Appeal details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 5146 (ITAT-JAIPUR)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 1 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-07-2016
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
Not Allotted
Assessment Year
2000-2001
Appeal Filed On
10-06-2015
Judgement Text
VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH HKKXPAN] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF;D LN L; DS LE{K BEFORE: SHRI BHAGCHAND, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA-@ ITA NO. 599/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2000-01 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR. CUKE VS. M/S AUTOLITE (INDIA) LTD., D-469, ROAD NO. 9A, VKI AREA, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCA 4083 B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 601/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2000-01 M/S AUTOLITE (INDIA) LTD., D-469, ROAD NO. 9A, VKI AREA, JAIPUR CUKE VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCA 4083 B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 602/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2001-02 M/S AUTOLITE (INDIA) LTD., D-469, ROAD NO. 9A, VKI AREA, JAIPUR CUKE VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCA 4083 B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 2 VK;DJ VIHY LA-@ ITA NO. 600/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2001-02 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR. CUKE VS. M/S AUTOLITE (INDIA) LTD., D-469, ROAD NO. 9A, VKI AREA, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCA 4083 B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (ADDL.CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MADHUKAR GARG (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 04/07/2016 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 13/07/2016 VKNS'K@ ORDER PER: LALIET KUMAR, J.M. THESE ARE THE CROSS APPEALS, ONE BY THE REVENUE AND ANOTHER BY THE ASSESSEE ARISE AGAINST THE ORDER DATED 31/03/20 15 PASSED BY THE LD CIT(A), BIKANER (CAMP AT JAIPUR) FOR THE A.Y. 2000-0 1 AND 2001-02 WHEREIN THE EFFECTIVE COMMON GROUNDS OF REVENUES AP PEALS AS WELL AS THE ASSESSEE ARE REPRODUCED AS UNDER:- COMMON GROUND OF REVENUES APPEAL (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN RESTRICTING THE RATE OF INTEREST @ 9% FROM 15% APPLIED BY THE A.O. ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 3 COMMON GROUNDS OF ASSESSEES APPEAL. 1. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN HOLDIN G THAT THE APPELLANT HAD FAILED TO PROVE THE BUSINESS CONNECTION WITH THE AMOUNT GIVEN AS LOANS AND ADVANCES TO THE SISTER CONCERN. THE SAID FINDING IS ILLEGAL AND UNJUSTIFIED. 2. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN NOT ACCEPTING ASSESSEES CONTENTION THAT NO INTEREST WAS CHARGEABLE ON THE OPENING BALANCE IN RESPECT OF DEB IT BALANCE OF M/S. AUTOPAL INDUSTRIES LIMITED. THE SAID ACTION IS ILLEGAL AND UNJUSTIFIED. 3. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN HOLDING THAT REGARDING RATE OF INTEREST APPLIED BY THE ASSESSING OFFICER @ 15%, IN THE APPEAL OF EARLIER YEARS THE ISSUE DECIDED AND DIRECTED TO THE ASSESSI NG OFFICER TO CHARGE INTEREST @ 9%. THE SAID FINDING IS ILLEGAL AND UNJUSTIFIED. 4. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN HOLDING THAT INTEREST IS TO BE CHARGED @ 9% IN RESPECT OF OUTSTANDING AMOUNT OF AUTOPAL INDUSTRIES LTD., AND PARTIALLY CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OUT OF INTEREST PAID. THE ADDITION SUSTAINED IS ILLEGAL, UNJUSTIFIED AND EXCESSIVE. 2. ALL THE APPEALS ARE BEING HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE, A COMMON ORDER IS BEING PASSED IN ALL THESE APPEALS. 3. THE ASSESSEE HAD FILED ITS RETURN OF INCOME FOR T HE YEARS UNDER CONSIDERATION ON 31/11/2000 DECLARING TOTAL INCOME OF RS. 2,18,250/- FOR THE A.Y. 2000-01 AND ALSO FILED RETURN FOR THE A.Y. 2001-02 DECLARING ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 4 TOTAL INCOME OF RS 4,07,30,837/- ON 31/10/2001. THE CASES WERE SCRUTINIZED U/S 143(3) OF THE INCOME TAX ACT, 1961, (IN SHORT THE ACT). ALL THE GROUNDS OF THE ASSESSEES APPEALS AS WELL AS REVENUES APPEALS ARE INTERLINED AND ARE AGAINST APPLICATION OF INTER EST CHARGEABLE @ 9% BY THE LD CIT(A). 3.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOLAMPS AND THE ASSE SSMENT WAS ORIGINALLY COMPLETED UNDER THE PROVISIONS OF SECTIO N 143(3) BY THE ASSESSING OFFICER ON 26.3.2003 AND THE ASSESSING OF FICER HAS MADE A DISALLOWANCE OF RS.64,73,392/- OUT OF INTEREST PAID ON THE GROUND THAT THE ASSESSEE HAD NOT ESTABLISHED THAT ADVANCES MADE TO M/S AUTOPAL INDUSTRIES LIMITED WERE OUT OF OWN FUNDS. THE ASSESS EE HAD PREFERRED AN APPEAL AGAINST THE SAID ORDER AND THE MATTER WAS DECIDED BY THE LEARNED CIT(APPEALS)-II, JAIPUR VIDE HIS ORDER DATE D 17.10.2005 AND THE LEARNED CIT(APPEALS) RELYING ON THE ORDER OF THE CIT (APPEALS)-II, JAIPUR FOR ASSESSMENT YEARS 1997-98 AND 1998-99 CONFIRMED THE ACTION OF THE ASSESSING OFFICER. HOWEVER, HE DIRECTED THAT THE ASS ESSING OFFICER IS TO WORK OUT THE DISALLOWANCE OF INTEREST BY APPLYING A R ATE OF 9%. THE ASSESSEE HAD PREFERRED AN APPEAL AGAINST THE ORDER OF THE LEARNED CIT(APPEALS) AND THE MATTER WAS DECIDED BY THE HONBL E INCOME TAX ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 5 APPELLATE TRIBUNAL, JAIPUR BENCH, JAIPUR VIDE THEIR ORDER DATED 30 TH NOVEMBER, 2007 AND THE MATTER WAS RESTORED TO THE FI LE OF THE ASSESSING OFFICER WITH THE FOLLOWING DIRECTIONS:- AFTER CONSIDERING THE ABOVE SUBMISSION, WE PRIMA FACIE FIND SUBSTANCE IN THE CONTENTIONS OF THE LD. A/R THAT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F S.A. SALES VS. CIT(SUPRA) THAT WHILE DECIDING AS TO WHETHER INTERES T ON FUNDS BORROWED BY THE ASSESSEE TO GIVE INTEREST F REE LOAN TO SISTER CONCERN SHOULD BE ALLOWED AS DEDUCTION UND ER SECTION 36(1) (III) ONE HAS TO ENQUIRE AS TO WHETHER THE LOA N WAS GIVEN BY THE ASSESSEE AS A MEASURE OF COMMERCIAL EXPEDIEN CY AND THAT IF THE LOAN IS GIVEN FOR THE PURPOSE OF BUSINE SS, NO INTEREST CAN BE DISALLOWED EVEN IF THE MONEY HAS BEE N ADVANCED OUT OF INTEREST BEARING FUNDS. THE HONBLE DELHI HIGH COURT IN THE CASE OF DALMIA CEMENT(SUPRA) HAS BEEN PLEASED TO HOLD THAT NO BUSINESSMAN CAN BE COMPELLE D TO MAXIMIZE HIS PROFITS AND THE AUTHORITIES SHOULD PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND CONSIDER WHAT A PRU DENT BUSINESSMAN WOULD DO. THE HONBLE ALLAHABAD HIGH COUR T IN THE CASE OF CIT VS. PREM HEAVY ENGINEERING (SUPRA) WA S PLEASED TO HOLD THAT WHERE SUFFICIENT SHARE CAPITAL, SURPLUS AND RESERVES ARE AVAILABLE, NO INTEREST CAN BE DISALLOWE D EVEN IF INTEREST FREE ADVANCE IS MADE TO SISTER CONCERN. THE CONTENTION OF THE ID. A.R. THAT WHERE THE RECOVERY OF PRINCIPAL IS DOUBTFUL, THE ASSESSEE IS JUSTIFIED IN NEITHER C HARGING NOR PROVIDING FOR INTEREST ON LOANS AND ADVANCES AND TH AT IT IS NOT ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 6 THE HYPOTHETICAL ACCRUAL OF INCOME BASED ON MERCANT ILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE THAT HAS TO B E CONSIDERED AGAINST THE FACT THAT INCOME WAS NOT REAL LY MATERIALIZED TO THE ASSESSEE HAVE ALSO SUBSTANCE AS THE SAME IS SUPPORTED BY THE DECISION OF HONBLE COURTS AS C ITED BY HIM. THE FURTHER CONTENTION OF THE LD. A/R REMAINED THAT SHARE CAPITAL AND RESERVE OF THE ASSESSEE COMPANY WERE RS. 52.25 CRORES AS ON 31.3.1999 AND THEY INCREASED TO RS.52. 95 CRORES AS ON 31.3.2000 AND AGAINST THIS SHARE CAPITAL AND RESERVE AND SURPLUS THE AMOUNT ADVANCED TO AUTOPAL INDUSTRIES L IMITED WERE ONLY RS.4.08 CRORES AS ON 31.3.1999 AND RS.4.97 CRORES AS ON 31.3.2000. WE THUS IN THE INTEREST OF JUSTICE REMAND THE MATTER TO THE FILE OF THE AO TO VERIFY THE ABOVE CL AIM OF THE ASSESSEE ON THE BASIS OF MATERIAL AVAILABLE ON RECO RD IN VIEW OF THE DECISIONS RELIED BY THE LD. A/R IN SUPPORT A FTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE MATTER AFRESH ACCORDINGLY. THE GROUND NO. 1 IS THUS ALLOWED FOR STATISTICAL PURPOSES. AFTER THE MATTER WAS RESTORED TO THE ASSESSING OFFI CER, THE PRESENT ASSESSMENT ORDER WAS PASSED IN THE SAID ORDER IT IS MENTIONED THAT THE MANAGER (FINANCE) OF THE COMPANY HAD ATTENDED AND F ILED REPLY AND DURING THE PROCEEDINGS THE ASSESSEE DID NOT FILE AN Y DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CLAIM. IT HAS FURTHER BE EN MENTIONED BY THE ASSESSING OFFICER THAT THE ASSESSEE FAILED TO PROVE THE NEXUS BETWEEN ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 7 THE INTEREST BEARING FUNDS AND ADVANCE MADE BY IT T O M/S. AUTOPAL INDUSTRIES LIMITED. HE HAS ALSO MENTIONED THAT FURT HER IT ALSO FAILED TO PROVE THE BUSINESS CONNECTION WITH AMOUNT GIVEN AS L OANS AND ADVANCES. THEREFORE, HE HELD THAT IN MY CONSIDERED VIEW LOANS AND ADVANCES GIVEN BY THE ASSESSEE TO ITS SISTER CONCER N IS JUSTIFIED TO CHARGE INTEREST @15% WHICH WORKS OUT AS UNDER. THE LD ASSESS ING OFFICER, THEREFORE, MADE DISALLOWANCE OF RS.64,73,392/- BY WOR KING OUT INTEREST @ 15% ON THE DEBIT BALANCE. 4. BEING AGGRIEVED BY THE ORDER OF THE LD ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD PARTLY ALLOWED THE APPEAL BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSION MADE. THE AO MADE ADDITION ON ACCOUNT OF ADVANCE PAI D TO SISTER CONCERN AND NOT CHARGED INTEREST THEREUPON. THE APPELLANT COMPANY FAILED TO PROVE THE NEXUS BETWEEN INTEREST BEARING FUNDS AND ADVANCE MADE BY IT TO THE M/S AUT OPAL INDUSTRIES. THE APPELLANT ALSO FAILED TO PROVE THE BUSINESS CONNECTION WITH THE AMOUNT GIVEN AS LOAN AND ADVANCE . IN RESPECT OF THIS THE SUBMISSION FILED BY THE AR FOR THE APPELLANT IS GENERAL IN NATURE AND HE REITERATED TH E FACTS MENTIONED EARLIER. HENCE, IN THE ABSENCE OF ANY DOC UMENTARY EVIDENCE, CONTENTION OF THE APPELLANT THAT LOAN AMO UNT WAS GIVEN FOR BUSINESS PURPOSES NOT PROVED AND IT IS QU ITE CLEAR ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 8 THAT ASSESSE MADE LOAN AND ADVANCE FOR NON BUSINESS PURPOSE. HENCE, THE APPELLANT FAILS ON THIS PART OF THIS GROUND. REGARDING RATE OF INTEREST APPLIED BY THE A O @ 15%, IN THE APPEAL OF EARLIER YEAR THE ISSUE DECIDE D AND DIRECTED TO BE A.O. TO CHARGE INTEREST @ 9%. HENCE, DURING THE YEAR UNDER CONSIDERATION THE A.O. IS AGAIN DIRE CTED TO CHARGE INTEREST @ 9% ACCORDINGLY. THE APPELLANT PART LY SUCCEEDS ON THIS GROUND. SIMILAR IDENTICAL FINDING HAS ALSO BEEN GIVEN BY TH E LD CIT(A) FOR THE APPEALS OF A.Y. 2001-02. 5. NOW BOTH I.E. REVENUE AND ASSESSEE ARE IN APPEALS BEFORE US. THE LD SR. DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE LD ASSESSING OFFICER. 6. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS REI TERATED THE ARGUMENTS MADE BEFORE THE LD CIT(A) AND FURTHER ARGU ED THAT THERE WAS NO JUSTIFICATION ON THE PART OF THE LEARNED CIT(APPE ALS) TO HOLD THAT THE ASSESSING OFFICER SHOULD APPLY RATE OF INTEREST @ 9% BY RELYING ON THE ORDER OF EARLIER YEAR. THE LEARNED CIT(APPEALS) HAS ALSO NOT CONSIDERED THE SUBMISSION OF THE ASSESSEE JUSTIFYING THAT MONE Y WHICH HAS BEEN ADVANCED TO M/S. AUTOPAL INDUSTRIES LIMITED HAS BEE N UTILIZED BY THEM SOLELY FOR THE PURPOSE OF BUSINESS AND NOT FOR ANY OTHER PURPOSE. DURING ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 9 THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE H AS FURNISHED DETAILED REPLY BEFORE THE ASSESSING OFFICER AS PER LETTER DATED 10.10.2008. THE ASSESSEE HAD ALSO ENCLOSED A CHART WI TH THE SAID LETTER DETAILING THE UTILIZATION OF MONEY BY M/S. AUTOPAL INDUSTRIES LIMITED TO SHOW THAT AMOUNTS HAVE BEEN UTILIZED BY THEM SOLELY FOR THE PURPOSE OF BUSINESS. THE HONBLE TRIBUNAL HAD REMANDED THE MATTE R TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE ABOVE CLAIM OF THE ASSESSEE ON THE BASIS OF MATERIAL AVAILABLE ON RECORD IN VIEW OF DEC ISION RELIED BY THE LEARNED A/R AND DECIDE THE MATTER AFRESH ACCORDINGL Y. THE ASSESSING OFFICER HAS NOT ACCEPTED THE CLAIM OF THE ASSESSEE IN THIS REGARD THAT THE COMPANY HAD ITS OWN SUFFICIENT FUNDS WHICH WERE MORE T HAN THE ADVANCE GIVEN TO THE SISTER CONCERN. HE FURTHER ARGUED THAT THE ASSESSING OFFICER HAD NOT COMPLIED WITH THE DIRECTION OF THE HONBLE TR IBUNAL TO VERIFY THAT THE SHARE CAPITAL AND RESERVES AND SURPLUS OF THE C OMPANY WHICH WERE RS.52.25 CRORES AS ON 31.3.1999 HAVE INCREASED TO R S.52.95 CRORES AS ON 31.3.2000 AND AGAINST THIS SHARE CAPITAL AND RESERV ES & SURPLUS THE AMOUNTS ADVANCED TO M/S. AUTOPAL INDUSTRIES LIMITED WERE ONLY RS.4.08 CRORES AS ON 31.3.1999 AND RS. 4.97 CRORES AS ON 31 .3.2000, FOR WHICH HE RELIED ON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. VIJAY SOLVEX LIMITED REPORTED IN 274 CTR 384 WHEREIN THE ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 10 HON'BLE HIGH COURT HAS HELD THAT WHERE THE ASSESSEE COMPANY HAD ITS OWN SUFFICIENT FUNDS AND REVENUE WAS UNABLE TO PROVE THE NEXUS BETWEEN THE BORROWED FUNDS AND ADVANCES GIVEN, NOTION AL INTEREST DISALLOWED BY THE ASSESSING OFFICER WAS TO BE DELETED . THE HONBLE COURT HAS FURTHER HELD THAT IT MAY BE THAT THE ASSESSEE, ON ACCOUNT OF BUS INESS EXPEDIENCY, ADVANCED MONEY TO ITS SISTER CONCERN OR OTHER CONCERNS AT A LOWER RATE OF INTEREST OR DID NOT CHARGE INTEREST TH AT BY ITSELF DOES NOT PROVE THAT THE ASSESSEE DIVERTED INTEREST BEARING L OANS TO THE SAID FIRMS. AN ASSESSEE IS REQUIRED TO RUN BUSINESS LOOKING TO THE COMMERCIAL EXPEDIENCY AND SEVERAL OTHER FACTORS. THE ASSESSING OFFICER IN THIS CASE HAS WRONGLY PLACED THE BURDEN ON THE ASSESSEE THAT T HE ASSESSEE HAD FAILED TO PROVE THE NEXUS BETWEEN THE INTEREST BEARI NG FUNDS AND ADVANCES MADE TO M/S. AUTOPAL INDUSTRIES LIMITED. I T IS WELL ESTABLISHED THAT THE BURDEN IS ON THE ASSESSING OFFICER TO PROV E THAT THE INTEREST BEARING FUNDS HAVE BEEN DIVERTED AND THE ASSESSING OFFICER HAVING NOT PROVED THE NEXUS, HE WAS NOT JUSTIFIED IN MAKING ANY DISALLOWANCE. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION O F HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. HOTEL SAVERA REPORTED I N 239 ITR 795 AS WELL AS THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. TIN BOX COMPANY REPORTED IN 260 ITR 637. THE DELHI HIGH COURT HAS HELD THAT ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 11 WHERE THE DEPARTMENT COULD NOT POINT OUT ANY SPECIFI C INTEREST BEARING BORROWED FUNDS HAVING DIVERTED TO SISTER CONCERN, NO DISALLOWANCE CAN BE MADE OUT OF INTEREST PAID. HE HAS FURTHER SUBMIT TED THAT THE ASSESSEE COMPANY IS THE PROMOTER OF M/S. AUTOPAL INDUSTRIES LIMITED AND THERE WAS LABOUR UNREST IN AUTOPAL INDUSTRIES LIMITED FROM 17.08.1996 DURING WHICH THE PRODUCTION WAS HAMPERED AND THEREFORE, THE ASSESSEE COMPANY HAD TRIED TO HELP THE SAID COMPANY BY GIVIN G FUNDS TO THEM WHICH WERE OUT OF ASSESSEES OWN FUNDS GENERATED FROM RECEIPTS FROM DEBTORS AS WELL AS INTERNAL ACCRUALS. THUS, WHATEVER A MOUNT WAS GIVEN TO M/S. AUTOPAL INDUSTRIES LIMITED WAS ON ACCOUNT OF COMMERCIAL EXPEDIENCY ONLY. HE HAS RELIED ON THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS. CIT REPORTED IN 288 ITR 1. HE HAS FURTHER SUBMITTED THAT FROM THE ABOVE MENTIONED FACTS IT WOU LD BECOME VERY APPARENT THAT THE MONEY WHICH HAS BEEN GIVEN BY THE ASSESSEE TO M/S. AUTOPAL INDUSTRIES LIMITED IS ONLY ON ACCOUNT OF BU SINESS CONSIDERATION AND COMMERCIAL EXPEDIENCY AND NO PART OF THE PAYMEN T OUT OF THE INTEREST MADE BY THE ASSESSEE SHOULD HAVE BEEN DISA LLOWED AND THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER WITHOUT APPRECIATING THE DIRECTION OF THE HONBLE ITAT AS WEL L AS THE FACTS OF THE CASE AND THE DISALLOWANCE MADE DESERVES TO BE DELETE D. THE ASSESSING ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 12 OFFICER WITHOUT CORRECTLY APPRECIATING THE FACTS OF THE CASE AND MENTIONING THAT THE ASSESSEE HAD FAILED TO PROVE TH E BUSINESS CONNECTION WITH THE AMOUNT GIVEN AS LOAN AND ADVANCE S HELD THAT THE ASSESSEE HAD MADE LOANS AND ADVANCES FOR NON-BUSINE SS PURPOSE. THE LEARNED CIT(APPEALS) HAS REPEATED THE OBSERVATIONS O F THE ASSESSING OFFICER HOLDING THAT THE APPELLANT COMPANY FAILED T O PROVE THE NEXUS BETWEEN THE INTEREST BEARING FUNDS AND ADVANCES MADE BY IT TO M/S. AUTOPAL INDUSTRIES LIMITED AND ALSO FAILED TO PROVE THE BUSINESS CONNECTION WITH THE AMOUNT GIVEN AS LOANS AND ADVANC ES. HE HELD THAT THE CONTENTION OF THE APPELLANT THAT LOAN AMOUNT WAS GIVEN FOR BUSINESS PURPOSE NOT PROVED AND IT IS QUITE CLEAR THAT THE A SSESSEE MADE LOAN AND ADVANCES FOR NON-BUSINESS PURPOSES. THE LEARNED CIT (APPEALS) HAS WRONGLY HELD THAT WITH REGARD TO RATE OF INTEREST THE ISSUE HAS BEEN DECIDED IN EARLIER YEAR AND THE ASSESSING OFFICER H AS BEEN DIRECTED TO CHARGE INTEREST @ 9%, HE THEREFORE, HELD THAT THE AS SESSING OFFICER IS AGAIN DIRECTED TO CHARGE INTEREST @ 9% ACCORDINGLY. IT IS SUBMITTED THAT SO FAR AS THE ASSESSMENT YEARS 1997-98 & 1998-99 AR E CONCERNED THE MATTER HAS BEEN DECIDED BY THE ITAT JAIPUR BENCH AND THE MATTER WAS RESTORED TO THE ASSESSING OFFICER VIDE THEIR ORDER DATED 31.-08-06 WITH CERTAIN DIRECTIONS. THE ASSESSING OFFICER IN THE SET -ASIDE PROCEEDING HAS ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 13 AGAIN MADE DISALLOWANCE OUT OF INTEREST AMOUNTING T O RS. 11,25,855/- IN ASSESSMENT YEAR 1997-98 AND RS.4,62,435/- IN ASSESS MENT YEAR 1998- 99. THE ASSESSEE HAD PREFERRED APPEALS AGAINST THE O RDER OF ASSESSING OFFICER FOR ASSESSMENT 1997-98 AND 1998-99 AND THE APPEALS WERE DECIDED BY THE LEARNED CIT APPEALS-2, JAIPUR VIDE HI S ORDER DATED 05- 05-2009. THE LEARNED CIT APPEALS AFTER CONSIDERING TH E DIRECTIONS OF THE HONBLE ITAT & THE SUBMISSIONS OF THE ASSESSEE HAS D ECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. IT HAS BEEN HELD BY THE LEA RNED CIT APPEALS THAT AFTER GOING THROUGH THE ASSESSMENT ORDER IT IS CLEA R THAT THE ASSESSING OFFICER COULD NOT ESTABLISH NEXUS BETWEEN INTEREST F REE ADVANCE AND INTEREST BEARING LOANS FOR PURPOSE OF MAKING DISALL OWANCE OUT OF INTEREST PAYMENT. IT WAS ALSO HELD BY THE LEARNED CIT APPEALS THAT ASSESSING OFFICER COULD NOT DISPROVE THE PURPOSE OF GIVING LO ANS KEEPING IN VIEW THE COMMERCIAL EXPEDIENCY. THE LEARNED CIT APPEALS AL SO OBSERVED THAT AFTER GOING THROUGH THE FINAL ACCOUNTS OF SISTER CO NCERN IT IS SEEN THAT THEY HAVE ALSO NOT UTILIZED SAID LOAN RECEIVED INTE REST FREE FROM THE APPELLANT FOR THE PURPOSE OF EARNING INTEREST BUT I T WAS USED BY THEM FOR BUSINESS PURPOSE. IT WAS FINALLY HELD BY THE LEARNED CIT APPEALS THAT THE APPELLANT COMPANYS OWN FUNDS, SHARE CAPITAL AN D RESERVES AND SURPLUS WERE MUCH MORE AS COMPARED WITH INTEREST FRE E ADVANCES WHICH ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 14 WERE CONSIDERED BY THE AO FOR THE PURPOSE OF MAKING DISALLOWANCE OF INTEREST CLAIM AND UNDER THESE CIRCUMSTANCE WHEN ASS ESSING OFFICER COULD NOT ESTABLISH THE REVENUES CASE FOR DISALLOWA NCE OF INTEREST AS PER SPECIFIC DIRECTION OF ITAT. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ANY DISALLOWANCE OF SUCH INTEREST CLAIM. THUS THE LEARNED CIT APPEALS DELETED THE DISALLOWANCE OUT OF INTEREST FOR ASSESSMENT YEAR 1997-98 AND 1998-99. THE ORDER OF THE LEARNED CIT(AP PEALS) HAS ALSO BEEN ACCEPTED BY THE DEPARTMENT AS NO FURTHER APPEA L HAS BEEN FILED BY THE DEPARTMENT IN THE INCOME TAX APPELLATE TRIBUNAL. THUS THE ACTION OF THE LEARNED CIT(APPEALS) IN RELYING ON THE NON-EXIS TING APPELLATE ORDER FOR EARLIER YEAR IS UNJUSTIFIED AND DIRECTION GIVEN BY HIM DESERVES TO BE CANCELLED. WITHOUT PREJUDICE TO WHATEVER IS SUBMITT ED ABOVE, THE ASSESSEE HAS ALSO TAKEN ANOTHER PLEA BEFORE THE LEA RNED CIT(APPEALS) THAT WHILE WORKING OUT THE DISALLOWANCE THE ASSESSING OFFICER HAD TAKEN INTO CONSIDERATION THE OPENING BALANCE IN THE ACCOU NT OF M/S. AUTOPAL INDUSTRIES LIMITED WHEREAS SO FAR AS THE OPENING BA LANCE IS CONCERNED, THE SAME COULD NOT HAVE BEEN TAKEN INTO CONSIDERATI ON. IT WAS ALSO SUBMITTED THAT IT HAS BEEN HELD THAT WHERE AMOUNTS WE RE ADVANCED FREE OF INTEREST IN EARLIER YEARS AND NO DISALLOWANCE WAS MADE IN THE SAID YEARS, NO DISALLOWANCE IN RESPECT OF THE SAID AMOUNT CAN BE MADE IN THE ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 15 YEAR UNDER ASSESSMENT. HE RELIED ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRIDEV E NTERPRISES REPORTED IN 192 ITR 165, DECISION OF HONBLE ITAT, CHANDIGARH BENCH IN CASE OF MALWA COTTON SPINNING MILLS VS. ACIT REPORTED IN 89 ITD 65 (CHD) (T M) AND THE DECISION OF HONBLE SUPREME COURT IN CASE O F MUNJAL SALES CORPORATION VS. CIT REPORTED IN 298 ITR 298. THE LD A R HAS FURTHER SUBMITTED THAT EVEN IN EARLIER ASSESSMENT YEARS I.E . ASSESSMENT YEAR 1997-98 AND 1998-99 THE ASSESSING OFFICER HAS HIMSE LF NOT MADE ANY DISALLOWANCE OUT OF THE OPENING BALANCES IN BOTH THE ASSESSMENT YEAR & THE DISALLOWANCES WERE MADE ONLY IN RESPECT OF THE A MOUNTS ADVANCED DURING THE RELEVANT ASSESSMENT YEAR. IN ASSESSMENT YEAR 1997-98 WHILE COMPLETING THE ORIGINAL ASSESSMENT DISALLOWANCE OF R S. 47,40,112/- WAS MADE BUT AFTER THE MATTER HAS SET-ASIDE BY THE HON BLE ITAT, JAIPUR BENCH, THE LEARNED ASSESSING OFFICER HAS ONLY MADE THE DISALLOWANCE IN RESPECT OF THE AMOUNTS ADVANCED DURING THE YEAR WITH THE RESULT THAT THE DISALLOWANCE WAS RESTRICTED TO RS. 11,25,855/-. SIMIL ARLY IN ASSESSMENT YEAR 1998-99 THE ASSESSING OFFICER HAS MADE THE DIS ALLOWANCE OF INTEREST IN ORIGINAL ASSESSMENT OF RS. 47,40,112/- BUT IN THE SET-ASIDE PROCEEDINGS DISALLOWANCE OF RS. 4,62,435/- WAS MADE WH ICH WAS ONLY WITH REGARD TO THE AMOUNT ADVANCED DURING THE YEAR. WE MAY ALSO ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 16 MENTION THAT FOR MAKING THE DISALLOWANCE THE LEARNED ASSESSING OFFICER HAD APPLIED THE RATE OF 9%. LOOKING TO THE ABOVE ME NTIONED FACTS AND CIRCUMSTANCES THERE WAS NO JUSTIFICATION ON PART OF THE ASSESSING OFFICER TO CONSIDER THE OPENING DEBIT BALANCE FOR WORKING OU T DISALLOWANCE. ALTHOUGH THE ASSESSEE HAD TAKEN THIS PLEA BEFORE TH E LEARNED CIT(APPEALS) AND THE SAME HAS ALSO BEEN REPRODUCED B Y THE LEARNED CIT(APPEALS) IN HIS ORDER ( PAGE 4 AND PAGES 9-11 OF THE ORDER OF CIT(APPEALS) NO FINDING HAS BEEN GIVEN BY HIM WITH RE GARD TO THE SAID CONTENTION OF THE ASSESSEE. IT IS SUBMITTED THAT IN VIEW OF VARIOUS DECISIONS AS MENTIONED ABOVE AS WELL AS THE ACTION O F THE ASSESSING OFFICER IN ASSESSMENT YEARS 1997-98 AND 1998-99 THE RE WAS NO JUSTIFICATION ON THE PART OF THE ASSESSING OFFICER TO CONSIDER THE OPENING DEBIT BALANCE FOR WORKING OUT THE DISALLOWANCE. THUS, IN VIEW OF THE FACTS AND CIRCUMSTANCES NARRATED ABOVE AND APPELLAT E ORDERS FOR ASSESSMENT YEARS 1997-98 AND 1998-99 THERE WAS NO JU STIFICATION ON THE PART OF THE CIT(APPEALS) TO SUSTAIN ANY DISALLOWANCE OUT OF INTEREST PAID AND THE DISALLOWANCE DESERVES TO BE DELETED. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE DI RECTION ISSUED BY THE TRIBUNAL WHILE REMANDING THE MATTER FOR THE ASSESSMEN T YEAR 2000-01, ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 17 2001-02 WERE MENTIONED IN PARAGRAPH NO. 8 OF THE ORD ER, WHICH PROVIDES AS UNDER:- FROM BARE PERUSAL OF THE ORDER AND DIRECTION, IT I S CLEAR THAT THE A.O. IS REQUIRED TO INQUIRE AS TO WHETHER THE LOANS WERE GIVEN BY THE ASSESSEE AS A MEASURE OF COMMERCIAL EXPEDIENCY AND THAT IF THE LOAN IS GIVEN FOR THE PURPOSES OF BUSINESS, NO INTEREST CAN BE DISALLOWED EVEN IF THE MONEY HAS BEEN ADVANCED OUT OF INTEREST BEARING FUNDS. IN NUTSHELL, THE ASSESSEE COMPANY WAS REQUIRED TO PR OVE THE NEXUS BETWEEN THE INTEREST BEARING FUNDS AND ADVANCE MADE BY IT TO M/S AUTOPAL INDUSTRIES LIMITED AND FURTHER IT WAS ALSO R EQUIRED TO PROVE THE COMMERCIAL EXPEDIENCY. THE COMMERCIAL EXPEDIENCY IS NOT FOR THE PURPOSES OF EARNING PROFIT BUT HAS A WIDER SCOPE AS MENTIONED BY THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS BY REFERRING AND EMPHASIZING ON FOR THE PURPOSE OF BUSINESS. IN TH E SAID JUDGMENT, THE HON'BLE SUPREME COURT HAS HELD THAT IT IS NOT IN EV ERY CASE, INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF IT IS MADE TO HIS SISTER CONCERN AND IT WOULD DEPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. THE LD ASSESSING OFFICER HAS ISSUED NOTICES TO THE ASSESSE E AFTER THE ASSESSMENT PROCEEDINGS AND HAD DIRECTED TO FILE DOC UMENTARY EVIDENCE IN SUPPORT OF ITS CLAIM. THE LD ASSESSING OFFICER NO TICED THAT DESPITE THE OPPORTUNITY, THE ASSESSEE FAILED TO PROVE THE NEXUS BETWEEN THE INTEREST ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 18 BEARING FUND AND ADVANCE MADE BY IT TO M/S AUTOPAL INDUSTRIES LIMITED. FURTHER THE ASSESSEE ALSO FAILED TO PROVE THE BUSIN ESS CONNECTION WITH THE AMOUNT GIVEN AS LOANS AND ADVANCES FOR THE PURP OSES OF BUSINESS. THE ASSESSEE BEFORE US HAS SUBMITTED THAT THE ASSESS EE WAS HAVING SHARE CAPITAL AS ON 31/3/2000 WAS RS. 5,52,08,872/- WHEREAS THE SHARE CAPITAL AS ON 31/5/1999 WAS RS. 5,29,26,842/-. SIMIL ARLY, IT WAS SUBMITTED THAT THE RESERVE AND SURPLUS WAS RS. 47,22 ,57,059/-, WHICH WAS RS. 46,96,52,180/- UP TO 31/3/1999. THUS, THERE WA S INCREASE IN SHARE CAPITAL AND RESERVE AND SURPLUS AS ON 31/3/20 00. ON THE BASIS OF THE ABOVE, IT WAS CONTENDED THAT THERE WAS AVAILABILI TY OF FUND WITH THE ASSESSEE. ON THE OTHER HAND, THE LD DR HAS DRAWN OUR ATTENTION TO THE INCREASE IN SECURED LOANS. AS ON 31/3/1999, THE SEC URED LOAN WAS RS. 22,97,00,549.05 WHEREAS IT INCREASED TO RS. 31,66,6 1,542.75. SIMILARLY, THE FIXED ASSETS HAVE INCREASED FROM RS. 49,51,33,0 30/- TO RS. 53,34,74,451.57. THE CURRENT LIABILITY, AS PER PAGE 67 HAD ALSO INCREASED FROM RS. 11,88,75,084/- TO RS. 13,17,58,131.87. ON THE BASIS OF THIS, THE LD DR HAS SUBMITTED THAT THE ASSESSEE HAS FAILED TO PROVE THE NEXUS BETWEEN THE FUNDS GIVEN TO THE SISTER CONCERN WITH TH AT OF THE SURPLUS MONEY AS WAS ALLEGEDLY AVAILABLE WITH THE ASSESSEE. ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 19 7.1 IN OUR VIEW, U/S 36, THE INTEREST PAID IN RESPEC T OF CAPITAL BORROWED FOR THE PURPOSES OF BUSINESS OR PROFESSION IS ALLOWED TO BE DEDUCTED. AS PER SECTION 36(1)(III) OF THE ACT, A) THERE MUST BE BORROWING OF CAPITA BY THE ASSESSEE B) THE ASSESSEE MUST HAVE PAID THE INTEREST IN THE THE CAPITAL BORROWED AND C) THE BORR OWED CAPITAL BORROWED WAS BY THE ASSESSEE FOR THE PURPOSES OF BUS INESS OR PROFESSION, THEN ONLY THE ASSESSEE IS ENTITLED TO T HE DEDUCTION. FROM PERUSAL OF THE BALANCE SHEET, IT IS CLEAR THA T THOUGH THERE IS INCREASE IN SHARE CAPITAL BUT SIMULTANEOUSLY, THERE IS ALSO INCREASE IN THE LOAN AND THE FIXED ASSETS OF THE ASSESSEE COMPANY, THEREFORE, IN OUR VIEW, THE ASSESSEE WAS REQUIRED TO PROVE WHETHER ON T HE DATE OF MAKING INVESTMENT OR GIVING THE INTEREST FREE AMOUNT TO TH E SISTER CONCERN, THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS A VAILABLE WITH IT. FOR THAT PURPOSES, THE ASSESSEE SHOULD DEMONSTRATE FROM ITS CASH FLOW STATEMENT AND BANK ACCOUNT THAT IT HAS DATE-WISE AVA ILABILITY OF INTEREST FREE FUNDS ON THE DATE OF MAKING ADVANCES TO THE SI STER CONCERN. IN OUR VIEW, THE ASSESSEE HAS FAILED TO PROVE ON THE DATE O F MAKING INVESTMENT IN M/S AUTOPAL INDUSTRIES LIMITED THAT IT HAS INTER EST FREE FUNDS AVAILABLE WITH IT. NO MATERIAL WAS PRODUCED BEFORE AO DESPITE T HE REMAND ORDER OF THE TRIBUNAL TO SUBSTANTIATE THE AVAILABILITY OF SURPLUS FUND . ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 20 7.2 THE SECOND ASPECT OF THE MATTER IS, WHETHER SOME BUSINESS CONNECTION OR STRATEGICAL INVESTMENT WAS REQUIRED TO BE MADE BY THE ASSESSEE BY PROVIDING THE INTEREST FREE BORROWED CAP ITAL TO M/S AUTOPAL INDUSTRIES LIMITED I.E. TO PROVE THE COMMERCIAL EXP EDIENCY IN LENDING THE AMOUNT? 7.3 RECENTLY, THE HON'BLE SUPREME COURT IN THE MATT ER OF HERO CYCLE PVT. LTD. VS. CIT (2015) 63 TAXMANN.COM 308 HAS OCCA SION TO REVISIT EARLIER JUDGMENT IN THE MATTER OF S.A. BUILDERS AND OTHERS. IN THE SAID JUDGMENT, IN PARAGRAPH NO. 12 AND 13 PROVIDES AS UN DER: 12. IN SO FAR AS LOANS TO THE SISTER CONCERN/SUBSI DIARY COMPANY ARE CONCERNED, LAW IN THIS BEHALF IS RECAPITULATED B Y THIS COURT IN THE CASE OF S. A. BUILDERS LTD. V. CIT (APPEALS) [2007] 288 ITR 1 (SC). AFTER TAKING NOTE OF AND DISCUSSING ON THE S COPE OF COMMERCIAL EXPEDIENCY, THE COURT SUMMED UP THE L EGAL POSITION IN THE FOLLOWING MANNER** : '26. THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS AN E XPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSIN ESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSIN ESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERC IAL EXPEDIENCY. ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 21 27. NO DOUBT, AS HELD IN MADHAV PRASAD JATIA V. CIT [1979] 118 ITR 200 (SC), IF THE BORROWED AMOUNT WAS DONATED FOR SOME SENTIMENTAL OR PERSONAL REASONS AND NOT ON THE GROUND OF COMMERCIAL EXPEDIENCY, THE INTEREST THERE ON COULD NOT HAVE BEEN ALLOWED UNDER SECTION 36(1)(III) OF THE ACT. IN MADHAV PRASAD'S CASE [1979] 118 ITR 200 (SC) THE BORROWED AMOUNT WAS DONATED TO A COLLEGE WITH A VIEW TO COMMEMORATE THE MEMORY OF THE ASSESSEE'S DECEASED HUSBAND AFTER WHOM THE COLLEGE WAS TO BE NAMED, IT WAS HELD BY THIS COURT THAT THE INTEREST O N THE BORROWED FUND IN SUCH A CASE COULD NOT BE ALLOWED, AS IT COULD NOT BE SAID THAT IT WAS FOR COMMERCIAL EXPEDIE NCY. 28. THUS, THE RATIO OF MADHAV PRASAD'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 NO R THE TRIBUNAL NOR OTHER AUTHORITIES HAVE EXAMINED WHETHER THE AMOUNT ADVANCED TO THE SISTER CONCERN WAS BY WAY 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 EARNING PRO FITS' VIDE CIT V. MALAYALAM PLANTATIONS LTD. [1964] 53 ITR 140 (SC), CIT V. BIRLA COTTON SPINNING AND WEAVING MILL S LTD. [1971] 82 ITR 166 (SC), ETC.' 13. IN THE PROCESS, THE COURT ALSO AGREED THAT THE VIEW TAKEN BY THE DELHI HIGH COURT IN CIT V. DALMIA CEMENT (B.) L TD. [2002] 254 ITR 377 (DELHI) WHEREIN THE HIGH COURT HAD HELD THAT ONCE IT IS ESTABLISHED THAT THERE IS NEXUS BETWEEN T HE EXPENDITURE AND THE PURPOSE OF BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF) , THE ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 22 REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN T HE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF T HE CASE. IT FURTHER HELD THAT NO BUSINESSMAN CAN BE COMPELLE D TO MAXIMISE HIS PROFIT AND THAT THE INCOME-TAX AUTHORI TIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST N OT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THA T OF A PRUDENT BUSINESSMAN. IF WE APPLY THE RATIO OF THE HON'BLE SUPREME COURT A S HELD IN THE CASE OF HERO CYCLES PVT. LTD. (SUPRA) WILL COME TO THE IRRES ISTIBLE CONCLUSION THAT THE ASSESSEE HAS FAILED TO PROVE THE BUSINESS CONNE CTION WITH THE AMOUNT GIVEN AS LOAN AND ADVANCES TO THE ASSESSEE. AS PER PAGE 32 OF THE PAPER BOOK, THE LOAN HAS BEEN UTILIZED BY THE M /S AUTOPAL INDUSTRIES FOR REPAYMENT TO PENNAR PETERSON LTD. AND GOVERNMEN T DUES LIKE PF/ESI/EXCISE/ELECTRIC BILL, PAYMENT TO EMPLOYEES A ND PAYMENT TOWARDS IMPORTED GOODS. IN OUR VIEW, NONE OF THE USAGES OF A DVANCE BY THE M/S AUTOPAL INDUSTRIES PROVES BUSINESS INTEREST WITH THA T OF THE BUSINESS OF THE ASSESSEE. IN FACT IN THE WRITTEN SUBMISSIONS IT IS MENTIONED THAT THERE WAS LABOUR UNREST IN M/S AUTOPAL INDUSTRIES F ROM 17.8.1996 DURING WHICH THE PRODUCTION WAS HAMPERED THEREFORE T HE ASSESSEE COMPANY HAD TRIED TO HELP THE SAID THE M/S AUTOPAL INDUSTRIES ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 23 IN OUR VIEW SUBMISSION OF THE ASSESSEE, THAT IT TRIE D TO HELP M/S AUTOPAL INDUSTRIES ON ACCOUNT OF LABOUR UNREST WAS NOT SUPPO RTED BY ANY DOCUMENT OR RECORD. MOREOVER THE UNREST IN 1996 DO ES NOT GIVE ANY CAUSE TO ADVANCE THE HUGE AMOUNT TO M/S AUTOPAL IND USTRIES 1999-2000 AND 2000-2001. THE RECORDS SHOWS, CONTRARY TO THE SU BMISSIONS, M/S AUTOPAL INDUSTRIES UTILIZED THE AMOUNT FOR OTHER PU RPOSES (NOT FOR SETTLEMENT OF DUES OF LABOUR EXCEPT RS 19.46 LAKH). IT IS EXPECTED FROM A PRUDENT BUSINESS MAN LIKE THE ASSESSEE IN TERM OF H ONBLE SUPREME COURT JUDGMENT, TO MAKE USE OF THE FUNDS ON THE BAS IS OF COMMERCIAL PRINCIPLE AND SHOULD NOT WASTE GOOD MONEY AGAINST TH E BAD MONEY. NO COMMERCIAL EXPEDIENCY HAS BEEN SHOWN BY THE ASSESSEE FOR GIVING SUCH A HUGE ADVANCES AFTER TAKING ADVANCES FROM THE FINA NCIAL INSTITUTIONS ON PAYING THE INTEREST. IN VIEW THEREOF, THE APPEAL OF THE ASSESSEE IS REQUIRED TO BE DISMISSED. LASTLY, THE LD AR OF THE ASSESSEE IN ALTERNATIVELY HAS SUBMITTED THAT FOR THE ASSESSMENT YEAR 1997-98 AND 1998-99, THE TRIBUNA L HAS REMANDED THE MATTER AND THEREAFTER THE LD ASSESSING OFFICER HAS DECIDED THE ISSUE. AGAINST THE ORDER OF AO, THE LD CIT(A) HAS DELETED THE ENTIRE ADDITION MADE BY THE LD ASSESSING OFFICER RESTRICTING TO THE NET AMOUNT BORROWED DURING THE YEAR UNDER CONSIDERATION. ON THE SAME AN ALOGY, THE LD AR HAS ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 24 SUBMITTED THAT EVEN IN THE PRESENT CASE, THE DEDUCT ION SHOULD BE ALLOWED AT LEAST ON THE AMOUNT BORROWED IN THE YEAR U NDER CONSIDERATION. ON THE OTHER HAND, THE LD DR HAS VEH EMENTLY OPPOSED THE SAME AND HAS SUBMITTED THAT THE ASSESSMENT MADE BY THE LD ASSESSING OFFICER FOR THE PREVIOUS YEAR IS NOT BIND ING ON THE AO WHILE DECIDING THE PRESENT APPEAL. EVERY ASSESSMENT IS A SEPARATE ASSESSMENT AND PRINCIPAL OF RES-JUDICATA IS NOT APPLICABLE TO THE ASSESSMENT PROCEEDING, EVEN THOUGH THE ORDER CIT HAS NOT BEEN CHALLENGED. 7.4 WE HAVE GONE THROUGH THE CONTENTION, IN OUR VIE W, THE ORDER PASSED BY THE LD CIT(A) EVEN IF NOT CHALLENGED BY TH E REVENUE IS NOT BINDING ON THE TRIBUNAL. THE TRIBUNAL IS DUTY BOUND TO DECIDE THE ISSUE AS IT THINKS FIT AND APPROPRIATE IN ACCORDANCE WITH FACTS AND CIRCUMSTANCES OF THE CASE. IN OUR VIEW, WHAT IS PROVI DED U/S 36, THE DEDUCTION ON THE AMOUNT OF INTEREST PAID ON THE CAP ITAL BORROWED FOR THE PURPOSES FOR BUSINESS OR PROFESSION. THE PROVISION I S MADE APPLICABLE ON THE CAPITAL BORROWEDAND HAS NOT RESTRICTED TO THE CAPITAL BORROWED DURING THE YEAR. IF WE AGREE TO THE PROPORTION OF T HE LD AR, THEN IT WILL AMOUNT TO REWRITING THE PROVISIONS OF LAW. THE TRIBUNA L BEING A CREATION OF STATUTE IS BOUND TO ADHERE TO THE LAW LAID DOWN IN THE STATUTE BOOK AND IS NOT WITHIN ITS LIBERTY TO MAKE THE ADDITIONS BY WAY OF JUDICIAL ORDER ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 25 IN THE STATUTE BOOK. IF WE ACCEPT THE ARGUMENT OF T HE LD COUNSEL FOR THE ASSESSEE WHEREBY IF WE HELD THAT THE INTEREST SHALL BE DISALLOWED ON THE CAPITAL BORROWED DURING THE ASSESSMENT YEAR THEN THE ENTIRE THRUST AND PURPOSE OF THE PROVISION WILL DISAPPEAR AND MAKE THE PROVISION REDUNDANT. IN VIEW THEREOF, THE SUBMISSION OF THE LD AR WHEREBY HE SOUGHT TO RESTRICT THE DISALLOWANCE ONLY FOR THE AMO UNT BORROWED DURING THE ASSESSMENT YEAR, IS NOT ACCEPTABLE. EVEN OTHERWI SE THE TRIBUNAL IS ALSO GOVERNED BY ITS EARLIER REMAND ORDER, WHERE ON SUCH SUBMISSIONS WERE REFERRED OR ADDRESSED. HENCE, THE APPEAL OF THE ASSESSEE IS DISMISSED ON THIS GROUND. SIMILAR FINDING IS ALSO G IVEN IN THE ASSESSEES CASE FOR THE A.Y. 2001-02. 8. NOW WE TAKE THE REVENUES APPEAL FOR THE A.Y. 2000 -01. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVA ILABLE ON THE RECORD. IT IS OBSERVED THAT THE DEMAND/ TAX EFFECT IN THE R EVENUE IN QUESTION IS BELOW TEN LACS RUPEES. UNDER THE POWERS VESTED BY SEC . 268A(1) OF THE I T ACT, CBDT HAS RECENTLY ISSUED CIRCULARNO.21 OF 201 5 DATED 10.12.2015(F NO. 279/MISC. 142/2007-ITJ(PT) INSTRUC TING THE AUTHORITIES BELOW DEPARTMENTAL APPEAL SHOULD NOT BE FILED BEFORE ITAT WHERE THE DEMAND/TAX EFFECT DOES NOT EX CEED LESS ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 26 THAN RS.10 LACS. THE CIRCULAR IS SPECIFICALLY MENTI ONED TO BE APPLICABLE FOR ALL PENDING APPEALS. 9. SUBJECT TO SOME EXCEPTIONS, IT IS FURTHER DIREC TED BY CBDT THAT ALL THE DEPARTMENTAL APPEALS PENDING BEFORE ITAT WHERE TH E DEMAND/TAX EFFECT IS LESS THAN 10 LACS SHOULD BE EITHER WITHDRA WN OR NOT PRESSED BY THE DEPARTMENTAL REPRESENTATIVES. 10. THE PRESENT APPEAL IS NOT COVERED BY ANY EXCEPTI ONS MENTIONED IN THE SAID CBDT CIRCULAR. SINCE THE TAX DEMAND IN DISP UTE IN THIS DEPARTMENTAL APPEAL IS BELOW THE LIMIT SET OUT BY CB DT FOR THE APPEAL THE SAME IS NOT MAINTAINABLE IN VIEW OF FORE GOINGS. ACCORDINGLY THE APPEAL OF THE DEPARTMENT IS DISMISSED AS NOT PRESSE D/WITHDRAWN. 11. NOW WE TAKE THE REVENUES APPEAL FOR THE A.Y. 200 1-02. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS A FACT THAT THE ASSE SSEE COMPANY HAS FAILED TO PROVE THE NEXUS BETWEEN THE INTEREST BEARING FUND S AND ADVANCE MADE BY IT TO THE M/S AUTOPAL INDUSTRIES. IT HAS AL SO FAILED TO PROVE THE BUSINESS CONNECTION WITH THE AMOUNT GIVEN AS LOAN AN D ADVANCE. THE FACTS NARRATED BY THE LD AR OF THE ASSESSEE IS GENE RAL IN NATURE. THE ASSESSEE HAS NOT SUBMITTED ANY DOCUMENTARY EVIDENCE TO PROVE THE CONTENTION THAT THE LOAN AMOUNT WAS GIVEN FOR THE P URPOSE OF BUSINESS, ITA 599 TO 602/JP/2015_ ACIT VS AUTOLITE (I) LTD. 27 FOR WHICH, IT IS CLEAR FROM THE FACTS ABOVE THAT THE ASSESSEE MADE LOAN AND ADVANCE FOR NON BUSINESS PURPOSES. THE LD CIT(A) HAS CONFIRMED 9% INTEREST CHARGE INSTEAD OF 15% APPLIED BY THE LD ASSESSING OFFICER. FROM THE ABOVE FACTS AND CIRCUMSTANCES, IN OUR VIEW, NO NEW FACTS HAS BEEN NARRATED BY THE LD DR BEFORE US, THEREFORE, WE UPHOLD THE ORDER OF THE LD CIT(A). ACCORDINGLY, REVENUES APPEAL IS DISM ISSED ON THIS GROUND. 12. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AS WELL AS THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/07/2016. SD/- SD/- HKKXPAN YFYR DQEKJ (BHAGCHAND) (LALIET KUMAR) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 13 TH JULY, 2016 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE ACIT, CIRCLE-4, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- M/S AUTOLITE (INDIA) LTD., JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 599 & 602/JP/2015) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR
