DCIT CENT. CIR. - 13, MUMBAI V. M/s. LOTUS INVESTMENTS LTD., MUMBAI

ITA 3612/MUM/2005

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0501 (ITAT-MUMBAI)
• Duration Of Justice: 12 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 02-07-2015
• Assessment Year: 1998-1999
• Appeal Filed On: 13-05-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI PRATAP SINGH
• Assessee Lawyers: STANY SALDANHA
• Keywords: Rule of consistency; Proportionate interest; Additional evidence; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI P K BANSAL, VP & SHRI RAVISH SOOD, JM ITA NO. 3174/MUM/2005 ASSESSMENT YEAR 1998-99 M/S. LOTUS INVESTMENTS LTD., 1, ANUP SUNBEAM CHS, NEW JUHU VERSOVA LINK ROAD, ANDHERI (W) MUMBAI 400 053 PAN AAACL6350M VS. DY. CIT CENTRAL CIRCLE 13, MUMBAI (APPELLANT) (RESPONDENT) ITA NO. 3612/MUM/2005 ASSESSMENT YEAR 1998-99 DY. CIT CENTRAL CIRCLE 13, MUMBAI VS. M/S. LOTUS INVESTMENTS LTD., MUMBAI 400 053 PAN AAACL6350M (APPELLANT) (RESPONDENT) FOR THE ASSESSEE : SHRI STANY SALDANHA FOR THE REVENUE : SHRI SHRI PRATAP SINGH (CIT DR) DATE OF HEARING : 11 .0 5 .2017 DATE OF PRONOUNCEMENT : 30 .05.2017 O R D E R PER P K BANSAL, VICE-PRESIDENT: THESE CROSS APPEALS HAVE BEEN FILED AGAINST THE ORD ER OF THE CIT(A) DATED 28.02.2005, FOR A.Y. 1998-99. THE ASSESSEE H AS TAKEN FOLLOWING GROUNDS OF APPEAL: 1.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) ERRED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTEREST ON THE ADVANCES TO ALBARKA FINANCE HOUSE LTD; NEPTUNE ENT ERPRISES, SIDDHIVINAYAK CREATIONS AND VISHESH FILMS AND THE R EASONS M/S. LOTUS INVESTMENT LTD. 2 ASSIGNED FOR DOING SO ARE WRONG AND CONTRARY TO THE FACTS O THE CASE AND THE PROVISIONS OF THE ACT AND RULES MADE T HEREUNDER. 1.(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN NOT APPRECIATING THAT THE ADVANCES TO THE AFORESAID PAR TIES WERE GIVEN FOR ACQUISITION OF SATELLITE AND OVERSEAS RIGHTS OF FILMS AND SERIALS IN THE NORMAL COURSE OF BUSINESS ACTIVITIES AND HENCE NO INTEREST WAS CHARGEABLE ON THESE ADVANCES IN THE ABSENCE OF ANY AGREEMENT FOR CHARGING THE INTEREST. 2.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND M LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) ERRED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTEREST ON THE ADVANCES OF RS. 1,50,00,000/-- TO LEXICON FINANCE P. LTD, AND THE REASONS ASSIGNED FOR DOING SO ARE WRONG AND CONTRAR Y TO THE FACTS AND THE PROVISIONS OF THE ACT AND RULES MADE THEREU NDER. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN REJECTING THE ADDITIONAL EVIDENCE BEING THE CONFIRM ATION LETTER FROM RELIANCE SILICONES (INDIA) LTD; TO' THE EFFECT THAT THEY HAD BORROWED FUNDS FROM LEXICON FINANCE P. LTD. AGAINST THE GUAR ANTEE AND PLEDGE OF SHARES OF IPCA LABORATORIES LTD. BELONGIN G TO THE APPELLANT AND THE REASONS ASSIGNED BY HIM FOR DOING SO ARE WRONG AND' CONTRARY TO THE PROVISIONS OF THE ACT AND RULE S MADE THEREUNDER. (C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OU GHT TO HAVE ACCEPTED THE CONFIRMATION LETTER FROM RELIANCE SILI CONES (INDIA) LTD; AS THE CONFIRMATION LETTER DOES NOT CONSTITUTE NEW 'ADDITIONAL EVIDENCE' BUT ONLY CLARIFICATORY OR SUPPORTING ONES AND THUS ADMISSIBLE EVEN UNDER RULE 46A(B)/(C) READ WITH SEC TION 250(4)7(5) OF THE ACT, TO ENABLE HIM TO DISPOSE OFF THE APPEAL BASED ON REAL FACTS WHICH COULD HAVE BEEN VERIFIED AT ASSESSMENT STAGE OR REMAND STAGE HAD THE SUMMONS BEEN ISSUED. RELIANCE IS PLACED ON JUDICIAL DECISIONS IN, (I) SMT. PRABHAVATI S. SHAH V. CIT, 231 ITR 1 (BOM. ) (II) SHRI SHANKAR KHANDSARI SUGAR MILLS, 193 ITR 66 9 (KARN.) (III) NEW MANAS TEA ESTATES P. LTD., 73 ITD 157 (GA UHATI) (IV) DWARKA PRASAD, 63 ITD 1 (PATNA T.M.) &(V) NATHASINGH VS. FINANCIAL COMMISSIONER AIR 1976 S.C. M/S. LOTUS INVESTMENT LTD. 3 3.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTERE ST ON THE ADVANCES TO MR. AMITABH BACHCHAN HOLDING THAT THE S AME IS NOT FOR THE PURPOSE OF BUSINESS AND THE REASONS ASSIGNED FO R DOING SO ARE WRONG AND CONTRARY TO THE FACTS AND THE PROVISIONS OF THE ACT AND RULES MADE THEREUNDER. 3.(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN NOT APPRECIATING THAT THE ACCOUNT OF MR. AMITABH BACHCH AN IS A RUNNING ACCOUNT HAVING SOMETIMES CREDIT BALANCE AND SOMETIM ES DEBIT BALANCE WITHOUT ANY STIPULATION OR AGREEMENT AS TO CHARGING OF INTEREST AND HENCE CANNOT BE CONSIDERED FOR DISALLO WANCE OF PROPORTIONATE INTEREST. 4(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTERE ST ON THE ADVANCES TO M/S. EAST WEST TRAVELS & TOURS AND THE REASONS ASSIGNED FOR DOING SO ARE WRONG AND CONTRARY TO THE FACTS AND THE PROVISIONS OF THE ACT AND RULES MADE THEREUNDER. 4.(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN NOT APPRECIATING THAT THE ADVANCE GIVEN TO EAST WEST TR AVELS & TOURS WAS TO GET FACILITY OF GETTING TRAVEL TICKETS FOR T HE BUSINESS PURPOSES AND THERE WAS NO STIPULATION OR AGREEMENT FOR CHARG ING OF INTEREST ON THE ADVANCE. 5.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTERE ST ON THE AMOUNT PAID FOR SHARE APPLICATION/ SUBSCRIPTION. TO GMR GROUP OF COMPANIES HOLDING THAT THE SAME WERE NOT BUSINESS T RANSACTIONS AND THE REASONS ASSIGNED FOR DOING SO ARE WRONG AND CONTRARY TO THE FACTS AND THE PROVISIONS OF THE ACT AND RULES M ADE THEREUNDER. 5.(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN NOT APPRECIATING THAT M/S. LOTUS INVESTMENT LTD. 4 (I) THE ADVANCES WERE GIVEN IN THE NORMAL COU RSE OF BUSINESS ACTIVITY OF INVESTMENTS IN SHARES. (II) CONFIRMATION LETTERS FROM THE CONCERNED CO MPANIES GIVING THE DETAILS OF SHARE APPLICATION MONEY AND REFUNDS OF S HARE APPLICATION MONEY WERE FURNISHED. (III) THE FACT THAT THE PAYMENTS WERE MADE TOWAR DS SUBSCRIPTION FOR SHARES WAS CONFIRMED AND CORROBORATED BY DIRECT OR/EXECUTIVE OF GMR VASAVI GROUP CONFIRMING THE STATEMENT OF MR. ST ANY SALDHANA, DATED 22.10.98, WITH REGARD TO NATURE OF TRANSACTIO N AS WITNESS PRODUCED BY THEM. (IV) NO INTEREST CAN BE CHARGED ON SHARE APPLICA TION MONEY. WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL; 6(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTER EST OF RS. 1,03,54,526/- ON THE ADVANCES TO VARIOUS PARTIES BY REJECTING THE ALTERNATIVE PLEA OF THE APPELLANT THAT IN ABSENCE O F NEXUS, THE UTILIZATION OF BORROWED FUNDS IN INTEREST FREE ADVA NCES (ASSETS) SHOULD BE TREATED AS PROPORTIONATE TO TOTAL ASSETS AND NOT TO THE BORROWED FUNDS AS TAKEN BY THE LEARNED ASSESSING OF FICER AND THE REASONS ASSIGNED FOR REJECTING THE SAME ARE WRONG A ND CONTRARY TO THE PROVISIONS OF THE ACT AND RULES MADE THEREUNDER . 6(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN HOLDING THAT THE ALTERNATE CONTENTIONS OF THE APPELLANT ARE ADDITIONAL EVIDENCES AND IN REJECTING THE SAME WHICH IS WRONG AND CONTRARY TO THE PROVISIONS OF THE INCOME TAX ACT, 1961 AND RULE S MADE THEREUNDER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND /OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. M/S. LOTUS INVESTMENT LTD. 5 THE REVENUE IN ITS APPEAL HAS TAKEN THE FOLLOWING E FFECTIVE GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE TRAN SACTION LEADING TO CAPITAL LOSS OF RS.35,64,00,000/- ON SALE OF SHARES OF M/S. RELIANCE SILICON INDIA LTD. WAS GENUINE AND NOT A COLOURABLE DEVICE AND THUS DELEING THE DISALLOWANCE OF RS.35,64,00,000/- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING DEDUCTION OF PROPORTIONATE AMOUNT OF INTEREST ON AMOUNT ADVANCED TO ANAND EXPO RTS (15 LACS) C.A CORP. (RS.25 LACS), GALAXY EXPOR (25 LACS) AND AMITABH BACHCHAN CORP. LTD. (RS.1,10,50,589/-) FROM THE TOT AL INCOME WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS NOT ABLE TO PRODUCE ANY EVIDENCE EITHER BEFORE THE AO OR THE CI T(A), TO SHOW THE AMOUNTS WERE ADVANCED FOR BUSINESS PURPOSES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCE OF INTEREST OF RS.29,29,709/- WITHOUT APPRECIATING THAT INTEREST B EARING FUNDS WERE ADVANCED TO M/S. RELIANCE SILICON INDIA LTD. A S INTEREST FREE LOANS. 4. THE APPELLANT CRAVES T LEAVE TO ADD, TO AMEND AN D/OR TO ALTER ANY OF THE GROUNDS OF APPEAL, IF NEED BE. 2. GROUND NO.1 IN ASSESSEES APPEAL RELATE TO SUSTE NANCE OF DISALLOWANCE OF PROPORTIONATE INTEREST ON THE ADVANCES MADE BY T HE ASSESSEE TO ALBARKA FINANCE HOUSE LTD., NEPTUNE ENTERPRISES, SIDDHIVINA YAK CREATIONS AND VISHESH FILMS. FACTS RELATING TO THIS GROUND ARE T HAT THE AO NOTED THAT THE ASSESSEE HAD TAKEN HUGE UNSECURED LOANS ON INTEREST AND THE SAME HAVE BEEN ADVANCED TO VARIOUS OTHER CONCERNS AND PARTIES WITHOUT CHARGING ANY INTEREST AND WITHOUT HAVING ANY BUSINESS PURPOSE. THEREFORE, HE ISSUED NOTICE TO THE ASSESSEE. THE ASSESSEE SUBMITTED THA T IT HAS MADE THE M/S. LOTUS INVESTMENT LTD. 6 ADVANCES TO THE FOLLOWING COMPANIES ON ACCOUNT OF A CQUISITION OF THE SATELLITE AND OVERSEAS RIGHTS OF THE FILMS AND SERIALS PRODUC ED BY THEM AND, THEREFORE, NO INTEREST HAVE BEEN CHARGED:- SR.NO. NAME OF THE PARTY AMOUNT (RS.) 1 ANAND EXPORTS 1,50,000 2 ALBARAKA FINANCE HOUSE LTD. 1,545,000 3 C.A. CORPORATION 2,500,000 4 GALAXY EXPORTS 2,500,000 5 NEPTUNE ENTERPRISES 2,500,000 6 SIDDHIVINAYAK CREATIONS 425,000 7 VISHESH FILMS 50,000 11,020,000 HE FURTHER SUBMITTED THAT THE ASSESSEE IS ENGAGED I N THE EXPORTING OF THE FILMS IN EARLIER YEARS. THE ASSESSING OFFICER DID NOT AGREE WITH THE ASSESSEE. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS M ADE INTEREST FREE ADVANCES TO THE FOLLOWING COMPANIES ALSO WITHOUT AN Y BUSINESS PURPOSE. SR. NO. NAME OF THE PARTY AMOUNT (RS.) 1 EAST WEST TRAVELS & TOURS 850,000 2 LEXICON FINANCE (P) LTD. 15,000,000 3 AMITABH BACHCHAN CORPORATION LTD. 11,050,589 4 SHRI AMITABH BACHCHAN 814,459 5 PASHUPATI (P) LTD 12,000,000 6 COSMOS COMMUNICATIONS (P) LTD. 6,000,000 7 AMINEX COMMUNICATION (P) LTD 2,500,000 8 WELFORD A P LTD 7,000,000 9 WONIL TOYS (P) LTD. 1,000,000 10 GAMMON INDIA LTD. 3,060,000 59,275,048 THE ASSESSEE SUBMITTED THAT THE ADVANCES GIVEN TO P ASHUPATI ARTEX (P) LTD., AMINEX COMMUNICATION (P) LTD., WELFORD A P LTD., AN D WONIL TOYS P LTD. WERE FOR ALLOTMENT OF SHARES. THEY ARE NOT PURSUIN G THEIR INVESTMENT AND M/S. LOTUS INVESTMENT LTD. 7 WANTED TO TAKE BACK THEIR MONEY. THEREFORE, THESE ADVANCES ARE PENDING. SINCE THE ADVANCES ARE IN THE NATURE OF INVESTMENT IN SHARES OR APPLICATION FOR ALLOTMENT OF SHARES, THEREFORE, NO INTEREST CAN BE CHARGED. IN RESPECT OF AMITABH BACHCHAN CORPORATION LTD., THE ASSESSEE HAS STATED THAT THIS COMPANY HAD INCURRED HEAVY LOSSES IN A.YS 1996-97 T O 1998-99 AND ULTIMATELY DECLARED SICK BY BIFR. THEREFORE, NO IN TEREST CAN BE CHARGED. IN RESPECT OF ADVANCES GIVEN TO AMITABH BACHCHAN AND E AST WEST TRAVELS, THE ASSESSEE STATED THAT BOTH THE ACCOUNTS WERE CURRENT ACCOUNT WITH THE COMPANY AND, THEREFORE, SOMETIMES THERE IS CREDIT B ALANCE AND SOMETIMES THERE IS A DEBIT BALANCE. HENCE, NO INTEREST WAS C HARGED. THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE HAD DIVERTE D INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES AND, THEREFORE, COMPUTED PROPORTIONATE INTEREST ON THE FUNDS SO DIVERTED AND DISALLOWED THE SAME. HE CALCULATED THE ADVANCES GIVEN TO ALL THESE PARTIES AT ` 6,72,35,048/- AND THE INTEREST PAID AT ` 2,10,05,537/- AND THUS WORKED OUT THE DISALLOWANCE AT ` 1,40,12,034/-. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE C IT(A). 3. BEFORE THE CIT(A), THE ASSESSEE MADE DETAILED SU BMISSIONS AND ALSO MENTIONED THAT SIMILAR TYPE OF DISALLOWANCES WERE M ADE DURING THE A.Y. 1997-98. ULTIMATELY, THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DELETED THE DISALLOWANCES TO ANAND EXPORT S, C A CORPORATION AND GALAXY EXPORTS. HE, FOLLOWING THE ORDER OF HIS PRE DECESSOR FOR A.Y. 1997-98, M/S. LOTUS INVESTMENT LTD. 8 UPHELD THE DISALLOWANCES ON THE ADVANCES TO ALBARKA FINANCE HOUSE LTD., NEPTUNE ENTERPRISES, SIDDHIVINAYAK CREATIONS AND VI SHESH FILMS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS. IN THIS RE GARD, WE HAVE GONE THROUGH THE ORDER OF THIS TRIBUNAL, K BENCH, MUMB AI, IN THE CASE OF ASSESSEE IN ITA NO. 6365/MUM/2003 FOR A.Y. 1997-98. WE HAVE NOTED THAT THE TRIBUNAL VIDE PARA 10 OF ITS ORDER HAD CONFIRMED TH E DISALLOWANCE IN RESPECT OF THE ADVANCES MADE TO ALBARKA FINANCE HOUSE LTD., AND VIDE PARA 11 HAS DELETED THE DISALLOWANCE IN RESPECT OF SIDDHIVINAYA K CREATIONS AND NEPTUNE ENTERPRISES OBSERVING AS UNDER: 10. THE NEXT ADVANCE ON WHICH INTEREST HAS BEEN DI SALLOWED IS RELATING TO M/S. ALBARAKA FINANCE HOUSE LTD. THE A SSESSEE FAILED TO FILE ANY CONFIRMATION FROM THIS PARTY. IT HAS SIMP LY DISCLOSED THE ADDRESS OF THIS CONCERN AND FILED AN AFFIDAVIT POIN TING OUT THAT ADVANCE WAS GIVEN FOR BUSINESS PURPOSES. ON DUE CO NSIDERATION OF THE FINDING OF THE LD. REVENUE AUTHORITIES BELOW WE ARE OF THE VIEW THAT ASSESSEE FAILED TO DISCHARGE THE ONUS PUT UPON IT. IT WAS THE DUTY OF THE ASSESSEE TO DEMONSTRATE THAT ADVANCE WA S GIVEN FOR THE PURPOSE OF THE BUSINESS. IT FAILED TO ESTABLISH TH E NEXUS BETWEEN THE ADVANCE AND THE OBJECT OF THE BUSINESS OUGHT TO HAVE BEEN ACHIEVED BY THE ASSESSEE. THEREFORE, WE CONFIRM TH E DISALLOWANCE OF INTEREST ON THIS ADVANCE. 11. THE NEXT LOANS ADVANCED BY THE ASSESSEE ARE IN RESPECT OF M/S. SIDDHIVINAYAK CREATIONS AND NEPTUNE ENTERPRISE S. IT IS SEEN THAT THESE ARE THE OLD ADVANCES AND IN THE PAST NO DISALLOWANCE OF INTEREST WAS MADE ON THESE ADVANCES. IT SUGGESTS T HAT IN THE PAST DEPARTMENT HAS ACCEPTED THE FACT THAT ADVANCES WERE GIVEN FOR THE PURPOSE OF BUSINESS. AT THE TIME OF HEARING IT WAS ALSO POINTED OUT THAT IN RESPECT OF SIDDHIVINAYAK EVEN IN THE SUBSEQ UENT YEAR NO DISALLOWANCE HAS BEEN MADE. IN VIEW OF THE ABOVE F ACTS WE DELETE THE DISALLOWANCE OF INTEREST IN RESPECT OF THESE AM OUNTS. M/S. LOTUS INVESTMENT LTD. 9 RESPECTFULLY, FOLLOWING THE ORDER OF THIS TRIBUNAL FOR A.Y. 1997-98, WE CONFIRM THE DISALLOWANCE RELATING TO ALBARKA FINANCE HOUSE LTD. AND DELETE THE DISALLOWANCES PERTAINING TO SIDDHIVINAYAK CREATIONS AND NEPTUNE ENTERPRISES. 5. IN RESPECT OF VISHESH FILMS, WE NOTED THAT THIS ADVANCE HAS BEEN MADE DURING THE IMPUGNED ASSESSMENT YEAR AND, THEREFORE, THE DISALLOWANCE AS BEEN MADE BY THE ASSESSING OFFICER FOR THE FIRST TIME DU RING THE IMPUGNED ASSESSMENT YEAR. THE DISALLOWANCE MADE IN RESPECT OF VISHE SH FILMS WAS TO THE TUNE OF ` 50,000/-. 6. THE LEARNED AR BEFORE US VEHEMENTLY CONTENDED THAT THE SAID DISALLOWANCE HAS BEEN MADE FOR THE PURPOSE OF THE B USINESS AND OUT OF INTEREST FREE FUNDS, WHICH THE ASSESSEE WAS HAVING. IN THIS REGARD, COPY OF THE BALANCE SHEET AS ON 31.03.1998 WAS SUBMITTED BEFORE US. FR OM THE COPY OF THE BALANCE SHEET, WE NOTED THAT THE ASSESSEE WAS HAVING SHARE CAPITAL AT ` 16 LACS AND THE RESERVE AND SURPLUS TO THE EXTENT OF ` 6,20,43,847/- AND WAS HAVING UNSECURED LOANS TO THE EXTENT OF ` 11,08,82,521/-, WHILE THE INVESTMENT IN CURRENT ASS ETS WERE AT ` 15,92,45,205/-. SINCE THE INVESTMENT IN THE NET CU RRENT ASSETS ARE MUCH MORE THAN THE UNSECURED LOANS, THEN THE NATURA L INFERENCE WILL BE THAT THE ASSESSEE HAD MADE ADVANCE TO VISHESH FILMS OUT OF N ON-INTEREST BEARING FUNDS. WE, THEREFORE, DELETE THE DISALLOWANCE MADE IN RESP ECT OF INTEREST ON THE ADVANCES MADE TO VISHESH FILMS. THUS, GROUND NO.1 TAKEN BY THE ASSESSEE IS PARTLY ALLOWED. M/S. LOTUS INVESTMENT LTD. 10 7. GROUND NO.2 RELATES TO DISALLOWANCE OF INTEREST ON THE ADVANCES AMOUNTING TO ` 1,50,00,000/- MADE TO LEXICON FINANCE P. LTD. GROUN D NO.3 RELATES TO SUSTENANCE OF DISALLOWANCE OF PROPORTION ATE INTEREST ON ADVANCES TO MR. AMITABH BACHCHAN AND GROUND NO.5 RELATES TO SUSTENANCE OF DISALLOWANCE OF PROPORTIONATE INTEREST ON THE AMOUN T PAID FOR SHARE APPLICATION/SUBSCRIPTION TO GMR GROUP OF COMPANIES. 8. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE H AS ADVANCED A SUM OF ` 1,50,00,000/- TO LEXICON FINANCE P. LTD, ` 8,14,459/- TO MR. AMITABH BACHCHAN AND ` 30,60,000/- TO GAMMON INDIA LTD. THE ASSESSING OFF ICER WAS OF THE VIEW THAT THE ASSESSEE HAS ADVANCED BORROWED CAPITAL TO THESE PARTIES AND NOT FOR THE PURPOSE OF BUSINESS. THEREFORE, HE DISALLOWED PROPORTIONATE INTEREST. WHEN THE MATTER WENT BEFORE THE CIT(A), HE CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 9. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING TH ROUGH THE ORDER OF THE TAX AUTHORITIES BELOW, WE NOTED SO FAR AS THE DISAL LOWANCE OF INTEREST ON THE ADVANCES GIVEN TO LEXICON FINANCE (P) LTD. IS CONCE RNED, THE SAID DISALLOWANCE WAS ALSO MADE BY THE CIT(A) IN THE PRE CEDING ASSESSMENT YEAR I.E 1997-98 AND WHEN THE MATTER CAME BEFORE THIS TR IBUNAL, VIDE ITS ORDER DATED 16.03.2007, IN ITA NO.6365/MUM/2003 AND ITA N OS. 6497/MUM/2003 IN THE CASE OF THE ASSESSEE ITSELF HELD AS UNDER: AFTER GOING THROUGH THE ORDER OF A.O. AS WELL AS O F LD. CIT(A) WE ARE OF THE VIEW THAT THE FACTS ARE NOT QUITE CLEAR WHETHER ADVANCES WERE GIVEN FOR THE BUSINESS PURPOSES OR NOT, THEREF ORE, WE SET M/S. LOTUS INVESTMENT LTD. 11 ASIDE THIS ISSUE TO THE FILE OF A.O. FOR RE ADJUDIC ATION IN ACCORDANCE WITH THE LATEST DECISION OF HONBLE SUPREME COURT R EPORTED IN 288 ITR PG.1 RENDERED IN THE CASE OF S A BUILDERS VS. C IT. THE LEARNED AR BEFORE US EVEN THOUGH TRIED TO DISTI NGUISH THE FACT THAT IN A.Y. 1997-98, THE CIT(A) CONFIRMED THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SHOW THA T LEXICON FINANCE (P) LTD., WAS INDEED GOING TO INITIATE LIQUIDATION PROC EEDINGS AGAINST RSIL. IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAS FILED CO NFIRMATION FROM RSIL DATED 23.11.2004 THAT THEY HAD BORROWED A SUM OF ` 1,50,00,000/- AGAINST THE GUARANTEE OF THE ASSESSEE AND PLEDGE OF SHARES OF IPCA LABORATORIES HELD BY THE ASSESSEE. THE ASSESSEE COMPANY HAD TO RELEA SE THE SHARES OF IPCA LABORATORIES WHICH WERE PLEDGED AND TO AVOID THE LO SS, WHICH COULD HAVE BEEN CAUSED DUE TO SALE OF THOSE SHARES BY LEXICON FINANCE LIMITED TO RECOVER THE MONEY. ON THIS BASIS, IT WAS CONTENDED THAT ADVANCE WAS GIVEN BY THE ASSESSEE TO LEXICON FINANCE LIMITED FOR THE PURPOSE OF BUSINESS BUT SINCE IN THE PRECEDING ASSESSMENT YEAR THIS ISSUE H AS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION I N ACCORDANCE WITH THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S. A.BUILDERS (SUPRA), WE THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THI S ISSUE WITH THE DIRECTION THAT THE ASSESSING OFFICER SHALL VERIFY THE CONFIRM ATION SUBMITTED BY THE ASSESSEE FROM RSIL AND IN CASE THE ASSESSING OFFICE R IS SATISFIED WITH THE CONFIRMATION FILED BY THE ASSESSEE AS GENUINE, THE ADDITION SO MADE BE DELETED. M/S. LOTUS INVESTMENT LTD. 12 THUS, GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPO SES. 10. NOW COMING TO THE DISALLOWANCE OF THE PROPORTI ONATE INTEREST IN RESPECT OF THE AMOUNT ADVANCED TO MR. AMITABH BACHCHAN AMOU NTING TO ` 8,14,459/-. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING THROU GH THE ORDERS OF THE TAX AUTHORITIES BELOW, WITH SIMILAR DISALLOWANCES MADE IN A.Y. 1997-98 WAS DELETED BY THE CIT(A) AND WHEN THE MATTER CAME BEFO RE THIS TRIBUNAL IN ITA NO. 6497/MUM/203 FOR A.Y. 1997-98, THIS TRIBUNAL VI DE ITS ORDER DATED 16.03.2007, DELETED THE SAID DISALLOWANCE AS PER TH E OBSERVATION GIVEN IN PARA 7 THEREIN. THE LEARNED DR HAVE THOUGH VEHEMEN TLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER COULD NOT ADDRESS AN Y COGENT MATERIAL OR EVIDENCE BEFORE US WHICH MAY COMPEL US TO TAKE A VI EW DIFFERENT FROM THE ONE, WHICH HAS BEEN TAKEN BY THIS TRIBUNAL. WE, TH EREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THIS TRIBUNAL FOR A.Y. 1997- 98 DELETE THE PROPORTIONATE DISALLOWANCE OUT OF THE INTEREST IN RESPECT OF THE MONEY ADVANCED BY THE ASSESSEE COMPANY TO MR. AMITABH BACHCHAN AMOUNTING TO ` 8,14,459/-. THUS, GROUND NO.3 TAKEN BY THE ASSESSEE IS ALLOWED. 11. GROUND NO.4, WHICH RELATE TO THE PROPORTIONATE DISALLOWANCE OF ` .8,50,000/- IN RESPECT OF DISALLOWANCE MADE TO EAST WEST TRAVELS AND TOURS STANDS DISMISSED AS NOT PRESSED. 12. THE NEXT ISSUE TAKEN IN GROUND NO.5 RELATE TO T HE PROPORTIONATE DISALLOWANCE OF INTEREST ON THE SUM OF ` 30,60,000/- GIVEN TO GAMMON INDIA M/S. LOTUS INVESTMENT LTD. 13 LTD. THE FACTS RELATING TO THE DISALLOWANCE ARE TH AT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE ADVANCES TO GAMMON INDIA LTD. AND THE BALANCES OUTSTANDING WAS ` .30,60,000/-. HE WAS OF THE VIEW THAT THE BORROWED FUNDS HAVE BEEN ADVANCED AND, THEREFORE, D ISALLOWED PROPORTIONATE INTEREST ON THE AMOUNT ADVANCED TO GAMMON INDIA LTD . THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT UPTO 30 .03.1998, ASSESSEE COMPANY WAS EARNING CREDIT BALANCE OF GAMMON INDIA. HOWEVER, ON 31.03.1998, ASSESSEE COMPANY HAS GIVEN A CHEQUE OF ` .50,00,000/- TO GAMMON INDIA AND THEREFORE THE BALANCE AGAINST GAMM ON INDIA HAS BECOME DEBIT. THE AMOUNT WAS GIVEN ON THE LAST DAY OF THE ACCOUNTING YEAR THEREFORE NO INTEREST HAS BEEN CHARGED. THE ASSESS ING OFFICER DID NOT AGREE. IN THE ABSENCE OF ANY EVIDENCE BEING FILED, HE WAS OF THE VIEW THAT THE AMOUNT WAS GIVEN IN THE YEAR 1995-96 AND THE SAME I S STILL PENDING AND, THEREFORE, MADE PROPORTIONATE DISALLOWANCE OF INTER EST IN RESPECT OF AMOUNT ADVANCED TO GAMMON INDIA LTD. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). 13. THE ASSESSEE CONTENDED BEFORE THE CIT(A) THAT T HE ASSESSING OFFICER DID NOT MAKE ANY INDEPENDENT INQUIRIES BEFORE MAKIN G THE DISALLOWANCES. DURING THE COURSE OF HEARING BEFORE THE CIT(A) PAPE R BOOKS CONTAINING CONFIRMATION LETTERS FROM GMR /VARIOUS GROUP COMPAN IES WAS FILED, WHICH WERE SEND TO THE LEARNED ASSESSING OFFICER FOR REMA ND REPORT. THE ASSESSING OFFICER HAS SENT A REMAND REPORT BASED ON THE ORIGI NAL ASSESSMENT. HE HAS M/S. LOTUS INVESTMENT LTD. 14 NOT MADE ANY FURTHER INQUIRIES. ON THE BASIS OF TH E CONFIRMATION LETTER UNDER THE PRETEXT OF RULE 46 RETAINED THE SAME AS ADDITIO NAL EVIDENCE. THE ASSESSEE HAS TAKEN A PLEA ON THE BASIS OF REMAND PR OCEEDINGS REPRODUCED AT PAGES 225 TO 239 OF THE PAPER-BOOK. AT PAGES 235 T O 237 SUBMITTED BEFORE THE CIT(A), IT HAS BEEN MENTIONED THAT THE PAYMENT WAS MADE TO GMR/VASAVI GROUP TOWARDS ALLOTMENT OF SHARES AND TH IS THING HAS BEEN CONFIRMED FROM THE STATEMENT OF MR. STANY SALDHANA DATED 22.10.1998 WITH REGARD TO THE NATURE OF TRANSACTIONS. THE ASSESSEE HAS ALSO PRODUCED COPIES OF THE LETTERS WRITTEN BY GMR/VASAVI GROUP COMPANIE S WHILE REFUNDING SHARE APPLICATION MONEY AS WELL AS COPIES OF LETTER FROM GMS/VASAVI GROUP. THE CIT(A) CONFIRMED THE DISALLOWANCE. 14. BEFORE US, THE LEARNED AR REITERATED THE SUBMIS SIONS MADE BEFORE THE CIT(A) AS WELL AS ADDITIONAL EVIDENCES SUBMITTED B EFORE THE CIT(A) AND ON THAT BASIS HE CONTENDED THAT THE PAYMENTS WERE MADE TOWARDS ALLOTMENT OF SHARES. THIS FACT HAS BEEN CONFIRMED BY DIRECTOR/E XECUTIVE OF GMR/VASAVI GROUP CONFIRMING THE STATEMENT OF MR. STANY SALDANH A DATED 22.10.1998, WITH REGARD TO THE NATURE OF TRANSACTIONS, AS WITNE SS PRODUCED BY THEM. OUR ATTENTION WAS ALSO DRAWN TOWARDS COPIES OF LETTERS WRITTEN BY GMR/VASAVI GROUP COMPANIES ON THE BASIS OF WHICH, IT WAS SUBMI TTED THAT THE CIT(A) THAT THE CIT(A) MUST HAVE DECIDED THE MATTER. ALTERNATI VELY, COPIES OF BALANCE SHEET AS ON 31.03.1997 AND 31.03.1998 WERE ALSO SUB MITTED TO SHOW THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS. BORROWED FUNDS WERE ONLY M/S. LOTUS INVESTMENT LTD. 15 ` 11,08,82,521/- AGAINST WHICH INVESTMENT IN NET CUR RENT ASSETS WERE TO THE EXTENT OF ` 15,92,45,205/-. THERE WAS NO SECURED LOAN OUTSTAN DING DURING THE IMPUGNED ASSESSMENT YEAR. SINCE THE MONEY HAS BEEN GIVEN OUT OF INTEREST FREE FUNDS BELONGING TO THE ASSESSEE AND N O BORROWED FUNDS WERE UTILIZED , THEREFORE, THE QUESTION OF DISALLOWANCE OF INTEREST INCURRED U/S. 36(1)(III) DOES NOT ARISE. THE ASSESSEE HAS WITHDR AWN HIS APPLICATION FOR ALLOTMENT OF SHARES AND, THEREFORE, THE ASSESSEE WA S NOT ENTITLED FOR ANY INTEREST ON THE AMOUNT REFUNDABLE TO HIM BY GAMMON INDIA LTD. TOWARDS SHARE APPLICATION. 15. THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E ORDER OF THE ASSESSING OFFICER. 16. WE NOTED FROM THE COPIES OF BALANCE SHEET AS ON 31.03.1997 & 31.03.1998 THAT, THE ASSESSEE WAS HAVING SECURED LO AN TO THE EXTENT OF ` 5,50,00,000/- AS ON 31.03.1997 AND UNSECURED LOAN W AS ` 36,18,77,480/- WHEREAS UNSECURED LOAN AS ON 31.03.98 WAS ` 11,08,82,521/- AND SECURED LOAN WAS REDUCED TO NIL. THIS CLEARLY PROVES THAT DURING THE IMPUGNED ASSESSMENT YEAR THERE WAS REDUCTION IN SECURED LOAN AS WELL AS UNSECURED LOAN AND CORRESPONDINGLY THERE WAS ALSO REDUCTION I N THE INVESTMENT MADE BY THE ASSESSEE. THE INVESTMENT SHOWN BY THE ASSESSEE WERE ` 24,37,89,434/- AS ON 31.03.1997, WHICH WAS REDUCED TO ` 1,45,31,671/- AS ON 31.03.1998. SIMILARLY, THE NET CURRENT ASSETS OF THE ASSESSEE H AD INCREASED FROM ` 14,61,14,497/ AS ON 31.03.1997- TO ` 15,92,45,205/- AS ON 31.03.1998. IN M/S. LOTUS INVESTMENT LTD. 16 THIS VIEW OF THE FACT, WE DO AGREE WITH THE ALTERNA TIVE PLEA OF THE ASSESSEE THAT IT IS NOT A CASE WHERE IT CAN BE SAID THAT THE BORROWED FUNDS HAD BEEN UTILIZED BY THE ASSESSEE FOR MAKING THE PAYMENT TO GMR GROUP OF COMPANIES. NO COGENT MATERIAL OR EVIDENCE HAS BEEN FURNISHED B EFORE US BY THE LEARNED DR, WHO VEHEMENTLY RELIED ON THE ORDER OF THE ASSES SING OFFICER, WHICH MAY PROVE THAT THE ASSESSEE HAS BORROWED FUNDS DURING T HE IMPUGNED ASSESSMENT YEAR AND USED THE SAME FOR MAKING THE PAYMENTS TO G MR GROUP. WE, THEREFORE, ON THIS BASIS ITSELF SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THE ADDITION MADE BY DISALLOWING THE PROPORTIONATE INTE REST ON THE MONEY ADVANCED TO GMR GROUP OF COMPANIES. THUS, GROUND NO.5 TAKEN BY THE ASSESSEE IS DISALLO WED. 17. GROUND NO.6 AS AGREED BY THE LEARNED AR PERTAIN S TO SUSTENANCE OF TOTAL PROPORTIONATE INTEREST ON ALL THE LOANS AND A DVANCES FOR WHICH THE ASSESSEE HAS TAKEN SEPARATE GROUND NOS. 1,2, 3, 4, & 5. THEREFORE, THIS GROUND IS MERELY A CONSOLIDATION OF ALL THE GROUNDS AND, DOES NOT REQUIRE ANY ADJUDICATION AND IS DISMISSED AS SUCH. 18. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. 19. NOW COMING TO THE APPEAL OF THE REVENUE IN ITA NO. 3612/MUM/2005. GROUND NO. 1 RELATES TO THE FINDING OF THE CIT(A) I N RESPECT OF CAPITAL LOSS OF ` 35,64,00,000/- ON THE SALE OF SHARES TO M/S. RELIAN CE SILICON INDIA LTD. AS M/S. LOTUS INVESTMENT LTD. 17 GENUINE. THE FACTS RELATING TO THIS GROUND ARE THA T DURING THE IMPUGNED ASSESSMENT YEA, THE ASSESSEE COMPANY HAS SOLD EQUIT Y SHARES OF IPCA LABORATORIES FOR ` 45,02,27,500/- ALONG WITH 15,000 SHARES OF MAKER LABORATORIES LTD. FOR ` 1,50,000/- THE ASSESSEE INCURRED A LOSS OF ` 4,80,000/- ON THE SALE OF SHARES OF MAKER LABORATO RIES LTD. WHILE IT EARNED CAPITAL GAIN SALE OF SHARES OF IPCA LABORATORIES LI MITED AT ` 44,87,83,835/-. THE ASSESSING OFFICER WAS OF THE OPINION THAT TO SE T OFF THE CAPITAL GAIN ARISING OUT OF THE SALE OF IPCA LABORATORIES LIMITE D, THE ASSESSEE HAS DEVISED A SCHEME THEREBY IT HAS SHOWN INVESTMENT OF RELIANC E SILICON IN 1996 AND HAS GOT ALLOTTED 36 LAKH SHARES OF RELIANCE SILICON IN AUGUST 1996. THE ASSESSEE HAD GIVEN A LOAN OF ` 21,60,00,000/- TO RELIANCE SILICON IN EARLIER YEARS ON INTEREST. THIS LOAN WAS CONVERTED INTO SH ARE ALLOTMENT MONEY FOR ALLOTMENT OF 36 LAKH SHARES. THE ASSESSEE HAS SUBS EQUENTLY PAID A SUM OF ` 14,40,00,000/- ON 30.09.1997 AS BALANCE SHARE APPLI CATION MONEY. AFTER ALLOCATION OF SHARES, THE ASSESSEE CLAIMED THESE SH ARES WERE SOLD TO MANASVI INVESTMENT (P) LTD., AT THE RATE OF ` 1 PER SHARE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE TRANSACTION ENTERED INTO BY TH E ASSESSEE WAS NOT A GENUINE TRANSACTION. THE WHOLE EXERCISE WAS DONE W ITH AN INTENTION TO AVOID TAX ON THE CAPITAL GAIN IN RESPECT OF THE ORIGINAL TRANSACTION OF SALE OF SHARES OF IPCA LABORATORIES LIMITED HELD BY THE ASSESSEE. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) DELETED THE S AID ADDITION. M/S. LOTUS INVESTMENT LTD. 18 20. BEFORE US, THE LEARNED DR RELIED ON THE ORDER O F THE ASSESSING OFFICER WHILE THE LEARNED AR RELIED ON THE ORDER OF THE CIT (A). THE LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY CONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW. WE NOTED THAT THE CIT(A) ON THIS ISSUE HAS PASSED A VERY EXHAUSTIVE AND DETA ILED ORDER BY GIVING HIS FINDING FROM PAGES 51 TO 62. THE RELEVANT FINDINGS OF THE CIT(A) ARE REPRODUCED AS UNDER: I HAVE GONE THROUGH -THE SUBMISSIONS MADE BY THE AU THORISED REPRESENTATIVE OF THE APPELLANT VIDE PARA (XI)(C) O F LETTER DATED 20.12.2004 FOR ADMISSION OF THE ADDITIONAL EVIDENCE S SUBMITTED DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE M Y PREDECESSORS IN OFFICE AS WELL AS BEFORE ME. THE FOLLOWING DOC UMENTS WHICH WERE SUBMITTED BY THE APPELLANT AS ADDITIONAL EVIDE NCES TO MY PREDECESSOR CIT(A) IN OFFICE AND THE ASSESSING OFFI CER AND WERE ADMITTED TO BE FILED AS ADDITIONAL EVIDENCES BY MY PREDECESSOR IN VIEW OF THE FACT THAT MY PREDECESSOR HAS ALREADY PR OVIDED OPPORTUNITY TO THE ASSESSING OFFICER AS PER SECTION 250(4) OF THE INCOME TAX ACT, 1961 AND RULE 46A OF THE INCOME TAX RULES, 1962. HENCE, THE SAME ARE ACCORDINGLY TREATED AS AD MITTED AS THE A.Q. HAS ALSO CONSIDERED AND PERUSED THE SAME. AS REGARDS THE ADDITIONAL EVIDENCES IN THE FORM OF :- (A) CERTIFICATE DATED 23.11.2004 FROM RELIANCE SI LICONES (INDIA) LTD. (RSIL) REGARDING THE AMOUNT ADJUSTED TOWARDS T HE ALLOTMENT OF SHARES AND CALL MONEY AND (B) CONFIRMATION LETTER DATED 23.11.2004 FROM RSI L THAT THE LOAN FROM LEXICON FINANCE LTD. WAS AGAINST PLEDGE OF SHA RES OF IPCA LABORATORIES LTD., THE REQUEST FOR ADMISSION THEREO F AS ADDITIONAL EVIDENCE IS REJECTED AS THE SAME DOES NOT FALL IN T HE CIRCUMSTANCES SPECIFIED IN RULE 46A. THE APPELLANT HAD SUFFICIENT OPPORTUNITY TO ADDUCE THE EVIDENCES RELEVANT TO ANY OF THEIR SUBMI SSIONS BEFORE THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT PR OCEEDINGS AS WELL AS IN THE REMAND PROCEEDINGS CARRIED OUT BY THE A.O . IN RESPONSE TO THE LETTER DATED 29.10.2003 OF MY PREDECESSOR IN OF FICE. THESE M/S. LOTUS INVESTMENT LTD. 19 COULD HAVE BEEN ALSO PRODUCED BEFORE MY PREDECESSOR -IN-OFFICE WHEN HE WAS REQUESTED TO ADMIT OTHER ADDITIONAL EVI DENCES. HAVING FAILED TO PRODUCE AND ADDUCE ANY EVIDENCE WHEN SUFF ICIENT OPPORTUNITY WAS AVAILABLE, THE SAME CANNOT BE ADMIT TED AT THIS LATE STAGE. EVEN IN THE DECISION OF BOMBAY HIGH COURT IN THE CA SE OF SMT. PRABHAVATI S. SHAH V. CIT 231 ITR 1, IT HAS BEEN HE LD AT PAGE 7 THAT 'ON A PLAIN READING OF RULE 46A, IT IS THE RIG HT OF THE APPELLANT TO PRODUCE BEFORE THE' APPELLATE ASSISTANT COMMISSI ONER ANY EVIDENCE, WHETHER ORAL OR DOCUMENTARY, OTHER THAN T HE EVIDENCE PRODUCE BY HIM DURING THE COURSE OF THE PROCEEDINGS BEFORE THE INCOME-TAX OFFICER, EXCEPT IN THE CIRCUMSTANCES SET OUT THEREIN.' THUS, THE CASE OF THE APPELLANT DOES NOT FALL IN AN Y OF THE CIRCUMSTANCES SPECIFIED IN RULE 46A AND HENCE I REJ ECT THE ADMISSION OF ADDITIONAL EVIDENCES SOUGHT TO BE PROD UCED AT (A) & (B) ABOVE BEFORE ME AFTER THE AFORESAID REMAND PROC EEDINGS I HAVE GONE THROUGH THE FACTS WITH REGARD TO ACQUIS ITION AND SALE OF SHARES OF RELIANCE SILICONES (INDIA) LTD. (RISL) AL ONG WITH THE OBSERVATIONS MADE BY THE ASSESSING OFFICER AND THE ARGUMENTS OF THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT IN D EFENCE OF ALLOWABILITY OF LONG TERM CAPITAL LOSS OF RS.35,64, 00,000/- ON SALE OF SHARES OF RELIANCE SILICONES (INDIA) LTD. I HAVE AL SO NOTICED THAT MY PREDECESSOR IN OFFICE HAD WRITTEN A LETTER DATED 8 TH APRIL, 2003 TO THE ASSESSING OFFICER WHEREIN HE DESIRED THE ASSESS ING OFFICER TO MAKE FURTHER ENQUIRIES AND ON PERUSAL OF THE DOCUME NTS AVAILABLE ON RECORD AND KEEPING IN VIEW THE FACTS AND CIRCUMS TANCES ENUMERATED BY HIM IN THE ASSESSMENT ORDER WITH REGA RD TO DISALLOWANCE OF LONG TERM CAPITAL LOSS ON SALE OF S HARES OF RSIL SHOWN BY THE APPELLANT AND ALSO TO COMMENT ON THE A LLEGED MISLEADING STATEMENTS POINTED OUT BY AUTHORISED REP RESENTATIVE (AR) OF THE APPELLANT. THE DCIT, CENTRAL CIRCLE - 1 3 DID NOT CONDUCT FURTHER ENQUIRIES AS HAS BEEN BROUGHT TO MY NOTICE IN THE SUBMISSION MADE BY THE APPELLANT'S AUTHORISED REPRE SENTATIVE . THE AO HIMSELF HAS STATED IN HIS REPORT, THE FOLLOW INGS:- 'THE FACTUAL POSITION ON THE BASIS OF ADDITIONAL EV IDENCE FURNISHED BY THE ASSESSES IS AS UNDER: M/S. LOTUS INVESTMENT LTD. 20 1) FROM THE CASE RECORDS, IT IS NOT CLEAR WHETHER - I) THE ASSESSES HAD PURCHASED MANASVI INVESTME NTS P.LTD. II) SHRI AMITABH BACHCHAN HAD REMITTED RS.31,55 ,100 TO MANASVI INVESTMENTS P.LTD. THE BANK STATEMENT OF MANASVI SH OWS THE ENTRY OF RS.31,55,100 ON 6.4.98 WITH REFERENCE NUMBER FTT I9802 BUT NO OTHER-DETAILS HAVE BEEN MENTIONED III) THE ASSESSEE COMPANY PAID RS.14,40,00,000/- ON 30.6.97 FOR GETTING THE SHARES OF RELIANCE SILICON LTD. ALLOTTE D WHEREAS THE LOANS PAID EARLIER HAD BEEN TRANSFERRED BY WAY OF J OURNAL ENTRY. FURTHER, SHARE OF IPCA WERE SOLD BUT THE CONSIDERAT ION WAS NOT RECEIVED BY THE ASSESSEE AND THE SAME WAS SHOWN AS RECEIVABLE. SIMILARLY, THE SHARES OF RELIANCE SILICON WERE SOLD TO M/S MANASVI INVESTMENT P.LTD BUT THE FULL CONSIDERATION WAS REC EIVED ONLY IN THE SUBSEQUENT FINANCIAL YEAR. 2) THE STATEMENT OF DIRECTORS WAS RECORDED BY T HE AO ON 21.3.2001 AS PER THE ORDER SHEET ENTRY OF THE SAME DATE AND THE POSITION IS THE SAME AS STATED IN YOUR ABOVE MENTIO NED LETTER. 3) I AM FORWARDING TO YOU THE CASE RECORDS FOR Y OUR READY REFERENCE. YOU ARE ALSO REQUESTED TO KINDLY CALL TH E CONCERNED AO WHO HAD PASSED THE ASSESSMENT ORDER TO THROW LIGHT ON THE ISSUES WHICH ARE NOT APPARENT FROM THE RECORDS, IF SUCH A NEED IS FELT'. ON THE FACE OF THE ABOVE COMMENTS MADE BY THE AO, I T IS SEEN THAT THE A.O. HAS NOT BEEN ABLE TO CONTROVERT THE SUBMIS SIONS OF THE APPELLANT DATED 20.12.2002 AND 31.03.2003 AND HE DI D NOT MAKE FURTHER ENQUIRIES FOR WHICH HE WAS GIVEN OPPORTUNIT Y BY MY PREDECESSOR CIT(A) IN OFFICE VIDE HIS LETTER DATED 08.04.2003. ONLY BY STATING THAT IT IS NOT CLEAR WHETHER MANASVI INV ESTMENTS P. LTD WAS PURCHASED BY THE APPELLANT OR WHETHER AMITABH B ACHCHAN HAD REMITTED RS.31,55,100/-- TO MANASVI INVESTMENTS P. LTD., IT CANNOT BE CONCLUDED THAT THE TRANSACTION OF SALE OF SHARES OF RSIL TO MANASVI INVESTMENT (P) LTD. WAS BOGUS OR COLOURABLE DEVICE ON WHICH CONCLUSION IS DRAWN. THE FACT REMAINS UNCONTR OVERTED BY THE A.O. THAT MANASVI INVESTMENTS P. LTD. WAS NOT PURCH ASED BY THE APPELLANT COMPANY AND THAT THE INVESTMENT IN MANASV I INVESTMENT P. LTD. WAS MADE BY THE RSIL EMPLOYEES WELFARE TRUS T AND NOT BY THE APPELLANT COMPANY THAT THE CONSIDERATION FOR SA LE OF SHARES OF RSIL WAS RECEIVED BY THE APPELLANT FROM MANASVI INV ESTMENT (P) LTD.. THAT THE SAME IS ACCOUNTED FOR BY THE APPELLA NT AND THAT MANASVI INVESTMENT (P) LTD. IS STILL HOLDING THE SH ARES OF RSIL AS M/S. LOTUS INVESTMENT LTD. 21 CAN BE SEEN FROM ITS AUDITED BALANCE SHEET AS AT 31 .03.2002 GO TO SHOW THAT THE TRANSACTION OF SALE OF SHARES OF RSIL TO MANASVI INVESTMENT (P) LTD. BY THE APPELLANT AS PER MOU DAT ED 23.9.1997 WAS AN ARM'S LENGTH TRANSACTION. IT IS ALSO APPARENT FROM RECORDS, AS STATED BY MY P REDECESSOR IN OFFICE VIDE PARA 2 OF HIS LETTER DATED 08.04.2003 T O THE A.O., THAT THE A.O. HAD TAKEN STATEMENT OF DIRECTOR AND SHAREH OLDER OF MANASVI INVESTMENTS P. LTD. BEFORE PASSING THE ASSE SSMENT ORDER WHO HAD STATED THAT :- (A)THE SHARES HAVE BEEN TRANSFERRED IN THE NAME OF MANASVI INVESTMENTS P. LTD. IMMEDIATELY ON DELIVERY OF SHAR ES AND THAT THE COMPANY IS STILL HOLDING THE SHARES OF RELIANCE SIL ICONES LTD. (B)THE REMITTANCES WERE RECEIVED FROM LASER CAPITAL INVESTMENTS CO LTD. OF AND NOT FROM AMITABH BACHCHAN. (C)THE PURCHASE CONSIDERATION HAS BEEN PAID TO LOTU S INVESTMENTS LTD.. OUT OF THEIR CAPITAL AND REMITTANCES. (D)THE ENTRIES PASSED IN THE BOOKS OF MANASVI AND R ELIANCE EMPLOYEES TRUST ARE GENUINE. THE SAID FACT IS ALSO SUPPORTED BY THE FACT THAT TH E SAID SHARES ARC REFLECTED AS INVESTMENT IN THE AUDITED ANNUAL ACCOU NTS OF MANASVI INVESTMENT (P) LTD. AS ON3 1.3.2002. THE A.O. HAVIN G FAILED TO ESTABLISH BY WAY OF MAKING ENQUIRIES WITH REGARD TO THE REMITTANCE ENTRY OF RS.31,55,100/- ON 06.04.1998 WITH REFERENC E NUMBER ITTI 9802 IN THE BANK STATEMENT OF MANASVI INVESTMENT P, LTD., THAT THE REMITTANCE WAS RECEIVED FROM AMITABH BACHCHAN AND, NOT FROM LASER CAPITAL LTD., LONDON, REMAINS ALSO UNCONTROVE RTED. I HAVE ALSO TAKEN NOTE OF THE FACT THAT AS FAR AS P URCHASE OF SHARES OF RSIL IS CONCERNED, ON 30 LH AUGUST, 1996 THE APPELLANT COMPANY WAS ALLOTTED 36,00,000 EQUITY SHARES OF RS. 100/- E ACH OF RSIL AGAINST EXERCISE OF THE OPTION OF CONVERSION OF LOA N WHICH INCLUDED THE AMOUNT PAID AND THE AMOUNT GUARANTEED BY WAY OF PLEDGE OF SHARES OF IPCA LABORATORIES LTD. BY THE APPELLANT C OMPANY. I REJECT ADMISSION OF ADDITIONAL EVIDENCES IN THE FOR M OF LETTERS FILED FROM M/S PEERLESS GENERAL FINANCE & INVESTMENT CO. LTD., DWC FINANCE LTD. AND MR. MAYANK KUMAR THROUGH WHICH THE APPELLANT'S AUTHORISED REPRESENTATIVE WANTS TO PROVE THAT THE LOANS WERE GRANTED TO RSIL ON GUARANTEE BY WAY OF PLEDGE OF SHARES OF IPCA LABORATORIES. THESE PAPERS WERE NOT BEFORE T HE ASSESSING OFFICER DURING EITHER ASSESSMENT PROCEEDINGS OR DUR ING REMAND PROCEEDINGS AS THEY HAVE BEEN FILED BEF ORE ME AFTER SUBMISSION OF REMAND REPORT/REJOINDER REPORT. E VEN THERE IS NO REQUEST FROM APPELLANT TO CONSIDER THEM AS ADDITION AL EVIDENCES. M/S. LOTUS INVESTMENT LTD. 22 IN ABSENCE OF SUCH REQUEST AND JUSTIFICATION FOR AD MISSION, THE ISSUE IS DECIDED WITHOUT CONSIDERING THEM. AS REGARDS, TH E ADJUSTMENT OF THE AMOUNT OF RS.36,00,00,000/- TOWARDS THE SHARES ALLOTTED BY RSIL TO THE APPELLANT BY WAY OF CONVERSION OF LOAN IT HAS BEEN STATED THAT AN AMOUNT OF RS.21,60,00,000/- WAS ADJU STED ON ALLOTMENT AND RS. 14,40,00,000/- BEING THE CALL MON EY WAS ADJUSTED ON 30.06.1997 AS PER THE ENTRIES IN THE BO OKS OF ACCOUNT ON CONVERSION OF LOANS. I HAVE TAKEN NOTE OF THE FACT THAT SHARES WERE ALLOTTED BY RSIL BY WAY OF ADJUSTMENT OF LOAN WHICH WAS DONE BY WAY OF JOURNAL ENTRIES IN THE BOOKS OF ACCOUNTS OF BOTH RSIL AND THE APPELLANT. FURTHER, WITH REGARD TO CONVERSION P RICE AND SALE PRICE OF SHARES OF RSIL. THE CONVERSION PRICE OBSER VATIONS OF AO ARC GENERAL IN NATURE. WITH REGARD TO GENUINENESS OF TH E. THE AR HAS POINTED OUT THAT EVEN THE ALLOTMENT TO THE HOLDING COMPANY OF RSIL. M/S. SMAY INVESTMENT LTD. WHICH WAS MADE ON 0 3/4/1996 WAS AT THE RATE OF RS.100/- PER EQUITY SHARE, ALSO TAKEN NOTE OF THE ARGUMENT OF APPELLANT'S AR. THAT AS PER THE PROVISI ONS OF COMPANIES ACT, 1956 THE SHARES COULD NOT HAVE BEEN ALLOTTED A T DISCOUNT BY THE COMPANY CLOSER TO BREAK-UP VALUE, AS MENTIONED BY A.O., WITHOUT THE PERMISSION OF THE COMPANY LAW BOARD AS PER SECTION 79 OF THE COMPANIES ACT, 1956 AND THE OTHER RESTRIC TIONS PROVIDED IN THAT SECTION. FURTHER, AS REGARDS THE SALE PRICE OF SHARES OF RSIL IS CONCERNED, THE AR HAS SLATED THAT THE BREAK UP V ALUE OF THE SHARE WAS 'MINUS' OR 'NEGATIVE' AT THE RELEVANT POINT OF TIME WHICH THE AO HAS NOT POINTED OUT ANY WHERE IN THE ASSESSMENT ORDER. THE A.R. HAS ALSO CONTENDED THAT SINCE THE COMPANY WAS NOT A LISTED COMPANY THE EXIT ROUTE WAS NOT AVAILABLE AND HENCE THE AVAILABILITY OF BUYERS WAS LIMITED. THE AR HAS FURTHER POINTED O UT THAT UNDER THESE CIRCUMSTANCES, IT WAS NOT POSSIBLE FOR THE AP PELLANT TO SELL THE SHARES ON THE STOCK EXCHANGE OR IN THE OPEN MARKET, AND THE ONLY POSSIBILITY WAS TO APPROACH THE PERSONS INTIMATELY CONNECTED WITH RSIL AND IN THIS WAS IT WAS RSIL EMPLOYEES WELFARE TRUST WHO WERE FOR OBVIOUS REASONS INTERESTED IN ITS REVIVAL AND WHO COULD HAVE PURCHASED SHARES OF A LOSS MAKING COMPANY. IT WAS ALSO SUBMITTED BY THE AR THAT THE APPELLANT COULD NOT HA VE FOUND MANY BUYERS AS RSIL WAS A 'SICK COMPANY' AND AS SUCH THE APPELLANT DID NOT HAVE ANY OPTION BUT TO SELL THE SHARES OF RSIL AT A TOKEN PRICE OF RE.1/-PER SHARE TO MANASVI INVESTMENT P. LTD. EN ABLING THEM TO SALVAGE RS.36 LAKHS. IT HAS ALSO BEEN CONTENDED BY THE AR THAT WHILE DIS ALLOWING THE LOSS, THE A.O. HAS NOT TAKEN INTO CONSIDERATION THE BOARD RESOLUTION OF APPELLANT COMPANY DATED 10.8.1994, WHICH IS ON R ECORD, WHEREIN IT IS CLEARLY STATED THAT THE APPELLANT HAD THE OPT ION TO CONVERT THE LOAN INTO SHARES. AS THE FINANCIAL POSITION OF RSIL DETERIORATED OVER M/S. LOTUS INVESTMENT LTD. 23 THE PERIOD, THE APPELLANT WAS NOT IN A POSITION TO RECOVER THE LOANS FROM THE RSIL, WHICH HAD BECOME A 'SICK COMPANY'. T HEREFORE, THE APPELLANT CONSIDERED VARIOUS OPTIONS AND DECIDED TO CONVERT THE LOANS INTO EQUITY SHARES IN TERMS OF DIRECTION OF T HE BOARD WITH THE HOPE TO ACQUIRE MANAGEMENT CONTROL AS PER THE RESOL UTION PASSED BY IT ON 07.08.1996 IT HAS BEEN ARGUED THAT IN THE ENTIRE EXERCISE, THE A.O. HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD TO PROVE NON- GENUINENESS OF THE TRANSACTIONS LEADING TO SALE OF SHARES OF RSIL RESULTING INTO LOSS OF RS.35,64,00,000/--. THE A.O. HAVING NOT CONDUCTED THE ENQUIRIES HAD FAILED TO BRING MATERIA L TO SUPPORT HIS CASE TO PROVE COLOURABLE NATURE OF THE TRANSACTION OF SALE OF SHARES OF RSIL. FURTHER, THE AR HAS POINTED OUT FROM ANNUAL ACCOUNT S OF RSIL FOR THE YEAR ENDED 31.3.1993 THAT AS ON 31.03.93 THE CO MPANY HAD NET WORTH OF RS.234.26 LACS CONSISTING OF SHARE CAP ITAL OF RS.101.50 LACS AND RESERVES OF RS.132.76 LACS. IT WAS ONLY IN 1992-93, THAT RSIL HAD MADE LOSS FOR THE FIRST TIME IN ITS LAST 1 3 YEARS. RSIL WAS A PROFIT MAKING COMPANY AND FOR THE YEAR ENDED 31.3.9 2, IT HAD MADE PROFIT OF RS.207.70 LACS BEFORE TAX AND PROFIT OF R S.100.70 LACS AFTER TAX ON THE SHARE CAPITAL OF RS.101.50 LACS. HOWEVER , LATER ON RSIL STARTED MAKING LOSSES ON ACCOUNT OF DUMPING OF FINI SHED GOODS BY THE MULTINATIONAL COMPANIES AND NO PROTECTION WAS G IVEN TO THE LOCAL INDUSTRY BY THE GOVERNMENT OF INDIA, WHICH WA S EXPECTED BY LEVYING ANTI-DUMPING DUTIES, OR BY REDUCING IMPORT DUTY ON RAW MATERIALS FOR MAKING THE LOCAL UNITS COMPETITIVE AN D VIABLE. IT WAS SUBMITTED BY THE AR THAT AS THE COMPANY WAS HOPEFUL THAT THE GOVERNMENT WOULD LEVY ANTI-DUMPING DUTIES AND/OR RE DUCE IMPORT DUTY ON RAW MATERIALS WHICH WOULD MAKE LOCAL SILICO N INDUSTRIES VIABLE AND PROFITABLE, THE APPELLANT GAVE LOANS TO RSIL IN ITS ORDINARY COURSE OF BUSINESS WITH AN OPTION TO CONVE RT THE SAME IN THE EQUITY SHARES. HOWEVER, SUBSEQUENTLY AS THE LOS SES WENT ON MOUNTING ARID RSIL BECAME A 'SICK COMPANY', THE BOA RD OF DIRECTORS OF THE APPELLANT COMPANY DELIBERATED UPON VARIOUS OPTIONS AVAILABLE TO IT. THE BOARD VIDE RESOLUTION DATED 07.08.1996 DECIDED TO CONVERT THE LOAN IN TO EQUITY SHARES AS PER THE OPTION AVAILABLE TO THE COMPANY WITH THE SOLE OBJECTIVE OF TAKING OVER THE MANAGEMENT CONTROL AS THE PAID UP CAPITAL OF RSIL W AS ONLY RS.1,01,50,000/- AT THE RELEVANT TIME. IT WAS ALSO POINTED OUT BY THE AR THAT THE COMPANY HAD VARIOUS ASSETS INCLUDING IMMOVABLE PROPERTIES BEING LEASEHO LD LAND, FREEHOLD LAND, RESEARCH BUILDING, FACTORY BUILDING, ADMINISTRATIVE BUILDING, RESIDENTIAL BUILDING AS APPEARING ON AUDI TED BALANCE SHEET M/S. LOTUS INVESTMENT LTD. 24 AS AT 31.03.1996 AND THAT THE MARKET VALUE OF THESE PROPERTIES WAS SUBSTANTIAL. IT WAS EXPECTED BY THE APPELLANT THAT ON CONVERSION OF THE LOAN INTO EQUITY SHARES OF RS.36 CRORES, ITS SH AREHOLDING IN RSIL WOULD BE 97.27% AND WOULD GET FULL MANAGEMENT CONTR OL OF RSIL WHICH WOULD HAVE BENEFITED THE APPELLANT UNDER THE CIRCUMSTANCES PREVAILING AT THAT POINT OF TIME IT WAS FURTHER SUB MITTED BY AR THAT THE APPELLANT DID NOT COME TO KNOW UPTO 30.08.96, T HAT THE EXISTING MANAGEMENT OF RSIL HAD ALREADY ISSUED AND ALLOTTED FRESH 36 CRORE EQUITY SHARES ON 03.04.1996 TO SMAY INVESTMENT LTD. IN LIEU OF TRANSFER OF TECHNOLOGY TO RSIL WHICH WAS KEPT TOTAL LY SECRET FROM THE APPELLANT COMPANY - WHICH THE APPELLANT CAME TO KNOW ONLY AFTER RSIL ALLOTTED THE SHARES TO THEM. IT HAS BEEN SUBMITTED BY THE AR THAT IT WAS A BREACH OF TRUST AND FRAUDULENT ACT ON THE PART OF THE MANAGEMENT OF RSIL WHILE DEALING WITH THE APPEL LANT COMPANY. UNDER THE CIRCUMSTANCES, IT HAS BEEN STATED THAT TH E SHARE HOLDING OF LOTUS INVESTMENTS LTD., THE APPELLANT COMPANY CA ME DOWN TO ONLY 9.80% OF THE TOTAL PAID UP CAPITAL OF RSIL AS AGAINST THE MAJORITY SHARE HOLDING OF 97.27% EXPECTED BY THE AP PELLANT. IT HAS BEEN FURTHER STATED BY AR THAT THE MANAGEMENT OF TH E APPELLANT COMPANY, THOUGH WAS OF THE VIEW THAT THE ACTION OF ALLOTMENT OF SHARES TO SMAY INVESTMENT LTD. BY RSIL WAS FRAUDULE NT, IT DID NOT REALLY HAD LEGAL REMEDY SINCE ON THE DATE OF ALLOTM ENT OF SHARES TO SMAY INVESTMENT LTD., THE APPELLANT WAS NOT A SHARE HOLDER AND HENCE IT COULD NOT HAVE OBJECTED TO OR CHALLENGED T HE ALLOTMENT. THUS, IT HAS BEEN SUBMITTED THAT THE APPELLANT COMP ANY COULD NOT SUCCEED IN ACQUIRING THE MANAGEMENT CONTROL OF RSIL . IN VIEW OF THESE DEVELOPMENTS, THE APPELLANT COMPANY FINALLY A T ITS BOARD MEETING HELD ON 16 TH SEPTEMBER, 1997 MADE UP ITS MIND TO DISASSOCIATE WITH RSIL AND DECIDED TO SELL THE SHAR ES OF RSIL. ACCORDINGLY, IT FINALIZED TERMS OF SALE OF SHARES O F RSIL AS PER MOU DATED 23.09.1997 WITH M/S. MANASVI INVESTMENTS PVT . LTD. FOR SALE OF SHARES OF RSIL AT RE.17- PER SHARE. FROM PERUSAL OF ABOVE FACTS, IN MY OPINION, SPEAK VOLUMES ON THE EVENTS AND TRANSACTIONS. FURTHER, IT HAS BEEN CONTENDED BY AR THAT THE OBSER VATIONS MADE BY THE AO THAT THE APPELLANT COMPANY HAD ENGINEERED THE METHOD OF ADJUSTING LONG TERM CAPITAL GAIN ON THE SALE OF SHARES OF IPCA LABORATORIES LTD. AGAINST THE LONG TERM CAPITAL LOS S ON THE SALE OF SHARES OF RSIL IS NOT SUBSTANTIATED AND IS NOT BORN E OUT OF THE MATERIALS ON RECORD AS THE DECISION FOR CONCERTING LOAN INTO SHARES OF RSIL WAS TAKEN BY THE BOARD VIDE RESOLUTION DATE D 07.08.96 WHICH IS MUCH BEFORE THE DECISION FOR SALE OF SHARE S OF IPCA LABORATORIES LTD. M/S. LOTUS INVESTMENT LTD. 25 'AS PER THE AGREEMENT DATED 14/5/1997. THE AR HAS A LSO POINTED OUT THAT IN THE CASES OF LOANS RAISED BY WAY OF PLE DGING THE SHARES OF IPCA LABS LTD. THE REPAYMENTS OF LOANS TO THE CR EDITORS WERE MADE IN MOST OF THE CASES DIRECTLY BY THE BUYERS OF SHARES OF IPCA LAB. LTD. AS PER AGREEMENT DATED 14/5/1997. I FIND MERIT IN THE CONTENTION OF AR THAT ALL THESE FACTS GO TO SHOW TH AT THE TRANSACTIONS HAVE TAKEN PLACE FROM TIME TO TIME IN NORMAL COURSE OF BUSINESS BEING ARM'S LENGTH TRANSACTIONS AND NOT CO LOURABLE DEVICES BEING PART OF TAX PLANNING MEASURES ADOPTED BY THE APPELLANT COMPANY. THE A.O. HAS ALSO OBSERVED THAT THE TRANSFER OF MAN AGEMENT OF IPCA LABS HAD TAKEN PLACE IN 1996-97 AND THEREFORE, AS PER THE TRADE PRACTICE, EVEN THE SHARES OF IPCA HELD BY THE APPELLANT COMPANY SHOULD HAVE BEEN SOLD IN THE FINANCIAL YEAR 1996-97. HE HAS ALSO OBSERVED THAT ENVISAGING THE MAGNITUDE OF THE CAPITAL GAIN AND THE CONSEQUENT CAPITAL GAINS TAX LIABILITY, IT DEFERRED THE SALE OF SHARES OF IPCA TO THE FINANCIAL YEAR 1997-98. THE A.R., IN DEFENCE, HAS STATED THAT THERE IS NO S UCH TRADE PRACTICE THAT THE SHARES SHOULD BE SOLD IMMEDIATELY ON CHANG E OF MANAGEMENT. THE DECISION TO SELL OR TO HOLD THE SHA RES WOULD BE DIFFERENT IN DIFFERENT CASES DEPENDING ON THE CIRCU MSTANCES OF EACH CASE AND MR. AJITABH BACHCHAN CONTINUES AND CONTINUED TO BE CHAIRMAN OF IPCA LABORATORIES LTD. THIS FACT IS ALSO TAKEN NOTE OF. THE A.R. HAS STATED THAT THE FAMILY MEMBERS OF MR. AMITABH BACHCHAN DID SELL THE SHARES OF IPCA LABS IN DECEMB ER 1996 AT THE THROWAWAY PRICE OF RS. 96/-PER SHARE (ON AVERAGE RA TE) WHICH WAS DONE WITH A VIEW TO PAY OFF THE PRESSING CREDITORS WHO WOULD HAVE OTHERWISE DRAGGED THE FAMILY OF MR. AMITABH BACHCHA N INTO LITIGATION AND WOULD HAVE TARNISHED THE PUBLIC IMAG E OF THE FAMILY. HOWEVER, MR. AJITABH BACHCHAN DID NOT SELL HIS SHAR ES AS ALLEGED BY A.O THE SHARES IN IPCA LABORATORIES HELD BY THE IND IVIDUAL MEMBERS OF THE FAMILY WERE TO THE EXTENT OF APPROX. 10 LACS SHARES OUT OF THE TOTAL OF 45 LACS SHARES HELD BY THE GROU P. THUS SMALL LOTS OF THE SHARES WAS SOLD TO OVERCOME FINANCIAL CRISIS OF THE FAMILY. LATER THE OTHER SHARES WERE SOLD TO THE MANAGEMENT OF IPCA GROUP AT MARKET PRICE AVERAGING TO RS.141/- PER SHARE VID E THE AGREEMENT FOR SALE DATED 14.05.1997 ENTERED INTO BY AND BETWEEN MANAGEMENT OF IPCA-LABORATORIES AND LOTUS INVES TMENTS LTD. IT HAS BEEN SUBMITTED HIGHLIGHTING THAT HAD THE APP ELLANT SOLD THE SHARES OF IPCA LAB. LTD. IN THE FINANCIAL YEAR 1996 -97, THE PRICES M/S. LOTUS INVESTMENT LTD. 26 WOULD HAVE BEEN 2/3RD OF THE AMOUNT AT WHICH THEY H AVE SOLD THE SHARES IN THE FINANCIAL YEAR 1997-98 VIDE AGREEMENT DATED 14.5.1997 IT IS SUBMITTED THAT IT TURNED OUT TO BE A WISE AND PRUDENT DECISION ON THE PART OF THE APPELLANT TO SE LL THE SHARES IN THE FINANCIAL YEAR 1997-98 INSTEAD OF IN THE FINANC IAL YEAR 1996-97. THIS WAY THE APPELLANT COULD REALIZE HIGHER AMOUNT CAPITAL GAINS OF ABOUT RS.15,35,52,000/- RESULTING IN HIGHER LONG TERM CAPITAL GAINS WHICH THE AO HAS NOT RECOGNIZED AND REALIZED. IT WAS A CASE OF COMPULSIONS AND NOT A TAX PLANNING. I T IS THEREFORE, SUBMITTED THAT ON THESE FACTS THE OBSERVATIONS MADE BY AO THAT SALE OF SHARES OF IPCA LABORATORIES LTD. WERE DEFER RED TO THE NEXT YEAR CANNOT BE APPRECIATED. IT WAS ALSO ARGUED BY T HE A.R THAT MOST OF THE OBSERVATIONS MADE IN THE ASSESSMENT ORD ER BY THE A.O. ARE BASED ON GUESS WORK, PRESUMPTIONS, IMAGINATION AND SURMISES WITH THE SOLE OBJECTIVE OF DISALLOWING THE LOSS SUF FERED BY THE APPELLANT ON SALE OF RSIL SHARES WITHOUT PROVING AN YTHING CONTRARY TO THE FACTS. IN THE ABSENCE OF FURTHER ENQUIRIES DONE BY THE A.O . IN VIEW OF MY PREDECESSOR'S LETTER DATED 08.04.2003 AND FROM THE MATERIALS PLACED ON THE RECORD, I FIND THAT THERE IS A FORCE IN THE CONTENTIONS OF THE APPELLANT THAT THE DECISIONS TAKEN BY THEM R ELATING TO CONVERSION OF LOAN INTO EQUITY SHARES AND SUBSEQUEN T SALE THEREOF, WERE TRANSACTIONS AT ARM'S LENGTH AND NOT A COLOURA BLE DEVICE. THE AO SHOULD HAVE CONDUCTED FURTHER ENQUIRIES AND BROU GHT MATERIALS ON RECORD TO SUPPORT HIS CASE THAT SRI AJITABH BACH CHAN HAD REMITTED THE AMOUNT OF RS.31,55,100/-- THROUGH REMI TTANCE REFERENCE NUMBER FTTI 9802 OR IN ALTERNATIVE HE WAS INTERESTED AND INSTRUMENTAL IN GETTING THIS AMOUNT REMITTED BY M/S. LASER CAPITAL LTD. LONDON, OR ELSE SRI AJITABH BACHCHAN H AD CLOSE CONNECTION WITH MR. GREG EGEN AND MS. CAROLINE EGEN . AS REGARDS THE CONTENTION OF THE ASSESSING OFFICER THAT THE TRANSACTION OF SALE OF SHARES OF RSIL IS A COLOURAB LE DEVICE AND HENCE INGENUINE TO AVOID PAYMENT OF .CAPITAL GAINS TAX, IT HAS BEEN SUBMITTED BY THE APPELLANT THAT EVEN ASSUMING THAT THERE WOULD HAVE BEEN NO CONVERSION OF LOAN INTO SHARES AND NO LONG TERM CAPITAL LOSS WOULD HAVE ARISEN ON SALE OF RSIL SHAR ES, THERE WOULD HAVE NOT BEEN ANY LOSS TO THE APPELLANT BY WAY OF A DDITIONAL TAX LIABILITY ON THE APPELLANT FOR THE FOLLOWING REASON S: M/S. LOTUS INVESTMENT LTD. 27 TO SUBSTANTIATE THE BONAFIDES, THE AUTHORISED REPRE SENTATIVE HAS SUBMITTED THAT ASSUMING THAT THE CONVERSION OF LOAN INTO SHARES OF RSIL WOULD NOT HAVE TAKEN PLACE AND NO LOSS WOULD H AVE ARISEN ON SALE OF THOSE SHARES UNDER THE HEAD 'CAPITAL GAINS' , THE AMOUNT OF LOAN ADVANCED WOULD HAVE BEEN WRITTEN OFF AS BAD D EBT', WHICH WOULD HAVE BEEN IN THE NATURE OF 'BUSINESS LOSS'. THE WRITE OFF OF SUCH LOAN FOR A COMPANY ENGAGED IN THE BUSINESS OF FINANCING IS ALLOWABLE AS BAD DEBT U/S. 36(1)(VII) R.W.S. 36(2) OF THE ACT. IN THE BOOKS OF ACCOUNT WHAT IS DEBITED AS LOSS ON SALE OF SHARES WOULD HAVE BEEN CATEGORIZED AS 'BAD DEBTS' AS THE LEARNED ASSESSING OFFICER HIMSELF HAS OBSERVED IN PARA NO.3.1 (1)(B) ON PAGE 3 OF ASSESSMENT ORDER THAT RSIL WAS DECLARED A SICK COMP ANY BY BIFR, IT WAS SUBMITTED THAT THE SAME WOULD HAVE RESULTED IN BAD DEBTS ALLOWABLE U/S. 36(1)(VII) R.W.S. 36(2) OF THE ACT. THEREFORE, IT WAS SUBMITTED THAT THE ENTIRE AMOUNT WOULD HAVE RESULTED IN BUSINESS LOSS WHICH COULD HAVE BEEN SET OFF AGAINST THE 'LONG TERM CAPITAL GAINS' OF THE SAME YEAR U/S.71(2 ) OF THE ACT. AS A RESULT THERE WOULD HAVE BEEN NO IMPACT ON TAX LIA BILITY BUT IN THAT PROCESS THE APPELLANT WOULD HAVE LOST A SUM OF RS 3 6 LACS WHICH IT GOT REALIZED BY WAY OF SALE OF RSIL SHARES. THE ABO VE ARGUMENT IS ALSO TAKEN NOTE OF. IN VIEW OF THE POSITION AS IS REFLECTED BY DISCUSSI ON MADE ABOVE, THERE IS A FORCE IN THE CONTENTION OF THE APPELLANT THAT THE BASIS OF THE ENTIRE DISCUSSION BY THE ASSESSING OFFICER THAT THE CONVERSION OF LOAN INTO SHARES AND SALE OF THE SHARES AT LOSS RES ULTED IN AVOIDANCE OF PAYMENT OF TAX ON LONG TERM CAPITAL GAINS DOES N OT SURVIVE AND THE QUESTION OF APPLICATION OF THE DECISION IN MCDO WELL'S CASE BY TREATING TRANSACTION AS COLOURABLE IS NOT JUSTIFIED . THUS, THE PRESUMPTION OF THE ASSESSING OFFICER THAT THE WHOLE EXERCISE OF CONVERSION OF LOAN INTO SHARES AND SALE OF SHARES H AVE BEEN DONE WITH THE INTENTION TO AVOID TAX ON LONG TERM CAPITA L GAIN IN RESPECT OF SALE OF SHARES OF IPCA LABORATORIES IS NOT CONSI DERED WELL FOUNDED AND ADVERSE VIEW CANNOT BE TAKEN OF TRANSAC TIONS TAKEN PLACE BETWEEN UNRELATED PARTIES (NOT BEING SISTER C ONCERNS). IT HAS BEEN CONTENDED BY THE APPELLANT THAT THE DEC ISION IN MCDOWELL'S CASE CANNOT BE APPLIED IN CASES OF GENUI NE, LEGAL AND ARM'S LENGTH BUSINESS TRANSACTIONS ENTERED INTO IN THE NORMAL COURSE OF BUSINESS EVEN WHEN THE SAME RESULTS IN LO SS DUE TO UNFORTUNATE DEVELOPMENTS OR BUSINESS DECISIONS WHIC H TURN OUT TO BE WRONG IN THE UNFORESEEN CIRCUMSTANCES UNLESS IT IS PROVED BEYOND DOUBTS BY THE A.O. THAT THE TRANSACTION WAS PRECONCEIVED WITH DUBIOUS METHOD WITH AN INTENTION TO DEFRAUD RE VENUE, WHICH M/S. LOTUS INVESTMENT LTD. 28 DOES NOT EXIST IN APPELLANT'S CASE. THE TRANSACTION S HAD BEEN ENTERED INTO BY THE APPELLANT AT ARMS LENGTH WITH M ANASVI INVESTMENT (P) LTD. WHICH IS NOT A RELATED PARTY. I T IS INCORRECT TO STATE THAT MANASVI INVESTMENT P. LTD. WAS PURCHASED BY THE APPELLANT COMPANY. THE FACT IS THAT THE OWNERSHIP O F THE SAID COMPANY BELONGS TO RSIL EMPLOYEES WELFARE TRUST WHO WERE INTERESTED IN REVIVAL OF RSIL. IT IS STATED THAT IN AUGUST, 1994 WHEN THE APPELLANT STARTED ADVANCING THE LOAN TO RSIL WI TH OPTION TO CONVERT THE SAME IN SHARES, IT COULD NOT HAVE BEEN VISUALIZED IN 1994 THAT THE APPELLANT WOULD EARN SUCH A HUGE CAPI TAL GAIN ON SALE OF SHARES OF IPCA LABS IN YEAR 1997-98. THEREFORE, ADVANCING OF LOANS TO RSIL IN THE YEAR 1994 CAN BE STATED TO BE PRE CONCEIVED WITH A VIEW TO SET OFF THE LOSS AGAINST LONG TERM C APITAL GAIN WHICH AROSE ON SALE OF SHARES OF IPCA LABS LTD. IN FINANC IAL YEAR 1997-98. THE APPELLANT HAS ALSO BROUGHT TO MY NOTICE VARIOUS DECISIONS WHICH HAVE BEEN PRONOUNCED SUBSEQUENT TO THE MCDOWELLS C ASE, WHEREIN THE INTERPRETATION OF VARIOUS PARAMETERS AS ENUNCIA TED IN MCDOWELL'S CASE FOR CHECKING ON COLOURABLE DEVICES, HAVE BEEN CONSIDERED. (A) CIT V. ASPINWALL AND CO. (TRANVANCORE LTD.), 21 2 ITR 525 (KEN). (B) CIT V. DHAWAN INVESTMENT AND TRADING CO. LTD., 238 ITR 486 (CAL.) (C) BANYAN AND BERRY V. CIT, 222 ITR 831 (GUJ.) (D) VALBHAPPAN (M.V.) V. I.T.O., 170 ITR 238 (MAD.) THE AR ALSO STATED THAT THE MCDOWELL'S CASE HAS ALS O BEEN EXPLAINED AND DISTINGUISHED BY THE SUPREME COURT IN THE CASE OF AZADI BACHAO AANDOLAN.-263 ITR 706. IT HAS THEREFORE BEEN CONTENDED THAT CONSIDERING TH E TOTALITY OF THE FACTS AND CIRCUMSTANCES, THE RATIO OF SUPREME COURT DECISION IN MCDOWELL'S CASE (154 ITR 148) AND OTHER CASES CITED IN THE ASSESSMENT ORDER ARE NOT APPLICABLE TO THE PRESENT CASE. TAKING INTO CONSIDERATION THE OBSERVATIONS MADE BY THE AO, THE FACTS BROUGHT OUT BY APPELLANT IN DEFENCE, THE REMA ND REPORT SUBMITTED BY THE A.O. IN RESPONSE TO THE DIRECTIONS OF MY PREDECESSOR CIT(A) IN THE OFFICE AS WELL AS IN RESP ONSE TO THE REJOINDER TO THE REMAND REPORT, AND THE FAILURE OF THE A.O. TO CONTROVERT THE SUBMISSIONS OF THE APPELLANT AND THE FACT THAT NONE OF THE PARTIES TO THE TRANSACTIONS VIZ. MANASVI INV ESTMENT P. LTD. OR M/S. LOTUS INVESTMENT LTD. 29 RSIL ARE RELATED TO THE APPELLANT, IT CANNOT BE SAI D THAT THE APPELLANT HAS USED COLOURABLE DEVICE TO AVOID TAX A S OBSERVED BY THE AO. I HAVE GONE THROUGH THE DECISION OF THE SUPREME COU RT IN THE CASE OF AZADI BACHAO AANDOLAN - 263 ITR 706. AS THE HON' BLE SUPREME COURT HAS HELD THAT THERE HAS BEEN NO DRASTIC CHANG E IN FISCAL JURISPRUDENCE IN INDIA AS WOULD ENTAIL A DEPARTURE DESPITE THE HICCUPS OF ME DOWELL'S CASE, THE LAW REMAINS THE SA ME THE TRANSACTIONS CANNOT BE SAID TO BE INGENUINE AS THES E TRANSACTIONS ARE VALIDLY INTO AND CANNOT BE TREATED AS NON-EST I N THE FACTS AND CIRCUMSTANCES OF APPELLANTS CASE. HAVING GONE THROUGH PLETHORA OF FACTS OF APPELLANT' S CASE AND TAKING INTO ACCOUNT THE TIME FRAME IN WHICH TRANSAC TIONS WERE ENTERED INTO WITH THE THIRD PARTIES AND THAT THE DI RECTORS OF THE APPELLANT WERE NOT RELATED TO DIRECTORS/SHAREHOLDER S OF EITHER RSIL OR OF MANASVI INVESTMENT PVT. LTD., OR DIRECTORS/ S HARE HOLDERS OF EITHER RSIL OR MIPL NOT BEING DIRECT SHARE HOLDERS OF THE APPELLANT COMPANY, I AM OF THE VIEW THAT THE TRANSACTIONS WHI CHEVER HAVE BEEN ENTERED INTO BY THE APPELLANTS CANNOT BE CATEG ORIZED AS NON EST AND HENCE, I DO NOT APPROVE OF THE CONCLUSI ON ARRIVED AT BY THE A.O. THUS, THE APPEAL IS ALLOWED ON THIS GROUN D OF APPEAL. THE LEARNED DR EVEN THOUGH VEHEMENTLY RELIED ON THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE OBSERVATIONS MADE BY THE ASS ESSING OFFICER THAT THE ASSESSEE HAS SOLD THE SHARES TO MANASVI INVESTMENTS PVT. LTD., JUST TO CLAIM THE SET OFF OF CAPITAL GAIN WHICH IT HAS EARNED ON THE SALE OF SHARE OF IPCA LABORATORIES LTD., BUT COULD NOT PRODUCE ANY MATERI AL, WHICH MAY PROVE THAT THE REVENUE HAS DISCHARGED THE ONUS THAT THE TRANSA CTION ENTERED INTO BY THE ASSESSEE FOR SALE OF THE SHARES OF MANASVI INVESTME NTS PVT. LTD. IS NOT GENUINE. IT IS NOT A CASE THAT THE ASSESSEE HAS PUR CHASED THE SHARES FROM RELIANCE SILICON INITIALLY BY WAY OF JOURNAL ENTRY BUT THE FACT IS THAT THE LOANS ADVANCED EARLIER BY THE ASSESSEE WERE CONVERTED INT O SHARE CAPITAL AND THE M/S. LOTUS INVESTMENT LTD. 30 ASSESSEE HAS MADE THE BALANCE PAYMENT ON 30.06.1997 AMOUNTING TO ` 14,40,00,000/-. IN OUR OPINION, NO INTERFERENCE I S CALLED FOR IN THE ORDER OF THE CIT(A). WE ENDORSE THE FINDING OF THE CIT(A) A ND ACCORDING CONFIRM HIS ORDER ON THIS ISSUE. GROUND NO.1 OF THE REVENUE IS ACCORDINGLY DISMISSE D. 22. GROUND NO.2 TAKEN BY THE REVENUE IN ITS APPEAL RELATE TO DELETION OF DISALLOWANCE OF PROPORTIONATE AMOUNT OF INTEREST ON THE AMOUNT ADVANCED TO ANAND EXPORTS, C.A CORP., GALAXY EXPORTS AND AMITAB H BACHCHAN CORP. LTD. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING THROU GH ORDERS OF THE TAX AUTHORITIES BELOW, WE NOTED THAT SIMILAR ISSUE HAS ARISEN IN THE CASE OF THE ASSESSEE FOR A.Y. 1997-98, WHEN THE CIT(A) DELETED THE DISALLOWANCES OF PROPORTIONATE AMOUNT OF INTEREST ON THE AMOUNT ADVA NCED TO ANAND EXPORTS, C.A CORP., GALAXY EXPORTS AND AMITABH BACHCHAN CORP . LTD AND WHEN THE MATTER WENT BEFORE THIS TRIBUNAL IN ITA NO. 6497/MU M/2003, THE TRIBUNAL VIDE ITS ORDER DATED 16.03.2007 CONFIRMED THE ORDER OF THE CIT(A) AND DISMISSED THE APPEAL OF THE REVENUE OBSERVING AS UN DER: 4. ON APPEAL LD. CIT(A) HAS GRANTED PARTIAL RELIEF TO THE ASSESSEE. SHE HAS ALSO DELETED THE DISALLOWANCE OF INTEREST, WHICH HAS BEEN IMPUGNED BY THE DEPARTMENT IN ITS APPEAL. THE GROUND OF APPEAL TAKEN BY THE REVENUE READS AS UNDER: THE LD. CIT(A) HAS ERRED IN ALLOWING DEDUCTION OF P ROPORTIONATE AMOUNT OF INTEREST ON AMOUNT ADVANCED TO ANAND EXPO RTS RS .15,00,000/- C.A.CORPORATION RS 25,00,000/-, GALAXY EXPORTS RS .25,00,000, AMITABH BACHCHAN CORPORATION LTD. 1,25, 33,982/- AND SHRI AMITABH BACHCHAN RS.6,29,586 FROM THE TOTAL IN COME WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS NOT ABL E TO PRODUCE ANY M/S. LOTUS INVESTMENT LTD. 31 EVIDENCE EITHER BEFORE THE A.O OR THE CIT(A) TO SHO W THAT THE AMOUNTS WERE ADVANCED FOR BUSINESS PURPOSES. 5. FIRST WE TAKE UP THE ISSUE REGARDING DISALLOWANC E OF INTEREST. ON PERUSAL OF THE RECORD IT REVEALED THA T ASSESSEE HAS GIVEN ADVANCES WITHOUT CHARGING ANY INTEREST TO THE FOLLOWING ENTITIES 1. ANAND EXPORTS RS. 15,00,000/- 2. ALBARKA FINANCE HOUSE LTD. RS. 8,00,000/- 3. C A CORPORATION RS . 25,00,000/- 4. GALAXY CORPORATION RS. 25,00,000/- 5. NEPTUNE ENTERPRISES RS. 25,00,000/- 6. SIDDHIVINAYAK CREATIONS RS. 4,25,000/- 7. EAST WEST TRAVELS & TOURS RS. 8,50,0 00/- 8. LEXICON FINANCE (P) LTD. RS.1,50,00,000 /- 9. AMITABH BACHCHAN CORP. LTD. RS.1,25,00,0 00/- 10. SHRI AMITABH BACHCHAN RS. 6,29,586/- THE AMOUNTS ADVANCED TO AT SL.NO.1 TO 6 SUPRA WERE ALLEGED TO HAVE BEEN ADVANCE FOR ACQUISITION OF SATELLITE AND OVERSEAS RIGHTS OF FILMS AND SERIAL PRODUCED BY THESE ENTITIES. THE L D. A.O. HAS DISALLOWED THE INTEREST ON SUCH ADVANCES ON THE GRO UND THAT ASSESSEE IS NOT IN THE BUSINESS OF ACQUISITION AND DISTRIBUTION OF THE FILMS. ACCORDING TO HIM ASSESSEE IS ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCE. SIMILARLY WITH REGARD TO E NTITIES MENTIONED AT SL. NO.7 TO 10 THE A.O HAS OBSERVED THAT THE LOA NS WERE GIVEN FOR NON BUSINESS PURPOSES AND THESE LOANS WERE GIVEN OU T OF INTEREST BEARING FUNDS. 6. THE LD. CIT(A) WHILE RE-APPRECIATING THE CONTROV ERSY RECORDED A FINDING THAT AS FAR AS LOANS WERE GIVEN TO AMITABH BACHCHAN CORPORATION IS CONCERNED ASSESSEE IS HAVIN G A CURRENT RUNNING ACCOUNT. THIS ISSUE WAS AROSE IN AY 1995-9 6, WHEREIN A SUM OF ` .1,37,00,000/- WAS STANDING AGAINST THIS ENTITY AND THE A.O. HAS MADE THE DISALLOWANCE OF INTEREST ON SUCH ADVANCE. THE LD CIT(A) DELETED THE DISALLOWANCE OF INTEREST. AT THE TIME OF HEARING IT WAS POINTED OUT BEFORE US THAT THE APPEA L FILED BY THE REVENUE IN M/S. LOTUS INVESTMENT LTD. 32 A Y 1995-96 HAS BEEN DISMISSED BY THE TRIBUNAL. IN VIEW OF THE ABOVE WE DO NOT FIND ANY ERROR IN THE FINDING OF TH E CIT(A) WITH REGARD TO DELETION OF DISALLOWANCE OF INTEREST RELA TING TO THE LOAN OF ` .1,25,33,982/- GIVEN TO AMITABH BACHCHAN CORPORATIO N. SIMILARLY LD. CIT(A) WHILE APPRECIATING THE ADVANCES GIVEN TO ANAND EXPORTS, C A CORPORATION AND GALAXY EXPORT TO THE EXTENT OF ` .65,00,000/- HAS OBSERVED THAT IN A.Y. 1995-96 THE LD. CIT(A) HA S HELD THAT ACCORDING TO MEMORANDUM OF ARTICLE OF ASSOCIATION T HE ASSESSEE WAS ENGAGED IN PURCHASING, SELLING AND DISTRIBUTION OF SATELLITE RIGHTS ETC. SINCE THE ADVANCES WERE GIVEN FOR THE PURPOSE OF ACQUIRING SATELLITE AND OVERSEAS RIGHT OF FILMS AND SERIALS, WHICH IS ONE OF THE BUSINESS ACTIVITY OF THE ASSESSEE, THERE SHOULD NOT BE ANY DISALLOWANCE OF INTEREST EXPENSES RELATING TO T HE ADVANCES GIVEN TO THESE THREE CONCERNS. 7. THE LD. CIT(A) WHILE APPRECIATING THE ADVANCES G IVEN TO SHRI AMITABH BACHCHAN HAS OBSERVED THAT SHRI AMITABH BAC HCHAN WAS HAVING A CREDIT BALANCE TILL LAST DAY. HE WAS ALSO HAVING A RUNNING ACCOUNT. THE DEBIT BALANCE WAS ONLY FOR ONE DAY AN D DUE TO THIS REASON THE LD. CIT(A), DELETED THE DISALLOWANCE OF INTEREST ON ADVANCES APPEARING AGAINST THE NAME OF SHRI AMITABH BACHCHAN ON THE LAST DAY. IN VIEW OF THIS FINDING, WE DO NOT F IND ANY ERROR IN THE ORDER OF LD. CIT(A). THUS, APPEAL OF THE REVENUE I S REJECTED. RESPECTFULLY, FOLLOWING THE DECISION OF THE TRIBUNA L IN THE CASE OF THE ASSESSEE FOR A.Y. 1997-98, WE DISMISS GROUND NO.2 TAKEN BY T HE REVENUE AND DELETE THE DISALLOWANCE. 23. GROUND NO.3 RELATES TO THE DISALLOWANCE OF INTE REST AMOUNTING TO ` 29,29,709/-ADVANCED TO M/S. RELIANCE SILICON INDIA LTD. AS INTEREST FREE LOAN. THE FACTS RELATING TO THIS GROUND ARE THAT, THE ASS ESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED ASSESSEE H AD GIVEN LOAN OF ` .1,62,76,162/- TO THE RELIANCE SILICON. WHEN ENQUI RED, THE ASSESSEE SUBMITTED THAT IT HAD ACQUIRED SHARES OF RELIANCE S ILICON IN F Y 1996-97 AND HAD ALSO STOOD AS GUARANTOR FOR THE LOANS AND ADVAN CED ARRANGED FOR RELIANCE SILICON FROM VARIOUS PARTIES AND PLEDGED SHARES OF IPCA LABORATORIES HELD BY M/S. LOTUS INVESTMENT LTD. 33 THE ASSESSEE. SINCE THE ASSESSEE SOLD THE SHARE HO LDINGS IN IPCA LABORATORIES, THESE SHARES HAD TO BE RELEASED FROM THE CREDITORS. THE ASSESSEE THEREFORE MADE THE PAYMENT OF RSIL. SINCE RSIL IS A BIFR COMPANY, THEREFORE NO PROVISION FOR INTEREST HAS BE EN MADE. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF T HE ASSESSEE AS HE WAS OF THE VIEW THAT MONEY HAS BEEN TRANSFERRED TO RELIANC E SILICON BY WAY OF JOURNAL VOUCHER FOR THE PURCHASE OF RELIANCE SILICO N SHARES. THE ASSESSING OFFICER THEREFORE ESTIMATED INTEREST @18% AND DISAL LOWED A SUM OF ` 29,29,709/-. 24. WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT (A) DELETED THE SAID DISALLOWANCE. 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY CONSIDERED THE ORDER OF TAX AUTHORITIES BELOW. WE NOTED THAT THE ASSESS EE HAD ACQUIRED SHARES OF RELIANCE SILICON (I) LTD. IN F.Y. 1996-97 AND ALSO STOOD AS GUARANTOR FOR LOANS AND ADVANCES ARRANGED FOR RELIANCE SILICON FROM VAR IOUS PARTIES. THE SHARES WERE ACQUIRED BY CONVERTING THE LOAN INTO 36 LAC EQ UITY SHARES OF ` .100 EACH, AS PER THE OPTION AVAILABLE TO THE ASSESSEE AND THE BALANCE OF THE PAYMENT RECEIVABLE BY THE ASSESSEE REMAINS OUTSTANDING AS D EBIT BALANCE. NO SUCH DISALLOWANCE HAS BEEN MADE DURING THE A.Y. 1997-98 BY THE ASSESSING OFFICER WHILE PASSING ORDER U/S. 143(3), DATED 31.03.2000. THERE IS NO CHANGE IN THE FACTS. THE CIT(A) DELETED THE SAID DISALLOWANCE BY OBSERVING AS UNDER: M/S. LOTUS INVESTMENT LTD. 34 I HAVE CONSIDERED THE OBSERVATIONS OF THE A.O AND THE ABOVE CONTENTIONS OF THE AR WITH REGARD TO THE INTEREST D ISALLOWANCE ON ADVANCES TO RSIL. IT IS CLEAR THAT THE DEBIT BALAN CE OF THE PARTY HAS ARISEN DUE TO ADVANCES GIVEN AND THE PAYMENTS MADE TO OTHER PARTIES WHO HAD ADVANCED THE LOANS AGAINST THE GUAR ANTEE GIVEN BY THE APPELLANT OR PLEDGE OF SHARES OF IPCA LABS LTD. THESE AMOUNTS OF LOANS WERE CONVERTED INTO 36,00,000 EQUITY SHARE S OF THE COMPANY RSIL AS PER THE OPTION AVAILABLE TO THE APP ELLANT AND THE BALANCE OF AFORESAID PAYMENTS REMAINED AS DEBIT BAL ANCE. THESE TRANSACTIONS TOOK PLACE DURING THE COURSE OF ITS BU SINESS. IT WAS ALSO BROUGHT TO MY NOTICE THAT IN THE ASSESSEMNT OR DER U/S. 143(3) DATED 31.3.2000 FOR A.Y. 1997-98, WHEREIN THE EXPLA NATION GIVEN BY MR. STANY SALDANHA VIDE LETTER DATED 29.3.2000 STAT ING THE FACTS THAT THE ADVANCES TO RSIL WERE GIVEN ON ACCOUNT OF ALLOTMENT OF RSIL SHARES TO THE COMPANY WERE ACCEPTED BY THE ASS ESSING OFFICER HIMSELF AND ACCORDINGLY NO INTEREST WAS DISALLOWED ON THE SAID ADVANCES. THIS FACT IS ALSO TAKEN NOTE OF CONSIDER ING THE TOTALITY OF CIRCUMSTANCES AND ALSO THE FACT THAT THE COMPANY IS REGISTERED AS SICK COMPANY WITH BIFR. DISALLOWANCE OF INTEREST O N ACCOUNT OF SAID ADVANCES IS DELETED. 26. SINCE THERE IS NO CHANGE IN THE FACTS AS COMPAR ED TO THE A.Y. 1997-98 AND THE REVENUE HAS NOT MADE ANY DISALLOWANCE, THER EFORE BY APPLYING THE RULE OF CONSISTENCY, WE CONFIRM THE ORDER OF THE CI T(A). THUS, THIS GROUND STANDS DISMISSED. 27. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THAT OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DAY OF MAY, 2017. SD/- SD/- (RAVISH SOOD) (P K BANSAL) JUDICIAL MEMBER VICE-PRESIDENT MUMBAI; DATED : 30 TH MAY, 2017 SA M/S. LOTUS INVESTMENT LTD. 35 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A),MUMBAI 4. THE CIT 5. DR, E BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI