The DCIT Cen Circle-1, Baroda V. M/S Aditya Medisales Ltd, Baroda

ITA 3272/AHD/2002

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9842 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 05-08-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 21-10-2002
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUDHANSU S JHA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Proportionate interest; Avoidance of tax; Scheme of amalgamation; Block assessment; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI MUKUL SHRAWAT,JM & SHRI A N PAHUJA,AM ITA NO.3272/AHD/2002 (ASSESSMENT YEAR:-1999-2000) ITA NO.1623/AHD/2003 (ASSESSMENT YEAR:-2000-2001) ITA NO.1353 & 2180/AHD/2005 (ASSESSMENT YEARS:-2001-2002& 2002-03) ITA NO.08/AHD/2007 (ASSESSMENT YEAR:-2003-2004) DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE- 1, BARODA V/S ADITYA MEDISALES LIMITED, 3 RD FLOOR, SYNERGY HOUSE, SUBHANPURA, BARODA [PAN: AABCA 9317 J] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI SUDHANSU S JHA, DR ASSESSEE BY:- SHRI S N SOPARKAR AND SHRI BANDISH SOPARKAR, ARS O R D E R A N PAHUJA: THESE FIVE APPEALS BY REVENUE AGAINST THREE SEPAR ATE ORDERS DATED 2.7.2002 FOR THE AY 1999-2000,DATED 17 .1.2003 FOR THE AY 2000-01 & DATED 14.7.2005 FOR THE AY 2002-03 OF THE LD. CIT(APPEALS)-IV, AHMEDABAD, ORDER DATED 28.2.2004 F OR THE AY 2001-02 OF THE LD. CIT(A)-II,AHMEDABAD AND ORDER DA TED 13.10.2006 FOR THE AY 2003-04 OF THE LD. CIT(A)-I, AHEMDABAD, RAISE THE FOLLOWING GROUNDS: ITA NO.3272/AHD/2002[ AY 1999-2000]: 1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.9,36,240/- IN THE AY 1999-2000 MADE ON ACCOUNT O F INTEREST CHARGED AT REDUCED RATE. 2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.66,96,373/- MADE ON ACCOUNT OF REDUCTION OF INTE REST FROM VIRTUOUS FINANCE LIMITED. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 2 3 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE DISALLOWANCE OF RS.16,72,521/- MADE ON ACCOUNT OF I NTEREST ON INTEREST FREE GODOWN DEPOSIT TO DADHA PHARMA PVT. LTD. 4 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN A LLOWING INTEREST ON ADVANCES TO M/S ANTRIKSH PHARMA & M/S DUKAN AMOUNTI NG TO RS.31,18,143/-. 5 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.86,560/- MADE ON ACCOUNT OF INTEREST ON ADVANCE TO DADHA & CO. 6 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.1,00,987/- MADE ON ACCOUNT OF INTEREST FREE ADVA NCE TO PRADEEP DADHA AGENCY. 7 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.13,87,275/- MADE ON ACCOUNT OF INTEREST IN RESPE CT OF ADVANCE TO INDIVIDUAL. 8 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER 9 IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CI T(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. ITA NO.1623/AHD/2003[ AY 2000-2001] 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.9,36,240/- IN THE AY 1999-2000 & RS..2,03,792/- IN THE AY 2000-01 MADE ON ACCOUNT OF INTEREST CHARGED AT REDUCED RATE . 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.44,96,680/-, BEING INTEREST ON ADVANCE TO M/S DU KAN. 3 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN A LLOWING RS.39,75,075/-, BEING INTEREST ON INTEREST FREE SEC URITY DEPOSIT OF RS.3 CRORES TO DADHA PHARMA PVT. LTD. 4 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN A LLOWING RS.7,25,066/-, BEING INTEREST ON ADVANCE TO MR. MAHERCHAND DADHA. 5 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN A LLOWING RS.95,076/- BEING INTEREST ON ADVANCE TO PRADEEP DADHA AGENCY. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 3 6 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN A LLOWING RS.81,807/-, BEING INTEREST ON ADVANCE TO DADHA & CO. 7 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN A LLOWING RS.25,90,363/-, BEING INTEREST ON ADVANCE TO VIRTUO US FINANCE LTD. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER 9. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C IT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. ITA NO.1353/AHD/2005[ AY 2001-2002] 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE C IT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.3,26,683/- OUT OF I NTEREST MADE U/S 36(1)(III). THE ASSESSEE PAID HIGHER INTEREST TO TH E BANKS WHEREAS CHARGED LESS INTEREST FROM THE FINANCE COMPANIES BE LONGING TO ITS OWN GROUPS COMPANIES. 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE CIT(A) ERRED IN DELETING THE ADDITION OF RS.8,38,036/-. THE ASSESSEE ADVANCED LO ANS TO M/S VIRTUOUS FINANCE LTD. @ 12% WHEREAS PAID HIGHER INT EREST TO THE BANKS. 3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, CIT(A ) ERRED IN DELETING THE ADDITION OF RS.1,48,57,545/-. THE ASSESSEE PURC HASED GOODS FROM ITS ASSOCIATED CONCERNS M/S SUN PHARMACEUTICAL INDU STRIES LTD. AND PAID INTEREST AT THE RATE OF 21% WHICH IS MUCH MORE THAN AS PER THE BORROWING RATE. THE INTEREST PAYMENT WAS UNREASONAB LE EXCESSIVE AND NOT EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS HEN CE DID NOT FALL UNDER SEC. 37(1). 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER 5. IT IS, THEREFORE, PRAYED THAT THE ORDER OF TH E CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 4 ITA NO.2180/AHD/2005[AY 2002-2003] 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS .844/- ON ACCOUNT( OF DIFFERENTIAL INTEREST MADE U/S 36(L)(III). THE ASSE SSEE PAID HIGHER INTEREST TO THE BANKS WHEREAS CHARGED LESS INTEREST FROM THE FINANCE COMPANIES BELONGING TO ITS OWN GROUP COMPANIES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF IN TEREST OF RS.12,23,482/-. THE ASSESSEE ADVANCED LOANS TO M/S VIRTUOUS FINANCE LTD. @ 12% WHEREAS PAID HIGHER INTEREST TO THE BANK S. 3. ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.2,2 9,43,683/-MADE OUT OF INTEREST PAID ON THE OVER DUE BILLS FOR PURCHASE S. THE ASSESSEE PURCHASED GOODS FROM ITS ASSOCIATED CONCERN, M/S SU N PHARMACEUTICAL INDUSTRIES LTD., AND PAID INTEREST A T THE RATE OF 21% WHICH IS MUCH MORE THAN AS PER THE BORROWING RATE. THE INTEREST PAYMENT WAS UNREASONABLE EXCESSIVE AND NOT EXCLUSIV ELY FOR THE PURPOSE OF THE BUSINESS HENCE DID NOT FALL UNDER SE C. 37(1). 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER 5. IT IS, THEREFORE, PRAYED THAT THE ORDER OF TH E CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. ITA NO.08/AHD/2007[AY 2003-2004] 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.46, 28,510/- ( 29,33,086 + 16,95,424) MADE OUT OF THE INTEREST CLAIMED U/S 3 6(1)(III), BEING THE DIFFERENTIAL AMOUNT OF INTEREST PAID @ 13% ON THE BORROWINGS AND THAT CHARGED @ 10% ON THE ADVANCES TO ASSOCIATE CONCERNS , M/S VIRTUOUS FINANCE LTD. & OTHERS. 1(B) THE ID CIT(A) FAILED TO TAKE NOTE OF THE RATIO OF CIT VS. H.R. SUGAR FACTORY PVT. LTD. 187 ITR 363(AII) DECIDED ON IDENT ICAL FACTS, HOLDING THAT THE DIFFERENTIAL AMOUNT OF INTEREST PAID @ 8% ON THE FUNDS BORROWED FOR CARRYING ON BUSINESS BUT ADVANCED TO D IRECTORS @ 5% WAS NOT ALLOWABLE AS DEDUCTION. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 5 1(C) THE CIT(A) FAILED TO APPRECIATE THE LEGAL PRIN CIPLE THAT, THE AFFAIRS OF THE ASSESSEE BEING IN HIS SPECIAL KNOWLEDGE IN TERMS OF SECTION 106 OF THE EVIDENCE ACT, THE ONUS U/S.36(1)(III) LIES ON THE A SSESSEE TO PROVE THAT EACH LOAN IS USED FOR THE PURPOSES OF THE BUSINESS AND THERE IS NO PRESUMPTION IN LAW THAT IT IS OWN CAPITAL OR SURPLU S FUNDS THAT WERE DIVERTED FOR NON-BUSINESS PURPOSES, AS SETTLED IN T HE CASE OF KISHANCHAND CHELLARAM VS. CIT 114 ITR 654 (BOM), R. DALMIA VS CIT 133 ITR 169 (DEL), CIT VS. M.S. VENKATESHWARAN 222 ITR 163 (MAD), K. SOMASUNDARAM & BROTHERS VS. CIT 238 ITR 939 (MAD ) AND CIT VS. MOTOR GENERAL FINANCE LTD. 254 ITR 449 (DEL), WHICH WAS CONFIRMED IN PRINCIPLE BY THE SUPREME COURT IN THE CASE OF MOTOR GENERAL FINANCE VS. CIT 267 ITR 381 (SC). 2(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF INTERE ST OF RS.4,23,44,081/- ON OVERDUE BILLS OF M/S SUN PHARMA CEUTICALS INDUSTRIES LTD. (SPIL), AN ASSOCIATE CONCERN, DESPI TE THE FACT THAT THE ASSESSEE HAD CHARGED INTEREST ON ITS ADVANCES @ 10% TO 12% AND HAD PAID INTEREST TO THE BANKS @ 13% ONLY, WHICH CL EARLY REFLECTED COLLUSIVE NATURE OF PAYMENT OF EXCESSIVE AMOUNT IN THE FACE OF M/S SPIL BEING ENTITLED TO DEDUCTION OF 100% PROFITS U/ S 80IB, THUS RESULTING IN OVERALL AVOIDANCE OF TAX BY AN ARRANGE MENT BETWEEN THE ASSESSEE AND ITS ASSOCIATE CONCERN. 2(B) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT I T WAS A COLOURABLE ARRANGEMENT AND THE AO WAS ENTITLED TO LIFT THE COR PORATE VEIL AND PIERCE THE ARRANGEMENT AS SETTLED IN THE CASE OF MC DOWELL AND CO. LTD. VS. CTO 154 ITR 148, 171 (SC) AND REITERATED I N THE CASE OF UNION OF INDIA VS. AZADI BACHAO ANDOLAN 263 ITR 706 (SC). 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF TH E CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. SINCE SIMILAR GROUNDS ARE INVOLVED IN THESE FIVE A PPEALS, THESE WERE HEARD SIMULTANEOUSLY FOR THE SAKE OF CONVENIEN CE AND ARE BEING DISPOSED OF THROUGH THIS COMMON ORDER. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 6 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEALS FOR THE AY 1999- 2000 TO 2003-04, FACTS ,IN BRIEF, AS PER RELEVANT O RDERS FOR THE AY 1999-2000 ARE THAT RETURN DECLARING INCOME OF RS. 51,45,100/-. FILED ON 24-12-1999 BY THE ASSESSEE, DISTRIBUTING PHARMAC EUTICALS PRODUCTS APART FROM CARRYING ON THE BUSINESS OF LEA SING AND FINANCING AS ALSO SHARE TRADING, AFTER BEING PROCES SED ON 10.7.2000 U/S 143(1)(A) OF THE INCOME-TAX ACT, 1961 [ HEREINA FTER REFERRED TO AS THE ACT] WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT. IN THIS CASE. A SEARCH WAS CONDU CTED ON 7-12- 1998 AND BLOCK ASSESSMENT WAS COMPLETED ON 31.12.2 000. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE COMPANY CHARGED INTEREST ON THEIR ADVANCES TO FOLLOWING CONCERNS @ 11% TO 12% P.A. 1. AIRBORNE INVESTMENT & FINANCE PRIVATE LIMITED 2. ALROX INVESTMENT & FINANCE PRIVATE LIMITED 3. SUN PETROCHEMICALS PRIVATE LIMITED 4. LAKSHDEEP INVESTMENT & FINANCE PRIVATE LIMITED 5. DEEPARADHANA INVESTMENT & FINANCE PRIVATE LIMITE D 6. BRIDGESTONE INVESTMENT & FINANCE PRIVATE LIMITED 7. MACKINON INVESTMENT & FINANCE PRIVATE LIMITED 8. 8. SHOLAPUR ORGANICS LIMITED 2.1 SINCE THE AFORESAID CONCERNS WERE FINANCE A ND INVESTMENT COMPANIES OF THE ASSESSEE'S OWN GROUP WHILE IN THE PRECEDING AY 98-99, THE ASSESSEE WAS CHARGING INTEREST @ 18% TO 20% PA FROM OUTSIDERS AND AS CONCLUDED IN ASSESSMENT ORDER OF THE EARLIER YEAR THAT CHARGING OF INTEREST AT A LOWER RATE WAS NOT A N ACTION ARISING OUT OF COMMERCIAL EXPEDIENCY BUT MORE OF A PLANNING MEA SURE, THE AO ASKED THE ASSESSEE TO EXPLAIN THE REASONS FOR CHAR GING LOWER RATE OF INTEREST FROM THE AFORESAID COMPANIES IN THE YEA RS UNDER CONSIDERATION. THE ASSESSEE REPLIED VIDE LETTER DA TED 18-2-2002 THAT THE INTEREST WAS CHARGED AT A LOWER RATE @ 11/ 12% ON ACCOUNT OF THE FACT THAT THE ADVANCES WERE FOR SHORT AND TEMPORARY PERI OD. THE ASSESSEE EXPLAINED THAT THEY HAD HUGE INTEREST FREE OWN FUNDS AT ITS DISPOSAL AND THE AVERAGE COST OF ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 7 FUNDS WAS MORE THAN COVERED EVEN BY CHARGING INTERE ST AT 11/12% PA FROM THESE PARTIES. THE ASSESSEE ALSO ARGUED THAT CHARGING OF INTEREST AT LOWER RATES CANNOT BE ASSESSED AS INCOME. WHILE PLEADING THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DID NOT GRANT ADVANCES TO OUTSIDE PART IES NOR RECEIVED ANY INTEREST AND AS SUCH QUESTION OF COMPARISON BETWEEN OUTSI DE PARTIES AND GROUP CONCERNS DID NOT ARISE, THE ASSESSEE POINTED OUT T HAT THE LD. CIT(A) HAD ALREADY DELETED A SIMILAR ADDITION IN THE AY 1998-99 .HOWEV ER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE, INTER ALIA ,ON THE GRO UND THAT THE ASSESSEE ENTERED INTO A DEVICE TO REDUCE THEIR TAX LIABILITY WHEN I T HAD MADE FRESH BORROWINGS @ 18% PA AND PAID INTEREST @17.85% TO BANK WHILE ADV ANCING FUNDS TO GROUP CONCERNS AT LOWER RATES AND NO COMMERCIAL EXPEDIENC Y WAS INVOLVED WHILE ADVANCING SUCH FUNDS AT LOWER RATES. ACCORDINGLY, T HE AO CONCLUDED DIFFERENTIAL INTEREST EXPENSE WAS NOT INCURRED WHOLLY AND NECESS ARILY FOR THE PURPOSE OF ASSESSEES OWN BUSINESS ;RATHER THE ASSESSEE HAD IN CURRED THE LIABILITY FOR THE BENEFIT OF ITS ASSOCIATE CONCERNS. THEREFORE, THE A O DISALLOWED THE FOLLOWING AMOUNT OF DIFFERENTIAL INTEREST COST : RATE OF INTEREST BANK BORN BY DISALLOWED INTEREST RECOVERED RATE ASSESSEE DIFFERENTIAL ----------- ------------- ------- ----------- --- ------------ 12% RS. 2,86,176 17.85% 4,25,687 1 ,39,511 11% RS.12,79,419 26,76,148 7,96,729 --------------- 3. LIKE WISE, THE AO DISALLOWED AN AMOUNT OF RS.2 ,03,792 /- CALCULATED ON PAGE 6 OF THE ASSESSMENT ORDER FOR THE AY 2000-01 AND R S. 3,26,683/- IN THE AY 2001-02 AS MENTIONED ON PAGE 5 OF THE ASSESSMENT OR DER. SIMILARLY AN AMOUNT OF RS.844/-IN THE AY 2002-03 & RS.46,28,510/- IN THE A Y 2003-04 WAS ALSO DISALLOWED . 4. ON APPEAL, THE LD. CIT(A) DELETED THE DISALL OWANCE IN THE AY 1999-2000 IN THE FOLLOWING TERMS:- 5 HAVING REGARD TO THE OVERALL FACTS AND CIRCUMSTA NCES OF THE CASE AND THE DECISIONS RELIED UPON BY THE APPELLANT, I A M OF THE VIEW THAT THE APPELLANT HAS A CASE TO SUCCEED. IN FACT IN AY 1998 -99 ON SIMILAR LINES THE DISALLOWANCE WAS MADE BY AO WHICH WAS SUBSEQUENTLY DELETED BY CIT(A). ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 8 THE FACTS AND FIGURES PROVIDED REVEAL THAT THE ADVA NCES GIVEN TO THE PARTIES IN QUESTION FROM WHOM RATE OF INTEREST HAS BEEN CHARGED ARE MAINLY SHORT TERM ADVANCES BASICALLY IN THE NATURE OF CURRENT ACCOUNT OBVIOUSLY FETCHING LESSER RATE OF INTEREST THAN THE LONG TERM ADVANCES ON WHICH INTEREST RATE IS NORMALLY HIGHER. FURTHER, IT IS NOT NECESSARY TO HAVE RECORDED THE TERMS AND CONDITIONS FOR CHARGING A PA RTICULAR RATE OF INTEREST AS THE LOANS AND ADVANCES ARE ADMITTEDLY GIVEN BY T HE ASSESSEE COMPANY TO THE GROUP CONCERNS IN THE COURSE OF NORMAL COMME RCIAL PRACTICE AND WITH MUTUAL UNDERSTANDING BETWEEN THE PARTIES. IT I S ALSO A FACT THAT THE ASSESSEE COMPANY HAS GOT SUBSTANTIAL INTEREST FREE OWN FUNDS OUT OF WHICH THE ADVANCES ARE MADE. IT IS NOT A CASE THAT INTEREST BEARING BORROWED FUNDS HAVE BEEN DIVERTED TO THE GROUP CONC ERNS INTEREST FREE OR ON LOWER CHARGE OF INTEREST OR FOR THE PURPOSE OTHE R THAN THE BUSINESS. THE DECISIONS RELIED UPON BY THE APPELLANT DULY SUPPORT THE CASE OF THE APPELLANT. THE DISALLOWANCE OF RS.9,36,240/- IS THE REFORE ORDERED TO BE DELETED. 5. FOLLOWING HIS OWN FINDINGS IN THE AY 1999-20 00, THE LD. CIT(A) DELETED THE DISALLOWANCE IN THE AYS 2000-01 TO 2003 -04 ALSO. 6. THE REVENUE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A). AT THE OUTSET, BOTH THE PARTIES AGREED THAT ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 30.6.2006 OF THE ITAT IN THE ASSESSEES OWN C ASE FOR THE AY 1998-99 IN ITA NO.1233/AHD./2002. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION OF THE ITAT. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE IN THEIR ORDER DATED 3 0-06-2006 IN THE ASSESSEES OWN CASE FOR THE AY 1998-99 IN ITA NO.12 33/AHD/2002, THE TRIBUNAL HELD AS UNDER:- 4. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND TH AT THE ASSESSEE WAS HAVING INTEREST FREE FUNDS OF RS.13 CRORES AND IN A DDITION TO THAT INTEREST FREE SECURITY DEPOSIT OF RS.L1,58,000 WITH THE ASSE SSEE. WE FIND THAT THE ASSESSEE HAD FREQUENT TRANSACTIONS WITH THE ABOVE P ARTIES. IN THE CASE OF CFI V. RADICO KHAITAN LTD (274 ITR 354), HON'BLE AL LAHABAD HIGH COURT HAS HELD - ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 9 'THAT IN VIEW OF THE FINDINGS RECORDED BY THE TRIBU NAL THAT THE ASSESSEE-COMPANY HAD SUFFICIENT FUNDS OTHER THAN THE BORROWED MONEY FOR GIVING THE AMOUNT IN QUESTION AS LOAN TO ITS SISTER CONCERN, WHICH FINDING HAD NOT BEEN SPECI FICALLY CHALLENGED IN -THE PRESENT APPEAL, THE CONDITIONS OF SE CTION 36(1)(III) OF THE ACT HAD BEEN COMPLIED WITH AND, TH EREFORE, THE ASSESSEE-COMPANY WAS ENTITLED TO FULL ALLOWANCE OF THE AMOUNT OF INTEREST PAID BY IT ON BORROWED CAPITAL.' THE FINDING RECORDED BY THE CIT(A) THAT IT IS ALS O A FACT THAT THE ASSESSEE COMPANY HAS GOT SUBSTANTIAL INTEREST FREE OWN FUNDS OUT OF WHICH THE ADVANCES ARE MADE. IT IS NOT A CASE THAT INTEREST B EARING BORROWED FUNDS HAS BEEN DIVERTED TO THE GROUP CONCERNS INTEREST FR EE OR ON LOWER CHARGE OF INTEREST OR FOR THE PURPOSE OTHER THAN THE BUSINESS ' HAS NOT SPECIFICALLY CHALLENGED BY THE REVENUE. THEREFORE, CONSIDERING T HE FACTS AND CIRCUMSTANCES IN ITS ENTIRETY AND FOLLOWING THE DEC ISION OF HON'BLE ALLABAHAD HIGH COURT IN THE CASE OF CIT V. RADICO K HAITAN LTD (274 ITR 354), WE UPHOLD THE ORDER OF THE C1T(A) IN DELETING THE IMPUGNED ADDITION OF RS.5,62,315/- MADE ON ACCOUNT OF DIFFERENCE IN R ATES OF INTEREST. 7.1 SINCE THE FACTS OBTAINING IN THE YEARS UNDER CONSIDERATION ARE UNDISPUTEDLY SIMILAR TO THE FACTS OBTAINING IN THE PRECEDING ASSESSMENT YEAR, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LEARNED CIT(A) IN THE LIGHT OF THE AFORESAID DE CISION OF THE ITAT IN THE ASSESSEES OWN CASE FOR AY 1998-99. THEREFOR E, GROUND NO.1 IN THESE APPEALS FOR THE AY 1999-2000 TO 2003-04 I S DISMISSED. 8. GROUND NO.2 IN THE APPEALS FOR THE AY 1999-2000, AY 2001-02 & AY 2002-03 AS ALSO GROUND NO. 7 IN THE APPEAL FOR THE AY 2000-01 RELATE TO DISALLOWANCE OF AN AMOUNT OF RS. RS.66,96 ,373/-IN AY 1999-2000, RS. 25,90,363/- IN THE AY 2000-01, RS.8, 38,036 IN THE AY 2001-02 & RS.12,23,482/- IN THE AY 2002-03 ON AC COUNT OF INTEREST ON ADVANCES TO VIRTUOUS FINANCE LIMITED. THE AO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 1999-2000 THAT THE ASSESSEE CHARGED INTEREST @ 14% PA ON TH E AMOUNT ADVANCED TO ONE OF ITS SISTER CONCERNS M/S VIRTUOUS FINANCE LTD. [VFL] WHILE THEIR OWN BORROWINGS WERE AT THE MINI MUM BANK RATE OF 17.85%PA DURING THE PERIOD RELEVANT TO THE ASSESSM ENT YEAR UNDER ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 10 CONSIDERATION. WHILE REFERRING TO HIS FINDINGS IN T HE BLOCK ASSESSMENT ORDER , THE AO ASKED THE ASSESSEE TO EXP LAIN THE REASONS FOR CHARGING LESSER RATE OF INTEREST VIS-- VIS MARKET RATE REVEALED BY ASSESSEES OWN BORROWINGS DURING THE PR EVIOUS YEAR. THE ASSESSEE REPLIED VIDE ITS LETTER DATED 7-2-2002 THAT THEY HAD GRANTED ADVANCES TO VIRTUOUS FINANCE LTD. (VFL) @ 14% P.A. DURING THE FY 1998-99. THE FUNDS WERE PROVIDED TO VFL IN O RDER TO ACQUIRE SUBSTANTIAL SHAREHOLDING IN AMBALAL SARABHAI ENTE RPRISES LTD. [ASEL]. VFL HAD ASSURED THE ASSESSEE THAT IN CASE I T WAS SUCCESSFUL IN ACHIEVING THE REASONABLE CONTROLLING INTEREST IN ASEL, THEN THE ASSESSEE WOULD GET DISTRIBUTORSHIP ENTITLE MENTS FOR LARGE PART OF THEIR BUSINESS. SINCE VFL WAS NOT IN A POSI TION TO REPAY THE LOANS, THEY REQUESTED TO REDUCE THE RATE OF INTERES T. SINCE ADVANCES WERE GIVEN ON ACCOUNT OF COMMERCIAL CONSIDERATION S AND FOR THE BENEFIT OF THE ASSESSEE, THE RATE OF INTEREST CHARG ED AT 14% WAS MORE THAN REASONABLE. THE ASSESSEE POINTED OUT THAT SINCE THEY HAD LARGE INTEREST FREE FUNDS OF THEIR OWN, THERE WAS N O REASON TO DISALLOW ANY PORTION OF INTEREST. HOWEVER, THE AO D ID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED AN AMOUN T OF RS..66,96,000/- ,COMPUTED IN THE FOLLOWING MANNER : - RATE OF INTEREST INTEREST BORN BY DISALLOWED INTEREST RECOVERED RATE ASSESSEE DIFFERENTIA L 14% 24350448 17.85% 31046821 66,96,373 8.1 LIKE WISE AN AMOUNT OF RS. 25,90,363/- WAS DISALLOWED IN THE AY 2000-01 ,RS. 8,38,036/- IN THE AY 2001-02 & RS.1 2,23,482/- IN THE AY 2002-03. 9. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWA NCE IN THE AY 1999-2000 IN THE FOLLOWING TERMS: 8 THIS ISSUE HAS BEEN DEALT WITH AT GREAT LENGTH B Y MY PREDECESSOR WHILE DISPOSING THE APPEAL OF THE BLOCK ASSESSMENT ORDER OF SPIL, I HAVE ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 11 PERUSED THE APPELLATE ORDER AND FIND NO REASON TO D IFFER FROM THE CONCLUSIONS REACHED BY MY PREDECESSOR. I HAVE ALSO CAREFULLY CONSIDERED THE CONTENTIONS OF THE ASSESSING OFFICER, THE APPEL LANT AND THE FACTS ON RECORD IT IS TO BE NOTED THAT VFL IS A NON BANKING FINANCE COMPANY. VFL HAS IN THE PAST ASSOCIATED WITH SPIL FOR THE ACQUIS ITION OF VARIOUS COMPANIES LIKE MJPL, GLOL, TDPL, ASEL ETC. IN SUCH CASES HUGE FUNDS, HAVE BEEN BLOCKED FOR ACQUISITION OF STRATEGIC STAK ES ON BEHALF OF AND AT THE BEHEST OF SPIL. THESE FACTS ARE NOT DISPUTED. T HE APPELLANT BEING THE AUTHORIZED DISTRIBUTOR OF SPIL FOR THE WHOLE OF IND IA DEFINITELY STANDS TO GAIN AS IT WOULD BE DIRECT BENEFICIARY OF INCREASE IN THE SALE RESULTING FOR SUCH STRATEGIC ACQUISITIONS. THE SALES GROWTH TRACK RECORD PRODUCED BEFORE ME ALSO SUPPORTS THIS FACT. I CANNOT AGREE WITH THE CONTENTION OF THE ASSESSING OFFICER THAT THE BENEFITS TO THE APPELLAN T WOULD BE THIRD PARTY BENEFITS. IT IS NOT NECESSARY THAT ANY ACTION ON TH E PART OF AN ASSESSEE SHOULD NOT RESULT IN BENEFITS TO ANY OTHER PERSON R ATHER, WHAT IS TO BE SEEN IS WHETHER THE ACTION WAS TAKEN KEEPING IN MIND THE BENEFITS TO FLOW TO THE ASSESSEE AND WHETHER SUCH BENEFITS HAVE FLOWN. THE FACT THAT IT MAY HAVE BENEFITED SOME OTHER PERSON MORE THAN THE ASSESSEE IS NOT THAT RELEVANT AND CERTAINLY CANNOT BE A BASIS FOR MAKING THE .DIS ALLOWANCE IT CANNOT ALSO BE DENIED THAT DUE TO ITS INTER-LINKED BUSINESS INT EREST WITH SPIL, THE APPELLANT MAY ALSO NOT BE IN A POSITION TO DENY ANY SUCH REQUEST MADE AT THE BEHEST OF SPIL. DUE TO THESE FACTS, VFL WOULD N OT BE IN A POSITION TO EARN COMMERCIAL RATES OF RETURN ON THE FUNDS BLOCKE D FOR SUCH PURPOSES. IT CANNOT BE EXPECTED THAT VFL BLOCKS HUGE FUNDS TO FU RTHER THE BUSINESS INTERESTS OF THE APPELLANT WHILE ON THE OTHER HAND CONTINUING TO PAY INTEREST ON COMMERCIAL TERMS TO THE APPELLANT. CHARGING OF I NTEREST AT LOWER RATE OF INTEREST OF 14% IS ACCORDING TO ME, UNDER THE CIRCU MSTANCES, FOR THE PURPOSE OF BUSINESS. 9 THE APPELLANT HAS ALSO SUBMITTED THAT IT HAS HUGE INTEREST FREE FUNDS AMOUNTING TO RS.3246 LACS AT ITS DISPOSAL. TH E ADVANCES TO VFL WERE MADE EXIT OF COMMON POOL OF FUNDS. ON SUCH FAC TS, IT IS FOR THE ASSESSING OFFICER TO ESTABLISH THE NEXUS BETWEEN TH E BORROWED CAPITAL AND INTEREST FREE FUNDS, IN ABSENCE OF THIS FINDING, NO INTEREST COULD BE DISALLOWED. IT IS ALSO CLAIMED THAT IN ABSENCE OF A NY DIRECT NEXUS HAVING BEEN ESTABLISHED BY THE ASSESSING OFFICER, THE AVER AGE COST OF FUNDS OUGHT TO BE TAKEN. 10 THE CONTENTIONS OF THE APPELLANT HAVE SIGNIFICAN T MERIT. I THEREFORE HOLD THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING RS.66,96.373/- OUT OF INTEREST. HE IS DIRECTED TO DELETE THE ADDIT ION MADE. 9.1 FOLLOWING HIS OWN ORDER FOR THE AY 1999-2000, THE LD. CIT(A) DELETED THE DISALLOWANCE IN THE AYS 2000-01 TO 2002 -03 ALSO. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 12 10. THE REVENUE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(A). AT THE OUTSET , BOTH THE PARTIES AGREED THAT ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 31-05-2007 OF THE ITAT IN THE AS SESSEES OWN CASE IN IT(SS)A NO.95/AHD/2001 FOR THE BLOCK PERIO D. 11. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION OF THE ITAT. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE IN THEIR ORDER DATED 3 1-05-2007 IN THE ASSESSEES OWN CASE IN IT(SS)A NO.95/AHD/2001 IN AP PEAL AGAINST BLOCK ASSESSMENT, THE TRIBUNAL HELD AS UNDER:- 33. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE PARTIES ALONGWITH THE ORDER OF THE TAX AUTHORITIES AND THE CASE LAWS CITED BEFORE US. WE NOTED THAT THE MAIN REASON FOR THE DISALLOWA NCE WAS THAT AS PER THE ASSESSING OFFICER THE' REDUCTION IN INTEREST WA S CARRIED OUT AS AN AFTER THOUGHT WITH A VIEW TO REDUCE THE INCOME OF THE ASS ESSEE IN VIEW OF THE LOSSES IN THE HANDS OF VFL. WE FIND THAT THE REDUCT ION IN INCOME OF VFL WAS DUE TO ITS BLOCKING OF FUNDS IN SPECIFIED COMPA NIES. THE REVENUE HAS NOT DISPUTED THAT ADVANCES TO VFL WAS FOR BUSINESS PURPOSE AND CORRESPONDINGLY INTEREST @ 12% WAS ALLOWED BY THE A SSESSING OFFICER. VFL HAS PLAYED A STRATEGIC ROLE IN THE AMALGAMATION AND ACQUISITION OF VARIOUS COMPANIES BY SPIL WHICH HAS DIRECTLY BENEFI TED THE ASSESSEE. IN PROVIDING SUCH SUPPORT VFL COULD NOT EARN INCOME OU T OF THE AMOUNT BLOCKED IN OTHER PHARMA COMPANIES WHICH WERE BEING ACQUIRED OR TARGETTED FOR ACQUISITION AND THUS CHARGING INTERES T AT LOWER RATE OF INTEREST CAN BE ADJUSTED AS COMMERCIAL EXPEDIENCY. WE ALSO F IND FORCE IN THE CONTENTION OF THE A.R. THAT SPIL BEING THE FLAGSHIP COMPANY OF THE GROUP HAS POWER TO DICTATE TERMS TO THE ASSESSEE AND SO T HE ASSESSEE HAS NO OPTION BUT TO FOLLOW SPIL IN ITS BUSINESS DECISIONS . THUS, IN OUR VIEW SAID REDUCTION CAN BE SOLELY FOR THE PURPOSE OF BUSINESS AND NO OTHER PURPOSE CAN BE ASSIGNED TO IT. IN OUR VIEW THE ASSESSING OF FICER HAS PLACED HEAVY RELIANCE ON THE NOTINGS FOUND DURING THE SEARCH. TH E SAID LOOSE NOTINGS DO NOT IN ANY WAY ESTABLISH THE CASE OF THE DEPARTMENT THAT THE INTEREST FOR THE YEAR HAD ACCRUED AND THE SAME WAS SUBSEQUENTLY REDUCED. IN OUR OPINION THE ASSESSING OFFICER CANNOT ENTER INTO THE SHOES OF THE ASSESSEE AND IT IS THE BUSINESSMAN WHO KNOWS BETTER ABOUT TH E BUSINESS DECISION. 34 IN VIEW OF THE ABOVE, WE FIND NO REASON TO INTER FERE WITH THE ORDER OF THE CIT(A) AND ACCORDINGLY DISMISS THIS GROUND RAIS ED BY THE REVENUE. THUS, THIS GROUND STANDS DISMISSED. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 13 11.1 SINCE THE FACTS OBTAINING IN THE YEARS UNDE R CONSIDERATION ARE UNDISPUTEDLY SIMILAR TO THE FACTS OBTAINING IN THE BLOCK ASSESSMENT PERIOD, WE HAVE NO HESITATION IN UPHOLDING THE FIND INGS OF THE LEARNED CIT(A) IN THE LIGHT OF THE AFORESAID DECISI ON OF THE ITAT IN THE ASSESSEES OWN CASE IN IT(SS)A NO.95/AHD/2001. THEREFORE, GROUND NO.2 IN THE APPEALS FOR THE AY 1999-2000,200 1-02 & 2002-03 AS ALSO GROUND NO. 7 IN THE APPEAL FOR THE AY 2000- 01 ARE DISMISSED. 12 GROUND NO.3 IN THE APPEALS FOR THE AY 1999-2000 & AY 2000- 01 RELATES TO DISALLOWANCE OF RS.16,72,521/- AND R S. 39,75,075/-IN RELATION TO TRANSACTIONS WITH DADHA GROUP. THE AO N OTICED THAT THE ASSESSEE ENTERED INTO VARIOUS TRANSACTIONS WITH THE GROUP OF ENTITIES TERMED AS DADHA GROUP. RELYING UPON HIS OWN FINDING S IN THE BLOCK ASSESSMENT ORDER, WHEREIN DISALLOWANCE OF INTEREST IN RELATION TO INTEREST FREE DEPOSIT OF RS.3 CRORE OF DADHA PHARMA P. LTD. HAD BEEN MADE FOR THE PERIOD UPTO 7-12-98, THE AO DISA LLOWED INTEREST OF RS.16,72,521/- FOR THE PERIOD 8-12-98 TO 31-3-99 ,THERE BEING NO CHANGE IN THE NATURE AND PURPOSE OF THESE ADVANCES . 12.1 FOR SIMILAR REASONS, THE AO DISALLOWED AN AMOU NT OF RS.39,75,075/- IN THE AY 2000-01. 13. ON APPEAL, THE LEARNED CIT(A) DELETED THE DISAL LOWANCE IN THE AY 1999-2000 IN THE LIGHT OF DECISION OF HIS PREDE CESSOR IN APPEAL AGAINST BLOCK ASSESSMENT IN THE FOLLOWING TERMS:- 18 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT IN LIGHT OF THE BLOCK ASSESSMENT ORDER AND THE ORDER OF MY P REDECESSOR ON THIS ISSUE. I AGREE WITH THE CONCLUSION REACHED BY MY PR EDECESSOR HAVING REGARD TO THE OVERALL FACTS AND CIRCUMSTANCES OF TH E CASE THE INTEREST FREE DEPOSIT APPEARS TO HAVE BEEN GIVEN FOR THE PURPOSE OF THE BUSINESS AND HAS TO BE CONSIDERED AFTER TAKING INTO ACCOUNT THE OVERALL BENEFITS ACCRUING TO THE APPELLANT IN WHICH CASE IT WOULD BE REASONAB LE AND FOR THE PURPOSE OF BUSINESS. 19 IT IS ALSO NOTED THAT THE APPELLANT HAS SUFFICI ENT INTEREST FREE FUNDS LIKE SHARE CAPITAL AND RESERVES TO GIVE THE SAID AD VANCE. ON SUCH FACTS, ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 14 THE AO HAS NOT ESTABLISHED THAT INTEREST BEARING FU NDS HAVE BEEN DIVERTED FOR PURPOSES OF GIVING THE ADVANCE. IN THE PRESENT CASE THE AO HAS NOT BROUGHT ON RECORD ANY SUCH MATERIAL OR FINDING TO S HOW THAT BORROWED FUNDS HAVE BEEN DIVERTED FOR GIVING THE ADVANCE. MO REOVER SINCE HAS NOT BEEN ABLE TO MAKE A CASE THAT THE ADVANCE WAS NOT F OR THE PURPOSE OF BUSINESS, THE AO IS DIRECTED TO DELETE THE DISALLOW ANCE OUT OF INTEREST OF RS.16,72,521/-. 13.1 FOLLOWING HIS OWN FINDINGS IN THE AY 1999-2 000, THE LD. CIT(A) DELETED THE DISALLOWANCE IN THE AY 2000-01. 14. THE REVENUE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A). AT THE OUTSET , BOTH THE PARTIES AGREED THAT ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 31-05-2007 OF THE ITAT IN THE AS SESSEES OWN CASE IN IT(SS)A NO.95/AHD/2001 FOR THE BLOCK PERIO D. 15. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION OF THE ITAT. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE IN THEIR ORDER DATED 3 1-05-2007 IN THE ASSESSEES OWN CASE IN IT(SS)A NO.95/AHD/2001, THE TRIBUNAL HELD AS UNDER:- 16 THE FACTS RELATING TO GROUND NO. 2, AND GROUND NO. 3 ARE THAT TAMILNADU DADHA PHARMACEUTICALS LTD. (TDPL) HAD AMA LGAMATED WITH SUN PHARMACEUTICAL INDUSTRIES LIMITED (SPIL). TDPL WAS JOINTLY PROMOTED BY DADHA FAMILY_OF CHENNAI AND TAMILNADU INDUSTRIAL DEVELOPMENT CORPORATION LTD. (TIDCO) WITH EQUITY HOLDINGS OF 25 % AND 26% RESPECTIVELY. IN THE BEGINNING, IT WAS PROPOSED THA T SPIL WOULD PURCHASE HE SHARES IN TDPL FROM THE DADHAS. THE DADHAS WOULD ALSO PURCHASE HE SHARES HELD BY TIDCO IN TDPL AND THE SAME WOULD BE SOLD TO SPIL. HOWEVER, THE PLAN OF PURCHASING THE SHARES FROM DA DHAS WAS LATER REJECTED. SPIL AND THE ASSESSEE COMPANY SUBMITTED T HAT THE PURCHASE TRANSACTION WAS NOT CARRIED OUT AND TDPL AMALGAMATE D WITH SPIL. HOWEVER, ON THE BASIS OF CERTAIN PAPERS SEIZED BOTH FROM THE OFFICE OF SPIL AND DADHA'S IT WAS CONTENDED BY THE DEPARTMENT THAT THE ORIGINAL AGREEMENT OF PURCHASE OF SHARES WAS ACTUALLY IMPLEM ENTED THOUGH ON PAPER THE SCHEME OF AMALGAMATION WAS REFLECTED. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 15 17 COMING TO THE SPECIFIC GROUND RELATING TO INTERE ST FREE SECURITY DEPOSIT TO M/S DADHA PHARMA PVT. LTD., THE PROPOSED LEASE WAS IN RESPECT OF A GODOWN HAVING APPROXIMATELY FLOOR AREA OF 10,0 00 SQ. FEET TO BE CONSTRUCTED ON A PLOT OF AREA 28,800 SQ. FEET SITUA TED AT NO. 268, LLOYDS ROAD, BEING THE IMMOVABLE PROPERTY BELONGING TO M/S . DADHA PHARMA PVT. LTD. ACCORDING TO THE LEASE AGREEMENT, THE SAID GOD OWN WAS TO BE CONSTRUCTED BEFORE 31.12.98 AND LET OUT ON A MONTHL Y RENT OF RS.8,000/- PER MONTH. THE PERIOD OF LEASE WAS 36 MONTHS WITH EFFEC T FROM 1.2.98. 18 DURING THE COURSE OF BLOCK ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER OBSERVED THAT IN ORDER TO ENABLE THE DADHAS TO PURCHASE THE SHARES- HELD BY TIDCO IN TDPL, A MODUS OPERANDI OF TRANSFERRING FUNDS ON ACCOUNT OF LOANS, ADVANCES, SECURITY DEPOSITS, E TC. WERE UTILIZED BY THE GROUP CONCERNS OF SUN PHARMA GROUP. THE ASSESSEE HA D GIVEN INTEREST FREE SECURITY DEPOSITS IN RESPECT OF THE LEASE OF G ODOWN ON 20.03.1998 AMOUNTING TO RS.2.5 CRORES AND ON 25.03.98 AMOUNTIN G TO RS.50 LACS. THE DEPOSIT OF RS.2.5 CRORES GIVEN TO THE LESSOR WAS TR ANSFERRED ON THE SAME DAY TO SHRI MOHANCHAND DADHA'S ACCOUNT (HUF) WHICH IN TURN, WAS 'TRANSFERRED BACK TO M/S. ADITYA MEDISALES AS REPAY MENT OF ADVANCES WHICH WERE GIVEN TO SHRI MOHANCHAND DADHA (HUF) FOR PURCHASE OF SHARES OF TDPL. SIMILARLY THE DEPOSIT OF RS.50 LACS WAS TRANSFERRED TO THE ACCOUNTS OF SHRI MOHANCHAND DADHA (IND.) AND SHRI P RADEEP DADHA ON 25.3.98 ITSELF. 19 THE ASSESSING OFFICER DURING BLOCK ASSESSMENT PR OCEEDINGS HELD THAT ON PHYSICAL INSPECTION OF THE PROPERTY IT WAS FOUND THAT NONE OF THE TERMS AND CONDITIONS SPECIFIED IN THE LEASE AGREEME NT WAS FULFILLED BY THE LESSOR. ACCORDING TO THE LEASE AGREEMENT, THE LESSO R WAS LIABLE TO REPAY THE FULL AMOUNT TO THE LESSEE IN THE EVENT OF FAILU RE TO CONSTRUCT THE GODOWN WITHIN THE STIPULATED PERIOD OF 12 MONTHS. THE ASSE SSING OFFICER HELD THAT NO REFUND OF ANY PART OF THE DEPOSIT OF RS.3 CRORES HAD BEEN MADE. THE LESSOR WAS ALSO LIABLE TO PAY INTEREST AT 18% PER A NNUM ON THE DEPOSIT AMOUNT FOR THE DELAY INVOLVED. HOWEVER, NEITHER THE GODOWN HAS BEEN CONSTRUCTED AS PER THE TERMS OF THE DEED NOR REFUND OF THE AMOUNT WAS MADE. INQUIRIES MADE BY THE ASSESSING OFFICER REVEA LED THAT THE PROPERTY ON WHICH THE GODOWN WAS TO BE CONSTRUCTED WAS AN EN CUMBERED ONE, IN THAT THE ENTIRE PROPERTY CONSISTING OF SUPERSTRUCTU RE AND LAND MEASURING ABOUT 12 GROUNDS HAD BEEN OFFERED AS COLLATERAL SEC URITY TO THE STATE BANK OF INDIA, GUINDY, CHENAI - 32, - AGAINST LOANS WHIC H WERE SANCTIONED TO ANOTHER SISTER CONCERN VIZ., M/S PRADEEP DRUG CO. L TD. OF WHICH SHRI MOHANCHAND DADHA WAS THE MANAGING DIRECTOR. THIS WA S A SICK COMPANY AS CERTIFIED BY BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION IN ORDER NO. 175/97 DATED 5-12-97. THE COMPANY SUFFERED ACCU MULATED LOSSES OF RS.11.70 CRORES. THE TITLE DEEDS OF THE PROPERTY WE RE IN THE CUSTODY OF STATE BANK OF INDIA WHO WOULD RELEASE IT ONLY ON DI SCHARGE OF DEBTS DUE TO THEM. FOR WANT OF THESE TITLE DEEDS, THE LESSOR WAS UNABLE TO GET APPROVAL OF NECESSARY PLANS FOR CONSTRUCTION OF GODOWN THE S TATE GOVERNMENT AUTHORITIES. IN EFFECT, THE LEASE AGREEMENT WAS INC APABLE OF BEING ACTED ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 16 UPON FOR THE ABOVE MENTIONED REASONS AND THIS WAS W ELL WITHIN THE KNOWLEDGE OF THE LESSOR EVEN AT THE TIME OF ENTERIN G INTO THE LEASE AGREEMENT. THE FACTS AND CIRCUMSTANCES NARRATED ABO VE LEAD TO THE INFERENCE THAT THE LEASE AGREEMENT EXECUTED WAS A S HAM TRANSACTION. THE ASSESSING OFFICER, THEREFORE, HELD THAT THE VARIOUS SEIZED MATERIALS CLEARLY PROVED THAT THE SECURITY DEPOSIT OF RS.3 CRORES HAD BEEN APPROPRIATED BY DADHA'S AGAINST RECEIVABLE CONSIDERATION FOR THEIR SHARE HOLDINGS. AS PER THE ASSESSING OFFICER THIS FACT ALSO CLEARLY ESTABL ISHED THAT THE AGREEMENT WAS A COLOURABLE DEVICE TO TRANSFER FUNDS TO DADHA PHARMA PVT. LTD. FOR THE PURPOSE OTHER THAN THAT STATED IN THE AGREEMENT DATED 01.01.98. THE ASSESSING OFFICER DISALLOWED RS.3831637/- OUT OF TH E INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE HOLDING THAT INTEREST BEARI NG FUNDS HAVE BEEN DIVERTED FOR NON BUSINESS PURPOSES. 20 THE ASSESSEE WENT IN APPEAL AGAINST THE ABOVE DI SALLOWANCE OF INTEREST AND THE COMMISSIONER OF INCOME TAX (APPEAL S) DELETED THE ADDITION ON THE ABOVE GROUND BY MAKING THE FOLLOWIN G OBSERVATIONS (PAGES 36 TO 40) 46. / HAVE CONSIDERED THE ARGUMENTS ADVANCED BY THE ASSES SING OFFICER AS WELL AS BY THE APPELLANT. IT IS OBSERVED THAT THE TURN OVER OF THE APPELLANT INCREASED SUBSTANTIALLY. ONCE THE TURNOVER HAS INCREASED, NEED TO HAVE A BETTER & BIGGER WAREHOUSE CANNOT BE RULED OUT. IF ADVANCES ARE MADE TOWARDS THIS PURPOS E, THE ADVANCES MAY BE TREATED AS USED FOR THE PURPOSE OF THE BUSINESS UNLESS CONTRARY IS PROVED. THE APPELLANT HAS FILED PAPERS REFLECTING APPOINTMENT OF CONSULTANTS AND DEVELOPERS BY DADHA PHARMA PVT. LTD. & REASONS FOR NON DEVELOPMENT. HOWEVER, SINCE SUCH DEVELOPMENTS WERE FOR POST SEARCH PERIOD, THE SAME CAN NOT HELP THE ASSESSEE TO PROVE ITS CLAIM. HOWEVER, THE TITLE DEEDS GIVEN TO THE BANK AS COLLATERAL SECURITY AND THE COMPANY BEING A SICK COMPANY DO NOT STOP THE FROM EARNING INCOME FROM THAT PROPE RTY. THE CASE COULD HAVE BEEN DIFFERENT HAD DADHA PHARMA PVT. LTD WAS NOT THE OWNER OF THE PROPERTY OR THAT THERE WAS NO SCOPE FO R FURTHER CONSTRUCTION. BUT THIS IS NOT THE CASE. THE APPELLA NT REQUIRED A HUGE SPACE TO MEET ITS INCREMENTAL TURNOVER. DADHA PHARM A PVT. LTD. OWNED A BIGGER PREMISES WHEREIN CONSTRUCTION WAS PO SSIBLE. AMOUNT WAS GIVEN BY CHEQUE AND IT IS SEEN THAT THE APPELLANT HAS NOT DEBITED ANY RENT TOWARDS THESE PREMISES AS THE RENT WAS TO START AFTER TAKING POSSESSION OF THE GODOWN. CONSIDERING THAT ABOUT 10,000 SQ.FT. WAS TO BE CONSTRUCTED AND GIVEN ON LE ASE TO THE APPELLANT, A DEPOSIT OF RS.3 CRORE WITH RENT OF RS. 8,000/- PER MONTH ONLY APPEARS TO BE A REASONABLE ARRANGEMENT. 47. IT IS OBSERVED THAT THE ASSESSING OFFICER HAS D ISALLOWED THE INTEREST ON BORROWED CAPITAL TO THE EXTENT OF RS.3 CRORE BEING ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 17 INTEREST FREE DEPOSIT CLAIMED TO BE ADVANCED BY THE APPELLANT TO DADHA PHARMA PVT. LTD. AS SECURITY AGAINST CONSTRUC TION AND HIRING OF GO DOWN ON THE REASONING THAT THE SAID AMOUNT OF RS.3 CRORE WAS ADVANCED BY THE APPELLANT NOT ON ACCOUNT OF THE SAI D PURPOSE BUT WAS ADVANCED ON ACCOUNT OF DIFFERENT PURPOSES THROU GH A COLORABLE DEVICE FOR THE PURPOSE OTHER THAN STATED IN THE LEASE AGREEMENT DATED 1.1.1998. THE ASSESSING OFFICER HAS STATED IN THE LAST LINES OF PAGE 39 OF THE ASSESSMENT ORDER THAT THE SEIZED MATERIAL CLEARLY PROVE THAT THE AMOUNT OF RS.3 CRORE WAS APP ROPRIATED BY THE DADHA'S AGAINST THE RECEIVABLE CONSIDERATION FOR TH EIR SHARE HOLDING. THE ISSUE NOW ARISE IS WHETHER THE AMOUNT OF INTERE ST FREE ADVANCE OF RS.3 CRORE WHICH HAS BEEN APPROPRIATED BY THE DA DHA'S IS AS AMOUNT GIVEN BY THE APPELLANT FOR THE PURPOSE OF BU SINESS. THE APPELLANT'S REPLY IN RESPECT OF NECESSITY AND DESIR ABILITY OF GIVING INTEREST FREE ADVANCES TO THE MEMBERS OF DADHA GROU P HAVE BEEN REPRODUCED IN THIS ORDER. ACCORDING TO THIS EXPLANA TION, M/S. SUN PHARMACEUTICALS INDUSTRIES LTD (SPIL) PROPOSED TO A CQUIRE TAMILNADU DADHA PHARMACEUTICALS LTD (TDPL) AND IF SUCH ACQUIS ITION MATERIALIZED M/S. SPIL COULD HAVE BEEN BENEFITED TR EMENDOUSLY. THE APPELLANT COMPANY BEING THE SOLE DISTRIBUTOR OF M/S. IL WAS ALSO GOING TO BE BENEFITED A LOT AS ITS TURNOVER WAS GOI NG TO BE CREASED SUBSTANTIALLY, IF ITS PRINCIPAL'S TURNOVER INCREASE D TO THAT EXTENT. R N ORDER TO ACQUIRE THE SAID COMPANY, M/S. SPIL, THE A PPELLANT AND OTHER GROUPCOMPANIES STARTED GIVING SUBSTANTIAL AM OUNTS OF INTEREST FREE ADVANCES TO THE MEMBERS OF DADHA GROU P IN ORDER TO ENABLE THEM TO PURCHASE 25% OF SHARES HELD BY THE T IDCO AND ALSO HAS ADVANCED/SALE PROCEEDS AGAINST THEIR OWN SHARES @ RS.290 PER SHARE. THERE IS A DISPUTE BETWEEN THE APPELLANT AND THE ASSESSING OFFICER IN RESPECT OF TREATMENT OF INTEREST FREE AD VANCES. WHERE AS THE APPELLANT ALTERNATIVELY CONTENDED THAT THE ADVA NCES WERE GIVEN TO KEEP LIQUIDITY WITH THE DADHA GROUP IN ORD ER TO ENABLE THEM TO PURCHASE THE SHARES AND AFTER AMALGAMATION MAY NOT SELL THEIR OWN SHARES WHICH WERE CONVERTED INTO THE SHAR ES OF SPIL AT THE RATIO OF 4:1, THE ASSESSING OFFICER CONTENDED THAT THE SEIZED MATERIAL SHOWED THAT THE SHARES WERE SOLD BY DADHA @ RS. 290 PER SHARE PRIOR TO THE AMALGAMATION WHICH WAS COMPLETED IN FEBRUARY , 1998 AND WAS WITH EFFECT FROM 1.4.1997. IT WAS CONTENDED BY THE APPELLANT THAT THE SPIL GROUP KEPT CONTROL OF THE SHARES OWNE D BY THE DADHA'S AS SECURITY AGAINST THE AMOUNTS ADVANCED BY THEM AND T O ENSURE THAT THE DADHA'S DO NOT MAKE DISTRESS SALE OF HOLDI NG OF SPIL SHARES IN THE MARKET. THE ISSUE OF SALES OF SHARES AS CONT ENDED BY THE ASSESSING OFFICER AND SECURITY AGAINST SHARES AS CO NTENDED BY THE APPELLANT IS NOT IMPORTANT OR RELEVANT. IN MY VIEW, WHAT IS REQUIRED TO BE EXAMINED HERE IS WHETHER THE AMOUNTS ADVANCED BY THE APPELLANT COMPANY TO THE MEMBERS OF DADHA GROUP FOR ENABLING ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 18 THEM TO ACQUIRE THE SHARES OF TDPL 'OR TO ENSURE TH AT THE DADHA'S DO NOT MAKE DISTRESS SALE OF THEIR SHARES IN DISTRESS WERE FOR THE PURPOSE OF BUSINESS OF THE APPELLANT. IT IS NOTED THAT THOU GH THE ASSESSING OFFICER HAS NOT DISPUTED THE PURPOSE OF ADVANCES GI VEN BY THE APPELLANT TO INDIVIDUALS OF DADHA GROUP (WHETHER TH E ADVANCE WAS GIVEN FOR SALE PROCEEDS OR TO CREATE LIQUIDITY TO D ADHA'S AND TO KEEP THEM IN GOOD HUMUOR), HE HAS ACCEPTED THE CONT ENTIONS OF THE APPELLANT THAT THE INCREASED CAPACITY THROUGH A CQUISITION OF TDPL BENEFITED THE APPELLANT BY WAY OF INCREASED TU RNOVER AND PROFIT. THE ADVANCES GIVEN BY THE APPELLANT TO THE INDIVIDUAL MEMBERS OF DADHA GROUP WERE TREATED BY THE ASSESSIN G OFFICER AS GIVEN FOR THE PURPOSE OF BUSINESS AS NO COLORABL E DEVICE WAS USED IN SUCH ADVANCES. ACCORDING TO THE ASSESSING OFFICE R, SUCH ADVANCES WERE UTILIZED BY DADHA'S FOR ACQUISITION O F TIDCO'S HOLDING IN TDPL THEREFORE MAY BE TREATED AS USED FOR THE PURPOSE OF BUSINESS ON ACCOUNT OF COMMERCIAL EXPEDIENCY. THE ASSESSING OFFICER DISTINGUISHED THE ADVANCES OF RS.3 CRORES GIVEN BY THE APPELLANT TO DADHA PHARMA PVT. LTD. WITH THE ADVANCES GIVEN BY I T TO THE INDIVIDUAL MEMBERS OF DADHA GROUP ON THE REASONING THAT THE FIRST TYPE OF TRANSACTION WAS A COLORABLE DEVICE WHERE AS THE SECOND TYPE OF TRANSACTION WAS A STRAIGHT FORWARD ADVANCE. ACCORDING TO THE ASSESSING OFFICER, COLORABLE AND DUBIOUS TRANSA CTIONS CANNOT BE CONSIDERED AS TRANSACTIONS FOR THE PURPOSE OF BUSIN ESS. THOUGH HE HAS GIVEN THE DETAILS OF APPLICATION OF THE ADVANCES OF RS.3 CRORE, HOWEVER, HE HAS NOT GIVEN ANY FINDING WHETHER SUCH APPLICATION OF THE FUNDS ADVANCED BY THE APPELLANT WAS NOT FOR THE PURPOSE OF BUSINESS. THUS, IN ARRIVING SUCH FINDING HE HAS CON SIDERED INCOMPLETE FACTS UPTO THE STAGE OF GIVING ADVANCE AND DID NOT CONSIDER THE END USE OF THE SAID ADVANCE WITH REFERENCE TO APPEL LANT'S BUSINESS INTEREST IN MY VIEW, THE FIRST PART I.E. THE DEVICE OF GIVING ADVANCE IS NOT VERY RELEVANT. WHAT IS CRUCIAL TO THE ISSUE IS WHETHER THE AMOUNT OF RS.3 CRORES ADVANCED BY THE APPELLANT WAS USED F OR THE PURPOSE OF ITS BUSINESS. WHAT IS MORE IMPORTANT IS THE USE AND NOT THE DEVICE WHILE EXAMINING THE BUSINESS PURPOSE. THE ASSESSING OFFICER HAS TREATED BOTH COLORABLE DEVICE USED FOR THE PURPOSE OF BUSINESS AND COLORABLE DEVICE USED TO EVADE THE TAX ON EQUAL FOO TING. WHERE AS THE COLORABLE DEVICE TO EVADE THE TAX IS NOT PERMIS SIBLE, THERE MAY NOT BE ANY OBJECTION TO THE ASSESSING OFFICER FOR A DOPTION OF COLORABLE DEVICE BY THE APPELLANT FOR THE PURPOSE O F BUSINESS, IF THE SAID DEVICE DOES NOT VIOLATE THE LAW. A DEVICE TREA TED BY THE ASSESSING OFFICER AS COLORABLE MAY BE A NECESSITY F OR THE APPELLANT'S BUSINESS. THERE CANNOT BE ANY GRIEVANCE TO THE DEPA RTMENT IF THE APPELLANT ADOPT COLORABLE DEVICE TO PROMOTE ITS BUS INESS INTEREST. IF THE DADHA'S WANTED TO HAVE ADVANCE FROM THE APPELLA NT IN A PARTICULAR MANNER AND THAT KEEPS THEM IN GOOD HUMOU R WHICH IS ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 19 NECESSARY FOR THE APPELLANT TO PROMOTE ITS BUSINESS , IN THAT CASE IF THE APPELLANT GIVES ADVANCES ACCORDING TO THAT REQU IREMENT, NO ADVERSE VIEW CAN BE TAKEN. THEREFORE IN MY VIEW WHA T IS RELEVANT IS THE REAL PURPOSE OF ADVANCING MONEY AND NOT THE DEV ICE THROUGH WHICH SUCH MONEY WAS ADVANCED UNLESS SUCH DEVICE IS NOT PERMISSIBLE UNDER THE LAW. IN. THE PRESENT CASE THE AMOUNT OF RS.2.5 CRORE OUT OF THE AMOUNT OF RS.3 CRORES ADVANCED TO DADHA PHARMA PVT. LTD. WAS TRANSFERRED ON THE SAID DATE TO SHRI, S. MOHANCHAND DADHA (HUF) A/C WHICH IN TURN CAME BACK TO THE APPE LLANT AS REPAYMENT OF ADVANCE WHICH WERE EARLIER RECEIVED BY THE MOHANCHAND DADHA (HUF) FROM THE APPELLANT FOR THE P URCHASE OF SHARES OF TDPL. THUS THE AMOUNT OF RS.2.5 CRORE CAM E BACK TO THE APPELLANT IMMEDIATELY AFTER THE ADVANCE OF RS.3 CRO RE. IT IS NOTED THAT THE ADVANCE OF RS.2.5 CRORE EARLIER GIVEN BY T HE APPELLANT TO SHRI MOHANCHAND DADHA (HUF) HAS BEEN TREATED BY THE ASSESSING OFFICER AS ADVANCE GIVEN FOR THE PURPOSE OF BUSINES S. HOWEVER, THE ADVANCE OF THE SAME AMOUNT OF RS.2.5 CRORE WHICH WA S GIVEN BY THE APPELLANT TO DADHA PHARMA PVT. LTD IN ORDER TO ENABLE IT TO GIVE THIS AMOUNT TO MOHANCHAND DADHA (HUF) WHO IN TURN R EPAID THE ADVANCE OF RS.2.5 CRORE TO THE APPELLANT HAS NOT BE EN TREATED AS FOR THE PURPOSE OF BUSINESS. THE NET EFFECT OF THE SAID ADVANCE BY THE APPELLANT IS THAT THE SAID ADVANCE OF RS.2.5 CR ORE IS TRANSFERRED FROM THE ACCOUNT OF SHRI MOHANCHAND DADHA (HUF) TO THE ACCOUNT OF DADHA PHARMA PVT. LTD A COMPANY OWNED BY DADHAS. THUS, AS FAR AS THE ADVANCE OF RS.2.5 CRORE IS CONCERNED THE RE CANNOT BE ANY DEVIATION OF BORROWED FUNDS WHICH CAME BACK TO THE APPELLANT ON SAME DAY. BESIDES THE APPLICATION OF A DVANCE OF RS.2.5 CRORE CONTINUED TO BE THE SAME AS IT WAS BEF ORE THE SAID ADVANCE WAS GIVEN TO DADHA PHARMA PVT. LTD. IN RESP ECT OF BALANCE AMOUNT OF RS.50 LAKHS, THE ASSESSING OFFICE R STATED THAT THE SAME WAS TRANSFERRED TO SHRI MOHANCHAND DADHA INDIV IDUAL ACCOUNT AND SHRI PRADIP DADHA ON THE SAME DATE ITSE LF. THUS THE PURPOSE APPLICATION OF THE AMOUNT OF RS. 3 CRORE ADVANCED THROUGH DADHA PH ARMA PVT LTD. ARE THE SAME AS THE ADVANCE GIVEN BY THE APPELLANT TO INDIVIDUALS OF DADHA GROUP WHICH HAVE BEEN HELD BY THE ASSESSING OFFIC ER AS USED FOR THE PURPOSE OF THE BUSINESS. THE ASSESSING OFFICER H AS TAKEN INCONSISTENT VIEW WHEN HE HAS TREATED THE ADVANCES GIVEN BY THE APPELLANT TO INDIVIDUAL M EMBERS OF DADHA GROUP DIRECTLY AS FOR THE PURPOSE, OF BUSINES S AND THROUGH DADHA PHARMA PVT. LTD, AS NOT FOR THE PURPOSE OF BU SINESS. IN MY VIEW, THERE IS NO DIFFERENCE BETWEEN THE TWO AS THE END USE OF ADVANCE IS THE SAME AND BOTH WERE USED FOR THE PURP OSE OF APPELLANT'S BUSINESS. IN THE LAST PARAGRAPH OF PAGE 39 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HIMSELF STA TED THAT VARIOUS SEIZED MATERIAL CLEARLY PROVE THAT THE AMOUNT OF RS . 3 CRORE WAS ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 20 BEING APPROPRIATED BY DADHA'S AGAINST THE RECEIVABL E CONSIDERATION FOR THEIR SHARE HOLDING. THIS FINDING KEEPS IT AT PAR WITH THE ADVANCE GIVEN BY THE APPELLANT TO THE MEMBERS O F DADHA GROUP DIRECTLY. I THEREFORE HOLD THAT THE ADVANCES OF RS.3 CRORE WAS GIVEN FOR THE PURPOSE OF BUSINESS AND NO INTEREST A TTRIBUTABLE TO THE SAID ADVANCE CAN BE DISALLOWED BY THE ASSESSING OFF ICER. I DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS.38,31,637/-. 48. THE APPELLANT HAS TAKEN ANOTHER ALTERNATIVE CON TENTION THAT IT HAS SUFFICIENT INTEREST FREE FUNDS AT ITS DISPOSAL WHICH WERE USED TO GIVE THE SAID DEPOSIT OF RS.3 CRORE AND THEREFORE N O INTEREST ON BORROWED FUNDS CAN BE DISALLOWED BY THE ASSESSING O FFICER. IN THE LETTER DATED 24.4.2001 THE ASSESSING OFFICER CONTEN DED THAT THE ASSESSEE MAY BE ASKED TO PROVE THE NEXUS WITH MONEY GIVEN TO THE DADHA CAME OUT FROM INTEREST FREE FUNDS ONLY AND NO T FROM INTEREST BEARING FUNDS. HE FURTHER CONTENDED THAT IN THE ABS ENCE OF ANY EVIDENCE OF ADVANCE BY THE ASSESSEE IN THE BLOCK AS SESSMENT PROCEEDINGS, THE DISALLOWANCE OF INTEREST WAS PROPE RLY MADE. THE APPELLANT ARGUED THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO ESTABLISH WHETHER ANY INTEREST BEARING FUNDS WERE D IVERTED TO NON BUSINESS PURPOSES. THE ASSESSEE SUBMITTED THAT AS P ER BALANCE SHEET FOR ASSESSMENT YEAR 1997-98 AND 1998-99, THE RESERVES AND SURPLUS EX CEEDED RS.20 CRORE. IT HAS FURTHER SUBMITTED THAT SINCE THE FUNDS WERE 'GIVEN OUT OF A COMMON POOL, IT IS NOT POSSIBLE TO ESTABLISH ANY DIRECT NEXUS. THE APPELLANT RELIED ON THE FOLLOWING DECISIONS IN WHICH IT HAS BEEN HELD THAT IN THE ABS ENCE OF DIRECT NEXUS BETWEEN THE INTEREST FREE ADVANCES AND INTERE ST BEARING LOAN, INTEREST ON SUCH ADVANCES CANNOT BE DISALLOWE D. 1. SHAHIBAG ENTREPRENEURS V ITO 50 ITD 113 (AHD) 2. RAJMOTI INDUSTRIES V ITO 52 ITD 286 (AHD.) 3. CADBURY FRY (INDIA) LTD. V ITO 2 ITD 435 (BOM.) 4. UNITED AGENCIES V ITO 37 TTJ 374 (AHD) 5. ITO V'ASSANDAS & SONS 18 TTJ 199 (BOM.) 49. I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESS ING OFFICER AND THE APPELLANT. IN MY VIEW THE APPELLANT HAS SUFFICI ENT INTEREST FREE FUNDS LIKE SHARE CAPITAL AND RESERVE TO GIVE THE SA ID ADVANCE. ON SUCH FACTS, BEFORE DISALLOWANCE OF ANY INTEREST ON BORROWED CAPITAL, THE BURDEN IS ON THE ASSESSING OFFICER TO ESTABLISH THE NEXUS BETWEEN THE BORROWED CAPITAL AND INTEREST FREE ADVA NCES. IN THE- PRESENT CASE, THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY MATERIAL TO SHOW THAT BORROWED MONEY WAS USED FOR THE PURPOS E OF GIVING ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 21 ADVANCE AND THEREFORE EVEN IF THE ADVANCE WAS NOT U SED FOR THE PURPOSE OF BUSINESS, NO INTEREST CAN BE DISALLOWED. 50. THE APPELLANT HAS TAKEN ANOTHER AL TERNATIVE GROUND THAT DISALLOWANCE OF INTEREST COULD NOT BE MADE AS THE TRANSACTIONS WERE WHOLLY AND CORRECTLY RECORDED IN THE REGULAR B OOKS OF ACCOUNTS OF THE APPELLANT. THE ASSESSING OFFICER HA S ARGUED THAT THE PURPOSE OF ADVANCES/DEPOSIT ETC. HAVE SURFACED AS A RESULT OF SEARCH ONLY AND HENCE SHOULD BE CONSIDERED IN THE B LOCK ASSESSMENT ONLY. THE APPELLANT RELIED THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. N. R. PAPE R AND BOARD LTD 162 CTR 488 AND HON'BLE CALCUTTA HIGH COURT THE CAS E OF SHAW WALLACE AND COMPANY 165 CTR 489 WHICH HELD THAT EXPENDITURE ALREADY DISCLOSED IN THE BOOKS OF ACCOUNTS CANNOT B E TREATED AS UNDISCLOSED INCOME UNDER CHAPTER XIV B OF THE ACT. IT IS OBSERVED THAT DURING THE SEARCH INCRIMINATING MATERIAL WAS FOUND WHICH CREATED SUSPICION ABOUT THE USE OF AMOUNT GIVEN BY THE APPELLANT FOR THE PURPOSE OTHER THAN SHOWN IN THE REGULAR BOO KS OF ACCOUNTS. THOUGH THE REAL PURPOSE FOR GIVING ADVANCE ON THE B ASIS OF THE SAID SEIZED MATERIAL IS ALSO HELD AS GIVEN FOR THE PURPO SE OF BUSINESS, STILL THE SAME GIVES JURISDICTION TO THE ASSESSING OFFICE R TO EXAMINE THE SAID EVIDENCES IN BLOCK ASSESSMENT PROCEEDINGS UNDE R CHAPTER XIV B OF THE ACT. THEREFORE THIS GROUND OF APPEAL IS RE JECTED. HOWEVER, AS ON MERIT IT IS HELD THAT THE INTEREST ATTRIBUTAB LE TO THE ADVANCE OF RS.3 CRORE CANNOT BE DISALLOWED, THE ASSESSING OFFI CER IS DIRECTED TO DELETE THE ADDITION OF RS.38,31,637/-.' 21 THE LD. DR RELIED STRONGLY ON THE ORDER OF THE A SSESSING AND SUBMITTED WAS CLEARLY VISIBLE THAT THE DEPOSIT PLAC ED WAS USED BY THE SHAREHOLDERS OF TDPL TO DISCHARGE THE LIABILITY IN RESPECT OF THE LOANS AND ADVANCES TAKEN BY R~ FROM THE ASSESSEE. THE DR FURT HER EMPHASIZED THAT AN ASSESSEE CANNOT PERMITTED TO USE A COLOURABLE DE VICE TO MASK THE TRANSACTIONS ACTUALLY UNDERTAKEN IN VIEW OF THE DEC ISION OF THE SUPREME COURT IN THE CASE OF MCDOWELL 154 ITR 148 (SC). R ELIANCE WAS ALSO PLACE ON THE JUDGMENT OF THE PUNJAB AND HARYANA HIG H COURT IN THE CASE OF ABHISHEK INDUSTRIES LIMITED (286 ITR 1) WHERE IT WAS HELD THAT INTEREST PAID BY THE ASSESSEE TO THE EXTENT THE AMOUNTS WERE DIVERTED TO SISTER CONCERNS ON INTEREST-FREE BASIS OUGHT TO BE DISALLO WED. IN THE PRESENT CASE HE ARGUED THAT THE FUNDS WERE TRANSFERRED FOR NON B USINESS USE BY GIVING SUCH DEPOSITS UNDER A TRANSACTION WHICH WAS NEVER I NTENDED TO BE CARRIED OUT AND HENCE WAS A SHAM AND THE ENTIRE ARRANGEMENT WAS COLOURABLE DEVICE TO THE REVENUE. 22 A.R. STRONGLY RELIED ON THE ORDER OF THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) AND SUBMITTED THAT THE LEASE A GREEMENT ENTERED INTO STATED THAT A GODOWN OF APPROXIMATELY FLOOR AR EA OF 10000 SQ. FEET WAS ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 22 TO BE CONSTRUCTED. IN THE FEASIBILITY REPORT REGARD ING THE CONSTRUCTION OF THE GODOWN, IT WAS REALIZED THAT IT WOULD NOT BE POSSIB LE TO CONSTRUCT A GODOWN OF 10,000 SQ. FT. ON THE GROUND FLOOR WITHOUT DISTU RBING THE MAIN BLOCK. ACCORDINGLY, DADHA PHARMA PVT. LTD. PROPOSED TO CON STRUCT A GODOWN OF GROUND PLUS ONE STOREY EACH ADMEASURING FIVE THOUSA ND SQUARE FEET. HOWEVER, THIS WAS NOT ACCEPTABLE TO THE ASSESSEE, W HO ACCORDINGLY ASKED FOR A REFUND OF THE DEPOSIT. DADHA PHARMA P. LTD, E XPRESSED ITS INABILITY TO REFUND THE ENTIRE DEPOSIT IN 1 LUMP SUM BUT AGREED TO DO SO OVER A PHASED PERIOD OF TIME. ACCORDINGLY, FROM DECEMBER'99 THEY STARTED REFUNDING THE DEPOSIT WHICH WAS COMPLETED BY MARCH'2000. ' 23 THE ID A.R. STRONGLY CONTENDED THAT THE ASSESS EE HAD ENTERED INTO THE AGREEMENT WITH THE DADHA PHARMA PVT. LTD. FOR V ALID BUSINESS AND COMMERCIAL PURPOSES. THE ENTIRE SEQUENCE OF EVENTS WAS WELL DOCUMENTED. MERELY BECAUSE FOR VALID REASONS THE PA RTIES COULD NOT ACT ON THE DESIRED INTENT CANNOT BE A GROUND FOR HOLDING- THAT THE PARTIES HAD NEVER INTENDED TO CARRY OUT THE TRANSACTIONS. BOTH THE PARTIES HAD ACCEPTED THE FACT THAT THE TRANSACTION WAS IN FACT TO BE CAR RIED OUT BUT FOR THE INABILITY OF THE PARTY TO SECURE THE NECESSARY PERMISSIONS. H E STRONGLY DEFENDED THE TRANSACTIONS, IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD HUGE INTEREST -FREE FUNDS AT ITS DISPOSAL COMPRISING OF CAPITAL, RESERVES AND INTEREST FREE DEPOSITS RECEIVED FROM STOCKISTS AND CUSTOMERS. THE INTEREST FREE FUNDS AT THE DISPOSAL OF THE ASSESSEE WERE MOR E THAN SUFFICIENT FOR PROVIDING THE INTEREST FREE DEPOSIT. FURTHER DURING THE PERIOD IN WHICH THE DEPOSITS HAVE BEEN GIVEN, THERE IS NO INCREASE IN T HE TOTAL BORROWINGS OF THE ASSESSEE. FURTHER NO PART OF BORROWINGS HAD BEE N DIVERTED FOR GIVING THE SAID DEPOSIT. IT HAD SUFFICIENT INTEREST FREE F UNDS AT ITS DISPOSAL WHICH WERE USED (E THE SAID DEPOSIT OF RS.3 CRORE AND THE REFORE NO INTEREST ON BORROWED CAN BE DISALLOWED BY THE ASSESSING OFFICER . THE A.R. FURTHER CONTENDED THAT THE ASSESSING OFFICER HAS NOT BEEN A BLE TO ESTABLISH WHETHER ANY INTEREST BEARING FUNDS WERE DIVERTED TO NON BUSINESS PURPOSES. THE A.R. SUBMITTED THAT THE BALANCE SHEET S FOR 'ASSESSMENT YEAR 1997-98 AND 1998-99, THE RESERVES AND SURPLUS EXCEEDED RS.20 CRORE. HE FURTHER SUBMITTED THAT SINCE THE FUNDS WE RE GIVEN OUT OF A COMMON POOL, IT WAS NOT POSSIBLE TO ESTABLISH ANY D IRECT NEXUS. THE A.R. RELIED ON THE FOLLOWING DECISIONS IN WHICH IT HAS B EEN HELD THAT IN THE ABSENCE OF DIRECT NEXUS BETWEEN THE INTEREST FREE A DVANCES AND INTEREST- BEARING LOAN, INTEREST ON SUCH ADVANCES CANNOT BE D ISALLOWED. 1. SHAHIBAG ENTREPRENEURS V ITO 50 ITD 113 (AHD) 2. RAJMOTI INDUSTRIES V ITO 52 ITD 286 (AHD.) 3. CADBURY FRY (INDIA) LTD, V ITO 2 ITD 435 (BOM.) 4. UNITED AGENCIES V ITO 37 TTJ 374 (AHD) 5. ITOV ASSANDASS SONS 18TTJ 199 (BOM.) 24 THE A.R. ALSO REFERRED TO THE RECENT DECISION OF THE SUPREME COURT IN THE CASE OF S. A. BUILDERS (288 ITR 1) WHEREIN I T WAS HELD THAT IF THE INTEREST FREE LOANS ARE GIVEN TO A SISTER CONCERN O UT OF BORROWED FUNDS, THE ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 23 ALLOWANCE OF DEDUCTION U/S 36 (1) (III) OF INTEREST ON SUCH BORROWED FUNDS WOULD BE ALLOWED IF SUCH LOAN WAS GIVEN AS A MEASUR E OF COMMERCIAL EXPEDIENCY. HE ARGUED THAT IN THE PRESENT CASE THE TRANSACTIONS WERE WITH THIRD PARTIES AND FOR VALID BUSINESS AND COMMERCIAL REASONS. HE FURTHER STATED THAT COMMERCIAL EXPEDIENCY HAS TO BE LOOKED AT FROM THE BUSINESSMAN'S POINT OF VIEW. 25 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE PARTIES. IT IS SEEN THAT THE MAIN REASON FOR CARRYING OUT THE DISA LLOWANCE WAS THAT THE GODOWN WAS NOT CONSTRUCTED .AND THUS THE TERMS OF T HE AGREEMENT WERE NOT FULFILLED. THE D.R. HAS NOT DISPUTED THE BUSINE SS NEEDS PURSUANT TO WHICH THE GODOWN WAS TAKEN ON LEASE. IT CANNOT BE D ISPUTED THAT PURSUANT TO THE AMALGAMATION OF TDPL WITH SPIL, THE OPERATIO NS OF THE ASSESSEE INCREASE GREATLY. ACCORDINGLY, THE ACTION OF THE AS SESSEE FOR TAKING A GODOWN ON LEASE TO MEET ITS GROWING REQUIREMENTS CA NNOT BE RULED OUT. IN A NORMAL BUSINESS ENVIRONMENT, IT IS NOT RARE THAT CONTRACTS AND AGREEMENTS CANNOT BE EXECUTED OR FULFILLED. THE CON TRACT COULD NOT BE CARRIED OUT ON ACCOUNT OF THE REGULATIONS PRESCRIBE D FOR THE CONSTRUCTION. FURTHER, THE SAID DEPOSIT HAS SUBSEQUENTLY BEEN REC OVERED BY THE ASSESSEE. EVEN OTHERWISE, IT IS SEEN THAT THE ASSES SING OFFICER HAS CONSIDERED TRADE ADVANCES GIVEN BY THE ASSESSEE TO THE INDIVIDUAL MEMBERS OF THE DADHA FAMILY AS ADVANCES IN THE ORDI NARY COURSE OF BUSINESS. THUS, EVEN IF THE ADVANCES WERE GIVEN IN THE GUISE OF A DEPOSIT, THE SAME WOULD STILL BE CONSIDERED AS FOR THE PURPO SE OF BUSINESS. WE HAVE ALSO GONE THROUGH THE DECISION OF THE SUPREME COURT IN THE CASE OF S. A. BUILDERS (SUPRA), WE FIND IN THAT CASE HON'BL E SUPREME COURT HAS CLEARLY OBSERVED THAT IF THE BUSINESS CONSIDERATION S REQUIRE, INTEREST FREE FUNDS CAN BE ADVANCED. SINCE THE COMMERCIAL EXPEDIE NCY CANNOT BE DOUBTED IN THE CASE OF THE ASSESSEE, WE FIND NO REA SON TO INTERFERE WITH THE ORDER OF THE CIT (A) AND ACCORDINGLY WE CONFIRM THE ORDER OF THE C1T(A) ON THIS ISSUE. THIS GROUND OF APPEAL OF THE REVENUE IS THUS DISMIS SED 15.1 SINCE THE FACTS OBTAINING IN THE YEARS UNDE R CONSIDERATION ARE UNDISPUTEDLY SIMILAR TO THE FACTS OBTAINING IN THE BLOCK ASSESSMENT PERIOD, WE HAVE NO HESITATION IN UPHOLDING THE FIND INGS OF THE LEARNED CIT(A) IN THE LIGHT OF THE AFORESAID DECISI ON OF THE ITAT IN THE ASSESSEES OWN CASE IN IT(SS)A NO.95/AHD/2001. THEREFORE, GROUND NO.3 IN THE APPEALS FOR THE AY 1999-2000 & A Y 2000-01 IS DISMISSED. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 24 16. GROUND NO.4 RELATES TO DISALLOWANCE OF INTEREST OF RS.31,18,143/-. ON ADVANCES TO M/S ANTRIKSH PHARMA & M/S DUKAN IN THE AY 1999-2000 WHILE GROUND NO. 2 IN THE APPEAL F OR THE AY 2000- 01 RELATES TO DISALLOWANCE OF RS.44,96,980/- ON ACC OUNT OF INTEREST ON ADVANCES TO M/S DUKAN RELYING UPON HIS OWN FI NDINGS IN THE BLOCK ASSESSMENT ORDER, WHEREIN DISALLOWANCE OF IN TEREST IN RELATION TO ADVANCES TO M/S ANTRIKSH PHARMA & M/S DUKAN HAD BEEN MADE FOR THE PERIOD UPTO 7-12-98, THE AO DISALLOWED INT EREST OF RS. 16,47,312 IN RELATION TO M/S DUKAN & RS. 14,70,831/ IN RELATION TO M/S ANTRIKSH PHARMA FOR THE PERIOD 8-12-98 TO 31-3- 99 ,THERE BEING NO CHANGE IN THE NATURE AND PURPOSE OF THESE ADVANC ES . 16.1 FOR SIMILAR REASONS, THE AO DISALLOWED AN AMOU NT OFRS.44,96,980/- ON ACCOUNT OF INTEREST ON ADVANCE S TO M/S DUKAN IN THE AY 2000-01 . 17. ON APPEAL, THE ASSESSEE, INTER ALIA, ARGUED TH AT SUBSEQUENT TO THE SEARCH THEY HAD ENTERED ON 1-2-2000 IN TO AN AG REEMENT WITH M/S, ANTRIKSH PHARMA BY VIRTUE OF WHICH INTEREST HAS BEEN CHANGED ON ADVANCES AND SHOWN AS INCOME IN YEAR 99-2000. ACCORDINGLY, THE LD. CIT(A) DELETED THE DISALLOWANCE, INTER ALIA, IN THE LIGHT OF DECISION OF HIS PREDECESSOR IN APPEAL AGAINST BLOCK ASSESSMENT IN THE FOLLOWING T ERMS: 21. I HAVE CAREFULLY CONSIDERED TH E SUBMISSIONS OF THE APPELLANT IN LIGHT OF THE BLOCK ASSESSMENT ORDER AND THE ORDER OF MY P REDECESSOR ON THIS ISSUE. I AGREE WITH THE CONCLUSION REACHED BY MY PR EDECESSOR HAVING REGARD TO THE OVERALL FACTS AND CIRCUMSTANCES OF TH E CASE. THE APPELLANT HAS CONTENDED THAT IT HAS BEEN CONSIDERABLY BENEFIT ED, AS THE APPOINTMENT OF THE SAID CONCERNS HAD INCREASED APPELLANTS TURN OVER AND CONSEQUENTLY ITS PROFITS. THE APPELLANT HAS FURTHER CONTENDED TH AT IT HAS BEEN ENTIRELY DEPENDENT ON SPIL AS ITS TOTAL PURCHASES ARE FROM S PIL DIRECTLY OR THROUGH THE SAID CONCERNS AND THEREFORE THE ADVANCES WERE G IVEN FOR THE PURPOSE OF BUSINESS. I AM INCLINED TO ACCEPT THE SAID CONTE NTIONS OF THE APPELLANT AS IT HAD LITTLE OPTION THAN TO FOLLOW THE ADVICE O F SPIL AND THEREFORE IN MY VIEW THE ADVANCES GIVEN TO THE SAID CONCERNS WERE F OR THE PURPOSE OF BUSINESS. THE APPELLANT HAS ALSO PRODUCED THE ARBIT RATION AWARD UNDER WHICH INTEREST WAS CHARGED TO M/S. ANTARIKSH PHARMA . THE ASSESSING ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 25 OFFICER HAS MERELY BRUSHED ASIDE THIS STATING THAT IT IS POST FACTO AGREEMENT DONE WITH THE SOLE PURPOSE OF NEGATING THE FINDINGS OF THE SEARCH. I AM ALSO NOT INCLINED TO ACCEPT THE SUMMARY OBSERVATION S OF THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO DELET E THE DISALLOWANCE OF RS.16,47,312/- AND RS.14,70,831/- MADE IN RESPECT O F ADVANCES TO M/S ANTRIKSH PHARMA AND M/S DUKAN. 17.1 FOLLOWING HIS OWN ORDER IN THE AY 1999-2000, THE LD. CIT(A) DELETED THE DISALLOWANCE IN THE AY 2000-01 ALSO. 18. THE REVENUE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A). AT THE OUTSET , BOTH THE PARTIES AGREED THAT ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 31-05-2007 OF THE ITAT IN THE AS SESSEES OWN CASE IN IT(SS)A NO.95/AHD/2001 FOR THE BLOCK PERIO D. 19. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION OF THE ITAT. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE IN THEIR ORDER DATED 3 1-05-2007 IN THE ASSESSEES OWN CASE IN IT(SS)A NO.95/AHD/2001, THE TRIBUNAL HELD AS UNDER:- 25. GROUND NO. 3 RELATES TO GIVING INTEREST FREE A DVANCES TO M/S ANTARIKSH FNARMA AND M/S. DUKAN. THE FACTS RELATING TO THIS GROUNDS ARE THAT SPIL HAD APPOINTED THE TWO PARTIES AS THEIR SO LE DISTRIBUTORS FOR THE TERRITORIES OF TAMILNADU AND KARNATAKA RESPECTIVELY . BOTH THESE PARTIES WERE RELATED TO THE DADHAS .HO WERE INSTRUMENTAL IN THE AMALGAMATION OF TDPL WITH SPIL. THE ENTIRE SCHEME OF AMALGAMATION A ND THE CONTENTIONS OF THE DEPARTMENT IN RESPECT OF THE AMALGAMATION HA VE ALREADY BEEN MENTIONED HEREINABOVE. 26 DURING BLOCK ASSESSMENT PROCEEDINGS, THE ASSESSI NG OFFICER DISALLOWED MEREST EXPENSE CLAIMED BY THE ASSESSEE U /S 36 (1) (III) TO THE EXTENT OF INTEREST FREE ADVANCES GIVEN BY THE ASSES SEE TO M/S ANTARIKSH PHARMA AND M/S DUKAN. THE ASSESSING OFFICER CONTEND ED THAT THE ARRANGEMENTS OF PAYMENTS AND OUTGOINGS HAD BEEN DEL IBERATELY SO STRUCTURED THAT THESE CONCERNS AND THROUGH THEM DAD HA'S WOULD HAVE INTEREST FREE FUNDS AT THEIR DISPOSAL. THE ASSESSIN G OFFICER CONTENDED THAT THE ASSESSEE WAS ON ONE HAND PAYING INTEREST ON OUT STANDINGS WITH THEIR PRINCIPAL MANUFACTURER (SPIL) BUT ON THE OTHER HAND THEY HAD MADE ADVANCES TO THE INTERMEDIARY FIRMS NAMELY M/S ANTAR IKSH PHARMA AND ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 26 DUKAN AND HAS NOT CHARGED ANY INTEREST ON THESE OUT STANDINGS. THE ASSESSING OFFICER CONTENDED THAT THE WHOLE ARRANGEM ENT OF ROUTING THROUGH THESE TWO CONCERNS WAS A COLOURABLE DEVICE TO DIVERT INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSES. ACCORDINGL Y IT WAS TREATED IN THE SAME MANNER AS THE INTEREST FREE SECURITY DEPOSIT F OR GODOWN TO DADHA PHARMA PVT. LTD. THE ASSESSING OFFICER GRANTED PART IAL RELIEF TO THE ASSESSEE TO THE EXTENT OF ITS GAINING A COMPARATIVE ADVANTAGE IN TURNOVER TAX AS A RESULT OF USE OF M/S. ANTRIKSH FOR THE PUR POSE OF TRADING IN TAMILNADU TERRITORY. ACCORDINGLY ONLY THE NET AMOUN T WAS DISALLOWED. THE ASSESSING OFFICER THUS HELD THAT INTEREST BEARING F UNDS HAD BEEN DIVERTED FOR NON BUSINESS PURPOSES AND INTEREST ON OUTSTANDI NGS WITH THESE TWO PARTIES WAS DISALLOWED ON PROPORTIONATE BASIS FROM INTEREST EXPENDITURE CLAIMED IN BOOKS OF ACCOUNTS AFTER GIVING DUE CREDI T OF THE NOTIONAL ADVANTAGE OF TURNOVER TAX. ACCORDINGLY NET ADDITION OF RS.89,64,458/- (RS.,15,53,458/- INTEREST - RS.25,89,000/- NOTIONA L BENEFIT) WAS MADE TO THE TOTAL UNDISCLOSED INCOME OF THE ASSESSEE. TH E ASSESSEE WENT IN APPEAL AGAINST THE ABOVE DISALLOWANCE OF INTEREST A ND THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED ADDITION ON THE ABO VE GROUND BY MAKING THE FOLLOWING OBSERVATIONS: (PAGES 44 AND 45) '56. I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSES SING OFFICER AND THE APPELLANT. THE APPELLANT HAS CONTENDED THAT IT HAS BEEN CONSIDERABLY BENEFITED, AS THE APPOINTMENT OF THE SAID CONCERNS HAD INCREASED APPELLANT'S TURNOVER AND CONSEQUENTLY ITS PROFIT. THE APPELLANT FURTHER CONT ENDED THAT IT HAS BEEN ENTIRELY DEPENDENT ON SPIL AS ITS TOTAL PU RCHASES ARE FROM SPIL DIRECTLY OR THROUGH THE SAID CONCERNS. IT FURTHER CONTENDED THAT SPIL AND THE APPELLANT HAVE BEEN BEN EFITED CONSIDERABLY ON ACCOUNT OF MERGER OF TDPL AND APPOI NTMENT OF THE SAID CONCERNS IN THE FORM OF INCREASED TURNO VER. IT IS THE CASE OF THE ASSESSING OFFICER THAT THE APPELLANT, B Y GIVING MORE ADVANCES THAN REQUIRED TO THE SAID CONCERNS AG AINST PURCHASES, USED A COLORABLE DEVICE TO TRANSFER ITS FUNDS TO DADHAAS GROUP WITH THE SOLE PURPOSE OF TRANSFER OF FUNDS FOR ACQUISITION BY SPIL OF THE SHAREHOLDING OF DADHA'S IN TDPL. THE APPELLANT CONTENDED THAT IT BEING TOTALLY DEPENDENT ON SPIL, GAVE ADVANCES TO THE SAID TWO CONCERNS AGAINST PURC HASES AND THEREFORE THE ADVANCES WERE GIVEN FOR THE PURPO SE OF BUSINESS. I AM INCLINED TO ACCEPT THE SAID CONTENTI ONS OF THE APPELLANT AS IT HAS NO OPTION BUT TO FOLLOW THE ADV ICE OF SPIL AND THEREFORE IN MY VIEW THE ADVANCES GIVEN TO THE SAID CONCERNS WERE FOR THE PURPOSE OF BUSINESS. BESIDES, EVEN IF THE ASSESSING OFFICER'S CONTENTION IS ACCEPTED, IN THAT CASE, THE END USE OF THE ADVANCES WAS THE PURCHASE OF THE SHA RES OF TDPL OF DADHA'S BY SPIL WHICH HAS BEEN AGAIN IN THE INTEREST OF SPIL AND CONSEQUENTLY THE APPELLANT. EVEN, THE A SSESSING ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 27 OFFICER HIMSELF STATED THAT THE AMOUNTS ADVANCED BY THE APPELLANT TO THE INDIVIDUAL MEMBERS OF DADHA GROUP MAY BE TREATED AS USED FOR THE PURPOSE OF BUSINESS AS T HE SAME WERE GIVEN IN ORDER TO ENABLE SPIL TO ACQUIRE THE SHAREHOLDING OF DADHA IN TDPL WHICH BENEFITED THE A PPELLANT IN THE FORM OF INCREASED VOLUME OF BUSINESS. HOWEVE R, ACCORDING TO THE ASSESSING OFFICER, IF ANY COLORABL E DEVICE' IS ADOPTED LIKE IN THE PRESENT CASE I.E. INSTEAD OF GI VING THE SAID ADVANCES DIRECTLY, THE ADVANCES WERE GIVEN THROUGH SAID CONCERNS, IN THAT CASE, THE AMOUNT ADVANCED CANNO T BE TREATED AS USED FOR THE PURPOSE OF BUSINESS, IRRESPECTIVE OF THE FACT THAT THE END USE OF THE ADVANCES GIVEN THROUGH COLORABLE DEVICE IS THE SAME AS THE END USE OF ADV ANCES GIVEN BY THE APPELLANT TO THE INDIVIDUAL MEMBERS OF DADHA GROUP DIRECTLY. IN MY VIEW, THIS STAND IS INCONSIST ENT BECAUSE WHAT IS RELEVANT HERE IS NOT THE MANNER IN WHICH TH E ADVANCE IS GIVEN BUT THE USE OF ADVANCES. THERE CAN BE OBJE CTION TO COLORABLE DEVICE, IF IT IS ADOPTED TO EVADE THE TAX BUT THERE CANNOT BE ANY OBJECTION TO THE ASSESSING OFFICER IF A COLORABLE DEVICE IS ADOPTED BY THE ASSESSEE IN THE INTEREST OF BUSINESS PROVIDED THAT SUCH DEVICE DOES NOT VIOLATE THE LAW. THE END USE OF THE ADVANCE IS THE SAME AS IN THE CA SE OF ADVANCES TO INDIVIDUAL MEMBERS OF THE DADHA GROUP A ND AS THE ASSESSING OFFICER TREATED THE ADVANCES GIVEN TO THE MEMBERS OF DADHA GROUP AS FOR THE PURPOSE OF BUSINE SS, THE ADVANCES GIVEN BY THE APPELLANT TO M/S. ANTARIKSH P HARMA AND M/S. DUKAN ARE REQUIRED TO BE TREATED AS -USED FOR THE PURPOSE OF BUSINESS. THEREFORE, THE ASSESSING OFFIC ER CANNOT DISALLOW ANY INTEREST ON BORROWED CAPITAL ATTRIBUTA BLE TO THE SAID ADVANCE. IN RESPECT OF THE ALTERNATE CONTENTIO NS OF THE SURPLUS FUND BEING AVAILABLE TO THE APPELLANT ON ACCOUNT OF SUFFICIENT CAPITAL AND RESERVE AND ALSO IN RESPECT OF THE ISSUE OF DISALLOWANCE OF INTEREST TO BE CONSIDERED IN THE BLOCK ASSESSMENT PROCEEDINGS, FOR THE SAME REASONS AS GIV EN BY ME IN RESPECT OF ADVANCES OF RS.3 CRORES, I ACCEPT APP ELLANT'S GROUND IN RESPECT OF SURPLUS AVAILABLE AND REJECT T HE APPELLANT'S GROUND IN RESPECT OF THE SAID ISSUE TO BE CONSIDERED IN BLOCK ASSESSMENT PROCEEDINGS. AS I H AVE ALREADY HELD THAT THERE CANNOT BE ANY DISALLOWANCE OF INTEREST ON ACCOUNT OF ADVANCES GIVEN BY THE APPELL ANT TO M/S. ANTARIKSH PHARMA AND M/S. DUKAN, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS.89.64.458/-.' ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 28 27 THE LD. DR RELIED ON THE ORDER OF AO WHILE THE L D. AR RELIED ON THE ORDER OF THE CIT(A). BOTH REITERATED THE SUB MISSIONS MADE IN RESPECT OF GROUND NO.2 28. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. WE FIND THAT THE MAIN REASON FOR DISALLOWANCE IS THAT WHILE INTEREST WAS PAID BY THE ASSESSEE TO ITS SUPPLIERS, THE ASSESSEE DID NOT CHARGE INTEREST TO THE TWO PARTIES. WE FIND FORCE IN THE C ONTENTION OF THE ASSESSEE THAT ON ACCOUNT OF AMALGAMATION OF TDPL WI TH SPIL THE ASSESSEE WOULD EXPERIENCE GROWTH IN ITS TURNOVER AN D OPERATIONS. SUBSEQUENT EVENTS AND THE FIGURES OF TURNOVER OF TH E .ASSESSEE VINDICATE THIS POINT IN FAVOUR OF THE ASSESSEE. ON ANY SUCH ACQUISITION OF BUSINESS / AMALGAMATION THE ACQUIRER WOULD BE KEEN TO ENSURE THAT THERE IS SMOOTH INTEGRATION OF BUSIN ESS ACROSS THE ENTIRE LINE WHICH INCLUDE DISTRIBUTION CHANNEL ALSO . IN SUCH CIRCUMSTANCES AS THE SOLE DISTRIBUTOR OF SPIL. THE ACTION OF THE ASSESSEE IN APPOINTING THE SAID FIRMS AS ITS DISTRI BUTOR FOR THE SOUTHERN REGIONS, AT THE BEHEST OF SPIL WOULD BE GO VERNED BY BUSINESS EXPEDIENCY. THE ASSESSEE HAS ALSO DEMONSTR ATED BY DOCUMENTARY EVIDENCE BEFORE THE LOWER AUTHORITIES T HAT THE DISTRIBUTION HAD IN FACT HAPPENED THROUGH THE SAID FIRMS. THE SAID FIRMS HAD THE NECESSARY TRADE AND OTHER REGISTRATIO NS FOR CARRYING ON THE SAID ACTIVITY. THE ASSESSING OFFICER HAS ALSO A CKNOWLEDGED THAT THERE WAS SAVINGS IN TURNOVER TAX IN THE STATE OF T AMILNADU AS A RESULT OF THE APPOINTMENT BY THE SAID FIRMS. THE AS SESSING OFFICER HAVING ACCEPTED IN PART THE BUSINESS BENEFIT OF THE APPOINTMENT OF THE SAID FIRMS, AS DISTRIBUTORS CANNOT IN THE SAME BREADTH QUESTION THE OTHER PART. EVEN OTHERWISE, IT IS SEEN THAT THE ASSESSING OFFICER HAS CONSIDERED TRADE ADVANCES GIVEN BY THE ASSESSEE TO THE INDIVIDUAL MEMBERS OF THE DADHA FAMILY AS ADVANCES IN THE ORDINARY COURSE OF BUSINESS. THUS, EVEN IF THE ADVANCES WERE GIVEN IN THE GUISE OF A TRADE ADVANCE, THE SAME WOULD STILL BE C ONSIDERED AS FOR THE PURPOSE OF BUSINESS. FURTHER WE NOTED THAT THE DECISION OF THE SUPREME COURT IN THE CASE OF S. A. BUILDERS (SUPRA) HAS CLEARLY STATED THAT IF THE BUSINESS CONSIDERATIONS REQUIRE, INTEREST FREE FUNDS CAN BE ADVANCED. SINCE THE COMMERCIAL EXPEDIENCY CA NNOT BE DOUBTED IN THE CASE OF THE ASSESSEE. WE FIND NO REA SON TO INTERFERE WITH THE ORDER OF THE CIT(A) AND ACCORDINGLY WE CON FIRM THE ORDER OF THE CT1'( A) ON THIS GROUND. : : THUS, THE GROUND NO. 3 ALSO STAND DISMISSED. 19.1 SINCE THE FACTS OBTAINING IN THE YEAR UNDER CONSIDERATION ARE UNDISPUTEDLY SIMILAR TO THE FACTS OBTAINING IN THE BLOCK ASSESSMENT PERIOD, WE HAVE NO HESITATION IN UPHOLDING THE FIND INGS OF THE ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 29 LEARNED CIT(A) IN THE LIGHT OF THE AFORESAID DECISI ON OF THE ITAT IN THE ASSESSEES OWN CASEIN IT(SS)A NO.95/AHD/2001. THEREFORE, GROUND NO.4 IN THE APPEAL FOR THE AY 1999-2000 AND GROUND NO.2 IN THE APPEAL FOR THE AY 2000-01 ARE DISMISSED 20. GROUND NO.5 IN THE APPEAL FOR THE AY 1999-2000 AND GROUND NO.6 IN THE APPEAL FOR THE AY 2000-01 RELATE TO DIS ALLOWANCE OF RS.86,560/- & RS.81,807/- RESPECTIVELY ON ACCOUNT O F INTEREST ON ADVANCE TO DADHA & CO. WHILE GROUND NO.6 IN THE APP EAL FOR THE AY 1999-2000 AND GROUND NO.5 IN THE APPEAL FOR THE AY 2000-01 RELATE TO DISALLOWANCE OF RS. 1,00,987/- & RS.95,076/- RE SPECTIVELY ON ACCOUNT OF INTEREST ON ADVANCE TO PRADEEP DADHA AGE NCY. THE AO NOTICED THAT THE ASSESSEE HAD ADVANCED RS. 30 LACS TO DADHA & COMPANY AND RS. 35 LACS TO PRADEEP DADHA AGENCY ON 31-1-99. EVEN THOUGH THE AMOUNT REMAINED OUTSTANDING AS ON 3 1-3-99, NO INTEREST HAD BEEN CHARGED. TO A QUERY BY THE AO, TH E ASSESSEE SUBMITTED AS REGARDS ADVANCE TO DADHA & CO. THAT I. ADVANCES OF RS.30 LACS WAS GIVEN ON 31-01-1999. II. AMOUNT WAS REFUNDED AND THE SAME WAS CREDITED O N 31-03-2000. III. INTEREST OF RS.344219/- WAS DEBITED TO ITS ACC OUNT ON 31-3-2000 @ 12% FOR THE YEAR 1999-2000. THE INTEREST WAS COMPUT ED FOR THE ENTIRE PERIOD BEGINNING FROM 31-01-99. IV. INTEREST WAS RECOVERED IN TWO INSTALLMENTS OF RS.72728/- AND 268491/- RESPECTIVELY ON 31-01-00 AND 16-10-2000. 20.1 AS REGARDS ADVANCE TO PRADEEP DADHA AGENCY, TH E ASSESSEE SUBMITTED THAT I. ADVANCES OF RS.35 LACS WAS GIVEN ON 31-01-1999. II. AMOUNT WAS REFUNDED AND THE SAME WAS CREDITED O N 14-03-2000. III. INTEREST OF RS.400439/- WAS DEBITED TO ITS ACC OUNT ON 31-3-2000 @ 12% FOR THE YEAR 1999-2000. THE INTEREST WAS COMPUT ED FOR THE ENTIRE PERIOD BEGINNING FROM 31-01-99. IV. INTEREST WAS FULLY RECOVERED ON16-10-2000. 20.2 THE ASSESSEE FURTHER PLEADED THAT SINCE THE ADVANCES GIVEN TO DADHAS WERE WHOLLY FOR THE PURPOSES OF BUSINESS OF THE ASS ESSEE ,THERE WAS NO QUESTION ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 30 OF ANY DISALLOWANCE .INTER ALIA, THE ASSESSEE RELIE D UPON THE DECISION OF THE CIT(A) IN BLOCK APPEAL. HOWEVER, THE AO DID NOT ACC EPT THE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT A DDUCE ANY EVIDENCE REGARDING THE PURPOSE FOR WHICH THESE ADVANCES WERE MADE AND EVEN IF THESE WERE PART AND PARCEL OF TRANSACTION RELATING TO ACQ UISITION OF TDPL, EVEN THEN THE PROPORTIONATE INTEREST COST OF FUNDS UTILIZED FOR A DVANCES WAS NOT FOR BUSINESS PURPOSE .ACCORDINGLY, THE AO DISALLOWED AN AMOUNT O F RS.86,560/- ON ACCOUNT OF INTEREST ON ADVANCE TO DADHA & CO. AND 1,00,987/ - ON ACCOUNT OF INTEREST ON ADVANCE TO PRADEEP DADHA AGENCY IN THE AY 1999-2000. 21. FOR SIMILAR REASONS, THE AO DISALLOWED A N AMOUNT RS.81,807/- ON ACCOUNT OF INTEREST ON ADVANCE TO DA DHA & CO. AND RS.95,076/- ON ACCOUNT OF INTEREST ON ADVANCE TO PR ADEEP DADHA AGENCY IN THE AY 2000-01 22. ON APPEAL, THE LEARNED CIT(A) DELETED THE DISAL LOWANCE IN THE AY 1999-2000 IN THE FOLLOWING TERMS: 24 THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE INTEREST HAS BEEN RECEIVED AND OFFERED FOR TAX ACCORDING TO THE APPEL LANT THE INTEREST FOR THE PERIOD 31.01.1999 TO 31 3.1999 WAS NOT DUE AND THE SAME HAS BEEN ACCOUNTED SUBSEQUENTLY. THE ASSESSING OFFICER HAS H ELD THAT SUBSEQUENT RECOVERY IS OF NO CONSEQUENCE AS IT IS MERELY AN AT TEMPT TO NEGATE THE FINDINGS OF THE SEARCH. I CANNOT AGREE WITH THESE O BSERVATIONS OF THE ASSESSING OFFICER SINCE IN THE PRESENT CASE THE ADV ANCE WAS GIVEN AFTER THE SEARCH AND HENCE ANY QUESTION OF NEGATING THE F INDINGS OF THE SEARCH DOES NOT ARISE THE APPEAL OF THE APPELLANT SUCCEEDS ON THIS GROUND. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITIO N. 22.1 FOLLOWING HIS OWN ORDER IN THE AY 1999-2000 , THE LD. CIT(A) DELETED THE DISALLOWANCES IN THE AY 2000-01 ALSO. 23. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE SUPPORTE D THE FINDINGS OF THE LD. CIT(A). ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 31 24. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY, THE ASSESSEE CHARGED AND RECOVERED THE ENTIRE INTEREST INCLUDING FOR THE PERIOD FROM 31-3-99 TILL THE REPAYMENT OF THE LOAN. ACCORDING TO THE ASSESSEE, THE INTEREST FOR THE PER IOD FROM 31-1-99 TO 31-3-99 HAD NOT BECOME PAYABLE . THE LD. DR APPEARING BEFOR E US DID NOT PLACE ANY MATERIAL CONTROVERTING THESE FACTS OR EVEN THE FIND INGS OF THE LD. CIT(A). IN THE ABSENCE OF ANY MATERIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A).THEREFORE, GROUND NOS.5 & 6 IN THE APPEALS FOR THE AY 1999-20 00 & 2000-01 ARE DISMISSED. 25. GROUND NO..7 IN THE APPEAL FOR THE AY 1999-2000 & GROUND NO.4 IN THE APPEAL FOR THE AY 2000-01 RELATE TO D ISALLOWANCE OF RS.13,87,275/- & RS.7,25,066/- RESPECTIVELY ON ACC OUNT OF INTEREST IN RESPECT OF ADVANCE TO CERTAIN INDIVIDUALS. THE A O NOTICED THAT THE ASSESSEE MADE ADVANCES TO SHRI S.M. DADHA & M MAHE RCHAND DADHA IN ORDER TO ENABLE THEM TO ACQUIRE THE SHARES HELD BY THE OTHER CO-PROMOTERS OF M/S TDPL NAMELY M/S. TIDCO. T HE ASSESSEE EXPLAINED THAT THEY INTENDED TO GET THE SHARES H ELD BY THE DADHA AS SECURITY ALONG WITH THEE VOTING RIGHTS ON THOSE SHARES. DURING THE BLOCK ASSESSMENT PROCEEDINGS , NO DISALLOWANCE ON ACCOUNT INTEREST ATTRIBUTABLE TO THESE ADVANCES WAS MADE. S UBSEQUENTLY, THE AO NOTICED THAT THE SHARES WERE NEVER TRANSFERRED I N THE COMPANYS NAME AND EVEN THOUGH THE ASSESSEE COMPANY HAD CHAR GED INTEREST 18% FROM SHRI S.M. DADHA, NO INTEREST WAS CHARGED FROM M.MAHAREHAND DADHA. SINCE THE ASSESSEE DID NOT ADDU CE ANY COGENT EXPLANATION, DISTINGUISHING THE CASE OF SHRI . S.M DADHA FROM SHRI M. MAHERCHAND DADHA, THE AO ADDED AMOUNT OF RS .13,87,275/- TO THE TOTAL INCOME OF ASSESSEE COMPANY. 25.1 FOR SIMILAR REASONS, THE AO DISALLOWED AN AMOU NT OF RS.7,25,066/- IN THE AY 2000-01. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 32 26. ON APPEAL, THE LEARNED CIT(A) DELETED THE ADDIT ION WITH THE FOLLOWING OBSERVATIONS:- 29 I FIND SIGNIFICANT MERIT IN THE SUBMISSIONS MAD E ON BEHALF OF THE APPELLANT ON THE SAME FACTS NO DISALLOWANCE HAS BEE N MADE DURING THE PRE-SEARCH PERIOD THE ASSESSING OFFICER HAS NOT BEE N ABLE TO MAKE A CASE ABOUT CHANGE IN CIRCUMSTANCES THAT WOULD JUSTI FY THE CHANGE IN HIS STANCE. THE OBSERVATION OF THE ASSESSING OFFICER TH AT THE INTEREST WOULD HAVE BEEN RECEIVED IN CASH ALSO REMAINS UNSUBSTANTI ATED IN LIGHT OF THE FACT THAT THE DURING THE BLOCK ASSESSMENT THE ASSES SING OFFICER HAS ALLEGED THAT THE SUN GROUP HAS MADE PAYMENT TO MR. M. MEHERCHAND OADHA. IN VIEW OF MY EARLIER FINDINGS AND THAT OF M Y PREDECESSOR REGARDING THE FACTS AND CIRCUMSTANCES RELATING TO THE AMALGAM ATION OF TDPL WITH SPII, AND THE NEED TO PROVIDE LIQUIDITY TO THE DADH AS, I HOLD THAT THE ADVANCES GIVEN TO DADHAS WERE FOR BUSINESS PURPOSES . I THEREFORE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE O N THIS COUNT. 26.1 FOLLOWING HIS OWN ORDER IN THE AY 1999-2000, THE LD. CIT(A) DELETED THE DISALLOWANCE IN THE AY 2000-01 ALSO. 27.. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE SUPPORTE D THE FINDINGS OF THE LD. CIT(A). 28... WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. SINCE THERE IS NOTHING TO SUGGEST THAT I NTEREST HAD BEEN RECOVERED FROM SHRI M.MAHAREHAND DADHA IN CASH WHIL E THE LD. CIT(A) CONCLUDED THAT ADVANCES WERE GIVEN TO DADHAS FOR BUSINESS PURPOSES , THERE IS NO APPARENT REASON FOR THE DISA LLOWANCE . THE LD. DR APPEARING BEFORE US DID NOT PLACE ANY MATERIAL C ONTROVERTING THESE FACTS OR EVEN THE FINDINGS OF THE LD. CIT(A). IN THE ABSENCE OF ANY MATERIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE N OT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A).THEREFORE, GROUND NO.7 I N THE APPEAL FOR THE AY 1999- 2000 & GROUND NO.4 IN THE APPEAL FOR THE AY 2000-01 ARE ALSO DISMISSED. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 33 29. GROUND NO.3 IN THE APPEALS FOR THE AY 2001-02 & AY 2002-03 AS ALSO GROUND NO. 2 IN THE APPEAL FOR THE AY 2003- 04 RELATE TO DISALLOWANCE OF RS.1,48,57,545/-,RS.2,29,43,683/- A ND RS.4,25,44,081/- RESPECTIVELY BEING INTEREST PAID T O SPIL @ 21% PA ON OVERDUE BALANCES RESULTING FROM PURCHASES. THE A O NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE AY 2002-03 THAT THE ASSESSEE PAID INTEREST ON OVERDUE SUPPLIE R BILLS OF SUN PHARMACEUTICAL INDUSTRIES LTD. @ 21% P.A. AND PAID INTEREST ON BORROWED FUNDS FROM BANKS @15.5% PA WHILE IT CHARGE D INTEREST FROM THE ADVANCES GIVEN TO THE FINANCE COMPANIES OF THE SUN GROUP @12% PA. TO A QUERY BY THE AO, THE ASSESSEE SUBMITTED THAT A. THEY WERE AUTHORIZED DEALER OF ALL PRODUCTS OF M/S. SPIL IN DOMESTIC MARKET AND ARE SUPPOSED TO MAKE ON THE SPO T PAYMENT TO M/S. SPIL; B. THE RATE OF INTEREST DEPENDED UPON THE OVERALL I NTEREST RATE PREVAILING IN THE MARKET, BUSINESS OPPORTUNITIES PR OVIDED BY M/S.SPIL TO THE ASSESSEE. C. M/S. SPIL IS IN DICTATING POSITION AS FAR AS BUS INESS OF M/S. ADITYA MEDISALES LTD. WAS CONCERNED. D. MARKET RATE OF UNSECURED BORROWINGS IS VERY HIGH . E. THE A.O CANNOT SIT ON THE JUDGMENT OVER BUSINESS DECISIONS TAKEN BY THE ASSESSEE. F. THE INTEREST EXPENDITURE OF THE ASSESSEE BECOMES THE INCOME OF M/S. SPIL AND THERE IS NO LOSS OF REVENUE. 29.1 HOWEVER , THE AO DID NOT ACCEPT THE SUBMISSI ONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE WAS NOT ABLE TO JUSTIFY PAYMENT OF INTEREST TO M/S. SPIL @21% WHEN IT AVAIL ED LOAN FROM BANK @15.50% AND HAD OFFERED ADVANCES TO SISTER FIN ANCE COMPANIES @12% INTEREST. THE ASSESSEE WAS INVOLVED IN DISTRIBUTION OF ONLY FORMULATION PRODUCTS OF M/S SP IL WHILE THE BULK DRUGS MANUFACTURED BY M/S SPIL WERE DISTRIBUTED BY THEM ONLY. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 34 MOREOVER, OUT OF SALES OF SPIL RS.611.43 CRORES IN THE AY 2001-02 , SALES TO ASSESSEE WERE MERELY RS.333 CRORES . THE AO ALSO FOUND THAT IT WAS NOT SPIL WHICH WAS DICTATING THE TER MS TO THE ASSESSEE RATHER IT WAS OTHER WAY ROUND. DESPITE, VOLUMINOUS INCREASE IN THE TURNOVER OF M/S AML, THE PROFITABILITY OF M/S AML W AS NOT INCREASING AS EVIDENT FROM THE FOLLOWING DETAILS. F.Y. TOTAL SALES (RS.IN LACS) NET PROFIT AS PER DIRECTOR'S REPORT (IN LACS) 2000-01 37390 0.46 1999-00 30577 37.08 1998-99 22235 34.50 29.2 THE AO FURTHER OBSERVED THAT THE FINANCIA L AFFAIRS OF M/S. AML WERE SO MANAGED SO AS TO GIVE THE MAXIMUM BENEF ITS TO M/S. SPIL BY REDUCING THE TAXABLE PROFITS OF THE LATTER, WHO WERE AVAILING DEDUCTION U/S 80IA/80IB. IN THE LIGHT OF AFORESAID FACTS AND CIRCUMSTANCES, THE AO DISALLOWED AN AMOUNT OF RS.1 ,48,57,545/- IN THE AY 2001-02, AS CALCULATED HEREUNDER: 1 INTEREST PAID @21% RS.5,67,28,810/- 2 INTEREST TO BE PAID AT BANK RATE I.E., 15.50% RS.4,18,71,265/- DIFFERENCE (1) - (2) RS.1,48,57,545/- 30. SIMILARLY, THE AO DISALLOWED AN AMOUNT OF RS.2, 29,43,683/- IN THE AY 2002-03 AND RS.4,25,44,081/- IN THE AY 2003 -04. 31. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWA NCE IN THE AY 2001-02 IN THE FOLLOWING TERMS: ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 35 8.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, THE COMMENTS OF THE ASSESSING OFFICER AND THE REPLY OF THE APPELLANT ON THE COUNTER COMMENTS. THE ISSUE CAN NOT BE DECIDED WITH OUT LOOKING AT THE FACTS AND CIRCUMSTANCES OF THE CASE. THE APPELLANT IS THE AUTHORIZED SOLE DISTRIBUTOR OF ALL FORMULATION PRODUCTS OF SPIL IN INDIA. THE BUSINESS OF THE APPELLANT HAS GROWN CONSISTENTLY AS SEEN FROM THE T ABLE AND HAD DRAMATICALLY INCREASED FROM RS.132.05 CRORES IN A.Y . 98-99 TO RS.305.77 CRORES IN A.Y. 2001-02. IT IS OBSERVED THAT THE APP ELLANT HAD HUGE REQUIREMENTS OF FINANCE/WORKING CAPITAL IN THE NATU RE OF SUNDRY DEBTORS AND INVENTORY, TO MEET ITS GROWING BUSINESS NEEDS. HENCE THE COMMERCIAL JUSTIFICATION OF GOING IN FOR SUPPLIERS CREDIT CAN NOT BE QUESTIONED. COMING NOW TO THE INTEREST RATE CHARGED, I SEE TREMENDOUS FORCE IN THE ARGUMENTS OF THE APPELLANT. THE RATE OF INTEREST HAS TO BE V IEWED IN THE OVERALL CIRCUMSTANCES OF THE CASE. DIFFERENT TYPE OF FUND W ILL HAVE DIFFERENT COST. EVEN THE WEIGHTAGE NEED TO BE GIVEN FOR AVAILABILIT Y OF THE SAME AND SECURITY ETC. COMMERCIAL MATTERS ARE BEST LEFT TO J UDGMENT OF BUSINESSMEN TO DECIDE. NO INTERFERENCE IS ORDINARILY CALLED FOR UNLESS THE ASSESSING OFFICER HAS VALID REASONS TO SUPPORT HIS CONTENTION THAT THE INTEREST RATE IS MALAFIDE. MY PREDECESSOR HAD EARLIER SIMILAR ADDITI ON OF RS.56,63,331/- IN A.Y. 1997-98, THOUGH MADE UNDER SECTION 40A(2) OF T HE ACT, WHEREIN HE HAD EXAMINED THE ADDITION ON ACCOUNT OF INTEREST OT HERWISE. IT WAS CLEARLY HELD THEREIN THAT THE ASSESSING OFFICER WAS NOT JUS TIFIED IN DRAWING ADVERSE INFERENCE ON THIS POINT SECTION 36(L)(III) OF THE A CT RELATES TO DEDUCTION ON ACCOUNT OF THE AMOUNT OF INTEREST PAID ON CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION'. IN THIS CA SE THE ASSESSING OFFICER HAS NOT CHALLENGED THE GENUINENESS OF BUSINESS EXPE NDITURE BUT MADE THE ABOVE ADDITION OF DIFFERENTIAL INTEREST ON THE GROU ND OF REASONABLENESS OR BECAUSE THE TRANSACTION IS ADVERSELY INTERPRETED BY HIM. SIMILAR INTEREST HAS BEEN PAID IN THE PRECEDING TWO ASSESSMENT YEARS BUT NO ADDITION WAS MADE. AS PER FACTS THE INTEREST HAS BEEN PAID WHOLL Y AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS, HENCE, THE REASONABLE NESS CAN NOT BE DOUBTED AND THE SAME CAN NOT BE DISALLOWED PARTLY. THE ASSESSING OFFICER CAN NOT ACT ARBITRARILY IGNORING THE VALID SUBMISSI ONS OF THE APPELLANT. IN THE PRESENT CASE, HAVING REGARD TO THE FACTS AND CIRCUM STANCES OF THE CASE, I DO NOT SEE ANY MERIT IN THE ACTION OF THE AO IN DIS ALLOWING INTEREST @ 5.5% OF RS.1,48,57,545/- AND IS DECIDED TO DELETE THE AD DITION. 31.1 FOLLOWING HIS OWN ORDER IN THE AY 2001-02, THE LD. CIT(A) DELETED THE DISALLOWANCE IN THE AYS 2002-03 & 2003- 04 ALSO 32. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). BOTH THE PARTIES AGREED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION D ATED 28-03-2008 OF THE ITAT AHMEDABAD BENCH-D IN THE ASSESSEES OWN CASE FOR AY 1997-98 IN ITA NO.492/AHD/2001. ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 36 33 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE TRIBUNAL WHILE ADJUDICA TING AN ISSUE RELATING TO DISALLOWANCE OF EXCESSIVE INTEREST PAI D TO SPIL, INVOKING THE PROVISIONS OF SEC. 40A(2)(A) IN THE AY 1997-98 HELD IN THE FOLLOWING TERMS : 6. THE SECOND GROUND RELATES THE DISALLOWANCE EFFE CTED IN THE SUM OF RS.56.63 OF THE ASSESSEE'S CLAIM FOR INTEREST PAID TO M/S. SUN PHARMACEUTICAL INDUSTRIES LTD. (SPIL IN SHORT) OUT OF THE TOTAL INTEREST ALLOWED TO IT AT RS.283.17 LACS. THE BASIS FOR THE DISALLOWANCE WAS THAT THE SAME STOOD ALLOWED IN EXCESS, I.E., @ 24% PER ANNUM (P.A.), WHILE THE ASSESSEE HAD AVAILED OF BORROWINGS, IN THE FORM OF UNSECURED LOANS, ICDS ETC. AT RATES RANGING FROM 18% P.A. TO 20% P.A. THE PAYEE CONCERN, BEING AN ENTITY COVERED U/S.40A(2)(B) OF THE INCOME-TAX A CT, 1961 ('THE ACT' HEREINAFTER), THE DISALLOWANCE STOOD EFFECTED TO TH E EXTENT 4%, P.A., BEING DEEMED IN EXCESS, BY APPLYING S.40A(2)(A) OF THE AC T IN APPEAL, THE SAME STOOD DELETED BY THE LD. CIT(A), ACCEPTING THE ASSE SSEE'S CONTENTION THAT, FIRSTLY, THE PAYEE CONCERNED STOOD NOT COVERED U/S. 40A(2)(B) OF THE ACT. THE ASSESSEE WAS FACING DEARTH OF FINANCE AND THE R ATE OF THE MARKET BORROWINGS VARIED IN THE RANGE OF 24% P.A. TO 30% P .A. AS SUCH, THERE IS NO CAUSE FOR INFERRING THE RATE OF 24% P.A. AS EXCE SSIVE, SO AS TO INVOKE (A) OF THE ACT, PARTICULARLY WHEN THERE WAS NO TAXATION MOTIVATION INVOLVED. AGGRIEVED, THE REVENUE IS IN APPEAL. 7 BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF TH E A.O. THE AR ON THE OTHER HAND, RELIED IN SUPPORT OF HIS CASE, ON T HE DECISION IN THE CASE OF BIRLA GWALIOR PVT. LTD, VS. CIT, 44 ITR 747 (MP). F URTHER, WHILE ARGUING THE CASE, HE TOOK US THROUGH THE RECTIFICATION APPLICAT ION FILED BY THE ASSESSEE (ON 18-02-2000), I.E., IMMEDIATELY AFTER PASSING TH E ASSESSMENT ORDER, SEEKING RECTIFICATION OF THE FINDING BY THE AO I.E. , OF SPIL BEING AN ENTITY COVERED U/S. 40A(2)(B) OF THE ACT AND WHICH WAS STA TED BY HIM STANDS UNDISPOSED TO DATE. 8. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 8.1 WE FIND THAT THE ASSESSEE HAS FIRSTLY CONTESTED THE APPLICABILITY OF S. 40A(2)(B) IN ITS CASE, CONTENDING THAT THE SAME IS NOT AN ENTITY COVERED BY THE SAID SECTION. IT IS NOT CLEAR FROM THE RECORD W HETHER THE SAID CONTENTION STOOD RAISED BEFORE THE AO AS WELL, AS THERE IS NO REFERENCE THERETO IN HIS ORDER, EVEN SO, AS SUCH, THE SAID CONTENTION RAISED BEFORE THE FIRST APPELLATE AUTHORITY FOR THE FIRST TIME, WOULD REQUI RE TO BE VERIFIED BY THE ASSESSING AUTHORITY, PRIOR TO ITS ACCEPTANCE, AND W HICH WE FIND AS MISSING IN THE PRESENT CASE. WE, THEREFORE, PROCEED IN THE MATTER BY ASSUMING THAT THE PROVISION OF S. 40A(2)(A) COULD BE APPLIED IN T HE PRESENT CASE, AS IF THE ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 37 ASSESSEE'S CASE MERITS ACCEPTANCE ON THE BASIS OF T HE UNDISPUTED FACTS AS ON RECORD, THE FINDING AS REGARDS THE SAME MAY NOT BE REQUIRED AND FOR WHICH, THEREFORE, THE MATTER MAY NEED TO BE RESTORE D BACK TO THE AO'S FILE. THE AO HAS INFERRED THE RATE OF 24% P.A. AS EXCESSI VE AS THE ASSESSEE HAD ALLOWED INTEREST AT RATES VARYING FROM 18% P.A. TO 20% P.A. ON ITS OTHER BORROWINGS, I.E., THE DEPOSITS FROM PUBLIC AND LOAN S FROM FINANCIAL INSTITUTIONS. IT HAS, HOWEVER, CONTENDED THAT THE M ARKET RATE FOR CAPITAL DURING THE RELEVANT PERIOD STOOD AT 24% P.A. TO 30% P.A. EVEN THOUGH NO BASIS OR MATERIAL FOR THE SAME STANDS LED BY THE AS SESSEE, ITS STANDS TO REASON AND NORMAL OBSERVATION, THAT IF THE INTEREST RATES FROM ORGANIZED SOURCES IS IN THE RANGE OF 20% P.A., THAT FROM THE GENERAL MARKET WOULD ONLY BE HIGHER, SO THAT EVEN DISCOUNTING THE ASSESS EE'S CLAIM/ASSERTION, THE RATE OF 24% P.A. IS NOT BEYOND CONCEPTION, AND WHICH IS THE RATE AT WHICH THE IMPUGNED INTEREST IS ALLOWED BY THE ASSES SEE. ALSO, THE ONUS FOR THE APPLICATION OF S. 40A(2)(A) IS ON THE REVENUE, WHICH WE FIND AS NOT DISCHARGED, APART FROM THE FACT THAT CBDT ITSELF HA S ISSUED A CIRCULAR TO THE EFFECT THAT THE PROVISION BEING AN UNDULY HARSH ONE IS TO BE APPLIED ONLY SELECTIVELY AND WHERE THE TAX MOTIVATION STAND S ESTABLISHED. 8.2 IN VIEW OF THE FOREGOING WE DO NOT FIND MUCH ME RIT IN THE REVENUE'S CASE, SO THAT LD. CIT(A) HAS, IN OUR VIEW, RIGHTLY DELETED THE IMPUGNED DISALLOWANCE AND WE CONFIRMED. 33.1 IN THE INSTANT APPEALS, THE PROVISIONS OF SE C. 40A(2)(A) OF THE ACT HAVE NOT BEEN SPECIFICALLY INVOKED. AS POINTED OUT BY THE LD. CIT(A), THE AO DID NOT DISPUTE THE GENUINENESS OF B USINESS EXPENDITURE BUT MADE THE ABOVE ADDITION OF DIFFERENTIAL INTEREST ON THE GROUND OF REASONABLENESS. SIMILAR PAYMENT OF INTEREST HAS BEEN ALLOWED BY TH E AO HIMSELF IN THE PRECEDING TWO ASSESSMENT YEARS. THE LD. CIT(A) ALSO CONCLUDED THAT WITH RAPID GROWTH IN THE TURNOVER OF THE COMPANY AND THE ASSESSEE HAVING ALREADY BORROWED HUGE AMOUNT OF FUNDS FROM THE BANK, CHOSE TO PAY INTERES T TO ITS CREDITORS. SINCE THE INTEREST HAS BEEN PAID WHOLLY AND EXCLUSIVELY FOR T HE PURPOSES OF THE BUSINESS WHILE BOTH THE ASSESSEE AND SPIL WERE LIABLE TO TA X AT THE SAME RATES, THEREFORE THE ARRANGEMENT COULD NOT BE SAID TO FOR REDUCING T HE TAX LIABILITY. ACCORDINGLY, THE LD. CIT(A) CONCLUDED THAT THE REASONABLENESS OF THE EXPENDITURE COULD NOT BE DOUBTED. AS POINTED OUT BY THE HONBLE DELHI HIGH COURT IN CIT V. DALMIA CEMENT (B.) LTD. [2002] 254 ITR 377 , ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSI NESS , THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DE CIDE HOW MUCH IS REASONABLE ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 38 EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF T HE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT. THE INCOME-TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MAT TER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. IN THE LIGHT OF VIEW TAKEN IN THE SAID DECISION, WE ARE OF THE OPINION THAT ONCE IT IS FOUND THAT TH E EXPENDITURE HAD BEEN, AS A MATTER OF FACT, INCURRED BY THE ASSESSEE , IT IS NO T FOR THE DEPARTMENT TO CONSIDER WHETHER COMMERCIAL EXPEDIENCY JUSTIFIED THE EXPENDI TURE. REASONABLENESS OF THE EXPENDITURE CAN BE GONE INTO ONLY FOR THE PURPOSE O F DETERMINING WHETHER IN FACT, THE AMOUNT WAS SPENT . THERE IS NO MATERIAL TO SHOW THAT ANY PART OF THE A MOUNT SHOWN TO HAVE BEEN DEBITED UNDER THE ARRANGEMENT SU BSEQUENTLY CAME BACK. IN VIEW OF THE FOREGOING ,ESPECIALLY WHEN T HE LD. DR APPEARING BEFORE US DID NOT PLACE ANY MATERIAL CONTROVERTING THE FINDINGS OF TH E LD. CIT(A) IN THESE THREE ASSESSMENT YEARS SO AS TO ENABLE US TO TAKE A DIFFE RENT VIEW IN THE MATTER, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A).THEREFORE, GROUND NO.3 IN THE APPEALS FOR THE AY 2001-02 & AY 2002-03 AND GROUND NO. 2 IN THE APPEAL FOR THE AY 2003-04 ARE ALSO DISMISSED . 34. GROUND NS. 8 & 9 IN THE APPEALS FOR THE AY 1999-2000& 2000- 01,GROND NOS.4 & 5 IN THE APPEALS FOR THE AY 2001-0 2 & 2002-03 AS ALSO GROUND NOS. 3 & 4 IN THE APPEAL FOR THE AY 200 3-04 ,BEING PRAYER AND GENERAL IN NATURE, DO NOT REQUIRE ANY SE PARATE ADJUDICATION AND THEREFORE, ARE DISMISSED. 35. IN THE RESULT, ALL THE FIVE APPEALS ARE DISMI SSED. ORDER PRONOUNCED IN THE COURT TODAY ON 30 -09-2010 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30-09-2010 ITA NO.3272/AHD/2002 & OTHERS ADITYA MEDISALES LTD . 39 COPY OF THE ORDER FORWARDED TO: 1. ADITYA MEDISALES LIMITED, 3 RD FLOOR, SYNERGY HOUSE, SUBHANPURA, BARODA 2. DCIT / ACIT, CENTRAL CIRCLE-1, BARODA 3. CIT CONCERNED 4. CIT(A)-I,II & IV, AHMEDABAD 5. DR, BENCH-D, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD