Chanda Anjaiah Parameswar, Secunderabad V. Addl.CIT, Range-10, Hyderabad

ITA 454/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74674 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 04-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: C AMARNATH
• Keywords: Proportionate interest; Commercial expediency
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 454/HYD/2013 ASSESSMENT YEAR : 2009-10 SRI CHANDA ANJAIAH PARAMESHWAR SECUNDERABAD PAN: AAAHC6205P VS. THE ADDL. CIT RANGE-10 HYDERABAD [APPELLANT] [RESPONDENT] APPELLANT BY: SRI C. AMARNATH RESPONDENT BY: SRI SOLGY JOSE T. KOTTARAM DATE OF HEARING: 04.03.2014 DATE OF PRONOUNCEMENT: 04.03.2014 ORDER PER CHANDRA POOJARI, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT-VI, HYDERABAD DATED 28.12.2012 FOR ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS: (1) THE LEARNED CIT(A) HAVING HELD AT THE CONCLUDING PARAGRAPH OF 8.5 THAT THERE WAS A FAINT ANGLE OF CO MMERCIAL EXPEDIENCY/BUSINESS CONNECTION, OUGHT TO HAVE DELET ED THE INTEREST DISALLOWANCE OF RS. 28,93,009/-. (2) THE LEARNED CIT(A) ERRED IN RESTRICTING THE ALLOWAN CE OF INTEREST ON ADVANCES FOR PERIOD OF LESS THAN 10 DAY S. THE DISALLOWANCE OF INTEREST OUGHT TO HAVE BEEN DELETED IN ENTIRETY. (3) THE LEARNED CIT(A) FAILED TO NOTE THAT THE INDIVIDU ALS TO WHOM ADVANCES WERE MADE HAD OFFERED THEIR IMMOVABLE PROPERTIES AS SECURITY FOR OBTAINING LOAN FACILITY FROM THE BANK. ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN BULLION (GOLD AND SIL VER) IN THE HUF STATUS. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, IT HAS BEEN OBSERVED BY THE A.O. THAT THE ACCOUNTS OF MEMBERS OF THE HUF OF THE ASSESSEE HAVE DEBIT BALANCES AS P ER THE BOOKS OF THE ACCOUNTS ON WHICH NO INTEREST WERE CHA RGED, WHEREAS INTEREST WAS PAID ON THE AMOUNTS BORROWED F ROM BANKS AS WELL AS RELATIVES INCLUDING THE HUF ENTITI ES OF THE FAMILY MEMBERS. ACCORDINGLY, INTEREST ON THE DEBIT BALANCES OF INDIVIDUAL MEMBERS OF HUF WERE WORKED OUT AND DISALLOWED PROPORTIONATELY TO THE EXTENT OF R. 28,9 3,009/-, HOLDING THAT THE FUNDS BORROWED FOR BUSINESS PURPOS ES WERE DIVERTED FOR MAKING INTEREST FREE ADVANCES. THE APP EAL HAS ARISEN MAINLY ON THIS GROUND. AS INDICATED, THE ASS ESSEE IS IN TO THE BUSINESS OF WHOLESALE TRADING IN BULLION, AN D THE BUSINESS IS CARRIED IN THE NAME OF CHANDA ANJAIAH PARAMESWAR (CAP) AS A PROPRIETARY CONCERN IN HUF ST ATUS AND HAVE VERY HIGH TURNOVERS UNDER ITS BELT. FOR THE PU RPOSE OF BUSINESS, THE ASSESSEE OBTAINED CASH CREDIT OF RS. 20.00 CRORES FROM AXIS BANK, R.P. ROAD, SECUNDERABAD. IT WAS OBSERVED BY THE AO THAT SOME OF THE FUNDS FROM CC A /C., ARE DIVERTED INTO THE SB ACCOUNTS OF THE INDIVIDUAL MEM BERS OF THE FAMILY OF THE ASSESSEE ON WHICH NO INTEREST WAS CHARGED. IT WAS ALSO OBSERVED BY THE AO THAT THE ASSESSEE OB TAINED ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 3 LOANS FROM THE HUF'S OF THE FAMILY MEMBERS AND INTE REST WAS PAID ON SUCH BORROWALS. HENCE, THE AO CALCULATED TH E INTEREST ON DEBIT BALANCES OF THE INDIVIDUAL MEMBERS OF THE ASSESSEE (HUF) AT RS. 28,93,009/- AND DISALLOWED THE SAME, A GAINST THE CLAIM OF INTEREST OF RS. 63,88,680/- BY DEBITING TH E P&L A/C. IN THE PROCESS, THE AO DISREGARDED THE CLAIM OF THE ASSESSEE THAT ENOUGH NON-INTEREST BEARING FUNDS ARE AVAILABL E TO THE ASSESSEE AND DEBIT BALANCES IN CASES OF INDIVIDUAL MEMBERS ARE ONLY FOR SHORT PERIODS, THAT TOO FOR OBLIGING T HE REQUEST OF THE LENDING BANK TO HAVE SB A/C CREDIT BALANCES ON P ARTICULAR DATES. 4. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) AND SUBMITTED BEFORE HIM THAT THE AO MADE THE DISALLOW ANCES, ON THE GROUND THAT THERE IS A DIRECT NEXUS BETWEEN TRANSFER OF FUNDS TO NON-INTEREST BEARING ACCOUNTS AND INTEREST BEARING CC LOAN A/C. THE ASSESSEE OBJECTED THE REASONING OF AO THAT THERE IS DIVERSION OF INTEREST BEARING FUNDS TO PER SONAL ACCOUNTS, WHICH ARE NOT UTILISED FOR THE PURPOSE OF BUSINESS AND THE AO FAILED TO NOTE THAT ASSESSEE HAD SUFFICI ENT NON- INTEREST BEARING FUNDS FOR MAKING INTEREST FREE ADV ANCES. IT WAS FURTHER SUBMITTED THAT NO INTEREST BEARING FUND S WERE UTILISED FOR INTEREST- FREE ADVANCES, AND AS PER TH E FUND FLOW STATEMENT FURNISHED BEFORE THE AO, THE ASSESSEE HAD INTEREST ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 4 FREE FUNDS OF RS. 5.95 CR. IN THE FORM OF CAPITAL ( RS. 3.85 CR) AND INTEREST FREE UNSECURED LOANS (RS. 2.08 CR) AND INTEREST FREE ADVANCES OF RS. 2.64 CRORES WERE MADE OUT OF S UCH INTEREST FREE FUNDS. THE ASSESSEE ALSO RELIED UPON THE FOLLOWING JUDICIAL DECISIONS TO SUBSTANTIATE HIS ST AND ON THE ISSUE: (1) MUNJAL SALES CORPORATION VS. CIT & ANR. [298 ITR 29 8] (SC) (2) BHARAT TUBES & TIN PRINTERS VS. ITO IN ITA NO.808/H YD/2004 (3) MAHESHWARI HANDLING AGENCY PVT. LTD. VS. ACIT IN IT A NO. 854/2009 (RAJKOT) 5. IT WAS ALSO SUBMITTED BY THE ASSESSEE THAT MAJOR PAYMENTS TO THE INDIVIDUAL ENTITIES ARE ON ACCOUNT OF OPENING DEBIT BALANCES IN SB ACCOUNTS AT THE YEAREND AS PER THE REQUEST OF THE BANK WHICH PROVIDED THE CC FACILITIE S TO THE ASSESSEE AND THE SAID AMOUNTS WERE SHOWN TO HAVE SQ UARED UP WITHIN FEW DAYS OF THE TRANSFER. IT WAS ALSO AR GUED BY THE ASSESSEE THAT MOST OF THE FUNDS WERE TRANSFERRED TO THE 5B ACCOUNTS OF THE INDIVIDUALS TO OBLIGE THE REQUEST O F THE BANKS AND THE ASSESSING OFFICER HAS AGREED IN PRINCIPLE F OR NOT CHARGING THE INTEREST ON THE BALANCES KEPT FOR A SH ORT PERIOD OF FEW DAYS. HOWEVER, WHILE CALCULATING THE INTERES T BOTH THE OPENING DEBIT BALANCES AND BALANCES KEPT FOR SHORT PERIOD INTERMITTENTLY WERE NOT CONSIDERED BY THE ASSESSING OFFICER WHILE ANALYSING OF THE CALCULATIONS OF INTEREST ON THE CREDIT BALANCES IN THE INDIVIDUAL ACCOUNTS, THE ASSESSEE H AS FURNISHED THE DETAILS OF EXCESS CALCULATION OF INTE REST IN FEW ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 5 CASES, INCLUDING THE INTEREST CALCULATED ON SHORT D URATION FUNDS TRANSFERRED TO SB ACCOUNTS, ALONG WITH THE FU ND FLOW STATEMENT AS ON 31.03.2009. 6. ON HEARING THE AR OF THE ASSESSEE, THE CIT(A) OBSER VED THAT MR. CHANDA ANAJAIAH PARAMESHWAR WAS CARRYING T HE BUSINESS OF TRADING IN BULLION IN THE STATUS OF HUF . IT HAS BEEN OBSERVED BY THE AO THAT AMOUNTS BORROWED BY TH E ASSESSEE THROUGH CC ACCOUNT WITH AXIS BANK WERE DIV ERTED TO THE SB ACCOUNTS OF FOLLOWING INDIVIDUAL MEMBERS OF THE ASSESSEE'S FAMILY AND THE DEBIT BALANCES AS ON 31.0 3.2009 WERE SHOWN AS UNDER: (1) (2) (3) (4) (5) (6) (7) CHANDA PARAMESHWAR CHANDA NEELIMA CHANDA SUDHEER CHANDA KALPANA CHANDA MEENA KUMARI CHANDA VENKATESH CHANDA RENUKA TOTAL RS. RS. RS. RS. RS. RS. RS. RS. 8,47,15,000 74,10,000 57,72,000 39,15,000 39,10,000 38,72,000 2,50,000 10,98,44,000 7. IT WAS ALSO OBSERVED BY THE AO THAT THE ASSESSEE WA S PAYING INTEREST ON CREDIT BALANCES OF HUFS OF THE F AMILY MEMBERS SUCH AS CHANDA NARASIMHA RAO, CHANDA SRINIV ASA RAO, CHANDA VENKATESH AND OTHERS ALONG WITH THE INT EREST PAID TO BANKS ON LOANS OBTAINED, MAINLY THROUGH CC ACCOUNTS. THE AMOUNTS DEBITED TO P&L ACCOUNT UNDER THE HEAD 'INTEREST' WAS INDICATED AT RS. 63,88,680/- FO R THE YEAR UNDER REFERENCE. THE AO FURTHER OBSERVED THAT HAVE BEEN ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 6 DIRECTLY FROM THE CASH CREDIT ACCOUNT FOR PUTTING T HE SAME INTO SB ACCOUNTS OF THE INDIVIDUAL MEMBERS AND ILLU STRATED THE FEW CASES WHERE SUCH TRANSFERS ARE MADE AND KEP T FOR 2 DAYS TO 50 AND ABOVE AS WELL. THE AO FURTHER WORKE D OUT ENTITY WISE, THE DETAILS OF INTEREST IN EACH ACCOUN T WHERE SUCH ACCOUNTS HAVE BEEN OVERDRAWN AND ARRIVED AT THE CON CLUSION THAT THE INTEREST BEARING FUNDS HAVE BEEN DIVERTED TO ITS MEMBERS BY WAY OF INTEREST FREE LOANS AND WORKED OU T THE PROPORTIONATE INTEREST ENTITY WISE AS UNDER: I. II. III. IV. V. VI. CHANDA PARAMESHWAR CHANDA VENKATESH CHANDA SUDHEER CHANDA MEENA KUMARI CHANDA KALPANA CHANDA NEELIMA TOTAL RS. RS. RS. RS. RS. RS. RS. 13,99,256 12,03,945 23,145 133012 76451 57261 28,93,009 8. THE CIT(A) OBSERVED THAT THE ASSESSEE'S OBJECTION O N SUCH DISALLOWANCE WAS ON MORE THAN ONE COUNT. AS P ER THE ASSESSEE, THE AMOUNTS WERE DIVERTED TO THE INDIVIDU AL ACCOUNTS TO MAINTAIN CERTAIN BALANCES IN THE SB ACC OUNT MAINTAINED, AS PER THE REQUEST OF THE BANK AND HAS BEEN DONE TO OBLIGE THE BANK ON COMMERCIAL EXPEDIENCY. THE AS SESSEE POINTED OUT THAT EXCEPT ON FEW OCCASIONS, SUCH AMOU NTS WERE KEPT IN SB ACCOUNTS FOR VERY SHORT PERIOD OF 1 TO 9 DAYS AND ON EXCEPTIONAL OCCASIONS, THE DURATION OF SUCH DEBI T BALANCES WERE IN THE RANGE OF 13 TO 61 DAYS IN THE CASE OF C HANDA PARAMESHWAR AND IN THE CASE OF CHANDA VENKATESH, TH E ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 7 MAXIMUM PERIOD IS IN THE RANGE OF 58 TO 100 DAYS. SIMILARLY, IN THE CASE OF MEENA KUMARI, THE DURATION OF THE DE BIT BALANCES WAS 103 DAYS AND IN THE CASE OF C. KALPANA THE SAME IS IN THE RANGE OF 13 AND 90 DAYS, AND THE DURATION OF 11 AND 92 DAYS WAS RECORDED IN CASE OF C. NEELIMA. THE AS SESSEE'S OBJECTION IS ALSO ON THE GROUND THAT THE MAJOR DEBI T BALANCE AMOUNTS AS ON 1 ST OF APRIL WERE ON ACCOUNT OF CARRIED FORWARD OF FIGURES WHICH WERE SQUARED UP IN A DAY OR TWO SUBSEQUENTLY AND BASED ON THE SUBMISSION THAT THE A O HAS ACCEPTED THE CONTENTION OF THE ASSESSEE DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS TO EXCLUDE SUCH OPENING BALANCES FOR CALCULATING INTEREST ON PROPORTIONATE BASIS. IT WAS ALSO SUBMITTED THAT THE AO AGREED TO EXCLUDE TH E DEBIT BALANCES KEPT FOR A SHORT PERIOD IN CALCULATING THE INTEREST, BUT WAS NOT DONE IN PASSING THE ORDER, THAT HAS RES ULTED IN EXCESS CALCULATION OF INTEREST AS WORKED OUT BY THE AO FOR THE PURPOSE OF DISALLOWANCE. THERE IS FORCE IN THE ARGU MENTS OF THE ASSESSEE ON THIS ASPECT AND THE AO HAS HIMSELF MENTIONED ABOUT EXCLUDING THE AMOUNTS KEPT FOR FEW DAYS LIKE 2 OR 3 DAYS AND ALSO THE OPENING DEBIT BALANCE S WHICH ARE SQUARED UP IN QUICK TIME, FOR THE PURPOSE OF CALCUL ATING THE PROPORTIONATE INTEREST FOR DISALLOWANCE. HOWEVER, T HE SAME WAS NOT SHOWN ON THE RECORD AND THE REASONS ARE NOT INDICATED FOR EXCLUDING SUCH AMOUNTS FOR CALCULATIO N OF THE ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 8 INTEREST. KEEPING THE NATURE OF THE TRANSACTIONS AN D ALSO THE FAINT ANGLE OF COMMERCIAL EXPEDIENCY/ BUSINESS CONN ECTION, THE ASSESSING OFFICER SHOULD CONSIDER IN EXCLUDING THE DEBIT BALANCES WHICH ARE MAINTAINED FOR FEW DAYS FOR THE PURPOSE OF CALCULATING THE INTEREST ON PROPORTIONATE DISALL OWANCE. 9. THE CIT(A) OBSERVED THAT THE AMOUNTS DRAWN FOR THE BUSINESS PURPOSE ARE DIVERTED FOR INTEREST FREE ADV ANCES TO THE RELATED PERSONS OF THE ASSESSEE THEREBY AMOUNTI NG TO DIVERSION OF THE BUSINESS FUNDS FOR NON-BUSINESS PU RPOSES AND AS SUCH REQUIRES THE DISALLOWANCE OF PROPORTION ATE EXPENDITURE CLAIMED U/S. 36 (L)(III) OF THE IT ACT. THIS IS AGAINST THE ARGUMENT OF THE ASSESSEE THAT THERE IS NO DIRECT NEXUS BETWEEN THE AMOUNTS BORROWED AND THE AMOUNTS GIVEN AS INTEREST FREE ADVANCES SINCE THE ASSESSEE HAVE E NOUGH FUNDS FOR SUCH DIVERSION. AS PER THE ARGUMENT FORWA RDED BY THE ASSESSEE, THE FUND FLOW STATEMENT AS FURNISHED BEFORE THE AO AT THE TIME OF ASSESSMENT PROCEEDINGS CLEARLY IN DICATING THE INTEREST FREE FUNDS OF 5.93 CRORES AVAILABLE TO THE ASSESSEE IN THE FORM OF CAPITAL (3.85 CR) AND INTEREST FREE UNSECURED LOANS (2.08 CR), AGAINST WHICH THE INTEREST FREE AD VANCES OF RS. 2.64 CRORES WERE GIVEN DURING THE YEAR UNDER REFERE NCE. THE ASSESSEE'S CONTENTION WAS THAT THE AO FAILED TO TAK E NOTE OF SUCH SUBMISSIONS IN MAKING THE DISALLOWANCE WHICH I S ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 9 CONTRARY TO THE FACTS AND LAW. IN THIS REGARD, THE ASSESSEE HAS FALLEN ON THE JUDICIAL DECISIONS REFERRED ABOVE. DU RING THE COURSE OF THE APPELLATE PROCEEDINGS, THE ASSESSEE H AS FURTHER FURNISHED THE DETAILS OF SOURCES AND APPLICATION OF FUNDS AS PER WHICH THE TOTAL SOURCES WERE SHOWN AT 30.52 CRO RES INCLUDING THE SECURED LOAN OF RS. 20.00 CRORES AND CAPITAL OF 3.85 CRORES AND UNSECURED LOANS OF 2.08 CRORES. ON THE OTHER HAND, THE MAJOR APPLICATION OF THE FUNDS WERE SHOWN TO HAVE BEEN MADE TOWARDS INTEREST BEARING DEPOSITS OF 9.05 CRORES, CLOSING STOCK OF 11. 73 CRORES, BANK BALANCES 2.02 CRORES AND INTEREST FREE LOANS OF 11.11 CRORES. THUS, THERE IS A VARIATION IN THE FIGURES OF SOURCES AND APPLICATION OF FUNDS FOR THE ASSESSEE AS INDICATED BY THE ASSESSEE AT THE TIME O F SCRUTINY PROCEEDINGS AND THE APPELLATE PROCEEDINGS. 10. THE CIT(A) OBSERVED THAT THE ASSESSEE IS THAT WHEN ENOUGH FUNDS ARE AVAILABLE TO THE ASSESSEE WHICH AR E INTEREST FREE, THERE IS NO LIABILITY OR OBLIGATION ON THE PA RT OF THE ASSESSEE TO CHARGE INTEREST ON THE INTEREST FREE AD VANCES MADE. IN THE OPINION OF THE ASSESSEE, THE TOTAL INT EREST FREE FUNDS ADVANCED ARE LESS THAN THE INTEREST FREE FUND S AVAILABLE TO THE ASSESSEE AND AS SUCH, THE FINDING OF THE ASS ESSING OFFICER THAT BUSINESS FUNDS DIVERTED FOR NON-BUSINE SS PURPOSES IS NOT CORRECT. IN THIS CONTEXT, THE ASSES SEE REFERRED ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 10 TO THE JUDICIAL DECISIONS IN THE CASE OF MUNJAL SAL ES CORPORATION (SUPRA), M/S. BHARAT TUBES & TIN PRINTER S (SUPRA) AND M/S. MAHESHWARI HANDLOOM AGENCY PVT. LTD. (SUPRA ). THE DECISION OF THE APEX COURT IN THE CASE OF MUNJAL SA LES CORPORATION VS. CIT & ANOTHER AS REPORTED IN 290 IT R 298 HAS BEEN GONE THROUGH AND AS PER THE SAID DECISION, THE ISSUE MAINLY INVOLVED WAS WHETHER THE ALLOWANCE OF THE EXPENDITURE U/S. 36(1)(III) READ WITH SECTION 40B(IV ) OF IT ACT OR NOT. THOUGH THE DECISION OF THE APEX COURT WAS THAT WHEN THE ASSESSEE WAS HAVING ENOUGH OPENING BALANCES TO COVER THE INTEREST FREE ADVANCES, THERE IS NO ANGLE OF DI SALLOWANCES OF PROPORTIONATE INTEREST, THE FACTS OF THE PRESENT CASE ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE IN SAID DECISION MAINLY ON THE GROUND THAT THE SAID DECISION WAS MAI NLY REFERRING TO THE ALLOWABILITY OF DEDUCTION U/S. 36(1 )(III) R.W.S. 40B(IV) OF THE IT ACT IN LIGHT OF THE CHANGE IN LAW W.E.F. 01.04.1993, WHERE AS THE PRESENT ISSUE REVOLVE AROU ND ALLOWABILITY OF EXPENDITURE U/S. 36(1)(III). FURTHE R, THE DECISION OF THE APEX COURT WAS DEALING WITH THE MAT TERS OF DISALLOWANCE OF INTEREST IN CASE OF A FIRM WHERE TH E ANGLE OF 40B(IV) WAS ALSO DRAWN INTO THE ARENA OF ADJUDICATI ON WHEREAS IN THE PRESENT CASE, THE ASSESSEE IS NOT A FIRM, AS SUCH THE ANGLE OF DISALLOWANCE U/S, 40B(IV) IS NOT A RELEVANT ISSUE. AS PER THE DECISION OF ITAT HYDERABAD IN THE CASE OF B HARAT ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 11 TUBES & TIN PRINTERS (SUPRA), THE ESSENCE OF THE DE CISION WAS THAT WHEN THE ASSESSEE HAVE ENOUGH INTEREST FREE FU NDS ON WHICH NO INTEREST WAS CLAIMED, THE DIVERSION OF SUC H FUNDS BY WAY OF INTEREST FREE LOANS TO SISTER CONCERNS DOES NOT ALLOW DISALLOWANCE OF ANY INTEREST FREE ADVANCES AND IN T HIS DECISION, THE TRIBUNAL REFUSED TO GETTING INTO THE ISSUE OF BUSINESS CONNECTION INVOLVED, IN RESORTING TO DISAL LOWANCE. THE SIMILAR RATIO WAS INVOLVED IN CASE OF THE DECIS ION BY ITAT, RAJKOT. 11. THE CIT(A) OBSERVED THAT THERE IS NO BUSINESS CONNECTION OF KEEPING THE BALANCES IN SB ACCOUNTS O F THE INDIVIDUALS AT THE REQUEST OF THE BANKS THOUGH FOR A SHORTER PERIODS. TO OBLIGE THE BANKS FOR THE REQUEST MAY NO T BE A BUSINESS CONNECTION BUT A PERSONAL OBLIGATION. THE ASSESSEE IS INTO THE BUSINESS FOR WHICH THE AMOUNTS WERE BOR ROWED IN SPITE OF HAVING CERTAIN INTEREST FREE FUNDS AVAILAB LE TO HIM IN THE FORM OF CAPITAL AS WELL AS INTEREST FREE SECURE D LOANS AND APPARENTLY THE FUNDS ARE BORROWED KEEPING THE REQUI REMENTS OF THE BUSINESS IN MIND. FURTHER, AS PER THE OBSERV ATION MADE BY THE AO, THE FUNDS FROM THE CASH CREDIT ACCOUNT W ERE DIRECTLY TRANSFERRED TO THE SB ACCOUNTS WHICH IS NO T COMPLETELY DENIED BY THE ASSESSEE THEREBY INDICATIN G THE DIVERSION OF THE FUNDS FOR THE NON-BUSINESS PURPOSE S. IN ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 12 LIGHT OF THE RATIOS OF THE DECISIONS REFERRED SUPRA , THERE IS NO ANGLE OF CHARGING THE INTEREST ON THE AMOUNTS DIVER TED FOR NON-BUSINESS PURPOSES, WHERE THE ASSESSEE HAVE MORE THAN REQUIRED FUNDS FOR ADVANCING SUCH AMOUNTS IN THE FO RM OF INTEREST FREE FUNDS. HOWEVER, IN THIS CONTEXT, IT I S RELEVANT TO REFER TO THE DECISION OF ITAT, DELHI IN THE CASE OF ACIT VS. PUNJAB STAINLESS STEEL INDUSTRIES (128 ITD 12) WHER EIN AGAINST THE CLAIMS OF THE ASSESSEE THAT IT GAVE INTEREST FR EE ADVANCES FROM ITS OWN FUNDS AND THEN BORROWED FUNDS FROM THE BANKS ON INTEREST FOR BUSINESS PURPOSES WAS NOT APPRECIAT ED FULLY. IT WAS HELD THAT SUCH BORROWINGS FROM BANK CAN BE T REATED AS FUNDS FOR SUPPLEMENTING THE CASH DIVERTED BY THE AS SESSEE WITHOUT ANY BENEFIT TO ASSESSEE. ACCORDINGLY, IT W AS HELD THAT CLAIM FOR DEDUCTION OF INTEREST ON BORROWINGS IS TO BE DISALLOWED, WHERE THE AMOUNTS ARE DIVERTED. SIMILAR IS THE OBSERVATION BY THE APEX COURT IN SA BUILDERS VS. CI T (288 ITR 1) WHEREIN IT WAS COMMENTED THAT TO MAKE THE EXPENS ED DEDUCTABLE, COMMERCIAL EXPEDIENCY BEHIND ADVANCING THE LOAN, IS THE CRITERIA TO BE PROVED BY THE ASSESSEE TO GET DEDUCTION OF INTEREST PAID ON FUNDS DIVERTED AS INT EREST FREE LOAN. ON THE FACTS OF THIS CASE, AS INDICATED IN TH E FUND FLOW STATEMENT FILED IN THE COURSE OF THE APPELLATE PROC EEDINGS, THE APPLICATION OF THE FUNDS FOR THE PURPOSE OF INT EREST FREE LOANS WAS PUT AT RS. 11.11 CRORES AS AGAINST THE IN TEREST FREE ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 13 FUNDS OF RS. 5.93 CRORES IN THE FORM OF CAPITAL AND INTEREST FREE UNSECURED LOANS AVAILABLE TO THE ASSESSEE. THI S VERY FACT PROVES THAT THERE IS DIVERSION OF THE FUNDS BORROWE D FOR BUSINESS PURPOSES TO THE NON-BUSINESS PURPOSES. BAS ED ON THE FACTS AS WELL AS THE RATIO OF THE DECISION OF I TAT IN THE CASE OF ACIT VS. PUNJAB STAINLESS STEEL INDUSTRIES (SUPRA), THE AMOUNTS BORROWED FOR BUSINESS PURPOSES ARE TO BE TR EATED AS AMOUNTS DIVERTED FOR BUSINESS PURPOSES, IF THE ADVA NCES WERE GIVEN AS INTEREST FREE AMOUNTS IN SPITE OF THE ARGU MENT THAT THE ASSESSEE HAVE ENOUGH INTEREST FREE FUNDS AND BO RROWED SUBSEQUENTLY FOR THE PURPOSE OF BUSINESS, SINCE SUC H BORROWINGS FROM BANKS CAN ONLY BE TREATED AS SUPPLE MENTING THE CASH DIVERTED FOR NON-BUSINESS PURPOSE. EVEN ON FACTS AS INDICATED, THE AMOUNTS DIVERTED AS INTEREST FREE AD VANCES ARE EXCEEDING THE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE AND AS SUCH THE DISALLOWANCE OF PROPORTIONATE INTER EST ON SUCH DIVERTED FUNDS IS JUSTIFIED. HOWEVER, SUCH DIS ALLOWANCE MAY BE RESTRICTED TO THE DEBIT BALANCES WHICH HAVE BEEN KEPT FOR A REASONABLY LONGER PERIOD OF MORE THAN 10 DAYS . ACCORDINGLY, THE CIT(A) DIRECTED THE AO TO RECOMPUT E THE INTEREST ON DEBIT BALANCES OF 6 PARTIES, ON THE ABO VE LINES. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE CIT(A) IN THIS CASE AGREED THAT THERE ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 14 IS A COMMERCIAL EXPEDIENCY TO TRANSFER THE FUNDS FR OM ASSESSEE'S CC A/C TO SB ACCOUNTS OF ASSESSEE'S FAMIL Y MEMBERS WITH THE SAME BANK AT RS. 10,98,44,000. HO WEVER, THE CIT(A) ACCEPTED SUCH DIVERSION ONLY FOR SHORT P ERIOD OF 10 DAYS AND HE DIRECTED TO DISALLOW INTEREST FOR BALAN CE PERIOD. THIS DIRECTION OF THE CIT(A) IS NOT PROPER. ONCE T HE CIT(A) OBSERVED THAT THERE IS COMMERCIAL EXPEDIENCY TO DIV ERT THE FUNDS FROM ASSESSEE'S ACCOUNT SO AS TO OBLIGE THE R EQUEST OF THE BANK TO BOOST UP THEIR DEPOSIT POSITION, THE IN TEREST EARNED ON SUCH DIVERSION TO THE ACCOUNTS OF FAMILY MEMBERS SHOULD BE THE INCOME OF THE ASSESSEE RATHER INCOME OF THE FAMILY MEMBERS. ACCORDINGLY, WE DIRECT THE AO TO B RING THE INTEREST EARNED, ON DIVERSION OF FUND FROM ASSESSEE 'S CC ACCOUNT TO THE SB ACCOUNTS OF FAMILY MEMBERS, TO TA X IN THE HANDS OF THE ASSESSEE, SO AS TO MEET THE ENDS OF JU STICE. 13. ACCORDINGLY, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH MARCH, 2014. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 4 TH MARCH, 2014 TPRAO ITA NO. 454/HYD/2013 SRI CHANDA ANJAIAH PARAMESWAR =============================== 15 COPY FORWARDED TO: 1. SRI CHANDA ANJAIAH PARAMESWAR, C/O. M/S. SEKHAR & CO., CHARTERED ACCOUNTANTS, 133/4, R.P. ROAD, SECUNDERABAD. 2. THE ADDL. CIT, RANGE-10, HYDERABAD. 3. THE CIT(A)-VI, HYDERABAD. 4. THE CIT-V, HYDERABAD. 5. THE DR BENCH 'B', ITAT, HYDERABAD