M/s Kissan Fats Ltd., Bathinda V. DCIT, Ludhiana

ITA 779/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8963 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 13-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Question of law; Commercial expediency
• Section: 14A; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.779/CHD/2016 (ASSESSMENT YEAR : 2010-11) M/S KISSAN FATS LTD., VS. THE D.C.I.T., HAZI RATTAN LINK ROAD, CENTRAL CIRCLE-I, BATHINDA. LUDHIANA. PAN: AAHFG2637C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 15.11.2016 DATE OF PRONOUNCEMENT : 28.11.2016 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-5, LUDHIANA DATED 18.3.2016 FOR ASSESSMEN T YEAR 2010-11. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN THE LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 4,94,811/- UNDER SECTION 36(L)( III) OF THE INCOME TAX ACT ON THE AMOUNT INVESTED FOR 2 PURCHASE OF SHARES BY HOLDING THAT INVESTMENT IN SHARES IS NOT THE BUSINESS OF THE ASSESSEE WHEREAS IN THE SIMILAR FACTS HE HAS ALLOWED EXPENDITURE DISALLOWED BY THE AO AGAINST INVESTMENT MADE IN THE SHARES AMOUNTING TO RS. 1.127 CRORE UNDER SECTION 14A OF THE INCOME TAX ACT FOLLOWING THE JUDGMENTS OF HON'BLE JURISDICTIONAL HIGH COURT OF PUNJAB & HARYANA, CHANDIGARH. 2. THAT THE APPELLANT CRAVES PERMISSION TO ELUCIDATE, ADD, AMEND, MODIFY, DELETE ANY GROUND OR GROUNDS OF APPEAL BEFORE THE DISPOSAL IN THE INTEREST OF SUBSTANTIAL JUSTICE. 3. THE ONLY ISSUE IN THE PRESENT APPEAL RELATES TO DISALLOWANCE OF A SUM OF RS.4,94,811/- MADE BY APPL YING THE PROVISIONS OF SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 4. BRIEFLY STATED, DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE IMPUGNED YEAR, IT WAS FOUND THA T THE ASSESSEE HAD GIVEN ADVANCE OF RS.1.05 CRORES DURING THE YEAR FOR PURCHASE OF SHARES ON DIFFERENT DATES. TH E ASSESSING OFFICER HELD THE ADVANCE TO BE APPARENT LY NON- BUSINESS IN NATURE AND FURTHER RELYING ON THE JUDGM ENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LIMITED, 286 ITR 1 (P&H), DISAL LOWED THE INTEREST ATTRIBUTABLE TO THE SAME @ 12% PER AN NUM AMOUNTING IN ALL TO RS.4,94,811/-, UNDER SECTION 36 (1)(III) OF THE ACT. 5. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE STATED THAT IT HAD SUFFICIENT OWN FUNDS AND, THEREF ORE, 3 PRESUMPTION UNDER LAW WAS THAT THE INVESTMENT SHOUL D BE TREATED AS MADE OUT OF OWN FUNDS. THE ASSESSEE REL IED ON THE JUDGMENT OF I.T.A.T., CHANDIGARH BENCH IN THE C ASE OF BCL INDUSTRIES & INFRASTRUCTURE LTD. VS. DCIT IN IT A NO.1002/CHD/2013 DATED 13.1.2016, WHEREIN RELYING U PON THE DECISION OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT IN ITA NO.624 OF 2013 (O&M) DATED 24.7.2015 AND CIT VS. KAPSONS ASSOCIATES, ITA NO.354 OF 2013 (O&M) DATED 4.8.2015 , DISALLOWANCE UNDER SECTION 36(1)(III) WAS DELETED F OR THE REASON THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS T O MAKE THE SAME. THE LD. CIT (APPEALS) REJECTED THE ASSES SEES CONTENTION AND UPHELD THE DISALLOWANCE MADE FOR TH E REASON THAT THE ADVANCES MADE WERE FOR NON-BUSINESS PURPOSE AND INTEREST LIABILITY, THEREFORE, COULD NO T BE SAID TO BE FOR THE BUSINESS OF THE ASSESSEE. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE CONTENTIONS MADE BEFORE THE LEARNED CIT (APPEALS) AND STATED THAT THE ASSESSEE HAD SUFFICIE NT OWN FUNDS TO MAKE THE IMPUGNED INVESTMENTS/ADVANCE. L D. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE BALANCE SHEET OF THE ASSESSEE RELATING TO THE IMPUGNED YEAR AND DREW OUR ATTENTION TO PAGE NO.9 OF THE SAME,AND POI NTED OUT THAT AS ON 31.3.2010 THE SHAREHOLDERS FUNDS AVAILABLE WITH THE ASSESSEE, WHICH INCLUDED SHARE C APITAL AND RESERVES & SURPLUS, AMOUNTED IN ALL TO APPROXIM ATELY RS.20.88 CRORES. LD.COUNSEL FOR THE ASSESSEE STATE D THAT 4 THIS WAS MORE THAN SUFFICIENT TO MAKE THE IMPUGNED INVESTMENT OF RS.1.05 CRORES. THEREAFTER RELYING O N THE PROPOSITION LAID DOWN BY THE JURISDICTIONAL HIGH CO URT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. (SUPRA), THAT WHERE ENOUGH OWN FUNDS ARE AVAILABLE FOR MAKING THE INVESTMENT THE PRESUMPTION IS THAT THE SAME HAD BEE N MADE OUT OF THE OWN FUNDS, THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THE SAME APPLIES IN THE PRESEN T CASE ALSO. THE LD. COUNSEL FOR THE ASSESSEE THEREFORE S TATED THAT THERE WAS NO REASON TO MAKE DISALLOWANCE OF AN Y INTEREST UNDER SECTION 36(1)(III) OF THE ACT. LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE FOLLOWING JUDGMENTS OF I.T.A.T., CHANDIGARH BENCH WHEREIN THE AFORESTATED JUDGMENT OF THE JURISDICTIONAL HIGH COURT WAS FOLLO WED AND IN IDENTICAL CIRCUMSTANCES DISALLOWANCES MADE U NDER SECTION 36(1)(III) OF THE ACT WAS DELETED : I) ACIT VS. DEEPAK BUILDERS, ITA NO.1000/CHD/2013 DT.26-02-2016 II) DCIT VS. DEEP MALHOTRA ITA NO.661/CHD/2015 DT.15-03-2016 7. THE LEARNED D.R., ON THE OTHER HAND, COUNTERED BY SAYING THAT RELIANCE PLACED BY THE LD. COUNSEL F OR THE ASSESSEE ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. (SUPRA) WAS MISPLACED AND DID NOT APPLY TO THE FACTS OF THE PRE SENT CASE. THE LD. DR POINTED OUT THAT EVEN IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. (SUPRA) THE HIGH COURT HAD FIRST HELD THAT THE ADVANCE MET THE CRITERIA OF COM MERCIAL 5 EXPEDIENCY AND IT WAS ESTABLISHED BY THE COURT THAT THE ADVANCE MADE WAS FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE LD. DR STATED THAT IT WAS ONLY THERE AFTER THAT THE PROPOSITION OF ENOUGH OWN FUNDS TO MAKE TH E IMPUGNED ADVANCES WAS APPLIED BY THE HIGH COURT AND THE DISALLOWANCE MADE UNDER SECTION 36(1)(III) WAS DELE TED. THE LD. DR POINTED OUT THAT IT IS EVIDENT, THEREFOR E, THAT FOR APPLYING THE PROPOSITION LAID DOWN BY THE JURISDICTIONAL HIGH COURT, THAT WHERE THERE ARE ENO UGH OWN FUNDS THE PRESUMPTION IS THAT THE INVESTMENTS H AVE BEEN MADE OUT OF THE SAME, IT IS ESSENTIAL TO ESTAB LISH COMMERCIAL EXPEDIENCY FOR MAKING THE ADVANCE/INVEST MENT IN THE FIRST PLACE. THE LD. DR STATED THAT IN THE ABSENCE OF THE SAME IN THE PRESENT CASE, THE PROPOSITION LA ID DOWN IN BRIGHT ENTERPRISES PVT. LTD. (SUPRA) BY THE JURISDICTIONAL HIGH COURT, COULD NOT BE FOLLOWED AN D THUS, RELIANCE PLACED BY THE LEARNED COUNSEL FOR THE ASSE SSEE ON VARIOUS JUDGMENTS AS STATED ABOVE, WAS MISPLACED. THE LEARNED COUNSEL FOR THE ASSESSEE COUNTERED BY POINT ING OUT THAT THE DECISION RENDERED BY THE I.T.A.T., CHA NDIGARH BENCH IN THE CASE OF M/S DEEPAK BUILDERS (SUPRA), HAD CATEGORICALLY HELD THAT THE PROPOSITION LAID IN THE CASE OF ABHISHEK INDUSTRIES LIMITED (SUPRA), WHICH WAS RELI ED UPON BY THE ASSESSING OFFICER IN THE PRESENT CASE W HILE MAKING DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT, HAD BEEN OVERRULED BY THE HON'BLE SUPREME COURT IN HERO CYCLES LTD. VS. CIT (CENTRAL,) LUDHIANA, CIVIL APPE AL NO.514 OF 2008 DATED 5.11.2015 AND THE PROPOSITION 6 RELATING TO SUFFICIENCY OF FUNDS WAS UPHELD FOR DEL ETING THE DISALLOWANCE OF INTEREST. 8. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES, PERUSED THE ORDERS OF AUTHORITIES BELOW AS ALSO THE DOCUMENTS PRODUCED BEFORE US. THE UNDISPUTED FACTS IN THE PRESENT CASE ARE THAT DURING THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE AMOUNTING TO RS.481.38 CRORES AND HAD M ADE INTEREST FREE ADVANCES FOR MAKING INVESTMENT IN SHA RES AMOUNTING TO RS.1.05 CRORES. IT IS ALSO AN UNDISPUT ED FACT THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE AS SESSE IN THE FORM OF SHARE CAPITAL AND FREE RESERVES AMOUNTE D TO RS.20.88 CRORES AS AT THE END OF THE YEAR. FURTHE R, THE BUSINESS PURPOSE FOR MAKING THE AFORESTATED ADVANCE S WAS NOT ESTABLISHED EITHER BEFORE THE LOWER AUTHORITIES OR EVEN BEFORE US. THEREFORE, THE ONLY QUESTION WHICH REMAINS TO BE ANSWERED BEFORE US IS WHETHER IN THE CASES WHERE THERE ARE SUFFICIENT OWN INTEREST FREE FUNDS OF THE ASSESSEE TO MAKE ADVANCES/INVESTMENTS WITHOUT CHARG ING ANY INTEREST, COULD THE SAME BE ATTRIBUTED TO HAVIN G BEEN MADE OUT OF THE INTEREST FREE OWN FUNDS. GOING FOR WARD FROM HERE, IF THE ANSWER TO THE SAME IS IN THE AFFI RMATIVE, COULD IT ALSO BE HELD THAT NO DISALLOWANCE OF INTER EST UNDER SECTION 36(1)(III) OF THE ACT CAN BE MADE IN THE SAID CIRCUMSTANCES. 9. WE FIND THAT THIS ISSUE STANDS SETTLED IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE 7 OF BRIGHT ENTERPRISES PVT. LTD. (SUPRA) WHEREIN AT PARA 16 OF THE ORDER IT WAS CATEGORICALLY HELD THAT WHERE T HE FUNDS/RESERVES WERE SUFFICIENT TO COVER INTEREST FR EE ADVANCES, THE PRESUMPTION THAT WOULD ARISE WAS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY. PARA 16 O F THE ORDER IS REPRODUCED HEREUNDER : 16. AS WE NOTED EARLIER, THE FUNDS/RESERVES OF THE AP PELLANT WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE BY IT OF RS.10.29 CRORES TO ITS SISTER COMPANY. WE ARE ENT IRELY IN AGREEMENT WITH THE JUDGMENT OF THE BOMBAY HIGH COURT IN COMMISSIONER OF INCOME TAX VS. RELIANCE UTILITIES & P OWER LTD., (2009) 313 ITR 340, PARA-10, THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF THE INTEREST FREE FUNDS G ENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE F UNDS WERE SUFFICIENT TO MEET THE INVESTMENT. 10. A PERUSAL OF THE ABOVE PARA REVEALS THAT WHILE UPHOLDING THE ABOVE PROPOSITION THE HIGH COURT RELI ED UPON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. RELIANCE UTILITY & POWER LIMITED (2009) 313 ITR 340 (BOM).THE BOMBAY HIGH COURT ,IN THE SAID CA SE, AT PARA 10 OF ITS ORDER RELIED ON THE JUDGMENT OF T HE HON'BLE SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS VS. CIT. (1997) 224 ITR 627 (SC),AND HELD THAT IF THERE ARE SUFFICIENT INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE TO MEET ITS INVEST MENT AND AT THE SAME TIME THE ASSESSEE HAS RAISED A LOAN , IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE 8 INTEREST FREE FUNDS AVAILABLE. PARA 10 OF THE ORDE R OF THE BOMBAY HIGH COURT IS REPRODUCED HEREUNDER : 10. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME T IME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT TH E INVESTMENTS WERE FROM THE INTEREST-FREE FUNDS AVAIL ABLE. IN OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMACEUTI CAL WORKS LTD. (SUPRA) HAD THE OCCASION TO CONSIDER THE D ECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (S UPRA) WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVER DRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMEN T HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO B E ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS CASE (SUPRA ) THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT T HE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABIL ITY AND THE PROFITS WERE DEPOSITED IN THE OVERDRAFT ACCOUNT OF THE A SSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TA XES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND T HE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH C OURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUND GENERATED OR AVAILABLE WITH THE C OMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSID ERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL. 9 11. IN VIEW OF THE SAME, WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT IN VIEW OF THE SUFF ICIENT INTEREST FREE OWN FUNDS AVAILABLE WITH THE ASESSEE, THE INVESTMENTS IN THE PRESENT CASE ARE TO BE PRESUMED TO HAVE BEEN MADE OUT OF THE SAME. 12. FURTHER ONCE IT HAS BEEN HELD THAT THE INVESTMENTS HAVE BEEN MADE BY UTILIZING THE OWN INT EREST FREE FUNDS OF THE ASSESSEE, IT AUTOMATICALLY MEANS THAT FOR THE PURPOSE OF MAKING THE INVESTMENTS, NO INTEREST EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE. WHE N NO INTEREST EXPENDITURE HAVE BEEN INCURRED BY THE ASSE SSEE, ISSUE OF ALLOWANCE OF THE SAME UNDER SECTION 36(1)( III) OF THE ACT DOES NOT ARISE AT ALL, SINCE SECTION 36(1)( III) OF THE ACT DEALS WITH THE CIRCUMSTANCES OR THE CONDITIONS SUBJECT TO WHICH INTEREST EXPENDITURE ARE TO BE ALLOWED. S ECTION 36 (1)(III) OF THE ACT READS AS FOLLOWS : 36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING C LAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREI N, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 (I); [(IA);] [(IB) (II) (III) THE AMOUNT OF THE INTEREST PAID IN RESPECT O F CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION : 13. IT IS EVIDENT FROM THE SAME THAT THE ABOVE SECTION DEALS ONLY WITH ALLOWABILITY OF CLAIM OF IN TEREST EXPENDITURE, FOR WHICH THE INCURRING OF SUCH EXPEND ITURE 10 OR CLAIM OF SUCH EXPENDITURE HAS TO BE FIRST ESTABL ISHED. SINCE IN THE PRESENT CASE, THE INVESTMENTS HAVE BEE N PRESUMED TO MADE OUT OF OWN FUNDS, CLEARLY NO INTER EST EXPENDITURE HAS BEEN INCURRED FOR MAKING THE SAME A ND, THEREFORE, NO QUESTION OF ALLOWABILITY/DISALLOWABIL ITY OF THE SAME ARISES UNDER SECTION 36(1)(III) OF THE ACT , AS HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT IN THE C ASE OF BRIGHT ENTERPRISES PVT. LTD. (SUPRA) AND THE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITY & POWER LIMI TED (SUPRA). 14. THE ARGUMENT OF THE LD. DR THAT FOR THE PURPOS E OF RAISING THE PRESUMPTION THAT OWN FUNDS WERE USED FOR MAKING THE INTEREST FREE ADVANCES AND HENCE NO DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT IS CALLED FOR, THE BUSINESS PURPOSE/COMMERCIAL EXPEDIENCY OF MAKING THE ADVANCES IS REQUIRED TO BE ESTABLISHED, IS IN OUR OPINION INCORRECT. THE LD. DR HAS POINTED OU T THAT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. (SUPRA) THE HIGH COURT HAD FIRST ESTABLISHED THAT THE ADVANCE WAS MA DE FOR BUSINESS PURPOSE AND HAD THEREAFTER APPLIED THE PRESUMPTION OF UTILIZATION OF OWN FUNDS AND DELETE D THE INTEREST PAID UNDER THE PROVISIONS OF SECTION 36(1) (III) OF THE ACT. ON THE CONTRARY, A PERUSAL OF THE ORDER O F THE HIGH COURT WOULD REVEAL THAT IN THE FIRST PLACE THE QUESTION OF LAW BEFORE IT WAS AS UNDER : 'WHETHER UNDER THE FACTS AND CIRCUMSTANCES OF THE C ASE, WHILE ARISING AT THE 'CHARGEABLE INCOME' U/S 29 CONSIDERING THE 11 PROVISIONS OF SECTION 36(L)(III), THE DISALLOWANCE OF IN TEREST PAID TO BANKS IS MANDATORY ON THE TRUE AND CORRECT INTERPRETATION OF THE WORDS 'FOR THE PURPOSE OF BUSINESS? ' 15. FOR ANSWERING THE AFORESTATED QUESTION, THE HI GH COURT DEALT WITH BUSINESS PURPOSE OF THE ADVANCE AN D HELD THAT IT WAS ESTABLISHED AS A MATTER OF FACT TH AT ADVANCE WAS MADE FOR BUSINESS PURPOSE. IT FURTHER WENT ON TO STATE, AT PARA 16, THAT IN ANY CASE, THE ASSE SSEE HAD SURPLUS FUNDS TO MAKE THE IMPUGNED ADVANCE AND THEREAFTER AGREEING WITH THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITY & POWER LIMIT ED (SUPRA) HELD THAT IN CASES WHERE THERE ARE INTEREST FREE FUNDS AVAILABLE, A PRESUMPTION WOULD ARISE THAT THE INVESTMENT WOULD BE MADE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY. EVIDENTLY , THE HON'BLE HIGH COURT, ON THIS INDEPENDENT/ ALTERNATIV E FINDING ALSO HELD THE DISALLOWANCE MADE U/S 36(1)(I II) TO BE UNWARRANTED. EVEN LOGICALLY AS STATED ABOVE, IT FOLLOWS THAT WHERE OWN INTEREST FREE FUNDS HAVE BEEN USED F OR THE PURPOSE OF MAKING THE ADVANCE, NO QUESTION OF INCUR RING ANY EXPENDITURE ARISES AND THEREFORE, THE ASSESSEE DOES NOT FALL IN THE AMBIT OF SECTION 36(1)(III) OF THE ACT AND WHEN THE ASSESSEE DOES NOT FALL IN THE FOUR CORNERS OF THE PROVISIONS OF THE SECTION AT ALL, THE QUESTION OF ESTABLISHING COMMERCIAL EXPEDIENCY DOES NOT ARISE A T ALL. FURTHER, THE JUDGMENT OF THE BOMBAY HIGH COURT IN T HE CASE OF RELIANCE UTILITY & POWER LIMITED (SUPRA) F OLLOWED BY THE JURISDICTIONAL HIGH COURT WAS ON THE IDENTIC AL 12 ISSUE THAT WHERE THE ASSESSEE HAD OWN SUFFICIENT FU NDS FOR MAKING THE INVESTMENT/ADVANCE NO DISALLOWANCE U /S 36(1)(III) WAS WARRANTED. THE QUESTION OF LAW BEFOR E THE HIGH COURT IN THIS CASE WAS: (A) WHETHER ,ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE COMPANY HAD SUFFICIENT FU NDS OF ITS OWN FOR MAKING THE INVESTMENTS WITHOUT USING TH E INTEREST- BEARING FUNDS EVEN THOUGH THE BALANCE-SHE ET OF THE ASSESSEE COMPANY HAS NO RESERVE OR OWN FUNDS F OR MAKING THE INVESTMENTS IN THE SISTER CONCERN AND, THEREFORE, BORROWED FUNDS HAVE BEEN UTILISED AND IN TEREST ON THESE BORROWED FUNDS ARE RIGHTLY DISALLOWED BY T HE ASSESSING OFFICER? 16. IN THE IMPUGNED CASE THE CIT(A) HAD DELETED TH E DISALLOWANCE MADE UNDER SECTION 36(1)(III) ON THE B ASIS OF AVAILABILITY OF SUFFICIENT OWN INTEREST FREE FUNDS. THE ITAT HAD UPHELD THE ORDER OF THE CIT(A). THE REVENUE HAD CHALLENGED THE ORDER OF THE ITAT ON THE GROUND THAT THE AVAILABILITY OF SUFFICIENT OWN FUNDS WAS NOT ESTABL ISHED. THE HIGH, IN ITS ORDER, REJECTED THE CONTENTION OF THE REVENUE AND THEREAFTER, AT PARA 10, REITERATED THE PROPOSITION LAID DOWN BY THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LIMITED VS CIT (1997)224 ITR 627,THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVER DRAFT AND LOANS TAKEN, THEN PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF INTEREST FREE FUND S. THEREAFTER THE APPEAL OF THE REVENUE WAS DISMISSED. 17. IN VIEW OF THE ABOVE, WE HOLD THAT THE DISALLOWANCE OF INTEREST MADE UNDER SECTION 36(1)(I II) OF THE ACT IS UNCALLED FOR AND UNJUSTIFIED AND THE ORD ER OF 13 THE CIT (APPEALS) IS, THEREFORE, SET ASIDE. THE DISALLOWANCE MADE OF INTEREST AMOUNTING TO RS.4,94, 811/- IS, THEREFORE, DELETED. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH NOVEMBER, 2016 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH