ITO, Ward - 34(4), Kolkata, Kolkata V. Md. Firozuddin, Kolkata

ITA 352/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100068 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 06-03-2012
• Court: TRIBUNAL
• Assessee Lawyers: MANISH TIWARI
• Keywords: Notional interest
• Section: 6

Judgement Text

ITA NO.351/KOL/2012 M/S. S.H.MUMTAZUDDIN A./Y.200 7-08 & 352/KOL/2012-MD.FIROZUDDIN A.Y.2008-09 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B KOL KATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI WAS EEM AHMED, AM ] ITA NO.351/KOL/2012 ASSESSMENT YEAR : 2007-08 I.T.O., WARD-34(4) -VERSUS- M/S.S.H.MUMTAZUDDIN KOLKATA KOLKATA (PAN:AANFS 0982 J) (APPELLANT) (RESPONDENT) ITA NO.352/KOL/2012 ASSESSMENT YEAR : 2008-09 I.T.O., WARD-34(4) -VERSUS- MD.FIROZUDDIN KOLKATA KOLKATA (PAN:AEIPM 6292 C) (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SANJAY MUKHERJEE, JCIT, SR .DR FOR THE RESPONDENT : SHRI MANISH TIWARI, FCA DATE OF HEARING : 16.11.2015. DATE OF PRONOUNCEMENT : 20.11.2015. ORDER PER SHRI N.V.VASUDEVAN, JM : ITA NO.351/K/12 IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 12.12.2011 OF CIT(A)-XX, KOLKATA, RELATING TO AY 20 07-08. THIS APPEAL PERTAINS TO A PARTNERSHIP FIRM M/S.S.H.MUMTAZUDDIN. ITA NO.352/K /12 IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 12.12.2011 OF CIT(A )-XX, KOLKATA RELATING TO AY 2008-09. THIS APPEAL PERTAINS TO AN INDIVIDUAL BY NAME MD.FIROZUDDIN WHO HAD TAKEN OVER THE BUSINESS OF PARTNERSHIP FIRM M/S.H.MUMTAZU DDIN, THE ASSESSEE IN ITA NO.351/K/12. BOTH THESE APPEALS ARISE OUT OF THE S AME FACTS AND CIRCUMSTANCES. WE THEREFORE DEEM IT CONVENIENT TO PASS A COMMON ORDER . ITA NO.351/K/12 : ITA NO.351/KOL/2012 M/S. S.H.MUMTAZUDDIN A./Y.200 7-08 & 352/KOL/2012-MD.FIROZUDDIN A.Y.2008-09 2 2. THE ASSESSEE IN THIS APPEAL IS A PARTNERSHIP FIR M. IT IS ENGAGED IN THE BUSINESS OF TRADING IN WRIST WATCHES, CLOCKS & ACCESSORIES, HOME APPLIANCES AND CONSUMER DURABLES FROM ITS DIFFERENT BRANCHES LOCATED AT KO LKATA. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD DEBI TED IN THE PROFIT AND LOSS ACCOUNT A SUM OF RS.51,92,583/- ON ACCOUNT OF INTEREST PAID TO BANK, LOAN CREDITORS AND PARTNERS OF THE FIRM. HE ALSO NOTICED THAT A SUM O F RS.10,54,000/- HAD BEEN GIVEN AS INTEREST FREE LOAN TO A SISTER CONCERN BY NAME M/S. S.H.MUMTAZUDDIN TIMES PVT.LTD., (HEREINAFTER REFERRED TO AS MTPL). BESIDES THE A FORESAID LOAN A/C IN THE NAME OF MTPL THERE WAS ANOTHER A/C IN THE NAME OF MTPL WHIC H SHOWED AN OPENING DEBIT BALANCE OF RS.1,23,59,250.12 AS ON 1.4.2007 WHICH MEANT THAT THE ASSESSEE HAD TO PAY MTPL A SUM OF RS.1,23,59,250.12. THERE WERE SE VERAL TRANSACTIONS DURING THE PREVIOUS YEAR BETWEEN THE ASSESSEE AND MTPL. AS ON 31.3.2008 MTPL HAD TO PAY THE ASSESSEE A SUM OF RS.1,26,66,579.20. ACCORDING TO THE AO THE BORROWED FUNDS ON WHICH INTEREST OF RS.51,92,583 WAS PAID AND CLAI MED AS DEDUCTION IN THE PROFIT AND LOSS ACCOUNT CAN BE ALLOWED AS DEDUCTION IN COMPUTI NG INCOME FROM BUSINESS U/S.36(1)(III) OF THE INCOME TAX ACT, 1961 (ACT) ON LY IF THE BORROWED FUNDS ARE USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. ACCOR DING TO THE AO GIVING OF ADVANCE/LOAN OF THE BORROWED FUNDS WOULD NOT BE USE OF THE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND THEREFORE D EDUCTION U/S.36(1)(III) OF THE ACT OF INTEREST TO THE EXTENT IT WAS NOT USED FOR THE PURP OSE OF BUSINESS CANNOT BE ALLOWED AS DEDUCTION. 3. ACCORDING TO THE ASSESSEE SCHEDULE 2 OF AUDITED BALANCE SHEET THE POSITION OF SECURED LOANS FROM BANKS WAS AS FOLLOWS 31.03.2007 31.03.2006 HSBC LOAN (HYPOTHECATION OF CREDIT CARD RECEIVABLE) 2,02,27,119/- NIL ITA NO.351/KOL/2012 M/S. S.H.MUMTAZUDDIN A./Y.200 7-08 & 352/KOL/2012-MD.FIROZUDDIN A.Y.2008-09 3 HDFC (CAR LOAN) 82,454/- 1,53,560/- STANDARD CHARTERED BANK (AGAINST STOCK) NIL 2,44,38 1/- UNITED BANK OF INDIA (STOCK & BOOK DEBT) 2,60,87,55 5/- 3,05,14,518/- ICICI BANK (CAR LOAN) 6,11,479/- NIL ICICI BANK (CAR LOAN) 8,59,615/- NIL THERE IS NO SCOPE FOR MAKING ANY ADVANCE TO SISTER CONCERN OUT OF CAR LOANS OBTAINED DURING THE YEAR OR IN EARLIER YEAR. SIMILARLY, LOAN FROM UNITED BANK OF INDIA SHOWING LESSER LIABILITY AS COMPARED TO LAST YEAR CANNOT RE SULT IN DIVERSION OF FUND TO THE SISTER CONCERN. LIKEWISE, LOAN FUND FROM HSBC WAS OBTAINE D DURING THE YEAR AGAINST HYPOTHECATION OF CREDIT CARD RECEIVABLE. SUCH LOAN OBTAINED FOR SPECIFIC PURPOSE CANNOT ALSO DIVERTED TO SISTER CONCERN. WITHOUT PRE JUDICE TO THE ABOVE, IT WAS SUBMITTED THAT ADVANCES WERE GIVEN TO MTPL AGAINST SUPPLY OF GOODS DURING THE YEAR RELEVANT TO ASSESSMENT YEAR 2007-08. THE AGGREGATE ADVANCE WAS ADJUSTED AGAINST PURCHASES OF RS.26,37,948/- DURING THE YEAR. ACCORD INGLY THE BALANCE OF RS.1,23,59,250/13 APPEARS IN THE BALANCE SHEET AS O N 31.03.2007. IT WAS FURTHER SUBMITTED THAT NET ADVANCE TO THE PARTY REMAINING A T RS.1,23,59,250/12 AS AT THE BEGINNING OF THE YEAR WAS ADJUSTED AGAINST PURCHASE S DURING THE PERIOD FROM 01.04.2007 TO 31.03.2008. THERE WERE OTHER ADJUSTME NTS AS WELL. IN THE RESULT THE DEBIT BALANCE AS AT THE BEGINNING WAS CONVERTED TO A CRED IT BALANCE OF RS.1,26,66,579/20 AS ON 31.03.2008. THE LEDGER A/C OF MTPL FOR THE F.Y. 2007-08 WAS PRODUCED IN SUPPORT OF SUCH CLAIM. 4. IT WAS ALSO CONTENDED THAT ASSUMING BUT NOT ADM ITTING THAT TEMPORARY ADVANCEMENT TO SISTER CONCERN MAY BE EQUATED AS LOAN THE PRAC TISE OF GIVING LOAN OR TAKING LOAN AMONG SISTER CONCERNS WITHOUT ANY ELEMENT OF INTERE ST MAY BE SAID TO THE NORMAL AND USUAL PRACTISE CONSIDERING THE BUSINESS EXIGENCIES OF BOTH THE PARTY. ITA NO.351/KOL/2012 M/S. S.H.MUMTAZUDDIN A./Y.200 7-08 & 352/KOL/2012-MD.FIROZUDDIN A.Y.2008-09 4 5. IT WAS SUBMITTED THAT THE ADVERSE INFERENCE REG ARDING GRANT OF INTEREST FREE LOAN OF RS.,10,54,000/- TO MTPL WAS NOT CORRECT. THE INTERE ST ELEMENT IS NEGLIGIBLE SINCE LOAN WAS GIVEN TOWARDS THE CLOSE OF THE FINANCIAL YEAR A S DETAILED BELOW : 17.03.2007 RS.3,00,000/- 19.03.2007 RS.6,00,000/- 21.03.2007 RS.1,54,000/- RS.10,54,000/- 6. THE SUBMISSION OF THE ASSESSEE DID NOT FIND FAVO UR WITH THE AO. THE AO HELD THAT ABOUT 58.48% OF THE BORROWED FUNDS ON WHICH IN TEREST WAS PAID HAD BEEN GIVEN TO THE SISTER CONCERN FREE OF INTEREST IN THE GUISE OF DVANCE FOR TRADE PURPOSES. THE PURCHASES FROM MTPL WAS ONLY TO THE VALUE OF RS.26, 37,948 WHICH CONSTITUTED ONLY 1.56% OF THE TOTAL PURCHASES OF THE ASSESSEE. THE AO HELD THAT THE ASSESSEE WAS GIVING LOANS TO SISTER CONCERN IN THE GUISE OF TRAD E ADVANCE TO AVOID DISALLOWANCE OF INTEREST U/S.36(1)(III) OF THE ACT. 7. THE AO HELD THAT ADVANCE OF RS.1,23,59,250 AND I NTEREST FREE LOAN OF RS.10,54,000 GIVEN TO THE SISTER CONCERN MTPL WERE GIVEN OUT OF THE FUNDS BORROWED BY THE ASSESSEE ON WHICH INTEREST WAS PAID AND CLAI MED AS DEDUCTION U/S.36(1)(III) OF THE ACT. THE AO FURTHER HELD THAT SUCH ADVANCE/LOA N TO SISTER CONCERN CANNOT BE REGARDED AS LOANS OR ADVANCES GIVEN FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE AO ACCORDINGLY WORKED OUT NOTIONAL INTEREST OF 14% ON THE ADVANCES/LOANS GIVEN ABOVE WHICH RESULTED IN DISALLOWANCE OF A SUM OF RS .18,77,855 FROM AND OUT OF THE INTEREST EXPENDITURE OF RS.51,92,583 CLAIMED AS DED UCTION BY THE ASSESSEE. 8. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED TH E ADDITION MADE BY THE AO, OBSERVING AS FOLLOWS: ITA NO.351/KOL/2012 M/S. S.H.MUMTAZUDDIN A./Y.200 7-08 & 352/KOL/2012-MD.FIROZUDDIN A.Y.2008-09 5 6. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT AND PERUSED THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE BALANCE SHEET OF THE R ELEVANT PREVIOUS YEAR AS WELL AS THE COPY OF THE LEDGER ACCOUNT OF THE DEBTOR COMPANY. ON CAREFUL CONSIDERATION OF THE FACTS, I AM OF THE OPINION THAT THE AO WAS NOT CORRECT IN TREATING THE TRADE ADVANCE AS LOAN GIVEN BY THE APPELLANT; AND THEREBY COMPUTING THE N OTIONAL INTEREST ON THAT AMOUNT TO MAKE THE DISALLOWANCE OUT OF THE INTEREST PAID BY T HE APPELLANT TO THE BANKS AND OTHERS. ON PERUSAL OF THE COPY OF THE LEDGER ACCOUNT, THE C ONTENTION OF THE APPELLANT WAS FOUND TO BE CORRECT THAT IT HAS MAINTAINED A CURRENT ACCO UNT IN THE NAME OF M/S. S H MUMTAJUDDIN TIMES (P)LTD; AND THAT, THE TRADE ADVAN CE IS ADJUSTED AGAINST THE PURCHASE OF GOODS. I AM OF THE OPINION THAT THERE IS NO REAS ON TO TREAT THE TRADE ADVANCE AS LOAN; AND CONSEQUENTLY, THERE IS NO REASON TO CALCULATE N OTIONAL INTEREST ON THE SAID TRADE ADVANCE. SIMILARLY, I AM OF THE OPINION THAT NO NOT IONAL INTEREST CAN BE CHARGED ON A TEMPORARY LOAN OF RS.10,54,000/- GIVEN BY THE APPEL LANT TO ITS SISTER CONCERN, AND THAT TOO, AT THE FAG END OF THE FINANCIAL YEAR. THE APPE LLANT WAS HAVING MUCH MORE CAPITAL THAN THE TEMPORARY LOAN ADVANCED BY HIM. IN VIEW OF ABOVE, IT IS TO BE HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF INT EREST TO THE EXTENT OF RS.18,77,855/- AND SAME IS DIRECTED TO BE DELETED. GROUND NO.1 TO 8 IS ALLOWED. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE I S IN APPEAL BEFORE THE TRIBUNAL. ITA NO. 352/K/12 : 9. THE ASSESSEE IN THIS CASE IS AN INDIVIDUAL. HE TOOK OVER THE BUSINESS OF PARTNERSHIP FIRM M/S.S.H.MUMTAZUDDIN, THE ASSESSEE IN ITA NO.351/KOL/12, DURING THE PREVIOUS YEAR RELEVANT TO AY 08-09 I.E., ON AND FROM 17.8.2007. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESS EE HAD DEBITED IN THE PROFIT AND LOSS ACCOUNT A SUM OF RS.45,33,185/- ON ACCOUNT OF INTEREST PAID TO BANK AND OTHERS. THE AO ALSO NOTICED THAT THERE WAS AN ACCOUNT IN TH E NAME OF A SISTER CONCERN BY NAME M/S.S.H.MUMTAZUDDIN TIMES PVT.LTD., (HEREINAFT ER REFERRED TO AS MTPL). THERE WERE SEVERAL TRANSACTIONS DURING THE PREVIOUS YEAR BETWEEN THE ASSESSEE AND MTPL. AS ON 31.3.2008 MTPL HAD TO PAY THE ASSESSEE A SUM OF RS.1,34,14,000. ACCORDING TO THE AO THE BORROWED FUNDS ON WHICH INT EREST OF RS.45,33,185 WAS PAID AND CLAIMED AS DEDUCTION IN THE PROFIT AND LOSS ACC OUNT CAN BE ALLOWED AS DEDUCTION IN COMPUTING INCOME FROM BUSINESS U/S.36(1)(III) OF TH E INCOME TAX ACT, 1961 (ACT) ONLY IF THE BORROWED FUNDS ARE USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. ACCORDING TO THE AO GIVING OF ADVANCE/LOAN OF THE B ORROWED FUNDS WOULD NOT BE USE OF THE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS O F THE ASSESSEE AND THEREFORE ITA NO.351/KOL/2012 M/S. S.H.MUMTAZUDDIN A./Y.200 7-08 & 352/KOL/2012-MD.FIROZUDDIN A.Y.2008-09 6 DEDUCTION U/S.36(1)(III) OF THE ACT OF INTEREST TO THE EXTENT IT WAS NOT USED FOR THE PURPOSE OF BUSINESS CANNOT BE ALLOWED AS DEDUCTION. 10. ACCORDING TO THE ASSESSEE LD. AO HAS FAILED TO APPRECIATE THAT THERE WERE REGULAR BUSINESS TRANSACTIONS BETWEEN THE ASSESSEE AND MTPL. HE HAS ALSO IGNORED THE FACT THAT TOTAL LIABILITY TOWARDS SUNDRY CREDITORS FOR GOODS INCLUDED A SUM OF RS.1,26,66,579/- AS PAYABLE TO MTPL AS ON 31.03.200 8. IF THE LIABILITY FOR GOODS TOWARDS MTPL IS CONSIDERED AGAINST THE ADVANCE APPE ARING IN THE BALANCE SHEET TO THE SAME PARTY THE NET ADVANCE WILL WORK OUT TO RS. 7,47,421/- ONLY. SINCE THE ASSESSEE MAINTAINS A RUNNING ACCOUNT WITH MTPL FOR PURCHASE OF GOODS THE ADVANCEMENT OF RS.7,47,421/- TOWARDS FUTURE SUPPLIES MAY BE HELD A S NORMAL AND REGULAR IN THE INTEREST OF BUSINESS EXIGENCIES. THEREFORE NO ADVER SE INFERENCE FOR DISALLOWANCE OF INTEREST ON NOTIONAL BASIS IS PROPER OR JUSTIFIED. 11. THE SUBMISSION OF THE ASSESSEE DID NOT FIND FA VOUR WITH THE AO. THE AO HELD THAT ABOUT 34.44% OF THE BORROWED FUNDS ON WHICH IN TEREST WAS PAID HAD BEEN GIVEN TO THE SISTER CONCERN FREE OF INTEREST IN THE GUISE OF ADVANCE FOR TRADE PURPOSES. THE AO HELD THAT THE ASSESSEE WAS GIVING LOANS TO SISTER C ONCERN IN THE GUISE OF TRADE ADVANCE TO AVOID DISALLOWANCE OF INTEREST U/S.36(1)(III) OF THE ACT. 12. THE AO HELD THAT ADVANCE GIVEN TO THE SISTER CO NCERN MTPL WERE GIVEN OUT OF THE FUNDS BORROWED BY THE ASSESSEE ON WHICH INTERES T WAS PAID AND CLAIMED AS DEDUCTION U/S.36(1)(III) OF THE ACT. THE AO FURTHE R HELD THAT SUCH ADVANCE/LOAN TO SISTER CONCERN CANNOT BE REGARDED AS LOANS OR ADVAN CES GIVEN FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE AO ACCORDINGLY WORKE D OUT NOTIONAL INTEREST OF 14% ON THE ADVANCES/LOANS GIVEN ABOVE WHICH RESULTED IN DI SALLOWANCE OF A SUM OF RS.15,61,229 FROM AND OUT OF THE INTEREST EXPENDITU RE OF RS.45,33,185 CLAIMED AS DEDUCTION BY THE ASSESSEE. ITA NO.351/KOL/2012 M/S. S.H.MUMTAZUDDIN A./Y.200 7-08 & 352/KOL/2012-MD.FIROZUDDIN A.Y.2008-09 7 13. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED T HE ADDITION MADE BY THE AO, OBSERVING AS FOLLOWS: 6 - I HAVE CONSIDERED THE SUBMISSION OF THE APPEL LANT AND PERUSED THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE BALANCE SHEET O F THE APPELLANT FOR THE RELEVANT PREVIOUS YEAR AS WELL AS THE LEDGER ACCOUNT OF M/S S H MUMTAJUDDIN TIMES (P) LTD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE AO THAT THE APPELLANT HAS PAID SUM OF RS.L,34,14,000/- TO ITS S ISTER CONCERN WHICH WAS REFLECTED IN THE BALANCE SHEET UNDER THE HEAD 'LOANS AND ADVANCE S '; AND, THAT THE APPELLANT HAS NOT CHARGED INTEREST ON SUCH LOAN AND ADVANCE WHEREAS H E HAS PAID INTEREST TO BANK AS WELL AS OTHER LOAN CREDITORS. THE AO WAS OF THE OPINION THAT AS PER THE BALANCE SHEET, THE LOAN GIVEN TO THE SISTER CONCERN WAS RS.L,34,14,000/-; A ND, IF IT IS CONSIDERED THAT THE APPELLANT WAS HAVING INTEREST-FREE LOAN OF RS.L,14, 330/-, THE APPELLANT SHOULD HAVE CHARGED INTEREST ON THE SUM OF RS.L,32,99,670/- FRO M THE SISTER CONCERN. IT IS FURTHER OBSERVED BY THE AO THAT THE PERCENTAGE OF INTEREST FREE LOAN GIVEN TO THE SISTER CONCERN WITH REFERENCE TO THE INTEREST BEARING FUND WAS 34. 44%. HENCE, HE DISALLOWED 34.44% OF INTEREST PAID BY THE APPELLANT WHICH COMES TO RS.15 ,61,229/-. ON THE OTHER HAND, IT IS ARGUED BY THE APPELLANT THAT THE ADVANCE GIVEN TO T HE SISTER CONCERN WAS IN THE NATURE OF TRADE ADVANCE, AND, AS PER THE BALANCE SHEET THE SI STER CONCERN M/S S H MUMTAJUDDIN TIMES (P) LTD WAS APPELLANT'S CREDITOR FOR RS.L,26, 66,579/-. HENCE, THE NET DEBIT BALANCE WAS ONLY RS.7,47,421/- WHICH WAS NOTHING BUT A TRAD E ADVANCE. ON CAREFUL CONSIDERATION OF FACTS AND ON PERUSAL OF THE BALANCE SHEET AND TH E COPY OF LEDGER ACCOUNT OF THE COMPANY, I FIND FORCE IN THE SUBMISSIONS OF THE APP ELLANT. I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN CHARGING THE NOTIONAL INTER EST. ON. THE. LOAN AND ADVANCE GIVEN BY. THE APPELLANT TO M/S. S H.MUMTAJUDDIN TIMES (P) LTD. THE AO HAS CONSIDERED ONLY THE' ASSET SIDE OF THE BALANCE SHEET AND CONCLUDED THAT THE APPELLANT HAS ADVANCED INTEREST-FREE AMOUNT TO THE SISTER CONCERN. BUT, HE DID NOT CONSIDER THE 'LIABILITIES' SIDE OF THE BALANCE SHEET WHEREIN THE SAID SISTER CONCER N WAS CREDITOR FOR RS.L,26,66,579/-. THE AO HAS FAILED TO APPRECIATE THE NATURE OF ACCOU NTS, AND ALSO, TO APPRECIATE THAT THE AMOUNT SHOWN IN THE BALANCE SHEET UNDER THE HEAD 'L OAN AND ADVANCES' WAS, IN FACT, THE TRADE ADVANCE AND ADJUSTABLE AGAINST THE PURCHASE O F GOODS FROM THE SISTER CONCERN. THE NET DEBIT BALANCE AFTER TAKING INTO ACCOUNT BOTH SI DES OF THE BALANCE SHEET WAS ONLY RS.7,47,421/-. ON PERUSAL OF ASSESSMENT ORDER, IT I S OBSERVED THAT IN COURSE OF THE ASSESSMENT PROCEEDINGS, AN EXPLANATION WAS FILED BE FORE THE AO; BUT, HE HAS SUMMARILY REJECTED THE EXPLANATION OF THE APPELLANT WITHOUT A SSIGNING ANY REASONS. THE AO HAS NOT EVEN DISCUSSED IN THE ASSESSMENT ORDER THE' SUBMISS IONS MADE BEFORE HIM AT THE ASSESSMENT STAGE. THE AO HAS BROUGHT NO POSITIVE MA TERIAL ON RECORD TO PROVE THAT THE SUM ADVANCED BY THE APPELLANT TO HIS SISTER CONCERN WAS FOR ANY PURPOSE OTHER THAN THE BUSINESS PURPOSES OR THAT THE APPELLANT HAD DIVERTE D INTEREST-BEARING FUNDS TO THE SISTER CONCERN WITHOUT ANY BUSINESS NEED OR BUSINESS EXPED IENCY. IN VIEW OF THE ABOVE, I AM OF THE CONSIDERED OPINION THAT THE AO WAS NOT JUSTI FIED IN CHARGING NOTIONAL INTEREST ON THE TRADE ADVANCE GIVEN BY THE APPELLANT TO HIS SIS TER CONCERN; AND CONSEQUENTLY, HE WAS NOT CORRECT IN MAKING THE DISALLOWANCE OF INTEREST TO THE EXTENT OF RS.15,61,229/-. THE AO IS DIRECTED TO DELETE THE DISALLOWANCE MADE BY H IM. GROUND NO. 1 TO 6 IS ALLOWED. ITA NO.351/KOL/2012 M/S. S.H.MUMTAZUDDIN A./Y.200 7-08 & 352/KOL/2012-MD.FIROZUDDIN A.Y.2008-09 8 14. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVE NUE IS IN APPEAL BEFORE THE TRIBUNAL. 15. THE COMMON ISSUE FOR BOTH THE AFORESAID APPEALS OF THE REVENUE FOR CONSIDERATION IS AS TO WHETHER THE DISALLOWANCE OF INTEREST EXPENSES U/S.36(1)(III) OF THE ACT MADE BY THE AO WAS RIGHTLY DELETED BY THE C IT(A). THE LEARNED DR PLACED RELIANCE ON THE OBSERVATIONS AND ORDER OF THE AO. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF CIT(A) AND SUBMISSI ONS MADE BEFORE CIT(A). 16. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL CONTENTIONS. WHERE THE BORROWING IS FOR THE PURPOSE OF A BUSINESS, THE INT EREST PAID ON SUCH A BORROWING BECOMES ELIGIBLE FOR DEDUCTION U/S. 36(1)(III) OF T HE ACT. A PERUSAL OF THE LEDGER ACCOUNT OF MTPL AS APPEARING IN THE BOOKS OF THE AS SESSEE M/S.S.H.MUMTAZUDDIN, (ITA NO.351/KOL/12) SHOWS THAT THE ASSESSEE HAS BEE N GIVING ADVANCES TO MTPL AND SUCH ADVANCES WERE ADJUSTED AGAINST SUPPLIES MADE B Y MTPL TO THE ASSESSEE. IT IS NO DOUBT TRUE THAT THE ADVANCES WERE TO THE TUNE OF AB OVE RS.2 CRORES AND THE VALUE OF SUPPLIES BY MTPL TO THE ASSESSEE WAS ONLY TO THE TU NE OF RS.26,37,948 DURING THE PREVIOUS YEAR RELEVANT TO AY 07-08 BUT THE FACT REM AINS THAT THE OUTSTANDING BALANCE AS ON 31.3.2007 WERE SETTLED BY MTPL BY EFFECTING S UPPLIES DURING THE PREVIOUS YEAR RELEVANT TO AY 08-09. IN OTHER WORDS THE OUTSTANDI NG AMOUNT TO THE ASSESSEE WAS SETTLED BY MTPL BY EFFECTING SUPPLIES. THUS THE PL EA OF THE ASSESSEE THAT THE ADVANCES GIVEN TO MTPL WAS FOR SUPPLY OF GOODS AND IN THE ORDINARY COURSE OF BUSINESS STANDS PROVED. THEREFORE THERE CAN BE NO DISALLOWANCE OF INTEREST U/S.36(1)(III) OF THE ACT AS THE BORROWED FUNDS HAD BEEN USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 17. AS FAR AS THE CASE OF MD.FIROZUDDIN IN ITA NO.3 52/KOL/12 IS CONCERNED, THE FACTS SHOW THAT THE ADVANCES GIVEN BY THIS ASSESSEE TO MTPL WAS A SUM OF RS.1,34,14,000 AND THE SUPPLIES EFFECTED BY MTPL TO THE ASSESSEE WAS OF THE VALUE OF RS.1,26,66,579/-. THUS THE OUTSTANDING ADVANCE WAS ONLY TO THE TUNE OF RS.7,47,421/-. ITA NO.351/KOL/2012 M/S. S.H.MUMTAZUDDIN A./Y.200 7-08 & 352/KOL/2012-MD.FIROZUDDIN A.Y.2008-09 9 THE FACTS SHOW THAT THE ADVANCES WERE GIVEN ONLY FO R THE PURPOSE OF BUSINESS OF THE ASSESSEE. THEREFORE THERE CAN BE NO DISALLOWANCE O F INTEREST U/S.36(1)(III) OF THE ACT AS THE BORROWED FUNDS HAD BEEN USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 18. FOR THE REASONS GIVEN ABOVE, WE CONCUR WITH THE ORDER OF THE CIT(A) AND FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF THE CIT(A ). CONSEQUENTLY BOTH THE APPEALS BY THE REVENUE ARE DISMISSED. 19. IN THE RESULT, THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 20.11.2015. SD/- SD/- [ WASEEM AHMED ] [ N.V.VASUDE VAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE:.20.11.2015. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1. S.H.MUMTAZUDDIN, PROP. MD.FIROZUDDIN, 4, RADHA B AZAR STREET, KOLKATA- 700001. MD.FIROZUDDIN, 4, RADHA BAZAR STREET, KOLKATA-70000 1. 3. THE I.T.O., WARD-34(4), KOLKATA 4. THE C.I.T.(A)-XX, KOLKATA 5. THE CI T-XII, KOLKATA 6. C.I.T.(DR), KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES ITA NO.351/KOL/2012 M/S. S.H.MUMTAZUDDIN A./Y.200 7-08 & 352/KOL/2012-MD.FIROZUDDIN A.Y.2008-09 10