ACIT 11(1), MUMBAI V. VENUS RECORDS AND TAPES P. LTD, MUMBAI

ITA 4756/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8537 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 25-09-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 09-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RUPINDER BRAR
• Assessee Lawyers: H D PATHAK
• Keywords: Depreciation; Source of fund; Proportionate interest; Cost of acquisition; Fair market value; Revenue expenditure
• Section: 143(3); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI I.P.BANSAL,JUDICIAL MEMBER & SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.4786/MUM/2010(A.Y. 2005-06) ITA NO.3405/MUM/2011(A.Y. 2006-07) VENUS RECORDS & TAPES PVT. LTD. (NOW KNOWN AS VENUS WORLDWIDE ENTERTAINMENT PVT. LTD.) 106/1, BLUE DIAMOND, OPP. SNDT COLLEGE, JUHU TARA ROAD, SANTACRUZ (W), MUMBAI 400 049. PAN:AAACV 4561G (APPELLANT) VS. THE ADDL. CIT /ASST.CIT, CIR.11(1), AAYKAR BHAVAN, MK ROAD, MUMBAI - 20. (RESPONDENT) ITA NO.4756/MUM/2010(A.Y. 2005-06) ITA NO.3609/MUM/2011(A.Y. 2006-07) THE ADDL. CIT /ASST.CIT, CIR.11(1), AAYKAR BHAVAN, MK ROAD, MUMBAI - 20. (APPELLANT) VS. VENUS RECORDS & TAPES PVT. LTD. (NOW KNOWN AS VENUS WORLDWIDE ENTERTAINMENT PVT. LTD.) 106/1, BLUE DIAMOND, OPP.SNDT COLLEGE, JUHU TARA ROAD, SANTACRUZ (W), MUMBAI 400 049. (RESPONDENT) ASSESSEE BY : S/SHRI DEEPAK TRALSHAWALA & H.D. PATHAK REVENUE BY : SMT. RUPINDER BRAR DATE OF HEARING : 26/09/2012 DATE OF PRONOUNCEMENT : 1 9/10/2012 ORDER PER I.P.BANSAL, J.M THESE ARE CROSS APPEALS AND THEY ARE DIRECTED AG AINST TWO SEPARATE ORDERS PASSED BY LD. CIT(A)3 DATED 30/03/2010 AND 1 7/02/2011 FOR ASSESSMENT YEARS 2005-06 AND 2006-07 RESPECTIVELY. BOTH THE APPEALS VENUS RECORDS & TAPES PVT. LTD. , 2 INVOLVE COMMON ISSUE. THEY WERE ARGUED TOGETHER, T HEREFORE, CROSS APPEALS FOR BOTH THE YEARS ARE DISPOSED OF TOGETHER BY THIS CONSOLIDATED ORDER. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AS WELL A S REVENUE FOR THE RESPECTIVE YEARS ARE AS UNDER: ASSESSEES GROUNDS FOR A.Y 2005-06: 1. THE LD. CIT(A) SERIOUSLY ERRED IN LAW AND ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN ARBITRARILY CONFIRMIN G THE DISALLOWANCE OF INTEREST EXPENDITURE ATTRIBUTABLE TO NON BUSINESS, INTEREST FREE ADVANCES/LOANS ON A SUM OF RS.3,27,82,401/- U/S. 36 (I)(II) AND U/S. 40A(2) OF THE INCOME TAX ACT, 1961 FOR THE REASONS GIVEN I N HIS/HER ORDER DATED 30-3-2010. 2. THE LD. CIT(A) HAD FAILED TO APPRECIATE THE DECI SION OF THE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. WHICH IS SQUARELY APPLICABLE IN THE CASE OF THE APPELLANT CO MPANY. 3. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND ALTE R OR VARY THE AFORESAID GROUNDS AND/OR ADDUCE FURTHER EVIDENCE BEFORE AT TH E TIME OF HEARING. ASSESSEES GROUNDS FOR A.Y 2006-07: 1. THE LD. CIT(A) SERIOUSLY ERRED IN LAW AND ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN ARBITRARILY CONFIRMING THE DISALLOWANCE OF INTEREST EXPENDITURE ATTRIBUTABLE TO NON BUSINESS, INTEREST FREE ADVANCES/LOANS ON A SUM OF RS.3,44,61,226/- U/S. 36 (I)(II) AND U/S. 40A(2) OF THE INCOME TAX ACT, 1961 FOR THE REASONS GIVEN I N HIS/HER ORDER DATED 17- 3-2011. 2. THE ID. CIT(A) HAD FAILED TO APPRECIATE THE DECI SION OF THE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. WHICH IS SQUARELY APPLICABLE IN THE CASE OF THE APPELLANT CO MPANY. 3. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND ALTE R OR VARY THE AFORESAID GROUNDS AND/OR ADDUCE FURTHER EVIDENCE BEFORE AT TH E TIME OF HEARING. REVENUES GROUNDS FOR A.Y 2005-06: 1) ON THE FACTS AND IN THE CIRCUMSTANCES IN THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN PARTLY ALLOWING THE CLAIM OF ASSESS EE ON INTEREST EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE CO MPANY HAD UTILIZED MAJOR PORTION OF] ITS INTEREST BEARING BORROWINGS FOR NON -BUSINESS PURPOSES. VENUS RECORDS & TAPES PVT. LTD. , 3 2) ON THE FACTS AND IN THE CIRCUMSTANCES IN THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF ASSESSEE ON A MOUNT OF EXCESS AMORTIZATION ON RIGHTS PURCHASED IGNORING THE FACT THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE HAS NO RELEVANC E TO THE ISSUE UNDER CONSIDERATION. 3) THE APPELLANT PRAYS THAT THE ORDER OF CIT(APPEAL S) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER REST ORED. 4) THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. REVENUES GROUNDS FOR A.Y 2000-07: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) MUMBAI HAS ERRED IN PARTLY ALLOWING THE CLAI M OF THE ASSESSEE ON INTEREST EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COMPANY HAD UTILIZED MAJOR PORTION OF ITS INTEREST BEARING BORROWINGS FOR NON BUSINESS PURPOSES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) MUMBAI ERRED IN ALLOWING THE CLAIM OF THE AS SESSEE ON ACCOUNT OF EXCESS AMORTIZATION ON RIGHTS PURCHASED IGNORING TH E FACT THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE HAS NO RELEVANC E TO THE ISSUE UNDER CONSIDERATION AND THE PROVISIONS OF RULE 9B ARE NOT ATTRACTED. 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT(APPEAL S) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER REST ORED. 2. AS IT CAN BE SEEN FROM THE GROUNDS OF APPEAL THE MAIN COMMON ISSUE INVOLVED IN BOTH THE CROSS APPEALS IS REGARDING DIS ALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) AND 40 A(2) OF THE INCOME TAX AC T,1961 (THE ACT). 3. FACTS FOR BOTH THE YEARS ARE ALMOST COMMON AND F ACTS REGARDING A.Y 2005-06 ARE REFERRED BY BOTH THE PARTIES. THEREFOR E, FOR THE SAKE OF CONVENIENCE THE FACTS FOR ASSESSMENT YEAR 2005-06 W ILL BE REFERRED AND DECISION TAKEN WILL BE APPLICABLE TO BOTH THE YEARS . 3.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT ASSESSEE HAD CLAIMED INTEREST EXPENSES TO THE TUNE OF RS.4,59,54,419/-. VENUS RECORDS & TAPES PVT. LTD. , 4 SUCH INTEREST PERTAINED TO THE SECURED AND UNSECURE D LOANS TAKEN BY THE ASSESSEE. THE GROUPS AND PATTERN AS ON 31/3/2004 A ND 31/3/2005 AS REFLECTED IN THE BALANCE SHEET HAVE BEEN COMPILED BY THE AO IN PARA 3.1 OF THE ASSESSMENT ORDER AS UNDER: PARTICULARS SCHEDULE AS AT 31.3.2005 (RS.) AS AT 31.3.2004 (RS.) SOURCE OF FUNDS SHAREHOLDERS FUNDS SHARE CAPITAL ADVANCE AGAINST SHARE APPLICATION MONEY LOAN FUNDS SECURED LOANS UNSECURED LOANS TOTAL A B C 89,464,440 3,100,000 86,521,931 91,959,521 271,045,892 89,464,440 3,100,000 140,148,484 76,796,024 309,508,948 APPLICATION OF FUNDS FIXED ASSETS GROSS BLOCK LESS : DEPRECIATION NET BLOCK CAPITAL WORK IN PROGRESS INVESTMENTS CURRENT ASSETS, LOANS AND ADVANCES. INVENTORIES DEBTORS CASH & BANK BALANCES LOANS & ADVANCES DEFERRED TAX ASSETS (REFER NOTE NO.17 OF SCHEDULE W) LESS: CURRENT LIABILITIES & PROVISIONS NET CURRENT ASSETS MISCELLANEOUS EXPENDITURE PROFIT & LOSS ACCOUNT TOTAL D E F G H I J K 273,101,036 182,011,350 91,089,686 18,250 65,292,373 178,539,820 3,363,454 215,319,971 462,515,618 41,007,272 503,522,890 491,326,969 12,195,921 336,948 167,405,068 271,045,892 276,272,686 156,584,089 119,688,597 2,093,573 18,250 154,708,758 177,247,830 3,159,792 288,695,051 623,811,431 41,007,272 664,818,703 589,761,735 75,056,968 421,185 112,230,375 309,508,948 VENUS RECORDS & TAPES PVT. LTD. , 5 3.2 FROM THE ABOVE FIGURES AO NOTED THAT THE ASSESS EE SEEMS TO HAVE GIVEN A LOAN OF RS.21.53 CRORES AS ON 31/03/2005. THE AO ALSO NOTED THAT DEBTORS WERE SHOWN TO THE EXTENT OF RS.17.83 CRORES . THEREFORE, HE ASKED THE ASSESSEE TO EXPLAIN THE SAME. IT WAS SUBMITTED THAT THE INTEREST BEARING BORROWED FUNDS OF THE ASSESSEE REPRESENTED SECURED AND UNSECURED LOANS OF RS. 17.84 CRORES AS DESCRIBED IN SCHEDULE B & C. I T WAS SUBMITTED THAT SCHEDULE-B REPRESENTS LOANS FROM BANK AGAINST HYPOT HECATION OF STOCK, BOOK DEBTS AND VEHICLES ETC. WHICH WERE USED AS WORKING CAPITAL REQUIRED AND THE SAID AMOUNT CANNOT BE SAID TO HAVE BEEN UTILIZED FO R THE PURPOSE OTHER THAN BUSINESS. IT WAS FURTHER SUBMITTED THAT LOANS FROM DIRECTORS AMOUNTING TO RS.50.59 LACS ARE INTEREST FREE LOANS WHICH ARE DES CRIBED IN SCHEDULE C OF THE BALANCE SHEET. SO FAR AS IT RELATES TO LOANS O F RS.8.69 CRORES AS REFLECTED IN SCHEDULE-C, THE STATEMENT SHOWING THE DATE OF RE CEIPT OF SUCH LOANS AND UTILIZATION THEREOF WAS FILED AND IT WAS SUBMITTED THAT THE SAME HAS BEEN USED FOR THE PURPOSE OF ASSESSEES BUSINESS. 3.3 THUS IT WAS EXPLAINED THAT THE ENTIRE AMOUNT OF RS.17.48 CRORES WAS UTILIZED FOR THE PURPOSE OF BUSINESS, THEREFORE, NO PART OF THE INTEREST CLAIM AT RS.4.59 CRORES SHOULD BE DISALLOWED. IT WAS EXPLA INED THAT ASSESSEE HAD PRODUCED AND RELEASED TWO FILMS NAMELY HALCHAL AN D AILAN ON 26/11/2004 AND 14/01/2005 RESPECTIVELY. THE TOTAL COST OF PRODUCTION OF THOSE FILM WAS RS.13.24 CRORES. THE SAID AMOUNT RE MAINED INVESTED IN THOSE FILMS TILL THE DATE OF RELEASE AND EVEN AFTER RELE ASE FOR THE REALIZATION ON ACCOUNT OF OVERSEAS MARKET CARRIED THE BURDEN OF INTEREST. THE ASSESSEE SUFFERED HEAVY LOSS IN THE FILM AILAN WHICH RESU LTED IN BLOCKAGE OF FUNDS AND MORE BURDEN OF INTEREST. THE ASSESSEE ACQUIRE D DISTRIBUTION RIGHTS OF RS.26.14 CRORES REALIZING FROM SALE OF DISTRIBUTION RIGHTS CAME AFTER CERTAIN PERIOD OF TIME AND THE FUNDS WERE BLOCKED. THUS IT WAS PLEADED THAT NO PART VENUS RECORDS & TAPES PVT. LTD. , 6 OF THE INTEREST IS DISALLOWABLE. HOWEVER, THE AO D ID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE AS ACCORDING TO AO THE A SSESSEE COULD NOT EXPLAIN THE ALLOWABILITY OF THE SAID INTEREST DESPI TE OPPORTUNITY HAVING BEEN GIVEN TO THE ASSESSEE. REFERRING TO THE INABILITY TO EXPLAIN ALLOWABILITY AND ALSO CERTAIN SPECIFIC AUDIT OBSERVATIONS THE AO DIS ALLOWED THE ENTIRE INTEREST OF RS.4,59,54,419/- BY APPLYING THE PROVISIONS OF S ECTION 36(1)(III) AS WELL 40A(2) OF THE ACT. 3.4 BEFORE LD. CIT(A) ONE OF THE CONTENTIONS FOR A LLOWABILITY OF THE INTEREST EXPENDITURE WAS THAT SUFFICIENT OWN FUNDS WERE AVA ILABLE WITH THE ASSESSEE IN THE SHAPE OF SHAREHOLDER CAPITAL, ADVANCE AGAINS T SHARE APPLICATION MONEY, CREDITORS, INTEREST FREE ADVANCES, ADVANC ES FROM CUSTOMERS AND DISTRIBUTORS MINUS ADVANCE ON WHICH INTEREST WAS PA ID WERE AVAILABLE TO THE TUNE OF RS.51,24,17,994/-. IT WAS SUBMITTED THAT OUT OF THESE FUNDS THE LOANS AND ADVANCES TO DIRECTORS, RELATIVES, FIRMS I N WHICH DIRECTORS ARE INTERESTED AMOUNTING TO RS.4,82,82,401/- WERE ADVAN CED. IT WAS SUBMITTED THAT EVEN AFTER THE SAID ADVANCE A SUM OF RS.46,41, 35,593/- WAS AVAILABLE WHICH WAS EXCESS THAN THE AMOUNT ADVANCED BY THE AS SESSEE BEING INTEREST FREE. ON THESE FACTS OF THE CASE LD. CIT(A) HAS FO UND THAT LOANS AND ADVANCES INCLUDING INTEREST FREE DEPOSITS IN ADVANC ES TO THE DIRECTORS AND TO THE FIRMS IN WHICH DIRECTORS WERE INTEREST AND/OR TO THE RELATIVES OF THE DIRECTORS, TOTAL AMOUNT OF RS.4,42,82,401/- WAS GIV EN. OUT OF THE SAID AMOUNT A SUM OF RS.1.55 CRORES PERTAINS TO THE DEPO SITS GIVEN TO VARIOUS DIRECTORS AND RELATED PARTIES AS ADVANCE AGAINST OF FICE PREMISES WHICH WAS UTILIZED BY THE ASSESSEE FOR BUSINESS PURPOSE. L D. CIT(A) HAS REFERRED TO ALL THE DETAILS FROM WHERE THE FIGURES HAVE BEEN ARRIVE D AT AND HAS FINALLY CONCLUDED THAT INTEREST ATTRIBUTABLE TO NON-BUSINES S INTEREST FREE ADVANCES/LOANS OF RS. 3,27,82,401/- CAN ONLY BE DISALLOWED. THE ASSESSEE IN ITS APPEAL IS AGGRIEVED BY THE DECISION OF LD. CIT(A) VIDE WHICH IT HAS BEEN HELD THAT VENUS RECORDS & TAPES PVT. LTD. , 7 INTEREST ATTRIBUTABLE TO A SUM OF RS. 3,27,82,401/ - IS DISALLOWABLE AND THE REVENUE IN ITS APPEAL IS AGITATING THE DELETION MAD E BY LD. CIT(A). 4. AFTER NARRATING THE FACTS, LD. A.R REFERRED TO T HE DETAILS SUBMITTED BEFORE AO WITH REGARD TO INTEREST FREE ADVANCES MAD E TO ASSOCIATE CONCERNS/DIRECTORS. HE SUBMITTED THAT THE ASSESSEE HAD SUBMITTED ALL THESE DETAILS RIGHT FROM ASSESSMENT YEAR 1998-99 TILL AS SESSMENT YEAR 2006-07 AND COPIES OF THESE DETAILS ARE PLACED AT PAGES 48 TO 81 OF THE PAPER BOOKS. REFERRING TO THE AFOREMENTIONED DOCUMENTS LD. A.R S UBMITTED THAT THE FIGURES OF THESE INTEREST FREE LOANS AND ADVANCES TO THE VARIOUS SISTER CONCERNS, DIRECTORS AND RELATIVES ETC. ARE AS UNDE R: ASSESSMENT YEAR AMOUNT.(RS.) 1998-99 5,12,01,799/- 1999-00 4,91,58,821/- 2000-01 6,53,55,200. 2001-02 5,70,29,716. 2002-03 6,01,04,398/- 2003-04 6,08,65,878/- 2004-05 3,58,90,863/- 2005-06 4,82,82,401/- 2006-07 5,17,61,226/- 4.1 HE SUBMITTED THAT ASSESSEE HAS ADVANCED THESE I NTEREST FREE AMOUNTS OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSES SEE. LD. AR HAS ENCLOSED COPIES OF THE ASSESSMENT ORDER FROM A.Y 2000-01 TO ASSESSMENT YEAR 2004- 05 AND SUBMITTED THAT IN NONE OF THESE ASSESSMENTS WHICH ARE FRAMED UNDER SECTION 143(3) OF THE ACT ANY DISALLOWANCE HAS BEEN MADE WITH REGARD TO INTEREST HE SUBMITTED THAT FUNDS AVAILABLE WITH THE ASSESSEE ALMOST REMAIN SAME. LD. AR HAS ALSO PREPARED THE CHART REGARDING AVAILABILITY OF INTEREST FREE FUNDS IN RESPECT OF ASSESSMENT YEAR 2004-05, 2005-6 AND 2006-07 WHICH ARE REPRODUCED BELOW: VENUS RECORDS & TAPES PVT. LTD. , 8 STATEMENT SHOWING THE FREE RESERVES AVAILABLE AS ON 31/03/2004. TOTAL FREE RESERVES: PARTICULARS SCHEDULES AMOUNT (RS.) AS AT 31/3/2004 (RS.) SHARE CAPITAL ADVANCE AGAINST SHARE APPLICATION MONEY CREDITORS ADVANCE FROM CUSTOMER/ DISTRIBUTORS LESS: ADVANCES ON WHICH INTEREST PAID INTEREST FREE ADVANCES LESS: LOANS AND ADVANCES TO DIRECTORS / RELATIVES / FIRMS IN WHICH DIRECTORS ARE A J J 375,733,860 95,300,000 280,433,860 89,464,440 3,100,000 199,218,854 280,433,860 572,217,154 =========== 34,373,055 EXCESS FREE RESERVES AVAILABLE 537,844,099 STATEMENT SHOWING THE FREE RESERVES AVAILABLE AS ON 31/3/2005: TOTAL FREE RESERVES: PARTICULARS SCHEDULES AMOUNT (RS.) AS AT 31/3/2005 (RS.) SHARE CAPITAL ADVANCE AGAINST SHARE APPLICATION MONEY CREDITORS ADVANCE FROM CUSTOMER/ DISTRIBUTORS LESS: ADVANCES ON WHICH INTEREST PAID INTEREST FREE ADVANCES LESS: LOANS AND ADVANCES TO DIRECTORS / RELATIVES / FIRMS IN WHICH DIRECTORS ARE A J J 309,860,219 56,500,000 253,360,219 89,464,440 3,100,000 168,493,335 253,360,219 512,417,994 =========== 48,282,401 EXCESS FREE RESERVES AVAILABLE 464,135,593 VENUS RECORDS & TAPES PVT. LTD. , 9 STATEMENT SHOWING THE FREE RESERVES AVAILABLE AS ON 31/3/2006: TOTAL FREE RESERVES: PARTICULARS SCHEDULES AMOUNT (RS.) AS AT 31/3/2006 (RS.) SHARE CAPITAL ADVANCE AGAINST SHARE APPLICATION MONEY CREDITORS ADVANCE FROM CUSTOMER/ DISTRIBUTORS LESS: ADVANCES ON WHICH INTEREST PAID INTEREST FREE ADVANCES LESS: LOANS AND ADVANCES TO DIRECTORS / RELATIVES / FIRMS IN WHICH DIRECTORS ARE A J 191,019,295 27,587,760 163,431,535 89,464,440 3,100,000 117,092,318 163,431,535 373,088,293 =========== 51,761,226 EXCESS FREE RESERVES AVAILABLE 321,327,067 4.2 REFERRING TO THE AFOREMENTIONED CHARTS IT WAS SUBMITTED BY LD. A.R THAT NO DISALLOWANCE IS CALLED FOR AND THE ISSUE IN THE PRESENT CASE IS SQUARELY COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD., 313 ITR 340 (BOM). IT WAS SUBMITTED THAT IN THAT CASE INTEREST OF RS.4.40 COR ES WAS DISALLOWED AND IT WAS THE CONTENTION OF THE ASSESSEE BEFORE REVENUE A UTHORITIES THAT IT HAD INTEREST FREE FUNDS OF RS.398.19 CRORES IN THE SHAP E OF SHARE CAPITAL, RESERVE AND SURPLUS, DEPRECIATION RESERVE AND, THEREFORE, N O DISALLOWANCE WOULD BE MADE AND THIS CONTENTION OF THE ASSESSEE WAS ACCEPT ED BY THE LD. CIT(A) AND THE ORDER OF LD. CIT(A) WAS CONFIRMED BY THE TRIBUN AL ON THE GROUND THAT ASSESSEE HAD INTEREST FREE FUNDS IN THE SHAPE OF S HARE CAPITAL RESERVES AND SURPLUS AND DEPRECIATION RESERVE AMOUNTING TO RS.39 8.19 CORES. IN THE SAID CASE REVENUE HAD ARGUED BEFORE HIGH COURT THAT SHA REHOLDERS FUNDS WERE UTILIZED FOR THE PURPOSE OF FIXED ASSETS AND THIS A RGUMENT OF THE REVENUE WAS REJECTED AND IT WAS HELD THAT IN VIEW OF THE DECISI ON OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF WOOLCOMBERS OF INDIA LTD., 134 ITR 219 AND ALSO IN VENUS RECORDS & TAPES PVT. LTD. , 10 VIEW OF THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF EAST INDIA PHARMACEUTICAL COMPANY LTD. VS. CIT, 224 ITR 624 TH AT IF THERE ARE FUNDS AVAILABLE , BOTH INTEREST FREE AND OVERDRAFT / OR L OANS TAKEN, THEN PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OU T OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF INTERES T FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. FINDING THAT THE PRESUMPTI ON WAS ESTABLISHED IN THAT CASE ON ACCOUNT OF BEING AVAILABLE A SUM OF RS .398.19 LACS, THEREFORE, CIT AS WELL AS TRIBUNAL WERE RIGHT IN DELETING THE DISALLOWANCE. HE SUBMITTED THAT THE FIGURE IN THE ABOVE CHARTS WIL L CLEARLY SHOW THAT EXCESS FREE RESERVES AVAILABLE WITH THE ASSESSEE WERE TO T HE TUNE OF RS.46,41,35,593/- AND RS.32,13,27,067/- FOR ASSESSM ENT YEARS 2005-06 AND 2006-07 RESPECTIVELY. THEREFORE, LD. A.R SUBMI TTED THAT NO DISALLOWANCE, AS SUSTAINED BY LD. CIT(A) IS CALLED. 4.3 LD. A.R FURTHER SUBMITTED THAT THOUGH PASSING R EFERENCE HAS BEEN MADE BY THE AO TO THE PROVISIONS OF SECTION 40A(2) BUT IT HAS NOT BEEN SPECIFICALLY MENTIONED THAT HOW THE SAID PROVISIONS ARE APPLICABLE TO THE CASE OF THE ASSESSEE. HE SUBMITTED THAT IN THE AB SENCE OF ANY SPECIFIC ALLEGATION, SECTION 40A(2) COULD NOT BE APPLIED AN D IT HAS NOT BEEN DEMONSTRATED THAT HOW THE SAID SECTION IS APPLICABL E. FOR THIS PURPOSE LD. A.R PLACED RELIANCE ON THE DECISION OF THIRD MEMBER CASE IN THE CASE OF JAGDAMBA ROLLER FLOUR MILLS VS. ACIT, 117 ITD 260, WHEREIN IT HAS BEEN HELD THAT IN ABSENCE OF ENQUIRY BY THE AO, TO ASCER TAIN THAT WHETHER THE PAYMENT OF REMUNERATION BY THE ASSESSEE COMPANY TO THE DIRECTOR IN THE RELEVANT YEAR WAS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES, NO DISALLOWANCE COULD BE MAD E UNDER SECTION 40A(2) ON THE BASIS THAT THE REMUNERATION PAID IN THE RELEVAN T YEAR WAS SUBSTANTIALLY MORE THAN THAT WHAT WAS PAID IN THE EARLIER YEARS. VENUS RECORDS & TAPES PVT. LTD. , 11 4.4 SO FAR AS IT RELATES TO THE OBSERVATION OF THE AO REGARDING NOTE IN AUDIT REPORT LD. A.R REFERRED TO THE NOTES ON ACCOUNTS AT TACHED TO THE AUDIT REPORT UNDER THE HEAD F INVESTMENT FOLLOWING NOTE WAS GI VEN: A.Y. 2005-06: A) LOANS AND ADVANCES INCLUDE CERTAIN INTEREST FREE DEPOSITS AND ADVANCES GIVEN TO DIRECTORS/RELATIVES/FIRMS IN WHICH DIRECTO RS ARE INTERESTED, TOWARDS USE OF THEIR PROPERTY BY THE COMPANY FREE OF RENT A S WELL AS THE SAID PROPERTIES ARE ALSO MORTGAGED TO THE BANK TOWARDS LOAN FACILITIES PROVIDED TO THE COMPANY. THE AMOUNT OUTSTANDING AS ON 31 ST MARCH,2005 IS RS.48,282,401(PREVIOUS YEAR RS.4,39,30,518). THE M AXIMUM BALANCE DUE FROM THEM WAS RS.49,009,941 (PREVIOUS YEAR RS.70,10 5,952) A.Y. 2006-07: A) LOANS AND ADVANCES INCLUDE CERTAIN INTEREST FREE DEPOSITS AND ADVANCES GIVEN TO DIRECTORS/RELATIVES/FIRMS IN WHICH DIRECTO RS ARE INTERESTED, TOWARDS USE OF THEIR PROPERTY BY THE COMPANY FREE OF RENT A S WELL AS THE SAID PROPERTIES ARE ALSO MORTGAGED TO THE BANK TOWARDS LOAN FACILITIES PROVIDED TO THE COMPANY. THE AMOUNT OUTSTANDING AS ON 31 ST MARCH,2006 IS RS.51,761,226 [PREVIOUS YEAR RS.4,82,82,401]. THE MAXIMUM BALANCE DUE FROM THEM WAS RS.51,807,309 [PREVIOUS YEAR RS.4,90, 09,941/-] LD. A.R SUBMITTED THAT WORKING OF THE AMOUNT MENTIO NED IN THESE NOTES HAS ALREADY BEEN SUBMITTED FROM A.Y 1998-99 TO 2006-07 AT PAGES 48 TO 51 OF THE PAPER BOOK. 4.5 CONCLUDING THE ARGUMENTS IT WAS SUBMITTED BY LD . A.R THAT IN VIEW OF CONSISTENT STAND TAKEN BY THE REVENUE IN RESPECT OF A.Y 1998-99 TILL 2003-04, NO DISALLOWANCE SHOULD HAVE BEEN MADE. FOR THIS CO NTENTION LD. A.R PLACED RELIANCE ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRIDEV ENTERPRISES, 192 ITR 165 (KAR), WHEREIN IT HAS BEEN HELD THAT IN CASE WHERE IN THE PREVIOUS ASSESSMENT YEARS ASSESS EES CLAIM REGARDING INTEREST ON BORROWED CAPITAL WAS ALLOWED, IT WILL NOT BE EQUITABLE FOR THE REVENUE TO TAKE DIFFERENT STAND IN RESPECT OF THE AMOUNTS WHICH WERE THE SUBJECT MATTER OF PREVIOUS YEARS ASSESSMENT, CONSIS TENCY AND DEFINITENESS OF APPROACH BEING NECESSARY. CONSEQUENTLY, IN VIEW O F AFOREMENTIONED DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. RELIANCE VENUS RECORDS & TAPES PVT. LTD. , 12 UTILITIES & POWER LTD.(SUPRA) NO DISALLOWANCE SHOUL D HAVE BEEN MADE AS SECTION 40A(2) WAS NOT APPLICABLE. 4.6 LD. A.R ALSO RELIED UPON THE DECISION OF ALLAH ABAD HIGH COURT IN THE CASE OF CIT VS. RADICO KHAITAN LTD., 274 ITR 354 (A LL), WHEREIN IT HAS BEEN HELD THAT IN A CASE WHERE ASSESSEE HAS SUFFICIENT F UNDS IN THE CAPITAL RESERVE AND SURPLUS OTHER THAN THE BORROWED FUNDS, THE ASS ESSEE IS ENTITLED TO FULL ALLOWANCE OF INTEREST ON BORROWED MONEY. 5. ON THE OTHER HAND, RELYING UPON THE ASSESSMENT O RDER IT WAS SUBMITTED BY LD. DR THAT ASSESSEE HAD UTILIZED INTE REST BEARING BORROWED FUNDS FOR ADVANCING THE SAME TO IS ASSOCIATE CONCE RNS AND THUS INTEREST WAS RIGHTLY DISALLOWED BY THE AO AS THE INTEREST BEARIN G BORROWED FUNDS WERE NOT UTILIZED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E. HE SUBMITTED THAT WHATEVER FUNDS AVAILABLE WITH THE ASSESSEE WERE ALR EADY UTILIZED BY IT IN ITS BUSINESS AND THEY WERE NOT AVAILABLE WITH THE ASSES SEE FOR ADVANCING THE SAME TO ITS SISTER CONCERN. THUS, INTEREST BEARING BORROWED FUNDS CANNOT BE SAID TO HAVE BEEN UTILIZED FOR THE PURPOSE OF BUSI NESS OF THE ASSESSEE. LD. DR REFERRED TO THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. V.I.BABY & COMPANY, 254 ITR 248 TO CONTEND THAT PROPORTIONATE INTEREST PAID BY THE ASSESSEE FIRM TO THE BANK IN RESPECT OF INTEREST FREE AMOUNTS ADVANCED BY THE ASSESSEE TO ITS PARTNERS, THEIR RE LATIVES AND SISTER CONCERNS WAS RIGHTLY DISALLOWED. LD. DR ALSO REFERRED TO TH E DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF K. SOMASUNDARAM & BROTHERS VS. CIT, 238 ITR 939(MAD) TO CONTENT THAT ASSESSEE IS NOT ENTITL ED TO DEDUCTION UNDER SECTION 36(1)(III) IN RESPECT OF INTEREST PAID ON B ORROWINGS TO THE EXTENT OF THE AMOUNT GIVEN AS INTEREST FREE LOAN TO RELATIVES OF THE PARTNERS EVEN IF THE AMOUNT WAS INITIALLY USED IN BUSINESS AND WAS LENT ONLY AT SUBSEQUENT STAGE. VENUS RECORDS & TAPES PVT. LTD. , 13 5.1 REFERRING TO THE ARGUMENT OF LD. AR REGARDING C ONSISTENCY, LD. DR SUBMITTED THAT IN THE CASE OF RADHASOUMI SATSANG VS . CIT, 193 ITR 321 (SC), IT HAS BEEN HELD THAT PRINCIPLE OF RES-JUDIC ATA DOES NOT APPLY TO I.T PROCEEDINGS, THEREFORE, THE CASE OF THE ASSESSEE CA NNOT BE ACCEPTED ON THE BASIS OF CONSISTENCY. THUS IT WAS SUBMITTED BY LD. DR THAT APPEAL OF THE ASSESSEE ON THIS GROUND SHOULD BE DISMISSED. 5.2 LD.D.R FURTHER PLEADED THAT LD. CIT(A) HAS WRO NGLY DELETED THE ENTIRE INTEREST DISALLOWED BY THE AO AND HAS WRONGLY RESTR ICTED THE SAME PERTAINING TO INTEREST ONLY ON AN AMOUNT OF RS.3,27,82,401/- ADVANCED BY THE ASSESSEE TO ITS RELATED PERSONS AS INTEREST FREE ADVANCES. THUS IT WAS PLEADED BY LD. DR THAT GROUNDS OF APPEAL RAISED BY THE REVENUE SHO ULD BE ALLOWED AND GROUNDS RAISED BY THE ASSESSEE SHOULD BE DISMISSED . 5.3 IN THE REJOINDER LD. AR SUBMITTED THAT THE DECI SION RELIED UPON BY LD. DR WILL NOT BE APPLICABLE TO THE FACTS OF THE PRESE NT CASE AS IN THOSE DECISIONS IT HAS NOT BEEN SHOWN THAT THE ASSESSEE W AS HAVING OWN FUNDS IN THE SHAPE OF SHARE CAPITAL ETC. HE SUBMITTED THAT IN THE PRESENT CASE ASSESSEE HAD DEMONSTRATED THAT IT HAD SUFFICIENT F UNDS. HE FURTHER SUBMITTED THAT THOUGH IT HAS BEEN HELD BY HONBLE S UPREME COURT IN THE CASE OF RADHASAOUMI SATSANG (SUPRA) THAT PRINCIPL E OF RES-JUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS BUT AT THE SA ME TIME IT HAS BEEN HELD THAT WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS THE FACT ONE WAY OR THE OT HER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLE NGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN SUBSEQUENT YEAR. SO FAR AS IT RELATES TO THE ARGUMENTS OF LD. DR THAT INTEREST IS WRONGLY DELETED BY LD. CIT(A), LD. AR SUBMITTED THAT EACH A ND EVERY DETAILS WAS FILED BEFORE AO AS WELL AS LD. CIT(A) FROM WHICH IT HAS B EEN ASCERTAINED THAT WHAT IS VENUS RECORDS & TAPES PVT. LTD. , 14 ADVANCED BY THE ASSESSEE TO ITS ASSOCIATED PERSONS AS INTEREST FREE ADVANCE WAS ONLY A SUM OF RS. 3,27,82,401/-. HE SUBMITTED THAT, THEREFORE, THE ORDER OF LD. CIT(A) IDENTIFYING THE SAID AMOUNT AS INTEREST FREE ADVANCES CANNOT BE SAID TO BE WRONG AS IT IS A FINDING OF FACT RECORDED BY HIM. THUS LD. AR SUBMITTED THAT DEPARTMENTAL GROUND, IN RESPE CT OF DISALLOWANCE DELETED BY LD. CIT(A) SHOULD BE DISMISSED AND ASSES SEES GROUND IN VIEW OF THE ARGUMENTS SUBMITTED ABOVE, BE ALLOWED. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE AO HAS DISALLOWED T HE TOTAL INTEREST PAID BY THE ASSESSEE AMOUNTING TO RS.4,59,54,149/- WITHOUT APPRECIATING THE FACTS OF THE CASE OF THE ASSESSEE. INTEREST FREE ADVANCE S TO ASSOCIATE CONCERNS FROM YEAR TO YEAR ARE STATED IN PARA-4 OF THIS ORDE R. FOR A.Y 2005-06 THESE ARE ONLY TO THE EXTENT OF RS.4,82,82,401/- AND FOR ASSESSMENT YEAR 2006-07 THESE ARE RS.5,17,61,226/-. THEREFORE, IN ANY CAS E THE DISALLOWANCE MADE BY THE AO COULD NOT BE TO THE EXTENT IT HAS BEEN D ISALLOWED BY THE AO FOR THESE YEARS. THE FACTS ARE PROPERLY APPRECIATED BY LD. CIT(A) AND HE HAS RECORDED A FINDING THAT WHAT WAS GIVEN BY THE ASSES SEE TO ITS ASSOCIATE CONCERN WAS A TOTAL SUM OF RS.4,42,82,401/- FOR AS SESSMENT YEAR 2005-06. OUT OF THE SAID AMOUNT A SUM OF RS.1.55 CRORE PERTA INED TO THE DEPOSITS GIVEN TO VARIOUS DIRECTORS AND RELATED PARTIES AS ADVANCE AGAINST OFFICE PREMISES WHICH WAS UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS. THUS LD. CIT(A) HAS ARRIVED AT A FINDING THAT ONLY A SUM OF RS.3,27,82,401/- CAN BE SAID TO HAVE BEEN UTILIZED BY THE ASSESSEE O UT OF INTEREST BEARING BORROWED FUNDS WHICH CAN BE SAID TO BE FOR THE PURP OSE OF OTHERS BUSINESS. IT IS IN THIS MANNER LD. CIT(A) HAS SUSTAINED DISAL LOWANCE ONLY TO THE EXTENT OF INTEREST PERTAINING TO INTEREST FREE LOANS AND ADVANCES OF RS.3,27,82,401/-. THEREFORE, THE ISSUE RAISED BY T HE REVENUE IN THIS REGARD I.E. REGARDING DELETION MADE BY LD. CIT(A) HAS NO M ERIT AND DEPARTMENTS VENUS RECORDS & TAPES PVT. LTD. , 15 GROUND IN THIS RESPECT FOR BOTH THE YEARS ARE DESER VE TO DISMISSED AND AREDISMISSED. 6.1 NOW THE QUESTION REMAINS ONLY WITH RESPECT TO S USTAINED DISALLOWANCE AGAINST WHICH THE ASSESSEE IS AGGRIEVED . IT IS T HE CASE OF THE ASSESSEE THAT IN THE PRESENCE OF SUFFICIENT OWN FUNDS, LD. CIT(A ) WAS NOT JUSTIFIED IN SUSTAINING THE RETAINED DISALLOWANCE. IT HAS BEEN SUBMITTED BY THE ASSESSEE THAT FREE RESERVE AVAILABLE WITH IT IN RESPECT O F ASSESSMENT YEAR 2004-05, 2005-06 AND 2006-07 WAS UNDER: ASSESSMENT YEAR AMOUNT.(RS) 2004-05 53,78,44,099/- 2005-06 46,41,35,593/- 2006-07 32,13,27,067/- AGAINST THESE AMOUNTS THE INTEREST FREE ADVANCES AR E ONLY TO THE TUNE OF RS.3,58,90,863/-, RS.4,82,82,401/- AND RS.5,17,61,2 26/- FOR ASSESSMENT YEAR 2004-05, 2005-06 AND 2006-07 RESPECTIVELY. T HESE INTEREST FREE ADVANCES, ARE IN ANY CASE LESS THAN THE SHARE CAPIT AL AND SHARE APPLICATION MONEY OWNED BY THE ASSESSEE. HERE THE ARGUMENTS OF LD. A.R IS THAT SHARE CAPITAL AND ADVANCE AGAINST SHARE APPLICATION MONEY ARE TO BE CONSIDERED AS OWN FUNDS AND THESE ARE SUFFICIENT TO MEET THE AMO UNT ADVANCED BY THE ASSESSEE AS INTEREST FREE TO ITS ASSOCIATE CONCERN S. THIS CONTENTION IS SUPPORTED BY THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. RELIANCE POWER & UTILITIES (SUPRA). IN THAT CA SE THE ASSESSEE HAD INVESTED RS.389.60 CRORES IN RELIANCE GAS LTD. AND RS.1.01 C RORE IN RELIANCE STRATEGIC INVESTMENT LTD. THE AO RECORDED A FINDI NG THAT THE SUM OF RS.213 CRORE WAS INVESTED OUT OF ASSESSEES OWN FUNDS AND RS. 147 CRORE WERE INVESTED OUT OF BORROWED FUNDS AND CALCULATING INT EREST @12% PER ANNUM FOR THREE MONTHS FROM JAN.2000 TO MARCH 2000 AND A SUM OF RS.4,40,00,000/- WAS DISALLOWED. ONE OF THE CONTEN TIONS, INTER ALIA, FOR CONTESTING THE DISALLOWANCE WAS THAT ASSESSEE WAS H AVING TOTAL INTEREST FREE VENUS RECORDS & TAPES PVT. LTD. , 16 FUNDS OF RS.398.19 CRORE AT ITS DISPOSAL FOR MAKING INVESTMENT. THE SAID SUM WAS STATED AS BELOW: S.NO. PARTICULARS AMOUNT (RS. IN CRORE) 1. SHARE CAPITAL 180.00 2. RESERVE SURPLUSES 120.80 3. DEPRECIATION RESERVES 95.39 TOTAL INTEREST FREE FUNDS 398.19 6.2 KEEPING IN VIEW THE AFOREMENTIONED FUNDS AVAILA BLE WITH THE ASSESSEE IT WAS HELD BY LD. CIT(A) THAT ASSESSEE WAS HAVING ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL AND HE DIRECTED THE AO TO DEL ETE THE DISALLOWANCE. THE REVENUE CONTESTED THE SAID ORDER OF CIT(A) BEFORE THE TRIBUNAL AND IT WAS URGED THAT SHAREHOLDER FUNDS OF RS.172.10 CRORE WE RE UTILIZED FOR THE PURCHASE OF FIXED ASSETS SHOWN IN SCHEDULE-D IN THE TERMS OF BALANCE SHEET AS ON 31/3/1999, THEREFORE, THE ASSESSEE DID NOT H AVE RESERVE OR OWN FUNDS FOR MAKING THE INVESTMENT IN THE SISTER CONCERNS A ND THUS THE SHARE CAPITAL CANNOT BE SAID TO HAVE BEEN AVAILABLE WITH THE ASSE SSEE FOR ADVANCING THE SAME TO THE SISTER CONCERNS. THUS THE PLEA OF THE REVENUE WAS REJECTED AND ORDER OF LD. CIT(A) UPHELD. THE REVENUE AGAIN PRE FERRED AN APPEAL BEFORE HONBLE HIGH COURT AND HONBLE HIGH COURT HAS UPHEL D THE ORDER OF THE TRIBUNAL WITH THE FOLLOWING OBSERVATION: 7. AT THE HEARING OF THIS APPEAL ON BEHALF OF THE APPELLANT LEARNED COUNSEL SUBMITS THAT THE ORDER OF THE TRIBUNAL IS PERVERSE IN AS MUCH AS THE TRIBUNAL IGNORED THE FACT THAT THE RESPONDENT ASSESSEE HAD N O INTEREST- FREE FUNDS OUT ITS OWN. IT IS POINTED OUT THAT INSOFAR AS THE SHAR EHOLDERS FUNDS ARE CONCERNED, IN TERMS OF THE BALANCE SHEET AS ON 31ST MARCH, 1999 THEY WERE UTILISED FOR THE PURPOSE OF PURCHASE OF FIXED ASSET S SHOWN IN SCH. D. ON THE OTHER HAND ON BEHALF OF THE ASSESSEE THE LEA RNED COUNSEL SUBMITS THAT THE ASSESSEE COMPANY HAD GENERATED SUFFICIENT INTEREST-FREE FUND OF ITS VENUS RECORDS & TAPES PVT. LTD. , 17 OWN WHICH IT UTILIZED FOR ITS BUSINESS, INCLUDING I NVESTMENT IN SISTER CONCERNS AND CONSEQUENTLY NO FAULT COULD BE FOUND WITH THE O RDER OF THE CIT(A) AND/OR THE TRIBUNAL. IT WAS FURTHER SUBMITTED THAT ONCE MO NIES ARE AVAILABLE IT IS FOR THE ASSESSEE TO TAKE A BUSINESS DECISION FOR APPLIC ATION OF FUNDS. THE SUBMISSION IS THAT WHERE THERE ARE BOTH BORROWED FU NDS AS ALSO INTEREST-FREE FUNDS, DISCRETION LIES IN THE HANDS OF THE ASSESSEE FOR UTILISATION OF THOSE FUNDS. RELIANCE FOR THAT PURPOSE WAS PLACED ON THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF WOOLCOMBERS OF INDIA LTD. VS. CIT (1981) 23 CTR (CAL) 204 : (1982) 134 ITR 219 (CAL). IT WAS FURTHE R SUBMITTED THAT THE VIEW TAKEN BY THE CALCUTTA HIGH COURT HAD FOUND APPROVAL BY THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT (1997) 139 CTR (SC) 372 : (1997) 224 ITR 627 (SC). 8. WE HAVE HEARD LEARNED COUNSEL FOR BOTH THE PARTI ES. IN OUR OPINION THE VERY BASIS ON WHICH THE REVENUE HAD SOUGHT TO CONTE ND OR ARGUE THEIR CASE THAT THE SHAREHOLDERS FUNDS TO THE TUNE OF OVER RS. 172 CRORES WAS UTILISED FOR THE PURPOSE OF FIXED ASSETS IN TERMS OF THE BAL ANCE SHEET AS ON 31ST MARCH, 1999, IS FALLACIOUS. FIRSTLY, WE ARE NOT CON CERNED WITH THE BALANCE SHEET AS OF 31ST MARCH, 1999. WHAT WOULD BE RELEVAN T WOULD BE BALANCE SHEET AS ON 31ST MARCH, 2000. APART FROM THAT, THE LEARNED COUNSEL HAS BEEN UNABLE TO POINT OUT TO US FROM THE BALANCE SHEET TH AT THE BALANCE SHEET AS ON 31ST MARCH, 1999 SHOWED THAT THE SHAREHOLDERS FUNDS WERE UTILISED FOR THE PURPOSE OF FIXED ASSETS. TO OUR MIND THE P&L A/C AN D THE BALANCE SHEET WOULD NOT SHOW WHETHER SHAREHOLDERS FUNDS HAVE BEEN UTILISED FOR INVESTMENTS. THE ARGUMENT HAS TO BE REJECTED ON THI S COUNT ALSO. 9. APART FROM THAT WE HAVE NOTED EARLIER THAT BOTH IN THE ORDER OF THE CIT(A) AS ALSO THE TRIBUNAL, A CLEAR FINDING IS RECORDED T HAT THE ASSESSEE HAD INTEREST-FREE FUNDS OF ITS OWN WHICH HAD BEEN GENER ATED IN THE COURSE OF THE YEAR COMMENCING FROM 1ST APRIL, 1999. APART FROM TH AT IN TERMS OF THE BALANCE SHEET THERE WAS A FURTHER AVAILABILITY OF R S. 398.19 CRORES INCLUDING RS. 180 CRORES OF SHARE CAPITAL. IN THIS CONTEXT, I N OUR OPINION, THE FINDING OF FACT RECORDED BY CIT(A) AND TRIBUNAL AS TO AVAILABI LITY OF INTEREST-FREE FUNDS REALLY CANNOT BE FAULTED. 10. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE H AD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTERES T-FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMAC EUTICAL WORKS LTD. (SUPRA) HAD THE OCCASION TO CONSIDER THE DECISION O F THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (SUPRA) WHERE A SIMILA R ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT W AS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUME NT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS CASE (SUPRA) THE CALCUTTA HIGH COURT HAD COME TO TH E CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIA BILITY AND THE PROFITS WERE VENUS RECORDS & TAPES PVT. LTD. , 18 DEPOSITED IN THE OVERDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNIN G OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INT EREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUND GENERATED OR AVAIL ABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FIN DING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL 11. CONSIDERING THE ABOVE, IN OUR OPINION, THERE IS NO MERIT IN THIS APPEAL WHICH IS ACCORDINGLY DISMISSED. 6.3 IF THE FACTS OF THE PRESENT CASE ARE CONSIDERED IN THE LIGHT OF THE AFOREMENTIONED DECISION OF HONBLE JURISDICTIONAL H IGH COURT THEN FOR THE YEARS UNDER CONSIDERATION SHARE CAPITAL AND ADVANCE AGAINST SHARE APPLICATION MONEY FOR BOTH THE YEARS WILL BE A SUM OF RS.9,25,64,440/- WHICH IN ANY CASE EXCEEDS MUCH FROM THE INTEREST FR EE ADVANCES MADE BY THE ASSESSEE WHICH FOR THESE YEARS ARE ONLY A SUM OF RS .4.82 CRORE AND RS.5.17 CRORE. ACCORDING TO THE AFOREMENTIONED DECISION OF HONBLE BOMBAY HIGH COURT SHARE CAPITAL AND SHARE APPLICATION MONEY CAN WELL BE SAID TO BE AVAILABLE AS OWN FUNDS WITH THE ASSESSEE AND IT CAN NOT BE SAID THAT SINCE IT WAS UTILIZED IN THE ASSETS, IT LOST ITS CHARACTER OF OWN FUNDS. SO FAR AS IT RELATES TO DECISION RELIED UPON BY LD. D.R, IT CAN BE MENTIONED THAT WHEN DECISION OF JURISDICTIONAL HIGH COURT IS AVAILABLE AND THAT DECISION IS SUBSISTING, THEN REFERENCE CANNOT BE MADE TO THE DE CISION OF OTHER HIGH COURT TO DECIDE THE ISSUE. THEREFORE, WE FIND NO M ERIT IN THE DISALLOWANCE TO THE EXTENT IT HAS BEEN SUSTAINED BY LD. CIT(A). TH E DISALLOWANCE SUSTAINED BY LD. CIT(A) FOR BOTH THE YEARS IS DELETED AND TH E ASSESSEES GROUND IN THIS RESPECT OF BOTH THE YEARS IS ALLOWED. 6.4 SO FAR AS IT RELATES TO APPLICABILITY OF SECTIO N 40A(2), IT IS FOUND THAT AO HAS MADE ONLY A PASSING REFERENCE OF SECTION 40A(2) . IT HAS NOT BEEN VENUS RECORDS & TAPES PVT. LTD. , 19 DESCRIBED AS TO HOW SECTION 40A(2) WAS APPLICABLE. LD. D.R ALSO COULD NOT STATE THAT HOW SECTION 40A(2) WAS APPLICABLE TO MAK E THE IMPUGNED DISALLOWANCE. THEREFORE, AFTER CONSIDERING THE ORD ER PASSED BY AUTHORITIES BELOW AND THE ARGUMENTS OF BOTH THE PARTIES, WE HOL D THAT DISALLOWANCE OF INTEREST CANNOT BE SUSTAINED EVEN ON THE APPLICATI ON OF SECTION 40A(2) OF THE ACT. 6.5 IN VIEW OF ABOVE DISCUSSION APPEALS OF THE ASS ESSEE FOR BOTH THE YEARS ARE ALLOWED AND GROUND NO.1 OF BOTH THE APPEALS FIL ED BY THE REVENUE ARE DISMISSED. 7. THE OTHER GROUND TAKEN BY THE REVENUE IN ITS APP EAL FOR BOTH THE YEAR IS DELETION OF ADDITION ON ACCOUNT OF EXCESS AMORTI ZATION OF RIGHTS DISTRIBUTION/ EXHIBITION RIGHTS PURCHASED BY THE AS SESSEE. AS MENTIONED EARLIER, THE FACTS RELATING TO BOTH THE YEARS ARE S IMILAR EXCEPT DIFFERENCE IN FIGURES. THE FACTS FOR ASSESSMENT YEAR 2005-06 WIL L BE STATED AND DECISION TAKEN THEREON WILL BE APPLICABLE TO THE OTHER YEAR. 7.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT COST OF DISTRIBUTION / EXHIBITION RIGHTS PURCHASED BY TH E ASSESSEE WERE AMOUNTING TO RS.36,13,95,430/- AND AS AGAINST THAT AMORTIZATI ON WAS TO THE TUNE OF RS.34,44,19,167/-. THE ASSESSEE WAS REQUIRED TO EX PLAIN THE METHOD ADOPTED BY IT. THE ASSESSEE SUBMITTED THE SCHEDULE S OF LOCAL SALES DIVISION AND EXPORT SALE DIVISION, DETAILS OF PURCHASE AND SALE OF VIDEO RIGHTS AND OTHER COPY RIGHTS. THE AO ALSO RECORDED STATEMENTS OF DIRECTOR OF THE ASSESSEE COMPANY, WHO EXPLAINED THAT IF RIGHT PURCH ASED DURING THE YEAR IS SOLD FULLY OR PARTLY, THE ENTIRE COST OF PURCHASE R IGHT IS WRITTEN OFF AGAINST THE SALE AND NO PART OF COST OF ACQUISITION IS TAKEN TO THE CLOSING STOCK AS LONG AS ANY PART OF THE BUNDLE OF RIGHTS IS SOLD DURING THE YEAR. HOWEVER, IF THE RIGHT PURCHASED WAS NOT SOLD AT ALL DURING THE YEAR , SUCH PURCHASE COST WAS VENUS RECORDS & TAPES PVT. LTD. , 20 NOT CLAIMED AND WAS TAKEN TO CLOSING STOCK OF INT ANGIBLE ASSETS. IT WAS SUBMITTED THAT ASSESSEE HAS BEEN FOLLOWING SUCH MET HOD CONSISTENTLY FOR MANY YEARS AND SUCH METHOD IS ALSO AS PER RULE 9B O F THE INCOME AX RULES,1962. IT WAS FURTHER EXPLAINED THAT THE DEP RECIATION WAS ALSO CLAIMED ON THE INTANGIBLE ASSETS. THE AO BEING OF THE VIEW THAT ASSESSEE WAS CLAIMING 100% OF THE COST OF VIDEO RIGHTS / OTHER COPY RIGHTS EVEN IN A CASE WHERE SMALL PORTION OF THE TOTAL BUNDLE OF RIGHTS WAS SOLD AND EVEN WHEN SMALL PORTION OF THE TOTAL PERIOD OF RIGHTS WERE SO LD. THE AO BEING OF THE VIEW THAT ONLY PROPORTIONATE EXPENDITURE CAN BE CLAIMED, BUT HE FOUND THAT IT IS DIFFICULT TO QUANTIFY SUCH AMOUNT, THEREFORE, HE H ELD ASSESSEE SHOULD BE ALLOWED EXPENDITURE ONLY TO THE EXTENT THE AMOUNT R ECEIVED BY THE ASSESSEE AS SALE DURING THE YEAR AND BALANCE COST OF ACQUISI TION SHOULD BE TAKEN AS COST OF ACQUISITION OR INVENTORY OF CLOSING STOCK. THE AO OBSERVED THAT BY ADOPTING SUCH METHOD THE ASSESSEE IS PRACTICING A W RONG PRACTICE WHICH IS NOT SANCTIONED BY ANY METHOD OF ACCOUNTING AND THER EBY POSTPONING ITS TAX LIABILITY FOR FEW YEARS. IN THIS MANNER THE AO HAS RESTRICTED THE COST OF PURCHASE OF THESE RIGHTS TO THE SALE PROCEEDS RECEI VED BY THE ASSESSEE DURING THE YEAR AND ADDITION OF RS.1,30,73,926/- WAS MADE. THE ADDITION WAS CONTESTED IN THE APPEAL FILED BEFORE LD. CIT(A). 7.2 BEFORE LD. CIT(A) IT WAS SUBMITTED THAT AO HIMS ELF HAS RULED OUT THE APPLICABILITY OF RULE 9B AND THUS THE OBSERVATION O F AO THAT PROPORTIONATE EXPENDITURE SHOULD ONLY BE ALLOWED IS CONTRADICTORY TO THE VIEW ADOPTED BY HIM. IT WAS SUBMITTED THAT THE UNCERTAINTY OF FUTU RE REALIZATION OF THESE RIGHTS DURING THE RELEVANT ASSESSMENT YEARS DOES NO T GIVEN DISCRETION TO THE MANAGEMENT TO ALLOCATE ANY VALUE OF THESE UNDERLINI NG RIGHTS, THEREFORE, ASSESSEE CHARGED THE ENTIRE COST OF THE PURCHASE T O THE REVENUE ACCOUNT AND IN A CASE WHERE RIGHTS ARE NOT EXPLOITED AT ALL THE ACQUISITION COST IS TREATED AS VALUE OF THE CLOSING STOCK. IT WAS SUBMITTED T HAT THIS PRACTICE IS BEING FOLLOWED BY THE ASSESSEE FOR LAST SO MANY YEARS AND ASSESSMENT HAVE ALSO VENUS RECORDS & TAPES PVT. LTD. , 21 BEEN COMPLETED UNDER SECTION 143(3) OF THE ACT WITH OUT MAKING ANY ADDITION ON THIS GROUND. IT WAS ALSO SUBMITTED THAT NO DE FECT WHATSOEVER HAS BEEN FOUND BY THE AO IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE, THEREFORE, ALSO DISALLOWANCE WAS NOT SUSTAINABLE. REFERENCE WAS ALSO MADE TO THE DECISION OF ITAT IN THE CASE OF IRB INFRASTR UCTURE LTD. 304 ITR (AT) 76 TO CONTEND THAT THE EXPENDITURE ARE ALLOWABLE EVEN IN A CASE WHERE RECEIPTS ARE IN MORE THAN ONE YEAR. 7.3 CONSIDERING ALL THE AFOREMENTIONED SUBMISSIONS LD. CIT(A) HAS OBSERVED THAT AO HAD MADE DISALLOWANCE WITHOUT VERI FYING THE PRACTICE ADOPTED BY THE ASSESSEE IN EARLIER YEARS AS WELL AS IN SUBSEQUENT YEARS. INCOME HAS BEEN DECLARED BY THE ASSESSEE BY ADOPTI NG THE CONSISTENT METHOD. THEREFORE, METHOD OF ACCOUNTING OF STOCK P URCHASED AND SOLD WAS CARRIED FORWARD FROM EARLIER YEAR TO SUBSEQUENT YEA RS CANNOT BE IN ISOLATION. THE AO DID NOT TAKE INTO CONSIDERATION THE EFFECT ON BROUGHT FORWARD COST BASED ON HIS ARGUMENTS THAT HIS OPENING STOCK OF S UCH RIGHTS WAS BROUGHT FORWARD FROM EARLIER YEARS AND HE HAS ALSO NOT CONS IDERED THE ISSUE OF ALLOWABILITY TO CARRY FORWARD SUCH UN-RECOUPED COS TS TO THE LATER YEARS WHICH WILL HAVE AN IMPACT ON THE INCOME OF THE ASSE SSEE FOR EARLIER YEARS AS WELL AS SUBSEQUENT YEARS. HE FURTHER OBSERVED THAT IN TRADING ACCOUNT, THE DISTURBING OF OPENING AND CLOSING STOCK FIGURES IN ONE YEAR ARE NOT INDEPENDENT OF EARLIER AND LATER ASSESSMENT YEARS AND THE IMPACT OF INCOME OF THOSE YEARS. THE EFFECT OF CHANGE OF OPENING AN D CLOSING STOCK IN ONE YEAR WOULD THEORETICALLY BE REVENUE NEUTRAL AS IT WOULD EFFECT THE REVENUES AND CONSEQUENTLY THE INCOME OF EARLIER OR LATER ASSESS MENT YEARS ALSO. TAKING THE EXAMPLE HE OBSERVED THAT THE UNREALIZED AMOUNT OF RIGHTS TO BE TAKEN AS CLOSING STOCK IN ASSESSMENT YEAR 2005-06 WOULD HAVE TO BE TAKEN AS OPENING STOCK IN THE SUCCEEDING ASSESSMENT YEAR I.E. A.Y 2 006-07. IT WOULD, THEREFORE, GO TOWARDS REDUCING THE INCOME ALREADY DECLARED IN THAT YEAR AND TAX LIABILITY ON THAT ACCOUNT BE REDUCED. CONSEQUE NTLY, THE EFFECT WOULD BE VENUS RECORDS & TAPES PVT. LTD. , 22 REVENUE NEUTRAL. HE ALSO OBSERVED THAT AO HAS NOT GIVEN ANY REASON FOR CHANGING THE CONSISTENT METHOD ADOPTED BY THE ASSES SEE AND IT HAS NOT BEEN ESTABLISHED THAT THE ASSESSEE BY ADOPTING SUCH MET HOD HAS AVOIDED OR SHIFTED HIS TAX LIABILITY INDEFINITELY OR PERMANE NTLY. RELYING UPON THE AFOREMENTIONED DECISION OF ITAT IN THE CASE OF IRB INFRASTRUCTURE LTD. (SUPRA) LD. CIT(A) HAS DELETED THE ADDITION. THE REVENUE IS AGGRIEVED, HENCE, HAS FILED THE AFOREMENTIONED GROUNDS FOR B OTH THE YEARS. 8. AFTER NARRATING THE FACTS, LD. DR SUBMITTED THAT AO WAS RIGHT IN RESTRICTING THE EXPENSES TO THE EXTENT OF REVENUE D ERIVED BY THE ASSESSEE ON THESE RIGHTS AND LD. CIT(A) HAS WRONGLY ALLOWED THE ENTIRE CLAIM OF THE ASSESSEE. RELYING UPON ASSESSMENT ORDER LD. DR SUB MITTED THAT THIS GROUND OF THE REVENUE SHOULD BE ALLOWED AND ORDER OF LD. C IT(A) ON THIS ISSUE SHOULD BE SET ASIDE. 9. ON THE OTHER HAND, LD. AR RELIED UPON THE OBSERV ATION OF LD. CIT(A), WHICH HAS BEEN DISCUSSED IN DETAILS IN THE ABOVE PA RT OF THIS ORDER. IN ADDITION THERE TO LD. AR REFERRED TO THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY, 115 ITR 519(SC) TO CONTENT THAT WHERE THE EXPENDITURE HAS BEEN LAID OUT AND EXPEND ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME, DEDUCTION OF SUCH EXPENDITURE IS NOT DEPENDENT UPON MAKING OR EA RNING INCOME. NON- EARNING INCOME DOES NOT DISENTITLE AN ASSESSEE TO C LAIM THOSE EXPENDITURE. THUS HE PLEADED THAT THIS GROUND OF THE REVENUE FOR BOTH THE YEARS SHOULD BE DISMISSED. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS IN TH E LIGHT OF THE MATERIAL PLACED BEFORE US. THE ASSESSEE HAS PURCHASED VIDEO RIGHTS / OTHER COPY RIGHTS IN THE ORDINARY COURSE OF ITS BUSINESS. 10 0% COST OF SUCH RIGHTS, IF ANY PART OF SUCH RIGHT IS SOLD DURING THE YEAR, ARE CLAIMED AS REVENUE EXPENDITURE AS PER ACCOUNTING METHOD CONSISTENTLY A DOPTED BY THE ASSESSEE. VENUS RECORDS & TAPES PVT. LTD. , 23 LD. CIT(A) HAS HELD THAT THIS HAS BEEN DONE IN AC CORDANCE WITH THE METHOD ADOPTED BY THE ASSESSEE IN EARLIER YEARS AS WELL AS IN SUBSEQUENT YEARS. THIS FINDING OF FACT HAS NOT BEEN DISPUTED BY THE REVENU E BY BRINGING ANY MATERIAL ON RECORD TO SHOW THAT THESE FINDINGS OF LD. CIT(A) ARE INCORRECT. IT IS ALSO NOT THE CASE OF AO THAT ASSESSEE DEVIATED FROM THE METHOD EARLIER ADOPTED BY THE ASSESSEE WITH RESPECT TO CLAIMING SUCH EXPENDIT URE. THE AO HIMSELF HAS OBSERVED THAT RULE 9B IS NOT APPLICABLE. THE AO BE ING OF THE VIEW THAT AS ASSESSEE HAS NOT VALUED THE PENDANCY OF RIGHTS AS ITS CLOSING STOCK, THEREFORE, THE COST TO THE EXTENT IT COULD BE ALLO WED SHOULD BE RESTRICTED TO THE SALE RECEIPTS ON PARTIAL SALE OF TOTAL BUNDLE OF RIGHTS. THEREFORE, THE AO AFTER REDUCING THE REVENUE RECEIVED BY THE ASSESSE E AGAINST THOSE RIGHTS HAS ADDED THE BALANCE AMOUNT TO THE INCOME OF THE ASSES SEE. AGAINST SUCH ACTION OF AO, LD. CIT(A) HAS OBSERVED THAT THIS ACT ION OF AO HAS DISTURBED THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE I N EARLIER YEARS AS WELL AS SUBSEQUENT YEARS. THE CONSISTENT METHOD ADOPTED BY THE ASSESSEE HAS BEEN DISTURBED WITHOUT ADEQUATE REASONS AND WITHOUT GIVI NG ANY CREDIT FOR ADJUSTMENT TO BE CARRIED OUT IN RESPECT OF OPENING AS WELL AS CLOSING STOCK OF SUCH RIGHTS. WE FIND FORCE IN THE OBSERVATION OF LD. CIT(A) THAT WITHOUT PROPERLY VALUING THE OPENING AS WELL AS CLOSING ST OCK OF THE ASSESSEE, THE AO COULD NOT ADOPT SUCH COURSE OF ACTION. THE PORTION OF BUNDLE OF RIGHTS WHICH WERE STANDING ON 1 ST DAY OF THE RELEVANT ACCOUNTING YEAR HAS NOT BEEN T AKEN INTO CONSIDERATION, SIMILARLY CLOSING STOCK HAS NOT BEEN VALUED PROBABLY ON ACCOUNT OF DIFFICULTY TO BE FACED IN THIS RESPECT. IF ASSESSEE WAS ADOPTING THE CONSISTENT METHOD WHICH HAS NOT BEEN DISTURBED IN PAST, WITHOUT MAKING A PROPER ADJUSTMENT ON ACCOUNT OF IMPACT OF EARLIER Y EARS AND WITHOUT STATING THE REASONS THAT AS TO WHY THE METHOD ADOPTED BY T HE ASSESSEE WAS WRONG AND CONTRARY TO THE ACCOUNTING PRINCIPLE, THE EXPEN DITURE COULD NOT BE RESTRICTED TO THE AMOUNT OF REVENUE EARNED BY THE A SSESSEE, AS SUCH ACTION OF THE AO IS CONTRARY TO THE AFOREMENTIONED DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY (SUPRA). THE AO HAS VENUS RECORDS & TAPES PVT. LTD. , 24 ACCEPTED THAT THESE ARE ALLOWABLE EXPENDITURE BUT H E HAS RESTRICTED THE SAME TO THE EXTENT OF REVENUE EARNED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. IT HAS BEEN HELD BY HONBLE SUPREME COURT IN THE AFOREMENTIONED CASE THAT IF THE EXPENDITURE HAS BEE N LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING O R EARNING INCOME, THE ALLOWABILITY THEREOF IS NOT DEPENDENT UPON THE M AKING OR EARNING INCOME. 10.1 IN VIEW OF ABOVE DISCUSSION, WE FIND NO INFIRM ITY IN THE ORDER PASSED BY LD. CIT(A) WHILE HOLDING THAT SUCH ADDITION COULD N OT BE MADE BY THE AO. THIS GROUND OF THE REVENUE FOR BOTH THE YEARS IS DI SMISSED. 11. IN THE RESULT, THE APPEALS FILED BY THE ASSESS EE ARE ALLOWED AND APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 19 TH DAY OF OCT. 2012 SD/- SD/- (B.RAMAKOTAIAH ) (I.P.BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 19 TH OCT. 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.R F BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.