ACIT, Circle-13(1), Hyderabad V. Sri E.V.V.Satyanarayana, Hyderabad

ITA 812/HYD/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6386 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 05-04-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 23-05-2012
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BABU
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Proportionate interest; Additional evidence
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI PARTHA SARTHI CHAUDHURI, JUDICIAL MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 8 1 2 /HYD/201 2 200 8 - 0 9 INCOME TAX OFFICER , WARD-14(5), HYDERABAD SMT. E. SARASWATHI KUMARI, HYDERABAD [PAN: AABPE3388A] 8 86/HYD/201 2 200 8 - 09 LATE SRI E.V.V. SATYANARAYANA, L/R. E. SARASWATHI KUMARI, HYDERABAD [PAN: AABPE3388A] DY. COMMISSIONER OF INCOME TAX, CIRCLE-13(1), HYDERABAD FOR REVENUE : SHRI K.E. SUNIL BABU, DR FOR ASSESSEE : SHRI V. RAGHAVENDRA RAO, AR DATE OF HEARING : 29-06-2016 DATE OF PRONOUNCEMENT : 01-07-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : S THESE ARE CROSS-APPEALS BY ASSESSEE AND REVENUE AG AINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II , HYDERABAD DATED 29-03-2012. ASSESSEE, SHRI E.V.V. SATYANARAYA NA PASSED AWAY AND HIS WIFE SMT. SARASWATHI KUMARI, IS TAKEN AS LEGAL-HEIR OF LATE SHRI E.V.V. SATYANARAYANA. 2. BRIEFLY STATED FACTS ARE THAT ASSESSEE, AN INDIVIDU AL, WAS ENGAGED IN THE BUSINESS OF PRODUCTION AND DISTR IBUTION OF I.T.A. NOS. 812/HYD/2012 & 886/HYD/2012 :- 2 -: FEATURE FILMS. HE FILED RETURN OF INCOME FOR AY. 200 8-09 SHOWING LOSS OF RS. 41,65,933/-. ASSESSING OFFICER (AO) IN VOKED THE PROVISIONS OF SECTION 40(A)(IA) AND 36(1)(III) OF THE INCOME TAX ACT [ACT] AND MADE DISALLOWANCES OF THE FOLLOWING AMOUNTS: U/S. 40(A)(IA) RS. DISTRIBUTION COMMISSION 16,15,669 DISTRIBUTION EXPENSES 35,18,008 PUBLICITY EXPENSES 9,00,000 U/S. 36(1)(III) INTEREST 4,00,000 3. ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S. MAYU RI FILM DISTRIBUTORS, HYDERABAD (MFD) FOR DISTRIBUTION O F PICTURE ATTILI SATTI BABU. AS PER THE TERMS OF THE AGREEMENT, THE SAID MFD IS DISTRIBUTING FILM SPENDING VARIOUS AMOUNTS FOR THEAT RES ADVERTISEMENT ETC., AND ALSO GETS COMMISSION AT 8% AND R EMITS THE BALANCE AMOUNT TO THE PRODUCER I.E., ASSESSEE. ASS ESSEE, IT SEEMS HAS ACCOUNTED FOR THE AMOUNTS IN HIS BOOKS OF A CCOUNT ACCORDINGLY. IT WAS THE CONTENTION OF AO THAT SINCE ASSE SSEE HAS PAID VARIOUS AMOUNTS INCLUDING COMMISSION, WITHOUT ANY DEDUCTION OF TAX, PROVISION OF SECTION 40(A)(IA) ARE A PPLICABLE. ASSESSEE CONTENDED THAT THE AGREEMENT WITH MFD WAS ON PRINCIPLE TO PRINCIPLE BASIS AND PROVISIONS OF SECTIO N 194H ARE NOT APPLICABLE. IT WAS FURTHER SUBMITTED THAT EVEN THOUGH THE WORD COMMISSION WAS USED, THAT AMOUNT CANNOT BE CONSIDERED AS COMMISSION AND ALSO ON THE FACT THAT MFD OFFERED THE INCOMES IN ITS RETURNS, THE PROVISIONS OF SECTION 40(A)(IA) SHOUL D NOT BE INVOKED. IN ADDITION TO THE TWO PAYMENTS PERTAINING TO MFD, ASSESSEE ALSO PAID AN AMOUNT OF RS. 9 LAKHS TO TELUG U FILM PRODUCERS COUNCIL, ON WHICH AO INVOKED RULES OF 40( A)(IA) AS NO TDS WAS MADE. IT WAS THE CONTENTION OF ASSESSEE THAT THE SAID COUNCIL IS REGISTERED BODY AND MUTUAL BENEFIT SOCIETY , NOT LIABLE TO I.T.A. NOS. 812/HYD/2012 & 886/HYD/2012 :- 3 -: TAX UNDER THE INCOME TAX ACT. IT WAS CONTENDED THAT THERE IS NO NEED TO DEDUCT TAX AND ACCORDINGLY, THE PROVISIONS OF S ECTION 40(A)(IA) ARE NOT ATTRACTED. THESE THREE AMOUNTS HOWEV ER, DISALLOWED BY THE AO REJECTING ASSESSEES CONTENTIONS. THE FOURTH ITEM WHICH WAS DISALLOWED U/S. 36(1)(III) WAS INTERE ST ON LOAN PAID TO HDFC BANK. AS PER AO, ASSESSEE OBTAINED AMOU NT OF RS. 75 LAKHS AS LOAN AND PASSED AN AMOUNT OF RS. 25 LAKH S TO HIS SON E. RAJESH. AO WAS OF THE OPINION THAT SINCE THE A MOUNT WAS PASSED ON TO HIS SON FREE OF INTEREST, THE CLAIM OF IN TEREST ON THE LOAN OBTAINED FROM HDFC BANK CANNOT BE ALLOWED FULLY. ACCORDINGLY, PROPORTIONATE INTEREST ESTIMATED AT RS. 4 LA KHS WAS DISALLOWED OUT OF THE INTEREST CLAIM MADE BY ASSESSEE. 4. ASSESSEE CONTENDED THESE ISSUES BEFORE THE LD. CIT (A) AND MADE VARIOUS SUBMISSIONS. THE LD. CIT(A) ACCEP TED ASSESSEES CONTENTIONS THAT THE AMOUNT OF EXPENDITURE CLA IM MADE BY MFD IS IN FACT REIMBURSEMENT OF EXPENSES AND HENCE, PROVISIONS OF SECTION 40(A)(IA) DOES NOT APPLY AS THER E IS NO TDS LIABILITY ON THE SAID AMOUNT. REVENUE IS AGGRIEVED. 4.1. WITH REFERENCE TO OTHER THREE DISALLOWANCES, LD. CIT(A) DID NOT AGREE WITH ASSESSEES CONTENTIONS AND CONFIRMED THE ORDER OF THE AO TO THAT EXTENT. HENCE, ASSESSEE IS AGGRIEVED. 5. LD. COUNSEL REFERRING THE GROUNDS SUBMITTED THAT T WO LEGAL ARGUMENTS ON 40(A)(IA) WHICH WERE NOT ORIGINALL Y RAISED WERE FILED AS AN ADDITIONAL GROUNDS WHICH SHOULD BE ADMITTE D. SINCE THESE ADDITIONAL GROUNDS ARE ARGUMENTS ON THE SAME ISSU E OF 40(A)(IA) AND SINCE NO FRESH VERIFICATION OF FACTS IS REQUIRED, THESE ADDITIONAL GROUNDS ARE ADMITTED. LD. COUNSEL ALSO PL ACED ON I.T.A. NOS. 812/HYD/2012 & 886/HYD/2012 :- 4 -: RECORD COPIES OF THE BANK ACCOUNT AS A FRESH EVIDENCE IN ORDER TO SUPPORT THE CONTENTION THAT PROPORTIONATE DISALLOWANCE OF INTEREST DOES NOT ARISE. THESE FRESH EVIDENCE WAS ALSO ADMITT ED ON THAT ISSUE. LD. COUNSEL SUBMITTED THAT WHILE ACCEPTING ASSES SEES AGREEMENT WITH MFD WAS ANALYSED BY LD. CIT(A), IT WAS SUBMITTED THAT MFD WAS ACTING AS A PRINCIPAL AND THERE IS NO AGE NCY RELATIONSHIP. REFERRING TO THE METHOD OF ACCOUNTING BE ING FOLLOWED BY ASSESSEE, IT WAS SUBMITTED THAT MFD SPENDS ALL THE AMOUNTS AND RETAINS THE SERVICE CHARGES AND BALANCE ON LY IS PASSED ON WHICH WAS ACCOUNTED BY ASSESSEE. IT WAS FU RTHER SUBMITTED THAT THERE IS NO OUTSTANDING PAYMENT AT THE END OF THE YEAR SO AS TO ATTRACT PROVISIONS OF SECTION 40(A)(IA). FURTHER, IT WAS SUBMITTED THAT OTHER PARTIES HAVE ALREADY ACCOUNTED FOR THE AMOUNTS AND OFFERED TO TAX. HENCE FOLLOWING VARIOUS J UDICIAL PRINCIPLES, THE DISALLOWANCE CANNOT BE MADE. LD. COU NSEL RELIED ON THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF SRL RANBAXI LTD., VS. ACIT FOR THE PROPOSITION THAT WHEN THE TRANSAC TIONS ARE BETWEEN TWO PRINCIPLES, THE PROVISIONS OF SECTION 194 H ARE NOT ATTRACTED. LD. COUNSEL ALSO RELIED ON THE PRINCIPLE TH AT WHEN ENTRIES WERE ONLY MADE WHERE AS EXPENDITURE WAS MADE BY THE OTHER PARTY AND NO PAYMENT WAS MADE BY ASSESSEE, THE Q UESTION OF TDS DOES NOT ARISE AND RELIED ON THE DECISION OF TH E CO-ORDINATE BENCH IN THE CASE OF ACIT VS. M/S. UAN RAJU IVRCL CONSTRUCTIONS JVS IN ITA NO. 1425/HYD/2010 DT. 18-10-2 013. LD. COUNSEL ALSO RELIED ON THE DECISION OF THE HON'BL E SUPREME COURT IN THE CASE OF HINDUSTAN COCACOLA BEVERAGES LTD., [293 ITR 266] FOR THE PROPOSITION THAT ONCE THE TAXES WERE PAID BY THE RECIPIENT, THE LIABILITY U/S. 201(1) CEASES. HE ALSO RELIED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP P. LTD., [377 ITR 635] (DEL) TO TH E EFFECT THAT I.T.A. NOS. 812/HYD/2012 & 886/HYD/2012 :- 5 -: DISALLOWANCE OF EXPENDITURE ON THE GROUND THAT TAX HAS N OT BEEN DEDUCTED AT SOURCE ON PAYMENT CANNOT BE DONE U/S. 40(A )(IA), WHEN PAYEE WAS FILING INCOME TAX RETURN AND OFFERED TH E SUM RECEIVED FOR TAXATION. 5.1. WITH REFERENCE TO THE PROPORTIONATE INTEREST, LD. COUNSEL SUBMITTED THAT OUT OF THE AMOUNT OF RS. 25 LAKHS ADVANCED TO HIS SON, CERTAINLY AN AMOUNT OF RS. 15 LAK HS WAS ADVANCED OUT OF HIS OWN FUNDS AND SO THE DISALLOWANC E CANNOT BE MADE ON THE ENTIRE AMOUNT. FURTHER, IT WAS ALTERNATELY SUBMITTED THAT WHEN THE LOANS WERE ADVANCED FOR PART OF THE YEAR, THE AO DISALLOWED THE INTEREST FOR THE FULL YEAR WHICH SHOUL D BE ONLY PROPORTIONATE FOR THE PERIOD INVOLVED. 6. LD. DR WHILE AFFIRMING THE ORDERS OF THE CIT(A) WITH REFERENCE TO THE AMOUNTS CONFIRMED BY CIT(A), HOWEVER, CONTESTED THE RELIEF GRANTED ON THE REIMBURSEMENT OF EXPENSES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE PAPER BOOKS PLACED AND CASE LAW RELIED UPON. AS FAR AS THE DISALLOWANCE U/S. 40(A)(IA) IS CONCERNED, IT IS THE A OS CONTENTION THAT PROVISIONS OF TDS ARE ATTRACTED AND AS ASSESSEE HA S NOT DEDUCTED TAX ON THE AMOUNT, DISALLOWANCE U/S. 40(A)(IA ) ARE WARRANTED. NEITHER OF THE AUTHORITIES HAVE FULLY ANALY SED THE ACTUAL TRANSACTIONS BETWEEN MFD AND ASSESSEE. AS SUBM ITTED, THE AGREEMENT WITHIN MFD IS FOR DISTRIBUTION OF THE FIL M AND ENTIRE LIABILITY IS ON THE PRODUCER. THERE MAY BE AN AGEN CY RELATIONSHIP WHICH MAY ATTRACT THE PROVISIONS OF TDS. HOWEVER, WE ARE NOT GIVING ANY OPINION ON THAT ISSUE WHICH MAY NOT BE MATE RIAL FOR CONSIDERING THE PRESENT ISSUE AS THE ACCOUNTING BEING D ONE BY I.T.A. NOS. 812/HYD/2012 & 886/HYD/2012 :- 6 -: ASSESSEE IS JUST TO MAKE THE ENTRIES IN THE BOOKS OF ACC OUNT ON THE STATEMENTS BEING FURNISHED BY MFD. IN FACT, THE ENTI RE EXPENDITURE WAS SPENT BY MFD AND COMMISSION WAS ALSO DEDUCTED OUT OF THE AMOUNTS RECEIVED BY IT. ASSESSEE I S NEITHER PAYING ANY AMOUNT NOR CREDITING ANY AMOUNT IN ITS BOOK S AND ONLY AFTER THE ACCOUNT STATEMENT BEING RECEIVED FROM THE S AID MFD, ASSESSEE IS MAKING ENTRIES IN ITS BOOKS OF ACCO UNT SO AS TO ACCOUNT FOR THE TRANSACTIONS. THE CO-ORDINATE BENCH IN THE CASE OF ACIT VS. M/S. UAN RAJU IVRCL CONSTRUCTIONS JV VS I N ITA NO. 1425/HYD/2010 DT. 18-10-2013 (SUPRA) HAS OPINED THAT TH E PROVISIONS OF TDS ARE NOT ATTRACTED WHEN THE CONTRACTEE R ECOVERS THE AMOUNTS WHILE MAKING PAYMENT OF CONTRACT CHARGES. IN THE SAID CASE, M/S. KONKAN RAILWAY CORPORATION LTD., WAS DEDUCTING INTEREST ON MOBILIZATION ADVANCES WHICH WAS RECOVERED OUT OF THE RUNNING BILLS OF ASSESSEE. IT WAS NOTICED THAT THERE I S DIFFICULTY ON THE PART OF ASSESSEE FOR MAKING TDS AS THE INTEREST WAS RECOVERED OUT OF THE AMOUNTS BEING RECEIVED BY ASSESSEE. THE L D. CIT(A) OBSERVED THAT AS PER THE TERMS OF CONTRACT ENTERED BETWE EN THE PARTIES, THE CONTRACTEE HAS TO RECOVER THE INTEREST ON MOB ILISATION ADVANCES AND ALSO PRESCRIBES THE MODE AND MANNER OF CALCULATION OF INTEREST. IN THOSE CIRCUMSTANCES, IT WAS CONSIDERE D THAT IT CANNOT BE SAID THAT ASSESSEE HAS CREDITED THE INTEREST PA ID OR PAYABLE TO THE ACCOUNT OF ASSESSEE. THE CIT(A) ALSO N OTED THAT ASSESSEE HAS NOT CREDITED ANY SUCH AMOUNT TOWARDS PAY MENT OF INTEREST TO THE ACCOUNT OF CONTRACTEE IN ITS BOOKS OF ACCOU NT. IN THE AFORESAID FACTUAL SITUATION, IT CANNOT BE SAID THAT THERE IS ANY VIOLATION OF PROVISIONS OF SECTION 194A OF THE ACT. I T WAS HELD BY THE ITAT THAT LIABILITY CANNOT BE FASTENED ON ASSESSEE OR A DEFAULT CANNOT BE ATTRIBUTED TO ASSESSEE FOR NOT DISCHARGING AN OBLIGATION WHICH IS IMPOSSIBLE ON ITS PART TO PERFORM. SIMILAR IS THE CASE IN I.T.A. NOS. 812/HYD/2012 & 886/HYD/2012 :- 7 -: THE PRESENT ASSESSEES CASE. IT IS IN FACT MFD, WHICH WAS COLLECTING THE AMOUNTS, SPENDING THE AMOUNTS AND ALSO RETAINING THE COMMISSION AND ONLY THE BALANCE AMOUNT WAS REMITTED TO ASSESSEE. IT IS ALSO NOTICED THAT AO HAS ACCEPTED THE M ETHODOLOGY ON ANOTHER FILM DISTRIBUTED BY ASSESSEE AND NO TDS DIS ALLOWANCE WAS MADE ON THE OTHER FILM. SO IN THESE CIRCUMSTANCES , WE ARE OF THE OPINION THAT IT IS IMPOSSIBLE FOR ASSESSEE TO DEDUCT TAX ON THE SAID COMMISSION/EXPENSES WHICH ARE IN FACT DEDUCTED BY THE SAID MFD. IT IS ALSO NOTICED THAT THE SAID MFD HAS FILED ITS RETURN OF INCOME AND OFFERED THESE INCOMES. AS FAR AS TELUGU F ILM PRODUCERS COUNCIL IS CONCERNED IT WAS SUBMITTED THAT THE SAID PERSON WAS EXEMPT FROM TAX. THEREFORE, ON THE PRINCIPL ES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF HIND USTAN COCACOLA BEVERAGES LTD., [293 ITR 266] (SUPRA) AND THE HON'BLE DELHI HIGH COURT IN THE CASE OF HON'BLE DELHI HIGH C OURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP P. LTD., [3 77 ITR 635] (DEL) (SUPRA), ASSESSEE CANNOT BE FASTENED WITH THE LIABILIT Y U/S. 201(1) AND CONSEQUENTLY, DISALLOWANCE US 40(A)(IA) D OES NOT ARISE. 7.1. ANOTHER ASPECT WHICH WAS ALSO CONTESTED IS THAT THE RE WERE NO OUTSTANDING AMOUNTS AT THE END OF THE YEAR AND FO LLOWING THE PRINCIPLES LAID DOWN BY THE SPECIAL BENCH OF THE ITAT IN THE CASE OF MERLYN SHIPPING & TRANSPORT [136 ITD 23], NO DISALLOWANCE U/S. 40(A)(IA) CAN BE MADE IF THE AMOUN TS ARE NOT PAYABLE. THIS DECISION OF THE SPECIAL BENCH OF THE ITAT EVEN THOUGH WAS STAYED BY THE HON'BLE AP HIGH COURT, THE SAM E HIGH COURT IN A LATER CASE HELD THAT THE TRIBUNAL IS BOUND TO FOLLOW THIS DECISION AS IT HAS NOT BEEN REVERSED. THE MUMBAI IT AT IN THE CASE OF SRI JITHENDRA MANSUKLAL SHAH IN ITA NO. 2293 /2013 HELD THAT ALLAHABD HIGH COURT FOLLOWED THE VIEW OF MERLYN S HIPPING & I.T.A. NOS. 812/HYD/2012 & 886/HYD/2012 :- 8 -: TRANSPORT [136 ITD 23] (SUPRA), SLP FILED BY THE DEPA RTMENT WAS DISMISSED BY THE HON'BLE SUPREME COURT. HENCE, THERE CAN BE NO DISALLOWANCE IF THE AMOUNTS ARE NOT PAYABLE. IT IS ON RECORD THAT ALL THE THREE ABOVE AMOUNTS ARE NOT PAYABLE AT THE END OF THE YEAR. CONSEQUENTLY, FOLLOWING THE PRINCIPLES LAID DO WN IN VARIOUS CASES AS RELIED BY ASSESSEES COUNSEL AND ON EXAMIN ATION OF FACTS, WE ARE OF THE OPINION THAT THERE CAN BE NO DISALLOWAN CE U/S. 40(A)(IA) ON THE THREE AMOUNTS WHICH ARE BEING CONSIDE RED BY THE AO. 8. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF THE C IT(A) TO THE EXTENT OF DELETION OF REIMBURSEMENT OF EXPENSES WHICH WAS EXCLUDED IN THE SAID ORDER AND ALSO MODIFY THE ORDER OF THE CIT(A) TO DIRECT THAT THERE CAN BE NO DISALLOWANCE U/S. 40(A)(I A) ON THE SO CALLED COMMISSION AND PAYMENT TO FILM PRODUCERS COUNC IL. TO THAT EXTENT, ASSESSEES GROUNDS ON THIS ARE ALLOWED. 9. COMING TO THE ISSUE OF DISALLOWANCE OF RS. 4 LAKH S OUT OF THE INTEREST CLAIM MADE BY ASSESSEE, THE FACTS ARE NO T IN DISPUTE. ASSESSEE OBTAINED LOAN ON RS. 75 LAKHS, ON WHICH INTEREST WAS CLAIMED. ASSESSEE ALSO GAVE AN AMOUNT OF RS. 25 LAKHS TO HIS SON INTEREST FREE IN TWO BATCHES I.E., RS . 15 LAKHS AND RS. 10 LAKHS. THE AMOUNT ON RS. 10 LAKHS ADVANCED TO SHRI E. RAJESH, IMMEDIATELY NEXT DAY AFTER THE LOAN SANCTIONED TO THE ASSESSEE AND CREDITED TO THE BANK ACCOUNT. TO THAT EX TENT, THERE IS A DIRECT NEXUS WITH THE ADVANCE. IT WAS THE CONTENTIO N OF THE LD. COUNSEL THAT REFERRING THE ADDITIONAL EVIDENCE FIL ED THAT THE AMOUNT OF RS. 15 LAKHS WAS ADVANCED OUT OF THE OWN FUN DS. HOWEVER, WE NOTICE THAT HDFC BANK HAS SANCTIONED TWO L OANS, THE DATES OF WHICH ARE NOT FORTHCOMING IN THE SANCTIONE D ORDERS. I.T.A. NOS. 812/HYD/2012 & 886/HYD/2012 :- 9 -: ASSESSEE PAID AN AMOUNT OF RS. 15 LAKHS ON 01-09-200 7 AND RS. 10 LAKHS ON 08-11-2007. IT WAS THE CONTENTION THAT THE FIRST AMOUNT WAS NOT PAID OUT OF THE LOAN PROCEEDS. HOWEVER , AS SEEN FROM THE SANCTIONED LETTERS PLACED IN THE PAPER BOOK AT PG. 10 & 12, AN AMOUNT OF RS. 50 LAKHS WAS PAID ON 01-11-2007 BY HDFC BANK OUT OF WHICH ADMITTEDLY AN AMOUNT OF RS. 10 LAKHS WAS PAID TO MR. RAJESH, INTEREST FREE. HOWEVER, WITH REFE RENCE TO RS. 15 LAKHS PAID ON 01-09-2007, NEITHER THE ACCOUNT COPIE S ARE CLEAR (FILED BY ASSESSEE) NOR THE SANCTIONED LETTER PL ACED ON RECORD IS CLEAR ABOUT THE DATE OF DISBURSEMENT OF SUCH AMOUN T. HOWEVER, AS SEEN FROM THE SANCTIONED LETTER ITSELF, THE AMOUNT OF RS. 75 LAKHS WAS SANCTIONED IN THE JOINT NAME OF SHRI E. RAJESH AND E.V.V. SATYANARAYANA. THE OTHER LOAN WAS SANCTI ONED ON 01- 11-2007 IN THE JOINT NAMES OF SHRI E.V.V. SATYANARAY ANA, SARASWATHI KUMARI, E. RAJESH AND NARESH. SINCE TOTAL AMOUNT OF RS. 1.25 CRORES LOAN WAS OBTAINED, LD. COUNSEL COULD NOT ADDUCE ANY EVIDENCE HOW THESE AMOUNTS WERE DISBURSED AND WH O HAS CLAIMED INTEREST ON THE AMOUNT SANCTIONED BY HDFC BANK. IN THE ABSENCE OF ANY CONCRETE EVIDENCE FROM ASSESSEE, THE FINDING GIVEN BY THE AO THAT AMOUNTS ARE ADVANCED TO MR. RAJESH OUT OF THE LOAN AMOUNT HAS TO BE CONFIRMED. HOWEVER, THE ALTERNAT E CONTENTION THAT ONLY PROPORTIONATE INTEREST CAN BE DISALL OWED AND NOT THE ENTIRE AMOUNT FOR THE WHOLE YEAR CAN BE ACCEPTE D. AS SEEN FROM THE COMPUTATION OF AO, THERE IS NO WORKING HO W THE AMOUNT OF RS. 4 LAKHS DISALLOWED WAS ARRIVED AT. AO SHOULD HAVE DISALLOWED PROPORTIONATE INTEREST FROM THE TIME AMOUNTS W ERE ADVANCED TO MR. E. RAJESH, ON THE SAME RATE OF INTERES T ON WHICH BANK HAS CHARGED ASSESSEE. THIS EXERCISE HAS NOT BE EN DONE BY AO. THEREFORE, ACCEPTING THE ALTERNATE CONTENTION OF A SSESSEE, AO IS DIRECTED TO RESTRICT THE DISALLOWANCE, PROPORTIONATE TO THE PERIOD I.T.A. NOS. 812/HYD/2012 & 886/HYD/2012 :- 10 -: OF AVAILING THE FUNDS BY SHRI RAJESH. WITH THESE DI RECTIONS, THE GROUNDS OF ASSESSEE ON THIS ISSUE ARE PARTLY ALLOWED. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED AND ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JULY, 2016 SD/- SD/- ( PARTHA SARTHI CHAUDHURI ) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBE R HYDERABAD, DATED 1 ST JULY, 2016 TNMM COPY TO : 1. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-13 (1), HYDERABAD. 2. THE INCOME TAX OFFICER, WARD-14(5), HYDERABAD. 3. SMT. E. SARASWATHI KUMARI, (L/R) W/O. LATE SRI E .V.V. SATYANARAYANA, PLOT NO. C-9, ROAD NO. 8, FILM NAGAR , JUBILEE HILLS, HYDERABAD. 4. COMMISSIONER OF INCOME TAX(APPEALS)-II, HYDERABA D. 5. COMMISSIONER OF INCOME TAX-I, HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.