M/s Surya Synthetics, Ludhiana v. ACIT, Ludhiana

CO 62/CHANDI/2009 | 2006-2007
Pronouncement Date: 07-11-2014 | Result: Dismissed

Appeal Details

RSA Number 6221523 RSA 2009
Bench Chandigarh
Appeal Number CO 62/CHANDI/2009
Duration Of Justice 5 year(s) 1 month(s)
Appellant M/s Surya Synthetics, Ludhiana
Respondent ACIT, Ludhiana
Appeal Type Cross Objection
Pronouncement Date 07-11-2014
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 07-11-2014
Date Of Final Hearing 30-10-2014
Next Hearing Date 30-10-2014
Assessment Year 2006-2007
Appeal Filed On 07-10-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI BHAVNESH SAINI JUDICIAL MEMBER AND SHRI T.R. SOOD ACCOUNTANT MEMBER ITA NO. 878/CHD/2009 ASSESSMENT YEARS : 2006-07 A.C.I.T. CIRCLE III V SURYA SYNTHETICS LUDHIANA RAHON ROAD LUDHIANA CROSS OBJECTIONS NO. 62/CHD/2009 ARISING OUT OF ITA NO. 878/CHD/2009 ASSESSMENT YEARS : 2006-07 SURYA SYNTHETICS V A.C.I.T. CIRCLE III RAHON ROAD LUDHIANA LUDHIANA (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI J.S. NAGAR ASSESSEE BY: SHRI ASHWANI KUM AR DATE OF HEARING 30.10.2014 DATE OF PRONOUNCEMENT 7.11 .2014 O R D E R PER T.R. SOOD A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER OF LD CIT (A)-I LUDHIANA DATED 29.6.2009. THE ASSESSEE HAS FILED A CROSS OBJECTIONS AGAINST THE ORDER OF THE LD. CIT(A). ITA NO. 878/CHD/2009 REVENUE 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 THAT THE LD. CIT(A) HAS ERRED IN LAW AND FACTS I N DELETING THE ADDITION OF RS. 11 07 215/- MADE U/S 40A(2)(B) OF IT ACT. 2 THAT THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN ADMITTING THE ADDITIONAL EVIDENCE FURNISHED BY THE ASSESSEE D URING APPELLATE PROCEEDINGS UNDER RULE 46A IGNORING THAT SUFFICIENT OPPORTUNITIES WERE ALLOWED TO THE ASSESSEE DURING ASSESSMENT PROC EEDINGS FOR FURNISHING THE INFORMATION. 3 THAT THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS. 2 55 600/- MADE BY THE ASSESSIN G OFFICER OUT OF INTEREST PAID ON ACCOUNT OF INTEREST FREE ADVANCES FOR NON BUSINESS PURPOSES. 2 4 THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3 GROUNDS NO. 1 & 2 - AFTER HEARING BOTH THE PARTIE S WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OF FICER NOTICED THAT THE ASSESSEE HAS MADE PURCHASES OF RS. 55 36 073/- FROM ITS RELATED CONCERNS AS SPECIFIED IN SEC 40A(2)(B) OF THE ACT. THE ASSESSEE WAS ASKED TO PR ODUCE THE BILLS AND AVERAGE PURCHASE RATES IN RESPECT OF THE PURCHASES MADE FROM R.R. BROTHERS K & COMPANY AND TRIVENI SI LK MILLS WHO WERE RELATED PERSONS. DETAILS WERE FILED VIDE LETTER DATED 20.10.2008 WHICH INCLUDED COPY OF THE ACCOUNT . H OWEVER NO ACTUAL BILLS WERE PRODUCED AND AVERAGE RATES WERE N OT FURNISHED. THE ASSESSEE WAS AGAIN REQUESTED TO FUR NISH THE PURCHASE BILLS BUT NO DETAILS WERE FURNISHED. SOME MORE ADJOURNMENTS WERE TAKEN AND ULTIMATELY THE ASSESSIN G OFFICER FINALLY ISSUED A SHOW CAUSE NOTICE DATED 24.12.2008 TO FILE THESE INFORMATIONS. ULTIMATELY IT WAS SUBMITTED TH AT TIME WAS TOO SHORT FOR FURNISHING THIS INFORMATION AND NOTHI NG WAS FILED. ASSESSING OFFICER MADE CERTAIN OBSERVATIONS VIDE PA RA 4.4 AND MADE ADDITION OF RS. 1107215/-. PARA 4.4 READS AS U NDER: 4.4 ONLY IN CASE OF M/S TRIVENI SILK MILLS THE ASS ESSEE HAS GIVEN COPIES OF 6 BILLS ISSUED BY THEM. THERE ARE TWO BI LLS THAT SHOW CLOTH HAS BEEN SOLD TO THE ASSESSEE @ RS. 55/- AND RS. 54/-. NO QUANTITIES ARE MENTIONED ON THESE BILLS. OTHER FOUR BILLS ARE FOR DIFFERENT ITEMS SOLD TO DIFFERENT PARTIES. IN CASE OF DIFFERENCE IN ITEMS NO COMPARISON IS POSSIBLE AND THESE BILLS DO NOT COME TO THE AID OF THE ASSESSEE. IN ANY CASE AND AT BEST THIS COULD HAVE BEEN ONLY AN ISOLA TED PICK AND CHOOSE EXAMPLE. COMPLETE DATA HAS NOT BEEN GIVEN BY THE A SSESSEE. IN CASE OF M/S K & COMPANY M/S R.R. BROTHERS THE ASSESSEE IS COMPLETELY SILENT. SINCE THE PRIMARY DATA IS IN POSSESSION AND CONTROL OF THE ASSESSEE AND YET THE ASSESSEE HAS DELIBERATELY AND STEADFASTLY R EFUSED TO DISCLOSE THE SAME IT CAN BE CONCLUDED THAT THE PAYMENT MADE TO THE RELATED PERSONS ARE AT EXCESSIVELY HIGHER RATES WITHOUT ANY REASONA BLE EXPLANATION. DUE TO WITHHOLDING OF THE DATA BY THE ASSESSEE ACCURATE WORKING OF THE EXTENT OF EXCESSIVE PAYMENTS IS NOT POSSIBLE AND HENCE IT IS REASONABLY ESTIMATED THAT THE PURCHASER PRICES ARE 20% HIGHER THAN THE FAIR MARKET VALUE. ACCORDINGLY AS PER THE PROVISIONS OF SECTIO N 40A(2) IT IS HELD THAT THE PAYMENTS MADE TO RELATED PERSONS TO THE TUNE OF RS. 55 36 673/- ARE UN-REASONABLY EXCESSIVE AND DISALLOWANCE OF 20% OF THIS AMOUNT IS MADE. ACCORDINGLY AN ADDITION OF RS. 11 07 215/- IS MADE TO THE RETURNED INCOME. I AM SATISFIED THAT THE ASSESSEE HAS CONCEALED THE 3 PARTICULARS OF HIS INCOME AND HAS FURNISHED INACCUR ATE PARTICULARS OF SUCH INCOME THEREFORE PENALTY PROCEEDINGS U/S 271(1 )(C) ASSESSEE BEING INITIATED. 4 ON APPEAL IT WAS SUBMITTED THAT VERY LITTLE TIME WAS GIVEN FOR FILING OF THE RELEVANT INFORMATION AND THE ADDI TION HAS BEEN MADE MAINLY ON THE BASIS OF ABOVE ESTIMATE WITHOUT ANY MATERIAL ON RECORD. THE ASSESSEE ALSO REQUESTED TO ADMIT ADDITIONAL EVIDENCE TO MEET THE REQUIREMENTS RAISED BY THE ASSESSING OFFICER AND THEREFORE DETAILS OF PURCHASE S AND INVOICES WERE ALSO FILED. THESE SUBMISSIONS WERE F ORWARDED TO THE ASSESSING OFFICER FOR HIS COMMENTS. THE ASSESS ING OFFICER OBJECTED TO ADMISSION OF ADDITIONAL EVIDENCE. 5 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS DELETED THE ADDITION. 6 BEFORE US. LD. D.R FOR THE REVENUE REFERRED TO TH E CONTENTS OF THE ASSESSMENT ORDER AND POINTED OUT TH AT THE ASSESSEE HAS NOT FURNISHED THE COPY OF PURCHASE BI LLS ETC. DESPITE VARIOUS OPPORTUNITIES. HE SUBMITTED THAT I T IS NOT CORRECT ON THE PART OF HE LD. CIT(A) TO OBSERVE THA T VERY LITTLE TIME WAS GIVEN FOR FURNISHING THESE MATERIALS AS AS SESSEE WAS ASKED TO PRODUCE BILL MUCH BEFORE 24.12.2008. THER EFORE HE SHOULD NOT HAVE ADMITTED THIS ADDITIONAL EVIDENCE. IN ANY CASE THE ASSESSING OFFICER HAS NOT MADE ANY COMMENTS ON THE MERITS AND THEREFORE IF THE TRIBUNAL WAS SATISFIED WITH THE ADMISSION OF ADDITIONAL EVIDENCE THEN THE MATTER SH OULD BE REMANDED TO ASSESSING OFFICER TO VERIFY THE ISSUE O N MERITS. 7 ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE S TRONGLY SUPPORTED THE IMPUGNED ORDER AND SUBMITTED THAT AS FAR AS FILING OF BILLS IS CONCERNED VERY LITTLE TIME WAS GIVEN BY THE ASSESSING OFFICER. IN ANY CASE WHATEVER MATERIAL W AS PRODUCED 4 BEFORE THE LD. CIT(A) THE SAME HAS BEEN REFERRED TO THE ASSESSING OFFICER AND THEREFORE PROPER OPPORTUNITY HAS BEEN GIVEN. IN ANY CASE THE ISSUE INVOLVES THAT IF THER E ARE PURCHASES FROM SISTER CONCERN AND SAME ARE REVENUE NEUTRAL THEN NO ADDITION CAN BE MADE. THEREFORE THE ISSUE W AS COVERED BY THE DECISION OF HON'BLE HIGH COURT OF PUNJAB & H ARYANA IN CASE OF CIT V. SIYA RAM GARG (HUF) 49 DTR 126. FUR THER THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TR IBUNAL IN CASE OF TRIVENI SILK MILLS ITA NO. 791/CHD/2011 WH ICH IS SISTER CONCERN OF THE ASSESSEE WHERE IDENTICALLY SAME PART IES WERE INVOLVED FROM WHOM THE PURCHASES WERE MADE. 8 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULL Y AND FIND THAT IT IS PREROGATIVE OF THE APPELLATE AUTHOR ITY TO ADMIT ADDITIONAL EVIDENCE IF IT IS FELT THAT SAME GOES TO THE ROOT OF THE MATTER. ONLY FACTOR THAT SUCH MATERIAL SHOULD BE F ILED WITH THE ASSESSING OFFICER BUT THIS HAS NOT BEEN DONE IN THI S CASE. IN ANY CASE ON MERITS THE LD. CIT(A) HAS MADE FOLLOWIN G OBSERVATIONS: COMING TO THE MERIT OF THE ISSUE THERE IS CONSIDE RABLE FORCE IN THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE COST OF CLOTH VARIES FROM MATERIAL TO MATERIAL. THEREFOR E THERE COULD NOT BE JUSTIFIABLE COMPARISON OF THE RATES AT WHICH PUR CHASES ARE MADE BY THE APPELLANT FROM THE SISTER CONCERNS AND THOSE MADE FROM OUTSIDE PARTIES. AS EXPLAINED DURING THE APPEAL PR OCEEDINGS THE SISTER CONCERNS OF THE APPELLANT ARE PAYING TAXES I N THEIR RESPECTIVE HANDS. THEREFORE THERE WOULD NOT BE ANY NET SAVINGS OF TAXES IF ANY PROFIT IS PASSED ON BY THE APPELLANT T O THESE SISTER CONCERNS WHICH IS THE IMPLIED MEANING OF MAKING PUR CHASES FROM SISTER CONCERNS AT RATES HIGHER THAN THE MARKET PRI CE. DURING THE ASSESSMENT PROCEEDINGS THE LD. COUNSEL FOR THE ASSE SSEE FURTHER EXPLAINED THAT THE GROSS PROFIT RATE SHOWN BY THE A PPELLANT DURING THE RELEVANT ASSESSMENT YEAR IS COMPARABLE WITH TH E GROSS PROFIT RATE SHOWN IN THE PRECEDING YEARS AND ALSO THE GROS S PROFIT OF OTHER ASSESSES IN THIS LINE OF BUSINESS. THE APPELL ANT HAD SHOWN GROSS PROFIT RATE OF 13.32% 13.62% AND 12.93% FOR THE FINANCIAL YEAR 2003-04 2004-05 AND 2005-06 RESPECTIVELY. TH IS IS IN SPITE OF THE FACT THE SALES IN THE FINANCIAL YEAR 2005-06 WERE SHOWN AT RS. 817 30 898/- AS AGAINST SALES OF RS. 345 89 979 /- AND RS. 609 32 574/- FOR THE FINANCIAL YEAR 2003-04 2004-0 5 RESPECTIVELY. I AM INCLINED TO AGREE WITH THE LD. COUNSEL FOR THE ASSESSEE THAT THE GROSS PROFIT RATE SHOWN BY THE APPELLANT FOR TH E ASSESSMENT YEAR UNDER CONSIDERATION IS COMPARABLE WITH THE GRO SS PROFIT RATE IN THE PRECEDING YEARS AND GROSS PROFIT RATE SHOWN BY THE ASSESSES 5 ENGAGED IN SIMILAR BUSINESS AND FURTHER WHEN THE RA TES OF PURCHASES OF CLOTH ON ACCOUNT OF SUCH VAST VARIATIO N DEPENDING UPON THE VARIETY COULD NOT BE JUSTIFIABLY COMPARED WITH THOSE OF PURCHASE MADE FROM OTHER PARTIES IT HAS TO BE INFE RRED THAT NO EFFORT WAS MADE BY THE APPELLANT TO BRING DOWN ITS INCOME BY MAKING PURCHASES FROM THE SISTER CONCERNS AT RATES HIGHER THAN THE FAIR MARKET RATES. THE ASSESSING OFFICER HAS ALSO MENTIONED IN THE ASSESSMENT YEAR THAT IN THE TWO BILLS ISSUED BY M/S TRIVENI SILK MILLS NO QUANTITIES ARE MENTIONED. HOWEVER IT IS EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE THAT IT IS NOT FACTUAL LY CORRECT. WHENTHE AMOUNT AND RATE IS MENTIONED IN THE BILL Q UANTITY AS PER THE LD. COUNSEL FOR THE ASSESSEE IS AUTOMATICALLY K NOWN. EVEN OTHERWISE FROM THE COPIES OF THESE BILLS THE LD. C OUNSEL FOR THE ASSESSEE SHOWED THAT QUANTITY IS DULY MENTIONED THO UGH IN A DIFFERENT COLUMN. IN VIEW OF THIS ADVERSE INFEREN CE DRAWN BY THE ASSESSING OFFICER ON THE BASIS OF THIS ALLEGED DISC REPANCY DOES NOT HOLD GOOD. FURTHER THERE IS APPARENTLY NO BASI S FOR THE ASSESSING OFFICER IN ESTIMATING SUCH EXCESSIVE PAYM ENT @ 20%. THE DECISION RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE IN SUPPORT OF THIS GROUND OF APPEAL I.E. THE CASE OF V IJAY C. KAMDAR V. ITO 120 TTJ 470 (MUM) IS QUITE APT AND IN VIEW OF THE RATIO OF THIS DECISION ALSO THE DISALLOWANCE MADE BY THE AS SESSING OFFICER IN THE FACTS AND CIRCUMSTANCES DISCUSSED ABOVE CAN NOT BE HELD TO BE JUSTIFIED. KEEPING IN VIEW THE TOTALITY OF THE F ACTS AND CIRCUMSTANCES DISCUSSED ABOVE THE DISALLOWANCE OF RS. 11 07 215/- IS HELD TO BE NOT MAINTAINABLE AND THE SAME IS ACCORDINGLY DELETED. THIS GROUND OF APPEAL IS TH EREFORE ALLOWED. ABOVE CLEARLY SHOW THAT RELIEF HAS BEEN ALLOWED ON THE BASIS THAT IF PURCHASES HAVE BEEN MADE FROM THE SISTER CO NCERN SAME WOULD BE REVENUE NEUTRAL. THIS THEORY HAS BEE N CONFIRMED BY THE TRIBUNAL IN CASE OF ONE OF THE SIS TER CONCERN OF THE ASSESSEE IN TRIVENI SILK MILLS (SUPRA). THE ISSUE WAS ADJUDICATED VIDE PARA 5 WHICH READS AS UNDER: 5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE RAISE D IN THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND A GAINST THE REVENUE BY THE DECISION OF THE HON'BLE JURISDICTION AL HIGH COURT IN THE CASE OF CIT V. SIYA RAM GARG (HUF) 49 DTR 126. THE ISSUE BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT WAS AS UNDER: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 716 511/- ON ACCOUNT OF EXCESS PAYMENT MADE TO SIST ER CONCERNS ON ACCOUNT OF PURCHASE WITHIN THE MEANING OF PROVISIONS OF SECTION 40A(2) OF THE ACT? 5.1 THE HON'BLE HIGH COURT HELD AS UNDER: 5 AS REGARDS QUESTION (II) THE ASSESSING OFFICER M ADE ADDITION U/S 40A(2) OF THE ACT ON THE GROUND THAT T HE ASSESSEE HAD PAID HIGHER RATE TO ITS SISTER CONCERN WHILE PURCHASING COTTON AND WASTER. THE LD. CIT(A) UPHEL D THE PLEA OF THE ASSESSEE THAT THE PAYMENT WAS NOT HIGHE R THAN THE NORMAL RATE WAS HELD THAT THE GOODS PURCHASED A T LESSER RATE WERE OF INFERIOR QUALITY. THE TRIBUNAL AFFIRM ED THE SAID FINDING AS UNDER: 15 ON THIS ISSUE WE FIND THAT INDEED THE DETAILS FILED BY THE ASSESSEE SHOWED THAT ITS SISTER CONCERNS WERE B EING 6 TAXED AT THE SAME RATE WHICH THE ASSESSEE WAS BEING TAXED PROVING THAT THERE WAS NO REASON FOR THE ASSESSEE T O SHOW HIGHER RATE HIGHER RATE PURCHASES MADE BY THE ASSES SEE FROM ITS SISTER CONCERN. THE ASSESSEES SISTER CON CERN HAD OFFERED THEIR INCOME FROM SUCH SALES WHICH FACT HA S NOT BEEN DISPUTED. THEREFORE THE ASSESSING OFFICER ERR ED IN INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE A CT AND THE LD. CIT(A) HAS CORRECTLY DELETED THE DISALLOWANCE. 6 THE ABOVE FINDING BEING A FINDING OF FACT AND NOT BEING PERVERSE WE DO NOT FIND ANY GROUND TO INTERFERE WI TH THE SAME. 6 IN THE INSTANT CASE THE ASSESSEE HAS SUBMITTED TH E COPIES OF RETURNS FILED BY THE SISTER CONCERNS NAMELY M/S SU RYA SYNTHETICS K & COMPANY AND R.R. BROTHERS & COMPANY WHICH CLEA RLY SHOW THAT THEY ARE FILING INCOME RETURNS AND PAYING INCO ME TAX AT SAME RATE AND HENCE THERE WAS NO QUESTION OF INFLATING THE PURCHASES. THE DECISION OF THE HON'BLE HIGH COURT OF PUNJAB & HARYANA REFERRED TO ABOVE IS SQUARELY APPLICABLE TO THE FAC TS OF THE PRESENT CASE AND RESPECTFULLY FOLLOWING THE SAME WE HOLD TH AT THERE WAS NO JUSTIFICATION IN MAKING THE DISALLOWANCE OF RS. 574 324/- U/S 40A(2) OF IT ACT. GROUND NO. 1 OF APPEAL RAISED BY THE ASSESSEE STANDS ALLOWED. PERUSAL OF ABOVE FINDINGS OF THE TRIBUNAL SHOWS THA T SAME HAVE BEEN MADE ON THE BASIS OF DECISION OF HON'BLE HIGH COURT OF PUNJAB & HARYANA IN CASE OF CIT V. SIYA RAM GARG (H UF). THEREFORE WE FIND NOTHING WRONG WITH THE ORDER OF L D. CIT(A) AND CONFIRM THE SAME. 9 GROUND NO. 3 AFTER HEARING THE RIVAL SUBMISSION S WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSI NG OFFICER NOTICED THAT THE ASSESSEE HAS GIVEN ADVANCE TO CARI VAL BUILDERS LTD. AND SATLUJ BUILDERS PROMOTERS & DEVEL OPERS AMOUNTING TO RS. 2 LAKHS AND RS. 2.25 LAKHS RESPECT IVELY. ON ENQUIRY IT WAS SUBMITTED THAT THESE ARE OPENING BAL ANCES FROM LAST MANY YEARS AND ADVANCES WERE GIVEN FOR THE PUR POSE OF PURCHASE OF PROPERTY FOR THE BUSINESS PURPOSES. THE ASSESSING OFFICER OBSERVED THAT ADVANCES HAVE BEEN GIVEN FOR THE PURPOSES OF ACQUISITION OF ASSETS THEREFORE PROPOR TIONATE INTEREST ON SUCH ADVANCES WERE NOT ALLOWABLE. FURT HER IT WAS NOTICED THAT AN ADVANCE OF RS. 20 LAKHS WAS GIVEN T O K & C.. IN RESPONSE TO THE QUERY IT WAS STATED THAT THERE ARE BUSINESS 7 TRANSACTION WITH K & COMPANY THEREFORE NO DISALLOW ANCE OF INTEREST CAN BE MADE. THE ASSESSING OFFICER DID NO T FIND FORCE IN THE SUBMISSIONS AND DISALLOWED THE PROPORTIONATE INTEREST AMOUNTING TO RS. 2 55 600/-. 10 ON APPEAL IT WAS MAINLY SUBMITTED THAT THE ADVAN CES TO CARNIVAL BUILDERS AND SATLUJ BUILDERS WERE MADE LO NG AGO FOR PURCHASE OF BUSINESS PREMISES. IN RESPECT OF ADVA NCE TO K & COMPANY COPY OF ACCOUNT WAS FILED TO SHOW THE BUS INESS TRANSACTION. 11 THE LD. CIT(A) FOUND FORCE IN THE SUBMISSIONS AN D DELETED THE ADDITION. 12 BEFORE US THE LD. DR FOR THE REVENUE STRONGLY S UPPORTED THE ORDER OF ASSESSING OFFICER. 13 ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSE SSEE SUPPORTED THE IMPUGNED ORDER. 14 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE HAS BEEN ADJUDICATED BY THE LD. CIT(A) AS UN DER: I HAVE CONSIDERED THE CONTENTIONS OF THE LD. COUNS EL FOR THE ASSESSEE AND PERUSED THE RELEVANT RECORD. AS FAR AS ADVANCES OF RS. 2 00 000/- RS. 2 20 000/- ARE CONCERNED THESE WERE OUTSTANDING SINCE LONG MORE THAN 10 YEARS. AS EXPLA INED IN THE WRITTEN SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSE SSEE THESE ADVANCES WERE MADE TO THE BUILDERS FOR ACQUIRING BU SINESS PREMISES FOR BUSINESS PURPOSE OF THE FIRM. THESE A MOUNTS HAD RATHER BECOME BAD DEBTS THOUGH NOT CLAIMED AS SUCH BY THE APPELLANT. I AGREE WITH THE LD. COUNSEL FOR THE AS SESSEE THAT IN THE FACTS AND CIRCUMSTANCES DISCUSSED ABOVE THESE ADVANCES COULD NOT BE TAKEN TO THE INTEREST FREE ADVANCES CA LLING FOR ANY DISALLOWANCE OF INTEREST AS DONE BY THE ASSESSING O FFICER. EVEN OTHERWISE MAKING SUCH ADVANCES EVEN FOR ACQUIRING C APITAL ASSETS IS NOTHING BUT ON ACCOUNT OF COMMERCIAL EXPEDIENCY. THEREFORE IN VIEW OF THE RATIO OF DECISION OF THE HON'BLE SUPREM E COURT IN CASE OF S.A. BUILDERS 288 I!TR 1 (S.C) NO DISALLOWANCE OF IT IN RESPECT OF THESE AMOUNTS COULD BE MADE. COMING TO THE ALLEGED ADVANCE TO M/S K & COMPANY T HERE IS NO DENYING THE FACT THAT THE APPELLANT WAS HAVING B USINESS DEALINGS WITH THIS PARTY. AS EXPENDITURE IN WRITTE N SUBMISSIONS THE APPELLANT BEING A PRUDENT BUSINESS-MAN HAD BEEN RECEIVING AND PAYING AMOUNTS TO THE SAID SISTER CONCERN KEEPI NG IN VIEW THE BUSINESS INTEREST. FURTHER AS EXPLAINED SHRI SHAK TI JAGGI THE OWNER OF M/S K & COMPANY AND WHO IS ONE OF THE PART NERS IN THE APPELLANT FIRM HAD INTEREST FREE CREDIT BALANCE IN THE FIRM AS ON 31.3.2005 AT RS. 32 38 477.79 AND RS. 48 05 580.61 AS ON 31.3.2006. THEREFORE THE AMOUNT ADVANCED AS ABOVE COULD BE 8 TAKEN TO BE OUT OF SHRI JAGGIS OWN CAPITAL ACCOUNT THOUGH NOT SHOWN AS SUCH IN THE ACCOUNTS. IN VIEW OF EH ABOV E FACTUAL POSITION I AM INCLINED TO AGREE WITH THE LD. COUNS EL FOR THE ASSESSEE THAT THERE WAS NO CASE FOR DISALLOWANCE OF INTEREST CORRESPONDING TO THESE ADVANCES. THE RATIO OF VARI OUS DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE WOU LD FURTHER GO IN FAVOUR OF THE APPELLANT. TAKING INTO ACCOUNT T HE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AS ABOVE I AGREE THAT THE DISALLOWANCE MADE BYTHE ASSESSING OFFICER BY APPLYI NG THE RATIO OF DECISION OF M/S ABHISHEK INDUSTRIES LTD (SUPRA) IS NOT JUSTIFIED. THE DISALLOWANCE OF RS. 2 55 600/- IS DELETED AND T HEREFORE THIS GROUND OF APPEAL IS ALLOWED. IN OUR OPINION THE LD. CIT(A) HAS CORRECTLY DECIDE D THE ISSUE. ADVANCE TO THE BUILDERS WERE ON ACCOUNT OF COMMERCI AL EXPEDIENCY AND IN CASE OF K & COMPANY SOME BUSINESS TRANSACTION WERE ALSO THERE. THEREFORE WE CONFIRM THE ORDER OF THE LD. CIT(A). 15 IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. CROSS OBJECTIONS NO. 62/CHD/2009 16 IN THIS CROSS OBJECTIONS THE ASSESSEE HAS RAISED FOLLOWING GROUND: THE LD. CIT(A) GRAVELY ERRED IN UPHOLDING THE ACTI ON OF THE ASSESSING OFFICER IN DISALLOWING A SUM OF RS. 1 41 495/- AS REVENUE EXPENDITURE. THERE WAS NO EXTENSION OF BUS INESS AND THE AMOUNT OF INTEREST PAID WAS ON ACCOUNT OF PURCHASE OF MACHINERY WHICH WAS PURCHASED AS REPLACEMENT ONLY. 17 AFTER HEARING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE ASSESS ING OFFICER THAT THE ASSESSEE HAS OBTAINED LOAN OF RS. 72 66 00 0/- FROM SIDBI ON 27.2.2005 FOR ACQUISITION OF CERTAIN MACHI NES. IT WAS SEEN THAT INTEREST PAID TILL THE DATE OF PUTTING TH E ASSETS TO USE AMOUNTING TO RS. 1 41 495/- WAS CLAIMED AS REVENUE EXPENDITURE. ACCORDING TO THE ASSESSING OFFICER TH IS WAS AGAINST THE PROVISIONS OF SECTION 36(1)(III) AND TH EREFORE INTEREST WAS DISALLOWED. 18 ON APPEAL IT WAS MAINLY SUBMITTED THAT PURCHASE OF MACHINES WAS NOT FOR EXTENSION OF BUSINESS AND SIN CE THE 9 MACHINES HAVE BEEN USED DURING THE YEAR INTEREST W AS ALLOWABLE. 19 THE LD. CIT(A) DID NOT FIND FORCE IN THE SUBMISS IONS AND CONFIRMED THE DISALLOWANCE. 20 BEFORE US THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND T HE LD. CIT(A). HE EMPHASIZED THAT THE MACHINES WERE USE D URING THE YEAR AND IN ANY CASE IT IS NOT EXPANSION OF THE BUS INESS THE INTEREST WAS ALLOWABLE. 21 ON THE OTHER HAND THE LD. DR FOR THE REVENUE ST RONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 22 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT PROVISO TO SECTION 36(1)(III) READS AS UNDER: 36(1)------------------------- (III) THE AMOUNT OF THE INTEREST 22 PAID IN RESPECT OF CAPITAL 22 BORROWED 22 FOR THE PURPOSES OF THE BUSINESS 22 OR PROFESSION : 23 [ PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID IN RESPECT O F CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING B USINESS OR PROFESSION (WHETHER CAPITALISED IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEG INNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE SHALL NOT BE ALLOWED AS DEDUCTION.] EXPLANATION. RECURRING SUBSCRIPTIONS PAID PERIODICALLY BY SHARE HOLDERS OR SUBSCRIBERS IN MUTUAL BENEFIT SOCIETIES WHICH FULFIL SUCH CONDITIO NS AS MAY BE PRESCRIBED SHALL BE DEEMED TO BE CAPITAL BORROWED WITHIN THE MEANING OF THIS CLAUSE. THE PROVISO TO CLAUSE (III) TO SECTION 36(1) CLEARL Y SHOWS THAT INTEREST ON THE BORROWINGS RAISED FOR THE PURPOSE O F ACQUISITION OF CAPITAL ASSET HAS TO BE CAPITALIZED TILL THE DAT E ON WHICH SUCH ASSET IS ACTUALLY PUT TO USE. THEREFORE INTER EST FROM THE DATE OF BORROWING TILL THE DATE WHEN THE ASSESSEE H AS PUT TO USE THE MACHINES HAS TO BE DISALLOWED. FURTHER THE RE IS NO FORCE IN THE SUBMISSIONS THAT IT CANNOT BE CALLED A N EXPANSION OF BUSINESS. WHEN THE ASSESSEE HAS INSTALLED BIG MACHINES IN THE EXISTING BUSINESS OBVIOUSLY IT HAS TO BE CONST RUED AS EXPANSION OF THE BUSINESS. THEREFORE IN OUR OPINIO N THE LD. 10 CIT(A) HAS CORRECTLY DISALLOWED THE INTEREST AND WE CONFIRM HIS ORDER. 23 IN THE RESULT CROSS OBJECTIONS IS DISMISSED. 24 IN THE RESULT APPEAL OF THE REVENUE AND THE CRO SS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7.11.2014 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 7.11.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR