M/s U.G. Hospitals (P) Ltd., Noida v. Addl. Commissioner of Income Tax, Chandigarh

ITA 1432/CHANDI/2010 | 2006-2007
Pronouncement Date: 28-02-2011 | Result: Dismissed

Appeal Details

RSA Number 143221514 RSA 2010
Assessee PAN AAACU4178N
Bench Chandigarh
Appeal Number ITA 1432/CHANDI/2010
Duration Of Justice 2 month(s) 7 day(s)
Appellant M/s U.G. Hospitals (P) Ltd., Noida
Respondent Addl. Commissioner of Income Tax, Chandigarh
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-02-2011
Date Of Final Hearing 24-01-2011
Next Hearing Date 24-01-2011
Assessment Year 2006-2007
Appeal Filed On 21-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL: B B ENCH: CHANDIGARH BEFORE HONBLE SHRI D K SRIVASTAVA AM AND HONBLE MS. SUSHMA CHOWLA JM ITA NO. 1432/CHANDI/2010 ASSESSMENT YEAR: 2006-07 M/S U.G. HOSPITALS (P) LTD V ADDL. CIT RANGE II I (NOW KNOWN AS METRO INSTITUTE CHANDIGARH OF MEDICAL SCIENCES PVT. LTD X-1 SECTOR 12 NOIDA PAN: AAACU 4178 N (APPELLANT-ASSESSEE) (RESPONDENT) APPELLANT BY: SHRI HARIDAS OJHA RESPONDENT BY: SMT. JAISHREE SHARMA ORDER THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER PASSED BY THE LD. CIT(A) ON 23.7.2010 ON THE FOLLOWING GROUN DS: 1 THAT THE ORDER PASSED BY THE LD. CIT(A) IS CONTR ARY TO THE FACTS AND BAD IN LAW. 2 (A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING PARTIALLY THE DISALLOWANCE OF INTEREST EXPENDITURE AMOUNTING TO RS. 25 31 016/ - OUT OF A TOTAL AMOUNT OF RS. 63 27 541/- BY DRAWING AN INFERENCE THAT THE BORROWED FUNDS WERE UTILIZED TOWARDS INTEREST FREE ADVANCES AND FOR THE PURPOSE OF ACQUISITION OF NEW ASSETS. THAT THE LD. CIT(A) HAS FAILED TO A PPRECIATE THAT THE ADVANCES GIVEN TO VARIOUS PERSONS WERE FOR BUSINESS PURPOSES OUT OF THE OWN FUNDS AND NOT FROM SECURED LOANS. THE LD. CIT(A ) HAS ALSO FAILED TO APPRECIATE THAT THE CAPITAL WAS NOT BORROWED FOR TH E PURPOSES OF ACQUISITION OF NEW ASSETS FOR WHICH THE INTEREST HA S BEEN DISALLOWED BY THE ASSESSING AUTHORITY. B) THAT THE INFERENCE DRAWN BY THE LD. CIT(A) THAT 60% OF THE FUNDS EMPLOYED FOR MAKING THE ABOVE REFERRED ADVANCE EMAN ATED OUT OF OWN FUNDS AND THE REMAINING 40% EMANATED OUT OF BORROWE D FUNDS IS CONTRARY TO FATS AND BAD IN LAW. 2 THAT ALTERNATIVELY AND WITHOUT PREJUDICE TO THE ABOVE ASSESSEE HEREBY DISPUTES QUANTUM OF THE ADDITION. M/S U.G. HOSPITALS 1432/CHANDI/2010 2 2 2. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF RUNNING HOSPITALS UNDER THE BRAND NAME METRO. THE ASSESSEE FILED IT S RETURN OF INCOME FOR THE YEAR UNDER APPEAL ON 30.11.2006 RETURNING TOTAL INC OME AT RS.4 69 80 320/-. THE RETURN WAS PROCESSED U/S 143(1) OF INCOME-TAX ACT. IT WAS SUBSEQUENTLY SELECTED FOR SCRUTINY. DURING THE COURSE OF SCRUTINY THE A O NOTICED THAT THE ASSESSEE HAS TAKEN SECURED LOANS AMOUNTING TO RS.23.91 CRORES ON WHICH INTEREST AMOUNTING TO RS.1 37 61 301/- HAS BEEN PAID. THE AO PROCEEDED TO EXAMINE THE UTILIZATION OF FUNDS DURING THE YEAR UNDER APPEAL AND NOTICED THAT THE ASSESSEE HAS GIVEN INTEREST-FREE ADVANCE AMOUNTING TO RS.1 23 57 172/- TO M/S METRO SPECIALITY HOSPITALS PVT. LTD AND FURTHER INTEREST-FREE ADVANC E OF RS.4 19 98 422/- TO RL KHERA CHARITABLE TRUST. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS ALSO GIVEN A SUM OF RS.53 05 433/- AS ADVANCE FOR PURCHASE OF LA ND TO GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY. THE AO ALSO NOTIC ED THAT THE ASSESSEE HAS PURCHASED LAND AT PATIALA AND NARELA FOR WHICH FUND S WERE UTILIZED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND TAK ING NOTE OF THE PRINCIPLES LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN CI T V. ABHISHEK INDUSTRIES LTD 286 ITR 1 (P & H) THE AO DISALLOWED INTEREST @ 9% IN RESPECT OF INTEREST-FREE LOANS/ADVANCES GIVEN TO (I) R.L. KHERA CHARITABLE T RUST AND (III) METRO SPECIALTY HOSPITALS. HE HOWEVER DISALLOWED INTEREST ALLOCABLE TO THE FUNDS UTILIZED FOR PURCHASE OF PROPERTY AT GREATER NOIDA PATIALA AND NARELA IN TERMS OF THE PROVISO TO SECTION 36(1)(III). THE AMOUNT OF INTEREST SO DI SALLOWED BY THE AO WORKS OUT TO RS. 3 52 431 + 8 90 668 + 9 98 171 + 40 86 271 = RS . 63 27 541/-. 3. THE AO HAS GIVEN THE FOLLOWING REASONS IN THE AS SESSMENT ORDER FOR DISALLOWING INTEREST RELATING TO THE AMOUNT GIVEN T O GREAT NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY AND INTEREST-FREE ADVANCES GI VEN TO RL KHERA CHARITABLE TRUST: THE ASSESSEE IN ITS REPLY DATED 15.12.2008 HAD CLE ARLY STATED THAT ADVANCES TO M/S GRETER NOIDA DEVELOPMENT AUTHORITY HAVE BEEN GIVEN FOR EXTENSION OF THE BUSINESS OF THE ASSESSEE AND ADVAN CE TO M/S R.L. KHERA CHARITABLE TRUST HAS ALSO BEEN GIVEN FOR MANAGING T HE HOSPITAL OF THE TRUST MEANING THEREBY THAT THE SAME HAS ALSO BEEN GIVEN F OR FURTHER EXTENSION OF THE BUSINESS OF THE ASSESSEE. SINCE THESE ADVANC ES HAVE BEEN GIVEN FOR THE PURPOSE OF EXPANSION/ESTENSION OF BUSINESS OF T HE ASSESSEE THE INTEREST PAID ON CAPITAL BORROWED FOR THE PURPOSE O F ADVANCE M/S U.G. HOSPITALS 1432/CHANDI/2010 3 3 GIVEN/PURCHASE OF THESE NEW ASSETS WILL BE CAPITALI ZED TO THE COST OF THE ASSETS AS PER PROVISO TO SECTION 36(1)(III) AND THE SAME CORRESPONDING INTERESTS WILL BE DISALLOWED AS PER DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDU STRIES LTD. 286 ITR 1 COMBINED WITH PROVISO TO SECTION 36(1)(III) OF THE INCOME-TAX ACT AS THESE ASSETS HAVE NOT BEEN PUT TO USE. 4. AS REGARDS DISALLOWANCE OF INTEREST RELATING TO INTEREST FREE ADVANCES GIVEN TO METRO SPECIALIST HOSPITALS THE AO HAS GIVEN THE FOLLOWING REASONS IN THE ASSESSMENT ORDER: THE ASSESSEE HAS ALSO GIVEN AN ADVANCE OF RS. 1 23 57 172/- TO ITS ASSOCIATE CONCERN M/S METRO SPECIALTIES LTD AND IN ITS REPLY DATED 15.12.2008 IT HAS BEEN SIMPLY STATED THAT THE SAME HAS BEEN GIVEN OUT OF COMMERCIALITY. THE ASSESSEE IN ITS REPLY DATED 15.1 2.2008 HAS ALSO RELIED UPON THE ORDER OF HON'BLE SUPREME COURT IN THE CASE OF M/S S.A. BUILDERS 288 ITR 1 WHERE THE HON'BLE SUPREME COURT HAD HELD THAT IF THE ASSESSEE HAD ADVANCED INTEREST FREE LOAN TO ITS SISTER CONCE RN OR ITS SUBSIDIARY AS A MEASURE OF ITS COMMERCIAL EXPEDIENCY WHAT IS TO BE SEEN IS BUSINESS PURPOSE AND WHAT THE SISTER CONCERN DID WITH THE M ONEY ADVANCED. IN THE PRESENT CASE THE ASSESSEE HAS FAILED TO EXPLAIN TH E EXACT NATURE/PURPOSE OF BUSINESS EXPEDIENCY AND AS TO HOW THE FUNDS WERE USED BY M/S METRO SPECIALITY HOSPITAL LTD. IN FACT AS PER COPY OF BAL ANCE SHEET OF THIS COMPANY FURNISHED BY THE ASSESSEE AN AMOUNT OF RS. 1 11 20 000/- HAS BEEN INVESTED BY IT IN MUTUAL FUNDS AS ON 31.3.2006 AND AMOUNT OF RS. 1 24 68 547/- HAS BEEN INVESTED FOR THE PURCHASE OF SOME LAND. THERE ARE NO OPERATIONAL RECEIPTS OF THE COMPANY AS ON 31.3.2 006 AND THERE IS ONLY A SHORT TERM CAPITAL GAIN OF RS. 30 34 306/-. THE ASS ESSEE HAS ALSO FAILED TO PROVE AS TO HOW M/S METRO SPECIALITY HOSPITAL CAN B E CALLED A SISTER CONCERN OF SUBSIDIARY OF THE ASSESSEE. THE ASSESSE E HAS ALSO FAILED TO JUSTIFY AS TO HOW IF IT HAD NOT ADVANCED LOAN TO M/ S METRO SPECIALITY HOSPITAL LTD. AND THE SAME WOULD HAVE ADVERSELY AFF ECTED THE BUSINESS OF THE ASSESSEE. IT IS EMPHASISED HERE THAT EVERY ASS ESSEE IS AN INDEPENDENT PERSON IN THE EYES OF THE LAW AND ITS TRUE AND CORR ECT INCOME HAS TO BE CALCULATED AS PER VARIOUS PROVISIONS AS GIVEN IN TH E INCOME TAX ACT. MERELY REDUCING ITS INCOME BY DIVERTING ITS INTERES T BEARING FUNDS TO SOME M/S U.G. HOSPITALS 1432/CHANDI/2010 4 4 COMPANY AS NON INTEREST BEARING LOANS IS NOT ALLOWA BLE AND THIS FACT HAS BEEN CLEARLY EMPHASIZE BY THE HON'BLE PUNJAB & HARY ANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. 286 ITR 1 AND IN FACT SAME HAS BEEN REEMPHHASIZED BY TE HON'BLE SUPREME COURT IN THE CA SE OF M/S S.A. BUILDERS LTD. 5. THE AO HAS GIVEN THE FOLLOWING REASONS IN THE AS SESSMENT ORDER FOR PROPORTIONATE DISALLOWANCE OF INTEREST RELATING TO FUNDS UTILIZED FOR PURCHASE OF LAND AT PATIALA AND NARELA. AS PER PROVISO TO SECTION 36(1)(III) SUCH INTERES T IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF NEW ASSET FOR EXTENSIO N OF EXISTING BUSINESS OF THE ASSESSEE SHALL NOT BE ALLOWED AS DEDUCTION FOR ANY PERIOD BEGINNING FROM THE DAY ON WHICH CAPITAL WAS BORROWED FOR ACQU ISITION OF ASSET TILL THE DATE THE SAID ASSETS WERE PUT TO USE. 6. AGGRIEVED BY THE ORDER PASSED BY THE AO THE ASS ESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) UPON WHICH THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO IN DISALLOWING THE IMPUGNED INTEREST. SHE H OWEVER REDUCED THE QUANTUM OF DISALLOWANCE FROM RS. 63 27 541/- MADE BY THE A O TO RS. 25 31 016/-. THE OPERATIVE PORTION OF THE ORDER PASSED BY THE LD. CI T(A) READS AS UNDER: 21 CONSIDERING THE RIVAL CONTENTIONS AND MATERIAL ON RECORD I FIND TAT IN THE ASSESSMENT YEAR 2005-06 INTEREST OF RS. 24 21 387/- WAS DISALLOWED ON ADVANCES MADE TO GREATER NOIDA INDL DEVELOPMENT AUTHORITY AND ADVANCES TO M/S KHOSLA MEDICAL & RESEARCH INSTITUTE . THE LD. CIT(A) IN PARA 47 OF APPEAL NO. 297/P/07-08 DATED 15.10.2008 HELD THAT PROVISO TO SECTION 36(1)(III) WOULD BE APPLICABLE AS EVEN FOR THE PURPOSE OF BUSINESS IF THE EXPENDITURE IS INCURRED TO ACQUIRE A CAPITAL ASSET TEN THE INTEREST COMPONENT IS TO BE CAPITALIZED. IN PARA 50 THE LD. CIT(A) WENT ON TO OBSERVE THAT: 50 THE ASSESSEE IS HAVING A COMMON POOL OF FUNDS. THE ASSESSEE HAS ALSO UTILIZED FUNDS FOR THE PURPOSE OF BUSINESS. TO DETERMINE THE COMPONENT OF INTEREST ON A FAIR BASIS THE QUANTUM OF BORROWED FUNDS FOR THE PURPOSE OF ADVANCES FOR ACQUISITION OF ASSET T HE RATIO OF 7:3 CAN BE TAKEN FOR CAPITALIZATION OF INTEREST. THAT MEANS T HE ASSESSEE HAS UTILIZED M/S U.G. HOSPITALS 1432/CHANDI/2010 5 5 OWN FUNDS AND ALSO UTILIZED BORROWED FUNDS FOR THE PURPOSE OF ACQUISITION OF ASSETS. THE AMOUNT WHICH IS TO BE CAPITALIZED IS DETERMINED AS UNDER: AMOUNT TO BE CAPITALIZED: (7/10)(X) RS.24 21 587/-= RS.16 95 110/- THE ASSESSEE GETS THE RELIEF OF RS. 24 21 587/- (-) RS. 16 95 110/- = RS. 7 26 477/- 22 HON'BLE ITAT BENCH IN APPEAL NO. 1057/CHANDIGARH /2008 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 HEL D AS UNDER: THE NEXUS THEORY HAS BEEN DISAPPROVED BY THE HON'B LE JURISDICTIONAL HIGH COURT. THEREFORE THE PLEA TAKE N BY THE ASSESSEE TO COME OUT OF THE PROVISO TO SECTION 36(1)(III) OF THE ACT ON THE BASIS OF THE NEXUS THEORY IN OUR VIEW IS LIABLE T O BE DECIDED AGAINST THE ASSESSEE FOLLOWING THE JUDGMENT OF HON'BLE PUNJ AB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. WE THEREFORE IN PRINCIPLE UPHOLD THE DISALLOWANCE ON ACCOUNT OF PRO VISO TO SECTION 36(1)(III) OF THE ACT. FURTHER WITH REGARD TO THE Q UANTUM OF DISALLOWANCE WE FIND NO ERROR IN THE ORDER OF LD. CIT(A) AND THEREFORE THE DISALLOWANCE WORKED OUT BY THE LD. C IT(A) AT RS. 16 95 110/- IS HEREBY AFFIRMED. 23 RESPECTING THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. ABHISHEK INDUSTRIES 286 ITR 1 AND HON'BLE ITAT CHANDIGARH IN ASSESSEES OWN CASE FOR THE ASSESSMEN T YEAR 2005-06 AN FURTHER APPRECIATING THE FACTS OF THE CASE I AM OF THE VIEW THAT QUANTUM OF NET FUNDS VIS A VIS BORROWED FUNDS NEEDS TO BE D ETERMINED ON THE BASIS OF AUDITED BALANCE SHEET AS ON 31.3.2006 WHICH IS A S UNDER: AS ON 31.3.2006 OWN FUNDS BORROWED FUNDS SHARE CAPITAL SHARE APPLICATION RESERVES ACCUMULATED DEPRECIATION 2 80 00 000 2 81 92 200 7 33 84 505 22 52 62 163/- PNB CENTURION BANK OTHERS 10 81 07 226/- 7 38 56 777/- 5 71 60 831 M/S U.G. HOSPITALS 1432/CHANDI/2010 6 6 35 51 38 868 23 91 24 834 PARTICULARS AMOUNT % OWNED FUNDS 35 51 38 8868/- 60 BORROWED FUNDS 23 91 24 834/- 40 59 42 63 702/- 100 24 ON THE BASIS OF ABOVE TABULATED DATA IT CAN BE SEEN THAT 60% OF THE FUNDS EMPLOYED IN BUSINESS ARE OWN FUNDS AND 40 % OF THE FUNDS EMPLOYED ARE BORROWED FUNDS. BASED UPON THE PROPOSI TION DISCUSSED ABOVE AND AS APPLIED FOR ASSESSMENT YEAR 2005-06 I T CAN BE INFERRED THAT 60% OF THE FUNS EMPLOYED FOR MAKING THE ABOVE REFER RED ADVANCE EMANATED OUT OF OWN FUNDS AND THE REMAINING 40% EMA NATED OUT OF BORROWED FUNDS. THUS 40% OF THE INTEREST DISALLOWE D IN ASSESSMENT ORDER CONTENTION BE SUSTAINED. TOTAL INTEREST DISALLOWED IN THE ASSESSMENT ORDER AGGREGATES RS. 63 27 541/-. 40% OF THE SAME COMES T O RS. 25 31 016/-. IN THE RESULT THE ASSESSEE IS ENTITLED TO A QUANTUM R ELIEF OF RS. 37 96 525/- (BEING 60% OF THE TOTAL INTEREST I.E. RS. 7=63 27 541/- (-) RS. 25 31 016/- ). 7. AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT(A) THE ASSESSEE IN NOW IN APPEAL BEFORE THIS TRIBUNAL. AT THE TIME OF HEARING THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN APPEAL IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE ORDER PASSED BY THIS TRIBUNAL ON 24.9.09 IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 AND THEREFORE THE MATTER UNDER APPEAL WOULD NEED TO BE DECIDED AGAINST THE A SSESSEE. 8. IN REPLY THE LD. DR SUPPORTED THE SUGGESTIONS M ADE BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE. 9. WE HAVE HEARD BOTH THE PARTIES. THE HONBLE JURI SDICTIONAL HIGH COURT HAS HELD IN ABHISHEK INDUSTRIES (SUPRA) THAT THE TRIBUN AL BEING THE LAST FACT FINDING AUTHORITY A HIGHER RESPONSIBILITY IS CAST BY THE L EGISLATURE ON IT TO DECIDE THE CASES BY RECODING COMPLETE FACTS AND ON THE BASIS O F THE LAW LAID DOWN BY THE SUPREME COURT/HIGH COURT AND NOT WHAT THE TRIBUNAL DECIDES ON THE PARTICULAR ISSUE. KEEPING IN VIEW THE AFORESAID OBSERVATIONS IT IS CONSIDERED NECESSARY TO BRIEFLY TOUCH UPON THE RELEVANT FACTS AND THE LAW A PPLICABLE THERETO. M/S U.G. HOSPITALS 1432/CHANDI/2010 7 7 10. SECTION 36(1)(III) ALLOWS DEDUCTION OF THE AMOU NT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF BUSINESS OR PROFESSION. HOWEVER PROVISO TO CLAUSE (III) OF SUB-SECTION (1) OF SECTION 36 (I NSERTED WITH EFFECT FROM 1.4.2004 BY THE FINANCE ACT 2003) DISALLOWS DEDUCTION IN RES PECT OF ANY AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITIO N OF AN ASSET FOR EXTENSION OF BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OR NOT). 11. THE ASSESSEE HAS RAISED UN-SECURED LOANS ON WHI CH IT HAS PAID INTEREST AMOUNTING TO RS.1 37 61 301/-. THE AFORESAID FUNDS FORMED PART OF COMMON KITTY. THE FUNDS SO AVAILABLE WITH THE ASSESSEE HAVE BEEN UTILISED BY IT EITHER FOR EXTENSION OF ITS EXISTING BUSINESS OR FOR GIVING IN TEREST-FREE ADVANCES. IT WAS THE CASE OF THE ASSESSEE BEFORE THE AO AND THE LD. CIT( A) THAT BORROWED CAPITAL WAS NOT UTILIZED EITHER FOR THE PURCHASE OF PROPERTIES OR FOR GIVING INTEREST-FREE LOANS/ADVANCES. IT WAS SUBMITTED BEFORE THEM THAT I NTEREST-FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE WHICH WERE UTILIZED FO R PURCHASE OF PROPERTIES AND FOR GIVING INTEREST-FREE LOANS/ADVANCES. THE AO HAS REJ ECTED THE AFORESAID EXPLANATION OF THE ASSESSEE FIRSTLY FOR THE REASON THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE NEXUS BETWEEN THE USE OF FUND S AND AVAILABILITY OF INTEREST FREE FUNDS ON THE DATES ON WHICH THE FUNDS WERE REP ORTEDLY UTILIZED AND SECONDLY FOR THE REASON THAT IT WAS NOT NECESSARY TO ESTABLI SH THE NEXUS BETWEEN UTILIZATION OF FUNDS AND THE BORROWED FUNDS IN VIEW OF THE JUDG MENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V. ABHISHEK INDUST RIES LTD (SUPRA). ACCORDING TO THE DEPARTMENT IF THIS MONEY HAD NOT BEEN UTILIZED FOR GIVING INTEREST-FREE ADVANCES OR FOR EXTENSION OF THE EXISTING BUSINESS OF THE ASSESSEE IT WOULD HAVE BEEN AVAILABLE TO THE ASSESSEE FOR ITS BUSINESS PUR POSES AND TO THAT EXTENT IT MAY NOT HAVE BEEN NECESSARY TO BORROW MONEY ON INTEREST . THE AFORESAID FACTS HAVE NOT BEEN REBUTTED AT ANY STAGE OF THE PROCEEDING. 12. THE AO AND THE CIT(A) HAVE RELIED UPON THE JUDG MENT IN ABHISHEK INDUSTRIES (SUPRA) FOR THEIR DECISIONS. IN CIT V. A BHISHEK INDUSTRIES (SUPRA) THE HON'BLE HIGH COURT HAS HELD AS UNDER: THE ENTIRE MONEY IN A BUSINESS ENTITY COMES IN A C OMMON KITTY. THE MONIES RECEIVED AS SHARE CAPITAL AS TERM LOANS AS WORKING CAPITAL LOANS AS SALE PROCEEDS ETC. DO NOT HAVE ANY DIFFERENT CO LOUR. WHATEVER ARE THE RECEIPTS IN THE BUSINESS THEY HAVE THE COLOUR OF B USINESS RECEIPTS AND M/S U.G. HOSPITALS 1432/CHANDI/2010 8 8 HAVE NO SEPARATE IDENTIFICATION. SOURCES HAVE NO CO NCERN WHATSOEVER. THE ONLY THING SUFFICIENT TO DISALLOW THE INTEREST PAID ON THE BORROWINGS TO THE EXTENT THE AMOUNT IS LENT TO A SISTER CONCERN WITHO UT CARRYING ANY INTEREST FOR NON-BUSINESS PURPOSES WOULD BE THAT THE ASSESSE E HAS SOME LOANS OR OTHER INTEREST BEARING DEBTS TO BE REPAID. IN CASE THE ASSESSEE HAD SOME SURPLUS AMOUNT WHICH ACCORDING TO IT COULD NOT BE REPAID PREMATURELY TO ANY FINANCIAL INSTITUTION STILL THE SAME IS EITHER REQUIRED TO BE CIRCULATED AND UTILISED FOR THE PURPOSE OF BUSINESS OR TO BE I NVESTED IN A MANNER IN WHICH IT GENERATES INCOME AND NOT THAT IT IS DIVERT ED TOWARDS SISTER CONCERNS FREE OF INTEREST. THIS WOULD RESULT IN NOT PRESENTING THE TRUE AND CORRECT PICTURE OF THE ACCOUNTS OF THE ASSESSEE AS AT THE COST BEING INCURRED BY THE ASSESSEE THE SISTER CONCERN WOULD BE ENJOYING THE BENEFITS THEREOF. IT CANNOT POSSIBLY BE HELD THAT THE FUNDS TO THE EXTENT DIVERTED TO SISTER CONCERNS OR OTHER PERSONS FREE OF INTEREST W ERE REQUIRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND LOANS TO THAT EXTENT WERE REQUIRED TO BE RAISED. WE DO NOT SUBSCRIBE TO THE THEORY OF DIRECT NEXUS OF THE FUNDS BETWEEN BORROWINGS OF THE FUNDS AND DIVERSION THEREOF FOR NON-BUSINESS PURPOSES. RATHER THERE SHOULD BE NEXUS OF USE OF BORROWED FUNDS FOR THE PURPOSE OF BUSINESS T O CLAIM DEDUCTION U/S 36(1)(III) OF THE ACT. THAT BEING THE POSITION THE RE IS NO ESCAPE FROM THE FINDING THAT INTEREST BEING PAID BY THE ASSESSEE TO THE EXTENT THE AMOUNTS ARE DIVERTED TO SISTER CONCERNS ON INTEREST FREE BA SIS ARE TO BE DISALLOWED. IF THE PLEA OF THE ASSESSEE IS ACCEPTED THAT THE IN TEREST FREE ADVANCES MADE TO THE SISTER CONCERNS FOR NON-BUSINESS PURPOS ES WERE OUT OF ITS OWN FUNDS IN THE FORM OF CAPITAL INTRODUCED IN BUSINESS THAT AGAIN WILL SHOW A CAMOUFLAGE BY THE ASSESSEE AS AT THE TIME OF RAISIN G OF LOAN THE ASSESSEE WILL SHOW THE FIGURES OF CAPITAL INTRODUCED BY IT A S A MARGIN FOR LOANS BEING RAISED AND AFTER THE LOANS ARE RAISED THEN SUBSTAN TIAL AMOUNT IS DIVERTED TO THE SISTER CONCERNS FOR NON-BUSINESS PURPOSES WITHO UT INTEREST A PLEA IS SOUGHT TO BE RAISED THAT THE AMOUNT ADVANCED WAS OU T OF ITS CAPITAL WHICH IN FACT STOOD EXHAUSTED IN SETTING UP OF THE UNIT. SUCH A PLEA MAY BE ACCEPTABLE AT A STAGE WHEN NO LOANS HAD BEEN RAISED BY THE ASSESSEE AT THE TIME OF DISBURSEMENT OF FUNDS. THIS WOULD DEPEND ON THE FACTS OF EACH CASE. M/S U.G. HOSPITALS 1432/CHANDI/2010 9 9 13. BOTH THE ASSESSING OFFICER AND THE CIT(A) HAVE FOLLOWED THE PRINCIPLES LAID DOWN IN ABHISHEK INDUSTRIES (SUPRA) FOR MAKING AND CONFIRMING THE IMPUGNED DISALLOWANCE. FOR THE REASONS DISCUSSED ABOVE WE S EE NO VALID REASON TO TAKE A VIEW DIFFERENT FROM THE ONE TAKEN BY THEM. THIS IS MORE SO AS THE VIEW TAKEN BY THEM IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR H AS ALSO BEEN CONFIRMED BY THIS TRIBUNAL. IN THIS VIEW OF THE MATTER THE APPE AL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 28 FEBRUARY 2011 SD/- SD/- (SUSHMA CHOWLA) (D K SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER CHANDIGARH THE 28 FEBRUARY 2011 SURESH COPY TO: 1. THE APPELLANT M/S U.G. HOSPITALS (P) LTD. CHAND IGARH 2. THE RESPONDENT ADDL CIT RANGE III CHANDIGARH 3. THE CIT CHANDIGARH 4. THE CIT(A) CHANDIGARH 5. THE LD. D.R INCOME TAX DEPARTMENT CHANDIGARH TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT CHANDIGARH