DEVAKI MULTIFILMS PVT.LTD., MUMBAI V. ITO 10(3)(1),

ITA 6179/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2714 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 03-12-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 15-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAMED USMAN
• Assessee Lawyers: R R RANADE
• Keywords: Depreciation; Business expenditure; Proportionate interest; Commercial expediency; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI A.L. GEHLOT, A.M. AND SMT. P. MADHAVI D EVI, J.M. ITA NO. 6179/M/08 ASSESSMENT YEAR: 2004-05 DEVAKI MULTIFILMS PVT. LTD., APPELLANT 01 YESHWANT, G FLOOR, G.V. SCHEME ROAD NO.2, MULUND (E), MUMBAI 400 081. (PAN AAACD2119A) VS. INCOME TAX OFFICER - 10(3)(1), RESPONDENT AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. APPELLANT BY : MR. R.R. RANADE RESPONDENT BY : MR. MOHAMED USMAN ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF TH E ORDER PASSED BY THE CIT(A)-X, MUMBAI, ON 21.07.2008 FOR THE A SSESSMENT YEAR 2004-05. 2. THE FIRST EFFECTIVE GROUND IN THE APPEAL IS IN R ESPECT OF ADDITION OF RS. 11,91,372/- BY DISALLOWING ASSESSEES CLAIM U/S 36(1)(III) OF THE ACT. THE SECOND EFFECTIVE GROUND IS IN RESPECT OF UNABSORBED DEPRECIATION/BUSINESS LOSS, REMAINING UNABSORBED BE COMPUTED AFRESH AND BE ALLOWED TO BE CARRIED FORWARD, WHICH IS CONSEQUENTIAL TO THE FIRST GROUND. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED FINANCIAL EXPENSES, W HICH ARE DETAILED AS UNDER:- ITA NO. 6179/M/08 M/S DEVAKI MULTIFILMS PVT. LTD.. 2 I) BANK CHARGES AND COMMISSION RS. 34,693/- II) INTEREST ON DEPOSIT PAID RS. 49,890/- III) SERVICE CHARGES/INTEREST DPC RS.3,08,329/- IV) BANK INTEREST CASH CREDIT RS.4,77,045/- V) BANK INTEREST TERM LOANS RS.15,84,284/- 3.1 THE AO FURTHER NOTICED THAT THE ASSESSEE HAS AP PLIED THE FUNDS AMOUNTING TO RS. 3,79,750/- INTO INVESTMENT IN SHAR E OF BANK AND SISTER CONCERN. IT IS FURTHER NOTICED THAT THE LOAN S AND ADVANCES TO ITS SISTER CONCERN AND OTHERS WERE GIVEN TO THE TUNE OF RS. 76,40,480/- ON INTEREST-FREE BASIS. THE AO WAS OF THE VIEW THAT BORROWED FUNDS, FOR WHICH THE ASSESSEE HAS INCURRED EXPENSES WERE N OT FOR THE PURPOSE OF BUSINESS, THEREFORE, HE MADE THE ADDITIO N OF RS. 15,84,284/- BY DISALLOWING ASSESSEES CLAIM OF FINA NCIAL CHARGES. THE CIT(A) PARTLY ACCEPTED THE ASSESSEES CONTENTION AN D DIRECTED THE AO TO DISALLOW PROPORTIONATE INTEREST ON INTEREST-FREE ADVANCES OF RS. 8,37,588/- AND RS. 66,74,060/- GIVEN TO DEVAKI POLY FILM P. LTD. AND OM LAMIPACK P. LTD. HOWEVER, THE PROPORTIONATE DISA LLOWANCE SHOULD MADE AFTER EXCLUDING THE FOLLOWING FINANCIAL CHARGE S AND INTEREST, WHICH HAS BEEN HELD TO BE FOR THE PURPOSE OF BUSINE SS:- BANK CHARGES AND COMMISSION RS. 34,693/- INTEREST ON DEPOSIT PAID RS. 49,890/- SERVICE CHARGES/INTEREST DPC RS.3,08,329/- 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. IT WAS POINTED OUT BY THE BENCH THAT ON SUCH CASES THE ITAT HAS LAID DOWN CERTAIN GUIDELINES IN THE CASE OF H.P. SHAH & CO. IN ITA NO. 3694/M/06 FOR AY 2003-04 VIDE ORDER DATED 15 TH JANUARY, 2009, WHERE AM WAS ONE OF THE PARTY. THE LEARNED REPRESENTATIVES OF THE PARTIES SUBMITTED THAT THE M ATTER MAY BE SENT BACK TO THE FILE OF THE AO WITH A DIRECTION TO ALLO W/DISALLOW, IF ANY, IN ACCORDANCE WITH THE ABOVE DECISION OF ITAT. THE REL EVANT FINDINGS OF THE ITAT HAS REPRODUCED BELOW:- 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED RECORD. THE CRUX OF THE MATTER TO BE CONSID ERED BY US IS IN ITA NO. 6179/M/08 M/S DEVAKI MULTIFILMS PVT. LTD.. 3 RESPECT OF ALLOWABILITY OF INTEREST EXPENDITURE UND ER SECTION 36(1)(III) OF THE ACT WHERE INTEREST BEARING BORROWED FUNDS AND O WN CAPITAL HAS LOST ITS SEPARATE IDENTITY AS BOTH ARE MIXED. SECT ION 36 OF THE ACT OCCURS IN CHAPTER IV WHICH DEALS WITH THE COMPUTATI ON OF TOTAL INCOME AND IT IS A PROVISION WHICH RELATES TO THE COMPUTAT ION OF INCOME EARNED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION'. THE DEDUCTION CONTEMPLATED BY THE SECTION IS IN RELATIO N TO THE EXPENDITURE WHICH COULD PROPERLY BE REGARDED AS NECESSARY FOR T HE PURPOSE OF THE BUSINESS OR PROFESSION. EXPENDITURE INCURRED ON ACC OUNT OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF BUSINESS WOULD BE ALL OWABLE UNDER THIS PROVISION. THE EXPENDITURE TO BE ALLOWED MUST HAVE A NEXUS WITH THE BUSINESS OF THE ASSESSEE. IF THE EXPENDITURE INCURR ED IS OSTENSIBLY INCURRED FOR THE BUSINESS, BUT IF IN REALITY IS NOT FOR THE PURPOSE OF BUSINESS THEN SUCH EXPENDITURE IS NOT ALLOWABLE. 4.1 SECTION 36(1) (III) OF THE ACT REFERS TO 'THE A MOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE S OF THE BUSINESS OR PROFESSION'. THE CAPITAL BORROWED SHOULD BE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. IT IS IMPLICIT IN THIS PROV ISION THAT THE CAPITAL SO BORROWED SHOULD NOT ONLY BE INVESTED IN THE BUSINES S, BUT THAT THE AMOUNT BORROWED SHOULD CONTINUE TO REMAIN IN THE BU SINESS. SO LONG AS THE AMOUNT BORROWED IS USED IN THE BUSINESS, THE IN TEREST PAID ON SUCH BORROWING IS AN EXPENDITURE WHICH IS REQUIRED TO BE DEDUCTED IN THE COMPUTATION OF THE INCOME FROM THE BUSINESS. THE IN TEREST PAYABLE ON THE CAPITAL BORROWED IS A LIABILITY WHICH CONTINUES TILL SUCH TIME AS THE AMOUNT BORROWED IS REPAID. SUCH INTEREST IS ALLOWAB LE UNDER THE PROVISION ONLY FOR THE REASON THAT THE AMOUNT ON WH ICH INTEREST IS PAID CONTINUES TO BE USED IN THE BUSINESS AND THE PAYMEN T OF SUCH INTEREST IS, THEREFORE, NECESSARY FOR THE PURPOSE OF RUNNING THE BUSINESS. 4.2 THE OBJECT OF THE PROVISION IS NOT TO ENABLE AN ASSESSEE TO MAKE A LARGE BORROWING AND CREATE A LIABILITY FOR PAYMEN T OF INTEREST THEREON NOT ONLY IN THE YEAR IN WHICH THE BORROWING WAS MAD E, BUT THE SUBSEQUENT YEARS AS WELL, KEEP THE LOAN OUTSTANDING AND THEREAFTER, DIVERT THE AMOUNT BORROWED BY TAKING IT OUT OF THE BUSINESS BY GIVING IT INTEREST-FREE TO OTHERS LIKE SISTER CONCERNS AND RE LATIVES OR FOR PERSONAL USE., BUT CONTINUE TO PAY INTEREST OUT OF THE INCOM E OF THE BUSINESS AND CLAIM THE AMOUNT OF INTEREST PAID AS A BUSINESS EXP ENDITURE. THE PAYMENT OF INTEREST ON THE AMOUNT NOT USED IN THE B USINESS CANNOT BE REGARDED AS A BUSINESS EXPENDITURE AS THE BUSINESS DOES NOT DERIVE ANY BENEFIT BY THE OUTGOING BY WAY OF INTEREST ON A N AMOUNT WHICH IS NO LONGER IN THE BUSINESS, BUT HAD BEEN DIVERTED FR OM THE BUSINESS. THIS PROVISION, THEREFORE, CANNOT BE CONSTRUED AS E NABLING AN ASSESSEE TO BURDEN THE BUSINESS WITH INTEREST EVEN WHILE TAK ING THE AMOUNT INITIALLY BORROWED FOR THE BUSINESS, BUT SUBSEQUENT LY TAKEN OUT OF THE BUSINESS BY DIVERTING IT AS INTEREST-FREE LOANS TO SISTER CONCERNS AND RELATIVES OR FOR PERSONAL USE. 4.3 THE AMOUNT BORROWED FOR THE BUSINESS REMAINS A LIABILITY FOR THE BUSINESS TILL ITS DISCHARGE. THE FACT THAT THE AMOU NT BORROWED MAY HAVE BEEN INVESTED IN THE PURCHASE OF MACHINERY OR UTILISED AS WORKING CAPITAL OR USED IN ANY OTHER WAY DOES NOT IN ANY WA Y AFFECT THE LIABILITY FOR REPAYMENT OF THE AMOUNT BORROWED. SO LONG AS THE MONEY BORROWED IS USED IN THE BUSINESS, INTEREST PAID ON SUCH BORROWING IS A PROPER CHARGE ON THE BUSINESS AND IS ALLOWABLE AS E XPENDITURE. UNDER ITA NO. 6179/M/08 M/S DEVAKI MULTIFILMS PVT. LTD.. 4 SECTION 36(1)(III) OF THE ACT, AMOUNTS DIVERTED NOT BEING USED FOR THE PURPOSES OF THE BUSINESS, INTEREST RELATING TO THE AMOUNT DIVERTED OUT OF THE BUSINESS CANNOT BE TREATED AS A PERMISSIBLE DEDUCTION IN THE COMPUTATION OF INCOME. ON MANY OCCASIONS THE ASSES SEE TAKE STAND THAT ONCE THE AMOUNT BORROWED IS FOUND TO HAVE BEEN USED FOR SOME TIME IN THE BUSINESS, THEN SUBSEQUENT DIVERSION IS OF NO CONSEQUENCE, BUT SUCH STAND OF THE ASSESSEE CANNOT BE ACCEPTED. THE LEGISLATIVE LANGUAGE OF SEC. 36(1)(III) OF THE ACT IS VERY AS CLEAR EXPRESSION BORROWED FOR THE PURPOSE OF THE BUSINESS IS USED. THE AMOUNT BORROWED MUST CONTINUE TO BE USED FOR THE PURPOSES OF THE BUSINESS AND THE FACT THAT IT WAS USED FOR SOME POINT OF TIM E, BUT LATER DIVERTED WOULD NOT ENTITLE THE ASSESSEE TO CLAIM THE INTERES T PAID ON THE BORROWING AS A DEDUCTION UNDER SEC.36(1)(III) EVEN AFTER SUCH DIVERSION. IN CASES WHERE DIVERSION OCCURS IMMEDIATELY AFTER T HE BORROWING AND THE BORROWED AMOUNTS ARE NOT INVESTED IN THE BUSINE SS AT ALL, BUT DIVERTED FOR OTHER PURPOSES, THEN THERE SHOULD NOT BE ANY CLOUD OF DOUBT THAT INTEREST PAID ON SUCH BORROWED AMOUNTS I S NOT ALLOWABLE DEDUCTION. THE FACTUM OF DEFERMENT, IN CASES WHERE SUCH DIVERSION OF FUNDS FROM THE BUSINESS IS CLEARLY ESTABLISHED FRO M THE FACTS ON RECORD, DOES NOT ENTITLE THE ASSESSEE TO CLAIM THE BENEFIT OF DEDUCTION IN RESPECT OF INTEREST PAID ON THE AMOUNTS BORROWED BUT NOT PRESENTLY USED IN ITS BUSINESS. THE TIME AT WHICH THE DIVERSI ON TAKES PLACE IS NOT THE ONLY RELEVANT CRITERION BUT IT IS THE FACT OF T HE DIVERSION WHICH IS MATERIAL AND ONCE IT HAS BEEN SHOWN THAT THERE HAS BEEN DIVERSION OF INTEREST ON THE AMOUNT BORROWED, BUT SUBSEQUENTLY D IVERTED WOULD NOT QUALIFY FOR DEDUCTION. ANY VIEW TO THE CONTRARY WOU LD NOT IN THE LEAST SUB SERVE THE OBJECT OF THE LEGISLATIVE PROVISION, BUT IT WOULD ONLY OPEN THE GATES FOR THE ASSESSEES TO BORROW MERRILY AND A FTER OSTENSIBLY USING IT IN THE BUSINESS FOR A SHORT PERIOD AND AT A SUBSEQUENT POINT OF TIME DIVERT THE FUNDS IN WHOLE OR PART, FOR NON-BUS INESS PURPOSES AND CONTINUE TO CLAIM THE INTEREST ON THE BORROWING AS A DEDUCTIBLE ITEM OF EXPENDITURE. THE OBJECTS OF THE SECTION WOULD NOT I N ANY WAY BE ADVANCED BY THE ADOPTION OF SUCH A VIEW. IF A BUSIN ESS FOR WHICH THE INTEREST PAID IS CLAIMED AS A DEDUCTION HAS NOT BEN EFITED DURING THE YEAR FROM THE CAPITAL BORROWED BY SUCH BORROWED AMO UNT BEING USED IN THE BUSINESS, SUCH INTEREST CANNOT BE REGARDED AS E XPENDITURE FOR THE PURPOSES OF THE BUSINESS. THE ASSESSEE MAY NOT EVEN WHILE USING BORROWED FUNDS FOR ITS PERSONAL PURPOSES AND NOT BU SINESS PURPOSES CLAIM DEDUCTION OF THE INTEREST PAID ON THE BORROWI NG. IN ANY CASE IF THE ASSESSEE TAKES STAND THAT IT IS BUSINESS EXPEDIENCY THEN, HEAVY BURDEN LIES ON THE ASSESSEE TO PROVE SUCH CONTENTIO N AND SAID CONTENTION IS TO BE EXAMINED BY APPLYING DEFERENT C RITERIA. 4.4 A REAL PROBLEM ARISES IN CASES WHERE FUNDS ARE PUMPED OUT OF BUSINESS WHICH ARE COMPRISE OF BOTH TYPE OF FUNDS, BORROWED AS WELL AS OWN FUNDS FOR NON-BUSINESS PURPOSES. IN ALL SUCH CASES WHERE MIXED FUNDS ARE USED FOR BOTH BUSINESS AND OTHER TH AN BUSINESS PURPOSES, THERE IS NO PRESUMPTION THAT MONEYS USED FOR OTHER PURPOSES CAME OUT OF BORROWED FUNDS. IT CAN BE SAID THAT INT EREST FREE FUNDS GIVEN ARE OUT OF OWN FUNDS TO THE EXTENT OF CAPITAL AND RESERVES, AND THIS PROPOSITION IS SUPPORTED BY THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. GOPIKRISH NA MURLIDHAR, 47 ITR 469 (AP) AND IN THE SAID CASE THEIR LORDSHIPS A CCEPTED THE CONTENTION THAT THE ASSESSEE IS ENTITLED TO WITHDRA W FROM CAPITAL. THE FACTS OF THAT CASE ARE THAT THE ASSESSEE IS A HINDU UNDIVIDED FAMILY ITA NO. 6179/M/08 M/S DEVAKI MULTIFILMS PVT. LTD.. 5 CARRYING ON BUSINESS ON AN EXTENSIVE SCALE WITH A C APITAL OF NEARLY RS. 20,00,000 (TWENTY LAKHS). DURING THE YEAR ENDED 9TH NOVEMBER, 1950, THE ASSESSEE MADE LARGE BORROWINGS FOR PURPOSES OF HIS BUSINESS AND PAID INTEREST AMOUNTING TO RS. 93,611 ON SAID BORRO WINGS. DURING THE COURSE OF THAT YEAR, THE ASSESSEE WITHDREW FROM THE BUSINESS FROM TIME TO TIME AMOUNT OF RS. 1,77,984 FOR HIS PERSONAL EXP ENSES. THE INCOME- TAX OFFICER DISALLOWED A SUM OF RS. 13,500 ON PRORA TA, REPRESENTING THE INTEREST ELEMENT RELATING TO RS. 1,77,984, SINCE HE WAS OF VIEW THAT AMOUNT OF RS. 1,77,984 WITHDREW WAS MADE IN THE NAM E OF THE BUSINESS BUT USED FOR HIS PERSONAL PURPOSES. ACCORD ING TO HIM, MONEY WAS WITHDRAWN FROM THE BOOKS OF ACCOUNT TO MEET THE PERSONAL EXPENDITURE OF THE ASSESSEE AND, AS THIS SUM OF MON EY WAS NOT ACTUALLY USED FOR THE BUSINESS, THE INTEREST PAID T HEREON COULD NOT BE ALLOWED AS PERMISSIBLE DEDUCTION. 4.5 THE RELEVANT FINDING OF THE COURT IS REPRODUCED BELOW:- WE DO NOT THINK THAT WE CAN GIVE EFFECT TO THIS AR GUMENT. INDISPUTABLY, THESE AMOUNTS WERE BORROWED ONLY FOR THE PURPOSE OF BUSINESS OF THE FAMILY. THE ASSESSEE DREW OUT FROM TIME TO TIME VAR IOUS SUMS OF MONEY AGGREGATING TO RS. 1,77,984/- FROM THE BUSINESS. IT IS NOT A CASE WHERE ANY PARTICULAR SUM PURPORTING TO BE BORROWED ON BEH ALF OF THE BUSINESS WAS SPENT FOR HOUSEHOLD EXPENSES. THIS IS A CASE WH ERE THE LOANS WERE TAKEN FOR CARRYING ON THE BUSINESS BUT THE FAMILY U SED TO WITHDRAW SOME AMOUNTS FROM THE BUSINESS WHENEVER OCCASIONS A ROSE. THE FAMILY WAS SURELY ENTITLED TO WITHDRAW FROM THE CAPITAL SU PPLIED BY IT WITH THE RESULT OF THE CAPITAL BEING DEPLETED. THERE IS, THE REFORE, NO SUBSTANCE IN THE SUBMISSION THAT THE FACT THAT PART OF THE AMOUN T BORROWED WAS LATER ON USED FOR PERSONAL EXPENSES, WOULD DEPRIVE THE ASSESSEE OF THE BENEFITS. 4.6 FROM THE ABOVE JUDGMENT OF HONBLE ANDHRA PRADE SH HIGH COURT WE FIND THAT THE ASSESSEE HAS RIGHT TO REPLACE HIS OWN CAPITAL WITH BORROWED FUNDS WHICH WERE ALREADY USED FOR THE PURP OSE OF BUSINESS IN ACQUIRING ASSETS AND OTHER. WITH THE HELP OF THI S RATIO OF THE JUDGMENT SUCH PROBLEM CAN BE RESOLVED BY EXAMINATIO N AND ANALYSES OF FINANCIAL STATEMENTS PREPARED ON THE BASIS OF BO OKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. IT IS WELL ACCEPTED PRO POSITION THAT FOR THE PURPOSE OF ASCERTAINING PROFIT AND GAINS, THE NORMA L PRINCIPLES OF COMMERCIAL ACCOUNTING SHOULD BE APPLIED, SO LONG AS THEY DO NOT CONFLICT WITH ANY EXPRESS STATUTORY PROVISIONS AS HELD BY THE HONBLE SUPREME COURT IN CIT VS. U.P. STATE INDUSTRIAL DEVE LOPMENT CORPORATION, 225 ITR 703(SC). THUS SUCH PROBLEM CAN BE RESOLVED BY ANALYZING STATEMENT OF ACCOUNTS AND IN PARTICULAR B ALANCE-SHEET. WHERE DETAILS OF OWN CAPITAL, BORROWED FUNDS AND IN TEREST FREE FUNDS GIVEN OR UTILIZED FOR OTHER PURPOSES ARE AVAILABLE. THERE IS NO MUCH DIFFICULTIES IN EXAMINATION OF RIGHT TO REPLACE OWN CAPITAL TO BORROW FUNDS IN CASE OF INDIVIDUAL AND PARTNERSHIP FIRM. B UT IN THE CASE OF COMPANY, CAPITAL IS FUND OF PUBLIC/ SHARE HOLDERS W HICH IS MANAGED BY THE BOARD OF DIRECTORS. IN THE CASE OF COMPANY THER E ARE CERTAIN RESTRICTIONS UNDER THE COMPANIES ACT IN USE OF CAPI TAL/FUND FOR PERSONAL BENEFITS. SUCH REPLACEMENT IS REQUIRED TO BE AUTHORIZED BY PROPER RESOLUTION AND MUST BE IN CONFORMITY WITH TH E PROVISIONS OF COMPANIES ACT AND RULES AND REGULATIONS OF REGULATO RY BODIES. SAME ARE REQUIRED TO REFLECT IN THE FINANCIAL STATEMENTS PREPARED ON THE BASIS OF AUDITED BOOKS OF ACCOUNT. THE AUDITOR IS ALSO RE QUIRED TO POINT OUT SUCH REPLACEMENT/UTILIZATION OF FUNDS. IF FUNDS ARE DIVERTED IN ITA NO. 6179/M/08 M/S DEVAKI MULTIFILMS PVT. LTD.. 6 CONTRAVENTION OF STATUTORY PROVISIONS, THEN SAME MA Y BE SUBJECT TO LEGAL AND PENAL CONSEQUESES UNDER THE COMPANIES ACT AND OTHERS. THE ONUS IS ON THE ASSESSEE TO FURNISH THE RELEVANT MAT ERIAL REGARDING REPLACEMENT OF BORROWED FUNDS BY OWN CAPITAL AND IN TEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. 4.7 ON THE BASIS OF ABOVE DISCUSSION A PROPOSITION / FORMULA CAN BE LAID DOWN THAT IF AN ASSESSEE HAVING SUFFICIENT INT EREST FREE FUNDS, IN THE FORM OF CAPITAL RESERVES AND OTHER FUNDS WITHOU T INTEREST BEARING FROM RELATIVES AND FRIENDS NOT RELATED TO BUSINESS, TO COVER FUNDS GIVEN INTEREST FREE OR UTILIZED OTHER THAN FOR BUSINESS P URPOSES, NO DISALLOWANCE IS WARRANTED. IF THE OWN FUNDS ARE NOT SUFFICIENT TO COVER INTEREST FREE ADVANCES, A PROPORTIONATE DISALLOWANC E IS WARRANTED. WHILE EXAMINING INTEREST FREE FUNDS AVAILABLE WITH ASSESSEE AND INTEREST FREE FUNDS GIVEN A CARE IS REQUIRED TO BE TAKEN THAT THESE FUNDS WERE NOT RELATED TO BUSINESS OF THE ASSESSEE. CAPIT AL AND RESERVES ARE CERTAINLY ASSESSEES OWN INTEREST FUNDS. THIS PROPO RTION IS FORTIFIED BY THE DECISION OF ITAT IN THE CASE OF TORRENT FINANCE RS V. ACIT, 73 TTJ 624 (AHD.), JUDGMENT OF ALLAHABAD HIGH COURT IN THE CASE OF CIT V. PREM HEAVY ENGINEERING WORKS P. LTD., 285 ITR 554 ( ALL.), AND THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MU NJAL SALES CORPORATION V. CIT, 298 ITR 298 (SC).IT IS TO NOTE THAT DECISIONS OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN MUNJAL SAL ES CORPORATION V CIT (208) 298 ITR 288 AND CIT V MUNJAL SALES CORPOR ATION(2008) 298 ITR 294 WHEREIN THE HONBLE PUNJAB AND HARYANA HIGH COURT FOLLOWED CIT ABHISHEK INDUSTRIES LTD (2006) 286 ITR 1(P&H) HAVE BEEN REVERSED BY THE HONBLE SUPREME COURT. THUS THE DE CISION OF THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT AB HISHEK INDUSTRIES LTD (2006) 286 ITR 1(P&H) HAS BEEN IMPLIEDLY REVERS ED ON THE ISSUE. 4.1 AS THE FACTS ARE REQUIRED TO BE VERIFIED IN THE LIGHT OF THE ABOVE DECISION OF ITAT, WE THEREFORE, REMIT THE MATTER BA CK TO THE FILE OF THE AO WITH A DIRECTION TO CALCULATE THE DISALLOWANCE O F AMOUNT, IF ANY, IN ACCORDANCE WITH THE ABOVE DECISION OF ITAT AFTER PR OVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. PRONOUNCED ON THIS 10 TH DAY OF DECEMBER, 2009. SD/- SD/- (P. MADHAVI DEVI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 10 TH DECEMBER, 2009 ITA NO. 6179/M/08 M/S DEVAKI MULTIFILMS PVT. LTD.. 7 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, D BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INITLS 1. DRAFT DICTATED ON 03.12.09 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 03.12.09 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER