ITO 21(3)(4), MUMBAI V. T.M. ENTERPRISES, MUMBAI

ITA 4225/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2111 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 22-08-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 09-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SIURABH DESHPANDE
• Assessee Lawyers: B V JHAVERI
• Keywords: Proportionate interest
• Section: 143(3)

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 4817 /MUM/2014 ( / ASSESSMENT YEAR : 2010-11) INCOME TAX OFFICER 18(2)(3), ROOM NO. 105, 1 ST FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI -400012. / V. M/S. T.M. ENTERPRISES, UNIT NO. 30, A-Z INDUSTRIAL ESTATE, GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI 400 013. ./ PAN : AAAFT0678D ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 4225 /MUM/2015 ( / ASSESSMENT YEAR : 2011-12) INCOME TAX OFFICER 21(3)(4), ROOM NO. 206, 2ND FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI -400012. / V. M/S. T.M. ENTERPRISES, UNIT NO. 30, A-Z INDUSTRIAL ESTATE, GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI 400 013. ./ PAN : AAAFT0678D ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY SHRI SIURABH DESHPANDE, DR ASSESSEE BY : SHRI B.V. JHAVERI / DATE OF HEARING : 22-08-2016 / DATE OF PRONOUNCEMENT : 11-11-2016 ITA NO. 4817/MUM/2014 & ITA NO. 4225/MUM/2015 2 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THESE TWO APPEALS, FILED BY THE REVENUE BEING ITA NO. 4817/MUM/2014 & ITA NO. 4225/MUM/2015, ARE DIRECTED AGAINST THE TWO SEPARATE APPELLATE ORDERS DATED 29 TH MAY, 2014 AND 24 TH APRIL, 2015 RESPECTIVELY PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-29, MUMBAI (HEREINAFTER CALLED THE CIT(A)) AND THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS)-33, MUMBAI RESPECTIVELY , FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12 RESPECTIVELY, THE APPELLATE PRO CEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSMENT ORDERS D ATED 28TH MARCH, 2013 AND 20 TH MARCH, 2014 RESPECTIVELY , BOTH PASSED BY THE LEAR NED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME-TAX ACT,1961 (HEREINAFTER CALLED THE ACT). 2. THE FOLLOWING COMMON GROUNDS OF APPEAL HAVE BEEN RAISED BY THE REVENUE IN THE MEMO OF APPEAL (ONLY DIFFERENCE IN T HE AMOUNT) FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL):- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.60,78,95 0/- (FOR A.Y. 2011-12 RS. 48,63,183/-) MADE IN RESPECT OF DISALLOWANCE OF INTEREST ON ACCOUNT OF INTEREST FEE ADVANCES GIVEN TO M/S MENGHRAJ SONS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 60,78,950 /- (FOR A.Y. 2011- 12 RS. 48,63,183/-) WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD DIVERTED INTEREST BEARING BORROWED FUNDS TO ITS SIST ER CONCERN M/S. MENGHRAJ SONS WITHOUT GETTING ANY ADDITIONAL BENEFIT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF R S.60.78,950/- (FOR A.Y. 2011-12 RS. 48,63,183/-) BY HOLDING THAT THE ADVA NCE MADE BY THE ASSESSEE TO ITS SISTER CONCERN M/S. MENGHRAJ SONS WAS AS A RESULT OF BUSINESS TRANSACTION. 4 FOR THESE AND OTHER REASONS IT IS SUBMITTED THAT THE ORD ER OF THE CIT(A) MAY BE SET-ASIDE AND THAT OF THE A.O. RESTORED. ' ITA NO. 4817/MUM/2014 & ITA NO. 4225/MUM/2015 3 FIRST, WE SHALL TAKE REVENUES APPEAL IN ITA NO.481 7/MUM/2014 FOR ASSESSMENT YEAR 2010-11 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF PRINTING AND MANUFACTURING OF PACKING M ATERIALS AND PLAYING CARDS. THE A.O. OBSERVED THAT THE ASSESSEE HAS PAID INTEREST OF RS. 79.05 LACS TO VARIOUS PARTIES. THE PERCENTAGE OF INTEREST WAS 4.60% OF THE TURNOVER AND THE TURNOVER WAS RS. 1720 LACS DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR . IT WAS OBSERVED BY THE A .O. THAT ON THE FIRST DAY OF PREVIOUS YEAR THERE WAS AN OUTSTANDING RECOVERAB LE AMOUNT OF RS. 4,87,60,333/- AND ON THE LAST DAY OF THE PREVIOUS Y EAR THE SAME WAS RS. 4,05,26,525/- FROM MENGHRAJ SONS. IT WAS ALSO OBSER VED BY THE ASSESSEE THAT THE PARTNER OF THE ASSESSEE FIRM IS ALSO PARTNER OF M/S MENGHRAJ SONS. M/S. MENGHRAJ SONS IS COMMISSION AGENT ON CONSIGNMENT BA SIS. THE A.O. HAD VERIFIED SOME BILLS OF MARCH 2010 TO CONFIRM WHETHE R ANY ADDITIONAL BENEFITS WAS RECEIVED BY THE ASSESSEE FROM CONSIGNMENT OR FO R GIVING ADVANCES MORE THAN RS. 4,05,26,526/- , BUT THERE WAS NO ADDITIONA L BENEFIT. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS PAID COMMISSION OF RS. 1,07,994/- TO M/S MENGHRAJ SONS. FROM THE ABOVE , THE A.O. OBSERVED THAT THE ASSESSEE HAS GIVEN RS. 4,05,26,526/- TO MENGHRAJ SONS IN WHICH O NE OF THE PARTNER OF THE ASSESSEE IS ONE OF THE PARTNERS. THE A.O. OBSERVED THAT THIS CASE IS COVERED U/S 40A OF THE ACT. THE AO OBSERVED THAT THE ASSES SEE HAS PAID INTEREST OF RS. 79.05 LACS TO VARIOUS PARTIES. THE RATE OF INT EREST WAS 15% PER ANNUM. IT WAS ALSO OBSERVED BY THE AO THAT THE ASSESSEE HAS P AID COMPOUNDING INTEREST @16.2% TO MOST OF THE PARTIES. THE ASSESSEE HAS ADV ANCED SUM OF RS. 4,05,26,526/- TO M/S MENGHRAJ SONS FOR WHICH NO AD DITIONAL BENEFITS HAVE BEEN RECEIVED . THE AO TREATED 15% OF THE SAME I.E. RS. 60,78,950/- AS EXPENSES MADE IN RESPECT OF PERSON WHICH ARE COVERE D U/S 40A OF THE ACT. HENCE, THE INTEREST PAID AMOUNTING TO RS. 60,78,950 /- WAS DISALLOWED BY THE AO VIDE ASSESSMENT ORDER DATED 28/03/2013 PASSED U/ S. 143(3) OF THE ACT. ITA NO. 4817/MUM/2014 & ITA NO. 4225/MUM/2015 4 WITHOUT PREJUDICE, IT WAS ALSO OBSERVED BY THE AO T HAT THE ASSESSEE HAS ADVANCED AS SUM OF RS.4,05,26,526/- TO MENGHRAJ SO NS FOR WHICH NO INTEREST IS RECOVERED. THE INTEREST PAID ON RS.4,05,26,526/- TO VARIOUS PARTIES IS MORE THAN RS. 60,78,950/- AND HENCE INTEREST PAID TO THE EXTENT OF RS. 60,78,950/- WAS DISALLOWED AS NOT INCURRED FOR THE PURPOSE OF T HE ASSESSEES BUSINESS DISALLOWED BY THE AO VIDE ASSESSMENT ORDER DATED 28 /03/2013 PASSED U/S. 143(3) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 28/03/20 13 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE FILED FIRST AP PEAL BEFORE THE LD. CIT(A). 5. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THA T THE ASSESSEE APPOINTED M/S. MENGHRAJ SONS AS CONSIGNMENT AGENT VIDE AGREEMENT FOR CONSIGNMENT AGENCY ON 10 TH AUGUST 2004 AND SINCE THEN WAS EFFECTING PART OF ITS SALES THROUGH THE SAID CONSIGNMENT AGENT AND DU E TO CONTINUOUS INCREASE IN DEBTORS ON ACCOUNT OF SALES THROUGH THE SAID CON SIGNMENT AGENT, THE ASSESSEE TERMINATED THE CONSIGNMENT AGENCY AGREEMEN T WITH M/S MENGHRAJ SONS W.E.F. 1ST MAY 2009. THE OUTSTANDING AMOUNT DU E FROM THE SAID CONSIGNMENT AGENT AS ON 1ST MAY, 2009 ON ACCOUNT OF SALES EFFECTED THROUGH THEM WAS RS.4,74,89,808.76. IT WAS SUBMITTED THAT D URING THE YEAR THE ASSESSEE HAS INCURRED NET LOSS OF RS. 26.40 LAKHS A S COMPARED TO PROFIT OF RS. 20.75 LAKHS IN FINANCIAL YEAR 2008-09. IT WAS SUBMI TTED THAT THE ENTIRE DEBIT BALANCE IN THE SAID ACCOUNT IS ON ACCOUNT OF SALES OF RS. 58.48 LAKHS ON CONSIGNMENT BASIS IN CURRENT YEAR AND CONSIGNMENT S ALES OF RS. 630.70 LAKHS IN PREVIOUS YEAR AND AS AGAINST TOTAL DEBTORS OF RS . 639.80 LAKHS THE ASSESSEE ALSO HAS SUNDRY CREDITORS OF RS. 527.32 LAKHS. IT W AS SUBMITTED THAT AS AGAINST INTEREST EXPENSES OF RS. 79.05 LAKHS(INCLUD ING INTEREST TO PARTNERS) , THE ASSESSEE HAS ALSO EARNED INTEREST INCOME OF RS. 8.79 LAKHS FROM THE PARTNERS. IT WAS SUBMITTED THAT THE AMOUNT OF RS. 84,06,109/- DEBITED TO THE ACCOUNT OF M/S MENGHRAJ SONS ON 1.5.2009 WAS SALES VALUE OF GOODS COSTING ITA NO. 4817/MUM/2014 & ITA NO. 4225/MUM/2015 5 RS. 68,62,459.95 LYING WITH THEM AS STOCK AS ON 31 ST MARCH, 2009 AND THE SAID VALUE OF OPENING STOCK IS ALREADY SHOWN IN P&L ACCOUNT FOR THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) CONSIDERED THE SUBMISSION OF THE ASS ESSEE AND OBSERVED THAT M/S MENGHRAJ SONS IS THE CONSIGNMENT AGENT FOR THE PRODUCTS OF THE ASSESSEE SINCE 2004 VIDE AGREEMENT FOR CONSIGNMENT DATED 10 TH AUGUST, 2004 AND THIS AGREEMENT WAS TERMINATED BY THE ASSESSEE W.E.F. 1ST MAY, 2009 AND AS ON THIS DATE, THE OUTSTANDING AMOUNT FROM M/S. MENGHRA J SONS WAS RS.4,74,89,808/- ON ACCOUNT OF THE SALES EFFECTED T HROUGH THEM IN THE PREVIOUS YEAR AS WELL AS IN THE CURRENT YEAR. THUS THE OUTSTANDING BALANCE AS AT THE BEGINNING OF THE YEAR AS WELL AS AT THE END OF THE YEAR REPRESENTS THE SALES TRANSACTION OF GOODS OF THE ASSESSEE FIRM THR OUGH M/S MENGHRAJ SONS AND TO PROVE THIS, THE COPY OF THE LEDGER ACCOUNT O F M/S MENGHRAJ SONS WAS PLACED BY THE ASSESSEE ON RECORD WHICH SHOWS THAT T HE TRANSACTIONS BETWEEN THE ASSESSEE AND M/S MENGHRAJ SONS WERE IN THE NATU RE OF THE BUSINESS TRANSACTIONS AND OPENING AS WELL AS THE CLOSING AMO UNTS OUTSTANDING IN THE ACCOUNT OF M/S MENGHRAJ SONS IS THE MONEY DUE FROM THEM ON ACCOUNT OF SALE EFFECTED THROUGH THEM BY THE ASSESSEE. THE MON EY IS STILL OUTSTANDING AND RECOVERABLE AS AT THE END OF THE YEAR BECAUSE M /S MENGHRAJ SONS HAS ALSO NOT RECEIVED THE MONEY FROM ITS DEBTORS DURING THE YEAR. HENCE, IT IS NOT IN THE NATURE OF INTEREST FREE FUNDS BUT THE OUTSTA NDING FROM MENGHRAJ SONS IS AS A RESULT OF BUSINESS TRANSACTIONS, THEREFORE, THIS OUTSTANDING AMOUNT OF RS.4,05,26,526/- FROM M/S MENGHRAJ SONS CANNOT BE T REATED AS AN INTEREST FREE ADVANCES. THE LD. CIT(A) OBSERVED THAT IN ORDE R TO DISALLOW THE PROPORTIONATE INTEREST PAID BY THE ASSESSEE DURING THE YEAR THE A.O. HAS TO ESTABLISH THAT THE ASSESSEE HAD ADVANCED THE MONEY TO THE SISTER CONCERN OUT OF THE BORROWED FUNDS, HOWEVER, THE A.O. HAS NOT ES TABLISHED ANY DIRECT NEXUS BETWEEN THE FUNDS BORROWED AND THE INTEREST F REE ADVANCES GIVEN TO THE SISTER CONCERN EXCEPT STATING THE FUNDS HAVE BEEN A DVANCED INTEREST FREE ITA NO. 4817/MUM/2014 & ITA NO. 4225/MUM/2015 6 WITHOUT APPRECIATING THE FACTS ON RECORD. THUS, IT WAS OBSERVED BY LEARNED CIT(A) THAT THE ASSESSEE HAD DIRECT BUSINESS CONNEC TIONS WITH THE SISTER CONCERN M/S MENGHRAJ SONS AND THE FUNDS OUTSTANDING IN THEIR ACCOUNT WERE ON ACCOUNT OF SALES EFFECTED BY THEM DURING THE PRE CEDING YEAR AS WELL AS DURING THE YEAR UNDER CONSIDERATION. THUS THE OUTST ANDING RECEIVABLE FROM MENGHRAJ SONS CANNOT BE TREATED AS THE INTEREST FR EE ADVANCES AND HENCE THE LEARNED CIT(A) HELD THAT PROPORTIONATE DISALLOWANCE OF INTEREST TO THE TUNE OF RS. 60,78,950/- CANNOT BE MADE , VIDE APPELLATE ORD ERS DATED 29-05-2014. 6. AGGRIEVED BY THE APPELLATE ORDER DATED 29-05-201 4 PASSED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNA L. 7. THE LD. D.R. SUBMITTED THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF PRINTING AND MANUFACTURING OF PACKING MATERIALS AND PLAYING CARDS. INTEREST OF RS. 79.05 LAKHS WAS PAID BY THE ASSESSEE TO VARI OUS PARTIES WHICH IS 4.6% OF TURNOVER. THE ASSESSEE HAS OUTSTANDING RECOVERA BLE OF RS. 4.05 CRORES FROM M/S MENGHRAJ SONS WHICH IS A RELATED PARTY. TH E ASSESSEE SHOULD HAVE CHARGED INTEREST FROM MENGHRAJ SONS. THE A.O. HA S RIGHTLY DISALLOWED PROPORTIONATE INTEREST @ 15% ON THE AMOUNT OF OUTST ANDING RECOVERABLE FROM MENGHRAJ SONS. THE A.O. HAS RIGHTLY DISALLOWED TH E INTEREST AMOUNT OF RS.60,78,950/- .IT WAS SUBMITTED THAT THE ASSESSEE HAS ALSO PAID INTEREST TO ITS SUPPLIERS FOR DELAYING PAYMENT TO THE TUNE OF R S. 40.60 LACS WHILE THE ASSESSSEE DID NOT RECOVER INTEREST FROM MENGHRAJ S ONS WHICH IS A RELATED PARTY AS ONE OF PARTNER OF THE ASSESSEE FIRM IS PAR TNER IN MENGHRAJ SONS. THE ASSESSEE SHOULD HAVE RECOVERED INTEREST FROM MENGHR AJ SONS. NO EFFORT HAS BEEN MADE BY THE ASSESSEE TO RECOVER THE AMOUNT FRO M M/S MENGHRAJ SONS DESPITE HUGE AMOUNT RECOVERABLE FROM MENGHRAJ SONS. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS APPOINTED M/S MENGHRAJ SONS AS CONSIGNMENT AGENT T O WHOM THE GOODS ARE ITA NO. 4817/MUM/2014 & ITA NO. 4225/MUM/2015 7 GIVEN ON CONSIGNMENT BASIS . THE ASSESSEE IS EFFECT ING PART OF ITS SALES WHICH WERE MADE THROUGH THIS AGENT AND THERE ARE OUTSTAND ING RECEIVABLE FROM MENGHRAJ SONS BEING SUNDRY DEBTOR OF THE ASSESSEE W HICH IS ALSO REFLECTED AS SUCH IN THE BOOKS OF THE ASSESSEE. THE CONSIGNMENT AGENT AGREEMENT WAS EXECUTED ON 10 TH AUGUST, 2004 BETWEEN THE ASSESSEE AND THE M/S MENG HRAJ & SONS. NO DISALLOWANCE HAS BEEN MADE IN THE EARLIER YEARS W.R.T. PROPORTIONATE INTEREST ON THESE OUTSTANDING AMOUNTS. THE AGREEME NT FOR CONSIGNMENT AGENT WITH M/S MENGHRAJ SONS WAS TERMINATED BY THE ASSESSEE W.E.F. 1ST MAY, 2009 AND THE OUTSTANDING AMOUNT FROM M/S MENGH RAJ SONS WAS RS. 4.75 CRORES AS AT 01-05-2009 LACS ON ACCOUNT OF THE SALES MADE THROUGH THEM, WHICH WAS RS. 4.05 CRORES AS AT 31-3-2010. TH IS AMOUNT AS AT 31-03- 2014 IS FURTHER REDUCED TO RS. 3.44 LACS AT 31-3-20 14/PB PAGE 72. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT PRO VISION OF SECTION 40A(2) OF THE ACT WERE INVOKED. IT WAS SUBMITTED THAT THE ASS ESSEE FIRM AND M/S MENGHRAJ SONS ARE SEPARATE ENTITIES AND THE ASSESS EE HAS NOT INCURRED ANY EXPENSES WHICH COULD BE COVERED U/S 40A(2) OF THE A CT. THE AGREEMENT FOR CONSIGNMENT AGENT IS PLACED ON RECORD. THE ASSESSE E HAS ALSO SUBMITTED WRITTEN SUBMISSIONS. IT WAS SUBMITTED THAT THE REVE NUE HAS NOT MADE ANY DISALLOWANCE IN THE PRECEDING YEARS. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD . WE HAVE OBSERVED THAT THE ASS ESSEE IS ENGAGED IN THE BUSINESS OF PRINTING AND MANUFACTURING OF PACKING M ATERIALS AND PLAYING CARDS. WE HAVE OBSERVED THAT M/S MENGHRAJ SONS IS T HE CONSIGNMENT AGENT FOR THE PRODUCTS OF THE ASSESSEE SINCE 2004 VIDE AG REEMENT FOR CONSIGNMENT DATED 10 TH AUGUST, 2004 AND THIS AGREEMENT WAS TERMINATED BY THE ASSESSEE W.E.F. 1ST MAY, 2009 AND AS ON THIS DATE, THE OUTST ANDING AMOUNT FROM M/S. MENGHRAJ SONS WAS RS.4,74,89,808/- ON ACCOUNT OF TH E SALES EFFECTED THROUGH THEM IN THE PREVIOUS YEAR AS WELL AS IN THE CURRENT YEAR. THE ASSESSEE HAS SOLD GOODS THROUGH M/S MENGHRAJ SONS AGAINST WHICH PAYMENTS ARE DUE. IT ITA NO. 4817/MUM/2014 & ITA NO. 4225/MUM/2015 8 WAS THE DUTY OF THE M/S MENGHRAJ SONS TO COLLECT T HE AMOUNT FROM DEBTORS AND PAY THE ASSESSEE . THE OUTSTANDING AS ON 01-05 -2009 WAS RS. 4.75 CRORES WHICH WAS REDUCED TO RS. 4.05 CRORES AS AT 3 1-3-2010 . THE AMOUNT OUTSTANDING PAYABLE BY M/S MENGHRAJ & SONS TO THE A SSESSEE FIRM WAS FURTHER REDUCED TO RS. 3.44 LACS AS ON 31 ST MARCH, 2014.THUS THE OUTSTANDING BALANCE AS AT THE BEGINNING OF THE YEAR AS WELL AS AT THE END OF THE YEAR REPRESENTS THE SALES TRANSACTION OF GOODS OF THE AS SESSEE FIRM THROUGH M/S MENGHRAJ SONS AND THE LEARNED DR COULD NOT POINT AN Y PERVERSITY IN SUCH FINDINGS. HENCE, IT IS NOT IN THE NATURE OF INTERES T FREE FUNDS BUT THE OUTSTANDING WERE ON ACCOUNT OF SALES CONDUCTED BY T HE ASSESSEE ON CONSIGNMENT BASIS THROUGH MENGHRAJ SONS WHICH WAS A S A RESULT OF BUSINESS TRANSACTIONS, THEREFORE, THIS OUTSTANDING AMOUNT OF RS.4,05,26,526/- AS AT YEAR END ON 31-03-2010 FROM M/S MENGHRAJ SONS IN OU R CONSIDERED VIEW CANNOT BE TREATED AS AN INTEREST FREE ADVANCES . TH E LEARNED DR COULD NOT SHOW THAT THESE OUTSTANDING WERE NOT OUT OF THE BUS INESS TRANSACTIONS OF SALE AND PURCHASE BETWEEN BOTH THE PARTIES BUT WERE IN T HE NATURE OF INTEREST FREE ADVANCES GRANTED BY THE ASSESSEE TO M/S MENGHRAJ SO NS. THE LD. CIT(A) HAD OBSERVED THAT IN ORDER TO DISALLOW THE PROPORTIONAT E INTEREST PAID BY THE ASSESSEE DURING THE YEAR THE A.O. HAS TO ESTABLISH THAT THE ASSESSEE HAD ADVANCED THE MONEY TO THE SISTER CONCERN OUT OF THE BORROWED FUNDS, HOWEVER, THE A.O. NOR THE LEARNED DR COULD NOT ESTA BLISH ANY DIRECT NEXUS BETWEEN THE FUNDS BORROWED AND THE INTEREST FREE AD VANCES GIVEN TO THE SISTER CONCERN. THUS, IT WAS OBSERVED BY LEARNED CIT(A) TH AT THE ASSESSEE HAD DIRECT BUSINESS CONNECTIONS WITH THE SISTER CONCERN M/S ME NGHRAJ SONS AND THE FUNDS OUTSTANDING IN THEIR ACCOUNT WERE ON ACCOUNT OF SALES EFFECTED BY THEM DURING THE PRECEDING YEAR AS WELL AS DURING THE YEA R UNDER CONSIDERATION. THUS THE OUTSTANDING RECEIVABLE FROM MENGHRAJ SONS CANNOT BE TREATED AS THE INTEREST FREE ADVANCES AND HENCE THE LEARNED CI T(A) HELD THAT PROPORTIONATE DISALLOWANCE OF INTEREST TO THE TUNE OF RS. 60,78,950/- CANNOT BE MADE . THE LEDGER ACCOUNT OF MENGHRAJ SONS IN T HE BOOKS OF THE ASSESSEE ITA NO. 4817/MUM/2014 & ITA NO. 4225/MUM/2015 9 FOR THE IMPUGNED ASSESSMENT YEAR AND ALSO FOR PRECE DING YEAR ARE PLACED ON RECORD IN PAPER BOOK FILED WITH THE TRIBUNAL BY THE ASSESSEE TO SHOW THAT THE TRANSACTIONS WITH MENGHRAJ SONS WERE TOWARDS SALE O F GOODS(PAGE 42-53 & 56-57/PB) . NO PERVERSITY IN THESE LEDGER ACCOUNT W AS POINTED OUT BY LEARNED DR. IT IS THE CONTENTION OF THE ASSESSEE THAT MENGH RAJ SONS COULD REALIZE PAYMENTS BELATEDLY FROM THE PARTIES TO WHOM SALES W ERE MADE BY IT AND HENCE CONSEQUENTLY THE ASSESSEES PAYMENT GOT DELAYED. TH E LIST OF DEBTORS OF MENGHRAJ SONS AS AT 31-03-2010 AMOUNTING TO IN AGGR EGATE RS. 4.44 CRORES IS PLACED IN PAPER BOOK/PAGE 58-69. THESE ABOVE STATED DOCUMENTS OF TRANSACTIONS WITH MENGHRAJ SONS AND OUTSTANDING DEB TORS DETAILS OF MENGHRAJ SONS WERE ALL FILED BY THE ASSESSEE BEFORE THE AO/C IT(A) AS PER CERTIFICATE FURNISHED BY THE ASSESSEE ALONG WITH PAPER BOOK FIL ED WITH THE TRIBUNAL. WE DONOT FIND ANY PERVERSITY IN THE ORDER OF LEARNED C IT(A) WHICH WE AFFIRM AND SUSTAIN. NO INCRIMINATING MATERIAL HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO DISPROVE OR DEMOLISH FINDINGS RECORDED I N LEARNED CIT(A) ORDER. THE OUTSTANDING AMOUNT IS RECEIVABLE FROM M/S MENGH RAJ & SONS ON ACCOUNT OF NORMAL BUSINESS TRANSACTIONS BETWEEN THE TWO ENT ITIES, ALTHOUGH PAYMENTS WERE RECEIVED BELATEDLY. IN OUR CONSIDERED VIEW, N O DISALLOWANCE OF INTEREST OF RS. 60,78,950/- TOWARDS PROPORTIONATE INTEREST PAID BY THE ASSESSEE ON BORROWINGS MADE BY IT CAN BE MADE U/S 40A(2) OF THE ACT AS WAS MADE BY THE AO AND WE ORDER DELETION OF THE SAID ADDITION BY CO NFIRMING/SUSTAINING THE ORDER OF LEARNED CIT(A) . WE ORDER ACCORDINGLY. 10. OUR ABOVE DECISION IN ITA NO. 4817/MUM/2014 FOR THE ASSESSMENT YEAR 2010-11 SHALL APPLY MUTATIS MUTANDIS TO THE RE VENUES APPEAL IN ITA NO. 4225/MUM/2015 FOR THE ASSESSMENT YEAR 2011-12. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO. 4817/MUM/2014 FOR THE ASSESSMENT YEAR 2010-11 AND I TA NO. 4225/MUM/2015 FOR THE ASSESSMENT YEAR 2011-12 ARE D ISMISSED. ITA NO. 4817/MUM/2014 & ITA NO. 4225/MUM/2015 10 ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH NOVEMBER, 2016. # $% &' 11-11-2016 ( ) SD/- SD/- (C.N. PRASAD) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 11-11-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI E BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI