JAINEX COMMODITIES P. LTD, MUMBAI V. ITO WD 6(1)(1), MUMBAI

ITA 9036/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8113 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 24-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Assessee Lawyers: KAPIL K JAIN
• Keywords: Business income; Source of fund; Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI SMC BENCH BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER I.T.A.NO.9036 /MUM/2010 - A.Y 2006-07 JAINEX COMMODITIES PVT. LTD., 601, ORBIT PLAZA, NEW PRABHADEVI ROAD, PRABHADEVI, MUMBAI 400 025 PAN: AAACJ 2525 J VS. INCOME TAX OFFICER, WARD 6 (1)(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KAPIL K. JAIN. RESPONDENT BY : SHRI SATBIR SINGH. O R D E R THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 15- 09-2010 OF THE CIT[A]-14 MUMBAI, RELATING TO THE A. Y 2006-07. 2. THE ASSESSEE IN ITS GROUNDS OF APPEAL HAS CHALLE NGED THE ORDER OF THE CIT[A] IN CONFIRMING THE DISALLOWANCE OF INTEREST E XPENDITURE OF ` `` ` .2,24,800/- MADE BY THE AO. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING OF SHARES AND SECURITIES. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTED THAT THE ASSESSEE HAS GIVEN L OANS OF ` `` ` .53 LACS TO VARIOUS PARTIES EITHER WITHOUT INTEREST OR AT CONCESSIONAL RATE OF INTEREST. HOWEVER, HE NOTED THAT THE ASSESSEE COMPANY HAS TAKEN UNSECURED LOANS OF ` `` ` .34.82,000/- AND THE COMPANY IS PAYING INTEREST @ 10% TO 12% P.A . HE NOTED THAT THE 2 ASSESSEES OWN FUNDS ARE ONLY ` `` ` .10.64 LACS, THEREFORE, THE ADVANCES ARE GIVEN OUT OF THE BORROWED FUNDS. THE AO ASKED THE ASSESSE E TO EXPLAIN THE REASONS FOR GIVING THESE ADVANCES FREE OF INTEREST AND ALSO ASK ED THE ASSESSEE TO EXPLAIN WHY PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED OUT OF THE INTEREST EXPENDITURE U/S.36(1)(III) OF THE INCOME TAX ACT. H E ALSO ASKED THE ASSESSEE TO FURNISH THE RATE OF INTEREST AT WHICH INTEREST HAS BEEN PAID ON BORROWED FUNDS AND TO EXPLAIN AS TO HOW THE BORROWED FUNDS HAVE BE EN UTILISED WITH DOCUMENTARY EVIDENCE. 4. THE ASSESSEE EXPLAINED THAT THE COMPANY HAS RECE IVED INTEREST ON LOANS GIVEN AND OFFERED FOR TAX WHICH IS AS PER THE CHART OF LOANS AND ADVANCES FILED BEFORE THE AO. IT WAS SUBMITTED THAT IT HAS RECEIVE D INTEREST FROM ALL PARTIES EXCEPT AGARWAL JAIN DEVELOPERS AND SUSHIL BAGADIA, HUF. IT WAS ALSO SUBMITTED THAT THE ADVANCE GIVEN TO AGARWAL JAIN DEVELOPERS I S REGARDING BOOKING OF PREMISES WHICH IS GIVEN IN EARLIER YEARS, THEREFORE , NO INTEREST HAS BEEN CHARGED FROM THE SAID PARTY. AS REGARDS THE LOAN GIVEN TO S USHIL BAGADIA HUF, IT WAS SUBMITTED THAT THE LOAN WAS GIVEN ONLY ON 31 ST MARCH, 2006 AND, THEREFORE, NO INTEREST HAS BEEN CHARGED FROM THE ABOVE PARTY. 5. HOWEVER, AO WAS NOT CONVINCED WITH THE EXPLANATI ON GIVEN BY THE ASSESSEE. HE NOTED THAT THE ASSESSEE HAS NOT GIVEN ANY EXPLANATION FOR NOT CHARGING INTEREST FROM KAMAL C. JAIN, HUF AND B. R. ROADLINES. AS REGARDS THE ADVANCE OF ` `` ` .5 LACS GIVEN TO AGARWAL JAIN DEVELOPERS, HE NOTED THAT ALTHOUGH THE PARTY HAS CONFIRMED THAT THE AMOUNT OF ` `` ` .5 LACS IS RECEIVED VIDE CHEQUE DATED 3 5-11-2003 TOWARDS BOOKING AMOUNT AGAINST A ROW HOUS E NO.A/1/414 AT RAHATNI, NO DATE AND PAN OF THE PARTY IS MENTIONED IN THE LE TTER. ON BEING QUESTIONED BY THE AO, THE PARTY ALSO STATED THAT NO AGREEMENT HAS BEEN ENTERED INTO WITH THE DEVELOPERS TILL DATE. THE ASSESSEE ALSO FAILED TO E XPLAIN THE BUSINESS PURPOSE FOR WHICH THE ADVANCES WERE GIVEN TOWARDS PURCHASE OF A ROW HOUSE. SO FAR AS THE ADVANCE GIVEN TO SANDEEP S. JAIN, HUF AND PRAKASH T AHKUR, AO NOTED THAT ASSESSEE IS CHARGING INTEREST @ 1% AND 6% ONLY, WHE REAS ASSESSEE IS PAYING INTEREST @ 10% TO 12%. HE, THEREFORE, DISALLOWED TH E AMOUNT OF ` `` ` .2,24,800, THE CALCULATION OF WHICH IS AS UNDER: SR. NO. NAME OF THE PARTY AMOUNT OUT- STANDING AS ON 31.03.2006 RATE OF INTEREST CHARGED INTEREST RECEIVED INTEREST CALCULATE D @ 12% INTEREST TO BE DISALLOWED [OUT OF INTEREST PAID] 1 2 3 4 5 6 7 (5-6) 1 KAMAL C. JAIN, HUF 15000 NIL NIL 1800 1800 2 B. R. ROADLINES 200000 NIL NIL 24000 24000 3 SUSHIL BAGADIA 140000 NIL NIL N.A. N.A. 4 AGARWAL JAIN DEVELOPERS 500000 NIL NIL 60000 60000 5 SANDEEP S. JAIN HUF 175000 1% 2000 21000 19000 6 PRAKASH TAHKUR 2000000 6% 120000 240000 120000 7 SHREE GROTEX TRADELINK P. LTD. 1020000 12% 122400 122400 NIL TOTAL 5300000 244400 469200 224800 6. BEFORE THE CIT[A], THE ASSESSEE SUBMITTED PARTYW ISE DETAILS. IT WAS SUBMITTED THAT AN ADVANCE OF ` `` ` .15,000/- TO KAMAL C. JAIN, HUF WAS GIVEN 8/10 YEARS BACK OUT OF INTEREST FREE FUNDS AVAILABLE WIT H THE ASSESSEE COMPANY, THEREFORE, NO INTEREST WAS CHARGED FROM THE SAID PA RTY. SO FAR AS THE LOAN GIVEN 4 TO B. R. ROADLINES AMOUNTING TO ` `` ` .2 LACS, IT WAS SUBMITTED THAT THE LOAN WAS OBTAINED FROM M/S YASH MANAGEMENT & SATELLITE LTD. ON 26-12-2005 @ 9% INTEREST P.A. AND THE LOAN WAS GIVEN ON 28-12-2005, THEREFORE, THE LOAN GIVEN WAS FOR A PERIOD OF THREE MONTHS ONLY, WHEREAS AO H AS DISALLOWED THE INTEREST FOR THE WHOLE YEAR AT A HIGHER RATE, WHICH IS NOT C ORRECT. AS REGARDS THE ADVANCE GIVEN TO AGARWAL JAIN DEVELOPERS, IT WAS SUBMITTED THAT AN AMOUNT OF ` `` ` .5 LACS WAS GIVEN TO THE SAID PARTY AS BOOKING AMOUNT TOWAR DS PREMISES ON 6-11-2003. IT WAS SUBMITTED THAT THE SOURCE OF FUNDS FOR THE A BOVE ADVANCE WAS FROM INTEREST FREE LOANS RECEIVED FROM THE DIRECTOR MR. SANJAY RAJA JAIN, INDIRA JAIN AND SURECHAND JAIN HUF. SINCE THE AMOUNT OF ADVANCE WAS GIVEN OUT OF INTEREST FREE LOAN, THEREFORE, NO INTEREST HAS BEEN CHARGED. SO FAR AS THE LOAN GIVEN TO SANDEEP S. JAIN (HUF), IT WAS SUBMITTED THAT THE LO AN WAS GIVEN ON 6-3-2006 WHICH WAS PARTLY REPAID BY THE PARTY ON 26-3-2006, THEREFORE, AO SHOULD HAVE CHARGED INTEREST ONLY FOR ONE MONTH, WHEREAS HE HAS DISALLOWED THE INTEREST ON NOTIONAL BASIS FOR THE WHOLE YEAR. IT WAS FURTHER S UBMITTED THAT THE LOAN OF ` `` ` .A2,95,000/- TO SANDEEP S. JAIN HUF WAS GIVEN OUT O F REPAYMENT OF LOAN RECEIVED FROM M/S PRIDE LIFESTYLES LTD. SINCE THE L OAN WAS GIVEN OUT OF INTEREST FREE LOAN, THEREFORE, DISALLOWANCE OF INTEREST U/S. 36(1)(III) IS NOT JUSTIFIED. SO FAR AS THE LOAN GIVEN TO PRAKASH TAHKUR, IT WAS SUBMITT ED THAT THE SAME WAS GIVEN DURING THE A.Y 2003-04 FOR A COMPOSITE PERIOD OF 48 MONTHS @ OF 6% INTEREST P.A. IT WAS SUBMITTED THAT THE LOAN WAS GIVEN ON EX PLICIT TERMS AND CONDITIONS FOR AN UNINTERRUPTED PERIOD WITH AN ADVANTAGE OF CONTIN UOUS EARNING ON THE FUNDS 5 INVESTED. THE ASSESSEE COMPANY HAS RECEIVED INTERES T OF ` `` ` .1,20,000/- ON THIS AMOUNT EVERY YEAR. IT WAS FURTHER SUBMITTED THAT TH E ABOVE LOAN WAS GIVEN OUT OF REPAYMENT OF INTEREST FREE LOAN FROM M/S AMBUJA INTERMEDIATE LTD. AND M/S GOLDEN ANGLE HOTELS & CONSTRUCTIONS PVT. LTD. IT WA S SUBMITTED THAT NO INTEREST BEARING FUND HAS BEEN DIVERTED FOR THE PURPOSE OF A DVANCING LOAN TO PRAKASH TAHKUR, THEREFORE, NO DISALLOWANCE COULD HAVE BEEN MADE. THE ASSESSEE ALSO GAVE DETAILS OF AMOUNTS BORROWED FROM VARIOUS PARTI ES AND THE RATE OF INTEREST PAID TO THEM. IT WAS, ACCORDINGLY, SUBMITTED THAT T HE PROPORTIONATE DISALLOWANCE OF INTEREST MADE BY THE AO AT ` `` ` .2,24,000/- U/S.36(1)(III) OF THE INCOME TAX ACT, IS NOT JUSTIFIED AND MAY BE DELETED. 7. HOWEVER, THE CIT[A] WAS NOT CONVINCED WITH THE E XPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE ACTION OF THE AO BY HOLDING AS UNDER: 6. I HAVE GONE THROUGH THE SUBMISSION VERY CAREFUL LY AND PERUSED THE ORDER OF THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF INTEREST MAINLY ON ACCOUNT OF REASONS THAT THE APPE LLANT HAS NOT CHARGED INTEREST IN RESPECT OF SOME DEBTORS AS WELL AS THE APPELLANT FA ILED TO ESTABLISH THAT THE AMOUNT WAS ADVANCED FOR BUSINESS PURPOSE AND ALSO ON GROUN D THAT THE APPELLANT PAID RATE OF INTEREST HIGHER AS COMPARED TO RECEIVED LOWER RA TE OF INTEREST ON THE AMOUNT ADVANCED BY IT. IN THIS REGARD, THE APPELLANT FURNI SHED A DETAILED CHART OF LOANS/ADVANCES GIVEN, INTEREST CHARGED AND EXPLAINI NG SOURCE THEREOF. THE APPELLANT FURTHER SUBMITTED THAT IT HAD RECEIVED IN TEREST FREE LOAN FROM SEVEN PARTIES AMOUNTING TO ` `` ` .12.50 LAKHS. THE APPELLANT WAS ALSO HAVING CAPITAL PLUS RESERVE IN THE BALANCE SHEET TO THE TUNE OF KRS.10. 64 LAKHS. ACCORDING TO THE APPELLANT, TOTAL INTEREST FREE FUNDS AVAILABLE FOR ADVANCING LOAN WERE ` `` ` .23.14 LAKHS. AS PER DETAILS SUBMITTED, TOTAL INTEREST DEB ITED TO PROFIT & LOSS ACCOUNT IN RESPECT OF SEVEN PARTIES WAS ` `` ` .3,10,384/-. HOWEVER, I DO NOT AGREE WITH THE APPELLANT MAINLY BECAUSE DURING THE APPELLATE PROCEEDINGS ALSO, IT FAILED TO EXPLAIN TH E PURPOSE OF ADVANCING THE LOAN AS RIGHTLY POINTED OUT BY THE ASSESSING OFFICER. HE ALSO DID NOT EXPLAIN WHY THE INTEREST HAS NOT BEEN CHARGED FROM CERTAIN PARTIES WHEREAS THE INTEREST HAS BEEN PAID TO ITS CREDITORS. IT IS ALSO OBSERVED THAT THE RE IS DIFFERENCE OF RATE IN PAYMENT OF INTEREST AND INTEREST RECEIVED. IT HAS ALSO NOT BEEN EXPLAINED BY THE APPELLANT AS TO WHY THE RATE OF PAYMENT OF INTEREST IS HIGHER TH AN RATE OF INTEREST RECEIVED IN 6 SOME CASES? THE APPELLANT ALSO DID NOT EXPLAIN TH E UTILITY OF BORROWED FUNDS. THEREFORE, I AGREE WITH THE ASSESSING OFFICER THAT IT DID NOT FULFILL ALL THE CONDITIONS LAID DOWN AS PER PROVISIONS OF SEC.36(1) (III) OF THE INCOME TAX ACT. IN VIEW OF THE FACTS, THE ADDITION OF THE ASSESSING OF FICER IN MAKING DISALLOWANCE OF INTEREST TO THE TUNE OF KRS.2,24,800/- IS HELD AS J USTIFIED. ACCORDINGLY, THIS GROUND OF APPEAL IS DISMISSED. AGGRIEVED BY THE ORDER OF THE CIT[A], THE ASSESSEE IS IN APPEAL BEFORE US. 8. THE LD. COUNSEL OF THE ASSESSEE REITERATED THE S AME SUBMISSIONS AS MADE BEFORE THE CIT[A]. HE SUBMITTED THAT THE AO WHILE D ISALLOWING THE PROPORTIONATE INTEREST ON ACCOUNT OF INTEREST FREE LOANS AND ADVA NCES GIVEN TO VARIOUS PARTIES, COMPLETELY IGNORED THE CAPITAL AND FREE RESERVE OF THE ASSESSEE AS WELL AS THE INTEREST FREE FUNDS AVAILABLE WITH IT. REFERRING TO THE SUBMISSIONS MADE BEFORE THE CIT[A], HE SUBMITTED THAT OUT OF THE LOANS GIVE N FOR A PERIOD OF THE YEAR, THE AO HAS CALCULATED THE INTEREST FOR THE WHOLE YEAR A ND DISALLOWED THE SAME AT THE HIGHER RATE WHICH HAS BEEN UPHELD BY THE CIT[A] WIT HOUT ANY APPLICATION OF MIND. HE SUBMITTED THAT THE INTEREST BEARING LOANS HAVE BEEN UTILISED FOR THE BUSINESS OF THE ASSESSEE COMPANY, WHEREAS INTEREST FREE LOANS AND OWN RESERVE AND CAPITAL HAVE BEEN GIVEN AS INTEREST FREE LOANS AND ADVANCES. HE SUBMITTED THAT THE ASSESSEE HAS NOT PAID INTEREST @ 12% TO AN Y OF THE PARTY, DETAILS OF WHICH HAVE BEEN GIVEN AND REPRODUCED BY THE CIT[A] AT PAGE 8 OF HIS ORDER. REFERRING TO THE SUBMISSIONS MADE BEFORE THE CIT[A] , HE SUBMITTED THAT ALTHOUGH DETAILED SUBMISSIONS WERE MADE PARTYWISE, THE CIT[A] HAS NOT AT ALL CONSIDERED THOSE SUBMISSIONS AND SUSTAINED THE ADDI TION MADE BY THE AO, WHICH IS NOT PROPER. 7 9. THE LD. DR, ON THE OTHER HAND, WHILE SUPPORTING THE ORDER OF THE CIT[A] SUBMITTED THAT THE ASSESSEE HAS NOT ESTABLISHED THE NEXUS OF INTEREST FREE LOANS AND OWN CAPITAL AND FREE RESERVE TOWARDS INTEREST F REE LOANS GIVEN TO OTHER PARTIES. THE ASSESSEE HAS ALSO NOT DEMONSTRATED THA T THE LOANS GIVEN TO VARIOUS PARTIES ARE FOR THE PURPOSE OF BUSINESS. REFUTING T HE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT INTEREST FREE LOANS H AVE BEEN GIVEN OUT OF INTEREST FREE LOANS RECEIVED AS WELL AS FREE RESERVE AND OWN CAPITAL, LD. DR SUBMITTED THAT SUCH INTEREST FREE LOANS WHICH WERE AVAILED BY THE COMPANY AND ITS OWN CAPITAL AND FREE RESERVE, HAVE ALREADY BEEN UTILISED FOR TH E BUSINESS OF THE ASSESSEE, THEREFORE, WITHOUT PROVING THE NEXUS THAT NO INTERE ST FREE FUNDS HAVE BEEN DIVERTED FOR INTEREST FREE LOANS AND ADVANCES, THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE CIT[A] IS JUSTIFIED. HE ALSO R ELIED ON THE DECISION IN THE CASE OF ABHISHEK INDUSTRIES REPORTED IN 286 ITR 1. 10. THE LD. COUNSEL OF THE ASSESSEE IN HIS REJOINDE R, RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIAN CE UTILITIES & POWERS LTD. REPORTED IN 18 DTR 1, AND SUBMITTED THAT NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE LOANS AND ADVAN CES WERE MADE OUT OF INTEREST BEARING FUNDS SINCE THE ASSESSEE COMPANY P OSSESSED SUFFICIENT INTEREST FREE FUNDS OF ITS OWN APART FROM ITS OWN CAPITAL. 11. I HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT[A] AND THE PAPER B OOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOUS DECISI ONS CITED BEFORE ME. THERE IS 8 NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS ADVANC ED THE LOAN OF ` `` ` .53 LACS AT FREE OF INTEREST OR AT CONCESSIONAL RATE OF INTERES T. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS OBTAINED SOME LOANS BY P AYING INTEREST RANGING FROM 9% TO 10%. THERE IS ALSO NO DISPUTE TO THE FACT THA T THE AO HAS DISALLOWED INTEREST OF ` `` ` .2,24,800/- ON THE GROUND THAT INTEREST BEARING FUN DS HAVE BEEN DIVERTED FOR INTEREST FREE LOANS AND ADVANCES AT LE SSER RATE OF INTEREST. IT IS THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT THE DISALLOWANCE MADE BY THE AO IS ERRONEOUS ON ACCOUNT OF WRONG CALCULATION OF INTEREST FOR THE WHOLE YEAR, NON CONSIDERATION OF ASSESSEES OWN CAPITAL A ND INTEREST FREE ADVANCES OBTAINED. IT IS ALSO THE SUBMISSIONS OF THE LD. COU NSEL OF THE ASSESSEE THAT SUCH LOANS HAVE BEEN GIVEN TO VARIOUS PARTIES FOR THE PU RPOSE OF BUSINESS. 12. FROM THE VARIOUS SUBMISSIONS MADE BY THE ASSESS EE, I FIND THAT THE BANK ACCOUNT IS A COMMON HOTCHPOTCH WHERE THE ASSESSEES OWN FUNDS AS WELL AS THE BUSINESS RECEIPTS ARE DEPOSITED ALONG WITH THE LOAN S OBTAINED FROM VARIOUS PARTIES AND ADVANCES GIVEN TO VARIOUS PARTIES. I FI ND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE, THAT THE AMOUNT O F ` `` ` .2 LACS ADVANCED TO B. R. ROADLINES ON 28-12-2005, WAS GIVEN OUT OF THE LOAN OBTAINED FROM M/S YASH MANAGEMENT & SATELLITE LTD. ON 26-12-2005 @ 9% P.A. THEREFORE, INTEREST THAT CAN BE DISALLOWED ON ACCOUNT OF LOAN GIVEN TO B. R. ROADLINES SHOULD BE RESTRICTED TO ` `` ` .4,500/- AS AGAINST ` `` ` .24,000/- DISALLOWED BY THE AO AND SUSTAINED BY THE CIT[A]. SIMILARLY, I ALSO FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE LOAN OF ` `` ` .2,95,000/- WAS GRANTED ONLY ON 6-3-2006, 9 THEREFORE, INTEREST THAT CAN BE DISALLOWED IS ONLY FOR THE NUMBER OF DAYS FOR WHICH IT WAS GRANTED AND NOT FOR THE WHOLE YEAR. SO FAR AS THE AMOUNT OF ` `` ` .15,000/- ADVANCED TO KAMAL C. JAIN, HUF IS CONCERN ED, IT WAS SUBMITTED BY THE LD. COUNSEL OF THE ASSESSEE THAT THE LOAN WAS GIVEN 8/10 YEARS BACK. AS THE AMOUNT IS VERY SMALL, AND SINCE THE ABOVE CONTENTIO N HAS NOT BEEN PROVED TO BE FALSE OR UNTRUE, I FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE THAT THE SAME WAS GIVEN OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY AND, THEREFORE, NO DISALLOWANCE IS CALLED F OR. 13. SO FAR AS THE AMOUNT OF ` `` ` .5 LACS ADVANCED TO AGARWAL JAIN DEVELOPERS IS CONCERNED, I FIND THAT DESPITE BEING ASKED BY THE A O THE ASSESSEE HAS NOT GIVEN THE COPY OF THE AGREEMENT WITH THE DEVELOPERS. HE H AS ALSO FAILED TO EXPLAIN THE BUSINESS NECESSITY FOR WHICH THE ADVANCE HAS BEEN G IVEN TOWARDS PURCHASE OF A ROW HOUSE. SINCE IT IS THE SUBMISSION OF THE LD. CO UNSEL OF THE ASSESSEE THAT THE AMOUNT OF ADVANCE HAS BEEN MADE OUT OF INTEREST FRE E LOAN AND ADVANCE OBTAINED FROM THE DIRECTORS, THEREFORE, IN MY OPINI ON, IT REQUIRES VERIFICATION AT THE LEVEL OF THE ASSESSING OFFICER. I, THEREFORE, D IRECT THE AO TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE WITH EV IDENCE TO HIS SATISFACTION THAT THE AMOUNT OF ` `` ` .5 LAKHS GIVEN AS ADVANCE FOR PURCHASE OF THE ROW H OUSE, HAS BEEN PAID OUT OF THE AMOUNT OBTAINED AS INTEREST FR EE LOANS FROM THE DIRECTORS AND RELATIVES. 14. SO FAR AS THE AMOUNT OF ADVANCE TO MR.PRAKASH T AHKUR IS CONCERNED, IT IS THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE T HAT THE SAID AMOUNT HAS BEEN 10 GIVEN OUT OF REPAYMENT OF INTEREST FREE LOANS FROM M/S AMBUJA INTERMEDIATE LTD. AND M/S GOLDEN ANGLE HOTELS & CONSTRUCTIONS PVT. LT D. HOWEVER, IT IS NOT CLEAR AS TO HOW THE LOANS WERE GIVEN TO M/S AMBUJA INTERMEDI ATE LTD. AND M/S GOLDEN ANGLE HOTELS & CONSTRUCTIONS PVT. LTD. AND THE RATE OF INTEREST AT WHICH THE AMOUNTS WERE BORROWED EARLIER AND WERE PAID TO THE ABOVE PARTIES. I DO NOT FIND MUCH FORCE IN THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE THAT THE LOAN GIVEN TO PRAKASH TAHKUR @ 6% P.A. WAS AS PER AN AGR EEMENT. IN MY OPINION, NO PRUDENT BUSINESS MAN WOULD OBTAIN A LOAN AT A HIGHE R RATE AND ADVANCE THE SAME AT THE LOWER RATE. THEREFORE, THIS ISSUE ALSO NEEDS VERIFICATION AT THE LEVEL OF THE ASSESSING OFFICER AS TO AT WHAT RATE OF INTE REST THE ASSESSEE OBTAINED LOAN FROM VARIOUS PARTIES WHICH WERE IN TURN GIVEN INTER EST FREE LOANS TO M/S AMBUJA INTERMEDIATE LTD. AND M/S GOLDEN ANGLE HOTELS & CON STRUCTIONS PVT. LTD. AND THE REPAYMENT OF WHICH HAS GONE INTO ADVANCING THE LOAN TO PRAKASH TAHKUR. 15. ACCORDINGLY, I RESTORE THE MATTER TO THE FILE O F THE AO WITH A DIRECTION TO RECOMPUTE THE DISALLOWANCE IN THE LIGHT OF MY ABOVE OBSERVATIONS. NEEDLESS TO SAY THE ASSESSING OFFICER SHALL GIVE DUE OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE AS PER LAW. I HOLD AN D DIRECT ACCORDINGLY. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28TH DAY OF FEBRUARY, 2011. SD/- (R.K.PANDA) ACCOUNTANT MEMBER MUMBAI:28TH FEBRUARY, 2011. P/-*