Gurjit Singh, Chandigarh V. ITO, Chandigarh

ITA 327/CHANDI/2012

• Counselvise Citation: 32721514 RSA 2012
• Duration Of Justice: 3 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 29-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 12-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: GURJIT SINGH
• Keywords: Proportionate interest; Commercial expediency
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 327 /CHD/2012 (ASSESSMENT YEAR: 2007-08) LATE SH.JAGAT SINGH VS. THE INCOME TAX OFFICER, THROUGH L/H GURJIT SINGH WARD 1 (2), S/O SH.JAGAT SINGH, CHANDIGARH. 179, INDUSTRIAL AREA, PHASE II, CHANDIGARH. PAN NO. ACEPS9772K AND ITA NO. 326 /CHD/2012 (ASSESSMENT YEAR: 2007-08) FENZER SHOE INDUSTRIES, VS. THE INCOME TAX OFFICE R, 179, INDUSTRIAL AREA, PHASE II, WARD 4(1), CHANDIGARH. CHANDIGARH. PAN NO. ACEPS9772K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GURJIT SINGH RESPONDENT BY : SHRI JITENDER KUMAR, DR DATE OF HEARING : 24.07.2015 DATE OF PRONOUNCEMENT : 10.08.2015 O R D E R PER H.L.KARWA, VP : THESE TO APPEALS INVOLVING COMMON ISSUE WERE HEA RD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2 2. FIRSTLY, I WILL TAKE UP ITA NO.327/CHD/2012. I N THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUN DS : 1. TREATMENT OF ADVANCES AMOUNTING RS.25,00,000/-, DURING PREVIOUS YEAR I.E. AY 2006-07, TO SON FOR ACQUIRING ASSETS FOR FIRM'S OWN BUSINESS & RS.9,00,000/- TO SON, FOR FEW DAYS, FOR DISAWAR ACCOUNT (DAY TO DAY REQUIREMENTS OF THE FIRM) AS LOAN TO DISALLOW PROPORTIONATE INTEREST AMOUNTING RS.1,49,941/- UNDER SECTION 36(L)(III) OF THE INCOM E-TAX ACT, 1961 IS ARBITRARY. 2. DISALLOWANCE OF PROPORTIONATE INTEREST AMOUNTING RS.1,49,941/- UNDER SECTION 36(L)(III) OF THE INCOM E-TAX ACT, 1961 IS NOT PROPER, AS THE RELEVANT AMOUNTS HAS BEE N USED FOR ACQUIRING ASSETS FOR FIRM'S OWN USE. IT IS PERTINEN T TO MENTION HERE THAT WITH THE HELP OF THE FINANCES IN QUESTION , THE FIRM OWNED IT'S RETAIL OUTLET IN BAY SHOP 44-45, SECTOR 22-B, CHANDIGARH. 3. THE AMOUNT OF RS.25,00,000/- CAN NOT BE QUESTIO NED BEYOND IT'S RELEVANT YEAR I.E. A.Y. 2006-07. THIS AMOUNT WAS ADVANCED BY ITS ERSTWHILE PROPRIETOR OF THE FIRM DURING A.Y . 2006-07. 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSE E WAS PROPRIETOR OF A FIRM DEALING IN MANUFACTURING AND T RADING OF SHOES. THE RETURN FOR THE ASSESSMENT YEAR 2007-08 WAS FILED ON 29.10.2007 DECLARING AN INCOME OF RS.1,96,650/-. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAD ADVANCED AN INTEREST FREE AMOUNT O F RS.25,00,000/- TO SHRI GURJIT SINGH ON 7.10.2015. IT WAS ALSO NOTICED THAT THE ASSESSEE WAS PAYING INTEREST TO BA NK AMOUNTING TO RS.1,49,941/-. IT WAS EXPLAINED TO TH E ASSESSING OFFICER THAT THE AMOUNT WAS UTILIZED FOR PURCHASING 3 IMMOVABLE PROPERTY, BUT THE ASSESSING OFFICER NOTIC ED THAT THIS ADVANCE WAS NEVER UTILIZED FOR THE PURPOSE OF BUSINESS AND THEREFORE HE DISALLOWED INTEREST PARALLEL TO BA NK INTEREST @ 12.25%, ON THE ABOVE SAID INTEREST FREE ADVANCES, FOLLOWING THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. 286 IT R 1 (P&H). 4. THE LEARNED CIT (APPEALS) VIDE HIS ORDER DATED 9.12.2011 UPHELD THE DISALLOWANCE BY STATING THAT T HE ASSESSEE HAD NOT EXPLAINED AS TO HOW IT WAS COMMERC IALLY EXPEDIENT TO ADVANCE SUCH A LARGE AMOUNT. THE LEAR NED CIT (APPEALS) HELD THAT SINCE IT WAS BORNE OUT FROM REC ORDS THAT THE ASSESSEE HAD BORROWED CERTAIN FUNDS ON WHICH LI ABILITY TO PAY INTEREST WAS BEING INCURRED AND ON THE OTHER HA ND, CERTAIN AMOUNTS HAD BEEN ADVANCED TO SISTER CONCERN S OR OTHERS WITHOUT CARRYING ANY INTEREST AND WITHOUT AN Y BUSINESS PURPOSE, INTEREST TO THE EXTENT THE ADVANCE HAS BEE N MADE WITHOUT CARRYING ANY INTEREST HAD TO BE DISALLOWED UNDER SECTION 36(I)(III) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 5. AGGRIEVED BY THE ORDER OF THE LEARNED CIT (APPE ALS), THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE TH E TRIBUNAL. 6. SHRI GURJIT SINGH, LEGAL HEIR OF LATE SHRI JAGA T SINGH APPEARED BEFORE THIS BENCH OF THE TRIBUNAL AND SUBM ITTED THAT COMMERCIAL EXPEDIENCY HAD BEEN CLEARLY ESTABLI SHED IN THIS CASE. HE ARGUED THAT THE SUM OF RS.25 LACS AD VANCED BY 4 THE ASSESSEE TO HIS SON MR. GURJIT SINGH, HAD BEEN UTILIZED TO ACQUIRE COMMERCIAL PROPERTIES. THE LEGAL HEIR OF THE ASSESSEE STATED THAT THESE COMMERCIAL PROPERTIES WERE USED T O EXPAND THE FAMILY BUSINESS, BY OPENING MORE SHOPS IN THEM. THIS, AS PER THE LEARNED COUNSEL FOR THE ASSESSEE, RESULTED IN TREMENDOUS INCREASE IN VOLUMES OF THE FAMILY BUSINE SS. 7. AS PER SHRI GURJIT SINGH, COMMERCIAL EXPEDIENCY , WAS ESTABLISHED BY THE FACT THAT THE ADVANCE WAS UT ILIZED FOR THE EXPANSION/SECURING OF BUSINESS OF THE FAMILY. H E EMPHASIZED THAT IT IS NOT RELEVANT FOR ESTABLISHING COMMERCIAL EXPEDIENCY, TO WHOM THE ADVANCE HAS BEEN MADE. HE FURTHER RELIED UPON THE DECISION OF THE I.T.A.T., CHANDIGAR H BENCH IN THE CASE OF THUKRAL REGAL SHOES VS. ACIT, CIRCLE 2( 1), CHANDIGARH IN ITA NO. 650/CHD/2011, WHEREIN IT HAS BEEN HELD WITH RESPECT TO INVESTMENTS IN THE SAME PROPER TIES, THAT THE INVESTMENTS AND CONDUCT OF BUSINESS IN THESE PR OPERTIES WAS OUT OF COMMERCIAL EXPEDIENCY. 8. SHRI JITENDER KUMAR, THE LEARNED D.R. RELYING U PON THE ORDER OF THE LEARNED CIT (APPEALS), CONTENDED T HAT SINCE NO COMMERCIAL EXPEDIENCY OF THE ADVANCE HAD BEEN ESTABLISHED BY THE ASSESSEE, INTEREST RELATING TO T HE ADVANCE WAS RIGHTLY DISALLOWED UNDER SECTION 36(I)(III) OF THE ACT. THE LEARNED D.R PLACED RELIANCE ON THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF SA BUILDERS LTD. 288 ITR 1 (SC) AND ON THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES 286 ITR 1 (P&H) IN SUPPORT OF HIS CONTENTION. 5 9. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE FACTS EMERGING THEREFROM ARE THAT ON 7 .10.2005, AN INTEREST FREE ADVANCE OF RS.25,00,000/- WAS GIVE N BY THE ASSESSEE TO HIS SON MR. GURJEET SINGH. OUT OF THIS AMOUNT, RS.10,00,000/- WAS UTILIZED BY MR. GURJIT SINGH, VI DE BANKERS CHEQUE NO.176420, FOR MAKING PAYMENT TO HUDA FOR PU RCHASE OF COMMERCIAL PROPERTY SCO NO. 259, SECTOR-14, PANC HKULA ON 17.11.2005 IN THE NAME OF SHRI GURJEET SINGH AND HI S BROTHER SH. HARINDER SINGH. INTERESTINGLY, THE SAID PROPER TY HAS NOT BEEN PURCHASED IN THE NAME OF LATE SHRI JAGAT SINGH , WHO HAS ADVANCED THE AMOUNT IN QUESTION. ACCORDING TO THE ASSESSING OFFICER, THE ARGUMENT PUT-FORTH BY THE ASSESSEE FIR M IS ONLY ON THE ACCOUNT THAT THE AMOUNT OF RS.25 LACS WAS ADVAN CED TO EXPAND THE BUSINESS OF LATE SHRI JAGAT SINGH. BALA NCE AMOUNT OF RS.15,00,000/- WAS CREDITED INTO THE ACCO UNT OF M/S THUKRAL REGAL SHOES, IN WHICH MR. GURJIT SINGH IS A PARTNER. SCO NO. 259, SECTOR-14, PANCHKULA WAS SOLD ON 27.11.2006. THE ASSESSEE CLAIMED THAT AT PRESENT THEIR FAMILY MEMBERS ARE HAVING TO SHOWROOMS, ONE IN SECT OR 22, CHANDIGARH AND OTHER (SCF NO.3) IN SECTOR 11-D, CHA NDIGARH), WHICH WAS PURCHASED VIDE SALE DEED DATED 29.8.2008 IN THE NAME OF SMT.PRITPAL KAUR, SMT. GURMINDER KAUR AND S MT. PARAMDEEP KAUR, WHO WERE PARTNERS IN THE FIRM FENZE R SHOES. THE ASSESSING OFFICER OBSERVED THAT THE SAID ADVANC E OF RS.25 LACS WAS NEVER UTILIZED FOR THE PURPOSE OF ERSTWHIL E PROPRIETOR OF THE FIRM LATE SHRI JAGAT SINGH AS WELL AS BY THE PARTNERS OF M/S FENZER SHOE INDUSTRIES IN ANY WAY DURING THE FI NANCIAL YEAR 2006-07. 6 10. THE ISSUE IN THE PRESENT APPEAL IS AGAINST THE DISALLOWANCE OF INTEREST UNDER SECTION 36(I)(III) O F THE ACT, ON THE INTEREST FREE ADVANCE MADE BY THE ASSESSEE TO H IS SON. 11. IT IS IMPORTANT TO UNDERSTAND THE PROVISION OF SECTION 36(1)(III)OF THE ACT, WITH RESPECT TO ITS S COPE AND IMPLICATIONS BEFORE ADJUDICATING ON THE ISSUE AT HA ND. FOR THE SAME, THE SECTION IS REPRODUCED HEREUNDER: 36 (I) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28. (III) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION. 12. A BARE READING OF THE SECTION SHOWS THAT FOR CLAIMING DEDUCTION OF INTEREST UNDER SECTION 36(I)( III) OF THE ACT, THE FOLLOWING CONDITIONS HAVE TO BE SATISFIED : 1. THERE SHOULD BE BORROWED CAPITAL. 2. INTEREST MUST BE PAID ON THE BORROWED CAPITAL AND, 7 3. THE BORROWED CAPITAL MUST BE FOR THE PURPOSE OF BUSINESS AND PROFESSION. 13. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE ASSESEE HAS BORROWED CAPITAL, ON WHICH INTEREST HAS BEEN PAID. THE ONLY DISPUTE IS REGARDING THE FACT, WHETH ER THE BORROWED CAPITAL HAS BEEN USED FOR THE PURPOSE OF T HE BUSINESS. 14. IN THE CASE OF S.A. BUILDERS LTD. (SUPRA), THE HONBLE SUPREME COURT HAS DEALT WITH THE EXPRESSION FOR TH E PURPOSE OF BUSINESS OCCURRING IN SECTION 36(I)(III) OF THE ACT AND HAS HELD AT PARA 23 AND 32 OF THE ORDER AS UNDER : 23. IN OUR OPINION, THE DECISIONS RELATING TO SECTION 37 OF THE ACT WILL ALSO BE APPLICABLE TO SECTION 36(1) (III) BECAUSE IN SECTION 37 ALSO THE EXPRESSION USED IS FOR THE PURPOSE OF BUSINESS. IT HAS BEEN CONSISTENTLY HELD IN DECISIONS RELATING TO SECTION 37 THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXPEDIENCY , AND IT IS IMMATERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY. 32. IT IS TRUE THAT THE BORROWED AMOUNT IN QUESTION WAS NOT UTILIZED BY THE ASSESSEE IN ITS OWN BUSINESS, BUT HAD BEEN ADVANCED AS INTEREST FREE LOAN TO ITS SISTER CONCERN. HOWEVER, IN OUR OPINION, THAT FACT IS NOT REALLY RELEVANT. WHAT IS RELEVANT IS WHETHER THE ASSESSEE ADVANCED SUCH AMOUNT TO ITS SISTER CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY . 8 CLEARLY, COMMERCIAL EXPEDIENCY OF THE ADVANCE HAS TO BE ESTABLISHED, TO PROVE THAT THE MONEY WAS BORR OWED FOR THE PURPOSE OF BUSINESS. 15. IN THIS CASE, IT EMERGES FROM THE FACTS, THAT THE ADVANCE OF RS.25 LACS GIVEN TO SHRI GURJIT SINGH BY THE ASSESSEE WAS PARTLY UTILIZED TO PURCHASE A PROPERTY SCO 259 SECTOR-14, PANCHKULA IN THE NAME OF SHRI GURJIT SIN GH AND HIS BROTHER SHRI HARINDER SINGH. BALANCE AMOUNT WAS UTI LIZED BY SHRI GURJIT SINGH, BY INFUSING CAPITAL IN HIS PARTN ERSHIP CONCERN, NAMELY THUKRAL REGAL SHOES. NONE OF THE INVESTMENTS WERE MADE IN THE NAME OF THE ASSESSE, N OR WAS IT DEMONSTRATED BEFORE ME AS TO HOW THESE INVESTMENTS BENEFITED THE ASSESSE. CLEARLY THE AFORESAID INVESTMENTS DID NOT IN ANY WAY CONTRIBUTE TO THE ASSESSEES BUSINESS. IT IS ONLY SHRI GURJIT SINGH, WHO HAPPENED TO BENEFIT BY THESE INV ESTMENTS. WHAT EMERGES THEREFORE FROM THE FACTS IS THAT THE INTEREST FREE ADVANCE GIVEN BY THE ASSESSE TO HIS SON, WAS SOLELY FOR THE PERSONAL BENEFIT OF HIS SON. CLEARLY SUCH AN A DVANCE DOES NOT QUALIFY AS ADVANCE FOR COMMERCIAL EXPEDIENCY O F THE ASSESSEE. IN FACT, THE HON'BLE APEX COURT IN THE CA SE OF S.A. BUILDERS (SUPRA) AT PARA 36 OF THE ORDER HAS CLEARL Y GIVEN A SIMILAR EXAMPLE STATING THAT SUCH ADVANCES DO NOT Q UALIFY AS A MEASURE OF COMMERCIAL EXPEDIENCY. 36. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPINION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT ALL DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR 9 INSTANCE, IF THE DIRECTORS OF THE SISTER CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MONEY CAN BE SAID TO BE ADVANCED TO A SISTER CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY OTHER CIRCUMSTANCES (WHICH NEED NOT BE ENUMERATED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PURPOSES, THE ASSESSEE WOULD, IN OUR OPINION, ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. THE HON'BLE MADRAS HIGH COURT IN CIT VS. M.S. VENKATESWARAN (1996) 222 ITR 163 (MAD) HAS OBSERVED AS UNDER : INTEREST PAID ON BORROWED CAPITAL WILL BE ALLOWED AS A DEDUCTION ONLY IF THE CAPITAL WAS BORROWED AND USED FOR THE PURPOSES OF BUSINESS. IF IT IS USED FOR A PURPOSE OTHER THAN BUSINESS THEN INTEREST TO THE EXTENT TO WHICH THE CAPITAL WAS SO USED WILL NOT BE ALLOWED AS A PERMISSIBLE DEDUCTION UNDER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. IN THE ABOVE JUDGMENT, THE HON'BLE MADRAS HIGH COUR T HAS HELD AS UNDER : 10 WE HAVE HEARD LEARNED STANDING COUNSEL FOR THE DEPARTMENT AND PERUSED THE RECORDS CAREFULLY. THE FACT REMAINS THAT THE ASSESSEE'S FATHER DIED ON JUL Y 10, 1970. THE FIRST ASSESSMENT YEAR AFTER THE FATHE R'S DEATH WAS THE ASSESSMENT FOR THE ACCOUNTING YEAR RELEVANT TO THE YEAR ENDING MARCH 31, 1970. IN THE BALANCE-SHEET AS ON MARCH 31, 1972, ON THE CREDIT SIDE, THE ASSESSEES CAPITAL ACCOUNT WAS SHOWN AT RS. 1,58,675 AND THE ADVANCE AGAINST CONTRACTS WAS SHOWN AT RS. 1,53,392.68. THE TOTAL COMES TO RS.3 LAKHS. ON THE DEBIT SIDE, THE OLD PROPRIETOR'S ACC OUNT IN RESPECT OF WHICH THE CASE OF DIVERSION FOR NON- BUSINESS PURPOSES IS MADE, AMOUNTS TO RS.22,20,590.96 (?)). ACCORDING TO THE DEPARTMENT, THEY HAVE CLEARLY ESTABLISHED THAT A PORTION OF THE BORROWED CAPITAL WAS UTILISED BY THE FATHER OF THE ASSESSEE FOR NON-BUSINESS PURPOSES AND, THEREFORE, THE INTEREST PAID THEREON CANNOT BE ALLOWED AS A DEDUCTION UNDER SECTION 36(L)(III). ACCORDING TO TH E TRIBUNAL, WHEN AN ASSESSEE HAD INVESTED HIS OWN CAPITAL IN HIS BUSINESS AND ALSO BORROWED MONIES FO R THE PURPOSE OF HIS BUSINESS, ANY SUBSEQUENT WITHDRAWAL FOR HIS PERSONAL USE WOULD BE PRESUMED TO BE OUT OF HIS CAPITAL AND WOULD NOT ENTITLE THE DEPARTMENT TO DISALLOW A PART OF THE INTEREST PAID. BUT THE DEPARTMENT POINTED OUT THAT THIS IS SUBJECT TO THE PROOF GIVEN BY THE DEPARTMENT THAT A PARTICULAR PORTION OF THE BORROWED CAPITAL WAS UTILISED BY THE ASSESSEE FOR NON-BUSINESS PURPOSES. ACCORDING TO TH E DEPARTMENT, IT WAS CLEARLY ESTABLISHED THAT THE FATHER OF THE ASSESSEE HAD UTILISED A PORTION OF TH E BORROWED CAPITAL FOR NON-BUSINESS PURPOSES, IN SUCH A CASE IT WAS SUBMITTED THAT INTEREST CANNOT BE ALLOWED ON SUCH BORROWED CAPITAL, WHICH WAS UTILISE D FOR NON-BUSINESS PURPOSES. IN THE ORDER, THE TRIBUN AL FAILED TO CONSIDER THE SUBMISSION MADE BY THE DEPARTMENT THAT THEY HAVE ESTABLISHED THAT A PORTIO N 11 OF THE BORROWED CAPITAL WAS UTILISED BY THE FATHER OF THE ASSESSEE FOR NON-BUSINESS PURPOSES. THE FACTS O N RECORD WOULD CLEARLY GO TO SHOW THAT THE FATHER OF THE ASSESSEE HAD DEFINITELY DIVERTED A PORTION OF THE BORROWED CAPITAL FOR HIS OWN PURPOSES AND NOT FOR BUSINESS PURPOSES. IN SUCH A CASE, IT CANNOT BE SAI D THAT THERE CAN BE A PRESUMPTION THAT A PART OF THE CAPITAL WOULD HAVE BEEN DIVERTED FOR NON-BUSINESS PURPOSES NOT FROM THE BORROWED CAPITAL BUT FROM THE CAPITAL CONTRIBUTED BY THE ASSESSEE. IN THE ABSENC E OF SUCH AN ELEMENT IN THE FACTS ARISING IN THE PRES ENT CASE, WE ARE UNABLE TO SUBSCRIBE TO THE VIEW OF THE TRIBUNAL THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 36(L)(III) WITH REGARD TO THE INTERES T PAID ON BORROWED CAPITAL, WHICH WAS UTILISED BY THE ASSESSEES FATHER FOR NON-BUSINESS PURPOSES. IN THA T VIEW OF THE MATTER, WE ANSWER THE QUESTION REFERRE D TO US IN THE NEGATIVE AND IN FAVOUR OF THE DEPARTME NT. THERE WILL BE NO ORDER AS TO COSTS. IN CIT VS. V.I. BABY AND CO. [2002] 254 ITR 248, TH E KERALA HIGH COURT, WHILE REVERSING THE ORDER OF THE TRIBUNAL, HELD AS UNDER: WE ARE INCLINED TO ACCEPT THE ARGUMENT RAISED BY COUNSEL FOR THE REVENUE, BECAUSE THE ADVANCES TO THE PARTNERS, THEIR RELATIVES AND THE SISTER CONCERNS ARE NOT FOR BUSINESS PURPOSES AND THE ASSESSEE HAS NOT DERIVED ANY BENEFIT OUT OF THE SAME. ADMITTEDLY, NO INTEREST WAS CHARGED ON THESE ADVANCES. THE TRIBUNAL APPEARS TO HAVE PLACED RELIANCE ON THE FACT THAT THE PARTNERS AND THEIR RELATIVES HAVE UTILISED THE AMOUNTS FOR BUSINESS PURPOSES, SUCH AS CONSTRUCTION OF A SHOP BUILDING ETC. SO LONG AS THE ASSESSEE FIRM IS NOT THE BENEFICIARY OF SUCH INVESTMENTS, THE NATURE OF INVESTMENT 12 OR THE UTILIZATION OF SUCH ADVANCES HAS NO RELEVANC E. 16. IN VIEW OF THE ABOVE DECISIONS, AND ALSO CONSI DERING THE FACTS OF THE PRESENT CASE, IN MY OPINION, THE A DVANCE GIVEN TO SHRI GURJIT SINGH IS NOT FOR THE PURPOSE OF BUS INESS AND INTEREST RELATING TO THE SAME DOES NOT QUALIFY FOR DEDUCTION UNDER SECTION 36(I)(III) OF THE ACT. 17. FURTHER, EVEN, IF THE AFORESAID ADVANCE IS TRE ATED AS BEING GIVEN FOR THE PURPOSE OF BUSINESS, THOUGH IT HAS ALREADY BEEN DECIDED OTHERWISE ABOVE, THE INTEREST RELATING THERETO STILL DOES NOT QUALIFY FOR DEDUCTION UNDER SECTION 36(I)(III) OF THE ACT, DUE TO THE PROVISO TO SECTI ON 36(I)(III) OF THE ACT. 18. AS PER THE PROVISO INTEREST PERTAINING TO CAPI TAL BORROWED FOR ACQUIRING AN ASSET, SHALL NOT BE ALLOW ED AS DEDUCTION UPTO THE PERIOD TILL THE ASSET IS FIRST P UT TO USE. 19. IN THE CASE BEFORE ME, EVEN IF THE ACQUISITION OF SCO 259, SEC-14, PANCHKULA IS TREATED AS FOR THE PURPOS E OF BUSINESS, IT EMERGES FROM THE FACTS, THAT THE ASSET WAS NOT PUT TO USE IN THE YEAR AT ALL. NO EVIDENCE HAS BEEN BROUGHT ON RECORD TO PROVE THAT, SCO 259, SEC-14, PANCHKULA WA S PUT TO USE IN THE BUSINESS OF THE ASSESSEE DURING THE IMPU GNED YEAR. IN FACT, SCO-259, SECTOR-14, WAS SOLD ON 27.11.2006 . HENCE ALSO, BY VIRTUE OF THE PROVISO TO SECTION 36(I)(III ) OF THE ACT, THE INTEREST PAID ON BORROWED CAPITAL DOES NOT QUAL IFY FOR DEDUCTION UNDER SECTION 36(I)(III) OF THE ACT. 13 20. COMING TO THE ARGUMENTS OF THE LEGAL HEIR OF T HE ASSESSEE, IT APPEARS THAT HE HAS INCORRECTLY INTERP RETED THE MEANING OF COMMERCIAL EXPEDIENCY. AS HAS BEEN EXPL AINED ABOVE, COMMERCIAL EXPEDIENCY INCLUDES SUCH EXPENDIT URE AS A PRUDENT BUSINESS MAN INCURS FOR THE PURPOSE OF BUSI NESS. SOME BENEFIT DIRECT OR INDIRECT MUST ACCRUE TO THE ASSESSEE. IN THE PRESENT CASE, IT HAS NOT BEEN ESTABLISHED AS TO WHAT BENEFIT ACCRUED TO THE ASSESSEE BY VIRTUE OF THIS A DVANCE. IN FACT, BENEFIT IF ANY, SEEMS TO BE ACCRUED TO THE SO N OF THE ASSESSEE MR. GURJIT, WHO HAS BOUGHT A COMMERCIAL PR OPERTY IN SCO 259, SEC-14, PANCHKULA IN HIS NAME. BALANCE AM OUNT OF RS.15 LACS HAS BEEN CREDITED IN TO THE ACCOUNT OF M /S THUKRAL REGAL SHOES, IN WHICH SHRI GURJIT SINGH IS A PARTNE R. THIS AMOUNT HAS BEEN INTRODUCED AS CAPITAL OF SHRI GURJI T SINGH IN THE SAID PARTNERSHIP /FIRM. THE RELIANCE PLACED B Y THE LEGAL HEIR OF THE ASSESSEE ON THE JUDGMENT OF THE I.T.A.T ., CHANDIGARH BENCH IN THE CASE OF THUKRAL REGAL SHOES , ALSO SEEMS TO BE MISPLACED. THE FACTS IN THE CASE OF TH UKRAL REGAL SHOES ARE DISTINGUISHABLE FROM THE FACTS OF THE PRE SENT CASE. IN THE CASE OF THUKRAL REGAL SHOES, THE FIRM I.E. THUKRAL REGAL SHOES, HAD ADVANCED SUMS TO ITS PARTNERS, WHO HAD UTILIZED THE SAME TO ACQUIRE COMMERCIAL PROPERTIES, IN ONE OF WHICH THE BUSINESS OF THE FIRM WAS CONTINUED. SINC E, IN THAT CASE, THE FIRM HAD BENEFITED BY THE ADVANCE MADE TO THE PARTNERS, COMMERCIAL EXPEDIENCY HAD BEEN ESTABLISHE D AND NO DISALLOWANCE OF INTEREST WAS THEREFORE HELD TO BE W ARRANTED UNDER SECTION 36(I)(III) OF THE ACT, BY THE TRIBUNA L. IN THIS CASE, AS STATED ABOVE, IT HAS NOT BEEN ESTABLISHED AS TO HOW 14 THE ADVANCE MADE BY THE ASSESSEE TO HIS SON HAD BEN EFITED THE ASSESSEE. EVEN THE FACTS PROVE OTHERWISE. THUS, T HE DECISION IN THE CASE OF THUKRAL REGAL SHOES DOES NOT APPLY TO THE FACTS OF THE PRESENT CASE. 21. I, THEREFORE, HOLD THAT THE DISALLOWANCE OF IN TEREST OF RS.1,49,941/- UNDER SECTION 36(1)(III) OF THE AC T, HAS BEEN CORRECTLY UPHELD BY THE LEARNED CIT (APPEALS). 22. IN THE RESULT THE APPEAL OF THE ASSESSE IS DI SMISSED. ITA NO.326/CHD/2012 FENZER SHOES INDUSTRIES) 23. THE FACTS IN THE PRESENT CASE ARE THAT, FENZER SHOES INDUSTRIES IS A PARTNERSHIP FIRM , FORMED ON 1.12 .2006, BY THE TAKEOVER OF THE BUSINESS OF LATE SHRI JAGAT SIN GH ON AS IS WHERE IS BASIS. THE FIRM COMPRISED OF THE DAUGHTER IN LAWS OF LATE SHRI JAGAT SINGH AS PARTNER, NAMELY SMT.PRITPA L KAUR, SMT.GURMINDER KAUR AND SMT.PARAMDEEP KAUR . 24. THE ADVANCE OF RS.25 LACS GIVEN BY LATE SHRI J AGAT SINGH TO HIS SON SHRI GURJIT SINGH FROM HIS PROPRIE TORSHIP CONCERN BEFORE TAKEOVER, CONTINUED TO APPEAR IN THE BOOKS OF FENZER SHOES INDUSTRIES, AS SUCH. THE ASSESSING OF FICER DISALLOWED INTEREST RELATING TO THE SAME AMOUNTING TO RS.1,00,000/- UNDER SECTION 36(1)(III) OF THE ACT, FOLLOWING THE SAME REASONING AS GIVEN IN THE CASE OF LATE SHRI JA GAT SINGH. THE LEARNED CIT (APPEALS) UPHELD THE SAME, AGAINST WHICH THE ASSESSE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 15 25. THE ARGUMENTS ADVANCED IN THE CASE OF LATE SHR I JAGAT SINGH, WERE ADOPTED IN THE PRESENT CASE ALSO BY THE RESPECTIVE PARTIES. 26. I FIND THAT THE FACTS IN THE CASE OF FENZER SHOES INDUSTRIES ARE SIMILAR TO THE CASE OF LATE SHRI JAG AT SINGH THROUGH HIS LEGAL HEIR SHRI GURJIT SINGH IN ITA NO.327/CHD/2012. THE NATURE OF THE ADVANCE HAS NOT CHANGED BY VIRTUE OF THE TAKEOVER OF THE BUSINESS. THE FINDINGS IN THAT CASE THAT THE ADVANCE WAS NOT FOR BUSINESS PURPOSE, THEREFORE, ALSO APPLIES TO THE PRESENT CAS E. 27. I, THEREFORE, HOLD THAT THE DISALLOWANCE OF IN TEREST OF RS.1,00,000/- UNDER SECTION 36(1)(III) OF THE AC T, HAS BEEN CORRECTLY UPHELD BY THE LEARNED CIT (APPEALS). 28. IN THE RESULT BOTH THE APPEALS OF THE ASSESSES ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF AUGUST, 2015. SD/- (H.L.KARWA) VICE PRESIDENT DATED : 10 TH AUGUST, 2015 *RATI/AG* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 16