SHARMA EAST INDIA HOSPITALS 7 MEDICAL RESEARCH LTD., Jaipur V. DCIT, Jaipur

ITA 718/JPR/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91866 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 21-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROLEE AGARWAL DHK
• Assessee Lawyers: JAVED KHAN; O P AGARWAL MANISH AGARWAL
• Keywords: Bogus purchase; Business expenditure; Loose papers; Charitable institution; Principle of natural justice; Proportionate interest; Commercial expediency
• Section: 143(3); 153A; 12AA; 132

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA-@ ITA NOS. 718 & 719/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 & 2011-12 M/S. SHARMA EAST INDIA HOSPITALS & MEDICAL RESEARCH LTD. , H-1, CHITRANJAN LTD. C-SCHEME, JAIPUR CUKE VS. THE DCIT CENTRAL CIRCLE- 1 JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AABCS 9729 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NOS. 803 & 804/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 & 2011-12 THE ACIT CENTRAL CIRCLE- 1 JAIPUR CUKE VS. M/S. SHARMA EAST INDIA HOSPITALS & MEDICAL RESEARCH LTD. , H-1, CHITRANJAN LTD. C-SCHEME, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AABCS 9729 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : S/SHRI O.P. AGARWAL, MANISH AGARWAL, C.A. & JAVED KHAN, ADVOCATE JKTLO DH VKSJ LS@ REVENUE BY : SMT. ROLEE AGARWAL, CIT-DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 21/04/2015 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 5 /06/2015 ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 2 VKNS'K@ ORDER PER R.P. TOLANI, JM THIS IS A SET OF CROSS APPEALS BY ASSESSEE AND REV ENUE FOR AYS 2010-11 & 2011-12 AGAINST TWO DIFFERENT ORDERS OF T HE LD. CIT(A)- CENTRAL, JAIPUR DATED 12-09-2014. RESPECTIVE GROUN DS RAISED ARE AS UNDER:- 2.1 THE CONCISE COMMON GROUNDS RAISED BY ASSESSEE IN IT S BOTH THE APPEALS I.E. ITA NO. 718 & 719/JP/2014 FOR THE ASSE SSMENT YEAR 2010-11 & 2011-12 ARE AS UNDER:- THE LD. CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWA NCE OF PURCHASE OF CONSUMABLE GOODS I.E. COTTON, GAUGE AND BANDAGE ETC. AMOUNTING TO RS. 27,28,014 FOR THE ASSESSMENT YEAR 2010-11 AND RS. 30,13,125/- FOR THE ASSESSMENT YEAR 2011-12 BY HOLDING: (I) ENTIRE PURCHASES OF CONSUMABLE GOODS FROM M/S. KRISHNA SURGICALS WERE NOT GENUINE. (II) IGNORING THE UNDISPUTED FACT THAT ALL THE PAYM ENTS AGAINST THESE PURCHASES MADE FROM M/S. KRISHNA SURG ICALS WERE THROUGH ACCOUNT PAYEE CHEQUES. THERE IS NO EVIDENCE THAT ANY INCRIMINATING EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH INDICATING THE RECEIVING BACK OF ANY AMOUNT IN THIS BEHALF AS ALLEGED. (III) RELYING ON STATEMENT OF SHRI JAYANT KHANDELWA L, PROP. M/S. KRISHNA SURGICALS WITHOUT APPRECIATING T HE FACT THAT THE COPY OF THE STATEMENT OR CROSS-EXAMINATION THEREOF WAS NOT ACCORDED TO THE ASSESSEE; THEREBY THE ADDITION HA S BEEN SUSTAINED IN UTTER VIOLATION OF PRINCIPLES OF NATURAL JUSTICE . ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 3 (IV) THE ADDITION CAN BE MADE SOLELY ON THE BASIS O F UNCORROBORATED STATEMENT OF THE MANAGING DIRECTOR W HO IS NOT ENTITLED TO MAKE SUCH ADMISSIONS BINDING THE OTHER DIRECTORS AND COMPANY. 2.2 THE REVENUE HAS RAISED COMMON GROUNDS IN ITS B OTH THE APPEAL I.E. ITA NO. 803 & 804/JP/2014 FOR THE ASSESSMENT YEAR 2 010-11 & 2011-12 ARE AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE D ISALLOWANCE OF INTEREST AMOUNTING TO RS. 31,10,640/ FOR THE ASSES SMENT YEAR 2010- 11 AND RS. 26,81,520/ FOR THE ASSESSMENT YEAR 2011- 12 MADE BY THE AO U/S 36(1)(III) OF THE I.T. ACT. GROUND NO. 2. OF THE REVENUE IS ONLY FOR THE ASSESS MENT YEAR 2010-11 WHEREIN THE REVENUE IS AGGRIEVED THAT LD. C IT(A) IS NOT JUSTIFIED BY IGNORING THE FACT THAT ASSESSEE HAS FA ILED TO PROVE THAT ADVANCES GIVEN AND INVESTMENTS MADE IN IMMOVABLE PR OPERTIES ARE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE 3.1 BRIEF FACTS ARE THE ASSESSEE IS A PUBLIC LIMITE D COMPANY RUNNING A HOSPITAL UNDER THE NAME & STYLE AS JAIPUR HOSPITAL SITUATED AT LALKOTHI, TONK ROAD, JAIPUR MAINLY IN THE FIELDS OF ORTHOPEDIC AND CARDIAC CARE. ASSESSEE HAD FILED ITS RETURNS OF INC OME U/S 139(1) OF INCOME TAX ACT, 1961 RESPECTIVELY DECLARING TOTAL I NCOME OF RS. 24,92,280/- & RS. 29,38,980/-. ON 08.06.2011, SEARC H OPERATIONS U/S 132 ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 4 OF THE INCOME TAX ACT, 1961 WERE CARRIED OUT AT THE BUSINESS PREMISES AND ALSO AT THE RESIDENCE OF ITS DIRECTORS AND ASSO CIATE DOCTORS. DURING THE COURSE OF SEARCH SOME LOOSE PAPERS AND DOCUMENTS WE RE FOUND AND SEIZED FROM THE POSSESSION OF DIRECTORS AND THE STATEMENTS OF DIRECTORS AND THEIR FAMILY MEMBERS WERE ALSO RECORDED. THEREAFTER IN RE SPONSE TO NOTICES U/S 153A, RETURNS OF INCOME WERE FILED BY ASSESSEE ON 2 4.07.2012 AT SAME TOTAL INCOME WHICH WAS DECLARED BY ASSESSEE IN ITS REGULAR RETURNS FILED U/S 139(1) OF INCOME TAX ACT, 1961. THE ASSESSMENTS WERE COMPLETED U/S 143(3) R.W.S. 153A ON 21-3-14 AT TOTAL INCOME OF RS . 83,30,930/- FOR AY 10-11 AND RS. 86,33,680/- FOR AY 11-12 BY MAKING TH E ADDITIONS IN RESPECT OF BOGUS PURCHASES AND DISALLOWANCE OF INTE REST ALLEGED TO BE ATTRIBUTABLE TO DIVERSION OF INTEREST BEARING FUNDS . THE FIGURES ARE MENTIONED ABOVE IN RESPECTIVE GROUNDS. 3.2 AGGRIEVED ASSESSEE PREFERRED FIRST APPEALS; LD. CIT(A) BY DETAILED ORDERS ALLOWED PART RELIEF SUSTAINING THE ADDITIONS QUA ALLEGED UNVERIFIABLE PURCHASES OF CONSUMABLE GOODS AND DELE TED THE DISALLOWANCE OF INTEREST U/S 36(1)(III) QUA DIVERSION OF INTERES T BEARING FUNDS HELD BY AO FOR NON BUSINESS PURPOSES. AGGRIEVED ON THE ORDE RS OF LD. CIT(A), THE ASSESSEE AS WELL AS THE DEPARTMENT BOTH ARE BEFORE US. ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 5 3.3 LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT DURI NG THE COURSE OF SEARCH PROCEEDINGS THE STATEMENT OF DR. SHAILENDRA SHARMA, MD OF THE ASSESSEE COMPANY DEPARTMENT OBTAINED AN ADMISSION T HAT PART OF THE PURCHASES OF COTTON GAUGE MADE FROM A FIRM NAMELY M /S SHRI KRISHNA SURGICALS (SKS FOR SHORT) WERE NOT GENUINE AND THE AMOUNT OF THE BILLS RAISED WERE RECEIVED BACK IN CASH AFTER DEDUCTION O F 6% TOWARDS VAT (5%) AND EXPENSES (1%). NO INCRIMINATING MATERIAL W AS FOUND DURING THE SEARCH TO CORROBORATE THIS STATE OF AFFAIRS. LD. AO TREATED THE ENTIRE PURCHASES OF RS. 27,28,014/- & RS. 30,13,175/- FOR AY 10-11 & 11-12 FROM SKK AS UNVERIFIABLE. LD. AO ALSO REFERRED TO T HE STATEMENT OF ONE SHRI TARA PRAKASH SHARMA, ACCOUNTANT OF ASSESSEE CO MPANY ADMITTING THESE PURCHASES AS NON-GENUINE. RELIANCE WAS MADE O N STATEMENT OF ONE SHRI JAYANT KHANDELWAL PROP. OF SKS WHO ALSO IS ALL EGED TO HAVE ADMITTED THESE FACTS. WITHOUT THERE BEING ANY INCRI MINATING MATERIAL AND WITHOUT VERIFYING THE EXTENT OF CONSUMPTION OF COTT ON GAUGE AND MERELY ON THE BASIS OF THESE STATEMENTS, THE ENTIRE PURCHA SES MADE FROM SKS WERE HELD AS UNVERIFIABLE AND ADDED TO INCOME. FOR AN ORTHOPEDIC AND CARDIAC CARE HOSPITAL CONSUMPTION OF COPIOUS QUANTI TY OF COTTON AND GAUGE IS UNDENIABLE. WITHOUT APPRECIATING CRUCIAL A SPECTS AND MERELY ON THE BASIS OF STATEMENTS THE PURCHASES AS MADE FROM SKS CANNOT BE HELD AS ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 6 UNVERIFIABLE AND DISALLOWED. IF THE CONSUMPTION IS VIEWED ON THE SCALE OF NORMAL MEDICAL PRACTICE AND COMPARED WITH THE COMPA NYS OWN CONSUMPTION OF COTTON AND GAUGE IN PRECEDING YEARS , IT WOULD BE FOUND REASONABLE AND COMPARABLE. THUS EVEN IF A REASONABL E ESTIMATE OF CONSUMPTION OF CONSUMABLES COTTON GAUGE IS MADE, IT WILL LEAVE NO ROOM FOR ANY DISALLOWANCE. ASSESSEE BEING A PUBLIC LIMIT ED CO., MAINTAINS REGULAR BOOKS OF ACCOUNTS ALONG WITH FULL RECORD AN D VOUCHERS NOT ONLY FROM INCOME TAX ANGLE BUT ALSO AS PER MEDICAL REQUI REMENTS ABOUT THE PATIENTS. NONE OF WHICH HAS BEEN DOUBTED BY LD. AO, SO MUCH SO THE NET PROFIT DECLARED BY ASSESSEE HAS BEEN ACCEPTED AS IT IS. UNLESS BOOKS OF ACCOUNTS ARE REJECTED OR DISTURBED, NO ADDITION ON ACCOUNT OF ALLEGED UNVERIFIABLE PURCHASES IS JUSTIFIABLE. THUS, THE AD DITIONS IN THIS BEHALF HAVE BEEN SUSTAINED SOLELY ON THE BASIS OF 132(4) STATEMENT OF MD WHO BEING A MEDICAL PROFESSIONAL WAS NOT AT ALL WELL VE RSED WITH THE ACCOUNTING AND OTHER FINANCIAL ASPECTS OF THE COMPA NY. IT IS AN ADMITTED FACT THAT, DURING THE COURSE OF TREATMENT IN OUTDOO R AS WELL AS IN-DOOR PATIENTS FOR SURGERY THE OPERATION THEATRE USAGE OF MEDICAL COTTON, GAUGE AND DRESSING BANDAGE ARE ONE OF THE MAJOR CONSUMABL E ITEMS WITHOUT WHICH DRESSING AND SURGERY IS NOT POSSIBLE MORE SPE CIFICALLY IN THE CASE OF ASSESSEE HOSPITAL WHERE MAJOR ORTHOPEDIC SURGERIES ARE PERFORMED ON DAY ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 7 TO DAY BASIS IN LARGE NUMBER. THESE CONSUMABLE MATE RIALS WERE PURCHASED LOCALLY FROM VARIOUS VENDORS AND THEY ARE DULY RECO RDED; THEREAFTER THEY ARE ISSUED TO THE RESPECTIVE DEPARTMENT FOR CONSUMP TION, RECORD WHEREOF IS ALSO DULY MAINTAINED. SAME HAS NEITHER BEEN DISP UTED NOR DOUBTED BY THE DEPARTMENT. M/S SHREE KRISHNA SURGICAL IS ONE O F THE VENDOR OUT OF MANY WHO SUPPLY CONSUMABLE GOODS TO THE ASSESSEE. THE SEARCH U/S 132 WAS INITIATED AT THE BUSINESS AND RESIDENTIAL PREMI SES AT AROUND 7.00 A.M. AND ON 8 TH JUNE, 2011 WHICH WENT ON UPTO MIDNIGHT OF 10-6-11 . THE STATEMENTS WERE RECORDED AFTER PASSAGE OF ALMOST 4 2 HOURS IN THE MIDNIGHT OF 9 TH AND 10 TH JUNE, 2011. THE STATEMENTS OF DR. SHAILENDRA SHARMA WERE TAKEN AT VARIOUS TIMES FIRSTLY AT THE T IME OF STARTING OF THE SEARCH ON 08.06.2011 AND LASTLY IN THE LATE MIDNIGH T OF 10.06.2011 AFTER PHYSICAL SEARCH AND VERIFICATION OF THE ENTIRE HOUS E AND BUSINESS PLACES I.E. AT THE TIME OF CONCLUSION OF THE SEARCH. ALL T HE GOODS RECEIVED FROM M/S SHREE KRISHNA SURGICAL WERE DULY RECORDED IN TH E BOOKS OF ACCOUNTS WHICH HAVE NOT BEEN DOUBTED AT ALL AND THE PAYMENTS WERE MADE THROUGH PAYEES ACCOUNT CHEQUE THROUGH BANKING CHANNELS. TH E ALLEGATION OF THE LD. AO THAT THE PAYMENT MADE THROUGH CHEQUE WAS RET URNED BACK IN CASH IS COMPLETELY BASELESS IN AS MUCH AS NEITHER ANY IN CRIMINATING MATERIAL IN THIS BEHALF NOR A RUPEE OF EXCESS CASH WAS FOUND DU RING THE COURSE OF ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 8 SEARCH. IT WAS EXPLAINED THAT CONSUMABLE EXPENSES CLAIMED IN THESE YEARS WERE IN PARITY WITH SIMILAR EXPENSES ALLOWED IN PRE CEDING YEARS WHEN THERE WERE NO PURCHASES FROM SKS. EVEN OF THE COMPU LSORY REQUIREMENT OF CONSUMABLE MATERIAL IS ALLOWED ON AN ESTIMATE LO OKING AT THE MORE NO OF SURGERIES, CONSUMPTION OF ITEMS LIKE COTTON, BAN DAGE, GAUGE ETC. IS REASONABLE, THUS ON THE ESTIMATE BASIS ALSO EXPENDI TURE WAS ALLOWABLE. IT IS COMMON KNOWLEDGE THAT IN ORTHOPEDIC TREATMENT AN D SURGERY, THE USE OF COTTON AND BANDAGES IS MAXIMUM; A SINGLE PLASTER REQUIRES A LOT OF COTTON AND A FULL ROLL OF BANDAGE; IN SURGERIES AND DRESSINGS ALSO, ABUNDANT CONSUMPTION OF COTTON AND GAUGE IS A MUST. LD. AO A LSO HAS NOT DISPUTED THE FOLLOWING RELEVANT DETAILS FURNISHED BY THE ASS ESSEE: A.Y. GROSS RECEIPT G.P. G.P. RATE NET PROFIT % CONSUMPTION OF CONSUMABLES % OF CONSUMPTION VIS--VIS RECEIPTS 2009-10 7,47,95,610.00 2,76,21,455.00 37.67 6,19,23 9.00 0.82% 1,37,73,742.00 18.42% 2010-11 9,10,98,673.00 3,66,59,452.00 41.59 21,86,0 34.00 2.40% 1,55,15,163.00 17.03% 2011-12 11,20,12,997.00 4,56,28,730.00 43.48 40,73, 135.00 3.64% 1,92,42,278.00 17.18% IT IS EVIDENT FROM THE PERUSAL OF THE TABLE ABOVE T HAT THE DESPITE BETTER RECEIPTS AND RESULTS THE % OF CONSUMABLES HAS DECRE ASED WHICH DEMONSTRATES THAT ON ESTIMATE ALSO THE EXPENDITURE IN THIS BEHALF CANNOT BE DISALLOWED; MORE SO WHEN THESE DETAILS ARE NOT C ONTROVERTED BY THE LD. AO. WITHOUT PREJUDICE TO THESE SUBMISSIONS, IN THE ALTERNATIVE IT IS SUBMITTED THAT LD. AO HAS NOT QUESTIONED THE CONSUM PTION AND HELD THE ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 9 PURCHASES MADE FROM SKS AS UNVERIFIABLE: CHEQUES HA VE GONE FROM ASSESSEES BOOKS IN THIS SITUATION ENTIRE AMOUNT OF PURCHASES CANNOT BE DISALLOWED AND AN APPROPRIATE NP RATE ON UNVERIFIAB LE PURCHASES MAY BE ADDED. THIS HONBLE BENCH BY A CONSOLIDATED ORDER I N THE CASES OF SH. ANUJ KUMAR VARSHNEY AND ORS. VS. ITO, ITA NO. 187/J P/2012 HAS RESTRICTED THE DISALLOWANCE MADE OUT OF UNVERIFIABL E PURCHASES OF SEMI PRECIOUS STONES @ 15% THEREOF BY HOLDING THE SAME A S REASONABLE ESTIMATE. IN THESE CASES ALSO FACTS REFLECT THAT TH E SUPPLIERS ADMITTED HAVING GIVEN ACCOMMODATION BILLS. THEREFORE, IF THE ASSESSEES OTHER PLEAS ON MERITS ARE REJECTED THEN DISALLOWANCE OUT OF UNVERIFIABLE PURCHASES MAY BE RESTRICTED TO 15%, FOLLOWING THIS JUDGMENT. 3.4 LD CIT(DR) MS ROLEE AGRAWAL RELIED ON THE ORDER S OF LOWER AUTHORITIES ON THIS ISSUE. IT IS CONTENDED THAT THE STATEMENT ABOUT UNVERIFIABLE PURCHASES AND PLOUGH BACK OF THE CHEQU E AMOUNT HAS BEEN ADMITTED BY WAY OF STATEMENTS OF MD, ACCOUNTANT AND PROPRIETOR OF SKS. THESE STATEMENTS ARE ADMISSIBLE PIECE OF EVIDENCE A ND NO EFFECTIVE REBUTTAL THEREOF HAS BEEN OFFERED BY ASSESSEE. APRO POS PRESSURE OR COERCION IT IS CONTENDED THAT THE MD HAS DISCLOSED THE AMOUNTS AS DISCLOSED IN THE STATEMENT, THEREFORE, IT CANNOT BE HELD THAT FOR PART STATEMENT THERE WAS PRESSURE AND FOR OTHER PART THE RE WAS NO PRESSURE. ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 10 3.5 LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT STAT EMENT OF SHRI JAYANT KHANDELWAL WAS RECORDED BEHIND ITS BACK, NEITHER CO PY THEREOF NOR CROSS EXAMINATION WAS PROVIDED CONSEQUENTLY THIS STATEMEN T HAS NO EVIDENTIARY VALUE. 3.6 ADVERTING TO REVENUE APPEALS LD. CIT(DR) CONTEN DS THAT ASSESSEE WAS HAVING FOLLOWING BORROWINGS AND LIABILITIES IN RESPECTIVE YEARS:- AY 2010-11: TOTAL LOAN LIABILITY OF RS. 8,46,22,663 /- (VEHICLES LOAN OF RS. 8,69,749/- AND DEMAND LOAN FROM BANKS O F RS. 8,37,52,914/-) APPEARING AS SECURED LOANS ON WHICH TOTAL INTERES T OF RS. 89,38,568/- WAS PAID BY ASSESSEE. AY 2011-12: TOTAL LOAN LIABILITY OF RS. 9,69,94,357 /- (VEHICLES LOAN OF RS. 4,94,449/- AND DEMAND LOAN FROM BANKS OF RS. 9,65,02,908/-) AS SECURED LOANS ON WHICH TOTAL INTEREST OF RS. 98,2 2,845/- WAS PAID BY ASSESSEE INTEREST SO INCURRED WAS CLAIMED BY ASSESSEE AS DE DUCTION U/S 36(1)(III), THESE FUNDS ARE CLAIMED TO BE BORROWED BY ASSESSEE SOLELY FOR THE BUSINESS PURPOSE. AO FOUND THAT SOME INTEREST B EARING ADVANCES WERE USED FOR NON BUSINESS PURPOSES. AFTER REDUCING THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE I.E. SHARE CAPITAL RS. 415.75 LACS AND RESERVES AND SURPLUS OF RS. 47.91 LACS, APPLIED INTEREST RAT E OF 12% ON THE BALANCE AMOUNT RESULTING INTO DISALLOWANCES AS WORKED OUT B Y AO. LD. CIT(A) DELETED THE DISALLOWANCES BY FOLLOWING O BSERVATIONS (OBSERVATIONS OF AY 2010-11 ARE REPRODUCED AS FOR A Y 2011-12 ONLY FIGURES WILL CHANGE):- 4.3 I HAVE CAREFULLY PERUSED THE ORDER OF THE AO A ND SUBMISSIONS OF THE AR OF THE APPELLANT AND CONCUR W ITH THE SUBMISSIONS OF THE AR. IT HAS BEEN SUBMITTED AND VE RIFIED FROM THE RETURN FILED BY THE APPELLANT THAT IT HAD FUNDS TO THE EXTENT OF RS. 3,96,54,321/- AS CURRENT LIABILITIES WHICH AMOUNT H AS NOT BEEN ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 11 CONSIDERED BY THE AO WHILE CALCULATING THE AMOUNT O F INTEREST BEARING FUNDS GIVEN AS INTEREST FREE ADVANCES. ON PERUSAL OF THE DETAILS OF CURRENT LIABILITY IT IS SEEN THAT THERE WERE ADVANCES FROM PATIENTS AND EXPENSES WHIC H WERE IN THE NATURE OF WORKING CAPITAL OF THE APPELLANT COMPANY BUT THERE WAS ALSO A SUBSTANTIAL AMOUNT OF RS. 3 CR. FROM MODEST BUILDERS LTD. ON ENQUIRY IT WAS SUBMITTED THAT THE APPELLANT HAD EXECUTED AN AGREEMENT WITH A COMPANY M/S MODEST BUILDERS LTD. A S PER THIS AGREEMENT, THE ASSESSEE HAD RECEIVED AN AMOUNT OF R S. 3 CR. AS SECURITY DEPOSIT VIDE CHEQUES BETWEEN 11.9.2008 TO 7.7.2009 AS FOLLOWS:- MODE OF PAYMENT CHEQUE NO. DATED AMOUNT (RS.) BANK CHEQUE 517403 11.09.2008 1,75,00,000 AXIS BANK LTD. CHEQUE 517417 28.11.2008 75,00,000 AXIS BANK LTD. CHEQUE 517421 30.12.2008 20,00,000 AXIS BANK LTD. CHEQUE 517442 11.5.2009 10,00,000 AXIS BANK LTD. CHEQUE 517443 21.5.2009 5,00,000 AXIS BANK LTD. CHEQUE 517444 21.5.2009 5,00,000 AXIS BANK LTD. CHEQUE 517445 31.5.2009 5,00,000 AXIS BANK LTD. CHEQUE 517453 7.7.2009 5,00,000 AXIS BANK LTD. TOTAL 3,00,00,000 AS PER THIS CONTRACT THE DEVELOPER WAS REQUIRED TO DEVELOP A COMPOSITE PROJECT ON THE PROPERTY OF THE APPELLANT LOCATED AT VILLAGE GOKULPURA AT KALWAR ROAD, JAIPUR. THE AMOUN T OF RS. 3 CR. WAS TO BE REFUNDED TO THE DEVELOPER AFTER COMPL ETION OF THE PROJECT. IT WAS FURTHER INFORMED THAT THIS AMOUNT W AS RETURNED IN A.Y. 2013-14 SINCE M/S MODEST BUILDER FAILED TO COM PLETE THE PROJECT AS PER THIS AGREEMENT. GIVEN THE ABOVE FACTS IT IS SEEN THAT THE APPELLANT HAD WITH HIM AN AMOUNT OF RS. 300.00 LAKH AS INTEREST FREE F UNDS AVAILABLE WITH IT GROUPED UNDER CURRENT LIABILITIES. THUS, TH E APPELLANT HAD SUFFICIENT NON-INTEREST BEARING CASH BALANCE TO HAV E MADE INTEREST FREE ADVANCES OF RS. 259.22 LAKHS. ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 12 MOREOVER, THE ADVANCES OF RS. 3,17,24,035/- AND RS. 4,46,041/- TO SHARMA MEMORIAL HOSPITAL RESEARCH INS TITUTE WERE IN THE NATURE OF BUSINESS TRANSACTIONS AND WERE GIVEN FOR COMMERCIAL EXPEDIENCY IN SO FAR THAT IS WAS OBTAINING TRAINED STAFF FROM THIS INSTITUTE WITHOUT MAKING ANY PAYMENT TO THEM. GIVEN THESE FACTS THE INTEREST DISALLOWANCE @ 12 % U/S 36(1)(III) OF RS. 31,10,640/- IS DELETED. 3.7 LD. CIT(DR) CONTENDS THAT ASSESSEE IS A HOSPIT AL AND HUGE LAND BANK HAS BEEN INVESTED IN, IT FAILED TO EXPLAIN HOW THE LAND WAS RELATED TO ACTIVITIES OF ITS MEDICAL BUSINESS. SUBSTANTIAL AMO UNTS HAVE BEEN ADVANCED TO SISTER CONCERNS AS INTEREST FREE ADVANC ES AND THE INTEREST HAS BEEN BORNE BY THE ASSESSEE. SINCE THE IMPUGNED INTE REST FREE ADVANCES ARE NOT DEMONSTRATED TO BE FOR BUSINESS PURPOSE THE COR RESPONDING CLAIM U/S 36(1)(III) HAS BEEN RIGHTLY DISALLOWED. RELIANCE IS PLACED ON AOS ORDER. 3.8 LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT LD. AO HAS FIRSTLY FAILED TO APPRECIATE THE REAL NATURE OF IMPUGNED INVESTMEN T / ADVANCES AND SECONDLY FAILED TO APPRECIATE THE CRUCIAL FACTS THA T, THE ASSESSEE WAS HAVING AT ITS DISPOSAL SUFFICIENT AMOUNT IN THE SHA PE OF INTEREST FREE FUNDS. THEY HAVE NOT BEEN TAKEN INTO CONSIDERATION BY LD. AO WHILE MAKING THE DISALLOWANCES. LD. AO HAS FAILED TO PROVE ANY SORT OF NEXUS WHATSOEVER BETWEEN BORROWED FUNDS AND THE ALLEGED INTEREST FRE E ADVANCES AND ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 13 INVESTMENTS MADE BY THE ASSESSEE. THE ADVANCES AS A LLEGED ARE AS UNDER (TABULATED AT PAGE 12 OF ASSESSMENT ORDER): S.NO. PARTICULARS AMOUNT 1. INVESTMENT IN LANDS 1,55,45,014.00 2. ADVANCE TO GANPATIPLASTIFAB LTD. 15,00,000.00 3. SHREY ASSOCIATES 20,00,000.00 4. BLS PROJECTS P LTD 11,90,000.00 5. SILVERING ROADWAYS 6,50,000.00 6. SHARMA NURSING HOME AND BOME HOS P LTD. 2,69,890.00 7. SHARMA MEMORIAL HOSPITAL RESEARCH INSTITUTE 3,17,24 ,035.00 8. SHARMA MEMORIAL HOSPITAL RESEARCH INSTITUTE 4,46,04 1.00 9. SHARMA HOSPITAL P LTD. 1,33,431.00 10. NONCURRENT INVESTMENTS IN QUOTED / UNQUOTED SHARES OF VARIOUS COMPANIES 31,46,490.00 11. NONCURRENT INVESTMENTS IN IMMOVABLE PROPERTIES 1,56 ,84,000.00 TOTAL 7,22,88,901.00 IT IS CONTENDED THAT FOR AY 2010-11, LD. AO HAS TRE ATED A SUM OF RS. 259.22 LACS OUT OF TOTAL 722.88 LACS [AFTER REDUCIN G THE INTEREST FREE FUNDS AVAILABLE SHARE CAPITAL OF RS. 415.75 LACS AND RESE RVES AND SURPLUS OF RS. 47.91 LACS] AS HAVING BEEN MADE OUT OF BORROWED FUN DS. SIMILARLY FOR AY 2011-12 LD. AO HAS TREATED A SUM OF RS. 223.46 LACS OUT OF TOTAL 723.19 LACS [AFTER REDUCING THE INTEREST FREE FUNDS AVAILA BLE SHARE CAPITAL OF RS. 415.75 LACS AND RESERVES AND SURPLUS OF RS. 83.98 L ACS] AS HAVING BEEN MADE OUT OF BORROWED FUNDS . LD. AO FAILED TO APPRECIATE THE EFFECT OF AVAILABILITY OF SHARE CAPITAL; RESERVES AND OTHER I NTEREST FREE FUNDS WHICH WERE APPLIED IN THE ACQUISITION OF ASSETS WHICH ARE NECESSARILY CONNECTED WITH ITS BUSINESS AND IN MAKING INTEREST FREE ADVAN CES. IT WAS ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 14 DEMONSTRATED TO LD. CIT(A) THAT BEFORE DRAWING ANY ADVERSE INFERENCE IN THIS BEHALF, LD. AO DID NOT EVEN WHISPER ANY SUCH P ROPOSAL. LD. AO GROSSLY IGNORED THAT ASSESSEES FINANCIAL STATEME NTS REFLECTED SUFFICIENT INTEREST FREE FUNDS APPEARING UNDER THE HEAD CURRE NT LIABILITIES WHICH HAVE BEEN UTILIZED IN MAKING THE ABOVE ADVANCES / I NVESTMENTS. FOLLOWING SUBMISSION ARE MADE IN RESPECT OF EACH YE AR: FOR AY 2010-11, WHILE CONSIDERING THE AMOUNT OF RS. 463.66 LACS AS INTEREST FREE FUNDS AVAILABLE WITH ASSESSEE FOR MAKING CONCERNED ADVANCES / INVESTMENT LD. AO HAS COMMITTE D A GROSS ERROR OF LEAVING OUT / SKIPPING OTHER INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE TO MEET OUT THESE ADVANCES / INVE STMENTS WHICH ARE GROUPED UNDER THE HEAD CURRENT LIABILITIES TO TALING TO RS. 3,96,54,321/-, DETAIL OF WHICH IS AS UNDER:- PARTICULARS AMOUNT SUNDRY CREDITORS FOR GOODS AND EXPENSES 14,23,464.00 ADVANCES FROM PATIENTS 13,46,954.00 OTHER CURRENT LIABILITIES 11,21,452.00 OUTSTANDING LIABILITIES EXPENSES 50,64,887.00 STAFF SECURITY DEPOSIT 3,02,399.00 MODEST BUILDERS LTD. 3,00,00,000.00 PHARMED LTD. 25,000.00 OKAY DIAGNOSTIC CENTRE 3,63,915.00 RAJENDRA SHARMA 6,250.00 TOTAL 3,96,54,321.00 FOR AY 2011-12, WHILE CONSIDERING THE AMOUNT OF RS. 499.73 LACS AS INTEREST FREE FUNDS AVAILABLE WITH ASSESSEE FOR MAKING CONCERNED ADVANCES / INVESTMENT LD. AO HAS COMMITTE D A GROSS ERROR OF LEAVING OUT / SKIPPING OTHER INTEREST FUND S AVAILABLE WITH THE ASSESSEE TO MEET OUT THESE ADVANCES / INVESTMEN TS WHICH ARE ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 15 GROUPED UNDER THE HEAD CURRENT LIABILITIES TOTALI NG TO RS. 4,16,91,596/-, DETAIL OF WHICH IS AS UNDER ) :- PARTICULARS AMOUNT SUNDRY CREDITORS FOR GOODS AND EXPENSES 8,09,377.00 ADVANCES FROM PATIENTS 16,93,168.00 OTHER CURRENT LIABILITIES 12,37,820.00 OUTSTANDING LIABILITIES EXPENSES 68,65,226.00 STAFF SECURITY DEPOSIT 3,28,931.00 MODEST BUILDERS LTD. 3,00,00,000.00 PHARMED LTD. 25,000.00 DUTIES & TAXES 7,25,824.00 RAJENDRA SHARMA 6,250.00 TOTAL 4,16,91,596.00 THE ABOVE LIST INCLUDES A SUM OF RS. 3.00 CRORES RE CEIVED FROM M/S MODEST BUILDERS LTD. AS INTEREST FREE SECURITY ON A CCOUNT OF A JOINT VENTURE AGREEMENT ENTERED INTO BY THE ASSESSEE COMP ANY IN RESPECT TO A PIECE OF LAND AT KALWAR ROAD OWNED BY ASSESSEE COMP ANY AND APPEARING IN ITS BALANCE SHEET WHEREIN TOTAL INVESTMENT OF RS . 1,56,84,000/- WAS MADE AND INCIDENTALLY THIS AMOUNT IS ALSO INCLUDED BY LD. AO IN THE LIST OF ALLEGED NON-BUSINESS ADVANCES / ASSET / INVESTME NTS WHILE MAKING DISALLOWANCE. IF THE AMOUNT OF RS. 3.00 CRORES IS F URTHER ADDED TO THE OTHER INTEREST FREE FUNDS AVAILABLE WITH THE ASSESS EE AND AS ALLOWED BY LD. AO I.E. RS. 463.66 LACS, THE TOTAL INTEREST FREE FU NDS AVAILABLE WITH THE ASSESSEE COME TO RS. 763.66 LACS WHICH IS MORE THAN THE TOTAL ALLEGED NON-BUSINESS ADVANCES / ASSETS / INVESTMENTS OF RS. 722.88 LACS. THUS ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 16 THERE IS NO QUESTION OF APPLICATION OF INTEREST BEA RING FUNDS IN NON- BUSINESS ADVANCES / ASSETS / INVESTMENTS. IT WAS FU RTHER SUBMITTED TO LD. CIT(A) THAT THE TOTAL ALLEGED NON-BUSINESS ADVANCES / ASSETS / INVESTMENTS INCLUDES A SUM OF RS. 3,17,24,035/- WHICH WERE MADE TO A SISTER CONCERN NAMELY M/S SHARMA MEMORIAL HOSPITAL AND RESEARCH IN STITUTE WHICH IS SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IN CONSIDERATION OF THE COMMERCIAL RELATIONS BETWEEN ASSESSEE AND THE S AID CONCERN I.E. SHARMA MEMORIAL HOSPITAL RESEARCH INSTITUTE. IT IS PERTINENT TO NOTE THAT, SHARMA MEMORIAL HOSPITAL RESEARCH INSTITUTE IS A PU BLIC CHARITABLE TRUST DULY REGISTERED U/S 12AA OF INCOME TAX ACT, 1961 HA VING REGISTERED OFFICE AT H-1, CHITRANJAN MARG, C-SCHEME, JAIPUR. T HIS TRUST IS RUNNING A NURSING COLLEGE AND PHYSIOTHERAPY TRAINING CENTER. THE TRUST HAS ALSO OBTAINED APPROVAL FROM THE GOVERNMENT OF RAJASTHAN, INDIAN NURSING COUNCIL, AND RAJASTHAN UNIVERSITY OF HEALTH SCIENCE . THE ASSESSEE IS A PRIVATE LIMITED COMPANY RUNNING HOSPITALS WHERE MUL TIPLE MEDICAL SERVICES ARE PROVIDED IN VARIOUS FIELDS FOR DAY-TO- DAY RUNNING OF A HOSPITAL REQUIRES HUMAN RESOURCES INCLUDING THE NUR SING STAFF AND OTHER TRAINED ASSISTANTS TO ATTEND THE PATIENTS. AS SHARM A MEMORIAL HOSPITAL RESEARCH INSTITUTE RUNS A NURSING COLLEGE AND PHYSI OTHERAPY TRAINING CENTRE. AS PER THE UNDERSTANDING BETWEEN THE ASSESS EE COMPANY AND THIS ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 17 ASSOCIATED INSTITUTION, THEIR STUDENTS WERE PROVIDE D TO ASSESSEE HOSPITAL. THIS ARRANGEMENT IS BASED ON A QUID PRO QUO AS THEI R SERVICES WERE OBTAINED WITHOUT INCURRING ANY EXPENDITURE. THUS TH E APPELLANT HOSPITAL PROVIDED THE IMPUGNED ADVANCES TO THE TRUST AS A P RUDENT BUSINESS DECISION AND FOR ECONOMICALLY SMOOTH MEDICAL FACILI TIES; THIS ARRANGEMENT IS CLEARLY COMMERCIAL AND MADE FOR THE BUSINESS INT ERESTS OF ASSESSEE. IN THIS REGARD RELIANCE IS PLACED ON THE DECISION OF H ONBLE MADRAS HIGH COURT HAS UPHELD THE AFOREMENTIONED CONTENTIONS OF ASSESSEE IN CIT VS. M/S. SAMBANDHAM SPINNING MILLS REPORTED IN 298 ITR 306 , WHEREIN ADDRESSING TO THE QUESTION OF COMMERCIAL EXPEDIENC Y, THE COURT HELD AS UNDER: THAT APART, THE CASE OF THE ASSESSEE WAS THAT THE ADVANCES WERE GIVEN PRIMARILY FOR THE REASON THAT T HE EMPLOYEES OF THE ASSESSEE COMPANY AND THEIR FAMILY MEMBERS ARE BEING GIVEN CONCESSIONAL TREATMENT AT S PMM HOSPITAL AND THE SAID ARRANGEMENT IS A PERMANENT ON E AND ALL THE EMPLOYEES OF THE ASSESSEE COMPANY ARE BENEF ITED BY THE SAME. IF THAT BE SO, IT CANNOT BE DISPUTED THAT THE AMOUNTS ADVANCED BY THE ASSESSEE ARE NOTHING BUT A MEASURE OF COMMERCIAL EXPEDIENCY FURTHER RELIANCE IS ALSO PLACED ON THE FOLLOWING : (1) 298 ITR 298 MUNJAL SALES CORPORATION VS. CIT & OTHERS (SC) HELD ALSO, THAT SINCE THE OPENING BALANCE OF THE PR OFITS OF THE ASSESSEE FIRM AS ON APRIL 1, 1994, WAS RS. 1.91 CRORES, AND THE PROFITS WERE SUFFICIENT TO COVER THE LOAN GIVEN TO A SISTER CONC ERN OF RS. 5 LACS ONLY, THE ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 18 APPELLATE TRIBUNAL OUGHT TO HAVE HELD THAT THE LOAN GIVEN WAS FROM THE ASSESSEES OWN FUNDS. (2) CIT VS. HOTEL SAVERA 239 ITR 795 (MAD.): WHETHER THE INTEREST FREE ADVANCES ARE MADE OUT OF OWN FUNDS OF OUT OF FUNDS BORROWED, PRESUMPTION ARISES THAT THE MONEY ADVANCED CAME OUT OF ITS OWN FUNDS. (3) 142 TAXMAN 681 (ALL.)CIT VS. RADICO KHAITAN LTD . (HIGH COURT OF ALLAHABAD) SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 - IN TEREST ON BORROWED CAPITAL - ASSESSMENT YEAR 1990-91 - ASSESSEE-COMPAN Y HAD ADVANCED LOAN OF RS. 17.19 LAKHS TO ITS SISTER CONCERN - IT HAD BORROWED HUGE SUM FROM BANK AND FINANCIAL INSTITUTIONS AND CLAIMED DE DUCTION ON AMOUNT OF INTEREST PAID ON BORROWED CAPITAL - ASSESSING OFFIC ER DISALLOWED AMOUNT TOWARDS PROPORTIONATE INTEREST ON SAID ADVANCES - T RIBUNAL DELETED DISALLOWANCE OF INTEREST ON GROUND THAT THERE WAS S UFFICIENT FUND AVAILABLE WITH ASSESSEE-COMPANY IN FORM OF SHARE CA PITAL RESERVE AND SURPLUS OTHER THAN BORROWED MONEY FOR DIVERTING A S UM OF RS. 17.19 LAKHS TO ITS SISTER CONCERN - WHETHER IN VIEW OF FINDINGS RECORDED BY TRIBUNAL, ASSESSEE-COMPANY WAS ENTITLED TO FULL ALLOWANCE OF AMOUNT OF INTEREST PAID BY IT ON BORROWED CAPITAL - HELD, YES (4) 114 TTJ 124 COMET HANDICRAFTS VS. ACIT (ITAT, D ELHI BENCH) BUSINESS EXPENDITURE INTEREST ON BORROWED CAPITAL INTEREST FREE LOANS FOR NON BUSINESS PURPOSES LOANS AND ADVANCES OF R S. 9.85 LACS WERE GIVEN TO FRIENDS AND RELATIVES OUT OF PARTNERS OWN CAPITAL OF RS. 3.05 CRORES WHICH WAS FREE OF INTEREST CREDIT FACILITI ES WERE SANCTIONED FOR THE PURPOSE OF ASSESSEES EXPORT BUSINESS AND THE B ORROWED FUNDS WERE UTILIZED IN THE COURSE OF BUSINESS ITSELF THUS, N O PART OF INTEREST PAID TO THE BANK COULD BE DISALLOWED. (5) 313 ITR 340 CIT VS. RELIANCE UTILITIES & POWER LTD. (BOM.) INTEREST ON BORROWED CAPITAL INVESTMENTS BY ASSES SEE FINDING THAT INVESTMENTS WERE FROM INTEREST FREE FUNDS AVAILABLE WITH ASSESSEE BORROWED CAPITAL USED FOR PURPOSES OF BUSINESS IN TEREST DEDUCTIBLE INCOME TAX ACT, 1961, S. 36(1)(III). ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 19 IT IS SUBMITTED THAT THE OBSERVATIONS AND CONCLUSIO N OF LD. CIT(A) ON THIS ISSUE BEING WELL REASONED, BASED ON PROPER APPRECIA TION OF FACTS / DETAILS / EVIDENCES AND IN CONSONANCE OF ESTABLISHED PRINCIPL ES OF LAW; THEY DESERVE TO BE UPHELD. 3.9 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE THE MATERIAL AVAILABLE ON RECORD. FIRST WE SHALL TAKE UP THE ASS ESSEES APPEALS WHICH RAISE THE SOLE ISSUE OF ADDITION ON ACCOUNT OF UNVE RIFIABLE PURCHASE. AUTHORITIES BELOW HAVE RELIED ON THE STATEMENTS OF MD, ACCOUNTANT AND PROP. OF SKS SHRI JAYANT KHANDELWAL. STATEMENT OF S HRI KHANDELWAL WAS NEITHER SUPPLIED NOR THE CROSS EXAMINATION WAS GIVE N TO THE ASSESSEE, CONSEQUENTLY THE STATEMENT OF SHRI KHANDELWAL MAY N OT BE HELD AS RELIABLE EVIDENCE AGAINST ASSESSEE. HOWEVER THE STA TEMENTS OF THE MD AND ACCOUNTANT HAVE NEITHER BEEN RETRACTED NOR EFFECTIV ELY CONTROVERTED, CONSEQUENTLY THEY REMAIN VALID PIECE OF EVIDENCE IN THIS BEHALF. ASSESSEE HAS ENDEAVORED TO DEMONSTRATE THAT THE COPIOUS CONS UMPTION OF COTTON GAUGE, BANDAGES ETC. HAS NOT BEEN DISPUTED; BOOKS O F ACCOUNTS ARE PROPERLY MAINTAINED AND NOT REJECTED BY LOWER AUTHO RITIES. AS COMPARED TO AY 2009-10 ASSESSEES GROSS RECEIPTS, GP AND NP % HAVE GONE UP AND AT THE SAME TIME % CONSUMPTION OF COTTON HAS GONE D OWN; THIS DATA ALSO HAS NOT BEEN DISPUTED IN ANY MANNER BY REVENUE, ASS ESSEE CLAIMS THAT NO ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 20 COTTON WAS PURCHASED FROM SKS IN 2009-10. IN THIS C IRCUMSTANCE AN ALTERNATE PLEA IS ADVANCED THAT A SUITABLE ESTIMATE OF DISALLOWANCE BE ADOPTED INSTEAD OF TOTAL DISALLOWANCE. RELIANCE IS PLACED ON OUR CONSOLIDATED ORDER IN THE CASE OF ANUJ KUMAR VARSHN EY AND ORS (SUPRA); IN THIS CASE THE ADDITION QUA UNVERIFIABLE PURCHASE S OF SEMI PRECIOUS STONES HAS BEEN HELD TO BE AT 15% OF SUCH UNVERIFIA BLE PURCHASES. LOOKING AT THE ENTIRETY OF FACTS AND CIRCUMSTANCES I.E. THE BOOKS OF ACCOUNTS BEING NOT REJECTED & CONSUMPTION OF COTTON HAVING COMPARATIVELY DECREASED, WE ARE INCLINED TO FOLLOW OUR JUDGMENT IN THE CASE OF ANUJ KUMAR VARSHNEY (SUPRA) AND DIRECT TO R ESTRICT THE DISALLOWANCE TO 15% OF PURCHASES FROM SKS. THUS ASS ESSEES APPEALS ARE PARTLY ALLOWED. 3.10 APROPOS REVENUE APPEALS ABOUT RELIEF IN RESPEC T OF CLAIM OF INTEREST U/S 36(1)(III); FROM THE FINANCIAL STATEMENTS AND A SSESSEES SUBMISSION FOLLOWING FACTS CLEARLY EMERGE FROM THE RECORD:- I. THE ASSESSEE HAD AT ITS DISPOSAL SUFFICIENT AVAILAB LE FUNDS IN THE FORM OF SHARE CAPITAL, RESERVES AND OTHER INTER EST FREE FUNDS ETC. WHICH ARE MORE THAN ALLEGED ADVANCES/INVESTMENTS. II. THE NATURE OF SUCH ADVANCES/INVESTMENTS AS EXPLAINE D AND CONSIDERED BY LD. CIT(A) LEAVE NO ROOM FOR ANY DOUB T THAT ITA NO. 718/JP/2014 M/S. SHARMA EAST INDIA HOSPITAL & MEDICAL RESEARCH LTD. VS. DCIT ,CENTRAL CIRCLE- 1, JAIPUR 21 THE ALLEGED ADVANCES/INVESTMENTS WERE FOR THE PURPO SES OF ASSESSEES HOSPITAL ACTIVITIES AND MEDICAL PROFESSI ONS. 3.11 IN VIEW OF THE ABOVE FINDINGS AND OBSERVATIONS , NO DISALLOWANCE OF INTEREST U/S 36(1)(III) IS JUSTIFIED. WE UPHOLD THE ORDERS OF LD. CIT(A) ON THIS ISSUE, REVENUE GROUNDS IN THIS BEHALF ARE DISM ISSED. 4.0 IN THE RESULT ASSESSEES APPEALS ARE PARTLY ALL OWED AND REVENUE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5/06/201 5. VH-VKJ-EHUK VKJ-IH-RKSYKUH (T.R. MEENA) (R.P.TOLANI) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 5 /06/ 2015 *MISHRA VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. SHARMA EAST INDIA HOSPITALS & MEDICAL RESEARCH LTD., JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE DCIT, CENTRAL CIRCLE- 1/ ACIT , CENTRAL CIRCLE- 1, JAIPUR 3. VK;DJ VK;QDRVIHY ) @ CIT(A), JAIPUR 4. VK;DJ VK;QDR@ CIT, JAIPUR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.718/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR