Shah Alloys Ltd., Ahmedabad V. The ACIT.,Circle-8, Ahmedabad

ITA 856/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6424 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 29-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 22-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V K MATHUR
• Assessee Lawyers: P M MEHTAAR
• Keywords: Commercial expediency
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI MUKUL SHRAWAT ,JM & SHRI A N PAHUJA,AM ITA NO.856/AHD/2010 (ASSESSMENT YEAR:-2005-06) SHAH ALLOYS LTD., 5/1, SHREEJI HOUSE, 5TH FLOOR, BEHIND M.J. LIBRARY, ELLISBRIDGE, AHMEDABAD. V/S ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-8, ASHRAM ROAD, AHMEDABAD.. PAN: AADCS0474 L [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI P.M. MEHTA,AR REVENUE BY:- SHRI V.K. MATHUR, DR ( (( ( )/ )/)/ )/ ORDER A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 9- 8-2007 OF THE LD. C.I.T.(APPEALS)-XIV, AHMEDABAD FO R THE ASSESSMENT YEAR 2005-06, RAISES THE FOLLOWING GRO UNDS:- . 1. ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE THE CIT (A) HAS GROSSLY ERRED IN NOT ACCEPTING THE BOOK FIG URE OF THE RATE OF ELECTRICITY CHARGED BY THE CPP UNIT TO THE GENERAL UNIT, OF THE APPELLANT COMPANY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE FOR COMPUTING DEDUCTION U/S. 80IA THE MARKET VALUE OF E LECTRICITY GENERATED BY THE APPELLANT OUGHT TO HAVE BEEN ACCEP TED AT RS.5.29 PER UNIT AS ADOPTED BY THE APPELLANT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING REDUCTIO N OF DEDUCTION U/S. 80 IA OF RS.8,27,95,051/- ON ACCOUNT OF EXCLUS ION OF ELECTRICITY DUTY. IN DOING SO HE HAS GROSSLY ERRED IN CONFIRMIN G THE ACTION OF THE ASSESSING OFFICER . 4. IN LAW AND IN THE FACTS AND CIRCUMSTAN CES OF THE APPELLANTS CASE, THE LEARNED CIT (A) HAS GROSSLY E RRED IN CONFIRMING ADDITION OF RS.7,27,000/-MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF APPROPRIATION OF THE GENERAL HEAD OFFICE EXPENSE S TO THE CPP UNIT. ITA.NO.856/AHD/2010 2 5. ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE THE CIT(A) HAS ERRED IN CONFIRMING ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A) (IA) ON THE GROUND THAT TAX OUGHT TO HAVE BEEN DEDUCTED UNDER SECTION 195 ON LC INTEREST. 6. WITHOUT PREJUDICE TO GROUND NO.5, HON BLE ITAT MAY DIRECT THE ASSESSING OFFICER TO ALLOW THE SAID EXPENDITURE IN THE YEAR IN WHICH TAX HAS BEEN DEDUCTED AND PAID. 7. THE LD. C.I.T.(A) HAS ERRED IN LAW A ND ON FACTS IN UPHOLDING THE DISALLOWANCE MADE BY THE ASSESSING OF FICER ON ACCOUNT OF THE INTEREST ON BORROWED FUNDS OF RS.22, 30,786/- ON THE GROUND THAT INTEREST BEARING FUNDS WERE DIVERTED FO R NON-BUSINESS INTEREST FREE ADVANCES. 8. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN LEVYING INTEREST UNDER SECTION 234B AND 234C OF THE INCOME TAX ACT,1961 . 9. THE APPELLANT CRAVES LEAVE TO ADD, AL TER, AMEND AND/OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL EITHER BEF ORE OR AT THE TIME OF HEARING OF THE APPEAL 2. ADVERTING FIRST TO GROUND NOS.1 TO 3 IN THE APPEAL, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLA RING INCOME OF RS.8,61,87,638/- FILED ON 29-10-2005 BY THE ASSESSE , ENGAGED IN MANUFACTURING SS FLATS, MS/SS PLATES, SS SLABS, SS WIRE RODS, SS HR COIL ETC., AFTER BEING PROCESSED ON 4-5-2006 U/S. 143(1) OF THE INCOME-TAX ACT,1961[HEREINAFTER REFERRED TO AS THE ACT] WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S. 143 (2) OF THE ACT ON 1- 9-2006. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASS ESSEE CLAIMED DEDUCTION U/S. 80IA OF THE ACT ON THE PROFITS GENERATED FROM INDEPENDENT CAPTIVE POWER PLANT. THE ASSESSEE ALLO CATED ONLY INTEREST OF RS.60,90,731/- WHILE COMPUTING PROFITS OF THE POWER PLANT. THE ASSESSEE ADOPTED MARKET VALUE OF RS.86,96,89,30 8/- IN RESPECT OF ELECTRICITY GENERATED FROM ITS POWER PLANT. AFTE R EXCLUDING SALES TO M/S SHEFALI STEEL AND POOJA AGRICO PVT. LTD., REMAI NING RS.85,67,32,977/- WAS ATTRIBUTED TO CAPTIVE CONSUMP TION. THOUGH ITA.NO.856/AHD/2010 3 THE ASSESSEE IS EXEMPTED FROM PAYMENT OF ELECTRICIT Y DUTY, STILL THE ASSESSEE ADOPTED AVERAGE RATE OF RS.5.29 PER UNIT , INCLUSIVE OF ELECTRICITY DUTY WHILE DETERMINING PROFITS . RELYI NG ON HIS FINDINGS FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 AND TH E DECISION OF I.T.A.T., MUMBAI BENCH IN THE CASE OF WEST COAST PA PER MILLS LTD. VS. ACIT 286 ITR 252, THE AO, HOWEVER, RESTRICTED T HE CLAIM FOR DEDUCTION U/S 80IA TO THE EXTENT OF RS.8,27,95,051/ - WHILE EXCLUDING ELECTRICITY DUTY LEVIED BY GEB, THE ASSESSEE BEING EXEMPTED FROM PAYMENT OF ELECTRICITY DUTY FOR ITS CAPTIVE POWER P LANT. 3. ON APPEAL, THE LD. CIT(A) FOLLOWING HIS O WN DECISION FOR THE ASSESSMENT YEAR 2004-05 UPHELD THE FINDINGS OF THE ASSESSING OFFICER. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US. AT THE OUTSET BOTH THE PARTIES AGREED THAT THE ISSUE IS COVERED BY THE DECISION DATED 8-1-2010 OF A CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE IN ITA NO.844/AHD/2006 FOR THE ASSESSMENT YEAR 2002-03 AN D FOLLOWED IN ITA NOS. 2072-73/AHD./2006 FOR THE AYS. 2003-04 & 2 004-05. 5. WE HAVE HEARD BOTH THE PARTIES AND HAV E GONE THROUGH THE AFORESAID DECISION OF THE ITAT WE FIND THAT WHILE A DJUDICATING A SIMILAR ISSUE IN THE AY 2002-03 , THE ITAT VIDE TH EIR AFORESAID ORDER DATED 8-1-2010 CONCLUDED AS UNDER:- 12. THE LD. CIT(A) HELD THAT GUJARAT ELECTRI CITY BOARD (GEB) IS SUPPLYING ELECTRICITY AT AN AVERAGE RATE OF RS.5 .40 PER UNIT WHICH IS INCLUSIVE OF 8 PAISE PER UNIT FOR THE ELECTRICIT Y DUTY. SINCE THE ASSESSEE IS NOT REQUIRED TO CHARGE ELECTRICITY DUTY , THEREFORE, APPLICABLE RATE WOULD BE RS.5.32 PAISE PER UNIT. IN THIS REGARD THE LD. A.R. SUBMITTED THAT THE ELECTRICITY IS GENERATE D AND DOES NOT COME WITHIN THE MISCHIEF OF SECTION 80IA (VIII) WHI CH COVERS ONLY GOODS AND SERVICES WHICH ARE PRODUCED BY ONE UNIT A ND ACQUIRED BY THE OTHER UNIT. ELECTRICITY IS NEITHER GOODS NOR S ERVICES. FURTHER, RATES CHARGED BY GEB IS NOT A LANDMARK. IN ANY CASE , IF GENERAL UNIT WAS TO PURCHASE ELECTRICITY FROM GEB, IT WOULD HAVE PAID RS.5.40 ITA.NO.856/AHD/2010 4 PAISE PER UNIT, THEREFORE, IT CANNOT BE SAID THAT T HE ELECTRICITY SOLD BY CCP UNIT TO GENERAL UNIT WAS AT A PRICE WHICH IS MO RE THAN MARKET RATE. IN FACT, THE MARKET PRICE IS WHAT THE GEB CHA RGES,. THE LD. A.R. FURTHER SUBMITTED THAT SIMILAR ISSUE HAD AROSE BEFORE THE ITAT, AHMEDABAD BENCH-B IN ITA NO.3594/AHD/20078 AND OTHE RS IN THE CASE OF ALEMBIC LIMITED, DECIDED ON 6-6-2008. IN TH IS CASE IT HAS BEEN DECIDED BY THE TRIBUNAL FOLLOWING THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF ACIT VS. JINDAL STEEL & POWER LTD., (2007) 16 SOT 509 (DEL) THAT THE MARKET RATE POSTUL ATED BY SECTION 80IA (VIII) SHALL BE THE PRICE AT WHICH THE ASSESSE E PURCHASES ELECTRICITY FROM THE ELECTRICITY BOARD. IN THIS REG ARD, WE REFER TO PARA- 32 OF THE JUDGMENT AS UNDER:- WE HAVE HEARD THE PARTIES AND CONSIDERED THE RIVAL SUBMISSIONS. THE CONTROVERSY IN QUESTI ON IS SQUARELY DECIDED BY THE TRIBUNAL, DELHI BENCH, IN THE CASE OF JINDAL STEEL & POWER LTD. (SUPRA) AND MUMBAI BENCH IN THE CASE OF WEST COAST PAPER MILLS LTD. (SUPRA) HOLDING ON UNEQUIVOCAL TERMS THAT THE MARKET VALUE POSTULATED BY THE PROVISIONS OF SECTION 80IA SHALL BE THE PRICE AT WH ICH THE ASSESSEE PURCHASES ELECTRICITY FROM ELECTRICITY BOA RD AND NOT THE ONE WHICH IS FIXED BY THE LEGISLATIVE MANDATE. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE TRIBUNAL DECISIONS , WE DIRECT THE AO TO ALLOW GRANT OF DEDUCTION U/S. 80IA TO THE ASSESSEE BY TAKING THE PRICE OF ELECTRICITY SUPPLIED BY GEB TO ASSESSEE AS A CONSUMER AS MARKET VALUE FOR THE PURPOSE OF DEDUCTI ON U/S. 80IA. THE ASSESSEE SUCCEEDS ON THIS GROUND. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE HOLD THAT THE MARKET VALUE FOR ELECTRICITY WOULD BE ONE AT WHICH IT IS S UPPLIED BY GEB TO OTHER ASSESSEES INCLUSIVE OF DUTY. THEREFORE, THE R ATES TAKEN BY THE ASSESSEE FOR THE PURPOSE OF SUPPLYING ELECTRICITY F ROM CPP UNIT TO GENERAL UNIT IS UPHELD. THE ASSESSEE SUCCEEDS ON TH IS POINT. 5.1. THE AFORESAID DECISION HAS BEEN FOLLOWED BY THE ITAT IN THEIR DECISIONS FOR THE AYS 2003-04 AND 2004-05. IN THE LIGHT OF THE VIEW TAKEN IN THESE DECISIONS ,ESPECIALLY WHEN FACTS AND CIRCUMSTANCES IN THE YEAR UNDER CONSIDERATION ARE INDISPUTABLY PARALLEL TO THE FACTS AND CIRCUMSTANCES IN THE EAR LIER YEARS, WE HAVE NO ALTERNATIVE BUT TO ALLOW THE CLAIM OF THE ASSESS EE. THUS, GROUND NOS.1 TO 3 ARE ALLOWED. ITA.NO.856/AHD/2010 5 6.. GROUND NO.4 RELATING TO ADDITION OF RS.7,2 7,000/- ON ACCOUNT OF APPROPRIATION OF THE GENERAL HEAD OFFICE EXPENSE S TO THE CPP UNIT, WAS NOT PRESSED BEFORE US BY THE LD. A.R. ON BEHALF OF THE ASSESSEE. THEREFORE, THIS GROUND IS DISMISSED AS SU CH. 7.. GROUND NOS.5 AND 6 RELATE TO DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. SINCE THE ASSESSEE PAID LC INTEREST OF RS. 3,37,792/- TO M/S. ABCOM TRADING PVT. LTD., SINGAPORE AND RS.17,1 4,117/- TO M/S. ADANI GLOBAL FZE OF UAE, WITHOUT DEDUCTION OF TDS A T SOURCE, THE AO RELYING UPON THE DECISION OF HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION (2003) 129 TAXMAN 120 (GUJ.), DISALLOWED THE CLAIM FOR DEDUCTION OF RS.17 ,14,117/-. 8. ON APPEAL, THE CIT (A), UPHELD T HE FINDINGS OF THE ASSESSING OFFICER IN THE LIGHT OF THE DECISION OF H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION V. CIT (SUPRA). 9. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A). AT THE OUTSET THE LD. A .R. OF THE ASSESSEE INVITED OUR ATTENTION TO PAGE 8 OF THE STATEMENT OF FACTS ANNEXED TO THE APPEAL AND CONTENDED THAT SINCE THE AMOUNT ON A CCOUNT OF TDS HAS BEEN DEPOSITED IN THE GOVERNMENT TREASURY ON 8T H MARCH,2007[PAGE 37 OF THE PB], THE DEDUCTION MAY BE ALLOWED IN THE YEAR OF PAYMENT. THE LD. D.R. DID NOT RAISE ANY OBJ ECTION TO THESE SUBMISSIONS. 10. WE HAVE HEARD BOTH THE P ARTIES AND GONE THROUGH FACTS OF THE CASE. INDISPUTABLY, THE CLAIM FOR DEDUCTION OF RS.17,14,117/- ON ACCOUNT OF INTEREST WAS DISALLOWED BY THE AO AND U PHELD BY THE LD. CIT(A) IN THE LIGHT OF DECISION OF THE HONBLE JURI SDICTIONAL HIGH COURT IN VIJAY SHIP BREAKING CORPORATION (2003) 129 TAXMAN 1 20 (GUJ.) . ITA.NO.856/AHD/2010 6 THIS DECISION HAS LATER BEEN APPROVED BY THE HONBL E APEX COURT AND IS REPORTED IN 314 ITR 309 (SC). THUS, THERE IS NO MERIT IN THE CLAIM OF THE ASSESSEE AS PER GROUND NO.5 IN THE APP EAL. HOWEVER, THE ASSESSEE IS NOW CLAIMING THAT THE DEDUCTION MAY BE ALLOWED IN THE YEAR OF DEDUCTION OF TAX AT SOURCE AND PAYMENT TO THE GOVERNMENT ACCOUNT. SINCE A NEW CLAIM HAS BEEN MADE BEFORE US, THE AO IS DIRECTED TO VERIFY AND ALLOW THE SAME IN ACCORDANC E WITH PROVISO TO SEC. 40A(IA) OF THE ACT. CONSEQUENTLY, GROUND NO.5 IS DISMISSED WHILE GROUND NO.. 6 IS ACCEPTED SUBJECT TO OUR AFORESAID DIRECTIONS. 11. GROUND NO.7 RELATES TO DISALLOWANCE OF RS.22 ,30,783/- ON ACCOUNT OF DIVERSION OF INTEREST BEARING FUNDS TOW ARDS INTEREST FREE ADVANCES FOR NON-BUSINESS PURPOSES. THE AO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSE C OMPANY DEBITED INTEREST OF RS.27,40,23,913/- WHICH INCLUDE D INTEREST OF RS.5,59,06,340/- TOWARDS WORKING CAPITAL FINANCE. S INCE THE ASSESSEE WAS FOUND TO HAVE ADVANCED AN AMOUNT OF RS.3,72,00,000/- TO FOLLOWING ASSOCIATE CONCERNS/PE RSONS WITHOUT CHARGING ANY INTEREST FOR NON-BUSINESS PURPOSES, TH E AO ASKED THE ASSESSEE AS TO WHY THE INTEREST IN RELATION TO THES E ADVANCES BE NOT DISALLOWED:- SR. NO. NAME. AMOUNT RS. 1. NARENDRA S. VOHRA. 5,00,000 2 HARSHADBHAI M.SHAH. 2,00,000 3 SHREYANSHBHAI S. SHAH. 2,90,00,000 4 ASPASS INVESTMENT PVT. LTD. 20,00,000 5 ANWESHA STOCK TRADE PVT. LTD. 20,00,000 6 NAYANBHAI G. SHAH. 10,00,000 7 DILIPBHAI M. GOSALIA. 1,50,000 8 KUMUDBEN D. GOSALIA 2,00,000 9 MEENABEN A. GOSALIA 1,50,000 10 REDWOOD HOLDING PVT. LTD. 20,00,000 TO TAL 3,72,00,000 ITA.NO.856/AHD/2010 7 11.1 IN RESPONSE, THE ASSESSEE REPLIED THA T SUBSTANTIAL NON- INTEREST BEARING FUNDS WERE AVAILABLE WITH THEM INC LUDING NON- INTEREST BEARING CREDIT OF RS.7.19 CRORES BY WAY OF UNSECURED LOANS FROM THE PROMOTERS. ACCORDINGLY, WHILE RELYING UPON THE DECISIONS IN THE CASE OF CIT VS. HOTEL SAVERA, 239 ITR 795(MAD.) , CIT VS. RADICO KHAITAN LTD., 274 ITR 354 AND CIT VS. MUMBAI SAMACHAR, 74 ITR 742(BOM.), THE ASSESSEE CONTENDED THAT NO DISAL LOWANCE BE MADE. HOWEVER, THE A.O. REJECTED THESE CONTENTIONS , THE ASSESSEE HAVING FAILED TO ESTABLISH THE COMMERCIAL EXPEDIENC Y OF THE AFORESAID INTEREST FREE ADVANCES IN TERMS OF DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. V S. CIT,288 ITR 1 WHILE THE NEXUS BETWEEN INTEREST BEARING FUNDS IN T HE CC ACCOUNT WITH UNION BANK OF INDIA AND THE INTEREST FREE ADVANCES WAS ESTABLISHED. ACCORDINGLY, THE AO DISALLOWED AN AMOUNT OF RS.22,3 0,783/- @ 10% OF AFORESAID ADVANCES, AS COMPUTED IN PARA 5 OF TH E ASSESSMENT ORDER. 12. ON APPEAL, THE LD. C.I.T. (A) UPHELD TH E FINDINGS OF THE AO IN THE FOLLOWING TERMS:- 7.2. THE APPELLANT, DURING THE COURSE OF A PPELLATE PROCEEDINGS, HAS SUBMITTED THAT IT IS HAVING SUFFIC IENT INTEREST FREE FUNDS AND HENCE, NO DISALLOWANCE IS CALLED FOR. FUR THER, THE APPELLANT HAS CONTENDED THAT THESE LOANS WERE GIVEN FOR BUSINESS PURPOSES ONLY AND THERE IS NO QUESTION OF ANY DISAL LOWANCE IN THIS RESPECT. I HAVE CONSIDERED THE FACTS CAREFULLY AND I DO NOT AGREE WITH THE CONTENTIONS RAISED BY THE APPELLANT. THE A .O. HAS CLEARLY FOUND THAT THE APPELLANT HAD DIVERTED ITS INTEREST BEARING FUNDS FOR GIVING ADVANCES ON WHICH NO INTEREST HAS BEEN CHARG ED. THERE IS NEXUS BETWEEN THE INTEREST BEARING FUND TAKEN AS LO AN AND DIVERTING FOR NON INTEREST FREE ADVANCES. WHEN THERE IS A DIR ECT NEXUS, IT BECOMES IRRELEVANT THAT THE APPELLANT HAD INTEREST FREE FUNDS AND IT IS ESTABLISHED THAT THOSE INTEREST BEARING FUNDS WE RE GIVEN FOR THOSE ADVANCE. THE APPELLANT HAD NOT ESTABLISHED THAT THE SE ADVANCES WERE GIVEN FOR BUSINESS PURPOSES AND THERE WAS ANY COMMERCIAL EXPEDIENCY. I, THEREFORE, HOLD THAT THE ACTION OF T HE A.O. IN THIS RESPECT WAS JUSTIFIED AND THIS GROUND IS HEREBY REJ ECTED. ITA.NO.856/AHD/2010 8 13. THE ASSESSEE IS NOW IN APPEAL BEFORE US. T HE LD. AR ON BEHALF OF THE ASSESSEE WHILE RELYING UPON THE DECIS ION IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT 298 ITR 298 (SC);C IT VS RELIANCE UTILITIES AND POWER LTD., 313 ITR 340 (BOM.) AND CI T VS. PREM HEAVY ENG. WORKS PVT. LTD., 285 ITR 554(ALL.) CONTE NDED THAT NO DISALLOWANCE COULD BE MADE. ON THE OTHER HAND, THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A). TO A QUER Y BY THE BENCH THE LD. AR FURNISHED THE RELEVANT DETAILS OF DATE O F ADVANCE AND A COPY OF CC ACCOUNT AFTER THE HEARING. 14. WE HAVE HEARD BOTH THE PARTIES AND GO NE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORECITED DECISIONS . IN THE INSTANT CASE, THE AO DISALLOWED THE CLAIM FOR DEDUCTION OF INTERE ST TO THE EXTENT OF RS.22,30,783/- SINCE THE ASSESSEE COMPANY ADMITTED THAT INTEREST FREE ADVANCES OF RS. 3,72,00,000/- GIVEN TO AFORESAID TEN CONCER NS/PERSONS HAD NO DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE AND WERE ADVANCED OUT OF CC ACCOUNT WITH UNION BANK OF INDIA ,HAVING DEBIT BALANCE THRO UGH OUT THE YEAR. THE LD. CIT(A) ALSO UPHELD THE FINDINGS OF THE AO SINCE INT EREST BEARING FUNDS OUT OF CC ACCOUNT WERE DIVERTED FOR NON-BUSINESS PURPOSES AND THE ASSESSEE DID NOT ESTABLISH ANY COMMERCIAL EXPEDIENCY FOR THESE ADVA NCES DESPITE SUFFICIENT OPPORTUNITY ALLOWED. ON A PERUSAL OF A COPY OF CC ACCOUNT SUBMITTED BEFORE US , WE FIND THAT AN AMOUNT OF RS. 6 LACS WAS ADVANCED T O SHRI NARENDRA S VOHRA OUT OF CC ACCOUNT ON 20.8.2004 AND THE DEBIT BALANCE I N THE CC ACCOUNT INCREASED BY THE SAID AMOUNT. LIKEWISE, ADVANCE OF RS.2,90,00 ,000 TO SHRI SHREYASBHAI S SHAH STATED TO BE GIVEN ON 16.8.2004 AND RS.20,00,0 00/- EACH TO ASPASS INVESTMENT P LTD. & ANWESHA STOCK TRADE P LTD. ON 1 6.8.2004 OUT OF CC ACCOUNT, RESULTED IN INCREASE IN DEBIT BALANCE ON T HAT DATE. SIMILAR IS POSITION WITH REGARD TO AN AMOUNT OF RS.1,50,000/- ADVANCED ON 2 5.8.2004 TO SHRI DILIPBHAI M GOSALIA ,RS.2,00,000 TO MS. KUMUDBEN D GOSALIA AND RS.1,50,000/- TO MS. MEENABEN A GOSALIA . AS REGARDS AMOUNT OF 2,00,000/ - ADVANCED TO SHRI HARSHADBHAI M SHAH ON 19.8.2004 OUT OF THEIR ACCOUN T WITH IDBI BANK, THE LD. ITA.NO.856/AHD/2010 9 AR DID NOT SUBMIT ANY COPY OF ACCOUNT ON THE GROUND THAT THE SAME WAS NOT TRACEABLE WHILE FOR PAYMENT OF RS.20,00,000/- TO RE DWOOD HOLDING P LTD. , THE ASSESSEE DID NOT EVEN FURNISH THE DATE NOR ANY MATE RIAL, CONTROVERTING THE AFORESAID FINDINGS OF THE AO OR THE LD. CIT(A). SI MILARLY WITH REGARD TO ADVANCE OF RS.10,00,000/- TO SHRI NAYANBHAI G SHAH, THE LD. AR DID NOT PLACE ANY MATERIAL BEFORE US, CONTROVERTING THE FINDINGS OF THE AO OR THE LD. CIT(A). AS IS APPARENT FROM THE AFORE SAID FACTS, WE FIND THAT THE ASSESSEE DID NOT PLACE ANY EVIDENCE BEFORE THE LOWER AUTHORITIES THAT INTEREST FREE FUNDS ADVANCED TO THE AFORESAID ASSOCIATE CONCERNS/PERSONS, WERE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. ADMITTEDLY, THE ASSESSEE PAID HUGE AMOUN T OF INTEREST ON THE BORROWINGS AND ADVANCED FREE OF INTEREST LOA N OF RS. 3,72,00,000/- TO THE AFORESAID CONCERNS/PERSONS. DESPITE REQUEST MADE, THE ASSESSEE DID NOT FURNISH ANY EVIDENCE IN RESPECT OF PURPOSE OF THESE INTEREST FREE ADVANCES, BEFORE THE LOWER AUTHORITIES. EVEN BEFORE US, THE LD. AR DID NOT EX PLAIN THE PURPOSE OF SUCH INTEREST FREE ADVANCES/LOANS TO THE AFORESA ID CONCERNS/PERSONS NOR ESTABLISHED THAT THESE ADVA NCES WERE HAVING ANY NEXUS WITH THE AMOUNT , THE ASSESSEE HAD WITH THEM FREE OF INTEREST. IN MADHAV PRASAD JATIA'S CASE [1979] 118 ITR 200 (SC), HONBLE APEX COURT HELD THAT THE BORROWED FUNDS ADV ANCED TO A THIRD PARTY SHOULD BE FOR COMMERCIAL EXPEDIENCY IF IT IS SOUGHT TO BE ALLOWED UNDER SECTION 36(1)(III) OF THE ACT. IN THE PRESENT CASE, NEITHER BEFORE THE LOWER AUTHORITIES NOR EVEN BEFOR E US, ANY MATERIAL, EVIDENCING THAT THE AMOUNT ADVANCED TO THE AFORESAID ASSOCIATE CONCERNS/PERSONS ON INTEREST FREE BASIS WAS BY WAY OF COMMERCIAL EXPEDIENCY, HAS BEEN PLACED. IN THE ABSE NCE OF ANY EVIDENCE OR BASIS, ESPECIALLY WHEN EVEN THE COPY O F CC ACCOUNT WITH THE UNION BANK OF INDIA, PLACED BEFORE US REVE ALS THAT THE ASSESSEE HAD HUGE DEBIT BALANCE IN THEIR BANK ACCO UNT AT THE TIME OF THE AFORESAID ADVANCES AND STILL ADVANCES WERE GIVEN WITHOUT ITA.NO.856/AHD/2010 10 CHARGING ANY INTEREST AND THAT TOO WITHOUT ANY COMM ERCIAL EXPEDIENCY, THERE IS NO MATERIAL BEFORE US TO INTER FERE WITH THE FINDINGS OF THE LD. CIT(A). IN THE FACE OF AFORESAI D FACTUAL POSITION, RELIANCE BY THE LD. AR ON THE DECISIONS, RENDERED O N ALTOGETHER DIFFERENT FACTS AND CIRCUMSTANCES, IS TOTALLY MISPL ACED NOR EVEN THE LD. AR ATTEMPTED TO DEMONSTRATE AS TO HOW THESE DEC ISIONS ARE RELEVANT TO THE FACTS AND CIRCUMSTANCES BEFORE US . IN VIEW OF THE FOREGOING, WE DO NOT FIND ANY INFIRMITY IN THE FIND INGS OF THE LD. CIT(A). CONSEQUENTLY, GROUND NO. 7 IN THE APPEAL IS DISMISSED. HOWEVER, THE AO MAY RECOMPUTE THE WORKING OF DISA LLOWANCE IN THE LIGHT OF RELEVANT DATE(S) OF ADVANCE OUT OF FUN DS IN THE CC ACCOUNT WITH UNION BANK OF INDIA, FURNISHED BEFORE US, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. 15. GROUND NO. 8 RELATES TO LEVY OF INTEREST U/S 2 34B & 234C OF THE ACT. THE LD. AR ON BEHALF OF THE ASSESSEE DID NOT M AKE ANY SUBMISSIONS ON THESE GROUNDS. THE LEVY OF INTEREST U/S 234B & 23 4C OF THE ACT BEING MANDATORY [COMMISSIONER OF INCOME TAX. VS ANJUM M. H. GHASWAL A AND OTHERS,252 ITR 1(SC), AFFIRMED BY HON'BLE APEX COURT IN THE CASE O F CIT V. HINDUSTAN BULK CARRIERS [2003] 259 ITR 449 (SC) AND IN THE CASE OF CIT V. SANT RAM MANGAT RAM JEWELLERS [2003] 264 ITR 564 (SC) ], THIS GROUND IS DISMISSED.HOWEVER, THE AO SHALL ALLOW CONSEQUENTIAL RELIEF ,IF ANY,WHILE G IVING EFFECT TO THIS ORDER. 16. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. 17.. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFO RE US IN TERMS OF RESIDUARY GROUND NO. 9 IN THE APPEAL, ACCORDINGLY T HIS GROUND IS DISMISSED. 18. IN THE RESULT, APPEAL IS PARTLY ALLOWED AS IND ICATED ABOVE . ORDER PRONOUNCED IN THE COURT TODAY ON 17-06-2011 ITA.NO.856/AHD/2010 11 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 17 -06-2011 COPY OF THE ORDER FORWARDED TO: 1. SHAH ALOYS LTD.,5/1 SHREEJI HOUSE, 5TH FLOOR,BE HIND M.J. LIBRARY, ELLISBRIDGE,AHMEDABAD . 2. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-8, ASHRAM ROAD, AHMEDABAD.. 3. CIT CONCERNED 4. C.I.T.(APPEALS)-XIV, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-D, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD