ACIT, Khanna V. M/s Kisco Casting Proprietor, Khanna

ITA 32/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5383 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-03-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 11-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: RAJIV DATTA
• Keywords: Principle of natural justice
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 32/CHD/2011 ASSESSMENT YEAR: 2007-08 THE ACIT, VS. M/S KISCO CASTING, PROPRIETOR CIRCLE, M/S KHANNA IRON AND STEEL CORPN KHANNA KHANNA PAN NO. AAAFK8709N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K.SAINI RESPONDENT BY: SHRI RAJIV DATTA ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE REVENUE IS AGAINST THE ORDER OF CIT(A),-II, LUDHIANA DATED 8.11.2010 RELATING TO ASSESSMENT YEA R 2007-08 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LD. CIT(A)-II HAS ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION OF RS. 3,67,931/- MADE BY THE ASSESSING OFFICER BY MAKING DISALLOWANCE OUT OF INTEREST ON INTEREST FREE LOANS TO SISTER CONCERNS. 2. THAT THE LD. CIT(A)-II HAS ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION OF RS. 10,38,945/- MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF INTEREST BEING PREOPERATIVE EXPENSES IN RESPECT OF TOTAL ASSETS OF UNIT-II 2 3. THAT THE ORDER OF CIT(A)-II BE SET ASIDE AND THAT O F THE ASSESSING OFFICER BE RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE MANUFACTURING OF STEEL INGOTS, METAL RODS ETC. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO F ILE THE DETAILS OF INTEREST FREE LOANS/ADVANCES IF ANY ALONGWITH REASO NS. THE ASSESSEE EXPLAINED TO HAVE ADVANCED INTEREST FREE LOANS TO 5 PARTIES AS DETAILED IN PARA 5 AT PAGE 3 OF ASSESSMENT ORDER. THE ASSESSEE WAS CONFRONTED VIDE ORDER-SHEET ENTRY DATED 7.12.2009 THAT IN VIEW OF S UBSTANTIAL INTEREST DEBITED TO THE PROFIT & LOSS ACCOUNT, WHY PROPORTIO NATE INTEREST SHOULD NOT BE DISALLOWED IN VIEW OF THE JUDGEMENT OF HON'B LE PUNJAB & HARYANA HIGH COURT IN M/S ABHISHEK INDUSTRIES LTD. (286 ITR 1 (P&H) ) AND ALSO BECAUSE OF DISALLOWANCE IN ASSESSMENT YEAR 2006-07. THE AO NOTES THE ASSESSEE TO HAVE AGREED TO THE ABOVE ADDITION VIDE ORDER-SHEET ENTRY DATED 15.12.2009 AND ACCORDINGLY INTEREST DEBITED TO THE PROFIT & LOSS ACCOUNT WAS DISALLOWED @ 15% RESULTING IN DISALLOWANCE OF R S.3,67,931/-. IN APPEAL BEFORE THE CIT(A), THE ASSESSEE RAISED THE I SSUE OF DISALLOWANCE OF RS.3,67,931/-. THE SUBMISSION OF THE ASSESSEE IN T HIS REGARD WAS THAT IT HAD AGREED TO THE ADDITION IN VIEW OF THE JUDGEMENT IN CASE OF ABHISHEK INDUSTRIES LTD. (SUPRA) WHICH HAS BEEN REVERSED BY THE HON'BLE APEX COURT IN MUNJAL SALES CORPORATION V CIT (298 ITR 29 8 (S.C). THE ASSESSEE EXPLAINED THAT IT HAD CAPITAL AND RESERVES ON WHICH IT WAS NOT PAYING INTEREST AND FURTHER THAT THE NATURE OF ADVA NCES WERE ELABORATELY EXPLAINED BEFORE THE CIT(A) WHICH ARE INCORPORATED UNDER PARA 3.4 AT PAGES 2 & 3 OF THE APPELLATE ORDER. IT WAS ALSO EX PLAINED THAT THE ADVANCES TO TWO OF THE PARTIES WERE GIVEN IN THE EA RLIER YEARS AND NO DISALLOWANCE COULD BE MADE IN RESPECT OF INTEREST A TTRIBUTABLE TO SUCH ADVANCES. FURTHER PLEA OF THE ASSESSEE WAS THAT AL L THE ADVANCES EXCEPT 3 M/S GOYAL STEELS FOR THE PURCHASE OF RAW MATERIAL W ERE ON BEHALF OF THE MANAGING PARTNER AND AS NO INTEREST WAS BEING PAID ON THE CAPITAL BALANCE AVAILABLE OF THE PARTNER, NO DISALLOWANCE IS WARRAN TED IN THIS CASE. THE CIT(A) HAS GIVEN A FINDING VIDE PARA 3.5 THAT THE A SSESSEE HAD NOT BORROWED ANY FUNDS FOR MAKING THE ADVANCES AND FURT HER IT HAS BEEN POINTED OUT THAT THE AO HAD NOT CO-RELATED ANY BORR OWED FUNDS WITH THE ADVANCES. THE CIT(A) FURTHER OBSERVED AS UNDER: I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND HAS PERUSED THE ASSESSMENT ORD ER. THE ASSESSEE HAS NOT BORROWED ANY FUNDS FOR MAKING THE ADVANCES. THE LD. AO HAS NOT CO-RELATED ANY BORROWED FUNDS WI TH THE ADVANCES. IN THE CASE OF M/S SARVPRIYA DEVELOPERS ( P) LTD. AND SHRI SATISH CHANDER, THE ADVANCES WERE IN THE Y EAR 2004. HENCE, NO BORROWED FUNDS WERE UTILIZED RELATING TO THE YEAR UNDER APPEAL. THE ADVANCE GIVEN TO M/S GOYAL STEEL S WAS GIVEN IN THE YEAR 2006. THE SAID CONCERN IS NOT RE LATED TO THE ASSESSEE. THE PURPOSES OF ADVANCE WAS FOR PURCHASE OF MATERIAL. THE ADVANCE TO SHRI RAGHAV GOYAL, MRS. K AVITA GOEL SON AND DAUGHTER OF THE PARTNER OF THE ASSESSE E FIRM WERE ON BEHALF OF THE PARTNER AS STATED BY THE ASSESSEE. IT IS A FACT THAT THE ASSESSEE IS NOT PAYING ANY INTEREST TO THE PARTNERS AND OTHER INTEREST FREE FUNDS WERE AVAILABLE WITH THE A SSESSEE. THE ASSESSEE'S CAPITAL BALANCE AS ON 31.3.2007 WAS 442. 82 LACS BESIDES A RESERVE OF RS.16.85 LACS. THE ASSESSEE H AS NOT UTILIZED BORROWED FUNDS FOR ADVANCING THESE AMOUNTS . THESE INTEREST FREE ADVANCES WERE ABOUT 6% OF THE TOTAL F UNDS AND RESERVE BELONGING TO THE PARTNERS AND THE ASSESSEE HAD ALSO WITH HIM INTEREST FREE CREDITORS AMOUNTING TO RS.74 .83 LACS WHICH ITSELF WERE MANY TIMES MORE THAN THE ADVANCES . KEEPING IN VIEW THE FACTS OF THE CASE AND RELYING ON THE JU DGEMENT OF THE ITAT BENCH REPORTED IN 51 TTJ 393 IN THE CASE O F M/S GOYAL TIMBERS V ITO, I HOLD THAT NO DISALLOWANCE OF INTEREST COULD BE MADE. THE ASSESSEE GETS A RELIEF OF RS.3,6 7,931/-. 4 4. THE LD. DR FOR THE REVENUE BY PLACING RELIANCE O N THE ORDER OF AO POINTED OUT THAT THE DISALLOWANCE IN THE CASE WAS W ARRANTED IN VIEW OF THE RATIO LAID DOWN IN ABHISHEK INDUSTRIES LTD. (SUPRA ). THE LD. AR FOR THE ASSESSEE POINTED OUT THAT THE AO HAD NOT RAISED ANY QUERY WITH REGARD TO THE CONCERN M/S GOYAL STEELS, WHICH WAS NOT A SISTE R CONCERN AND THE ADVANCE WAS MADE TO THE SAID PARTY IN CONNECTION WI TH THE BUSINESS OF THE ASSESSEE. THE PARTIES NO.2 & 3 WERE STATED TO BE R ELATED TO THE PARTNERS AND THE ADVANCES WERE OUT OF CAPITAL BALANCES OF TH E PARTNERS. THE PARTY NO.5 WAS CLAIMED TO BE NOT RELATED TO THE ASSESSEE AND AMOUNT DUE FROM PARTY NO.4 WAS ON ACCOUNT OF AN ADVANCE FOR PLOT, W HICH WAS LATER DEBITED TO THE ACCOUNT OF THE PARTNERS. 5. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING S WAS ASKED TO GIVE DETAILS OF INTEREST FREE LOANS, IF ANY ALONGWITH RE ASONS THEREOF. THE ASSESSEE VIDE ITS REPLY POINTED OUT FIVE SUCH ADVAN CES MADE TO DIFFERENT PARTIES, WHICH ARE AS UNDER : I). M/S GOYAL STEELS, RS.9,00,000/- MANDI GOBINDGARH II) SHRI RAGHAV GOYAL,KHANNA RS.2,83,497/- III) SMT.KAVITA GOYAL, KHANNA RS.2,69,377/- IV) SARVPRIYA DEVELOPERS (P)LTD. RS. 3,00,000/- V) SATISH CHANDER GOYAL RS. 7,00,000/- 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO REQUISITIONED THE ASSESSEE AND ALSO SHOW CAUSED TO EXPLAIN AS TO WHY INTEREST RELATABLE TO SUCH ADVANCES BE NOT DISALLOWED. THE ASSESSEE AG REED TO AN ADDITION OF RS.367,931/-. THE BASIS FOR THE DISALLOWANCE WAS TH E RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ABHISHEK INDUSTRIES LTD. (SUPRA) AND ALSO SIMILAR DISALLOWANCE MADE IN ASSES SMENT YEAR 2006-07. THE ASSESSEE FILED AN EXPLANATION BEFORE THE CIT(A) IN RESPECT OF THE 5 NATURE OF THE ABOVESAID LOANS ADVANCED BY IT. IN R ESPECT OF M/S GOYAL STEELS, IT WAS EXPLAINED THAT THE SAID ADVANCE WAS FOR THE PURCHASE OF MATERIAL AND AS THE MATERIAL WAS NOT SUPPLIED, THE SAME WAS RETURNED BACK DURING ASSESSMENT YEAR 2010-11. IN RESPECT OF THE A DVANCE MADE TO RAGHAV GOYAL AND MS. KAVITA GOYAL, CHILDREN OF SHRI PRADEEP GOYAL, PARTNER OF THE ASSESSEE FIRM, IT WAS EXPLAINED THAT THE SAID AMOUNT WAS ADVANCED ON BEHALF OF THE PARTNER AND WAS TRANSFERR ED TO HIS CAPITAL ACCOUNT DURING THE ASSESSMENT YEAR 2010-11. THE SE COND PLEA IN THIS REGARD WAS THAT NO INTEREST WAS BEING PAID ON THE C APITAL BALANCE OF THE PARTNERS. THE ADVANCE TO M/S SARVPRIYA DEVELOPERS OF RS.3,00,000/- WAS AN ADVANCE FOR PURCHASE OF PLOT AND THE AMOUNT WAS LATER TRANSFERRED TO THE CAPITAL ACCOUNT OF THE PARTNER MR.KULDEEP GOYAL . THE SAID ADVANCE FOR PURCHASE OF PLOT WAS MADE IN ASSESSMENT YEAR 19 98-99 AND NOT DURING THE YEAR UNDER CONSIDERATION. FURTHER, THE ADVANCE OF RS.7,00,000/- TO SHRI SATISH CHANDRA WAS MADE IN 2004-05 AND WAS REC EIVED BACK IN ASSESSMENT YEAR 2008-09. THE ASSESSEE FURTHER EXPL AINED THAT IN ADDITION TO THE CAPITAL ACCOUNT OF THE PARTNERS TOTALING RS. 4.42 CR, IT HAD RESERVES AND SURPLUS OF 16.85 LACS AND INTEREST FREE UNSECUR ED LOANS OF RS.62.44 LACS AND AS SUCH THE INTEREST BEARING LOANS WERE CL AIMED NOT TO HAVE BEEN UTILIZED FOR MAKING THE ABOVESAID ADVANCES. 7. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V ABHISHEK INDUSTRIES HAS HELD AS UNDER : SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961, PR OVIDES FOR DEDUCTIONS OF INTEREST ON LOANS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION IN THE BOOKS OF ACCOUNT, THE ONUS WILL BE ON THE ASSESSEE TO SATISF Y THE ASSESSING OFFICER THAT WHATEVER LOANS WERE RAISED BY THE ASSE SSEE WERE USED FOR BUSINESS PURPOSES. IF IN THE PROCESS OF EX AMINATION OF GENUINENESS OF SUCH A DEDUCTION, IT TRANSPIRES THAT THE ASSESSEE 6 HAD ADVANCED CERTAIN FUNDS TO SISTER CONCERNS OR AN Y OTHER PERSON WITHOUT ANY INTEREST, THERE WOULD BE A VERY HEAVY ONUS ON THE ASSESSEE TO DISCHARGE BEFORE THE ASSESSING OFFI CER TO THE EFFECT THAT IN SPITE OF PENDING TERM LOANS AND WORK ING CAPITAL LOANS ON WHICH THE ASSESSEE IS INCURRING LIABILITY TO PAY INTEREST, THERE WAS JUSTIFICATION TO ADVANCE LOANS TO SISTER CONCERNS FOR NON-BUSINESS PURPOSES WITHOUT ANY INTEREST AND ACCO RDINGLY THE ASSESSEE SHOULD BE ALLOWED DEDUCTION OF INTEREST BE ING PAID ON THE LOANS RAISED BY IT TO THAT EXTENT. IT WAS FURTHER HELD AS UNDER : IF THE PLEA OF THE ASSESSEE IS ACCEPTED THAT THE IN TEREST FREE ADVANCES MADE TO THE SISTER CONCERNS FOR NON-BUSINE SS PURPOSES WERE OUT OF ITS OWN FUNDS IN THE FORM OF CAPITAL IN TRODUCED IN BUSINESS, THAT AGAIN WILL SHOW A CAMOUFLAGE BY THE ASSESSEE AS AT THE TIME OF RAISING OF LOAN, THE ASSESSEE WOULD SHOW THE FIGURES OF CAPITAL INTRODUCED BY IT AS A MARGIN FOR LOANS BEING RAISED AND AFTER THE LOANS ARE RAISED, WHEN SUBSTAN TIAL AMOUNTS ARE DIVERTED TO SISTER CONCERNS FOR NON-BUSINESS PU RPOSES WITHOUT INTEREST, A PLEA WOULD BE RAISED THAT THE A MOUNT ADVANCED WAS OUT OF ITS CAPITAL, WHICH IN FACT STOO D EXHAUSTED IN SETTING UP OF THE UNIT. SUCH A PLEA MAY BE ACCEPTAB LE AT A STAGE WHEN NO LOANS HAVE BEEN RAISED BY THE ASSESSEE AT T HE TIME OF DISBURSEMENT OF FUNDS. THIS WOULD DEPEND ON THE FAC TS OF EACH CASE. ONCE IT IS BORNE OUT FROM THE RECORD THAT THE ASSES SEE HAD BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PAY TA X IS BEING INCURRED AND ON THE OTHER HAND, CERTAIN AMOUNTS HAD BEEN ADVANCED TO SISTER CONCERNS OR OTHERS WITHOUT CARRY ING ANY INTEREST AND WITHOUT ANY BUSINESS PURPOSE, THE INTE REST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CARRYING A NY INTEREST IS TO BE DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. 8. IN VIEW OF THE ABOVE RATIO LAID DOWN BY THE HON' BLE PUNJAB & HARYANA HIGH COURT, THE ONUS IS UPON THE ASSESSEE T O SHOW IN ALL SUCH CASES OF MIXED FUNDS THAT THE ADVANCES WERE MADE OU T OF ITS OWN FUNDS OF 7 SHARE CAPITAL OR OUT OF MIXED FUNDS. MERE CLAIM OF HAVING MADE THE ADVANCES OUT OF ITS OWN FUNDS IS NOT SUFFICIENT TO DISCHARGE THE ONUS AND INTEREST RELATABLE TO SUCH SUMS ADVANCED INTEREST F REE ARE TO BE DISALLOWED. THE ONUS IS NOT UPON THE REVENUE TO SHOW NEXUS BETW EEN THE BORROWERS AND THE ADVANCES MADE BY THE ASSESSEE. 9. IN THE FACTS OF THE PRESENT CASE, THE CLAIM OF T HE ASSESSEE IS TWO FOLD THAT; (A) IT HAD INTEREST FREE FUNDS AVAILABLE WITH IT OUT OF WHICH THE ABOVESAID ADVANCES WERE MADE AND; (B) PART OF SUCH ADVANCES WERE MADE IN THE EARLIER YEARS. THE ASSESSEE FURTHER CLAIMS THAT THE CERTAIN ADVANCES MADE TO THE RELATIVES OF ONE OF THE PARTNERS WERE L ATER TRANSFERRED TO THE PARTNERS CAPITAL ACCOUNT IN THE SUCCEEDING YEAR. A S POINTED OUT EARLIER SUCH TRANSFERS WERE MADE DURING ASSESSMENT YEAR 201 0-2011. THE ASSESSMENT ORDER IN THE CASE WAS PASSED ON 15.12.20 09 AND WE FIND NO MERIT IN THE EXPLANATION OF THE ASSESSEE VIZ-A-VIZ THE TRANSFER TO THE CAPITAL ACCOUNTS OF THE PARTNER BEING EFFECTED IN A SSESSMENT YEAR 2010-11. ADMITTEDLY CERTAIN ADVANCES WERE MADE INTEREST FREE BY THE ASSESSEE AND WERE OUTSTANDING AS ON THE CLOSE OF THE YEAR. THE INTEREST ATTRIBUTABLE TO SUCH INTEREST FREE ADVANCES IS DISALLOWABLE IN THE HANDS OF THE ASSESSEE IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ABHISHEK INDUSTRIES (SUPRA). ACCORDINGLY, WE UP HOLD THE DISALLOWANCE OF INTEREST IN RESPECT OF ADVANCES MADE TO RAGHAV G OYAL, KAVITA GOYAL, SATISH CHANDRA AND ALSO THE ADVANCE MADE FOR PURCHA SE OF PLOT TO M/S SARVPRIYA DEVELOPERS, WHICH IS NOT THE ASSET OF THE ASSESSEE FIRM AS THE SAID AMOUNT WAS LATER TRANSFERRED TO THE CAPITAL AC COUNT OF THE PARTNER. IN RESPECT OF THE ADVANCES MADE TO M/S GOYAL STEELS, A DMITTEDLY THE ASSESSEE ITSELF HAD SHOWN THE SAID ADVANCE AS INTEREST FREE ADVANCE BEFORE THE AO. HOWEVER, LATER IT CLAIMS THAT THE SAID ADVANCE WAS FOR THE PURCHASE OF MATERIAL. THE NECESSARY EVIDENCE IN THIS REGARD IS NOT AVAILABLE ON RECORD 8 AND FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE, WE DEEM IT FIT TO RESTORE THIS ISSUE BACK TO THE FILE OF AO TO VERIFY THE CLA IM OF THE ASSESSEE AND IN CASE THE SAID ADVANCE IS ESTABLISHED TO HAVE BEEN M ADE FOR THE PURCHASE OF MATERIAL, NO DISALLOWANCE OUT OF INTEREST ACCOUNT B EING ATTRIBUTABLE TO SUCH INTEREST FREE ADVANCE IS TO BE MADE IN THE HAN DS OF THE ASSESSEE. HOWEVER, IN CASE THE ASSESSEE FAILS TO ESTABLISH HI S CLAIM, THE DISALLOWANCE OF INTEREST RELATABLE TO SUCH ADVANCE IS UPHELD. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE, IS THUS PARTL Y ALLOWED. 9. THE SECOND ISSUE RAISED IN THE PRESENT APPEAL IS IN RESPECT OF THE DISALLOWANCE OF INTEREST BEING PER-OPERATIVE EXPENS ES. THE FACTS IN THIS REGARD ARE THAT THE ASSESSEE HAD CREATED NEW ASSETS IN ITS UNIT NO.2. THE TOTAL INVESTMENT WAS RS.85.69 LACS. THE AO DISALLOW ED INTEREST @ 15% ON THE SAID INVESTMENT FOR THE PERIOD 1.4.2006 TO 21.1 .2007 AND CAPITALIZED PRE-OPERATIVE EXPENSES DISALLOWED U/S 36(3)(III) OF THE ACT. THE CLAIM OF THE ASSESSEE THAT IT HAD NOT UTILIZED INTEREST BEAR ING FUNDS WAS REJECTED. THE CIT(A) DELETED THE SAID ADDITION OF RS.10,38,94 5/- HOLDING THE ASSESSEE NOT TO HAVE BORROWED ANY FUNDS FOR CREATIN G ASSETS. THE CIT(A) FURTHER OBSERVED THAT THE CASH ACCRUALS OF THE ASSE SSEE DURING ASSESSMENT YEAR 2006-07 AND 2007-08 WERE RS.93.61 LACS AND RS. 113.08 LACS AND THE ASSESSEE HAD CREATED THE ASSETS OUT OF THE CASH ACC RUALS AND HENCE, NO REASON FOR DISALLOWANCE. 10. THE REVENUE IS IN APPEAL AGAINST THE AFORESAID OBSERVATIONS OF CIT(A). HOWEVER, THE LD. DR FOR THE REVENUE HAS FAI LED TO POINT OUT ANY FACTS CONTRARY TO THE OBSERVATIONS OF THE CIT(A) TH AT NO BORROWED FUNDS HAD BEEN UTILIZED FOR CREATING THE AFORESAID ASSETS EXCEPT FOR REFERRING TO THE LIST OF SECURED AND UNSECURED LOANS PAYABLE ON THE LAST DATE OF THE ACCOUNTING PERIOD. THE LD. AR FOR THE ASSESSEE POI NTED OUT THAT NO 9 BORROWED FUNDS WERE UTILIZED FOR ACQUIRING ABOVESAI D ASSETS. THE AO HAS TAKEN THE CLOSING BALANCE AS THE AMOUNT FOR WORKING OUT THE DISALLOWANCE WITHOUT TAKING INTO CONSIDERATION THE INVESTMENT IN THE SAID UNIT, SOME OF WHICH WAS MADE IN THE EARLIER YEAR. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RECORD. IN VIEW OF THE FINDING OF CIT(A) THAT THE ASSESSEE HAD NOT BOR ROWED ANY FUNDS FOR CREATING THE AFORESAID ASSETS AND IN THE ABSENCE OF THE REVENUE BRINGING ON RECORD ANY EVIDENCE TO THE CONTRARY, WE ARE IN CONF ORMITY WITH THE ORDER OF THE CIT(A) IN THIS REGARD AND UPHOLD THE SAME. THE ASSESSEE HAD SHOWN INCOME OF RS.93.61 LACS IN ASSESSMENT YEAR 20 06-07 AND RS.113.08 LACS IN 2007-08 AS AGAINST WHICH THE TOTAL INVESTME NT IN THE FIXED ASSETS WAS 85.69 LACS WHICH WAS INVESTED FROM ASSESSMENT Y EARS 2005-06 TO 2007-08. IN THE ABSENCE OF ANY EVIDENCE TO THE CON TRARY, UPHOLDING THE ORDER OF CIT(A), WE DISMISS GROUND NO.2 RAISED BY T HE REVENUE. 12. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF JUNE, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 ST JUNE, 2011 POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH