DCIT, Circle-1(1), Hyderabad V. M/s. Agarwal Industries Ltd, Hyderabad

ITA 629/HYD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74691 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 27-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JEEVANLAL LAVID YA
• Keywords: Double taxation relief; Notional interest; Commercial expediency
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER S.NO. ITA NO. AY APPELLANT RESPONDENT 1 629/H/12 2008-09 DY. COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), HYDERABAD. M/S AGARWAL INDUSTRIES LTD., HYDERABAD. (PAN AHHPM 8832A) 2 141/H/13 2009-10 -DO- -DO- 3 174/H/13 2009-10 M/S AGARWAL INDUSTRIES LTD., HYDERABAD. (PAN AHHPM 8832A) DY. COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), HYDERABAD. REVENUE BY : SHRI JEEVAN LAL LAVIDYA ASSESSEE BY : SHRI Y. RATNAKAR DATE OF HEARING : 21/01/2014 DATE OF PRONOUNCEMENT : 07/0 3/2014 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: APPEALS IN ITA NO. 629/H/12 AND ITA NO. 141/H/13 FO R AY 2008-09 AND 2009-10 FILED BY THE REVENUE AND APPEAL IN IT A NO. 174/H/13 FOR AY 2009-10 FILED BY THE ASSESSEE ARE DIRECTED AGAIN ST THE ORDERS OF CIT(A). SINCE IDENTICAL ISSUES ARE INVOLVED IN THES E APPEALS, THEY WERE CLUBBED AND HEARD TOGETHER, THEREFORE A COMMON ORDE R IS PASSED FOR THE SAKE OF CONVENIENCE. 2 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS IN THE BUSINESS OF MANUFACTURE OF EDIBLE OILS AND VANA SPATHY AND IT IMPORTED HUGE QUANTITIES OF PALM OIL FROM MALAYSIA AND SINGAPORE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED FROM THE DETAILS OF FINANCIAL CHARGES THAT THE COMPANY PAID AN AMOUNT OF RS. 2,29,76,49/- TOWARDS INTEREST ON THE DELAYED PAYMEN T OF PURCHASE CONSIDERATION TO RAW MATERIAL SUPPLIERS LOCATED IN SINGAPORE AND MALAYSIA. IT WAS STATED THAT VENDORS PROVIDED CREDI T FACILITY UP TO SIX MONTHS FOR WHICH THE ASSESSEE PAID THE INTEREST AND SOME OF THE SUPPLIERS PLACED SEPARATE INVOICE AFTER SUPPLY OF R AW MATERIAL AND FOR INTEREST. THE BILL RAISED BY THE SUPPLIER FOR THE R AW MATERIAL AS WELL AS FOR THE INTEREST WERE RECEIVED THROUGH THE LOCAL BANKER S AND THE LOCAL BANK AFTER CHARGING ITS COMMISSION DEBITED THE AMOUNT TO THE FOREIGN PARTY IN DOLLARS. WHEN THE ASSESSEE WAS ASKED BY THE AO AS T O WHETHER IT HAD DEDUCTED TAX AT SOURCE U/S 195 OF THE ACT, IT WAS S TATED THAT NO DEDUCTION WAS MADE. THE AO WHILE PROPOSING TO DISAL LOW U/S 40(A)(IA) FOR NON DEDUCTION OF TAX AT SOURCE FROM THE INTERES T PAID TO THE FOREIGN PARTIES, ASKED THE ASSESSEE TO FILE ITS OBJECTIONS. IN REPLY, THE ASSESSEE SUBMITTED THAT THOUGH THE INTEREST WAS MENTIONED SE PARATELY AND SEPARATE INVOICES WERE RAISED, THE INTEREST PARTAKE S THE CHARACTER OF PURCHASE PRICE AND THEREFORE THE INTEREST HAS TO BE TREATED AS COST OF MATERIAL. THE ASSESSEE RELIED ON THE DECISION OF H ONBLE JURISDICTIONAL TRIBUNALS IN THE CASE OF M/S NSL LTD. VS. DCIT 58 8/HYD/1996 DATED 31/01/2006 AND ALSO THE APEX COURT DECISION IN THE CASE OF M/S G.E. INDIA TECHNOLOGY CENTRE PVT. LTD. VS. CIT 327 ITR 4 56. THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND RELYING ON THE DECISION OF CIT VS. LAKSHMI LINES LTD., 295 ITR (AT) 241 (AHD.) HELD THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON THE USANCE INTEREST ON OR AFTER MARCH 20 TH 2003. SECONDLY, ON THE QUESTION WHETHER THE SAID 3 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. INTEREST IS NOT TAXABLE IN INDIA OR NOT, THE AO HEL D THAT THE USANCE INTEREST IS TAXABLE IN INDIA IN VIEW OF THE DTAA WI TH SINGAPORE AND HELD THAT IT IS NOT THE CASE OF THE ASSESSEE THAT THE LC HAS BEEN PROVIDED BY THE LOCAL BANKER FOR CLAIMING ANY EXEMPTION AND EVE N IF THE FOREIGN BANK BRANCH PROVIDED FUNDS, IT IS TAXABLE IN INDIA. THER EFORE, THE AO DISALLOWED RS. 2,29,76,459/- U/S 40(A)(IA) ON ACCOU NT OF FAILURE TO MAKE TDS U/S 195 OF THE ACT. 3. THE AO HAD ALSO DISALLOWED RS. 48,98,500/- U/S 3 6(1)(III) ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH ANY CO MMERCIAL EXPEDIENCY AND AS THE ASSESSEE DIVERTED THE BORROWED FUNDS TO THE RELATED PARTIES AS INTEREST FREE ADVANCES, THE INTEREST CHARGEABLE ON THE LOANS ADVANCED TO SISTER CONCERN HAS BEEN WORKED OUT AT R S. 41,28,500/- (AGARWAL SPONGE) AND RS. 6,70,000/- (SATISH & COMPA NY) AND DISALLOWED THE SAME U/S 36(1)(III) OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A), THE LEARNED AR OF THE ASSESS EE RELIED ON THE DECISIONS OF THE TRIBUNAL IN THE FOLLOWING CASES: I) TECUMSEH PRODUCTS INDIA LTD. VS. DCIT [2007] 13 SOT 489 (HYD.) II) NSL LTD. VS. DCIT IN ITA NO. 588/HYD/1006, AND III) VIJAI ELECTRICALS VS. ACIT IN ITA NO. 1072/HY D/2004. 6. IT WAS SUBMITTED THAT THE FACTS OF THE CASE OF T HE ASSESSEE ARE DIRECTLY COVERED BY THE DECISION OF THE ITAT AND TH EREFORE THE AMOUNT PAID OF RS. 2,29,76,459/- UNDER THE VARIOUS LETTER OF CREDIT SHOULD BE TREATED AS COST OF PURCHASE AS HELD BY THE ITAT AND THE PROVISIONS OF 4 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. TDS ARE NOT ATTRACTED. IT WAS FURTHER SUBMITTED THE PROVISIONS OF SECTION 195 ARE ATTRACTED ONLY IF THE AMOUNT IS CHARGEABLE TO TAX IN INDIA UNDER THE PROVISIONS OF THE INCOME TAX ACT, THEREFORE, TH E PAYMENT MADE TO FOREIGN COMPANY WHICH HAS NO PE IN INDIA IS NOT ASS ESSABLE TO TAX IN INDIA THEREBY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF G.E. TECHNOLOGIES PVT. LTD. VS. CIT APPLIES AND THE DISA LLOWANCE MADE BY THE AO IS UNWARRANTED AND SHOULD BE DELETED. 7. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE CASE LAWS ON THE SUBJECT, DISCUSSED THE DECISIO NS IN THE CASE OF VIJAY SHIP BREAKING CORPORATION & OTHERS VS. CIT, 3 14 ITR 309 AND THE DECISION IN THE CASE OF CIT VS. VISAKHAPATNAM PORT TRUST, 144 ITR 146. THE CIT(A) ALSO DISCUSSED THE DECISION OF THE JURIS DICTIONAL TRIBUNAL IN THE CASE OF VIJAY ELECTRICALS LTD. (SUPRA) WHEREIN IT HAD BEEN HELD THAT USANCE INTEREST PAYABLE OUTSIDE INDIA FOR PURCHASE OUTSIDE INDIA SHALL BE DEEMED TO BE THE INTEREST PAYABLE ON A DEBT INCURRE D IN A FOREIGN COUNTRY IN RESPECT OF THE PURCHASE OUTSIDE INDIA AN D CANNOT BE CONSIDERED AS INTEREST U/S 2(28A) OF THE ACT, AND I T TAKES THE CHARACTER OF PURCHASE PRICE OF SUPPLIES. THE CIT(A), THEREFOR E, ALLOWED THIS GROUND OF APPEAL OF THE ASSESSEE. 8. WITH REGARD TO THE SECOND GROUND DISALLOWING RS. 48,98,500/- U/S 36(1)(III) OF THE ACT, BEFORE THE CIT(A) THE AO HAD FILED WRITTEN SUBMISSIONS VIDE LETTER DATED 08/11/2011 STATING TH AT DURING THE COURSE OF SCRUTINY PROCEEDINGS FOR AY 2009-10 THE ASSESSEE ITSELF HAD CHARGED INTEREST ON THE AMOUNT ADVANCED TO RELATED CONCERNS M/S AGARWAL SPONGE & ENERGY PVT. LTD. AND SINCE THE ASSESSEE IT SELF HAD CHARGED THE INTEREST IN THE SUCCEEDING YEAR, THE SAME FACT REMAINS IN THE AY 2008-09. THEREFORE, THE DISALLOWANCE MADE U/S 36(1) (III) OF RS. 5 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. 48,98,500/- IN AY 2008-09 IS TO BE CONFIRMED. A COP Y OF THE SAME WAS FORWARDED TO THE ASSESSEE FOR ITS COMMENTS. 9. THE ASSESSEE HAD SUBMITTED THAT THE ADVANCES GI VEN EITHER OUT OF ITS OWN FUNDS OR FUNDS RECEIVED FROM SISTER CONCERN S FREE OF INTEREST. THE ASSESSEE COMPANY HAD RECEIVED SUM OF RS. 5,50,00,00 0/- (EXCLUDING RS. 75 LAKHS RECEIVED ON 30/03/2008) FREE OF INTEREST A ND OTHER FAMILY MEMBERS OR CONCERNS BELONGING TO FAMILY MEMBERS VIZ ., MADHU TRADING COMPANY (RS. 2.5 CRORE 1.4.2007 TO 31.3.2008) AGA RWAL TECHNOLOGIES PVT LTD., (RS. 2.75 CRORES 1.4.2007 TO 31.3.2008) J.S. INVESTMENTS PVT. LTD. (RS. 25 LAKHS 1.4.2007 TO 31.3.2008). IT WAS SUBMITTED THAT THE ABOVE AMOUNTS HAD BEEN GIVEN BY THE FAMILY FIRMS FR EE OF INTEREST AND THE SAME HAD BEEN DEPLOYED TO THE FAMILY CONCERNS A MOUNTING TO RS. 6,80,78,166/- OUT OF WHICH RS. 6,03,02,005/- WAS GI VEN TO AGARWAL SPONGE & RS. 57,93,439/- WAS GIVEN TO SATISH & COMP ANY AND OTHER REMAINING AMOUNTS WERE GIVEN TO THE VARIOUS FAMILY MEMBERS. 10. THE ASSESSEE SUBMITTED THAT OUT OF RS. 6.8 CROR ES ADVANCED TO SISTER COMPANIES, WERE FAMILY FUNDS WHICH ARE RECEI VED FREE OF INTEREST AND ARE PART OF THE TOTAL FUNDS RECEIVED BY THE COM PANY FROM TIME TO TIME. HE FURTHER SUBMITTED THAT IT IS ALWAYS OPEN T O THE CREDITOR TO SEEK REPAYMENT OF THE FUNDS ADVANCED BY IT OR IN THE ALT ERNATIVE SPECIFY THE USE OF THESE FUNDS FOR ANY SPECIFIC PURPOSE. IT WAS SUBMITTED THAT THE ASSESSEE IS A PRIVATE LTD. COMPANY AND THE SHARE HO LDERS ARE ONLY THE FAMILY MEMBERS OF THE BUSINESS FIRMS FLOATED BY THE M AND THESE FAMILY ENTITIES CAN LEGITIMATELY WITHDRAW THE MONIES ADVAN CED FREE OF INTEREST AS THEY PLEASE. IT WAS ALSO SUBMITTED THAT IT WAS A LSO OPEN TO THE FAMILY MEMBERS AND FAMILY CONCERNS TO SEEK DEPLOYMENT OF T HEIR FUNDS FOR ANY PURPOSE WITH STIPULATION THAT NO INTEREST SHALL BE CHARGED ON THE FUNDS SO DEPLOYED. 6 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. 11. WITH RESPECT TO THE DIFFERENCE OF RS. 1.30 CROR ES, WHICH IS LENT TO THE FAMILY CONCERNS OVER AND ABOVE THE 5.5 CRORES R ECEIVED FREE OF INTEREST, IT WAS EXPLAINED THAT SHARE CAPITAL AND F REE RESERVES AGGREGATED TO RS. 7,02,55,197/-, AS UNDER:- I) PAID UP SHARE CAPITAL RS. 4,98,82,000 II) CAPITAL RESERVES RS. 18,19,326 III) GENERAL RESERVE RS. 62,31,979 IV) CAPITAL SUBSIDY RS. 65,80,200 V) PROFIT & LOSS ACCOUNT RS. 57,41,875 RS.7,02,55,197 ============= 12. IT WAS SUBMITTED THAT THE INTEREST FREE FUNDS A VAILABLE WITH THE ASSESSEE COMPANY WHICH INCLUDES CAPITAL, RESERVES A ND P&L ACCOUNT BALANCE IS TO A TUNE OF RS. 7.02 CRORES AND A FURTH ER SUM OF RS. 5.50 CRORE BEING INTEREST FREE ADVANCES RECEIVED FROM SI STER CONCERNS WHICH IN ALL AGGREGATE TO RS. 12.52 CRORE. AS AGAINST THE SE INTEREST FREE FUNDS OF RS. 12.52 CRORES THE INTEREST FREE LOANS GIVEN I S RS. 6.80 CRORES. IT WAS ARGUED THE INTEREST FREE ADVANCES ARE MORE THAN AMPLY COVERED BY THE AVAILABILITY OF INTEREST FREE FUNDS AND CONSEQU ENTLY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. TIN BOX COMPANY REPORTED IN 260 ITR 637 IS FULLY APPLICABLE TO THE FACTS OF THE CASE. THEREFORE, THE DISALLOWANCE IS WHOLLY UNWARRANTED. 13. THE CIT(A) REPRODUCED AT PAGES 9 AND 10 OF HIS ORDER THE ASSESSEES SUBMISSIONS VIDE LETTER DATED 09/12/2011 IN REPLY TO THE WRITTEN SUBMISSIONS FILED BY THE AO BEFORE THE CIT( A). 14. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE AND REMAND REPORT AS WELL AS THE SUBMISSIONS OF THE AO, THE CI T(A) HELD AS UNDER:- 7 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. 6.4 THE SUBMISSIONS OF THE APPELLANT HAVE BEEN CONS IDERED CAREFULLY. IN THE ASSESSMENT ORDER, THE AO HAS MENT IONED ABOUT THE BANK OVERDRAFT USED BY THE APPELLANT AS MUCH AS RS. 4.62 CRORES AND HIS STATEMENT THAT THERE IS NO QUESTION OF A HAVING OWN FUNDS APPEARS TO BE INCORRECT IN VIEW OF THE DETAIL S OF THE SHARE CAPITAL AND SHARE RESERVES APPEARING IN THE BALANCE SHEET OF THE APPELLANT COMPANY WHICH AMOUNTS TO RS. 7,02,55,197/ - AND THE AO WAS SILENT ON THE INTEREST FREE FUNDS RECEIVED FROM THEIR SISTER CONCERNS. IF THE APPELLANT HAS GOT SURPLUS FUNDS WH ICH DO NOT CARRY INTEREST AND ALSO AS OTHER BORROWALS LIKE BANK OVER DRAFT ETC., AS PER VARIOUS JUDICIAL DECISIONS THE PRESUMPTION IS T HAT THE INTEREST FREE AND OWN FUNDS ARE ADVANCED TO THE SISTER CONCE RNS AND THEREFORE THE CHARGING OF NOTIONAL INTEREST DOES NO T ARISE. THE AO WAS ALSO OF THE SAME VIEW WHEN HE STATED IN THE ASS ESSMENT ORDER AT PARA 5.5 IF THE ASSESSEE LENDS ITS OWN MONEY, TH E DEPARTMENT CANNOT MAKE ANY ADDITION TOWARDS NOTIONALLY ACCRUED INTEREST. FROM THE BALANCE SHEET, IT IS NOTICED THAT THE CONT ENTION OF THE APPELLANT THAT IT HAS GOT PAID UP SHARE CAPITAL OTH ER RESERVES AND PROFIT AGGREGATING TO RS. 7,02,55,197/- THIS AMOUNT ALONG WITH THE INTEREST FEE FUNDS RECEIVED FROM THEIR SISTER CONCE RNS WOULD TOTAL UP TO 12.52 CRORES AND OUT OF THIS IF THE APPELLANT HAS GIVEN INTEREST FREE LOANS TO THE SISTER CONCERNS, TO THE EXTENT OF RS. 6.8 CRORES, THE PRESUMPTION OF ADVANCING OWN FUNDS TO T HE SISTER CONCERNS WORKS IN FAVOUR OF THE APPELLANT AND THERE FORE THE CHARGING OF NOTIONAL INTEREST BY THE AO IS UNWARRAN TED AND THEREFORE THE DISALLOWANCE MADE IS ORDERED TO BE DE LETED. 15. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVE NUE IS IN APPEAL BEFORE US. 16. THE REVENUE RAISED 10 GROUNDS OF APPEAL, OUT O F WHICH 5 & 6 ARE SUBSTANTIVE GROUNDS AND 1 TO 4 AND 7 TO 9 ARE ARGUM ENTATIVE IN NATURE AND THE SAME ARE IN SUPPORT OF GROUND NOS. 5 & 6. G ROUND NOS. 5 & 6 ARE AS FOLLOWS: 5. THE LEARNED CIT(A) OUGHT TO HAVE TAKEN INTO CONS IDERATION THE DETAILS OF INTEREST PORTION CONTAINED IN THE PURCHA SE INVOICE AND THE PROVISIONS CONTAINED IN DTAA TO UPHOLD THE ADD ITION MADE BY THE AO U/S 40(A)(IA) OF THE ACT. 6. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT THE O D ACCOUNT INCREASED FROM RS. 25.21 CRORES TO RS. 50.43 CRORE S IN THE 8 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. PREVIOUS YEAR AND ACCORDINGLY THE ASSESSEES CONTE NTION THAT OWN FUNDS WERE GIVEN TO SISTER CONCERNS IS NOT ACC EPTABLE. 17. AS REGARDS, THE DISALLOWANCE OF RS. 2,29,76,459 /- U/S 40(A)(IA) OF THE ACT, THE LEARNED COUNSEL FOR THE ASSESSEE SHRI RATNAKAR REITERATED THE SUBMISSIONS AS MADE BEFORE THE CIT(A) AND SUBMI TTED THAT THE AMOUNT OF RS. 2,29,76,459/- REPRESENTS THE AMOUNTS PAID AND ALSO AMOUNTS PAYABLE EITHER TO THE EXPORTERS OR THE FORE IGN BANKER IN SINGAPORE AND INDONESIA. THE LEARNED COUNSEL SUBMIT TED THAT THE PERSON WHO ACTUALLY RECEIVES THE AMOUNT IS NOT WITHIN THE KNOWLEDGE OF THE RESPONDENT COMPANY AND IT COULD BE EITHER THE EXPOR TER, OR FOREIGN BANKER OR ANY OTHER PERSON IN BETWEEN THE FOREIGN B ANKER AND EXPORTER DEPENDING ON WHETHER THE LC IS DISCOUNTED AND THE P ERSON DISCOUNTING THE L/C. THE LEARNED COUNSEL FURTHER SUBMITTED THAT AS PER THE DECISION OF THE SPECIAL BENCH IN THE CASE OF M/S MERILYN SHI PPING & TRANSPORTS VISAKHAPATNAM VS. ACIT IN ITA NO. 477/VIZ/2008 DT. 29/03/2012, THE PROVISIONS OF SECTION 40(A)(IA) ARE ATTRACTED ONLY TO AMOUNTS PROVIDED BUT NOT PAID DURING THE YEAR AND DO NOT APPLY AMOUN TS PAID DURING THE YEAR. BASED ON THE SAID DECISION, THE LEARNED COUNS EL SUBMITTED THAT EVEN WITHOUT GOING INTO THE MERITS OF THE APPLICABI LITY OF SECTION 195 OF THE ACT, THE DISALLOWANCE OF SUM OF RS. 2,03,69,891 /- IS UNCALLED FOR. THE LEARNED COUNSEL RELYING ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF GE TECHNOLOGY CENTRE PVT. LTD. VS. CIT AND OTHERS, 327 ITR 456 SUBMITTED THAT UNLESS THE RECIPIENT OF THE AMOU NT IS CHARGEABLE TO TAX IN INDIA THE PROVISIONS OF SECTION 195 ARE NOT ATTRACTED. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE FOLLOWING CASE LAWS IN SUPPORT OF ASSESSEES CASE: 1. AGARWAL IMPEX PVT. LTD. VS. ITO, ITA NO. 735/HY D/2011, DT. 06/01/2012. 2. CIT VS. K. RAJGOPALA RAO, 252 ITR 459 MADRAS HI GH COURT 3. CIT VS. VIDYUT CORPORATION, 324 ITR 221 (BOM.) 9 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. 4. CIT VS. SRI HARIRAM HOTELS PVT. LTD., 325 ITR 1 36 (KAR.) 5. CENTRAL BANK OF INDIA VS. JCIT, 284 ITR (AT) 24 0 (MUM.) 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. T HE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VIDYUT CORPORATION, 32 4 ITR 221 HELD THAT T HE AMOUNT PAID BY THE PURCHASER ON ACCOUNT DELAY IN PAYMENT OF SALE PRICE ALSO CONSTITUTES A COMPONENT OF SALE PRICE AN D IS A PART OF SALE CONSIDERATION. 19. THE COORDINATE BENCH IN THE CASE OF AGARWAL IMP EX PVT. LTD. IN ITA NO. 735/HYD/2011, DT. 06/01/2012 HELD THAT INTEREST PAID ON LC FACILITY CANNOT BE SUBJECT TO TDS. 20. THE PROVISIONS OF SECTION 195 ARE NOT APPLICABL E AND, THEREFORE, PROVISIONS OF SECTION 40(A)(IA) ARE NOT ATTRACTED F OR THE FOLLOWING REASONS:- I) THE AMOUNT PAID FORMS COST OF PURCHASE AND NOT I NTEREST AS DESCRIBED. II) THIS IS A TRANSACTION BANK TO BANK AND, THEREFO RE, PROVISIONS OF TDS ARE NOT APPLICABLE. III) THE RESPONDENT DOES NOT KNOW WHO IS EXACTLY TH E PERSON RECEIVING THE COMPONENT OF ADDITIONAL PURCHASE PRIC E (INTEREST) FOR DEFERMENT OF PAYMENT. HENCE PROVISIONS OF SECTION 1 95 ARE NOT ATTRACTED. IV) THE PERSON RECEIVING THE AMOUNT IS NOT CHARGEAB LE TO TAX IN INDIA. HENCE PROVISIONS OF SECTION 195 ARE NOT ATTR ACTED. V) EVEN UNDER THE PROVISIONS OF DOUBLE TAXATION AVO IDANCE AGREEMENTS (DTAA) WITH SINGAPORE AND INDONESIA THIS AMOUNT PAID IS NOT LIABLE TO TAX IN INDIA IN THE HANDS OF THE RECIPIENT. HENCE PROVISIONS OF SECTION 195 ARE NOT ATTRACTED. VI) IN ANY EVENT THE PAYER IS THE ISSUING BANK IN I NDIA AND NOT THE RESPONDENT. THEREFORE PROVISIONS OF SECTION 195 ARE NOT ATTRACTED. 21. IN VIEW OF THE ABOVE DISCUSSION, AND CONSIDERIN G THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE 10 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. ORDER OF THE CIT(A) IN DELETING THE DISALLOWANCE MA DE BY THE AO U/S 40(A)(IA) OF THE ACT, AND ACCORDINGLY, WE CONFIRM T HE ORDER OF THE CIT(A) AND DISMISS THE GROUND RAISED BY THE REVENUE ON THI S ISSUE. 22. AS REGARDS THE DISALLOWANCE OF RS. 48,98,500/-, THE LEARNED COUNSEL SUBMITTED THAT THE ALLEGATION MADE BY THE A O, NAMELY A) AMOUNTS BORROWED ON INTEREST WERE ADVANCED TO THE A GARWAL SPONGE & ENERGY PVT. LTD. AND SATISH & CO. AND, B) ADVANCES GIVEN ARE UNRELATED TO THE ASSESSEES BUSINESS, IS ERRONEOUS AS THE ASS ESSEE RECEIVED A SUM OF RS. 5,50,00,000/- FREE OF INTEREST FROM OTHE R FAMILY MEMBERS OR CONCERNS BELONGING TO THE FAMILY MEMBERS, WHILE, TH E AMOUNTS ADVANCED BY THE ASSESSEE COMPANY FREE OF INTEREST TO THE SIS TER CONCERNS IS ABOUT 6.80 CRORES, THEREFORE, TO THE EXTENT OF RS. 5.50 C RORES NO LOSS IS CAUSED TO THE ASSESSEE IF THE FUNDS RECEIVED FREE OF INTER EST ARE DEPLOYED FREE OF INTEREST AGAIN WITH THE FAMILY ENTITIES. 23. AS REGARDS THE DIFFERENCE OF RS. 1.30 CRORES, W HICH IS LENT TO THE FAMILY CONCERNS, THE LEARNED COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE AMOUNT OF RS. 1.30 LAKHS ADVANCED IS MUCH LESS THAN THE ASSESSEE COMPANYS OWN FUNDS, THEREFORE, IT IS OPEN TO THE A SSESSEE TO DEAL WITH ITS OWN FUNDS IN ANY MANNER. HENCE, NO NOTIONAL INT EREST CAN BE CALCULATED FOR DISALLOWANCE EVEN ON THIS DIFFERENTI AL AMOUNT OF RS. 1.30 CRORES. THE COMPANY HAS SHARE CAPITAL AND FREE RESE RVES AGGREGATING TO RS. 7,0,55,197/-. THE CALCULATION IS AS UNDER: 1. PAID UP SHARE CAPITAL RS. 4,98,82,000 2. CAPITAL RESERVES RS. 18,19,326 3. GENERAL RESERVE RS. 62,31,797 4. CAPITAL SUBSIDY RS. 65,80,200 5. PROFIT & LOSS ACCOUNT RS. 57,41,875 TOTAL RS.7,02,55,197 11 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. 23.1 THE AMOUNT ADVANCES (RS. 1.30 CRORES) IS MUCH LESS THAN THE ASSESSEE COMPANIES OWN FUNDS. IT IS OPEN TO THE ASS ESSEE COMPANY TO DEAL WITH ITS OWN FUNDS IN ANY MANNER. THEREFORE, N O NOTIONAL INTEREST CAN BE CALCULATED FOR DISALLOWANCE EVEN ON THIS DIF FERENTIAL AMOUNT OF RS. 1.30 CRORES. IT IS ALSO SUBMITTED THAT THE AO COULD NOT POINT OUT ANY SPECIFIC INTEREST BEARING BORROWED FUNDS WHICH ARE SAID TO HAVE BEEN DIVERTED TO THE SISTER CONCERN. AS A FACT NO SUCH I NTEREST BEARING BORROWED FUNDS HAVE BEEN DIVERTED AND HENCE THE AO COULD NOT FIND ANY SUCH BORROWED FUNDS DIVERTED. HENCE, HE WENT BY ASS UMPTIONS IGNORING THE FACTUAL POSITION. 23.2 IT WAS SUBMITTED THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY WHICH INCLUDES CAPITAL, RESERVES A ND P&L ACCOUNT BALANCE IS TO A TUNE OF RS. 7.02 CRORES AND A FURTH ER SUM OF RS. 5.50 CRORES BEING INTEREST FREE ADVANCES RECEIVED FROM S ISTER CONCERNS WHICH IN ALL AGGREGATE TO RS. 12.52 CRORES. AS AGAINST TH ESE INTEREST FREE FUNDS OF RS. 12.52 CRORES THE INTEREST FREE LOANS GIVEN I S RS. 6.80 CRORES. HENCE, THE INTEREST FREE ADVANCES ARE MORE THAN AMP LY COVERED BY THE AVAILABILITY OF INTEREST FREE FUNDS. THE AR RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. TIN BOX COMPANY, 260 ITR 637 AND SUBMITTED THAT THE DISALLOWANCE IS WHOL LY UNWARRANTED. 24. THE LEARNED DR ON THE OTHER HAND RELIED UPON TH E ORDER OF THE AO AND SUBMITTED THAT THE FACTUAL POSITION FROM THE BA LANCE SHEET SHOULD BE VERIFIED. 25. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. WE FIND THAT THE CIT(A) GAVE A CATEGORICAL FINDING AS UNDER : 12 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. 6.4 THE SUBMISSIONS OF THE APPELLANT HAVE BEEN C ONSIDERED CAREFULLY. IN THE ASSESSMENT ORDER, THE AO HAS MENT IONED ABOUT THE BANK OVERDRAFT USED BY THE APPELLANT AS SUCH AS RS. 4.62 CRORES AND HIS STATEMENT THAT THERE IS NO QUESTION OF HAVING OWN FUNDS APPEARS TO BE INCORRECT IN VIEW OF THE DETAIL S OF THE SHARE CAPITAL AND SHARE RESERVES APPEARING IN THE BALANCE SHEET OF THE APPELLANT COMPANY WHICH AMOUNTS TO RS. 7,02,55,197/ - AND THE AO WAS SILENT ON THE INTEREST FREE FUNDS RECEIVED FROM THEIR SISTER CONCERNS. IF THE APPELLANT HAS GOT SURPLUS FUNDS WH ICH DO NOT CARRY INTEREST AND ALSO AS OTHER BORROWALS LIKE BANK OVER DRAFT ETC., AS PER VARIOUS JUDICIAL DECISIONS THE PRESUMPTION IS T HAT THE INTEREST FREE AND OWN FUNDS ARE ADVANCED TO THE SISTER CONCE RNS AND THEREFORE THE CHARGING OF NOTIONAL INTEREST DOES NO T ARISE. THE AO WAS ALSO OF THE SAME VIEW WHEN HE STATED IN THE ASS ESSMENT ORDER AT PARA 5.5 IF THE ASSESSEE LENDS ITS OWN MONEY, TH E DEPARTMENT CANNOT MAKE ANY ADDITION TOWARDS NOTIONALLY ACCRUED INTEREST. FROM THE BALANCE SHEET, IT IS NOTICED THAT THE CONT ENTION OF THE APPELLANT THAT IT HAS GOT PAID UP SHARE CAPITAL OTH ER RESERVES AND PROFIT AGGREGATING TO RS. 7,02,55,197/- THIS AMOUNT ALONG WITH THE INTEREST FREE FUNDS RECEIVED FROM THEIR SISTER CONC ERNS WOULD TOTAL UP TO RS. 12.52 CRORES AND OUT OF THIS IF THE APPEL LANT HAS GIVEN INTEREST FREE LOANS TO THE SISTER CONCERNS, TO THE EXTENT OF RS. 6.8 CRORES, THE PRESUMPTION OF ADVANCING OWN FUNDS TO T HE SISTER CONCERNS WORKS IN FAVOUR OF THE APPELLANT AND THERE FORE THE CHARGING OF NOTIONAL INTEREST BY THE AO IS UNWARRAN TED AND THEREFORE THE DISALLOWANCE MADE IS ORDERED TO BE DE LETED. 26. WE FIND THAT THE AO WAS SILENT ON THE INTEREST FREE FUNDS RECEIVED BY THE ASSESSEE FROM ITS SISTER CONCERNS. WE ARE OF THE VIEW THAT IF THE ASSESSEE HAS GOT SURPLUS FUNDS WHICH DO NOT CARRY I NTEREST AND ALSO AS OTHER BORROWALS LIKE BANK OVERDRAFT ETC., AS PER VA RIOUS JUDICIAL DECISIONS THE PRESUMPTION IS THAT THE INTEREST FREE AND OWN F UNDS ARE ADVANCED TO THE SISTER CONCERNS AND, THEREFORE, THE CHARGING OF NOTIONAL INTEREST DOES NOT ARISE. OUR OPINION IS BASED ON THE RATIO OF DE CISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 (BOM.) WHEREIN IT WAS HELD THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR L OANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF INTEREST FREE 13 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF T HE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 27. SINCE THE ORDERS OF THE REVENUE DOES NOT CONTAI N THE FACT ON THE EXISTENCE OF THE EXCESS OR OWN AND INTEREST FREE FU NDS OF THE ASSESSEE. AO ALSO REJECTED THE CLAIM OF THE ASSESSEE WITHOUT CONSIDERING THE RATIO OF THE ABOVE SAID JUDGMENT, WHICH HAS RELEVANCE IN THE FACTUAL MATRIX IN ANY CASE OF HYBRID FUNDS. AO IS REQUIRED TO STUDY T HE FUNDS POSITION BEFORE THE MAKING OF INTEREST FREE ADVANCES. THE AO SHALL ALSO APPLY THE PRINCIPLE OF PRESUMPTION IN CORRECT PERSPECTIVE A ND IN ACCORDANCE WITH THE LAW IN FORCE. IN THESE CIRCUMSTANCES AND IT IS IN THE INTEREST OF THE REVENUE, THAT THE ISSUE MUST BE SET ASIDE TO THE FI LE OF THE AO TO EXAMINE THE FUND FLOW STATEMENT AND DECIDE THE ISSU E IN ACCORDANCE WITH LAW. HENCE, THE REVENUES APPEAL ON THIS ISSUE IS SET ASIDE FOR STATISTICAL PURPOSES. 28. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 629/H/12 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 141/H/2013 BY THE REVENUE AND ITA NO. 174/H /13 BY THE ASSESSEE FOR AY 2009-10. 30. IN ITS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS IN LAW AND ON FACTS OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN DELETION OF ADDITION MADE FOR THE FAILURE IN DEDUCTION OF TAX U/S 195 OF THE IT ACT O N THE DELAYED PAYMENTS OF PURCHASE CONSIDERATION TO RAW MATERIAL SUPPLIERS SITUATED OUTSIDE INDIA. 3. THE LEARNED CIT(A) ERRED IN DELETION OF INTEREST DISALLOWANCE ON THE ADVANCES MADE TO SISTER CONCERNS U/S 36(1)(III) (A) OF THE IT ACT. 14 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. 4. THE LEARNED CIT(A) ERRED IN RESTRICTING THE DISA LLOWANCE TO 8% IN THE INSTANCES OF ADVANCE MADE TO SISTER CONCERNS AS AGAINST 12% MADE BY THE AO. 5. THE LEARNED CIT(A) ERRED IN DELETION OF ADDITIO N MADE TOWARDS DIFFERENTIAL INTEREST ON THE GROUND THAT THE ASSESS EES BORROWALS ARE AT 8% AND WITHOUT AFFORDING AN OPPORTUNITY TO T HE AO TO VERIFY THE CLAIM OF THE ASSESSEE UNDER RULE 46A OF THE IT RULES. 31. THE ASSESSEE IN ITS APPEAL IN ITA NO. 174/H/13 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE APPELLANT CONTENDS THAT THE LEARNED CIT WAS AN ERROR IN NOT DELETING COMPLETELY THE DISALLOWANCE OF NOTIONAL IN TEREST CALCULATED ON THE ADVANCES MADE TO THE FOLLOWING PARTIES: NAME AMOUNT OF NOTIONAL INTEREST DISALLOWANCE 1) AGARWAL STEEL STRUCTURES INDIA PVT. LTD. 2,32,370 2) AP AGARWAL (HUF) 95,906 3) AGARWAL AGRI & STEEL PVT. LTD. 61,30,300 4) APSM SECURITIES PVT. LTD. 18,879 5) SATISH & COMPANY 13,48,421 6) NARESH GUPTA 7,959 2. THE LEARNED CIT SHOULD HAVE SEEN THAT THE AMOUNT ADVANCED T THE ABOVE PARTIES IS MORE THAN ADEQUATELY COVERED B Y THE INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT AND HENCE N O DISALLOWANCE IS CALLED FOR 3. THE APPELLANT CONTENDS THAT THE SHARE CAPITAL, S HARE PREMIUM, RESERVES AMOUNTS RECEIVED FROM VARIOUS PARTIES INCL UDING FAMILY MEMBERS, FAMILY CONCERNS ETC. AGGREGATE TO A SUM OF RS. 16.47 CRORES WHICH IS MORE THAN THAT THE AMOUNTS ADVANCED TO THE ABOVE SIX PARTIES. CONSEQUENTLY NO NOTIONAL DISALLOWANCE IS CALLED FOR. 4. THE APPELLANT CONTENDS THAT THE AVAILABILITY OF THE ABOVE INTEREST FREE FUNDS AGGREGATING TO RS. 16.47 CRORES IS AN AC CEPTED FACT. HAVING ACCEPTED THE EXISTENCE OF THE INTEREST FREE FUNDS NO DISALLOWANCE IS CALLED FOR. THE LEARNED CIT SHOULD HAVE THEREFORE DELETED THE ENTIRE DISALLOWANCE IN FULL. 5. IT IS CONTENDED THAT THE LOAN BORROWED ARE UTILI ZED FOR BUSINESS PURPOSES AND NOT PUT TO USE FOR ANY UNRELATED PURPO SES OR NON- BUSINESS PURPOSES. 15 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. 32. AS REGARDS GROUND NO. 2 OF THE REVENUE WITH RE SPECT TO ISSUE OF USANCE INTEREST PAYABLE OUTSIDE INDIA AND DISALLOW ANCE OF THE SAME U/S 40(A)(IA), SIMILAR ISSUE HAS BEEN DECIDED BY US IN AY 2008-09 VIDE PARAS 17 TO 21 (SUPRA). FOLLOWING THE DECISION THEREIN, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE GROUND RAISED BY THE REVENUE ON THIS ISSUE. 33. AS REGARDS GROUND NOS. 3 TO 5 OF THE REVENUE, T HE CIT(A) HELD AS FOLLOWS: 6.3 REGARDING THE BALANCE AMOUNT OF DISALLOWANCE, T HE APPELLANT CONTENDED THAT IT HAS GOT INTEREST FREE FUNDS AVAILABLE WITH IT DURING THE YEAR WHICH ARE GIVEN AT PARA 11 ABOVE AMOUNTING TO RS. 16,47,71,336/- AND THEREFORE NO DISALLOWANCE CAN BE MADE ON NOTIONAL BASIS. ON SIMILAR GROUNDS IN THE APPEAL ORDER FOR AY 2008-09, I HAVE DELETED THE NOTIONAL INTEREST CHARG ED ON THE GROUND THAT THE APPELLANT HAD SURPLUS INTEREST FREE LOANS T ADVANCE TO OTHER SISTER CONCERNS INTEREST FREE, THE TRANSAC TION OF PASSING OWN FUNDS TO THE SISTER CONCERNS WORKS IN FAVOUR OF THE APPELLANT AND THEREFORE THE NOTIONAL INTEREST CHARGED WAS DEL ETED. BUT, HOWEVER, DURING THIS YEAR, THE INTEREST FREE FUNDS AS GIVEN BY THE APPELLANT STOOD AT RS. 16,47,71,336/- WHERE AS THE LOANS AS ON 31/03/2009 STOOD AT RS. 139,33,41,311/- & AN INTERE ST PAYMENT OF RS. 7,21,77,504/- (LOANS OF RS. 50,43,29,983 AND IN TEREST OF RS. 4,62,73,482/- AS ON 31/03/2008), THE SAME ARGUMENT DOES NOT HOLD GOOD. THEREFORE, THE DISALLOWANCE/ADDITION ON ACCOU NT OF NOTIONAL INTEREST APPEARS TO BE IN ORDER, BUT SINCE THE RATE OF INTEREST CHARGED AT 12% APPEARS HIGH CONSIDERING THE FACT TH AT THE ASSESSEE HAD PAID INTEREST AT 8% ON ITS LC LIMITS W HICH ARE MOSTLY DIVERTED TO SISTER CONCERNS AND ALSO THE FACT THAT THE AO HAS NOT BROUGHT ON RECORD AS TO AT WHAT RATE OF INTEREST TH E APPELLANT BORROWED THE FUNDS OTHER THAN THE LC AMOUNTS, THE A O IS DIRECTED TO CHARGE THE INTEREST AT 8% IN RESPECT OF THE CONC ERNS VIZ., AP AGARWAL HUF, APSM SECURITIES PVT. LTD., SATISH & CO . & NARESH GUPTA, AND RECALCULATE THE DISALLOWANCE ACCORDINGLY . 34. AGAINST THE SAID ORDER OF THE CIT(A), BOTH THE REVENUE AND THE ASSESSEE ARE IN APPEAL BEFORE US. 16 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. 35. THE LEARNED DR ARGUED THAT THE LAW ON THE SUBJE CT OF DISALLOWANCE OF INTEREST IN RESPECT OF AMOUNTS DIVERTED TO THE G ROUP COMPANIES/RELATED PARTIES IS NOW WELL SETTLED IN FAVOUR OF THE REVENU E BY THE DECISION OF THE HONBLE P&H HIGH COURT IN THE CASE OF CIT VS. A BHISHEK INDUSTRIES LTD., [2006] 286 ITR 1 (P&H). FURTHER, HE SUBMITTED THAT IF THE ASSESSEE LENDS ITS OWN MONEY, THE DEPARTMENT CANNOT MAKE ANY ADDITION TOWARDS NOTIONALLY ACCRUED INTEREST AND ON THE OTHER HAND I F THE BORROWED AMOUNTS ARE DIVERTED AS INTEREST FREE ADVANCES TO T HE RELATED CONCERNS WITHOUT HAVING ANY COMMERCIAL EXPEDIENCY, THE AO IS WITHIN HIS RIGHT TO DISALLOW THE INTEREST PAID BY THE ASSESSEE TO ITS B ANKERS. HE CONTENDED THAT THE ASSESSEE WAS HAVING OVERDRAFT FACILITY, TH EREFORE, THE INTEREST BURDEN TO THE ASSESSEE WAS AS SUCH AS RS. 7.21 CROR ES AND HENCE, THERE IS NO QUESTION OF HAVING OWN FUNDS. 36. ON THE OTHER HAND, THE LEARNED AR BEFORE US CON TENDED THAT THE LEARNED CIT(A) WAS WRONG IN NOT DELETING COMPLETELY THE DISALLOWANCE OF NOTIONAL INTEREST CALCULATED ON THE ADVANCES MADE T O THE PARTIES. FURTHER, HE CONTENDED THAT THE LEARNED CIT(A) SHOUL D HAVE SEEN THAT THE AMOUNT ADVANCED TO THE PARTIES IS MORE THAN ADEQUAT ELY COVERED BY THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND HENCE NO DISALLOWANCE IS CALLED FOR. THE LEARNED AR ALSO CON TENDED THAT THE SHARE CAPITAL, SHARE PREMIUM, RESERVES, AMOUNTS RECEIVED FROM VARIOUS PARTIES INCLUDING FAMILY MEMBERS, FAMILY CONCERN ETC., AGGR EGATE TO A SUM OF RS. 16.47 CRORES WHICH IS MORE THAN THAT THE AMOUNT S ADVANCED TO THE PARTIES, CONSEQUENTLY, NO DISALLOWANCE IS CALLED FO R. THE LEARNED AR CONTENDED THAT THE AVAILABILITY OF THE INTEREST FRE E FUNDS AGGREGATING TO RS. 16.47 CRORES IS AN ACCEPTED FACT AND HAVING ACC EPTED THE EXISTENCE OF INTEREST FREE FUNDS NO DISALLOWANCE IS CALLED FO R. FINALLY, IT WAS SUBMITTED THAT THE LOAN BORROWED ARE UTILIZED FOR B USINESS PURPOSES AND NOT PUT TO USE FOR ANY UNRELATED PURPOSES OR NON BU SINESS PURPOSES. 17 ITA NOS. 629/HYD/2012 AND 141 & 174/H/13 M/S AGARWAL INDUSTRIES (P) LTD. 37. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW. SINCE THE ISSUE DURING THE YEAR IS SIMILAR TO THAT OF AY 2008-09, FOLLOWING THE DECISION THEREIN, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO TO EXAMINE THE FUND FLOW STATEMENT AND DECIDE THE ISSUE IN ACCORDANCE W ITH LAW. 38. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 141/H/2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF ASSESSEE IN ITA NO. 174/H/13 IS ALLOWED FOR STATISTICAL PURPOSES. 39. TO SUM UP, APPEALS OF THE REVENUE IN ITA NO. 62 9/H/12 AND ITA NO. 141/H/13 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE S AND THE APPEAL OF THE ASSESSEE IN ITA NO. 174/H/13 IS ALLOWED FOR STATIST ICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 7 TH MARCH, 2014. SD/- SD/- (CHANDRA POOJARI) (AS HA VIJAYARAGHAVAN) ACCOUNTANT MEMBER J UDICIAL MEMBER HYDERABAD, DATED: 7 TH MARCH, 2014 KV COPY TO:- 1) THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 1(1), HYDERABAD 2) M/S AGARWAL INDUSTRIES LTD., HYDERABAD 3) THE CIT (A)-II, HYDERABAD 4) THE CIT-1, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD