THE ACIT-2(1), Ujjain V. M/s. Trapti Trading & Investment Pvt.Ltd., Nagda

ITA 329/IND/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 3996 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 29-05-2019
• Assessment Year: 2004-2005
• Appeal Filed On: 03-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: RA JIV GARG ARS
• Keywords: Business expenditure; Notional interest; Commercial expediency; Set aside
• Section: 143(3); 142(1); 201; 143(2); 208

Judgement Text

TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE HON'BLE KUL BHARAT, JUDICIAL MEMBER AND HON'BLE MANISH BORAD, ACCOUNTANT MEMBER ITA NOS.329 & 330/IND/2017 ASSESSMENT YEARS 2004-05 & 2005-06 ACIT-2(1), V/S M/S. TRAPTI TRADING & INV ESTMENT UJJAIN PVT.LTD, P.O.BIRLAGRAM, NAGDA, DISTT. UJJAIN (REVENUE) (RESPONDENT) PAN AABCT6006B REVENUE BY SMT. ASHIMA GUPTA , CIT ASSESSEE BY S/ S HRI RONAK DOSHI & RAJIV GARG, ARS DATE OF HEARING 18 .0 7 . 201 9 DATE OF PRONOUNCEMENT 21 .0 8 . 201 9 O R D E R PER MANISH BORAD, AM. THE ABOVE CAPTIONED APPEALS OF REVENUE PERTAINING T O ASSESSMENT YEAR 2004-05 & 2005-06 ARE DIRECTED AGAI NST THE ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEALS), UJJAIN (IN SHORT CIT(A)), DATED 17.02.2017, WHICH IS ARISING OUT OF ORDER U/S 143(3) R.W.S. 254 OF THE INCOME TAX ACT (IN SHORT T HE ACT) DATED 11.03.2013 FRAMED BY DCIT-2(1), UJJAIN. TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 2 2. BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE R ECORDS ARE THAT THE ASSESSEE IS A NON BANKING FINANCIAL COMPANY ENG AGED IN LONG TERM INVESTMENTS IN SHARES, SECURITIES ETC AND GIVI NG/TAKING LOANS FROM/TO BODY CORPORATE. ASSESSEE FILED ITS RETURN DECLARING TOTAL INCOME OF RS. 1,87,41,020/- AND RS.1,44,42,450/- FO R ASSESSMENT YEARS 2004-05 AND 2005-06 ON 29.10.2004 AND 30.10.2 005 RESPECTIVELY. THE CASE WAS SELECTED FOR SCRUTINY A ND NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED AND THE AS SESSMENT U/S 143(3) WAS COMPLETED ON 22.12.2006 AND 19.12.2007 A T THE TOTAL INCOME AT RS.2,85,71,067/- AND RS.6,06,67,270/- FOR RESPECTIVE ASSESSMENT YEARS. CERTAIN ADDITIONS WERE MADE IN TH E ASSESSMENT ORDERS AND THE ASSESSEE PREFERRED APPEAL BEFORE HON 'BLE I.T.A.T., INDORE AND THE HON'BLE BENCH SET ASIDE THE ISSUE VI DE ORDER DATED 16.9.2011 AND ACCORDINGLY FRESH NOTICES U/S 143(2) AND 142(1) WERE ISSUED. LD. A.O ASSESSED THE INCOME AT RS.2,85,71, 067/- AND RS.6,06,67,274/- FOR RESPECTIVE ASSESSMENT YEARS 20 04-05 AND 2005-06 RESPECTIVELY AFTER MAKING ADDITION FOR NOTI ONAL INTEREST INCOME AT RS. 4,17,54,965/- AND RS.4,62,24,821/-. THEREAFTER IN COMPLIANCE TO THE DIRECTION OF THE TRIBUNAL GIVEN I N THE MISCELLANEOUS APPLICATION NO.121/IND/2012 DATED 16 .4.2013 THE TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 3 ADDITIONS MADE BY THE LD. A.O WERE REVISED TO RS. 3 ,56,46,484/- AND RS. 2,54,33,672/-. AGAINST THIS REVISED ADDITI ONS, ASSESSEE CAME IN THE APPEAL BEFORE THE LD. CIT(A) AND THE T OTAL ADDITION WAS DELETED BY LD. CIT(A) OBSERVING THAT THE ASSESSEE H AS ADVANCED THE MONEY AND HAS RECEIVED INTEREST RANGING FROM 6.50% TO 14% AND IT IS NOT THE CASE THAT THE ASSESSEE HAS OBTAINED THE LOAN ON HIGHER RATE AND ADVANCED IT AT LOWER RATE. 3. AGGRIEVED REVENUE IS IN APPEAL BEFORE THE TRIBUN AL RAISING FOLLOWING GROUNDS OF APPEAL:- ITA NO.329/IND/2017 ASSESSMENT YEAR 2004-05 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.3,56,4 6,484/- ON ACCOUNT OF INTEREST ON LOAN PAID AT HIGHER RATE AND ADVANCED I T TO SISTER CONCERN/GROUP AT LOWER RATE WITHOUT APPRECIATING TH E FACT THAT ASSESSEE FAILED TO PROVE COMMERCIAL EXPEDIENCY IN SUCH TRANS ACTION. THE MATTER IS COVERED UNDER THE EXCEPTION AS MENTIO N IN PARA 8(C ) OF CIRCULAR 21/2015 . ITA NO.330/IND/2017 ASSESSMENT YEAR 2005-06 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.2,54,3 3,672/- ON ACCOUNT OF INTEREST. TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 4 THE MATTER IS COVERED UNDER THE EXCEPTION AS MENTIO N IN PARA 8(C ) OF CIRCULAR 21/2015 4. AT THE OUTSET BOTH THE LD. COUNSEL FOR THE ASSES SEE AND LD. DEPARTMENTAL REPRESENTATIVE AGREED THAT THE ISSUES AS WELL AS FACTS RAISED IN BOTH THE APPEALS ARE SAME. WE THEREFORE PROCEED TO ADJUDICATE THE GROUNDS FOR ASSESSMENT YEAR 2004-05 AND OUR DECISION SHALL APPLY MUTANDIS MUTANDIS ON THE ISSUES RAISED BY THE REVENUE FOR ASSESSMENT YEAR 2005-06. 5. LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUE D SUPPORTING THE ORDER OF LD. A.O AND SUBMITTED THAT THE ASSESSEE TOOK LOAN FROM VARIOUS FINANCIAL INSTITUTIONS AND A DVANCED IT IN THE FORM OF LOAN AND INVESTMENT ONLY TO ITS SISTER/GROU P CONCERNS AND THE ASSESSEE FAILED TO ADVANCE ANY EXPLANATION TO S HOW THAT SUCH LOANS WERE GIVEN FOR BUSINESS PURPOSES TO THE SISTE R CONCERNS. 6. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE A LONG WITH RELYING ON THE SUBMISSIONS FILED BEFORE LD. CIT(A) AND FINDING OF THE LD. CIT(A) ALSO PLACED RELIANCE ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD V/S CIT(A), CHANDIGARH (2007) 158 TAXMAN 74(SC) CONTENDING THAT THE TRANSA CTIONS ENTERED DURING THE YEAR ARE IN THE NORMAL COURSE OF BUSINES S AND THE LOANS TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 5 ADVANCED TO GROUP CONCERNS ARE FOR COMMERCIAL EXPED IENCY AND INTEREST HAS BEEN CHARGED ON SUCH ADVANCES. 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. REVENUES SOLE GRIEVANCE IS THAT LD. CIT(A) FAILED TO APPRECIATE THAT ASSESSEE HAS TOOK LOAN ON HIGHER RATE AND ADVANCED TO ITS SISTER/GROUP CONCERNS ON LOWER RATE AND ALSO DID NOT APPRECIATE THE FACT THAT THE ASSESSEE FAILED TO PROVE THE COMMERCIAL EXPEDIENCY IN SUCH TRANSACTIONS. WE FIN D THAT LD. CIT(A) DELETED THE ADDITION GIVING FOLLOWING FINDIN G; 4.1 GROUND NO.1 & 2:- THROUGH THESE GROUNDS OF APPEAL THE APPELLANT HAS CHALLENGED THE ADDITION OF RS. 4, 70,54,965/- ON ACCOUNT OF INTEREST. THE RETURN OF INCOME DECLARING TOTAL LOSS OF RS.1 ,87,41,0201- HAS BEEN FILED ON 29-10-2004. THE AO MADE THE ADDITION OF RSA,70,54,9 65/- ON ACCOUNT OF INTEREST WHILE PASSING THE ORIGINAL ASSESSMENT ORDE R UNDER SECTION 143(3) ON 22-12-2006. THE APPELLANT FILED THE APPEAL BEFOR E THE CIT(A), UJJAIN. THE CIT(A), UJJAIN WHILE DECIDING THE APPEAL OF THE APP ELLANT VIDE APPEAL NO.U- 736/2006-07, DATED 29-04-2008 DELETED THE ADDITION MADE BY THE AO. THE REVENUE FILED THE APPEAL BEFORE THE HON 'BLE IT AT, INDORE AGAINST THE ORDER PASSED BY THE CIT(A), UJJAIN. THE HON'BLE TRI BUNAL WHILE DECIDING THE APPEAL OF THE APPELLANT VIDE ITA NO.288/IND./2008 D ATED, 16-09-2011 SET ASIDE THE MATTER TO THE AO TO PASS THE ORDER AS PER THE DIRECTION TO DECIDE THE ISSUE AS PER THE LAW LAID DOWN BY HON'BLE SUPRE ME COURT IN THE CASE OF S.A. BUILDERS. FOLLOWING THE DIRECTIONS OF THE H ON'BLE ITAT, THE AO COMPLETED THE ASSESSMENT U/S 143(3) R W.S. 254 MAKING THE ADDITION OF RSA,70,54,965/- ON ACCOUNT OF INTEREST VIDE ORDER DATED 11-03-2013. MEANWHILE, THE APPELLANT FILED THE MISCELLANEOUS AP PLICATION BEFORE THE TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 6 TRIBUNAL ON ACCOUNT OF FACTUAL MISTAKE IN THE HON'B LE ITAT'S ORDER DATED 16- 09-2011. THE HON'BLE ITAT DECIDED THE MISCELLANEOUS APPLICATION VIDE M.A. NO.121/IND/2012, DATED 16-04-2013. THE AO PASS ED THE ORDER U/S 254 GIVING EFFECT TO THE IT AT'S ORDER AND ACCORDIN GLY ALLOWED THE RELIEF OF RS.1, 14,08,481/- ON ACCOUNT OF INTEREST. THEREFORE, THE NET ADDITION PERTAINING TO THE YEAR UNDER CONSIDERATION IS AT RS .3 ,56,46,484/-. 4.1.1 THE HON'BLE SUPREME COURT WHILE DECIDING THE CASE OF S.A. BUILDERS DEALT WITH THE ISSUE THAT THE APPELLANT HAS BORROWE D THE FUND FROM THE BANK AND LENT IT TO ITS SISTER CONCERN ON INTEREST FREE LOAN. THE TEST IN SUCH A CASE IS REALLY WHETHER THIS WAS DONE AS A MEASURE OF COMMERCIAL EXPEDIENCY. IT HAS BEEN HELD BY HON'BLE SUPREME COU RT THAT WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONE Y TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUS INESS PURPOSES, THE ASSESSEE WOULD, IN OUR OPINION, ORDINARILY BE ENTIT LED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. INTEREST ON BORROWE D FUNDS CANNOT BE DISALLOWED IF THE ASSESSEE HAS ADVANCED INTEREST-FR EE LOAN TO A SISTER- CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY; WHAT IS TO BE SEEN IS 'BUSINESS PURPOSE' AND WHAT THE SISTER-CONCERN DID WITH THE MONEY ADVANCED. IN THIS CONNECTION WE MAY REFER TO S.36( 1 )(III) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE' ACT') WHICH S TATES THAT 'THE AMOUNT OF THE INTEREST PAID IN RE SPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION' HAS TO BE ALLOWED AS A DEDU CTION IN COMPUTING THE INCOME-TAX UNDER S.28 OF THE ACT. IF THE HOLDING CO MPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY FOR SOME BUSINESS PU RPOSES, THE ASSESSEE WOULD, IN OUR OPINION, ORDINARILY BE ENTIT LED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. 4.1.2 THE APPELLANT IS NON-BANKING FINANCIAL COMPAN Y AND IT HAS THE BUSINESS OF GIVING LOANS AND ADVANCES TO THE SISTER COMPANIES. THE TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 7 APPELLANT HAS AVAILED THE FUND FROM G.E. CAPITAL SE RVICES AND INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD. THE APPELLANT HAS ALSO RAISED THE FUND BY ISSUING OF DEBENTURES. THE APPEL LANT HAS BORROWED THE MONEY BY ISSUANCE OF DEBENTURES @ 10.50 FOR A PERIO D OF 3 YEARS. THE APPELLANT HAS BORROWED THE FUNDS FROM ILFS @ 6 DURING THE YEAR UNDER CONSIDERATION. THE INTEREST RATE PAID TO G.E. CAPIT AL SERVICES INDIA AND STANDARD CHARTERED BANK IS @ 10.50. THEREFORE, THE AO IS NOT JUSTIFIED IN HOLDING THAT THE APPELLANT HAS BORROWED THE FUND AT THE INTEREST RATE OF 10.50. THE INTEREST RATE IS FLUCTUATING ON DAY-TO-D AY BASIS AND THE SAME IS GOVERNED BY MIBOR RATES I.E. MUMBAI INTER BANK OFFE R RATE PREVAILING DURING THE YEAR. THIS IS THE RATE AT WHICH THE BANK S GIVES AND TAX LOAN TO/FROM EACH OTHER. THE LOANS TO BORROWERS ARE GIVE N AT ABOUT LITTLE HIGHER RATES FROM THE ABOVE RATES OF MIBOR. THE MIBOR RATE S DURING THE YEAR UNDER CONSIDERATION WERE RANGING FROM 4.50 TO 6. 4.1.3 THE APPELLANT HAD RECEIVED THE INTEREST FROM THE LO ANS GIVEN VARYING RATES FROM 7 TO 16. THE APPELLANT HAD RECEIVED INTE REST @ 12 FROM M/S BIRLA GLOBAL FINANCE LTD. FOR THE PERIOD FROM 01-04- 2003 TO 26-05-2003. THE APPELLANT HAD ALSO RECEIVED INTEREST @ 7 FROM BIRLA TMT HOLDING PVT. LTD. FOR A PERIOD FROM 01-04-2003 TO 29-05-2003. THE APP ELLANT HAD ALSO RECEIVED INTEREST @ 16 FROM MANGALORE REFINING AND PETRO CHEMICALS FOR A PERIOD FROM 01-04- 2003 TO 31-07-2003. THEREFORE, T HE APPELLANT HAS GIVEN THE INTEREST AND RECEIVED THE INTEREST VARYING FROM DAY-TO-DAY AS PER THE MARKET RATE. IT IS NOT THE CASE THAT THE APPELLANT HAS OBTAINED THE LOAN AT HIGHER RATE AND ADVANCED IT ON THE LOWER RATE. THE CIT(A), UJJAIN WHILE DECIDING THE APPEAL OF THE APPELLANT VIDE APPEAL NO . U-736/2006-07 - DATED 29-04-2008 AGAINST THE ORIGINAL ASSESSMENT OR DER DELETED THE . ADDITION MADE BY THE AO. FOLLOWING DECISION IN APPE AL NO. U- 736/2006- 07, DATED 29-04-2008 AND AS DISCUSSED ABOVE, THE AO IS NOT JUSTIFIED IN MAKING THE ADDITION. THE AO HIMSELF ALLOWED THE RE LIEF OF RS.L,14,08,4811- WHILE GIVING THE APPEAL AFFECT OF ITAT'S ORDER AGAI NST MISCELLANEOUS TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 8 APPLICATION NO.121/IND/2012, DATED 16.04.2013. THE REFORE, THE REMAINING ADDITION MADE BY THE AO AMOUNTING TO RS.3 ,56,46,484/- (RS.4,70,54,965/- - RS.1,14,08,481/-) IS DELETED. THEREFORE, THE APPEAL ON THESE GROUNDS IS ALLOWED. 8. FROM PERUSAL OF THE FINDING OF LD. CIT(A) AND ON THE EXAMINING THE FACTS OF THE CASE WE FIND THAT THERE IS NOT MUC H DIFFERENCE IN THE INTEREST RATE PAID BY THE ASSESSEE ON THE LOAN TAKE N VIS-A-VIS INTEREST CHARGED TO THE LOANS AND ADVANCE GIVEN TO SISTER/GROUP CONCERNS. ONE OF SUCH INCIDENCE IS THAT ASSESSEE H AS RECEIVED INTEREST FROM BIRLA GLOBAL FINANCIAL LTD FOR A SHOR T PERIOD @14% AND HAS ALSO RECEIVED INTEREST @6.5% FROM BIRLA TMT HOLDING PVT. LTD. IN THE SAME YEAR ASSESSEE HAS OBTAINED LOAN FR OM INFRASTRUCTURE LEASING & FINANCE LTD @6.3%. SO THE ALLEGATION OF THE LD. A.O THAT LOWER INTEREST RATE IS CHARGED AND HIGHER INTEREST RATE IS PAID IS DEVOID OF ANY MERIT AND THEREFORE THE ADDITION FOR NOTIONAL INTEREST IS UNCALLED FOR. 9. THROUGH OTHER PART OF THE GROUND THE REVENUE HAS CHALLENGED CONTENDING THAT THE TRANSACTIONS ENTERED INTO BY TH E ASSESSEE ARE NOT FOR COMMERCIAL EXPEDIENCY. WE FIND THAT THE HO NBLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD (SUPRA) HAVE EXAMINED THE TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 9 EXPRESSION COMMERCIAL EXPEDIENCY OBSERVING AS FOL LOWS; 25. THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS AN E XPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT B USINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HA VE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMER CIAL EXPEDIENCY. 26. NO DOUBT, AS HELD IN MADHAV PRASAD JATIA VS. CI T (SUPRA), IF THE BORROWED AMOUNT WAS DONATED FOR SOME SENTIMENTAL OR PERSONAL REASONS AND NOT ON THE GROUND OF COMMERCIAL EXPEDIENCY, THE INTEREST THEREON COULD NOT HAVE BEEN ALLOWED UNDER S. 36(1)(III) OF THE AC T. IN MADHAV PRASADS CASE (SUPRA), THE BORROWED AMOUNT WAS DONATED TO A COLLEGE WITH A VIEW TO COMMEMORATE THE MEMORY OF THE ASSESSEES DECEASED H USBAND AFTER WHOM THE COLLEGE WAS TO BE NAMED. IT WAS HELD BY TH IS COURT THAT THE INTEREST ON THE BORROWED FUND IN SUCH A CASE COULD NOT BE ALLOWED, AS IT COULD NOT BE SAID THAT IT WAS FOR COMMERCIAL EXPEDI ENCY. 27. THUS, THE RATIO OF MADHAV PRASAD JATIAS CASE ( SUPRA) IS THAT THE BORROWED FUND ADVANCED TO A THIRD PARTY SHOULD BE F OR COMMERCIAL EXPEDIENCY IF IT IS SOUGHT TO BE ALLOWED UNDER S. 3 6(1)(III) OF THE ACT. 28. IN THE PRESENT CASE, NEITHER THE HIGH COURT NOR THE TRIBUNAL NOR OTHER AUTHORITIES HAVE EXAMINED WHETHER THE AMOUNT ADVANC ED TO THE SISTER- CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY. 29. IT HAS BEEN REPEATEDLY HELD BY THIS COURT THAT THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' IS WIDER IN SCOPE THAN THE EXP RESSION 'FOR THE PURPOSE OF EARNING PROFITS' VIDE CIT VS. MALAYALAM PLANTATI ONS LTD. (1964) 53 ITR 140 (SC), CIT VS. BIRLA COTTON SPINNING & WEAVING M ILLS LTD. (1971) 82 ITR 166 (SC), ETC. TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 10 30. THE HIGH COURT AND THE OTHER AUTHORITIES SHOULD HAVE EXAMINED THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MONEY T O ITS SISTER-CONCERN, AND WHAT THE SISTER-CONCERN DID WITH THIS MONEY, IN ORDER TO DECIDE WHETHER IT WAS FOR COMMERCIAL EXPEDIENCY, BUT THAT HAS NOT BEEN DONE. 31. IT IS TRUE THAT THE BORROWED AMOUNT IN QUESTION WAS NOT UTILIZED BY THE ASSESSEE IN ITS OWN BUSINESS, BUT HAD BEEN ADVANCED AS INTEREST-FREE LOAN TO ITS SISTER-CONCERN. HOWEVER, IN OUR OPINION, THA T FACT IS NOT REALLY RELEVANT. WHAT IS RELEVANT IS WHETHER THE ASSESSEE ADVANCED SUCH AMOUNT TO ITS SISTER-CONCERN AS A MEASURE OF COMMERCIAL EX PEDIENCY. 32. LEARNED COUNSEL FOR THE REVENUE RELIED ON A BOM BAY HIGH COURT DECISION IN PHALTAN SUGAR WORKS LTD. VS. CIT (1995) 127 CTR (BOM) 359 : (1994) 208 ITR 989 (BOM) IN WHICH IT WAS HELD THAT DEDUCTION UNDER S. 36(1)(III) CAN ONLY BE ALLOWED ON THE INTEREST IF T HE ASSESSEE BORROWS CAPITAL FOR ITS OWN BUSINESS. HENCE, IT WAS HELD THAT INTER EST ON THE BORROWED AMOUNT COULD NOT BE ALLOWED IF SUCH AMOUNT HAD BEEN ADVANCED TO A SUBSIDIARY COMPANY OF THE ASSESSEE. WITH RESPECT, W E ARE OF THE OPINION THAT THE VIEW TAKEN BY THE BOMBAY HIGH COURT WAS NO T CORRECT. THE CORRECT VIEW IN OUR OPINION WAS WHETHER THE AMOUNT ADVANCED TO THE SUBSIDIARY OR ASSOCIATED COMPANY OR ANY OTHER PARTY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. WE ARE OF THE OPINION THAT T HE VIEW TAKEN BY THE TRIBUNAL IN PHALTAN SUGAR WORKS LTD. (SUPRA) THAT T HE INTEREST WAS DEDUCTIBLE AS THE AMOUNT WAS ADVANCED TO THE SUBSID IARY COMPANY AS A MEASURE OF COMMERCIAL EXPEDIENCY IS THE CORRECT VIE W, AND THE VIEW TAKEN BY THE BOMBAY HIGH COURT WHICH SET ASIDE THE AFORES AID DECISION IS NOT CORRECT. 33. SIMILARLY, THE VIEW TAKEN BY THE BOMBAY HIGH CO URT IN PHALTAN SUGAR WORKS LTD. VS. CIT (1994) 122 CTR (BOM) 344 : (1995 ) 215 ITR 582 (BOM) ALSO DOES NOT APPEAR TO BE CORRECT. TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 11 34. WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COURT IN CIT VS. DALMIA CEMENT (BHARAT) LTD. (2002) 174 CTR (DEL) 188 : (20 02) 254 ITR 377 (DEL) THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BE TWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NEC ESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNO T JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF T HE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PROFIT . THE IT AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AN D SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOO K AT THE MATTER FROM THEIR OWN VIEWPOINT BUT THAT OF A PRUDENT BUSINESSM AN. AS ALREADY STATED ABOVE, WE HAVE TO SEE THE TRANSFER OF THE BORROWED FUNDS TO A SISTER- CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDI ENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR E ARNING PROFITS. 35. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPI NION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER-CONCERN. IT ALL DEPENDS ON THE FACTS AND C IRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER-CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PER SONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MONEY CAN BE SAID T O BE ADVANCED TO A SISTER-CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY OT HER CIRCUMSTANCES (WHICH NEED NOT BE ENUMERATED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIA RY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSID IARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PURPOSE S, THE ASSESSEE WOULD, IN OUR OPINION, ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 12 36. IN VIEW OF THE ABOVE, WE ALLOW THESE APPEALS AN D SET ASIDE THE IMPUGNED JUDGMENTS OF THE HIGH COURT, THE TRIBUNAL AND OTHER AUTHORITIES AND REMAND THE MATTER TO THE TRIBUNAL FOR A FRESH D ECISION, IN ACCORDANCE WITH LAW AND IN THE LIGHT OF THE OBSERVATIONS MADE ABOVE. 10. FROM PERUSAL OF THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. (SUPRA) AND THE FACTS PLACED BEFORE US IN THE INSTANT APPEAL, WE UNDERSTAND THAT MERELY GIVIN G LOANS AND ADVANCES OR MAKING INVESTMENT IN THE GROUP/SISTER C ONCERNS PER SE WILL NOT MAKE THE TRANSACTION OUT OF THE FIELD OF COMMERCIAL EXPEDIENCY. WHAT NEEDS TO BE EXAMINED IS THAT THE FUND WHICH HAVE BEEN ADVANCED HAVE BEEN GIVEN FOR BUSINESS PUR POSES OR NOT. THE ASSESSEE IN THE INSTANT APPEAL IS A NON BANKING FINANCING COMPANY (NBFC) REGISTERED WITH ITS OBJECT OF TAKING LOANS AND ADVANCING LOANS FOR EARNING INTEREST OR OTHER INCOM E FROM INVESTMENTS. IN BOTH THE YEARS IN APPEAL THE ASSESS EE HAS TAKEN LOANS FROM FINANCIAL INSTITUTIONS ON VARYING INTERE ST RATES. IT HAS ALSO ISSUED DEBENTURES IN THE PAST. AMOUNTS HAVE B EEN ADVANCED AS LOANS AS WELL AS INVESTMENTS TO OTHER CONCERNS W HICH PRESENTLY ARE ONLY TO THE GROUP/SISTER CONCERNS. IT IS NOT T HE CASE THAT INTEREST FREE LOANS HAVE BEEN GIVEN. ASSESSEE HAS CHARGED INTEREST TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 13 AT VARYING RATE DEPENDING ON THE MARKET CONDITIONS AND BASED ON THE NEEDS OF THE CONCERNS TAKING LOAN. AS OBSERVED ABOVE THAT INTEREST RATE VARYING FROM 6.5% TO 12% HAVE BEEN CH ARGED BY THE ASSESSEE. SIMILARLY INTEREST HAVE BEEN PAID ON DEB ENTURE @ 10.5% WHEREAS FUNDS @6% TAKEN FROM INFRASTRUCTURE & LEASI NG AND FINANCIAL SERVICES LTD. SO THE TRANSACTIONS CARRIE D OUT ARE IN NORMAL COURSE OF BUSINESS ARE OF COMMERCIAL EXPEDIE NCY. OUR VIEW IS FURTHER SUPPORTED BY THE FACT THAT DURING THE FI NANCIAL YEAR 2003-04 PROFIT BEFORE TAX STOOD AT RS.12.5 CRORES A ND FOR FINANCIAL YEAR 2004-05 AT RS.19.28 CRORES. THOUGH IT IS NOT NECESSARY THAT EARNING OF PROFIT IS MANDATORY FOR THE BUSINESS CON CERN TO PROVE THAT THE TRANSACTIONS ENTERED INTO BY IT ARE FOR CO MMERCIAL EXPEDIENCY BUT STILL IF THE BUSINESS CONCERN SHOW P ROFIT AT THE END OF THE YEAR, IT IS AN ADDED FEATURE WHICH PROVES T HAT THE TRANSACTIONS ENTERED BY THE CONCERN ARE FOR COMMERC IAL EXPEDIENCY AND IN THE REGULAR COURSE OF BUSINESS. 11. WE, THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTA NCES OF THE CASE FIND NO INCONSISTENCY IN THE ORDER OF LD. CIT(A) DE LETING THE ADDITION OF NOTIONAL INTEREST MADE BY LD. A.O FOR ASSESSMENT YEAR 2004-05 TRAPTI TRADING & INVESTMENT PVT.LTD ITA NOS.329 & 330/IND/20178 14 AND 2005-06. ACCORDINGLY THE RELEVANT GROUNDS RAIS ED BY REVENUE FOR ASSESSMENT YEARS 2004-05 AND 2005-06 ARE DISMI SSED. 12. IN THE RESULT BOTH THE APPEALS OF THE REVENUE F OR ASSESSMENT YEAR 2004-05 AND ASSESSMENT YEAR 2005-06 STANDS DIS MISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 2 1.08.2019. SD/- SD/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 21 AUGUST, 2019 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER ASSISTANT REGISTRAR, ITAT, INDORE