RADIANT INDUS CHEM P. LTD, MUMBAI V. ITO 5(3)(1), MUMBAI

ITA 5631/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8588 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 15-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Wholly owned subsidiary; Commercial expediency; Onus to prove
• Section: 142(1); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI BEFORE SHRI D.T.GARASIA, JM AND SHRI RAJESH KUMAR, AM I.T.A. NOS. 5631 & 5632/MUM/2015 ( / ASSESSMENT YEARS: 2010-11 & 2011-12) RADIANT INDUS CHEM PRIVATE LIMITED, 147 A SANT SENA MAHARAJ MARG 2 ND KUMBHARWADA NEAR NOVELTY CINEMA, MUMBAI-400004 / VS. INCOME TAX OFFICER 5(3)(1), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ./PAN : AAACR2183C ( /APPELLANT) : ( / RESPONDENT) / ASSESSEE BY : SHRI JITENDRA JAIN / REVENUE BY : SHRI PURUSHOTTAM KUMAR /DATE OF HEARING : 21.9.2017 /DATE OF PRONOUNCEMENT : 16.11.2017 / O R D E R PER RAJESH KUMAR, A. M: THESE ARE THE TWO APPEALS FILED BY THE ASSESSEE AGA INST THE COMMON ORDER DATED 24.9.2015 PASSED BY THE LD.CIT(A)-10, M UMBAI FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12 WHEREIN THE AS SESSEE HAS CHALLENGED DISALLOWANCE OF INTEREST U/S 36(1)(III) OF RS.19,80 ,465/- AND RS.27,07,904/- FOR THE RESPECTIVE ASSESSMENT YEAR. SINCE, ISSUE IN VOLVED THEREIN ARE COMMON, 2 I.T.A. NO5631 AND 5632/MUM/2015 THEREFORE, THESE APPEALS ARE CLUBBED TOGETHER, HEAR D TOGETHER AND ARE BEING DECIDED BY THIS COMMON ORDER FOR THE SAKE OF CONVEN IENCE. I.T.A. NO.5631/MUM/2015 2. THE ONLY ISSUE RAISED BY THE ASSESSEE AGAINST TH E UPHOLDING OF DISALLOWANCE OF RS.19,80,465/- U/S 36(1)(III) ON T HE GROUND THAT THE ADVANCES GIVEN WERE NOT FOR THE PURPOSES OF BUSINESS AND TH US DO NOT SATISFY THE CONDITIONS AS LAID DOWN UNDER SECTION 36(1)(III) OF THE ACT. 3. FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RE TURN OF INCOME ON 14.9.2010 DECLARING A TOTAL INCOME OF RS.23,07,7 40/- WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER THE C ASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS GIVEN INTEREST FR EE ADVANCES TO ITS SUBSIDIARY AND SISTER CONCERNS AMOUNTING TO RS.2,2 7,55,789/- AND PAID INTEREST ON THE BORROWINGS UNDER THE HEAD FINANCE CHARGES TO THE TUNE OF RS.44,46,896/-. ACCORDINGLY A SHOW CAUSE NOTICE W AS ISSUED TO THE ASSESSEE CALLING UPON IT TO EXPLAIN AS TO WHY THIS INTEREST PAID ON CC/OD SHOULD NOT BE DISALLOWED BEING INTEREST BEARING FUNDS HAS BEEN G IVEN FREE OF INTEREST TO SUBSIDIARY COMPANIES, WHICH WAS REPLIED BY THE ASSE SSEE BY SUBMITTING THAT THE ASSESSEE IS HAVING SUFFICIENT RESERVE FUNDS TO THE TUNE OF RS.11.21 CRORES FROM PRECEDING THREE YEARS, BESIDES ITS OWN SHARE CAPITAL OF RS.1.00 3 I.T.A. NO5631 AND 5632/MUM/2015 CRORE AND THEREFORE THE SAID MONEY WAS ADVANCED OUT OF OWN FUNDS AND FROM INTERNAL ACCRUALS BY THE ASSESSEE COMPANY. IN SUPP ORT OF THIS SUBMISSIONS THE ASSESSEE RELIED UPON THE DECISION OF THE HONBL E HIGH COURT IN THE CASE OF RELIANCE UTILITY LTD 331 ITR 340 (BOM). HOWEVER, T HE REPLY OF THE ASSESSEE DID NOT FIND FAVOUR OF THE AO AND HE, AFTER BRUSHIN G ASIDE THE CONTENTIONS OF THE ASSESSEE, WORKED OUT THE DISALLOWANCE AT RS.19 ,80,465/- BEING 40% OF THE INTEREST PAID TO BANK ON OD/CC OF RS.39,60,9 31/-. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING THE SUBMISSION AND CONTENTION BY OBSERV ING AND HOLDING AS UNDER : 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS MADE BY THE ID. AR. I HAVE ALSO GONE TH ROUGH THE DECISIONS RELIED ON BY THE ID.AR. THE AO HAS DISALL OWED 50% OF THE INTEREST DEBITED, ON ADVANCES GIVEN TO WHOLLY OWNED SUBSIDIARY. THE MAIN REASON FOR DISALLOWANCE BY THE AO WAS THAT THE APPELLANT HAS DIVERTED THE FUND WITHOUT CHARGING THE INTEREST FRO M ITS SUBSIDIARY COMPANY, WHEREAS ON THE OTHER HAND IT PAID INTERES T ON ITS BORROWINGS. HE FELT THAT NO PRUDENT BUSINESS MAN WILL DIVERT T HE INTEREST-BEARING FUNDS TO OTHER COMPANIES WITHOUT CHARGING ANY INTER EST BUT THE APPELLANT HAS DONE SO. BEFORE ME, THE APPELLANT HAS NOT CONTROVERTED THE FACT THAT AMOUNTS WERE ADVANCED TO ITS SISTER C ONCERN WITHOUT CHARGING ANY INTEREST. 4.2.1 WHILE CONSIDERING THE ISSUE ON MERITS, THE SU BMISSIONS AND ARGUMENTS OF THE APPELLANT ARE NOTED. BEFORE ANSWER ING THE GROUNDS, LET US SEE WHETHER THE ACTION OF THE APPELLANT CAN ANSWER THE FOLLOWING QUESTIONS. I) WHETHER THE AMOUNT BORROWED, ON WHICH INTEREST P AID BY THE ASSESSEE, WAS USED FOR THE PURPOSE OF BUSINESS OF T HE ASSESSEE, SO THAT INTEREST DEBITED CAN BE ALLOWED AS BUSINESS EXPENDITURE? [CIT VS. CALCUTTA AGENCY LTD 19 ITO 191'(SC) 4 I.T.A. NO5631 AND 5632/MUM/2015 II) WHETHER THERE WAS A 'COMMERCIAL EXPEDIENCY' TO ADVANCE LOANS TO THE CONCERNS INCLUDING SISTER CONCERNS? [S .A.BUILDERS LTD VS. CIT 288 ITR 1 (SC)] III) WHETHER THERE IS A NEXUS BETWEEN THE FUNDS BOR ROWED AND THE FUNDS ADVANCED 4.2.2 WITH REGARD TO THE FIRST QUESTION, THE PROVIS ION OF THE ACT ARE VERY VOCAL THAT NO INTEREST U/S 36(1 )(III) IS ALLOWED T O CLAIM AS DEDUCTION IF IT IS NOT RELATED TO THE BUSINESS OF THE APPELLANT. TH E ID.AR'S ARGUMENT WAS THAT SINCE THE APPELLANT WAS HAVING SUFFICIENT OWN FUNDS AND THE SAME WERE USED FOR THE PURPOSE OF ADVANCE TO SISTER CONCERNS, THE BORROWED FUNDS WERE USED BY THE APPELLANT FOR ITS O WN BUSINESS ONLY AND THE INTEREST DEBITED IS A BUSINESS EXPENDITURE. I DO NOT AGREE WITH THIS ARGUMENT OF THE ID. AR. IF THE ARGUMENT OF THE ID. AR THAT THEY ARE HAVING SUFFICIENT OWN FUNDS TO RUN THEIR BUSINESS S MOOTHLY IS TRUE, THEN THERE IS NO NEED TO APPROACH A BANK TO BORROW FUNDS BEARING INTEREST BURDEN. NO DOUBT THAT THE REVENUE CAN NOT DICTATE T HE APPELLANT HOW IT SHOULD USE ITS OWN FUNDS ARISEN OUT OF ITS INTERNAL ACCRUALS, BUT IT DEFINITELY WANTS AN ANSWER AS TO WHY THE APPELLANT COMPANY HAS GONE FOR BORROWINGS FROM BANKS WHILE ON THE OTHER HAND I T HAS GIVEN INTEREST FREE LOANS TO ITS SISTER CONCERN, MORE SO WHEN IT H AS AN INTEREST BURDEN ON SUCH BORROWALS. THUS THE APPELLANT FAILS TO SATI SFY THIS QUESTION. 4.2.3 WITH REGARD TO 'COMMERCIAL EXPEDIENCY' THE AP PELLANT RELIED ON THE DECISION IN THE CASE OF S A BUILDERS(SUPRA),AND SUBMITTED THAT THE AMOUNTS WERE ADVANCED TO ITS SISTER CONCERN FOR STR ENGTHENING ITS FINANCIAL POSITION WITH WHICH THE BUSINESS PROSPECT S OF THE APPELLANT ARE INSEPARABLY LINKED, HENCE THE SAID ADVANCES WERE MA DE ONLY DUE TO BUSINESS EXIGENCIES. HOWEVER, IT IS NOT CLEAR FROM THE ABOVE HOW THE APPELLANT COMPANY DERIVED ANY BENEFIT OUT OF SUCH A DVANCES. EVEN IF WE TAKE, FOR A WHILE, THAT RETURN BENEFIT IS NOT AN ESSENTIAL REQUIREMENT AND IT IS SUFFICIENT IF THE HOLDING COMPANY (APPELL ANT) HAS A DEEP INTEREST IN ITS SUBSIDIARY, THE APPELLANT SHOULD AB LE TO PROVE THAT THE APPELLANT'S SUBSIDIARY SISTER COMPANY IS SICK OR NO ' HAVING REGULAR FUNDS AND IS IN DIRE NEED OF HELP FROM THE APPELLANT COMP ANY. FURTHER THE SISTER COMPANY COULD HAVE INDEPENDENTLY APPROACHED THE BANKS FOR FUNDS ON THE BASIS OF THE FINANCIAL STRENGTH OF THE APPELLANT COMPANY BY GIVING COLLATERAL SECURITY. THE SAME PACKAGE OF LOA NS COULD HAVE VERY WELL BEEN OBTAINED FROM THE BANKS AND INDIVIDUALS B Y THE SISTER CONCERN, INSTEAD OF I-OUTING THROUGH THE APPELLANT COMPANY AND DURING 5 I.T.A. NO5631 AND 5632/MUM/2015 THE INTEREST BURDEN ON IT. AS STATED EARLIER, THE REVENUE CANNOT DICTATE HOW HE BUSINESS HOUSES SHOULD BEHAVE, BUT ONUS IS O N THEM TO EXPLAIN THE CIRCUMSTANCES, MORE SO WHEN THE APPELLANT WANTS TO CLAIM AN EXPENDITURE ATTACHED TO IT. THEREFORE I HOLD THAT T HE APPELLANT IN THE INSTANT CASE HAS FAILED TO ESTABLISH ANY 'COMMERCIA L EXPEDIENCY' FOR ADVANCING INTEREST-FREE LOANS TO SISTER CONCERNS. H ENCE, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A BUILDE RS PVT LTD ( SUPRA) DOES NOT COME TO THE RESCUE OF THE APPELLANT. THE A PPELLANT FAILS TO ANSWER THIS QUESTION ALSO. 4.2.4 LAST BUT NOT THE LEAST ASPECT IS TO SEE THE N EXUS OF FUNDS. THE ID.AR HAS ARGUED THAT THE AO HAS DISALLOWED INTERES T WITHOUT ESTABLISHING NEXUS BETWEEN BORROWED FUNDS AND THE A MOUNT ADVANCED TO SISTER CONCERN. IT IS TO BE UNDERSTOOD THAT ONUS TO PROVE NEXUS IS ON THE APPELLANT BUT NOT ON THE REVENUE. THE WHOLE FUN DS WILL BE IN A COMMON KITTY AND THE APPELLANT CAN NOT SUBSTANTIATE THIS FACT AS IT CAN NOT SEPARATE CLEARLY WHAT FUNDS HAVE GONE AND WHERE . THE APPELLANT IS NOT SURE OF HOW THE OWN FUNDS AND BORROWED FUNDS WE RE UTILIZED. WITH REGARD TO NEXUS, THE DECISION IN THE CASE OF ABHISH EK INDUSTRIES LTD (286 ITR 1) WHICH CAME TO THE RESCUE OF THE AO, STA TES THAT , AS FAR AS THE ISSUE OF ESTABLISHMENT OF NEXUS OF T HE FUNDS BORROWED VIS-A-VIS THE FUNDS DIVERTED TOWARDS SISTE R CONCERN ON INTEREST FREE BASIS WAS CONCERNED, THE STAND OF THE ASSESSEE THAT THE ONUS OF PROVING THE NEXUS OF FUNDS AVAILABLE WI TH THE ASSESSEE WITH THE FUNDS ADVANCED TO THE SISTER CONC ERNS WITHOUT INTEREST WAS ON THE REVENUE WAS NOT CORRECT. SECTIO N 36(1 )(III) PROVIDES FOR DEDUCTIONS OF INTEREST ON THE LOANS RA ISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUC H DEDUCTION IN THE BOOKS OF ACCOUNT, THE ONUS WILL BE EN THE AS SESSEE TO SATISFY THE ASSESSING OFFICER THAT WHATEVER LOANS W ERE RAISED BY THE ASSESSEE, THE SAME WERE USED FOR BUSINESS PURPO SES. IF IN THE PROCESS OF EXAMINATION OF GENUINENESS OF SUCH A DEDUCTION, IT TRANSPIRES THAT THE ASSESSEE HAD ADVANCED CERTAIN F UNDS TO SISTER CONCERNS OR ANY OTHER PERSON WITHOUT ANY INTEREST, THERE WOULD BE VERY HEAVY ONUS ON THE ASSESSEE TO BE DISCHARGED BEFORE THE ASSESSING OFFICER TO THE EFFECT THAT IN SPITE OF PE NDING TERM LOANS AND WORKING CAPITAL LOANS ON WHICH THE ASSESSEE IS INCURRING LIABILITY TO PAY INTEREST, STILL THERE WAS JUSTIFIC ATION TO ADVANCE LOANS TO SISTER CONCERNS FOR NON-BUSINESS PURPOSES WITHOUT ANY INTEREST AND, ACCORDINGLY, THE ASSESSEE SHOULD BE A LLOWED DEDUCTION OF INTEREST BEING PAID ON THE LOANS RAISE D BY IT TO THAT 6 I.T.A. NO5631 AND 5632/MUM/2015 EXTENT. EVEN THE PLEA OF NEXUS OF LOANS RAISED BY T HE ASSESSEE WITH THE FUNDS ADVANCED TO THE SISTER CONCERNS ON I NTEREST FREE BASIS MIGHT BE PLEADED TO BE OUT OF SALE PROCEEDS O R SHARE CAPITAL OR DIFFERENT ACCOUNT COULD NOT BE ACCEPTE D. [PARA 14]'. IT WAS FURTHER HELD IN THIS JUDGMENT THAT, ONCE IT IS BORNE OUT FROM THE RECORD THAT THE ASSE SSEE HAD BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PAY TA X IS BEING INCURRED AND ON THE OTHER HAND, CERTAIN AMOUNTS HA D BEEN ADVANCED TO SISTER CONCERNS OR OTHERS WITHOUT CARRY ING ANY INTEREST AND WITHOUT ANY BUSINESS PURPOSE, THE INTE REST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CARRYING A NY INTEREST IS TO BE DISALLOWED UNDER SECTION 36(1)(III). SUCH BORROWINGS TO THAT EXTENT CANNOT POSSIBLY BE HELD FOR THE PURPOSE OF BUSINESS BUT FOR SUPPLEMENTING THE CASH DIVERTED WITHOUT DER IVING ANY BENEFIT OUT OF IT. ACCORDINGLY, THE ASSESSEE WOULD NOT BE ENTITLED TO CLAIM DEDUCTION OF THE INTEREST ON THE BORROWING S TO THE EXTENT THOSE WERE DIVERTED TO SISTER CONCERNS OR OTHER PER SONS WITHOUT INTEREST. [PARA 38] THUS THE ONUS TO PROVE THAT THE BORROWED FUNDS HAVE NOT BEEN DIVERTED IS ON THE APPELLANT. THE ONUS WAS NOT DISCHARGED BY IT. IT HAS ALSO NOT EXPLAINED WHY IT NECESSITATED TO GO FOR BORROWINGS WHEN OWN FUNDS ARE AVAILABLE WITH IT. 4.2.5 ABOVE ALL, THE MADRAS HIGH COURT IN THE CASES OF P.R.M.S. RAMANATHAN CHETTIAR V. CIT( 72 ITR 534) (MAD) AND M .P.S.RAJA V.CIT (105 ITR 295) (MAD), HAS HELD THAT INTEREST PAID ON BORROWED CAPITAL WILL BE ALLOWED AS DEDUCTION ONLY IF THE CAPITAL WA S USED FOR THE PURPOSE OF BUSINESS. IF IT IS USED FOR A PURPOSE OTHER THAN THAT OF ITS OWN BUSINESS, THEN INTEREST TO THAT EXTENT TO WHICH CAP ITAL WAS SO USED, WILL NOT BE ALLOWED. 4.2.6 IN VIEW OF THE ABOVE DISCUSSION AND JUDICIAL RULINGS, I FEEL THAT IT WOULD BE THE COMMERCIAL IMPROPRIETY TO BORROW FUNDS BEARING INTEREST COST WHEN SUFFICIENT OWN FUNDS ARE AVAILABLE ON HAN D. IT IS STILL IMPROPER TO ADVANCE INTEREST FREE LOANS TO SISTER CONCERNS WHEN THE COMPANY ITSELF NEEDS MORE MONEY FOR RUNNING ITS BUSINESS. THE GROUND IS, THEREFORE DISMISSED 7 I.T.A. NO5631 AND 5632/MUM/2015 4. THE LD. AR SUBMITTED BEFORE US THAT EVEN THE FUN DS OF THE ASSESSEE RS.20.66 CRORES INCLUDING DEPRECIATION RESERVES OF RS. 7.72 CR WHICH HAS BEEN MENTIONED BY THE LD. CIT(A) AT PAGE 3 OF THE APPEL LATE ORDER, WHEREAS THE ADVANCES TO THE SUBSIDIARY COMPANIES WERE ONLY TO THE TUNE OF RS.2.27 CRORES AND THEREFORE IT SHOULD BE PRESUMED THAT THE SAID FUNDS WERE ADVANCED OUT OF THE OWN FUNDS OF THE ASSESSEE AND N O DISALLOWANCE WAS CALLED FOR. THE LD. AR RELIED IN DEFENSE OF HIS A RGUMENTS ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC REPO RTED IN 366 ITR 505 AND RELIANCE UTILITIES(383 ITR 529) AND ALSO THE DECISION IN THE CASE OF SA BUILDERS REPORTED IN. 288 ITR 1 (SC) . THE HONBL E HIGH COURT HAS HELD THAT WHETHER THE HOLDING COMPANY HAS DEEP INTEREST IN TH E SUBSIDIARY COMPANY AND IN THAT CASE ADVANCED MONEY BY THE HOLDING COMP ANY TO THE SUBSIDIARY COMPANY WOULD NOT ATTRACT ANY DISALLOWANCE AND HOLD ING COMPANY WOULD BE ENTITLED TO INTEREST ON THE BORROWED FUNDS. IN T HE CURRENT YEAR ALSO THE HOLDING COMPANY HAS ADVANCED MONEY TO SUBSIDIARY CO MPANY FOR MEETING ITS LIABILITY TOWARDS THE EXPENSES SINCE IT WAS THE FIR ST YEAR OF THE SUBSIDIARY AND HENCE NO DISALLOWANCE OUGHT TO HAVE BEEN MADE. TH E LD. AR FURTHER SUBMITTED THAT THE DECISION RELIED UPON BY THE LD. CIT(A) IN THE CASE OF ABHISHEK INDUSTRIES LTD (286 ITR 1) WAS RENDERED ON 4.8.2006 WHEREAS THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S A BUILDER (SUPRA) RENDERED ON 14.12.2006. THE ABHISHEK INDUSTRIES LTD (SUPRA) HAS NO MORE 8 I.T.A. NO5631 AND 5632/MUM/2015 GOOD LAW. MOREOVER, THE DECISION IN THE CASE OF A BHISHEK INDUSTRIES LTD (SUPRA) ARE CONTRARY TO THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF RELIANCE UTILITIES (SUPRA) AND HDFC(SUPRA) AND THE REFORE THE DECISION IN THE CASE OF ABHISHEK INDUSTRIES LTD (286 ITR 1) (SUPRA) OUGHT NOT TO BE FOLLOWED. 5. ON THE OTHER HAND THE LD. DR RELIED ON THE ORDER S OF THE AUTHORITIES BELOW BY SUBMITTING THAT THE ASSESSEE HAS BORROWED INTEREST BEARING FUNDS WHICH WERE ADVANCED TO THE SUBSIDIARY COMPANY FREE OF INTEREST COST AND THEREFORE THE DISALLOWANCE OF INTEREST PROPORTIONAT ELY DISALLOWED BY THE AO WAS CORRECT AND RIGHTLY UPHELD BY THE LD. CIT(A). 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF A UTHORITIES BELOW AND CASE LAWS RELIED BY THE PARTIES. WE FIND FROM THE RECOR D BEFORE US THAT THE ASSESSEE HAS SUFFICIENT OWN FUNDS WHICH WERE TO T HE TUNE OF RS.22.66 CRORES WHEREAS THE MONEY ADVANCED TO THE SUBSIDIARY COMPAN IES WERE ONLY 2.67 CRORES AND THEREFORE THE ISSUE IS SQUARELY COVERED BY THE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF H DFC LTD (SUPRA) AND ALSO BY THE DECISION IN THE CASE OF RELIANCE UTILITIES (SU PRA), WHEREIN THE PRESUMPTION IS TAKEN THAT WHERE ASSESSEES OWN FUNDS ARE MORE THAN THE ADVANCES GIVEN TO THE SUBSIDIARY COMPANY TO CONTROL THE FUNCTION O F THE SUBSIDIARY COMPANY THEN NO DISALLOWANCE IS JUSTIFIED. ON THE ISSUE OF THE EXPRESSION 'COMMERCIAL EXPEDIENCY' THE CASE OF THE ASSESSEE IS SUPPORTED B Y THE DECISION OF THE 9 I.T.A. NO5631 AND 5632/MUM/2015 HONBLE SUPREME COURT RENDERED IN THE CASE OF S A B UILDER, (SUPRA), WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT NO DISALLO WANCE OF INTEREST CAN BE MADE IN RESPECT OF INTEREST ON LOAN BORROWED BY THE HOLDING COMPANY WHICH IS ADVANCED TO THE SUBSIDIARY COMPANY AND DEDUCTION IS ADMISSIBLE AND ALLOWABLE IN THE HANDS OF THE HOLDING COMPANY. RESP ECTFULLY FOLLOWING THE SAME RATIO OF THE ABOVE DECISION OF THE HONBLE SUP REME COURT, WE ARE OF THE CONSIDERED OPINION THE ORDER OF THE LD.CIT(A) IS N OT CORRECT AND HENCE WE SET ASIDE IT AND DIRECT THE AO TO DELETE THE DISA LLOWANCE. 7. THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.5632/MUM/2016 8. THE ISSUE RAISED IN GROUND NO.1 BY THE ASSESSEE IS AGAINST THE UPHOLDING OF DISALLOWANCE OF RS.27,07,904/- U/S 36 (1)(III) ON THE GROUND THAT THE ADVANCES GIVEN WERE NOT FOR THE PURPOSES OF BU SINESS AND THUS DOES NOT SATISFY THE CONDITIONS AS LAID DOWN UNDER SECTION 3 6(1)(III) OF THE ACT. THIS GROUND IS IDENTICAL TO THAT OF GROUND NO.1 AS DECID ED BY US IN ITA NO.5631/MUM/2016 IN FAVOUR OF THE ASSESSEE. HENCE, THE DECISION TAKEN THEREIN WOULD APPLY ,MUTATIS MUTANDI, THIS GROUND A LSO. HENCE, GROUND NO.1 IS ALLOWED. 9. THE ISSUE RAISED IN THE GROUNDS OF APPEAL NO.2 I S AGAINST THE CONFIRMATION OF DISALLOWANCE UNDER RULE 8D(2)(II) OF RS.2,98,649/- BY THE LD.CIT(A) AS MADE BY THE AO IN THE ASSESSMENT PROC EEDINGS. 10 I.T.A. NO5631 AND 5632/MUM/2015 10. FACT IN BRIEF ARE THAT THE ASSESSEE HAS TAX FRE E INCOME OF RS.41,03,700/- AND THE ASSESSEE HAS SUO MOTU DISALL OWED AN AMOUNT OF RS.2,19,086/- U/S 14A WHICH WAS LATER ON REVISED BY FILING A FRESH COMPUTATION U/S 14A OF THE ACT RESTRICTING THE DIS ALLOWANCE TO RS.47,957/-. HOWEVER, THE AO WORKED OUT THE DISALLOWANCE U/S 14 A AT RS.3,60,607/- AS PER RULE 8D(2) COMPRISING RS.2,98,649/- UNDER RUL E 8D(2)(II) AND RS.61,958/- UNDER RULE 8D(2)(III). IN THE APPELLAT E PROCEEDINGS, THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING T HAT THE APPLICATION OF SECTION 14A IS MANDATORY AND ALSO THAT THE ASSESSEE SUO MOTU MADE DISALLOWANCE OF RS.2,19,086/- WHILE FILING ORIGINA L RETURN OF INCOME AND LATERON REVISED IT TO RS.47,957/- AND NOTED THAT T HERE IS NO EXPLANATION/WORKING OF HOW THESE TWO FIGURES WERE ARRIVED AT. THE LD. CIT(A) ALSO OBSERVED THAT THE ASSESSEE HAS NOT FOLL OWED THE SCIENTIFIC FORMULA PROVIDED UNDER RULE 8D AND THERE IS NO DISPUTE WIT H REGARD TO THE APPLICABILITY OF SECTION 14A OF THE ACT. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THE ASSESSE E HAS SUFFICIENT OWN FUNDS AND ALSO INTEREST BEARING FUNDS, THEREFORE DISALLO WANCE U/R 8D(2)(II) TO THE TUNE OF RS.298649/- IS REQUIRED TO BE DELETED IN VI EW OF THE DECISION IN THE CASE OF HDFC LTD (SUPRA). IT IS NOT MATERIAL POINT THAT THE ASSESSEE HAS MADE SUO MOTU DISALLOWANCE AT THE TIME OF FILING OF ORIG INAL RETURN OF INCOME WHICH 11 I.T.A. NO5631 AND 5632/MUM/2015 WAS LATER ON REVISED TO LESSER AMOUNT OF RS.47,957 /-. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE DISALLOWANCE. WHEREAS THE DIS ALLOWANCE U/S 8D(2)(III) TO THE TUNE OF RS.61958/- WAS RIGHTLY MADE BY THE AO AND CONFIRMED BY THE FAA. THEREFORE, OUR INTERFERENCE IS NOT CALLED FOR ON THIS ISSUE. ACCORDINGLY WE CONFIRM THE SAME. 12. RESULTANTLY, THE APPEAL BEARING ITA NO.5632/MUM /2015 IS PARTLY ALLOWED. 13. IN THE RESULT, THE APPEAL BEARING NO. 5631/M/20 15 IS ALLOWED AND ITA NO.5632/MUM/2016 IS PARTLY ALLOWED. THE ORDER PRONOUNCED ON 16.11.2017. SD SD ( D.T.GARASIA ) ( RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED :.16.11.2017 SR.PS:SRL: !'!# / COPY OF THE ORDER FORWARDED TO : 1. $ / THE APPELLANT 2. $ / THE RESPONDENT 3. $ & ( )$ / THE CIT(A) 4. $ &$ / CIT CONCERNED 5. )*+$, , $ $ $, ,$ $ / DR, ITAT, MUMBAI 6. +.$/$ /$ GUARD FILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI