M/s Avery Cycle Industries Ltd., Ludhiana V. DCIT, Ludhiana

ITA 536/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8370 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-10-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 18-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Business expenditure; Charitable institution; Opportunity of being heard; Earning of tax free income; Proportionate interest; Commercial expediency
• Section: 143(3); 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 1048/CHD/2013 ASSESSMENT YEAR: 2004-05 M/S AVERY CYCLE INDUSTRIES LTD., VS. THE ACIT, CIR CLE V, LUDHIANA LUDHIANA PAN NO. AABCA4141G ITA NO. 536/CHD/2015 ASSESSMENT YEAR: 2005-06 M/S AVERY CYCLE INDUSTRIES LTD., VS. THE DCIT, CIR CLE V, LUDHIANA LUDHIANA PAN NO. AABCA4141G ITA NO. 1296/CHD/2010 ASSESSMENT YEAR: 2007-08 THE ACIT, VS. M/S AVON ISPAT & POWER LTD., CIRCLE V, LUDHIANA LUDHIANA PAN NO. AABCA4141Q ITA NO. 753/CHD/2012 ASSESSMENT YEAR: 2008-09 M/S AVON ISPAT & POWER LTD., VS. THE ACIT, CIRCLE V, LUDHIANA LUDHIANA PAN NO. AABCA4141Q ITA NO. 62/CHD/2013 ASSESSMENT YEAR: 2009-10 M/S AVON ISPAT & POWER LTD., VS. THE ADDL.CIT, RA NGE V, LUDHIANA LUDHIANA PAN NO. AABCA4141Q 2 ITA NO. 822/CHD/2014 ASSESSMENT YEAR: 2009-10 THE ACIT, VS. M/S AVON ISPAT & POWER LTD., CIRCLE V, LUDHIANA LUDHIANA PAN NO. AABCA4141Q ITA NO. 928/CHD/2013 ASSESSMENT YEAR: 2010-11 M/S AVON ISPAT & POWER LTD., VS. THE ADDL.CIT, RA NGE V, LUDHIANA LUDHIANA PAN NO. AABCA4141Q & ITA NO. 778/CHD/2013 ASSESSMENT YEAR: 2011-12 M/S AVON ISPAT & POWER LTD., VS. THE ADDL.CIT, RA NGE V, LUDHIANA LUDHIANA PAN NO. AABCA4141Q (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUBHASH AGGARWAL RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 07.01.2016 DATE OF PRONOUNCEMENT : 18.03.2016 ORDER PER H.L.KARWA, VP THESE EIGHT APPEALS INVOLVING CERTAIN COMMON ISSUES WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRSTLY, WE WILL TAKE UP ITA NO. 1048/CHD/2013 RELATING TO ASSESSMENT YEAR 2004-05. THE ONLY EFFECTIVE GROUND RAISED BY T HE ASSESSEE IN THIS APPEAL READS UNDER:- 3 THAT THE LD. CIT(A)-II HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 12,75,360/- ON ACCO UNT OF ALLEGED INTEREST FREE ADVANCE TO NIHAL SINGH PAHWA CHARITABLE HOSPITAL. IN THIS CASE, THE RETURN OF INCOME WAS FILED BY TH E ASSESSEE ON 1.11.2004 DECLARING NIL INCOME. THE ASSESSING OFFICER FRAMED THE ASSESSMENT U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') AT RS. 15,77,97,085/-. THE ASSESSING OFFICER MADE AN ADDITION OF RS. 12,75,360 /- ON ACCOUNT OF DISALLOWANCE OF INTEREST U/S 36(I)(III) OF THE ACT PERTAINING TO INTEREST FREE LOANS GIVEN TO SARDAR NIHAR SINGH PAHWA CHARITABLE TRUST (A SISTER CONCERN OF THE ASSESSEE). ON APPEAL, THE CIT(A) DELETED THE ADDITI ON VIDE HIS ORDER DATED 7.12.2007. THE REVENUE CHALLENGED THE ORDER OF THE CIT(A) IN APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDER DATED 26.6 .2008 SET ASIDE THE ORDER OF CIT(A) AND REMANDED THE MATTER TO THE ASSESSING OFF ICER TO DECIDE THE ISSUE AFRESH. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS U/S 143(3) READ WITH SECTION 254 OF THE ACT, THE ASSESSING OFFICER REQUI RED THE ASSESSEE TO EXPLAIN AS TO WHY PROPORTIONATE INTEREST ON INTEREST FREE ADVA NCES GIVEN TO SARDAR NIHAL SINGH PAHWA TRUST SHOULD NOT BE DISALLOWED. AFTER CONSIDERING THE ASSESSEES REPLY DATED 21.10.2009, THE ASSESSING OFFICER HELD THAT ASSESSEE HAS FAILED TO PROVE THE COMMERCIAL EXPEDIENCY REGARDING THE INTER EST FREE LOAN GIVEN TO ITS SISTER CONCERN I.E. SADAR NIHAL SINGH PAHWA TRUST. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 12,75,360/- U/S 36( I)(III) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). BEFORE CIT(A), THE ASSESSEE SUBMITTED ITS WRITTEN SUBMISSIONS DATED 13.4.2012, WHEREIN IT WA S STATED THAT HOSPITAL IS BEING RUN IN THE INTEREST OF PUBLIC AND ALSO IN THE INTEREST OF EMPLOYEES OF THE COMPANY. IT WAS ALSO STATED THAT SOMETIMES IN ORDER TO RUN THE HOSPITAL 4 EFFICIENTLY, THE HOSPITAL IS IN NEED OF MONEY WHICH WAS BEING ADVANCED BY THE ASSESSEE. IT WAS ALSO EXPLAINED THAT ALL THE EMPLOY EES OF THE ASSESSEE USED TO GET TREATMENT FROM THE AFORESAID HOSPITAL FREE OF CHARG E OR AT THE CONCESSIONAL RATE WHICH INDIRECTLY HELPED THE ASSESSEE TO CARRY OUT T HE BUSINESS MORE EFFICIENTLY. THE ASSESSEE CLAIMED THAT THERE WAS THUS A COMMERCI AL EXPEDIENCY IN ADVANCING THE LOANS TO THE HOSPITAL. 4. THE LD. CIT(A) DID NOT ACCEPT THE ASSESSEE S CL AIM FOR THE REASONS STATED IN PARA 3.3 OF THE IMPUGNED ORDER AND, HENCE, THE ASSESSEE IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI SUBHASH AGGARWA L LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. SHRI MANJIT SINGH LD. DR HEAVILY RELIED ON THE FINDINGS GIVEN BY THE CIT(A) IN PARA 3.3 OF THE IMPUGNED ORDER, WHEREIN THE CIT(A) HAS OBSERVED THAT THE ASSESSEE COMPANY HAD MISERABLY FAILED TO PRODUCE AN Y EVIDENCE TO DEMONSTRATE THAT THE HOSPITAL WAS PROVIDING FREE / CONCESSIONAL TREATMENT TO ITS EMPLOYEES. THE CIT(A) FURTHER NOTED THAT THE ASSESSEE DID NOT PRODUCE ANY AGREEMENT BETWEEN HOSPITAL AND THE COMPANY SHOWING THAT THE H OSPITAL HAD AGREED TO GIVE FREE TREATMENT TO EMPLOYEES OF THE COMPANY OR TREAT MENT AT CONCESSIONAL RATES. WE MAY OBSERVE HERE THAT SHRI SUBHASH AGGARWAL, LD. COUNSEL FOR THE ASSESSEE RELIED ON NUMBER OF DECISIONS OF THE HON'BLE JURISD ICTIONAL HIGH COURT PARTICULARLY IN THE CASE OF BRIGHT ENTERPRISES PVT LTD V CIT (JALANDHAR) IN ITA NO. 224 OF 2013 DATED 24.7.2015 WHEREIN IT HAS BEEN HELD THAT IF THE FUNDS AND RESERVES OF THE COMPANY ARE SUFFICIENT TO COVER INT EREST FREE ADVANCES MADE BY IT TO ITS SISTER CONCERN, NO DISALLOWANCE U/S 36(I)(II I) OF THE ACT IS CALLED FOR. AS REGARDS THE TERM COMMERCIAL EXPEDIENCY, THE HON'B LE HIGH COURT HAS 5 CATEGORICALLY HELD THAT COMMERCIAL EXPEDIENCY IN ADVANCING LOANS DOESNT ARISE ONLY ON ACCOUNT OF THEIR BEING TRANSACTIONS D IRECTLY BETWEEN THE HOLDING COMPANY AND THE SUBSIDIARY COMPANY OR BETWEEN GROUP COMPANIES INTER-SE. THE TWO COMPANIES MAY IN DIFFERENT LINES OF BUSINESS. T HE HON'BLE HIGH COURT OBSERVED THAT IT WOULD MAKE NO DIFFERENCE. ACCORDIN G TO HON'BLE HIGH COURT IT WOULD STILL BE COMMERCIAL EXPEDIENT FOR ONE GROUP C OMPANY TO ADVANCE AMOUNTS TO ANOTHER GROUP COMPANY, IF FOR INSTANCE, AS A R ESULT THEREOF, THE FORMER BENEFITS. THE HON'BLE HIGH COURT OBSERVED THAT IT I S NOT NECESSARY THAT THE ADVANCE RESULTS IN A POSITIVE TANGIBLE BENEFIT. THE REFORE, THE HON'BLE HIGH COURT CONCLUDED THAT SO LONG AS THE AMOUNT IS ADVANCED WI TH THAT VIEW IN MIND OR WITH ANY OTHER COMMERCIAL EXPEDIENCY IN MIND I.E. SUFFIC IENT. IN THE INSTANT CASE, SHARE CAPITAL RESERVES AND DEFERRED TAX AS ON 1.4.2 003 WAS TOTALING TO RS. 53.49 CRORES (SHARE CAPITAL RS. 5.98 CRORES, RESERVES RS. 36.90 CRORES DEFERRED RS. 10.61 CRORES) BESIDES ABOVE, THE ASSESSEES INCOME OF THE YEAR WAS TO THE TUNE OF RS. 22,64,10,652/-. THE ASSESSEE HAD ADMITTEDLY ADVANCED A SUM OF RS. 1,19,11,287/- TO ITS SISTER CONCERN SARDAR NIHAL SI NGH PAHWA TRUST AND THE ASSESSING OFFICER DISALLOWED AN INTEREST OF RS. 12 ,75,360/- ON INTEREST FREE ADVANCES MADE BY THE COMPANY TO ITS SISTER CONCERN. FROM THE ABOVE FIGURES, IT IS CRYSTAL CLEAR THAT OWN FUNDS AND RESERVES OF THE ASSESSEE ARE MORE THAN SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE TO ITS SISTER CONCERN. IN THE CASE OF GURDAS GARG VS. CIT IN ITA NO. 413 OF 2014 DATED 16.7.2015, THE HON'BLE JURISDICTIONAL HIGH COURT HELD THAT SO LO NG IT IS ESTABLISHED THAT INTEREST FREE ADVANCES ARE MADE BY THE ASSESSEE WH O HAD ADEQUATE FREE RESERVES, IT IS SUFFICIENT TO ESTABLISH THAT THE AMOUNTS ADVA NCED AS INTEREST FREE CANNOT BE ADDED TO THE ASSESSEES INCOME. THE HON'BLE HIGH CO URT FURTHER OBSERVED THAT THE REVENUE HAS FAILED TO ESTABLISHED THAT A PARTIC ULAR ADVANCE RECEIVED WAS IN TURN ADVANCED BY THE ASSESSEE INTEREST FREE. IT IS RELEVANT TO MENTION THAT IN THE ASSESSMENT YE AR 2002-03, ON SIMILAR SET OF FACTS, THE ASSESSING OFFICER DISALLOWED INTEREST OF RS. 1,95,641/- U/S 36(I)(III) OF 6 THE ACT. IN THAT YEAR ALSO, THE ASSESSEE ADVANCED A N INTEREST FREE AMOUNT OF RS. 34,14,091/- TO THE AFORESAID HOSPITAL (TRUST). IT I S STATED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED BY THE CI T(A) AND NO APPEAL WAS PREFERRED BY THE REVENUE BEFORE THE TRIBUNAL. IT I S RELEVANT TO OBSERVE THAT IN ORDER TO RUN THE HOSPITAL EFFICIENTLY, THE HOSPITAL WAS SOMETIMES IN NEED OF MONEY WHICH WAS BEING ADVANCED BY THE ASSESSEE COMP ANY. THERE IS NO MATERIAL ON RECORD TO CONTROVERT THIS CONTENTION OF THE ASSESSEE THAT THE EMPLOYEES OF THE COMPANY USED TO GET TREATMENT FROM THIS HOSPITAL FREE OF CHARGE OR AT CONCESSIONAL RATES, WHICH INDIRECTLY H ELPED THE ASSESSEE TO CARRY OUT ITS BUSINESS SMOOTHLY AND EFFICIENTLY. IT IS CLAIME D THAT THE AMOUNT IN QUESTION WAS ADVANCED TO CHARITABLE HOSPITAL BY WAY OF COMME RCIAL EXPEDIENCY IN THE SENSE THAT THE COMPANY IS RUNNING THIS HOSPITAL IN THE INTEREST OF PUBLIC AND ALSO IN THE INTEREST OF THE EMPLOYEES OF THE COMPANY FOR THE LAST NUMBER OF YEARS. THE COMPANY HAS EMPLOYED ABOUT 1500 WORKERS / EMPLO YEES AND ALL THESE EMPLOYEES OF THE COMPANY USED TO GET TREATMENT FROM THE SAID HOSPITAL. IN OUR OPINION, IT CANNOT BE SAID THAT THERE WAS NO CONSID ERATION OF COMMERCIAL EXPEDIENCY IN ADVANCING OF SAID INTEREST FREE LOANS TO THE HOSPITAL. IN THE CASE OF S.A. BUILDERS LTD. VS. CIT AND ANOTHER (2007) 2 88 ITR 1 (SC), THE HON'BLE SUPREME COURT DEFINED THE EXPRESSION COMMERCIAL EX PEDIENCY HOLDING THAT COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF VIDE IMP ORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE HON'BLE SUPREME COURT FURTHER HELD THAT THE EXPENDI TURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION BUT YET IT IS A LLOWABLE AS A BUSINESS EXPENDITURE, IF IT WAS INCURRED ON ACCOUNT OF COMME RCIAL EXPEDIENCY. IN THE INSTANT CASE, THE REVENUE AUTHORITIES HAVE STATED T HAT THE ASSESSEE DID NOT FILE ANY AGREEMENT BETWEEN THE HOSPITAL AND THE ASSESSEE COMPANY SHOWING THAT THE HOSPITAL HAD AGREED TO GIVE FREE TREATMENT TO THE E MPLOYEES OF THE COMPANY. IN OUR OPINION, IN VIEW OF THE DECISION OF THE HON'BL E SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD AND ANOTHER (SUPRA), IF THE EX PENDITURE IS NOT INCURRED 7 UNDER ANY LEGAL OBLIGATION BUT THE SAME IS ALLOWABL E AS BUSINESS EXPENDITURE, IF IT WAS INCURRED ON THE GROUNDS OF COMMERCIAL EXPEDI ENCY 6. RECENTLY, THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF HERO CYCLES (P) LTD. (2015) 379 ITR 345 (SC) WHILE REVERSING TH E DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V AB HISHEK INDUSTRIES (2006) 286 ITR 1 (P&H), MADE FOLLOWING OBSERVATIONS:- A PERUSAL OF THE ORDER PASSED BY THE HIGH COURT WOULD REVEAL THAT THE HIGH COURT HAS NOT AT ALL DISCUSSE D THE AFORESAID FACTS WHICH WERE ESTABLISHED ON RECORD P ERTAINING TO THE INTEREST FREE ADVANCE GIVEN TO M/S. HERO FI BRES LIMITED AS WELL AS LOANS GIVEN TO ITS OWN DIRECTORS AT INTEREST AT THE RATE OF 10 PER CENT. ON THE OTHER HAND, THE HIGH COURT HAS SIMPLY QUOTED FROM ITS OWN JUDGMENT IN THE CASE OF 'COMM ISSIONER OF INCOME TAX-I, LUDHIANA V. M/S. ABHISHEK INDUST RIES LIMITED, LUDHIANA' [ITA NO. 110/2005 DECIDED ON 04.08.2006]. ON THAT BASIS, IT HAS HELD THAT WHEN LOANS WERE TAKEN FROM THE BANKS AT WHICH INTEREST WAS P AID FOR THE PURPOSES OF BUSINESS, THE INTEREST THEREON COULD NOT BE CLAIMED AS BUSINESS EXPENDITURE. WE ARE OF THE OPINION THAT SUCH AN APPR OACH IS CLEARLY FAULTY IN LAW AND CANNOT BE COUNTENANCED. IN SO FAR AS LOANS TO THE SISTER CONCER N / SUBSIDIARY COMPANY ARE CONCERNED, LAW IN THIS BEHALF IS RECAP ITULATED BY THIS COURT IN THE CASE OF 'S.A. BUILDERS LTD. V . COMMISSIONER OF INCOME TAX (APPEALS) AND ANOTHE R' [2007 (288) ITR 1 (SC)]. AFTER TAKING NOTE OF AND DISCUS SING ON THE SCOPE OF COMMERCIAL EXPEDIENCY, THE COURT SUMM ED UP THE LEGAL POSITION IN THE FOLLOWING MANNER: - 26. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FO R 8 THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT H AVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. 27. NO DOUBT, AS HELD IN MADHAV PRASAD JATIA V. CI T [1979 (118) ITR 200 (SC)], IF THE BORROWED AMOUN T WAS DONATED FOR SOME SENTIMENTAL OR PERSONAL REAS ONS AND NOT ON THE GROUND OF COMMERCIAL EXPEDIENC Y, THE INTEREST THEREON COULD NOT HAVE BEEN ALLOWED U NDER SECTION 36(1)(III) OF THE ACT. IN MADHAV PRASAD 'S CASE [1979 (118) ITR 200 (SC)], THE BORROWED AMOUN T WAS DONATED TO A COLLEGE WITH A VIEW TO COMMEMORATE THE MEMORY OF THE ASSESSEE'S DECEAS ED HUSBAND AFTER WHOM THE COLLEGE WAS TO BE NAMED, IT WAS HELD BY THIS COURT THAT THE INTEREST ON THE BOR ROWED FUND IN SUCH A CASE COULD NOT BE ALLOWED, AS IT COULD NOT BE SAID THAT IT WAS FOR COMMERCIAL EXPEDIEN CY. 28. THUS, THE RATIO OF MADHAV PRASAD JATIA'S CASE [1979 (118) ITR 200 (SC)] IS THAT THE BORROWED FUND ADVANCED TO A THIRD PARTY SHOULD BE FOR COMMERCIAL EXPEDIENCY IF IT IS SOUGHT TO BE ALLOWED UNDER SECTION 36(1)(III) OF THE ACT. 29. IN THE PRESENT CASE, NEITHER THE HIGH COURT NOR THE TRIBUNAL NOR OTHER AUTHORITIES HAVE EXAMINED WHET HER THE AMOUNT ADVANCED TO THE SISTER CONCERN WAS BY W AY OF COMMERCIAL EXPEDIENCY. 30. IT HAS BEEN REPEATEDLY HELD BY THIS COURT THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARN ING PROFITS VIDE CIT V. MALAYALAM PLANTATIONS LTD. [19 64 53 ITR 140 (SC), CIT V. BIRLA COTTON SPINNING AND WEAVING MILLS LTD. [1971 82 ITR 166 (SC)], ETC. IN THE PROCESS, THE COURT ALSO AGREED T HAT THE VIEW TAKEN BY THE DELHI HIGH COURT IN 'CIT V. DALMIA CE MENT (B.) LTD.' [2002 (254) ITR 377] WHEREIN THE HIGH COUR T HAD HELD THAT ONCE IT IS ESTABLISHED THAT THERE IS NEX US BETWEEN 9 THE EXPENDITURE AND THE PURPOSE OF BUSINESS (WHI CH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITS ELF), THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM- CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF T HE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUC H IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCU MSTANCES OF THE CASE. IT FURTHER HELD THAT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT AND THAT THE INCO ME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF T HE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. APPLYING THE AFORESAID RATIO TO THE FACTS OF THIS CASE AS ALREADY NOTED ABOVE, IT IS MANIFEST THAT THE ADVANCE TO M/S. HERO FIBRES LIMITED BECAME IMPERATIVE AS A BUSINESS EXPEDIENCY IN VIEW OF THE UNDERTAKIN G GIVEN TO THE FINANCIAL INSTITUTIONS BY THE ASSESSEE TO THE EFFECT THAT IT WOULD PROVIDE ADDITIONAL MARGIN TO M/S. HERO FI BRES LIMITED TO MEET THE WORKING CAPITAL FOR MEETING ANY CASH LOSES. IT WOULD ALSO BE SIGNIFICANT TO MENTIO N AT THIS STAGE THAT, SUBSEQUENTLY, THE ASSESSEE COMPANY HAD OFF- LOADED ITS SHARE HOLDING IN THE SAID M/S. HERO FI BRES LIMITED TO VARIOUS COMPANIES OF OSWAL GROUP AND AT THAT TIME, THE ASSESSEE COMPANY NOT ONLY REFUNDED BAC K THE ENTIRE LOAN GIVEN TO M/S. HERO FIBRES LIMITED BY T HE ASSESSEE BUT THIS WAS REFUNDED WITH INTEREST. IN THE YEAR IN WHICH THE AFORESAID INTEREST WAS RECEIVED, SAME WAS SHOWN AS INCOME AND OFFERED FOR TAX. IN SO FAR AS THE LOANS TO DIRECTORS ARE CONCERNED, IT COULD NOT BE DISPUTED BY THE REVENUE THAT THE ASSE SSEE HAD A CREDIT BALANCE IN THE BANK ACCOUNT WHEN THE SAID ADVANCE OF RS. 34 LAKHS WAS GIVEN. REMARKABLY, AS OBSER VED BY THE CIT (APPEAL) IN HIS ORDER, THE COMPAN Y HAD RESERVE/SURPLUS TO THE TUNE OF ALMOST 15 CROR ES AND, THEREFORE, THE ASSESSEE COMPANY COULD IN ANY CASE, UTILISE THOSE FUNDS FOR GIVING ADVANCE TO ITS DIRECTORS. 10 ON THE BASIS OF AFORESAID DISCUSSION, THE PRESENT APPEAL IS ALLOWED, THEREBY SETTING ASIDE THE ORDER OF THE HIGH COURT AND RESTORING THAT OF THE INCOME TAX APPELLATE TRIBUNAL. IN VIEW OF THE ABOVE, IN THIS CASE, NO DISALLOWANCE IS CALLED FOR. IN THE CASE OF HERO CYCLES LTD. (SUPRA), THE HON'BLE SUPREME COURT HAS MENTIONED THE DECISION OF THE HON'BLE DELHI HIGH COURT IN DALMIA CEMENT (B .) LTD (2002) 254 ITR 377 (DELHI.) IN THE SAID CASE THE HON'BLE DELHI HIGH C OURT HAS HELD THAT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT AND THAT THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN SHOES OF THE ASS ESSEE AND SEE HOW A PRUDENT BUSINESS MAN WOULD ACT. 7. IN VIEW OF THE ABOVE DISCUSSION, WE HAVE NO HESITATION IN HOLDING THAT NO DISALLOWANCE OF INTEREST CAN BE MADE IN THIS CASE; PARTICULARLY WHEN THE ADVANCES ARE MADE OUT OF THE OWN FUNDS OF THE ASSES SEE AND THE AMOUNT ADVANCED TO THE SISTER CONCERN / HOSPITAL / TRUST W AS BY WAY OF COMMERCIAL EXPEDIENCY. ACCORDINGLY, WE DELETE THE DISALLOWANC E OF RS. 12,75,360/- MADE US/ 36(1)(III) OF THE ACT. 8. IN THE RESULT, THE APPEAL IS ALLOWED. ITA NO. 536/CHD/2015 (A.Y. 2005-06) 9. THE ONLY GROUND RAISED BY THE ASSESSEE IN THIS A PPEAL READS AS UNDER:- THAT THE LD. CIT(A)-II HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 16,22,569/- ON ACCO UNT OF ALLEGED INTEREST FREE ADVANCE TO NIHAL SINGH PAHWA CHARITABLE HOSPITAL. 10. THE FACTS OF THE PRESENT CASE ARE SIMILAR TO TH AT OF ITA NO. 1048/CHD/2013 RELATING TO ASSESSMENT YEAR 2004-05. DURING THE YE AR UNDER CONSIDERATION THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS OF RS. 1, 30,51,310/- TO ITS SISTER 11 CONCERN SARDAR NIHAL SINGH PAHWA HOSPITAL (TRUST). THE ASSESSING OFFICER DISALLOWED INTEREST U/S 36(1)(III) OF THE ACT, AMO UNTING TO RS. 16,22,569/- ON ACCOUNT OF INTEREST FREE LOANS GIVEN TO THE AFORESA ID TRUST. ON APPEAL, THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER AN D HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 11. IT IS OBSERVED THAT THE SHARE CAPITAL, RESERVES AND DEFERRED TAX OF THE ASSESSEE COMPANY AS ON 1.4.2004 WERE AMOUNTING TO R S. 64.72 CRORES. BESIDES THIS, INCOME OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS AT RS. 33,20,56,211/-. FROM THE ABOVE FIGURES, IT IS CRYST AL CLEAR THAT OWN FUNDS AND RESERVES FUNDS OF THE ASSESSEE ARE MORE THAN SUFFIC IENT TO COVER THE ADVANCES MADE TO ITS SISTER CONCERN. THE DECISIONS GIVEN IN ITA NO. 1048/CHD/2013 FOR THE ASSESSMENT YEAR 2004-05 SHALL ALSO APPLY TO THI S APPEAL WITH EQUAL FORCE. FOR THE DETAILED FINDINGS GIVEN IN ITA NO. 1048/CHD/201 3 RELATING TO ASSESSMENT YEAR 2004-05, WE DELETE THE DISALLOWANCE OF RS. 1,3 0,51,310/- MADE U/S 36(I)(III) OF THE ACT. 12. IN THE RESULT, ITA NO. 536/CHD/2015 IS ALLOWED. ITA NO. 1296/CHD/2015 (A.Y. 2007-08) REVENUES AP PEAL 13. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF CIT(A)- II, LUDHIANA DATED 2.9.2010 RELATING TO ASSESSMENT YEAR 2007-08. 14. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLL OWING GROUNDS:- 1. THAT THE LD. CIT(A)-II HAS ERRED IN LAW AND ON FACT S IN DELETING THE DISALLOWANCE OF RS. 13,29,046/- MADE B Y ASSESSING OFFICER U/S 14A ON ACCOUNT OF EXPENDITURE INCURRED TO EARN EXEMPT INCOME. 12 2. THAT LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DE LEING THE DISALLOWANCE OF RS. 23,78,966/- MADE BY THE ASSESSI NG OFFICER U/S 36(I)(III) OF THE I.T. ACT. 15. AS REGARDS GROUND NO.1 OF THE APPEAL, THE RELEV ANT FACTS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2007 D ECLARING TOTAL INCOME AT RS. 12,30,45,410/-. THE ASSESSEE EARNED DIVIDEND OF RS. 9,06,051/- WHICH WAS CLAIMED EXEMPT. THE ASSESSING OFFICER INVOKED THE P ROVISIONS OF SECTION 14A AND ALSO APPLIED PROVISIONS OF RULE 8-D OF THE I.T. RULES 1962. CONSEQUENTLY, THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 13,29 ,046/-. 16. ON APPEAL, THE CIT(A) ALLOWED A RELIEF OF RS. 1 2,22,725/-. IN THE GROUND OF APPEAL THE REVENUE HAS WRONGLY MENTIONED THE FIG URE OF DISALLOWANCE AT RS. 13,29,046/- INSTEAD OF DISALLOWANCE OF RS. 12,22,72 5/- DELETED BY THE CIT(A). 17. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ASSESS EE HAD EARNED INCOME FROM DIVIDEND AT RS. 9,06,051/- AND SHOWN INVESTMEN T IN SHARES AND MUTUAL FUNDS AT RS. 1,98,88,123/-. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THESE INVESTMENTS HAVE BEEN MADE OUT OF COMPANIES OWN FUN DS RUNNING TO THE TUNE OF SEVERAL CRORES OF RUPEES IN THE SHAPE OF SHARE CAPI TAL OF RS. 5.98 CRORES, RESERVES AT RS. 88.95 CORES AND INCOME OF THE YEAR AT RS. 18 ,14,58,923/-. FORM THESE FIGURES, IT IS QUITE CLEAR THAT THE OWN FUNDS / RES ERVES OF THE ASSESSEE WERE MORE THAN SUFFICIENT TO COVER THE INVESTMENTS MADE DURIN G THE YEAR. IN THIS BACKGROUND, IT CAN BE SAFELY PRESUMED THAT ALL THE INVESTMENTS WERE MADE OUT OF ASSESSEES OWN FUNDS. WHILE TAKING SUCH A VIEW, WE ARE FORTIFIED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF B RIGHT ENTERPRISES (P) LTD VS. 13 CIT JALANDHAR ITA NO. 224 OF 2013 (O&M) DATED 24.7. 2015, WHEREIN IT HAS BEEN HELD AS UNDER:- 16. AS WE NOTED EARLIER, THE FUNDS/RESERVES OF THE APPELLANT WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE BY IT OF RS.10.29 CRORES TO ITS SISTER COMPANY. WE ARE EN TIRELY IN AGREEMENT WITH THE JUDGMENT OF THE BOMBAY HIGH COUR T IN COMMISSIONER OF INCOME TAX VS. RELIANCE UTILITIE S & POWER LTD., (2009) 313 ITR 340, PARA-10, THAT IF TH ERE ARE INTEREST FREE FUNDS AVAILABLE A PRESUMPTION WOULD A RISE THAT INVESTMENT WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDIC TIONAL HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES (P) LTD VS. CIT JALANDHAR I TA NO. 224 OF 2013 (O&M), WE HOLD THAT NO DISALLOWANCE U/S 14A /RULE 8D OF THE I.T. RULES CAN BE MADE IF INVESTMENT IS OUT OF OWN FUNDS AND RESERVES. WE MAY ALSO ADD HERE THAT RULE 8- D OF I.T. RULES, 1962 IS NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION IN THIS CASE. HOWEVER, RULE 8-D IS APPLICABLE FROM ASSESSME NT YEAR 2008-09 AS IT HAS BEEN HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE C ASE OF GODREJ & BOYCE MFG. CO. LTD VS. DCIT (2010) 328 ITR 81 (BOM,). EV EN ON THIS SCORE ALSO, WE HOLD THAT DISALLOWANCE MADE BY THE ASSESSING OFFIC ER AND CONFIRMED BY THE CIT(A) IS BAD IN LAW. IN VIEW OF THE ABOVE, WE REJE CT GROUND NO.1 OF THE APPEAL. 18. AS REGARDS GROUND NO.2 OF THE APPEAL, THE RELEV ANT FACTS ARE THAT THE ASSESSING OFFICER DISALLOWED INTEREST U/S 36(I)(III ) OF THE ACT AMOUNTING TO RS. 23,78,966/- ON INTEREST FREE ADVANCE TO PAHWA CHAR ITABLE TRUST. ON APPEAL, THE CIT(A) DELETED THE ADDITION RELYING ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. KANDAGIRI SPINNING MIL LS LTD (2008) 298 ITR 306 (MAD.). IN THAT CASE ALSO, THE AMOUNT GIVEN AS ADV ANCE TO A HOSPITAL UNDER 14 SIMILAR CIRCUMSTANCES WAS CONSIDERED TO BE ON ACCOU NT OF COMMERCIAL EXPEDIENCY. 19. BEFORE US, IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT ASS ESSEE HAD ADVANCED A LOAN OF RS. 1,62,85,560/- TO M/S PAHWA C HARITABLE TRUST HOSPITAL (TRUST). IT IS CLAIMED THAT THE ASSESSEE HAD SHARE CAPITAL OF RS. 5.98 CRORES , RESERVES AT RS. 88.95 CRORES AND ALSO INCOME OF THE YEAR AT RS. 18,14,58,923/-. THUS, IT IS CLEAR THAT OWN FUNDS AND RESERVES OF T HE ASSESSEE ARE MORE THAN SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE TO ITS SISTER CONCERN. THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THAT THOSE IN ITA NO. 1048/CHD/2013 RELATING TO ASSESSMENT YEAR 2004-05. THE DECISION G IVEN IN ITA NO. 1048/CHD/2013 (SUPRA) SHALL ALSO APPLY TO THIS GROU ND OF APPEAL WITH EQUAL FORCE. 20. FOR THE DETAILED REASONS GIVEN THEREIN, WE DO N OT FIND ANY MERIT IN GROUND NO.2 OF THE APPEAL. ACCORDINGLY, WE DISMISS GROUND NO.2 OF THE APPEAL. 21. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D . ITA NO. 753/CHD/2012 (A.Y. 2008-09) 22. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) II, LUDHIANA DATED 24.6.20102 RELATING TO ASSESSMENT Y EAR 2008-09. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A)-II HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST U/S 36(1)(III) AMOUNTING T O RS. 1,54,46,774/- ON ACCOUNT OF ALLEGED DEBIT BALANCE I N THE ACCOUNTS OF VARIOUS PARTIES. 15 2. THAT LD. CIT(A) HAS ERRED IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 15,82,729/- MADE BY THE ASSESSI NG OFFICER U/S 14A R.W. RULE 8D OF THE INCOME TAX RULE S. 23. WHILE FRAMING THE ASSESSMENT THE ASSESSING OFFI CER DISALLOWED A SUM OF RS. 1,55,43,985 U/S 36(1)(III) ON ACCOUNT OF ALLEG ED INTEREST FREE ADVANCE GIVEN TO VARIOUS PARTIES. THE DETAILS OF THE PARTIES ARE AS UNDER;- NAME AMOUNT OF LOAN NO. OF DAYS INTEREST DISALLOWED. PAHWA INVESTMENT PVT. LTD 18,945 153 953/- ROOPA PAHWA 9,441/- 248 770/- KULBIR PAHWA 1,05,000/- 365 12,600/- PAHWA INVESTMENTS PVT. LTD. 4,200/- 365 504/- CONSULTANCY SS A/C (FS) 2,76,060 365 33,127/- CONSULTANCY SS A/C (FS) 86,46,196/- 365 10,37,543/ - AVERY RALEIGH CYCLE LTD 8,09,62,614/- 365 97,15,513/- PAHWA CHARITABLE HOSPITAL 1,98,56,569/- 365 23,82,788/- S. NIHAL SINGH PAHWA TRUST 4,34,675/- 365 52,161/- CAPROINFOTECH 14,00,000/- 365 1,68,000/- NITIN KUMAR DELHI 17,00,000/- 365 2,04,000/- LARSON & TURBO DELHI 5898832/- 365 7,07,860/- CONTAINER CORP. MARINE AGENCIES PVT LTD 93,25,233/- 365 11,19,028/- AVON RIMS LTD. 1,500/- 365 180/- AVON ISPAT LTD 1,500/- 365 180/- AVON ISPAT LTD 96,389/- 365 11,567/- SUSPENSE ACCOUNT 8,10,096/- 365 97,211/- TOTAL DISALLOWANCE 1,55,43,985 16 24. ON APPEAL, THE CIT(A) DELETED THE DISALLOWANCE OF RS. 97,211/- MADE ON ACCOUNT OF SUSPENSE ACCOUNT. HOWEVER, THE CIT(A) CO NFIRMED THE ADDITION OF RS. 1,54,46,774/-. 25. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI SUBHA SH AGGARWAL, LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT ASSESSEE HAD PAID SHARE APPLICATION MONEY TO AVERY RALEIGH CYCLES LTD. HE FURTHER POINTED OUT TH AT THE SHARES WILL BE ALLOTTED BY THEM AS AND WHEN THERE BICYCLES UNIT GOES INTO O PERATION AND IN CASE THIS DOES NOT HAPPEN, THE SHARE APPLICATION MONEY WILL B E REFUNDED BY THE SAID UNIT WITH INTEREST UPTO DATE. HE FURTHER POINTED OUT THA T THE SAID CONCERN SHALL PURCHASE FROM THE ASSESSEE COMPANY STEEL STRIPS, BI CYCLE RIMS AND STEEL TUBES WHICH SHALL BE USED BY THEM FOR PRODUCTION OF THE C OMPLETE BICYCLES. THE INVESTMENT HAS NOT BEEN MADE MERELY WITH A VIEW TO EARN TAX FREE DIVIDEND. RATHER, IT IS A COMMERCIAL DEAL AND INVOLVES BUSI NESS EXPEDIENCY, SUBMITTED THE LD. COUNSEL FOR THE ASSESSEE. SHRI SUBHASH AGGA RWAL, LD. COUNSEL FOR THE ASSESSEE ALSO POINTED OUT THAT RS. 2,02,91,244/- IN TEREST FREE ADVANCES WERE GIVEN TO S. NIHAL SINGH PAHWA TRUST BY WAY OF COMME RCIAL EXPEDIENCY. SHRI SUBHASH AGGARWAL, LD. COUNSEL FOR THE ASSESSEE ALSO POINTED OUT THAT OTHER PETTY ADVANCES AMOUNTING TO RS. 91,36,086/- WERE AD VANCED TO THE PARTIES MENTIONED HEREIN ABOVE FOR BUSINESS PURPOSES. HE FURTHER SUBMITTED THAT AS ON 1.4.2007, THE SHAR E CAPITAL OF THE ASSESSEE COMPANY WAS AT RS. 5.98 CORES, RESERVES AT 97.19 CO RES AND ALSO INCOME OF THE YEAR UNDER CONSIDERATION AT RS. 18,56,60,510/-. IN OUR OPINION, THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THAT OF ITA NO. 1048/C HD/2013 REFERRED TO ABOVE. THE FINDINGS GIVEN THEREIN SHALL ALSO APPLY TO THIS GROUND OF APPEAL WITH EQUAL FORCE. FOR THE DETAILED REASONS GIVEN THEREIN, WE ALLOW THIS GROUND OF APPEAL AND DELETE THE DISALLOWANCE OF RS. 1,54,46,774/-. 17 26. AS REGARDS GROUND NO.2 OF THE APPEAL, IT IS OBS ERVED THAT THE ASSESSING OFFICER DISALLOWED RS. 15,82,729/- U/S 14A READ WIT H RULE 8D OF THE INCOME TAX RULES. THE ASSESSEE HAD SHOWN INVESTMENT OF RS. 1,9 8,88,122/- AND RS. 2,18,12,014/- AS ON 31.3.2007 AND 31.3.2008 RESPECT IVELY. ACCORDING TO ASSESSING OFFICER, THE ASSESSEE HAD CLAIMED INTERES T OF RS. 16,57,83,834/-. THE ASSESSING OFFICER WHILE INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE I.T. RULES DISALLOWED A SUM OF RS. 15,82, 729/- AND THE SAID DISALLOWANCE WAS CONFIRMED BY THE CIT(A). 27. WHILE DECIDING GROUND NO.1 OF THE APPEAL, WE HA VE OBSERVED THAT THE ASSESSEE HAD OWN FUNDS AND RESERVES AND ALSO THE IN COME EARNED DURING THE YEAR OUT OF WHICH INVESTMENT WERE MADE. THEREFORE, NO DI SALLOWANCE U/S 14A / RULE 8D OF THE I.T. RULES CAN BE MADE IF THE INVESTMENT IS OUT OF OWN CAPITAL AND RESERVES. ACCORDINGLY, WE ALLOW THIS GROUND OF APPE AL. 28. GROUND NO.3 OF THE APPEAL IS GENERAL IN NATURE AND, HENCE, NO COMMENTS ARE BEING GIVEN. 29. GROUND NO. 4 OF THE APPEAL RELATES TO CHARGING OF INTEREST U/S 234B AND 234D OF THE ACT. 30. AT THE TIME OF HEARING OF THE APPEAL, IT WAS CL AIMED THAT THIS GROUND OF APPEAL IS CONSEQUENTIAL IN NATURE. WE HOLD ACCORDI NGLY AND DIRECT THE ASSESSING OFFICER TO GIVE RELIEF OF THE ASSESSEE AC CORDINGLY. IN VIEW OF THE ABOVE, APPEAL OF THE ASSESSEE IS ALLOWED. 31. IN THE RESULT, THE ITA NO. 753/CHD/2012 IS ALLO WED. 18 ITA NO. 62/CHD/2013 (A.Y. 2009-10) 32. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF CIT(A)-II DATED 27.12.2012 RELATING TO ASSESSMENT YEAR 2009-1 0. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A)-II HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST U/S 36(1)(III) AMOUNTING TO RS. 36,29,8 00/- ON ACCOUNT OF ALLEGED DEBIT BALANCE IN THE ACCOUNTS OF VARIOUS PARTIES. 2. THAT LD. CIT(A) HAS ERRED IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 19,49,303/- MADE BY THE ASSESSING OFFICER U/ S 14A R.W. RULE 8D OF THE INCOME TAX RULES ON DIVIDEND INCOME OF RS. 39755/- IGNORING THE FACTS THAT ALL THE INVESTMENTS WERE MADE OUT OF OWN FUNDS. 3. THAT THE AFORESAID DISALLOWANCE IS AGAINST THE LAW AND FACTS OF THE CASE. 4. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE CH ARGING OF INTEREST U/S 234B & 234D OF THE INCOME TAX ACT. 33. THE FACTS RELATING TO GROUND NO.1 OF THE APPEA L ARE THAT THE ASSESSEE HAD GIVEN LOANS AND ADVANCES TO THE TUNE OF RS. 17,25,7 2,880/-. FURTHER, THE ASSESSEE HAD RECEIVED SECURED LOANS OF RS. 76,24,54,555/- AN D UNSECURED LOANS OF RS. 26,91,23,653/-. THE TOTAL INTEREST EXPENDITURE CLA IMED BY THE ASSESSEE WAS RS. 18,93,94,225/-. THE ASSESSING OFFICER NOTED THAT FO LLOWING ADVANCES GIVEN BY THE ASSESSEE WERE NOT FOR ANY BUSINESS PROPOSES AND THE ASSESSEE HAS NOT CHARGED ANY INTEREST ON THESE ADVANCES. NAME AMT ROOP PAHWA 9,441/- KULBIR PAHWA 1,05,000/- 19 CONSULTANCY SS A/C (FS) 2,76,060/- CONSULTANCY SS A/C (FS) 86,46,196/- PAHWA CHARITABLE HOSPITAL 1,98,56,569/- 34. THE ASSESSING OFFICER DISALLOWED INTEREST U/S 3 6(1)(III) OF THE ACT AT RS. 36,29,800/-. ON APPEAL, THE CIT(A) CONFIRMED THE AD DITION AND, HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 35. AFTER HEARING LD. REPRESENTATIVES OF BOTH THE P ARTIES, WE FIND THAT WHILE DECIDING THE ISSUE THE CIT(A) HAS FOLLOWED HIS OWN ORDER PASSED IN ASSESSEES CASE FOR THE ASSESSMENT YEAR 2008-09 DATED 24.6.201 2. WHILE DECIDING A SIMILAR ISSUE IN 2008-09 IN ASSESSEES CASE WE HAVE ALLOWE D THE GROUND IN FAVOUR OF THE ASSESSEE. THE DECISION GIVEN IN ITA NO. 753/CHD/201 2 RELATING TO ASSESSMENT YEAR 2008-09, SHALL ALSO APPLY TO THIS GROUND OF AP PEAL WITH EQUAL FORCE. ACCORDINGLY, WE ALLOW GROUND NO.1 OF THE APPEAL. 36. AS REGARDS GROUND NO.2 OF THE APPEAL, THE FACTS ARE THAT THE ASSESSEE HAD SHOWN INVESTMENTS OF RS. 2,18,12,014/- AND RS. 2,2 3,86,033/- AS ON 31.3.2008 AND 31.3.2009 RESPECTIVELY. THE ASSESSEE CLAIMED I NTEREST EXPENDITURE OF RS. 18,93,94,225/-. THE ASSESSING OFFICER INVOKED THE P ROVISIONS OF SECTION 14A OF THE ACT AND DISALLOWED RS. 19,49,303/- BY INVOKING THE PROVISIONS OF RULE 8D OF I.T. RULES, 1962. 37. ON APPEAL, THE CIT(A) FOLLOWING HIS OWN ORDER P ASSED IN ASSESSEES CASE FOR ASSESSMENT YEAR 2008-09 CONFIRMED THE DISALLOW ANCE AND, HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 38. IN VIEW OF THE DECISION ON SIMILAR ISSUE PASSED IN ASSESSEES CASE FOR ASSESSMENT YEAR 2008-09, AND ALSO KEEPING IN VIEW T HE FACTS NARRATED IN RELATION 20 TO GROUND NO.1 OF THIS APPEAL, WE HOLD THAT THERE W AS NO JUSTIFICATION IN MAKING THE DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE I.T. RULES. ACCORDINGLY, WE ALLOW THIS GROUND OF APPEAL. 39. GROUND NO. 4 OF THE APPEAL RELATES TO CHARGING OF INTEREST U/S 234B AND 234D OF THE ACT. AT THE TIME OF HEARING, IT WAS CL AIMED THAT THIS GROUND IS CONSEQUENTIAL IN NATURE AND WE HOLD ACCORDINGLY. W E DIRECT THE ASSESSING OFFICER TO GIVE RELIEF TO THE ASSESSEE ACCORDINGLY. 40. IN THE RESULT, ITA NO. 62/CHD/2013 IS ALLOWED. ITA NO. 822/CHD/2014 (A.Y. 2009-2010) REVENUES A PPEAL 41. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF CIT(A)- II, LUDHIANA DATED 7.7.2014 IN CANCELLING THE PENAL TY OF RS. 18,96,340/- LEVIED UPON THE ASSESSEE U/S 271(1)(C) OF THE ACT FOR TH E ASSESSMENT YEAR 2009-10. 42. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER MADE FOLLOWING ADDITIONS:- I) ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST U/S 36(1)(III) RS. 36,29,800/- II) ADDITION ON ACCOUNT OF DISALLOWANCE U/S 14A -RS. 19 49,303/- THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS US/ 271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE COMPANY. THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AND AFTER CONSIDERING THE REPLY SUBMITTED BY THE ASSESSEE, IM POSED A PENALTY OF RS. 18,96,338/- U/S 271(1)(C) OF THE ACT. 21 43. ON APPEAL, THE CIT(A) CANCELLED THE PENALTY FOR THE REASONS GIVEN IN PARA 3.3. TO 3.4.2.3 OF THE IMPUGNED ORDER AND, HENCE, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 44. WHILE DECIDING THE QUANTUM APPEAL OF THE ASSESS EE IN ITA NO. 62/CHD/2010 FOR ASSESSMENT YEAR 2009-10, WE HAVE DE LETED BOTH THE ADDITIONS AND THEREFORE, THERE REMAINS NO BASIS FOR LEVYING T HE PENALTY U/S 271(1)(C) OF THE ACT FOR FURNISHING THE INACCURATE PARTICULARS O F INCOME . IT IS WELL SETTLED LAW THAT WHERE THE ADDITIONS MADE IN THE ASSESSMENT ORDER, ON THE BASIS OF WHICH PENALTY U/S 271(1)(C) WAS LEVIED, ARE DELETED, THE RE REMAINS NO BASIS AT ALL FOR LEVYING THE PENALTY U/S 271(1)(C) OF THE ACT AND, THEREFORE, IN SUCH A CASE, NO SUCH PENALTY CAN SURVIVE AND THE SAME IS LIABLE TO BE CANCELLED. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THE REVENUE S APPEAL AND ACCORDINGLY THE SAME IS DISMISSED. 45. IN THE RESULT, ITA NO 822/CHD/20114 IS DISMISSE D ITA NO. 928/CHD/2013 (A.Y. 2010-11) 46. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF CIT(A)-II LUDHIANA 27.8.2013 RELATING TO ASSESSMENT YEAR 2010 -11. 47. GROUND NO.1 OF THE APPEAL READS AS UNDER:- 1. THAT THE LD. CIT(A)-II HAS ERRED IN CONFIRMING DISALLOWANCE OF INTEREST U/S 36(1)(III) AMOUNTING T O RS. 37,84,532/- ON ACCOUNT OF ALLEGED DEBIT BALANCE IN ACCOUNTS OF VARIOUS PARTIES. 48. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD SHOWN LOANS AND ADVANCES GIVEN TO THE FOLLOWING PARTIES:- 22 NAME AMT ROOP PAHWA 46,444/- KULBIR PAHWA 1,05,000/- CONSULTANCY SS A/C (FS) 2,76,060/- CONSULTANCY SS A/C (FS) 86,46,196/- PAHWA CHARITABLE HOSPITAL 2,,33,89,392/- THE ASSESSING OFFICER NOTED THAT THE ASSESSEE ALSO RECEIVED SECURED LOANS OF RS. 67,49,19,233/- AND UNSECURED LOANS OF RS. 3,83,74,5 39/-. THE TOTAL INTEREST EXPENDITURE CLAIMED BY ASSESSEE WAS RS. 14,25,95,62 9/-. THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 37,84,532/- U/S 36(1)(III) OF THE ACT. 49. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION FO LLOWING HIS ORDER PASSED IN ASSESSEES CASE FOR ASSESSMENT YEARS 2008-09 AN D 2009-10. 50. WE HAVE HEARD THE RIVAL SUBMISSIONS. WHILE DEC IDING THE ASSESSEES CASE IN ITA NO. 753/CHD/2012 (ASSESSMENT YEAR 2008-09) A ND ITA NO.62/CHD/2013 (A.Y. 2009-10), WE HAVE ALLOWED A SIMILAR GROUND IN FAVOUR OF THE ASSESSEE. IT IS CLAIMED THAT THE FACTS OF THE PRESENT YEAR ARE S IMILAR TO THAT THOSE IN ASSESSMENT YEARS 2008-09 AND 2009-10. IN THAT VIEW OF THE MATTER, WE ALLOW THIS GROUND OF APPEAL. WE MAY ALSO ADD HERE THAT AS ON 1.4.2009, THE ASSESSEES SHARE CAPITAL WAS AT RS. 5.98 CRORES, RESERVES AT 1 12.97 CRORES AND ALSO INCOME OF THE YEAR AT RS. 38,96,56,199/-. FOR THE DETAILE D REASONS GIVEN IN ITA NO. NO. 753/CHD/2012 (ASSESSMENT YEAR 2008-09) AND ITA NO.6 2/CHD/2013 (A.Y. 2009- 10) (SUPRA), WE ALLOW GROUND NO.1 OF THE APPEAL. 51. GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING TH E DISALLOWANCE OF RS. 13,85,002/- MADE BY THE ASSESSI NG OFFICER 23 U/S 14A R.W. RULE 8D OF THE INCOME TAX RULES ON DIV IDEND INCOME OF RS. 35,454/- IGNORING THE FACTS THAT ALL THE INV ESTMENTS WERE MADE OUT OF OWN FUNDS. 52. THE ASSESSEE HAS MADE INVESTMENT IN SHARES AT R S. 1,65,75,025/-. THE ASSESSEE CLAIMED INTEREST EXPENDITURE AT RS. 1,42,5 9,629/-. THE ASSESSING OFFICER WHILE INVOKING THE PROVISIONS OF SECTION 14 A OF THE ACT, HELD THAT RS. 13,85,002/- SHOULD BE DISALLOWED UNDER RULE 8D. ACC ORDINGLY, THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 13,85,002/-. ON APP EAL, THE CIT(A) FOLLOWING HIS OWN ORDER PASSED IN ASSESSEES CASE FOR ASSESS MENT YEAR 2008-09 AND 2009- 10 DATED 24.6.2012 AND 27.12.2.012 RESPECTIVELY UPH ELD THE DECISION OF THE ASSESSING OFFICER IN DISALLOWING THE EXPENDITURE U/ S 14A READ WITH RULE 8-D OF THE I.T. RULES. 53. IT IS OBSERVED THAT WHILE DECIDING A SIMILAR IS SUE IN ITA NO. 753/CHD/2012 (ASSESSMENT YEAR 2008-09) AND ITA NO.6 2/CHD/2013 (A.Y. 2009- 10), IN ASSESSEES OWN CASE, WE HAVE ALLOWED THE SA ME IN FAVOUR OF THE ASSESSEE. IT IS RELEVANT TO POINT OUT HERE THAT WHILE DECIDIN G GROUND NO.1 OF THIS APPEAL, WE HAVE OBSERVED THAT AS ON 1.4.2009, THE ASSESSEE S SHARE CAPITAL AND RESERVES WERE MORE THAN SUFFICIENT TO COVER THE INVESTMENTS, AND THEREFORE NO DISALLOWANCE U/S 14A READ WITH RULE 8D CAN BE MADE IF THE INVESTMENTS ARE OUT OF OWN CAPITAL AND RESERVES. THERE IS NO MATERIAL O N RECORD TO CONTROVERT THE FACTS OF THE PRESENT CASE AND, THEREFORE, WE ALLOW GROUND NO.2 OF THE APPEAL. 54. GROUND NO.3 OF THE APPEAL IS GENERAL IN NATURE AND, HENCE, NO COMMENTS ARE BEING GIVEN. 55. GROUND NO.4 RELATES TO CHARGING OF INTEREST U/S 234A AND 234B OF THE ACT. IT IS STATED BY LD. COUNSEL FOR THE ASSESSEE T HAT THIS GROUND OF APPEAL IS 24 CONSEQUENTIAL IN NATURE AND WE HOLD ACCORDINGLY. W E DIRECT THE ASSESSING OFFICER TO GIVE RELIEF TO THE ASSESSEE ACCORDINGLY . 56. IN THE RESULT, THE ITA NO. 928/CHD/2013 IS ALLO WED. ITA NO.778/CHD/2014 (A.Y. 2011-12) 57. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF CIT(A) DATED 4.7.2014 RELATING TO ASSESSMENT YEAR 2011-12. 58. THE FIRST ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL RELATES TO DISALLOWANCE OF RS. 77,57,820/- U/S 36(I)(III) OF THE ACT. DURI NG THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ADVANCED INTEREST FREE ADVANCES TO THE FOLLOWING PERSONS: NAME AMOUTN PEARIOD ROOPA PAHWA 46,444/- SQUARED UP KULBIR PAHWA 1,05,000 365 DAYS AVERY RALEIGH CYCLES LTD 4,42,45,402/- 365 DAYS S. NIHAL SINGH PAHWA CHARITABLE HOSPITAL 1,91,18,333/- 365 DAYS THE ASSESSEE CLAIMED EXPENDITURE OF RS. 14,27,42,63 2/-. AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND ALS O CONSIDERING THE REPLY OF THE ASSESSEE THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 77,57,820/- U/S 36(I)(III) OF THE ACT. 59. ON APPEAL , THE CIT(A) CONFIRMED THE ADDITION F OLLOWING HIS OWN ORDER PASSED IN ASSESSEES CASE FOR ASSESSMENT YEARS 20 08-09, 2009-10 AND 2010-11 AND HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIB UNAL. 25 60. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI SUBHA SH AGGARWAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS ON 1.7.2 010, THE SHARE CAPITAL OF THE ASSESSEE WAS AT RS. 5.98 CRORES, RESERVES AT RS. 13 2.04 CRORES AND ALSO THE INCOME OF THE YEAR WAS AT RS. 38,66,06,406/-. ACC ORDING TO LD. COUNSEL FOR THE ASSESSEE, ADEQUATE FREE RESERVES AND SHARE CAPITAL AND INCOME OF THE YEAR WERE AVAILABLE TO THE ASSESSEE TO COVER THE ADVANCES MAD E TO THE ABOVE PARTIES. HE FURTHER POINTED OUT THAT THE ASSESSEE HAD ESTABLISH ED THAT THERE WAS COMMERCIAL EXPEDIENCY IN GIVING THE INTEREST FREE ADVANCE TO T HE ABOVE PARTIES. IT IS OBSERVED THAT WHILE DECIDING THE ASSESSES CASE IN ITA NO. 753/CHD/2012 (ASSESSMENT YEAR 2008-09) AND ITA NO.62/CHD/2013 (A .Y. 2009-10 AND ITA NO. 928/CHD/2013 (ASSESSMENT YEAR 2010-11), WE HAVE DEC IDED A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. FOR THE DETAILED REASONS GI VEN THEREIN, WE ALLOW THIS GROUND OF APPEAL AND DELETE THE DISALLOWANCE OF RS. 77,57,836/- MADE U/S 36(1)(III) OF THE ACT. 61. THE NEXT ISSUE RELATES TO DISALLOWANCE OF RS. 1 1,95,180/ U/S 14A READ WITH RULE 8D OF THE I.T. RULES. DURING THE YEAR UND ER CONSIDERATION THE ASSESSEE MADE INVESTMENT OF RS. 1,65,57,037/-. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD CLAIMED INTEREST EXPENDITURE AT RS. 14,27,42,6 32/-. THE ASSESSING OFFICER TOOK THE VIEW THAT EXPENDITURE INCURRED IN RELATIO N TO SUCH INVESTMENTS WAS TO BE DISALLOWED U/S 14A OF THE ACT. THE ASSESSING OF FICER ACCORDINGLY DISALLOWED THE AMOUNT OF RS. 11,95,180/- U/S 14A O F THE ACT, READ WITH RULE 8D OF THE I.T. RULES, 1962. 62. ON APPEAL, THE CIT(A) FOLLOWING HIS OWN ORDER P ASSED IN ASSESSEES CASE FOR THE ASSESSMENT YEARS 2008-09, 2009-10 AND 2010- 11 UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER STATING THAT THE FACT S OF THE PRESENT YEAR ARE IDENTICAL TO THE FACTS IN THE CASE OF EARLIER YEARS . 26 63. IN VIEW OF OUR DECISION IN ITA NO. 753/CHD/201 2 (ASSESSMENT YEAR 2008- 09), ITA NO.62/CHD/2013 (A.Y. 2009-10 AND ITA NO. 9 28/CHD/2013 (ASSESSMENT YEAR 2010-11) AND ALSO KEEPING IN VIEW THE FACTS NOTED IN RELATION TO GROUND NO.1 OF THE APPEAL, WE DO NOT SEE ANY JUS TIFICATION IN MAKING THE DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE ACT. IT IS NOW ALMOST SETTLED THAT NO DISALLOWANCE U/S 14A OF THE ACT / RULE 8D CAN BE MADE IF THE INVESTMENTS ARE OUT OF THE OWN CAPITAL AND RESERVES . IN THE INSTANT CASE, WHILE DECIDING GROUND NO.1 OF THE APPEAL, WE HAVE OBSERVE D THAT ASSESSEE HAD ADEQUATE FREE RESERVES AND SHARE CAPITAL AND INCOME OF THE YEAR WHICH ARE AVAILABLE WITH IT AND THE INVESTMENTS ARE OUT OF TH OSE FUNDS AND, THEREFORE, NO DISALLOWANCE IS CALLED FOR. ACCORDINGLY, WE DELETE THE ADDITION OF RS. 11,95,180/- 64. THE NEXT ISSUE RELATES TO CHARGING OF INTEREST U/S 234B OF THE ACT. AT THE TIME OF HEARING OF THE APPEAL, IT WAS CLAIMED THAT THIS GROUND OF APPEAL IS CONSEQUENTIAL IN NATURE, AND WE HOLD ACCORDINGLY. T HE ASSESSING OFFICER IS DIRECTED TO GIVE RELIEF TO THE ASSESSEE ACCORDINGLY . 65. IN THE RESULT, ITA NO. 778/CHD/2014 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.03.2016 SD/- SD/- (ANNAPURNA MEHROTRA) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED :18 TH MARCH, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 27