M/S MITTAL PHARMA PVT. LTD., JAIPUR V. INCOME TAX OFFICER, WARD-1-2, JAIPUR

ITA 734/JPR/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1892 (ITAT-JAIPUR)
• Duration Of Justice: 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 29-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POONAM ROY DCIT DHK
• Keywords: Earning of tax free income; Proportionate interest; Retrospective amendment; Additional evidence; Commercial expediency
• Section: 143(3); 14A; 201(1)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPAN] YS[KK LNL; ] DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 734/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 M/S MITTAL PHARMA PVT. LTD., 101-102, FILM COLONY, DAWA BAZAR, CHAURA RASTA, JAIPUR. CUKE VS. INCOME TAX OFFICER, WARD 1(2), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCM 5389 G VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SMT. POONAM ROY (DCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 21/11/2017 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 23/11/2017 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE EMANATES FR OM THE ORDER OF THE LD. CIT(A)-I, JAIPUR DATED 03/07/2017 FOR THE A. Y. 2012-13, WHEREIN THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) HAS ERRED ON FACT AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.6,99,639/- U/S 40(A)(IA) ON ACCO UNT OF NON DEDUCTION OF TAX AT SOURCE ON INTEREST PAID TO FINA NCIAL INSTITUTIONS. 1.1 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED ON FACTS AND IN LAW IN CONFIRMING THE ABOVE DISALLOWANCE EVE N WHEN THE ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 2 RECIPIENT HAS INCLUDED THE INCOME IN ITS RETURN AND HAS PAID THE TAX THEREON. 1.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED ON FACTS AND IN LAW IN CONFIRMING THE ENTIRE DISALLOWANCE OF INTEREST U/S 40(A)(IA) IGNORING THAT IN VIEW OF AMENDMENT MADE I N THIS SECTION W.E.F. 01.04.2015 WHICH IS TO REMOVE UNINTENDED HAR DSHIP, ONLY 30% OF SUCH AMOUNT CAN BE DISALLOWED BY GIVING THE EFFECT OF THIS AMENDMENT RETROSPECTIVELY. 1.3 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED ON FACTS AND IN LAW IN NOT GIVING COGNIZANCE TO THE FORM 26A ISSUED BY CHARTERED ACCOUNTANT IN CASE OF M/S RELIGARE FINVES T LTD. HOLDING THAT THE ASSESSEE HAS NOT FILED APPLICATION UNDER R ULE 46A. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN DISALLOWING RS. 1,36,491/- U/S 36(1)( III) HOLDING THAT BORROWED FUNDS TO THE EXTENT OF RS. 11,37,423/- WER E UTILIZED FOR THE PURPOSE OF SHARE APPLICATION AND INTEREST CALCU LATED @ 12% ON SUCH AMOUNT IS DISALLOWED. 3. THE LD. CIT(A) HAS ERRED ON FACT AND IN LAW IN C ONFIRMING THE DISALLOWANCE OUT OF INTEREST EXPENSES OF RS. 1,42,7 90/- MADE THE AO U/S 36(1)(III) ON ACCOUNT OF INTEREST FREE ADVAN CE GIVEN TO M/S RAVI ASSOCIATES. 4. THE ASSESSEE CRAVES TO AMEND, ALTER AND MODIFY A NY OF THE GROUNDS OF APPEAL. 5. THE APPROPRIATE COST BE AWARDED TO THE ASSESSEE. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS O F TRADING OF MEDICINES ON WHOLESALE BASIS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 21/9/2012 DECLARING TOTAL INCOME OF RS. 4,72,610/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER CASS AND THE ASSESSMENT WAS FINALIZED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 3 SHORT THE ACT) AT A TOTAL INCOME OF RS. 17,94,630/- BY MAKING VARIOUS ADDITIONS BY THE ASSESSING OFFICER. THE LD CIT(A) HAS GIVE PART RELIEF TO THE ASSESSEE. 3. NOW THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 4. IN THE GROUNDS NO. 1, 1.1, 1.2 AND 1.3 OF THE AP PEAL, THE ISSUES ARE AGAINST CONFIRMING THE DISALLOWANCE OF RS. 6,99, 639/- MADE U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE ON THE INTEREST PAID TO FINANCIAL INSTITUTIONS AND ALSO NO T ADMITTING THE CERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANT IN T HE CASE OF M/S RELIGARE FINVEST LTD. AS PER RULE 46A OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES). THE LD CIT(A) HAS UPHELD THE ORDER OF THE ASSESSING OFFICER ON THESE ISSUES BY HOLDING AS UNDER: 3.1.2 DETERMINATION : (I) I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A PPELLANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS PAID INTEREST OF R S.4,93,992/- TO BARCLAYS INVESTMENT & LOAN(L) LTD. AND RS. 2,05,647 /- TO RELIGARE FINVEST LTD. WITHOUT DEDUCTING TAX AT SOURCE. THE A O HAS INVOKED THE PROVISIONS OF SECTION 40(A) (IA) R.W.S 194A(1) & 19 4(3) (III) OF THE ACT AND HAS DISALLOWED THE SUM OF RS. 6,99,639/- THEREO F. (II) THE FIRST CONTENTION OF THE APPELLANT THAT THE PROVISIONS OF SECTION 40(A) (IA) OF THE ACT ARE APPLICABLE WHERE THE INTEREST R EMAINED PAYABLE ON THE CLOSE OF THE FINANCIAL YEAR WHEREAS IN THE INST ANT CASE UNDER ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 4 CONSIDERATION, THE ENTIRE INTEREST WAS PAID AND NOT HING REMAINED PAYABLE. IT MAY BE MENTIONED THAT THE ISSUE IS NO M ORE RES INTEGRA AS IT WAS HELD BY THE HONBLE APEX COURT IN THE CASE OF P ALAM GAS SERVICES CIT [2017] 81 TAXMANN.COM 43 (SC) THAT: SECTION 40(A) (IA) OF THE INCOME-TAX ACT 1961 - BU SINESS DISALLOWANCE - INTEREST ETC. PAID TO A RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE (SCOPE OF) - WHETHER WORD 'PAYABLE' OCCURRING IN SE CTION 40(A) (IA) NOT ONLY COVERS CASES WHERE AMOUNT IS YET TO BE PAID BU T ALSO THOSE CASES WHERE AMOUNT HAS ACTUALLY BEEN PAID - HELD, YES [PA RA 15] [IN FAVOUR OF REVENUE] (HEAD NOTE)' (III) DURING THE APPELLATE PROCEEDINGS, THE APPELLANT HAS FILED A COPY OF FORM 26A ISSUED BY A CHARTERED ACCOUNTANT IN THE CA SE OF M/S. RELIGARE FINVEST LTD. AND IN RESPECT OF BARCLAYS INVESTMENT & LOAN (INDIA) LTD., IT WAS STATED THAT A REQUEST HAS BEEN MADE FOR ISSUE O F FORM NO. 26A. IT IS PERTINENT TO MENTION HERE THAT THE APPELLANT DID NOT FILE ANY SUCH FORM 26A IN THE CASE OF M/S RELIGARE FINVEST LTD. D URING THE ASSESSMENT PROCEEDINGS AND AS SUCH IT BECOMES ADDIT IONAL EVIDENCE AT THE APPELLATE STAGE. THE APPELLANT HAS JUST FILED T HE SAME WITHOUT STATING THAT THE SAME IS ADDITIONAL EVIDENCE AND WI THOUT MAKING AN APPLICATION UNDER RULE 46A OF THE IT RULES FOR ADMI SSION OF ADDITIONAL EVIDENCE. IT MAY BE MENTIONED THAT THE LAW PRESCRIB ED A PROCEDURE FOR FILING ADDITIONAL EVIDENCE DURING THE APPELLATE PRO CEEDINGS AND IT IS NOT A MATTER OF RIGHT TO TILE THE ADDITIONAL EVIDENCES AT THE APPELLATE STAGE EVEN WITHOUT STATING THAT THESE ARE ADDITIONAL EVID ENCE. IN VIEW OF THESE FACTS, NO COGNIZANCE COULD BE GIVEN TO THE FO RM NO. 26A FILED BY THE APPELLANT IN THE CASE OF M/S RELIGARE FINVEST L TD. (IV) IT WAS ANOTHER CONTENTION OF THE APPELLANT THA T VIDE FINANCE ACT, 2014 AN AMENDMENT HAS BEEN MADE IN SECTION 40(A)(IA) OF THE ACT W.E.F. 01.04.2015 WHEREBY IT WAS PROVIDED THAT 30% OF ANY SUM PAYABLE TO A RESIDENT SHALL BE DISALLOWED IF TAX IS NOT DEDUCTED AT SOURCE UNDER CH. ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 5 XVIIB AS AGAINST THE 100% DISALLOWANCE PRESENTLY MA DE. THE CONTENTION OF THE APPELLANT THAT SINCE THE SAID AME NDMENT WAS INTENDED TO MITIGATE THE HARDSHIPS TO THE ASSESSEES , THEREFORE, THIS AMENDMENT IS RETROSPECTIVE IN NATURE AND THUS THE D ISALLOWANCE IS TO BE RESTRICTED TO 30% OF THE AMOUNT OF INTEREST UNDE R CONSIDERATION HAS BEEN EXAMINED VERY CAREFULLY AND I DO NOT FIND ANY MERIT THEREOF. HAD THE INTENTION OF THE LEGISLATURE WAS TO MAKE THE SA ID AMENDMENT RETROSPECTIVE IN NATURE, THEN IT SHOULD HAVE STATED SO WHEREAS AS PER THE STATUTE, THE SAID AMENDMENT IS EFFECTIVE FROM 0 1.04.2015 ONLY. IT MAY BE MENTIONED THAT IN THE CASE OF GEM GRANITES V S CIT [2004] 141 TAXMAN 528 (SC), IT WAS OBSERVED BY THE HON'BLE APE X COURT THAT: 12. EVERY STATUTE IS PRIMA FACIE PROSPECTIVE UNLE SS IT IS EXPRESSLY OR BY NECESSARY IMPLICATION MADE TO HAVE RETROSPECTIVE OP ERATION. [SEE: KESHAVAN MADHAVA MENON V. STATE OF BOMBAY AIR 1951 SC 128, 130], THERE IS NOTHING IN THE WORDING OF THE 1991 AMENDME NT TO SUGGEST THAT IT WAS TO OPERATE RETROSPECTIVELY. APART FROM THE L ACK OF ANY EXPRESS WORDS INDICATING SUCH INTENTION, THERE IS NOTHING I N THE STATUTE FROM WHICH WE CAN INFER ON ANY PRINCIPLE OF INTERPRETATI ON THAT THE INTENTION OF PARLIAMENT WAS TO GIVE THE AMENDMENT RETROSPECTI VE EFFECT. 13. AN ARGUMENT FOUNDED ON WHAT IS CLAIMED TO BE T HE INTENTION OF PARLIAMENT MAY HAVE APPEAL BUT A COURT OF LAW HAS T O GATHER THE OBJECT OF THE STATUTE FROM THE LANGUAGE USED. WHAT ONE MAY BELIEVE OR THINK TO BE THE INTENTION OF PARLIAMENT CANNOT PREVAIL IF THE LANGUAGE OF THE STATUTE DOES NOT SUPPORT THAT VIEW.' (V) THEREFORE, LOOKING TO THE TOTALITY OF FACTS AND CIRCUMSTANCES, IT IS HELD THAT THE AO WAS JUSTIFIED IN INVOKING THE PROVISION S OF SECTION 40(A) (IA) OF THE ACT AND THUS THE DISALLOWANCE OF RS. 6,99,63 9/- MADE IS HEREBY UPHELD. 5. WHILE PLEADING ON BEHALF OF THE ASSESSEE, THE LD AR HAS SUBMITTED AS UNDER: ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 6 1. IN CASE OF RELIGARE FINVEST LTD., ASSESSEE HAS S UBMITTED CERTIFICATE OF CHARTERED ACCOUNT AS PER ANNEXURE A TO FORM NO. 26A ISSUED UNDER 1 ST PROVISO TO SECTION 201(1) CERTIFYING THAT THE PAYEE HAS INCLUDED THE INTEREST INCOME PAID BY THE ASSESSEE IN ITS RETURN OF INCOME AND HAS PAID TAX THEREON (PB 1 4-15). THE LD. CIT(A) HAS NOT ACCEPTED THE SAME ON A TECHNICAL REASON THAT ASSESSEE HAS NOT MADE AN APPLICATION UNDER RULE 46A FOR ADMISSION OF THIS EVIDENCE. IT IS SUBMITTED THAT IF THE LD. CIT(A) WAS SO PARTICULAR ON SUCH TECHNICAL ISSUE, HE OUGHT TO HAVE ALLOWED AN OPPORTUNITY TO THE ASSESSEE TO FILE SUCH APPLICATION. IT IS A FUNDAMENTAL RULE OF JURISPRUDENCE THAT JUSTICE SHOULD PREVAIL OVER THE TECHNICALITIES. THE HONBLE SUPREME COURT IN CASE OF S. NAGARAJ VS. STATE OF KARNATAKA 4 SCC 595 OBSERVED T HAT JUSTICE IS A VIRTUE WHICH TRANSCENDS ALL BARRIERS. NEITHER THE RULES OF PROCEDURE NOR TECHNICALITIES OF LAW CAN STAND IN IT S WAY. THEREFORE, ONCE CERTIFICATE OF CHARTERED ACCOUNTANT HAS BEEN SUBMITTED, THE LD. CIT(A) OUGHT TO HAVE DIRECTED TH E AO TO DELETE THE DISALLOWANCE MADE U/S 40(A)(IA) IN RESPE CT OF INTEREST PAID TO RELIGARE FINVEST LTD. WITHOUT DEDUCTION OF TAX AT SOURCE CONSIDERING THE AMENDMENT MADE BY FINANCE ACT, 2012 W.E.F. 01.04.2013 WHICH HAS A RETROSPECTIVE APPLICATION AS HELD BY THE HONBLE DELHI HIGH COURT IN CASE OF ANSAL LANDMARK TOWNSHIP LTD. 377 ITR 635 AND THE HONBLE J&K HIGH COURT IN CASE OF SOMA TRG JOINT VENTURE VS. CIT (2017) 100 CCH 26 IN ORDER DATED 15.09.2017. 2. IN CASE OF BARCLAYS INVESTMENT & LOAN (INDIA) LTD. , THE ASSESSEE VIDE VARIOUS LETTERS (PB 16-19) REQUESTED IT TO ISSUE A CA CERTIFICATE IN FORM 26A. HOWEVER, THE SAME IS NO T RESPONDED. IT IS SUBMITTED THAT BARCLAYS INVESTMENT & LOAN (IN DIA) LTD. HAS ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 7 ASSIGNED OUR LOAN TO KOTAK MAHINDRA BANK LTD. W.E.F . 05.02.2013 (PB 20) AND THEREFORE, THE ASSESSEE WAS HELPLESS IN OBTAINI NG THE CERTIFICATE IN FORM 26A. HOWEVER, CONSIDERING T HAT IT IS AN NBFC WHO IS REGULARLY FILING THE RETURN OF INCOME A ND THE BALANCE SHEET OF THIS COMPANY IS FILED TO THE AO VIDE LETTE R DATED 10.02.2013 (REFER PAGES 2-3 OF THE ASSESSMENT ORDER ), IT SHOULD BE PRESUMED THAT IT HAS INCLUDED THE INTEREST INCOM E IN THEIR RETURN AND PAID TAX ON THE SAME AS HELD BY THE HON BLE ITAT JAIPUR BENCH IN CASE OF ACIT VS. GIRDHARI LAI BARGO TI ITA NO. 757/JP/2012 DATED 10.04.2015 WHERE RELYING ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. TRA N BHARAT AVIATION PVT. LTD. 320 ITR 671 IT WAS HELD THAT THE RECIPIENT BEING AN NBFC IT IS NOT POSSIBLE THAT THEY ARE NOT ASSESSED TO TAX AND THEREFORE, NO DISALLOWANCE U/S 40(A)(IA) CAN BE MADE. ALTERNATIVELY, AO BE DIRECTED CAUSE NECESSARY ENQUI RES FROM BARCLAYS INVESTMENT & LOAN (INDIA) LTD. TO ENSURE T HAT IT HAS INCLUDED THE INTEREST RECEIVED FROM ASSESSEE IN ITS INCOME, PAID TAX THEREON AND FILED THE RETURN OF INCOME. 3. IT IS FURTHER SUBMITTED THAT AN AMENDMENT HAS BE EN MADE BY FA, 2014 W.E.F. 01/04/2015 IN SECTION 40(A)(IA) WHE REBY IT IS PROVIDED THAT 30% OF ANY SUM PAYABLE TO A RESIDENT SHALL BE DISALLOWED IF TAX IS NOT DEDUCTED AT SOURCE UNDER C H. XVIIB AS AGAINST THE 100% PRESENTLY MADE. THE PURPOSE OF THI S AMENDMENT WAS EXPLAINED IN THE MEMORANDUM AS UNDER THE DISALLOWANCE OF WHOLE OF THE AMOUNT OF EXPENDI TURE RESULTS INTO UNDUE HARDSHIP AND THEREFORE IN ORDER TO REDUCE THE HARDSHIP, IT IS PROPOSED THAT IN CASE OF NON-DEDUCTION OR NON-PAYME NT OF TDS ON PAYMENTS MADE TO RESIDENTS AS SPECIFIED IN SECTION 40(A)(IA) OF THE ACT, THE DISALLOWANCE SHALL BE RESTRICTED TO 30% OF THE AMOUNT OF EXPENDITURE CLAIMED. ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 8 THE FINANCE MINISTER WHILE INTRODUCING THE AMENDMEN T IN PARA 207 OF THE BUDGET SPEECH HAS STATED AS UNDER: - 207. CURRENTLY, WHERE AN ASSESSEE FAILS TO DEDUCT AND PA Y TAX ON SPECIFIED PAYMENTS TO RESIDENTS, 100 PERCENT OF SUC H PAYMENTS ARE NOT ALLOWED AS DEDUCTION WHILE COMPUTING HIS INCOME. TH IS HAS CAUSED UNDUE HARDSHIP TO TAXPAYERS, PARTICULARLY WHERE THE RATE OF TAX IS ONLY 1 TO 10%. HENCE, I PROPOSE TO PROVIDE THAT INSTEAD OF 100 PERCENT, ONLY 30% OF SUCH PAYMENTS WILL BE DISALLOWED. FROM THE ABOVE IT CAN BE NOTED THAT THE AMENDMENT M ADE BY FA (NO.2) ACT, 2014 W.E.F. 01.04.2015 IS TO REMOVE UNI NTENDED AND UNDUE HARDSHIP AND THEREFORE THIS AMENDMENT SHOULD BE GIVE RETROSPECTIVE EFFECT AS PER THE VARIOUS DECISIONS S TATED ABOVE. IT IS ALSO SUBMITTED THAT THE HONBLE SUPREME COURT IN CASE OF CIT VS. VATIKA TOWNSHIP PVT. LTD. 109 DTR 33 HAS HELD THAT LEGISLATIONS WHICH MODIFY ACCRUED RIGHTS OR WHICH I MPOSE OBLIGATIONS OR IMPOSE NEW DUTIES OR ATTACH A NEW DI SABILITY HAVE TO BE TREATED AS PROSPECTIVE UNLESS THE LEGISLATIVE INTENT IS CLEARLY TO GIVE THE ENACTMENT A RETROSPECTIVE EFFECT. HOWEV ER, IF LEGISLATION CONFERS A BENEFIT ON SOME PERSONS BUT W ITHOUT INFLICTING A CORRESPONDING DETRIMENT ON SOME OTHER PERSON OR ON THE PUBLIC GENERALLY AND WHERE TO CONFER SUCH BENEF IT APPEARS TO HAVE BEEN THE LEGISLATORS OBJECT, THEN THE PRESUMPT ION WOULD BE THAT SUCH LEGISLATION, GIVING IT A PURPOSIVE CONSTR UCTION, WOULD WARRANT IT TO BE GIVEN A RETROSPECTIVE EFFECT. THER EFORE EVEN IN A CASE IT IS HELD THAT THE DISALLOWANCE U/S 40(A)(IA) IS WARRANTED, SAME SHOULD BE RESTRICTED TO ONLY 30% OF THE AMOUNT OF INTEREST PAID. RELIANCE IS PLACED ON THE FOLLOWING CASES WHE RE IT IS HELD THAT ANY AMENDMENT MADE IN THE ACT WHICH IS INTENDE D TO REMOVE UNINTENDED AND UNDUE HARDSHIP SHOULD BE GIVE N RETROSPECTIVE EFFECT. LD AR RELIED ON THE FOLLOWING CASE LAWS: ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 9 (I) SHRI RAJENDRA YADAV VS. ITO (JAIPUR TRIB) ITA NO.895/JP/2012 PRONOUNCED ON 29.01.2016. (II) ALLIED MOTORS PVT. LTD. VS. CIT 224 1TR 677 ( SC) (III) CIT VS. ALOM EXTRUSIONS LTD. 319 ITR 306 (SC) IN VIEW OF ABOVE, THE DISALLOWANCE CONFIRMED BY TH E LD. CIT(A) BE DIRECTED TO BE DELETED OR ALTERNATIVELY BE RESTR ICTED TO 30% OF THE AMOUNT DISALLOWED IN CASE OF BARCLAYS INVESTMEN T & LOAN (INDIA) LTD. 6. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE O RDERS OF THE AUTHORITIES BELOW. 7. I HAVE HEARD BOTH THE SIDES ON THIS ISSUE. THE IS SUE REGARDING PAYABLE HAS BEEN DECIDED BY THE HON'BLE SUPREME COU RT IN THE CASE OF PALAM GAS LTD. VS M/S PALAM GAS SERVICES VS CIT IN C IVIL APPEAL NO. 5512 OF 2017 ORDER DATED MAY, 03 RD , 2017, THEREFORE, THIS PLEADING IS DISMISSED. AS FAR AS RETROSPECTIVITY OF AMENDMENT I N SECTION 40(A)(IA) OF THE ACT IS CONCERNED, I HOLD THAT IT WAS A SUBSTANTI VE CHANGE IN LAW. EVERY SUBSTANTIVE CHANGE IN STATUTE IS PROSPECTIVE EXCEPT WHERE IT IS EXPRESSLY MADE RETROSPECTIVELY. THUS ONLY PLEADING O F LD. A.R. THAT CERTIFICATE SUBMITTED FOR M/S RELIGARE FINVEST LTD. WAS NOT CONSIDERED BY THE LD. CIT(A) IS REMAINS TO BE CONSIDERED. IN VIEW O F VARIOUS DECISIONS OF THE COURTS, THIS PLEA IS ALLOWED. THE CERTIFICATE PRODUCED NEEDS CONSIDERATION. IN THE INTEREST OF JUSTICE AND EQUIT Y, THIS ISSUE IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIF ICATION. THE CERTIFICATE ISSUED BY THE C.A. IN THE CASE OF M/S RELIGARE FINV EST LTD. SHALL BE ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 10 CONSIDERED BY A.O. AND OF FOUND IN ORDER, RELIEF SH ALL BE ALLOWED. AS REGARDING THE DIFFICULTY IN SUBMITTING CERTIFICATE FROM BARCLAYS INVESTMENT & LOAN (INDIA) LTD. IS CONCERNED, I AM O F THE VIEW THAT THE ASSESSEE SHALL BE PROVIDED ONE MORE OPPORTUNITY TO SUBMIT THE SAME. THEREFORE, THIS ISSUE IS ALSO RESTORED TO THE FILE O F ASSESSING OFFICER. THE GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE GROUNDS NO. 2 AND 3 OF THE APPEAL, THE IS SUES RAISED ARE RELATING TO DISALLOWANCE OF INTEREST PAID ON THE BOR ROWED FUNDS AND ALSO MAKING THE INTEREST FREE ADVANCES TO M/S RAVI ASSOC IATES. THE LD CIT(A) HAS DEALT THESE ISSUES IN HIS ORDER BY HOLDING AS U NDER: 3.2.2 DETERMINATION : (I) I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A PPELLANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. IT IS AN U NDISPUTED FACT THAT AS ON 31.03.2012, THE APPELLANT WAS HAVING SHARE CA PITAL OF RS. 7,50,200/- AND RESERVES OF RS. 14,62,377/- I.E. IT WAS HAVING 22,12,577/- OF ITS OWN INTEREST FREE FUNDS WHEREAS IT HAS SHOWN INVESTMENT IN EQUITY SHARES OF M/S SALASAR BUILDHOM E PVT. LTD. TO THE TUNE OF RS. 33.50 LAC. IT WAS THE CONTENTION OF THE APPELLANT THAT IT HAS MADE APPLICATION FOR ALLOTMENT OF EQUITY SHARE OF M /S SALASAR BUILDHOME PVT. LTD. DURING THE FY 2009-10 AND THE E QUITY SHARES WERE NOT ISSUED TILL DATE AND BY MISTAKE, IN THE BALANCE SHEET AS ON 31.03.2012, THE SAME WAS SHOWN AS INVESTMENT AND TH E PROVISIONS OF SECTION 14A OF THE ACT WERE NOT APPLICABLE ON SHARE APPLICATION MONEY AS IT COULD NOT YIELD ANY INCOME. I FIND MERIT IN T HE CONTENTION OF THE ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 11 APPELLANT AS IN THE CASE OF RAINY INVESTMENT PVT. L TD. VS. ACIT 56 SOT 0061 (MUM.) AS RELIED UPON BY THE APPELLANT, IT WAS HELD BY THE HONBLE ITAT, MUMBAI THAT SHARE APPLICATION MONEY B EING INCAPABLE OF YIELDING ANY TAX-FREE INCOME, SAME WOULD HAVE TO EX CLUDED IN WORKING OUT DISALLOWANCE UNDER RULE 8D. THEREFORE, I DO NOT FIND ANY JUSTIFICATION FOR THE AO TO INVOKE THE PROVISIONS O F SECTION 14A OF THE ACT AND HENCE, THE DISALLOWANCE OF RS. 4,63,951/- M ADE BY THE AO IS HEREBY DELETED. (II) HOWEVER, IT WAS NOTED EARLIER IN THIS ORDER TH AT AS ON 31.03.2012, THE APPELLANT WAS HAVING ITS OWN INTEREST FREE FUNDS TO THE TUNE OF RS. 22,12,577/-WHEREAS IT HAS SHOWN INVESTMENT IN EQUIT Y SHARES OF M/S SALASAR BUILDHOME PVT. LTD. TO THE TUNE OF RS. 33.5 0 LAC MEANING THEREBY THAT BORROWED FUNDS TO THE TUNE OF RS. 11,3 7,423/- WERE USED FOR MAKING SHARE APPLICATION MONEY. DURING THE COUR SE OF HEARING, THE APPELLANT WAS ASKED WHETHER THERE WAS ANY BUSINESS PURPOSE OR COMMERCIAL EXPEDIENCY IN MAKING APPLICATION FOR THE ALLOTMENT OF EQUITY SHARES OF M/S SALASAR BUILDHOME P LTD BUT NO SATISFACTORY EXPLANATION COULD BE FURNISHED. FURTHER, IT WAS STA TED BY THE APPELLANT THAT THE EQUITY SHARES WERE NOT EVEN ALLOTTED TILL DATE. THEREFORE, THESE FACTS CLEARLY ESTABLISH THAT THE APPELLANT HAS UTIL IZED BORROWED FUNDS TO THE EXTENT OF RS. 11,37,423/- FOR NON BUSINESS PURP OSES OR WITHOUT ANY COMMERCIAL EXPEDIENCY AND THUS IN VIEW OF THE HON'B LE APEX COURT DECISION IN THE CASE OF S A BUILDERS 288 ITR 1 (SC) , THE PROPORTIONATE INTEREST IS TO BE DISALLOWED U/S 36( 1)(III) OF THE ACT. THE APPELLANT HAS PAID INTEREST @ 12% AND THUS A SUM OF RS. 1,36,491/ - IS BEING DISALLOWED U/S 36(1) (III) OF THE ACT, ACCORDINGLY. THE LD. CIT(A) HAS FURTHER HELD AS UNDER: 3.3.2 DETERMINATION : ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 12 (I) I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A PPELLANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. IT IS AN U NDISPUTED FACT THAT THE APPELLANT WAS NEITHER HAVING BUSINESS TRANSACTI ONS WITH M/S RAVI ASSOCIATES, A PROPRIETORSHIP CONCERN OF ONE OF ITS DIRECTOR, SHRI RAVINDRA PRASHAD GUPTA NOR ANY COMMERCIAL EXPEDIENC Y WAS SHOWN BY THE APPELLANT FOR ADVANCING SUCH INTEREST FREE ADVA NCES. THE CONTENTION OF THE APPELLANT THAT THE SAID AMOUNT WA S GIVEN OUT OF ITS OWN INTEREST FREE FUNDS HAS NO MERIT AND IS ACCORDI NGLY, HEREBY REJECTED AS ITS INTEREST FREE FUNDS WERE NOT EVEN S UFFICIENT TO MAKE SHARE APPLICATION FOR THE EQUITY SHARES OF M/S SALA SAR BUILDHOME P LTD, AS DISCUSSED IN THE EARLIER GROUND OF APPEAL. FURTH ER, ON A PERUSAL OF THE ACCOUNT OF M/S RAVI ASSOCIATES AS APPEARING IN THE BOOKS OF ACCOUNTS REVEALED THAT THERE WERE CONTINUOUS TRANSA CTIONS THROUGHOUT THE YEAR UNDER CONSIDERATION. THE CONTENTION THAT I T HAS NEITHER CHARGED NOR PAID ANY INTEREST FROM/TO M/S RAVI ASSO CIATES AND THEREFORE, THE DISALLOWANCE MADE BY THE AO IS TO BE DELETED IS ALSO OF NO AVAIL AS IT WAS NOTED THAT THE AO HAS COMPUTED D AY TODAY INTEREST AFTER TAKING INTO ACCOUNT THE DEBIT/CREDIT BALANCE I.E. AFTER CHARGING INTEREST ON DEBIT BALANCES AND ALLOWING INTEREST ON CREDIT BALANCES. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT COU LD NOT CONTROVERT THESE FINDINGS OF THE AO, AS RECORDED IN THE ASSESS MENT ORDER. (II) THEREFORE, IN VIEW OF THE ABOVE DISCUSSION AND LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE AO W AS JUSTIFIED IN MAKING DISALLOWANCE OF RS. 1,42,790/- U/S 36(1) (III) OF T HE ACT AND HENCE THE SAME IS HEREBY SUSTAINED. 09. WHILE PLEADING ON BEHALF OF THE ASSESSEE, THE L D AR HAS SUBMITTED AS UNDER: ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 13 1. THE ASSESSEE HAS INVESTED RS.33.50 LACS IN SHARE APPLICATION MONEY OF M/S. SALASAR BALAJI BUILDHOME (P) LTD IN E ARLIER YEARS. THE AO OBSERVED THAT ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS. 28,73,401/- AND CLAIMED ALL THE EXPENDITURE UND ER THE HEAD BUSINESS EXPENSE. FROM THE BOOKS IT IS NOT ASCERTAI NABLE WHAT AMOUNT OF INTEREST EXPENSE PERTAINS TO EXEMPTED DIV IDEND INCOME. HE ACCORDINGLY, HELD THAT THE PROVISION OF SECTION 14A OF THE IT ACT, 1961 ARE ATTRACTED AND THUS, MADE DISAL LOWANCE OF RS. 4,63,951/- (RS. 4,49,584/- FOR INTEREST AND RS. 14,367/- FOR EXPENSE) AS PER RULE 8D. 2. THE LD. CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO BUT HELD THAT AS ON 31.03.2012, THE ASSESSEE HAD RS.22, 12,577/- AS INTEREST FREE FUNDS WHEREAS THE INVESTMENT IN M/S S ALASAR BUILDHOME PVT. LTD. IS RS. 33.50 LAKHS I.E., BORROW ED FUNDS AMOUNTING RS.L 1,37,423/- WAS INVESTED. THE ASSESSE E COULD NOT FURNISH ANY EXPLANATION WHETHER THE SHARE APPLICATI ON WAS MADE FOR BUSINESS PURPOSE OR FOR COMMERCIAL EXPEDIENCY. THUS, HE HELD THAT BORROWED FUNDS HAVE BEEN UTILIZED FOR NON -BUSINESS PURPOSES OR WITHOUT ANY COMMERCIAL EXPEDIENCY AND B Y PLACING RELIANCE ON THE DECISION RENDERED IN S A BUILDERS 2 88 ITR 1 (SC), HE DISALLOWED INTEREST @ 12% ON RS. 11,37,423/- I.E ., RS. 1,36,491/- U/S 36(L)(III). 3. IT IS SUBMITTED THAT ASSESSEE MADE INVESTMENT IN M/S SALASAR BUILDHOME PVT. LTD. IN FY 2009-10 (PB 25-26). IN EARLIER YEARS, NO DISALLOWANCE WAS MADE. THE DIRECTOR OF THE COMPA NY IS ALSO ONE OF THE DIRECTORS OF M/S SALASAR BUILDHOME PVT. LTD. IN SUBSEQUENT YEARS, ASSESSEE ENTERED INTO AN AGREEMEN T FOR PURCHASE OF OFFICE PREMISES IN THE BUILDING CONSTRU CTED BY M/S ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 14 SALASAR BUILDHOME PVT. LTD. THUS, THE INVESTMENT IS MADE IN COMMERCIAL EXPEDIENCY. THEREFORE, IN VIEW OF THE DE CISION OF HONBLE SUPREME COURT IN SA BUILDERS 288 ITR 1, NO DISALLOWANCE OUT OF THE INTEREST CAN BE MADE. FURTH ER, WHEN IN EARLIER YEARS, NO DISALLOWANCE IS MADE, THE SAME CA NNOT BE MADE IN THE SUBSEQUENT YEARS AS HELD BY THE HONBLE SUPREME COURT IN CASE OF MUNJAL SALES CORPORATION VS. CIT & ANR. (2008) 298 ITR 298 WHERE IT IS HELD THAT ONCE IT WAS FOUND THAT INTER EST FREE LOANS GRANTED BY ASSESSEE TO ITS SISTER CONCER NS IN AUGUST/SEPTEMBER, 1991, CONTINUED UPTO ASST. YR. 19 97-98 AND THAT THE SAID LOANS WERE ADVANCED OUT OF ITS OWN FU NDS FOR BUSINESS PURPOSES AND THAT THE INTEREST PAID THEREO N DID NOT EXCEED THE RATE PRESCRIBED UNDER S. 40(B)(IV), ASSE SSEE WAS ENTITLED TO DEDUCTION UNDER S. 36(L)(III) R/W S. 40 (B)(IV) FOR ASST. YRS. 1993-94 TO 1997-98. IN THIS CASE ALSO, WHEN T HE AMOUNT WAS GIVEN NO DISALLOWANCE WAS MADE AND THEREFORE, I N THE SUBSEQUENT YEAR, WITHOUT ANY CHANGE IN THE FACTS AN D CIRCUMSTANCES, THE DISALLOWANCE U/S 36(1)(III) CANN OT BE MADE. 4. OTHERWISE ALSO, ASSESSEE IS HAVING INTEREST FREE FUNDS (PB 22-24) IN THE FORM OF SHARE CAPITAL (RS. 7,50,200/-), RESE RVES AND SURPLUS (RS.14,62,377/-) AND THE SUNDRY CREDITORS (RS.33,34,531/-) AGGREGATING TO RS. 55,47,108/-. OU T OF WHICH, AMOUNT ADVANCED TO M/S SALASAR BUILDHOME PVT. LTD. IS RS.33,50,000/- ONLY. THUS, THE INTEREST FREE FUND A VAILABLE IS MORE THAN THE INTEREST FREE ADVANCE GIVEN. THE INTE REST EXPENDITURE OF RS. 28,73,401/- INCURRED BY THE ASSE SSEE ON SHORT TERM BORROWING OF RS.47,36,284/- AND LONG TERM LOAN RS. 1,07,60,791/- AGGREGATING TO RS. 1,54,97,075/- AS O N 31.03.2012. THESE LOANS ARE INVESTED IN STOCK AND T RADE ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 15 RECEIVABLE OF RS. 98,79,984/- AND RS. 79,49,513/- R ESPECTIVELY AGGREGATING TO RS. 1,78,29,497/-. THUS, THE ENTIRE LOAN WAS UTILIZED FOR THE PURPOSE OF THE BUSINESS OF THE ASS ESSEE AND NOT IN GIVING INTEREST FREE ADVANCES. HENCE, NO PART OF INTEREST EXPENDITURE INCURRED BY THE APPELLANT CAN BE ATTRIB UTED TOWARDS GIVING OF ADVANCE TO M/S SALASAR BUILDHOME PVT. LTD . IT IS A SETTLED LAW THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION W OULD ARISE THAT ADVANCE/INVESTMENTS WOULD BE OUT OF THE INTERE ST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INT EREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. FOR THIS, RELIANCE IS PLACED ON THE FOLLOWING JUDICIAL PRECEDENTS:- (I) CIT VS. MAX INDIA LTD. (2016) 141 DTR 145 (P&H) (HC) MERELY BECAUSE THE INTEREST FREE FUNDS WITH THE ASS ESSEE HAVE DECREASED DURING ANY PERIOD, IT DOES NOT FOLLOW THA T THE FUNDS BORROWED ON INTEREST WERE UTILIZED FOR THE PURPOSE OF INVESTING IN ASSETS YIELDING EXEMPT INCOME. IF EVEN AFTER THE DE CREASE, THE ASSESSEE HAS INTEREST FREE FUNDS SUFFICIENT TO MAKE THE INVESTMENT IN ASSETS YIELDING THE EXEMPT INCOME, THE PRESUMPTION THAT IT WAS SUCH FUNDS THAT WERE UTILIZED FOR THE SAID INVESTMENT RE MAINS. NATURAL COURSE OF BUSINESS WOULD SUGGEST THAT THE ASSESSEE WOULD UTILIZE THE FUNDS TO THE MAXIMUM ADVANTAGE WHICH IN CASES SUCH AS THESE WOULD LEAD TO MAKING INVESTMENTS FOR THE OPERATIONAL ASSE TS FIRST OUT OF INTEREST BEARING FUNDS. PRESUMPTION AS REGARDS THE UTILIZATION OF INTEREST FREE FUNDS AND BORROWED FUNDS IN A MIXED P OOL OUGHT TO BE IN FAVOUR OF THE ASSESSEE. FINDING, THEREFORE, THAT TH E ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO MAKE THE INVESTME NT YIELDING TAX FREE RETURNS CANNOT BE FAULTED. TRIBUNAL WAS JUSTIFIED I N HOLDING THAT NO EXPENSES IS ATTRIBUTABLE TO THE EXEMPTED INCOME AS THE REVENUE HAD FAILED TO ESTABLISH A DIRECT NEXUS BETWEEN THE EXPE NSES INCURRED AND THE INCOME EARNED. (II) CIT VS. KARNATAKA STATE INDUSTRIAL & INFRASTRU CTURE DEVELOPMENT CORPN. LTD. (2016) 237 TAXMAN 240 (KAR.) (HC) ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 16 ASSESSEE WAS A STATE GOVERNMENT UNDERTAKING ENGAGED IN FINANCING INDUSTRIAL UNITS. IT HAD MADE INVESTMENT IN SECURIT IES ON WHICH IT EARNED TAX FREE DIVIDEND INCOME. AO OBSERVED THAT T HOUGH 75 PER CENT OF INVESTMENTS WERE MADE THROUGH FUNDS GIVEN BY STA TE GOVERNMENT, 25 PER CENT OF INVESTMENTS WERE MADE OUT OF MIXED P OOL OF FUNDS AND THEREFORE 25 PER CENT OF INTEREST EXPENDITURE WAS T AKEN AS INDIRECT EXPENDITURE LIABLE FOR DISALLOWANCE U/S 14A READ WI TH RULE 8D. AS AMOUNT OF DISALLOWANCE EXCEEDED AMOUNT OF EXEMPT IN COME ITSELF, AO ADOPTED A SUM OF 5 PER CENT OF INDIRECT EXPENDITURE TOGETHER WITH 0.5 PER CENT OF AVERAGE INVESTMENTS UNDER RUE 8D(2)(III ) AS DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. IT WAS HELD TH AT SINCE AO FAILED TO ESTABLISH DIRECT NEXUS BETWEEN BORROWED FUNDS AN D TAX FREE INVESTMENTS, NO DISALLOWANCE COULD BE MADE TOWARDS INTEREST U/S 14A READ WITH RULE 8D. (III) CIT VS. SUZLON ENERGY LTD. (2013) 354 ITR 630 (GUJ.) (HC) WHERE ASSESSEE HAD OWN INTEREST FREE FUNDS MANY TIM ES OVER THE INVESTMENT MADE IN INDIAN SUBSIDIARIES AND FURTHER, THERE WAS NO DIRECT NEXUS BETWEEN INTEREST BEARING BORROWED FUND S AND SUCH INVESTMENT, NO DISALLOWANCE OF INTEREST EXPENDITURE COULD BE MADE U/S 14A. (IV) HONBLE ITAT IN CASE OF VIJAY INDUSTRIES FOR A.Y. 0 6-07 IN ITA NO. 673/JP/15 ORDER DATED 17.06.2016 WHERE ALSO THE DISALLOWANCE OF INTEREST MADE BY AO WAS SET ASIDE BY THE HONBLE IT AT BUT AGAIN AO MADE THE DISALLOWANCE WHICH IS CONFIRMED BY CIT(A) BUT CONSIDERING THE FACT THAT ASSESSEE HAS SUFFICIENT RESERVE AND S URPLUS TO MAKE INVESTMENT IN SHARES AND IN THE ABSENCE OF DIRECT N EXUS BETWEEN INTEREST BEARING FUNDS AND INVESTMENT IN SHARES, TH E DISALLOWANCE MADE BY THE LOWER AUTHORITIES WAS DELETED. IN DELET ING THE DISALLOWANCE, HONBLE ITAT PLACED RELIANCE ON THE D ECISION OF BOMBAY HIGH COURT IN CASE OF CIT VS. RELIANCE UTILITIES AN D POWER LTD. 313 ITR 340 AND ALSO ON VARIOUS OTHER DECISIONS CITED BY TH E ASSESSEE. (V) DCIT VS. MAHARASHTRA SEAMLESS LTD. (2011) 52 DT R 005 (DEI.)(TRIB.) IN THIS CASE CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT ASSESSEE HAD MAINTAINED THAT INTEREST EXPENDITURE W AS INCURRED IN RESPECT OF BORROWING ON CASH CREDIT LIMITS UTILIZED FOR NORMAL BUSINESS ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 17 PURPOSE OF THE ASSESSEE & NO PART OF BORROWED FUNDS HAS BEEN UTILIZED FOR MAKING INVESTMENT IN TAX FREE BONDS & THAT THE AO HAD NOT ESTABLISHED ANY NEXUS BETWEEN THE BORROWED FUNDS & THE INVESTMENT IN TAX FREE BONDS. THESE FINDINGS OF CIT(A) WAS HEL D JUSTIFIED & IT WAS HELD THAT WHERE FUNDS ARE MIXED & IT IS NOT POSSIBL E TO ASCERTAIN AS TO WHETHER INVESTMENT IN TAX FREE BONDS WAS OUT OF ASS ESSEES OWN FUND, THE AO DID NOT ESTABLISH NEXUS BETWEEN BORROWED FUN DS & THE INVESTMENT IN TAX FREE BONDS, IN SUCH CASES APPORTI ONMENT ON PRO RATA BASIS WAS IMPROPER IN THE ABSENCE OF ANY THING BROU GHT BY THE AO TO REBUT THE ASSESSEES STAND THAT THE INVESTMENT IN T AX FREE BONDS HAD BEEN MADE OUT OF THE FUNDS OF THE SHAREHOLDERS. IN VIEW OF THE ABOVE, THE DISALLOWANCE OF RS. 1,36,491/- MADE BY THE LD. CIT(A) BE DIRECTED TO BE DELETED. THE LD AR HAS FURTHER SUBMITTED AS UNDER: (I) THE AO OBSERVED THAT ASSESSEE HAS DEBITED INTER EST ON BORROWING AT RS. 28,73,401/- BUT IT HAS MADE INTERE ST FREE ADVANCE TO M/S. RAVI ASSOCIATES, A PROPRIETARY CONC ERN OF ITS DIRECTOR, SHRI RAVINDRA PRASAD GUPTA. THE ADVANCES GIVEN ARE WITHOUT ANY COMMERCIAL EXPEDIENCY. NO BUSINESS TRAN SACTION IS CARRIED OUT WITH M/S. RAVI ASSOCIATES. ACCORDINGLY, HE CALCULATED INTEREST @ 12% AND THEREBY, DISALLOWED INTEREST EXP ENSE U/S 36(L)(III) OF RS. 1,42,790/-. (II) THE LD. CIT(A) HELD THAT NEITHER HAVING TRANSA CTIONS WITH M/S RAVI ASSOCIATES NOR ANY COMMERCIAL EXPEDIENCY WAS S HOWN FOR ADVANCING SUCH INTEREST FREE ADVANCES. THE CONTENTI ON OF THE ASSESSEE THAT THE AMOUNT WAS GIVEN OUT OF ITS OWN I NTEREST FREE FUNDS HAS NO MERIT AS ITS INTEREST FREE FUNDS WERE NOT SUFFICIENT TO MAKE SHARE APPLICATION FOR EQUITY SHARES OF M/S SALASAR BUILDHOME PVT. LTD. HE FURTHER STATED THAT ASSESSEE DID NOT CONTROVERT THE FINDINGS OF THE AO. ACCORDINGLY, HE CONFIRMED THE DISALLOWANCE. ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 18 (III) AT THE OUTSET, WE MAY POINT OUT THAT THE ASSE SSEE IS HAVING CURRENT ACCOUNT WITH RAVI ASSOCIATES AND WHEREVER A MOUNT IS REQUIRED IN THE BUSINESS AMOUNT IS RECEIVED FROM RA VI ASSOCIATES AND WHEREVER AMOUNT IS REQUIRED BY RAVI ASSOCIATES THE SAME IS GIVEN TO THEM (PB 27-31). THEREFORE, NO INTEREST IS CHARGED. IT MAY BE NOTED THAT IN SUBSEQUENT YEARS, ASSESSEE HAS RECEIVED ADVANCE FROM RAVI ASSOCIATES ON WHICH NO INTEREST W AS PAID. EVEN DURING THE YEAR, ASSESSEE HAS RECEIVED THE AMOU NT FROM RAVI ASSOCIATES BETWEEN 30.05.2011 TO 20.09.2011. T HUS, THE AMOUNT ADVANCED AND RECEIVED FROM M/S RAVI ASSOCIAT ES IS BECAUSE OF COMMERCIAL EXPEDIENCY DUE TO MEET THE EX IGENCIES OF BUSINESS AS PER THE PRINCIPLE LAID DOWN BY THE HON BLE SUPREME COURT IN CASE OF S A BUILDERS (SUPRA) AND THEREFORE , NO DISALLOWANCE U/S 36(1) (III) CAN BE MADE. (IV) IT IS ALSO SUBMITTED THAT AS STATED IN GROUND NO. 2 ABOVE, THE INTEREST FREE FUND AVAILABLE AFTER CONSIDERING THE INTEREST FREE ADVANCE GIVEN TO M/S SALASAR BUILDHOME PVT. LTD. WO ULD BE RS. 21,97,108/-. THIS AMOUNT IS MUCH MORE THAN THE INTE REST FREE ADVANCE GIVEN TO M/S RAVI ASSOCIATES. THEREFORE, AL SO NO DISALLOWANCE IS JUSTIFIED IN VIEW OF THE DECISIONS REFERRED ABOVE. IN VIEW OF THE ABOVE, THE ADDITION CONFIRMED BY TH E LD. CIT(A) BE DIRECTED TO BE DELETED. 10. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 11. I HAVE HEARD BOTH THE SIDES ON THIS ISSUE AND A LSO CONSIDERED THE PLEADINGS AND FACTUAL ASPECTS RAISED BY BOTH THE SI DES. I AM OF THE ITA 734/JP/2017_ M/S MITTAL PHARMA P. LTD. VS ITO 19 CONSIDERED VIEW THAT BOTH THESE ISSUES NEEDS A FRES H LOOK AT THE LEVEL OF THE ASSESSING OFFICER, THEREFORE, IN THE INTEREST O F JUSTICE AND EQUITY, THE ISSUES RAISED IN GROUNDS NO. 2 AND 3 OF THE APPEAL ARE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED DE NOVO. 12. GROUNDS NO. 4 AND 5 ARE GENERAL IN NATURE AND D O NOT REQUIRE ANY ADJUDICATION. HENCE, THE SAME STAND DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 23/11/2017. SD/- HKKXPAN (BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 23 RD NOVEMBER, 2017 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S MITTAL PHARMA PVT. LTD., JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD 1(2), JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 734/JP/2017) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR