659/-, WHICH IS DIRECTED TO BE DELETED. 8. THE APPEAL OF THE ASSESSEE IN ITA NO. 312/KOL/2 009 FOR ASSESSMENT YEAR 2005- 06 IS ALLOWED. ITA NO. 2144 (KOL) OF 2010 (A.Y. 2007-08) : 9. IN THIS APPEAL FOR ASSESSMENT YEAR 2007-08, THE FIRST ISSUE IS AGAINST DISALLOWANCE OF RS.25,90,528/- OUT OF INTEREST PAYMENT, WHICH WA S UPHELD BY THE LD. C.I.T.(A). THE GROUNDS RAISED IN THIS REGARD ARE AS UNDER :- 1. THE ORDERS PASSED BY THE ASSESSING OFFICER AN D THE COMMISSIONER OF INCOME TAX (APPEALS) ARE ARBITRARY, ERRONEOUS, WITHOUT PROPER REASONS, INVALID AND BAD IN LAW. 2. THE LEARNED CIT (A) ERRED IN STATING ON THE O NE HAND THAT ON EXAMINATION OF THE APPELLATE FOLDER FOR A.Y. 2005-06, IT WAS FOUND THA T THE MAJOR ISSUE RELATED TO BOTH THE APPEALS VIZ, THE APPEAL LYING BEFORE THE I TAT FOR A.Y. 2005-06 AND THE PRESENT APPEAL FOR A.Y. 2007-08 BEFORE HIM WAS COMM ON, INTER ALIA, DISALLOWANCE OF INTEREST ON ACCOUNT OF INTEREST FRE E LOAN TO THE SISTER CONCERN AND AT THE SAME TIME IN COMMENTING THAT THERE WAS NO CO NSEQUENTIAL EFFECT OF THE SAME ON THE PRESENT APPEAL. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN NOT ALLOWING THE ADJOURNMENT PETITION FILED BEFORE HIM ON THE GROUND THAT SIMILAR ISSUE FOR A.Y. 2005-06 WAS LYING BEFORE THE ITAT FO R DECISION AND IN PROCEEDING TO DECIDE THE APPEAL EX-PARTE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OUT OF INTEREST PAYMENT TO THE EXTENT OF RS.25,90,528/-. 11 10. THE FACTS RELATING TO THE ABOVE ISSUE ARE IDEN TICAL TO THOSE OF ASSESSMENT YEAR 2005- 06. THE LEARNED REPRESENTATIVES OF THE PARTIES HAV E ALSO STATED THAT THE DECISION WHICH MAY BE TAKEN IN THE APPEAL FOR ASSESSMENT YEAR 2005-06 WILL ALSO BE APPLICABLE TO THE CASE FOR ASSESSMENT YEAR 2007-08. IN VIEW OF THE ABOVE AND FOR THE REASONS DISCUSSED IN THE APPEAL FOR ASSESSMENT YEAR 2005-06 ON THIS ISSUE, WE HOLD THAT THE LD. C.I.T.(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS.25,90,528/- MADE BY T HE A.O. BY WAY OF DISALLOWANCE OF INTEREST PAYMENT ON BORROWED FUND. THE ADDITION IS , THEREFORE, DIRECTED TO BE DELETED. 11. THE NEXT GROUND IS AGAINST DISALLOWANCE OUT OF MATERIAL HANDLING CHARGES. THE GROUNDS RAISED IN THIS REGARD ARE AS UNDER :- 5(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEARNED CIT (A) ERRED IN HOLDING THAT MATERIAL HANDLING CHARGES HAD BEEN CLA IMED AT RS.25,90,528/- OUT WHICH RS.4,22,446/- HAD BEEN DISALLOWED @ 5%, WHERE AS ACTUALLY, THE CLAIM IN THIS REGARD HAD BEEN MADE AT RS.4,22,446/- OUT OF W HICH DISALLOWANCE HAD BEEN MADE AT RS,2 1,122/- ONLY @ 5%. 5(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEIIRNED CIT (A) ERRED IN ACTUALLY CONFIRMING THE DISALLOWANCE OF RS.2 1,122/ - OUT OF MATERIAL HANDLING CHARGES. 11.1. THE ASSESSEE HAS CLAIMED TO HAVE INCURRED E XPENDITURE OF RS.4,22,446/- ON ACCOUNT OF MATERIAL HANDLING CHARGES AND, ACCORDINGLY, DEBI TED THE SAME TO ITS P/L ACCOUNT. THE A.O. DISALLOWED ON ESTIMATE BASIS @ 5% OUT OF SUCH EXPENDITURE WHICH CAME TO RS.21,122/-, AS ACCORDING TO HIM THE ASSESSEE HAS P RODUCED INTERNAL VOUCHERS IN SUPPORT OF THE EXPENDITURE WHICH WERE NOT AMENABLE TO VERIFICA TION. HOWEVER, ON APPEAL, THE LD. C.I.T.(A) MISTAKENLY TOOK THE FIGURE OF EXPENDITURE AT RS.25,90,528/- INSTEAD OF RS.4,22,446/-. HE HAS, HOWEVER, UPHELD THE DISALLO WANCE MADE BY THE A.O. @ 5% OF THE TOTAL CLAIM MADE UNDER THIS HEAD. IN OUR CONSIDERE D OPINION, THE A.O. HAS RIGHTLY DISALLOWED ON ESTIMATE BASIS THE EXPENDITURE TO THE EXTENT OF 5% OF THE TOTAL EXPENDITURE OF RS.4,22,446/- AS THE VOUCHERS IN SUPPORT OF SUCH EX PENDITURE WERE MOSTLY INTERNAL VOUCHERS. THE ADDITION OF RS.21,122/- IS, THEREFORE, UPHELD A ND THE GROUND OF THE ASSESSEE IN THIS RESPECT IS DISMISSED. 12 12. THE NEXT GROUND OF THE ASSESSEE IS AGAINST DIS ALLOWANCE UNDER THE HEAD REPAIRS & MAINTENANCE, WHICH READS AS UNDER :- 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.83,029/- BEING 5% OF THE TOTAL CLAIM OF RS.16,60,582/- UNDER THE HEAD REPAIRS & MAINTENANCE S. 12.1. THE ASSESSEE CLAIMED TO HAVE INCURRED EXPE NDITURE OF RS.16,60,582/- ON ACCOUNT OF REPAIRS & MAINTENANCE AND IN SUPPORT THEREOF, MOSTL Y INTERNAL VOUCHERS WERE PRODUCED BEFORE THE A.O. ACCORDING TO THE A.O., THESE INTER NAL VOUCHERS WERE NOT AMENABLE TO VERIFICATION AND HE THUS ON ESTIMATE BASIS DISALLOW ED @ 5% OF THESE EXPENSES, WHICH CAME TO RS.83,029/- AND ADDED THE SAME TO THE TOTAL INCO ME OF THE ASSESSEE. THE LD. CI.T.(A) UPHELD THE DISALLOWANCE. THERE IS NO DISPUTE TO TH E FACT THAT THE ASSESSEE PRODUCED MOSTLY INTERNAL VOUCHERS WHICH LED THE A.O. TO BELIEVE THE POSSIBILITY OF INFLATING THE EXPENSES. CONSIDERING THE FACTS OF THE CASE, WE FIND NO JUSTI FICATION TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE. WE, THEREFORE, CO NFIRM THE ACTION OF THE LD. C.I.T.(A) IN SUSTAINING THE ADDITION OF RS.83,029/-, BEING 5% OF REPAIRS & MAINTENANCE EXPENSES OF RS.16,60,582/-. THIS GROUND OF THE ASSESSEE FAILS A ND IS THUS DISMISSED. 13. THE NEXT GROUND OF THE ASSESSEE READS AS UNDER :- 7. ON THE FACTS AND M THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCES OF RS.83,175/- UNDER T HE HEAD DONATION & SUBSCRIPTION AND OF RS.77,360/- UNDER PUJA EXPENSES . AT THE TIME OF HEARING BEFORE US, THE LD. A/R OF TH E ASSESSEE SUBMITTED THAT DISALLOWANCE OF RS.83,175/- IS NOT PRESSED FOR. HOWEVER IN RESPECT OF RS.77,360/- HE SUBMITTED THAT THOSE EXPENSES RELATE TO CONTRIBUTION MADE TO LOCAL ASSOC IATIONS AND COMMITTEES IN THE VICINITY OF THE PLACE WHERE THE ASSESSEE IS CARRYING ON THE BUS INESS DURING PUJA AND OTHER FESTIVALS. HE ALSO SUBMITTED THAT THIS EXPENDITURE ALSO INCLUDES THE EXPENSES INCURRED BY THE ASSESSEE ON THE TEMPLE WHICH WITHIN THE PREMISES OF THE ASSESSE ES UNITS. HE SUBMITTED THAT IN THIS REGARD NO VOUCHERS COULD BE AVAILABLE AS THESE ARE THE PETTY AMOUNT OF EXPENSES INCURRED BY THE ASSESSEE. 13 13.1. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LE ARNED REPRESENTATIVES OF THE PARTIES. WE AGREE THAT THE ASSESSEE HAS TO INCUR EXPENSES DU RING FESTIVALS BY WAY OF CONTRIBUTION TO THE PUJA COMMITTEES AND ASSOCIATIONS DURING THE FES TIVAL SEASONS TO ENABLE THE ASSESSEE TO RUN ITS BUSINESS PEACEFULLY. THE ABOVE ISSUE HAS A LSO BEEN CONSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BA TA INDIA LTD. [201 I.T.R. 884 (CAL)]. RESPECTFULLY FOLLOWING THE ORDER OF THE HONBLE JUR ISDICTIONAL HIGH COURT AND ALSO CONSIDERING THE SUBMISSIONS OF THE REPRESENTATIVES OF THE PARTIES AND ALSO CONSIDERING THAT THE DETAILS OF THE SAID EXPENSES INCURRED BY THE AS SESSEE ARE NOT ON RECORD, WE CONSIDER IT PRUDENT TO ALLOW THE SUM OF RS.40,000/- OUT OF RS.7 7,360/- CLAIMED BY THE ASSESSEE UNDER THE HEAD PUJA EXPENSES. FURTHER THE DISALLOWANCE OF RS.83,175/- CLAIMED UNDER THE HEAD DONATION AND SUBSCRIPTION IS CONFIRMED AS THE SAI D GROUND IS NOT PRESSED. HENCE GROUND NO.7 OF THE ASSESSEE IS ALLOWED IN PART. 14. THE LAST GROUND OF THE ASSESSEE READS AS UNDER :- 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.3,384/- BEING DEP RECIATION ON TEMPLE BUILDING BY OBSERVING THAT THE TEMPLE BUILDING IS N OT A BUSINESS ASSET OF THE APPELLANT FIRM. 14.1. THE ASSESSEE IN ITS P/L ACCOUNT DEBITED RS.3 ,384/- ON ACCOUNT OF DEPRECIATION FOR TEMPLE BUILDING. THE A.O. DISALLOWED THE CLAIM ON THE GROUND THAT THE TEMPLE BUILDING IS NOT BUSINESS RELATED FIXED ASSETS, WHIC H WAS UPHELD BY THE LD. C.I.T.(A). IT WAS SUBMITTED BY THE LD. A/R THAT THE SAID TEMPLE B UILDING WAS SITUATED IN THE BUSINESS PREMISES OF THE ASSESSEE WHERE ALL ITS EMPLOYEES AN D THEIR FAMILY MEMBERS PERFORM PUJA. IT IS FOR THE WELFARE OF THE EMPLOYEES. THE T EMPLE BUILDING IS SHOWN AS ASSET IN THE BALANCE SHEET OF THE ASSESSEE AND, THEREFORE, T HE ASSESSEE HAS RIGHTLY CLAIMED DEPRECIATION ON SUCH TEMPLE BUILDING. IN OUR CONSI DERED OPINION, THE REVENUE AUTHORITIES HAVE DISALLOWED THE CLAIM ONLY PRESUMIN G THAT TEMPLE BUILDING IS NOT A BUSINESS ASSET OF THE ASSESSEE. BUT THEY HAVE OMIT TED TO TAKE INTO CONSIDERATION THE PURPOSE FOR WHICH THE TEMPLE BUILDING WAS CONSTRUCT ED AND SHOWN AS ASSET IN THE BALANCE SHEET. IN VIEW OF THE ASSESSEE, WE FIND NO IRREGULARITY IN CLAIMING DEPRECIATION ON SUCH TEMPLE BUILDING. THE DISALLOWANCE MADE BY T HE A.O. OF RS.3,384/- AND 14 CONFIRMED BY THE LD. C.I.T.(A) IS, THEREFORE, DIREC TED TO BE DELETED. THIS GROUND OF THE ASSESSEE IS ALLOWED. 15. THE APPEAL OF THE ASSESSEE IN ITA NO. 2144/KOL /2010 FOR ASSESSMENT YEAR 2007- 08 IS PARTLY ALLOWED. 16. IN THE RESULT, THE APPEAL FOR ASSESSMENT YEAR 2005-06 IS ALLOWED AND THAT FOR ASSESSMENT YEAR 2007-08 IS PARTLY ALLOWED. 4 '3 #5' 6 5% 7 48 THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON 31.5. 2011. SD/- SD/- ( . .. . ! ! ! !. .. . ) '# ( . . . . . .. . ) (C.D.RAO) , ACCOUNTANT MEMBER (B.R.MITTAL) , JUDICIAL MEMBER ORDER PRONOUNCED IN OPEN COURT ( (( (!# !# !# !#) )) ) DATE: 31-05-2011 ON 31/5/11. SD/-(CDR),AM SD/- MS ),JM '3 1 /9 :'9';- COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT : M/S. SAMRAT FEED MILLS, B/10/5, JAJODIA MARKET, SILIGURI-7 34 005. 2 /0+, / THE RESPONDENT : JCIT, RANGE-2 / DCIT, CIRCLE-2, SILIGURI 3. 3% () : THE CIT(A), SILIGURI. 4. 3%/ THE CIT, SILIGURI 5 ?7 /% / DR, ITAT, KOLKATA BENCHES, KOLKATA 6 GUARD FILE . 09 // TRUE COPY, '3%5/ BY ORDER, (DKP) @ A / DY/ASSTT. REGISTRAR .