Nalwa Investment Ltd., New Delhi V. ITO, New Delhi

ITA 720/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3577 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 12-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 05-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; Notional interest; Commercial expediency
• Section: 14A

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH E, NEW DELHI BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 720/DEL./2015 & 2114/DEL./2014 ASSESSMENT YEARS: 2009-10 & 2010-11 NALWA INVESTMENT LTD., 37, NAJAF GARH ROAD, NEW DELHI. PAN- AAACN0171G) (APPELLANT) VS. INCOME - TAX OFFICER, WARD 13(1), NEW DELHI ASSESSEE BY SH. K. SAMPATH, ADVOCATE REVENUE BY SH. ARUN KUMAR YADAV , SR. DR & MS. RAKHI VIMAL, SR. DR ORDER PER L.P. SAHU, A.M.: THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST SEPARATE ORDERS OF THE LD. CIT(A)-VI, NEW DELHI DATED 28.11. 2014 FOR A.Y. 2009-10 AND OF CIT(A)-XVI, NEW DELHI DATED 20.12.2013 FOR THE A SSESSMENT YEAR 2010-11 ON THE FOLLOWING GROUNDS : GROUNDS RAISED IN A.Y. 2009-10 ' 1. THE ORDERS OF LOWER AUTHORITIES ARE BAD AND WRONG IN LAW; 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. COMMISSIONER OF INCOME TAX APPEALS) (CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.27,82,986/- MADE OUT OF INTEREST EXPENSES; DATE OF HEARING 20.11.2017 DATE OF PRONOUNCEMENT 01 .02.2018 ITA NOS. 720/DEL./2015 & 2114/DEL./2014 2 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ABOVE DISALLOWANCE ON THE G ROUND THAT SECTION 40A WAS APPLICABLE; 2.2 WITHOUT PREJUDICE TO THE ABOVE GROUNDS, E VEN THE CALCULATION AS MADE BY THE AO TO ARRIVE AT THE DISALLOWANCE WAS IN CORRECT; 3. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, CIT(AJ ERRED IN CONFIRMING THE ADDITION OF RS. 9,53,266/- MADE ON ACCOUNT OF ALLEGED INTEREST INCOME ON THE ADVANCES GIVEN BY TH E APPELLANT; 3.1 ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN HOLDING/CONFIRMING THE ABOVE ADDITION WITH OUT ESTABLISHING DIRECT NEXUS TO THE EFFECT THAT INTEREST BEARING BO RROWING WERE DIVERTED IN GIVING INTEREST FREE ADVANCES; 3.2 ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ABOVE ADDITION WHICH IS CONTRARY TO THE ESTABLISHED PRINCIPLE OF TAXATION THAT FAX CANNOT B E LEVIED ON NOTIONAL INCOME; 3.3. THE LD. CIT(A) ERRED IN CONFIRMING THE ABOVE AD DITION ON AN ALTOGETHER DIFFERENT GROUND NOT EVEN RAISED BY THE LD. A.O. GROUNDS RAISED IN A.Y. 2010-11: '1. THE ORDERS OF LOWER AUTHORITIES ARE BAD A ND WRONG IN LAW. 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) (CIT (A) ERRED I N CONFIRMING THE ADDITIONS OF RS.20,13,878/- MADE ON ACCOUNT OF ALLE GED INTEREST INCOME ON THE ADVANCES GIVEN BY THE APPELLANT; 3. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LOWER AUTHORITIES ERRED IN HOLDING/CONFIRMING THE ABOVE A DDITION WITHOUT ESTABLISHING DIRECT NEXUS TO THE EFFECT THAT INTERE ST BEARING BORROWING WERE DIVERTED IN GIVING INTEREST FREE ADVANCES; 4. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CIT(A) ERRED IN CONFIRMING THE ABOVE ADDITION WHICH IS CON TRARY TO THE ITA NOS. 720/DEL./2015 & 2114/DEL./2014 3 ESTABLISHED PRINCIPLE OF TAXATION THAT FAX CANNOT B E LEVIED ON NOTIONAL INCOME; 5. THE ID, CIT(A) OUGHT TO HAVE DELETED THE ABOVE INT EREST DISALLOWANCE/ADDITION BY HOLDING THAT THE INTEREST FREE ADVANCES WERE GIVEN OUT OF OWN FUNDS/INTEREST FREE FUNDS; 6. THE ID. CIT(A) ERRED IN CONFIRMING THE ABOVE ADDIT ION ON AN ALTOGETHER DIFFERENT GROUND NOT EVEN RAISED BY THE LD. ASSESSI NG OFFICER. 2. SINCE ONE OF THE MAJOR ISSUES INVOLVED IN BOTH THES E APPEALS IS COMMON, THEREFORE, WE DECIDE BOTH THE APPEALS BY WAY OF THI S CONSOLIDATED ORDER. FOR THE SAKE OF CONVENIENCE AND BREVITY, WE FIRST TAKE UP THE APPEAL FOR THE ASSESSMENT YEAR 2009-10, THE DECISION ON WHICH SHAL L EQUALLY APPLY TO THE OTHER APPEAL FOR THE ASSESSMENT YEAR 2010-11. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN OF INCOME ON 19.09.2009 DECLARING LOSS OF RS.52,08,358/-. THE CA SE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCING AND DERIVES INCOME FROM IN TEREST ON LOANS, INTEREST ON BANK FDS AND DIVIDEND ON LONG-TERM INVESTMENTS. THE ASSESSING OFFICER NOTICED THAT IN RESPECT OF INTEREST RECEIVED ON LOA NS AND INTEREST PAID ON LOANS, THE RECEIPT OF INTEREST EARNED ON LENDING WAS AT 7% PER ANNUM WHEREAS THE INTEREST PAID ON BORROWINGS WAS BETWEEN 9 TO 11.5% PER ANNUM. IT WAS ITA NOS. 720/DEL./2015 & 2114/DEL./2014 4 NOTICED THAT THE ASSESSEE HAD MADE PAYMENT OF INTER EST TO M/S. EVERPLUS SECURITIES AND FIN. LTD. TO THE TUNE OF RS.4,15,042 /- @ 9% PER ANNUM, JINDAL SHAW LTD. TO THE TUNE OF RS.52,70,615/- (RS.40,87,5 81 @ 11.5% + 11,83,033 @ 10%) AND TO HEXA SECURITIES AND FIN. CO. LTD. TO TH E TUNE OF RS.18,81,797/- @ 11.5%. THE ASSESSING OFFICER FURTHER NOTICED THAT T HE ASSESSEE HAD ADVANCED MONEY AT THE LOWER RATE OF INTEREST, I.E., 7% TO M/ S. JAGRAN AGENTS PVT. LTD. AND FURTHER THE ASSESSEE HAD ALSO GIVEN LOANS OF RS.83, 08,505/- FREE OF INTEREST TO M/S. BIR PLANTATION PVT. LTD. IN EARLIER YEARS. IN THIS RESPECT, THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE SAI D ADVANCE HAS BEEN GIVEN OUT OF HIS OWN FUNDS. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE ASSESSEE OBSERVING THAT THE ASSESSEE HAD PAID INTEREST OF RS .2.23 CRORES WHEREAS THE ASSESSEE HAS GIVEN LOANS/ADVANCES EITHER FREE OF IN TEREST OR AT THE LOWER RATE OF INTEREST OF 7%. HE FURTHER NOTICED THAT THE INTE REST HAS BEEN PAID BY ASSESSEE TO ITS ASSOCIATE ENTERPRISES. THE ASSESSIN G OFFICER, THEREFORE, CONCLUDED THAT THE ASSESSEE HAD REDUCED AND DIVERTE D ITS TAXABLE INCOME BY PAYING HIGHER RATE OF INTEREST TO ITS RELATED/ASSOC IATED CONCERNED AND SUCH EXCESS INTEREST PAID CANNOT BE SAID TO HAVE INCURRE D FOR THE PURPOSE OF BUSINESS WHEN THE BUSINESS OF THE ASSESSEE WAS ONLY TO EARN INCOME BY WAY OF FINANCIAL ACTIVITIES. IN THAT BACKGROUND, THE INTER EST PAID BY THE ASSESSEE IN EXCESS OF 7% WAS DISALLOWED BY THE ASSESSING OFFICE R DUE TO THE REASON THAT ITA NOS. 720/DEL./2015 & 2114/DEL./2014 5 THE EXCESS PAYMENT HAD BEEN MADE TO RELATED AND ASS OCIATED CONCERNS WHICH WAS DISALLOWABLE U/S. 40A OF THE ACT AND THAT THE E XPENDITURE INCURRED COULD NOT BE STATED TO BE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. HE ACCORDINGLY MADE DISALLOWANCE OF RS.27 ,82,986/-. 4. IN RESPECT OF INTEREST FREE LOANS ADVANCED BY TH E ASSESSEE, THE ASSESSING OFFICER DISALLOWED THE INTEREST @ 11.5% TOTAL AMOUN TING TO RS.9,53,266/- ON THE PREMISE THAT WHEN THE ASSESSEE IS PAYING SUCH A HUGE INTEREST ON LOANS TAKEN THEN IT IS BEYOND ANY LOGIC AS TO WHY IT SHOU LD NOT CHARGE INTEREST ON THE ADVANCES/LOANS GIVEN TO THE SAID PARTIES. HE FURTHE R OBSERVED THAT THE ASSESSEE WAS NOT HAVING ENOUGH SHARE HOLDERS FUND TO ADVANCE MONEY FREE OF INTEREST. HE, THEREFORE, CONCLUDED THAT THE INTERES T FREE ADVANCES WERE GIVEN BY THE ASSESSEE OUT OF BORROWED FUNDS. IN APPEAL, T HE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER OBSERVING AS UNDER : 4.1.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE A/R OF THE APPELLANT COMPANY, THE FACTS OF THE CASE AS WELL AS THE FINDINGS OF THE A.O. GROUND NO. 1 OF APPEAL IS GENERAL IN NATURE AND NOT PRESSED FOR BY THE APPELLANT. THEREFORE, NO ADJUDICATION IS CALLED FOR . GROUND NO. 2 OF APPEAL IS DIRECTED AGAINST DISALLOWANCE OF RS. 27,82,986/- OUT OF INTEREST EXPENSES. AO OBSERVED THAT ASSESSEE HAS RECEIVED IN TEREST @7% P.A. ON LOANS GIVEN TO M/S JAGARAN AGENTS PVT. LTD. WHEREAS IT HAD PAID INTEREST @9% AND @ 10-11.5% ON LOANS TAKEN FROM GROUP COMPAN IES M/S EVERPLUS SECURITIES & FIN. LTD., M/S JINDAL SAW LTD . AND M/S HEXA SECURITIES & FIN LTD. AO OBSERVED THAT THE SHAREHOLDERS FUNDS OF THE ASSESSEE WERE NOT ENOUGH SO AS TO GIVE LOANS/ADVANCES OUT OF IT. THE I NVESTMENTS ARE MORE THAN THE SHAREHOLDERS FUNDS. AO WAS OF THE VIEW THA T THE SHAREHOLDERS ITA NOS. 720/DEL./2015 & 2114/DEL./2014 6 FUNDS WERE FIRST UTILISED FOR THE INVESTMENTS AND T HE REMAINING FUNDS IF ANY ARE GIVEN AS LOANS AND ADVANCES WITH PRIMARY AIM TO EARN SOME INCOME ON THE SAME. SINCE THE SHAREHOLDERS FUNDS WERE EXHA USTED IN MAKING INVESTMENTS, THEREFORE, THE ASSESSEE HAD GIVEN THE LOANS AND ADVANCES OUT OF THE BORROWED FUNDS. THEREFORE, AO REJECTED THE AS SESSEE'S CONTENTION THAT THE LOANS WERE GIVEN OUT OF ITS OWN FUNDS. SIN CE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INVESTING AND FINANCING, ITS MAIN PURPOSE IS TO EARN INTEREST. THEREFORE, LENDING MONEY AT A RATE LO WER AND BORROWING AT A HIGHER RATE GOES AGAINST THE VERY SPIRIT OF ITS B USINESS. IN VIEW OF THE ABOVE, THE INTEREST PAID BY THE ASSESSEE TO GROUP C OMPANIES VIZ. M/S EVERPLUS SECURITIES & FIN. LTD., M/S JINDAL SAW LTD . AND M/S HEXA SECURITIES & FIN LTD., IN EXCESS OF 7% WHICH IS RS. 27,82,986/ - IS DISALLOWED BY THE AO BY INVOKING THE PROVISIONS OF SEC 40A AND ON THE GR OUND THAT EXPENDITURE ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF BUSINESS, SINCE IT IS CONTRARY TO THE VERY NATURE OF BUSINESS OF THE A SSESSEE. 4.1.2 FROM THE BALANCE SHEET OF THE APPELLANT COMPA NY IT IS EVIDENT THAT OWN FUND IN THE FORM OF SHARE CAPITAL AND RESERVE & SURPLUS WAS RS. 38.01 CRORES AS ON 31.03.2009 AS AGAINST RS. 37.85 CRORES AS ON 31.03.2008. AS AGAINST THE ABOVE OWN FUND, THE INVESTMENTS HAVE GO NE UP FROM RS. 58.40 CRORES TO RS. 65.50 CRORES DURING THIS PERIOD. BORR OWED FUNDS IN THE FORM OF SECURED LOANS AND UN-SECURED LOANS WAS RS. 45.80 CRORES AS ON 31.03.2008 AND RS. 35.53 CRORES AS ON 31.03.2009. F ROM THE ABOVE IT IS EVIDENT THAT INTEREST FREE OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE & SURPLUS WERE EXHAUSTED IN MAKING THE INVE STMENTS AND LOANS AND ADVANCES WERE GIVEN OUT OF BORROWED FUNDS IN TH E FORM OF SECURED AND UN-SECURED LOANS. THERE IS NO DISPUTE THAT THE APPEL LANT IS ENGAGED IN THE BUSINESS OF INVESTING AND FINANCING, MAIN PURPOSE O F WHICH IS TO EARN INTEREST. THEREFORE, LENDING MONEY AT A LOWER RATE A ND BORROWING AT A HIGHER RATE GOES AGAINST THE VERY SPIRIT OF ITS BUS INESS. THEREFORE, AO IS FULLY JUSTIFIED IN DISALLOWING INTEREST PAID BY THE ASSESSEE TO GROUP COMPANIES IN EXCESS OF 7% BY INVOKING THE PROVISION S OF SEC 40A AND ON THE GROUND THAT EXPENDITURE ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, BEING CONTRARY TO THE VERY NATURE OF BUSINESS OF THE ASSESSEE. THEREFORE, APPEAL FAILS IN THIS GROUND . 4.2.1 GROUND NO. 3 OF APPEAL IS DIRECTED AGAINST AD DITION OF RS. 9,53,266/- AS INTEREST INCOME ON THE INTEREST FREE ADVANCE GIV EN BY THE APPELLANT. AO OBSERVED THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOAN/ADVANCE TO M/S BIR PLANTATION PVT. LTD. THE OPENING DEBIT BALANCE IN TH E ACCOUNT WAS RS. ITA NOS. 720/DEL./2015 & 2114/DEL./2014 7 83,08,505/- AND A FURTHER AMOUNT OF RS. 1,00,000/- EACH WAS PAID TO THE SAID PARTY ON 9.5.2008 AND 19.5.2208. OUT OF WHICH RS. 2,00,000/- WAS RECEIVED FROM THE SAID PARTY ON 2.7.2008 AND THE CL OSING BALANCE HAS BEEN SHOWN AT RS. 83,08,505/-. NO INTEREST HAS BEEN CHAR GED FROM THE SAID PARTY. AO FURTHER OBSERVED THAT THE ASSESSEE HAS PA ID AN INTEREST OF RS. 2.23 CRORES. WHEN THE ASSESSEE IS PAYING SUCH A HUG E INTEREST ON THE LOANS TAKEN THEN IT IS BEYOND ANY LOGIC AS TO WHY IT SHOU LD NOT CHARGE INTEREST ON THE ADVANCE/LOAN GIVEN TO THE SAID PARTY. THE ASSESS EE DID NOT HAVE ENOUGH SHAREHOLDERS FUNDS AND THE LOANS/ADVANCES WE RE GIVEN OUT OF THE FUNDS BORROWED A RATE OF INTEREST RANGING FROM 9% T O 11.5 %. INTEREST PAYMENTS ON THE FUNDS BORROWED AND NOT CHARGING ANY INTEREST ON THE FUNDS LENT OUT OF SUCH BORROWED FUNDS DOES NOT MAKE ANY SENSE. THEREFORE, INTEREST INCOME ON THE SAID INTEREST FREE LOAN/ADVA NCE IS CALCULATED @11.5% WHICH COMES TO RS. 9.53,2667- AND THE SAME I S ADDED BY THE AO TO THE INCOME OF THE ASSESSEE. 4.2.2 AS DISCUSSED IN GROUND NO. 2 OF APPEAL, INTER EST FREE OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE & SURPLUS WERE EX HAUSTED IN MAKING THE INVESTMENTS AND LOANS AND ADVANCES WERE MADE OUT OF BORROWED FUNDS IN THE FORM OF SECURED AND UN-SECURED LOANS. THERE IS N O DISPUTE THAT ASSESSEE HAS INCURRED EXPENDITURE UNDER THE HEAD IN TEREST OF RS. 2.23 CRORES ON BORROWED FUNDS. THERE IS ALSO NO DISPUTE T HAT THE INTEREST FREE ADVANCE IS GIVEN TO M/S BIR PLANTATION PVT. LTD. WH ICH IS A GROUP COMPANY. FURTHER THERE IS ALSO NO DISPUTE THAT THE ABOVE FRE E LOAN/ADVANCE IS GIVEN TO BIR PLANTATION PVT. LTD. WITHOUT ANY COMMERCIAL EXPEDIENCY. NO PRUDENT BUSINESSMAN WOULD GIVE INTEREST FREE ADVANCES IF IT IS INCURRING HUGE INTEREST EXPENSES ON THE BORROWED CAPITAL AND SECUR ED LOANS. IT MAKES NO DIFFERENCE THAT THE INTEREST FREE LOAN WAS OUTSTAND ING AND WAS BORROWED IN EARLIER ASSESSMENT YEARS. IF THE PARTY (BIR PLAN TATION PVT. LTD.) HAD REPAID THE LOAN TO THE COMPANY, CERTAINLY PROPORTIO NATE BORROWING AND INTEREST LIABILITY MIGHT HAVE BEEN REDUCED. ON IDEN TICAL ISSUE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. SAHU ENT ERPRISE PVT. LTD. [2013] 31 TAXMANN.COM 270 (ALL.) HELD THAT IT IS NOT RELEV ANT AS TO WHETHER THE ADVANCES HAVE BEEN EXTENDED OUT OF THE BORROWED FUN DS OR OUT OF THE MIXED FUNDS, WHICH INCLUDED BORROWED FUNDS. THE TEST TO BE APPLIED IN SUCH CASES IS NOT THE SOURCE OF THE FUNDS BUT THE P URPOSE FOR WHICH THE ADVANCES WERE EXTENDED. IN ACIT V. PUNJAB STAINLESS STEEL INDUSTRIES (ITAT, DEL) 128 ITD 12 ASSESSEE CLAIMED THAT IT GAVE INTEREST FREE ADVANCES FROM ITS OWN FUNDS AND THEN BORROWED FUNDS FROM BANKS ON INTEREST FOR BUSINESS PURPOSES. DISMISSING THE CONT ENTION OF THE ASSESSEE ITA NOS. 720/DEL./2015 & 2114/DEL./2014 8 HON'BLE ITAT DELHI HELD THAT SUCH BORROWING FROM BAN KS CAN BE TREATED AS FOR SUPPLEMENTING CASH DIVERTED BY ASSESSEE WITHOUT ANY BENEFIT TO IT AND CLAIM FOR DEDUCTION-OF INTEREST ON BORROWINGS TO BE DISALLOWED. 4.2.3 IN VIEW OF THE ABOVE, SINCE THE ASSESSEE COMP ANY DID NOT HAVE SUFFICIENT OWN FUND AND IT HAD BORROWED FUNDS FROM THE MARKET @ INTEREST OF 9% TO 11.5 % AND INTEREST FREE ADVANCES WERE MAD E TO GROUP COMPANIES WITHOUT ANY COMMERCIAL EXPEDIENCY, THEREF ORE, FOLLOWING THE RATIO OF DECISIONS IN THE CASE OF S.A. BUILDERS LTD . V. CIT (2007) 158 TAXMANN 74 (SC), CIT V. MALAYALAM PLANTATIONS LTD. [1 964] 53 ITR 140 (SC), CIT V. BIRLA COTTON SPG. & WVG. MILLS LTD. [19 71] 82 ITR 166 (SC), CIT V. SUJANNI TEXTILES PVT. LTD. [1997] 225 ITR 560 (MAD .), CIT V. BRIJ LAL LOHIYA [1972] 84 ITR 273 (SC), M.K. MOHD. V. CIT [197 3] 92 ITR 341 (KER), J.K. OIL MILLS LTD.'V. CIT [1976] 105 ITR 53 (ALL), C IT V. ABHISHEK INDUSTRIES LTD. (2006) 156 TAXMANN 257 (P&H), ACIT V. PUNJAB ST AINLESS STEEL INDUSTRIES (SUPRA) AND CIT V. SAHU ENTERPRISES (SUPR A), THE ABOVE AMOUNT OF RS. 9,53,266/- CALLS FOR DISALLOWANCE OUT OF THE CLAIM OF INTEREST EXPENDITURE OF RS.2.23 CRORES. THEREFORE, A.O. IS DI RECTED TO DISALLOW THE ABOVE SUM OUT OF THE INTEREST EXPENDITURE CLAIMED I NSTEAD OF MAKING THE ADDITION AS NOTIONAL INTEREST INCOME. THEREFORE, THE DISALLOWANCE BY WAY OF ADDITION OF RS.9,53,266/- IS SUSTAINED. AGGRIEVED BY THE IMPUGNED ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. AR OF THE ASSESSEE, REITERATING THE SUBM ISSIONS MADE BEFORE THE AUTHORITIES BELOW, ALSO FILED A WRITTEN SYNOPSIS BE FORE US, STATING THEREIN AS UNDER : 3.4 BEFORE THE TRIBUNAL IT IS SUBMITTED THAT THE REV ENUE AUTHORITIES ERRED IN DISALLOWING INTEREST PAID ON GENUINE LOANS BORRO WED BY THE ASSESSEE. THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT THE ASSESSEE WAS A NBFC THOUGH THAT FACT HAS BEEN NOTICED AT PAGE 3 OF THE ASSESSMENT ORDER AND SO THE ASSESSEE HAD THE DISCRETION TO LEND/BORROW O N TERMS AND CONDITIONS FOUND SUITABLE BY IT. THE TRANSACTIONS WERE BETWEEN ASSOCIATED ENTERPRISES BELONGING TO THE JINDAL GROUP OF COMPANIES. IT IS S UBMITTED THAT BORROWING ITA NOS. 720/DEL./2015 & 2114/DEL./2014 9 AND LENDING BETWEEN THE ASSOCIATED ENTERPRISES HAS ALWAYS BEEN DONE BY WAY OF BUSINESS COMPULSIONS AND COMMERCIAL NECESSIT IES. 3.5 THE RULE FOR ASSESSMENT OF INTEREST IN THE CASE OF ASSOCIATED CONCERNS HAS BEEN CODIFIED BY THE APEX COURT IN SA BUILDERS LTD. VS. CIT(A) (2007) 288 ITR 1. THIS IS WHAT THE APEX COURT DEVISED AS THE APPLICABLE RULE:- 'TO CONSIDER WHETHER ONE SHOULD ALLOW DEDUCTION UNDE R SECTION 36(])(III) OF INTEREST PAID BY THE ASSESSEE ON AMOU NTS BORROWED BY IT FOR ADVANCING TO A SISTER CONCERN, THE AUTHORITIES AND THE COURTS SHOULD EXAMINE THE PURPOSE FOR WHICH THE ASSESSEE A DVANCED THE MONEY AND WHAT THE SISTER CONCERN DID WITH THE MONE Y. THAT THE BORROWED AMOUNT IS NOT UTILIZED BY THE ASSESSEE IN ITS OWN BUSINESS BUT HAD BEEN ADVANCED AS INTEREST FREE LOAN TO ITS SISTER CONCERN IS NOT RELEVANT. WHAT IS RELEVANT IS WHETHER THE AMOUN T WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PR OFITS' ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSA RILY BE THE BUSINESS OF THE ASSESSEE ITSELF) THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESS OR I N THE POSITION OF THE BOARD OF DIRECTIONS AND ASSUME THE ROLE TO DECIDE H OW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE H IS PROFITS.' 3.6 THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER BY INVOKING SECTION.40A (SIC) OF THE ACT AND AFTER OBSERVING TH AT THE EXPENDITURE INCURRED CANNOT BE SAID TO BE WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS. ANOTHER POINT THAT THE ASSESSING OFFICER MAKES IS THAT THE ASSESSEE'S CONDUCT IS CONTRARY TO THE VERY NATURE O F ITS BUSINESS. THESE OBSERVATIONS ARE PER SE ERRONEOUS AND UNTENABLE. THE RE IS NO CONNECTIVITY IN TERMS OF THE CITED SECTION BETWEEN THE ASSESSEE AND M/S HEXA SECURITIES & FINANCE CO. LIMITED AND M/S JINDAL SAW LIMITED. O UT OF THE TOTAL DISALLOWANCE OF RS.27,82,986/- THE DISALLOWANCE AS MADE U/S 40A OF THE ACT IN RESPECT OF THE TWO COMPANIES IS IN A SUM OF RS.26,90,754/-. OBVIOUSLY, THE DISALLOWANCE OF THIS MASSIVE SUM OF RS.26,90,754/- OUT OF INTEREST EXPENDITURE IS BASED ON A PALPABLY WRONG C ONSIDERATION. SO FAR AS THE BALANCE INTEREST OF RS.92,232/- IS CONCERNED TH E SAME WAS PAID TO M/S EVERPLUS SECURITIES & FINANCE LIMITED. THE CONSIDERA TION OF THIS BEING A ITA NOS. 720/DEL./2015 & 2114/DEL./2014 10 GROUP COMPANY AND SO EXONERATED IN TERMS OF THE RAT IO OF THE DECISION IN THE CASE OF S.A. BUILDERS LIMITED WOULD BE PARAMOUN T AND UNASSAILABLE. 3.7 THE ASSESSING OFFICER HAS ALSO FAILED TO NOTICE THE IMPLICATIONS OF THE CHART DRAWN BY HIM ON PAGE 2 OF THE ASSESSMENT ORDE R. THOUGH THERE IS A MARGINAL INCREASE IN THE SHARE CAPITAL YET LOAN FUN DS DURING THE YEAR HAVE DECREASED BY RS.10 CRORES APPROXIMATELY AND THE INV ESTMENT HAS INCREASED BY RS.7 CRORES. THAT ITSELF IS BEST PROOF OF THE ABSENCE OF ANY PILFERAGE. THE LOAN FUNDS ARE INCLUSIVE OF INTEREST FREE LOAN OF OVER RS.17 CRORES CARRIED OVER FROM EARLIER YEAR WHICH WAS OBT AINED FROM JINDAL STEEL & POWER LIMITED. EVEN IF THE ARGUMENTS REGARDING TH E ASSOCIATED ENTERPRISE AND THE NEED OF DISALLOWABILITY OF INTER EST IN CONSEQUENCE THEREOF ARE NOT TO BE ACCEPTED THEN THE ASSESSING O FFICER SHOULD ATLEAST HAVE GIVEN CREDIT FOR INTEREST FREE BORROWING TO TH E EXTENT OF RS.17 CRORES FOR LENDING TO M/S HEXA SECURITIES & FINANCE CO. LI MITED AND M/S JINDAL SAW LIMITED A TOTAL AMOUNT OF RS.11 CRORES (PAPER B OOK PAGE 20). THIS HE HAD FAILED TO DO AND CONSEQUENTLY COMMITTED AN ERRO R OF THE JUDGEMENT. 3.8 THE LD. CIT(A) IN PASSING THE APPELLATE ORDER HAS RELIED UPON THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CITT V. ABHISHEK INDUSTRIES LTD. (2006) 156 TAXMAN.257. THAT DECISION IS NO LONGER A GOOD LAW HAVING BEEN UPSET AT THE LEVEL OF THE APEX COUR T QUA THE DECISION IN MUNJAL SALES CORPORATION (2008) 298 1TR 298. 3.9 THE LD. CIT(A) HAS OMITTED TO ABIDE BY THE MANDAT E OF THE APEX COURT IN S.A. BUILDERS LIMITED IN THE CASE OF TRANSACTION S BETWEEN THE GROUP COMPANIES. THE LD. CIT(A) FAILED TO REALISE THAT IN T HE CASE OF GROUP COMPANIES AND OVERALL VIEW WAS REQUIRED TO BE TAKEN AFTER GIVING CUMULATIVE EFFECT TO THE ENTIRETY OF THE TRANSACTIO N VIS-A-VIS AVOWED OBJECTIVES OF THE ASSESSEE. IN OTHER WORDS THE OBJE CTION WOULD BE SUBSERVIENT TO THE COMPULSIONS OF BUSINESS AND OTHE R COMMERCIAL CONSIDERATION. 3.10 THE LD. CIT(A) READ THE BALANCE SHEET ERRONEOUSL Y AND CRYPTICALLY. HE LITTLE REALISED THAT GOOD PART OF THE FUNDS COUL D HAVE BEEN DIVERTED TO EARNING THE SOURCE OF INCOME WHICH WAS NOT TAXABLE. THE ASSESSEE HAD VOLUNTARILY SOUGHT A MASSIVE DISALLOWANCE IN A SUM OF RS.1.59 CRORES OUT OF RS.2.23 CRORES ON SEC. 14A CONSIDERATION. MORE EXPL ICITLY OUT OF A TOTAL CLAIM FOR INTEREST AT RS.2.23 CORES AS PER THE PROF IT & LOSS ACCOUNT A SUM OF ITA NOS. 720/DEL./2015 & 2114/DEL./2014 11 RS.1.59 CRORES WAS NEVER CLAIMED FOR DEDUCTION ON A CCOUNT OF SEC. 14A IMPACT. 3.11 IN IDENTICAL CIRCUMSTANCES IN THE CASE OF ANOT HER GROUP COMPANY, NAMELY - MANJULA FINANCES LIMITED - THE ITAT DELHI B ENCH HAS AFTER ABIDING BY THE DECISION IN THE CASE OF S.A. BUILDER S ANNULLED THE DISALLOWANCE AS MADE BY THE ASSESSING OFFICER. A CO PY OF THAT ORDER HAS ALREADY BEEN PLACED ON RECORD THAT IS WITH REGARD T O GROUND NO.1 IN THE DEPARTMENTAL APPEAL. THIS IS WHAT THE HON'BLE TRIBUN AL HAS HELD IN THE OPERATIVE PART OF HIS ORDER: 'WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUS ED THE MATERIAL ON RECORD. THE LOGIC BEHIND THE CHARGING OF NOTIONAL INTEREST ON INTEREST FREE ADVANCES SEEMS TO BE THAT THE ASSESSEE IS IN THE BUSINESS OF PROVIDING FINANCE AND, THEREFORE, I T WOULD BE IMPRUDENT FOR THE ASSESSEE COMPANY TO MAKE ADVANCES AND NOT CHARGE ANYTHING IN RETURN. ALTHOUGH THE ASSESSEE HA S CONTENDED THAT THE ADVANCES WERE MADE IN THE COURSE OF ITS BU SINESS AND THAT IT WAS NOT AT ALL NECESSARY THAT ADVANCES GIVEN BY A B USINESS ENTITY MUST AT ALL TIMES HAVE AN ELEMENT OF INTEREST A/SO. IT IS ALSO NOTEWORTHY THAT THERE IS NO FINDING IN THE ASSESSME NT ORDER OR IN THE ORDER OF THE ID. CIT(A) THAT THE ASSESSEE HAD, IN FA CT, RECEIVED AMOUNTS BY WAY OF INTERESTS WHICH WAS NOT REFLECTED IN THE BOOKS OF ACCOUNTS. THE AO HAS NOT REJECTED THE BOOKS OF ACCOU NTS AND HAS ACCEPTED MOST OF THE FIGURES APPEARING THEREIN. RESPECTFULLY FOLLOWING THE RATIO OF THE JUDGMENTS A S ABOVE MENTIONED, IN THE ABSENCE OF ANY SPECIFIC PROVISION UNDER WHICH THE SO CALLED NOTIONAL INTEREST ON ADVANCES COULD BE BR OUGHT TO TAX, WE DO NOT SEE AS TO HOW THE IMPUGNED ORDER PASSED BY T HE ID. CIT(A) CAN BE SUSTAINED. ACCORDINGLY, WE SET ASIDE THE ORD ER OF THE ID. CIT(A) AND DIRECT THE AO TO DELETE THE ENTIRE ADDIT ION OF RS. 1,04,55,324/-MADE ON ACCOUNT OF NOTIONAL INTEREST O N THE ADVANCES/LOANS GIVEN BY THE ASSESSEE. THUS, THE APPE AL OF THE ASSESSEE IS ALLOWED AND THE REVENUE'S APPEAL STANDS DISMISSED.' 3.12 IN THIS BACKGROUND THE GROUND RAISED BY THE AS SESSEE UNDER GROUND NO.2 MUST BE DIRECTED TO BE ALLOWED IN TOTO. ITA NOS. 720/DEL./2015 & 2114/DEL./2014 12 4.1 GROUND NO. 3 IS IN RESPECT OF AN ADDITION MADE TO THE RETURNED INCOME IN A SUM OF RS. 9,53,266/- ON ACCOUNT OF INTEREST N OT EARNED. THE RELEVANT FACTS ARE THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOANS TO BIR PLANTATIONS (P) LTD. SUCH LOANS WERE EXTENDED IN THE PRECEDING YEARS. THE ASSESSING OFFICER QUESTIONED AS TO THE NON-CHARGING OF INTERE ST FROM THE SAID PARTY. HE WAS INFORMED THAT THE AMOUNT HAD BEEN ADVANCED F REE OF INTEREST AND WAS DONE OUT OF THE OWN FUNDS OF THE ASSESSEE AND S O NO ADVERSE INFERENCE WAS WARRANTED. THIS CONTENTION WAS REJECTED BY THE A SSESSING OFFICER. HE INSTEAD INSISTED THAT THE LOAN/ADVANCE WAS GIVEN BY THE ASSESSEE OUT OF BORROWED FUNDS AND NOT OUT OF ITS OWN FUNDS. HE THE N WENT ON TO OBSERVE THAT THE ASSESSEE HAD PAID INTEREST OF RS. 2.23 CRO RES AND WHEN SUCH HUGE INTEREST PAYMENTS WERE MADE ON LOANS TAKEN, THEN IT WAS ILLOGICAL THAT INTEREST FREE ADVANCES SHOULD BE EXTENDED BY THE AS SESSEE. HE FURTHER STATED THAT THE ASSESSEE DID NOT HAVE ENOUGH SHAREH OLDERS' FUNDS AND SO THE LOANS AND ADVANCES WERE GIVEN OUT OF BORROWED I NTEREST BEARING FUNDS IN THE RANGE OF 9% TO 11.5% RATE OF INTEREST. ACCOR DING TO HIM MAKING INTEREST PAYMENTS ON THE FUNDS BORROWED AND NOT CHA RGING INTEREST ON THE FUNDS LENT OUT OF SUCH BORROWED FUNDS DID NOT MAKE ANY SENSE. IN THIS WAY RECKONING INTEREST RATE @ 11.5% THE ASSESSING OFFIC ER ADDED TO THE INCOME A SUM OF RS. 9.53 LAKHS. 4.2 THE ASSESSEE CARRIED THIS MATTER IN APPEAL BEFOR E THE CIT(A) WHO DISMISSED THE PLEA WITH THE FOLLOWING OBSERVATIONS 'IN VIEW OF THE ABOVE, SINCE THE ASSESSEE COMPANY D ID NOT HAVE SUFFICIENT OWN FUND AND IT HAD BORROWED FUNDS FROM THE MARKET @ INTEREST OF 9% TO 1 1.5% AND INTEREST FREE ADVANCES WERE MADE TO GROUP COMPANIES WITHOUT ANY COMMERCIAL EXPEDIENCY, THEREFORE, FOLLOWING THE RATIO OF DECISIONS IN THE CASE OF S.A . BUILDERS LTD. VS. CIJ (2007) 158 TAXMAN 74 (SC), CIJ VS. MALAYALAM PLANTA TIONS LTD. (1964) 53 IJR 140 (SC) CIJ V. B/R/A COTTON SPG. & W VG. MITLS LTD. (1971) 82 IJR 166 (SC), C/T V. SUJANNL TEXTILES PVT. LTD. (1997) 225 ITR 560 (MAD) C/T V. BRIJ LAL LOHIYA (1972) 84 IJR 27 3 (SC), M.K. MOHD VS. CIT (1973) 92 ITR 34 / (KERJ J.K. OIL MILLS LTD. V. CIJ (1976) 105 ITR 53 (ALL), CIJ V. ABHLSHEK INDUSTRIES LTD. ( 2006) 156 TAXMAN 257 (P&H), ACIJ V. PUNJAB STAINLESS STEEL INDUSTRIE S (SUPRA) AND CIJ V. SAHU ENTERPRISES (SUPRA), THE ABOVE AMOUNT OF RS . 9,53,266/- CALLS FOR DISALLOWANCE OUT OF THE CLAIM OF INTEREST EXPEN DITURE OF RS. 2.23 CRORES. THEREFORE, AO IS DIRECTED TO DISALLOW THE AB OVE SUM OUT OF THE INTEREST EXPENDITURE CLAIMED INSTEAD OF MAKING THE ADDITION AS ITA NOS. 720/DEL./2015 & 2114/DEL./2014 13 NOTIONAL INTEREST INCOME. THEREFORE, THE D/SA//OWANC E BY WAY OF ADDITION OF RS.9,53,266/- IS SUSTAINED. THE APPEAL F AILS IN THIS GROUND'. 4.3 IT IS SUBMITTED THAT THE AUTHORITIES BELOW ARE WRONG IN CONJURING INTEREST IN A SUM OF RS. 9.53 LAKHS AND ADDING IT T O THE INCOME WHERE THERE WAS NOTHING SUCH EARNED. THE FACT OF THE MATTER IS T HAT NO SUCH AMOUNT WAS EITHER PROVIDED FOR OR EVER RECEIVED FROM BIR P LANTATIONS PVT. LTD. THE SAID COMPANY IS A GROUP COMPANY AND GOING-ONS BETWE EN THIS COMPANY AND THE ASSESSEE ARE PRIVILEGED TRANSACTIONS. THE AS SESSEE COMPANY HAS THE PREROGATIVE TO DECIDE ON THE ASPECT OF CHARGING INTEREST. IT CANNOT BE FORCED TO CHARGE INTEREST BY ANY OUTSIDER. UNLESS T HERE WAS A SUBSISTING PRIVITY CONTRACT BETWEEN THE ASSESSEE AND THE BORRO WER NO INTEREST COULD HAVE BEEN IMPUTED BY THE ASSESSING OFFICER AND BROU GHT TO LAW. 4.4 CONTROVERSIES OF THIS SORT CREATED BY THE REVEN UE ARE LEGION. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE GUWAHATI HIGH COURT IN THE CASE OF HIGHWAYS CONSTRUCTION CO. PVT. LTD. VS. CIT [1993] 199 ITR 702. THE HON'BLE HIGH COURT WAS PLEASED TO POINT OUT THAT WHERE THERE WAS NO PRIVITY FOR CONTRACT FOR CHARGING INTEREST THE REVE NUE CANNOT IMPUTE ON ITS OWN ANY NOTIONAL INTEREST AND BRING IT TO TAX. A SI MILAR VIEW WAS REPEATED BY THE GUWAHATI HIGH COURT IN B & A PLAANTATIONS & INDUSTRIES LTD. VS. CIT (2000) 242 ITR 22. OF-LATE THE DELHI HIGH COURT HAS ALSO FOLLOWED THE SAME PRINCIPLE. THIS IS STATED IN THE DECISION IN SH IVNANDAN BUILDCON (P) LTD. VS. CIT (2015) 233 TAXMAN 297 (DEL), COPY OF THE JUDGEMENT HAS BEEN PLACED ON RECORD. 4.5 IN THIS WAY THE IMPUTATION OF INTEREST BY THE R EVENUE AUTHORITIES IS EX- FACIE WRONG AND UNTENABLE. THE CIT(A) COMPOUNDED THE ERROR BY RELYING UPON THE CASES WHICH WERE NOT ONLY IRRELEVANT BUT A LSO SOME OF WHICH HAD BEEN OVER-RULED. 4.6 MORE RECENTLY IN THE CASE OF ANOTHER GROUP COMP ANY VIZ. MANJULA FINANCES LTD. THE DELHI BENCH 'E1, NEW DELHI HAS CO NSIDERED AN IDENTICAL ISSUE AND VACATED THE INTEREST AS IMPOSED. A COPY O F THAT ORDER HAS ALREADY PLACED ON FILE. 4.7 IN VIEW OF THESE CIRCUMSTANCES IT IS PLEADED TH AT THE ADDITION AS PROPOSED BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) ARE ITA NOS. 720/DEL./2015 & 2114/DEL./2014 14 SUPERFLUOUS, ERRONEOUS AND UNJUSTIFIED AND MAY PLEA SE BE DIRECTED TO BE VACATED. 6. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF THE LOWER AUTHORITIES. HE FURTHER SUBMITTED THAT THE OBSERVAT IONS OF THE LOWER AUTHORITIES HAVE NOT BEEN MET OUT BY THE ASSESSEE D URING THE ASSESSMENT AS WELL AS APPELLATE PROCEEDINGS REGARDING THE BUSINES S EXPEDIENCY FOR GIVING LOAN AT LOWER RATE OF INTEREST OR FREE OF INTEREST WHEREAS THE ASSESSEE HAS PAID HIGHER INTEREST. THE CASE LAWS RELIED BY THE ASSESS EE ARE NOT APPLICABLE TO THE PRESENT CASE, BEING DISTINGUISHABLE ON FACTS. 7. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIE S AND HAVE GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. IT IS AN ADMITTED FACT THAT THE ASSESSEE IS ENGAGED IN THE FINANCING BUSINESS AND D ERIVING INCOME FROM INTEREST ON LOANS AND ADVANCES, FDRS AND INCOME FRO M LONG TERM INVESTMENTS ETC. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAD PAID INTERESTS ON THE LOANS RAISED AT HIGHER RATES RANGING FROM 9 TO 11.5% AND PAID TOTAL SUCH INTEREST OF RS.2.23 CRORES TO ITS ASSOCIATE CONCERNS, FROM WHOM THE LOANS WERE RAISED BY THE ASSESSEE AT THE ABOVE RATES OF INTERESTS. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAD ADVANCED MONEY EITHER @ 7% OR FREE OF INTEREST. IN THIS FACTUAL MATRIX, IN OUR CONSIDERED OPINION, THE EXCESS INTER EST EXPENDITURE CLAIMED BY ITA NOS. 720/DEL./2015 & 2114/DEL./2014 15 THE ASSESSEE, CAN BE ALLOWED TO THE ASSESSEE ONLY W HEN THE ASSESSEE SHOWS AND ESTABLISHES THE BUSINESS EXPEDIENCY UNDER WHICH THE MONEY WAS ADVANCED BY THE ASSESSEE AT LOWER RATE OF INTEREST, I.E., 7% OR FREE OF INTEREST AS DONE IN THE INSTANT CASE. FOR WANT OF BUSINESS EXPE DIENCY ESTABLISHED BY ASSESSEE, THE LD. AUTHORITIES BELOW CANNOT BE SAID TO BE UNJUSTIFIED IN DISALLOWING THE EXCESS INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. THE EXPLANATION OF THE ASSESSEE THAT THE INTEREST FREE ADVANCES GIVEN TO BIR PLANTATION PVT. LTD., WAS OUT OF OWN FUNDS, STANDS PROPERLY REBUTTED BY THE LD. AUTHORITIES BELOW BY GIVING THE DETAILS OF AVAILABI LITY OF FUNDS WITH THE ASSESSEE AND ITS UTILIZATION BY THE ASSESSEE, INCLU DING OWN FUNDS, INTEREST FREE FUNDS & INTEREST BEARING FUNDS AVAILABLE WITH ASSE SSEE AND, FUNDS UTILIZED IN INVESTMENTS AND THE FUNDS ADVANCED BY ASSESSEE. THE LD. AUTHORITIES BELOW, ON THE BASIS OF RECORD, HAVE POINTED OUT THAT THE A SSESSEE HAD TOTAL OWN FUNDS AT RS.38.01 CRORES AND ALSO LOAN FUNDS AT RS.35.53 CRORES, OUT OF WHICH RS.17.88 CRORES WAS INTEREST FREE LOAN TAKEN BY THE ASSESSEE. THEREFORE, THE TOTAL NON-INTEREST BEARING FUNDS AVAILABLE WITH THE ASSESSEE WAS AT RS.55.89 CRORES (38.01 CRORES BEING OWN FUNDS + 17.88 CRORES BEING INTEREST FREE LOANS), WHEREAS THE ASSESSEE HAD SHOWN THE INVESTME NTS TO THE TUNE OF RS.65.50 CRORES. THIS SHOWS THAT THE INVESTMENT MAD E WAS MORE THAN THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. IN SUCH CIRCUMSTANCES, THE LD. ITA NOS. 720/DEL./2015 & 2114/DEL./2014 16 AUTHORITIES BELOW HAVE RIGHTLY OBSERVED THAT THE AS SESSEE HAD LENT THE MONEY OUT OF INTEREST BEARING FUNDS EITHER AT LOWER RATE OF INTEREST OR FREE OF INTEREST, AS THE ASSESSEE UTTERLY FAILED TO ESTABLISH THAT TH E MONEY GIVEN AT THE INTEREST RATE OF 7% OR FREE OF INTEREST, WAS ADVANCED BY HIM OUT OF THE INTEREST BEARING FUNDS OR INTEREST FREE FUNDS AVAILABLE WITH IT. THE REFORE, MERELY STATING THAT THE ASSESSEE HAD MIXED FUNDS IN ITS ACCOUNTS DOES N OT GO TO DISCHARGE THE BURDEN ON THE ASSESSEE TO ESTABLISH THAT THE LOANS GIVEN BY THE ASSESSEE AT LOWER RATE OF INTEREST OR FREE OF INTEREST WERE OUT OF INTEREST FREE FUNDS AVAILABLE WITH IT. NO DATE-WISE FUND FLOW STATEMENT IS AVAILABLE ON RECORD NOR HAS THE ASSESSEE GIVEN DATE-WISE DETAILS OF FUNDS A VAILABILITY, ITS INVESTMENT AND ITS LENDING ON INTEREST OR INTEREST FREE. THERE FORE, IN OUR CONSIDERED OPINION, THE LD. AUTHORITIES BELOW, IN PRESENT FACT S SITUATION, APPEAR TO HAVE RIGHTLY CONCLUDED THAT THE LOANS ADVANCED BY THE AS SESSEE EITHER AT LOWER RATE OF INTEREST OR FREE OF INTEREST WERE OUT OF THE BOR ROWED FUNDS. 8. IN THE ABOVE FACTUAL MATRIX, NOW, THE QUESTION A RISES WHETHER THE AUTHORITIES BELOW ARE JUSTIFIED TO DISALLOW THE INT EREST U/S. 36(1)(III) READ WITH SECTION 40A OF THE ACT EVEN IF THE ASSESSEE HAD ADV ANCED MONEY AT LOWER RATE OF INTEREST OR FREE OF INTEREST OUT OF THE FUNDS BO RROWED BY THE ASSESSEE AT HIGHER RATE OF INTEREST. IN THIS CONTEXT, THE LD. C OUNSEL FOR THE ASSESSEE RELIED ITA NOS. 720/DEL./2015 & 2114/DEL./2014 17 ON SEVERAL DECISIONS, MAINLY ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF SA BUILDERS LTD. VS. CIT, 288 ITR 1 (SC), W HEREIN THE HONBLE APEX COURT HAS PROPOUNDED A PRINCIPLE OF LAW THAT NO DIS ALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE U/S. 36(1)(III) OF THE ACT IF THE INTEREST FREE LOANS ARE GIVEN TO THE SISTER CONCERNS OR SUBSIDIARY COMPANIE S UNDER THE BUSINESS EXPEDIENCY. AS ALREADY OBSERVED, IN THE INSTANT CAS E, THE ASSESSEE HAS UTTERLY FAILED TO ESTABLISH ANY SUCH BUSINESS EXPEDIENCY UN DER WHICH THE IMPUGNED MONEY WAS ADVANCED AT LOWER RATE OF INTEREST OR FRE E OF INTEREST. WE ARE ALSO INCLINED TO OBSERVE HERE THAT, IT HARDLY MATTERS WH ETHER SUCH LOANS WERE ADVANCED IN EARLIER YEARS OR DURING THE YEAR UNDER CONSIDERATION. IN ORDER TO EXAMINE THE CLAIM OF ASSESSEE IN THE ABOVE FACT SIT UATIONS, WE DEEM IT APPROPRIATE TO REPRODUCE THE FOLLOWING OBSERVATIONS OF HONBLE APEX COURT IN SA BUILDERS CASE RECORDED IN PARA 32 OF THE ORDER, WHICH READ AS UNDER : 32. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPINION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER-CONCERN. IT ALL DEPENDS ON THE FACTS AND C IRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER-CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONEY WAS ADV ANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MONEY CAN BE SAID T O BE ADVANCED TO A SISTER-CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY OT HER CIRCUMSTANCES (WHICH NEED NOT BE ENUMERATED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIA RY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSID IARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PURPOSE S, THE ASSESSEE WOULD, IN OUR OPINION, ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. ITA NOS. 720/DEL./2015 & 2114/DEL./2014 18 IF THE FACT SITUATION ATTENDING TO THE PRESENT CASE IS TESTED ON THE ANVIL OF THE ABOVE OBSERVATIONS OF HONBLE SUPREME COURT, THE AS SESSEE WAS REQUIRED TO EXPLAIN FIRSTLY THAT THE MONEY WAS ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERNS OR ITS SUBSIDIARY COMPANIES EITHER AT LOWE R RATE OF INTEREST OR FREE OF INTEREST; THAT IF IT IS SO, HOW AND FOR WHAT PURPOS E THE MONEY ADVANCED BY THE ASSESSEE WERE UTILIZED BY THE BORROWERS; AND THAT W HAT WERE THE BUSINESS EXPEDIENCIES UNDER WHICH THE ASSESSEE HAD ADVANCED THE MONEY AT LOWER RATE OF INTEREST OR FREE OF INTEREST. IN THE PRESENT CAS E, AS ALREADY STATED, THE AFORESAID CONDITIONS DO NOT STAND ESTABLISHED CUMUL ATIVELY TO DISLODGE THE DISALLOWANCE MADE BY THE AUTHORITIES BELOW. THE OTH ER DECISIONS RELIED ON BY THE ASSESSEE ARE ALSO FOUND DISTINGUISHABLE ON FACT S. WE, ACCORDINGLY, DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) FINDING NO INFIRMITY THEREIN, WHICH HAS BEEN REACHED AFTER FOL LOWING THE RATIO LAID DOWN IN VARIOUS DECISIONS MENTIONED IN THE IMPUGNED ORDE R. ACCORDINGLY, THE APPEAL OF THE ASSESSEE DESERVES TO FAIL BEING DEVOI D OF MERITS. 9. SINCE THE FACTS, CIRCUMSTANCES AND ARGUMENTS ADV ANCED BY BOTH THE PARTIES IN APPEAL FOR A.Y. 2010-11 ARE IDENTICAL, T HEREFORE, OUR DECISION REACHED IN APPEAL FOR A.Y. 2009-10 SHALL EQUALLY AP PLY TO THE APPEAL FOR A.Y. ITA NOS. 720/DEL./2015 & 2114/DEL./2014 19 2010-11. ACCORDINGLY, THE APPEAL FOR A.Y. 2010-11 A LSO DESERVES TO BE DISMISSED. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST FEBRUARY, 2018 SD/- SD/- (BHAVNESH SAINI) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 ST FEBRUARY, 2018 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI