DCIT, New Delhi V. M/s. Powerlink Transmission Ltd., New Delhi

ITA 3870/DEL/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9272 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 25-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 04-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: MANONEET DALAL; ANKIT GOYAL
• Keywords: Reopening of assessment; Business expenditure; Proportionate interest; Question of law; Tangible material; Difference of opinion; Commercial expediency; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 36 (1) (iii); 147; 148

Judgement Text

ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 1 OF 18 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: F, NEW DELHI) BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER ITA NOS.:- 3869 & 3870/DEL/2014 ( ASSESSMENT YEARS: 2007-08 & 2010-11) DY. COMMISSIONER OF INCOME TAX, CIRCLE-14(1), NEW DELHI. VS. M/S POWERLINK TRANSMISSION LTD., 10 TH FLOOR, DLF TOWER-A, DISTRICT CENTRE, JASOLA, NEW DELHI-110025. PAN NO. - AABCT7775M APPELLANT RESPONDENT C.O. NO.-128/DEL/2017 ARISING FROM ITA NO:- 3869/DEL/2014 ( ASSESSMENT YEAR: 2007-08) M/S POWERLINK TRANSMISSION LTD., 10 TH FLOOR, DLF TOWER-A, DISTRICT CENTRE, JASOLA, NEW DELHI-110025. VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE-14(1), NEW DELHI. PAN NO. - AABCT7775M APPELLANT RESPONDENT REVENUE BY : SH. SURENDER PAL, SR. DR ASSESSEE BY : SH. MANONEET DALAL, ADV. & SH. ANKIT GOYAL, CA ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 2 OF 18 ORDER PER: ANADEE NATH MISSHRA, AM ITA NO. 3869/DEL/2014 BY REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNE D COMMISSIONER OF INCOME TAX (APPEALS)-XVII, DELHI (F OR SHORT HEREINAFTER REFERRED TO AS THE LD. CIT(A)) DATED 09.04.2014 FOR ASSESSMENT Y EAR 2007-08, ON THE FOLLOWING GROUNDS OF APPEAL: - ITA NO.-3869/DEL/2014 I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.6,45,21,521/- U/S 36 (1) (III) OF THE ACT ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE, BY NOT APPRECIATING THE FACT THAT THE ASSESSEE COMPANY HAS USED THE BORROWE D FUNDS FOR NON- BUSINESS PURPOSES. II. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT (A) HAS ERRED IN DELETING THE ABOVE ADDITION U/S 36 (1) (II I) OF THE ACT BY NOT APPRECIATING THE FACT THAT THE AO HAS MENTIONED DET AILED REASONS OF DISALLOWANCES IN ASSESSMENT ORDER. III. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH GROUNDS OF APPEAL AND / OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. (1.1) ITA NO. 3870/DEL/2014 BY REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNE D COMMISSIONER OF INCOME TAX (APPEALS)-XVII, DELHI (F OR SHORT HEREINAFTER REFERRED TO AS THE LD. CIT(A)) DATED 09.04.2014 FOR ASSESSMENT Y EAR 2010-11, ON THE FOLLOWING GROUNDS OF APPEAL: - ITA NO.-3870/DEL/2014 I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.15,41,80,533/- U/S 36 (1) (III) OF THE ACT ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE, BY NOT APPRECIATING THE ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 3 OF 18 FACT THAT THE ASSESSEE COMPANY HAS USED THE BORROWE D FUNDS FOR NON- BUSINESS PURPOSES. II. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT (A) HAS ERRED IN DELETING THE ABOVE ADDITION U/S 36 (1) (II I) OF THE ACT BY NOT APPRECIATING THE FACT THAT THE AO HAS MENTIONED DET AILED REASONS OF DISALLOWANCES IN ASSESSMENT ORDER. III. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH GROUNDS OF APPEAL AND / OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. (1.2) CROSS OBJECTION 128/DEL/2017 HAS BEEN FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2007 -08, ON THE FOLLOWING GROUNDS: C/O NO.- 128/DEL/2017 I THE LD. COMMISSIONER OF INCOME-TAX (APPEAL)-XVII [CIT-(A)] HAS ERRED IN CONFIRMING THE ACTIONS OF THE LD. ASSESSING OFFICER OF RE-OPENING OF ASSESSMENT PROCEEDING U/S 148 READ WITH SECTION 147 OF THE INCOME-TAX ACT, 1961 (THE ACT) WITHOUT APPRECIATING THE FACTS OF TH E CASE THE LAW. II. THAT THE CIT(A) ERRED IN IGNORING THE SUBMISSIO NS OF THE APPELLANT THAT IN ABSENCE OF FRESH AND TANGIBLE MATERIAL AND ON MERE CHANGE OF OPINION THE PROCEEDINGS U/S 148 READ WITH SECTION 147 OF THE AC T WERE INVALID, BAD IN LAW AND ORDER PASSED U/S 143(3) READ WITH SECTION 147 O UGHT TO HAVE BEEN QUASHED. III. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR MODIFY ANY GROUND ON OR BEFORE THE TIME OF HEARING. (1.3) IN THIS ORDER, THE FOLLOWING ABBREVIATIONS HAVE BEE N USED: A. ASSESSING OFFICER AS AO B. ASSESSMENT YEAR AS A.Y. C. COMMISSIONER OF INCOME TAX (APPEALS) AS CIT(A) D. DEPARTMENTAL REPRESENTATIVE AS DR E. DATED AS DTD. F. INCOME TAX ACT, 1961 AS I.T. ACT,1961 G. INCOME TAX APPELLATE TRIBUNAL AS ITAT H. LEARNED AS LD. I. READ WITH AS R/W J. UNDER SECTION AS U/S ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 4 OF 18 (1.4) FOR THE SAKE OF CONVENIENCE, WE HEREBY DISPOSE OFF THE AFOREMENTIONED TWO APPEALS AND CROSS OBJECTION VIDE ITA NO. 3869/DEL/2 014 (A.Y. 2007-08), ITA NO. 3870/DEL/2014 (A.Y. 2010-11) AND CROSS OBJECTION 12 8/DEL/2014 (A.Y. 2007-08) THROUGH THIS CONSOLIDATED ORDER. THE ASSESSEE FILE D THE RETURN OF INCOME FOR A.Y. 2007- 08 SHOWING NIL INCOME. ORIGINAL ASSESSMENT ORDER DA TED 10.12.2009 WAS PASSED U/S 143(3) OF I. T. ACT WHEREIN ASSESSEES RETURNED INC OME WAS ACCEPTED AND ASSESSMENT WAS MADE ON NIL INCOME. THEREAFTER, THE ASSESSMENT WAS REOPENED U/S 147 R/W 148 OF I.T. ACT. VIDE NOTICE DATED 30/03/2012 PURSUANT TO WHICH ASSESSMENT ORDER U/S 143(3)/147 OF I.T. ACT, WAS PASSED ON 10/01/2013, I N WHICH AN ADDITION OF RS. 6,45,21,521/- WAS MADE TOWARDS DISALLOWANCE OF INTE REST U/S 36(1)(III) OF I.T. ACT. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE LD. CIT (A), WHO, VIDE IMPUGNED ORDER DATED 09/04/2014, DELETED THE DISALLOWANCE. HOWEVE R, THE LD. CIT(A) UPHELD THE REOPENING OF ASSESSMENT U/S 147 OF I.T. ACT. THE RE LEVANT PORTION OF THE ORDER OF LD. CIT(A) IS REPRODUCED AS UNDER: 5.1 THE APPELLANT HAS STATED THAT THE ORDER U/S 148 /143(3) IS BAD IN LAW. HOWEVER, THERE WERE SUFFICIENT REASONS FOR THE AO T O BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT AND PROCEEDINGS WERE INITIATED A FTER RECORDING REASONS. A RE- ASSESSMENT IS VALID IF THERE IS PRIMA FACIE REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. INFORMATION WAS RECEIVED BY TH E AO AND REASONS WERE RECORDED THAT THERE WAS ESCAPEMENT OF INCOME. THE FOLLOWING CASE LAWS REAFFIRM THIS CONTENTION:- I) RATNACHUDAMANI S. UTNAL V ITO (2004) 269 ITR 212 (KARN) II) ITO & OTHERS V SHREE BAJRANG COMMERCIAL CO (PVT.) LTD (2 004) 269 ITR 338 (CAL) 5.2 SO FAR AS THE LEGALITY FOR ASSUMING JURISDICTIO N U/S 147 IS CONCERNED THERE SHOULD BE A REASON TO BELIEVE THAT INCOME CHARGEABL E TO TAX HAS ESCAPED ASSESSMENT. AFTER THE AMENDMENT OF SECTION 147 W. E. F. 01.04.1 989, THE SCOPE OF SECTION 147 HAS BEEN CONSIDERABLY WIDENED. AFTER THE AMENDMENT, THE ONLY REQUIREMENT UNDER THE SECTION IS THAT AO MUST HAVE REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR. THE AO IS NOT REQUIRED TO CONCLUSIVELY PROVE ESCAPEMENT OF INCOME AT THE STAGE OF ISSUE OF NOTICE U/S 148. THIS ASPECT WAS ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 5 OF 18 CONSIDERED BY HON'BLE SUPREME COURT IN THE CASE OF RAYMOND WOOLLEN MILLS LTD (1999) 236 ITR 34. THE HON'BLE SUPREME COURT HELD A S UNDER: IN THIS CASE, WE DO NOT HAVE TO GIVE A FINAL DECIS ION AS TO WHETHER THERE IS SUPPRESSION OF MATERIAL FUELS BY THE ASSESSEE OR NO T. WE HAVE ONLY TO SEE WHETHER THERE WAS PRIMA FACIE SOME MATERIAL ON THE BASIS OF WHICH THE DEPARTMENT COULD REOPEN THE CASE. THE SUFFICIENT OR CORRECTNESS OF THE MATERIAL IS NOT A THING TO HE CONSIDERED AT THIS ST AGE. WE ARE OF THE VIEW THAT THE COURT CANNOT STRIKE DOWN THE REOPENING OF THE-C ASE IN THE FACTS OF THIS CASE. IT WILL BE OPEN TO THE ASSESSEE TO PROVE THAT THE ASSUMPTION OF FACTS MADE IN THE NOTICE WAS ERRONEOUS. THE ASSESSEE MAY ALSO PROVE THAT NO NEW FACTS CAME TO THE KNOWLEDGE OF THE INCOME-TAX OFFICER AFTER COMPL ETION OF THE ASSESSMENT PROCEEDING. WE ARE NOT EXPRESSING ANY OPINION ON THE MERITS OF THE CASE. THE QUESTIONS OF FACT AND LAW A RE LEFT OPEN TO BE INVESTIGATED AND DECIDED BY THE ASSESSING AUTHORITY . THE APPELLANT WILL BE ENTITLED TO TAKE ALL THE POINTS BEFORE THE ASSESSIN G AUTHORITY. THE APPEALS ARE DISMISSED. THERE WILL BE NO ORDER AS TO COSTS.' 5.3 THE ISSUE WAS AGAIN EXAMINED BY THE APEX COURT IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX VS. RAJESH JHAVERI STOCK BROKERS (P) LTD. (2007) 161 TAXMAN 316 (SC) WHEREIN IT WAS HELD AS UNDER: '16. SECTION 147 AUTHORISES AND PERMITS THE AO TO ASSESS OR REASSESS INCOME CHARGEABLE TO TAX IF HE HAS REASON TO BELIEV E THAT INCOME FAR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THE WORD 'R EASON IN THE PHRASE 'REASON TO BELIEVE' WOULD MEAN CAUSE OR JUSTIFICATI ON, IF THE AO HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ES CAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON TO BELIEVE THAT AN INCOM E HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT HE READ TO MEAN T HAT THE AO SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSION. THE FUNCTION OF THE ASSESSING OFF LEER IS TO ADMINISTER THE STATUTE WITH .SOLICITUDE FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FA IRNESS TO TAXPAYERS. AS OBSERVED BY THE SUPREME COURT IN CENTRAL PROVINCES MANGANESE ORE CO. LTD. /. ITO [199!] 191 ITR 662, FOR INITIATION OF A CTION UNDER SECTION 147(A) (AS THE PROVISION STOOD AT THE RELEVANT TIME) FULFILLME NT OF THE TWO REQUISITE CONDITIONS IN THAT REGARD IS' ESSENTIAL AT THAT STA GE, THE, FINAL OUTCOME OF THE PROCEEDING IS NOT RELEVANT. IN OTHER WORDS, AT THE INITIATION STAGE, WHAT IS REQUIRED IS 'REASON TO BELIEVE', BUT NOT THE ESTABL ISHED FACT OF ESCAPEMENT OF INCOME. AT ISSUE OF NOTICE, THE ONLY QUESTION IS WH ETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FI RMED A REQUISITE BELIEF WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE THE FORMA TION OF BELIEF BY THE AO IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION. 17. THE SCOPE AND EFFECT OF SECTION 147 AS SUBSTIT UTED WITH EFFECT FROM 1-4-1989, AS ALSO SECTIONS 148 TO 152 ARE SUBSTANTI ALLY DIFFERENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUCH SUBSTITUTION . UNDER THE OLD PROVISIONS OF SECTION 147, SEPARATE CLAUSES (A) AND (B) LAID D OWN THE CIRCUMSTANCES ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 6 OF 18 UNDER WHICH INCOME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS COULD BE ASSESSED OR REASSESSED TO CONFER JURISDICT ION UNDER SECTION 147(A) TWO CONDITIONS WERE REQUIRED TO BE SATISFIED FIRSTL Y THE AO MUST HAVE REASON TO BELIEVE THAT INCOME PROFITS OR GAINS CHARGEABLE TO INCOME TAX HAVE ESCAPED ASSESSMENT, AND SECONDLY HE MUST ALSO HAVE REASON TO BELIEVE THAT SUCH ESCAPEMENT HAS OCCURRED BY REASON OF EITH ER (I) OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FIL LY OR TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BOTH THE SE CONDITIONS WERE CONDITIONS PRECEDENT TO BE SATISFIED BEFORE THE AO COULD HAVE JURISDICTION TO ISSUE NOTICE UNDER SECTION 148 READ WITH SECTION 14 7(Q). BUT UNDER THE SUBSTITUTED SECTION 147 EXISTENCE OF ONLY THE FIRST CONDITION SUFFICES. IN OTHER WORDS IF THE AO FOR WHATEVER REASON HAS REASON TO B ELIEVE THAT INCOME HAS ESCAPED ASSESSMENT IT CONFERS JURISDICTION TO REOPE N THE ASSESSMENT. 18. SO LONG AS THE INGREDIENTS OF SECTION 147 ARE FULFILLED, THE AO IS FREE TO INITIATE PROCEEDING UNDER SECTION 147 AND FAILUR E TO TAKE STEPS UNDER SECTION 143(3) WILL NOT RENDER THE AO POWERLESS TO INITIATE REASSESSMENT PROCEEDINGS EVEN WHEN INTIMATION UNDER SECTION 143( 1) HAD BEEN ISSUED .' 5.4 THE HON'BLE COURTS IN THE JUDGMENTS MENTIONED A BOVE HAVE CLEARLY HELD THAT FORMATION OF BELIEF BY THE AO IS WITHIN THE REALM O F SUBJECTIVE SATISFACTION AND IT IS NOT NECESSARY FOR THE AO TO CONCLUSIVELY PROVE THE ESCA PEMENT OF INCOME BEFORE INITIATING PROCEEDINGS U/S 147. THEREFORE, IT IS HELD THAT THE AO HAD REASONS TO BELIEVE THAT INCOME HAD ESCAPEMENT ASSESSMENT AND HE WAS WITHIN HIS COMPETENCE TO INVOKE THE POWERS CONTAINED IN SECTION 147 TO INITIATE REASSES SMENT OF THE INCOME OF THE APPELLANT. THE GROUND OF APPEAL IS THUS RULED AGAIN ST THE APPELLANT. 6. GROUND NO. 2 IS IN RESPECT OF DISALLOWANCE UNDER SECTION 36 (L)(III). 6.1 THE AO HELD THAT THE APPELLANT COMPANY USED SUB STANTIAL AMOUNT OF FUNDS WHICH WERE BORROWED AS INVESTMENTS, WHICH WAS NOT T HE BUSINESS OF THE COMPANY. THEREFORE, THE AO DISALLOWED PROPORTIONATE INTEREST PAID ON ACCOUNT OF FUNDS UTILIZED AS INVESTMENTS STATING THAT IT WAS FOR NON BUSINESS PURPOSES. 6.2 THE APPELLANT ON THE OTHER HAND STATED THAT THE LOANS BORROWED AND THE UTILIZATION OF FUNDS WAS PURELY FOR BUSINESS PURPOS ES. A PART OF THE LOANS WAS UTILIZED FOR INVESTMENT IN DEBT ORIENTED FUNDS. THESE FUNDS WERE THE APPELLANTS OWN FUNDS. THE BALANCE FUNDS WERE USED FOR INVESTMENT IN BANKS . THE APPELLANT STATED THAT IT HAD ENTERED INTO A LOANS AGREEMENT WITH THE LENDERS OF CAPITAL. AS PER THE AGREEMENT, THE APPELLANT WAS COMPULSORILY TO KEEP A DEPOSIT IN THE BANK AND NOT WITHDRAW IT. 6.3 THE APPELLANT HAS QUOTED THE CASE OF THE HON' BLE SUPREME COURT IN MADHAV PRASAD JATIA VS. CIT, AIR 1979 SC 1291: 118 ITR 200 , 208. 6.4 THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT V RELIANCE UTILITY & POWER LTD. AS WELL AS WOOLCOMBERS OF INDIA LTD. AND OF THE APEX COURT IN THE CASE OF EAST INDIA PHARMACEUTICALS LTD. HAS HELD THAT IF TH ERE ARE FUNDS AVAILABLE WITH THE APPELLANT THEN THE PRESUMPTION WOULD ARISE THAT INV ESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. THE JUDGMENT OF S A BUILDERS LTD. V CIT HELD THAT ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 7 OF 18 WHAT IS RELEVANT IS WHETHER THE AMOUNT WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V DALMIA CEMENT LTD. HAS HELD THAT IT SHOULD BE ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND PURPOSE OF THE BUSINESS. 6.5 AS PER SECTION 36(L)(III) THE CLAUSE ENVISAGES THE FULFILLMENT OF THREE CONDITIONS BEFORE INTEREST CAN BE ALLOWED AS A DEDUCTION: (1) THERE SHOULD A BORROWING; (2) CAPITAL MUST HAVE BEEN BORROWED FOR BUSINESS PU RPOSES; AND (3) INTEREST SHOULD HAVE BEEN PAID OR PAYABLE IN RE SPECT THEREOF. 6.6 BORROWAL IMPLIES A CONSENSUAL ACT: THE WORD 'BORROW' HAS NOT BEEN DEFINED IN THE STATUTE AND, THEREFORE, ITS DICTIONARY MEANI NG HAS TO BE LOOKED UP. THE MEANING OF THE WORD 'BORROW' AS GIVEN IN THE SHORTER OXFORD DICTIONARY IS TO TAKE (A THING) ON SECURITY GIVEN FOR ITS SAFE RETURN. SINCE BORROWING IMPLIES A CONSENSUAL ACT BY A DEBTORS RECEIVING MONEY FROM A CREDITOR, IT WOULD N OT COVER A CASE OF ANY AND EVERY LIABILITY. BORROWING MONEY AND PAYMENT OR INTEREST IS A MERE COMMERCIAL TRANSACTION. WHERE THE APPELLANT, A PUBLIC LIMITED COMPANY, CARR YING ON THE BUSINESS IN MANUFACTURE OF SUGAR, OWNING ABOUT 2000 ACRES OF LA ND ON WHICH IT GREW SUGARCANE, BORROWED A CERTAIN SUM WHICH WAS CREDITED TO THE AG RICULTURAL SECTION OF THE APPELLANT, IT WAS HELD THAT THE INTEREST PAYABLE ON THE BORROW INGS CREDITED TO THE AGRICULTURAL SECTION WAS AN ADMISSIBLE DEDUCTION. THE BORROWING MUST BE A GENUINE BORROWING AND NOT A BOGUS ONE. THE BORROWING MAY BE ON A PERM ANENT FOOTING SUCH AS BY WAY OF DEBENTURE LOAN OR A SPASMODIC ONE SUCH AS FROM Y EAR TO YEAR, OR FOR SHORT TERM SUCH AS BY WAY OF OVERDRAFTS FROM BANKS, OR LOANS F ROM TIME TO TIME. 6.7 THE AMOUNT SHOULD BE BORROWED FOR THE PURPOSES OF THE BUSINESS. THE MONEYS SHOULD BE BORROWED BY THE APPELLANT FOR PURP OSES OF THE APPELLANT'S BUSINESS. FURTHER, THE EXPRESSION 'FOR THE PURPOSE OF THE BUSINESS' MAY TAKE INTO ACCOUNT NOT ONLY THE DAY TO DAY RUNNING OF A BUSINE SS BUT SEVERAL OTHER MATTERS. A BORROWING DIVERTED FROM BUSINESS WOULD CEASE TO BE A BORROWING FOR PURPOSE OF BUSINESS, SO THAT THE INTEREST PROPORTIONATE TO SUC H DIVERTED FUNDS IS LIABLE FOR DISALLOWANCE. IN ORDER TO BE ALLOWABLE AS EXPENSES, IT SHOULD BE IN RESPECT OF BUSINESS WHICH WAS CARRIED ON BY THE APPELLANT AND THE PROFITS OF WHICH ARE COMPUTED AND ASSESSED, AND SHOULD BE INCURRED AFTER THE BUSI NESS IS SET UP. WHERE THE EXPENSES WERE IN CONNECTION WITH OR RELATED TO A BU SINESS WHICH WAS YET TO COMMENCE, THE DECISION OF THE TRIBUNAL IN DISALLOWI NG THE DEDUCTION CLAIMED BY THE APPELLANT WAS CORRECT. INTEREST ON MONEY BORROWED F OR INVESTMENT IN A JOINT VENTURE COMPANY COULD BE TREATED AS ONE BORROWED FOR APPELL ANT'S BUSINESS AND THEREFORE DEDUCTIBLE. WHERE AN APPELLANT BORROWS MONEY FOR EX PANSION OF ITS EXISTING BUSINESS, THE INTEREST PAID THEREON IS ALLOWABLE. 6.8 IN STATE OF MADRAS VS. COELHO (GJ), THE SUPREME COURT HAS HELD THAT, IN ORDINARY COMMERCIAL PRACTICE, PAYMENT OF INTEREST I S TAKEN AS A REVENUE EXPENDITURE. THE MONEY BORROWED MUST BE FOR THE PURPOSES OF THE APPELLANT'S BUSINESS OR PROFESSION THAT IS CARRIED ON DURING THE YEAR OF AC COUNT. 6.9 IN RESPECT OF INTEREST PAID, DEDUCTION PERMISS IBLE UNDER THIS CLAUSE IS IN RESPECT OF INTEREST AS DISTINGUISHED FROM OTHER KIN DS OF COMPENSATION. INTEREST IS A PERMISSIBLE DEDUCTION UNDER THIS CLAUSE ONLY IF IT HAS BEEN 'PAID'. IT NEED NOT HAVE ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 8 OF 18 BEEN ACTUALLY PAID IN CASH. IT MAY HAVE BEEN PAID B Y WAY OF ADJUSTMENT IN ACCOUNTS BY ANY EQUIVALENT MODE WHEN THE ACCOUNTS ARE MAINTA INED ON THE MERCANTILE BASIS. INTEREST ON BORROWED CAPITAL IS ALLOWABLE UNDER THI S CLAUSE 6.10 THE ISSUE WHETHER BORROWED CAPITAL HAD BEEN AC TUALLY USED FOR BUSINESS IS ONE RELATING TO FACTS AND DOES NOT GIVE RISE TO A QUEST ION OF LAW. EVEN IF IT WERE A QUESTION OF LAW, IT MAY NOT GIVE RISE TO A SUBSTANTIAL QUEST ION OF LAW WHERE THE APPELLANT AGREES TO PAY INTEREST ON LOAN ORIGINALLY TREATED AS INTER EST FREE. THE INFERENCE THAT BORROWING IS FOR NON-BUSINESS PURPOSES ON THE PARTICULAR FACT S OF THE CASE MAY BE A QUESTION OF FACT. BUT IT MAY GIVE RISE TO A QUESTION OF LAW WHE RE THE INFERENCE DOES NOT FOLLOW THE FACTS OF THE CASE. 6.11 IT IS QUITE APPARENT THAT THE APPELLANT IS NOT INCURRING ANY SUCH EXPENDITURE WHICH IS NOT A BUSINESS EXPENDITURE. ALL EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE APPELLANT HAD BORROWED FUNDS WHICH WA S FOR BUSINESS PURPOSES AND WAS PAYING INTEREST ON THESE FUNDS. IN VIEW THEREOF , THE ADDITION OF RS.6,45,21,521/- IS DELETED. THE GROUND OF APPEAL IS RULED IN FAVOUR OF THE APPELLANT. (1.4.1) AGAINST THE AFORESAID ORDER OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US, VIDE AFORESAID ITA NO. 3869/DEL/2014 FOR A.Y. 2007- 08 AND THE ASSESSEE HAS FILED CROSS OBJECTION VIDE C.O. NO. 128/DEL/2017 FOR A.Y. 2007- 08. (1.5) THE ASSESSMENT ORDER U/S 143(3) OF I.T. ACT FOR A .Y. 2010-11 WAS PASSED ON 27/12/2012, IN WHICH INTER ALIA, AN ADDITION OF RS. 15,41,80,533/- WAS MADE TOWARDS DISALLOWANCE ON ACCOUNT OF INTEREST U/S 36(1)(III) OF I.T. ACT. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE LD. CIT(A), WHO, VIDE IMPUGN ED ORDER DATED 09/04/2014, DELETED THE ADDITION MADE BY THE AO, ON ACCOUNT OF THE AFOR ESAID DISALLOWANCE OF RS. 15,41,80,533/- U/S 36 (1)(III) OF I. T. ACT. THE REVENUE IS IN APPEAL AGAINST THE AFORESAID ORDER DATED 09/04/2014 OF LD. CIT(A) VIDE ITA NO. 3870/DEL/2014 FOR ASSESSMENT YEAR 2010-11. RELEVANT PORTION OF THE O RDER OF LD. CIT(A) FOR A.Y. 2010-11 IS AS UNDER:- 7. GROUND NO. 3 IS IN RESPECT OF DISALLOWANCE UND ER SECTION 36 (1)(III). ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 9 OF 18 7.1 THE AO HELD THAT THE APPELLANT COMPANY USED SUBSTAN TIAL AMOUNT OF FUNDS WHICH WERE BORROWED, AS INVESTMENTS, WHICH WAS NOT THE BUSINESS OF THE COMPANY. THEREFORE, THE AO DISALLOWED PROPORTIONATE INTEREST PAID ON ACCOUNT OF FUNDS UTILIZED AS INVESTMENTS STATING TH AT IT WAS FOR NON BUSINESS PURPOSES. 7.2 THE APPELLANT ON THE OTHER HAND STATED THAT THE LO ANS BORROWED AND THE UTILIZATION OF FUNDS WAS PURELY FOR BUSINESS PURPOS ES. A PART OF THE LOANS WAS UTILIZED FOR INVESTMENT IN DEBT ORIENTED FUNDS. THESE FUNDS WERE THE APPELLANT'S OWN FUNDS. THE BALANCE FUNDS WERE USED FOR INVESTMENT IN BANKS. THE APPELLANT STATED THAT IT HAD ENTERED INT O A LOANS AGREEMENT WITH THE LENDERS OF CAPITAL. AS PER THE AGREEMENT THE AP PELLANT WAS COMPULSORILY TO KEEP A DEPOSIT IN THE BANK AND NOT WITHDRAWAL IT . 7.3 THE APPELLANT HAS QUOTED THE CASE OF THE HON'BLE SU PREME COURT IN MADHAV PRASAD JATIA VS. CIT, AIR 1979 SC 1291: 118 ITR 200 , 208. 7.4 THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF C IT V RELIANCE UTILITY A POWER LTD. AS WELL AS WOOLCOMBERS OF INDIA LTD. AND OF THE APEX COURT IN THE CASE OF EAST INDIA PHARMACEUTICALS LTD. HAS HEL D THAT IF THERE ARE FUNDS AVAILABLE WITH THE APPELLANT THEN THE PRESUMPTION W OULD ARISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENE RATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFIC IENT TO MEET THE INVESTMENT. THE JUDGMENT OF S A BUILDERS LTD. V CIT HELD THAT WHAT IS RELEVANT IS WHETHER THE AMOUNT WAS ADVANCED AS A ME ASURE OF COMMERCIAL EXPEDIENCY. THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V DALMIA CEMENT LTD. HAS HELD THAT IT SHOULD BE ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND PURPOSE OF TH E BUSINESS. 7.5 AS PER SECTION 36(1)(III) THE CLAUSE ENVISAGES THE FULFILLMENT OF THREE CONDITIONS BEFORE INTEREST CAN BE ALLOWED AS A DEDU CTION: (1) THERE SHOULD A BORROWING; (2) CAPITAL MUST HAVE BEEN BORROWED FOR BUSINESS PURPOSES; AND (3) INTEREST SHOULD HAVE BEEN PAID OR PAYABLE IN RESPECT THEREOF. 7.6 BORROWAL IMPLIES A CONSENSUAL ACT: THE WORD 'BORROW' HAS NOT BEEN DEFINED IN THE STATUTE AND, THEREFORE, ITS DICTIONA RY MEANING HAS TO BE LOOKED UP. THE MEANING OF THE WORD 'BORROW' AS GIVE N IN THE SHORTER OXFORD DICTIONARY IS TO TAKE (A THING) ON SECURITY GIVEN F OR ITS SAFE RETURN. SINCE BORROWING IMPLIES A CONSENSUAL ACT BY A DEBTORS REC EIVING MONEY FROM A CREDITOR, IT WOULD NOT COVER A CASE OF ANY AND EVER Y LIABILITY. BORROWING MONEY AND PAYMENT OR INTEREST IS A MERE COMMERCIAL TRANSACTION. WHERE THE APPELLANT, A PUBLIC LIMITED COMPANY, CARRYING O N THE BUSINESS IN MANUFACTURE OF SUGAR, OWNING ABOUT 2000 ACRES OF LA ND ON WHICH IT GREW ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 10 OF 18 SUGARCANE, BORROWED A CERTAIN SUM WHICH WAS CREDITE D TO THE AGRICULTURAL SECTION OF THE APPELLANT, IT WAS HELD THAT THE INTE REST PAYABLE ON THE BORROWINGS CREDITED TO THE AGRICULTURAL SECTION WAS AN ADMISSIBLE DEDUCTION. THE BORROWING MUST BE A GENUINE BORROWING AND NOT A BOGUS ONE. THE BORROWING MAY BE ON A PERMANENT FOOTING SUCH AS BY WAY OF DEBENTURE LOAN OR A SPASMODIC ONE SUCH AS FROM YEAR TO YEAR, OR FOR SHORT TERM SUCH AS BY WAY OF OVERDRAFTS FROM BANKS, OR LOANS FROM T IME TO TIME. 7.7 THE AMOUNT SHOULD BE BORROWED FOR THE PURPOSES OF T HE BUSINESS. THE MONEYS SHOULD BE BORROWED BY THE APPELLANT FOR PURP OSES OF THE APPELLANT'S BUSINESS. FURTHER, THE EXPRESSION 'FOR THE PURPOSE OF THE BUSINESS' MAY TAKE INTO ACCOUNT NOT ONLY THE DAY TO DAY RUNNING OF A B USINESS BUT SEVERAL OTHER MATTERS. A BORROWING DIVERTED FROM BUSINESS WOULD C EASE TO BE A BORROWING FOR PURPOSE OF BUSINESS, SO THAT THE INTEREST PROPO RTIONATE TO SUCH DIVERTED FUNDS IS LIABLE FOR DISALLOWANCE. IN ORDER TO BE AL LOWABLE AS EXPENSES, IT SHOULD BE IN RESPECT OF BUSINESS WHICH WAS CARRIED ON BY THE APPELLANT AND THE PROFITS OF WHICH ARE COMPUTED AND ASSESSED, AND SHOULD BE INCURRED AFTER THE BUSINESS IS SET UP. WHERE THE EXPENSES WE RE IN CONNECTION WITH OR RELATED TO A BUSINESS WHICH WAS YET TO COMMENCE, TH E DECISION OF THE TRIBUNAL IN DISALLOWING THE DEDUCTION CLAIMED BY TH E APPELLANT WAS CORRECT. INTEREST ON MONEY BORROWED FOR INVESTMENT IN A JOIN T VENTURE COMPANY COULD BE TREATED AS ONE BORROWED FOR APPELLANT'S BU SINESS AND THEREFORE DEDUCTIBLE. WHERE AN APPELLANT BORROWS MONEY FOR EX PANSION OF ITS EXISTING BUSINESS, THE INTEREST PAID THEREON IS ALLOWABLE. 7.8 IN STATE OF MADRAS VS. COELHO (GJ), THE SUPREME CO URT HAS HELD THAT, IN ORDINARY COMMERCIAL PRACTICE, PAYMENT OF INTEREST I S TAKEN AS A REVENUE EXPENDITURE. THE MONEY BORROWED MUST BE FOR THE PUR POSES OF THE APPELLANT'S BUSINESS OR PROFESSION THAT IS CARRIED ON DURING THE YEAR OF ACCOUNT. 7.9 IN RESPECT OF INTEREST PAID, DEDUCTION PERMISSIBLE UNDER THIS CLAUSE IS IN RESPECT OF INTEREST AS DISTINGUISHED FROM OTHER KIN DS OF COMPENSATION. INTEREST IS A PERMISSIBLE DEDUCTION UNDER THIS CLAU SE ONLY IF IT HAS BEEN PAID'. IT NEED NOT HAVE BEEN ACTUALLY PAID IN CASH . IT MAY HAVE BEEN PAID BY WAY OF ADJUSTMENT IN ACCOUNTS BY ANY EQUIVALENT MODE WHEN THE ACCOUNTS ARE MAINTAINED ON THE MERCANTILE BASIS. IN TEREST ON BORROWED CAPITAL IS ALLOWABLE UNDER THIS CLAUSE. 7.10 THE ISSUE WHETHER BORROWED CAPITAL HAD BEEN ACTUALL Y USED FOR BUSINESS IS ONE RELATING TO FACTS AND DOES NOT GIVE RISE TO A Q UESTION OF LAW. EVEN IF IT WERE A QUESTION OF LAW, IT MAY NOT GIVE RISE TO A S UBSTANTIAL QUESTION OF LAW WHERE THE APPELLANT AGREES TO PAY INTEREST ON LOAN ORIGINALLY TREATED AS INTEREST FREE. THE INFERENCE THAT BORROWING IS FOR NON-BUSINESS PURPOSES ON THE PARTICULAR FACTS OF THE CASE MAY BE A QUESTION OF FACT. BUT IT MAY GIVE RISE TO A QUESTION OF LAW WHERE THE INFERENCE DOES NOT FOLLOW THE FACTS OF THE CASE. 7.11 IT IS QUITE APPARENT THAT THE APPELLANT IS NOT INCU RRING ANY SUCH EXPENDITURE ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 11 OF 18 WHICH IS NOT A BUSINESS EXPENDITURE. ALL EXPENDITUR E HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE APPELLANT HAD BORROWED FUNDS WHICH WAS FOR BUSINESS PURPOSES AND WAS PAYING INTEREST ON THESE FUNDS. IN VIEW THEREOF, THE ADDITION OF RS.15,41,80,533/- IS DELETED. THE G ROUND OF APPEAL IS RULED IN FAVOUR OF THE APPELLANT. (1.5.1) AGAINST THE AFORESAID ORDER OF LD. CIT(A), REVENUE IS IN APPEAL BEFORE US VIDE ITA NO. 3870/DEL/2014. (1.6) DURING APPELLATE PROCEEDINGS, THE ASSESSEE FILED PAPER BOOKS CONTAINING THE FOLLOWING PARTICULARS: 1 . COPY OF ASSESSMENT ORDER PASSED UNDER SECTION 143 (3) OF THE ACT DATED 10 TH DECEMBER, 2009 PASSED BY THE LD. ACIT, CIRCLE 14 ( 1) FOR AY 2007- 08. COPY OF THE NOTICE ISSUES UNDER SECTION 148 DATED 3 0 TH MARCH, 2012 OF THE ACT. 2. COPY OF THE REPLY FILED AGAINST THE NOTICE ISSUE D UNDER SECTION 148 OF THE ACT AND REQUESTING FOR REASONS TO BELIEVE DATED 16 APRIL, 2012. 3. COPY OF REASONS RECORDED BY LD. DEPUTY COMMISSIO NER OF INCOME-TAX, CIRCLE 14(1) DATED 27 TH MARCH, 2012. 4. COPY OF LETTER OF OBJECTION DATED 12 TH SEPTEMBER, 2012 FILED AGAINST RE- OPENING OF ASSESSMENT U/S 147 OF THE ACT. 5. COPY OF SUBMISSION FILED BEFORE THE LD. ASSESSIN G OFFICER DATED 20 TH OCTOBER, 2009. 6. COPY OF SUBMISSION DATED 20 TH NOVEMBER 2013 FILED BEFORE THE HONBLE CIT(A)-XVII 7. COPY OF AUDITED FINANCIAL STATEMENT PERTAINING T O AY 2007-08 8. COPY OF ORDER OF DISPOSAL OF OBJECTIONS FOR RE-O PENING OF ASSESSMENT FOR AY 2007-08. ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 12 OF 18 9. COPY OF APPEAL AGAINST ORDER U/S 143(3)/147 TO C IT(A). 10. COPY OF ASSESSMENT ORDER PASSED UNDER SECTION 1 43(3) OF THE ACT DATED 27 TH DECEMBER, 2012 PASSED BY THE LD. DCIT, CIRCLE -14( 1) FOR AY 2010- 11. 11. COPY OF SUBMISSION DATED 26 TH DECEMBER, 2013 FILED BEFORE THE HONBLE CIT(A)-XVII 12. SUMMARY OF FACTS AND ARGUMENTS FILED BEFORE CIT (A) DATED 04 TH APRIL, 2014. 13. COPY OF AUDITED FINANCIAL STATEMENT PERTAINING TO AY 2010-11. 14. LOAN AGREEMENT DATED 13 TH JANUARY 2004 WITH ASIAN DEVELOPMENT BANK. 15. LOAN AGREEMENT DATED 9 TH JANUARY, 2004 WITH INTERNATIONAL FINANCIAL CORPORATION. 16. LOAN AGREEMENT DATED 27 TH JANUARY, 2006 WITH SBI. A SYNOPSIS OF THE CASE WAS ALSO FILED FROM THE ASSE SSEES SIDE. (2) THE LD. COUNSEL FOR ASSESSEE, AT THE TIME OF HEARIN G BEFORE US, TOOK US THROUGH THE RECORDS OF THE APPEALS, INCLUDING THE PAPER BOOKS TO MAKE THE FOLLOWING CONTENTIONS: (A) BORROWED FUNDS WERE UTILIZED EXCLUSIVELY FOR PURPOS ES OF BUSINESS AND NO BORROWED FUNDS WERE USED FOR MAKING INVESTMENTS IN THE MUTUAL FUNDS. (B) THE ASSESSEE HAD SUFFICIENT FUNDS OF ITS OWN TO MAK E THE INVESTMENTS. (C.1) IN RESPECT OF LOAN AGREEMENT WITH (ADB) ASIAN DEVELOPMENT BANK, A FINAL REPAYMENT OF THE LOAN IS DUE ON 15.01.2019 AND, IF, THERE WAS ANY PRE- PAYMENT OF LOAN AMOUNT, ASSESSEE WOULD BE LIABLE FO R LIQUIDATION DAMAGES. AS PER THE LOAN AGREEMENT, THE UTILIZATION OF LOAN WAS RESTRICTED TO PROJECT ONLY. A PERIODIC AUDIT REPORT, ON THE PROGRESS OF T HE PROJECT AND LOAN UTILIZATION NEEDS WERE SUBMITTED TO THE LENDERS. (C.2) IN RESPECT OF LOAN TAKEN FROM IFC (INTERNATIO NAL FINANCIAL CORPORATION), A FINAL REPAYMENT OF THE LOAN IS DUE ON 15.01.2019 AN D THE UTILIZATION OF LOAN IS RESTRICTED TO PROJECT ONLY AND IN CASE OF ANY PR E-PAYMENT BY THE ASSESSEE, THE ASSESSEE WAS LIABLE TO HEAVY PRE- PAY MENT CHARGES. ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 13 OF 18 (C.3) IN RESPECT OF LOANS TAKEN FROM STATE BANK OF INDIA (SENIOR LENDER), THE LAST INSTALLMENT IS DUE ON 31/12/2018 AND THERE ARE REST RICTIONS ON USE OF BORROWED FUNDS TAKEN ON LOANS BY THE ASSESSEE. FURTHER, AT THE TIME OF HEARING BEFORE US, WITH THE HELP OF MATERIALS AVAILABLE ON RECORD, INCLUDING THE PAPER BOOKS; THE LD. COUNSEL FOR ASSE SSEE CONTENDED THAT THE COMPANY HAD USED THE BORROWED FUNDS FOR THE PURPOSES OF BUS INESS ONLY. THE BORROWED FUNDS WERE USED BY THE ASSESSEE FOR INVESTMENT IN FIXED A SSETS WHICH WAS ENTIRELY FOR THE PURPOSES OF BUSINESS, THE LD. COUNSEL CONTENDED. H E FURTHER CONTENDED THAT INVESTMENTS IN MUTUAL FUNDS STARTED ONLY AFTER THE ASSESSEE COMPANY HAD STARTED EARNING OPERATING INCOME FROM THE BUSINESS OF TRANS MISSION OF ELECTRICITY; AND TILL THAT TIME, INVESTMENTS IN MUTUAL FUNDS HAD NOT EVEN STAR TED. THE LD. COUNSEL FURTHER CONTENDED, TAKING US THROUGH MATERIALS ON RECORD, I NCLUDING THE PAPER BOOKS, THAT THE ASSESSEE ALWAYS HAD SUFFICIENT INTEREST FREE FUNDS OF ITS OWN, ADEQUATE FOR MAKING INVESTMENTS IN MUTUAL FUNDS; AND AT NO POINT OF TIM E INVESTMENTS IN MUTUAL FUNDS EXCEEDED THE ASSESSEES OWN INTEREST FREE FUNDS. T HE LD. COUNSEL FOR ASSESSEE FURTHER CONTENDED, WITH THE HELP OF THE FOLLOWING JUDICIAL PRECEDENTS, THAT IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE, IN ANY CASE, THERE I S PRESUMPTION THAT INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILA BLE WITH THE COMPANY INCLUDING THE SHARE CAPITAL AND RESERVES. RELIANCE UTILITY AND POWER LIMITED [2009] 313 ITR 3 40/178 TAXMAN 135 (BOM.) WOOLCOOMBERS OF INDIA LIMITED [1982] 134 ITR 219 (C AL.) ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 14 OF 18 EAST INDIA PHARMACEUTICALS [1997] 224 ITR 627 (SC) DD INDUSTRIAL LTD. [2015] 57 TAXMANN.COM 310 (DELHI ) TIN BOX CO. 135 TAXMAN 145 (DELHI) (2.1) THE LD. COUNSEL FOR ASSESSEE ALSO DREW OUR ATTENTI ON TO CASH FLOW STATEMENT OF THE RESPECTIVE FINANCIAL YEARS WHICH IS AS UNDER, I N SUPPORT OF THE CONTENTION THAT THE ASSESSEE HAD ADEQUATE INTEREST FREE FUNDS OF ITS OW N FOR MAKING INVESTMENTS IN MUTUAL FUNDS: YEAR ENDED REVENUE (A) SHARE CAPITAL (B) DRAWN LOAN AMOUNTS AS AT END OF YEAR (C) LOAN UTILIZED= ASSET CAPITALIZATION + CWIP+ CAPITAL ADVANCE (D) INVESTMENT IN MUTUAL FUNDS AS AT YEAR END (E) WHETHER (D)- [(B)+(C)] 2006 NIL 420 980 (LOAN RAISED RS. 570.83 CRORE) (SCHEDULE 3) 1429.57 (SCHEDULE 4 AND 5) NIL (SCHEDULE 3) YES 2007 138.45 468 1060.05 (LOAN RAISED RS. 75.45 CRORE) (SCHEDULE 3) 1524.71 (SCHEDULE 4 AND 5) 115.10 (SCHEDULE 6) YES 2008 255.53 468 1092.00 (SCHEDULE 3) 1538.94 (SCHEDULE 4) 68.50 (SCHEDULE 5) YES 2009 254.50 468 NIL* 1550.33 (SCHEDULE 4) 129.50 (SCHEDULE 5) YES 2010 300.98 468 NIL* 1554.45 (SCHEDULE 4) 67.52 (SCHEDULE 5) YES TOTAL 93,568.64 3,77,165.41 4,15,716.22 38,061.41 (3) IN RESPONSE, THE LD. DR DID NOT DISPUTE THE FACTS C ONTENDED BY THE LD. COUNSEL FOR ASSESSEE, AT THE TIME OF HEARING, BEFORE US. T HE LD. DR ALSO DID NOT DISTINGUISH THE ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 15 OF 18 FACTS OF THE ASSESSEE WITH THE FACTS OF THE JUDICIA L PRECEDENTS ON WHICH THE LD. COUNSEL FOR ASSESSEE RELIED OR ON WHICH THE LD. CIT(A) DELE TED THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST U/S 36(1)(III) OF I.T. ACT. HOWEVER, HE RELIED ON THE ASSESSMENT ORDERS FOR A.Y. 2007-08 AND A.Y. 2010-11 , PASSED BY THE AO. (4) WE HAVE HEARD BOTH SIDES PATIENTLY AND WE HAVE PER USED THE MATERIALS ON RECORD, INCLUDING THE PAPER BOOK, SYNOPSIS ETC. FIL ED IN THE COURSE OF APPELLATE PROCEEDINGS IN ITAT, CAREFULLY. WE HAVE ALSO CONSI DERED THE JUDICIAL PRECEDENTS REFERRED TO IN THE RECORD AND ALSO THE PRECEDENTS B ROUGHT TO OUR ATTENTION, AT THE TIME OF HEARING BEFORE US. (4.1) THE COMMON ISSUE INVOLVED IN BOTH THE APPEALS FILED BY REVENUE IS REGARDING DISALLOWANCE OF INTEREST U/S 36(1)(III) OF I.T. ACT . AS MENTIONED EARLIER, THE LD. DR DID NOT DISPUTE THE FACTS CONTENDED BY THE LD. COUNSEL FOR ASSESSEE. THE RELEVANT FACTS ARE NOT IN DISPUTE. IT IS NOT IN DISPUTE THAT THE INVES TMENTS IN MUTUAL FUNDS HAD NOT STARTED TILL THE TIME, THE ASSESSEE STARTED EARNING OPERATI NG INCOME FROM TRANSMISSION OF ELECTRICITY. IT IS ALSO NOT IN DISPUTE THAT THE BO RROWED FUNDS WERE ENTIRELY USED BY THE ASSESSEE FOR INVESTMENT IN FIXED ASSETS FOR THE PUR POSES OF BUSINESS. IT IS FURTHER NOT IN DISPUTE THAT THE ASSESSEE HAD ADEQUATE INTEREST FRE E FUNDS OF ITS OWN FOR MAKING INVESTMENTS IN MUTUAL FUNDS. IT IS, FURTHERMORE, N OT IN DISPUTE THAT THERE WERE CONTRACTUAL RESTRICTIONS IMPOSED ON ASSESSEE IN RES PECT OF UTILIZATION OF BORROWED FUNDS; AND ALSO, THE ASSESSEE WAS LIABLE FOR PAYMENT OF SU BSTANTIAL AMOUNTS OF LIQUIDATION DAMAGES/PRE-PAYMENT CHARGES IN CASE THE ASSESSEE MA DE PRE-PAYMENT OF LOAN ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 16 OF 18 REPAYMENTS. THUS, IT IS ALSO NOT IN DISPUTE THAT D UE TO CONTRACTUAL RESTRICTIONS AND LIQUIDATION DAMAGES/PRE-PAYMENT CHARGES, AS AFORESA ID; IT WAS NEITHER PRUDENT FOR THE ASSESSEE TO DIVERT ANY PART OF BORROWED FUNDS FOR N ON-BUSINESS PURPOSES; NOR WAS IT PRUDENT TO MAKE PRE-PAYMENT OF LOAN REPAYMENTS EVEN IF THE ASSESSEE HAD ITS OWN INTEREST FREE FUNDS. IN THESE SPECIFIC AND PECULIA R FACTS AND CIRCUMSTANCES, THERE IS NO CASE FOR ANY DISALLOWANCE OF INTEREST U/S 36(1)(III ) OF I.T. ACT. MOREOVER, LD. DR FAILED TO BRING ANY MATERIAL FACTS TO OUR NOTICE TO DISTIN GUISH THE FACTS OF THE ASSESSEE WITH THE FACTS OF THE JUDICIAL PRECEDENTS ON WHICH THE LD. C IT(A) RELIED UPON AND ON WHICH THE LD. COUNSEL FOR ASSESSEE RELIED UPON DURING APPELLA TE PROCEEDINGS IN ITAT. THE LD. DR THUS FAILED TO MAKE ANY CASE FOR ANY INTERFERENCE B Y US WITH THE ORDER OF LD. CIT(A) ON THIS ISSUE. (4.2) IN VIEW OF THE AFORESAID SPECIFIC AND PECULIAR FACT S AND CIRCUMSTANCES OF THE CASE, AND IN VIEW OF THE FOREGOING DISCUSSION, WE D ECLINE TO INTERFERE WITH THE DECISION OF LD. CIT(A) ON THE ISSUE OF DISALLOWANCE OF INTER EST U/S 36(1)(III) OF I.T. ACT, ON MERITS. ACCORDINGLY, BOTH THE APPEALS FILED BY THE REVENUE ARE DISMISSED. (5) IN THE CROSS OBJECTION, THE ASSESSEE HAS OBJECTED TO THAT PART OF THE ORDER OF THE LD. CIT(A) WHEREIN SHE UPHELD THE REOPENING OF ASSE SSMENT PROCEEDINGS U/S 148 R.W.S. 147 OF I.T. ACT FOR ASSESSMENT YEAR 2007-08. HOWE VER, SINCE WE HAVE ALREADY UPHELD THE ORDER OF LD. CIT(A) ON THE ISSUE OF DISALLOWANC E OF INTEREST U/S 36(1)(III) OF I.T. ACT, THE CROSS OBJECTION OF ASSESSEE FOR THE A.Y. 2007-0 8 BECOMES INFRUCTUOUS AND ACADEMIC IN NATURE. THEREFORE, WE DECLINE TO ADJUD ICATE ON THE CROSS OBJECTION OF THE ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 17 OF 18 ASSESSEE FOR A.Y. 2007-08, CROSS OBJECTION BEING IN FRUCTUOUS/MERELY ACADEMIC. FOR STATISTICAL PURPOSES, THE CROSS OBJECTION IS PARTLY ALLOWED. (6) IN THE RESULT, BOTH THE APPEALS FILED BY THE REVEN UE FOR A.Y. 2007-08 AND 2010- 11 ARE DISMISSED AND CROSS OBJECTION FILED BY THE A SSESSEE FOR A.Y. 2007-08 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21/12/2018 SD/- SD/- (AMIT SHUKLA) (ANADEE NATH MISSHRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21.12.2018 POOJA/- COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI ITA NOS.-3869 & 3870/DEL/2014 AND C/O NO. 128/DEL/2 017. M/S POWERLINK TRANSMISSION LTD., NEW DELHI. PAGE 18 OF 18 DATE OF DICTATION /12/2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER /12/2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS /12/2018 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT /12/2018 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS /12/2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER