Unicorn Real Estate Developers Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 368/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65495 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 04-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR JAINDR
• Assessee Lawyers: R K KAPOORARS
• Keywords: Business expenditure; Principle of natural justice; Additional evidence; Notional interest; Commercial expediency; Onus to prove
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI H BENC H BEFORE SHRI RAJPAL YADAV, JM & SHRI A.N. PAHUJA, AM ITA NO.368 /DEL/2011 ASSESSMENT YEAR: 2007-08 & ITA NOS. 888 & 3482/DEL./2012 AYS 2008-09 & 2007-08 UNICORN REAL ESTATE DEVELOPERS PVT. LTD., 1-E, JHANDEWALAN EXTEN, NAAZ CINEMA COMPLEX, NEW DELHI V/S . ACIT,CIRCLE 18(1), ROOM NO. 211A, C.R. BUILDING, NEW DELHI [PAN : AAACU 7846 H ] ITA NO.1276 /DEL/2011 ASSESSMENT YEAR: 2007-08 ACIT, CIRCLE 18(1), ROOM NO. 211A, C.R. BUILDING, NEW DELHI V /S . UNICORN REAL ESTATE DEVELOPERS PVT. LTD., 1-E, NAAZ CINEMA COMPLEX, JHANDEWALAN EXTN., NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY S/SHRI PRADEEP DINODIA & R.K. KAPOOR,ARS REVENUE BY SHRI SANJAY KUMAR JAIN,DR DATE OF HEARING 04-09-2012 DATE OF PRONOUNCEMENT 21-09-2012 O R D E R A.N.PAHUJA:- THESE CROSS APPEALS FOR THE AY 2007-08 FILED BY TH E ASSESSEE ON 21.01.2011 AND BY THE REVENUE ON 11.03.2011 AGAIN ST AN ORDER DATED 28.12.2010 OF THE LD. CIT(A)-XXI, NEW DELHI BESIDE APPEAL FILED BY THE ASSESSEE ON 22.02.2012 AGAINST AN ORDER DATED 10.01.2012 OF THE LD. CIT(A)-XXI, NEW DELHI FOR THE AY 2008-09 AND APPEAL FILED ON 2 ND JULY, 2012 AGAINST AN ORDER I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 2 DATED 26.04.2012 OF THE LD. CIT(A)-XXI, NEW DELHI F OR THE AY 2007-08,RAISE THE FOLLOWING GROUNDS:- I.T.A. NO.368/DEL./2011-AY 2007-08[ASSESSEE] 1 THAT THE IMPUGNED ORDER DATED 28.12.2010 PASSED BY THE LEARNED CIT(A)-XXI, NEW DELHI IS BAD IN LAW AND WRONG ON FA CTS. 2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A)-XXI HAS ERRED IN LAW IN UPHOLDING THE ADDITI ON MADE BY THE ASSESSING OFFICER AMOUNTING TO ` `67,53,425/- ON ACCOUNT OF NOTIONAL INTEREST. 3 THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND, SUBSTITUTE, WITHDRAW AND/OR VARY ANY GROUNDS OF APPEAL AT OR BE FORE THE TIME OF HEARING. I.T.A. NO.1276/DEL./2011-AY 2007-08[REVENUE] THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW B Y DELETING ADDITION OF ` `1,54,85,176/- MADE U/S 40A(3) BY OBSERVING THAT TH E ASSESSEE HAS FURNISHED SUFFICIENT EVIDENCE TO DEMON STRATE ITS STAND THAT NO CASH PAYMENT, HAD BEEN MADE EITHER TO THE C ONSOLIDATOR OR TO THE LAND-OWNERS, IGNORING THAT: 1 IN THE LEDGER ACCOUNT OF LAND PURCHASE, THE AMOUNT AS PER SALE DEED WAS CLAIMED AS PAYMENT TO THE LAND SELLERS AND THE BALANCE WAS CLAIMED AS PART PAYMENT TO M/S VIKRAM ELECTRIC EQUIPMENTS (P) LTD. FOR PURCHASE OF LAND, BUT NO SUCH PAYMENT WAS EVIDENT FROM THE BANK STATEMENT OF M/S VIKRAM ELECTRIC EQUI PMENTS PVT. LTD. 2 THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT THE PAYMENTS CLAIMED TO HAVE BEEN BY IT TO M/S VIKRAM ELECTRIC E QUIPMENTS PVT. LTD. WERE MADE BY ACCOUNT PAYEE CHEQUES OR BANK DRA FTS. 3 IN VIEW OF THE OBSERVATION OF THE LEARNED CIT(A) THAT THE ASSESSEE HAS FILED SUFFICIENT EVIDENCE DURING APPELLATE PROC EEDINGS IN THIS REGARD, IT IS EVIDENT THAT THE DECISION IS BASED ON ADDITIONAL EVIDENCE WITHOUT AFFORDING THE ASSESSING OFFICER AN OPPORTUNITY TO EXAMINE THE SAME. I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 3 I.T.A. NO.888/DEL./2012-AY 2008-09[ASSESSEE] 1 THAT THE IMPUGNED ORDER DATED 10.1.2012 PASSED BY T HE LEARNED CIT(A)- XXI, NEW DELHI IS BAD IN LAW AND WRONG ON FACTS. 2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A)-XXI HAS ERRED IN LAW IN UPHOLDING THE ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO ` `4,34,000/- ON ACCOUNT OF NOTIONAL INTEREST. 3 THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND, SUBSTITUTE, WITHDRAW AND/OR VARY ANY GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. I.T.A. NO.3482/D/2012-AY 2007-08[ASSESSEE] 1. THAT THE IMPUGNED ORDER DATED 26.04.2012 PASSED BY THE LEARNED CIT(A)-XXI, NEW DELHI IS BAD IN LAW AND BASED ON ERRONEOUS FACTS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A)-XXI HAS ERRED IN LAW IN UPHOLDING TH E PENALTY IMPOSED BY THE ASSESSING OFFICER AMOUNTING TO ` `22,76,619/- U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND, SUBSTITUTE, WITHDRAW AND/OR VARY ANY GROUNDS OF APP EAL AT OR BEFORE THE TIME OF HEARING. 2. SINCE CONNECTED ISSUES ARE INVOLVED IN THESE AP PEALS, ACCORDINGLY THESE WERE HEARD SIMULTANEOUSLY FOR THE SAKE OF CON VENIENCE AND ARE BEING DISPOSED OF THROUGH THIS COMMON ORDER. 3. ADVERTING FIRST TO GROUNDS IN THE APPEAL OF TH E REVENUE FOR THE AY 2007-08,FACTS,IN BRIEF, AS PER RELEVANT ORDERS ARE THAT E-RETURN DECLARING LOSS OF ` `67,64,704/- FILED ON 23.02.2008 BY THE ASSESSEE, C ARRYING ON REAL ESTATE BUSINESS, AFTER BEING PROCESSED U/S 143(1) OF THE I NCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) AND WAS SELE CTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT, ISSUED ON 21.07. 2008. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER (A.O. IN SHORT) N OTICED THAT THE ASSESSEE WAS A SUBSIDIARY OF M/S DLF LTD. AND SO WAS THE CONSOLI DATOR M/S VIKRAM ELECTRIC I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 4 EQUIPMENT PVT. LTD. . THE ASSESSEE COMPANY WAS INC ORPORATED FOR THE PURPOSE OF ACQUIRING LAND WITH THE FUNDS PROVIDED BY THE PA RENT COMPANY. ON EXAMINATION OF BANK ACCOUNT OF VIKRAM ELECTRIC EQUI PMENT PVT. LTD.. IT TRANSPIRED THAT THERE WAS NO EVIDENCE OF PAYMENT MADE BY IT TO ANY OF THE VENDORS OF THE ASSESSEE COMPANY. ACCORDINGLY, THE AO CONCLUDED T HAT THE ASSESSEE MADE CASH PAYMENTS FOR PURCHASE OF LAND. THE AO, THERE AFTER EXTRACTED FROM THE COPY OF LEDGER ACCOUNT OF M/S VIKRAM ELECTRIC EQUIP MENT PVT. LTD. IN THE BOOKS OF THE ASSESSEE VIS--VIS LAND A/C THE FOLLOWING DETAILS:- S. NO . SALE DEED NO. & DATE AREA (ACRE) VENDOR(S) COST IN SALE DEED [IN ` ] COST IN LEDGER [IN ` ] BALANCE DEBITED TO M/S VIKRAM ELECTRIC EQPT. PVT. LTD. [IN ` ] 1 2026 1.7.06 13.73123 M/S METRO BUILDCON 6,67,43,730 (BY CHEQUE) +1 CR. BY CASH 782833277 11535577 2 2537 2.9.06 9 ACRE VEER BHAN, SANT KUMAR, YUDHISTER 34500000 3) 103500000 145746702 61911702 3 2977 21.8.06 1.03125 KRISHNA SINGH, SHAMBHU SINGH, SMT. SURESH, TARACHAN 12890625 17078225 3514150 I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 5 D 4. 2978 21.8.06 0.1250 RAM MEHRA, RAM SWAROOP, KRISHNA KUMAR 1562500 2070702 464452 TOTAL 23.88748 194696855 243178956 77425881 3.1 SINCE THE STAMP DUTY FOR THE AFORESAID TRANSA CTIONS WAS PAID BY M/S ABHEEK REAL ESTATE, ANOTHER GROUP COMPANY, THE AO CONCLUDED THAT THE TOTAL PAYMENT MADE TO M/S VIKRAM ELECTRIC EQUIPMENT PVT. LTD. IN RELATION TO PURCHASE OF LAND BY THE ASSESSEE TO VENDORS IS IN CASH. RESULTING IN VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT . THEREFORE , THE AO MADE DISALLOWANCE OF 20% OF THE AFORESAID PAYMENT ,RESULTING IN DISALLOW ANCE OF ` ` 1,54,85,176/-. 4. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOW ANCE IN THE FOLLOWING TERMS:- 3.2 I HAVE PERUSED THE SUBMISSIONS MADE BY THE ASSESSEE AND THE DOCUMENTS FILED BY IT DURING THE C OURSE OF APPELLATE PROCEEDINGS. REGARDING THE DISALLOWANCE U/S 40A(3), THE ASSESSEE HAS FILED SUFFICIENT EVIDENCE BEFORE THE A SSESSING OFFICER AS WELL AS BEFORE ME TO DEMONSTRATE ITS STAND THAT NO CASH PAYMENTS HAVE BEEN MADE EITHER TO THE CONSOLIDATOR OR TO THE LAND OWNERS. MY ATTENTION HAS BEEN DRAWN TO THE COPY OF ACCOUNT OF M/S VEEL AND THE CORRESPONDING ENTRIES IN THE BANK STAT EMENT FILED DURING THE COURSE OF APPELLATE PROCEEDINGS. IT IS SEEN THAT THE PAYMENTS HAVE BEEN MADE THROUGH BANK AND THERE IS N O CASH PAYMENT AS INFERRED BY THE ASSESSING OFFICER. IT IS ALSO NOTICED THAT THE ASSESSING OFFICER HAS A RRIVED AT HIS FINDING WITHOUT ANY COGENT REASON AS TO HOW CASH PA YMENT HAS BEEN MADE BY ASSESSEE COMPANY AND NOTHING HAS BEEN BROUGHT ON RECORD TO PROVE THAT ANY CASH PAYMENT HAS BEEN M ADE BY THE ASSESSEE. FURTHERMORE SECTION 40A(3) IS INVOKED WHERE THERE I S SPECIFIC INCIDENCE OF PAYMENT TO A PERSON OTHER WIS E THAN BY AN I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 6 ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAY EE BANK DRAFT, EXCEEDING TWENTY THOUSAND RUPEES. IN THE IN STANT CASE THERE IS NO SUCH PAYMENT BY ASSESSEE NOR ANY PARTICULAR D ETAILS OF PAYMENT HAS BEEN BROUGHT OUT BY ASSESSING OFFICER. SO, IN MY CONSIDERED VIEW PROVISIONS OF SECTION 40A(3) CANNOT BE INVOKED. 5. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED T HE ORDER OF THE AO WHILE CONTENDING THAT THE LD. CIT(A) DELETED THE DISALLOW ANCE WITHOUT CONFRONTING THE EVIDENCE, WHICH WAS FOUND TO BE SUFFICIENT BY HIM, TO THE AO NOR ANY OPPORTUNITY WAS ALLOWED TO THE AO BY THE LD. CIT(A) AND NOR EVE N THE ASSESSEE ESTABLISHED THAT THE PAYMENTS TO M/S VIKRAM ELECTRIC EQUIPMENT PVT. LTD. HAVE BEEN MADE BY A/C PAYEE CHEQUES OR BANK DRAFTS .ON THE OTHER HAND , THE LD. AR ON BEHALF OF THE ASSESSEE WHILE INVITING OUR ATTENTION TO PAGES 8, 9 ,23, 24 AND 25 OF THE PAPER BOOK CONTENDED THAT ALL THE PAYMENTS WERE MADE THR OUGH ACCOUNT PAYEE CHEQUES AND THEREFORE, THE LD. CIT(A) WAS JUSTIFIE D IN DELETING THE DISALLOWANCE. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. THE PROVISIONS OF SEC. 40A(3) OF THE ACT STIP ULATE THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS MADE, IN A SUM EXCEEDING TWENTY THOUSAND RUPEES OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT , TWENTY PER CENT. OF SUCH EXPENDITURE SHALL NOT BE ALLOWED AS A DEDUCTION. AS IS APPARENT FROM THE AFORESAID DETAILS EXTRACTED IN PARA 3 ABOVE, THE AO TREATED THE DIFFERENCE IN COST SHOWN AS PER DEEDS OF PURCHASE OF LAND AND COST SHOWN IN LEDGER AS CASH P AYMENT TO VENDORS AND DISALLOWED 20% OF THE DIFFERENCE. THE LD. CIT(A), W ITHOUT REFERRING TO ANY SPECIFIC EVIDENCE AND WITHOUT ALLOWING ANY OPPORTUNITY TO TH E AO, CONCLUDED THAT NO CASH PAYMENT HAS BEEN MADE. THE LD. CIT(A) DID NOT RECOR D HIS SPECIFIC FINDINGS ON THE PLEA MADE BY THE ASSESSEE BEFORE HIM THAT COST IN THE LEDGER WAS ` 24,77,79,656/- AS AGAINST ` 24,31,78,956/- ADOPTED BY THE AO WHILE THE AO TREATED THE DIFFERENCE OF ` 7,74,25,881/- AS DEBIT BALANCE AS AGAINST CLAIM OF CREDIT OUTSTANDING IN THE ACCOUNT OF M/S VIKRAM ELE CTRIC EQUIPMENT PVT. LTD. IN I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 7 THE BOOKS OF THE ASSESSEE. THE LD. AR NOW APPEARING BEFORE US STATED THAT PAYMENT OF ` 1 CRORE ON 28.6.2006, ` 5 CRORES ON 19.7.2006 & ` 13 CRORES ON 13.1.2007 TO M/S VIKRAM ELECTRIC EQUIPMENT PVT. LTD . ,HAD BEEN MADE BY A/C PAYEE CHEQUES. HOWEVER, THE LD. AR DID NOT RECONCIL E THE TOTAL PAYMENTS VIS-A- VIS AMOUNT SHOWN IN THE SALE DEEDS. WE FIND THAT THE AO AT SL. NO.1 IN THE TABLE EXTRACTED ABOVE STATED THAT SALE DEED REFLECTED PAY MENT OF ` 1 CRORE IN CASH. NEITHER THE LD. CIT(A) RECORDED HIS FINDINGS IN RE SPECT OF THIS CASH AMOUNT NOR THE LD. AR THREW ANY LIGHT ON THIS ASPECT BEFORE US . A MERE GLANCE AT THE IMPUGNED ORDER REVEALS THAT THE LD. CIT(A) DID NOT ANALYSE THE FACTS IN THE PROPER PERSPECTIVE NOR RECORDED HIS SPECIFIC FINDINGS ON T HE FACTS FOUND BY THE AO OR THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE HIM. APPARE NTLY, THE IMPUGNED ORDER IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF T HE FACETS OF THE RULES OF NATURAL JUSTICE, NAMELY, THAT EVERY JUDICI AL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS A REASONED ORDER, WHICH SH OULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO T HE ISSUES/POINTS RAISED BEFORE IT. THE APPLICATION OF MIND TO THE MA TERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST ITSELF IN THE ORDER. SECTION 250(6) OF THE ACT MANDATES THAT THE ORDER OF THE CIT(A) WHIL E DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHALL STATE THE POIN TS FOR DETERMINATION, THE DECISION THEREON AND THE REASONS FOR THE DECISION. THE REQUIREMENT OF RECORDING OF REASONS A ND COMMUNICATION THEREOF BY THE QUASI-JUDICIAL AUTHORI TIES HAS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PRO CEDURE AND IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RUL E OF LAW. IT INTRODUCES CLARITY, CHECKS THE INTRODUCTION OF EXTR ANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZES ARBITRARINE SS IN THE DECISION-MAKING PROCESS. HONBLE JURISDICTIONAL HIG H COURT IN THEIR DECISION IN VODAFONE ESSAR LTD. VS. DRP,196 TAXMAN423(DELHI) HELD THAT WHEN A QUASI JUDICIAL AUTHORITY DEALS WITH A LIS, IT IS OBLIGATORY ON IT S PART TO ASCRIBE COGENT AND GERMANE REASONS AS THE SAME IS THE HEART AND SOUL O F THE MATTER AND FURTHER, THE SAME ALSO FACILITATES APPRECIATION WHEN THE ORDER I S CALLED IN QUESTION BEFORE THE I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 8 SUPERIOR FORUM. WE MAY POINT OUT THAT A DECISION DOES NOT MERELY MEAN THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHTIAR SINGH VS . STATE OF PUNJAB,(1995)1SCC 760(SC)].AS ALREADY OBSERVED, THE IMPUGNED ORDER SUFFERS FROM LACK OF REASONING AND IS NOT A SPEAKING ORDER ON THE ISSUE OF DISALLOWANCE U/S 40A(3) OF THE ACT. I N VIEW OF THE FOREGOING, ESPECIALLY WHEN THE LD. CIT(A) HAVE NOT PASSED A SPEAKING ORDER,WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO H IS FILE FOR DECIDING THE AFORESAID ISSUE, AFRESH IN ACCORDANCE WITH LAW , AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLES S TO SAY THAT WHILE REDECIDING THE APPEAL, THE LD. CIT(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISI ONS OF SEC. 250(6) OF THE ACT. WITH THESE OBSERVATIONS, GROUNDS RAISED IN THE APPEAL OF THE REVENUE FOR THE AY 2007-08 ARE DISPOSED OF. 7. ADVERTING NOW TO GROUND NO.2 IN THE APPEAL OF T HE ASSESSEE FOR THE AY 2007-08, THE AO NOTICED THAT THE ASSESSEE PAID I NTEREST OF ` `67,53,425/- TO ITS SISTER CONCERN M/S ESKANA DEVELOPERS ON A LOAN OF ` 8,50,00,000/- OUTSTANDING AT THE END OF ONE YEAR WHILE IT DID NOT CHARGE INTERES T ON ADVANCE OF ` 4,35,74,119/- TO ANOTHER SISTER M/S VIKRAM ELECTRIC EQUIPMENT PV T. LTD..THE MAXIMUM OUTSTANDING AGAINST THE SAID COMPANY WAS ` `13 CRORES WHILE ITS BANK ACCOUNT REVEALED THAT IT HAD PLENTY OF FUNDS AND NO FURTHER LAND WAS ACQUIRED DURING THE YEAR. SINCE THE ASSESSEE FAILED TO ESTABLISH THE P URPOSE OF ADVANCING INTEREST FREE AMOUNT TO ITS SISTER CONCERN WITHOUT CHARGING INTEREST, THE AO DISALLOWED INTEREST OF ` ` 67,53,425/- PAID TO M/S ESKANA DEVELOPERS. 7.1 FOR SIMILAR REASONS, THE AO DISALLOWED AN AMOU NT OF ` ` 4,34,000/- IN THE AY 2008-09. I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 9 8. ON APPEAL, THE LD. CIT(A) UPHELD THE FINDINGS O F THE AO IN THE AY2007-08 IN THE FOLLOWING TERMS:- 4.2. IN THIS REGARD IT IS FOUND THAT ASSESSEE HAS PAID INTEREST OF RS.67,53,425/- TO SISTER CONCERN NAMELY; ESKANA DEV ELOPERS BUT HAS NOT CHARGED ANY INTEREST ON THE OUTSTANDING ADV ANCE GIVEN TO ANOTHER SISTER CONCERN M/S. VIKRAM ELECTRIC EQUIPME NT PVT. LTD. AMOUNTING TO RS.4,35,74,119/-. EXPENDITURE UNDER TH E HEAD 'INTEREST', BEING REVENUE AND NON-PENAL IN NATURE, IS DEALT WITH BY SECTION 36 OF THE ACT. SECTION 36(1)(III) DEALS WIT H THE ALLOWABILITY OF DEDUCTION WITH REGARD TO INTEREST PAID IN RESPECT O F CAPITAL BORROWED. ACCORDING TO SECTION 36(1)(III), FOR CLAI MING DEDUCTION IN RESPECT OF INTEREST ON THE BORROWINGS, THE ASSESSEE HAS TO FULFILL THREE CONDITIONS, VIZ: 1. THE MONEY, THAT IS CAPITAL, MUST HAVE BEEN BORRO WED BY THE ASSESSEE. 2. IT MUST HAVE BEEN BORROWED FOR THE PURPOSE OF BUSINESS. 3. THE ASSESSEE MUST HAVE PAID INTEREST ON BORROW ED AMOUNT. THUS, THE ESSENTIAL CONDITION IS THAT MONEY MUST BE BORROWED BY THE ASSESSEE FOR THE PURPOSE OF THE BUSINESS. 4.3 WHEN A PERSON BORROWS FUNDS HE EXPOSES HIMSEL F TO CERTAIN RISKS BY WAY OF OBLIGATION TO REPAY CAPITAL , TO PAY INTEREST ON SUCH MONIES BORROWED. WHEN A PERSON BORROWS FUNDS O BVIOUSLY HE SEES HIMSELF AS A BUSINESSMAN BECAUSE HE ANTICIPATE S THAT WHAT HE BORROWED HE CAN UTILIZE MORE FRUITFULLY IN THE S ENSE THAT HE EXPECTS THIS MONEY TO YIELD RETURN WHICH IS MORE TH AN THE INTEREST THAT HE IS PAYING ON THE CAPITAL THAT HE HAS BORROW ED. ULTIMATELY THE ESSENCE OF BUSINESS IS PROFIT MOTIVE. THE BORROWER WOULD THEREFORE SEEK TO INVEST FUNDS WITH A VIEW NOT ONLY TO MAKE P ROFITS BUT TO MAKE PROFITS IN THE TIME FRAME THAT HE HAS TO PAY I NTEREST SO THAT THE PRINCIPAL SUM BORROWED IS SERVICED THROUGH PAYMENT OF INTEREST AND THROUGH REPAYMENT OUT OF RETURNS ON THE MONIES BORR OWED IN ACCORDANCE WITH THE TERMS OF AGREEMENT OF BORROWING . ON THE OTHER HAND, WHEN A PERSON IS INVESTING HIS OWN CAPITAL HE IS AVERSE TO TAKE RISKS AND WOULD THEREFORE, ESSENTIALLY BE AN I NVESTOR WHO WOULD SEEK TO MINIMIZE HIS LOSSES AND IN THE PROCES S PERHAPS ALSO MINIMIZE HIS GAINS. THESE ARE THE HALLMARKS OF INVE STMENT AS OPPOSED TO SAY SPECULATION. IN METRO EXPORTERS LTD VS. ITA (2009) I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 10 29 SOT 531 (MUM.) THE ASSESSEE BORROWED MONEY FROM A COMPANY BELONGING TO THE SAME GROUP. INTEREST PAID ON SUCH BORROWING WAS DISALLOWED BY THE AO FOR THE REASON T HAT THE ASSESSEE HAD GIVEN INTEREST FREE LOANS TO AN ALLIED CONCERN. IT WAS HELD THAT SO LONG AS THE AMOUNT BORROWED IS USED FO R BUSINESS, INTEREST ON SUCH BORROWING IS ELIGIBLE TO BE DEDUCT ED WHILE COMPUTING THE INCOME FROM BUSINESS. IT WAS HELD THA T THE OBJECT OF SECTION 36(1 )(III) IS NOT TO ENABLE THE ASSESSEE T O . MAKE LARGE BORROWINGS AND CREATE INTEREST LIABILITY IN THE YEA R OF BORROWAL AND IN SUBSEQUENT YEARS AND DIVERT THE BORROWED SUMS BY GI VING IT FREE OF INTEREST TO ITS GROUP CONCERNS, RELATIVES AND PERSO NAL USE OF THE BORROWER. THERE IS NO NECESSITY TO CORRELATE THE BO RROWAL TO INVESTMENTS AS DISCUSSED ABOVE WHEN THE APPELLANT I S HAVING FLOWING FUNDS AS HAS BEEN HELD BY HONBLE MUMBAI IT AT IN THE CASE OF METRO EXPORTERS LTD. V S. ITO (2009) 29 SOT 531 (MUM.). I ALSO RELY ON THE FOLLOWING JUDGMENTS:- - HIGHWAYS CONSTRUCTION CO. PVT. LTD. VS. CIT (GAU) 199 ITR 702 - CIT VS. M.S. VENKATESWARAN (MAD) 222 ITR 163 - MADHAV PRASAD JATIA VS. CIT (SC) 118 ITR 200 - CIT VS. GOPIKRISHNA MURALIDHAR (AP) 47 ITR 469 - CIT VS. INDIA SILK HOUSE (MAD) 152 ITR 79 - K. SOMASUNDARAM & BROTHERS VS. CIT (MAD) 238ITR 9 39 - MAROLINA & SONS VS. CIT (ALL) 129ITR 475 - TIRUPATHI TRADING CO. VS. CIT (CAL) 242 ITR 13 - CIT VS INDIAN EXPRESS NEWSPAPERS (MADURAI) P. LTD . (MAD) 238 ITR 70 - DEBIKAY INFORMATION TECHNOLOGY LTD VS. ACIT (ITAT , DEL) 61 TTJ 709 - CIT VS SUJANNI TEXTILES (P) LTD (MAD) 225 ITR 560 - CIT VS. H.R. SUGAR FACTORY (P)LTD. (ALL) 187 ITR 363 4.4 THE CLAIM OF THE APPELLANT REGARDING ALLOWAB ILITY OF INTEREST HAS BEEN ANALYSED IN DEPTH. APPELLATE AUTH ORITY HAS THE JURISDICTION AS WELL AS THE DUTY TO CORRECT ALL ERR ORS IN THE PROCEEDINGS UNDER APPEAL AND TO ISSUE, IF NECESSARY , APPROPRIATE DIRECTIONS TO THE AUTHORITY AGAINST WHOSE DECISION THE APPEAL IS PREFERRED TO DISPOSE OF THE WHOLE OR ANY PART OF TH E MATTER AFRESH, UNLESS FORBIDDEN FROM DOING SO BY THE STATUTE. THE CIT(A) HAS ALL POWERS OF THE AO. THIS INFERENCE FINDS SUPPORT FROM THE FOLLOWING I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 11 CITATIONS: KAPURCHAND SHRIMAL VS. CIT (SC) 131 ITR 451, INDERMAL NATWARLAL VS. CIT (MP) 166 ITR 494, PRABHAVATHI S. SHAH VS. CIT (BORN) 231 ITR 1 AND TOLIN RUBBERS (P) LTD. VS. CIT (KER) 264 ITR 439. 4.5. I HAVE CAREFULLY CONSIDERED THE SUBMISSION O F THE APPELLANT AND PERUSED MATERIAL ON RECORD. AS REGARD S THE CASE LAWS RELIED UPON BY THE APPELLANT, IT MAY BE MENTIONED T HAT THESE CASE LAWS RELIED UPON BY THE APPELLANT ARE DISTINGUISHAB LE ON FACTS AND DO NOT APPLY TO THE APPELLANT'S CASE. THESE CASES A ND OTHER SIMILAR CASES LAY DOWN CERTAIN WELL ESTABLISHED PRINCIPLES OF LAW REGARDING BURDEN OF PROOF AND APPRECIATION OF EVIDENCE THERE IS NO DISPUTE ABOUT SUCH PRINCIPLES. THE QUESTION IS ONE OF APPLI CABILITY OF THE PRINCIPLES TO THE FACTS IN A GIVEN CASE. IT HAS BEE N A WELL SETTLED VIEW THAT THE RATIO OF ANY DECISION MUST BE UNDERST OOD IN THE BACKGROUND OF THAT CASE. WHAT IS OF ESSENCE IN A DE CISION IS ITS RATIO AND NOT EVERY OBSERVATION FOUND THEREIN NOR W HAT LEGALLY FOLLOWS FROM THE VARIOUS OBSERVATIONS MADE IN IT. I T IS NOT A PROFITABLE ASK TO EXTRACT A SUITABLE SENTENCE HERE AND THERE FROM A JUDGMENT AND TO BUILD UPON IT (VIDE AMBICA QUARRY W ORKS V. STATE OF GUJARAT, AIR 1987 SUPREME COURT 1073). IN MY CON SIDERED VIEW, THE PRINCIPLES ENUNCIATED IN THE CITED CASES DO NOT RENDER ANY HELP TO THE APPELLANT IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE BECAUSE THE APPELLANT'S CASE IS HELD TO BE DISTINGU ISHABLE ON FACTS. 8.1 FOLLOWING HIS OWN DECISION IN THE AY 2007-08, THE LD.CIT(A) UPHELD THE DISALLOWANCE IN THE AY 2008-09 ALSO. 9. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). AT THE OUTSET, THE LD. AR POINTED OUT THAT M/S VIKRAM ELECTRIC EQUIPMENT PVT. LTD. WAS NOT A SISTER CONCE RN OF THE ASSESSEE NOR THE ASSESSEE AND THE SAID CONCERN WERE SUBSIDIARIES O F THE M/S DLF. LTD. SINCE THE ADVANCE WAS MADE BY THE ASSESSEE FOR PURCHASE O F LAND, THE AO WAS NOT JUSTIFIED IN DISALLOWING THE INTEREST. INTER ALIA, THE LD. AR RELIED UPON DECISION IN CIT VS. PHIL CORPN. LTD. (2011) 14 TAXMAN.COM 58 (B OM.) ; CIT VS. RELIANCE COMMUNICATIONS INFRASTRUCTURE. LTD. 21 TAXMAN.COM 1 18 (BOM.) BUILDERS LTD. VS. CIT,288 ITR 1 (SC).ON THE OTHER HAND, THE LD. D R SUPPORTED THE FINDINGS OF THE LD. CIT(A) WHILE RELYING UPON DECISION IN PUNJ AB STAINLESS STEEL INDUSTRIES VS. CIT,324 ITR 396 (DELHI) I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 12 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON BY BOTH THE SIDES. AS IS APPARENT FROM THE AFORESAID FACTS, THE AO DISALLOWED ENTIRE INTEREST PAID TO M/S ESKANA DEVELOPERS ON LOAN TAKEN BY THE ASSESSEE ON THE GROUND THAT TH E ASSESSEE PROVIDED INTEREST FREE FUNDS TO A SISTER CONCERN NAMELY M/S VIKRAM E LECTRIC EQUIPMENT PVT. LTD. AND SINCE NO FURTHER LAND WAS ACQUIRED DURING THE YEAR, THERE WAS NO BUSINESS EXPEDIENCY. THE LD. CIT(A) UPHELD THE FINDINGS OF T HE AO ,RELYING UPON A NUMBER OF DECISIONS, INCLUDING M/S METRO EXPORTERS LTD.(SU PRA). HOWEVER, THE LD. CIT(A) DID NOT RECORD ANY FINDINGS AS TO THE BUSINESS EXPE DIENCY OF INTEREST FREE ADVANCES NOR ATTEMPTED TO ASCERTAIN THE NEXUS BETWE EN BORROWED FUNDS AND INTEREST FREE ADVANCES AND NOR EVEN EXAMINED THE SUBMISSIONS OF THE ASSESSEE THAT M/S VIKRAM ELECTRIC EQUIPMENT PVT. LTD. WAS NO T A SISTER CONCERN OF THE ASSESSEE NOR THE ASSESSEE AND THE SAID CONCERN WERE SUBSIDIARIES OF THE M/S DLF.LTD. . APPARENTLY ,THE LD. CIT(A) DID NOT ANALY SE THE ISSUE IN A PROPER PERSPECTIVE NOR IT IS EVIDENT FROM THE IMPUGNED ORD ERS AS TO ON WHICH DATE INTEREST FREE ADVANCE WAS GIVEN TO M/S VIKRAM ELECT RIC EQUIPMENT PVT. LTD. AND WHAT WAS THE PURPOSE AND FOR WHAT PURPOSE INTEREST BEARING FUNDS WERE BORROWED BY THE ASSESSEE. THE AO CONCLUDED IN HIS ORDER THAT NO FURTHER LAND HAD BEEN ACQUIRED DURING THE YEAR WHILE THE LD. AR CONTENDED BEFORE US THAT ADVANCE WAS GIVEN FOR PURCHASE OF LAND. THERE IS N OTHING TO SUGGEST AS TO ON WHICH DATE LAND WAS PURCHASED BY THE ASSESSEE WITH THESE FUNDS ADVANCED TO M/S VIKRAM ELECTRIC EQUIPMENT PVT. LTD NOR ANY NEXU S BETWEEN BORROWED FUNDS AND INTEREST FREE ADVANCE APPEARS TO HAVE BEEN ESTA BLISHED. AS IS APPARENT FROM THE IMPUGNED ORDERS, BEFORE THE AO OR THE LD. CIT( A), THE ASSESSEE DID NOT PLACE ANY EVIDENCE AS TO HOW THE FUNDS BORROWED BY IT HAD BEEN UTILIZED AND WHAT WAS THE COMMERCIAL EXPEDIENCY IN SUCH BORROWI NGS. IN THIS CONNECTION, THE RELEVANT PROVISIONS OF SECTION 36(1)(III) OF THE AC T PROVIDE FOR DEDUCTION OF INTEREST ON THE BORROWED FUNDS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION, THE ONUS IS ON THE ASSESSEE TO SATISFY THE AO THAT LOANS RAISED BY THE ASSESSEE WERE USED FOR BUSINESS PURPO SES. IF IN THE PROCESS OF I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 13 EXAMINATION OF CLAIM FOR SUCH A DEDUCTION, IT TRANS PIRES THAT THE ASSESSEE HAD DIVERTED CERTAIN FUNDS TO ASSOCIATE OR SISTER CONCE RNS WITHOUT ANY INTEREST, THERE WOULD BE A VERY HEAVY ONUS ON THE ASSESSEE TO BE DI SCHARGED BEFORE THE AO TO THE EFFECT THAT IN SPITE OF PENDING LOANS ON WHICH THE ASSESSEE WAS INCURRING THE LIABILITY TO PAY INTEREST, STILL THERE WAS JUSTIFIC ATION FOR DIVERSION OF FUNDS TO ASSOCIATE OR SISTER CONCERNS FOR NON-BUSINESS PURPO SES . IN MADHAV PRASAD JATIA V. CIT [1979] 118 ITR 200 (SC) HONBLE SUPREME COURT OBSERVED THAT UNDER S. 10(2)(III) OF THE 1922 ACT( NOW SEC. 36(1)(III) OF THE 1961 ACT), THREE CONDITIONS WERE REQUIRED TO BE SATISFIED IN ORDER TO ENABLE TH E ASSESSEE TO CLAIM A DEDUCTION IN RESPECT OF INTEREST ON BORROWED CAPITAL, NAMELY, (A) THAT MONEY (CAPITAL) MUST HAVE BEEN BORROWED BY THE ASSESSEE, (B) THAT IT MUS T HAVE BEEN BORROWED FOR THE PURPOSE OF BUSINESS, AND (C) THAT THE ASSESSEE MUST HAVE PAID INTEREST ON THE SAID AMOUNT AND CLAIMED IT AS A DEDUCTION. IT W AS ALSO HELD THAT THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' OCCURRING UNDER THE PROVISION IS WIDER IN SCOPE THAN THE EXPRESSION 'FOR THE PURPOSE OF EARNI NG INCOME, PROFITS OR GAINS'. IN THE CASE UNDER CONSIDERATION, THERE IS NOTHING IN THE ORDER OF LOWER AUTHORITIES TO SUGGEST THAT THE ASSESSEE DISCHARGED THE ONUS L AID DOWN UPON THEM THAT BORROWED FUNDS HAD INDEED BEEN UTILIZED FOR THE PUR POSE OF ITS BUSINESS SO AS TO ENTITLE IT TO CLAIM DEDUCTION U/S 36(1)(III) OF THE ACT. IN CASE THE ASSESSEE HAD SOME SURPLUS AMOUNT WHICH, ACCORDING TO HIM, COULD NOT BE REPAID PREMATURELY TO ITS CREDITORS, STILL THE SAME WERE EITHER REQUIR ED TO BE CIRCULATED AND UTILISED FOR THE PURPOSE OF BUSINESS OR TO BE INVESTED IN A MANN ER IN WHICH IT GENERATES INCOME AND NOT THAT THESE WERE DIVERTED TOWARDS AS SOCIATE OR SISTER CONCERNS FREE OF INTEREST . THIS WOULD RESULT IN NOT PRESENT ING THE TRUE AND CORRECT PICTURE OF THE ACCOUNTS OF THE ASSESSEE AS AT THE COST BEING I NCURRED BY THE ASSESSEE, THE ASSOCIATE OR SISTER CONCERNS/PERSONS WOULD BE ENJOY ING THE BENEFITS THEREOF. IT CANNOT BE HELD THAT THE FUNDS TO THE EXTENT DIVERT ED TO ASSOCIATE CONCERNS/PERSONS WITHOUT CHARGING ANY INTEREST, WER E REQUIRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND LOANS TO THAT E XTENT WERE REQUIRED TO BE RAISED. UNLESS THE INTEREST FREE LOAN GOES TO ADVAN CE BUSINESS INTEREST OF THE ASSESSEE, THERE CANNOT BE ANY COMMERCIAL EXPEDIENCY . I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 14 10.1 IN THE INSTANT CASE, THE ASSESSEE FAILED TO ESTABLISH THAT THE INTEREST FREE ADVANCES WERE GIVEN OUT OF INTEREST FREE BORROWINGS OR OWN FUNDS NOR EVEN ESTABLISHED ANY COMMERCIAL EXPEDIENCY IN ADVANCING FUNDS WHILE EVEN NO CASH FLOW STATEMENT WAS PLACED BEFORE LOWER AUTHORITIES AND EVEN BEFORE US . IN PUNJAB STAINLESS STEEL INDUSTRIES(SUPRA),RELIED UPO N BY THE LD. DR, HONBLE HIGH COURT HELD AS UNDER: IN THE INSTANT CASE, THERE WAS ABSOLUTELY NO FINDI NG RECORDED BY THE TRIBUNAL THAT THE INTEREST FREE ADVANCES WERE MADE BY THE ASSESSE E TO SISTER CONCERN FOR ITS BUSINESS PURPOSES. THERE WAS NO SUCH FINDING BY THE TRIBUNAL EVEN WITH RESPECT TO THE ADVANCES EXTENDED IN THE PREVIOUS YEARS. IT WAS NOT THE CASE OF THE ASSESSEE THAT IT HAD SO MUCH SURPLUS CASH AVAILABLE WITH IT AT THE TIME OF EXTENDING THOSE ADVANCES THAT THE SAME COULD HAVE B EEN EXTENDED BY IT OUT OF THOSE SURPLUS FUNDS AVAILABLE TO IT. IN FACT, THE P AYMENTS MADE TO SISTER CONCERN FROM CASH CREDIT ACCOUNT INDICATED TO THE CONTRARY AND SHOWED THAT ADVANCES MADE DURING THE FINANCIAL YEAR RELEVANT TO THE ASSE SSMENT YEAR 2001-02, WERE EXTENDED OUT OF BORROWED FUNDS AND NOT OUT OF ANY C REDIT BALANCE AVAILABLE WITH THE ASSESSEE-FIRM AT THAT TIME. 10.2 IN K. SOMASUNDARAM AND BROTHERS V. CIT [1999 ] 238 ITR 939 , WHILE DEALING WITH A SIMILAR PROPOSITION, THE HONBLE MAD RAS HIGH COURT HELD .. THE ASSESSEE CLEARLY DIVERTED THE FUNDS WHICH HAD BEEN BORROWED, HAD BEEN INVESTED IN THE CONTRACT WORK, AFTER THE INVES TMENT WAS RECOVERED AND WAS AVAILABLE EITHER FOR THE PURPOSES OF THE BUSINESS O R BY WAY OF REPAYMENT OF THE LOAN. THE ASSESSEE DID NEITHER, BUT CHOSE TO DIVERT THE MONEY FOR NON-BUSINESS PURPOSES. AFTER SUCH DIVERSION, THE INTEREST PAID O N THE CAPITAL BORROWING TO THE EXTENT OF THE AMOUNTS DIVERTED CAN NO LONGER BE AN ITEM OF EXPENDITURE WHICH CAN BE CLAIMED FOR DEDUCTION AS AN ITEM OF BUSINESS EXPENDITURE. IF THE AMOUNTS DIVERTED WAS SUBSEQUENTLY BROUGHT BACK INTO THE BUS INESS AND UTILISED IN THE BUSINESS, THE ASSESSEE COULD THEREAFTER CLAIM THE I NTEREST PAID AS A DEDUCTION. BUT SO LONG AS THE DIVERSION CONTINUES THE ASSESSEE WOULD BE DISENTITLED.' 10.3 IN THE LIGHT OF VIEW TAKEN IN AFORESAID DEC ISIONS, ESPECIALLY WHEN THE LD. AR VEHEMENTLY ARGUED BEFORE US THAT INTEREST FREE ADV ANCE WAS GIVEN FOR PURCHASE OF LAND AND THAT M/S VIKRAM ELECTRIC EQUIPMENT PVT. LTD. WAS NOT A SISTER CONCERN OF THE ASSESSEE NOR THE ASSESSEE AND THE SAID CONCE RN WERE SUBSIDIARIES OF THE I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 15 M/S DLF. LTD. WHILE NO SUCH EVIDENCE WAS PLACED B EFORE THE AO OR THE LD. CIT(A) AND EVEN BEFORE US NOR THE LD. CIT(A) RECORD ED ANY FINDINGS ON THESE ASPECTS, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE ISSUE IN THE GROUND RAISED IN THESE TWO ASSESSMENT YEARS TO HIS FILE FOR DECIDING THE MATTER AFRESH IN ACCORDANCE WITH LAW, IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AND OF COURSE AFTER A LLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES AND KEEPING IN VIEW VARIOUS JUDICI AL PRONOUNCEMENTS, INCLUDING THOSE REFERRED TO ABOVE. WITH THESE OBSERVATIONS, GROUND NO. 2 IN THE APPEALS OF THE ASSESSEE FOR THE AYS 2007-08 & 2008-09 ARE DISP OSED OF. 11. NOW, ADVERTING TO GROUND NO.2 RAISED IN THE A PPEAL OF THE ASSESSEE IN ITA NO. 3482/DEL./2012FOR THE AY 2007-08 IN RE LATION TO LEVY OF PENALTY U/S 271(1)(C) OF THE ACT ON THE DISALLOWANCE OF INT EREST ,SINCE WE HAVE SET ASIDE THE ISSUE OF DISALLOWANCE OF INTEREST IN QUANTUM AP PEAL FOR THE AY 2007-08, PENALTY IMPOSED U/S 271(1)(C) OF THE ACT DOES NOT S URVIVE AT THIS STAGE. HONBLE SUPREME COURT IN THE CASE OF K.C.BUILDERS VS. ACIT ,265 ITR 562(SC) HELD THAT ORDINARILY, PENALTY CANNOT STAND IF THE ASSESSMENT ITSELF IS SET ASIDE. SINCE THE VERY BASIS UPON WHI CH THE PENALTY HAS BEEN IMPOSED ON THE AMOUNT OF ` 67,53,425/- ADDED BY THE AO, DOES NOT EXIST IN VIEW OF THE AFORESAID ORDER IN QUANT UM APPEAL, WE ARE OF THE OPINION THAT PENALTY LEVIED IN RELATION TO T HE SAID AMOUNT DOES NOT SURVIVE AT THIS STAGE. ACCORDINGLY, THE IMPUGNE D ORDER IS , THEREFORE, SET ASIDE TO THAT EXTENT AND THE LD. CIT (A) IS DIRECTED TO READJUDICATE THE LEVY OF PENALTY IN ACCORDANCE WIT H LAW IN THE LIGHT OF HIS FINDINGS IN PURSUANCE TO OUR DIRECTIONS IN QUANTUM APPEAL AND OF COURSE AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. WITH THESE OBSERVATIONS, GROUND NO. 2 IN THE APPEAL OF THE ASSESSEE FOR THE AY 2007-08 IS DISPOSED OF. 12. GROUND NO.1 IN THESE APPEALS OF THE ASSESSEE, BEING GENERAL IN NATURE NOR ANY SUBMISSIONS HAVING BEEN MADE BEFORE US ON THESE GROUNDS, DO I.T.A.NOS.368 &1276 /DEL./2011 & ITA NO. 8 88& 3482/DEL./2012 16 NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDI TIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO.3 IN THEIR APPEALS FOR AYS 2007- 08 AND 2008-09, ACCORDINGLY, ALL THESE GROUNDS ARE DISMISSED. 13. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE U S 14. IN THE RESULT, THESE FOUR APPEALS ARE ALLOW ED BUT FOR STATISTICAL PURPOSES. SD/- SD/- (RAJPAL YADAV) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE 2. ACIT,CIRCLE 18(1), ROOM NO. 211A, C.R. BUILDING, NEW DELHI 3. CIT CONCERNED. 4. CIT(A)-XXI, NEW DELHI 5. DR, ITAT,H BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT