ARPIT MARBLES PVT. LTD., Jaipur V. ACIT, Jaipur

ITA 648/JPR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5397 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 23-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S KOTHARI CIT DHK
• Keywords: Depreciation; Commercial expediency

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH FOE FLAG ;KN O] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA-@ ITA NO. 648/JP/14 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 M/S ARPIT MARBLES PVT. LTD., NATWARA HOUSE AMER ROAD, JAIPUR CUKE VS. THE ACIT, CIRCLE - 5, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACCA 0145 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL (C.A.) JKTLO DH VKSJ LS@ REVENUE BY : SHRI D.S. KOTHARI (CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 25.02.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 11 /03/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-II, JAIPUR DATED 04.07.2014 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAINING THE ADDITION OF RS. 37,28,395/- MADE BY LD. AO BY ALLEGING THE EMPLOYMENT OF INTEREST BEARING FUNDS I N GIVING INTEREST FREE ADVANCE TO SISTER CONCERN WITHOUT PROPERLY APPRECIA TING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 2 THEREFORE, THE ADDITION OF RS. 37,28,395/- SUSTAINE D BY THE LD. CIT(A) DESERVES TO BE DELETED. (1.1) THE LD. CIT(A) FURTHER ERRED IN SUMMARILY & CRYPTIC ALLY OBSERVING THAT THE NEXUS AS ESTABLISHED BY ASSESSING OFFICER BETWEEN THE BORROWED FUNDS AND THE INTEREST FREE ADVANCES GIVEN TO THE SISTER CONCERN, HOWEVER LD. CIT(A) HAS FAILED TO SPECIFY AS TO HOW AND IN WHAT MANNER THE AO HAS DISCHARGED THIS ONUS OF ESTABLISHING THE SAID NEXU S NOR CAN ANY SUCH INDICATION BE GATHERED FROM THE A.O. THEREFORE, TH E ADDITION SO SUSTAINED BY THE CIT()A) DESERVES TO BE DELETED. (1.2) THAT THE LD. CIT(A) HAS FURTHER ERRED IN IGNORING THE FACT THAT THE AFOREMENTIONED NEXUS DOES NOT GET ESTABLISHED IPS O FACTO MERELY BY POINTING OUT THE FACT THAT THE ASSESSEE HAD TAKEN L OANS FROM BANKS & FINANCIAL INSTITUTION, ESPECIALLY WHEN THE ASSESSEE WAS HAVING SUFFICIENT FUNDS OF ITS OWN IN THE SHAPE OF SHARE CAPITAL/SURP LUS RESERVES/ UNSECURED LOANS TO ADVANCE THE SAME TO SISTER CONCE RN, THUS THE AO HAD FAILED TO DISCHARGE HIS ONUS TO ESTABLISH THE NEXUS AND THEREFORE, THE ADDITION SO SUSTAINED BY THE LD. CIT(A) DESERVES TO BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 2,49,713/- MADE B Y THE AO ON A/C OF DISALLOWANCE OUT OF FOLLOWING EXPENSES, BEIONG10% B Y ALLEGING PERSONAL USER: (A) OUT OF TELEPHONE, VEHICLE, REPAIR & MAINTENANCE DEPRECIATION ON CAR 96,842/ - (B) OUT OF STAFF WELFARE EXPENSES 6,087/ - (C) OUT OF TRAVELLING EXPENSES 39,377/ - (D) OUT OF BONUS PAID 1,07,407/ - TOTAL 2,49,713/ - 2.1 THAT THE LD. CIT(A)HAS FURTHER ERRED IN NOT CON SIDERING THE FACT THAT THE SAID DISALLOWANCE WAS MADE ONLY ON THE BASIS OF ASS UMPTION AND ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 3 PRESUMPTION WITHOUT SHOWING A SINGLE INSTANCE WHERE ANY OF THE AFOREMENTIONED EXPENSES WERE INCURRED OR PERSONAL U SE IN ANY MANNER. THEREFORE, THE SAID ADDITION DESERVES TO BE DELETED . 1. FIRSTLY, IN RESPECT OF GROUNDS OF APPEAL NO. 1 TO 1.2, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 37,28,395/- BY WAY O F DISALLOWANCE MADE OUT OF THE INTEREST PAID BY THE ASSESSEE ON BORROWED FUNDS BY ALLEGING THAT THE ASSESSEE HAS MADE INTEREST FREE ADVANCE OUT OF THE BORROWED FUND S TO ITS SISTER CONCERN AND FURTHER ALLEGED THAT THE ASSESSEE HAS MADE ADVANCES TO SOME PARTIES FOR NON BUSINESS PURPOSES. 1.1 LD AR SUBMITTED THAT WITH REGARD TO THE ADVANCE GIV EN TO SISTER CONCERN M/S ANDHI MARBLES PVT. LTD, DURING THE COURSE OF AS SESSMENT PROCEEDINGS, IT WAS EXPLAINED TO THE LD. AO THAT ASSESSEE COMPANY IS EN GAGED IN THE MANUFACTURING AND PRODUCING OF MARBLE SLABS, WHICH HAVE BEEN MADE FROM THE MARBLE BLOCKS. THE MINING OF THE BLOCKS FROM THE MINES OWNED BY TH E ASSESSEE COMPANY WAS VERY LOW DUE TO THE CLOSURE OF MINES, THE MAJORITY OF RAW MATERIAL WAS PURCHASED FROM THE MINES OWNED BY THE SISTER CONCERN M/S ANDH I MARBLES PRIVATE LIMITED. SINCE THE MAJOR PURCHASES OF THE RAW MATERIAL WAS M ADE FROM M/S ANDHI MARBLES PRIVATE LIMITED, PAYMENT WAS MADE IN ADVANCE TO IT WHICH IS IN THE NATURE OF BUSINESS ADVANCE AND THUS NO DISALLOWANCE OF INTERE ST PAID ON BORROWED FUNDS COULD BE MADE. IT WAS FURTHER SUBMITTED THAT THE ABOVE CONTENTION OF ASSESSEE WAS ACCEPTED BY THE LD. CIT(A) IN A.Y. 2006-07 AND THE ADDITION MAD E ON IDENTICAL GROUNDS WAS DELETED BY THE LD. CIT(A) AND THE SAID ORDER OF LD. CIT(A) WAS CONFIRMED THIS HONBLE TRIBUNAL. FURTHER, IN CASE OF ASSESSMENT YE AR 2007-08, THE LD. CIT(A) HAS DELETED THE SIMILAR ADDITION AND THE HONBLE ITAT VIDE ORDERS DATED 21.04.2011 IN ITA NO. 928/JP/2010 HAS CONFIRMED THE ORDER OF CIT( A). IT WAS SUBMITTED THAT FROM THE PERUSAL OF ITAT ORDE RS, IT IS CLEAR THAT THE ASSESSEE IS HAVING BUSINESS RELATION WITH THE AFORESAID SIST ER CONCERN AND HAS BEEN PURCHASING RAW MATERIALS THEREFROM AND IT IS UNDER SUCH BUSINESS EXPEDIENCY THAT ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 4 THE ADVANCE PAYMENTS WERE MADE TOWARDS PURCHASE OF THE RAW MATERIAL. THUS, SINCE THE ADVANCES WERE MADE FOR BUSINESS PURPOSE A ND UNDER COMMERCIAL EXPEDIENCY, THUS THE SAME CANNOT BE TAGGED AS INTER EST FREE FUNDS GIVEN FOR NON- COMMERCIAL PURPOSE. IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) HAS NO T ACCEPTED THIS CONTENTION OF ASSESSEE AND HAS TRIED TO DISTINGUISH THE ORDER OF HONBLE ITAT IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE SOLELY BY OBSERVI NG THAT IN THE YEAR UNDER CONSIDERATION, PURCHASES WERE NOT MADE FROM THE SAI D SISTER CONCERN AND THUS, HE WENT ON TO HELD THAT THERE WAS NO COMMERCIAL EXPEDI ENCY. IN THIS REGARD, IT IS SUBMITTED THAT MERELY BECAUSE IN THE YEAR UNDER APP EAL, NO TRANSACTION HAD TAKEN PLACE, IT CANNOT BE ALLEGED THAT THE ASSESSEE HAD NO BUSINESS RELATIONS WITH THE SISTER CONCERN. THE FACT OF EXISTENCE OF BUSINE SS RELATIONS CANNOT BE DETERMINED ON YEAR TO YEAR BASIS, BUT HAS TO BE EXA MINED AS A WHOLE AND DURING A PERIOD OF TIME AND NOT YEAR TO YEAR BASIS. IT IS SU BMITTED THAT HONBLE ITAT HAS ALREADY RECORDED A FINDING THAT THE ASSESSEE HAS BU SINESS RELATIONS WITH ITS SISTER CONCERN AND THE ADVANCES MADE BY IT TO THE SISTER C ONCERN WERE TOO MADE IN THE COMMERCIAL EXPEDIENCY AND IN VIEW OF THIS FINDING, THE LD. CIT(A) COULD NOT HAVE DOUBTED THE EXISTENCE OF BUSINESS RELATIONS WITH TH E SISTER CONCERN OF ASSESSEE OR THE COMMERCIAL EXPEDIENCY INVOLVED IN THE ADVANCES MADE BY ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE COMPANY HAS INTEREST FREE FUNDS IN THE SHAPE OF SHARE CAPITAL AND RESERVES & SURPLUS TO TH E EXTENT OF 2.95 CRORES AND UNSECURED LOANS OF RS. 2.58 CRORES TAKEN FROM DIREC TORS & THEIR RELATIVES AND MEMBERS ON WHICH NO INTEREST WAS GIVEN BY THE APPEL LANT COMPANY OUT OF SUCH INTEREST FREE FUNDS, THE ADVANCE WAS GIVEN TO THE S ISTER CONCERN THEREFORE, NO DISALLOWANCE COULD BE MADE FOR THE INTEREST FREE AD VANCE GIVEN. IT WAS FURTHER SUBMITTED THAT THE LD. AO HAS IGNORE D THESE FACTS AND FURTHER WITHOUT APPRECIATING THE FACT THAT ADVANCE MADE IS IN NATURE OF BUSINESS ADVANCE THUS IN NO CIRCUMSTANCES IT COULD BE HOLD THAT ASSE SSEE HAS UTILIZED THE INTEREST BEARING FUNDS IN THE INTEREST FREE ADVANCE MADE TO THE SISTER CONCERN WHICH WAS ALSO MADE IN THE NORMAL COURSE OF BUSINESS PURELY F OR BUSINESS PURPOSES. THE ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 5 EXISTENCE OF ASSESSEES OWN INTEREST FREE FUNDS AS MENTIONED ABOVE HAS NOT BEEN DOUBTED EITHER BY THE LD. AO OR BY THE LD. CIT(A) A ND THUS, IN VIEW OF THE WELL SETTLED LAW , THE INTEREST FREE ADVANCES MADE BY AS SESSEE SHOULD BE CONSIDERED AS MADE OUT OF THE ASSESSEES OWN FUNDS AND NOT INTERE ST BEARING FUNDS. THE ONUS OF ESTABLISHING OTHERWISE IS ON THE ASSESSING OFFICER THAT THE ADVANCES HAVE BEEN MADE OUT OF INTEREST BEARING FUNDS. NO SUCH EFFORT HAS BEEN MADE TO ESTABLISH THE NEXUS BETWEEN THE BORROWED FUNDS AND THE ADVANCES M ADE BY THE ASSESSEE. FURTHER, THE LD. CIT(A) HAS MERELY / MECHANICALLY M ENTIONED THAT THE NEXUS HAS BEEN ESTABLISHED WITHOUT IN ANY MANNER POINTING OUT AS TO HOW AND IN WHAT MANNER SUCH NEXUS HAS BEEN ESTABLISHED BY THE LD. A O. IN THIS REGARD, LD AR HAS PLACED RELIANCE ON THE FO LLOWING CASE LAWS: MUNJAL SALES CORPORATION VS. CIT & OTHERS 298 ITR 2 98 (SC) CIT VS. HOTEL SAVERA 239 ITR 795 (MAD.) CIT VS. RADICO KHAITAN LTD. 142 TAXMAN 681 (ALL.) COMET HANDICRAFTS VS. ACIT 114 TTJ 124 (DEL) CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM.) 1.2 THE LD. DR. SUBMITTED THAT THE FACTS OF THE YEA R UNDER CONSIDERATION ARE DIFFERENT FROM THE PRECEDING YEARS HENCE THE DECISI ON OF THE HONBLE ITAT IN THE EARLIER YEARS SHOULD NOT BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION. IT WAS FURTHER SUBMITTED BY LD. DR THAT FROM THE PERUSAL O F THE ACCOUNT OF M/S ANDHI MARBLE PVT. LTD. JAIPUR, IT IS CLEAR THAT THE FUNDS HAVE BEEN ADVANCED OUT OF THE CASH CREDIT ACCOUNT OF THE ASSESSEE MAINTAINED WITH BANK OF RAJASTHAN LTD. AS WELL AS ACCOUNT MAINTAINED WITH ICICI BANK LTD. BASIS T HAT, HE SUBMITTED THAT NEXUS HAS BEEN CLEARLY ESTABLISHED IN TERMS OF BORROWING FROM THE BANKS AND THE ADVANCES GIVEN TO M/S AMPL. FURTHER, DURING THE YE AR, NO PURCHASES HAVE BEEN MADE FROM M/S AMPL. ACCORDINGLY, THE TEST OF COMME RCIAL EXPEDIENCY IS NOT SATISFIED IN THE INSTANT CASE. ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 6 1.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO NOTED THAT THE ASSESSEE HAS GIVEN A DDITIONAL INTEREST FREE ADVANCES OF RS. 1,44,67,000/- DURING THE YEAR TO M/ S AMPL. FURTHER NO PURCHASES HAVE BEEN MADE EITHER AGAINST OPENING DEBIT BALANCE OF RS. 1,58,04,153/- OR AGAINST THE ADDITIONAL ADVANCES GIVEN TO M/S AMPL D URING IN THE YEAR. THE AO FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAS TAKE N LOANS FROM FINANCIAL INSTITUTIONS SUCH AS SIDBI, RFC, ICICI BANK, BANK O F RAJASTHAN LTD, ETC. AND THE NEXUS BETWEEN THE LOAN TAKEN AND ADVANCES GIVEN TO SISTER CONCERN IS ALSO ESTABLISHED AS LOANS RAISED FROM THESE INSTITUTIONS IN TURN TRANSFERRED TO M/S AMPL. 1.5 IT IS NOTED THAT DURING THE YEAR UNDER CONSIDER ATION, THE ASSESSEE COMPANY HAS DEBITED A SUM OF RS. 1,22,42,655/- TOWARDS INTE REST EXPENSE IN HIS PROFIT AND LOSS ACCOUNT. OUT OF THIS, THE AO DISALLOWED A SUM OF RS. 37,28,395/- BEING INTEREST AT THE RATE OF 15% PAID TO THE FINANCIAL I NSTITUTIONS. THE LD. CIT(A) CONFIRMED THE FINDINGS OF THE AO THAT THE NEXUS HAS BEEN ESTABLISHED BETWEEN THE LOANS TAKEN FROM FINANCIAL INSTITUTIONS AND ADV ANCES GIVEN TO M/S AMPL. HOWEVER, THERE IS NO DISCUSSION AS TO HOW SUCH A NE XUS HAS BEEN ESTABLISHED WHICH WE COULD GATHER FROM THE ORDER OF AO AND LD C IT(A). FURTHER THE LD. CIT(A) HELD THAT NO PURCHASES HAVE BEEN MADE FROM M/S AMPL DURING THE YEAR AND INSPITE OF OPENING DEBIT BALANCE OF RS. 1,58,04,15 3/-, FURTHER ADVANCES HAVE BEEN MADE TO IT LEAVING A CLOSING DEBIT BALANCE OF RS. 4,40,07,213/- WHICH DOES NOT INDICATE THAT ADVANCE GIVEN DURING THE YEAR WAS BAS ED ON ANY COMMERCIAL EXPEDIENCY. LD CIT(A) ACCORDINGLY UPHELD THE DISAL LOWANCE OF INTEREST ON ADVANCES GIVEN TO M/S AMPL DURING THE YEAR UNDER CO NSIDERATION. AT THE SAME TIME, IN RESPECT OF INTEREST PAYMENT ON THE OPENING DEBIT BALANCE OF ADVANCES, FOLLOWING ORDER OF THE CO-ORDINATE BENCH FOR A.Y, 2 006-07 AND 2007-08, NECESSARY RELIEF WAS GIVEN TO THE ASSESSEE. 1.6 IT IS NOTED FROM THE PERUSAL OF THE AUDIT REPOR T WHERE THE AUDITORS HAVE OBSERVED THAT THE COMPANY HAS INCURRED CASH LOSSES DURING THE FINANCIAL YEAR COVERED BY OUR AUDIT AND HAVE INCURRED CASH LOSSES DURING THE IMMEDIATELY PRECEDING FINANCIAL YEAR, WHICH HAS RESULTED IN ACC UMULATED LOSSES TO THE TUNE OF ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 7 RS. 2,42,55,443/- AS ON 31.03.2009 WHICH EFFECTIVE LY WIPES OUT THE SHARE CAPITAL OF 2,41,06,500/- LEAVING ASIDE AN AMOUNT OF RS. 54, 91,900/- IN THE RESERVE AND SURPLUS ACCOUNT. FURTHER, FROM THE PERUSAL OF THE NOTES TO THE FINANCIAL STATEMENT OF THE ASSESSEE, IT IS NOTED THAT THERE ARE TRANSAC TIONS WHICH HAVE BEEN CARRIED OUT DURING THE YEAR IN TERMS OF PURCHASE OF MARBLE BLOCKS AMOUNTING TO RS. 60,51,457/- AND SALE OF MARBLE SLABS AND TILES AMOU NTING TO RS. 55,15,779/-TO M/S AMPL. 1.7 FIRSTLY, REGARDING NEXUS WHICH THE AO AND THE L D. CIT(A) HAS HELD TO HAVE BEEN ESTABLISHED BETWEEN THE AMOUNT BORROWED FROM THE FINANCIAL INSTITUTIONS AND ADVANCES GIVEN TO M/S AMPL, IT IS UNCLEAR AS TO HOW SUCH AN NEXUS HAS BEEN ESTABLISHED BY MERELY STATING THAT THE CHEQUES HAV E BEEN ISSUED TO M/S AMPL FROM THE CASH CREDIT ACCOUNT OF THE ASSESSEE MAINTA INED WITH BANK OF RAJASTHAN LTD. IT IS UNCLEAR WHETHER AT THE TIME OF ISSUING CHEQUES AND MAKING PAYMENT TO M/S AMPL, THERE WAS A DEBIT OR A CREDIT BALANCE IN THE CASH CREDIT ACCOUNT. IT IS LIKELY THAT THERE ARE SALES REALIZATION AND OTHER D EPOSITS RECEIVED BY THE ASSESSEE PRIOR TO MAKING SUCH ADVANCES TO M/S AMPL AND OUT O F WHICH SUCH ADVANCES HAVE BEEN PAID. HERE, WHAT NEEDS TO BE EXAMINED IS AT T HE POINT OF TIME WHEN THE FUNDS WERE ACTUALLY ADVANCED TO M/S AMPL, WHAT WAS THE POSITION OF FUNDS ACTUALLY AVAILABLE WITH THE ASSESSEE IN TERMS OF TH E BORROWED FUNDS TO ESTABLISH THE NECESSARY NEXUS. IN ABSENCE OF SUCH A FINDING, IT CANNOT BE SAID THAT THE NEXUS HAS BEEN ESTABLISHED BETWEEN THE BORROWINGS FROM TH E FINANCIAL INSTITUTIONS AND ADVANCES TO AMPL. 1.8 SECONDLY, WHERE A NEXUS HAS NOT BEEN ESTABLISHE D BETWEEN THE BORROWINGS AND THE INTEREST FREE ADVANCES, THE COURTS HAVE HEL D THAT WHERE THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE IN THE FOR M OF SHARE CAPITAL RESERVES AND SURPLUS, NO DISALLOWANCE OF INTEREST CAN BE MADE WH ERE THE ASSESSEE ESTABLISHES THE COMMERCIAL EXPEDIENCY BEHIND GIVING SUCH ADVANC ES. THE ASSESSEE HAVE TAKEN THIS ALTERNATE CONTENTION AND LETS EXAMINE THE SAM E IN THE CONTEXT OF FACTS BEFORE US. IN THE INSTANT CASE, WE HAVE NOTED ABOV E THAT IN VIEW OF THE CONSISTENT CASH LOSS POSITION OF THE ASSESSEE, THE ACCUMULATED LOSSES HAVE ALMOST WIPES OFF ENTIRE SHARE CAPITAL LEAVING SIDE A SUM OF RS. 54,9 1,900/- WHICH IS A MINUSCULE ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 8 NUMBER AS AGAINST THE ADDITIONAL ADVANCES OF RS. 12 ,44,67,000/- MADE BY THE ASSESSEE TO M/S AMPL. THEREFORE, IT CANNOT BE SAID THAT THE ADVANCES HAVE BEEN MADE OUT OF SHARE CAPITAL AND FREE RESERVES AND SUR PLUS AND THE CONTENTION OF THE LD AR TO THIS EXTENT CANNOT BE ACCEPTED. THE LD AR HAS FURTHER SUBMITTED THAT THE ASSESSEE COMPANY HAS INTEREST FREE FUNDS IN THE FOR M OF UNSECURED LOAN OF RS. 2.58 CRORES TAKEN FROM DIRECTOR AND RELATIVES ON WH ICH NO INTEREST WAS GIVEN BY THE APPELLANT AND OUT OF SUCH INTEREST FREE FUNDS, THE ADVANCES WERE GIVEN TO M/S AMPL. HERE AGAIN, WHAT NEEDS TO BE EXAMINED (WHICH IS NOT APPARENT FROM THE RECORDS) IS THAT AT THE POINT OF TIME WHEN THE FUND S WERE ACTUALLY ADVANCED, WHAT WAS THE POSITION OF INTEREST FREE FUNDS ACTUALLY A VAILABLE WITH THE ASSESSEE IN THE FORM OF CASH AND BANK DEPOSITS AND HOW THE SAME HAS BEEN DISPERSED TO M/S AMPL TO ESTABLISH THE NECESSARY NEXUS AS CLAIMED BY THE LD AR. 1.9 LASTLY, REGARDING THE TEST OF COMMERCIAL EXPEDI ENCY, THE ASSESSEE HAS SUBMITTED THAT IT IS ENGAGED IN THE MANUFACTURING A ND PRODUCING OF MARBLE SLABS WHICH HAVE BEEN MADE FROM THE MARBLE BLOCKS. THE M INING OF THE BLOCKS FROM THE MINES OWNED BY THE ASSESSEE COMPANY WAS VERY LO W DUE TO CLOSER OF MINES AND MAJORITY OF RAW MATERIAL WAS PURCHASED FROM THE MINES OWNED BY SISTER CONCERN M/S AMPL AND PAYMENT WAS MADE IN ADVANCE WH ICH IS IN THE NATURE OF BUSINESS ADVANCES AND THUS NO DISALLOWANCE OF INTER EST PAID ON BORROWED FUNDS SHOULD BE MADE. IT IS SUBMITTED THAT IT IS UNDER S UCH BUSINESS EXPEDIENCY, THE ADVANCE PAYMENTS WERE MADE TOWARDS PURCHASE OF RAW MATERIAL AND THE SAME CANNOT BE TAGGED AS INTEREST FREE FUNDS GIVEN FOR N ON-COMMERCIAL PURPOSES. IT WAS FURTHER SUBMITTED THAT UNDER SIMILAR FACTS PATT ERN, THE CO-ORDINATE BENCH OF ITAT IN ASSESSEES OWN CASE FOR AYS 2006-07 AND 200 7-08 HAS DELETED THE DISALLOWANCE OF INTEREST IN THE HANDS OF THE ASSESS EE. WE HAVE GONE THROUGH THE ORDER OF CO-ORDINATE BENCH FOR AY 2006-07 AND NOTED THE FOLLOWING FINDINGS OF THE CO-ORDINATE BENCH: WE HAVE CONSIDERED THE ARGUMENTS OF BOTH THE PARTI ES AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. THE CONTENTION OF TH E ASSESSEE THAT IT HAD BUSINESS RELATIONSHIP WITH THE SISTER CONCERN IS A FACT PROV ED FROM THE RECORDS AS THE AO IN THE ASSESSMENT ORDER HAVE ADMITTED THAT DURING THE YEAR UNDER APPEAL THE ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 9 ASSESSEE HAD RECEIVED GOODS OF RS. 28,77,791/- FROM ITS SISTER CONCERN M/S ANDHI MARBLE PVT. LTD. THE CONTENTION OF THE ASSESSEE TH AT THERE IS NO DIVERSION OF THE FUNDS AND THE CIRCUMSTANCES EXPLAINING THE BUSINESS EXPEDIENCY HAVING ARISEN DUE TO CLOSER OF ITS MARBLE MINING AREA ALSO INSPIRES CONFIDENCE AND PROVE THE NECESSITY OF ACQUIRING RAW MATERIAL OF THE NATURE OF MARBLE BLOCKS REQUIRED TO KEEP ITS MARBLE CUTTING ESTABLISHMENT RUNNING. 1.10 IN THIS REGARD, THE LD. CIT(A) HAS NOTED THAT DURING THE YEAR UNDER CONSIDERATION, THERE ARE NO PURCHASES MADE BY THE ASSESSEE FROM M/S AMPL HENCE THE ALLEGED DECISION OF CO-ORDINATE BENCH ARE DISTINGUISHABLE ON FACTS. AS WE HAVE NOTED ABOVE, THERE ARE TRANSACTIONS WHICH H AVE BEEN CARRIED OUT DURING THE YEAR IN TERMS OF PURCHASE OF MARBLE BLOCKS AMOU NTING TO RS. 60,51,457/- AND SALE OF MARBLE SLABS AND TILES AMOUNTING TO RS. 55, 15,779/-TO M/S AMPL. HOWEVER, AT THE SAME TIME, THERE IS AN OPENING BALA NCE OF RS. 1,58,04,153/- AGAINST WHICH NO PURCHASES HAVE BEEN REFLECTED DURI NG THE YEAR EXCEPT FOR RS 60,51,457/-. FURTHER THERE IS AN ADDITIONAL ADVANC E OF RS. 1,44,67,000/- WHICH HAS BEEN MADE DURING THE YEAR. NOTHING HAS BEEN BROUGH T ON RECORD IN TERMS OF BASIS OF ADVANCING SUCH HUGE AMOUNT TO SISTER CONCERN YEA R ON YEAR BASIS IN ABSENCE OF ANY CORRESPONDING PURCHASES EITHER IN THE YEAR UNDE R CONSIDERATION OR IN SUBSEQUENT YEARS. IT IS TRUE THAT THE COURTS CANNO T SIT IN JUDGEMENT TO DECIDE THE QUANTUM OF ADVANCES AND THE TERMS AND CONDITIONS OF SUCH ADVANCES. AT THE SAME TIME, THE ASSESSEE HAS TO DEMONSTRATE THROUGH ITS CONDUCT AND APPROPRIATE DOCUMENTATION IN ORDER TO SATISFY THE TEST OF COMME RCIAL EXPEDIENCY WHICH APPARENTLY HAS NOT BEEN DONE IN THE INSTANT CASE. IN THIS REGARD, WE REFER TO THE DECISION OF HONBLE SUPREME COURT IN CASE OF S.A. B UILDERS 288 ITR 1 WHERE THE COURT HAVE LAID DOWN THE FOLLOWING PROPOSITION OF L AW IN RESPECT OF COMMERCIAL EXPEDIENCY (HEAD NOTES): THE HIGH COURT AND OTHER AUTHORITIES SHOULD HAVE E XAMINED THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MONEY TO ITS SISTER CONCERN, AND WHAT THE SISTER CONCERN DID WITH THE MONEY, IN ORDER TO DECIDE WHET HER IT WAS FOR COMMERCIAL EXPEDIENCY, BUT THAT HAD NOT BEEN DONE. [PARA 30] ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 10 IT IS NOT IN EVERY CASE THAT INTEREST ON BORROWED L OAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT ALL DE PENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE AS SESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONE Y WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MONEY CAN BE SAI D TO BE ADVANCED TO A SISTER CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY OTHER CIR CUMSTANCES. WHERE HOLDING COMPANY, HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PURPOSES, THE HOLDING COMPANY WOULD ORDINA RILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. [PARA 35] 1.11 CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMST ANCES OF THE CASE AND IN LIGHT OF HONBLE SUPREME COURT IN CASE OF S.A. BUILDERS 1 58 TAXMANN 74 , IN OUR VIEW, THE CONTENTION OF BOTH SIDES NEEDS TO BE ADEQUATELY DEMONSTRATED THROUGH APPROPRIATE DOCUMENTATION AND IN ABSENCE THEREOF, T HE MATTER REQUIRE FURTHER EXAMINATION AND WE ACCORDINGLY SET-ASIDE THIS ISSUE TO THE FILE OF THE AO TO EXAMINE THE SAME AFRESH AFTER GIVING REASONABLE OPP ORTUNITY TO THE ASSESSEE. 2. REGARDING GROUNDS OF APPEAL NO. 2 AND 2.1, THE A SSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN SUSTAINING THE ADDITION OF RS. 2,49,713/- MADE BY THE AO ON A/C OF DISALLOWANCE OUT OF FOLLOWING EXPENSES, BEIN G 10% BY ALLEGING PERSONAL USE: NAME OF EXPENSES AMOUNT CLAIMED AMOUNT DISALLOWED TELEPHONE & VEHICLE RUNNING & MAINTENANCE EXP., DEPRECIATION ON CAR 9,68,423/ - 96,842/ - STAFF WELFARE EXP. 60,868/ - 6,087/ - TRAVELLING EXPENSES 3,93,774/ - 39,377/ - BONUS PAID 1,07,407/ - 1,07,407/ - 2.1 LD AR SUBMITTED THAT THE APPELLANT BEING A PRIV ATE LIMITED COMPANY, SUCH DISALLOWANCE FOR THE PERSONAL USE OR FOR NON BUSINE SS PURPOSES CANNOT BE MADE. ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 11 FURTHER, DURING THE COURSE OF ASSESSMENT PROCEEDING S, BOOKS OF ACCOUNTS WERE PRODUCED BEFORE LD. AO WHO HAS NOT POINTED OUT ANY SPECIFIC DEFECT AND GENERALIZED THE SAME BY DISALLOWING THE EXPENSES. T HE EXPENDITURES ON VEHICLE AND TELEPHONE ETC. WERE INCURRED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF BUSINESS AND UNDER THE BUSINESS EXPEDIENCY AND AO C ANNOT WALK INTO THE SHOE OF THE BUSINESSMAN TO LOOK INTO THE NECESSITY AND PURP OSE THUS THE EXPENDITURE BEING LEGITIMATE DESERVES TO BE ALLOWED. AS REGARDS THE DISALLOWANCE OUT OF DEPRECIATION ON CAR FOR PERSONAL USE, IT WAS SUBMITTED THAT THE DEPRECIATION IS A STATUTORY CLAI M AND NO DISALLOWANCE COULD BE MADE FOR PERSONAL USE. FURTHER CAR WAS WHOLLY AND E XCLUSIVELY USED FOR BUSINESS PURPOSE AND NO PERSONAL USE WAS MADE BY THE ASSESSE E THUS EXPENDITURE CLAIMED ON ACCOUNT OF DEPRECIATION DESERVES TO BE ALLOWED A S CLAIMED. AS REGARDS THE DISALLOWANCE OF BONUS OF RS. 1,07,40 7/- PAID TO EMPLOYEES MADE BY THE LD. AO, IT IS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS CREDITED THE BONUS OF RS. 1,07 ,407/- TO ITS EMPLOYEES FOR THE SERVICE RENDERED BY THEM. THE EXPENDITURES ON B ONUS WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND UND ER THE BUSINESS EXPEDIENCY THUS THE EXPENDITURE BEING LEGITIMATE DESERVES TO B E ALLOWED. 2.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL ON RECORD. THE AO HAS DISALLOWED 10% OF TELEPHONE, VEHICLE REP AIR &MAINTENANCE AND DEPRECIATION ON CAR HOLDING THAT THESE FACILITIES A RE SUCH THAT THEY CAN BE USED FOR OTHER THAN BUSINESS PURPOSES. FURTHER, 10% OF STAF F WELFARE AND TRAVELLING EXPENSES HAVE BEEN DISALLOWED HOLDING THAT THE EXPE NSES ARE NOT FULLY VERIFIABLE. IN OUR VIEW, THESE DISALLOWANCES CANNOT BE SUSTAINE D IN EYE OF LAW ON GROUND OF ADHOC NATURE AND SECONDLY, THE CONCEPT OF PERSONAL USE IS ALIEN TO A CORPORATE ENTITY. IN A CORPORATE STRUCTURE, THE FACILITIES A RE PROVIDED TO EMPLOYEES AS PER TERMS OF HIS/HER EMPLOYMENT AND SUCH FACILITIES SUF FER THE NECESSARY PERQUISITE TAXATION IN HANDS OF THE EMPLOYEES. THERE IS NOTHI NG ON RECORD WHICH PROVES THAT THE FACILITIES HAVE BEEN USED FOR PERSONAL PURPOSES AND SECONDLY, THEY HAVE ESCAPED THE PERQUISITE TAXATION. REGARDING DISALLO WANCE OF BONUS, NO BASIS HAS ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 12 BEEN GIVEN BY AO TO DISALLOW THE SAME. HENCE, THESE DISALLOWANCES ARE HEREBY DELETED. HENCE, THESE GROUNDS ARE ALLOWED. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/0 2/2016. SD/- SD/- ( R.P. TOLANI) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 11/ 02 /2016 PILLAI VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S ARPIT MARBLES(PVT. LTD., JAI PUR 2. THE RESPONDENT- THE ACIT, CIRCLE-5, JAIPUR 3. THE CIT(A)-II, JAIPUR 4. THE CIT-II, JAIPUR 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 648/JP/14) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR. ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 13 ITA NO. 648/JP/14 M/S ARPIT MARBLES JAIPUR VS. ACIT, CIRLE-5, JAIPUR 14 -