HB Estate Developers Ltd., New Delhi V. DCIT, New Delhi

ITA 4617/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87138 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-12-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 19-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: CIRCUMSTANCES OF T HE CASE; CIRCUMSTANCE OF CASE
• Keywords: Business income; Commercial expediency
• Section: 143(3); 37; 263

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C: NEW DELHI BEFORE SHRI J.S.REDDY, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 4617/DEL/2011 (ASSESSMENT YEAR: 2002 - 03) HB ESTATE DEVELOPERS LTD, H - 72, CONNAUGHT CIRCUS, NEW DELHI. VS. DCIT, CIRCLE - 12(1), NEW DELHI (APPELLANT) (RESPONDENT) DATE OF HEARING 30.12.2014 DATE OF PRONOUNCEMENT 26 .03.2015 O R D E R PER A. T. VARKEY, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) - VIII, NEW DELHI DATED 04/8/2011 PERTAINING TO ASSESS MENT YEAR 2002 - 03. 2. THE ASSESSEE HAS RAISED THE SOLE GROUND IN ITS APPEAL: - ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF AO OF MAKING THE DISALLOWANCE OF RS. 175,51,634/ - ON ACCOUNT OF INTEREST. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE CIT(A) SHOULD HAVE D ELETED THE ADDITION / DISALLOWANCE MADE BY THE AO. 3 . THE FACTS IN BRIEF ARE THAT IN THIS CASE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 30.10.2002 DECLARING LOSS OF RS. 5071 3667/ - . THE CASE WAS SELECTED AND ORDER DATED 30.3.2015 UNDER SECTION 143(3) WAS PASSED COMPLETING THE ASSESSMENT AT AN AS SESSED LOSS OF RS. 26804110/ - . THEREAFTER, AN ORDER DATED 22.3.2007 WAS PASSED UNDER SECTION 263 OF THE INCOME TAX ACT , 1961 (HEREIN AFTER THE ACT) BY THE COMMISSIONER OF INCOME , DELHI - IV, NEW DELHI VIDE WHICH THE ASSESSMENT WAS SET ASIDE ON THE ISSUE OF ALLOWABILITY OF DEDUCTION FOR INTEREST AMOUNTING TO RS. 175.27 LAKHS PAID ON BORROWED APPELLANT BY : SH.AMIT GOEL, ADV RESPONDENT BY : SH. SATPAL SINGH, SR. DR ITA NO. 4617/ DEL/ 2011 2 FUNDS UTILIZED IN ADVANCING INTEREST FREE LOANS TO A SISTER CONCERN. IN VIEW OF THE ORDER PASSED UNDER SECTION 263 SETTING ASIDE THE ASSESSMENT ON THE AFORESAID ISSUE, A NOTICE DATED 12.10.2007 WAS ISSUED TO THE ASSESSEE G IVING IT AN OPPORTUNITY TO PLACE EVIDENCE AND ARGUMENTS IN SUPPORT OF ITS CLAIM IN RESPECT OF THE AFORESAID ISSUE. IN RESPONSE THERETO, LD. COUNSEL OF THE ASSESSEE APPEARED BEFORE THE AO FROM TIME TO TIME. ASSESSING OFFICER ON PERUSING THE BALANCE SHEET AND TH E P&L A/C OF THE ASSESSEE WAS OF THE OPINION THAT THE ASSESSEE HAD TAKEN LOANS AMOUNTING TO RS. 1 80089042/ - AS ON 31.3.2002 ON WHICH INTEREST AMOUNTING TO RS.17551634/ - HAD BEEN PAID. IT WAS FURTHER SEEN THAT THE ASSESSEE HAD ADVANCED LOANS AMOUNTING TO RS. 518123177/ - ON WHICH NO INTEREST HAD BEEN EARNED. SO ACCORDING TO AO, IT WAS A CLEAR CUT CASE WHEREIN INTEREST BEARING LOAN HAD BEEN DIVERTED AS INTEREST FR EE LOANS GIVEN. THUS AO WAS OF THE OPINION THAT THE ASSESSEE HAD USED THE INTEREST BEARING LOANS FUNDS FOR NON BUSINESS PURPOSES. THEREFORE, AO OBSERVED THAT PRIMA FACIE THE INTEREST PAID IN RESPECT OF THE LOANS TAKEN WAS NOT ALLOWABLE. IN THIS REGARD, ASSESSEE FILED ITS REPLY AND SUBMITTED THE REQUISITE DETAILS, BEFORE THE AO. THE AO AFTER GOING THROUGH THE REPLY AND SUBMISSIONS HAS OBSERVED THAT IT IS SEEN THAT THE ASSESSEE HAS ALSO GIVEN INTEREST FREE LO ANS OF RS. 518123177/ - THESE LOANS HAVE BEEN GIVEN TO THE SISTER CONCERNS OF THE ASSESSEE. SO THE AO WAS OF THE OPINION THAT IT IS CLEAR FROM THE ABOVE THAT THE ASSESSEE ON ONE HAND HAS RAISED INTEREST BEARING FUNDS AND BEARING INTEREST COST ON IT AND ON THE OTHER HAND IT IS ADVANCING FUNDS TO ITS SISTER CONCERNS ON WHICH NO INTEREST IS BEING CHARGED BY IT. THUS HE OBSERVED THAT THE INTEREST BEARING LOANS TAKEN HAVE BEEN DIVERTED AS INTEREST FREE LOANS AND HELD THAT THE INTEREST COST PERTAINING TO THESE LOANS / ADVANCES, WHICH ARE NOT FOR THE BUSINESS PURPOSE OF THE ASSESSEE IS NOT ALLOWABLE TO IT. AND SINCE THE ASSESSEE IS NOT MAINTAINING SEGREGATE ACCOUNTS OF ITS FUNDS INVESTED IN THE BUSINESS AND THOSE GIV EN FOR THE NON BUSINESS PURPOSE T HEREFORE, TH E INTEREST EXPENSES PERTAINING TO LOAN AND ADVANCES GIVEN BY THE ASSESSEE FOR NON BUSINESS PURPOSE ARE TO BE DISALLOWED. THE INTEREST EXPENSES PERTAINING TO INTEREST BEARING LOANS DIVERTED AS NON INTEREST BEARING LOANS AND ADVANCES COMES TO RS. 17551634/ - . THEREFORE, THE AO ITA NO. 4617/ DEL/ 2011 3 CONCLUDED THAT THESE EXPENSES CLAIMED BY THE ASSESSEE WERE DISALLOWED AND ADDED TO ITS INCOME. 4 . AGAINST THE AFORESAID ORDER OF THE LD. CIT(A), ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE HIS ORDER DATED 4.8.2011 HAS UPHELD TH E ORDER OF THE ASSESSING OFFICER AND SUSTAINED THE ADDITION IN DISPUTE. 5 . NOW THE ASSESSEE ASSESSEE IS AGGRIEVED AGAINST THE LD. CIT(A)S ORDER AND FILED THE PRESENT APPEAL BEFORE US. 6 . AT THE THRESHOLD, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT SIMILAR DISALLOWANCE HAS BEEN DEALT WITH BY THE AO IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003 - 04 WHEREIN THE AO HAS DISALLOWED THE INTEREST OF 40 % ON ESTIMATE BASIS AND IN APPEAL LD. CIT(A) HAS ENTIRELY DELETED THE ADDITION ON THIS ACCOUNT. AND SUBSEQUENTLY , THE DEPARTMENT WAS IN APPEAL BEFORE THE TRIBUNAL FOR THE ASSTT. YEAR 2003 - 04, AND TRIBUNAL HAS UPHELD THE ORDER OF THE LD. CIT(A) ON THE DELETION OF THE ADDITION OF INTEREST. HENCE , THE LD. COUNSEL OF THE ASSESSEE STATED THAT THE SIMILAR ISS UE HAS BEEN DEALT BY THE LD. CIT(A) AS WELL AS BY THE ITAT IN ASSESSEES OWN CASE IN ITS FAVOR, THEREFORE, THE SAME MAY BE FOLLOWED IN THE PRESENT ASSTT. YEAR 2002 - 03 AND THE ADDITIONS MADE BY THE AO AND UPHELD BY THE CIT(A) MAY BE DELETED ACCORDINGLY. IN SUPPORT OF HIS CONTENTION HE SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED THE INTEREST & FINANCE CHARGES OF RS.17551634/ - ON THE GROUND THAT ON THE ONE HAND, THE ASSESSEE COMPANY HAS PAID INTEREST ON THE LOANS TAKEN BY IT AND ON THE OTHER HAND, T HE ASSESSEE COMPANY HAS GIVEN INTEREST FREE ADVANCES ON WHICH NO INTEREST HAS BEEN CHARGED. THE ASSESSING OFFICER HAS HELD THAT SINCE THE ASSES SEE IS NOT MAINTAINING SEPERATE ACCOUNTS OF ITS FUNDS INVESTED IN BUSINESS AND THOSE GIVEN FOR NON - BUSINESS PURPO SE, DISALLOWANCE OF INTEREST IS TO BE MADE. ACCORDING TO HIM THE ACTION OF LD. A.O. IN DISALLOWANCE OF INTEREST IS TOTALLY ERRONEOUS AND T HE ASSESSING OFFICER HAS FAILED TO GIVE CONSIDERATION TO ACTUAL POSITION OF THE BALANCE SHEET OF THE COMPANY. THE LD.A .O. HAS JUMPED TO THE CONCLUSION WITHOUT VERIFYING THE NON - INTEREST BEARING FUNDS AVAILABLE WITH THE COMPANY. THE ADVANCES WERE ON ACCOUNT OF COMMERCIAL EXPEDIENCY AND WERE OUT OF OWNED FUNDS OF COMPANY. MERELY BECAUSE NO INTEREST INCOME HAS BEEN RECEIVED ON ITA NO. 4617/ DEL/ 2011 4 ADVANCES GIVEN RELATING TO REAL ESTATE BUSINESS, IT WILL NOT MAKE THAN FOR NON - BUSINESS PURPOSES SO AS TO DISALLOW THE INTEREST. MOREOVER, UNDER ANY EVENTUALITY THE INTEREST FREE FUNDS AVAILABLE WITH THE COMPANY ARE MUCH MORE T HAN THE INTEREST FREE ADVA NCES AS PER THE BALANCE SHEET OF COMPANY, THE FINANCIAL POSITION IS AS FOLLOWS: - NON - INTEREST BEARING FUNDS AVAILABLE WITH THE COMPANY I.E. OWNED FUNDS : - PARTICULARS AS ON 31.03.2002 SHARE CAPITAL 123083123 RESERVE & SURPLUS 59042225 TOTAL INTER FEE FUND 713505648 INTEREST BEARING LOAN TAKEN (LOAN TAKEN WAS 180089042 BUSINESS LOAN AGAINST MORTGAGE OF REAL ESTATE PROPERTIES HELD AS STOCK - IN - TRADE) LOAN & ADVANCES GIVEN 518123177 7 . FROM THE ABOVE, ACCORDING TO THE LD AR IT IS APPARENT THAT THE NETWORTH / NON - INTEREST BEARING FUNDS AVAILABLE WITH THE COMPANY WERE MUCH MORE THAN THE LOAN & ADVANCES GIVEN. IN THE LAST YEAR NO SUCH DIS ALLOWANCE OF INTEREST WAS MADE AND WE FIND THAT THE INVENTORIES HELD BY THE ASSESSEE COMPANY HAS REDUCED FROM RS.47.79 CORES TO RS.36.79 CORES I.E. BY RS.11 CORES. THE CASH AND BANK BALANCES HAVE REDUCED FROM RS. 1 .29 CORES TO RS.0.40 CORES I.E. BY RS.0.89 CORES. AND THAT THE FUNDS OF RS. 11 .89 CORES RELE ASED FROM THE CURRENT ASSETS BECAME AVAILABLE AS ASSESSEE OWN INTEREST FREE FUNDS AS SUBMITTED BY THEM . SO ACCORDING TO THE LD AR, THE LOAN AND ADVANCES GIVEN BY THE ASSESSEE WERE IN USUAL COURSE OF BUSINESS THE SAME WERE FOR BUSINESS PURPOSES. THEREFORE T HE ASSESSE E COMPANY IS ENTITLED FOR DEDUCTION OF ENTIRE INTEREST PAID. THE LD AR FURTHER CONTENDED THAT EVEN IF FOR ARGUMENT SAKE IT IS PRESUMED THAT SOME OF THE LOAN AMOUNT WAS USED FOR GIVING INTEREST FREE ADVANCES, EVEN THE N NO DISALLOWANCE OF INTEREST CAN BE MADE. IN SUCH AS SITUATION IT IS TO BE NOTED THAT THE ASSESSEE COULD HAVE GIVEN ADVANCES BY DISPOSING OF MAJORITY STOCK (PART OF WHICH HAS ACTUALLY BEEN DISPOSED OFF). HOWEVER AS A PRUDENT BUSINESS MAN WOULD DO, THE ASSESSEE COMPANY IN ITS BUSINESS INTEREST, DID NOT OPT FOR DISPOSAL OF STOCK AND ARRANGED FUNDS FROM BANK. THE DECISION OF NOT DISPOSING OFF THE STOCK WAS ITA NO. 4617/ DEL/ 2011 5 CONSIDERED PRUDENT AS AT THAT TIME THE ASSESSEE COMPANY WAS NOT GETTING THE DESIRED PRICE AND ALSO. IT WOULD HAVE RESULTED INTO THE EN D OF EARNING OF RENTAL INCOME ON STOCK. IT MAY BE SEEN THAT DURING THE YEAR THE ASSESSEE COMPANY HAS EARNED RENTAL INCOME OF RS. 1,17,84,686/ - WHICH HAS BEEN OFFERED AS BUSINESS INCOME AND ALSO ASSESSED AS SUCH AND IN THE SUBSEQUENT YEARS ALSO, THE ASSESSE E COMPANY HAS EARNED THE RENTAL INCOME. IN VIEW OF THE ABOVE THE LD AR SUBMITTED THAT GRANTING OF INTEREST FREE ADVANCES WAS ON ACCOUNT OF COMMERCIA L EXPEDIENCY. 8 . THE LD COUNSEL RELIED ON IN THE CASE OF DCIT VS U.K. PAINTS (INDIA) LTD (2010) 4 ITR (TRIB) 455 (DEL) DISALLOWANCE OF INTEREST WAS MADE ON THE GROUND THAT THE ASSESSEE HAD ADVANCED INTEREST FREE ADVANCES. IT WAS HELD THAT HON'BLE BENCH OF JURISDICTIONAL TRIBUNAL THAT INTEREST FREE FU NDS AVAILABLE WITH THE ASSESSEE FOR EXCEEDED THE AMOUNT ADVANCED BY IT AS INTEREST FREE LOANS ARID THEREFORE DISALLOWANCE OF INTEREST WAS TO BE DELETED. 9 . ACCORDING TO THE LD COUNSEL IN THE CASE OF COMMISSIONER OF INCOME TAX VS RELIANCE UTILITIES & POWER LTD. (2009) 178 TAXMAN 135 (BORN) DISALLOWANCE OF INTEREST WAS MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAS UTILIZED THE BORROWED FUNDS FOR MAKING INVESTMENTS. THE CONTENTION OF THE ASSESSEE WAS THAT IT HAD SUFFICIENT INTEREST FREE FU NDS TO COVER THE INVESTMENTS MADE AND THEREFORE NO DISALLOWANCE WAS WARRANTED. THE CIT(A) AS WELL AS ITAT ALLOWED THE CLAIM OF ASSESSEE AND DELETED THE DISALLOWANCE MADE BY A.O. THE HON'BLE BOMBAY HIGH COURT UPHELD THE ORDER OF TRIBUNAL BY HOLDING THAT THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND / OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTERE ST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 10 . THE COUNSEL STATED THAT IN THE CASE OF COMMISSIONER OF INCOME TAX VS TIN BOX CO (2004) 135 TAXMAN 145 (DEL) DISALLOWANCE OF INTEREST WAS MADE ON THE GROUND THAT THE ASSESSEE HAS DIVERTED THE INTER EST BEARING FUNDS FOR GIVING INTEREST FREE ADVANCES TO SISTER CONCERNS. THE DISALLOWANCE MADE WAS CONFIRMED BY CIT(A). THE MATTER WENT TO TRIBUNAL WHICH ALLOWED THE CLAIM OF ITA NO. 4617/ DEL/ 2011 6 THE ASSESSEE. THE DEPARTMENT WENT INTO APPEAL BEFORE HIGH COURT. THE HON'BLE HIGH COURT DISMISSED THE APPEAL OF REVENUE AND UPHELD THE ORDER OF TRIBUNAL ON THE GROUND THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE MUCH MORE THAN THE INTEREST FREE ADVANCES GIVEN BY IT. THE HON'BLE COURT SUPPLIED SPECIFIC EMPHASIS ON THE FOLLOWI NG : - 'THE CAPITAL OF THE FIRM AND INTEREST FREE UNSECURED LOANS WITH THE APPELLANT FAR EXCEEDS THE AMOUNTS ADVANCED TO THE SISTER CONCERNS IN ALL THE YEARS UNDER APPEAL A FACT NEITHER CONTROVERTED NOR DISPROVED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO.' 11 . IN THE CASE OF CIT VS HOTEL SAVERA (J 997) 239 ITR 795, THE ASSESSEE, A PARTNERSHIP FIRM HAS ADVANCED LOAN OF RS.L0,34,656/ - TO A SISTER CONCERN. THE FIRM HAS BORROWED FUNDS ON WHICH INTEREST WAS PAID IN ADDITION TO BORROWED FUNDS, THE ASSESSEE FIRM HAS CREDIT BALANCE OF RS. 10,95,010/ - IN CAPITAL ACCOUNT OF PARTNERS. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF INTEREST ON THE GROUND THAT SINCE ON THE ONE HAND, IT HAD BORROWED FUNDS ON INTEREST AND ON THE OTHER HAND, IT HAD GIVEN INTEREST FRE E ADVANCES. THE MATTER WAS CARRIED TO CIT(A), WHO HELD THAT INTEREST FREE ADVANCES SHOULD BE CONSIDERED AS BEING GIVEN PROPORTIONALLY IN THE RATIO OF INTEREST BEARING AND NON - INTEREST BEARING FUNDS AVAILABLE WITH THE COMPANY. ACCORDINGLY THE APPEAL WAS PAR TLY ALLOWED AND DISALLOWANCE OF INTEREST WAS PARTLY SUSTAINED AND PARTLY DELETED THEREAFTER MATTER WAS CARRIED TO TRIBUNAL. THE TRIBUNAL HELD THAT SINCE THE INTEREST FREE FUNDS AVAILABLE WITH ASSESSEE I.E. RS.10,95, 010 / - (BEING CREDIT BALANCE IN CAPITAL AN D CURRENT ACCOUNT OF PARTNERS) WERE MORE THAN INTEREST FREE ADVANCE OF RS.10,34, 656/ - GIVEN TO SISTER CONCERN, NO DISALLOWANCE OF INTEREST WAS WARRANTED THE HON'BLE MADRAS HIGH COURT UPHELD THE VIEW OF TRIBUNAL. 12 . LD COUNSEL FURTHER POINTED OUT THAT THE LEARNED AUTHOR, SAMPATH IYENGER IN HIS BOOK SAMPATH IYENGAR'S LAW OF INCOME TAX, 9TH EDITION, AT PAGE NO. 2349 OBSERVED AS UNDER : - 'FOR THE SAME REASON, A PRESUMPTION APPEARS TO BE PERMISSIBLE THAT WHERE THE ASSESSEE HAS HIS OWN CAPITAL AS ALSO THE B ORROWED FUNDS, THE FORMER RATHER THAN LATER TO HAVE BEEN UTILIZED FOR THE NON - BUSINESS OR PERSONAL EXPENSES'. ITA NO. 4617/ DEL/ 2011 7 13 . ACCORDING TO THE LD COUNSEL, IN THE CASE OF BISHAMBER DAYAL BADRI PRASAD VS INSPECTING ASSISTANT COMMISSIONER (1986) 18 ITD 279 (DELHI) TM, I T WAS HELD THAT SINCE NON - INTEREST BEARING FUNDS WITH THE ASSESSEE WERE FAR MORE THAN INTEREST BEARING LOANS, THERE WERE NO QUESTION OF DISALLOWANCE OF ANY PART OF THE INTEREST. 14 . LD COUNSEL SUBMITTED THAT IN THE CASE OF HERALD ADVERTISING AGENCY VS ITO (1991) 39 TTJ (DEL) 34, IT WAS HELD THAT WHERE THERE WAS NO MATERIAL TO SHOW THAT THERE WAS ANY NEXUS BETWEEN THE ADVANCES MADE BY THE ASSESSEE TO A PARTY WITHOUT CHARGING ANY INTEREST AND THE BORROWED FUNDS OF THE ASSESSEE ON WHICH INTEREST WAS PAYABLE N O DISALLOWANCE COULD BE MADE ON THAT ACCOUNT. 15 . IN VIEW OF THE ABOVE, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE APPEAL IN DISPUTE FILED BY THE ASSESSEE MAY BE ALLOWED BY FOLLOWING THE ORDER OF THE ITAT PASSED IN ASSESSEES OWN CASE IN THE ASSESS MENT YEAR 2003 - 04 ON THE IDENTICAL AND SIMILAR ISSUE. 16 . ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF THE REVENUE AUTHORITIES AND REQUESTED THAT THE SAME MAY BE UPHELD. 17 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS . IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENTS RELIED UPON THE BY THE ASSESSEE, W E FIND CONSIDERABLE COGENCY IN THE SUBMISSION OF THE ASSESSEE THAT THE ITAT C BENCH, NEW DELHI IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 200 3 - 04 VIDE ITA NO. 4 211/DEL/2010 VIDE ORDER DATED 13.7.2012 IN REVENUES APPEAL, HAS DECIDED THE ISSUE OF DISALLOWANCE OF RS.81,65,658/ - ON ACCOUNT OF INTEREST PAYEE IN FAVOR OF THE ASSESSEE AND AGAINST THE REVENUE . 18. A PERUSAL OF THE BALANCE SHEET OF COMPANY, REVEALS THE FINANCIAL POSITION OF THE ASSESSEE COMPANY IS AS FOLLOWS: - NON - INTEREST BEARING FUNDS AVAILABLE WITH THE COMPANY I.E. OWNED FUNDS : - PARTICULARS AS ON 31.03.2002 SHARE CAPITAL 123083123 RESERVE & SURPLUS 59042225 TOTAL IN TER FEE FUND 713505648 ITA NO. 4617/ DEL/ 2011 8 INTEREST BEARING LOAN TAKEN (LOAN TAKEN WAS 180089042 BUSINESS LOAN AGAINST MORTGAGE OF REAL ESTATE PROPERTIES HELD AS STOCK - IN - TRADE) LOAN & ADVANCES GIVEN 518123177 19. FROM THE ABOVE, WE FIND THAT IT IS APPARENT THE NETWORTH / NON - INTEREST BEARING FUNDS AVAILABLE WITH THE COMPANY WERE MUCH MORE THAN THE LOAN & ADVANCES GIVEN. WE FIND THAT THE INVENTORIES HELD BY THE ASSESSEE COMPANY HAS REDUCED FROM RS.47.79 CORES TO RS.36.79 CORES I.E. BY RS.11 CORES. T HE CASH AND BANK BALANCES HAVE REDUCED FROM RS. 1 .29 CORES TO RS.0.40 CORES I.E. BY RS.0.89 CORES. 20. THUS WE FIND THAT THE FUNDS OF RS. 11 .89 CORES RELEASED FROM THE CURRENT ASSETS BECAME AVAILABLE AS ASSESSEE OWN INTEREST FREE FUNDS AS SUBMITTED BY THEM . 21. THE HON'BLE SUPREME COURT IN THE CASE OF S A BUILDERS LTD. VS CIT (158 TAXMAN 74) HAS HELD THAT IF THE BORROWED FUNDS ARE LENT TO A SISTER CONCERN INTEREST FREE AS A MEASURE OF COMMERCIAL EXPEDIENCY, THE INTEREST PAID ON THE BORROWED FUND IS FOR THE P URPOSE AND THE SAME SHOULD BE ALLOWED AS DEDUCTION. THEREFORE, EVEN IF IT IS PRESUMED THAT THE INTEREST ADVANCES WERE GIVEN OUT OF BORROWED FUNDS, IT WILL BE CONSIDERED AS PRUDENT BUSINESS DECISION AND TO PROTECT THE EARNING OF BUSINESS INCOME AND THE INTE REST WILL BE ALLOWABLE AS DEDUCTION NOT ONLY UNDER SECTION 36 BUT ALSO UNDER SECTION 37 OF THE ACT. 22. WE FIND THAT THE ASSESSEE HAD SUFFICIENT AMOUNT OF MONEY TOWARDS SHARE CAPITAL, RESERVE & SURPLUS AND THE INTEREST FREE ADVANCES GIVEN WERE FULLY COVERED BY AMOUNT OF SHARE CAPITAL, RESERVE & SURPLUS, DISALLOWANCE OF INTEREST NEED TO B E DELETED AND TAKING INTO CONSIDERATION OF THE COORDINATE BENCH OF THE ITAT C BENCH, NEW DELHI IN ASSESSE ES OWN CASE FOR THE ASSESSMENT YEAR 2003 - 04 PASSED IN ITA NO. 4211/DEL/2010 VIDE ORDER DATED 13.7.2012 IN REVENUES APPEAL, WE DECIDE THE ISSUE AGAINST THE REVENUE BY DELETING THE ADDITION OF 1,75,51,634/ - ON ACCOUNT OF INTEREST. ITA NO. 4617/ DEL/ 2011 9 23. IN THE RESULT, A SSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE O PEN C OURT ON 2 6 / 0 3 /20 1 5 . - S D / - - S D / - ( J.S.REDDY ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : / 03 / 2015 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI