Appeal details
Counselvise Citation
[2016] 133 COUNSELVISE.COM (IT) 0022 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
19-04-2016
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
Not Allotted
Next Hearing Date
15-03-2016
Assessment Year
2012-2013
Appeal Filed On
16-12-2015
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.903/CHD/2015 (ASSESSMENT YEAR : 2012-13) M/S AVON ISPAT & POWER LTD., VS. THE D.C.I.T., G.T. ROAD, DHANDARI KALAN, CIRCEL V, LUDHIANA. LUDHIANA. PAN: AABCA4141Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH AGGARWAL RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 19.04.2016 DATE OF PRONOUNCEMENT : 19.04.2016 O R D E R PER RANO JAIN, A.M . : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX ( APPEALS)- 2, LUDHIANA DATED 3.10.2015, RELATING TO ASSESSMENT YEAR 2012-13. 2. THE LEARNED COUNSEL FOR THE ASSESSEE PREFER NOT TO PRESS GROUND NOS.2 AND 3, THEREFORE, THE SAME ARE D ISMISSED AS BEING NOT PRESSED. 3. THEREFORE GROUND NOS.1 AND 4 RELATE TO DISALLOW ANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 36(1)(I II) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). DURING THE YEAR, 2 THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES TO TH E FOLLOWING PERSONS : I) KULBIR PAHWA RS.1,05,000/- II) AVERY RELEIGH CYCLES LTD. RS.4,35,65,749/- III) PAHWA CHARITABLE HOSPITAL RS.1,91,11,573/- 4. THE ASSESSING OFFICER DISALLOWED THE PROPORTION ATE INTEREST AMOUNTING TO RS.76,00,489/- UNDER SECTION 36(1)(III) OF THE ACT. THE CIT (APPEALS) CONFIRMED THE DISALL OWANCE RELYING ON HIS OWN ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2008-09, 2009-10, 2010-11 AND 2011 -12. 5. DURING THE COURSE OF HEARING BEFORE US, AT THE OUTSET, IT WAS STATED THAT THE ISSUES IN VARIOUS EA RLIER YEARS HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE I.T.A.T., CHANDIGARH BENCH. ON PERUSAL OF THE ORDER OF I.T.A.T., CHANDIGARH BENCH IN ASSESSEES OWN CASE F OR ASSESSMENT YEAR 2011-12 IN ITA NO.778/CHD/2013 DATE D 18.3.2016, WE OBSERVE HAT THE ISSUE HAS BEEN DECIDE D IN FAVOUR OF THE ASSESSEE AT PARA 60 OF THE SAID ORDER , WHICH READS AS UNDER : 60. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI SUBH ASH AGGARWAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED T HAT AS ON 1.7.2010, THE SHARE CAPITAL OF THE ASSESSEE W AS AT RS. 5.98 CRORES, RESERVES AT RS. 132.04 CRORES AND ALSO THE INCOME OF THE YEAR WAS AT RS. 38,66,06,406/-. ACCORDING TO LD. COUNSEL FOR THE ASSESSEE, ADEQUATE FREE RESERVES AND SHARE CAPITAL AND INCOME OF THE YEAR W ERE AVAILABLE TO THE ASSESSEE TO COVER THE ADVANCES MAD E TO THE ABOVE PARTIES. HE FURTHER POINTED OUT THAT THE ASSESSEE HAD ESTABLISHED THAT THERE WAS COMMERCIAL EXPEDIENCY IN GIVING THE INTEREST FREE ADVANCE TO T HE 3 ABOVE PARTIES. IT IS OBSERVED THAT WHILE DECIDING T HE ASSESSES CASE IN ITA NO. 753/CHD/2012 (ASSESSMENT YEAR 2008-09) AND ITA NO.62/CHD/2013 (A.Y. 2009-10 AND ITA NO. 928/CHD/2013 (ASSESSMENT YEAR 2010-11), WE HAVE DECIDED A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. FOR THE DETAILED REASONS GIVEN THEREIN, W E ALLOW THIS GROUND OF APPEAL AND DELETE THE DISALLOW ANCE OF RS. 77,57,836/- MADE U/S 36(1)(III) OF THE ACT. 6. SINCE THE BASIS FOR DELETION OF ADDITION BY THE I.T.A.T. IS THE ORDER IN THE CASE OF AVERY CYCLE I NDUSTRIES LTD. FOR ASSESSMENT YEAR 2004-05 IN ITA NO.1048/CHD/2013 , WE WOULD ALSO LIKE TO QUOTE THE DETAILED FINDING RECOR DED BY THE I.T.A.T. IN PARAS 5 TO 7, WHICH ARE AS UNDER : 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI SUB HASH AGGARWAL LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISS IONS MADE BEFORE THE LOWER AUTHORITIES. SHRI MANJIT SINGH LD. DR HEAVILY RELIED ON THE FINDINGS GIVEN BY THE CIT(A) IN PARA 3.3 OF THE IMPUGNED ORDER, WHEREIN THE CIT(A) HAS OBSERVED THA T THE ASSESSEE COMPANY HAD MISERABLY FAILED TO PRODUCE AN Y EVIDENCE TO DEMONSTRATE THAT THE HOSPITAL WAS PROVIDING FREE / CONCESSIONAL TREATMENT TO ITS EMPLOYEES. THE CIT(A) FURTHER NOTE D THAT THE ASSESSEE DID NOT PRODUCE ANY AGREEMENT BETWEEN HOSP ITAL AND THE COMPANY SHOWING THAT THE HOSPITAL HAD AGREED TO GIV E FREE TREATMENT TO EMPLOYEES OF THE COMPANY OR TREATMENT AT CONCESSIONAL RATES. WE MAY OBSERVE HERE THAT SHRI SUBHASH AGGARWAL, LD. COUNSEL FOR THE ASSESSEE RELIED ON NU MBER OF DECISIONS OF THE HON'BLE JURISDICTIONAL HIGH COURT PARTICULARLY IN THE CASE OF BRIGHT ENTERPRISES PVT LTD V CIT (JALAN DHAR) IN ITA NO. 224 OF 2013 DATED 24.7.2015 WHEREIN IT HAS BEEN HELD THAT IF THE FUNDS AND RESERVES OF THE COMPANY ARE SUFFICIEN T TO COVER INTEREST FREE ADVANCES MADE BY IT TO ITS SISTER CON CERN, NO DISALLOWANCE U/S 36(I)(III) OF THE ACT IS CALLED FO R. AS REGARDS THE TERM COMMERCIAL EXPEDIENCY, THE HON'BLE HIGH COUR T HAS CATEGORICALLY HELD THAT COMMERCIAL EXPEDIENCY IN ADVANCING 4 LOANS DOESNT ARISE ONLY ON ACCOUNT OF THEIR BEING TRANSACTIONS DIRECTLY BETWEEN THE HOLDING COMPANY AND THE SUBSID IARY COMPANY OR BETWEEN GROUP COMPANIES INTER-SE. THE TWO COMPAN IES MAY IN DIFFERENT LINES OF BUSINESS. THE HON'BLE HIGH COURT OBSERVED THAT IT WOULD MAKE NO DIFFERENCE. ACCORDING TO HON'BLE H IGH COURT IT WOULD STILL BE COMMERCIAL EXPEDIENT FOR ONE GROUP C OMPANY TO ADVANCE AMOUNTS TO ANOTHER GROUP COMPANY, IF FOR INSTANCE, AS A RESULT THEREOF, THE FORMER BENEFITS. THE HON'BLE HI GH COURT OBSERVED THAT IT IS NOT NECESSARY THAT THE ADVANCE RESULTS IN A POSITIVE TANGIBLE BENEFIT. THEREFORE, THE HON'BLE H IGH COURT CONCLUDED THAT SO LONG AS THE AMOUNT IS ADVANCED WI TH THAT VIEW IN MIND OR WITH ANY OTHER COMMERCIAL EXPEDIENCY IN MIN D I.E. SUFFICIENT. IN THE INSTANT CASE, SHARE CAPITAL RESE RVES AND DEFERRED TAX AS ON 1.4.2003 WAS TOTALING TO RS. 53.49 CRORES (SHARE CAPITAL RS. 5.98 CRORES, RESERVES RS. 36.90 CRORES DEFERRED RS. 10.61 CRORES) BESIDES ABOVE, THE ASSESSEES INCOME OF THE YEAR WAS TO THE TUNE OF RS. 22,64,10,652/-. THE ASSESSEE HAD A DMITTEDLY ADVANCED A SUM OF RS. 1,19,11,287/- TO ITS SISTER C ONCERN SARDAR NIHAL SINGH PAHWA TRUST AND THE ASSESSING OFFICER DISALLOWED AN INTEREST OF RS. 12,75,360/- ON INTEREST FREE ADVANC ES MADE BY THE COMPANY TO ITS SISTER CONCERN. FROM THE ABOVE FIGUR ES, IT IS CRYSTAL CLEAR THAT OWN FUNDS AND RESERVES OF THE ASSESSEE A RE MORE THAN SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE TO ITS SISTER CONCERN. IN THE CASE OF GURDAS GARG VS. CIT IN ITA NO. 413 OF 2014 DATED 16.7.2015, THE HON'BLE JURISDICTIONAL H IGH COURT HELD THAT SO LONG IT IS ESTABLISHED THAT INTEREST F REE ADVANCES ARE MADE BY THE ASSESSEE WHO HAD ADEQUATE FREE RESERVE S, IT IS SUFFICIENT TO ESTABLISH THAT THE AMOUNTS ADVANCED A S INTEREST FREE CANNOT BE ADDED TO THE ASSESSEES INCOME. THE HON' BLE HIGH COURT FURTHER OBSERVED THAT THE REVENUE HAS FAILED TO ESTABLISHED THAT A PARTICULAR ADVANCE RECEIVED WAS IN TURN ADVA NCED BY THE ASSESSEE INTEREST FREE. IT IS RELEVANT TO MENTION THAT IN THE ASSESSMENT YE AR 2002-03, ON SIMILAR SET OF FACTS, THE ASSESSING OFFICER DISALLO WED INTEREST OF RS. 1,95,641/- U/S 36(I)(III) OF THE ACT. IN THAT YEAR ALSO, THE ASSESSEE ADVANCED AN INTEREST FREE AMOUNT OF RS. 34,14,091/- TO THE AFORESAID HOSPITAL (TRUST). IT IS STATED THAT THE D ISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED BY THE CIT(A) AND NO APPEAL 5 WAS PREFERRED BY THE REVENUE BEFORE THE TRIBUNAL. IT IS RELEVANT TO OBSERVE THAT IN ORDER TO RUN THE HOSPITAL EFFICI ENTLY, THE HOSPITAL WAS SOMETIMES IN NEED OF MONEY WHICH WAS BEING ADVA NCED BY THE ASSESSEE COMPANY. THERE IS NO MATERIAL ON RECORD T O CONTROVERT THIS CONTENTION OF THE ASSESSEE THAT THE EMPLOYEES OF THE COMPANY USED TO GET TREATMENT FROM THIS HOSPITAL FREE OF CH ARGE OR AT CONCESSIONAL RATES, WHICH INDIRECTLY HELPED THE ASS ESSEE TO CARRY OUT ITS BUSINESS SMOOTHLY AND EFFICIENTLY. IT IS CL AIMED THAT THE AMOUNT IN QUESTION WAS ADVANCED TO CHARITABLE HOSPI TAL BY WAY OF COMMERCIAL EXPEDIENCY IN THE SENSE THAT THE COMPANY IS RUNNING THIS HOSPITAL IN THE INTEREST OF PUBLIC AND ALSO IN THE INTEREST OF THE EMPLOYEES OF THE COMPANY FOR THE LAST NUMBER OF YEA RS. THE COMPANY HAS EMPLOYED ABOUT 1500 WORKERS / EMPLOYEES AND ALL THESE EMPLOYEES OF THE COMPANY USED TO GET TREATMEN T FROM THE SAID HOSPITAL. IN OUR OPINION, IT CANNOT BE SAID TH AT THERE WAS NO CONSIDERATION OF COMMERCIAL EXPEDIENCY IN ADVANCING OF SAID INTEREST FREE LOANS TO THE HOSPITAL. IN THE CASE O F S.A. BUILDERS LTD. VS. CIT AND ANOTHER (2007) 288 ITR 1 (SC), TH E HON'BLE SUPREME COURT DEFINED THE EXPRESSION COMMERCIAL EX PEDIENCY HOLDING THAT COMMERCIAL EXPEDIENCY IS AN EXPRESSIO N OF VIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT B USINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE HON'BLE SUP REME COURT FURTHER HELD THAT THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE, IF IT WAS INCURRED ON ACCOUNT OF COMME RCIAL EXPEDIENCY. IN THE INSTANT CASE, THE REVENUE AUTHOR ITIES HAVE STATED THAT THE ASSESSEE DID NOT FILE ANY AGREEMENT BETWEEN THE HOSPITAL AND THE ASSESSEE COMPANY SHOWING THAT THE HOSPITAL HAD AGREED TO GIVE FREE TREATMENT TO THE EMPLOYEES OF T HE COMPANY. IN OUR OPINION, IN VIEW OF THE DECISION OF THE HON'BL E SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD AND ANOTHER (SUPRA ), IF THE EXPENDITURE IS NOT INCURRED UNDER ANY LEGAL OBLIGAT ION BUT THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE, IF IT W AS INCURRED ON THE GROUNDS OF COMMERCIAL EXPEDIENCY 6. RECENTLY, THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF HERO CYCLES (P) LTD. (2015) 379 ITR 345 (SC) WHILE REVERSING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF 6 CIT V ABHISHEK INDUSTRIES (2006) 286 ITR 1 (P&H), M ADE FOLLOWING OBSERVATIONS:- A PERUSAL OF THE ORDER PASSED BY THE HIGH COURT WOULD REVEAL THAT THE HIGH COURT HAS NOT AT ALL D ISCUSSED THE AFORESAID FACTS WHICH WERE ESTABLISHED ON RECO RD PERTAINING TO THE INTEREST FREE ADVANCE GIVEN TO M /S. HERO FIBRES LIMITED AS WELL AS LOANS GIVEN TO ITS OWN DI RECTORS AT INTEREST AT THE RATE OF 10 PER CENT. ON THE OTHER HAND, THE HIGH COURT HAS SIMPLY QUOTED FROM ITS OWN JUDGMENT IN THE CASE OF 'COMM ISSIONER OF INCOME TAX-I, LUDHIANA V. M/S. ABHISHEK INDUST RIES LIMITED, LUDHIANA' [ITA NO. 110/2005 DECIDED ON 04.08.2006]. ON THAT BASIS, IT HAS HELD THAT WHEN LOANS WERE TAKEN FROM THE BANKS AT WHICH INTEREST WAS P AID FOR THE PURPOSES OF BUSINESS, THE INTEREST THEREON COULD NOT BE CLAIMED AS BUSINESS EXPENDITURE. WE ARE OF THE OPINION THAT SUCH AN APPR OACH IS CLEARLY FAULTY IN LAW AND CANNOT BE COUNTENANCED. IN SO FAR AS LOANS TO THE SISTER CONCER N / SUBSIDIARY COMPANY ARE CONCERNED, LAW IN THIS BEHALF IS RECAP ITULATED BY THIS COURT IN THE CASE OF 'S.A. BUILDERS LTD. V . COMMISSIONER OF INCOME TAX (APPEALS) AND ANOTHE R' [2007 (288) ITR 1 (SC)]. AFTER TAKING NOTE OF AND DISCUSSING ON THE SCOPE OF COMMERCIAL EXPEDIENCY, THE COURT SUMMED UP THE LEGAL POSITION IN THE FOLL OWING MANNER: - 26. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FO R THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. 27. NO DOUBT, AS HELD IN MADHAV PRASAD JATIA V. CI T [1979 (118) ITR 200 (SC)], IF THE BORROWED AMOUN T 7 WAS DONATED FOR SOME SENTIMENTAL OR PERSONAL REASONS AND NOT ON THE GROUND OF COMMERCIAL EXPEDIENCY, THE INTEREST THEREON COULD NOT HAVE B EEN ALLOWED UNDER SECTION 36(1)(III) OF THE ACT. IN MADHAV PRASAD'S CASE [1979 (118) ITR 200 (SC)], THE BORROWED AMOUNT WAS DONATED TO A COLLEGE WITH A VIEW TO COMMEMORATE THE MEMORY OF THE ASSESSEE'S DECEASED HUSBAND AFTER WHOM THE COLLEGE WAS TO BE NAMED, IT WAS HELD BY THIS COURT THAT T HE INTEREST ON THE BORROWED FUND IN SUCH A CASE CO ULD NOT BE ALLOWED, AS IT COULD NOT BE SAID THAT IT W AS FOR COMMERCIAL EXPEDIENCY. 28. THUS, THE RATIO OF MADHAV PRASAD JATIA'S CASE [1979 (118) ITR 200 (SC)] IS THAT THE BORROWED FUND ADVANCED TO A THIRD PARTY SHOULD BE FO R COMMERCIAL EXPEDIENCY IF IT IS SOUGHT TO BE ALLOWED UNDER SECTION 36(1)(III) OF THE ACT. 29. IN THE PRESENT CASE, NEITHER THE HIGH COURT NOR THE TRIBUNAL NOR OTHER AUTHORITIES HAVE EXAMINED WHETHER THE AMOUNT ADVANCED TO THE SISTER CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY. 30. IT HAS BEEN REPEATEDLY HELD BY THIS COURT THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARN ING PROFITS VIDE CIT V. MALAYALAM PLANTATIONS LTD. [19 64 53 ITR 140 (SC), CIT V. BIRLA COTTON SPINNING AND WEAVING MILLS LTD. [1971 82 ITR 166 (SC)], ETC. IN THE PROCESS, THE COURT ALSO AGREED T HAT THE VIEW TAKEN BY THE DELHI HIGH COURT IN 'CIT V. DALMIA CE MENT (B.) LTD.' [2002 (254) ITR 377] WHEREIN THE HIG H COURT HAD HELD THAT ONCE IT IS ESTABLISHED THAT THERE IS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINE SS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABLY CLAIM TO P UT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSIT ION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW 8 MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO TH E CIRCUMSTANCES OF THE CASE. IT FURTHER HELD THAT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFI T AND THAT THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. APPLYING THE AFORESAID RATIO TO THE FACTS OF THIS CASE AS ALREADY NOTED ABOVE, IT IS MANIFEST THAT THE ADVANCE TO M/S. HERO FIBRES LIMITED BECAME IM PERATIVE AS A BUSINESS EXPEDIENCY IN VIEW OF THE UND ERTAKING GIVEN TO THE FINANCIAL INSTITUTIONS BY THE ASSE SSEE TO THE EFFECT THAT IT WOULD PROVIDE ADDITIONAL MARGIN TO M /S. HERO FIBRES LIMITED TO MEET THE WORKING CAPITAL FOR MEE TING ANY CASH LOSES. IT WOULD ALSO BE SIGNIFICANT TO MENTIO N AT THIS STAGE THAT, SUBSEQUENTLY, THE ASSESSEE COMPANY HAD OFF- LOADED ITS SHARE HOLDING IN THE SAID M/S. HERO FI BRES LIMITED TO VARIOUS COMPANIES OF OSWAL GROUP AND AT THAT TIME, THE ASSESSEE COMPANY NOT ONLY REFUNDED BAC K THE ENTIRE LOAN GIVEN TO M/S. HERO FIBRES LIMITED BY T HE ASSESSEE BUT THIS WAS REFUNDED WITH INTEREST. IN THE YEAR IN WHICH THE AFORESAID INTEREST WAS RECEIVED, SA ME WAS SHOWN AS INCOME AND OFFERED FOR TAX. IN SO FAR AS THE LOANS TO DIRECTORS ARE CONCERNED, IT COULD NOT BE DISPUTED BY THE REVENUE THAT THE ASSE SSEE HAD A CREDIT BALANCE IN THE BANK ACCOUNT WHEN THE S AID ADVANCE OF RS. 34 LAKHS WAS GIVEN. REMARKABLY, A S OBSERVED BY THE CIT (APPEAL) IN HIS ORDER, THE COMPANY HAD RESERVE/SURPLUS TO THE TUNE OF AL MOST 15 CRORES AND, THEREFORE, THE ASSESSEE COMPANY COUL D IN ANY CASE, UTILISE THOSE FUNDS FOR GIVING ADVANCE TO I TS DIRECTORS. ON THE BASIS OF AFORESAID DISCUSSION, THE PRESENT APPEAL IS ALLOWED, THEREBY SETTING ASIDE THE ORDER OF THE 9 HIGH COURT AND RESTORING THAT OF THE INCOME TAX APPELLATE TRIBUNAL. IN VIEW OF THE ABOVE, IN THIS CASE, NO DISALLOWANCE IS CALLED FOR. IN THE CASE OF HERO CYCLES LTD. (SUPRA), THE HON'BLE S UPREME COURT HAS MENTIONED THE DECISION OF THE HON'BLE DELHI HIG H COURT IN DALMIA CEMENT (B.) LTD (2002) 254 ITR 377 (DELHI.) IN THE SAID CASE THE HON'BLE DELHI HIGH COURT HAS HELD THAT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT AND THAT TH E INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN SHOES OF THE ASS ESSEE AND SEE HOW A PRUDENT BUSINESS MAN WOULD ACT. 7. IN VIEW OF THE ABOVE DISCUSSION, WE HAVE NO HESITATION IN HOLDING THAT NO DISALLOWANCE OF INTEREST CAN BE MA DE IN THIS CASE; PARTICULARLY WHEN THE ADVANCES ARE MADE OUT OF THE OWN FUNDS OF THE ASSESSEE AND THE AMOUNT ADVANCED TO THE SISTER CONCERN / HOSPITAL / TRUST WAS BY WAY OF COMMERCIAL EXPEDIENC Y. ACCORDINGLY, WE DELETE THE DISALLOWANCE OF RS. 12,7 5,360/- MADE US/ 36(1)(III) OF THE ACT. 7. SINCE NO DISTINGUISHING FACTS ARE BROUGHT TO OU R NOTICE, RESPECTFULLY FOLLOWING THE ORDER OF THE COO RDINATE BENCH, WE DELETE THE DISALLOWANCE MADE BY THE ASSES SING OFFICER UNDER SECTION 36(1)(III) OF THE ACT. THE G ROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 8. THE GROUND NOS. 5 AND 6 RELATE TO DISALLOWANCE UNDER SECTION 14A OF THE ACT MADE BY THE ASSESSING OFFICER. THE ASSESSING OFFICER MADE DISALLOWANCE OF AN AMOUN T OF RS.3,78,578/- INVOKING THE PROVISIONS OF SECTION 14 A OF THE ACT R.W.R. 8D OF THE INCOME TAX RULES. THE CIT (AP PEALS) DELETED THE DISALLOWANCE RELYING ON HIS OWN ORDER I N ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2008-09, 2 009-10, 2010-11 AND 2011-12. 10 9. BEFORE US, AT THE TIME OF HEARING, IT WAS STATE D THAT THE ISSUE HAS BEEN DECIDED BY THE I.T.A.T. IN VARIO US YEARS. ON PERUSAL OF THE ORDER OF THE I.T.A.T. IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2011-12 IN ITA NO.778/CHD/2014 DATED 18.3.2016, WE OBSERVE THAT THE ISSUE HAS BEEN DECID ED IN FAVOUR OF THE ASSESSEE AT PARA 63 OF THE ORDER, WHI CH READS AS UNDER : 63. IN VIEW OF OUR DECISION IN ITA NO. 753/CHD/20 12 (ASSESSMENT YEAR 2008-09), ITA NO.62/CHD/2013 (A.Y. 2009-10 AND ITA NO. 928/CHD/2013 (ASSESSMENT YEAR 2010-11) AND ALSO KEEPING IN VIEW THE FACTS NOTED IN RELATION TO GROU ND NO.1 OF THE APPEAL, WE DO NOT SEE ANY JUSTIFICATION IN MAKING T HE DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE ACT. IT IS NOW A LMOST SETTLED THAT NO DISALLOWANCE U/S 14A OF THE ACT / RULE 8D CAN BE MADE IF THE INVESTMENTS ARE OUT OF THE OWN CAPITAL AND RESE RVES. IN THE INSTANT CASE, WHILE DECIDING GROUND NO.1 OF THE APP EAL, WE HAVE OBSERVED THAT ASSESSEE HAD ADEQUATE FREE RESERVES A ND SHARE CAPITAL AND INCOME OF THE YEAR WHICH ARE AVAILABLE WITH IT AND THE INVESTMENTS ARE OUT OF THOSE FUNDS AND, THEREFORE, NO DISALLOWANCE IS CALLED FOR. ACCORDINGLY, WE DELETE THE ADDITION OF RS. 11,95,180/-. 10. SINCE THE ISSUE EMANATES FROM ASSESSMENT YEAR 2008-09, WE WOULD LIKE TO REPRODUCE THE DETAILED FI NDINGS GIVEN BY THE I.T.A.T. IN ASSESSMENT YEAR 2008-09 IN ITA NO.753/CHD/2012, WHICH ARE AS UNDER : 26. AS REGARDS GROUND NO.2 OF THE APPEAL, IT IS OB SERVED THAT THE ASSESSING OFFICER DISALLOWED RS. 15,82,729/- U/S 14 A READ WITH RULE 8D OF THE INCOME TAX RULES. THE ASSESSEE HAD S HOWN INVESTMENT OF RS. 1,98,88,122/- AND RS. 2,18,12,014 /- AS ON 31.3.2007 AND 31.3.2008 RESPECTIVELY. ACCORDING TO ASSESSING OFFICER, THE ASSESSEE HAD CLAIMED INTEREST OF RS. 1 6,57,83,834/-. THE ASSESSING OFFICER WHILE INVOKING THE PROVISIONS OF SECTION 14A 11 READ WITH RULE 8D OF THE I.T. RULES DISALLOWED A SU M OF RS. 15,82,729/- AND THE SAID DISALLOWANCE WAS CONFIRMED BY THE CIT(A). 27. WHILE DECIDING GROUND NO.1 OF THE APPEAL, WE HA VE OBSERVED THAT THE ASSESSEE HAD OWN FUNDS AND RESERVES AND AL SO THE INCOME EARNED DURING THE YEAR OUT OF WHICH INVESTMENT WERE MADE. THEREFORE, NO DISALLOWANCE U/S 14A / RULE 8D OF TH E I.T. RULES CAN BE MADE IF THE INVESTMENT IS OUT OF OWN CAPITAL AND RESERVES. ACCORDINGLY, WE ALLOW THIS GROUND OF APPEAL. 11. SINCE NO DISTINGUISHING FACTS ARE BROUGHT TO O UR NOTICE, RESPECTFULLY FOLLOWING THE ORDER OF THE COO RDINATE BENCH, WE DELETED THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER UNDER SECTION 14A OF THE ACT R.W.R. 8D OF T HE INCOME TAX RULES. THE GROUNDS OF APPEAL RAISED BY THE ASS ESSEE ARE ALLOWED. 12. THE GROUND NOS.7 AND 9 RAISED BY THE ASSESSEE ARE GENERAL IN NATURE AND, HENCE NEED NO ADJUDICATION. 13. THE GROUND NOS.8 RAISED BY THE ASSESSEE IS CONSEQUENTIAL. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF APRIL, 2016. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACOUNTANT MEMBER DATED : 19 TH APRIL, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH
