Balaji Services, Karnal v. ITO, New Delhi

ITA 4463/DEL/2012 | 2009-2010
Pronouncement Date: 31-07-2015 | Result: Partly Allowed

Appeal Details

RSA Number 446320114 RSA 2012
Assessee PAN AAEFB4931H
Bench Delhi
Appeal Number ITA 4463/DEL/2012
Duration Of Justice 2 year(s) 11 month(s) 9 day(s)
Appellant Balaji Services, Karnal
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 31-07-2015
Date Of Final Hearing 09-06-2015
Next Hearing Date 09-06-2015
Assessment Year 2009-2010
Appeal Filed On 21-08-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SH. N. K. SAINI AM AND SH. GEORGE GEORGE K JM ITA NO. 1194/DEL/2012 : ASSTT . YEAR : 2008-09 BALAJI SERVICES 1 RANDHIR LANE KARNAL VS. ITO WARD-4 NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAEFB4931H ITA NO. 4463/DEL/2012 : ASSTT. YEAR : 2009-10 BALAJI SERVICES 1 RANDHIR LANE KARNAL VS. ITO WARD-4 NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAEFB4931H APPELLANT BY : SH. SH. VED JAIN & SH. ASHISH GOEL CAS RESPONDENT BY : SH. AMIT JAIN SR. DR. DATE OF HEARING : 09.06.2015 DATE OF PRONOUNCEMENT : 31.07.2015 ORDER PER N.K. SAINI A.M. THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAI NST THE SEPARATE ORDERS DATED 02.12.2011 AND 31.05.2012 OF THE LD.CIT(A) ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 2 KARNAL FOR THE ASSESSMENT YEAR 2008-09 AND 2009-20 10 RESPECTIVELY. 2. MAIN ISSUE INVOLVED IS COMMON IN THESE APPE ALS WHICH HEARD TOGETHER SO THESE ARE BEING DISPOSED OFF BY TH IS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. FIRST WE WILL DEAL WITH THE APPEAL IN ITA NO. 1194/DEL/2012 FOR THE ASSESSMENT YEAR 2008-09. FOLLOWING GROUNDS HAVE BEE N RAISED IN THIS APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE TH E ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) [(CIT(A)] IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING TH E ACTION OF THE AO IN MAKING DISALLOWANCE OF AN AMOUNT OF RS. 14 04 00 0/- ON ACCOUNT OF INTEREST. 3. THAT WHILE CONFIRMING THE SAID DISALLOWANCE THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN MISINT ERPRETING THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND NOR TH WEST PAPER KRAFT PRIVATE LIMITED. 4. THAT THE DISALLOWANCE HAS BEEN CONFIRMED IGNORI NG THE EXPLANATION AND EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE. 5. THE APPELLANT CRAVES LEAVE TO ADD AMEND OR ALTE R ANY OF THE GROUNDS OF APPEAL. 4. FROM THE ABOVE GROUNDS IT WOULD BE CLEAR THAT ONLY GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO THE CONFIRMATION OF ADDITION AMOUNTING TO RS. 14 04 000/- MADE BY THE AO ON ACCOUNT OF DISALLOWAN CE OF INTEREST. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT ASSESSEE E- FILED THE RETURN OF INCOME ON 28 TH SEPTEMBER 2008 DECLARING AN INCOME OF RS. NIL WHIC H WAS PROCESSED U/S ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 3 143(1) OF THE INCOME TAX ACT 1961(HEREINAFTER REFE RRED TO AS THE ACT) ON 09.02.2010 LATER ON THE CASE WAS SELECTED FOR SCRU TINY. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS T HE AO NOTICED THAT THE ASSESSEE HAD ADVANCED RS. 1.17 CRORES TO M/S NORTH WEST PAPER CRAFT PVT. LTD. BUT NO INTEREST HAD BEEN CHARGED HOWEVER ON THE OTHER HAND THE ASSESSEE HAD INCURRED INTEREST LIABILITY TO THE TUNE OF RS. 1 24 12 153/- ON INTEREST BEARING LOANS. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO W HY PROPORTIONATE AMOUNT OF INTEREST AS DEBITED TO P & L A/C BE NOT DISALLOWED IN VIEW OF SPECIFIC JUDGEMENT OF THE HONBLE JURISDICTIONAL PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. IN RESPONS E THE ASSESSEE SUBMITTED THAT IT HAD ENTERED INTO AN AGREEMENT WITH M/S NORT H WEST PAPER CRAFT P. LTD. FOR THE SALE OF THEIR PLANT AND MACHINERY AND FOR T HIS PURPOSE THE ASSESSEE FIRM SUBMITTED A COPY OF AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S NORTH WEST PAPER CRAFT PVT. LTD. KAITHAL ROAD KARN AL. THE AO OBSERVED THAT THE SAID AGREEMENT REVEALED THAT IT WAS ENTERED BET WEEN THE SAID PARTIES FOR THE PURPOSE OF PURCHASE OF PLANT AND MACHINERY BY THE A SSESSEE AND SALE BY THE OTHER PARTY. HE ALSO OBSERVED THAT SOME PAYMENTS W ERE PAID THROUGH CHEQUES AND THE AGREEMENT HAS TO BE EFFECTED UPTO 31.12.201 0. THE AO ASKED THE ASSESSEE TO FURNISH FOLLOWING DOCUMENTS/DETAILS :- I) PROOF OF LAND PURCHASED WHERE THE PROPOSED PAP ER MANUFACTURING UNIT WAS PROPOSED TO BE SET UP ALONGWITH COMPLETE D ETAILS OF LAND PURCHASED WHERE LOCATED IN WHOSE NAME IT STANDS A LONGWITH COPY OF RELEVANT REVENUE PAPERS/REGISTRATION DEED ETC. II) IF THE LAND HAS BEEN PURCHASED IN THE NAME OF T HE ASSESSEE FIRM THEN SOURCES THEREOF AND WHERE REFLECTED IN THE BOO KS OF ACCOUNTS. ALSO FATE OF AGREEMENT I.E. IF ALL THE PLANT AND M ACHINERY STAND PURCHASED OR NOT? IF NOT THEN REASON THEREOF? IF Y ES THEN COMPLETE DETAILS THEREOF? ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 4 III) COMPLETE DETAILS OF PROPOSED LOACATION/LOCATIO N SELECTED AND INFRASTRUCTURE ERECTED THEREUPON AND WHERE THE EXPE NSES THEREOF HAVE BEEN BOOKED/REFLECTED (WITH SUPPORTING DOCUMENTARY EVIDENCES). THE AO OBSERVED THAT THE ASSESSEE DID NOT OF FER ANY EXPLANATION OR SUPPORTING DOCUMENTARY EVIDENCES WITH REFERENCE TO THE QUERIES RAISED. HE THEREFORE INFERRED THAT THE ASSESSEE HAD NOTHING T O SAY IN THE MATTER AND CHARGED AND WORKED OUT THE INTEREST @ 12% ON THE INTEREST F REE ADVANCE OF RS. 1.17 CRORE PARALLEL TO THE INTEREST PAID BY THE ASSESSE E TO BANKS AND TO THE OTHERS LOANS. ACCORDINGLY A SUM OF RS. 1404000/- WAS RED UCED FROM THE INTEREST LIABILITY WHICH RESULTED IN AN ADDITION OF RS. 1404 000/- . 6. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATT ER TO THE LD. CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE AO IT W AS FURTHER SUBMITTED THAT ADVANCE WAS GIVEN FOR THE PURCHASE OF PLANT AND MAC HINERY SINCE THE ASSESSEE WAS INTERESTED TO SET UP A PAPER MANUFACTURING PLAN T. IT WAS STATED THAT NO INTEREST WAS CHARGED BY THE PARTNERS ON THEIR CAPIT AL WHICH WAS RS. 92.34 LAKHS AS ON 31.3.2008 AND NO INTEREST WAS PAID ON UNSECURED LOANS. IT WA S FURTHER STATED THAT THE PARTNERS OF THE ASSESSEE FIRM HAD T AKEN SUFFICIENT LAND IN UTTARPRADESH (U.P) FOR INSTALLATION OF PLANT & M ACHINERY AND THE INFRASTRUCTURE OF THE PAPER MILL WAS DEVELOPED ALONG WITH PLANT AN D MACHINERY. IT WAS ALSO STATED THAT THE AO HAD NOT DOUBTED THE GENUINENESS OF THE AGREEMENT SUBMITTED AND HAD NOWHERE HELD THAT THE ADVANCE WAS NOT MADE FOR BUSINESS CONSIDERATION. THEREFORE THE DISALLOWANCE OF INTEREST WAS NOT CAL LED FOR. THE ASSESSEE FURNISHED COPY OF ACCOUNT OF M/S NORTHWEST PAPER CR AFTS P. LTD. FOR THE FINANCIAL YEAR 2006-07 RELEVANT TO THE PRECEDING AS SESSMENT YEAR 2007-08. ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 5 FROM THE ABOVE SAID ACCOUNT THE LD. CIT(A) FOUN D THAT THERE WERE INFLOW AND OUTFLOW OF FUNDS THROUGH OUT THE FINANCIAL YEAR 200 6-07 AND THAT THE ASSESSEE PAID RS. 1 97 49 114/- AND RECEIVED RS. 59 81 076/- AS SUCH THERE WAS CLOSING DEBIT BALANCE OF RS. 1 37 68 038/- AS ON 31.03.2007 WHICH WAS CARRIED FORWARD TO THE NEXT YEAR. THE LD. CIT(A) POINT OUT THAT THE AGREEMENT WAS UNDATED ON A PLAIN PAPER AND IT HAD NOT BEEN REGISTERED SPECIFIC ALLY IN VIEW OF THE FACT THAT THE AGREEMENT WAS FOR THE PURCHASE OF PLANT & MACHINE RY WORTH RS. 3 CRORES. THE LD. CIT(A) ALSO POINTED OUT THAT THE FIRST PAYMENT AS PER THIS AGREEMENT WAS OF RS. 2 90 000/- PER CHEQUE DATED 30.05.2006 AND THE FINAL PAYMENT WAS TO BE MADE BY 31.12.2010. THE LD. CIT(A) OBSERVED THAT TH E EXECUTION OF THIS AGREEMENT WAS TO BE DONE IN MORE THAN 4 YEARS TIME WHICH ITSELF RAISED DOUBT ABOUT THE GENUINENESS OF THIS AGREEMENT SINCE IN SU CH A LONG SPAN OF TIME EVEN THE TECHNOLOGY BECOMES ABSOLETE. HE ALSO POINTED OU T THAT NORMALLY IN AN AGREEMENT IN CASE OF NON EXECUTION OF THE AGREEME NT SOME PENAL CLAUSE IS USED TO BE THERE WHEREAS IN THIS CASE THERE WAS NO SUC H PENAL CLAUSE AND AS PER THIS AGREEMENT IN CASE OF NON EXECUTION OF THE TERMS OF AGREEMENT BY THE COMPANY THE AMOUNT OF ADVANCE WAS TO BE RETURNED AND THAT TOO WITHOUT ANY INTEREST. THE LD. CIT(A) INFERRED THAT THE ENTIRE EXERCISE HAD BE EN CARRIED OUT BY THE ASSESSEE TO SHOW THAT THE ADVANCE WAS MADE FOR BUSINESS PURP OSES TO PREVENT THE DISALLOWANCE OUT OF CLAIM OF INTEREST FOR MAKING T HIS INTEREST FREE ADVANCE. THE LD. CIT OBSERVED THAT FROM THE BANK STATEMENT FURN ISHED BY THE ASSESSEE IT WAS DIFFICULT TO ASCERTAIN/ VERIFY THE EXACT SOURCE O F MAKING THE SAID ADVANCEMENT TO M/S NORTHWEST CRAFTS PVT. LTD. HE ALSO OBSERVED THA T THE ASSESSEE HAD TAKEN SECURED LOANS OF RS. 8.30 CRORES ON WHICH INTEREST LIABILITY OF RS. 1.24 CRORES WAS CLAIMED AND HAD THOSE INTEREST FREE ADVANCES BE EN NOT MADE TO M/S NORTH WEST PAPER CRAFT (P) LTD THE SAME WOULD BE AVAILAB LE WITH THE ASSESSEE FOR USE ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 6 OF BUSINESS WHICH IN TURN WOULD REDUCE THE INTEREST LIABILITY OF THE ASSESSEE SUBSTANTIALLY. THE LD. CIT(A) DID NOT ACCEPT THIS C ONTENTION OF THE ASSESSEE THAT NO INTEREST WAS PAID ON THE CAPITAL OF THE PARTNERS BY OBSERVING THAT THE SAME WAS NOT AVAILABLE FOR MAKING THIS INTEREST FREE ADV ANCE. HE ACCORDINGLY CONFIRMED THE DISALLOWANCE MADE BY THE AO. NOW THE ASSESSEE IS IN APPEAL. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE AMOUNT OF RS. 1.17 CRORE WAS GIVEN TO M/S NORTH WEST PAPER CRAFTS PVT. LTD. AS AN ADVANCE IT WAS A BUSINESS TRANSACTION FOR THE PURPOSE OF PURCHASE O F PLANT & MACHINERY AS THE ASSESSEE ENTERED INTO AN AGREEMENT FOR PURCHASING P LANT & MACHINERY. IT WAS FURTHER STATED THAT THE ASSESSEE FURNISHED ALL THE DETAILS TO THE AO AS WELL AS THE LD. CIT(A) AND EXPLAINED THAT THERE WAS NO NEXUS IN THE INTEREST FREE ADVANCE AND THE INTEREST BEARING LOANS. THEREFORE THE DISA LLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) WAS NOT JUSTIFIED. TH E RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS :- CIT VS. ROCKMAN CYCLE INDUSTRIES LTD. (2009) 17 6 TAXMANN 21 (P&H) CIT VS. AMRIT SOAP CO. (2009) 308 ITR 287 (P&H) MUNJAL SALES CORPORATION VS. CIT (2008) 298 ITR 298(SC) S.A. BUILDERS VS. CIT(2007) 288 ITR 1 (SC) 8. IN HIS RIVAL SUBMISSIONS. LD. DR REITERATED T HE OBSERVATIONS MADE BY THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IM PUGNED ORDER PASSED BY THE LD. CIT(A). 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH TH E PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE IT IS ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 7 NOTICED THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S NORTH WEST PAPER CRAFTS PVT. LTD. FOR PURCHASE OF THE PLANT & MACHIN ERY FOR A SUM OF RS. 3 CRORE COPY OF THE SAID AGREEMENT IS PLACED AT PAGE NO. 2 5 AND 26 OF THE ASSESSEES PAPER BOOK. SO THE AMOUNT PAID BY THE ASSESSEE WAS AN ADVANCE TO PURCHASE THE PLANT & MACHINERY AND IT WAS NOT AN INTEREST FREE L OANS GIVEN BY THE ASSESSEE TO M/S NORTH WEST PAPER CRAFTS PVT. LTD. WHICH WAS PAI D THROUGH CHEQUE. THE AO CONSIDERED THIS AMOUNT AS INTEREST FREE ADVANCE AND MADE THE IMPUGNED DISALLOWANCE ON ACCOUNT OF NOTIONAL INTEREST WORKED OUT @ 12% FOR THE REASONS THAT THE ASSESSEE WAS PAYING INTEREST ON THE BORROW INGS. HOWEVER NO NEXUS WAS ESTABLISHED IN BETWEEN THE INTEREST BEARING F UNDS AND THE ADVANCE GIVEN BY THE ASSESSEE FOR PURCHASE OF THE PLANT & MACHINERY. IN THE PRESENT CASE ON THE PERUSAL OF LEDGER ACCOUNT OF M/S NORTH WEST PAPER C RAFT PVT. LTD. PLACED AT PAGE NO. 27 TO 30 OF THE ASSESSEES PAPER BOOK IT WOU LD BE CLEAR THAT APART FROM THE ADVANCE GIVEN TO THE SAID PARTY THERE WERE MANY OTH ER TRANSACTIONS AND SOME TIMES THERE WAS CREDIT BALANCE IN THE ACCOUNT OF S AID PARTY. IN THE PRESENT CASE IT IS NOT THE CASE OF THE DEPARTMENT THAT THE BORRO WED FUNDS WERE NOT USED FOR THE BUSINESS PURPOSE AND IN THE ABSENCE OF NEXUS BETW EEN THE INTEREST BEARING BORROWED FUNDS AND THE ADVANCE GIVEN BY THE ASSESSE E FOR PURCHASE OF PLANT & MACHINERY THE DISALLOWANCE MADE BY THE AO WAS NO T JUSTIFIED. IN THE PRESENT CASE IT IS ALSO NOTICED THAT THE PARTNERS OF THE A SSESSEE FIRM WERE HAVING OPENING BALANCE OF RS. 24 07 594.88 IN THEIR CAPITAL ACCOUN T AND ADDED RS. 81 19 857/- DURING THE YEAR UNDER CONSIDERATION ON THE SAID A MOUNT THE PARTNERS WERE NOT CHARGING ANY INTEREST. THE SAID AMOUNT WAS AVAILABL E TO THE ASSESSEE FOR GIVING AN ADVANCE TO M/S NORTH WEST PAPER CRAFT PVT. LTD. AS SUCH THE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) WAS NOT JUSTIFIED. ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 8 10. ON A SIMILAR ISSUE THEIR LORDSHIP OF PUNJAB & HARYANA HIGH COURT IN THE CASE CIT VS. ROCKMAN CYCLE INDUSTRIES LTD. 176 TAXMAN 21 (SUPRA) HAS OBSERVED IN PARA 5 AS UNDER : 5. AFTER HEARING THE COUNSEL FOR THE PARTIES WE DO NOT FIND ANY SUBSTANCE IN THE ARGUMENTS RAISED BY THE COUNSEL FO R THE REVENUE. AS PER SECTION 36(1)(III) OF THE ACT THE AMOUNT OF INTERE ST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS O R PROFESSION HAS TO BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME UNDE R SECTION 28 OF THE ACT. ONCE A FINDING OF FACT HAS BEEN RECORDED THAT THE INTEREST PAID IN RESPECT OF THE ADVANCES WAS FOR BUSINESS CONSIDERAT ION THEN THE DEDUCTION HAS TO BE ALLOWED TO THE ASSESSEE WHILE C OMPUTING THE INCOME. MERELY BECAUSE THE INTEREST-FREE LOAN HAS BEEN ADVA NCED TO THE SISTER CONCERNS NO SUCH INFERENCE CAN BE DRAWN THAT THE S AID ADVANCES WERE NOT FOR ANY BUSINESS CONNECTION OR PURPOSE. THE SUP REME COURT IN S.A.BUILDERS LTD.S CASE (SUPRA) HAS HELD THAT WHEN THE ASSESSEE BORROWED THE FUND FROM THE BANK AND LENT SOME OF IT TO ITS SISTER CONCERNS AS AN INTEREST-FREE LOAN THEN THE REAL TE ST TO ALLOW THE INTEREST AS DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT IS WHETHER THIS WAS DONE FOR COMMERCIAL EXPEDIENCY OR NOT. SIMILAR VIEW HAS BEEN TAKEN BY THE SUPREME COURT IN MUNJAL SALES CORPN.S CASE (SUPRA) . 11. IN THE PRESENT CASE ALSO THE INTEREST WAS P AID BY THE ASSESSEE ON THE AMOUNT BORROWED FOR THE PURPOSES OF BUSINESS SO IT WAS TO BE ALLOWED U/S 36(1)(III) OF THE ACT AND ONCE IT IS ESTABLISHED T HAT THE INTEREST PAID WAS FOR THE BUSINESS CONSIDERATION THAN THE DEDUCTION HAS TO BE ALLOWED TO THE ASSESSEE WHILE COMPUTING THE INCOME U/S 28 OF THE ACT AND N O DISALLOWANCE CAN BE MADE MERELY ON THIS BASIS THAT INTEREST FREE ADVANCE HAD BEEN GIVEN BY THE ASSESSEE. MOREOVER THE ADVANCE GIVEN IN THE PRESENT CASE WAS FOR PURCHASE OF PLANT & MACHINERY AND THE PARTNERS WERE HAVING INTEREST FRE E CAPITAL IN THE CREDIT OF THEIR ACCOUNT. WE THEREFORE CONSIDERING THE TOTALITY OF THE FACTS ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY TH E LD. CIT(A) WAS NOT JUSTIFIED. ACCORDINGLY THE SAME IS DELETED. ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 9 NOW WE WILL DEAL WITH THE APPEAL IN ITA NO. 4463.DE L.2012 : 12. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS AP PEAL :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) [(C IT(A)] IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2(I) ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED BOTH ON THE FACTS AND IN LAW IN CONFIRMING TH E ACTION OF THE AO IN MAKING DISALLOWANCE OF AN AMOUNT OF RS. 13 24 58 5/- ON ACCOUNT OF INTEREST. (II) THAT WHILE CONFIRMING THE SAID DISALLOW ANCE THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN MISINT ERPRETING THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND NOR TH WEST PAPER KRAFT PVT. LTD. (III) THAT THE DISALLOWANCE HAS BEEN CONFIRM ED IGNORING THE EXPLANATION AND EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE AC TION OF THE AO IN DISALLOWING AN AMOUNT OF RS. 4 39 764/- ON ACCOUNT OF INTEREST EXPENDITURE INCURRED DURING THE YEAR BY INVOKING TH E PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 4(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING TH E DISALLOWANCE OF AN AMOUNT OF RS. 1 45 570/- ON ACCOUNT OF CHALLANS AND PENALTY. (II) THAT THE ABOVE DISALLOWANCE HAS BEEN CONFIRM ED DESPITE THE FACT THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSES OF BUSINESS. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING TH E ADDITION OF RS. 55 000/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF I NTEREST BY APPLYING AN ADHOC RATE OF INTEREST @ 12% PER ANNUM. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING TH E ADHOC DISALLOWANCE OF AN AMOUNT OF RS. 1 00 000/- MADE BY AO ON ACCOUNT OF VARIOUS EXPENSES. 7. THE APPELLANT CRAVES LEAVE TO ADD AMEND OR AL TER ANY OF THE GROUNDS OF APPEAL. ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 10 13. GROUND NO. 1 AND 7 ARE JOURNAL IN NATURE WHIL E GROUND NO. 4 WAS NOT PRESSED SO THESE GROUNDS DO NOT REQUIRE AND ANY C OMMENTS OUR PARTS. GROUND NO. 2 RELATES TO THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF NOTIONAL INTEREST ON THE ADVANCE GIVEN TO M/S NORTH WEST PAPER CRAFTS (P) LTD. FOR THE PURCHASE OF PLANT & MACHINERY. 14. THE FACTS RELATED TO THIS ISSUE ARE IDENTICA L TO THE FACTS INVOLVED IN GROUND NO. 2 OF THE ASSESSEES APPEAL IN I.T.A. NO. 1194/DEL/2012 FOR THE A.Y. 2008-09 AND EVEN THE RIVAL SUBMISSIONS WERE SIMILAR . THEREFORE OUR FINDINGS GIVEN IN FORMER PART OF THIS ORDER VIDE PARAS 9 TO 11 SHALL APPLY MUTATIS MUTANDIS. IN THAT VIEW OF THE MATTER THE IMPUGNED ADDITION IS DELETED. 15. VIDE GROUND NO. 3 THE GRIEVANCE OF THE ASSES SEE RELATES TO THE DISALLOWANCE OF RS. 4 39 764/- MADE BY THE A.O. ON ACCOUNT OF INTEREST BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE AC T. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD PAID INTEREST TO THE TUNE OF RS. 4 39 764/- TO M/S TML FINANCIAL SERVICES LTD. ON ACCOUNT OF SECURED L OAN OF RS. 24 84 090/-. THE AO FURTHER OBSERVED THAT THE DETAIL OF INTEREST AS WELL AS COPY OF ACCOUNT OF M/S TML FINANCIAL SERVICES LTD. REVEALED THAT THE ASSES SEE HAD NOT DEDUCTED TAX AT SOURCE WHILE MAKING THE PAYMENT OF INTEREST WHICH W AS REQUIRED TO BE DEDUCTED U/S 40(A)(IA) READ WITH CHAPTER XXVII(B) OF THE ACT . HE THEREFORE DISALLOWED A SUM OF RS. 4 39 764/- 16. IT IS NOTICED THAT THE ASSESSEE HAD NOT CHAL LENGED THIS ADDITION WHILE FILING THE 1 ST APPEAL BEFORE THE LD. CIT(A) AND THERE IS NO DISCU SSION IN THE IMPUGNED ORDER ON THIS ISSUE. THE ISSUE RAISED BY THE ASSESSEE VIDE G. NO. 3 IS NEITHER ARISING OUT OF THE IMPUGNED ORDER NOR THE A SSESSEE HAS FILED ANY ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 11 ADDITIONAL GROUND. THEREFORE THIS ISSUE RAISED VID E GROUND NO. 3 DESERVES TO BE DISMISSED. WE ORDER ACCORDINGLY. 17. VIDE GROUND NO. 5 THE GRIEVANCE OF THE ASSES SEE RELATES TO THE CONFIRMATION OF ADDITION OF RS. 55 000/- MADE BY T HE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST. THE FACTS RELATED TO THI S ISSUE IN BRIEF ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD ADVANCED A LOAN OF RS. 5 00 000/- TO SH. RAKESH KH ANNA BUT NO INTEREST HAD BEEN CHARGED ON THE SAID AMOUNT OF ADVANCE. THE AO OBSERVED THAT THE ASSESSEE HAD BORROWED THE FUNDS FROM THE BANK ON WH ICH INTEREST WAS BEING PAID WHICH WAS ALLOWABLE DEDUCTION U/S 36 (1)(III) OF TH E ACT BUT THE AMOUNT OF RS. 5 00 000/- HAD BEEN GIVEN AS A FRIENDLY INTEREST FR EE LOAN OUT OF BORROWED FUNDS. HE WORKED OUT THE INTEREST @ 12 % AMOUNTING TO RS. 55 000/- AND DISALLOWED THE SAME. 18. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATT ER LD. CIT(A) AND SUBMITTED AS UNDER :- THAT THE ASSESSEE FIRM HAS PAID A SUM OF RS. 5 00 000/- TO SH. RAKESH KHANNA ON 03.05.2008 AS ADVANCE FOR PURCHASE OF SUITABLE LAND FOR PAPER MILL. THE ADVANCE WAS GIVEN FOR GIVI NG TOKEN MONEY TO THE PROSPECTIVE SELLER OF THE LAND. SINCE THE PARTN ERS OF THE ASSESSEE FIRM HAS WIDE EXPERIENCE OF RUNNING PAPER MILLS TH EREFORE THEY WERE KEEN TO DEVELOP THE BUSINESS OF THE FIRM HENCE ADV ANCE WAS MADE FOR PURCHASE OF SECOND HAND MACHINERY FROM ANOTHER COMP ANY. THE SUITABLE LAND NEAR A DRAIN COULD NOT BE LOCATED DUR ING THE YEAR HENCE THE ADVANCE REMAINS OUTSTANDING. IT IS ALSO PERTINE NT TO MENTION HERE THAT THE ASSESSEE FIRM HAS OBTAINED ONLY TERM LOAN FROM BANKS/FINANCIAL INSTITUTIONS WHICH ARE DISBURSED DI RECTLY TO THE VENDORS OF THE VEHICLE MANUFACTURERS. HENCE THERE I S NO DIVERSION OF ANY FUND FOR PERSONAL GAIN OF THE PARTNERS OR ITS S TAKE HOLDERS AT THE EXPENSE OF THE FIRM. THE ASSESSEE HAS ALSO NOT OBTA INED ANY WORKING ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 12 CAPITAL FUNDS FROM ANY BANK OR FINANCIAL INSTITUTIO N. FURTHER NO INTEREST HAS BEEN PAID TO ANY UNSECURED LOANS. THE ADVANCE TO MR. RAKESH KHANNA WAS ADVANCED AGAINST PURCHASE OF THEI R ASSETS AND WAS MADE FOR THE BUSINESS EXPEDIENCY. IN VIEW OF AB OVE IT IS SUBMITTED THAT THE ASSESSEE HAS NOT MADE ANY ADVANC ES WHICH IS NOT LINKED WITH BUSINESS ACTIVITY THEREFORE NO DISALL OWANCE OF INTEREST BE MADE. THAT THE RELIANCE OF THE LD. AO ON THE ABOVE JU DGEMENT OF ABHISHEK INDUSTRIES LIMITED IS ALSO MISPLACED. THE FACTS OF THE CASE OF THE ASSESSEE IS CLEARLY DISTINGUISHABLE AS SPECIFIED IN THE JUDGEMENT OF HONBLE PUNJAB AND HARYANA HIGH COURT IN ABHISHEK I NDUSTRIES LIMITED. THE ADVANCE MADE TO SH. RAKESH KHANNA BY T HE ASSESSEE WAS FOR BUSINESS CONSIDERATIONS ONLY AND THIS FACT HAS NOT BEEN NEGATED BY THE LD. AO. HENCE THE RATIO OF JUDGEMENT RELIED UP ON BY THE A.O. IS SQUARELY NOT APPLICABLE. RELIANCE IN THE CASE OF AS SESSEE IS PLACED ON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDERS VS. CIT(2007) 288 ITR 1 (SC). MUNJAL SALES CORPORA TION VS. CIT (2008) 298 ITR 298 (SC). COMMISSIONER OF INCOME TA X VS. AMRIT SOAP CO. (2009) 308 ITR 287 (P&H) AND COMMISSIONER OF INCOME TAX VS. ROCKMAN CYCLE INDUSTRIES LIMITED (2009) 176 TAXMANN 21 (P&H). WHEREIN THE HONBLE SUPREME COURT AND PUNJAB AND HARYANA HIGH COURT HAS HELD THAT ADVANCES MADE FOR COMMERCI AL EXPEDIENCY DOES NOT COVER UNDER THE AMBIT OF SECTION 36(1)(III ). HENCE NO DISALLOWANCE CAN BE MADE. IT IS THEREFORE PRAYED T HAT THE DISALLOWANCE MADE BY THE AO OF RS. 0.55 LACS MAY KI NDLY BE DELETED. 19. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE CONFIRMED THE ADDITION MADE BY THE AO BY OBSERVING IN PARA 2.03 OF THE IMPUGNED ORDER AS UNDER :- THE ISSUE IS EXAMINED. FROM THE BALANCE SHEET ENCLOSED BY THE APPELLANT IT IS NOTED THAT THE APPELLANT HAS TAKEN SECURED LOANS AND UNSECURED LOANS AS ON 31.03.2009 AT RS. 5 41 56 761 /- AND RS. 3 66 000/- RESPECTIVELY AND CLAIMED PAYMENT OF INTE REST THEREON AT RS. 1 36 25 546/- . ON THE OTHER THE APPELLANT MADE IN TEREST FREE ADVANCE OF RS. 5 LAC TO ONE SH. RAKESH KHANNA ON 03.05.2008 I.E. DURING THE YEAR UNDER CONSIDERATION. THE APPELLANT CLAIMED THA T THE ADVANCE WAS MADE FOR PURCHASE OF LAND FOR PAPER MILL AND HENCE CLAIMED THAT THE ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 13 ADVANCE WAS MADE FOR BUSINESS REFERRED TO IN PAR A 2.2 OF THE WRITTEN SUBMISSIONS REPRODUCED ABOVE. THE APPELLANT HOWEVE R COULD NOT BRING ON RECORD ANY EVIDENCE IN SUPPORT OF ITS CLAI M THAT THE SAID ADVANCE WAS MADE FOR BUSINESS PURPOSES. HENCE CASE LAWS RELIED UPON BY THE APPELLANT IS OF NO HELP RATHER RATIO LA ID DOWN BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES 286 ITR 1 IS SQUARELY APPLICABLE TO TH E FACTS OF THE CASE OF THE APPELLANT AND HENCE DISALLOWANCE OUT OF INTERES T MADE BY THE AO IS HEREBY CONFIRMED. NOW THE ASESSEE IS IN APPEAL. 20. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE HAD GIVEN AN ADVANCE TO SH. RAKESH KHANNA FOR PURCHASE OF SUI TABLE LAND FOR PAPER MILL AND THE ADVANCE WAS GIVEN AS A TOKEN MONEY TO THE PROSP ECTIVE SELLER OF THE LAND. IT WAS FURTHER STATED THAT SINCE THE SUITABLE LAND CO ULD NOT BE OBTAINED DURING THE YEAR THE ADVANCE REMAINED OUTSTANDING BUT THERE W AS NO DIVERSION OF ANY FUND FOR PERSONAL GAIN . IT WAS ALSO STATED THAT THE AD VANCE WAS GIVEN TO SH. RAKESH KHANNA AGAINST THE PURCHASE OF ASSET FOR BUSINESS E XPEDIENCY. THEREFORE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE LD . CIT(A) WAS NOT JUSTIFIED. IN HIS RIVAL SUBMISSIONS. THE LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 21. AFTER CONSIDERING THE SUBMISSIONS OF BOT H PARTIES AND THE MATERIAL ON RECORD IT IS NOTICED THAT THE FACTS OF THE PRESENT ISSUE ARE SIMILAR TO THE FACTS INVOLVED IN THE ISSUE RAISED VIDE GROUN D NO. 2 EVEN THE RIVAL SUBMISSIONS WERE ALSO SIMILAR. THEREFORE OUR FIN DINGS GIVEN IN RESPECT OF GROUND NO. 2 IN FORMER PART OF THIS ORDER SHALL APP LY MUTATIS MUTANDIS FOR THIS ISSUE. IN THAT VIEW OF THE ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 14 MATTER THE ADDITION OF RS. 55 000/- MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) IS DELETED. 22. THE LAST ISSUE VIDE GROUND NO. 6 RELATES TO THE CONFIRMATION OF ADHOC DISALLOWANCE OF RS. 1 00 000/- MADE BY THE A.O. OU T OF THE VARIOUS EXPENSES. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT T HE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HA D CLAIMED VARIOUS EXPENSES AS PER FOLLOWING DETAILS :- EXPENSES AMOUNT MISCELLANEOUS EXP. 97 543/- PRINTING & STATIONERY 1 91 518/- SALARY 74 31 171/- STAFF WELFARE 15 372/- TOLL TAX & PARKING 2 75 471/- THE AO ASKED THE ASSESSEE TO PRODUCE ORIGINAL BILL / VOUCHERS IN RESPECT OF THE AFORESAID EXPENSES. THE AO TEST CHECKED THOSE VOUCH ERS AND FOUND THAT SOME OF THE VOUCHERS/ RECEIPTS WERE NOT PROPERLY MAINTAINED VIS--VIS SOMEWHERE THERE WERE NO SIGNATURE ON SALARY RECEIPTS AND IN SOME DATES AND SIGNATURE WERE NOT APPENDED ON THE VOUCHERS. ACCORDING TO THE A.O TH E ASSESSEE COULD NOT GIVE ANY PLAUSIBLE EXPLANATION IN THIS REGARD. THE AO SP ECIFICALLY MENTIONED THAT THE ASSESSEE AGREED FOR A DISALLOWANCE OF RS. 1 00 000 /- OUT OF ABOVE EXPENDITURE. ACCORDINGLY THE AO MADE THE ADDITION OF RS. 1 00 00 0/-. ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 15 23. BEING AGGRIEVED THE ASSESSEE CARRIED THE MAT TER TO THE LD. CIT(A) AND SUBMITTED THAT THE AO MADE THE ABOVE ADDITION O N ADHOC BASIS WITHOUT GIVING ANY REASON THERETO. IT WAS ALSO STATED THAT THE ADDITION MADE BY THE AO WAS ERRONEOUS AND EXCESSIVE. 24. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE OBSERVED THAT THE DISALLOWANCE WAS MADE ON AGREED B ASIS AND HENCE NO INTERFERENCE WAS CALLED FOR IN ORDER OF THE AO. AC CORDINGLY DISALLOWANCE MADE BY THE AO WAS CONFIRMED. NOW THE ASSESSEE IS IN APP EAL. 25. THE LD. COUNSEL FOR THE ASSESSEE REITERATED T HE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) WAS HIGHL Y EXCESSIVE. HOWEVER HE COULD NOT CONTROVERT THIS FACT THAT THE ASSESSEE AG REED FOR THE SAID ADDITION AND THEREAFTER AO DID NOT MAKE ANY FURTHER INQUIRY. IN HIS RIVAL SUBMISSIONS THE LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FURTHER SUBMITTED THAT THE ASSESSEE HIMSELF AGREED FOR THE IMPUGNED ADDIT ION ONLY WHEN THE AO POINTED OUT SPECIFIC DISCREPANCIES IN THE VOUCHERS MAINTAINED BY THE ASSESSEE FOR VARIOUS EXPENSES. THEREFORE THE LD. CIT(A) RIG HTLY CONFIRMED THE ADDITION MADE BY THE AO. 26. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH TH E PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN T HE PRESENT CASE IT IS NOTICED THAT THE AO POINTED OUT SOME DISCREPANCIES IN THE V OUCHERS MAINTAINED BY THE ASSESSEE FOR VARIOUS EXPENSES AND THE EXPLANATION G IVEN BY THE ASSESSEE WAS NOT FOUND TO BE PLAUSIBLE THEREFORE THE ASSESSEE IT SELF AGREED FOR ADDITION OF RS. ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 16 1 00 000/- OUT OF VARIOUS EXPENSES. IN THE PRESENT CASE SINCE THE ASSESSEE AGREED FOR THE ADDITION WE THEREFORE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS GIVEN BY THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE ASSESSEES APPEAL. 27. IN THE RESULT APPEAL OF THE ASSESSEE IS PART LY ALLOWED. (ORDER PRONOUNCED IN THE COURT ON 31/07/2015). SD- SD/- (GEORGE GEORGE K) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31 /07/2015 *B.RUKHAIYAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITA NO.1194 4463/DEL/2012 BALAJI SERVICES KA RNAL 17 DATE INITIAL 1. DRAFT DICTATED ON 28/07/2015 PS 2. DRAFT PLACED BEFORE AUTHOR 29/07/2015 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.