M/s Maheshwari Handling Agency Pvt Ltd, GANDHIDHAM V. The Assistant Commissioner Of Income Tax, GANDHIDHAM

ITA 854/RJT/2009

• Counselvise Citation: 85424914 RSA 2009
• Duration Of Justice: 2 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: YOGESH PANDE
• Assessee Lawyers: VIMAL DESAI DATE PF HEARING
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT. BEFORE SHRI T. K. SHARMA (JM) AND SHRI A. L. GEHL OT AM). ITA NO. 854/RJT/2009. (ASSESSMENT YEAR 2005-06) M/S.MAHESHWARI HANDLING VS. THE A.C.I.T. , AGENCY PVT. LTD., CIRCLE GANDHIDHAM. PLOT NO.640, WARD -12C, GANDHIDHAM-KUTCH. PAN:AABCM8487B. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI YOGESH PANDE, D. R. ASSESSEE BY : SHRI VIMAL DESAI.. DATE PF HEARING : 14-12-2011. DATE OF PRONOUNCEMENT : 06-01-2012. O R D E R. PER A. L. GEHLOT (A.M.) : THIS APPEAL BY ASSESSEE IS FILED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, R AJKOT DATED 19-05-2009 FOR ASSESSMENT YEAR 2005-06. 2. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL ARE REPRODUCED AS UNDER:- THE GROUNDS OF APPEAL MENTIONED HEREIN BELOW ARE W ITHOUT PREJUDICE TO ONE ANOTHER (1) THE ASSESSMENT ORDER IS BAD IN LAW. (2) THE AO HAS ERRED IN LAW AS WELL AS ON FACT IN M AKING DISALLOWANCE OF RS.15,66,180/- OUT OF INTEREST EXPENSES. THE LD . CIT(A) HAS ERRED IN CONFIRMING THE SAME. (3) THE AO ERRED IN LAW AS WELL AS ON FACTS IN DISA LLOWING THE EXPENSES OF RS.30,46,389/- TREATING THE SAME AS PRIOR PERIOD EXPENSES. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE SAME. ITA 854-RJT-2009. A.Y. 2005-06 2 (4) THE AO ERRED IN LAW AS WELL AS ON FACTS IN MAKI NG ADDITION OF RS.7,88,215/- ON ACCOUNT OF ALLEGED INFLATED LABOUR & TRANSPORTATION EXPENSES. THE LD. CIT(A) HAS ERRED IN CONFIRMING T HE ADDITION TO THE EXTENT OF R.2,50,000/-. 3. AT THE TIME OF HEARING, THE LD. A.R. SUBMITTED THAT GROUND NO.1 IS GENERAL IN NATURE AND GROUND NOS.3 AND 4 ARE NOT PRESSED. T HEREFORE, SAME ARE DISMISSED. NOW EFFECTIVE GROUND REMAINS TO BE CONSI DERED IS IN RESPECT OF DISALLOWANCE OF INTEREST OF RS.15,66,180/-. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS GIVEN INTEREST FEE ADVANCES FOR RS.1,30,51,504/- TO 13 PARTIES OF WHICH DETAILS HAV E BEEN GIVEN AT PAGE-2 OF THE ASSESSMENT ORDER. THE AO CALCULATED INTEREST BY AP PLYING 12% RATE OF INTEREST AND CALCULATED RS.15,66,180/- AND SAME WAS ADDED TO THE TOTAL INCOME BY DISALLOWING INTEREST CLAIM OF THE ASSESSEE. THE CI T(A) CONFIRMED THE ORDER OF THE AO.S THE ASSESSEE RELIED UPON A DECISION OF ITAT, AHMEDABAD IN THE CASE OF TORRENT FINANCIERS 73 TTJ 624 WHEREIN A FORMULA LAI D DOWN THAT TO THE EXTENT OF SHARE CAPITAL AND RESERVES BEING INTEREST FREE, THE INTEREST FREE ADVANCES GIVEN, INTEREST IS NOT DISALLOWED. THE CIT(A) DID NOT ACC EPT THIS ORDER OF THE ITAT REJECTING ASSESSEES CONTENTION THAT THE AO DID NOT ESTABLISH ANY NEXUS BETWEEN THE BORROWED FUNDS AND INTEREST FREE ADVANCES MADE THEREFROM DOES NOT HOLD WATER. THE LD. A.R. RELIED UPON VARIOUS DECISIONS OF ITAT INCLUDING THE DECISION OF ITAT, AHMEDABAD IN THE CASE OF TORRENT FINANCIER S (SUPRA), MUMBAI BENCH IN THE CASE OF METRO EXPORTERS LTD. VS. ITO ITA NO.169 3/M/05 ORDER DATED 20-02- 2009 AND OTHERS. THE LD. D.R. RELIED UPON THE ORDER OF CIT(A). 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, RECORD PERUSED. WE FIND THAT THE OBSERVATION NOTED BY THE CIT(A) IN RESPECT OF ORDER OF ITAT IN THE CASE OF TORRENT FINANCIERS (SUPRA) IS NOT CORRE CT. IN FACT, A FORMULA LAID DOWN IN TORRENT FINANCIERS HAVE BEEN IMPLIEDLY APPROVED BY THE JUDGMENT OF APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. C IT 215 CTR SC 105 AND THE JUDGMENT OF ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. PREM HEAVY ENGINEERING WORKS PVT. LTD. 285 ITR 554 (ALLAHABAD) . THE ISSUE UNDER ITA 854-RJT-2009. A.Y. 2005-06 3 CONSIDERATION HAS BEEN DISCUSSED IN VARIOUS ORDERS OF ITAT INCLUDING THE CASE OF METRO EXPORTERS LTD. VS. ITO 29 SOT 531 (MUM). THE DETAILED DISCUSSIONS MADE IN THOSE ORDERS AS UNDER:- 4.1 THE CRUX OF THE MATTER TO BE CONSIDERED BY US IS IN RESPECT OF ALLOWABILITY OF INTEREST EXPENDITURE UNDER SECTION 36(1)(III) OF THE ACT WHERE INTEREST BEARING BORROWED FUNDS AND OWN CAPITAL HAS LOST ITS SEPARAT E IDENTITY AS BOTH ARE MIXED. SECTION 36 OF THE ACT OCCURS IN CHAPTER IV WHICH DE ALS WITH THE COMPUTATION OF TOTAL INCOME AND IT IS A PROVISION WHICH RELATES TO THE COMPUTATION OF INCOME EARNED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINES S OR PROFESSION'. THE DEDUCTION CONTEMPLATED BY THE SECTION IS IN RELATIO N TO THE EXPENDITURE WHICH COULD PROPERLY BE REGARDED AS NECESSARY FOR THE PUR POSE OF THE BUSINESS OR PROFESSION. EXPENDITURE INCURRED ON ACCOUNT OF COMM ERCIAL EXPEDIENCY FOR THE PURPOSE OF BUSINESS WOULD BE ALLOWABLE UNDER THIS P ROVISION. THE EXPENDITURE TO BE ALLOWED MUST HAVE A NEXUS WITH THE BUSINESS OF T HE ASSESSEE. IF THE EXPENDITURE INCURRED IS OSTENSIBLY INCURRED FOR THE BUSINESS, BUT IF IN REALITY IS NOT FOR THE PURPOSE OF BUSINESS THEN SUCH EXPENDITURE I S NOT ALLOWABLE. 4.2 SECTION 36(1)(III ) OF THE ACT REFERS TO 'THE A MOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION'. THE CAPITAL BORROWED SHOULD BE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. IT IS IMPLICIT IN THIS PROVISION THAT THE CAPITAL SO BORR OWED SHOULD NOT ONLY BE INVESTED IN THE BUSINESS, BUT THAT THE AMOUNT BORROWED SHOUL D CONTINUE TO REMAIN IN THE BUSINESS. SO LONG AS THE AMOUNT BORROWED IS USED IN THE BUSINESS, THE INTEREST PAID ON SUCH BORROWING IS AN EXPENDITURE WHICH IS R EQUIRED TO BE DEDUCTED IN THE COMPUTATION OF THE INCOME FROM THE BUSINESS. THE IN TEREST PAYABLE ON THE CAPITAL BORROWED IS A LIABILITY WHICH CONTINUES TILL SUCH T IME AS THE AMOUNT BORROWED IS REPAID. SUCH INTEREST IS ALLOWABLE UNDER THE PROVIS ION ONLY FOR THE REASON THAT THE AMOUNT ON WHICH INTEREST IS PAID CONTINUES TO BE US ED IN THE BUSINESS AND THE PAYMENT OF SUCH INTEREST IS, THEREFORE, NECESSARY F OR THE PURPOSE OF RUNNING THE BUSINESS. ITA 854-RJT-2009. A.Y. 2005-06 4 4.3 THE OBJECT OF THE PROVISION IS NOT TO ENABLE AN ASSESSEE TO MAKE A LARGE BORROWING AND CREATE A LIABILITY FOR PAYMENT OF INT EREST THEREON NOT ONLY IN THE YEAR IN WHICH THE BORROWING WAS MADE, BUT THE SUBSE QUENT YEARS AS WELL, KEEP THE LOAN OUTSTANDING AND THEREAFTER, DIVERT THE AMO UNT BORROWED BY TAKING IT OUT OF THE BUSINESS BY GIVING IT INTEREST-FREE TO OTHER S LIKE SISTER CONCERNS AND RELATIVES OR FOR PERSONAL USE, BUT CONTINUE TO PAY INTEREST OUT OF THE INCOME OF THE BUSINESS AND CLAIM THE AMOUNT OF INTEREST PAID AS A BUSINESS EXPENDITURE. THE PAYMENT OF INTEREST ON THE AMOUNT NOT USED IN THE B USINESS CANNOT BE REGARDED AS A BUSINESS EXPENDITURE AS THE BUSINESS DOES NOT DERIVE ANY BENEFIT BY THE OUTGOING BY WAY OF INTEREST ON AN AMOUNT WHICH IS N O LONGER IN THE BUSINESS, BUT HAD BEEN DIVERTED FROM THE BUSINESS. THIS PROVISION , THEREFORE, CANNOT BE CONSTRUED AS ENABLING AN ASSESSEE TO BURDEN THE BUS INESS WITH INTEREST EVEN WHILE TAKING THE AMOUNT INITIALLY BORROWED FOR THE BUSINESS, BUT SUBSEQUENTLY TAKEN OUT OF THE BUSINESS BY DIVERTING IT AS INTERE ST-FREE LOANS TO SISTER CONCERNS AND RELATIVES OR FOR PERSONAL USE. 4.4 THE AMOUNT BORROWED FOR THE BUSINESS REMAINS A LIABILITY FOR THE BUSINESS TILL ITS DISCHARGE. THE FACT THAT THE AMOUNT BORROW ED MAY HAVE BEEN INVESTED IN THE PURCHASE OF MACHINERY OR UTILISED AS WORKING CA PITAL OR USED IN ANY OTHER WAY DOES NOT IN ANY WAY AFFECT THE LIABILITY FOR REPAYM ENT OF THE AMOUNT BORROWED. SO LONG AS THE MONEY BORROWED IS USED IN THE BUSINESS, INTEREST PAID ON SUCH BORROWING IS A PROPER CHARGE ON THE BUSINESS AND IS ALLOWABLE AS EXPENDITURE. UNDER SECTION 36(1)(III) OF THE ACT, AMOUNTS DIVERT ED NOT BEING USED FOR THE PURPOSES OF THE BUSINESS, INTEREST RELATING TO THE AMOUNT DIVERTED OUT OF THE BUSINESS CANNOT BE TREATED AS A PERMISSIBLE DEDUCTI ON IN THE COMPUTATION OF INCOME. ON MANY OCCASIONS THE ASSESSEE TAKE STAND T HAT ONCE THE AMOUNT BORROWED IS FOUND TO HAVE BEEN USED FOR SOME TIME I N THE BUSINESS, THEN SUBSEQUENT DIVERSION IS OF NO CONSEQUENCE, BUT SUCH STAND OF THE ASSESSEE CANNOT BE ACCEPTED. THE LEGISLATIVE LANGUAGE OF SEC TION 36(1)(III) OF THE ACT IS VERY AS CLEAR EXPRESSION 'BORROWED FOR THE PURPOSE OF THE BUSINESS' IS USED. THE ITA 854-RJT-2009. A.Y. 2005-06 5 AMOUNT BORROWED MUST CONTINUE TO BE USED FOR THE PU RPOSES OF THE BUSINESS AND THE FACT THAT IT WAS USED FOR SOME POINT OF TIME, B UT LATER DIVERTED WOULD NOT ENTITLE THE ASSESSEE TO CLAIM THE INTEREST PAID ON THE BORR OWING AS A DEDUCTION UNDER SECTION 36(1)(III) EVEN AFTER SUCH DIVERSION. IN CA SES WHERE DIVERSION OCCURS IMMEDIATELY AFTER THE BORROWING AND THE BORROWED AM OUNTS ARE NOT INVESTED IN THE BUSINESS AT ALL, BUT DIVERTED FOR OTHER PURPOSE S, THEN THERE SHOULD NOT BE ANY CLOUD OF DOUBT THAT INTEREST PAID ON SUCH BORROWED AMOUNTS IS NOT ALLOWABLE DEDUCTION. THE FACTUM OF DEFERMENT, IN CASES WHERE SUCH DIVERSION OF FUNDS FROM THE BUSINESS IS CLEARLY ESTABLISHED FROM THE FACTS ON RECORD, DOES NOT ENTITLE THE ASSESSEE TO CLAIM THE BENEFIT OF DEDUCTION IN RESPE CT OF INTEREST PAID ON THE AMOUNTS BORROWED BUT NOT PRESENTLY USED IN ITS BUSI NESS. THE TIME AT WHICH THE DIVERSION TAKES PLACE IS NOT THE ONLY RELEVANT CRIT ERION BUT IT IS THE FACT OF THE DIVERSION WHICH IS MATERIAL AND ONCE IT HAS BEEN SH OWN THAT THERE HAS BEEN DIVERSION OF INTEREST ON THE AMOUNT BORROWED, BUT S UBSEQUENTLY DIVERTED WOULD NOT QUALIFY FOR DEDUCTION. ANY VIEW TO THE CONTRARY WOULD NOT IN THE LEAST SUB SERVE THE OBJECT OF THE LEGISLATIVE PROVISION, BUT IT WOULD ONLY OPEN THE GATES FOR THE ASSESSEES TO BORROW MERRILY AND AFTER OSTENSIBL Y USING IT IN THE BUSINESS FOR A SHORT PERIOD AND AT A SUBSEQUENT POINT OF TIME DIVE RT THE FUNDS IN WHOLE OR PART, FOR NON-BUSINESS PURPOSES AND CONTINUE TO CLAIM THE INTEREST ON THE BORROWING AS A DEDUCTIBLE ITEM OF EXPENDITURE. THE OBJECTS OF TH E SECTION WOULD NOT IN ANY WAY BE ADVANCED BY THE ADOPTION OF SUCH A VIEW. IF A BU SINESS FOR WHICH THE INTEREST PAID IS CLAIMED AS A DEDUCTION HAS NOT BENEFITED DU RING THE YEAR FROM THE CAPITAL BORROWED BY SUCH BORROWED AMOUNT BEING USED IN THE BUSINESS, SUCH INTEREST CANNOT BE REGARDED AS EXPENDITURE FOR THE PURPOSES OF THE BUSINESS. THE ASSESSEE MAY NOT EVEN WHILE USING BORROWED FUNDS FO R ITS PERSONAL PURPOSES AND NOT BUSINESS PURPOSES CLAIM DEDUCTION OF THE IN TEREST PAID ON THE BORROWING. IN ANY CASE IF THE ASSESSEE TAKES STAND THAT IT IS BUSINESS EXPEDIENCY THEN, HEAVY BURDEN LIES ON THE ASSESSEE TO PROVE SUCH CON TENTION AND SAID CONTENTION IS TO BE EXAMINED BY APPLYING DEFERENT CRITERIA. ITA 854-RJT-2009. A.Y. 2005-06 6 4.5 A REAL PROBLEM ARISES IN CASES WHERE FUNDS ARE PUMPED OUT OF BUSINESS WHICH ARE COMPRISED OF BOTH TYPE OF FUNDS, BORROWED AS WELL AS OWN FUNDS FOR NON-BUSINESS PURPOSES. IN ALL SUCH CASES WHERE MIXE D FUNDS ARE USED FOR BOTH BUSINESS AND OTHER THAN BUSINESS PURPOSES, THERE IS NO PRESUMPTION THAT MONEYS USED FOR OTHER PURPOSES CAME OUT OF BORROWED FUNDS. IT CAN BE SAID THAT INTEREST-FREE FUNDS GIVEN ARE OUT OF OWN FUNDS TO T HE EXTENT OF CAPITAL AND RESERVES, AND THIS PROPOSITION IS SUPPORTED BY THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V. GOPIKRISHN A MURLIDHAR[1963] AND IN THE SAID CASE THEIR LORDSHIPS ACCEPTED THE CONTENTION T HAT THE ASSESSEE IS ENTITLED TO WITHDRAW FROM CAPITAL. THE FACTS OF THAT CASE ARE T HAT THE ASSESSEE IS A HINDU UNDIVIDED FAMILY CARRYING ON BUSINESS ON AN EXTENSI VE SCALE WITH A CAPITAL OF NEARLY RS. 20,00,000 (TWENTY LAKHS). DURING THE YEA R ENDED 9-11-1950, THE ASSESSEE MADE LARGE BORROWINGS FOR PURPOSES OF HIS BUSINESS AND PAID INTEREST AMOUNTING TO RS. 93,611 ON SAID BORROWINGS. DURING THE COURSE OF THAT YEAR, THE ASSESSEE WITHDREW FROM THE BUSINESS FROM TIME TO TI ME AMOUNT OF RS. 1,77,984 FOR HIS PERSONAL EXPENSES. THE INCOME-TAX OFFICER D ISALLOWED A SUM OF RS. 13,500 ON PRO RATA, REPRESENTING THE INTEREST ELEME NT RELATING TO RS. 1,77,984, SINCE HE WAS OF VIEW THAT AMOUNT OF RS. 1,77,984 WI THDREW WAS MADE IN THE NAME OF THE BUSINESS BUT USED FOR HIS PERSONAL PURP OSES. ACCORDING TO HIM, MONEY WAS WITHDRAWN FROM THE BOOKS OF ACCOUNT TO ME ET THE PERSONAL EXPENDITURE OF THE ASSESSEE AND, AS THIS SUM OF MON EY WAS NOT ACTUALLY USED FOR THE BUSINESS, THE INTEREST PAID THEREON COULD NOT B E ALLOWED AS PERMISSIBLE DEDUCTION. 4.6 THE RELEVANT FINDING OF THE COURT IS REPRODUCED BELOW: 'WE DO NOT THINK THAT WE CAN GIVE EFFECT TO THIS AR GUMENT. INDISPUTABLY, THESE AMOUNTS WERE BORROWED ONLY FOR THE PURPOSE OF BUSIN ESS OF THE FAMILY. THE ASSESSEE DREW OUT FROM TIME TO TIME VARIOUS SUMS OF MONEY AGGREGATING TO RS. 1,77,984 FROM THE BUSINESS. IT IS NOT A CASE WHERE ANY PARTICULAR SUM PURPORTING TO BE BORROWED ON BEHALF OF THE BUSINESS WAS SPENT FOR HOUSEHOLD EXPENSES. THIS IS A CASE WHERE THE LOANS WERE TAKEN FOR CARRY ING ON THE BUSINESS BUT THE ITA 854-RJT-2009. A.Y. 2005-06 7 FAMILY USED TO WITHDRAW SOME AMOUNTS FROM THE BUSIN ESS WHENEVER OCCASIONS AROSE. THE FAMILY WAS SURELY ENTITLED TO WITHDRAW F ROM THE CAPITAL SUPPLIED BY IT WITH THE RESULT OF THE CAPITAL BEING DEPLETED. THER E IS, THEREFORE, NO SUBSTANCE IN THE SUBMISSION THAT THE FACT THAT PART OF THE AMOUN T BORROWED WAS LATER ON USED FOR PERSONAL EXPENSES, WOULD DEPRIVE THE ASSESSEE O F THE BENEFITS.' 4.7 FROM THE ABOVE JUDGMENT OF HONBLE ANDHRA PRAD ESH HIGH COURT WE FIND THAT THE ASSESSEE HAS RIGHT TO REPLACE HIS OWN CAPI TAL WITH BORROWED FUNDS WHICH WERE ALREADY USED FOR THE PURPOSE OF BUSINESS IN AC QUIRING ASSETS AND OTHER. WITH THE HELP OF THIS RATIO OF THE JUDGMENT SUCH PR OBLEM CAN BE RESOLVED BY EXAMINATION AND ANALYSES OF FINANCIAL STATEMENTS PR EPARED ON THE BASIS OF BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. IT IS WELL A CCEPTED PROPOSITION THAT FOR THE PURPOSE OF ASCERTAINING PROFIT AND GAINS, THE NORMA L PRINCIPLES OF COMMERCIAL ACCOUNTING SHOULD BE APPLIED, SO LONG AS THEY DO NO T CONFLICT WITH ANY EXPRESS STATUTORY PROVISIONS AS HELD BY THE HONBLE SUPREME COURT IN CIT V. UP STATE INDUSTRIAL DEVELOPMENT CORPN. [1997]. THUS SUCH PRO BLEM CAN BE RESOLVED BY ANALYZING STATEMENT OF ACCOUNTS AND IN PARTICULAR B ALANCE-SHEET. WHERE DETAILS OF OWN CAPITAL, BORROWED FUNDS AND INTEREST-FREE FU NDS GIVEN OR UTILIZED FOR OTHER PURPOSES ARE AVAILABLE. THERE IS NO MUCH DIFFICULTI ES IN EXAMINATION OF RIGHT TO REPLACE OWN CAPITAL TO BORROW FUNDS IN CASE OF INDI VIDUAL AND PARTNERSHIP FIRM. BUT IN THE CASE OF COMPANY, CAPITAL IS FUND OF PUBLIC/S HAREHOLDERS WHICH IS MANAGED BY THE BOARD OF DIRECTORS. IN THE CASE OF COMPANY T HERE ARE CERTAIN RESTRICTIONS UNDER THE COMPANIES ACT IN USE OF CAPITAL/FUND FOR PERSONAL BENEFITS. SUCH REPLACEMENT IS REQUIRED TO BE AUTHORIZED BY PROPER RESOLUTION AND MUST BE IN CONFORMITY WITH THE PROVISIONS OF COMPANIES ACT AND RULES AND REGULATIONS OF REGULATORY BODIES. SAME ARE REQUIRED TO REFLECT IN THE FINANCIAL STATEMENTS PREPARED ON THE BASIS OF AUDITED BOOKS OF ACCOUNT. THE AUDITOR IS ALSO REQUIRED TO POINT OUT SUCH REPLACEMENT/UTILIZATION OF FUNDS. IF FUNDS ARE DIVERTED IN CONTRAVENTION OF STATUTORY PROVISIONS, THEN SAME MA Y BE SUBJECT TO LEGAL AND PENAL CONSEQUENCES UNDER THE COMPANIES ACT AND OTHE RS. THE ONUS IS ON THE ASSESSEE TO FURNISH THE RELEVANT MATERIAL REGARDING REPLACEMENT OF BORROWED ITA 854-RJT-2009. A.Y. 2005-06 8 FUNDS BY OWN CAPITAL AND INTEREST-FREE FUNDS AVAILA BLE WITH THE ASSESSEE. THE PRESUMPTION OF AVAILABILITY OF INTEREST-FREE FUNDS IN THE FORM OF CAPITAL IN CASE OF COMPANY CAN BE DRAWN ON ABOVE MATERIAL FURNISHED BY THE ASSESSEE-COMPANY. 4..8 ON THE BASIS OF ABOVE DISCUSSION A PROPOSITION /FORMULA CAN BE LAID DOWN THAT IF AN ASSESSEE HAVING SUFFICIENT INTEREST-FREE FUNDS, IN THE FORM OF CAPITAL RESERVES AND OTHER FUNDS WITHOUT INTEREST BEARING F ROM RELATIVES AND FRIENDS NOT RELATED TO BUSINESS, TO COVER FUNDS GIVEN INTEREST- FREE OR UTILIZED OTHER THAN FOR BUSINESS PURPOSES, NO DISALLOWANCE IS WARRANTED. IF THE OWN FUNDS ARE NOT SUFFICIENT TO COVER INTEREST-FREE ADVANCES, A PROPO RTIONATE DISALLOWANCE IS WARRANTED. WHILE EXAMINING INTEREST-FREE FUNDS AVAI LABLE WITH ASSESSEE AND INTEREST-FREE FUNDS GIVEN A CARE IS REQUIRED TO BE TAKEN THAT THESE FUNDS WERE NOT RELATED TO BUSINESS OF THE ASSESSEE. CAPITAL AND RE SERVES ARE CERTAINLY ASSESSEES OWN INTEREST FUNDS. THIS PROPOSITION IS FORTIFIED BY THE DECISION OF ITAT IN THE CASE OF TORRENT FINANCERS V. ASSTT. CIT [2001] (AHD.), JUDGMENT OF ALLAHABAD HIGH COURT IN THE CASE OF CIT V. PREM HEA VY ENGG. WORKS (P.) LTD. [2006] AND THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPN. V. CIT [2008]. IT IS TO NOTE THAT DECISIONS OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN MUNJAL SALES CORPN. V. CIT [2 008] CIT V. MUNJAL SALES CORPN. [2008] WHEREIN THE HONBLE PUNJAB AND HARYAN A HIGH COURT FOLLOWED CIT V. ABHISHEK INDUSTRIES LTD. [2006] HAVE BEEN REVER SED BY THE HONBLE SUPREME COURT. THUS THE DECISION OF THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. (SUPRA) HAS BEEN IMPLIEDLY REVERSED ON THE ISSUE. 5. IN THE LIGHT OF ABOVE DISCUSSION, WE FIND THAT I N THE CASE UNDER CONSIDERATION, THE ASSESSEE WAS HAVING SUFFICIENT I NTEREST FREE FUND IN THE FORM OF CAPITAL AND RESERVES RS.5.48 CRORES AGAINST INTERES T FEE ADVANCES OF RS.1.30 CRORES. SINCE THE ASSESSEE HAS HAVING SUFFICIENT I NTEREST FEE FUNDS TO INTEREST FREE ADVANCES, WE THEREFORE, DELETE THE ADDITION OF RS.15,66,180/- ITA 854-RJT-2009. A.Y. 2005-06 9 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 06-01-2012. SD/- SD/- ( T. K. SHARMA ), ( A. L. GEHLOT ), JUDICIAL MEMBER. ACCOUNTANT MEMBER. RAJKOT. DATED: 06-01-2012. NVA/ COPY TO:- 1.M/S. MAHESHWARI HANDLING AGENCY PVT. LTD., GANDH IDHAM.. 2.THE A.C.I.T.,GANDHIDHAM CIRCLE, GANDHIDHAM. 3.THE C.I.T.(A)-II, RAJKOT. 4.THE C.I.T., RAJKOT. 5.THE D.R., ITAT, RAJKOT. TRUE COPY. BY ORDER, ASSTT. REGISTRAR, ITAT,RAJKOT.