Bihariji Ispat Udyog Ltd., Kolkata v. DCIT, C ircle- 3, Kolkata, Kolkata

CO 186/KOL/2010 | 2001-2002
Pronouncement Date: 06-09-2011

Appeal Details

RSA Number 18623523 RSA 2010
Assessee PAN AABCB0830D
Bench Kolkata
Appeal Number CO 186/KOL/2010
Duration Of Justice 8 month(s) 7 day(s)
Appellant Bihariji Ispat Udyog Ltd., Kolkata
Respondent DCIT, C ircle- 3, Kolkata, Kolkata
Appeal Type Cross Objection
Pronouncement Date 06-09-2011
Appeal Filed By Assessee
Bench Allotted A
Tribunal Order Date 06-09-2011
Assessment Year 2001-2002
Appeal Filed On 29-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BEN CH A KOLKATA () BEFORE . .. . . .. . SHRI B.R.MITTAL JUDICIAL MEMBER. /AND . .. .!' !'!' !'. .. . #$ SHRI C.D.RAO ACCOUNTANT MEMBER %& %& %& %& ' ' ' ' / ITA NOS . 1982 & 1983/KOL/2010 () *+/ ASSESSMENT YEARS : 2001-02 & 2006-07 (-. / APPELLANT ) D.C.I.T. CIRCLE-3 KOLKATA - ( - - VERSUS - . (01-./ RESPONDENT ) M/S.BIHARIJI ISPAT UDYOG LTD. KOLKATA (PAN: AABCB 0830 D) 2 & 2 & 2 & 2 & /C.O. NOS.186& 187/KOL2010 ' ' ' ' / A/O ITA NOS . 1982 & 1983/KOL/2010 () *+/ ASSESSMENT YEARS : 2001-02 & 2006-07 (-. / APPELLANT ) M/S.BIHARIJI ISPAT UDYOG LTD. KOLKATA (PAN: AABCB 0830 D) - ( - - VERSUS - . (01-./ RESPONDENT ) D.C.I.T. CIRCLE-3 KOLKATA -. 3 4 #/ FOR THE DEPARTMENT: SHRI BASUDEV HAZRA 01-. 3 4 #/ FOR THE RESPONDENT: SHRI R.SALARPURIA #5 / ORDER ( (( ( . .. .!' !'!' !'. .. . ) )) ) #$ PER SHRI C.D.RAO AM THE ABOVE TWO APPEALS FILED BY THE REVENUE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE AGAINST SEPARATE ORDERS DATED 10. 08.2010 OF THE CIT(A)-I KOLKATA PERTAINING TO A.YRS. 2001-02 & 2006-07 RESPECTIVELY . 2 ITA NO.1982/KOL/2010 (BY THE REVENUE A.YR.2001-02): 2. THE SOLE ISSUE RAISED BY THE REVENUE IN THIS APP EAL IS RELATING TO DELETION OF ADDITION OF RS.39 50 000/- MADE BY THE AO AS UNDIS CLOSED INCOME. 3. THE BRIEF FACTS OF THIS CASE ARE THAT WHILE DOIN G THE SCRUTINY ASSESSMENT AO HAS MADE AN ADDITION OF RS.39 50 000/- BY OBSERVING AS UNDER :- DURING THE COURSE OF ASSESSMENT PROCEEDINGS AN ENQ UIRY CARRIED OUT BY DIT(INV.) NEW DELHI IT WAS FOUND THAT M/S.ANKUR MARKETING DU RING THE YEAR HAD GIVEN AN ACCOMMODATION ENTRY TO THE ASSESSEE TO THE EXTENT O F RS.39 50 000/- ON FOLLOWING DATES : BANK ACCOUNT INSTRUMENT NO. AMOUNT DATES ISSUING BA NK CITI BANK NEW DELHI 450586 RS.10 00 000/- 25.01.01 BANK OF PUNJAB CONNAUGHT PLACE NEW DELHI. -DO- 450587 RS.10 00 000/- 03.02.01 -DO- -DO- 450590 RS.19 50 000/- 20.02.01 -DO- AT THE TIME OF ENQUIRY M/S. ANKUR MARKETING ADMITTE D THAT THESE WERE MERE ACCOMMODATION ENTRIES AGAINST WHICH MATCHING CASH WAS RECEIVED BY IT FROM THE ASSESSEE. UNDER THE CIRCUMSTANCES NOTICED U/S 148 OF THE ACT WAS ISSUED AFTER GETTING NECESSARY APPROVAL. LATER ON 10.10.08 A DETAILED REQUISITION WAS SENT THE ASSESSEE DELINEATED THE FINDINGS MADE IN THE CASE OF M/S. ANKUR MARKETING. SHRI JHALANIA FCA A/R APPEARED ON 05.10.08 WITH A PETITION DT.05.11.08. THE CASE WAS DISCUSSED AND EXAMINATION OF THE PETITION OF TH E ASSESSEE REVEALED THAT NO NEW MATERIAL COULD BE BROUGHT ON RECORD BY THE ASSESSEE . THEREFORE ON 06.11.08 SHRI JHALANIA A/R MARKETING IN THIS REGARD WAS ONCE AGA IN BROUGHT TO HIS NOTICE. HE ALSO ASKED TO PRODUCE THE PARTY OR A CONFIRMATION FROM I T TO CORROBORATE THE CLAIM MADE BY THE ASSESSEE. HOWEVER HE EXPRESS HIS INABILITY TO DO SO. IT IS NEEDLESS TO SAY THAT THE ASSESSEE WAS SKIRTIN G ITS RESPONSIBILITY AND DUTIES IN JUSTIFYING ITS OWN SUBMISSION REGARDING THE VERACIT Y OF THE TRANSACTION. CONSEQUENTLY THE ASSESSEE FAILED TO CONTROVERT THE FINDING MADE BY THE DEPARTMENT. M/S. ANKUR MARKETING CATEGORICALLY ADMITTED THAT CASH AND COMM ISSION WAS RECEIVED FROM THE ASSESSEE IN CASH/DDS/POS/BEFORE FOR EACH ACCOMMODAT ION ENTRY. UNDER THE CIRCUMSTANCES CONSIDERING THE MERIT OF THE CASE AN D ALSO FAILURE OF THE ASSESSEE TO PROVE THE CONTRARY I AM ADDING BACK RS.39 50 000/- AS UNDISCLOSED INCOME OF THE ASSESSEE. 3.1. ON APPEAL AFTER TAKING INTO CONSIDERATION OF T HE VARIOUS SUBMISSIONS MADE BY ASSESSEE LD. CIT(A) HAS DELETED THE SAME BY OBSERV ING AS UNDER :- 6. I HAVE GONE THROUGH THE GROUNDS OF APPEAL AND THE ASSESSMENT ORDER AS PASSED BY THE A.O. I HAVE ALSO PERUSED THE. ASSESSM ENT RECORDS. AFTER HEARING THE 3 APPELLANT AND PERUSING THE WRITTEN SUBMISSIONS FILE D BY IT IT APPEARS THAT THE WHOLE DISPUTE BETWEEN THE APPELLANT AND THE DEPARTMENT CE NTERS ROUND THE GENUINENESS OR OTHERWISE OF THE TWO LOANS OF RS.10 00 000/ EACH RE CEIVED FROM ONE M/S. ANKUR MARKETING LTD. ON 24.01.2001 AND 01.02.2001 RESPECT IVELY WHICH WERE REPAID ON 16.02.2001. IMMEDIATELY THEREAFTER THE ASSESSEE REC EIVED ANOTHER SUM OF RS.19 50 000/ FROM THE SAME PARTY ON 19.02.2001 ON ACCOUNT OF SHARE APPLICATION MONEY FOR ALLOTMENT OF 65 000 NOS. EQUITY SHARES OF RS.10/- EACH AT A PREMIUM OF RS.20/- PER SHARE IN THE ASSESSEE-COMPANY. FROM THE RECORD IT APPEARS THAT ALL THE AFORESAID T RANSACTIONS WERE BY ACCOUNT PAYEE CHEQUES AND LOAN CONFIRMATION AND ALSO THE CO NFIRMATION FOR PAYMENT OF SHARE APPLICATION MONEY WERE OBTAINED FROM THE SAID ANKUR MARKETING LTD. WITH ITS I.T. FILE NO. AND THE SAME WERE FILED WITH THE A.O. FOR THE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE SHARES WERE ALLOTTED IMME DIATELY AFTER CLOSE OF THE ACCOUNTING YEAR 2000-01. FOR THE LOANS RECEIVED BY THE ASSESSEE IT PAID INTEREST AFTER DEDUCTION OF INCOME-TAX AND ISSUED NECESSARY T.D.S. CERTIFICATE TO THE SAID LENDER COPY OF WHICH WAS FILED BEFORE THE A.O. THE ASSESSE E ALSO FILED ITS BANK STATEMENTS FOR PROVING THE FACT THAT ALL RECEIPTS OF MONIES WE RE BY ACCOUNT PAYEE CHEQUES. WITH THE AFORESAID UNDISPUTED FACTS ON RECORD I AM OF THE CONSIDERED OPINION THAT THE ASSESSEE HAD DISCHARGED ITS INITIAL BURDEN OF PROVING THE SOURCES OF RECEIPTS OF MONIES WHETHER BY WAY OF LOAN OR BY WAY OF SHARE AP PLICATION MONEY IN THE ORIGINAL ASSESSMENT. THE A.O. ACCEPTED THE SAID TRANSACTIONS AS GENUINE. THEREAFTER ON THE BASIS OF SOME INFORMATION RECEIVED BY THE A.O. AGAI NST THE AFORESAID TRANSACTIONS THE A.O. COULD HAVE ENTERTAINED PRIMA FADE BELIEF FOR A SSUMPTION OF JURISDICTION U/S. 147. NONE THE LESS FOR THEA PURPOSE OF MAKING THE ADDITI ON IN THE REASSESSMENT PROCEEDINGS THE A.O. SHOULD HAVE ENUCLEATED OR BRO UGHT ON RECORD UNASSAILABLE CONCRETE AND INCONTROVERTIBLE FACTS THAT COULD HAVE CLINCHED THE ISSUE IN THE DEPARTMENTAL FAVOUR. THIS APPARENTLY IN VIEW OF TH E LAW ON THE SUBJECT REMAINS THE ACHILLES HEEL OF THE ASSESSMENT ORDER. WHILE APPRECIATING THAT THE ANKUR MARKETING LTD. WA S AN OUTSTATION PARTY NOTHING PREVENTED THE A.O. MAKING A REFERENCE TO TH E SAID PARTY U/S 133(6) OF THE ACT WHICH THE A.O. DID NOT DO. THE AO COULD HAVE ALSO M ADE ON ENQUIRY FROM THE ANKUR MARKETING LTD. THROUGH HIS COUNTERPART AT DELHI WH ICH WAS NOT ALSO BEEN DONE. THE APPELLANT IN ITS WRITTEN SUBMISSION HAS REFERRE D TO A DECISION OF THE HONBLE GAUHATI HIGH COURT IN NEMI CHAND KOTHARI VS. C.I.T. [(2003) 264 ITR 254 265) AND QUOTED THE RELEVANT PORTIONS FROM THE SAID ORDER IN ITS WRITTEN SUBMISSION. AFTER A DUE DELIBERATION OF THE FACTS O F THE CASE I BELIEVE THAT THE RATIO OF THE SAID GAUHATI H.C. DECISION SQUARELY APPLIES TO ASSESSEES CASE AND THEREFORE HOLD THAT THE ASSESSEE HAS DISCHARGED THE ONUS ON HIM R EGARDING THE SOURCES OF RECEIPTS OF MONIES AGGREGATING TO RS.39 50 000/-. IN ANY CASE T HE SOURCE OF RECEIPT OF THE SHARE APPLICATION MONEY IS PROVED BY THE ADMITTED FACTS A ND BORNE OUT BY THE RECORD. 3.2. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEF ORE US. 4. AT THE TIME OF HEARING THE LD. DR APPEARING ON B EHALF OF THE REVENUE HAS RELIED ON THE ORDERS OF AO AND CONTENDED THAT LD. CIT(A) H AS ERRED IN DELETING THE ADDITION OF RS.39 50 000/- MADE AS UNDISCLOSED INCOME FOR GE TTING ACCOMMODATION ENTRY FROM ONE M/S. ANKUR MARKETING OF DELHI WITHOUT APPRECIAT ING THE EVIDENCE ON RECORD. HE 4 FURTHER CONTENDED THAT LD. CIT(A) HAS ERRED IN IGNO RING THE FINDINGS OF THE ENQUIRY CARRIED OUT BY DIT(INV.) NEW DELHI WHEREIN M/S. AN KUR MARKETING ADMITTED THE TRANSACTIONS AS ACCOMMODATION ENTRIES IN LIEU OF MA TCHING UNACCOUNTED CASH GIVEN BY THE ASSESSEE. THEREFORE HE REQUESTED TO UPHELD THE ACTION OF AO BY SETTING ASIDE THE ORDER OF LD. CIT(A). 5. ON THE OTHER HAND THE LD. COUNSEL APPEARING ON BEHALF OF ASSESSEE HAS REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES AND FURTHER CONTENDED THAT FROM THE RECORD IT APPEARS THAT ALL THE AFORES AID TRANSACTIONS WERE BY ACCOUNT PAYEE CHEQUES AND LOAN CONFIRMATION AND ALSO THE CO NFIRMATION FOR PAYMENT OF SHARE APPLICATION MONEY WERE OBTAINED FROM THE SAID ANKUR MARKETING LTD. WITH ITS I.T. FILE NO. AND THE SAME WERE FILED WITH THE A.O. FOR THE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE SHARES WERE ALLOTTED IMME DIATELY AFTER CLOSE OF THE ACCOUNTING YEAR 2000-01. FOR THE LOANS RECEIVED BY THE ASSESSEE IT PAID INTEREST AFTER DEDUCTION OF INCOME-TAX AND ISSUED NECESSARY T.D.S. CERTIFICATE TO THE SAID LENDER COPY OF WHICH WAS FILED BEFORE THE A.O. THE ASSESSE E ALSO FILED ITS BANK STATEMENTS FOR PROVING THE FACT THAT ALL RECEIPTS OF MONIES WERE B Y ACCOUNT PAYEE CHEQUES. BASED ON THESE SUBMISSIONS LD. CIT(A) HAS DELETED THE SAME. THEREFORE HE REQUESTED TO UPHOLD THE SAME. 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREF UL PERUSAL OF MATERIALS AVAILABLE ON RECORD KEEPING IN VIEW OF THE FACT TH AT THE AFORESAID TRANSACTIONS WERE DULY RECORDED BY ASSESSEE AND THE TRANSACTIONS ARE MADE BY ACCOUNT PAYEE CHEQUES AND THE INTEREST ON THE SAID TRANSACTIONS HAVE BEEN PAID AFTER DEDUCTION OF TDS AND THAT AO SHOULD HAVE ENUCLEATED OR BROUGHT ON RECORD UNASSAILABLE CONCRETE AND INCONTROVERTIBLE FACTS THAT COULD HAVE CLINCHED THE ISSUE IN THE DEPARTMENTAL FAVOUR AS OBSERVED BY LD. CIT(A). THEREFORE WE FIND NO INFIR MITY IN THE ORDERS OF LD.CIT(A) AND WE UPHOLD THE SAME. 7. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . 5 8. AS REGARDING CROSS OBJECTION NO.186/KOL/2010 ARI SING OUT OF ITA NO.1982/KOL/2010 AT THE TIME OF HEARING THE LD. CO UNSEL APPEARING ON BEHALF OF ASSESSEE HAS NOT PRESSED FOR THE SAME. THEREFORE T HE SAME IS DISMISSED AS NOT BEING PRESSED. ITA NO.1983/KOL/2010 (BY THE REVENUE A.YR.2006-07) 9. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLO WING GROUNDS OF APPEAL :- 1. THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE ORDER OF THE LD. CIT(A) IS ERRONEOUS BECAUSE WITHOUT ANY PROPER REAS ON THE CIT(A) ACCEPTED THE INTEREST FREE ADVANCE FOR BUSINESS PURPOSES. 2. THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE C ASE THE ORDER OF THE CIT(A) IS PERVERSE ON THE GROUND THAT WITHOUT ANY PROOF OF CO MMERCIAL EXIGENCIES THE CIT(A) APPLIED THE CASE OF SA BUILDERS LTD. 3. THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE C ASE THE ORDER OF THE CIT(A) IS ERRONEOUS BECAUSE WITHOUT ANY BASIS THE LD. CIT(A) CAME TO THE CONCLUSION THAT NO BORROWED FUND WAS UTILIZED FOR INVESTMENT PURPOS E. 4. THAT LEAVE MAY BE GRANTED TO ADD ALTER OR MODIF Y ANY GROUND AS MAY ARISE IN THE COURSE OF APPELLATE PROCEEDINGS. 10. THE BRIEF FACTS OF THIS ISSUE ARE THAT WHILE DO ING THE SCRUTINY ASSESSMENT AO HAS MADE DISALLOWANCE OF INTEREST OF RS.18 90 411/- BY OBSERVING AS UNDER :- AT THE TIME OF SCRUTINY IT WAS OBSERVED THAT THE A SSESSEE DURING THE YEAR HAD DOLED OUT INTEREST FREE LOANS/ADVANCES TO MANY GROUP COMP ANIES AND OTHERS. EXAMINATION OF ACCOUNTS ALSO REVEALED THAT THE ASSESSEE HAD BORROW ED INTEREST BEARING FUNDS ON WHICH INTEREST OF RS.22 20 787/- WAS INCURRED DURING THE YEAR DETAILS OF LOANS TAKEN REVEALED THAT OUT OF TOTAL PAYMENT OF INTEREST RS.18 90 411/ - WAS PAID TO M/S. SALARPURIA INVESTMENT (P) LTD. CONSEQUENTLY THE ASSESSEE IN T HE ORDER SHEET WAS ASKED TO EXPLAIN THE RATIONALE AND UTILIZATION OF LOAN FROM M/S. SAL ARPURIA INVESTMENT (P) LTD. AFTER MUCH DELIBERATION BY A LETTER DATED 26.11.08 THE AS SESSEE EXPLAINED THAT OUT OF THE TOTAL AMOUNT RECEIVED FROM M/S. SALARPURIA INVESTME NT (P) LTD RS.2 00 00 000/- WAS USED UP TO REPAY LOANS TO M/S. MAURIA & CO. FURTHER SUM OF RS.1 50 00 000/- WAS PAID TO M/S. CRAZY PROPERTIES PVT. LTD. FOR PURCHAS E OF PROPERTIES AND THE BALANCE SUM OF RS.50 00 000/- WAS PAID TO M/S. SHIVAM STOCK BRO KING PVT. LTD. FOR PURCHASE OF SHARES. REPAYMENT OF LOAN TO M/S. MAURIA & CO. : IN THIS RESPECT THE ASSESSEE WAS ASKED TO SUBMIT A COPY OF THE LEDGER OF MS. MAURIA & CO. EXAMINATION OF THE LEDGER REVEALED THA T THE IMPUGNED SUM OF RS.2 CRS. WERE NOT UTILIZED FOR REPAYMENT OF LOAN BUT ACTUAL LY BY THAT SUM AN INTEREST FREE LOAN WAS GIVEN TO M/S. MAURIA & CO. FURTHER ENQUIRY ALSO REVEALED THAT M/S. MAURIA & CO. WAS A SISTER CONCERN OF THE ASSESSE WITH WHOM IT W AS HAVING AN INTEREST FREE CURRENT ACCOUNT TRANSACTION. CLEARLY NO COMMERCIAL EXPEDIE NCY OF IMPUGNED INTEREST FREE ADVANCES COULD BE ADDUCED BY THE ASSESSEE WHICH CL EARLY MEAN THAT SUCH DECISIONS WERE TAKEN TO BAIL OUT FRIENDS & RELATIVES OF THE D IRECTORS OF THE ASSESSEE COMPANY. 6 THUS ARTIFICIALLY THROUGH CONSCIOUS AND CONSORTED EFFORT INTEREST BURDEN WAS JACKED UP TO REDUCE INCIDENCE OF TAX. IN A LANDMARK JUDGEMENT IN THE CASE OF ABHISEK INDU STRIES 28G ITR 1 (P&H) PUNJAB & HARYANA HIGH COURT HELD THAT EXPEDIENCY MU ST BE PROVED FOR JUSTIFICATION OF CLAIM OF INTEREST. SIMILAR VIEWS WERE TAKEN IN T HE CASE OF RAMANAND SAGAR 256 ITR 134 (BOM) STEPWELD INDUSTRIES LIMITED 228 ITR 171 (SC). IN THE CASE OF CALCUTTA AGENCY LTD. 19 ITR 191 HONBLE APEX COUR T HELD THAT ONUS IS ON THE ASSESSEE TO PROVE COMMERCIAL EXPEDIENCY. UNILATERAL LY COURTS HAVE HELD THAT COMMERCIAL EXPEDIENCY HAS TO BE PROVED FOR CLAIM OF ANY EXPENDITURE. THE ASSESSEE FAILED TO PROVIDE ANY SUCH EXPLANATION. THUS ONUS WAS NOT DISCHARGED EVEN AFTER SUCH WAS SPECIFICALLY CALLED FOR. THUS COLLUSIVENE SS IN THIS CASE IS LOUD AND CLEAR. CLEARLY INTEREST BURDEN WAS BEING CREATED DELIBERA TED TO KEEP THE PROFIT OF THE ASSESSEE AT A LOWER LEVEL. THIS WAS NOTHING BUT A COLOURABLE ARRANGEMENT CONJURED BY THE ASSESSEE TO AVOID PAYMENT OF TAX. THIS CAN NEVE R BE ALLOWED. RESPECTFULLY FOLLOWING THE DECISIONS IN THE CASES OF ABHISHEK IN DUSTIRES 286 ITR 1 (P&H) RAMANAND SAGAR 256 ITR 134 (BOM) STEPWELL INDUSTRI ES LIMITED 228 ITR 171 (SC) AS DISCUSSED ABOVE IT MAY BE CONCLUDED THAT INTEREST BEARING FUNDS WERE UTILIZED FOR NON-COMMERCIAL PURPOSES. ADVANCE TO M/S. CRAZY PROPERTIES PVT. LTD. IN THIS CASE THE ASSESSEE WAS ASKED TO SUBMIT THE D ETAILS OF THE TRANSACTIONS UNDERTAKEN BY IT. PERUSAL OF THE DETAILS REVEALED T HAT NO SUCH DEAL HAD TAKEN PLACE AND FINALLY THE INTEREST BEARING SUM ADVANCED I.E. RS. 1 50 00 000/- WAS REFUNDED. NO EVIDENCE COULD BE PRODUCED TO SHOW THAT MONEY WAS A CTUALLY ADVANCED FOR ANY PURCHASE OF ASSET. IN THIS RESPECT THE ASSESSEE A S AN EXAMPLE POINTED OUT THAT IN SOME OTHER CASES PROPERTIES WERE BOUGHT AND SOLD AND RES ULTANT SUMS WERE OFFERED AS CAPITAL GAINS. HERE IT IS IMPERATIVE TO POINT OUT THAT BUY ING AND SELLING OF PROPERTIES WERE NOT A PART OF BUSINESS ACTIVITY OF THE ASSESSEE. CONSEQ UENTLY ANY INTEREST ON BORROWED FUND UTILIZED FOR PURCHASE OF A PROPERTY CAN NEVER BE CLAIMED AS BUSINESS EXPENDITURE BY THE ASSESSEEE. EVIDENTLY LIKE IN THE EARLIER CAS E IT MAY BE CONCLUDED THAT INTEREST BEARING FUNDS WERE UTILIZED FOR NON-COMMERCIAL PURP OSES. ADVANCE TO M/S. SHIVAM STOCK BROKING PVT. LTD. FROM THE ACCOUNTS OF THE ASSESSEE IT WAS CRYSTAL CL EAR THAT SHARE DEALING WAS NOT THE BUSINESS OF THE ASSESSEE. CONSEQUENTLY INV ESTMENT OF INTEREST BEARING FUND OF RS.50 00 000/- FOR PURCHASE OF SHARES THROUGH M/S. SHIVAM STOCK BROKING PVT. LTD. DIRECTLY ATTRACTED PROVISIONS OF SECTION 14A OF THE ACT. HENCE INTEREST ATTRIBUTABLE TO SUCH SUM CAN NEVER BE CLAIMED AS BUSINESS EXPENDITU RE BY THE ASSESSEE. EVIDENTLY LIKE IN THE EARLIER CASE IT MAY BE CONCLUDED THAT INTERE ST BEARING FUNDS WERE UTILIZED FOR NON-COMMERCIAL PURPOSES. CONSIDERING ALL THESE THE IMPUGNED CLAIM OF INTERES T OF RS.18 90 411/- IS DISALLOWED. 10.1. ON APPEAL LD. CIT(A) HAS DELETED THE SAME BY OBSERVING AS UNDER :- 1.9. AFTER HEARING THE ASSESSEE AND GOING THROUGH THE EXPLANATIONS AND/OR AND/OR MATERIALS BROUGHT ON RECORD I AM OF THE OPINION TH AT AFTER NOTICING THE FACT THAT BOTH THE ASSESSEE AND THE SAID MAURIA UDYOG WERE THE BUS INESS ENTITIES AND THAT THE ASSESSEE HAD CURRENT ACCOUNT TRANSACTIONS WITH THE SAID PARTY IT WAS NOT OPEN TO THE A.O. TO ALLEGE THAT THE ADVANCE OF RS.200.00 LACS I N QUESTION WAS FOR NON-COMMERCIAL PURPOSES. FOR THE OTHER ALLEGATION THAT THE INTERES T-FREE ADVANCE WAS MADE FOR REDUCING THE PROFIT OF THE ASSESSEE REFERENCE MAY BE MADE TO THE ASSESSEES 7 CONTENTION THAT IF INTEREST @ 12% P.A. WOULD HAVE B EEN CHARGED ON SUCH ADVANCES MADE BY BOTH THE PARTIES THE ASSESSEE WOULD HAVE S UFFERED LOSS OF 44 49865 BY WAY OF INTEREST PAYABLE BY IT TO THE SAID MAURIA UDYOG. THIS EXPLANATION WAS GIVEN IN WRITING VIDE ASSESSEES LETTER DATED 26.11.2008 TO THE A.O. HOWEVER FROM THE ASSESSMENT ORDER I FIND THAT THE A.O. HAS NOT REPU DIATED THIS CONTENTIONS OF THE ASSESSEE. ON THESE FACTS IT CANNOT BE ALLEGED THAT THE SAID CURRENT ACCOUNT TRANSACTIONS WITH MAURIA UDYOG WERE NOT BASED ON ANY COMMERCIAL EXPEDIENCY WHATSOEVER AS THE ASSESSEE IN MY OPINION COULD ESTABLISH ITS CONTEN TIONS THAT SUCH INTEREST FREE MUTUAL ADVANCES BENEFITED BOTH THE PARTIES CONCERNED. THE A.O. IN SUPPORT OF HIS CASE HAS HOWEVER RELIE D ON SOME COURT DECISIONS AS NOTED ON PAGE-2 OF THE ASSESSMENT ORDER. THE APP ELLANT IN ITS WRITTEN SUBMISSION (PARA 1.5.6) HAS DISTINGUISHED THE SAID CASE DECISI ONS AND IT HAS BEEN SHOWN THAT THESE ARE SOME WHAT MISPLACED. AFTER GOING THROUGH THE AS SESSMENT ORDER AND THE ASSESSEES ARGUMENTS IN THIS REGARD I FEEL THAT THE CASES AS CITED BY THE LD. A.O. COULD HARDLY ADVANCE HIS CONTENTION INASMUCH AS IN THE CITED CA SED IT WAS FOUND THAT AS A MATTER OF FACT THE GIVING OF ADVANCES WAS AGAINST THE INTERES T OF THE ASSESSES. ON THE OTHER HAND THE ASSESSEE HAS PLACED RELIANCE ON THE HONBLE S.C. DECISION IN S.A. BUILDERS LTD. VS- CIT [2007] 288 ITR 1] WHICH IS MORE RELEVANT TO THE ISSUES INVOLVED. IN THE SAID CASE THE ASSESSEE BORROWED FUNDS FORM THE BANK ON INTEREST AND LENT IT TO SISTER CONCERN WITHOUT CHAR GING ANY INTEREST. ON THIS FACTUAL MATRIX IT WAS INTER ALIA HELD BY THE COURT THAT WH AT WAS RELEVANT IN THIS CONTEXT WAS WHETHER THE AMOUNT HAD BEEN ADVANCED AS A MEASURE O F COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS A DVANCED FOR EARNING PROFIT (VIDE PAGES 08-09) IN COURSE OF THE HEARINGS BEFORE ME THE LD. A.R. HA D FILED A COPY OF THE DECISION IN CIT VS LALSONS ENTERPRISES [2010) 324 ITR 426 (DEL.)] THE FACTS OF WHICH WERE VERY SIMILAR TO THOSE OF THE CASE IN HAND. IN THE SAID CASE IT HAS BEEN INTER ALIA HELD THAT INSPITE OF LENDING INTEREST-FREE FUNDS TO A SISTER CONCERN BY WAY OF MUTUAL ADVANCES BETWEEN THE ASSESSEE AND SUCH SISTER CONCE RN NO CORRESPONDING EXPENDITURE ON INTEREST ON BORROWED CAPITAL WAS TO BE DISALLOWE D. IN VIEW OF WHAT HAS BEEN SATED ABOVE AND RELYING ON THE AFORESAID HONBLE APEX COURT DECISION AND THE HONBLE DELHI H.C. DECI SION I HOLD THAT ADVANCING MONIES TO MAURIA UDYOG WAS NOT FOR NON-COMMERCIAL P UROSES.. 1.10 IN SO FAR AS THE ADVANCE OF RS. 150.00 LACS T O MIS. CRAZY PROPERTIES IS CONCERNED I AM OF THE OPINION THAT IN VIEW OF THE FACT THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF NON-BANKING FINANCIAL COMPANY I T WAS NOT UNUSUAL FOR IT TO MAKE ADVANCE FOR PURCHASE OF LAND IN COURSE OF IT\S BUSI NESS. THIS EXPLANATION WAS OFFERED BY THE ASSESSEE BEFORE THE A.O. VIDE ASSESSEES WRI TTEN EXPLANATION DATED 05.11.2008 COPY OF WHICH WAS GIVEN IN THE PAPER BOOK. IT HAS B EEN ARGUED BY THE APPELLANT BEFORE ME THAT AS I/THE LAWYERS WRITTEN OPINION COULD NOT BE READILY TRACED AT THE MATERIAL TIME OF HEARING BEFORE THE A.O. THE SAME COULD NOT BE FILED BEFORE THE A.O. HOWEVER THE SAID WRITTEN OPINION DATED 05.10.2005 HAS BEEN FILED BEFORE ME. CONSIDERING THE APPELLANTS ARGUMENTS AND HAVING REGARD TO THE DECI SION OF THE HONBLE KERALA H.C. IN RAVINDRA NATHANS CASE [265 ITR1 217] I ADMIT THE SAID LAWYERS OPINION IN EVIDENCE AND FURTHER HOLD THAT THE ASSESSEE COULD P ROVE THE FACT OF GIVING ADVANCE TOWARDS PURCHASE OF LANDED PROPERTIES. AS THE TITLE TO THE SAID PROPERTIES WERE FOUND TO BE DEFECTIVE ON SEARCH SUCH ADVANCES WERE RETURNED IN THE SUBSEQUENT YEAR WHICH WILL NOT IN MY OPINION PREJUDICE THE ASSESSEES C ASE IN HAND. 1.11. COMING TO THE BALANCE AMOUNT OF ADVANCE OF R S. 50.00 LACS IT HAS BEEN ADMITTED BY BOTH THE A.O. AND THE ASSESSEE THAT SUC H ADVANCE WAS MADE JOR PURCHASE 8 OF SHARES. AFTER ADMISSION OF SUCH FACT I FEEL THA T NOTHING MORE IS REQUIRED FOR HOLDING THAT THE PROPORTIONATE EXPENDITURE ON INTER EST ON ACCOUNT OF SUCH INTEREST-FREE ADVANCE FOR PURCHASE OF SHARES SHOULD BE DISALLOWED U/S. 36(1) /(III) OF THE ACT. SUCH DISALLOWANCE IS CALLED FOR IN VIEW OF THE FACT THAT SUCH ADVANCE WAS GIVEN FOR EARNING INCOME EXEMPT FROM INCOME-TAX. THEREFORE IN ANY CA SE PROPORTIONATE EXPENSES ON INTERES ATTRIBUTABLE TO THIS AMOUNT OF ADVANCE OF R S. 50.00 LACS SHOULD BE DISALLOWED U/S. 14-A (1) OF THEACT. 10.2. AGGREIVED BY THIS THE REVENUE IS IN APPEAL BE FORE US BY TAKING THE ABOVE GROUNDS AND THE ASSESSEE HAS RAISED THE FOLLOWING C ROSS OBJECTIONS :- 1. THAT ON THE FACTS AND ON THE CIRCUMSTANCES OF T HE CASE THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT PROPORTIONATE INTEREST AT TRIBUTABLE TO THE ADVANCE OF RS.50 LAKHS GIVEN TO M/S. SHIVAM STOCK BROKING SHOU LD BE DISALLOWED U/S 36(1)(III) OF THE ACT. EVEN OTHERWISE AND WITHOUT P REJUDICE THE DISALLOWANCE MADE IS HIGHLY EXCESSIVE AND UNREASONABLE. 11. AT THE TIME OF HEARING THE LD. DR APPEARING ON BEHALF OF THE REVENUE HAS RELIED ON THE ORDERS OF AO. ON THE OTHER HAND THE LD. COU NSEL APPEARING ON BEHALF OF ASSESSEE HAS RELIED ON ORDERS OF LD. CIT(A) AND CON TENDED THAT LD. CIT(A) HAS RIGHTLY JUSTIFIED IN DELETING THE ADDITIONS MADE BY AO. HOW EVER AS REGARDING THE CROSS OBJECTION RAISED BY ASSESSEE THE LD. COUNSEL FOR A SSESSEE SUBMITTED THAT LD. CIT(A) IS NOT JUSTIFIED IN SAYING THAT PROPORTIONATE EXPENSES ON INTEREST ATTRIBUTABLE TO THE AMOUNT OF ADVANCE OF RS.50 00 000/- SHOULD BE DISAL LOWED U/S 14A (1) OF THE IT ACT WITHOUT GIVING ANY FINDING WHERE THERE IS ANY NEXUS BETWEEN THE INTEREST ON RS.50 00 000/- WITH THAT OF THE INTEREST FREE INCOM E. THEREFORE HE REQUESTED TO DELETE THESE OBSERVATIONS MADE BY LD. CIT(A). 12. ON THE OTHER HAND THE LD. DR APPEARING ON BEHA LF OF THE REVENUE SUBMITTED THAT SINCE LD. CIT(A) HAS DELETED THE DISALLOWANCE MADE BY AO U/S 14A TO THE EXTENT OF RS.18 02 450/-. THE LD. CIT(A) IS JUSTIFIED IN DIRE CTING AO TO DISALLOW THE PROPORTIONATE EXPENSES OF RS.50 00 000/-. HE REQUES TED TO UPHOLD THE DECISION OF LD. CIT(A). 13. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD AS REGARDING REVENUES APPEAL KEEPING IN VIEW OF THE FOLLOWING CATEGORICAL OBSERVATIONS OF LD. CIT(A) IN THE CASE OF MARUTI UDYOG IT IS POINTED OUT BY 9 LD. CIT(A) THAT I FIND THAT THE A.O. HAS NOT REPUDI ATED THIS CONTENTIONS OF THE ASSESSEE. ON THESE FACTS IT CANNOT BE ALLEGED THAT THE SAID C URRENT ACCOUNT TRANSACTIONS WITH MAURIA UDYOG WERE NOT BASED ON ANY COMMERCIAL EXPED IENCY WHATSOEVER. 13.1. IN RESPECT OF M/S. CRAZY PROPERTIES THE ASSES SEE COULD PROVE THE FACT OF GIVING ADVANCE TOWARDS PURCHASE OF LANDED PROPERTIES. AS T HE TITLE TO THE SAID PROPERTIES WERE FOUND TO BE DEFECTIVE ON SEARCH SUCH ADVANCES WERE RETURNED IN THE SUBSEQUENT YEAR WHICH WILL NOT IN MY OPINION PREJUDICE THE ASSESS EES CASE IN HAND. 13.2. IN RESPECT OF ADVANCE OF RS.50 00 000/- SUCH DISALLOWANCE IS CALLED FOR IN VIEW OF THE FACT THAT SUCH ADVANCE WAS GIVEN FOR EARNING INCOME EXEMPT FROM INCOME-TAX. THEREFORE IN ANY CASE PROPORTIONATE EXPENSES ON IN TEREST ATTRIBUTABLE TO THIS AMOUNT OF ADVANCE OF RS. 50.00 LACS SHOULD BE DISALLOWED U/S. 14-A (1) OF THE ACT. 13.3. KEEPING IN VIEW OF THE ABOVE SPECIFIC OBSERV ATIONS MADE BY LD. CIT(A) WE FIND NO INFIRMITY IN THE ORDERS OF LD. CIT(A) IN SO FAR AS THE DELETION OF THE INTEREST. THEREFORE WE DISMISS THE REVENUES APPEAL. 13.4. AS REGARDING ASSESSEES CROSS OBJECTION IT IS OBSERVED THAT LD. CIT(A) WHILE DELETING THE DISALLOWANCE OF RS.18 02 450/- MADE BY AO U/S 14A OF THE IT ACT BY OBSERVING AS UNDER :- COMING TO THE PRESENT CASE I SAY THAT IN ANY EVEN T INTEREST ON THE BORROWED FUNDS OF RS.50.00 LACS UTILIZED FOR PAYMENT TO SHIV AM STOCK BROKING FOR PURCHASE OF SHARES HAS BEEN DISALLOWED BY ME U/S 3 6(1)(III) VIDE MY ORDER ON GROUND NO.1 OF THE GROUNDS OF APPEAL. THEREFORE I AM OF THE OPINION THAT NO FURTHER DISALLOWANCE IN THIS CASE SHOULD BE MADE US 14A OF THE ACT. 13.5. IN THIS REGARD WE ARE OF THE VIEW THAT BEFORE APPLYING THE PROVISIONS OF SECTION 14A OF THE IT ACT THE DISALLOWANCE CAN BE MADE ONLY IF THERE IS ACTUAL NEXUS BETWEEN THE TAX FREE INCOME AND EXPENDITURE. THEREFORE WE DIRECT AO TO APPLY PROVISIONS OF SECTION 14A OF THE IT ACT AFTER ANALYZING THE FACTS OF THE PRESENT CASE . 10 14. IN THE RESULT THE CROSS OBJECTION IS ALLOWED FO R STATISTICAL PURPOSES. 15. IN THE RESULT BOTH THE APPEALS OF THE REVENUE A RE DISMISSED AND C.O.NO.186/KOL/2010 IS DISMISSED AND C.O.NO.187/KOL /2010 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 06.09.2011. SD/- SD/- . .. . . .. . B.R.MITTAL JUDICIAL MEMBER . .. .!' !'!' !'. .. . #$ #$ #$ #$ C.D.RAO ACCOUNTANT MEMBER. ( (( ('$ '$ '$ '$) )) ) DATE: 06.09.2011. #5 3 0& 6#&*7- COPY OF THE ORDER FORWARDED TO: 1. M/S.BIHARIJI ISPAT UDYOG LTD. ROOM NO.107 1 ST FLOOR ANAND JYOTI 41 NETAJI SUBHASH ROAD KOLKATA-700001. 2 THE D.C.I.T. CIRCLE-3 KOLKATA 3. THE CIT 4. THE CIT(A)-I KOLKATA 5. DR KOLKATA BENCHES KOLKATA 1& 0/ TRUE COPY #5(