Ashok Auto Sales Ltd., Agra V. Dy. C.I.T., Circle - 4(1), Agra

ITA 40/AGR/2011

• Counselvise Citation: 4020314 RSA 2011
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 24-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SHARMA
• Assessee Lawyers: K C AGARWAL
• Keywords: Business expenditure; Commercial expediency
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO.40/AGR/2011 ASSESSMENT YEAR: 2006-07 ASHOK AUTO SALES LIMITED, VS. ASSTT. COMMISSIONER OF INCOME TAX, NUNHAI, AGRA. CIRCLE 4, AGRA. (PAN: AABCA 3711 C) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.C. AGARWAL, ADVOCATE RESPONDENT BY : SHRI A.K.SHARMA, JR. D.R. DATE OF HEARING : 24.11.2011 DATE OF PRONOUNCEMENT : 25.11.2011 ORDER PER BENCH : THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER O F LD. CIT(A)-II, AGRA DATED 13.12.2010 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL :- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S OF THE CASE IN AFFIRMING DISALLOWANCE OF INTEREST RS.31,28,660/- U /S. 36(1)(III) ON A GENUINE BUSINESS ADVANCE FOR EXPANSION WITHOUT APPR ECIATING THE FACTS AD CIRCUMSTANCES OF THE CASE. 2. LEARNED CIT(A) HAS ERRED ON ACTS THAT CONSTRUCTI ON WAS STARTED SOMEWHERE IN THE YEAR 2005-06 WHILE MONEY TO ASB HE ALTH CARE P. ITA NO.40/AGR/2011 A.Y. 2006-07 2 LTD. HAD BEEN PAID SINCE 1998 AND SO COMMERCIAL EXP EDIENCY IS NOT ESTABLISHED. 3. THE LEARNED CIT(A), WHILE SUSTAINING THE ADDITIO N, HAS ERRED IN REITERATING THE CONCLUSION MERELY ON PROBABILITY IG NORING ALL EVIDENCE THAT THE ADVANCE WAS MADE FOR GENUINE BUSINESS PURP OSES. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN AFFIRMING PART DISALLOWANCE OF INTEREST EXPENDITURE RS.30,000/- U/S. 14A AND RULE 8D IGNORING THE FACT ABOUT SUFFICIENT AVAILABILITY OF OWN FUNDS WITH THE COMPANY FOR THE PURPOSE OF INVESTMEN T IN THE SHARES. 5. LEARNED CIT(A) HAS ERRED IN AFFIRMING PART INTER EST EXPENDITURE RS.30,000/- U/S 14A AND RULE 8D IGNORING THE FACT T HERE IS NO NEXUS OF INVESTMENT IN SHARES OUT OF BORROWED FUND AND THERE IS NO PAST CASE OF SAID INVESTMENTS IN SHARES OUT OF BORROWED FUNDS. 6. THE LEARNED CIT(A) HAS ERRED IN IGNORING CONTRAD ICTORY AND UNTENABLE OBSERVATIONS MADE BY THE LEARNED ASSESSIN G OFFICER AND INFERENCE THERE FROM AS DRAWN BY HIM IN THE CASE IS ERRONEOUS, UNTENABLE AND MISCONCEIVED. 7. THE APPROACH OF THE CIT(A) AS WELL AS AUTHORITIE S BELOW ARE TOTALLY ILLEGAL, PERVERSE AND BAD IN LAW AND ON FAC TS. 8. THE JUDGEMENT REFERRED BY THE APPELLANT HAS NOT BEEN PROPERLY CONSIDERED EITHER BY THE CIT(A) OR BY THE ASSESSING OFFICER. THUS, ADDITION OF IS WHOLLY ILLEGAL AND WITHOUT JURISDICT ION. 9. FOR THE REASONS DISCUSSED ABOVE AND TO BE ARGUED AT THE TIME OF HEARING, APPELLANT PRAY FOR RELIEF. 10. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL. 3. THE BRIEF FACTS IN GROUND NOS.1, 2 & 3 OF THE AS SESSEE ARE THAT THE ASSESSEE COMPANY IS THE AUTHORIZED DEALER FOR TATA VEHICLES. THE ASSESSEE HAS GIVEN TOTAL FUNDS AMOUNTING TO RS.3,00,56,362/- UPTO THE YEAR E NDING 31.03.2006 AS ADVANCE ITA NO.40/AGR/2011 A.Y. 2006-07 3 TO ONE OF ITS SISTER CONCERN M/S ASB HEALTH CARE PV T. LTD. OUT OF THE SAID ADVANCE, RS.2,51,66,892/- WAS THE ADVANCE GIVEN UPT O THE YEAR ENDING 31.03.2005 AND THE BALANCE ADVANCE OF RS.48,89,470/- WAS PAID DURING THE YEAR. THE ASSESSEE HAD RAISED THE LOANS FROM THE BANKS AND ALSO UNSECU RED LOANS FROM DIFFERENT PERSONS. THE ASSESSEE IS PAYING INTEREST ON THE SA ID LOANS. IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE A.O. THAT THE SAID ADVANCE WAS GIVEN TO ITS SISTER CONCERN FOR THE PURCHASE OF A SHOWROOM AT SANJAY PLACE, AGRA. THE A.O. WAS NOT SATISFIED WITH THE EXPLANATION AND THE DOCUMENTS SUBMITTED BE FORE THE A.O. FOR THE REASONS THAT THE VALUE OF CONSIDERATION IS NOT MENTIONED IN THE ALLOTMENT LETTER DATED 08.07.2003 AND THE LAND WAS REGISTERED IN THE NAME OF SISTER CONCERN. THE ASSESSEE HAS BEEN MAKING PAYMENTS SINCE 1998 MUCH BEFORE WHE N THERE WAS NO APPROVAL OF THE PROPOSAL OF MALL FROM THE LOCAL DEVELOPMENT AUT HORITY. IT CLEARLY EMERGES FROM THE MONEY PAID TO THE SISTER CONCERN WHICH IS AS PE R REQUIREMENT OF THE SISTER CONCERN. EVEN THE ELECTRICITY BILL, ROC CHARGES, N OTARY CHARGES AND STAMP PAPER CHARGES ETC. WERE PAID BY THE ASSESSEE. THE A.O. W AS OF THE VIEW THAT THE AGREEMENT/THE MEMORANDUM OF UNDERSTANDING (MOU) WIT H THE SISTER CONCERN WAS NOT GENUINE AND NO CASE OF COMMERCIAL EXPEDIENCY WA S ESTABLISHED. THEREFORE, INTEREST PAID BY THE ASSESSEE WAS DISALLOWED BY THE ASSESSING OFFICER UNDER SECTION 36(1)(III) OF THE ACT. THE LD. CIT(A) CONFIRMED TH E ACTION OF THE A.O. ITA NO.40/AGR/2011 A.Y. 2006-07 4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE LD. COUNSEL FOR THE ASSESSEE SHRI K.C. AGARWAL, ADV OCATE ARGUED ON THE SAME LINES AS SUBMITTED BEFORE THE LD. CIT(A). FOR THE SAKE O F CONVENIENCE, WE HEREBY REPRODUCE THE WRITTEN SUBMISSIONS AND THE ARGUMENTS MADE BEFORE THE LD. CIT(A) AS UNDER :- (A) IT WAS SUBMITTED BEFORE THE LEARNED ASSESSING O FFICER THAT THE COMPANY HAD PAID RS.48,89,470/- DURING THE YEAR UNDER CONSI DERATION TO M/S ASB HEALTH CARE & INDUSTRIES LTD. AGAINST PURCHASE OF S HOW ROOM AT SANJAY PLACE, THEREBY MAKING TOTAL ADVANCE OF RS.3,00,57,562/- A S ON 31 ST MARCH,2006 . WE HAVE ALSO SUBMITTED COPY OF ACCOUNT AND I.TAX RETUR N OF SAID ENTITY, COPY OF MOU & ALLOTMENT LETTER AND ALSO PROPOSED PLAN OF SHOW ROOM TO ESTABLISH THAT ADVANCE WAS GIVEN SOLELY FOR THE PURCHASE OF S HOWROOM FOR BUSINESS PURPOSE. HOWEVER, LEARNED ASSESSING OFFICER HAS NOT ACCEPTED PLEA OF THE ASSESSEE THAT ADVANCE TO M/S ASB HEALTH CARE & INDUSTRIES LTD. W AS GIVEN AS A MEASURE OF GENUINE COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF BU SINESS AND OBSERVED WITH IMAGINARY CAUSES THAT MONEY WAS PAID BY THE ASSESS EE COMPANY FOR THE NEED OF ITS SISTER CONCERN, THEREBY DISALLOWED INTEREST RS. 31,00,953/- ON THIS ACCOUNT. HE HAS SUPPORTED HIS ACTION BY VARIOUS CAS E LAW OF DIFFERENT COURT BUT THESE ARE NOT RELEVANT , WHICH REFER TO INTEREST FR EE ADVANCE & OTHER ADVANCES AND NOT A COMMERCIAL ADVANCE AS IN THE PRESENT CASE . WHAT IS COMMERCIAL, IT HAS TO BE JUDGED FROM THE ANGLE OF A BUSINESSMAN AN D NOT AS A REVENUE OFFICER, WHO FAILED TO ESTABLISH HOW ASSESSEE HAS PASSED OVE R BENEFIT TO ITS SISTER CONCERN IN THE FORM OF INTEREST FREE ADVANCE. THIS, MONEY HAS BEEN USED FOR CONSTRUCTING SHOW ROOM FOR THE ASSESSEE COMPANY AND NOT FOR ANY OTHER PURPOSE THEREBY JUSTIFY COMMERCIAL EXPEDIENCY. BALA NCE SHEET OF M/S ASB HEALTH CARE & INDUSTRIES LTD. SUBMITTED DURING COUR SE OF ASSESSMENT PROCEEDINGS SHOWING EXPANSES INCURRED BY THEM IN CO NSTRUCTION OF SHOW ROOM ESTABLISHED THIS FACT (COPY ENCLOSED). LEARNED ASSESSING OFFICER HAS FOUND ALLOTMENT LETT ER & MOU (COPY ENCLOSED) AS COLORABLE DEVICE BY POINTING OUT THAT IT DOES NO T CONTAIN TOTAL VALUE OF CONSIDERATION, EXPECTED TIME OF COMPLETITION , SCHE DULE OF PAYMENT , NATURE OF CONSTRUCTION AND SUMMARILY IGNORED MOU CONTAINING S UCH DETAILS BY DESCRIBING THAT NOTHING MEANINGFUL INFORMATION HAS BEEN MENTIONED THEREIN. IN ITA NO.40/AGR/2011 A.Y. 2006-07 5 NO LAW , THERE IS ANY REQUIREMENT THAT ALLOTMENT LE TTER OR MOU SHOULD BE ON THE STAMP PAPER OR REGISTERED FAILING WHICH, IT WIL L BE CONSIDERED COLORABLE . IN COMMERCIAL SENSE, A TRANSACTION HAS TO BE UNDERSTOO D IN SPIRIT AND REST ARE SETTLED AS PER THE TRADE PRACTICE OR INTERMEDIATE I NTERFERENCE. IT IS SETTLED THAT EVEN IF THERE IS ANY LACKING IN A DOCUMENT, IT CAN VERY WELL RECTIFIED SUBSEQUENTLY AND DOES NOT MAKE A DOCUMENT COLORABLE AS NARRATED BY THE LEARNED ASSESSING OFFICER. M/S ASB HEALTH CARE & INDUSTRIES LTD. HAS PURCHASED PIECE OF COMMERCIAL LAND LOCALLY AT SANJAY PLACE COMMERCIAL COMPLEX FRO M AGRA DEVELOPMENT AUTHORITY. THUS, IT CAN NOT HAVE ANY IDEA EXCEPT DE VELOPING A COMMERCIAL AREA THEREIN. WHICH IS ONLY PERMISSIBLE THERE AS PER TER MS OF ALLOTMENT BY DEVELOPING AUTHORITY. THUS, THE ALLEGATION OF THE A SSESSING OFFICER THAT MONEY WAS PAID BY THE COMPANY TO ITS SISTER CONCERN MUCH BEFORE PLAN OF THE MALL WAS NOT EVEN CONCEPTUALIZED CAN BE SAID HIS OWN VIEW WI TH OUT ANY BASIS. IT IS VERY COMMON PRACTICE, PARTICULARLY, IN THE RE AL STATE SECTOR, WHERE CONCEPTS ARE SOLD. WHILE IT ENSURE SELLER LIQUIDITY VIS A VIS TO ASSESS POTENTIALITY OF THE PROJECT , IT GIVES BUYER BENEFIT OF LOWER PR ICE AND BETTER LOCATION. THUS, THERE IS NOTHING UNIQUE IN THE CASE OF BUYING SPAC E FOR SHOW ROOM BY THE ASSESSEE COMPANY FROM THE PROMOTER M/S ASB HEALTH C ARE & INDUSTRIES LTD. WITH THE ALLOTMENT OF LAND, TO THEM BY ADA RATHER T HEY HAVE ENJOYED PRE- LAUNCH CONCESSIONAL PRICE BENEFIT SUBSTANTIALLY LOW ER THAN PRESENT PRICE. LEARNED ASSESSING OFFICER HAS ALSO OBSERVED IN HIS ASSESSMENT ORDER THAT M/S ASB HEALTH CARE & INDUSTRIES LTD. HAS NOT SOLD ONE INCH OF LAND TO ANY OUTSIDER EXCEPT ITS GROUP CONCERNS. HOWEVER, HE FA ILED IN SAYING HOW IT HAS CAUSE LOSS TO THE ASSESSEE OR BENEFIT TO ITS SISTER CONCERN. IT IS MATTER OF MUTUAL BELIEVE, UNDERSTANDING AND MARKETING STRATEGY OF SE LLER COMPANY AND DEPTT. CAN NOT FORCE TO SALE OR NOT TO SALE ITS BELONGING OR DIRECT FOR SELLING TO ONE AND NOT ELSE. IT IS A COMMERCIAL TRANSACTION AND ASSESS EE VIEW PREVAILS OVER THE VIEW OF THE REVENUE OFFICER. IT COULD BE A CASE, IF THE LEARNED ASSESSING OFFICER HAS FOUND FOR ANY UNREASONABLENESS IN THE PRICING O R ELSE. HOWEVER, NO SUCH ALLEGATION ARE SHOWN BY THE ASSESSING OFFICER IN HI S ORDER. THUS, PREFERENTIAL ALLOTMENT OF SPACE TO GROUP COMPANIES BY M/S ASB HE ALTH CARE & INDUSTRIES LTD BEARS NO ADVERSE BEARING IN THE CASE AT ALL. LEARNED ASSESSING OFFICER HAS REFERRED WITHDRAWAL O F RS.12 LACS ON 27-07- 2005 FROM OPEN CASH CREDIT ACCOUNT WITH CANARA BANK AGRA. AS A MATTER OF FACT BANK GRANT LOAN FOR THE PURPOSE OF BUSINESS AG AINST STOCKS AND ALL BUSINESS INCOMINGS AND OUT GOINGS ARE PLACED THEREI N. ASSESEE COMPANYS ITA NO.40/AGR/2011 A.Y. 2006-07 6 PAID UP CAPITAL AND FREE RESERVE ARE RS.13.447 CROR E WHILE IT HAS ADVANCED RS.3.00 CRORE FOR THE PURCHASE OF SHOWROOM TILL THE CLOSE OF THE YEAR OVER A PERIOD OF TIME IN DIFFERENT YEAR OUT OF ITS ACCRUAL S. THUS, IT IS ONLY HYPOTHETICAL THAT COMPANY HAS ADVANCED INTEREST BEARING FUND FO R MAKING INTEREST FREE ADVANCE. THUS, INTEREST PAID ON BORROWINGS IS ALLOW ABLE BUSINESS EXPENDITURE AND NOTHING COULD BE DISALLOWED THERE FROM. IN S.A. BUILDERS LTD. VS.CIT(A) ANR. (2006) 206CTR (SC) 631:(2007) 288 ITR 1 (SC) THE SUPREME COURT IN APPEAL SET ASIDE THE DE CISION OF PUNJAB & HARYANA HIGH COURT IN S.A. BUILDERS LTD VS CIT & KA NR. (2004) 269 ITR 535 (P&H) AND OVERRULED DECISION IN PHALTAN SUGAR WORKS LTD. VS. CIT (1955) 127 CTR (BOM) 344 : (1955) 215 ITR 582 (BOM) AND APPROV ED THE DECISION OF DELHI HIGH COURT IN CIT VS DALMIA CEMENT (BHARAT) L TD. (2002) 174 CTR (DEL) 188 : (2002) 254 ITR 377 (DEL) AND HELD THAT INTEREST ON BORROWED FUNDS CAN COT BE DISALLOWED IF THE ASSESSEE HAS ADVANCED INTEREST-FREE LOAN TO A SISTER CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY ; WH AT IS TO BE SEEN IS BUSINESS PURPOSE AND WHAT THE SISTER CONCERN DID WITH THE MONEY ADVANCED. IT WAS OBSERVED : THE HIGH COURT IN THE IMPUGNED J UDGEMENT, AS WELL AS THE TRIBUNAL AND THE IT AUTHORITIES HAVE APPROACHED THE MATTER FROM AN ERRONEOUS ANGLE. THE ASSESSEE BORROWED THE FUND FROM THE BANK AND LENT SOME OF IT TO ITS CONCERN (A SUBSIDIARY) ON INTEREST FREE LOAN. THE TEST IN SUCH A CASE IS REALLY WHETHER THIS WAS DONE AS A MEASURE OF COMMERCIAL EX PEDIENCY. THE DECISION RELATING TO S.37 WILL APPLICABLE TO S.36(10(III) BE CAUSE IT IS IN S.37 ALSO THE EXPRESSION USED IS FOR THE PURPOSE OF BUSINESS. I T HAS BEEN CONSISTENTLY HELD IN DECISION RELATING TO S.37 THAT THE EXPRESSION F OR THE PURPOSE OF BUSINESS INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXP EDIENCY, AND IT IS IMMATERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY. THE HIGH COURT AS WELL AS THE TRIBUNAL AND OTHER IT AUTHORITIES SHOULD HAVE APPRO ACHED THE QUESTION OF ALLOWABILITY OF INTEREST ON THE BORROWED FUNDS FORM THE ABOVE ANGLE. IN OTHER WORDS, THE HIGH COURT AND OTHER AUTHORITIES SHOULD HAVE ACQUIRED AS TO WHETHER THE INTEREST FREE LOAN WAS GIVEN TO THE SI STER COMPANY (WHICH IS SUBSIDIARY OF THE ASSESSEE) AS MEASURE OF COMMERCIA L EXPEDIENCY AND IF IT WAS, IT SHOULD HAVE BEEN ALLOWED. THE EXPRESSION COMMER CIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDI TURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET I T IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMER CIAL EXPEDIENCY. NEITHER THE HIGH COURT NOR THE TRIBUNAL NOR OTHER AUTHORITI ES HAVE EXAMINED WHETHER THE AMOUNT ADVANCED TO SISTER CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY. THE HIGH COURT AND THE OTHER AUTHORITIES SHOULD HAV E EXAMINED THE PURPOSE FOR ITA NO.40/AGR/2011 A.Y. 2006-07 7 WHICH THE ASSESSEE ADVANCED THE MONEY TO ITS CONCER N AND WHAT THE SISTER CONCERN DID WITH THIS MONEY, IN ORDER TO DECIDE WHE THER IT WAS FOR COMMERCIAL EXPEDIENCY, BUT THAT HAS NOT BEEN DONE. THE IMPUGNE D JUDGMENTS OF THE HIGH COURT, THE TRIBUNAL AND OTHER AUTHORITIES ARE SET A SIDE AND THE MATTER IS REMANDED TO THE TRIBUNAL FOR A FRESH DECISION IN AC CORDANCE WITH LAW AND IN THE LIGHT OF THE OBSERVATION MADE ABOVE. IT IS MADE CLEAR THAT IT IS NOT THAT IN EVERY CASE INTEREST ON BORROWED LOANS HAS TO BE ALL OWED IF THE ASSESSEE ADVANCES IT TO A SISTERCONCERN.IT ALL DEPENDS ON T HE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCES, IF THE DIREC TORS OF THE SISTER-CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE F OR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONEY WAS ADV ANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MONEY CAN BE SAID T O BE ADVANCED TO A SISTER-CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY OT HER CIRCUMSTANCES. HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANC ES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR THE SOME BUSINESS PURPOSES, THE ASSESSEE WOULD, IN OUR OPINION, ORDIN ARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. IN CIT VS. INDUSTRIAL CABLES (INDIA) LTD. (2007) 21 2 CTR (P&H) 513 ADDITION MADE ON ACCOUNT OF INTEREST ON INTEREST FREE LOANS ADVANCED BY THE ASSESSEE COMPANY TO ITS SISTER CONCERNS AND OTHERS WAS UPHEL D ON FACTS OF THE CASE. IN CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 2 21 CTR (BOM) 435, IT WAS HELD THAT TRIBUNAL HAVING RECORDED A CLEAR FINDING THAT THE ASSESSEE POSSESSED SUFFICIENT INTEREST FREE FUNDS OF ITS OWN WHICH WE RE GENERATED IN THE COURSE OF THE RELEVANT FINANCIAL YEAR , APART FROM SUBSTANTIA L SHAREHOLDERS FUND , PRESUMPTION STANDS ESTABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AN D THEREFORE NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BAS IS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. IN CIT VS. SOUTH INDIA CORPORATION (AGENCIES) LTD.( 2007) 293 ITR 237 (MAD) IT WAS HELD THAT ASSESSEE HAD NOT GIVEN ANY FRESH L OAN TO THE SUBSIDIARY COMPANY IN THE RELEVANT YEAR AND IN THE EARLIER YEA RS NO DISALLOWANCE HAD BEEN MADE AND SUCH DISALLOWANCE IN THE RELEVANT YEA R COULD NOT BE MADE. IN CIT VS. KANDAGIRI SPINING MILLS LTD.(2008) 216 C TR (MAD) 180 : (2008) 298 ITR 306 (MAD) IT WAS HELD THAT THE CIT (A) AND THE TRIBUNAL HAVING CONCURRENTLY FOUND ON THE BASIS OF MATERILS ON RECO RD THAT THE AMOUNTS WERE GIVEN BY THE ASSESSEE TO ITS SISTER CONCERN FORM TH E PROFITS EARNED BY IT DURING ITA NO.40/AGR/2011 A.Y. 2006-07 8 THE RELEVANT ASSESSMENT YEARS AND NOT BY DIVERTING THE FUNDS BORROWED FORM THE FINANCIAL INSTITUTIONS AND BANKS, INTEREST PAID ON BORROWED CAPITAL CAN NOT BE DISALLOWED TO THE EXTENT IT IS RELATABLE TO THE SUMS ADVANCED TO SISTER CONCERN, MORE SO AS THE AMOUNTS WERE ADVANCED BY TH E ASSESSEE AS A MEASURE OF COMMERCIAL EXPEDIENCY IN AS MUCH AS THE EMPLOYEE S OF THE ASSESSEE COMPANY AND THEIR FAMILY MEMBERS ARE BEING GIVEN CO NCESSIONAL TREATMENT AT THE HOSPITAL. FOLLOWING CIT VS. RADICO KHAITAN LTD. (2005) 194 CT R (ALL) 451 : (2005) 274 ITR 254 (ALL) AND S.A. BUILDERS LTD. VS. CIT (SC) 6 31 : (2007 288 ITR 1 (SC), THE HIGH COURT OF ALLAHABAD IN CIT VS. MOTOR SALES LTD. (2008) 304 ITR 123 (ALL) HAS HELD THAT TRIBUNAL HAVING RECORDED A FIND ING THAT THE ASSESSEE HAS NOT DIVERTED ANY BORROWED FUND ON WHICH INTEREST WAS PA ID FOR NON-COMMERCIAL PURPOSES NO PART OF INTEREST PAID BY ASSESSEE CAN B E DISALLOWED ON THE GROUND THAT THE ASSESSEE HAS NOT CHARGED INTEREST FORM SUN DRY DEBTORS. IN VIEW OF ABOVE , IT IS PRAYED TO DELETE THIS UNJU STIFIED DISALLOWANCE OF RS. 31,00,953/- FORM INTEREST EXPENDITURE. (B) ASSESSEE COMPANY HAD MADE FEW PAYMENTS, ON BEHA LF OF THE DIRECTORS/ SHAREHOLDERS DURING THE YEAR AS PER DETAILS GIVEN O N PAGE 6 OF THE ASSESSMENT ORDER. THEY WERE BEING PAID INTEREST BY THE COMPANY ON THEIR DEPOSIT / REMUNERATION FORM THE COMPANY AND NO AMOUNT HAD REM AINED DUE FORM THEM AS AT YEAR END RATHER COMPANY WAS HAVING CREDIT OF INTEREST ACCURED PAYABLE. NO INTEREST ON THIS AMOUNT WAS PAID TO THEM BY THE ASSESSEE COMPANY. (A) DR. RANJANA BANSAL RS. 2,14,0 52 (B) MS. PRANTI BANSAL RS. 1,52 ,945 (C) MR. BHARAT BANSAL RS. 1,18, 074 RS. 4,85,071 SINCE THERE ARE SUFFICIENT INTEREST FREE CREDITS WI TH THE COMPANY INCLUDING ABOVE, DISALLOWANCE OF RS.27,707/-(RS.6,320/+RS.21, 387/-) IS NOT JUSTIFIED AND IT IS PRAYED TO DELETE THIS UNJUSTIFIED DISALLOWAN CE FROM INTEREST EXPENDITURE. 4. THE LD D.R., ON THE OTHER HAND, RELIED UPON THE DECISION OF BOTH THE AUTHORITIES BELOW. ITA NO.40/AGR/2011 A.Y. 2006-07 9 5. AFTER CONSIDERING THE RIVAL CONTENTIONS AND THE SUBMISSIONS BEFORE THE LD. CIT(A) AND THE ARGUMENTS BEFORE US, WE ARE OF THE V IEW THAT THE ASSESSEE HAD ENTERED INTO A MEMORANDUM OF UNDERSTANDING (MOU) AV AILABLE AT PAGE NOS.38 TO 42 OF THE PAPER BOOK IN WHICH THE ASSESSEE WAS TO B E ALLOTTED A SHOWROOM MEASURING 5042.44 SQ. FT. @ RS.8,000/- PER SQ. FT. THE SAID MOU WAS DATED 04.07.2004 AND THE ASSESSEE HAD CONVERTED THE ADVAN CE GIVEN UPTO 31.03.2004 AS MENTIONED HEREINABOVE AS ADVANCE AGAINST THE SAID S HOW ROOM/SHOP. THE BALANCE AMOUNT WAS GIVEN DURING THE YEAR. NONE OF THE AUTH ORITIES BELOW HAVE PROVED THE SAID MOU AS FALSE OR FABRICATED AND THERE IS NO MAT ERIAL ON RECORD THAT THE SAID MOU IS A COLOURABLE DEVICE. THE FINDINGS OF BOTH T HE AUTHORITIES BELOW REGARDING THE MOU ARE ON CONJECTURES AND SURMISES AND CANNOT BE ACCEPTED. MOREOVER, THE LD. COUNSEL FOR THE ASSESSEE SHRI K.C. AGARWAL, ADV OCATE ARGUED THAT THE ASSESSEE, AS IS EVIDENT FROM THE BALANCE SHEET AVAILABLE AT P AGE NO.17 OF THE PAPER BOOK, IS HAVING RESERVE AND SURPLUS OF RS.11,94,20,594/- APA RT FROM THE SHARE CAPITAL OF RS.1,50,50,000/-. THE SECURED LOANS HAVE BEEN USED FOR THE PURPOSE FOR WHICH THEY HAVE BEEN TAKEN AND CANNOT BE SAID TO HAVE BEEN GIV EN AS ADVANCE TO THE SAID SISTER CONCERN. AS REGARDS THE UNSECURED LOAN, THEY HAVE ALSO BEEN USED AND ARE INVESTED IN THE FIXED ASSETS OR THE CURRENT ASSETS. MOREOVE R, IT WAS ARGUED THAT THE SAID ADVANCE WAS GIVEN FOR PURCHASE/ALLOTMENT OF SHOWROO M/SHOP FOR THE PURPOSE OF BUSINESS AND NOT AS A PERSONAL ASSET OF ANY DIRECTO R OR ANY SHARE HOLDER. THE COMPANY HAS PURCHASED THE SAID SHOW ROOM/SHOP FOR T HE PURPOSE OF BUSINESS AND ITA NO.40/AGR/2011 A.Y. 2006-07 10 HAS BEEN DECLARED AS ASSET IN THE BALANCE SHEET OF ASHOK AUTO SALES WHEN THE POSSESSION WAS TAKEN IN THE YEAR ENDING 31.03.2010. ACCORDING TO US THE ASSESSEE HAS ADVANCED THE MONEY FOR THE PURPOSE OF ITS BUSIN ESS AS A MEASURE OF COMMERCIAL EXPEDIENCY. THEREFORE, IT CANNOT BE SAI D THAT THE ADVANCES HAVE BEEN MADE FOR ANY PERSONAL USE OR FOR NON-BUSINESS CONSI DERATION. THEREFORE, RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF S.A. BUILDERS LTD. VS. CIT(A) 288 ITR 1 (SC), THE ASSESSING OFFICER IS NOT JUSTIFIED TO DISALLOW THE INTEREST UNDER SECTION 36(1)(III) OF THE ACT. THE ORDER OF THE LD. CIT(A) ACCORDINGLY REVERSED. GROUND NOS.1, 2 & 3 OF THE A SSESSEE ARE ALLOWED. 6. AS REGARDS GROUND NOS.4 & 5 OF THE ASSESSEE, THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER HAS MADE A DISALLOWANCE OF RS.1,7 0,953/- BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT BY OBSERVING T HAT RULE 8D OF THE INCOME TAX RULES ARE APPLICABLE IN ASSESSEES CASE. THE A.O. RELIED UPON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF M/S. DAGA CAPITAL MANAG EMENT PVT. LTD IN ITA NO.8057/MUM/03. THE LD. CIT(A) OBSERVED THAT RULE 8D IS NOT RETROSPECTIVE AND IS APPLICABLE FROM ASSESSMENT YEAR 2008-09 AS HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE VS. DCIT AND THEREFOR E, OBSERVED THAT THE A.O. WAS NOT RIGHT IN INVOKING THE PROVISIONS OF RULE 8D. T HE PLEA THAT NO EXPENDITURE WAS INCURRED CANNOT BE TAKEN ON FACE VALUE AS SOME EXPE NDITURE MUST HAVE BEEN INCURRED BY THE ASSESSEE TOWARDS ADMINISTRATIVE AND FINANCIAL EXPENSES CAN ITA NO.40/AGR/2011 A.Y. 2006-07 11 DEFINITELY BE ATTRIBUTED TO THE INVESTMENT MADE IN THE SHARES GENERATING DIVIDEND INCOME. THEREFORE, THE LD. CIT(A) HELD THAT IT WOU LD BE REASONABLE AND FAIR TO ESTIMATE THE SAME AT RS.30,000/- AND ACCORDINGLY PA RTLY ALLOWED THE GROUND OF THE ASSESSEE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. AT THE OUTSET, WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) IN VIEW OF THE DECISION OF GODREJ & BOYCE (SUPRA) THAT RULE 8D IS NOT RETROSPE CTIVE BUT APPLICABLE FROM ASSESSMENT YEAR 2008-09. MOREOVER, IT HAS BEEN HEL D BY DELHI BENCH OF ITAT IN THE CASE OF M/S. MAXOPP INVESTMENTS LIMITED VS. DCI T, 138 TTJ 240 (DELHI) DATED 13.10.2010 THAT IN SUCH CASES DISALLOWANCE MA DE BY THE A.O. UNDER SECTION 14A ON ESTIMATE BASIS CANNOT STAND AND WHEN THE SUB MISSION OF THE ASSESSEE HAVE BEEN MADE THAT NO EXPENDITURE WAS INCURRED FOR EARN ING DIVIDEND INCOME. IN THE PRESENT CASE ALSO THE ASSESSEE HAD SUBMITTED THAT I T HAD NOT INCURRED ANY EXPENDITURE AND NONE OF THE AUTHORITIES BELOW HAD R EBUTTED THE SAID SUBMISSION. THEREFORE, IN THE CIRCUMSTANCES AN FACTS OF THE CAS E AND FOLLOWING THE DECISION OF ITAT DELHI BENCH (SUPRA) THE ESTIMATION MADE BY THE LD. CIT(A) IS WITHOUT ANY BASIS OR MATERIAL ON RECORD AND SAME IS DIRECTED TO BE DELETED. THUS, GROUND NOS.4 & 5 OF THE ASSESSEE ARE ALLOWED. ITA NO.40/AGR/2011 A.Y. 2006-07 12 8. AS REGARDS TO GROUND NOS.6, 7, 8, 9 & 10 OF THE ASSESSEE, SINCE THE SAME ARE GENERAL IN NATURE, THEREFORE, DO NOT REQUIRE ANY AD JUDICATION. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 40/AGR/2011 IS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 25.11.2011). SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 25 TH NOVEMBER, 2011 PBN/* COPY OF THE ORDER FORWARDED TO: APPELLANT/RESPONDENT/CIT CONCERNED/CIT(APPEALS) CO NCERNED/D.R., ITAT, AGRA BENCH, AGRA/GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY