SANJAY TRADE CORPORATION, MUMBAI V. JT CIT (OSD) 13(3), MUMBAI

ITA 3884/MUM/2014

• Counselvise Citation: 388419914 RSA 2014
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2003-2004
• Appeal Filed On: 29-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHANDRA VIJAY
• Assessee Lawyers: S C TIWARI; RUTUJA N PAWAR
• Keywords: Reasonable cause; Commercial expediency

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI E BENCH . . , , , BEFORE S/SH. A.D. JAIN ,JUDICIAL MEMBER & R AJENDRA,ACCOUNTANT MEMBER /. ITA NO. 3884 /MUM/201 4 , / ASSESSMENT YEAR - 200 3 - 04 M/S. SANJAY TRADE CORPORATION 407, ADAMJI BUILDING 413, NARSH NATHA STREET MASJID(W) MUMBAI 400 0 09 . PAN: AA A FS 4078 E VS J T. CIT (OSD) 13(3) MUMB AI. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SH . S.C. TIWARI & MS. RUTUJA N. PAWAR (AR) / REVENUE BY : SHRI CHANDRA VIJAY - D R / DATE OF HEARING : 22 0 7 2015 / DATE OF PRONOUNCEMENT : 31 0 8 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM CHALLENGING THE ORDER DATED 03.02.2014 OF THE CIT(A) 24, MUMBAI,THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISS IONER OF INCOME TAX , (APPEALS) - 24, MUMBAI ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.86,80,1951 - R EGARDING NON CHARGING OF INTEREST ON THE LOANS ADVANCED T O SISTER CONCERN. 1.1 THE LEARNED C I T(A) FAILED TO APPRECIATE THE ADVANCES MADE TO THE SISTER CONCERN WHERE WHOSE RECOVERY WAS DOUBTFUL AND AS SUCH, YOUR APPELLANT HAS NOT CHARGED ANY INTEREST ON THE LOANS GIVEN TO THEM. 1.2 YOUR APPELLANT FURTHER SUBMITS THAT THE CIT (A) OUGHT TO HAVE CONSIDERED THE EXPLANATION GIVEN BY YOUR APPELLAN T REGARDING NON CHARGING OF THE INTEREST AND AS ACCEPTED THE CONTENTION THAT THE RECOVERY OF THE PRINCIPLE AMOUNT WAS IN DOLDRUMS, ULTIMATELY THE RECOVERY COULD BE MADE ONLY OF PRINCIPLE AMOUNT AND NOT THE INTEREST AMOUNT. 1.3 YOUR APPELLANT, THEREFO RE, SUBMITS THAT THE INTEREST ADDED BY THE LEARNED A.O. BE DELETED. 2. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, WITHDRAW OR SUBSTITUTE ALL OR ANY OF THE GROUNDS OF APPEAL AS THE CIRCUMSTANCES OF THE APPEAL MAY REQUIRE. BRIEF FACTS ASSESSEE FIRM, ENGAGED IN THE BUSINESS OF DEALING IN DIAL CALIPER,GEAR TOOTH,MICROMETER ,FILED ITS RETURN OF INCOME ON 25.11.2003, DECLARING INCOME OF RS. ( )89.53 LAKHS. ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT ON U/S.143(3)OF THE ACT ON 28.02.2006, DETERMINING THE INCOME OF THE ASSESSEE AT RS. 35,40,500/ . 2. DURING THE ORIGINAL ASSESSMENT PROCEEDINGS,T HE AO FOUND THAT THE ASSESSEE HAD DEBITED A SUM OF RS. 86,83,951/ UNDER THE HEAD INTEREST IN THE P&L A/C FOR THE YEAR UNDER THE APPEAL.AS PER THE AO,THE ASSESSEE HAD FAILED TO PROVE THE NEXUS OF THE ABOVE LOANS AND ADVANCES WITH THE INTEREST FREE LOANS TAKEN/ FUNDS.HE COMPUTED THE INTEREST CHARGEABLE @ 12% ON THE ABOVE LOANS AND HELD THAT THE SAME WAS DISALLOWABLE FROM THE INTEREST EXPENDITURE. ACCORDINGLY,THE DISALLOWANCE WAS RESTRICTED TO THE EXTENT OF THE INTEREST DEBITED, SINCE THE INTEREST CHARGEABLE COMPUTED BY THE AO EXC EEDED THE INTEREST EXPENDITURE. HE DISALLOWED INTEREST OF RS. 86,8 0,915/ VIDE ORDER DATED ITA 3884/M/14 ,AY. 03 04,STC 2 28.02. 2006.AGGRIEVED BY THIS ORDER, ASSESSEE H AD PREFERRED AN APPEAL BEFOR E THE FIRST APPELLATE AUTHORITY ( FAA ),WHO,VIDE HIS ORDER DATED 10.07.2006 DISMISSED THE ASSESSEE'S APPEAL.THE ASSESSEE CHALLENGED THE ORDER BEFORE THE TRIBUNAL.ON 15.07.2011,WHILE DECIDING THE APPEAL NO.5727/MUM/2006,THE TRIBUNAL HELD AS UNDER: 5. WE HAVE HEARD.THE RIVAL SUBMISSIONS. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT FUNDS WERE GIVEN TO THE SISTER CONCERN PURELY OUT OF COMMERCIAL EXPEDIENCY. IT WAS ALSO SUBMITTED BY HIM THAT THE ASSESSEE HAD SUFFIC IENT INTEREST FREE FUNDS; AND THEREFORE, IT CANNOT BE SAID THAT BORROWED FUNDS WERE UTILIZED FOR GIVING INTEREST FREE LOANS. IN THIS REGARD, LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE PO WER UTILITY, 312 ITR. WITH REGARD TO COMMERCIAL EXPEDIENCY OF THE LOAN, LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT, 288 ITR 1. IN THIS REGARD, LEARNED COUNSEL FOR THE ASSESS EE HAS FILED BEFORE US COPY OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT AND WANTED TO SUBSTANTIATE AVAILABILITY OF INTEREST FREE FUNDS AND ALSO DEMONSTRATE COMMERCIAL EXPEDIENCY IN GIVING INTEREST FREE LOANS TO SISTER CONCERN.WE ARE OF THE VIEW THAT TH ESE ISSUES WERE NOT RAISED BY THE ASSESSEE EITHER BEFORE THE ASSESSING OFFICER OR BEFORE LEARNED CIT(A).IT IS NOT CLEAR AS TO WHAT IS THE NATURE OF BUSINESS THAT SISTER CONCERNS OF THE ASSESSEE WERE ENGAGED IN.EVEN AVAILABILITY OF SURPLUS FUNDS FOR GIVIN G INTEREST FREE LOAN HAS NOT BEEN EXAMINED. WITH A VIEW TO GIVE THE ASSESSEE AN OPPORTUNITY TO PROVE HIS CASE, WE SET ASIDE THE ORDER OF LEARNED CIT(A) AND REMAND THE ISSUE TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. THE ASSESSING OFFICER WILL CONSI DER IF THE INTEREST FREE LOAN IS GIVEN OUT OF COMMERCIAL EXPEDIENCY AND ALSO VERIFY IF THE THERE WERE ENOUGH INTEREST FREE SURPLUS FUNDS. THE ASSESSEE WILL ESTABLISH BOTH THE AFORESAID ASPECTS AND THE ASSESSING OFFICER WILL EXAMINE THE CLAIM OF THE ASSESS EE IN ACCORDANCE WITH LAW. THE AO DIRECTED THE ASSESSEE TO SUBMIT DETAILS PROVING COMMERCIAL EXPEDIENCY AND AVAILABILITY OF INTEREST FREE SURPLUS FUNDS.IN RESPONSE TO THE NOTICE THE ASSESSEE FILED ITS REPLY ON 28.12. 2011.AFTER CONSIDERING THE SAME THE A O HELD THAT THERE WAS NO BUSINESS EXPEDIENCY IN ADVANC ING LOANS TO WORLD WIDE COMMODITIES PVT.LTD.,(WWPL)PRIYA BLUE IND.PVT. LTD.(PBIPL),SANJAY SALES CORPORATION(SSC),THAT THE ASSESSEE HAD CLAIMED THAT THE ABOVE LOANEES HAD SUFFERED MAJOR REVERSES AND ONE OF THE PARTNERS HAD DECIDED SUPPORT ONE OF THE ABOVE LOANEES,THAT THE REASONS FOR NOT CHARGING INTEREST ON THE ADVANCES PAID TO THE SAID PARTIES WAS DIFFERENCE BETWEEN THE PARTNERS.HE FURTHER OBSERVED THAT THE ASSESSEE HAD NOT FURNISHED ANY DETAILS TO EST ABLISH THE FACT THAT THE ABOVE LOANS WERE ADVANCED OUT OF INTEREST FREE SURPLUS FUNDS.IN THE CIRCUMSTANCE NO RELIEF WAS ALLOWED ON THE DISALLOWANCE ON INTEREST ATTRIBUTABLE TO THE LOANS GIVEN TO THE SAID THREE LOANEES BY THE AO. WITH REGARD TO THE LOAN OF RS. 63,09,174/ ADVANCED TO SANJAY P. MEHTA(SPM),THE ASSESSEE,VIDE HIS LETTER DATED 23.12.2011,CLAIMED THAT HE WAS AN EX PARTNER,THAT HE WAS A PARTNER IN THE FIRM TILL 7 TH FEBRUARY,THAT THERE WAS NO PROVISION FOR EITHER PAYING INTEREST ON CAPITAL ACCO UNT OR CHARGING INTEREST ON DEBIT BALANCE OF THE PARTNERS.HE DIRECTED THE ASSESSEE TO FURNISH THE COPY OF THE CAPITAL ACCOUNT OF SPM AND A COPY OF THE PARTNERSHIP DEED.IT FILED FILED A COPY OF THE CAPITAL ACCOUNTS OF THE PARTNERS AS ON 31.03.2003,VID E ITS LETTER DATED 23.12.201.HE FOUND THAT SPM'S CAPITAL ACCOUNT WAS SQUARED UP AS ON 31.03.2003.THE AO HELD THAT SUM OF RS. 63,09,174/ WAS STANDING TO DEBIT OF SPM IN THE BOOKS OF THE ASSESSEE AS ON 31.03.2009,THAT IT REPRESENTED THE RETIRED PARTNERS CA PITAL ACCOUNT,THAT IT WAS A LOAN ACCOUNT.HE FURTHER OBSERVED THAT EVEN IF IT WAS ACCEPTED THAT THE SAID BALANCE REPRESENTED HIS CAPITAL ACCOUNT THE ASSESSEE'S CONTENTION THAT THERE WAS NO PROVISION FOR EITHER PAYING INTEREST ON CAPITAL ACCOUNT OR CHARGING INTEREST ON DEBIT BALANCE OF THE PARTNERS WAS NOT CORRECT IN VIEW OF CLASS VII OF THE DEED OF PARTNERSHIP DATED 07. 02.2003. HE REPRODUCED THE CLAUSE THAT READ AS UNDER: ITA 3884/M/14 ,AY. 03 04,STC 3 THE PARTNER SHALL BE ENTITLED TO A SIMPLE INTEREST @ 12% PER ANNUM OR AT SUCH OTHER R ATE A S MAY BE LAID DOWN IN SECTION 40(B) OF THE I. T. ACT 1961 FROM TIME TO TIME. THE INTEREST SHALL BE CREDITED TO THE CAPITAL OR CURRENT ACCOUNT OF THE PARTNER AS THE CASE MAY BE AT THE END OF THE YEAR OR PERIOD. THE INTEREST PAYABLE TO PARTNERS SHAL L BE A CHARGE TO THE PROFITS OF THE FIRM, THE PARTNERS MAY BE MUTUAL CONSENT AGREE TO INCREASE OR REDUCE THE ABOVE SAID RATE OR INTEREST. AS PER THE AO, WHEN THE PARTNERSHIP DEED PROVIDED FOR PAYMENT OF INTEREST ON THE BALANCE STANDING TO THE CREDIT OF THE PARTNERS, COROLLARY THAT INTEREST SHOULD BE CHARGED ON THE BALANCE STANDING TO THE DEBIT OF THE PARTNERS WOULD HOLD GOOD.THEREFORE,HE HELD THAT THE INTEREST FREE ADVANCE TO THE EX PARTNER WERE NOT ACCEPTABLE. BEFORE THE AO THE ASSESSEE HAD FURNISHED A COPY OF THE ITAT,MUMBAI BENCH CS ORDER DATED 16.03.2009(ITA/NO.5236 AND 5237/MUM/2007 FOR A.Y. 2004 05)IN THE CASES OF CHIMANLAL U SHAH AND SADGUNA C.SHAH (LATE) IN SUPPORT ITS CLAIM.AS PER THE AO,THE FACTS OF THE SAID CASES WERE DIFFERENT F ROM THAT OF THE INSTANT CASE,THAT IN THAT THE ISSUE INVOLVED WAS DISALLOWANCE U/S 40A(B) AND THE INTEREST NOT CHARGED ON THE ASSESSEES WHO WERE UNDER BIFR. PASSING THE ORDER U/S.254R.W.S.143(3)OF THE ACT,THE AO HELD THAT NO RELIEF COULD BE ALLOWED TO THE AS SESSEE ON THE DISALLOWANCE OF INTEREST OF RS.86,80,915/ . 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE AGAIN PREFERRED AN APPEAL BEFORE THE FAA . BEFORE HIM IT WAS ARGUED THAT THE AMOUNTS WERE ADVANCED TO SISTER CONCERNS WHO WERE SICK,THAT THE ADVANCES GIVEN WERE IN DISPUTE,THAT SISTER CONCERNS WERE DISSOLVED,THAT QUESTION OF CHARGING INTEREST DID NOT ARISE ,THAT WCPL WAS HAVING PROFITABLE BUSINESS AND SUBSEQUENTLY IT SUNK INTO LOSSES,THAT UMESH MEHTA,PARTNER OF THE ASSESSEE FIRM WAS ALSO A DIRECTOR OF W CPL,THAT HE WAS THE MOVING FORCE BEHIND THE COMPANY,THAT HE HAD TO SUPPORT THE COMPANY TO SAVE HIS REPUTATION,THAT HAD HE NOT SUPPORTED WCPL IT WOULD HAVE ADVERSELY AFFECTED THE ACTIVITIES OF THE FIRM. .THE ASSESSEE ALSO SUBMITTED COPIES OF THE FINANCIAL ST ATEMENTS OF ITS OWN AND ALSO OF WWCPL TO EXPLAIN THE ISSUE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ,HE HELD THAT THE AO,DURING THE SET ASIDE ASSESSMENT PROCEEDINGS,GAVE THE ASSESSEE AMPLE OPPORTUNITIES TO EXPLAIN/PRODUCE DETAILS AND DOCUMENTS IN SUPPORT OF THE CLAIM MADE BY IT,THAT IN RESPONSE TO AO'S OPPORTUNITY THE ASSESSEE SUBMITTED IN A BROAD MANNER THE CIRCUMSTANCES UNDER WHICH THE INTEREST COULD NOT/DID NOT COLLECT FROM THE PARTIES TO WHOM THE ASSESSEE ADVANCED LOANS,THAT THE REPLY OF THE AS SESSEE HAD BEEN PRODUCED BY THE AO IN THE ASSESSMENT ORDER,THAT PERUSAL OF THE REPLY SUBMITTED BY IT DURING THE SET ASIDE PROCEEDINGS REVEALED THAT INTEREST WAS NOT BE COLLECTED WITH REGARD TO THE AMOUNTS ADVANCED TO ITS ASSOCIATE/SISTER CONCERNS AS THEY W ERE IN NOT IN SOUND FINANCIAL CONDI TION S. HE FURTHER HELD THAT THAT THE FACT OF SAFEGUARDING THE REPUTATION OF THE PARTNER BY ADVANCING LOAN TO WCPL WAS NOT ESTABLISHED,THAT IT WAS NOT CLEAR AS TO HOW ADVANCING OF LOAN WAS BENEFICIAL TO THE ASSESSEE FIRM,T HAT ADVANCING INTEREST FREE LOANS TO WCPL WAS NOT BENEFICIAL TO THE BUSINESS OF THE ASSESSEE ,THAT THE TRANSACTION LACKED COMMERCIAL EXPEDIENCY. COMING TO AMOUNT OF LOAN ADVANCED TO PRIYA BLUE INDUSTRIES(P) LTD.(PBIPL)THE FAA OBSERVED THAT THE ASSESSEE ARGUE D THAT ONE OF THE PARTNERS OF THE ASSESSEE FIRM,SANJAY MEHTA,WAS ALSO ONE OF THE DIRECTORS OF PBIPL,THAT HE WAS HAVING DIFFERENCES WITH ANOTHER PARTNER,NAMELY UMESH MEHTA,THAT WITH MUCH DIFFICULTY THE PRINCIPAL AMOUNT COULD BE COLLECTED,THAT THE ASSESSEE H AD CONTENDED THAT HAD THE ASSESSEE FIRM INSISTED FOR INTEREST IT WOULD HAVE ADVERSELY AFFECTED THE FUNCTIONING OF THE FIRM , THAT THE REASON/ EXPLANATION FURNISHED BY THE ASSESSEE DID NOT HOLD WATER,THAT THE ASSESSEE'S PARTNERS' DISPUTE COULD NOT BE A REASON FOR NON CHARGING OF INTEREST,THAT IT WOULD NOT AUTOMATICALLY BECOME A REASONABLE CAUSE FOR LENDING AMOUNTS FREE OF INTEREST.ABOUT SANJAY SALES CORPORATION (SSC),IT ITA 3884/M/14 ,AY. 03 04,STC 4 WAS STATED THAT UMESH MEHTA, PARTNER OF ASSESSEE'S FIRM WAS ALSO A PARTNER IN SSC,THAT DUE T O SOME COMMERCIAL DISPUTES THE AMOUNT COULD NOT BE RECOVERED.AS PER THE FAA ,THE REASON GIVEN BY THE ASSESSEE FOR NOT CHARGING INTEREST WOULD NOT FALL UNDER THE HEAD COMMERCIAL EXPEDIENCY. WITH REGARD TO DEBIT BALANCE OF SANJAY MEHTA,THE FAA HELD THAT TH E AO HAD ANALYSED THE ISSUE PROPERLY AND HAD HELD THAT THE ASSESSEE OUGHT TO HAVE COLLECTED INTEREST ON THE DEBIT BALANCE OF CAPITAL WHEN PARTNERSHIP DEED PRESCRIBED PAYMENT OF INTEREST ON THE CREDIT BALANCE OF CAPITAL A/C.FINALLY,HE HELD THAT THE ASSESSEE DID NOT BRING OUT ANY INFORMATION OR DETAILS/EVIDENCE TO PROVE THAT THERE WAS COMMERCIAL EXPEDIENCY INVOLVED IN GIVING THE LOAN , THAT THE TRIBUNAL HAD ALSO DIRECTED THE ASSESSEE TO ESTABLISH BOTH THE AFORESAID ASPECTS BEFORE THE AO,THAT IT FAILED TO ESTAB LISH EITHER OF THE ABOVE BEFORE AO,THAT IT HAD NOT DISCHARGED THE ONUS CAST UPON IT BY THE TRIBUNAL EVEN BEFORE HIM. THE FAA UPHELD THE ORDER OF THE AO. 4. DURING THE COURSE OF HEARING B EFORE US, AUTHORIDED REPRESENTATIVE(AR)ARGUED THAT THE ASSESSEE HAD ADVAN CED LOANS IN EARLIER YEARS,THAT IT HAD NOT CHARGED INTEREST FOR THOSE YEARS ALSO,THAT IT WAS INTERESTED IN RECOVERING THE PRINCIPAL AND NOT INTEREST, THAT THE LOANS WERE ADVANCED TO SAVE THE PRESTIGE AND GOOD WILL OF THE PARTNERS WHO WERE ALSO THE DIRECTOR S OF THE COMPANIE S OR THE PARTNERS OF THE FIRMS, THAT THERE WAS DISPUTE AMONG THE PARTNERS , THAT THE ADVANCE TO THE SISTER CONCERN HAD TO BE TREATED AS BUSINESS LOSS, THAT SURPLUS FIND WAS AVA ILABLE WITH THE ASSESSEE ,THAT THE PARTNER S ACCOUNT HAD BALANCE OF RS.3.13 CRORES, THAT PARTNERS CAPITAL HAD TO BE ADJUSTED FIRST.HE RELIED UPON THE CASE OF RELIANCE UTILITY (313 ITR 340) AND SRIDEV ENTERPRISES(192 ITR 165 ) OF THE HONBLE KAR NATAKA H IGH C OURT. THE DEPARTMENTAL REPRESENTATIVE (DR) ARGUED THAT THE ASSESSEE H AD NOT EXPLAINED AS TO HOW THE REPUTATION OF THE ASSESSEE FIRM WAS AT STAKE IN CASE IF THE SISTER CONCERNS FAILED, THAT IT WAS ALSO NOT CLEAR AS TO HOW THE ASSESSEE WAS BENEFITED BY N OT CHARGING INTEREST FROM THEM, THAT COMMERCIAL EXPEDIENCY WAS NOT PROVED BY THE ASSESSEE , THAT THE FAA HAD GIVEN UP WORKING OF FUND FLOW, THAT THE ASSESSEE HAD NOT PROVED THE ONUS CAST UPON IT BY THE TRIBUNAL ON BOTH THE COUNTS. 5. WE HAVE PERUSED THE MATERIAL BEFORE US.WE FIND THAT BASIC ISSUES TO BE DECIDED ARE AS TO WHETHER A SSESSEE HAD ADVANCED THE AMOUNTS IN QUESTION TO ITS ASSOCIATE CONCERNS NAMELY WECL,PBIPL,SSC AND SM FREE OF INTEREST OUT OF COMMERCIAL EXPEDIENCY, (II) AND, WHETHER THERE WERE ENOUGH INTEREST FREE SURPLUS FUNDS TO ADVANCE THE AMOUNTS,THAT THE AO AND THE FA A , IN THE SECOND ROUND OF LITIGATION,DELIBERATED UPON BOTH THE ASPECTS AS DIRECTED BY THE TRIBUNAL AND HELD THAT CLAIM MADE BY THE ASSESSEE HAD TO BE REJECTED. BEFORE PROCEEDINGS FURTHER WE WOULD LIKE TO MENTION CERTAIN PRINCIPLES GOVERNING THE ALLOWING/DIS ALLOWING INTEREST EXPENDITURE CLAIMED BY AN ASSESSEE AND SAME CAN BE NARRATED AS UNDER: I. SECTION 36(1)(III) OF THE ACT PROVIDES FOR DEDUCTION OF INTEREST ON LOANS RAISED FOR B USINESS PURPOSES. ONCE AN ASSESSEE CLAIMS DEDUCTION UNDER THE HEAD INTEREST PAID IN THE BOOKS OF ACCOUNT, THE ONUS WILL BE ON HIM TO SATISFY THE AO THAT WHATEVER LOANS WERE RAISED BY THE ASSESSEE W ERE USED FOR BUSINESS PURPOSES. IF IN THE PROCESS OF EXAMINATION OF THE GENUINENESS OF SUCH A DEDUCTION, IT TRANSPIRES THAT THE ASSESSEE HAD A DVANCED CERTAIN FUNDS TO SISTER CONCERNS OR ANY OTHER PERSON LIKE RELATIVES, DIRECTORS WITHOUT ANY INTEREST, THERE WOULD BE A HEAVY ONUS ON THE ASSESSEE TO DISCHARGE BEFORE THE AO TO THE EFFECT THAT IN SPITE OF THE PENDING TERM LOANS AND WOR KING CAPITAL LO ANS ON WHICH THE ASSESSEE IS INCURRING LIABILITY TO PAY INTEREST, THERE WAS JUSTIFICATION TO ADVANCE LOANS TO SISTER CONCERNS FOR NON BUSINESS PURPOSES. II. BUSINESS EXPEDIENCY IS A TERM USED BY BUSINESS HOUSE TO SHOWCAUSE THAT THE TRANSACTION WAS REQUIRED TO BE DONE IN PURE COMMERCIAL PURPOSE. IT MEANS BY DOING SUCH TRANSACT ION THERE WILL BE ITA 3884/M/14 ,AY. 03 04,STC 5 PROFIT TO AN ASSESSEE . IT ALSO MEANS THAT IF SUCH TRANSACTION IS NOT DONE, THERE WILL BE LOSSES TO THE FIRM EITHER FINANCIAL OR OTHERWISE. III. WHEN AMOUNTS ARE ADVANCE D FREE OF INTEREST TO AN ENTITY BY AN ASSESSEE,IT SHOULD RESULT IN PROMOTING BUSINESS INTEREST TO THAT ASSESSEE,BUT IF THE AMOUNT IS ADVANCED TO SAVE OTHER ENTITIES IN THE NAME OF SAVING REPUTATION IT PARTAKES CHARACTER OF CHARITY RATHER THAN BECOMING A SO UND DECISION OF A PRUDENT BUSINESSMAN. IV . T HE REASONS THAT THE SISTER CONCERNS HAD BECOME SICK,OR WERE DISSOLVED OR EXISTENCE OF THE DISPUTE COULD NOT ESTABLISH OR PROVE THE ASPECT OF COMMERCIAL EXPEDIENCY. IT MAY BE THE CASE OF THE ASSESSEE THAT THE AMOUN TS LENT TO THE ASSOCIATE CONCERNS WERE TUR NED OUT TO BE BAD SUBSEQUENTLY, DOES NOT ENTAIL IT NOT TO FOLLOW PROVISIONS OF LAW. V. THE BUSINESS EXPEDIENCY WOULD INCLUDE SUCH PURPOSE AS IS EXPECTED BY THE ASSESSEE TO ADVANCE ITS BUSINESS INTEREST AND MAY INCLU DE MEASURES TAKEN FOR PRESERVATION, PROTECTION OR ADVANCE MENT OF ITS BUSINESS INTERESTS. THE BUSINESS INTEREST OF THE ASSESSEE HAS TO BE DISTINGUISHED FROM THE PERSONAL INTEREST OF ITS DIRECTORS OR PARTNERS, AS THE CASE MAY BE. IN OTHER WORDS, THERE HAS TO BE A NEXUS BETWEEN THE ADVANCING OF FUNDS AND BUSINESS INTEREST OF THE ASSESSEE. THE APPROPRIATE TEST IN SUCH A CASE WOULD BE AS TO WHETHER A REASONABLE PERSON STEPPING INTO THE SHOES OF THE DIRECTORS/PARTNERS OF THE ASSESSEE AND WORKING SOLELY IN THE INTE REST OF THE ASSESSEE, WOULD HAVE EXTENDED SUCH INTEREST FREE ADVANCES. SOME BUSINESS OBJECTIVE SHOULD BE SOUGHT TO HAVE BEEN ACHIEVED BY EXTENDING SUCH INTEREST FREE ADVANCE WHEN THE ASSESSEE ITSELF IS BORROWING FUNDS FOR RUNNING ITS BUSINESS. IT MAY NOT B E RELEVANT AS TO WHETHER THE ADVANCES HAVE BEEN EXTENDED OUT OF THE BORROWED FUNDS OR OUT OF THE MIXED FUNDS, WHICH INCLUDED BORROWED FUNDS. THE TEST TO BE APPLIED IN SUCH CASES IS NOT THE SOURCE OF THE FUNDS BUT THE PURPOSE FOR WHICH THE ADVANCES WERE EXT ENDED. VI . E QUITY AND LAW ARE STRANGERS TO EACH OTHER AND ON THAT COUNT THE PROVISIONS OF LAW CANNOT BE APPLIED.THE COURTS HAVE ALSO DEALT WITH THE ARGUMENT OF THE A SSESSEE THAT THE EXPENDITURE WHETHER TO INCUR OR NOT IT IS UPTO THE ASSESSEE TO DECIDE AND IT CANNOT BE FORCED BY THE REVENUE TO DICTATE TERMS. IT HAS BEEN HELD THAT T HE ASSESSEE IS ABSOLUTELY FREE TO DECIDE ITS FINANCIAL AFFAIRS TO SUIT ITS BUSINESS NEEDS, BUT, THE REVENUE ALSO H AD THE RESPONSIBILITY TO SEE THAT THERE IS NO REVENUE LEAKAGE, WRONG OR EXCESS CLAIM MADE BY THE ASSESSEE, THAT IS PRECISELY THE PURPOSE AND INTENTION OF THE LEGISLATURE. ONCE THE SAID PRINCIPLE IS ACCEPTED THE N IT HAS BE HELD THAT IF THE ASSESSEE ADVANCES LOANS BEARING INTEREST TO OTHERS WITHOUT CHARGING INTEREST THE AO IS NOT UNJUSTIFIED IN DISALLOWING THE SAME IN ABSENCE OF COMMERCIAL EXPEDIENCY. VI I . A SUM OF MONEY EXPENDED NOT OF NECESSITY AND WITH A VIEW TO A DIRECT AND IMMEDIATE BENEFIT TO THE TRADE, BUT VOLUNTARILY AND ON THE GROUNDS OF BUSINESS EXPEDIENCY AND IN OR DER INDIRECTLY TO FACILITATE THE CARRYING ON OF THE BUSINESS, MAY YET BE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE TRADE. IN MALAYALAM PLANTATIONS LTD. ( 53 ITR 140 ), THE SUPREME COURT HELD THAT BUSINESS EXPEDI ENCY MAY NOT REQUIRE THAT ALL THE EXPENSES BE INCURRED FOR EARNING IMMEDIATE PROFITS. THE SUPREME COURT ALSO HELD THAT SUCH BUSINESS EXPEDIENCY MAY ALSO REQUIRE THAT THE EXPENSES BE INCURRED TO SAVE BUSINESS FROM COERCIVE PROCESS AND UNLAWFUL EXPROPRIATION SO THAT THE BUSINESS MAY REMAIN ON SOUND FOOTING AND MAY EARN BETTER PROFITS IN FUTURE. AN EXPENDITURE TO WHICH ONE CANNOT APPLY AN EMPIRICAL OR SUBJECTIVE STANDARD IS TO BE JUDGED FROM THE POINT OF VIEW OF A BUSINESSMAN . IT APPLIES TO INTEREST EXPENDITURE ALSO. 5.A. NOW,WE WOULD LIKE TO CONSIDER THE FACTS OF THE CASE IN LIGHT OF THE ABOVE PRINCIPLES. AS FAR AS BUSINESS EXPEDIENCY IS CONCERNED,WE FIND THAT THE ASSESSEE HAS NOT PROVED AS TO HOW ITS BUSINESS WAS BENEFITED DIRECTLY OR INDIRECTLY BY ADVANCING INT EREST FREE LOANS TO SISTER CONCERNS AND OTHER ITA 3884/M/14 ,AY. 03 04,STC 6 RELATED PARTIES.IN OUR OPINION,THE ONUS OF PROVING JUSTIFICATION WAS ON THE ASSESSEE AND IT DID NOT DISCHARGE THE SAME.SAVING THE REPUTATION OF SISTER CONCERN CANNOT BE TERMED BUSINESS EXPENDIENCY.WE ARE OF THE OPINION THAT E VERY BUSINESS ENTITY HAS UNRESTRICTED RIGHT TO MANAGE ITS OWN AFF AIRS IN THE MANNER IT DEEMS FIT.BUT, IT CANNOT CLAIM EXPENDITURE THAT ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR CARRYING OUT ITS BUSINESS OF PROFESSION.IF THE ASSESSEE HAD NOT MADE A CLAIM OF INTEREST EXPENDITURE IN THE P &L ACCOUNT ON THE BORROWINGS THAT WERE ADVANCED AS INTEREST FREE LOANS TO THE RELATED PERSONS AND WCPL,THERE WOULD NOT HAVE BEEN ANY PROBLEM.ON THE ONE HAND THE ASSESSEE ACTS AS A BENEVOLENT SAVIOR TO AN ENTIT Y THAT WAS DIFFICULT SITUATION AND ON THE OTHER IT WANTS THAT THE SOVEREIGN SHOULD ALSO SHOULDER ITS BENEVOLENCE BY ALLOWING AN EXPENDITURE THAT HAS NO BUSINESS CONNECTION.GOOD DEEDS HAVE TO BE APPRECIATED, BUT NOT AT THE COST OF THE EXCHEQUER.IN OTHER WOR DS,STATE SHOULD NOT BE MADE PARTY TO THOSE ITEMS OF EXPENDITURE THAT ARE UNRELATED WITH BUSINESS OF AN ASSESSEE.IN THE CASE BEFORE US,THE ASSESSEE HAS DONE THE SAME THING.IT WANTS TO SHIFT THE BURDEN OF ITS GENEROSITY IN FORM OF CLAIMING AN UNTENABLE CLAIM .IN OUR OPINION THERE WAS NO COMMERCIAL EXPEDIENCY IN THE TRANSACTIONS ENTERED IN TO BY THE ASSESSEE I.E. NON CHARGING OF INTEREST FROM WCPL, PBIPL AND OTHERS WAS NECESSITATED BY ANY BUSINESS CONSIDERATION . IN OTHER WORDS, THE ASSESSEE HAD FAILED TO ESTABLIS H EXISTENCE OF COMMERCIAL EXPEDIENCY . THE FAA HAS GIVEN A CATEGORICAL FINDING OF FACT THAT THERE WAS NO DIRECT NEXUS BETWEEN THE BORROWINGS OF THE FUNDS AND DIVERSION THEREOF FOR NON BUSINESS PURPOSES.HE HAD DEALT WITH EACH AND EVERY OF THE FOUR PARTIES TO WHOM LOANS WERE ADVANCED AND HAD GIVEN A CATEGORICAL FINDING OF FACT THAT THE TRANSACTIONS IN QUESTION WERE NOT GUIDED BY COMMERCIAL EXPEDIENCY.IN OUR OPINION, HIS ORDER DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY AS FAR AS FIRST DIRECTION OF THE T RIBUNAL IN CONCERNED. NOW WE WOULD TAKE UP THE SECOND DIRECTION OF THE TRIBUNAL.AVAILABILITY OF FUNDS HAS BEEN DISCUSSED BY THE FAA.IN OUR OPINION,AVAILABILITY OF FUNDS FROM PARTNERS ACCOUNT HAS BE SEEN IN LIGHT OF THE PRINCIPLE LAID DOWN BY THE HONBLE A PEX COURT IN THE CASE OF RELIANCE UTILITY (SUPRA).FOR THE LIMITED PURPOSE OF CALCULATION,WE ARE REMITTING BACK THE MATTER TO THE FILE OF THE AO.HE WOULD CONSIDER THE ARGUMENT TAKEN BY THE ASSESSEE BEFORE US ABOUT AVAILABILITY OF FUNDS IN PARTNERS ACCOUNT BEFORE MAKING PROPORTIONATE DISALLOWANCE,IN ANY. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOW ED. . ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST ,2015. 31 ST , 2015 SD/ - SD/ - ( . . / A.D. JAIN ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 31 . 08 . 2015 . . . JV. SR.PS. ITA 3884/M/14 ,AY. 03 04,STC 7 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.