ORG INFORMATICS LTD, Baroda V. The ACIT.,Circle-4, Baroda

ITA 4150/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6380 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 14-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 29-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Depreciation; Business expenditure; Period of limitation; Bad and doubtful debts; Notional interest; Commercial expediency; Time period of passing order
• Section: 234B; 37(1); 37

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.4150/AHD/2008 A. Y.: 2005-06 ORG INFORMATICS LTD., 3 RD FLOOR, ABHISHEK COMPLEX, AKSHAR CHOWK, OLD PADRA ROAD, BARODA 390 020 VS THE A. C. I. T., CIRCLE-4, AAYAKAR BHAVAN, RACE COURSE, BARODA 390 007 PA NO. AACCS 9395 K (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SANJAY R. SHAH, AR RESPONDENT BY SHRI B. L. YADAV, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)- I II, BARODA DATED 15 TH OCTOBER, 2008 FOR ASSESSMENT YEAR 2005-06. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. 3. ON GROUNDS NO.1 OF THE APPEAL, THE ASSESSEE CHAL LENGED THE ADDITION OF RS.56,49,077/- IN RESPECT OF BAD DEBTS WRITTEN OFF. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE AMOUNT WR ITTEN OFF IS ALLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 36(1 ) (VII) OF THE IT ACT. THE ASSESSEE HAD GIVEN DETAILED BIFURCATION OF THE AMOUNT DEBITED TO ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 2 THE BAD DEBTS ACCOUNT. THE AO NOTED FROM THE DETAIL S THAT MOST OF BE BAD DEBTOR PARTIES ARE GOVERNMENT PUBLIC SECTOR UNI TS. IT WAS STATED BY THE AO THAT THE ASSESSEE HAS FAILED TO PROVIDE A NY SUFFICIENT REASON FOR WRITING OFF THE DEBTS AS BAD. RELIANCE W AS PLACED ON THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF IND IA THERMIT CORPORATION LTD. 56 ITD 307, WHERE IT HAS BEEN HEL D THAT EVEN AFTER THE AMENDMENT IN THE ACT , THE BASIC CONDITION STIL L REMAINS THE SAME THAT THE WRITE OFF SHOULD BE OF BAD DEBTS AND NOT OF ANY DEBT. THE CLAIM OF THE ASSESSEE WAS REJECTED AND THE ADDITION WAS ACCORDINGLY MADE. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) TH AT AOS OBSERVATION THAT MOST OF THE BAD DEBTORS ARE GOVERN MENT PUBLIC SECTOR UNITS. RELIANCE WAS ALSO PLACED ON THE DECIS ION OF ITAT DELHI BENCH IN THE CASE OF ACIT VS MODI OLIVETI LTD. IT WAS SUBMITTED BY THE ASSESSEE THAT AS PER THE PROVISIONS OF SECTION 36(1) (VII) READ WITH SECTION 36(2) OF THE IT ACT, THE DEBT SHOULD HAVE B EEN INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. THIS CONDITION IS FUL FILLED BY THE ASSESSEE BY SUBMITTING DETAILS AT THE ASSESSMENT ST AGE. THE ASSESSEE PLACED RELIANCE UPON OTHER DECISION NOTED IN THE IMPUGNED ORDER. IT WAS FURTHER SUBMITTED THAT THE LEARNED CI T(A) DELETED THE DISALLOWANCE OF BAD DEBT FOR PRECEDING ASSESSMENT Y EAR 2003-04 IN THE CASE OF THE SAME ASSESSEE. THE LEARNED CIT(A) H OWEVER, DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND CONFIRMED THE ADDITION. HIS FINDINGS IN PARA 2.3 OF THE APPELLATE ORDER ARE REP RODUCED AS UNDER: ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 3 2.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE COUNSEL AND FACTS OF THE CASE. THE ENTIRE CRUX OF T HE APPELLANTS ARGUMENTS IS THAT IT HAS FULFILLED THE CONDITIONS OF SECTION 36(1) (VII) AND 36(2) BY WRITING OFF THE BAD DEBTS AND BY SHOWING THE SAME AS INCOME IN EARLIER YEARS. THE APPELLANT HAS NOT PROVED ANY EVIDENCE AS TO HOW THE DEBTS WRITTEN OFF BECAME BAD OR WERE TREATED AS BAD . THE APPELLANT SUBMITTED THE NATURE OF THESE DEBTS AS RA TE DIFFERENCE, CANCELLATION OF INVOICE, NON-AVAILABILI TY OF CREDIT IN RESPECT OF CREDIT IN RESPECT OF TDS DEDUC TED IN THE EARLIER YEARS OR ON ACCOUNT OF DEBTORS OUTSTAND ING FOR MORE THAN THREE YEARS. THE APPELLANT HAS NOT SUBMIT TED ANY DOCUMENTARY EVIDENCE AS TO HOW THE SAID DEBT HA S BECOME BAD. SINCE MOST OF THE PARTIES ARE GOVERNMEN T ENTITIES, OBVIOUSLY THERE IS NO POSSIBILITY OF THEY BEING BANKRUPT. EVEN IF THE AMOUNT IS OUTSTANDING FOR MOR E THAN THREE YEARS, THE SAME DOES NOT AUTOMATICALLY BECOME BAD DEBT, MORE PARTICULARLY WHEN THE DEBTORS ARE BANKS, LIC OR OTHER PUBLIC SECTOR UNDERTAKINGS. THERE HAS TO B E EVIDENCE TO SHOW THAT THE DEBT HAS BECOME IRRECOVER ABLE. THE APPELLANT HAS NOT MADE ANY EFFORT WHATSOEVER EI THER BEFORE THE ASSESSING OFFICER OR BEFORE THE UNDERSIG NED AND THEREFORE IN MY CONSIDERED VIEW THE BAD DEBT CL AIMED BY THE APPELLANT CANNOT BE TREATED AS BAD DEBT IN V IEW OF THE FACTS NARRATED BY THE ASSESSING OFFICER. THE APPELLANT HAS GONE TO THE EXTENT OF WRITING OFF TDS CLAIM NOT RECEIVED FROM THE DEPARTMENT, HOW THI S WILL FALL IN THE CATEGORY OF BAD DEBT IS NOT UNDERSTOOD. CONSIDERING THE FACTS OF THE CASE AND RELEVANT JUDI CIAL DECISIONS, IT IS CLEAR THAT THE APPELLANT HAS NOT E VEN PRIMA FACIE ESTABLISHED THE DEBTS AS BAD DEBTS. IN THE CA SE OF SOUTH INDIA SURGICAL CO. LTD. VS ACIT, 287 ITR 62, HON. MADRAS HIGH COURT HAS HELD THAT IT IS NOT SUFFICIENT FOR THE ASSESSEE TO SAY THAT HE HAS BECOME PESSIMISTIC ABOUT THE PROSPECT OF RECOVE RY OF DEBT IN QUESTION. HE MUST FEEL HONESTLY CONVINCED T HAT THE FINANCIAL POSITION OF THE DEBTOR WAS SO PRECARIOUS AND SHAKY THAT IT WOULD BE IMPOSSIBLE TO COLLECT ANY MO NEY ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 4 FROM HIM. THE QUESTION IS REALLY ONE OF FACT DEPEND ING UPON THE VARIOUS FACTS AND DIVERSE CIRCUMSTANCES BE ARING ON THE DEBTORS PECUNIARY POSITION, HIS COMMITMENTS AND OBLIGATIONS. THE JUDGMENT OF THE ASSESSEE IN REGARD ING THE DEBT AS BAD DEBT MUST BE A HONEST JUDGMENT AND NOT A CONVENIENT JUDGMENT. THE JUDGMENT OF THE ASSESSEE MUST BE ESTABLISHED TO HAVE BEEN TAKEN ON RELEVANT FACTS AND CIRCUMSTANCES, WHICH SHOULD SHOW THAT THE DEBT IS NOT REALIZABLE FOR SOME FAULT ON THE PART OF THE DE BTOR OR SOME SUPERVENING IMPOSSIBILITY ON THE PART OF THE D EBTOR TO PAY, BUT NOT POSSIBLE DIFFICULTIES OR HURDLES TH E ASSESSEE MAY HAVE TO INCUR TO COMPEL THE RECALCITRA NT DEBTOR TO PAY. THE ASSESSEE FOR HIS CONVENIENCE MAY DECIDE THAT THE DEBT IS TOO SMALL AND IT IS NOT WOR THWHILE TO PURSUE THE DEBTOR BUT THE JUDGMENT WOULD NOT BE A H ONEST JUDGMENT, WHICH WOULD ESTABLISH THAT THE DEBT HAS BECOME A BAD DEBT. A TIME-BARRED DEBT CAN BE ASSUMED TO BE BAD, BUT IS NOT NECESSARILY BAD BECAUSE OF EXPIRY OF LIMITATION FOR RECOVERY OF THE SAME. DEVI FILMS LTD . VS. CIT (1963) 49 ITR 874 (MAD) AND T. S. PL.S CHIDAMBARAM CHETTIAR VS. CIT (1967) 64 ITR 81 (MAD) RELIED ON. THE HON. GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERPRISES & ENGINEERS PVT. LTD. VS CIT REPORTED I N 295 ITR 481 HAS HELD THAT THE ASSESSEE SHOULD PROVE THA T THE DEBT HAD BECOME BAD. MERE DEBITING THE AMOUNT IS NO T SUFFICIENT. THE RELEVANT OBSERVATION O THE HON. COU RT IS QUOTED BELOW:- EVEN IF WE GO TO THE PLAIN READING OF CLAUSE VII, THE REQUIREMENT FOR ALLOWING DEDUCTION ON ACCOUNT OF BA D DEBT IS THAT THE BAD DEBT SHOULD BE WRITTEN AS IRRECOVERABLE. MERELY DEBITING THE AMOUNT IS NOT SU FFICIENT. THE REQUIREMENT IS THAT THE ASSESSEE SHOULD ALSO PR OVE THAT THE DEBT THAT HAS BECOME BAD IN THAT PARTICULA R YEAR. FROM THE ABOVE, IT IS CLEAR THAT MERELY WRITING OFF DEBT IN P & L ACCOUNT IS NOT SUFFICIENT, THE ASSESSEE HAS TO ESTABLISH THAT THE AMOUNT HAS ACTUALLY BECOME BAD. ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 5 SIMILARLY, THE EXPIRY OF LIMITATION PERIOD OF THREE YEARS CANNOT AUTOMATICALLY PUT THE DEBT IN THE CATEGORY O F BAD DEBTS. THEREFORE, APPELLANTS ARGUMENTS THAT ONCE T HE DEBT IS WRITTEN OFF, DEDUCTION HAS TO BE ALLOWED IS NOT CORRECT. SINCE THE APPELLANT HAS NOT PROVED ANY OF THE DEBT AS BAD BY DOCUMENTARY OR OTHER EVIDENCES, TH E DEBT WRITTEN OFF CANNOT BE TREATED AS BAD DEBTS AND ACCORDINGLY, THE ASSESSEE WILL NOT BE ENTITLED TO C LAIM DEDUCTION U/S. 36 (1) (VII). THE APPELLANT SUBMITTED THE DECISIONS WHICH ARE PRIOR TO GUJARAT HIGH COURTS DECISION REFERRED ABO VE AND THEREFORE RESPECTFULLY FOLLOWING THE LATEST DECISIO N OF GUJARAT HIGH COURT, OTHER DECISIONS ARE NOT DISCUSS ED. AS REGARDS THE APPELLANTS ARGUMENT THAT THE FACTS IN DHALL ENTERPRISES DECISION ARE DIFFERENT AND WILL NOT APP LY TO THE APPELLANTS FACTS, IT IS STATED THAT THE HON. GUJAR AT HIGH COURT HAS CLEARLY OBSERVED THAT MERELY WRITING OFF OF DEBT IS NOT SUFFICIENT, THE ASSESSEE HAS TO PROVE THAT T HE DEBT HAS BECOME BAD. SINCE THE ASSESSEE HAS NOT PROVED T HAT THESE DEBTS HAVE BECOME BAD, MORE PARTICULARLY CONSIDERING THE FINANCIAL STRENGTH OF THE DEBTORS, THE DEBTS WRITTEN OFF BY THE ASSESSEE ARE HELD TO BE NOT BAD DEBTS AND ACCORDINGLY THE DEDUCTION U/S. 36(1) (VII) IS NOT ALLOWABLE. THE APPELLANTS ARGUMENT THAT IN EARLIER YEAR, THE CIT(A) ALLOWED ITS CLAIM IS NOT RELEVANT SINCE MY PREDECESSOR HAS NOT CONSIDERED THE DECISION OF THE HON. GUJARAT HIGH COURT IN THE CASE OF DHAL ENTERPRISES & ENGINEERS WHICH IS BINDING ON THE APPELLATE AUTHORI TIES IN ITS JURISDICTION. THE ADDITION MADE BY THE ASSESSIN G OFFICER IS THEREFORE CONFIRMED. 4. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT THE ISSUE IS NOW FINALLY DECIDED BY THE HONBLE SUP REME COURT IN THE CASE OF T. R. F. LTD. 323 ITR 397 IN WHICH IT WAS H ELD AS UNDER: ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 6 THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTAB LISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. I T IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINE D WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF T HE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION I S DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER, IN FACT , THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEE N UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE O FF. HE HAS FILED THE DETAILS OF THE BAD DEBTS AT PAGES 44 TO 46 OF THE PAPER BOOK WHICH INCLUDES THE AMOUNT OF TDS DISALLO WED AND ALSO FILED COPY OF ONE OF THE SPECIMEN CONTRACT WITH LIC OF INDIA (PB-47) IN SUPPORT OF HIS CONTENTIONS. HE HAS FURTHER SUBMITTE D THAT FOR TDS INCOME WAS OFFERED IN THE EARLIER YEARS, BUT THIS F ACT HAS NOT BEEN DISCUSSED IN THE IMPUGNED ORDER. 5. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE DEBTS HAVE BEEN CLAIMED AGAINST GOVERNMENT AGENCIES, THEREFORE, THERE IS NO QUESTION OF TREATING THE SAME AS BAD DEBT. THE ASSESSEE HAS FAI LED TO PROVE THAT THE DEBT HAS BECOME BAD; THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION. ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 7 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL ON RECORD. SECTION 36 (1) (VII) OF THE IT ACT PROVIDES THAT DEDUCTION SHALL BE ALLOWED IN COMPUTING THE INCOME SUBJECT TO THE P ROVISIONS OF SUB- SECTION (2), THE AMOUNT OF ANY BAD DEBTS OR PART TH EREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. SECTION 36(2) OF THE IT ACT PROVIDES THAT NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBTS OR PAR T THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBTS OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF BANKING OR MONEY LEN DING WHICH IS CARRIED ON BY THE ASSESSEE. THE PROVISIONS OF SECTI ON 36(2) OF THE IT ACT THUS WOULD PRECISELY PROVIDE THAT NO DEDUCTION SHALL BE ALLOWED FOR BAD DEBT UNLESS SUCH DEBT OR PART THEREOF HAS B EEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE WHI CH IS WRITTEN OFF. HOWEVER, AFTER THE DECISION DELIVERED BY THE HONBL E SUPREME COURT IN THE CASE OF T. R. F. LTD. (SUPRA), IT IS NOT NEC ESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT HAS B ECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE AS PE R THE AMENDED PROVISIONS OF SECTION 36 (1) (VII) OF THE IT ACT. THE ASSESSEE HAS GIVEN BREAK UP OF THE DETAILS OF BAD DEBT WHICH ARE MAINLY ON ACCOUNT OF RATE DIFFERENCE, CANCELLATION OF INVOICES, POOR FINANCIAL CONDITION OF THE CUSTOMERS, NON-AVAILABILITY OF CREDIT IN RESPEC T OF TDS DEDUCTED AND ON ACCOUNT OF DEBTS OUTSTANDING FOR MORE THAN 3 YEARS. MOST OF THE ITEMS WOULD SHOW THAT THESE WERE ITEMS OF BAD D EBT FOR WHICH ASSESSEE SOUGHT DEDUCTION. HOWEVER, THE AO HAS NOT GIVEN ANY ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 8 SPECIFIC FINDING ON ANY OF THE ITEMS AND MERELY GON E BY THE FACT THAT THE DEPARTMENT SHOULD VERIFY WHETHER WRITE OFF IS D ONE IN RESPECT OF BAD DEBT OR ANY DEBT. IT WOULD NOT MAKE ANY DIFFERE NCE WHETHER THE DEBTORS WERE GOVERNMENT/PUBLIC SECTOR UNITS OR OTHE RWISE. THE SUBSTANTIAL CLAIM IS MADE BY THE ASSESSEE FOR THE A MOUNTS OUTSTANDING FOR MORE THAN 3 YEARS. THEREFORE, THE F INDINGS OF THE AUTHORITIES BELOW WOULD NOT BE RELEVANT IN VIEW OF THE AMENDED PROVISIONS OF LAW AS NOTED ABOVE. THE AO HAS NOT VE RIFIED THE FACTS OF THE CASE AND HAS NOT GIVEN ANY FINDING WHETHER THE BAD DEBT WAS CLAIMED IN RESPECT OF INCOME WHICH WAS OFFERED FOR TAXATION IN EARLIER YEARS. SIMILARLY, FOR TDS NO DETAIL WAS FURNISHED TO SHOW THAT TDS WAS CLAIMED FOR INCOME WHICH WAS OFFERED FOR TAXATI ON IN EARLIER YEARS. THE LEARNED CIT(A) RELIED UPON THE DECISION OF DHALL ENTERPRISES WHICH IS NO LONGER APPLICABLE TO THE IS SUE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F T. R. F. LTD. (SUPRA). SINCE THE AUTHORITIES BELOW HAVE NOT GIVEN ANY FINDING OF FACT WITH REGARD TO CONDITIONS OF SECTION 36(2) OF THE I T ACT ON THE MATTER IN ISSUE, THEREFORE, IN OUR VIEW THE MATTER REQUIRE S RECONSIDERATION AT THE LEVEL OF THE AO IN THE LIGHT OF THE ABOVE PROVI SIONS OF LAW AND IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF T. R. F. LTD. (SUPRA). WE ACCORDINGLY, SET ASIDE TH E ORDERS OF THE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FIL E OF THE AO WITH DIRECTION TO RE-DECIDE THIS ISSUE IN THE LIGHT OF T HE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. (SUPRA). THE AO SHALL GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE BEFORE PASSING THE ORDER ON THIS ISSUE. GR OUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 9 7. ON GROUND NO.2 OF THE APPEAL, THE ASSESSEE CHAL LENGED THE OF ORDER OF THE LEARNED CIT(A) IN NOT GIVING DIRECTION TO ALLOW DEPRECIATION OF RS. 9,89,487/- ON RS.39,57,950/-. T HE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) HAS ALREADY DIRECTED THE AO TO VERIFY THE CLAIM OF THE ASSESSEE, THEREFORE, HE WOULD NOT BE PRESSING THIS GROUND OF APPEAL OF T HE ASSESSEE. IN VIEW THEREOF, GROUND NO.2 OF THE APPEAL OF THE ASSE SSEE IS DISMISSED BEING NOT PRESSED. 8. ON GROUND NO.3 OF THE APPEAL, THE ASSESSEE CHALL ENGED THE DISALLOWANCE OF DEDUCTION OF RS.13,59,000/- REPRESE NTING THE AMOUNT OF STOCK WRITTEN OFF. THE AO DIRECTED THE ASSESSEE TO FURNISH JUSTIFICATION FOR STOCK OF RS.13,59,000/- WRITTEN O FF DURING THE YEAR. IT WAS SUBMITTED THAT THE ASSESSEE HAS IDENTIFIED THE SLOW MOVING ITEMS WHICH HAVE NOT MOVING SINCE CONSIDERABLY LONG PERIO D OF TIME HAVING REGARD TO THE NATURE OF THE ASSET AND NEW TECHNOLOG ICAL DEVELOPMENTS. THE ASSESSEE COMPANY HAS DECIDED TO W RITE OFF THE SAME INVENTORY AS THE ASSESSEE COMPANY CONTENDED TH AT THERE WAS NO SCOPE OF SUCH INVENTORY BEING SOLD OUT IN NORMAL BUSINESS CYCLE IN THE LIGHT OF THE MARKET CONDITIONS AND TECHNICAL DE VELOPMENTS AND, THEREFORE, THE ASSESSEE HAS WRITTEN OFF AS SLOW MOV ING ITEMS. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE ON TH E REASONS THAT THE ASSESSEE HAS SIMPLY STATED THAT SINCE IT HAS IDENTI FIED THE SLOW MOVING ITEMS, WHICH WERE NOT MOVING FOR CONSIDERABL Y LONG PERIOD, THEREFORE, IT HAS DECIDED TO WRITE OFF THE SAME. TH E AO ALSO NOTED THAT IT IS NOT UNDERSTOOD AS TO WHY THE SAID STOCK REMAI NED FOR LONG PERIOD AND FURTHER THE ASSESSEE HAS NOT SUBMITTED ANY SUPP ORTING EVIDENCE ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 10 AND MATERIAL. THEREFORE, THE CLAIM OF THE ASSESSEE WAS REJECTED. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AS SESSEE HAS WRITTEN OFF THE OBSOLETE ITEMS, THEREFORE, ADDITION S BE DELETED. THE LEARNED CIT(A) NOTED THAT THE ASSESSEE MADE SUCH CL AIM WITHOUT ANY TECHNICAL REPORT. NO MATERIAL WAS SUBMITTED TO PROV E THAT ITEMS WRITTEN OFF WERE NOT BEING SOLD IN THE MARKET AT AN Y RATE AND FURTHER CLAIM IS NOT SUPPORTED BY ANY EVIDENCE. THE LEARNED CIT(A) FROM THE MATERIAL ON RECORD NOTED THAT THE ITEMS ARE IN THE NATURE OF COMPUTER PARTS ETC. WHICH WERE ISSUED AS LATE AS 31-12-2003 WHICH IS JUST 3 MONTHS PRIOR TO THE ACCOUNTING YEAR. THE CLAIM OF T HE ASSESSEE WAS ACCORDINGLY DISMISSED. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R EFERRED TO THE DETAILS OF THE ITEMS WRITTEN OFF AT PB-74 TO 77 OF THE PAPER BOOK AND SUBMITTED THAT DATE OF ISSUE IS RELEVANT AND THE D ECISION WAS TAKEN IN THE COURSE OF THE BUSINESS TO WRITE OFF THE OBSOLET E ITEMS OF THE STOCK. HE HAS SUBMITTED THAT PROFIT & LOSS ACCOUNT OF THE ASSESSEE (PB 113/17) WOULD SHOW THAT INCOME OF THE ASSESSEE IS O FFERED IN CRORES OF RUPEES; THEREFORE, REASONABLE CLAIM IS MADE BY T HE ASSESSEE. HE HAS RELIED UPON THE ORDER OF ITAT BANGALORE BENCH I N THE CASE OF DIGITAL EQUIPMENT INDIA LTD. VS DCIT, 103 TTJ 329 A S WAS RELIED UPON BEFORE THE LEARNED CIT(A) 9. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE CLAIM OF T HE ASSESSEE IS NOT SUPPORTED BY ANY EVIDENCE OR MATERIAL. HE HAS SUBMI TTED THAT NO ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 11 TECHNICAL REPORT IS FILED AND THAT THE OBSOLETE ITE MS WOULD HAVE SOME VALUE WHICH HAS NOT BEEN SHOWN BY THE ASSESSEE, THE REFORE, ADDITION IS JUSTIFIED. THE LEARNED DR SUBMITTED THAT THE LEA RNED CIT(A) RIGHTLY NOTED THAT SOME ITEMS WERE ISSUED AS LATE AS 31-12- 2003 WHICH IS JUST 3 MONTHS PRIOR TO THE ACCOUNTING YEAR, THEREFO RE, CANNOT BE TREATED AS OBSOLETE ITEMS. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD AND DO NOT FIND ANY JUSTIFICATION TO INTERFE RE WITH THE ORDERS OF THE AUTHORITIES BELOW. THE AO SPECIFICALLY NOTED TH AT THE ASSESSEE HAS NOT FURNISHED ANY BASIS FOR UNDER-VALUATION OF THE STOCK ON ACCOUNT OF WRITING OFF OF THE OBSOLETE STOCK. NO BA SIS OR SCIENTIFIC BASIS IS FILED. THE EXPLANATION OF THE ASSESSEE IS NOT SUPPORTED BY ANY EVIDENCE OR MATERIAL. THE LEARNED CIT(A) FURTHE R NOTED THAT THE CLAIM OF THE ASSESSEE FOR SLOW MOVING ITEMS OR OBSO LETE STOCK IS NOT SUPPORTED BY ANY TECHNICAL REPORT. IT WAS ALSO NOTE D THAT MAJORITY OF THE ITEMS HAVE BEEN ISSUED WHICH IS PRIOR TO THE AC COUNTING YEAR. THEREFORE, SAME CANNOT BE TREATED AS SLOW MOVING OR OBSOLETE STOCK. ON CONSIDERATION OF THE ABOVE FACTS AND DETAILS POI NTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE WE FIND NO INFIRMI TY IN THE FINDINGS OF THE LEARNED CIT(A) BECAUSE MAJORITY OF THE ITEMS WERE ISSUED PRIOR TO THE STARTING OF THE FINANCIAL YEAR AND FURTHER N O EVIDENCE HAS BEEN FURNISHED IN SUPPORT OF THE CLAIM OF THE ASSESSEE. IN THE ABSENCE OF ANY MATERIAL OR EVIDENCE TO SUPPORT THE CLAIM OF TH E ASSESSEE, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE OR DERS OF THE AUTHORITIES BELOW. IN ABSENCE OF EVIDENCE CASE LAW WOULD NOT SU PPORT CLAIM OF THE ASSESSEE. WE CONFIRM THEIR FINDINGS AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 12 11. GROUND NO.4 OF THE APPEAL, THE ASSESSEE CHALLEN GED THE DISALLOWANCE OF DEDUCTION OF RS.37,61,506/- IN RESP ECT OF SELLING AND DISTRIBUTION EXPENSES. IN THE PROFIT & LOSS ACCOUNT , THE ASSESSEE HAS DEBITED SELLING AND SALE PROMOTION EXPENSES AMOUNTI NG TO RS.56,08,000/- AS AGAINST RS.14,29,000/- DEBITED IN THE IMMEDIATE PRECEDING YEAR. THE ASSESSEE WAS ASKED TO GIVE BREA K-UP OF THE SAME AND WAS ALSO ASKED TO JUSTIFY THE CLAIM OF THE SALE PROMOTION EXPENSES AMOUNTING TO RS.37,61,506/- DEBITED UNDER THE HEAD SELLING AND SALES PROMOTION EXPENSES. THE ASSESS EE SUBMITTED THAT AN AMOUNT OF RS.37,00,000/- IS PAYABLE IN RES PECT OF MIZORAM E-GOVERNANCE PROJECT. IT WAS STATED BY THE AO THAT THE ASSESSEE COULD NOT PLACE ON RECORD ANY MATERIAL TO PROVE ITS CLAIM. IT WAS HELD THAT LUMP SUM PAYMENT MADE TO MR. LARSING M IS NOTH ING BUT NON- BUSINESS EXPENDITURE CLAIMED BY THE ASSESSEE. THE A SSESSEE COULD NOT PLACE ON RECORD HOW MUCH INCOME EARNED BY THE A SSESSEE ON ACCOUNT OF THIS PAYMENT TO MR. LARSING M. THE ADDIT ION WAS ACCORDINGLY MADE. IT WAS SUBMITTED BEFORE THE LEARN ED CIT(A) THAT THE ASSESSEE HAS ACCOUNTED EXPENSES OF RS. 37,61,506/- AND OFFERED INCOME OF RS.2,14,35,800/- IN THE YEAR UNDER REFERE NCE IN RESPECT OF MIZORAM GOVERNMENTS PROJECT. FOR WHICH THE EXPENSE S WERE INCURRED. THE LEARNED CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ADDITION. HIS FIN DINGS IN PARA 5.3 ARE REPRODUCED AS UNDER: 5.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE COUNSEL AND FACTS OF THE CASE. THE APPELLANT MADE PAYMENT OF RS.37,61,506/- TO ONE INDIVIDUAL MR. LAR SING M WHO ISSUED TWO BILLS OVER A PERIOD OF TWO MONTHS. T HE ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 13 BILLS MENTIONED LIAISONING, PRODUCT INTIMATION AND COORDINATION SERVICES, SERVICES TOWARDS REALIZATION OF PAYMENT AND CHARGES TOWARDS PRODUCT/MATERIAL DEPLOY ED. WHEN THE ASSESSING OFFICER ASKED THE EVIDENCES OF RENDERING THE SERVICES OR CAPABILITY OF THE SAID IN DIVIDUAL TO RENDER THESE SERVICES, THE APPELLANT ONLY SUBMIT TED COPY OF BILLS, AND CLAIMED THAT THE SAID PERSON IS NOT RELATED. THE INVOICES HAVE BEEN RAISED AND THE PAYM ENTS HAVE BEEN MADE BY CHEQUES. THE COMPANY EARNED MORE THAN RS.2 CRORES IN RESPECT OF MIZORAM GOVERNMENT PROJECTS. APART FROM THESE SUBMISSIONS, NO EVIDENCE IN THE FORM OF ANY DOCUMENT OR OTHER EVIDENCES TO PROV E THE INVOLVEMENT OF THE SAID PERSON WAS FILED. EVEN WHEN IT WAS SPECIFICALLY ASKED DURING THE APPEAL HEARING TO PROVE WITH NECESSARY DOCUMENTARY OR OTHER EVIDENCE, THE F ACT OF RENDERING SERVICES, THE APPELLANT ONLY RELIED UPON THE BILLS ISSUED BY THE PARTY. WHEN ANY EXPENSES IS CLAIMED B Y THE APPELLANT, ONUS IS ON THE APPELLANT TO PROVE TH AT THE SAME HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND IT IS NOT FOR THE ACTIVITIES AGAINST LAW. UNLESS TH E APPELLANT SUBMITS THE DETAILS AND EVIDENCES, THE CLAIM CANNOT BE VERIFIED. IT IS HELD BY MANY JUDICIAL DECISIONS THA T MERELY MAKING PAYMENT BY CHEQUES DOES NOT PROVE ANY EXPENS E FOR BUSINESS PURPOSES. IT IS CLEAR THAT THE APPELLA NT DID NOT PROVE THE RENDERING OF SERVICES AND JUST RELIED UPO N THE BILLS SUBMITTED BY THE PERSON. THEREFORE THE APPELL ANT HAS NOT DISCHARGED ITS ONUS. ANOTHER ARGUMENT OF THE APPELLANT IS THAT IT RECEIV ED INCOME FROM MIZORAM GOVERNMENT, SO THE CLAIM OF EXPENSES SHOULD BE ALLOWED, GOES AGAINST IT. IN THE CASE OF GOVERNMENT CONTRACTS/WORK, THERE CANNOT BE ANY INTERMEDIARY. MORE THAN 15% OF GROSS RECEIPTS FROM MIZORAM GOVERNMENT WAS PAID TO THE PERSON WHOSE CREDENTIALS OR BUSINESS ACTIVITY ARE NOT KNOWN. THI S CLEARLY MEANS THAT PAYMENT HAS GONE NOT FOR BUSINES S PURPOSES. THE SUBMISSION OF BILL OR THE MENTION OF ACTIVITIES IN THE BILL IS ONLY FORM AND NOT SUBSTAN CE UNLESS PROVED WITH NECESSARY EVIDENCES. SINCE THE JOB WAS WITH THE GOVERNMENT I DO NOT SEE THE INVOLVEMENT OF ANY ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 14 LEGITIMATE EXPENSE IN THE NATURE OF LIAISONING ETC. WHICH CAN BE ALLOWED U/S. 37(1). THE APPELLANTS OTHER AR GUMENT THAT THE PARTY IS NOT RELATED IS NOT RELEVANT SINCE THE DISALLOWANCE IS MADE U/S. 37(1) AND NOT U/S. 40A(2) (B). CONSIDERING THESE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED. 12. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R EFERRED TO PB- 94 AND 95 WHICH ARE THE BILLS FOR THE PAYMENT AND S UBMITTED THAT COMPLETE NAME AND ADDRESS AND THE DETAILS OF THE SE RVICES RENDERED HAS BEEN MENTIONED IN THESE BILLS. THEREFORE, ADDIT ION IS UNJUSTIFIED. HE HAS FURTHER SUBMITTED THAT COPY OF THE CONTRACT WITH MR. LARSING M IS NOT AVAILABLE. 13. ON THE OTHER HAND, THE LEARNED DR RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE H AS FAILED TO DISCHARGE THE ONUS UPON IT TO PROVE GENUINENESS OF THE EXPENDITURE INCURRED FOR BUSINESS PURPOSE, THEREFORE, ADDITION IS JUSTIFIED. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDERS OF THE A UTHORITIES BELOW. THE ASSESSEE SUBMITTED TWO BILLS FOR THE PERIOD OF 2 MO NTHS I.E. MARCH, 2005 AND JANUARY, 2005 WHICH CONTAINED THE LIAISONI NG WORK ETC. PERFORMED BY MR. LARSING M. NO OTHER DETAILS HAVE B EEN GIVEN AS TO WHAT ACTUAL SERVICES HAVE BEEN RENDERED BY THIS PER SON FOR THE ASSESSEE. NO EVIDENCE OF RENDERING ANY SERVICES HAS BEEN FILED ON RECORD. NO EVIDENCE IN THE FORM OF ANY DOCUMENT OR OTHER EVIDENCE HAS BEEN FILED TO PROVE INVOLVEMENT OF THE ABOVE PE RSON FOR EARNING OF THE INCOME BY THE ASSESSEE. EVEN AT THE APPELLAT E STAGE BEFORE ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 15 THE LEARNED CIT(A) AS WELL AS BEFORE THE TRIBUNAL, THE ASSESSEE HAS FAILED TO PROVE AS TO WHAT SERVICES HAVE BEEN RENDE RED BY THIS PERSON FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THUS, THE ASSESSEE FAILED TO DISCHARGE THE ONUS UPON IT TO PROVE GENUI NENESS OF THE EXPENDITURE INCURRED FOR THE BUSINESS OF THE ASSESS EE. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE FINDINGS OF THE AUTHORITIES BELOW AND IN THE ABSENCE OF ANY EVIDENCE IN FORM OF CONTR ACT WITH THE PARTY, WE ARE UNABLE TO INTERFERE WITH THE ORDERS OF THE A UTHORITIES BELOW. WE CONFIRM THE FINDINGS OF THE LEARNED CIT(A) AND DISM ISS THIS GROUND OF APPEAL OF THE ASSESSEE. AS A RESULT, GROUND NO.4 OF THE APPEAL OF THE ASSESSEE IS DISMISSED. 15. ON GROUND NO.5 OF THE APPEAL, THE ASSESSEE CHAL LENGED THE ADDITION OF NOTIONAL INTEREST OF RS.7,54,394/-. THE AO DISALLOWED THE ABOVE NOTIONAL INTEREST I.E. 15% ON RS.50,29,297/- CONSIDERING THE SAME TOWARDS ADVANCES TO ASSOCIATE CONCERNS. IN THE AUDIT REPORT, IT IS STATED THAT THE ASSESSEE COMPANY HAS GRANTED INT EREST FREE LOANS TO TWO PARTIES. THE ASSESSEE WAS ASKED TO FURNISH T HE DETAILS OF THE SAME WITH THEIR NAME AND ADDRESS. IT WAS STATED BY THE ASSESSEE THAT IT HAS GIVEN FRESH LOAN OF RS.50,29,297/- DUR ING THE YEAR TO TWO PARTIES NAMELY VNT ENTERPRISES INC. (RS.41,42,787/- ) AND GLOBAL IP TECHNOLOGY PVT. LTD. (RS.8,86,510/-). IT WAS STATE D BY THE ASSESSEE THAT ABOVE LOANS ARE IN THE NATURE OF TRADING ADVAN CES GIVEN TO THE PARTIES AND NO INTEREST HAS BEEN CHARGED BY THE COM PANY IN CONNECTION WITH THE SAID ADVANCES. THE CONTENTION O F THE ASSESSEE WAS NOT ACCEPTED BY THE AO FIRSTLY ON THE REASON TH AT THE ASSESSEE STATED THAT THIS IS A FRESH LOAN AND SECONDLY IT IS IN THE NATURE OF ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 16 TRADING ADVANCE. IT WAS FURTHER STATED THAT THESE P ARTIES ARE RELATED PARTIES. IT WAS SEEN THAT THE ASSESSEE HAS PAID HUG E INTEREST ON ITS BORROWED FUNDS. IT HAS PAID INTEREST ON BANK LOAN O F RS.77,16,000/- AND INTEREST TO OTHERS RS.14,28,000/-. IT WAS ALSO SEEN THAT THE ASSESSEE HAS OUTSTANDING LOAN FROM GLOBAL ASIA PART NERS LLP AMOUNTING TO RS.2,40,56,166/- AND VNT ENTERPRISES I NC. AT RS.1,35,36,100/- AND AMBALAL SARABHAI ENTERPRISES L TD. AMOUNTING TO RS.2,50,30,210/-. IT WAS STATED BY THE ASSESSEE THA T IT HAS PAID INTEREST OF RS.13,08,666/- TO GLOBAL ASIA PARTNERS LLP AS THE SAME IS PURELY IN THE NATURE OF LOAN. THE AMOUNT PAYABLE TO OTHER CONCERNS HAS BEEN REPORTED AS LOANS TAKEN ACTUALLY REPRESENT THE AMOUNT OF ADVANCES FOR SUPPLY OR IN RESPECT OF SERVICES ALREA DY RECEIVED. THEREFORE, IN THE CASE OF OTHER THAN FOR GLOBAL ASI A PARTNERS LLP, NO INTEREST HAS BEEN PAID. IT WAS SEEN THAT ON ONE HAN D, ASSESSEE IS PAYING HEAVY INTEREST ON ITS BORROWED FUNDS AND ON THE OTHER HAND IT WAS GIVING INTEREST FREE ADVANCES. THE CLAIM OF THE ASSESSEE FORGIVING TRADING ADVANCES WAS NOT ACCEPTED AND ACC ORDINGLY INTEREST @15% WAS CHARGED ON AMOUNT OF RS.50,29,297/- AND AD DITION WAS MADE OF RS.7,54,397/-. IT WAS CONTENDED BEFORE THE LEARNED CIT(A) THAT ADVANCE WAS GRANTED TO VNT ENTERPRISES FOR PUR CHASE OF MATERIAL FOR PROJECT IN AFGHANISTAN IN ORDER TO SEC URE MATERIAL. SIMILARLY, ADVANCE WAS GIVEN TO OTHER CONCERN FOR T HE PURPOSE OF BUSINESS. THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S. A. BUILDERS LTD., 2 88 ITR 1. THE LEARNED CIT(A) HOWEVER DID NOT ACCEPT THE SUBMISSIO N OF THE ASSESSEE AND NOTED THAT FOR THE ADVANCES REMAINING OUTSTANDING FOR LONG PERIOD IS NOT EXPLAINED. THE LEARNED CIT(A) HA S ALSO NOTED THAT ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 17 THE ASSESSEE HAS NOT ESTABLISHED FOR THEIR BUSINESS PURPOSES INTEREST FREE ADVANCES WERE GIVEN. THEREFORE, ADDITION WAS C ONFIRMED IN VIEW OF THE DECISION OF THE HONBLE PUNJAB & HARYANA HIG H COURT IN THE CASE OF ABHISEK INDUSTRIES, 186 ITR 1. 16. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT THE ADVANCES WERE GIVEN FOR BUSINESS PURPOSES WHICH HAS NOT BEEN DISPUTED BY THE LEARNED CIT(A) AND CLAIM IS MERELY DISALLOWED BECAUSE THE ADVANCES REMAINED OUTSTANDING FOR A LON G PERIOD. HE HAS REFEREED TO PB-113(17) WHICH IS PROFIT & LOSS A CCOUNT TO SHOW THAT THE ASSESSEE HAS PROFIT OF RS.2.47 CRORES. THE REFORE, THE FUNDS WERE AVAILABLE WITH THE ASSESSEE TO MAKE THE ADVANC ES; THE ADDITION IS CLEARLY UNJUSTIFIED. HE HAS RELIED UPON THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATI ON, 298 ITR 298 IN WHICH IT WAS HELD THAT THE PROFIT EARNED BY THE ASSESSEE DURING THE RELEVANT YEAR WAS SUFFICIENT TO COVER THE IMPUGNED LOAN; THEREFORE, NO DISALLOWANCE COULD BE MADE. THE LEARNED DR RELIED U PON THE ORDERS OF THE AUTHORITIES BELOW. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL AVAILABLE ON RECORD. THE HONBLE SUPREME COURT IN T HE CASE OF S. A. BUILDERS LTD. VS CIT AND ANOTHER, 288 ITR 1 HELD AS UNDER: IN ORDER TO DECIDE WHETHER INTEREST ON FUNDS BORROWED BY THE ASSESSEE TO GIVE AN INTEREST FREE LOAN TO A SISTER CONCERN (E. G. A SUBSIDIARY OF THE ASSESSEE) SHOULD BE ALLOWED AS A DEDUCTION UNDER SECTION 36(1) (III) OF THE INCOME-TAX ACT, 1961, ON E HAS ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 18 TO ENQUIRE WHETHER THE LOAN WAS GIVEN BY THE ASSESSEE AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE EXPRESSION COMMERCIAL EXPEDIENCY IS ONE OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINESS EXPENDITURE IF IT WAS INCURRE D ON GROUNDS OF COMMERCIAL EXPEDIENCY. THE DECISIONS RELATING TO SECTION 37 WILL ALSO BE APPLICABLE TO SECTION 36(1) (III) BECAUSE IN SECTIO N 37 ALSO THE EXPRESSION USED IS FOR THE PURPOSE OF THE BUSINESS. FOR THE PURPOSE OF BUSINESS INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXPEDIENCY, AND IT IS IMMATERIAL IF A THIRD PARTY W HO BENEFITS THEREBY. 17.1 THE HONBLE SUPREME COURT IN THE CASE OF MUNJA L SALES CORPORATION VS CIT AND ANOTHER, 298 ITR 298 HELD AS UNDER: UNDER THE INCOME-TAX ACT, 1961, AFTER AMENDMENT OF THE ACT BY THE FINANCE ACT, 1992, IN ORDER THAT INTEREST PAID ON BORROWINGS CAN BE ALLOW ED AS A DEDUCTION IN COMPUTING THE BUSINESS PROFITS, EVERY ASSESSEE, INCLUDING A FIRM, HAS TO ESTABLISH, IN THE FIRST INSTANCE, THAT IT WAS ALLOWABLE UNDER SEC TION 36 (1) (III); AND, IN THE CASE OF A FIRM, FURTHER T HAT THE AMOUNT DOES NOT EXCEED THE LIMIT FIXED BY SECTION 4 0 (B)(IV). HELD, HOWEVER, ON THE FACTS, IN THIS CASE, THAT SINCE THE ASSESSEE HAD BORROWED THE MONEYS FROM ITS PARTNERS AS EARLY AS 1991, AND THE APPELLATE TRIBUNAL HAD HELD THAT THE LOANS WERE GIVEN BY THE PARTNERS FOR BUSINESS PURPOSES AND THE INTEREST DID NOT EXCEED 18 PER CENT PER ANNUM SIMPLE INTEREST, T HE ASSESSEE FIRM WAS ENTITLED TO DEDUCTION OF INTEREST ON ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 19 THE BORROWINGS FOR THE ASSESSMENT YEARS 1993-94 TO 1997-98. HELD, ALSO, THAT SINCE THE OPENING BALANCE OF THE PROFITS OF THE ASSESSEE FIRM AS ON APRIL 1, 1994, W AS RS.1.91 CRORES, AND THE PROFITS WERE SUFFICIENT TO COVER THE LOAN GIVEN TO A SISTER CONCERN OF RS. 5 LAKHS, THE APPELLATE TRIBUNAL OUGHT TO HAVE HELD TH AT THE LOAN GIVEN WAS FROM THE ASSESSEES OWN FUNDS. 18. ON CONSIDERATION OF THE FACTS OF THE CASE IN TH E LIGHT OF THE ABOVE DECISIONS, WE ARE OF THE VIEW THAT THE DISALL OWANCE IS CLEARLY UNJUSTIFIED ON THE MATTER IN ISSUE. THE LEARNED COU NSEL FOR THE ASSESSEE HAS BEEN ABLE TO DEMONSTRATE FROM THE PRO FIT & LOSS ACCOUNTS OF THE ASSESSEE THAT IN THE YEAR UNDER CON SIDERATION IT HAS DECLARED PROFITS OF RS.2.47 CRORES WHICH ITSELF IS SUFFICIENT FUNDS AVAILABLE WITH THE ASSESSEE TO GIVE FRESH LOAN OF R S.50,29,297/- IN THE YEAR UNDER CONSIDERATION. THE LEARNED CIT(A) REJECT ED THE CLAIM OF THE ASSESSEE MERELY ON THE REASON THAT ASSESSEE FAI LED TO EXPLAIN WHY THE ADVANCES REMAINED OUTSTANDING FOR LONG PERI OD. THIS ITSELF IS NO GROUND TO DISALLOW THE INTEREST OR TO CHARGE NOTIONAL INTEREST ON THE MATTER IN ISSUE. FOR DISALLOWING THE INTEREST, THE AO SHALL HAVE TO PROVE THAT THE ASSESSEE HAS DIVERTED THE BORROWED F UNDS FOR NON- BUSINESS PURPOSES. HOWEVER, THE AO HAS FAILED TO MA KE OUT SUCH CASE IN THE ASSESSMENT ORDER. IN THE ABSENCE OF ANY FINDING THAT THE ASSESSEE DIVERTED BORROWED FUNDS FOR NON-BUSINESS P URPOSES, NO INTEREST COULD BE DISALLOWED. IT IS ALSO SETTLED LA W THAT NO NOTIONAL INTEREST COULD BE CHARGED. THE LEARNED CIT(A) CONSI DERING THE FACTS OF THE CASE CONFIRMED THE ORDER OF THE AO IN VIEW O F THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISEK ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 20 INDUSTRIES, 286 ITR 1 WHICH IS REVERSED BY THE HON BLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION (SUPR A). CONSIDERING THE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY JUS TIFICATION TO SUSTAIN THE ORDERS OF THE AUTHORITIES BELOW. WE ACCORDINGLY , SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDI TION. IN THE RESULT, GROUND NO.5 OF THE APPEAL OF THE ASSESSEE IS ALLOWE D. 19. ON GROUND NO.6 OF THE APPEAL, THE ASSESSEE CHAL LENGED THE DISALLOWANCE OF RS.5,370/- REPRESENTING PENALTY FOR DELAYED PAYMENT OF PF. THE LEARNED CIT(A) NOTED THAT DEDUCTION IS C LAIMED IN RESPECT OF PENALTY WHICH IS NOT ALLOWABLE DEDUCTION U/S 37( 1) OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT ARGUE THIS GROUND. IN THE ABSENCE OF ANY MATERIAL ON RECORD, WE DO NOT FI ND ANY JUSTIFICATION TO INTERFERE WITH THIS GROUND OF APPEAL OF THE ASSE SSEE. SAME IS ACCORDINGLY DISMISSED. 20. ON GROUND NO.7 OF THE APPEAL, THE ASSESSEE CHAL LENGED LEVY OF INTEREST U/S 234B AND 234D OF THE IT ACT. THE LEARN ED COUNSEL FOR THE ASSESSEE SUBMITTED THAT INTEREST IS CONSEQUENTIAL I N NATURE. ACCORDINGLY GROUND NO.6 OF THE APPEAL OF THE ASSESS EE IS DISMISSED. 21. NO OTHER POINT IS ARGUED OR PRESSED. ITA NO.4150/AHD/2008 ORG INFORMATICS LTD. VS ACIT, CIR-4, BARODA 21 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 17-06-2011 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 17-06-2011 LAKSHMIKANT/ LAKSHMIKANT/ LAKSHMIKANT/ LAKSHMIKANT/- -- - COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD