M/s Girnar Hosiery Works (Regd.), Ludhiana V. ACIT, Ludhiana

ITA 351/CHANDI/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6847 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-01-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 04-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: GURJEET SINGH SHRI RAKESH JAIN
• Keywords: Principle of natural justice; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI. SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO. 1019/CHD/2010 ASSESSMENT YEAR: 2004-05 M/S GIRNAR HOSIERY WORKS VS. THE ADDL. CIT ST. NO. VI GURU NANAK DEV NAGAR RANGE III BASTI JODHEWAL LUDHIANA LUDHIANA PAN NO. AABFG1961H ITA NO. 351/CHD/2014 ASSESSMENT YEAR: 2005-06 M/S GIRNAR HOSIERY WORKS VS. THE ADDL. CIT ST. NO. VI GURU NANAK DEV NAGAR RANGE III BASTI JODHEWAL LUDHIANA LUDHIANA ITA NO. 349/CHD/2014 ASSESSMENT YEAR: 2006-07 M/S GIRNAR HOSIERY WORKS VS. THE ADDL. CIT ST. NO. VI GURU NANAK DEV NAGAR RANGE III BASTI JODHEWAL LUDHIANA LUDHIANA & ITA NO. 514/CHD/2014 ASSESSMENT YEAR: 2007-08 M/S GIRNAR HOSIERY WORKS VS. THE ADDL. CIT ST. NO. VI GURU NANAK DEV NAGAR RANGE III BASTI JODHEWAL LUDHIANA LUDHIANA (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. GURJEET SINGH SHRI. RAKESH JAIN DEPARTMENT BY : SHRI. MANJIT SINGH DATE OF HEARING : 10/07/2017 DATE OF PRONOUNCEMENT : 21/09/2017 2 ORDER PER DR. B.R.R. KUMAR, AM ALL THESE APPEALS HAVE BEEN FILED BY THE SAME ASSES SEE AGAINST THE FOLLOWING SEPARATE ORDERS: ORDER OF LD. CIT(A)-JALANDHAR DT. 31/03/2010 (IN IT A NO. 1019/CHD/2010 FOR AY 2004-05), ORDER OF LD. CIT(A)-II, LUDHIANA DT. 31/01/2014 (IN ITA NO. 351/CHD/2014 FOR AY 2005-06), ORDER OF LD. CIT(A)-II, LUDHIANA DT. 31/01/2014 (IN ITA NO. 349/CHD/2014 FOR 2006- 07), ORDER OF LD. CIT(A)-II, LUDHIANA DT. 28/03/2013 (IN ITA NO. 514/CHD/2013 FOR 2007- 08). 2. THE ASSESSE HAS RAISED FOLLOWING GROUND IN ITA N O. 1019/CHD/2010 FOR AY 2004-05 WHICH ARE AS UNDER: 1. THAT THE LD. CIT(A) HAS NOT CONSIDERED THE CORRECT FACTS OF THE CASE AND DISALLOWANCE OF INTEREST @13.50% ON ACCOUNT OF BUSI NESS ADVANCES SHOULD BE DELETED. 2. THAT THERE IS NO DIRECT NEXUS OF THE BUSINESS ADVAN CES AND DISALLOWANCE OF INTEREST, HENCE THE DISALLOWANCE OF INTEREST SHO ULD BE DELTED. 3. THE CIT(A) HAS RESTRICTED THE DISALLOWANCE OF INTER EST @ 13.50% P.A. INSTEAD OF 21% P.A. HENCE THE DISALLOWANCE BE DELETED. 4. THAT CIT(A) HAS NOT CONSIDERED THE ISSUE OF NOTI CE U/S 142(1)&143(2) IN THE APPEAL ORDER, HENCE THE PROCEEDINGS OF THE A.O. SHO ULD BE QUASHED ON DISALLOWANCE. 3. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITA NO. 351/CHD/2014 FOR AY 2005-06 WHICH ARE AS UNDER: 1. THAT THE LD.CIT(A)-LL HAS ERRED IN THE EYES OF LAW IGNORING THE CORRECT FACTS OF THE CASE AND SIMPLY RELYING ON THE JUDGEMENT OF CIT VS. ABHISHEK INDUSTRIES LTD HAS UPHELD THE DISALLOWANCE OF INTER EST AND SAME DESERVES TO BE DELETED. 2. THAT THE DISALLOWANCE OF INTEREST OF RS 1461510/- @ 13.50% P.A. MADE BY THE AO AND NOT ALLOWED BY THE CIT(A)-II BE DELETED . 3. THAT THE AO AND CIT(A)-II HAS NOT ESTABLISHED ANY D IRECT NEXUS BETWEEN THE LOANS TAKEN AND ADVANCED AS ALLEGED IN THE ASSE SSMENT ORDER, HENCE THE ADDITIONS SHOULD BE DELETED ON THIS GROUND. 4. THAT THERE IS COMMERCIAL EXPEDIENCY IN THE CASE OF ASSESSEE AND THIS POINT HAS NOT BEEN CONSIDERED BY THE CIT(A)-II. 3 5. THE ASSESSEE HAS GIVEN VARIOUS JUDGEMENTS TO THE CI T(A) AND THESE JUDGEMENTS HAVE NOT BEEN CONSIDERED PROPERLY IN THE ORDER LEADING TO DENIAL OF NATURAL JUSTICE. 6. THE CONSEQUENT EFFECT OF INTEREST UNDER DIFFERENT S ECTIONS AND PROCEEDINGS U/S 271(L)(C) BE CANCELLED. 4. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITA NO. 349/CHD/2014 FOR AY 2006-07 WHICH ARE AS UNDER: 1. THAT THE LD.CIT(A)-LL HAS ERRED IN THE EYES OF LAW IGNORING THE CORRECT FACTS OF THE CASE AND SIMPLY RELYING ON THE JUDGEMENT OF CIT VS. ABHISHEK INDUSTRIES LTD HAS UPHELD THE DISALLOWANCE OF INTER EST AND SAME DESERVES TO BE DELETED. 2. THAT THE DISALLOWANCE OF INTEREST OF RS 1461510/- @ 13.50% P.A. MADE BY THE AO AND NOT ALLOWED BY THE CIT(A)-II BE DELETED . 3. THAT THE AO AND CIT(A)-II HAS NOT ESTABLISHED ANY D IRECT NEXUS BETWEEN THE LOANS TAKEN AND ADVANCED AS ALLEGED IN THE ASSE SSMENT ORDER, HENCE THE ADDITIONS SHOULD BE DELETED ON THIS GROUND. 4. THAT THERE IS COMMERCIAL EXPEDIENCY IN THE CASE OF ASSESSEE AND THIS POINT HAS NOT BEEN CONSIDERED BY THE CIT(A)-II. 5. THE ASSESSEE HAS GIVEN VARIOUS JUDGEMENTS TO THE CI T(A) AND THESE JUDGEMENTS HAVE NOT BEEN CONSIDERED PROPERLY IN THE ORDER LEADING TO DENIAL OF NATURAL JUSTICE. 6. THE CONSEQUENT EFFECT OF INTEREST UNDER DIFFERENT S ECTIONS AND PROCEEDINGS U/S 271(L)(C) BE CANCELLED. 5. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITA NO. 514/CHD/2013 FOR AY 2007-08 WHICH ARE AS UNDER: 1. THAT THE LD.CIT(A)-LL HAS ERRED IN THE EYES OF LAW IGNORING THE CORRECT FACTS OF THE CASE AND SIMPLY RELYING ON THE JUDGEMENT OF CIT VS. ABHISHEK INDUSTRIES LTD HAS UPHELD THE DISALLOWANCE OF INTER EST AND SAME DESERVES TO BE DELETED. 2. THAT THE DISALLOWANCE OF INTEREST OF RS 1461510/- @ 13.50% P.A. MADE BY THE AO AND NOT ALLOWED BY THE CIT(A)-II BE DELETED . 3. THAT THE AO AND CIT(A)-II HAS NOT ESTABLISHED ANY D IRECT NEXUS BETWEEN THE LOANS TAKEN AND ADVANCED AS ALLEGED IN THE ASSE SSMENT ORDER, HENCE THE ADDITIONS SHOULD BE DELETED ON THIS GROUND. 4. THAT THERE IS COMMERCIAL EXPEDIENCY IN THE CASE OF ASSESSEE AND THIS POINT HAS NOT BEEN CONSIDERED BY THE CIT(A)-II. 6. BRIEF FACTS OF THE CASE ARE THAT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, IT WAS SEEN THAT ASSESSEE HAS OUTSTAND ING INTEREST FREE NON BUSINESS LOAN OF RS. 1,08,26,000/- AGAINST SISTER CONCERN M/S GIRNAR FIBRES LIMITED. FROM THE COPIES OF ABOVE SAID COMPANY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, IT IS SEEN THAT LOAN AMOUNT OF RS. 1,16,4 0,000/- WAS GIVEN BY THE ASSESSEE IN F.Y. 1997-98 IN F.Y. 1998-99, THE SAID COMPANY RETURNED AN AMOUNT 4 OF RS. 4 LACS TO THE ASSESSEE. IN F.Y. 1999-2000, AN AMOUNT OF RS. 4,14,000/- WAS TRANSFERRED TO ANOTHER ACCOUNT OF THE SAID SIST ER CONCERN. THEREFORE, AS ON 31.3.2000, THE OUTSTANDING LOAN AGAINST THE SAID SI STER CONCERN WAS RS.1,08,26,000/-. IT WAS SEEN THAT ASSESSEE HAS NOT CHARGED ANY INTEREST ON THE AFORESAID LOAN GIVEN TO M/S GIRNAR FIBRES LIMITED, SISTER CONCERN OF THE ASSESSEE EVEN THOUGH IT HAS PAID HUGE AMOUNT OF INT EREST RS. 37,87,983/- TO BANKS, RS. 10,71,879/- ON UNSECURED LOANS AND RS. 38,694/- AS INTEREST TO PARTNERS. THE INTEREST PAYMENT INCLUDE THE PAYMENTS MADE ON LOANS TAKEN FROM THE PERSONS SPECIFIED U/S 40A(2)(B) ALSO. THER EFORE, THE ASSESSEE ON THE ONE HAND HAS PAID INTEREST AMOUNTING TO RS.48,98,556/- AND NOT CHARGED ANY INTEREST ON THE AFORESAID LOAN GIVEN TO THE SAID SISTER CONCERN. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED VIDE LETTER DATED 7.12.2006 AND 18.12.2006 THAT NO INTEREST WAS CHARGED FROM M/S GIRNAR FIBRES LIMITED AS THE SAID COMPANY BECAME SICK AND MADE REFERENCE TO BIFR FOR DETERMINING THE MEASURES FOR ITS REVIVAL. IT WAS ALSO INFORMED THAT BIFR HAS REGISTERED THE CASE VIDE THEIR LETTER DATED 24.02. 2004 AND SINCE THE COMPANY BECAME SICK, NEITHER ANY AMOUNT WAS RECOVERED NOR ANY INTEREST W AS RECOVERABLE. IT HAS FURTHER BEEN CONTENDED IN LETTER DATED 18.12. 2006 THAT ASS ESSEE MADE PURCHASES OF YARN FROM THE SAID COMPANY AND NO INTEREST WAS CHARGED BY THE COMPANY ON THE PAYMENTS DELAYED. DETAILS OF PURCHASES MADE BY THE ASSESSEE FIRM FROM THE S ISTER COMPANY, PAYMENTS MADE BY THE ASSESSEE FIRM TO THE SISTER COMPANY AND THE AMOUNT OUTSTANDING FR OM F.Y. 1997-98 TO F.Y. 2003-04 HAVE ALSO BEEN INTIMATED AS UNDER: FINANCIAL YEAR AMOUNT OF PURCHASE MADE OUTSTANDING CREDIT AT CLOSE OF THE YEAR 1997-98 RS. 15913758 10508397.80 1998-99 RS. 12058467 1906819.15 1999-2000 RS. 9872527 3866390.51 2000-01 RS. 9169476 7170540.00 2001-02 RS. 5143879 NIL 2002-03 RS. 5552093 NIL 2003-04 RS. 3127018 NIL 7. AS PER DETAILS FURNISHED, THE ASSESSEE HAD OUTST ANDING DUES OF RS. 1,05,08,397.80 AS ON 31.03.1998 FOR PURCHASES MADE FROM THE SAID COMPANY. INSTEAD OF ADJUSTING THIS AMOUNT AGAINST THE L OAN GIVEN, IT CONTINUED MAKING PAYMENTS FOR PURCHASES MADE DURING SUBSEQUENT YEARS . IT IS SEEN THAT IN SUBSEQUENT YEARS, AS GIVEN IN THE TABLE ABOVE, H UGE PURCHASES WERE MADE 5 FOR WHICH PAYMENTS WERE ALSO MADE. THERE WAS NO OUT STANDING AS ON 31.3.2002 AND IN SUBSEQUENT YEARS, EVEN THOUGH HUGE AMOUNT OF PURCHASES WERE MADE BY THE ASSESSEE. THE ASSESSEE INSTEAD OF MAKING CLA IM FOR EITHER REFUND OF THE LOAN GIVEN OR ADJUSTING THE LOAN AMOUNT AGAINST THE PURCHASES MADE FROM THE SISTER CONCERN, WENT ON MAKING FULL PAYMENTS FOR TH E PURCHASES SO MADE. THIS FACT SHOWS THAT ASSESSEE HAD NO INTENTION OF EITHER CHARGING THE INTEREST OR CLAIMING REFUND OF THE LOAN AMOUNT OR EVEN MAKING ADJUSTMENT OF THE CLAIM AGAINST PURCHASES. 8. THUS, KEEPING IN VIEW THE ABOVE NARRATED FACTS T HE ASSESSING OFFICER DISALLOWED INTEREST @ 21% OF THE OUTSTANDING LOAN A MOUNT. 9. LD. CIT(A) HELD THAT OWING TO THE SUBSEQUENT FI NANCIAL YEAR WHEREIN THE ASSESSEE COMPANY HAS LEFT THE MONEY WITH THE M/S GI RNAR FIBRES LIMITED COMPANY WITHOUT ANY GOOD REASON AND WITHOUT UTILIZI NG THAT MONEY TO PAY FOR THE PURCHASES MADE FOR THAT COMPANY HAS REDUCED THE DISALLOWANCES FROM 21% TO 13%. 10. ALL THE GROUNDS OF APPEAL TAKEN FOR VARIOUS YEA RS PRIMARILY FOCUSED AGAINST THE DISALLOWANCE OF INTEREST IN RESPECT OF THE OUTS TANDING BALANCE IN RESPECT OF M/S GIRNAR FIBRES LTD AND SMT. RADHA GUPTA. IN THE CASE OF THE LOAN GIVEN TO M/S GIRNAR FIBRES LTD, IT IS THE AO'S CONTENTION TH AT THE MONEY WAS ADVANCED BY THE ASSESSEE TO THIS COMPANY KNOWING FULL WELL THAT THE FINANCIAL POSITION OF M/S GIRNAR FIBERS LTD WAS NOT GOOD AND THE PARTNERS OF ASSESSEE FIRM, BEING DIRECTORS IN THE COMPANY, WERE AWARE OF THE FINANCIAL POSITIO N OF THE COMPANY. THE APPELLANT, ON THE OTHER HAND, HAS CONTENDED THAT TH E AMOUNT WAS GIVEN AS SECURITY DEPOSIT SO AS TO GET THE PRODUCT AT LOWER COST THAN THE MARKET RATES AND NOT TO PAY INTEREST ON THE CREDIT PURCHASES MADE BY IT, AS WAS BEING CHARGED TILL THEN. IT IS ALSO CONTENDED THAT THE COMPANY HAD BEC OME SICK. THE AO HAS RELIED ON THE DECISION OF THE HON'BLE JURISDICTIONA L HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. (SUPRA), WHEREAS THE APPEL LANT HAS RELIED ON CERTAIN OTHER DECISIONS FOR THE PROPOSITION THAT IT WAS NEC ESSARY FOR THE AO TO ESTABLISH DIRECT NEXUS BETWEEN THE BORROWED FUNDS AND THE INT EREST FREE LOAN GIVEN BEFORE DISALLOWING INTEREST EXPENDITURE. 6 11. THOUGH THE APPELLANT HAS CONTENDED THAT THE SUM OF RS. 1.25 CRORES WAS GIVEN TO M/S GIRNAR FIBRES LTD. AS SECURITY DEPOSIT , NO AGREEMENT TO THIS EFFECT HAS BEEN SUBMITTED. THE OUTSTANDING OF RS. L,08,26, 000/- TO M/S GIRNAR FIBRES LTD. APPEARS UNDER THE HEADING 'LOANS AND ADVANCES' THE BALANCE SHEET OF THE ASSESSEE FIRM. THE DETAILS SUBMITTED BY THE APPELLA NT SHOWS THE 'LOAN ACCOUNT' OF M/S GIRNAR FIBRES LTD. IN THE BOOKS OF THE ASSES SEE FIRM IN THE FINANCIAL YEAR 97- 98. HENCE, THE APPELLANT'S CONTENTION THAT THE AMOU NT WAS ADVANCES AS SECURITY DEPOSIT IS NOT BORNE OUT FROM ANY EVIDENCE ON RECORD. THE APPELLANT HAS CONTENDED THAT THE PARTNERS OF THE ASSESSEE FIR M WERE NOT DIRECTORS IN M/S GIRNAR FIBRES LTD., BUT HAS NOT SHOWN THAT THEY DIR ECTLY OR THEIR IMMEDIATE FAMILY MEMBERS WERE NOT MAJOR SHAREHOLDERS IN THE COMPANY AND WERE NOT IN MANAGEMENT CONTROL OF THE COMPANY. 12. THE APPELLANT HAS POINTED OUT THAT IT HAD BEEN PAYING INTEREST ON CREDIT PURCHASES TO M/S GIRNAR FIBERS LTD EARLIER BEFORE I NTEREST FREE LOAN WAS ADVANCED TO THE COMPANY. AFTER THE INTEREST FREE LO AN WAS ADVANCED EVEN THOUGH THE ASSESSEE MADE CREDIT PURCHASES, IT WAS N OT REQUIRED TO PAY ANY INTEREST ON THE CREDIT BALANCES. THIS FACT HAD NOT BEEN REFUTED BY THE AO. THE ASSESSEE HAS SHOWN WITH REFERENCE TO COPY OF ACCOUN T OF M/S GIRNAR FIBERS LTD IN HITS BOOKS THAT IT CONTINUE TO AVAIL SUCH CREDIT FA CILITY OF SUBSTANTIAL AMOUNT DURING THE FINANCIAL YEAR 1999-2000, 2000-01 AND 20 01-02 (PART OF THE YEAR). HENCE, THE APPELLANT'S CONTENTION THAT THE SECURITY DEPOSIT RESULTED IN BENEFIT TO ITSELF ALSO APPEARS TO BE BORNE OUT FROM THE FACTS ON RECORD, AT LEAST IN THE INITIAL YEARS AFTER WHEN THE INTEREST FREE LOANS WERE GIVEN . 13. HOWEVER, IT IS SEEN THAT FROM THE FINANCIAL YEA R 2001-02 ONWARDS THE PURCHASES AS WELL AS OUTSTANDING BALANCES FROM GIRN AR FIBERS LTD REDUCED CONSIDERABLY AND THOUGH THE ASSESSEE HAD INTEREST F REE LOAN OUTSTANDING AGAINST M/S GIRNAR FIBERS LTD, IT DID NOT ADJUST TH E PURCHASES AGAINST THE SECURITY DEPOSITS. NO REASON FOR NOT ADJUSTING THE PURCHASES AGAINST THE OUTSTANDING HAS BEEN SUBMITTED BY THE APPELLANT. THE APPELLANT'S CO NTENTION IS THAT A SUIT HAS BEEN FILED FOR RECOVERY OF THE AMOUNT FROM M S GIMA R FIBRES LTD. THIS SUIT HAS APPARENTLY BEEN FILED ONLY IN THE YEAR 2007. THE AS SESSEE CONTINUED TO MAKE PAYMENTS TO M/S GIRNAR FIBRES LTD. EVEN DURING THE FY 2003-04 AGAINST PURCHASES MADE FROM THAT COMPANY WITHOUT ATTEMPTING TO RECOVE R THE INTEREST FREE LOAN THROUGH ADJUSTMENT OF THE PURCHASES. THE APPELLANT HAD ALSO NOT LED ANY 7 EVIDENCE TO SHOW HOW THE FUNDS ADVANCED BY IT TO GI RNAR FIBERS LTD HAD BEEN USED BY THAT COMPANY. THE BALANCE SHEET OF M/S GIRN AR FIBRES LTD. FOR FINANCIAL YEAR 2003-04 SHOWS LOANS AND ADVANCES AMOUNTING TO RS. 2.56 CRORES WHICH INDICATES THAT THE COMPANY HAD ADVANCED FUNDS TO OT HERS ALSO. THE BUSINESS EXPEDIENCY OF SUCH ADVANCES HAS NOT BEEN EXPLAINED. THE ASSESSEE HAS SUBMITTED THAT M/S GIRNAR FIBERS LTD HAD BECOME SIC K AND HAD BEEN REFERRED TO BIFR. IN THIS CONNECTION THE AO'S CONTENTION THAT T HE COMPANY GAVE INTEREST FREE LOAN TO M/S GIRNAR FIBERS LTD KNOWING THAT THE COMP ANY'S FINANCIAL SITUATION WAS NOT GOOD AND WITHOUT ADJUSTING THE PURCHASES AGAINS T THE INTEREST FREE LOAN/DEPOSIT DOES CARRY WEIGHT. THE COMMERCIAL EXPE DIENCY OF INTEREST FREE ADVANCE VIS-A-VIS THE ASSESSEE FIRM APPEARS TO BE R ELEVANT UPTO THE FINANCIAL YEAR 2000-01, BUT FROM THE SUBSEQUENT FINANCIAL YEA RS THE ASSESSEE COMPANY APPEARS TO HAVE LEFT THE MONEY WITH THE COMPANY WIT HOUT ANY GOOD REASON AND WITHOUT UTILIZING THAT MONEY TO PAY FOR THE P URCHASES MADE FOR THAT COMPANY, LD. CIT(A) HELD THAT THEREFORE, OF THE OPI NION THAT THE ASSESSEE HAS NOT ESTABLISHED THE COMMERCIAL EXPEDIENCY IN LETTIN G M/S GIRNAR FIBERS LTD ENJOY THE INTEREST FREE LOAN TO THE EXTENT OF RS. 1.08 CR ORES FROM THE ASSESSEE FIRM. EVEN IF DIRECT NEXUS OF THE INTEREST FREE LOAN GIVEN IS NOT ESTABLISHED WITH THE INTEREST FREE FUNDS, THE APPELLANT IS REQUIRED TO SHOW THAT THE MONEY WAS GIVEN FOR, AND CONTINUED TO BE GIVEN, AS A MEASURE OF COMMERCIAL E XPEDIENCY. UNDER THE CIRCUMSTANCES, LD. CIT(A) UPHOLD THE DISALLOWANCE O F INTEREST MADE AGAINST THE OUTSTANDING INTEREST FREE LOAN IN THE NAME OF M/S G IRNAR FIBERS LTD. HOWEVER, AS POINTED OUT BY THE APPELLANT, THE DISALLOWANCE ON T HIS ACCOUNT IN THE ASSTT. YEARS 2005-06 AND 2007-08 HAS BEEN MADE @ 13.5% BY THE AO. THE DISALLOWANCE @ 21% DOES APPEAR TO BE VERY STEEP AND IS NOT SUPPORTED BY SHOWING THAT THIS WAS THE COST OF THE FUNDS BORROWE D BY THE ASSESSEE. 14. BEFORE US THE ASSESSEE CONTENDED THAT THERE WAS A COMMERCIAL EXPEDIENCY WHEN THE SECURITY WAS GIVEN IN THE AY 19 98-99 AND THE ASSESSEE WAS REGULARLY HAVING PURCHASED FROM THE SAID COMPAN Y PERTAINING TO THE YARN. 15. THE LD. AR HAS ALSO BROUGHT TO OUR NOTICE THAT THE CIT(A) ORDER FOR THE AY 2000-01 WHEREIN THE DISALLOWANCES BY THE ASSESSING OFFICER WERE DELETED. 16. LD. DR RELIED ON THE ORDER OF THE LD. CIT(A) ON THE FACTS OF THE INSTANT CASE IT IS OBSERVED THAT THE CLAIM OF THE INTEREST HAS BEEN ALLOWED IN THE YEAR IN WHICH THE SECURITY WAS GIVEN. 8 17. WE HAVE CAREFULLY CONSID ERED THE FACTS OF THE CASE, THE BASIS OF THE DISALLOWANCE, THE ARGUMENTS OF THE AR AND THE REVEN UE. THE SECURITY DEPOSIT WAS GIVEN DURING THE FINANCIAL YEAR 1997-98. THERE WERE PURCHASES FROM THE FY 1997-98 TO 2000-01, AND BOTH THE PARTIES NAMELY GIR NAR HOSIERY WORKS AND GIRNAR FIBRES LTD. HAD RUNNING ACCOUNT AMONG THEM. THEREAF TER THE ASSESSEE HAS PURCHASED GOODS FOR THE FY 2001-02 ONWARDS TO THE T UNE OF RS. 51.43 LACS IN THE FY 2002-03 TO THE TUNE OF RS. 55.52 LACS AND IN THE FY 2003-04 TO THE TUNE OF RS. 37.27 LACS. WHILE THE BALANCE WITH THE GIRNAR FIBRE S STANDS STOOD AT A CONSTANT FIGURE OF RS. 1,08,26,000/-. THE LD. AR ALSO SUBMIT TED THAT THE ASSESSEE HAS BEEN BENEFITED DUE TO THE PAYMENT OF SECURITY AMOUNT TO THE GIRNAR FIBRES LTD. TO THE TUNE OF RS. 66.87 LACS. HENCE KEEPING IN VIEW THE E NTIRE GAMMUT OF EVENTS THE CASE THAT THE INTEREST FREE SECURITY DEPOSIT WAS GI VEN IN THE YEAR 1997-98 AS A MATTER OF UNDISPUTED BUSINESS EXPEDIENCY, AND KEEPI NG IN VIEW THE FACT THAT THE ASSESSEE HAD REGULAR TRANSACTION WITH M/S. GIRN AR FIBRES LTD. FOR A NUMBER OF YEARS AND BENEFITED IN THE PURCHASES OWING TO THAT SECURITY DEPOSIT, THE NATURE OF SUCH SECURITY DEPOSIT DO NOT CHANGE ITS FORM DUE TO THE CONTINGENCIES OF RISE OR FALL OF THE BUSINESS OF EITHER OF THE PARTIES HE NCE THE AOS CONTENTION OF NON RECEIPT OF THE INTEREST ON ACCOUNT OF THE SECURITY DEPOSIT GIVEN IN EARLIER YEARS AND DISALLOWANCE THEREOF CANNOT BE ACCEPTED. ONCE T HE SECURITY DEPOSIT WAS GIVEN INTEREST FREE ON BUSINESS TERMS THE ASSESSING OFFICER CANNOT COMPEL THE ASSESSEE TO CHARGE INTEREST AT A LATER DATE OR SUBS EQUENT YEARS. HENCE THE DECISION OF THE LD. CIT(A) SUSTAINING THE DISALLOWA NCE OF THE INTEREST BY THE ASSESSING OFFICER CANNOT BE ACCEPTED AND THE DISALL OWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST IS HEREBY DELETED. 18. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED ON 21/09/2017 IN THE OPEN C OURT. SD/- SD/- (SANJAY GARG) (DR. B.R.R. K UMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER AG COPY TO: 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE CIT, 4. THE CIT(A), 5. THE SR. DR