ACIT, Ludhiana V. M/s Hero Cycles Ltd., Ludhiana

ITA 821/CHANDI/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8468 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 29-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Capital asset; Business income; Depreciation; Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.314/CHD/2013 (ASSESSMENT YEAR : 2009-10) M/S HERO CYCLES LTD., VS. THE ADDL.C.I.T., G.T. ROAD, HERO NAGAR, RANGE-V, LUDHIANA. LUDHIANA. PAN: AAACH4073P ITA NO.493/CHD/2013 (ASSESSMENT YEAR : 2009-10) THE D.C.I.T., VS. M/S HERO CYCLES LTD., CIRCLE V, G.T. ROAD, HERO NAGAR, LUDHIANA. LUDHIANA. PAN: AAACH4073P AND ITA NO.821/CHD/2014 (ASSESSMENT YEAR : 2009-10) THE A.C.I.T., VS. M/S HERO CYCLES LTD., CIRCLE V, G.T. ROAD, HERO NAGAR, LUDHIANA. LUDHIANA. PAN: AAACH4073P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUBHASH AGGARWAL DEPARTMENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 04.01.2016 DATE OF PRONOUNCEMENT : 16.02.2016 2 O R D E R PER RANO JAIN, A.M . : THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA D ATED 27.2.2013 FOR ASSESSMENT YEAR 2009-10 AND THE APPEA L OF THE REVENUE IN ITA NO.821/CHD/2014 IS DIRECTED AGAI NST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA DATED 31.7.2014 FOR ASSESSME NT YEAR 2009-10. 2. WE WILL FIRST TAKE UP THE CROSS APPEALS IN ITA NOS.314/CHD/2013 AND ITA NO.493/CHD/2013. 3. THE GROUND NOS.1 TO 7 IN ASSESSEES APPEAL ARE AGAINST THE DISALLOWANCE OF RS.6,77,38,889/- MADE B Y THE ASSESSING OFFICER INVOKING THE PROVISIONS OF RULE 8 D OF INCOME TAX RULES READ WITH SECTION 14A OF THE INCOM E TAX ACT, 1961 (IN SHORT THE ACT). 4. THE ONLY ISSUE IS AGAINST THE DELETION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14A OF THE ACT. 5. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE YEAR, THE ASSESSEE EARNED DIVIDEND INCOME OF RS.38,55,35,082/- AND LONG TERM CAPITAL GAIN OF 3 RS.12,23,048/-. THESE AMOUNTS WERE CLAIMED AS EXEM PT UNDER SECTION 10(38) OF THE ACT. THE ASSESSING OFF ICER NOTED THAT THE ASSESSEE HAD SHOWN INVESTMENTS OF RS.3,67,88,93,422/- AND RS.3,87,34,93,407/- AS ON 31.3.2008 AND 31.3.2009 RESPECTIVELY. THE INCOME F ROM THESE INVESTMENTS WERE NOT INCLUDED IN THE TOTAL IN COME. THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE OF RS.22,40,02,183./- THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY THE PROVISIONS OF SECTION 1 4A OF THE ACT READ WITH RULE 8D OF THE RULES MAY NOT BE A PPLIED IN THIS CASE. THE ASSESSEE MADE DETAILED SUBMISSIO NS. HOWEVER, REJECTING THE SAME AND INVOKING THE PROVIS IONS OF RULE 8D, THE ASSESSING OFFICER MADE DISALLOWANCE OF AN AMOUNT OF RS.6,77,38,889/-. 6. BEFORE THE LEARNED CIT (APPEALS), DETAILED SUBMISSIONS WERE MADE TO DEFEND THE CASE OF THE ASS ESSEE. AFTER CONSIDERING THE SAME, THE LEARNED CIT (APPEAL S) HELD THAT THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 20 08-09 WAS DECIDED BY HIM ON THE SAME ISSUE BY HIS ORDER D ATED 28.12.2012 AND THE SAID APPEAL WAS DECIDED IN FAVOU R OF THE ASSESSEE. RELYING ON HIS OWN ORDER FOR THE EAR LIER YEAR IN ASSESSEES OWN CASE, THE LEARNED CIT (APPEA LS) DISMISSED THE GROUND OF APPEAL RAISED BY THE ASSESS EE. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ISSUE IS SIMILAR TO THAT WHICH W AS RAISED IN ASSESSMENT YEAR 2008-09 IN THE CASE OF T HE ASSESSEE ITSELF AND THE SAID ISSUE WAS DECIDED BY T HE 4 HON'BLE I.T.A.T. IN FAVOUR OF THE ASSESSEE IN ITA NO.192/CHD/2013 DATED 29.10.2015,, WHEREBY THE ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTIO N 14A OF THE ACT WAS DELETED. 8. THE LEARNED D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER AS WELL AS THAT OF THE LEARNED CI T (APPEALS). 9. ON PERUSAL OF THE ORDER OF THE I.T.A.T. FOR ASSESSMENT YEAR 2008-09, WE OBSERVE THAT THE SAID I SSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN FOLLO WING TERMS : 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE BALANCE SHEET AND OTHER DOCUMENTS FILED IN THE PAPER BOOK, WE SEE THAT THE TOTAL INVESTMENT IN SHARES AND MUTUAL FUNDS AS ON 31.3.2007 WAS OF RS.3,83,82,47,226/- WHILE THE INVESTMENT AS ON 31.3.2008 IS OF RS.4,64,37,73,922. THEREFORE, THERE WAS AN INCREASE OF AROUND RS.80 CRORES IN THE INVESTMENT DURING THE YEAR. WHILE RESERVES AND OWN FUNDS OF THE ASSESSEE COMPANY AS ON 31.3.2008 ARE AMOUNTING TO RS.6,24,18,74,854/-. FROM THESE FIGURES, IT IS QUITE CLEAR THAT OWN FUNDS AND RESERVES OF THE ASSESSEE ARE MORE THAN SUFFICIENT TO COVER THE INVESTMENT MADE DURING THE YEAR. IN SUCH A SCENARIO, IT CAN BE VERY CONVENIENTLY PRESUMED THAT ALL THE INVESTMENT HAVE BEEN MADE OUT OF OWN FUNDS. FOR THIS PURPOSE, RELIANCE IS 5 PLACED ON THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT IN ITA NO.624 OF 2013 (O&M) DATED 24.7.2015, WHEREBY IT HAS BEEN HELD AS UNDER : 16. AS WE NOTED EARLIER, THE FUNDS/RESERVES OF THE APP ELLANT WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE BY IT OF RS.10.29 CRORES TO ITS SISTER COMPANY. WE ARE ENTIRELY IN AG REEMENT WITH THE JUDGMENT OF THE BOMBAY HIGH COURT IN COMMISSIONER O F INCOME TAX VS. RELIANCE UTILITIES & POWER LTD., (2009) 313 ITR 340 , PARA-10, THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE A PRESUMPTION WOU LD ARISE THAT INVESTMENT WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SU FFICIENT TO MEET THE INVESTMENT. 9. THEREFORE, IN SUCH CIRCUMSTANCES, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT ON ACCOUNT OF INTEREST CAN BE MADE. THOUGH THE LEARNED COUNSEL FOR THE ASSESSEE HAS MADE ALTERNATIVE SUBMISSIONS ON THE COMPUTATION MADE BY THE ASSESSING OFFICER UNDER RULE 8D OF THE INCOME TAX RULES, IN VIEW OF OUR FINDING THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST UNDER SECTION 14A AN BE MADE, WE DO NOT FIND ANY NEED TO ADJUDICATE THESE ISSUES. 10. AS REGARDS ADMINISTRATIVE EXPENSES, IT IS A FACT ON RECORD THAT THE ASSESSEE HIMSELF HAD DISALLOWED AN AMOUNT OF RS.2,73,13,827/- ON ACCOUNT OF EXPENSES INCURRED FOR EARNING TAX FREE INCOME AND THE ASSESSING OFFICER HAS NOWHERE RECORDED A FINDING AS TO WHY THE DISALLOWANCE SO MADE BY THE ASSESSEE IS NOT CORRECT. RELIANCE IS PLACED ON THE JUDGMENT OF THE HON'BLE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. DEEPAK MITTAL (2014) 361 ITR 131 TO THE EFFECT THAT IN THE ABSENCE OF ANY SATISFACTION RECORDED BY THE ASSESSING OFFICER AS 6 TO WHY THE CALCULATION MADE BY THE ASSESSEE IS NOT CORRECT, THE DISALLOWANCE MADE BY HIM ON ACCOUNT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D OF THE INCOME TAX RULES IS NOT AS PER LAW. IN VIEW OF THE ABOVE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14 OF THE ACT READ RULE 8D OF THE INCOME TAX RULES IS DELETED. 10. SINCE NO DISTINGUISHING FACTS WERE BROUGHT TO OUR NOTICE DURING THE COURSE OF HEARING, RESPECTFUL LY FOLLOWING THE ORDER OF THE COORDINATE BENCH, WE ALL OW THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE. 11. THE GROUND NO.8 RELATES TO THE ACTION OF THE LEARNED CIT (APPEALS) IN CONFIRMING THE DISALLOWANC E OF RS.1,29,452/- BEING THE DIFFERENCE OF INTEREST CHAR GED FROM HERO MOTORS LTD.. @ 6% AND INTEREST RATE OF 7. 75%. 12. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD GIVEN LOAN OF RS.10 C RORES TO M/S HERO MOTORS LTD. ON 5.3.2009 @ 6%, WHEREAS T O ALL OTHER PERSONS THE LOAN WAS GRANTED @ 12% TO 15%. A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER NOTED THAT THE AVERAGE RATE OF IN TEREST PAYMENT MADE BY THE ASSESSEE ON THE LOANS RAISED BY IT WORKED OUT TO 7.75%. THEREFORE, THERE WAS AN EXCES S PAYMENT OF INTEREST @ 1.75% ON THE LOANS PAID AS AG AINST THE RATE OF INTEREST COVERED FROM M/S HERO MOTORS L TD. THE ASSESSING OFFICER HELD THAT THIS EXPENDITURE WA S NOT ON ACCOUNT OF ANY BUSINESS EXPEDIENCY AND, HENCE A N 7 AMOUNT OF RS.1,29,452/- WAS DISALLOWED BY THE ASSES SING OFFICER. 13. BEFORE THE LEARNED CIT (APPEALS), IT WAS SUBMITTED THAT THE ASSESSEE HAD NOT BORROWED ANY MO NEY TO PAY TO M/S HERO MOTORS LTD. AND THE LOANS WAS GI VEN OUT OUT OF OWN FUNDS ARISING FROM INTERNAL ACCRUALS . A COPY OF THE BANK STATEMENT OF CITI BANK ACCOUNT FRO M WHERE THE PAYMENT HAS BEEN MADE ALONGWITH STATEMENT OF SBI ACCOUNT FROM WHERE THE FUNDS HAVE BEEN TRANSFER RED WERE FILED BEFORE THE LEARNED CIT (APPEALS) AND IT WAS SUBMITTED THAT THE FUNDS HAVE BEEN UTILIZED OUT OF SALE PROCEEDS BEING CREDITED IN THIS ACCOUNT. IT WAS AL SO SUBMITTED THAT OTHERWISE ALSO, THE TOTAL RESERVES A ND SURPLUS OF THE ASSESSEE AS ON 31.3.2009 IS RS.612.8 1 CRORES ON WHICH NO INTEREST IS BEING PAID AND FURTH ER THERE ARE HUGE CASH PROFITS TO THE COMPANY DURING T HE YEAR UNDER CONSIDERATION. THERE IS NO PROVISION UN DER THE INCOME TAX ACT, WHEREBY A NOTIONAL INCOME MAY BE CREATED AS TAXABLE INCOME. THE DEPARTMENT CANNOT G UIDE THE ASSESSEE TO CHARGE A PARTICULAR RATE OF INTERES T. ALTERNATIVELY, IT WAS SUBMITTED THAT THE INTEREST C OST TO THE COMPANY ON FUNDS BORROWED FOR WORKING CAPITAL THROUGH MIBOR LINKED DEBENTURES DURING THE RELEVANT PERIOD IS LESS THAN INTEREST CHARGED FROM THE PARTY I.E. VARYING FROM 3.99% TO 5.56%. BY ASSUMING THAT THE TOTAL AMOUNT HAS BEEN USED OUT OF BORROWED FUNDS WITHOUT ESTABLISHING ANY SUCH TRANSACTION IS NOT CALLED FOR 8 DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE LEA RNED CIT (APPEALS) HELD THAT THE FACT REMAINS THAT THE A SSESSEE HAD BORROWED FUNDS ON WHICH IT HAD INCURRED INTERES T EXPENDITURE. THE FACT ALSO REMAINS THAT THE ASSESS EE HAD ADVANCED LOAN OF RS.10 CRORES TO M/S HERO MOTORS LT D. FOR NON-BUSINESS PURPOSES AT A SUBSIDIZED RATE OF 6%. RELYING ON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDJUST RIES LTD., 286 ITR 1 (P&H), THE ADDITION SO MADE BY THE ASSESSING OFFICER WAS CONFIRMED BY THE LEARNED CIT (APPEALS). 14. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TI ME OF HEARING BEFORE US, SUBMITTED THAT THE ISSUE IS C OVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HO N'BLE SUPREME COURT IN ITS OWN CASE FOR ASSESSMENT YEAR 1 988- 89 IN CIVIL APPEAL NO.514 OF 2008 DATED 5.11.2015. IT WAS BROUGHT TO OUR NOTICE THAT IT HAS BEEN HELD IN THE SAID JUDGMENT THAT THE COMPANY HAVING HUGE RESERVES AND SURPLUS AT ITS DISPOSAL, IT CAN SAFELY BE PRESUMED THAT THESE FUNDS WERE GIVEN TO M/S HERO MOTORS LTD. OUT OF ITS OWN FUNDS AND NOT OUT OF BORROWED FUNDS. 15. THE LEARNED D.R. RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 16. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES 9 BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSES SEE HAS GIVEN LOAN OF RS.10 CRORES TO M/S HERO MOTORS LTD. @ 6%. IT HAS AMPLY BEEN DEMONSTRATED BEFORE US THAT THE COMPANY IS A CASH RICH COMPANY AND HAS HUGE OWN FUN DS WHICH GOES TO THE TUNE OF AROUND 652 CRORES, WHILE THE TOTAL LOANS AND ADVANCES GIVEN BY IT ARE AT AROUND 116 CRORES. IN THIS SCENARIO, IT CAN SAFELY BE PRESUME D THAT THE ASSESSEE HAD GIVEN LOANS OUT OF ITS OWN FUNDS. HOWEVER, IN THE SAID CASE, THE ASSESSEE HAD NOT GIV EN INTEREST FREE LOANS, RATHER THE CASE OF THE ASSESSI NG OFFICER IS THAT THE INTEREST CHARGED IS AT A LESSER RATE. IT HAS BEEN HELD IN THE CASE OF CIT VS. DALMIA CEMENT LTD. (2002) 254 ITR 377 (DEL) THAT THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF A BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRE CTORS AND ASSUME THE SAID ROLE TO DECIDE HOW MUCH IS A REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. IT WAS FURTHER HELD TH AT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMISE ITS PROFIT S. AND THAT THE INCOME TAX AUTHORITIES MUST PUT THEMSE LVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD WORK. THE AUTHORITIES MUST LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. EVEN THE HON'BLE SUPREME COURT IN ASSESSEES OWN CASE AS REFERRED HEREINABOVE HAD HEL D THAT APPLYING THE SAID RATIO TO THE FACTS OF THE CASE TH AT NO SUCH NOTIONAL ADDITION ON ACCOUNT OF LESSER RATE OF 10 INTEREST CHARGED CAN BE MADE BY THE ASSESSEE. IN V IEW OF THIS, THE ASSESSING OFFICER IS DIRECTED TO DELETE T HE ADDITION MADE BY HIM. THE GROUND NO.8 IS ALLOWED. 17. THE GROUND NO.9 IS AGAINST THE ACTION OF THE L EARNED CIT (APPEALS) IN CONFIRMING THE CAPITALIZATION OF I NTEREST OF RS.6,77,388/- ON THE ASSETS APPEARING UNDER THE HEAD CAPITAL WORK-IN-PROGRESS BY ADOPTING THE INTEREST @ 7.75%. 18. BRIEFLY, THE FACTS ARE THAT DURING THE ASSESSM ENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE AS SESSEE HAD SHOWN CAPITAL WORK-IN-PROGRESS ON WHICH INTERES T HAS NOT BEEN CAPITALIZED. THE SUBMISSION OF THE ASSESS EE BEFORE THE ASSESSING OFFICER WAS THAT IT HAD BEEN A VAILING MIBOR FOR WHICH RATE OF INTEREST IS LESS THAN 6%. CONSIDERING THE RATE OF 6% THE TOTAL DISALLOWANCE O F VARIOUS ITEMS SHOWING IN CAPITAL WORK-IN-PROGRESS W ORKS OUT TO 63,683/-. THE ASSESSING OFFICER NOTED THAT IN ADDITION TO THE ITEMS SHOWN BY THE ASSESSEE THERE W ERE CERTAIN OTHER ITEMS UNDER THE HEAD CAPITAL WORK-IN - PROGRESS, ON WHICH THE INTEREST HAD NOT BEEN CAPIT ALIZED. THE ASSESSING OFFICER COMPUTED THE AVERAGE RATE OF INTEREST ON BORROWINGS AT 7.75% AND MADE THE DISALLOWANCE OF RS.6,77,388/-. 19. BEFORE THE LEARNED CIT (APPEALS) THE ASSESSEE SUBMITTED THAT NO FUNDS WERE BORROWED FOR THIS PURP OSE, NOR THE CAPITAL WORK-IN-PROGRESS OUTSTANDING AS ON 11 31.3.2009 WAS OUTSTANDING AS ON 31.3.2008. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE LEAR NED CIT (APPEALS) FOUND HIMSELF NOT IN AGREEMENT WITH T HE SAME AND STATED THAT THE ASSESSEE HAS ITSELF WORKED OUT THE TOTAL DISALLOWANCE ON ITEMS OF WORK-IN-PROGRESS @ 6% AT RS.63,683/- AND ACCORDINGLY, THE GROUND WAS DISMISSED. 20. THE LEARNED COUNSEL FOR THE ASSESSEE STATED TH AT THE ISSUE IS COVERED BY THE ORDER OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF DCIT VS. SAMRAT FORGINGS LTD. IN ITA NO.975/2011, DATED 24.5.2012. 21. THE LEARNED D.R. RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 22. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. ON PERUSAL OF THE ORDER OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF SAMART FORGINGS LTD. (SUPRA), WE SE E THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE I.T.A.T. AT P AGE 9 OF THE SAID OR, WHICH READS AS UNDER : 9. THE PROVISIONS OF MAIN SECTION AND THE PROVISO ARE IN RELATION TO THE AMOUNT OF INTEREST PAYABLE ON CA PITAL BORROWED. THE FIRST JUNCTURE THUS TO BE SEEN IS WH ETHER THE ASSESSEE HAD BORROWED ANY CAPITAL FOR THE PURPO SES OF INVESTMENT IN CAPITAL ASSET FOR EXTENSION OF EXI STING BUSINESS OR PROFESSION. IN THE FACTS OF THE PRESEN T CASE, THERE IS NO FINDING BY THE ASSESSING OFFICER IN RES PECT OF THE BORROWALS MADE BY THE ASSESSEE FOR THE PURPOSES OF 12 INVESTMENT IN CAPITAL WORK-IN-PROGRESS. THE ASSESS ING OFFICER NOTED THAT THE ASSESSEE HAD SHOWN CAPITAL W ORK- IN-PROGRESS IN ITS BALANCE SHEET AND CONSEQUENTLY COMPUTED DISALLOWANCE IN VIEW OF THE PROVISIONS OF PROVISO TO SECTION 36(1)(III) OF THE ACT. THE CIT (APPEALS) HAS GIVEN THE FINDING THAT NO LOAN HAD BE EN RAISED BY THE ASSESSEE COMPANY FOR THE PURCHASE OF FURNACE OR FOR THE CONSTRUCTION OF BUILDING. THE S AID FINDING OF THE CIT (APPEALS) HAD NOT BEEN CONTROVER TED BY THE LEARNED D.R. FOR THE REVENUE. FURTHER THE C IT (APPEALS) HAS ALSO NOTED THAT THE TOTAL INVESTMENT MADE BY THE ASSESSEE DURING THE YEAR ON CAPITAL WORK-IN- PROGRESS WAS RS.42.46 LACS SPENT ON FURNACE AND RS.33.23 LACS ON THE BUILDING AS AGAINST THE NET PR OFIT OF THE ASSESSEE FOR THE YEAR AT RS.1.97 CRORES. IN VI EW OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE FIND NO MERIT IN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. UPLOADING THE ORDER OF THE CIT (APPEALS) WE DISMISS GROUND NO.1 RAISED BY THE REVENUE. 23. SINCE NO DISTINGUISHING FACTS WERE BROUGHT TO OUR NOTICE DURING THE COURSE OF HEARING, RESPECTFUL LY FOLLOWING THE ORDER OF THE COORDINATE BENCH, WE ALL OW THIS GROUND OF APPEAL. 24. THE GROUND NO.10 IS WITH REGARD TO THE CLAIM OF DEPRECIATION MADE DURING THE ASSESSMENT PROCEEDINGS AT RS.63,03,339/- IN RESPECT OF EXPENSES WHICH HAVE BE EN CAPITALIZED IN THE EARLIER YEARS AND ALSO ON WHICH DEPRECIATION WAS ALLOWED IN ASSESSMENT YEAR 2008-09 . THIS GROUND WAS RAISED BEFORE THE LEARNED CIT (APPE ALS), HOWEVER HE OBSERVED THAT THIS ISSUE DOES NOT ARISE FROM THE ORDER OF THE ASSESSING OFFICER AND ALSO THE RET URN OF 13 INCOME SHOWS THAT NO SUCH CLAIM MADE BY THE ASSESSE E. IN THIS VIEW, HE DISMISSED THE GROUND AS INFRUCTUOU S. 25. THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US MADE A PRAYER TO DIRECT THE ASSESSING OFFICER TO AL LOW CONSEQUENTIAL CLAIM OF DEPRECIATION MADE DURING THE ASSESSMENT PROCEEDINGS IN RESPECT OF EXPENSES, WHIC H HAD BEEN CAPITALIZED IN EARLIER YEAR AND ALSO ON WHICH DEPRECIATION WAS ALLOWED IN ASSESSMENT YEAR 2008-09 . 26. THE LEARNED D.R. RELIED ON THE ORDER OF THE LEARNED CIT (APPEALS). 27. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. AFTER HEARING THE LEARNED COUNSEL FOR THE ASSESSEE, WE ARE INCLINED TO SEND THIS MATTER BACK TO THE FILE OF TH E ASSESSING OFFICER SINCE EXPENSES WHICHEVER HAD BEEN CAPITALIZED IN EARLIER YEAR AS WELL IN THIS YEAR, T HE DEPRECIATION ON THE SAME IS TO BE ALLOWED TO THE AS SESSEE. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CONSEQUENTIAL RELIEF IN THE FORM OF DEPRECIATION ON CAPITALIZED EXPENSES AFTER TAKING THE RELEVANT INFO RMATION AND EVIDENCE FROM THE ASSESSEE AND GIVING A PROPER AND ADEQUATE OPPORTUNITY OF HEARING TO HIM. 28. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 14 ITA NO.493/CHD/2013 : 29. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS IN IT IS APPEAL : 1. (A) THE LD. CIT(A)-II, LUDHIANA, ON FACTS AS WELL A S IN LAW, HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 2,04,39,849/- MADE BY AO U/S 36(1)(III) OF THE I.T. ACT, 1961. (B)THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE F ACT THAT M/S HERO EXPORT LTD. AND M/S HERO MOTERS LTD. AR E COMPANIES BELONGING TO THE SAME GROUP AND MANAGEMENT . (C) THE LD. CIT(A) HAS FURTHER ERRED IN FEELING TO APPLICANT THAT THE TIME TAKEN BY THE ASSESSEE IN R ECOVERY THE DUE FROM ITS SISTER CONCERN MENTIONED ABOVE IS I N- ORDINATELY LONGER THAN FROM OTHER PARTIES. (D) THE CIT(A) HAS ERRED IN FEELING TO APPRECIATE THAT BY RESORTING TO DELAYING THE RECOVERY OF SALE PROCEE DING FROM ITS SISTER CONCERN. THE ASSESSEE HAS INDIRECTLY ADVAN CED THE MONEY TO ITS SISTER CONCERN WITHOUT CHARGING ANY IN TEREST AND ACCORDINGLY OF SECTION 36(1)(III) AND THE RATIO OF DECISION OF THE HON'BLE PUNJAB & HARYANA COURT IN THE CASE OF M/ S ABHISEK INDUSTIRES LTD 298 ITR I SQUARELY APPLIES TO THI S CASE . 2. THAT THE ORDER OF THE CIT (A)-LL, LUDHIANA BE SE T ASIDE AND THAT OF THE A.O. BE RESTORED. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED. 30. BRIEFLY, THE FACTS ARE THAT THE ASSESSING OFFI CER DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE WAS HAVING DEBIT BALANCE IN THE ACCOUNT OF M/S HERO EXPORTS LTD. AMOUNTING TO RS.29,18,92,058/- AN D M/S HERO MOTORS LTD. AT RS.10,12,28,224/- AS ON 15 31.3.2009. WITH REGARD TO THE M/S HERO EXPORTS, TH E ASSESSING OFFICER OBSERVED THAT THERE WERE REGULAR TRANSACTIONS BETWEEN TWO ENTITIES BUT THROUGHOUT TH E YEAR, NEITHER THE BALANCE HAS BEEN SQUARED OFF NOR THE DEBIT BALANCE HAS BEEN TURNED INTO CREDIT BALANCE. HE NOTED THAT THOUGH THERE WERE RECEIPTS FROM M/S HERO EXPORTS BUT THESE WERE PROPORTIONATELY TOO SMALL AS COMPARED TO THE AMOUNT OUTSTANDING AS ON ANY DATE O N WHICH PAYMENTS WERE RECEIVED. HE HELD THAT THE DEB IT BALANCE IN THE ACCOUNT OF M/S HERO EXPORTS WAS IN T HE NATURE OF PROVIDING INTEREST FREE ADVANCE. THE SUB MISSION OF THE ASSESSEE WAS THAT M/S HERO EXPORTS IS A MAJO R BUYER OF CYCLES FROM THE ASSESSEE AND THE AMOUNTS O F SALES DURING THE YEAR WERE TO THE TUNE OF RS.68.55 CRORES, AGAINST WHICH THE SUBSTANTIAL PAYMENTS WERE RECEIVE D DURING THE YEAR AND THE CLOSING BALANCE WAS RS.29,18,92,058/-. IT WAS ALSO SUBMITTED THAT M/S HERO EXPORTS ALSO SUPPLIED IMPORTED CYCLE COMPONENT FOR WHICH THE BALANCE PAYABLE BY THE ASSESSEE TO M/S HERO EXP ORTS AS ON 31.3.2009 IS RS.2,79,63,545/-. THEREFORE, TH E NET BALANCE OUTSTANDING FROM M/S HERO EXPORTS IS RS.26,39,92,513/-. AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE, THE ASSESSING OFFICER HELD THAT THE A MOUNTS NOT RECOVERED BY THE ASSESSEE FROM M/S HERO EXPORTS WRE BEING UTILIZED BY M/S HERO EXPORTS FOR ITS OWN BUSI NESS PURPOSES. THE ASSESSING OFFICER ACCORDINGLY, DISAL LOWED THE PROPORTIONATE INTEREST ON THE DEBIT BALANCE STA NDING 16 IN THE NAME OF M/S HERO EXPORTS UNDER SECTION 36(1) (III) OF THE ACT. 31. AS REGARDS M/S HERO MOTORS LTD., THE ASSESSEE SUBMITTED THAT BALANCE DUE FROM THIS COMPANY WAS ON ACCOUNT OF SUPPLY OF CR STRIPS AND AUTO RIMS. THE ASSESSEE HAD NEVER CHARGED ANY INTEREST FROM SUNDRY DEBTORS OR PAID ANY INTEREST ON BALANCE OUTSTANDING ON SUNDRY CREDITORS AS PER TREND IN THE MARKET. NO AM OUNT OF LOAN OR ADVANCE HAD BEEN GIVEN TO M/S HERO MOTOR S LTD. HOWEVER, REJECTING THE CONTENTION OF THE ASSESSEE T HE ASSESSING OFFICER MADE A DISALLOWANCE OF RS.2,04,39 ,849/- 32. BEFORE THE LEARNED CIT (APPEALS), DETAILED SUBMISSIONS WERE MADE. IT WAS SUBMITTED THAT THE D EBIT BALANCE OUTSTANDING IN THE NAME OF M/S HERO EXPORTS WAS ON ACCOUNT OF SALES MADE TO IT AND THE DEBIT BALANC E OUTSTANDING IN THE NAME OF M/S HERO MOTORS LTD. WAS ON ACCOUNT OF SALES MADE TO IT. NO AMOUNT OF LOAN OR ADVANCE WAS GIVEN BY THE ASSESSEE EITHER TO M/S HERO EXPORT S OR TO M/S HERO MOTORS LTD. DURING THE YEAR. IT WAS SUBMI TTED THAT THE TOTAL AMOUNT OF SALES MADE BY THE ASSESSEE TO M/S HERO EXPORTS DURING THE YEAR WERE TO THE TUNE O F RS.68.55 CRORES. AS AGAINST THIS, THE TOTAL AMOUNT OF PAYMENTS RECEIVED BY THE ASSESSEE DURING THE YEAR A S PER THE COPY OF ACCOUNT SUBMITTED BY THE ASSESSEE WAS RS.42,52,84,338/-. THIS WAY, ALMOST 2/3 RD OF THE AMOUNT TOWARDS SALES WAS RECEIVED BACK BY THE ASSESSEE FRO M M/S HERO EXPORTS LTD. DURING THE YEAR. THE ASSESSEE AL SO 17 SUBMITTED THAT IT WAS NOT CHARGING ANY INTEREST ON ANY AMOUNT OUTSTANDING AS SUNDRY DEBTORS NOR PAYING ANY INTEREST ON AMOUNTS OUTSTANDING AS SUNDRY CREDITORS AS PER THE MARKET PRACTICE. THE LEARNED CIT (APPEALS ) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND REL YING ON THE ORDER OF THE HON'BLE PUNJAB & HARYANA HIGH C OURT IN THE CASE OF POWER DRUGS LTD. VS. CIT (2011) 62 DTR 276 (P&H) ALLOWED THE APPEAL OF THE ASSESSEE. 33. THE LEARNED D.R. RELYING ON THE ORDER OF THE ASSESSING OFFICER STATED THAT EVEN IF THERE WERE BU SINESS TRANSACTIONS WITH M/S HERO EXPORTS AND M/S HERO MOT ORS LTD., HUGE AMOUNTS WERE DEBITED IN THEIR ACCOUNTS A ND NO INTEREST WAS BEING CHARGED BY THE ASSESSEE. THEREF ORE, THE ADDITION MADE BY THE ASSESSING OFFICER IS JUSTI FIED. 34. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE LEARNED CIT (APPEALS). 35. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. ON PERUSAL OF THE ORDER OF THE LEARNED CIT (APPEALS ), WE SEE THAT HE HAS GIVEN HIS FINDING AT PAGE 19 OF HIS ORDER, WHICH READS AS UNDER : THE ISSUE WHICH NEEDS CONSIDERATION IS THAT GIVEN THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE WHETH ER ANY INTEREST NEEDS TO BE DISALLOWED OUT OF THE INTEREST E XPENDITURE ON THE GROUND THAT THE FUNDS WERE DIVERTED FOR NON-B USINESS PURPOSES. IT HAS BEEN DECIDED BY THE HON'BLE PUNJAB AND 18 HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDUST RIES LTD. THAT WHERE THE FUNDS OF THE APPELLANT HAD BEEN D IVERTED FOR NON-BUSINESS PURPOSES THEN THE PROPORTIONATE IN TEREST NEEDS TO BE DISALLOWED. HOWEVER THE CASE OF M/S ABHISH EK INDUSTRIES LTD. IS APPLICABLE ONLY WHERE ANY AMOUNT W AS ADVANCED AS LOAN. IN THIS REGARD REFERENCE MAY BE MADE TO THE CASE OF M/S POWER DRUGS LTD. VS. ADDITIONAL CIT, RAN GE- III, CHANDIGARH IN ITA NO.313/CHD/2011. IN THIS ORDER, T HE HON'BLE I.T.A.T., CHANDIGARH OBSERVED AS UNDER :- ON HEARING THE RIVAL CONTENTIONS OF THE PARTIES, WE FIN D THAT IT IS AN ADMITTED POSITION THAT THE AMOUNT WAS ADVANCED FOR ACQUISITION OF NEW ASSET WHICH WAS CLAIMED TO BE FOR THE FURTHERANCE OF THE BUSINESS AC TIVITY OF THE ASSESSEE BEFORE US. ADMITTEDLY, THE AMOUNT WAS NOT ADVANCED AS A LOAN AND WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN APPLYING THE RATIO LAI D DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES (SUPRA). ' THIS OBSERVATION OF THE HON'BLE IT AT WAS ALSO NOTED BY THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CAS E OF POWER DRUGS LTD. VS. CIT (2011) 62 DTR (P&H) 276. KEEPING IN VIEW THE AFORESAID DECISIONS OF THE HON'BLE ITAT AND HON'BLE JURISDICTIONAL HIGH COURT, IT IS HELD THAT THE CASE OF M/S ABHISHEK INDUSTRIES LTD. IS NOT APPLICABLE WHERE ANY AMOUNT WAS NOT ADVANCED AS LOAN. IN THE INSTANT C ASE, THE UNDISPUTED FACT IS THAT NO AMOUNT OF DEBIT BALAN CE IS ON ACCOUNT OF ANY LOAN GIVEN BY THE APPELLANT TO M/S HER O EXPORTS LTD. OR TO M/S HERO MOTORS LTD. THIS FACT HA D BEEN STATED BY THE APPELLANT DURING THE COURSE OF ASSESSM ENT PROCEEDINGS. THE SAME WAS NOT CONTROVERTED BY THE AO . THE AO MERELY HELD THAT IN VIEW OF THE FACT THAT THE THR EE COMPANIES ARE GROUP CONCERNS AND IN VIEW OF THE FACT T HAT HUGE AMOUNTS WERE OUTSTANDING FROM BOTH M/S HERO EX PORTS LTD. AND M/S HERO MOTORS LTD. THE SAME IS IN THE NATU RE OF INTEREST FREE ADVANCE. THIS OBSERVATION OF THE AO IS NOT BASED ON PROPER APPRECIATION OF FACTS AS DISCUSSED IN THE FINDINGS ABOVE. THE TOTAL SALES TO M/S HERO EXPORTS LTD. WERE OF THE AMOUNT OF RS.68.55 CRORES OUT OF WHICH THE APPELLANT HAD RECEIVED MORE THAN RS.42.00 CRORES. THUS ABOUT 2/3 RD OF THE 19 PAYMENTS ON ACCOUNT OF SALES MADE TO M/S HERO EXPORT S LTD. WERE ACTUALLY RECEIVED BY THE APPELLANT DURING THE YEAR. KEEPING IN VIEW THE AFORESAID FACTUAL AND LEGAL POSITION, I HOLD THAT THE AO WAS NOT JUSTIFIED IN DISA LLOWING THE PROPORTIONATE INTEREST EXPENDITURE ON DEBIT BALAN CE OUTSTANDING IN THE NAMES OF GROUP COMPANIES. THESE G ROUNDS OF APPEAL ARE ACCORDINGLY ALLOWED. 36. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF T HE LEARNED CIT (APPEALS) AS IT IS AN UNDISPUTED FACT T HAT THE ASSESSEE WAS MAKING CONSTANT SALE AND PURCHASES FRO M THESE TWO CONCERNS AND AMOUNTS OF MONEY COMING AND GOING WERE ON ACCOUNT OF REGULAR BUSINESS OF THE AS SESSEE. DURING THE COURSE OF BUSINESS IF SONE AMOUNT REMAIN S AT THE DEBIT OF THE OTHER COMPANY, THE ASSESSING OFFIC ER CANNOT JUST PRESUME IT TO BE IN THE NATURE OF LOANS AND ADVANCES. HERE ALSO, THE OBSERVATIONS OF THE DELH I HIGH COURT IN THE CASE OF DALMIA CEMENT LTD. (SUPRA) IS PERTINENT, WHEREBY IT WAS HELD THAT IT IS NOT THE PREROGATIVE OF THE DEPARTMENT TO DICTATE THE TERMS OF THE BUSINESS AND REVENUE CANNOT IMPOSE ITS VIEW ON THE BUSINESSMAN WHEN TO GIVE ANY MONEY AND WHEN TO RECE IVE IT BACK. THE TRANSACTIONS ARE GOING ON WITH THE SI STER CONCERNS ON REGULAR BUSINESS. STEPS ARE BEING MADE AND EVEN IF SOME AMOUNT REMAINS AT THE DEBIT, THE ASSES SING OFFICER CANNOT CONSIDER THE SAME AS LOAN AND CANNOT MAKE ADDITION UNDER SECTION 36(1)(III) OF THE ACT ON THE SAME. 37. THE APPEAL OF THE REVENUE IS DISMISSED. 20 ITA NO.821/2014 : 38. THIS APPEAL OF THE REVENUE IS AGAINST THE ORDE R OF THE LEARNED CIT (APPEALS) DELETING THE PENALTY L EVIED BY THE ASSESSING OFFICER UNDER SECTION 271(1)(C) AMOUN TING TO RS.2,32,98,690/- ON THE ADDITIONS AND DISALLOWANCES SUSTAINED AFTER GIVING EFFECT TO THE ORDER OF THE C IT (APPEALS) IN QUANTUM PROCEEDINGS. THE FACTS OF THE CASE ARE STATED IN APPEAL NO.314/CHD/2013 AND ITA NO.493/CHD/2013. SINCE THE ADDITIONS SUSTAINED BY THE LEARNED CIT (APPEALS) HAVE BEEN DELETED BY US WHILE ADJUDICATING THE APPEAL AGAINST THE QUANTUM ORDER A ND THE APPEAL AGAINST PENALTY UNDER SECTION 271(1)(C) ALSO DOES NOT SURVIVE. 39. THE APPEAL OF THE REVENUE IS DISMISSED. 40. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.314/CHD/2013 IS ALLOWED. THE APPEALS OF THE REV ENUE IN ITA NO.493/CHD/2013 & ITA NO.821/2014 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF FEBRUARY, 2016. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16 TH FEBRUARY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 21