N.H. HARSORA P. LTD, MUMBAI V. ACIT 5(2), MUMBAI

ITA 6244/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8608 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-10-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 03-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI B.R. JAIN, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 6244/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S N.H. HARSORA PVT. LTD., BESIDE SUPER CINEMA, DR. HAKIM WADI, GRANT ROAD, MUMBAI -400 007 PAN: AAACN 1875 B VS DY. COMMISSIONER OF INCOME-TAX - 8(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJAY R. PARIKH RESPONDENT BY : SHRI MOHIT JAIN DATE OF HEARING: 01-10-2012 DATE OF PRONOUNCEMENT: 10-10-2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL EMANATES FROM THE ORDER OF THE CIT(A) 9, MUM BAI, DATED 14.10.2009, WHEREIN THE ASSESSEE HAS CHALLENGED THE ORDER ON THE FOLLOWING ISSUES: A) DISALLOWANCE OF INTEREST RS. 5,01,074/- 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) 9, MUMBAI [CIT(A)] ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE MADE BY THE ASSISTANT COMMISSIONER OF INCOME-TAX-5( 2), MUMBAI (AO) OF INTEREST AMOUNTING TO RS. 5,01,074/- . 2. THE LEARNED CIT(A) AND AO FAILED TO APPRECIATE T HAT THE APPELLANT HAD GIVEN ADVANCES OUT OF THEIR OWN FUNDS AND THAT NO DISALLOWANCE OF INTEREST WAS CALLED FOR ON THAT ACCOUNT. 3. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF INT EREST OF RS. 5,01,074/- MAY BE DELETED. B) DISALLOWANCE U/S 40(A)(IA) RS. 4,83,785/- 4. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE AO DISALLOWING A SUM OF RS. 4,83,785/- AS PER PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME-TAX A CT. 5. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS. 4,83,785/- U/S 40(A)(IA) MAY BE DELETED. M/S. N.H. HARSORA PVT. LTD. ITA NO. 6244/MUM/2009 2 C) DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO P.F. & E. S.I.C. RS. 45,061/- 6. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF RS. 45,061/- MADE BY THE AO ON ACCO UNT OF EMPLOYERS CONTRIBUTION TO P.F. AND E.S.I.C. 7. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APP ELLANT HAD NOT FILED EVIDENCES OF THE DATE OF DEPOSIT OF P.F. 8. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF EMP LOYERS CONTRIBUTION TO P.F. AND E.S.I.C. AMOUNTING TO RS. 45,061/- MAY BE DELETED. D) ADDITION OF RS. 25,000/- ON ACCOUNT OF INTEREST 9. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ADDITION/DISALLOWANCE OF RS. 25,000/- MADE BY THE A O ON ACCOUNT OF INTEREST. 10. THE APPELLANT PRAYS THAT THE ADDITION / DISALLO WANCE OF RS. 25,000/- AS MADE BY THE AO ON ACCOUNT OF INTEREST M AY BE DELETED. 2. GROUND A DEALS WITH DISALLOWANCE OF RS. 5,01,074 ON ACCOU NT OF INTEREST. 3. THE FACTS, AS NOTED BY THE CIT (A) ARE AS FOLLOWS, THE APPELLANT COMPANY HAS TAKEN LOAN OF RS. 3,33,9 7,505/- ON WHICH IT INCURRED INTEREST EXPENSES OF RS. 15,41,501/-. T HE APPELLANT COMPANY HAS ALSO MADE INVESTMENT OF RS. 1,89,39,027/-. THE ASSESSING OFFICER HELD THAT APPELLANT MADE INVESTMENTS OUT OF COMMON FUNDS I.E. OUT OF OWN FUND AS WELL AS BORROWED FUND AND ACCORDINGLY HE DISALLOWED AN AMOUNT OF RS. 5,01,074/- OUT OF FINANCIAL EXPENSES OF THE APPELLANT ON PRO-RATA BASIS. ACCORDING TO THE ASSESSING OFFICER APPELLANT HAS NOT INCURRED THESE EXPENSES FOR THE PURPOSE OF ITS BUSI NESS AND HENCE THE SAME CAN NOT BE ALLOWED AS DEDUCTION. IN THE APPELL ATE PROCEEDINGS, THE AR OF THE APPELLANT SUBMITTED THAT THE SHARE CAPITA L OF THE APPELLANT IS RS. 2.02 CRORES AND IN ADDITION TO THIS IT HAS SURP LUS AND RESERVES AMOUNTING TO RS. 44,66,391/-. THE INVESTMENT OF THE APPELLANT IS ONLY RS. 1,89,39,027/-. IT IS THE CLAIM OF THE APPELLANT THAT ITS INTEREST FREE FUNDS ARE MORE THAN THE INVESTMENT MADE AND IN SUCH CASES, THE APPELLANT SUBMITTED THAT PRESUMPTION CAN BE DRAWN T HAT IT IS UTILIZED ITS OWN FUNDS FOR INVESTMENTS. ACCORDINGLY THE APPELLA NT SUBMITTED THAT NO DISALLOWANCE CAN BE MADE OUT OF FINANCE EXPENSES OF THE APPELLANT. THE AUTHORISED REPRESENTATIVE OF THE APPELLANT RELIED O N THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LIMITED 313 ITR 340. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. IN THE APPELLATE PROCEEDING THE APPELLANT WAS CALLED FOR THE EXPLAIN AS TO HOW IT CAN BE SAID THAT THERE IS NO NEXUS BETWEEN BORROWED FUNDS AND INVESTMENT MADE. IT IS TRUE THAT WHEN OWN FUNDS OF THE APPELLA NT ARE MUCH MORE THAN THE INVESTMENT MADE, PRESUMPTION CAN BE DRAWN THAT THE APPELLANT USED OWN FUND FOR INVESTMENT, BUT THIS PR ESUMPTION IS REBUTTABLE PRESUMPTION.THIS PRESUMPTION CAN BE REBU TTED BY THE DEPARTMENT ONLY IF THE APPELLANT FURNISHES DETAILS ABOUT THE FLOW OF FUNDS INTO INVESTMENTS. THE APPELLANT FAILED TO FUR NISH SUCH DETAILS AND THEREFORE APPELLANT CAN NOT RELY ONLY ON THE FACTS THAT SINCE ITS OWN FUND M/S. N.H. HARSORA PVT. LTD. ITA NO. 6244/MUM/2009 3 ARE MORE THAN THE INVESTMENT MADE, THE ASSESSING OF FICER SHOULD DRAWN PRESUMPTION. THE APPELLANT MADE INVESTMENTS O F RS. 1,89,39,072/- AND INTEREST FREE OWN OF THE APPELLAN T ARE ONLY SLIGHTLY MORE WHICH STANDS AT RS. 2,46,66,391/- AT THE END O F THE CURRENT ASSESSMENT YEAR. THEREFORE IT CAN NOT BE SAID THAT THE OWN FUNDS OF THE APPELLANT ARE MUCH MORE THAN THE FUNDS INVESTED. TH US THE APPELLANT CAN NOT REPLY ON THE RATION LAID DOWN BY THE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LIMITED 313 IT R 340. 4. THE CIT (A), THUS SUSTAINED THE DISALLOWANCE. 5. AGAINST THESE OBSERVATIONS, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 6. BEFORE US, THE AR, REITERATED ITS SUBMISSIONS MADE BEFO RE THE REVENUE AUTHORITIES AND ALSO CITED THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LIMITED (SUPRA) AND PLEADED THAT THE HONBLE JURISDICTIONAL HIGH COURT IS V ERY CLEAR, WHEREIN IT WAS HELD THAT IN CASE OF MIXED BAG OF FUNDS AND EVEN IF THERE IS NO, AS SUCH, BIFURCATION OF BORROWED AND OWN FUNDS , THE INTEREST CANNOT BE DISALLOWED. 7. THE DR STRONGLY SUPPORTED THE DECISIONS OF REVENUE AUTHORITIES AND SUBMITTED THAT THE CIT(A) HAS FACTUALLY DEALT WITH THE ISSUE AND DISTINGUISHED THE INSTANT CASE FROM THE CASE CITED BY THE AR AND ALSO REFERRED TO BY THE ASSESSEE BEFORE THE CIT(A). 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND WE FIND THAT THE CIT(A) HAS VERY CATEGORICALLY OBSERVED, PRESUMPTION CAN BE DRAWN THAT THE APPELLANT USED OWN FUNDS FOR INVESTME NTS, BUT THIS PRESUMPTION IS A REBUTTABLE PRESUMPTION. THIS PRESUM PTION CAN BE REBUTTED BY THE DEPARTMENT ONLY IF THE APPELLANT FUR NISHES DETAILS ABOUT THE FLOW OF FUNDS INTO INVESTMENTS. THE APPELLANT FAI LED TO FURNISH SUCH DETAILS AND THEREFORE APPELLANT CAN NOT RELY ONLY ON T HE FACTS THAT SINCE ITS OWN FUNDS ARE MORE THEN THE INVESTMENTS MADE, TH E AO SHOULD DRAWN PRESUMPTION.. ON A SPECIFIC QUERY FROM THE BENCH, AS TO M/S. N.H. HARSORA PVT. LTD. ITA NO. 6244/MUM/2009 4 WHETHER THE FUND FLOW WAS PROVIDED BEFORE THE REVENUE AUTHORITIES TO PROVE THE FACT THAT EVEN FROM THE MIXED BAG OF FUNDS, FUN DS AVAILABLE WITH THE ASSESSEE WERE MORE THEN THE FUNDS ADVANCED IN TO INVESTMENTS, THE AR RESPONDED THAT SUCH A FUNDS FLOW CAN BE PREPARED AND PRODUCED BEFORE THE REVENUE AUTHORITIES. 9. THE DR, DID NOT OBJECT TO THE ABOVE SUBMISSIONS MADE BY THE AR. 10. WE, IN THE INTEREST OF JUSTICE, FEEL, THAT TO CLINCH & SETTLE THE ISSUE, IT IS NECESSARY THAT THE ASSESSEE PROVIDES COMPLET E AND COMPREHENSIVE FLOW OF FUNDS, TO THE AO AND THEN APPLY THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN RELIANCE UTILITIES (SUPRA) . 11. WE, THEREFORE, SET ASIDE THE CASE OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO EXAMINE THE ISSUE OF CLAIM OF INTEREST OF RS. 5,01,074, AFRESH, NEEDLESS TO OBSERVE THAT THE AO SHALL AFFORD ADEQU ATE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CASE. 12. THE GROUND OF APPEAL IS, THEREFORE, ALLOWED FOR STATIST ICAL PURPOSES. 13. GROUND B IS ON THE DISALLOWANCE OF RS. 4,83,785 U/S 40 (A)(IA). THE FACTS ARE, THE APPELLANT HAS NOT DEDUCTED TDS OUT OF FOLLOWI NG AMOUNTS:- (B) COMMISSION RS. 1,20,594 (C) CONTRACTS RS. 10,720 -------------------- TOTAL RS. 4,83,785 =========== THE ASSESSING OFFICER HELD THAT THIS AMOUNT OF RS. 4,83,785/- IS NOT ALLOWABLE DEDUCTION IN THE HAND OF THE APPELLANT AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF THE I.T. ACT. IN THE APPELLANT PROCEEDING THE APPELLANT ADMITTED THAT IT HAS DEDUCTED THE AMOUNT WHILE CREDITING THIS AMOUNT TO THE ACCOU NT OF THE PARTIES, BUT THE TAX DEDUCTED WAS NOT DEPOSITED WITHIN DUE DATE. THE APPELLANT CLAIMED THAT IT HAS MADE PAYMENT TO PARTIES AND ACC ORDINGLY THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE AND THE APPELLANT RELIED M/S. N.H. HARSORA PVT. LTD. ITA NO. 6244/MUM/2009 5 ON THE DECISION OF THE JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF JAIPUR VIDYUT VITRAN NIGAM LIMITED VS. DCIT (23009) 26 DTR (JP)(TRIB) 79. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. THE APPELLANT CLAIMING THAT PROVISIONS OF SECTION 40(A)(IA) ARE N OT APPLICABLE IF THE PAYMENTS HAVE BEEN MADE DURING THE YEAR, EVEN IF IN SUCH CASES NO TDS HAVE BEEN DEDUCTED OR DEPOSITED LATE. THESE CON TENTIONS OF THE APPELLANT ARE NOT ACCEPTABLE. THE APPELLANT HAS ADM ITTED THAT TDS HAS NOT BEEN DEDUCTED AND DEPOSITED IN TIME. THEREFORE THE PROVISIONS OF SECTION 40A(IA) ARE APPLICABLE TO THE CASE OF THE A PPELLANT. DISALLOWANCE MADE BY THE ASSESSING OFFICER IS UPHEL D. THIS GROUND OF APPEAL IS NOT ALLOWED. 14. THE CIT (A), THUS, SUSTAINED THE DISALLOWANCE OF RS. 4,83,7 85 AS MADE BY THE AO. 15. THE ASSESSEE IS, THEREFORE, NOW, BEFORE THE ITAT. 16. BEFORE US, THE AR SUBMITTED THAT NO DOUBT, THE TDS WAS NOT DEPOSITED WITH THE EXCHEQUER WITHIN THE TIME, BUT IT WAS D EPOSITED WITHIN THE CLOSE OF THE FINANCIAL YEAR. THE AR REITERATED, TH AT COORDINATE BENCH AT JAIPUR IN THE CASE OF JAIPUR VIDYUT V ITRAN NIGAM LTD. VS. DCIT, REPORTED IN (2009) 26 DTR 79 (JP TRIB), HELD T HAT IN SUCH A CASE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICAB LE. THE AR FURTHER CITED THE CASE OF ACIT VS MERILYN SHIPPING & TRANSPORTS REPORTED IN 136 ITD 23 (SB-MUM) HAVE ALSO ACCEPTED THIS POSITION AND HAVE THUS HELD (EXTRACTED FROM HEAD NOTE) NO DOUBT THE OBJECT OF SECTION 40(A)(IA) IS TO ENS URE THAT THE TDS PROVISION AS PROVIDED IN CHAPTER XVII-B ARE IMPLEME NTED WITHOUT ANY DEFAULT. AS PER SECTION 40(A)(IA), ANY INTEREST, CO MMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FE ES FOR TECHNICAL SERVICES PAYABLE ON WHICH TAX IS NOT DEDUCTED OR THE TAX I S DEDUCTED BUT THE SAME IS NOT PAID WITHIN THE TIME ALLOWED SUCH AMOUN T SHALL BE DISALLOWED WHILE COMPUTING THE INCOME. THE SUB-SECT ION SPEAKS OF THE AMOUNT PAYABLE ON WHICH THE TAX IS NOT DEDUCTED A ND, THEREFORE, IT SHOULD APPLY ONLY IF ANY AMOUNT IS PAYABLE, BUT I F THE AMOUNT IS ALREADY PAID THE PROVISIONS OF THIS SECTION SHOULD NOT APPLY. HENCE, IT HAS TO BE CONCLUDED THAT PROVISIONS OF SE CTION 40(A)(IA) ARE APPLICABLE ONLY TO THE AMOUNTS OF EXPENDITURE WHICH ARE PAYABLE AS ON THE DATE 31 ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DI SALLOW EXPENDITURE WHICH HAS BEEN ACTUALLY PAID DURING THE PREVIOUS YEAR, WITHOUT DEDUCTION OF TDS. 17. THE DR RELIED ON THE DECISIONS OF THE REVENUE AUTHORITIES. M/S. N.H. HARSORA PVT. LTD. ITA NO. 6244/MUM/2009 6 18. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND HAVE GONE THROUGH THE DECISIONS OF REVENUE AUTHORITIES AND ALSO TH E SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE CIT(A) AND DETAILS AND E VIDENCES PRODUCED BEFORE THEM. 19. FROM THE ORDER OF THE REVENUE AUTHORITIES, WE HAVE N OT SEEN THAT THERE IS AN ALLEGATION OF NON DEDUCTION OR NON DEPOSIT, B UT THE OBSERVATION IS BASED ON THE FACTUM OF DELAYED DEPOSITS, THAT TOO, BEFORE THE CLOSE OF THE YEAR (PAGE 81 APB). THIS FACTUAL POSITION TH OUGH FULLY COVERED BY THE DECISION OF THE HONBLE SPECIAL BENCH AS CITED BY TH E AR IN THE CASE OF MERILYN SHIPPING & TRANSPORTERS (SUPRA) , BUT THE AO, STILL, HAS TO SATISFY HIMSELF ON THE CLAIM MADE BY THE ASSESSEE. 20. THEREFORE, IN THE INTEREST OF JUSTICE AND TO GIVE A QU IETUS TO THE ISSUE, WE RESTORE THE ISSUE TO THE FILE OF THE AO, WHO SHALL SATISFY HIMSELF ON THE FACTUM OF DEDUCTION AND DEPOSIT, AND THEREAFT ER, APPLY THE DECISION OF THE SPECIAL BENCH ON THE FACTS OF THE CASE , AND IF FOUND CORRECT, THE AO SHALL DELETE THE DISALLOWANCE. 21. IN THE LIGHT OF THE ABOVE OBSERVATIONS, WE SET ASIDE T HE ORDER OF THE CIT(A) AND DIRECT THE AO TO COMPLY WITH THE ABOVE D IRECTION AND WHILE DOING SO, GIVE ADEQUATE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CASE. 22. THE GROUND IS THUS, ALLOWED FOR STATISTICAL PURPOSES. 23. GROUND C IS ON DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF AND ESIC. 24. THE CIT(A), WHILE DEALING WITH THE ISSUE OBSERVED THAT T HE DISALLOWANCE OF RS. 45,061 WAS ON ACCOUNT OF NON DEPOSIT OF EMPLOYEE S CONTRIBUTION TO PF & ESIC BEFORE THE DUE DATE OF FILING OF T HE RETURN. M/S. N.H. HARSORA PVT. LTD. ITA NO. 6244/MUM/2009 7 BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT IT HAD DEP OSITED THE EMPLOYEES CONTRIBUTION BEFORE THE DUE DATE OF FILING OF THE RETURN. 25. THE CIT(A), IN THE IMPUGNED ORDER CONSIDERED THE OBSERVATIONS OF THE AO AND DISALLOWED THE PAYMENTS. 26. AGGRIEVED, THE ASSESSEE IS BEFORE THE ITAT. 27. BEFORE US, THE AR REITERATED THE SUBMISSIONS MADE BEFO RE THE REVENUE AUTHORITIES AND SUBMITTED THAT THE ISSUE OF DEP OSIT IN THE EXCHEQUER, PRIOR TO THE DUE DATE OR DUE DATE FOR FURNISH ING OF THE RETURN, AS PER THE PROVISO, THE AMOUNTS BECOME ELIGIBLE FOR DEDUCTION. THE AR ALSO SUBMITTED THAT THE ISSUE IS SQUARELY COVER ED BY THE DECISION OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS ALOM EXTRUSION LTD. REPORTED IN 319 ITR 306 (SC). 28. THE DR RELIED ON THE DECISIONS OF THE REVENUE AUTHORITIES. 29. WE HAVE HEARD THE ARGUMENTS AND WE FIND THAT EVEN AFTER THE CATEGORICAL STATEMENT MADE BY THE ASSESSEE THAT THE D EPOSITS ON BEHALF OF THE EMPLOYEES CONTRIBUTIONS HAVE BEEN MADE PRIOR TO T HE FILING OF THE RETURN, THE CIT(A) HAS ACCEPTED THE OBSERVATIONS MA DE BY THE AO. IN THIS CIRCUMSTANCE, IT BECOMES NECESSARY THAT COMPLETE FACTS SEE THE LIGHT AND THAT CAN ONLY BE DONE, WHEN THE AO IS SATISFIED. 30. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO EXAMINE THE ISSUE AFRESH AND GIVING REAS ONABLE OPPORTUNITY TO THE ASSESSEE TO PROVE ITS BONAFIDES AS P ER THE PROVISO TO SECTION 43B. IF THE AO FINDS THAT THE ASSESSEE HAD ACTU ALLY DEPOSITED THE EMPLOYEES CONTRIBUTION BEFORE THE DUE DATE OF FILING OF R ETURN, THE AO SHALL ALLOW THE CLAIM OF THE ASSESSEE. M/S. N.H. HARSORA PVT. LTD. ITA NO. 6244/MUM/2009 8 31. THE GROUND IS THUS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 32. GROUND D IS ADDITION OF RS. 25,000 ON ACCOUNT OF INTEREST. 33. THE FACTS EMANATING FROM THE ORDERS OF THE REVENUE A UTHORITIES ARE THE RELEVANT FACTS OF THE CASE ARE THAT THE APPELL ANT HAS GIVEN LOANS OF RS. 50,00,000/- TO M/S HEMSIL TRADING COMPANY AT 8% RATE OF INTEREST.THE ASSESSING OFFICER FOUND THAT AVERAGE C OST OF BORROWING OF FUNDS TO THE APPELLANT IS 9%. THE ASSESSING OFFICER ASKED THE APPELLANT TO EXPLAIN AS TO WHY IT HAS GIVEN LOANS AT THE LOWE R RATE OF INTEREST THAN THE AVERAGE COST OF BORROWING TO IT. ACCORDING TO T HE ASSESSING OFFICER, APPELLANT HAS NOT FILED ANY VALID EXPLANATION. THE ASSESSING OFFICER DID NOT ALLOW THE APPELLANT DEDUCTION ON ACCOUNT OF INT EREST OF RS. 25,000/-. IN THE ASSESSMENT PROCEEDINGS THE AUTHORIZED REPRES ENTATIVE OF THE APPELLANT SUBMITTED THAT LOAN GIVEN TO M/S HEMSIL T RADING COMPANY WAS TEMPORARY AND WAS GIVEN ON ACCOUNT OF COMMERCIA L EXPEDIENCY. IT HAS NOT CHARGED INTEREST MORE THAN THE AMOUNT SHOWN BY IT IN ITS BOOKS. THE APPELLANT SUBMITTED THAT NO DISALLOWANCE OF INT EREST IS CALLED FOR. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. THE APPELLANT HAS NOT EXPLAINED THE COMMERCIAL EXPEDIENCY INVOLVED IN GIVING LOAN TO M/S HEMSIL TRADING COMPANY AT LOWER RATE OF INTEREST TH AN THE AVERAGE COST OF BORROWED FUND TO THE APPELLANT. THIS PREVENTED T HE ASSESSING OFFICER TO EXAMINE WHETHER REALLY THERE WAS ANY COMMERCIAL EXPEDIENCY INVOLVED IN THE PRESENT CASE. THE FACT THAT LOAN WA S A TEMPORARY IS NOT THE RELEVANT FACT. THE APPELLANT HAS NOT BEEN ABLE TO FURNISH EXPLANATION AS TO WHY IT HAS NOT CHARGED INTEREST AT LEAST AT T HE SAME RATE, WHICH IT IS GIVING ON BORROWED FUNDS. HENCE TO THE EXTENT AP PELLANT HAS CHARGED LESS INTEREST, IT CAN NOT BE ALLOWED AS DEDUCTION I N THE HAND OF THE APPELLANT. 34. THE CIT(A), THUS, SUSTAINED THE ADDITION MADE BY THE AO. 35. AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT. 36. BEFORE US, THE AR REITERATED THE ARGUMENTS TAKEN BE FORE THE REVENUE AUTHORITIES AND SUBMITTED THAT THE ASSESSEE HA D ADVANCED LOAN TO AN UNRELATED PARTY AND HAD CHARGED AN APPROPR IATE RATE OF INTEREST THEREON. THE REVENUE AUTHORITIES TAKEN THE VIE W ON CONJECTURES AND SURMISES THAT THE AVERAGE COST OF BOR ROWING COMES TO 9% AND SINCE THE ASSESSEE HAD CHARGED 8%, THIS 8% IS INC ORRECT AND THEREFORE, THE DIFFERENTIAL AMOUNT COMES TO RS. 25,000, WHICH H AS BEEN ADDED. THE AR FURTHER RELIED ON THE DECISION OF CIT VS RELIA NCE UTILITIES & POWER LTD. REPORTED IN 313 ITR 340 (BOM). M/S. N.H. HARSORA PVT. LTD. ITA NO. 6244/MUM/2009 9 37. THE DR SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. 38. WE HAVE HEARD THE ARGUMENTS AND GONE THROUGH THE ORDERS OF THE REVENUE AUTHORITIES AND ALSO THE SUBMISSIONS MADE. TH E FUNDS PLACED WITH HEMSIL TRADING CO. AT 8% INTEREST IS A DECISION OF THE MANAGEMENT. THE IMPORTANT FACT IS WHETHER THE ADVANCE F UNDS PLACED TO AN UNRELATED PARTY IS ON ACCOUNT OF BUSINESS EXPEDIEN CY OR NOT AND ALSO WHETHER THE FUNDS ARE A PART OF ITS OWN FUNDS OR FROM THE BORROWED FUNDS. FROM THE FINAL ACCOUNTS PLACED BEFORE US, W E FIND THAT THE ASSESSEE HAD NET OPERATING LOSS OF RS. 1,726,332 AND LOSSES OF RS. 5,301,656. 39. AFTER EXAMINING THE BALANCE SHEET AND P&L ACCOUNT, WE CANNOT ACCEPT THAT THE ASSESSEE WOULD HAVE ADVANCED ITS OWN FUNDS, THAT TOO OF RS. 50,00,000, WITH CASH LOSSES AND ALSO, IMPORT THE DECISIO N OF RELIANCE UTILITIES (SUPRA) TO ITS AID. 40. WE, ARE OF THE CONSIDERED OPINION THAT THE LOAN OF RS. 5 0,00,000 GIVEN TO M/S HEMSIL CANNOT PURELY BE OUT OF ITS OWN FUNDS AND THAT T OO FOR A COMMERCIAL EXPEDIENCY. WE REJECT THIS GROUND AND SU STAIN THE ORDERS OF THE REVENUE AUTHORITIES. 41. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREA TED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 10/10/2012. SD/- (B.R. JAIN) ACCOUTANT MEMBER SD/- (VIVEK VARMA) JUDICIAL MEMBER MUMBAI, DATE: 10/10/2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. M/S. N.H. HARSORA PVT. LTD. ITA NO. 6244/MUM/2009 10 3) THE CIT (A)-16, MUMBAI. 4) THE CIT -8, MUMBAI, 5) THE D.R. B BENCH, MUMBAI. 6) COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN