ITO 9(1)(3), MUMBAI V. ANCHOR RESIDENCY P.LTD, MUMBAI

ITA 4407/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0264 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 21-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH DAMAR
• Keywords: Proportionate interest; Notional interest; Commercial expediency; Revenue expenditure
• Section: 142(1); 145; 28

Judgement Text

1 ITA 4407/MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.4407/MUM/2015 (ASSESSMENT YEAR: 2011-12) ITO-9(1)(3), MUMBAI VS M/S ANCHOR RESIDENCY PVT LTD (FORMERLY KNOWN AS ANCHOR MALLS PVT LTD), KNOWLEDGE HOUSE, SHYAM NAGAR, OFF JOGESHWARI VIKHROLI LINK ROAD, JOGESHWARI (E), MUMBAI-60 PAN : AAFC A2252C APPELLANT BY SHRI RAJESH DAMAR RESPONDENT BY SHRI MS. DINKLE HARIYA DATE OF HEARING 07-02-2018 DATE OF PRONOUNCEMENT 14-03-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE CIT(A)-16, MUMBAI DATED 30-04-2015 AND IT PERTAINS TO AY 2011-12. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- I) 'WHETHER ON THE FACTS, AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT-(A) ERRED IN DELETING THE DISALLOWANCES MADE BY THE AO OF INTEREST ATTRIBUTABLE TO THE ADVANCES MADE TO M/S P IL INDUSTRIES LTD AND SIMPLETON INVESTRADE PVT. LTD.'. II) 'WHETHER ON THE FACTS, AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT-(A) FAILED TO APPRECIATE THE ONUS IS ON THE ASS ESSE TO PROVE THAT THE MONEY BORROWED HAD BEEN UTILIZED FOR THE PURPOSES O F BUSINESS, FOR THE ALLOWANCE OF INTEREST U/S 36(1)(III)(III) OF THE AC T AND THE ASSESSE HAS FAILED TO DISCHARGE SUCH ONUS IN RESPECT OF AMOUNTS ADVANC ED TO THE AFORESAID TWO PARTIES.' III) WHETHER ON THE FACTS, AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. 2 ITA 4407/MUM/2015 CIT-(A) FAILED TO APPRECIATE THE ASSESSE HAD NOT BR OUGHT IN RECORD ANY FACT OR EVIDENCE WHICH COULD ESTABLISH THE COMMERCIAL EX PEDIENCY OF THE TRANSACTIONS BY WHICH SUMS WERE ADVANCED TO THE AFO RESAID TWO PARTIES, WHICH OUGHT TO HAVE BEEN DETERMINED WITH RESPECT TO THE SURROUNDING CIRCUMSTANCES AND APPLYING THE TESTS OF HUMAN PROBA BILITIES AND NOT ON THE BASIS OF SELF-SERVING STATEMENTS AND COLORABLE DOCUMENTATION. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT INCLUDING SHOPPING MALLS, COMMERCIAL AND RESIDENTIAL COMPLEXES. THE A SSESSEE HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 24-09-2011 DECLARING NIL INCOME. THE CASE HAS BEEN SELECTED F OR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF THE ACT, WERE ISSU ED ALONGWITH DETAILED QUESTIONNAIRE DATED 09-10-2013. IN RESPONSE TO NOT ICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ATTENDED FROM TIME T O TIME AND SUBMITTED VARIOUS DETAILS, AS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE WAS I N THE BUSINESS OF DEVELOPMENT OF A SHOPPING MALL AT CHENNAI. THE EXP ENDITURE INCURRED TOWARDS THE PROJECT HAS BEEN SHOWN IN THE FIXED ASS ETS SCHEDULE IN THE BALANCE-SHEET. THE AO FURTHER OBSERVED THAT THE AS SESSEE HAS BORROWED TERM LOAN AND FCNR LOAN FROM BANKS AND CAP ITALIZED PART OF INTEREST PAID ON TERM LOANS TO THE PROJECT AND PART OF INTEREST EXPENSES HAS BEEN TREATED AS FINANCE COST AND DEBITED IN P&L ACCOUNT. THEREFORE, CALLED UPON THE ASSESSEE TO FILE NECESSA RY DETAILS TO JUSTIFY PAYMENT OF INTEREST ON TERM LOANS AND ALLOCATION OF INTEREST TO CAPITAL 3 ITA 4407/MUM/2015 EXPENDITURE AND REVENUE EXPENDITURE. IN RESPONSE T O NOTICES, THE ASSESSEE HAS SUBMITTED THAT IT HAS BORROWED TERM LO ANS AND FCNR LOAN FROM BANK FOR THE PURPOSE OF BUSINESS AND PART OF L OAN AMOUNT HAS BEEN UTILIZED FOR ACQUISITION OF PROPERTY AT CHENNAI FOR DEVELOPING SHOPPING MALL. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS G IVEN SOME INTEREST FREE ADVANCES TOWARDS SEARCHING THE PROPERTY ON BEHALF O F THE COMPANY AS PART OF ITS LONG AND SHORT TERM STRATEGY TO EXPAND ITS BUSINESS INCLUDING TO PROCURE PREMISES IN POPULAR COMMERCIAL CENTRE FOR E STABLISHING THE COMPANY TO ESTABLISH ITS MALL BUSINESS. THE ASSESS EE FURTHER SUBMITTED THAT AS REGARDS AMOUNT GIVEN TO PIL INDUSTRIES LTD OF RS.7,62,69,000, THE SAID AMOUNT HAS BEEN GIVEN TO ITS SISTER CONCERN TO WARDS ADVANCE FOR PURCHASE OF FABRICS. HOWEVER, THE SAID BUSINESS TR ANSACTION HAS NOT BEEN MATERIALIZED. THE PARTY HAS RETURNED ADVANCE GIVEN IN THE SUBSEQUENT PERIOD. INSOFAR AS AMOUNT GIVEN TO SIMP LETON INVESTRADE PVT LTD OF RS.109.65 CRORES, THE SAID AMOUNT HAS BEEN G IVEN AS PER MOU ENTERED INTO BETWEEN THE ASSESSEE AND THE COMPANY F OR PROCUREMENT OF TDR TO BE USED IN THE BUSINESS OF DEVELOPMENT OF IT S PROJECT AT CHENNAI. THE ASSESSEE FURTHER SUBMITTED THAT ITS ADVANCES AR E GIVEN IN THE NORMAL COURSE OF ITS BUSINESS ACTIVITY AND HAVING COMMERCI AL EXPEDIENCY, THEREFORE, THERE IS NO REASON TO DISALLOW INTEREST PAID ON BORROWED FUNDS U/S 36(1)(III) OF THE ACT. 3. THE AO AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE 4 ITA 4407/MUM/2015 OBSERVED THAT THOUGH THE ASSESSEE CLAIMS TO HAVE PA ID ADVANCE IN THE NORMAL COURSE OF BUSINESS, FAILED TO JUSTIFY ITS AD VANCE AND ITS COMMERCIAL EXPEDIENCY WITH NECESSARY EVIDENCE. THE AO FURTHER OBSERVED THAT INSOFAR AS ADVANCE GIVEN TO PIL INDUS TRIES LTD, THOUGH THE ASSESSEE CLAIMS TO HAVE PAID ADVANCE FOR PURCHASE O F MATERIALS, THE PARTY HAS FAILED TO SUPPLY RAW MATERIALS EVEN AFTER LAPSE OF 10 MONTHS. THE AO FURTHER OBSERVED THAT THOUGH THE ASSESSEE CL AIMS TO HAVE ENGAGED IN THE BUSINESS OF TRADING IN FABRIC, IT HA S BEEN OBSERVED THAT THE ASSESSEE HAS SHOWN PURCHASE AND SALE OF FABRICS FROM ITS SISTER CONCERNS. FROM THIS IT WAS CLEAR THAT THEY ARE ONL Y PAPER TRANSACTIONS. SIMILARLY, THE CLAIM OF THE ASSESSEE THAT IT HAS AD VANCED AN AMOUNT OF RS.109.65 CRORES TO SIMPLETON INVESTRADE PVT LTD FO R BUSINESS PURPOSE IS ALSO NOT PROVED. THE ASSESSEE IS IN THE PROCESS OF CONSTRUCTING A SHOPPING MALL IN CHENNAI AND THE SAID PROJECT IS IN THE PRELIMINARY STAGE OF ACQUISITION OF LAND, THEREFORE, GIVING ADVANCE T O A THIRD PARTY FOR IDENTIFYING AND SUPPLYING TDR APPEARED TO BE AN ARR ANGEMENT BETWEEN PARTIES TO OVERCOME THE OBSERVATIONS MADE WITH REGA RD TO INTEREST PAID ON TERM LOANS AND ITS ALLOWABILITY U/S 36(1)(III) O F THE ACT. WITH THESE OBSERVATIONS, DISALLOWED INTEREST PAID ON TERM LOAN S AND FOREIGN CURRENCY LOAN BY TAKING AVERAGE RATE OF INTEREST PAID BY THE ASSESSEE ON SUCH TERM LOANS AND DETERMINED DISALLOWANCE OF RS.63,39, 861 IN RESPECT OF ADVANCES GIVEN TO PIL INDUSTRIES LTD AND RS.12,34,9 5,315 IN RESPECT OF 5 ITA 4407/MUM/2015 ADVANCE GIVEN TO SIMPLETON INVESTRADE PVT LTD. AGG RIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A), ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS WHICH HAVE BEEN REPRODUCED BY THE LD.CIT(A) IN HIS ORDER AT PARAGRAPH 2.2 ON PAGES 5 TO 17. THE SUM AND SUBSTANCE OF THE ARGUMENTS OF THE ASSESSEE BEFORE CIT(A) WAS THAT ADVANCE GIVEN TO PI L INDUSTRIES LTD IS FOR THE PURPOSE OF PROCURING RAW MATERIALS AND ADVA NCE GIVEN TO M/S SIMPLETON INVESTRADE PVT LTD FOR THE PURPOSE OF PRO CURING TDR / FSI TOWARDS ITS COMMERCIAL PROJECT TO BE DEVELOPED AT C HENNAI. THEREFORE, THE SAID ADVANCES ARE IN THE NATURE OF NORMAL BUSIN ESS TRANSACTIONS AND THE AO WAS INCORRECT IN DISALLOWING INTEREST U/S 36 (1)(III) OF THE ACT. THE ASSESSEE FURTHER SUBMITTED THAT AS PER PROVISIONS O F SECTION 36(1)(III) OF THE ACT, THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF THE BUSINESS HAS TO BE ALLOWED AS DEDUCT ION IN COMPUTING THE INCOME U/S 28 OF THE ACT. MERELY BECAUSE THE INTER EST FREE ADVANCES WERE GIVEN TO GROUP CONCERN, NO SUCH INFERENCE CAN BE DRAWN THAT THE SAID ADVANCES WERE NOT FOR THE PURPOSES OF BUSINESS AND WERE NOT OUT OF COMMERCIAL EXPEDIENCY. THE ASSESSEE ALSO RELIED UP ON CERTAIN JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF SA BUILDERS VS CIT (2007) 158 TAXMAN 74 (SC). T HE CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AN D ALSO RELYING UPON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF S URAJ DIAMOND 6 ITA 4407/MUM/2015 CONSULTANTS PVT LTD IN ITA 2120/MUM/2008, OBSERVED THAT THE AO HAS ACCEPTED THE FACTS OF BUSINESS CONSIDERATION FOR SU CH ADVANCE AND DID NOT BRING ANY MATERIAL FINDING ON RECORD TO SHOW TH AT THE SAID ADVANCES TO PIL INDUSTRIES LTD AND SIMPLETON INVESTRADE PVT LTD ARE NOT FOR THE PURPOSE OF BUSINESS. IN SUCH CIRCUMSTANCES, DISALL OWANCE OF PROPORTIONATE INTEREST IS IMPERMISSIBLE IN LAW AND ACCORDINGLY, DELETED ADDITIONS MADE BY THE AO TOWARDS DISALLOWANCE OF IN TEREST U/S 36(1)(III) OF THE ACT. AGGRIEVED BY THE ORDER OF CIT(A), REVE NUE IS IN APPEAL BEFORE US. 5. THE LD.DR SUBMITTED THAT THE LD.CIT(A) ERRED IN DELETING DISALLOWANCE MADE BY THE AO TOWARDS INTEREST PAID O N TERM LOAN AND FCNR LOAN ATTRIBUTABLE TO AMOUNT OF ADVANCE TO M/S PIL INDUSTRIES LTD AND M/S SIMPLETON INVESTRADE PVT LTD, WITHOUT A PPRECIATING THE FACT THAT THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE MONEY BORROWED HAD BEEN UTILISED FOR THE PURPOSE OF BUSINESS FOR ALLOW ANCE OF INTEREST U/S 36(1)(III) OF THE ACT, AND THAT THE ASSESSEE HAS FA ILED TO DISCHARGE SUCH ONUS IN RESPECT OF AMOUNTS ADVANCED TO AFORESAID TW O PARTIES. THE LD.DR FURTHER SUBMITTED THAT THE LD.CIT(A) FAILED T O APPRECIATE THE FACT THAT THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY FAC T OR EVIDENCE WHICH WOULD ESTABLISH THE COMMERCIAL EXPEDIENCY IN THE TR ANSACTIONS BY WHICH SUMS WERE ADVANCED TO THE AFORESAID 2 PARTIES, WHIC H OUGHT TO HAVE BEEN DETERMINED WITH RESPECT TO THE CONCERNING CIRC UMSTANCES AND 7 ITA 4407/MUM/2015 APPLYING THE TEST OF HUMAN PROBABILITIES AND NOT ON THE BASIS OF SELF SERVING STATEMENTS AND COLOURABLE DOCUMENTATION. T HE AO HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT THE ASSESSEE HAS FAILED TO ESTABLISH COMMERCIAL EXPEDIENCY IN ADVANCING AMOUNTS TO ITS S ISTER CONCERNS WITH ANY EVIDENCES, THEREFORE, THE LD.CIT(A) WAS ERRED I N DELETING ADDITIONS MADE BY THE AO. 6. ON THE OTHER HAND, THE LD.AR FOR THE ASSESSEE SU BMITTED THAT THE AO HAS MADE ADDITIONS ON ACCOUNT OF NOTIONAL INTERE ST INCOME UNDER THE GHEAD INCOME FROM OTHER SOURCES TOWARDS INTEREST FREE ADVANCES GIVEN TO TWO GROUP CONCERNS, M/S SIMPLETON INVESTRADE PVT LTD AND PIL INDUSTRIES LTD WITHOUT APPRECIATING THE FACT THAT T HE NOTIONAL INCOME DETERMINED BY THE AO HAD NEITHER ACCRUED TO THE ASS ESSEE NOR WAS EARNED BY THE ASSESSEE DURING THE RELEVANT ASSESSME NT YEAR AS THERE BEING NO STIPULATION ABOUT PAYMENT OF SUCH INTEREST ON LOANS GIVEN TO THESE TWO PARTIES. THE LD.AR FURTHER SUBMITTED THA T IT IS A WELL SETTLED LEGAL POSITION THAT AN INCOME CAN BE TAXED ONLY IF IT HAS LEGALLY ACCRUED OR ARISEN. THE TAX IS IMPOSED ON REAL AND ACTUAL INCO ME ARISING IN THE COURSE OF RELEVANT PERIOD, BUT NOT ON ANY HYPOTHETI CAL INCOME. THE LD.AR FURTHER SUBMITTED THAT ADVANCE GIVEN TO PIL I NDUSTRIES LTD WAS OUT OF PROCEEDS FROM SALE OF SHARES AND INTEREST REFUND S. THEREFORE, THERE IS NO REASON FOR THE AO TO DISALLOW INTEREST PAID ON B ORROWED FUNDS ON THE GROUND THAT THE ASSESSEE HAS DIVERTED INTEREST BEAR ING FUNDS TO SISTER 8 ITA 4407/MUM/2015 CONCERNS WITHOUT CHARGING ANY INTEREST. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE HAS GIVEN ADVANCE TO M/S SIMPLETO N INVESTRADE PVT LTD OUT OF MONIES RECEIVED FROM ERUDITE TRADING PV T LTD, THAT TOO, IN EARLIER YEAR. NO INTEREST BEARING FUNDS HAVE BEEN USED FOR ADVANCES. ASSUMING FOR A MOMENT, THE ASSESSEE HAS USED INTERE ST FREE FUNDS, THE ADVANCES GIVEN TO BOTH THE CONCERNS ARE IN THE NORM AL COURSE OF ASSESSEES BUSINESS WHICH IS EVIDENCED FROM THE FAC T THAT THE ASSESSEE HAS ADVANCED TO PIL INDUSTRIES LTD FOR PROCUREMENT OF FABRICS. IT IS IRRELEVANT WHETHER THE ASSESSEE HAS PURCHASED MATER IAL FROM THE PARTY OR NOT. AS LONG AS ADVANCE IS GIVEN FOR BUSINESS P URPOSE AND THERE IS A COMMERCIAL EXPEDIENCY IN ADVANCE, THERE IS NO REASO N FOR THE AO TO DISALLOW INTEREST PAID U/S 36(1)(III) OF THE ACT. 7. THE LD.AR FURTHER REFERRING TO THE FINANCIAL STA TEMENT FOR THE YEAR SUBMITTED THAT THERE HAS BEEN A DECREASE IN INTERES T BEARING FUNDS DURING THE YEAR FROM RS.342.06 CRORES TO RS.286.30 CRORES WHICH MEANS THERE HAS BEEN AN INFLOW OF AROUND RS.120 CRORES DU RING THE YEAR FROM SALE PROCEEDS, RECEIPTS FREE OUTSTANDING DEBTORS AN D INTEREST FROM UNSECURED LOANS WHICH IS MORE THAN THE AMOUNT OF AD VANCES GIVEN TO SISTER CONCERNS. IN ANY CASE, ADVANCES GIVEN TO BO TH THE CONCERNS WERE PURELY FOR THE PURPOSES OF BUSINESS AND IN THE COUR SE OF BUSINESS WHICH IS SUPPORTED BY THE EXHAUSTIVE DETAILS SUBMITTED BE FORE THE LD.CIT(A). THEREFORE, THE AO WAS INCORRECT IN DISALLOWING INTE REST BY ESTIMATING 9 ITA 4407/MUM/2015 NOTIONAL INTEREST ON ADVANCES. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF HIGHWA Y CONSTRUCTION CO PVT LTD VS CIT (1993) 199 ITR 702 (SC) AND THE DECI SION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS SESA RESOUR CES LTD (2017) 85 TAXMAN.COM 88. THE ASSESSEE ALSO RELIED UPON THE F OLLOWING CASE LAWS WITH HEAD NOTES:- SHORT NOTE (SOME LEGAL ISSUES SUMMARISED) I. NO TAX ON NOTIONAL INCOME: INCOME TAX CAN BE LEVIED ONLY ON SUCH INCOME THAT I S ACTUALLY RECEIVED. NO TAX ON HYPOTHETICAL INCOME WHICH, ACCORDING TO THE DEPARTM ENT, THE ASSESSEE SHOULD HAVE OR WOULD HAVE RECEIVED. 1. CIT V/S. A. RAMAN & CO. - [(1968) 67 ITR 11 (SC)] 2. K. P. VERGHESE V/S. ITO - [(1981) 131 IT R 597 (SC)] 3. INDIA FINANCE & CONSTRUCTION CO. LTD. V/S . B. N. PANDA - [(1993) 200 ITR 710 (BOM)] [IN THE CONTEXT OF ADDITION OF NOTIONAL INTEREST IN COME] 4. SMT. GEETA DEVI V/S. ITO - [(2000) 68 TTJ (JODH) 729] IT IS WELL SETTLED LAW THAT TAX CAN BE LEVIED ONLY ON REAL INCOME AND NOT ON ANY HYPOTHETICAL OR NOTIONAL INCOME. EVEN IF AN ASSESSE E WHO COULD EARN AN INCOME, BUT CHOOSES NOT TO EARN THE SAME, CANNOT BE MADE LI ABLE TO PAY TAX ON ANY SUCH INCOME WHICH HE COULD EARN BUT HAS CHOSEN NOT TO ON E. ACCRUAL OF INCOME ONLY IF ASSESSEE IS VESTED WITH L EGAL RIGHT TO RECEIVE EVEN IN A CASE WHERE THE ASSESSEE IS FOLLOWING MERC ANTILE SYSTEM, STILL, THERE IS NO ACCRUAL OF ANY INCOME IF THERE WAS NO L EGAL RIGHT TO RECEIVE SUCH INCOME AND THERE IS NO SUCH LEGALLY ENFORCEABLE MUT UAL AGREEMENT. NO INCOME ACCRUES IF IT IS NOT ACKNOWLEDGED BY EITHER OF THE PARTIES NOR ANY ACCOUNTING ENTRY PASSED IN EITHER PARTY'S ACCOUNTS RECOGNIZING OR ACKNOWLEDGING ANY ACCRUAL. 1. E. D. SASOONS CO. LTD. V/S. CIT - [(1954) 26 ITR 27 (SC)J [PG. 51, 52 & 55] THE BASIC CONCEPTION IS THAT HE MUST HAVE ACQUIRED A RIGHT TO RECEIVE THE INCOME. THERE MUST BE A DEBT OWED TO HIM BY SOMEBOD Y, UNLESS AND UNTIL THERE IS CREATED IN FAVOUR OF THE ASSESSEE A DEBT D UE BY SOMEBODY IT CANNOT BE SAID THAT HE HAS ACQUIRED A RIGHT TO RECEIVE THE IN COME OR THAT INCOME HAS ACCRUED TO HIM. 2. CIT V/S. SHRI GOVERDHAN LTD. - [(1968) 69 ITR 675 (SC)J 3. CIT V/S. EXCEL INDUSTRIES LTD. - [(2013) 358 ITR 295 (SCJJ EVEN IN CASE OF MERCANTILE SYSTEM, INCOME DOES NOT ACCRUE UNLESS THE CORRESPONDING LIABILITY IS CREATED BY THE PAYER. 4. CIT V/S. ACE BUILDERS - [(1993) 202 ITR 324 (BOM)J [H.N. 324] [INCOME IS HELD TO ACCRUE ONLY WHEN THE ASSESSEE AC QUIRES A RIGHT TO RECEIVE THAT INCOME. IN OTHER WORDS, INCOME CAN BE SAID TO ACCRUE ON A DATE WHEN 10 ITA 4407/MUM/2015 DEBT BECOMES DUE. UNLESS THE RIGHT TO PROFITS COMES INTO EXISTENCE, THERE IS NO ACCRUAL OF PROFITS.] 5. CIT V/S. GOVIND PRASAD PRABHU NATH - [(19 88) 171 ITR 417 (ALL)] [IT IS MANIFEST THAT UNLESS AND UNTIL THERE IS DEBT CREATED IN FAVOUR OF SUCH AN ASSESSEE A DEBT DUE BY SOMEBODY, IT CANNOT BE SAID THAT HE HAS ACQUIRED A RIGHT TO RECEIVE THE INCOME OR THAT INCOME HAD ACCR UED TO HIM. REAL INCOME THEORY INCOME ACCRUES ONLY WHEN THERE IS A REASONABLE DEGR EE OF CERTAINTY WITH REGARDS TO ITS RECOVERABILITY. CIT V/S. MOTOR CREDIT CO. LTD. - [(1981) 127 ITR 572 ( MAD)] IT IS NOT THE HYPOTHETICAL ACCRUAL OF INCOME BASED ON THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE THAT HAS TO BE TAKEN INTO ACCOUNT, BUT WHAT SHOULD BE CONSIDERED IS WHETHER THE INCOME HAS REAL LY MATERIALIZED OR RESULTED TO THE ASSESSEE. THE QUESTION WHETHER REAL INCOME HA S MATERIALIZED TO THE ASSESSEE HAS TO BE CONSIDERED WITH REFERENCE TO COM MERCIAL AND BUSINESS REALITIES OF THE SITUATION IN WHICH THE ASSESSEE HA S BEEN PLACED AND NOT WITH REFERENCE TO HIS SYSTEM OF ACCOUNTING. APPROVED IN: STATE BANK OF TRAVANCORE V/S. CIT- [1986] 158 ITR 1 02 (SC)] '... WHAT HAS REALLY ACCRUED TO THE ASSESSEE HAS TO BE F OUND OUT AND WHAT HAS ACCRUED MUST BE CONSIDERED FROM THE POINT OF VIEW O F REAL INCOME TAKING THE PROBABILITY OR IMPROBABILITY OF REALISATION IN A RE ALISTIC MANNER AND DOVETAILING OF THESE FACTORS...' CIT V/S, BOKARO STEEL LTD. - [(1999) 236 ITR 315 (SC)] GODHRA ELECTRICITY CO. LTD. V/S. CIT- [(1997) 225 IT R 746 (SC)] ACCRUAL MUST BE JUDGED FROM THE REAL INCOME THEORY BY TAKING THE PROBABILITY OR IMPROBABILITY OF REALISATION IN A REALISTIC MANNER . 4. CIT V/S. VTC LEASING & FINANCE LTD. - [( 2006) 215 CTR (RAJ) 51] [IN THE CONTEXT OF INTEREST INCOME] REALITIES OF LIFE HAVE TO BE CONSIDERED WHILE ARRIV ING AT TAXABLE INCOME. IV. ACCRUAL CONCERNING INTEREST INCOME 1. B AND A PLANTATIONS AND INDUSTRIES LTD. V/S. CIT- [(2000) 242 ITR 22 (GAUHATI)] HELD, THAT THERE WAS NO PROVISION IN THE INCOME - T AX ACT EMPOWERING THE INCOME -TAX AUTHORITIES TO INCLUDE IN THE INCOME, I NTEREST WHICH WAS NOT DUE OR NOT COLLECTED. IF THE ASSESSEE HAD NOT BARGAINED FO R INTEREST; OR HAD NOT COLLECTED INTEREST, IT WAS NOT OPEN TO THE INCOME - TAX AUTHORITIES TO FIX A NOTIONAL INTEREST AND ASSESS IT. 2. ACIT V/S. LAXMI NARAYAN MEHTA - [(2002) 7 6 TTJ (JODH) 686] NO ADDITION ON ACCOUNT OF NOTIONAL INTEREST INCOME FROM DEBTOR ON THE BASIS OF SEIZED DIARIES, IF THERE IS NO MATERIAL / EVIDENCE TO SUPPORT ACCRUAL / RECEIPT OF THE INTEREST INCOME. 3. CANARA BANK V/S. JT. CIT - [(2003) 79 TTJ (BANG) 398] SO LONG AS THE INCOME CANNOT BE SAID TO HAVE ACCRUE D WITHIN THE MEANING OF SECTION 5, WHICH IS THE CHARGING SECTION, NEITHE R SS. 28 TO 44D COMPUTING THE INCOME UNDER THE HEAD 'PROFIT AND GAI NS OF BUSINESS' NOR SECTION 145 CAN BE BROUGHT INTO OPERATION, EVEN IF THE ACCOUNTING ENTRY HAS BEEN MADE IN THE BOOKS OF ACCOUNT. V. NOT MAKING ENTRY IN BOOKS OF MAY BE INDI CATIVE OF INTENTION REGARDING NON ACCRUAL / ABANDONMENT / WAI VER 1. CIT V/S. BALARAMPUR COMMERCIAL ENTERPRISE S LTD. - [(2003) 262 ITR 439 (CAL)] [ATPAGE450F&451G, H] 2. MALBROS INVESTMENTS LTD. V/S. DOT- [(2008 ) 11 DTR (DEL) (TRIB) 314 11 ITA 4407/MUM/2015 3. BRAHMAPUTRA CAPITAL & FINANCIAL SERVICES LTD. - [(2008) 9 DTR (DEL) (TRIB) 511] 4. JT. CIT V/S. PANKAJ OXYGEN LTD. [(2003) 7 8 TTJ (NAG) 119] V NO ADDITION ON THE BASIS OF SUSPICION OR WITHOUT ADEQUATE MATE RIAL 1. DHAKESHWARI COTTON MILLS LTD. V/S. CIT- [ (1954) 26 ITR 775 (SC)] 'THE INCOME TAX OFFICER IS NOT ENTITLED TO MAKE A P URE GUESS AND MAKES AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPORT TH E ASSESSMENT UNDER SECTION 23(3).' 2. CIT V/S. BRITISH PAINTS INDIA LTD. - [(19 91) 188 ITR 44 (SC)] 'WHAT IS THE PROFIT OF TRADE OR BUSINESS IS A QUEST ION OF FACT AND IT MUST BE ASCERTAINED, AS ALL FACTS MUST BE ASCERTAINED, WITH REFERENCE TO THE RELEVANT EVIDENCE, AND NOT ON DOCTRINES OR THEORIES : 'NO ASSUMPTION NEED BE MADE UNLESS THE FACTS CANNOT BE ASCERTAINED, AND THEN ONLY TO THE EXTENT TO WHICH THEY CANNOT BE ASCERTAINED. THERE I S NOT ROOM FOR THEORIES AS TO FLOW OF COSTS .....' [PAGE 56] 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE AO HAS DISALLOWED INTEREST PAID ON TERM LOAN AND FCNR LOAN S BORROWED FROM BANKS ON THE GROUND THAT THE ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS TO ITS SISTER CONCERNS FOR NON BUSINESS PURPO SES WITHOUT CHARGING ANY INTEREST. ACCORDING TO THE AO, THOUGH THE ASSE SSEE CLAIMS TO HAVE GIVEN ADVANCE TO PIL INDUSTRIES LTD FOR PURCHASE OF FABRICS, FAILED TO SUBSTANTIATE ITS CLAIM WITH NECESSARY EVIDENCES WHI CH IS EVIDENT FROM THE FACT THAT THE ASSESSEES MAIN ACTIVITY IS REAL ESTA TE DEVELOPMENT, BUT NOT TRADING IN FABRICS. THOUGH THE ASSESSEE HAS SHOWN TURNOVER FROM ACTIVITY OF TRADING IN FABRICS, ON PERUSAL OF THE BUSINESS A CTIVITY CARRIED OUT BY THE ASSESSEE UNDER SALE OF FABRICS, THE ASSESSEE HAS MADE ONLY TWO TRANSACTIONS OF PURCHASE AND SALE OF FABRICS AND EA RNED A MEAGER GROSS PROFIT OF RS.1,24,900 ON A TOTAL TURNOVER OF RS.25. 07 CRORES. FURTHER, ALL THESE TRANSACTIONS HAVE BEEN MADE WITH ITS SISTER C ONCERNS. THE AO 12 ITA 4407/MUM/2015 FURTHER OBSERVED THAT IN RESPECT OF ADVANCES GIVEN TO SIMPLETON INVESTRADE PVT LTD, THOUGH THE ASSESSEE CLAIMS TO H AVE PAID ADVANCES FOR PROCUREMENT OF TDR / FSI FOR ITS COMMERCIAL PRO JECT TO BE DEVELOPED AT CHENNAI, FAILED TO JUSTIFY PAYMENT OF SUCH A HUG E AMOUNT WITH NECESSARY EVIDENCES. ACCORDING TO THE AO, THE EXPL ANATIONS OFFERED BY THE ASSESSEE ALONGWITH CERTAIN DOCUMENTS ARE SELF S ERVING DOCUMENTS TO OVERCOME THE OBSERVATIONS WITH REGARD TO THE DIVERS ION OF INTEREST BEARING FUNDS TO SISTER CONCERNS WITHOUT CHARGING A NY INTEREST. 9. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS PAID ADVANCE TO TWO OF ITS SISTER CONCERNS IN THE NORMAL COURSE OF ITS BUS INESS AS IT HAS DERIVED SOME COMMERCIAL BENEFIT OUT OF ADVANCE GIVEN TO PIL INDUSTRIES LTD AND SIMPLETON INVESTRADE PVT LTD. THE ASSESSEE FURTHE R CONTENDED THAT IT HAS PAID ADVANCE TO PIL INDUSTRIES LTD FOR THE PURP OSE OF PROCURING FABRICS. THE ASSESSEE FURTHER CONTENDED THAT IT IS IMMATERIAL WHETHER THE ASSESSEE HAS PROCURED GOODS FROM THE SAID PARTY OR NOT, AS LONG AS ADVANCE IS GIVEN IN THE NORMAL COURSE OF BUSINESS W ITH AN INTENT OF DERIVING SOME COMMERCIAL BENEFIT, THERE IS NO REASO N FOR THE AO TO TREAT NORMAL BUSINESS ADVANCE AS INTEREST FREE FUNDS GIVE N TO SISTER CONCERNS. THE ASSESSEE FURTHER CONTENDED THAT INSOFAR AS AMOU NT GIVEN TO SIMPLETON INVESTRADE PVT LTD, THE SAID ADVANCE HAS BEEN GIVEN TO THE PARTY AS PER MOU ENTERED INTO FOR PROCUREMENT OF TD R /FSI IN RESPECT OF ITS COMMERCIAL PROJECT TO BE DEVELOPED AT CHENNAI. THE ASSESSEE 13 ITA 4407/MUM/2015 FURTHER CONTENDED THAT THE AO HAS MADE ADDITION TOW ARDS NOTIONAL INTEREST ON INTEREST FREE ADVANCES GIVEN TO TWO GRO UP CONCERNS WITHOUT APPRECIATING THE FACT THAT SUCH ADVANCES HAVE BEEN GIVEN IN THE NORMAL COURSE OF BUSINESS ACTIVITY AND ALSO SUCH ADVANCES ARE GIVEN OUT OF ITS OWN FUNDS. 10. THE AO HAS DISALLOWED INTEREST U/S 36(1)(III) O F THE ACT, ON THE GROUND THAT THE ASSESSEE HAS DIVERTED INTEREST BEAR ING FUNDS TO ITS SISTER CONCERNS FOR NON BUSINESS PURPOSE WITHOUT CHARGING ANY INTEREST. TO DECIDE THE ISSUE WHETHER THE ADVANCES GIVEN BY THE ASSESSEE TO TWO OF ITS SISTER CONCERNS, M/S PIL INDUSTRIES LTD AND SIM PLETON INVESTRADE PVT LTD ARE BUSINESS ADVANCES GIVEN OUT OF COMMERCIAL E XPEDIENCY IN THE NORMAL COURSE OF BUSINESS, ONE HAS TO SEE THE NATUR E OF ADVANCES GIVEN BY THE ASSESSEE AND THE INTENT OF SUCH ADVANCES. I N THIS CASE, THE ASSESSEE HAS GIVEN AN AMOUNT OF RS.7,62,69,000 TO M /S PIL INDUSTRIES LTD AND CLAIMS THAT SUCH ADVANCE HAS BEEN GIVEN FOR PURCHASE OF FABRICS. THEREFORE, IT IS IN THE NATURE OF NORMAL BUSINESS A DVANCES; HENCE, NO DISALLOWANCE CAN BE MADE U/S 36(1)(III)(III) OF THE ACT. SIMILARLY, THE ASSESSEE CLAIMS TO HAVE PAID AN ADVANCE OF RS.109.6 5 CRORES TO M/S SIMPLETON INVESTRADE PVT LTD FOR PURCHASE OF FSI / TDR. THE ASSESSEE HAS FILED COPY OF MOU ENTERED INTO WITH M/S SIMPLET ON INVESTRADE PVT LTD. ON PERUSAL OF THE DETAILS FILED BY THE ASSESS EE, WE FIND THAT THE ASSESSEE HAS ENTERED INTO AN MOU FOR PROCUREMENT OF TDR / FSI TO BE 14 ITA 4407/MUM/2015 USED IN ITS PROJECT TO BE DEVELOPED AT CHENNAI. TH OUGH THE ASSESSEE CLAIMS TO HAVE PAID ADVANCE FOR PURCHASE OF TDR / F SI, NO EVIDENCE HAS BEEN FILED BEFORE THE LOWER AUTHORITIES TO SHOW THA T IT HAS ACQUIRED ANY TDR / FSI FROM THE PARTIES. THE ASSESSEES PROJECT AT CHENNAI IS IN PRELIMINARY STAGE. IT IS NOT THE CASE OF THE ASSES SEE THAT IT HAS ALREADY IDENTIFIED TDR / FSI WHICH IS IN THE POSSESSION OF SIMPLETON INVESTRADE PVT LTD. M/S SIMPLETON INVESTRADE PVT LTD IS NOT O WNER OF TDR / FSI. IT IS ALSO AN ADMITTED FACT THAT THE PARTY HAS IDENTIF IED TDR / FSI, WITHOUT IDENTIFYING ANY ASSET ENTERING INTO AN MOU FOR PURC HASE OF SAID ASSET APPEAR TO BE AN ATTEMPT TO CIRCUMVENT THE APPLICABI LITY OF DISALLOWANCE OF INTEREST PAID ON LOAN U/S 36(1)(III) OF THE ACT. T HEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS FAILED TO PRO VE COMMERCIAL EXPEDIENCY IN ADVANCE GIVEN TO SIMPLETON INVESTRADE PVT LTD. 11. COMING TO ANOTHER ASPECT OF THE CASE, ASSUMING FOR A MOMENT THAT THE ASSESSEE HAS PAID ADVANCE FOR PROCUREMENT OF TD R / FSI. IF SO, WHETHER INTEREST PAID ON SUCH ADVANCES CAN BE ALLO WED AS DEDUCTION U/S 36(1)(III) OR NOT HAS TO BE EXAMINED IN THE LIG HT OF PROVISIONS OF SECTION 36(1)(III) OF THE ACT, AND PROVISO PROVIDED TO SECTION 36(1). AS PER THE PROVISO TO SECTION 36(1), ANY AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN A SSET, WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNT OR NOT FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQU ISITION OF THE ASSET TILL 15 ITA 4407/MUM/2015 THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE S HALL NOT BE ALLOWED AS DEDUCTION. IN THIS CASE, ADMITTEDLY, THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE DEVELOPMENT, PROPOSED TO DEVELOP A COMM ERCIAL PROJECT AT CHENNAI AND ALSO THE EXPENDITURE INCURRED ON THE PR OJECT HAS BEEN CAPITALIZED IN THE BOOKS OF ACCOUNT. IT IS ALSO AN ADMITTED FACT THAT THE COMMERCIAL PROJECT IS IN INITIATION STAGE. THE ASS ESSEE HAS CAPITALIZED ALL EXPENSES INCURRED ON THE PROJECT INCLUDING PART OF INTEREST PAID ON LOANS BORROWED FROM BANKS. IT IS ALSO AN ADMITTED FACT T HAT THE ADVANCE GIVEN TO SIMPLETON INVESTRADE PVT LTD RELATES TO THE PROP OSED PROJECT TO BE DEVELOPED BY THE ASSESSEE AT CHENNAI WHICH IS EVIDE NT FROM THE FACT THAT THE ASSESSEE ITSELF HAS ADMITTED THAT IT HAS GIVEN ADVANCES TO THE PARTY FOR PURCHASE OF TDR / FSI. THEREFORE, ONCE THE ADV ANCE HAS BEEN GIVEN FOR THE PURPOSE OF ACQUISITION OF TDR / FSI IT IS O BVIOUS THAT SUCH ADVANCE IS RELATED TO THE COMMERCIAL PROJECT TO BE DEVELOPED BY THE ASSESSEE. THEREFORE, AS PER THE PROVISO PROVIDED T O SECTION 36(1)(III), ANY AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPIT AL BORROWED FOR ACQUISITION OF AN ASSET FOR ANY PERIOD BEGINNING FR OM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASS ET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE SHALL NOT BE ALLOWE D AS DEDUCTION U/S 36(1)(III) OF THE ACT. ADMITTEDLY, THE ASSESSEE HA S CAPITALIZED PART OF INTEREST ATTRIBUTABLE TO THE AMOUNT UTILIZED FOR DE VELOPMENT OF COMMERCIAL PROJECT AT CHENNAI. THEREFORE, WE ARE OF THE CONSI DERED VIEW THAT THE 16 ITA 4407/MUM/2015 INTEREST ATTRIBUTABLE TO ADVANCE GIVEN TO SIMPLETON INVESTRADE PVT LTD IS COMING UNDER THE PROVISO TO SECTION 36(1)(III) OF T HE ACT, AS THE ASSESSEE HAS NOT PUT TO USE THE ASSET. 12. THE OTHER ARGUMENT OF THE ASSESSEE THAT ADVANCE GIVEN TO SIMPLETON INVESTRADE PVT LTD IS OUT OF ITS OWN FUND S AND NO PART OF INTEREST BEING FUNDS HAS BEEN USED IS HAVING NO MER IT AS THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS ARGUMENTS IN THE LIG HT OF THE CLEAR FINDINGS OF THE AO THAT THE ASSESSEE HAS BORROWED HUGE FUNDS FR OM BANKS AND DIVERTED PORTION OF FUNDS TO THIS PARTY. SIMILARLY , THE ARGUMENTS OF THE LD.AR THAT THE AO HAS TAXED NOTIONAL INTEREST ON IN TEREST FREE FUNDS GIVEN TO TWO GROUP CONCERNS ALSO FAILS AS THE AO HA S BROUGHT OUT CLEAR FACTS IN HIS ORDER THAT THE ASSESSEE HAS BORROWED A MOUNTS BY PAYING INTEREST AND DIVERTED INTEREST BEARING FUNDS TO SIS TER CONCERNS FOR NON BUSINESS PURPOSE WITHOUT CHARGING ANY INTEREST. TH E OBSERVATIONS OF THE LD.AR IN RESPECT OF ADDITION MADE BY THE AO UNDER T HE HEAD, INCOME FROM OTHER SOURCES IS ONLY A TECHNICAL ERROR, BUT THE SUBSTANCE OF THE FINDINGS OF THE AO IN THE LIGHT OF PROVISIONS OF SE CTION 36(1)(III) CLEARLY SHOWS HIS INTENTION AND HENCE, WE REJECT THE ARGUME NTS OF THE LD.AR THAT THE AO HAS TAXED NOTIONAL INTEREST. SIMILARLY , THE CASE LAWS RELIED UPON BY THE LD.AR ARE ALSO NOT APPLICABLE TO THE FA CTS OF THE PRESENT CASE, AS THOSE CASES ARE RENDERED UNDER DIFFERENT S ET OF FACTS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A O WAS RIGHT IN 17 ITA 4407/MUM/2015 DISALLOWING INTEREST ATTRIBUTABLE TO ADVANCES GIVEN TO SIMPLETON INVESTRADE PVT LTD. 13. COMING TO ADVANCES GIVEN TO M/S PIL INDUSTRIES LTD. THE ASSESSEE CLAIMS THAT IT HAS PAID ADVANCE TO PIL INDUSTRIES F OR PURCHASE OF FABRICS. IT IS THE OBSERVATIONS OF THE AO THAT THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND THE TURNOVER SHOWN IN T RADING SEGMENT IS ONLY FROM ITS GROUP COMPANIES. ACCORDINGLY, CONCLU DED THAT THE ASSESSEE IS NOT IN THE BUSINESS OF TRADING IN FABRI CS. THE ASSESSEE CONTENDS THAT IT HAS PAID ADVANCE FOR PROCUREMENT O F SPECIFIC ITEMS FROM PIL INDUSTRIES LTD AS PER ITS REQUIREMENTS. SINCE THE SPECIFIC ITEMS COULD NOT BE PROCURED BY PIL INDUSTRIES LTD, IT DID NOT S UPPLY GOODS AS PER ITS REQUIREMENTS AND ADVANCE AMOUNT HAS BEEN REFUNDED I N SEPTEMBER, 2011. THE ASSESSEE FURTHER CONTENDED THAT AS LONG AS ADVANCES ARE IN THE NATURE OF NORMAL BUSINESS TRANSACTIONS, IT IS I RRELEVANT WHETHER SUCH TRANSACTIONS HAS BEEN MATERIALIZED OR NOT. 14. HAVING HEARD BOTH THE SIDES, WE FIND MERIT IN T HE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE IS ALSO I N THE BUSINESS OF TRADING IN FABRICS WHICH IS EVIDENT FROM THE FACT T HAT IT HAS ACHIEVED A SUBSTANTIAL TURNOVER FROM TRADING IN FABRICS. WE F URTHER OBSERVE THAT THE AO HAS ACCEPTED THE FACT THAT THE ASSESSEE HAS MADE PURCHASE AND SALE OF FABRICS AND ALSO DERIVED PROFIT FROM SALE O F FABRICS. WE FURTHER OBSERVE THAT THE FACT THAT THE ASSESSEE HAS GIVEN A DVANCES TO PIL 18 ITA 4407/MUM/2015 INDUSTRIES LTD WHICH HAS BEEN REFUNDED AS THE SAID TRANSACTION HAD NOT BEEN MATERIALIZED. IT IS NOT A CASE OF AO THAT THE ASSESSEE HAS GIVEN ADVANCE TO SISTER CONCERN FOR QUITE A LONG PERIOD O UT OF INTEREST BEARING FUNDS. THE ASSESSEE HAS FILED A LEDGER EXTRACT TO PROVE THAT LOAN GIVEN TO PIL INDUSTRIES LTD IS OUT OF ITS OWN FUNDS FROM SALE PROCEEDS AND REALIZATION OF SUNDRY DEBTORS. THEREFORE, WE ARE O F THE VIEW THAT THE AO WAS INCORRECT IN DISALLOWING INTEREST ATTRIBUTABLE TO ADVANCE GIVEN TO PIL INDUSTRIES LTD. HENCE, WE DIRECT THE AO TO DELETE ADDITION MADE TOWARDS DISALLOWANCE OF PROPORTIONATE INTEREST ATTRIBUTABLE TO ADVANCE GIVEN TO PIL INDUSTRIES LTD AS THE ASSESSEE HAS PROVED WITH EVIDENCES, THE COMMERCIAL EXPEDIENCY IN ADVANCES GIVEN TO M/S PIL INDUSTRIES LTD. 15. IN THIS VIEW OF THE MATTER, WE ARE OF THE CONSI DERED VIEW THAT THE AO WAS CORRECT IN DISALLOWING INTEREST ATTRIBUTABLE TO LOAN GIVEN TO SIMPLETON INVESTRADE PVT LTD AND HENCE, WE REVERSE FINDING OF THE CIT(A) AND UPHOLD ADDITION MADE BY THE AO. INSOFAR AS DISALLO WANCE OF INTEREST IN RESPECT OF ADVANCE TO PIL INDUSTRIES LTD, WE DIRECT THE AO TO DELETE ADDITION AND HENCE, WE UPHOLD FINDINGS OF CIT(A). 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH MARCH, 2018. SD/- SD/- (JOGINDER SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER 19 ITA 4407/MUM/2015 MUMBAI, DT : 14 TH MARCH, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI