THE DCIT CIR 3(3), MUMBAI v. M/S. VIDEOCON INTERNATIONAL LTD, MUMBAI

ITA 4784/MUM/2008 | 2003-2004
Pronouncement Date: 13-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 478419914 RSA 2008
Assessee PAN AAACV2300H
Bench Mumbai
Appeal Number ITA 4784/MUM/2008
Duration Of Justice 1 year(s) 8 month(s) 23 day(s)
Appellant THE DCIT CIR 3(3), MUMBAI
Respondent M/S. VIDEOCON INTERNATIONAL LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 13-04-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted F
Tribunal Order Date 13-04-2010
Date Of Final Hearing 01-02-2010
Next Hearing Date 01-02-2010
Assessment Year 2003-2004
Appeal Filed On 21-07-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI R V EASWAR SENIOR VICE PRESIDENT AND SHRI RAJENDRA SINGH ACCOUNTANT MEMBER I T A NO: 4784/MUM/2008 (ASSESSMENT YEAR: 2003-2004) DEPUTY COMMISSIONER OF INCOME TAX APPELLANT CIRCLE 3(3) MUMBAI VS M/S VIDEOCON INTERNATIONAL LTD. MUMBAI RESPONDE NT (PAN: AAACV2300H) APPELLANT BY: SHRI A P SINGH RESPONDENT BY: SHRI SUNIL NAHTA O R D E R R V EASWAR SENIOR VICE PRESIDENT: THIS APPEAL BY THE REVENUE RELATES TO THE ASSESSME NT YEAR 2003-04 AND ARISES OUT OF THE ASSESSMENT FRAMED ON THE ASSESSEE UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 B Y ORDER DATED 30 TH MARCH 2006. THE ASSESSEE IS A PUBLIC LIMITED COMPA NY ENGAGED IN THE MANUFACTURE OF ELECTRONIC GADGETS TRADING AS A LSO IN MAKING INVESTMENTS AND IN LEASING AND FINANCE BUSINESS. 2. THE FIRST GROUND TAKEN BY THE DEPARTMENT IS THAT THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.56 52 163/ - BEING CREDIT BALANCE IN PLA ACCOUNT MAINTAINED WITH THE CENTRAL EXCISE DEPARTMENT. THIS ISSUE IS DISCUSSED IN PARAGRAPH 5 OF THE ASSESSMENT ORDER AND THE BRIEF FACTS MAY BE NOTED. THE ASSESS EE IS LIABLE TO PAY CENTRAL EXCISE DUTY TO CLEAR THE GOODS FROM ITS FAC TORY. IT HAS THE OPTION TO TAKE CREDIT FOR MODVAT ELEMENT OF EXCISE DUTY SINCE IT HAD PAID EXCISE DUTY AT THE TIME OF PURCHASE OF THE RAW MATERIAL. IN THE 2 ALTERNATIVE THE ASSESSEE COULD PAY THE EXCISE DUTY THROUGH THE PERSONAL LEDGER ACCOUNT (PLA) MAINTAINED WITH THE D EPARTMENT OF CENTRAL EXCISE. THE ASSESSEE COULD DEPOSIT CASH IN THE SAID ACCOUNT AS AND WHEN REQUIRED. ON 31.03.2003 THERE WAS A C REDIT BALANCE OF RS.4 37 32 899/- IN THE ACCOUNT IN FAVOUR OF THE AS SESSEE. THIS WAS SHOWN AS LOANS AND ADVANCES IN THE BALANCE SHEET OF THE ASSESSEE AS ON 31.03.2003. THE ASSESSEE CLAIMED THE PAYMENT AS A DEDUCTION UNDER SECTION 43B PLACING RELIANCE ON THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF LAKHANPAL NATIONAL LTD. V S. ITO (1986) 162 ITR 240 (GUJ). THE CLAIM WAS EXPLAINED IN NOTE NO. 3 APPENDED TO THE COMPUTATION OF THE TAXABLE INCOME. THE ASSESSEE AL SO PLACED RELIANCE ON THE FOLLOWING JUDGMENTS BEFORE THE ASSESSING OFF ICER: - (1) BERGER PAINTS INDIA LTD. VS. CIT (2004) 266 ITR 99 (SC) (2) CIT VS. BHARAT PETROLEUM CORPORATION LTD. (2001 ) 252 ITR 43 (BOM) (3) CIT VS. CADILA CHEMICALS (P) LTD. (1998) 230 IT R 885 (GUJ) THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CLAIM. HE WAS INCLINED TO HOLD THAT THE AMOUNTS DEPOSITED IN LUMP SUM INTO THE PLA ACCOUNT SHOULD BE TREATED AS EXCISE DUTY PAID IN AD VANCE WHICH CANNOT BE CONSIDERED AS EXCISE DUTY PAID ON THE GOO DS MANUFACTURED AND REMOVED FROM THE ASSESSEES FACTORY. HE ALSO C ONSIDERED THE PAYMENT AS AN ADVANCE PAYMENT AND NOT IN DISCHARGE OF A STATUTORY LIABILITY. IN THIS VIEW OF THE MATTER HE DISALLOWE D THE SUM OF RS.56 52 163/- PAID DURING THE YEAR. 3. ON APPEAL THE CIT(A) NOTED THAT THIS ISSUE HAD B EEN CONSIDERED IN DETAIL BY HIS PREDECESSOR IN THE APPEALS FOR THE ASSESSMENT YEARS 1999-2000 2001-02 AND 2002-03. HE ALSO NOTED THAT ACCORDING TO THE 3 ASSESSEE THE ISSUE WAS COVERED IN ITS FAVOUR BY THE ORDERS OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 1995-96 AND 1996- 97 IN ITA NOS 2201/MUM/1999 AND 3449/MUM/2000. THE ASSESSEE HAD ALSO RELIED UPON THE ORDERS OF THE TRIBUNAL IN THE CASE OF ITS SISTER CONCERN NAMELY VIDEOCON APPLIANCES LTD. THE CIT(A) SAW NO REASON NOT TO FOLLOW THE AFORESAID ORDERS OF HIS PREDECESSOR AS WELL AS OF THE TRIBUNAL. HE ALSO NOTED THAT THE AMOUNT CLAIMED AS A DEDUCTION U NDER SECTION 43B ON PAYMENT BASIS WAS DISALLOWED BY THE ASSESSEE ITS ELF IN THE SUBSEQUENT YEAR IN WHICH IT WAS DEBITED TO THE PROF IT AND LOSS ACCOUNT. HE WAS THUS SATISFIED THAT THERE WAS NO D OUBLE CLAIM OR ERRONEOUS CLAIM. SINCE THE FACTS WERE IDENTICAL TO THOSE IN THE PRECEDING YEARS HE DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF RS.56 52 163/-. 4. THE REVENUE IS IN APPEAL. WE HAVE HEARD THE RIV AL CONTENTIONS AND WE FIND THAT THE ISSUE NOW STANDS COVERED IN FA VOUR OF THE ASSESSEE BY THE ORDER OF THE SPECIAL BENCH OF THE T RIBUNAL IN THE CASE OF DCIT VS. GLAXO SMITHKLINE CONSUMER HEALTHCARE LT D. (2007) 107 ITD 343 (CHD) (SB). IT IS ALSO SEEN THAT THE ASSES SEES CLAIM HAS BEEN CONSISTENTLY ALLOWED RIGHT FROM THE ASSESSMENT YEAR S 1994-95 AND COPIES OF THE EARLIER ORDERS OF THE TRIBUNAL ON THI S ISSUE HAVE BEEN FILED BEFORE US. IT IS ALSO COMMON GROUND THAT THE FACTS RELATING TO THE CLAIM ARE THE SAME AS IN THE EARLIER YEARS. THEREFORE R ESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL IN THE ASSESSEES OWN CA SE FOR THE EARLIER YEARS CITED SUPRA AS ALSO THE ORDER OF THE SPECIAL BENCH OF THE 4 TRIBUNAL CITED SUPRA WE CONFIRM THE DECISION OF TH E CIT(A) AND DISMISS THE FIRST GROUND. 5. THE SECOND GROUND IS THAT THE CIT(A) ERRED IN DE LETING THE DISALLOWANCE OF RS.3 06 241/- BEING INTEREST PAID O N ACCOUNT OF DELAYED PAYMENT OF WEALTH TAX. AT THE TIME OF THE HEARING IT WAS SUBMITTED BEFORE US ON BEHALF OF THE DEPARTMENT THA T AFTER THE INSERTION OF SUB-CLAUSE (IIA) OF CLAUSE (A) OF SECTION 40 BY THE INCOME TAX (AMENDMENT) ACT 1972 WITH RETROSPECTIVE EFFECT FR OM 01.04.1962 WEALTH TAX PAID BY AN ASSESSEE WAS NOT ALLOWABLE AS A DEDUCTION AND IT FOLLOWS THAT INTEREST PAID ON DELAYED PAYMENT OF WEALTH TAX CANNOT ALSO BE ALLOWED. WE AGREE WITH THE SUBMISSION OF T HE DEPARTMENT THAT UNDER THE ABOVE PROVISION INTEREST PAID ON DELAYED PAYMENT OF WEALTH TAX CANNOT BE ALLOWED AS A DEDUCTION IN COMPUTING T HE BUSINESS PROFITS OF THE ASSESSEE. ACCORDINGLY WE REVERSE THE DECISI ON OF THE CIT(A) ON THIS POINT AND RESTORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE GROUND IS ALLOWED. 6. THE THIRD GROUND IS THAT THE CIT(A) ERRED IN DEL ETING THE DISALLOWANCE OF RS.6 60 67 488/- BEING BAD DEBTS WR ITTEN OFF AND CLAIMED AS A DEDUCTION UNDER SECTION 36(1)(VII) REA D WITH SECTION 36(2) OF THE ACT. AT THE TIME OF THE HEARING IT WAS POIN TED OUT ON BEHALF OF THE ASSESSEE THAT THE CORRECT AMOUNT IS RS.5 49 67 488/ -. THE BRIEF FACTS IN THIS CONNECTION MAY BE NOTICED. THEY ARE RECORD ED IN PARAGRAPH 8 OF THE ASSESSMENT ORDER. THE AMOUNT WRITTEN OFF BY THE ASSESSEE AS BAD DEBTS WAS RS.52 61 82 727/- WHICH INCLUDED A SU M OF RS.6 60 67 488/-. THIS AMOUNT WAS DUE FROM 70 PART IES AND THE 5 BREAKUP IS GIVEN IN THE ASSESSMENT ORDER. IN THE C OURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO JU STIFY THE CLAIM IN RESPONSE TO WHICH THE ASSESSEE STATED THAT THE A MOUNT WRITTEN OF WAS CONSIDERED IN THE BOOKS OF THE FINANCE BUSINESS IN THE EARLIER YEARS AND WERE WRITTEN OFF IN THE YEAR UNDER APPEAL AS THE SAME HAD BECOME IRRECOVERABLE. IT WAS POINTED OUT THAT THE ASSESSEE PUT IN ITS BEST EFFORTS BUT SOME OF THE PARTIES COULD NOT BE T RACED AND SOME COMPANIES WERE DECLARED AS SICK UNDER BIFR DIMINIS HING THE CHANCES OF RECOVERY. IT WAS ALSO SUBMITTED THAT IF THE AMO UNTS WRITTEN OFF ARE RECOVERED IN FUTURE THEY WILL BE OFFERED TO TAX AS INCOME. SEVERAL DECISIONS WERE ALSO RELIED UPON BY THE ASSESSEE. T HE ASSESSING OFFICER REJECTED THE ASSESSEES CLAIM BASICALLY ON THE GROUND THAT THE DETAILS AND EVIDENCE JUSTIFYING THE WRITING OFF WER E NOT FURNISHED. HE ACKNOWLEDGED THAT THE ASSESSEE HAD GIVEN A LIST OF DEBTS WRITTEN OFF AS BAD BUT OBSERVED THAT THE ASSESSEE DID NOT STATE I N WHICH YEAR THE DEBT HAD BEEN TAKEN INTO ACCOUNT AS THE ASSESSEES INCOME. THE ASSESSING OFFICER ALSO POINTED OUT CERTAIN AMOUNTS WHICH DID NOT APPEAR TO BE DEBTS RELATING TO FINANCE BUSINESS. H E ALSO OBSERVED THAT DETAILS OF THE INCOME TAX FILE NUMBERS AND ADDRESSE S OF SOME OF THE PARTIES WERE NOT GIVEN. PLACING THE ONUS TO PROVE THE CLAIM FOR DEDUCTION ON THE ASSESSEE THE ASSESSING OFFICER OB SERVED THAT IT WAS NOT DISCHARGED AND PROCEEDED TO DISALLOW THE CLAIM OF RS.6 60 67 488/-. 7. ON APPEAL THE ASSESSEE FILED A PAPER BOOK BEFORE THE CIT(A) CONTAINING CERTAIN DOCUMENTS WHICH CONSTITUTED ADDI TIONAL EVIDENCE 6 AND MADE A PRAYER UNDER RULE 46A OF THE INCOME TAX RULES THAT THEY SHOULD BE ADMITTED AND ADJUDICATED UPON. THE CIT(A ) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER WHO SENT THE SAME ON 08.03.2007. IN THIS REPORT HE OBJECTED TO THE ADDI TIONAL EVIDENCE ON THE GROUND THAT AMPLE OPPORTUNITY HAD BEEN GIVEN TO THE ASSESSEE TO SUPPORT ITS CLAIM DURING THE ASSESSMENT PROCEEDINGS . HE REITERATED THAT THE ASSESSEE COULD NOT ADDUCE EVIDENCE TO PROV E THE GENUINENESS OF THE DEBTS AND THE PERIOD IN WHICH TH EY WERE ACCOUNTED AS INCOME. WHEN THIS REMAND REPORT WAS FORWARDED T O THE ASSESSEE FOR ITS COMMENTS THE ASSESSEE SUBMITTED THAT DEBTS AMOUNTING TO RS.3 08 14 308/- AND RS.43 87 835/- REPRESENTED DUE S FROM VARIOUS CUSTOMERS / DEALERS AT VARIOUS BRANCHES OF THE COMP ANY ALL OVER INDIA IN RESPECT OF SALES MADE TO THEM IN THE EARLIER YEA RS (BEFORE 31.03.1997). IT WAS ALSO SUBMITTED THAT SINCE THE BALANCES WERE SMALL IT WAS NOT PRACTICABLE TO GIVE LEDGER COPIES OF SO MANY PARTIES FOR VARIOUS YEARS. THE CIT(A) DIRECTED THE ASSESSEE TO FURNISH THE DETAILS OF THE YEAR IN WHICH THE DEBT HAD BEEN TAKEN INTO A CCOUNT AS INCOME AND IN RESPONSE TO THE DIRECTION THE ASSESSEE BY LE TTER DATED 26.03.2007 FURNISHED THE DETAILS SHOWING THE FINANC IAL YEAR IN WHICH THE RELATED DEBT WAS TAKEN INTO ACCOUNT AS INCOME. ACCORDING TO THE CIT(A) THIS LIST RAN INTO VARIOUS PAGES AND COMPRIS ES OF MORE THAN 1500 ACCOUNTS. 8. THE CIT(A) NOTED THAT THE SUBMISSIONS AND EVIDEN CE ADDUCED BY THE ASSESSEE BEFORE HIM SUPPORTED THE CLAIM AND THE FACTS ALREADY ON RECORD ON THE BASIS OF WHICH THE ASSESSING OFFI CER OUGHT TO HAVE 7 MADE FURTHER ENQUIRY. HE FURTHER HELD THAT THE ASS ESSING OFFICER ALSO HAS NOT DOUBTED THE GENUINENESS OF THE DOCUMENTS FI LED BEFORE THE CIT(A). HE THEREFORE HELD THAT THE PRINCIPLES OF E QUITY AND NATURAL JUSTICE JUSTIFY THE ADMISSION OF THE ADDITIONAL EVI DENCE SO THAT THERE WAS PROPER ADJUDICATION OF THE GROUNDS. 9. AS REGARDS THE AMOUNTS OF RS.3 08 14 308/- AND R S.43 87 835/- THE CIT(A) RECORDED THE FOLLOWING FINDINGS: - (A) ALL THE SUMS WERE OUTSTANDING FOR A LONG PERIOD AT THE POINT WHEN THEY WERE WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. (B) THE ASSESSEE AS A PRUDENT BUSINESSMAN AND AFTE R TAKING SUFFICIENT EFFORTS TO RECOVER THE AMOUNT IF HE WRITES OFF THE DEBT IN HIS ACCOUNTS HIS DECISION CANNOT B E SCRUTINIZED IN TERMS OF THE AMENDED SECTION 36(1)(V II). (C) THE ASSESSEE HAS FURNISHED THE DETAILS OF THE F INANCIAL YEAR IN WHICH THE DEBTS HAD BEEN TAKEN INTO ACCOUNT IN COMPUTING ITS INCOME VIDE LETTER DATED 26.03.2007. THESE DETAILS COULD NOT BE FURNISHED BEFORE THE ASSESSING OFFICER. HOWEVER THESE DETAILS WERE FURNISHED BY THE ASSESSEE ON BEING SPECIFICALLY ASK ED FOR IN THE COURSE OF THE APPELLATE PROCEEDINGS WHICH I S QUITE IN ACCORDANCE WITH THE JUDGMENT OF THE HONBLE BOMB AY HIGH COURT IN SMT PRABHAVATI S SHAH VS. CIT 231 IT R 1 (BOM). 8 (D) IT IS NOT NECESSARY FOR THE ASSESSEE AFTER THE AMENDMENT OF THE SECTION WITH EFFECT FROM 01.04.1989 TO ESTA BLISH THAT THE DEBT HAS BECOME BAD IN THE RELEVANT ACCOUN TING YEAR AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL MUMBAI IN THE CASE OF OMAN INTERNATIONAL BANK (100 ITD 285). SIMILAR DECISIONS HAVE BEEN RENDERED BY THE MADRAS HIGH COURT IN CIT VS. MICROMAX SYSTEMS PVT. LTD. 277 ITR 409 AND SOUTH INDIA SURGICAL COMPANY LTD. VS. ACIT 153 TAXMAN 491 AND BY THE DELHI HIGH COUR T IN CIT VS. GLOBAL CAPITAL LTD. (CITATION NOT GIVEN) . FOR THE ABOVE REASONS THE CIT(A) DIRECTED THE ASSES SING OFFICER TO ALLOW THE DEDUCTION OF THE TWO AMOUNTS OF RS.3 08 1 4 308/- AND RS.43 87 835/-. 10. AS REGARDS THE LOANS AND ADVANCES OF RS.1 63 68 530/- THE CIT(A) FOUND THE CONTENTION OF THE ASSESSEE THAT IT WAS CARRYING ON THE BUSINESS OF ADVANCING LOANS AND HAS BEEN OFFERING T HE INTEREST INCOME ON THE LOANS AS BUSINESS INCOME TO BE CORRECT. HE FURTHER FOUND THAT THE AFORESAID AMOUNT REPRESENTED MONEY LENT TO VARI OUS PARTIES IN THE ORDINARY COURSE OF THE BUSINESS OF ADVANCING THE LO ANS. SINCE THE EFFORTS OF THE ASSESSEE TO RECOVER THE ADVANCES WHI CH WERE OUTSTANDING FOR A LONG PERIOD HAD FAILED THE ASSES SEE WAS FOUND TO HAVE ACTUALLY WRITTEN OFF THE DEBTS DURING THE YEAR AS BAD AND IRRECOVERABLE. IN VIEW OF THESE FINDINGS HE DIRECT ED THE ASSESSING OFFICER TO ALLOW DEDUCTION OF RS.1 63 68 530/-. 9 11. AS REGARDS THE ADVANCES AMOUNTING TO RS.33 51 8 15/- TO EMPLOYEES AND STAFF WHICH WERE ALSO WRITTEN OFF AN D CLAIMED AS DEDUCTION THE CIT(A) AGREED WITH THE CONTENTION OF THE ASSESSEE THAT THESE AMOUNTS HAD ACCUMULATED OVER THE YEARS AND TH E EMPLOYEES HAD LEFT SERVICE RESULTING IN THE EFFORTS TO RECOVE R THE ADVANCES HAVING FAILED. ACCORDING TO THE CIT(A) SINCE THE AMOUNTS WERE GIVEN IN THE COURSE OF THE BUSINESS OF THE ASSESSEE THE WRITE O FF WAS ALLOWABLE AS BUSINESS LOSS UNDER SECTION 28 AND SECTION 37(1) OF THE ACT. ACCORDINGLY HE DIRECTED THE ASSESSING OFFICER TO AL LOW THE SAME. 12. THE REVENUE IS IN APPEAL BEFORE US. WE HAVE CO NSIDERED THE FACTS AND THE RIVAL ARGUMENTS. THE AGGREGATE AMOUN T ALLOWED BY THE CIT(A) AS A DEDUCTION IS RS.5 49 67 488/- AND IT CO NSISTS OF THE FOLLOWING: - (1) SUNDRY CUSTOMERS BALANCES PRIOR TO 31.03.1997 RS.3 08 14 308/- (2) REFUND SUSPENSE RS. 43 87 835/- (3) MONIES LENT IN FINANCING BUSINESS RS.1 63 68 530/- (4) ADVANCES TO EMPLOYEES / STAFF AND OTHERS RS. 33 51 815/- WE MAY STRAIGHT AWAY SAY THAT THE ASSESSING OFFICER DID NOT DISPUTE THE ASSESSEES CLAIM THAT THE DEBTS WERE WRITTEN OF F IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE THUS FULFILLING ONE OF THE MAIN CONDITIONS FOR ALLOWANCE AS BAD DEBTS. THE ASSESSE E HAS STATED IN ITS LETTER DATED 24.03.2006 BEFORE THE ASSESSING OFFICE R THAT THE DEBTS WERE WRITTEN OFF THIS YEAR SINCE THEY BECAME IRRECO VERABLE. THIS STATEMENT WAS NEVER REALLY CALLED IN QUESTION BY TH E ASSESSING OFFICER WHOSE OBJECTION WAS THAT THE ASSESSEE COULD NOT FUR NISH DETAILS OR 10 ADDUCE EVIDENCE TO SHOW THAT THE DEBTS BECAME BAD I N THE RELEVANT ACCOUNTING YEAR AND FURTHER THAT THE ASSESSEE COULD NOT PROVE THAT THEY HAD BEEN TAKEN INTO ACCOUNT IN THE EARLIER YEA RS IN COMPUTING THE INCOME OF THE ASSESSEE. AS REGARDS THE FIRST OBJEC TION THAT THE ASSESSEE WAS NOT ABLE TO PROVE THAT THE DEBTS BECAM E BAD IN THE RELEVANT ACCOUNTING YEAR THE LAW IS NOW IN FAVOUR OF THE ASSESSEE IN THE FORM OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) VS. OMAN INTERNATIONAL BANK (2009) 313 ITR 128 (BOM). AFFIR MING THE ORDER OF THE SPECIAL BENCH MUMBAI TRIBUNAL IN DCIT VS. OMAN INTERNATIONAL BANK (SUPRA) THE HONBLE HIGH COURT HAS HELD THAT AFTER THE AMENDMENT MADE WITH EFFECT FROM 01.04.1989 IT IS N O LONGER THE BURDEN OF THE ASSESSEE TO PROVE THAT THE DEBT HAS B ECOME BAD IN THE YEAR OF ACCOUNT AND IT IS NOW OPEN TO THE ASSESSEE TO CLAIM DEDUCTION IN THE YEAR IN WHICH THE DEBT WAS WRITTEN OFF IN TH E BOOKS OF ACCOUNT AS IRRECOVERABLE. THE ASSESSING OFFICER CAN INTERFERE WITH THE DECISION OF THE ASSESSEE ONLY IF HE IS ABLE TO CONCLUSIVELY SHO W THAT THE DECISION TO WRITE OFF WAS NOT BONA FIDE. IT IS THE DUTY OF THE ASSESSEE ONLY TO SHOW THAT HE IS PRIMA FACIE SATISFIED BASED ON THE INFO RMATION AVAILABLE TO HIM THAT THE DEBT IS BAD AND THAT WOULD BE SUFFICIE NT REQUIREMENT OF THE AMENDED SECTION. IN THE LIGHT OF THE BINDING JUDGM ENT OF THE HONBLE JURISDICTIONAL HIGH COURT WE UPHOLD THE DECISION O F THE CIT(A) WHO FOLLOWING THE SPECIAL BENCH DECISION IN THE CASE OF OMAN INTERNATIONAL BANK (SUPRA) HELD THAT IT IS NOT THE REQUIREMENT OF THE AMENDED SECTION THAT THE ASSESSEE SHOULD ESTABLISH THAT THE DEBT BE CAME BAD IN THE 11 RELEVANT YEAR OF ACCOUNT AND IT IS SUFFICIENT COMPL IANCE WITH THE AMENDED LAW IF THE ASSESSEE PROVES THAT THE DEBT HA S BEEN ACTUALLY WRITTEN OFF IN HIS BOOKS. AS ALREADY STATED THERE IS NO DOUBT THAT THE ASSESSEE HAS WRITTEN OFF THE AMOUNT IN HIS BOOKS OF ACCOUNT FOR THE YEAR UNDER APPEAL. THEREFORE THE OBJECTION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS AND ESTABLISHED ITS CLAIM THAT THE DEBTS BECAME BAD DURING THE RELEVANT YEAR OF ACCOUNT CAN NO LONGER BE UPHELD. NO DOUBT THERE SHOULD BE PRIMA FACIE EVIDENCE TO SHOW THAT THE DECISION TO WRITE OFF THE DEBT AS BAD IS BONA FIDE. ON THIS ASPECT THE CIT(A) HAS FOUND THAT AL L THE SUMS MAKING UP THE AGGREGATE OF RS.3 08 14 308/- REMAINED OUTSTAND ING FOR A LONG PERIOD AND THAT THE ASSESSEE AS A PRUDENT BUSINESSM AN ARRIVED AT THE CONCLUSION THAT THEY WERE NOT RECOVERABLE. THERE I S NO ALLEGATION IN THE REMAND REPORT SUBMITTED BY THE ASSESSING OFFICE R TO THE CIT(A) THAT THE DECISION TAKEN BY THE ASSESSEE WAS NOT BON A FIDE. THE OTHER OBJECTION OF THE ASSESSING OFFICER TO THE EFFECT TH AT THE ASSESSEE DID NOT SHOW IN WHICH YEAR THE DEBTS HAD BEEN TAKEN INT O ACCOUNT AS THE INCOME OF THE ASSESSEE HAS BEEN MET BY THE ASSESSEE BY ADDUCING ADDITIONAL EVIDENCE BEFORE THE CIT(A). THE ASSESSE E HAD FURNISHED THE DETAILS OF THE FINANCIAL YEAR IN WHICH THE RELA TED DEBTS WERE TAKEN INTO ACCOUNT IN COMPUTING ITS INCOME BY LETTER DAT ED 26.03.2007 BEFORE THE CIT(A). THESE DETAILS WERE FILED ACCORDING TO THE CIT(A) VIDE PARAGRAPH 7.9 OF HIS ORDER ON BEING SPECIFICALLY A SKED FOR BY HIM IN THE COURSE OF THE APPEAL PROCEEDINGS. THE CIT(A) HAS T HE POWERS TO CARRY OUT HIS OWN ENQUIRY UNDER SECTION 250(4) OF THE ACT . THE ASSESSEE 12 FURNISHED THE DETAILS ONLY IN RESPONSE TO THE EXERC ISE OF SUCH POWER BY THE CIT(A). THE SECOND OBJECTION RAISED BY THE ASS ESSING OFFICER HAS ALSO BEEN MET BY THE ASSESSEE. THEREFORE AS REGAR DS THE SUNDRY CUSTOMERS BALANCES OF RS.3 08 14 308/- THE DECISIO N OF THE CIT(A) TO ALLOW THE SAME AS BAD DEBT CANNOT BE SAID TO BE INC ORRECT. WE UPHOLD THE SAME. 13. AS REGARDS THE CLAIM OF RS.43 87 835/- STATED TO BE REFUND SUSPENSE IT HAS BEEN CLARIFIED BY THE ASSESSEE BEF ORE THE CIT(A) VIDE PARAGRAPH 7.7 OF THE IMPUGNED ORDER THAT THE AMOUN T ALSO REPRESENTS DUE FROM VARIOUS SMALL PARTIES IN RESPECT OF SALE O F GOODS MADE TO THEM PRIOR TO 31.03.1997 WHICH COULD NOT BE RECOVER ED. IN FACT THE ASSESSEE HAS SUBMITTED THAT BOTH THE AMOUNTS OF RS. 3 08 14 308/- DESCRIBED AS SUNDRY CUSTOMERS AND RS.43 87 835/- DE SCRIBED AS REFUND SUSPENSE ARE OF THE SAME NATURE. THE CIT(A) HAS THEREFORE CONSIDERED BOTH THE AMOUNTS TOGETHER AND HAS RECORD ED COMMON FINDINGS IN RELATION TO THEM IN HIS ORDER. SINCE T HE AMOUNT OF RS.43 87 835/- IS ALSO SIMILAR IN NATURE TO THE AMO UNT OF RS.3 08 14 308/- WE UPHOLD HIS DECISION ALLOWING T HE DEDUCTION OF RS.43 87 835/-. 14. WE MAY ADD THAT AT THE TIME OF THE HEARING BEFO RE US THE LEARNED REPRESENTATIVE FOR THE ASSESSEE HAS DRAWN O UR ATTENTION TO PAGES 76 TO 94 OF THE PAPER BOOK CONTAINING DETAILS OF THE SALES MADE AT THE BRANCHES WITH NAMES OF THE DEALERS AND THE AMOUNTS DUE FROM THEM. HE HAS ALSO DRAWN OUR ATTENTION TO PAGES 95 TO 103 OF THE PAPER BOOK CONTAINING DETAILS FOR RS.43 87 835/- DESCRIBE D AS REFUND 13 SUSPENSE. THESE PAGES SHOW THE NAMES OF THE CUSTOM ERS THEMSELVES (AS CONTRASTED WITH THE NAMES OF THE AGENCIES) WHO DIRECTLY PURCHASED THE GOODS FROM THE ASSESSEE AND FROM WHOM THE AMOUN TS COULD NOT BE RECOVERED. IT HAS BEEN STATED BEFORE US THAT TH OUGH BOTH THE AMOUNTS OF RS.3 08 14 308/- AND RS.43 87 835/- REPR ESENT SALES A DISTINCTION HAS BEEN MAINTAINED BETWEEN THE TWO ON THE BASIS OF SALES TO THE AGENCIES AND SALES TO THE CUSTOMERS DIRECTLY . IN BOTH THE CASES THE AMOUNTS HAVE BEEN WRITTEN OFF IN THE ACCOUNTS O F THE ASSESSEE. 15. AS REGARDS THE AMOUNT OF RS.1 63 68 530/- THE FINDING OF THE CIT(A) AS ALREADY NOTICED IS THAT IT REPRESENTS M ONEY LENDING ADVANCES AND THEREFORE THEY ARE ALLOWABLE AS BAD DE BTS. HIS CONCLUSION IS IN CONFORMITY WITH SECTION 36(2)(I) O F THE ACT WHICH ALLOWS DEDUCTION FOR BAD DEBTS REPRESENTING MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE. THE ASSESSEE HAS DRAWN OUR ATTEN TION TO PAGE 63 OF THE PAPER BOOK WHICH IS A COPY OF THE REVISED COMP UTATION OF THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER APPEAL. THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2003 (PAGE 67) SHO WS OTHER INCOME OF RS.2 41 49 542/- FOR THE YEAR AND RS.1 71 95 709 /- FOR THE YEAR ENDED 31.03.2002. SCHEDULE 9 TO THE PROFIT AND LOS S ACCOUNT SHOWS THE BREAKUP OF THE OTHER INCOME. IT IS SEEN THAT T HE ASSESSEE IS IN RECEIPT OF INTEREST ON DEPOSITS AND INTEREST ON OTH ERS. THE INTEREST FROM OTHERS OBVIOUSLY REFERRING TO THE MONEY LENDING AD VANCES AMOUNTS TO RS.2 95 44 625/- FOR THE YEAR ENDED 31.03.2003 AND RS.43 31 762/- FOR THE EARLIER YEAR. THE NET INCOME UNDER THE HEAD O THER INCOME TAKEN 14 TO THE PROFIT AND LOSS ACCOUNT AFTER ADJUSTING THE LOSS FROM INVESTMENTS AND SECURITIES DIVISION IS RS.2 41 49 542/- FOR THE YEAR UNDER APPEAL AND RS.1 71 95 709/- FOR THE EARLIER Y EAR. COMING BACK TO THE REVISED COMPUTATION OF INCOME THE ASSESSEE HAS STARTED THE SAME FROM THE NET PROFIT AS PER ITS PROFIT AND LOSS ACCOUNT IN WHICH THE INTEREST FROM MONEY LENDING BUSINESS HAS BEEN CREDI TED. THE ONLY ITEM OF INTEREST THAT IS EXCLUDED FROM THE COMPUTAT ION IS THE INTEREST OF RS.5 81 953/- RECEIVED ON INCOME TAX REFUND. THE R ESULT IS THAT THE ENTIRE INTEREST INCOME CREDITED TO THE PROFIT AND L OSS ACCOUNT WHICH INCLUDES INTEREST ON MONEY LENDING ADVANCES BARRIN G THE EXCEPTION OF THE INTEREST RECEIVED ON INCOME TAX REFUND HAS BEE N SHOWN BY THE ASSESSEE AS ITS BUSINESS INCOME. THE INTEREST ON I NCOME TAX REFUND HAS BEEN TAKEN UNDER THE HEAD INCOME FROM OTHER SO URCES. THE ASSESSMENT ORDER FOR THE YEAR UNDER APPEAL ALSO REC OGNIZES THE FACT THAT THE ASSESSEE IS CARRYING ON FINANCE BUSINESS. THE FINDING OF THE CIT(A) IN PARAGRAPH 7.11 OF HIS ORDER IS ALSO TO TH E SAME EFFECT. ALL THESE FACTS DO SHOW THAT THE WRITE OFF OF THE MONEY LENDING ADVANCES OF RS.1 63 68 530/- WAS QUITE IN ORDER AND WAS ALLOWAB LE AS BAD DEBT UNDER SECTION 36(2)(I) READ WITH SECTION 36(1)(VII) OF THE ACT. ACCORDINGLY WE UPHOLD THE DECISION OF THE CIT(A). 16. THE LAST AMOUNT FOR CONSIDERATION IS THE ADVANC ES AGGREGATING TO RS.33 51 815/- MADE TO EMPLOYEES / STAFF. THIS HAS BEEN ALLOWED BY THE CIT(A) AS BUSINESS LOSS UNDER SECTION 28 AND SECTION 37(1) OF THE ACT. WE DO NOT SEE HOW THE AMOUNT CAN BE ALLOW ED UNDER SECTION 37(1) BECAUSE THAT SECTION SPEAKS OF EXPENDITURE IN CURRED BY THE 15 ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND A LOSS WRITTEN OFF BY THE ASSESSEE CANNOT BE CONSIDER ED TO BE EXPENDITURE. THERE IS A DISTINCTION BETWEEN A LOSS AND AN EXPENDITURE. WHEREAS AN EXPENDITURE IS INCURRED BY THE ASSESSEE AND THE AMOUNT IS VOLUNTARILY SPENT BY HIM A LOSS IS SOMETHING WH ICH FALLS ON HIM AB EXTRA AND OBSERVATIONS TO THIS EFFECT MAY BE FOUND IN T HE INCOME TAX LAW BY KANGA AND PALKHIVALA NINTH EDITION PAGE 669 VOLUME-I. THUS WE ARE UNABLE TO APPROVE OF THE DECISION OF THE CIT (A) IN SO FAR AS IT HOLDS THAT THE LOSS IS ALLOWABLE UNDER SECTION 37(1 ). HOWEVER WE AGREE WITH HIM THAT IT IS ALLOWABLE UNDER SECTION 2 8 OF THE ACT IN COMPUTING THE BUSINESS PROFITS INASMUCH AS THE ADVA NCES HAVE BEEN GIVEN BY THE ASSESSEE TO ITS STAFF AND EMPLOYEES IN THE COURSE OF THE BUSINESS. IT IS ALSO SEEN THAT THE EMPLOYEES HAVE LEFT SERVICE AND IT HAS BECOME ALMOST IMPOSSIBLE FOR THE ASSESSEE TO RE COVER THEM. THEY CANNOT BE ALLOWED AS BAD DEBTS AS RIGHTLY POIN TED OUT BY THE DEPARTMENT BECAUSE THE AMOUNTS HAVE NOT BEEN TAKEN INTO ACCOUNT AS INCOME OF THE ASSESSEE IN ANY OF THE EARLIER YEARS. THE OBJECTION OF THE DEPARTMENT HOWEVER WAS THAT THE ASSESSEE DID NOT CLAIM THE DEDUCTION BEFORE THE ASSESSING OFFICER AS BUSINESS LOSS BUT CLAIMED IT ONLY AS BAD DEBT. THE ASSESSEE MAY BE ILL ADVISED IN DOING SO BUT FOR THAT REASON ALONE THE DEDUCTION IF IT IS REFERABLE TO SOME OTHER PROVISION OF THE ACT CANNOT BE DENIED. IN OUR OPI NION THE CIT(A) DID NOT COMMIT ANY ERROR IN ALLOWING THE AMOUNT AS BUSI NESS LOSS UNDER SECTION 28 OF THE ACT. WE AFFIRM HIS DECISION. 17. GROUND NO.3 IS ACCORDINGLY DISMISSED. 16 18. GROUND NO.4 IS THAT THE CIT(A) ERRED IN DELETIN G THE DISALLOWANCE OF PROPORTIONATE INTEREST OF RS.6 27 7 8 813/- UNDER SECTION 36(1)(III) ON ADVANCES TO SUBSIDIARY COMPAN IES INTER CORPORATE DEPOSITS PURCHASE OF PROPERTIES AND OTHER ADVANCES . 19. WHILE COMPLETING THE ASSESSMENT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD GIVEN LOANS AND ADVANCES AMOU NTING TO RS.882 25 54 538/-. THE BREAKUP OF THE SAME IS AS FOLLOWS: - (1) INTER CORPORATE DEPOSITS/LOANS RS. 81 15 25 769/- (2) ADVANCE TO SUBSIDIARY COMPANY ...RS. 3 7 12 51 025/- (3) ADVANCE FOR PURCHASE OF PROPERTIES RS.114 52 75 601/- (4) ADVANCES RECOVERABLE IN CASH OR KINDRS.579 90 53 727/- THE ASSESSEE HAD DEBITED INTEREST OF RS.171 88 52 6 61/- TO THE PROFIT AND LOSS ACCOUNT ON A BORROWING OF RS.2298.00 CRORE S. THE ASSESSING OFFICER CALCULATED THE AVERAGE RATE OF IN TEREST AT 7.48%. HE ALSO EXAMINED THE BALANCE SHEET AS ON 31.032003 AND NOTICED THAT THE TOTAL FUNDS AVAILABLE TO THE ASSESSEE (OWN FUND S AND BORROWED FUNDS) AMOUNTED TO RS.4294.87 CRORES OUT OF WHICH OWN FUNDS AMOUNTED TO RS.1996.42 CRORES WHICH CAME TO 46.48% OF THE TOTAL AVAILABLE FUNDS. THE BALANCE OF 53.52% OF THE FUND S WERE TAKEN AS BORROWED FUNDS AND THE INTEREST PAID THEREON WAS PR OPOSED TO BE DISALLOWED. ACCORDING TO THE ASSESSING OFFICER 53 .52% OF THE INTEREST CLAIMED BY THE ASSESSEE WAS TO BE DISALLOWED. THE REASONS GIVEN BY HIM FOR DISALLOWANCE OF THE INTEREST WERE AS UNDER: - (A) THE PROVISIONS OF SECTION 36(1)(III) WHICH PERM IT ALLOWANCE OF INTEREST PAID ON CAPITAL BORROWED FOR THE PURPOSE OF THE BUSINESS HAVE NOT BEEN FULFILLED. 17 (B) THERE HAS BEEN DIVERSION OF THE BORROWED FUNDS FOR NON BUSINESS PURPOSES. (C) THE TOTAL FUNDS AVAILABLE TO THE ASSESSEE WERE A MIX OF ITS OWN FUNDS AND BORROWED FUNDS. THE INTER CORPOR ATE DEPOSITS AND ADVANCES COULD NOT HAVE COME OUT OF TH E ASSESSEES OWN FUNDS BUT WOULD HAVE COME OUT OF TH E MIXED FUNDS IN EQUAL RATIO. IN THIS VIEW OF THE MATTER HE CALLED UPON THE ASSE SSEE TO SUBMIT THE DETAILS OF THE SOURCES OF FUNDS FOR GIVING THE ADVA NCES AGGREGATING TO RS.882 25 54 538/-. 20. SO FAR AS THE ADVANCE FOR THE PURCHASE OF THE P ROPERTY IS CONCERNED IT WAS EXPLAINED BY THE ASSESSEE THAT IT WAS GIVEN TO A GROUP CONCERN NAMELY TROON PROPERTIES AND INVESTME NTS PVT. LTD. HEREINAFTER REFERRED TO AS TPI IN AUGUST 2002 AN D THAT SINCE THE PURCHASE OF THE PROPERTY DID NOT MATERIALIZE THE A MOUNT OF RECEIVED BACK IN THE FINANCIAL YEAR 2004-05. IN SUPPORT OF THE SUBMISSION THAT THE ADVANCE WAS GIVEN FOR THE PURCHASE OF A PROPERT Y AND WAS THUS A BUSINESS ADVANCE THE ASSESSEE FILED THE MEMORANDUM OF UNDERSTANDING DATED 01.08.2002 ENTERED INTO WITH TP I FROM WHICH THE ASSESSING OFFICER NOTICED THAT TPI WAS ONLY AN INTE RMEDIARY TO NEGOTIATE FOR THE PURCHASE OF THE PROPERTY AT ROYAL PALM ESTATE NEAR AAREY COLONY BORIVALI AND THAT THERE WAS NO MENTIO N ABOUT ANY ADVANCE TO BE GIVEN EXCEPT THAT TPI WAS ENTITLED TO RECEIVE THE AMOUNT EQUIVALENT TO 1% OF THE PURCHASE PRICE OF THE PROPE RTY AS SERVICE CHARGES ON SATISFACTORY CONCLUSION OF THE DEAL. TH E ASSESSING OFFICER 18 THUS CONCLUDED THAT TPI WAS NOT ENTITLED TO BE PAID ANY ADVANCE AND IF AT ALL THE TRANSACTION HAD MATERIALIZED IT WAS ONL Y THE SELLER OF THE PROPERTY NAMELY ROYAL PALM ESTATE WHICH WOULD BE ENTITLED TO BE PAID THE PURCHASE CONSIDERATION. THERE WAS APPAREN TLY NO REASON ACCORDING TO THE ASSESSING OFFICER AS TO WHY THE A MOUNT WAS ALLOWED TO REMAIN WITH TPI FOR A LONG TIME FOR ALMOST THRE E YEARS. THE ASSESSING OFFICER SURMISED THAT THE INTENTION OF TH E ASSESSEE WAS NOT TO PURCHASE THE PROPERTY BUT TO ENTER INTO A PAPER TRANSACTION WITH TPI MERELY TO SIPHON OFF THE FUNDS INTO TPI WITHOUT CHA RGING ANY INTEREST SO THAT THE ASSESSEE CAN CLAIM THAT THE ADVANCE WAS GI VEN FOR A BUSINESS PURPOSE AND THEREFORE THE ENTIRE INTEREST PAID BY I T SHOULD BE ALLOWED. THE ASSESSING OFFICER ALSO NOTICED THAT THE AGREEME NT WITH TPI HAD NOT BEEN SIGNED BY THE PARTIES AND ONLY THE WORD S D/- WAS MENTIONED THEREIN. IN THIS VIEW OF THE MATTER HE DISALLOWED RS.4 40 39 344/- OUT OF THE INTEREST PAID BY THE ASSESSEE ASSUMING THE RATE OF INTEREST AT 7.48% WHICH CAME TO RS.8 22 85 770/- ON THE ADVANCE OF RS.110 00 77 145/-. 53.52% OF RS.8 22 85 770/- CAM E TO RS.4 40 39 344/-. THIS AMOUNT WAS DISALLOWED. 21. AS REGARDS THE ADVANCES TO SUBSIDIARY COMPANIES OF THE ASSESSEE THE TOTAL OF SUCH ADVANCES CAME TO RS.37 12 51 025/- OUT OF WHICH THE MAJOR AMOUNT WAS GIVEN TO PARAMOUNT GL OBAL LTD. TO THE EXTENT OF RS.35 68 91 795/-. THE ASSESSEE WAS ASKE D TO FILE THE COPIES OF THE ACCOUNTS OF THE SUBSIDIARY COMPANIES AND ALSO TO EXPLAIN THE PURPOSE OF THE ADVANCES. THE ASSESSEE REPLIED STATING THAT THE COMPANIES WERE ITS FULLY OWNED SUBSIDIARY COMPANIES AND THE 19 ADVANCES ARE MADE TO THEM TO ENABLE TO DO OVERSEAS BUSINESS. THE ASSESSING OFFICER NOTED FROM THE COPIES OF THE ACCO UNT THAT THE TRANSACTIONS WERE PURELY FINANCIAL TRANSACTIONS AND PART OF THE ADVANCES GIVEN TO PARAMOUNT GLOBAL LTD. WERE RECEIV ED BACK IN THE FINANCIAL YEAR 2003-04 WITHOUT ANY INTEREST. EVEN WITH REGARD TO THE OTHER TWO COMPANIES NAMELY VIDEOCON CAYMAN LTD. AN D VIDEOCON INDUSTRIES FINANCE LTD. THE ADVANCES WERE GIVEN IN 1999 AND WERE CONTINUING WITHOUT ANY INTEREST BEING CHARGED. IN THE CASE OF VIDEOCON CAYMAN LTD. A SUM OF RS.1 25 91 800/- WAS GIVEN BY THE ASSESSEE ON 26.11.2002 IN THE NAME OF ADVICE FEES BUT THERE WAS NO EXPLANATION FROM THE ASSESSEE OR DOCUMENTARY EVIDENCE TO SHOW T HE NATURE OF THE SAME. ON THESE FACTS THE ASSESSING OFFICER TREATED THE ADVANCES TO THE SUBSIDIARY COMPANIES AS FOR NON BUSINESS PURPOS ES AND ON THE BASIS OF THE FORMULA WHICH HE HAD APPLIED IN THE CA SE OF ADVANCE TO TPI CALCULATED THE INTEREST TO BE DISALLOWED AT RS .1 48 62 278/-. 22. THE ASSESSING OFFICER THEN TOOK UP THE INTER CO RPORATE DEPOSITS/ LOANS FOR CONSIDERATION. HE FOUND THAT THE ASSESSE E HAD GIVEN RS.8 24 15 141/- AS INTER CORPORATE DEPOSITS TO VAR IOUS COMPANIES WITHOUT INTEREST. THE LIST IS GIVEN IN PARAGRAPH 1 2 OF THE ASSESSMENT ORDER AND HENCE NOT REPRODUCED HERE. WHEN ASKED TO EXPLAIN AS TO WHY NO INTEREST WAS CHARGED THE ASSESSEE SUBMITTED THAT IT HAS RECEIVED INTER CORPORATE DEPOSITS OF RS.7 93 52 994 /- ON WHICH NO INTEREST WAS PAYABLE. IT WAS FURTHER SUBMITTED THA T THE INTEREST ATTRIBUTABLE TO THE DIFFERENCE OF RS.30 62 147/- CA NNOT BE DISALLOWED SINCE IT CAME OUT OF THE PROFITS OF RS.69 29 36 309 /- EARNED DURING THE 20 YEAR AND FROM THE SHARE APPLICATION MONEY OF RS.400 .00 CRORES WHICH WAS AVAILABLE TO THE ASSESSEE WITHOUT ANY LIABILITY TO PAY INTEREST. THE ASSESSEE ALSO EXPLAINED THE QUERY RAISED BY THE ASS ESSING OFFICER REGARDING DIFFERENCE IN THE RATES OF INTEREST CHARG ED FROM SOME OF THE INTER CORPORATE LOANS / DEPOSITS. 23. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESS EES EXPLANATION. SO FAR AS THE AVAILABILITY OF THE PRO FITS FOR THE YEAR IS CONCERNED HE OPINED THAT THE PROFITS WERE NOT AVAI LABLE TO THE ASSESSEE TILL THE END OF THE FINANCIAL YEAR AND THE REFORE NO CREDIT CAN BE GIVEN FOR THE SAME. AS REGARDS THE CLAIM THAT T HE ASSESSEE RECEIVED INTEREST FREE DEPOSITS OF RS.7.93 CRORES HE OBSERVED THAT THIS WAS NOT RELEVANT DIRECTLY. AS REGARDS THE AVAILABI LITY OF THE SHARE APPLICATION MONEY HE HELD THAT CREDIT CAN BE GIVEN FOR THE SAME ONLY IF THE SHARE APPLICATION MONIES ACTUALLY CONSTITUTED T HE SOURCE FROM WHICH THE INTEREST FREE INTER CORPORATE DEPOSITS WE RE MADE. HE NOTICED THAT THE INTER CORPORATE DEPOSITS WERE COMING FROM EARLIER YEAR AND THEREFORE THEY COULD NOT HAVE BEEN GIVEN OUT OF THE SHARE APPLICATION MONIES RECEIVED BY THE ASSESSEE DURING THE YEAR UND ER APPEAL. AS REGARDS THE DIFFERENTIAL RATE OF INTEREST CHARGED B Y THE ASSESSEE DEPENDING UPON THE RECOVERY OF THE PRINCIPAL AMOUNT THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEES EXPLANA TION THAT THE INTEREST RATES WERE SCALED DOWN IN CASE OF DIFFICULTY IN REP AYMENT OF THE PRINCIPAL WAS NOT ACCEPTABLE TAKING THE VIEW THAT IN CASE THE PRINCIPAL WAS NOT RECOVERABLE THE ASSESSEE CAN WRITE OFF THE SAME AS CAPITAL LOSS. SINCE THE PRINCIPAL AMOUNT WAS NOT WRITTEN O FF THE ASSESSING 21 OFFICER FOUND IT DIFFICULT TO ACCEPT THE ASSESSEES CLAIM. IN THIS VIEW OF THE MATTER AND APPLYING THE SAME FORMULA INTEREST OF RS.32 99 322/- WAS DISALLOWED. 24. LASTLY COMING TO THE ADVANCES RECOVERABLE IN C ASH OR KIND THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD PAID SHARE APPLICATION MONIES AMOUNTING TO RS.18 13 80 000/- TO THE FOLLOW ING COMPANIES: - (1) DAISY FINVEST PVT. LTD. RS. 4 25 00 000/- (2) CREDENTIAL SECURITIES PVT. LTD. RS. 1 38 80 000/- (3) ELEGANT INVESTRADE PVT. LTD. RS. 2 50 00 00 0/- (4) VIDEOCON LEASING & INDUSTRIAL FINANCE LTD. RS.10 00 00 000/- THE ASSESSING OFFICER EXAMINED THE COPIES OF THE LE DGER ACCOUNTS OF THE ABOVE COMPANIES IN THE ASSESSEES BOOKS AND FOU ND THAT THE AMOUNTS WERE ADVANCED AS SHARE APPLICATION MONIES A ND WERE RECEIVED BACK DURING THE YEAR UNDER APPEAL ON VARIO US DATES. AFTER NOTICING THIS FACT HE PROCEEDED TO DISALLOW THE INT EREST PROPORTIONATE TO SUCH AMOUNTS WHICH CAME TO RS.5 77 869/-. 25. THUS THE ASSESSING OFFICER DISALLOWED INTEREST OF RS.6 27 78 813/- AS FOLLOWS: - (1) INTEREST APPLICABLE TO THE ADVANCE TO TPI FOR PURCHASE OF PROPERTY RS.4 40 39 344 /- (2) INTEREST APPLICABLE TO THE ADVANCES TO SUBSIDIARY COMPANIES RS.1 48 62 278/- (3) INTEREST APPLICABLE TO THE INTER CORPORATE DEPOSITS / LOANS RS. 32 99 322/ - (4) INTEREST APPLICABLE TO SHARE APPLICATION MONIES PAID BY THE ASSESSEE RS. 5 77 869/- --------------------- TOTAL RS.6 27 78 813/- --------------------- 22 26. BEFORE THE CIT(A) ELABORATE SUBMISSIONS WERE MA DE BY THE ASSESSEE WHICH WERE NOTED BY HIM IN PARAGRAPH 8 OF THE IMPUGNED ORDER. THE ASSESSEE ALSO ADDUCED ADDITIONAL EVIDEN CE BEFORE THE CIT(A) AND MADE AN APPLICATION TO HIM FOR ADMISSION OF THE SAME UNDER RULE 46A OF THE INCOME TAX RULES. THE ADDITI ONAL EVIDENCE AS WELL AS THE WRITTEN SUBMISSIONS WERE FORWARDED TO T HE ASSESSING OFFICER FOR HIS COMMENTS AND REMAND REPORT. THE AS SESSING OFFICERS REPORT DATED 08.03.2007 TOOK OBJECTION TO THE ADMIS SION OF THE ADDITIONAL EVIDENCE ON THE GROUND THAT AMPLE OPPORT UNITY HAD BEEN GIVEN TO THE ASSESSEE IN THE ASSESSMENT PROCEEDINGS DURING WHICH SUCH EVIDENCE OUGHT TO HAVE BEEN ADDUCED. THE ASSE SSING OFFICER ALSO OBJECTED ON THE GROUND THAT SEVERAL NEW CONTEN TIONS HAVE BEEN TAKEN BEFORE THE CIT(A) WHICH SHOULD NOT BE PERMITT ED. THE REMAND REPORT WAS SENT TO THE ASSESSEE FOR COMMENTS. THE ASSESSEE HAS MADE DETAILED SUBMISSIONS IN WRITING CONTESTING THE CONTENTS OF THE REMAND REPORT AND THIS IS REPRODUCED IN PAGES 20 TO 22 OF THE ORDER OF THE CIT(A). ON A CONSIDERATION OF ALL THE FACTS AN D THE RIVAL SUBMISSIONS THE CIT(A) RELYING ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN SMT PRABHAVATI S SHAH VS. CIT 231 ITR 1 (BOM) ADMITTED THE ADDITIONAL EVIDENCE FOR ADJUDIC ATION. ON MERITS THE CIT(A) HELD AS FOLLOWS: - (A) AS REGARDS THE ADVANCE TO TPI THE SAME IS SUPP ORTED BY A MEMORANDUM OF UNDERSTANDING. THE TRANSACTION FOR THE PURCHASE OF THE PROPERTY COULD NOT BE COMPLETED 23 SINCE THERE WERE DIFFICULTIES REGARDING EVICTION OF THE TENANTS AND OTHER PROBLEMS. THE GENUINENESS OF THE DOCUMENTS HAS NOT BEEN QUESTIONED BY THE ASSESSING OFFICER. THE AMOUNT WAS ADVANCED TO TPI FOR VACATI NG THE EXISTING TENANTS AND ENCROACHERS AND COMPLETING THE FINAL DEAL FOR ACQUIRING THE PROPERTY. TPI IS A S EPARATE COMPANY IN WHICH NONE OF THE DIRECTORS OR ASSOCIATE S OF VIDEOCON GROUP ARE DIRECTORS OR SHAREHOLDERS. THE PROPERTY WAS REQUIRED FOR THE SMOOTH AND EFFICIENT RUNNING OF THE EXISTING BUSINESS OF THE ASSESSEE. THE USE OF THE BORROWED FUNDS CANNOT THEREFORE BE HELD TO BE FOR NON BUSINESS PURPOSES. THEREFORE THE INTEREST OF RS.4 40 39 344/- IS ALLOWABLE UNDER SECTION 36(1)(I II). (B) AS REGARDS THE ADVANCE GIVEN TO THE SUBSIDIARY COMPANIES THE SALES INVOICES RAISED ON PARAMOUNT GLOBAL LTD. SHOWS THE EXISTENCE OF BUSINESS RELATIO NS BETWEEN IT AND THE ASSESSEE COMPANY. SIMILARLY TH E BALANCE IN THE ACCOUNT OF VIDEOCON INDUSTRIAL FINAN CE LTD. REPRESENTS NET AMOUNT RECEIVABLE IN RESPECT OF BUSINESS TRANSACTIONS AND IS SUPPORTED BY THE COPY OF THE LEDGER ACCOUNT. AS REGARDS THE ADVANCE TO VIDEOCON CAYMAN LTD. THE LETTER FROM ICICI BANK SHOWS THAT THE AMOUNT WAS ADVANCED TOWARDS MANAGEMENT FEES FOR RAISING OVERSEAS LOANS. IN THE CASE OF PARAMOUNT G LOBAL LTD. THE CIT(A) FURTHER NOTICED THAT THE ASSESSEE HAS 24 ACTUALLY CHARGED INTEREST OF RS.2 87 24 415/- AND T HUS THE ADVANCE WAS NOT INTEREST FREE. THE INTEREST PAYABL E TO THE ASSESSEE WAS SHOWN BY PARAMOUNT GLOBAL LTD. IN ITS BALANCE SHEET FOR THE FINANCIAL YEAR 2002-03. IN V IEW OF THESE FACTS THE INTEREST OF RS.1 48 62 278/- IS AL LOWABLE AS DEDUCTION. (C) AS REGARDS THE INTER CORPORATE DEPOSITS MADE BY THE ASSESSEE THEY WERE INITIALLY GIVEN AS PART OF THE FINANCING BUSINESS OF THE ASSESSEE BUT WHEN THEY BECAME NON PERFORMING ASSETS THE ASSESSEES BOARD OF DIRECTOR S DECIDED BY A RESOLUTION NOT TO CHARGE INTEREST SINC E THE PRINCIPAL ITSELF WAS DOUBTFUL OF RECOVERY. IN THIS SITUATION CHARGING OF INTEREST AND SHOWING THE SAME AS RECEIV ABLE WOULD HAVE GIVEN AN INFLATIONARY PICTURE OF THE FIN ANCIAL POSITION OF THE ASSESSEE WHICH WOULD BE CONTRARY T O THE ACCOUNTING STANDARDS AS-9 ON THE QUESTION OF RECOGNITION OF REVENUE. THEREFORE THE ASSESSEE WA S JUSTIFIED IN NOT CHARGING INTEREST ON NON PERFORMIN G ASSETS. THE INTEREST RECEIVED ON THE INTER CORPORA TE DEPOSITS IN THE INITIAL STAGES HAD BEEN TAXED AS BU SINESS INCOME WHICH SHOWS THAT THE ACTIVITY WAS IN THE OR DINARY COURSE OF THE BUSINESS OF FINANCING. THEREFORE TH E INTER CORPORATE DEPOSITS CANNOT BE SAID TO BE FOR NON BUS INESS PURPOSES. THEREFORE THE INTEREST OF RS.32 99 322/ - SHOULD BE ALLOWED. 25 (D) AS REGARDS THE ADVANCES MADE BY WAY OF SHARE APPLICATION MONIES THE INVESTMENT ACTIVITY WAS IN ACCORDANCE WITH THE OBJECTS STATED IN THE MEMORANDU M OF ASSOCIATION OF THE ASSESSEE COMPANY AND THEY WER E ALSO AUTHORIZED BY BOARD RESOLUTIONS PASSED ON 05.02.2003. MOREOVER THE ASSESSEES OWN FUNDS WER E ALSO AVAILABLE TO COVER THE SHARE APPLICATION MONIE S AND THEREFORE THE BORROWED FUNDS CANNOT BE PRESUMED TO HAVE BEEN UTILIZED FOR THE SAME. THERE WAS NO CONT RACT TO CHARGE INTEREST ON THE SHARE APPLICATION MONIES AND THEREFORE THE ASSESSEE WAS PREVENTED FROM CHARGING INTEREST. THEREFORE THE INTEREST OF RS.5 77 869/- IS ALSO TO BE ALLOWED AS A DEDUCTION UNDER SECTION 36(1)(II I) OF THE ACT. THUS THE CIT(A) DELETED THE DISALLOWANCE OF THE EN TIRE INTEREST OF RS.6 27 78 813/- AGAINST WHICH THE REVENUE IS IN AP PEAL. 27. THE CONTENTIONS OF THE LEARNED DEPARTMENTAL REP RESENTATIVE IN REGARD TO THIS ISSUE MAY BE SUMMARIZED AS UNDER: - (A) AS REGARDS THE ADVANCE GIVEN TO TPI WITHOUT INT EREST ALLEGEDLY FOR THE PURCHASE OF PROPERTY IN BORIVALI THERE IS NO APPARENT BUSINESS PURPOSE AND THE FINDING OF THE CIT(A) TO THE CONTRARY IS NOT JUSTIFIED ON FACTS. THE DOCUMENTS FILED BEFORE THE CIT(A) AS ADDITIONAL EVI DENCE TO ESTABLISH BUSINESS PURPOSE ARE SELF-SERVING DOCU MENTS AND NO CREDIBILITY CAN BE ATTACHED TO THEM. THE AD VANCE 26 OF RS.110.07 CRORES TO TPI IS MUCH MORE THAN THE SE RVICE CHARGES PAYABLE TO THAT COMPANY FOR FINALIZATION OF THE TRANSACTION WHICH THROWS CONSIDERABLE DOUBT ON THE CLAIM OF THE ASSESSEE THAT THE ADVANCE WAS FOR A BUSINESS PURPOSE. THE CIT(A) HAS NOT ENTERED ANY FINDING THAT THE ASSESSEE HAD SUFFICIENT FUNDS OF I TS OWN TO COVER THE ADVANCE. THE PROFITS OF THE YEAR AS S HOWN IN THE PROFIT AND LOSS ACCOUNT (PAGES 66 AND 67 OF THE PAPER BOOK) ARE INSUFFICIENT TO COVER THE INTEREST FREE ADVANCE. FURTHER IN THE REMAND REPORT DATED 08.03 .2007 SUBMITTED BY THE ASSESSING OFFICER BEFORE THE CIT(A ) (PAGES 46 TO 51 OF THE PAPER BOOK) HE HAS POINTED OUT THAT THE ASSESSEES CLAIM THAT THE ADVANCE WAS FOR A BUSINESS PURPOSE HAS NOT BEEN BORNE OUT BY THE FACT S. THE ASSESSING OFFICER HAS ALSO POINTED OUT THAT SIN CE THE FUNDS AVAILABLE TO THE ASSESSEE WERE MIXED FUNDS CONSTITUTED BY BOTH OWN FUNDS AND BORROWED FUNDS I T WAS FOR THE ASSESSEE TO POINT OUT THE SOURCE AND APPLIC ATION OF EACH BORROWING WHICH BURDEN HAS NOT BEEN DISCHARGED. THE POINTS MADE BY THE ASSESSING OFFIC ER IN THE REMAND REPORT HAVE NOT BEEN MET BY THE CIT(A). (B) AS REGARDS THE ADVANCES TO THE SUBSIDIARY COMPA NIES PARTICULARLY THE THREE GROUP CONCERNS STRONG RELIA NCE WAS PLACED ON THE FINDINGS OF THE ASSESSING OFFICER. I T WAS 27 FAIRLY STATED BY THE LEARNED DR THAT THE ASSESSEE D ID RECEIVE INTEREST FROM PARAMOUNT GLOBAL LTD. (C) AS REGARDS THE AMOUNTS ADVANCED BY WAY OF INTER CORPORATE DEPOSITS / LOANS IT IS STRANGE THAT THES E WERE GIVEN BY THE ASSESSEE WITHOUT INTEREST. THE ASSESS EE WAS ALSO UNABLE TO SHOW THE FLOW OF THE MONIES IN OTHER WORDS BY POINTING OUT THE SOURCE OF THE DEPOSITS / LOANS AND IN THIS SITUATION IT CANNOT BE BROADLY ARGUED AS WAS DONE BY THE ASSESSEE BEFORE THE CIT(A) THAT THE MI XED FUNDS THEORY SHOULD BE APPLIED IN ITS FAVOUR. IN PARAGRAPH 8.19 OF HIS ORDER THE CIT(A) HAS BROUGHT IN A NEW ANGLE WITHOUT EXAMINATION OF THE RELEVANT FACTS THE NEW ANGLE BEING THAT THE ASSESSEE WAS RECEIVING INT EREST ON THE INTER CORPORATE DEPOSITS AND HAD EVEN OFFERE D THE SAME FOR TAXATION AS BUSINESS INCOME WHICH HAS ALS O BEEN ASSESSED AS SUCH. THE CIT(A) HAS FURTHER OBSERVED WITHOUT ANY BASIS THAT THE DEPOSITS WERE MADE IN THE COURSE OF THE FINANCING BUSINESS OF THE ASSE SSEE. THIS ALSO HAS NO BASIS. IN ANY CASE IT REQUIRES FU RTHER EXAMINATION. (D) AS REGARDS THE ADVANCES RECOVERABLE IN CASH OR KIND THE CIT(A) IS NOT CORRECT IN LAW AND FACTS IN SAYING TH AT THE ADVANCEMENT OF SHARE APPLICATION MONIES AMOUNTED TO BUSINESS ADVANCE OVERLOOKING THE FACT THAT ADVANCI NG MONIES FOR ACQUIRING SHARES CAN ONLY BE AN INVESTME NT 28 AND NOTHING MORE. IN ANY CASE NO BUSINESS PURPOSE IS SOUGHT TO BE SERVED BY APPLYING FOR THE SHARES. THEREFORE THE INTEREST WAS RIGHTLY DISALLOWED PROPORTIONATE TO THE SHARE APPLICATION MONIES PAID BY THE ASSESSEE. 28. ON THE OTHER HAND THE CONTENTION ON BEHALF OF THE ASSESSEE BEFORE US WAS TWO FOLD: - (A) FIRSTLY THE INTEREST FREE ADVANCES WERE MADE BY THE ASSESSEE OUT OF OWN FUNDS AND NOT BORROWED FUNDS. (B) IN ANY CASE THE ADVANCES WERE MADE FOR THE PURP OSES OF THE BUSINESS AND THEREFORE THE INTEREST WAS ALLOW ABLE UNDER SECTION 36(1)(III) OF THE ACT. ELABORATING THE FIRST CONTENTION OUR ATTENTION WAS DRAWN TO PAGE 8 OF THE ASSESSMENT ORDER AND IT WAS SUBMITTED THAT EVEN ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAD OWN FUNDS TO THE EXTENT OF RS.1996.42 CRORES IN THE BEGINNING OF THE YEAR WHI CH WAS SUFFICIENT TO COVER ALL THE INTEREST FREE ADVANCES. OUR ATTENTIO N WAS ALSO DRAWN TO PAGE 66 OF THE PAPER BOOK WHICH IS THE BALANCE SHE ET AS ON 31.03.2003 AND IT WAS POINTED OUT THEREFROM THAT TH E SECURED LOANS TAKEN BY THE ASSESSEE SHOWED ONLY AN INCREASE OF AP PROXIMATELY RS.14.00 CRORES FROM RS.1739.17 CRORES AS ON 31.03. 2002 TO RS.1753.54 CRORES AS ON 31.03.2003 AND IF THAT IS S O THERE WAS NO WAY THAT ALL THE INTEREST FREE ADVANCES MADE BY THE ASSESSEE COULD HAVE COME FROM THE SAID AMOUNT OF RS.14.00 CRORES. IN THIS CONNECTION IT WAS POINTED OUT THAT THE TOTAL INTERE ST FREE ADVANCES 29 MADE BY THE ASSESSEE DURING THE YEAR AMOUNTED TO RS .114.00 CRORES (APPROXIMATELY) CONSISTING OF THE ADVANCE OF RS.11 0.07 CRORES TO TPI AND RS.3.69 CRORES TO ITS SUBSIDIARY COMPANIES. TH E INTER CORPORATE DEPOSITS HAVE COME FROM THE EARLIER YEAR AND WERE N OT MADE DURING THIS YEAR. IT IS THUS CLAIMED THAT THE INTEREST FR EE ADVANCES AMOUNTING TO RS.114.00 CRORES APPROXIMATELY COULD NOT HAVE CO ME ENTIRELY FROM INTEREST BEARING BORROWINGS MADE DURING THE YEAR W HICH AMOUNTED ONLY TO RS.14.00 CRORES. THE BALANCE MUST NECESSAR ILY HAVE COME ONLY FROM THE ASSESSEES OWN FUNDS. IN ELABORATION OF CONTENTION (B) NAMELY THAT THE ADVANCES WERE IN ANY CASE MADE FOR BUSINESS PURPOSE AND HENCE THE INTEREST PAID WAS ALLOWABLE A S A DEDUCTION ENTIRELY EVEN ASSUMING THAT THE ADVANCES CAME OUT OF BORROWED FUNDS THE ASSESSEE SUBMITTED THAT SO FAR AS THE AD VANCE MADE TO TPI IS CONCERNED THE LAND FOR THE PURCHASE OF WHICH TH E ADVANCE WAS MADE WAS OWNED NOT BY TPI BUT BY ANOTHER COMPANY BY NAME WONDERLAND ESTATE DEVELOPERS PVT. LTD. WHICH WAS N OT RELATED TO THE ASSESSEE COMPANY AT ALL. EVEN TPI HAS BEEN FOUND N OT RELATED TO THE ASSESSEE COMPANY BY ANY MEANS (PARAGRAPH 8.15 OF TH E IMPUGNED ORDER). IT IS SUBMITTED THAT THE TRANSACTION IS AN ARMS LENGTH TRANSACTION AND THE ADVANCE WAS GIVEN TO TPI FOR TH E PURPOSE OF THE ASSESSEES BUSINESS NAMELY FOR ACQUIRING LAND FOR ITS BUSINESS. OUR ATTENTION WAS DRAWN TO THE DOCUMENTATION CONNECTED WITH THE TRANSACTION AND IT WAS POINTED OUT THAT THESE ARE G OVERNMENT DOCUMENTS THE GENUINENESS OF WHICH CANNOT BE DOUBT ED. AS REGARDS THE ADVANCES MADE AS INTER CORPORATE LOANS / DEPOSI TS THE ASSESSEE 30 HAD ORIGINALLY CHARGED INTEREST BUT ONCE IT WAS FOU ND THAT THE DEPOSITS WERE NON PERFORMING ASSETS THE ASSESSEE STOPPED CH ARGING INTEREST TAKING A REALISTIC VIEW OF THE MATTER. SO FAR AS T HE ADVANCES MADE TO THE SUBSIDIARIES ARE CONCERNED IT WAS SUBMITTED TH AT THEY WERE MADE FOR BUSINESS PURPOSES AND AS HELD BY THE SUPREME CO URT IN THE CASE OF S A BUILDERS LTD. VS. CIT (2007) 288 ITR 1 (SC) AND BY THE DELHI HIGH COURT IN CIT VS. DALMIA CEMENT BHARAT LTD. (20 09) 183 TAXMAN 422 ANY INTEREST PAID FOR AMOUNTS BORROWED AND UTI LIZED FOR THE PURPOSE OF THE BUSINESS IS ELIGIBLE FOR DEDUCTION U NDER SECTION 36(1)(III) OF THE ACT. 29. IN HIS BRIEF REPLY THE LEARNED DR SUBMITTED THA T THERE WAS NO EVIDENCE TO SUPPORT THE CLAIM OF THE ASSESSEE THAT THE ADVANCE WAS GIVEN TO TPI FOR GETTING THE SQUATTERS ON THE LAND EVICTED. HE FURTHER POINTED OUT THAT THE ASSESSEE HAS NOT SUBMITTED ANY CASH FLOW STATEMENT MATCHING THE INFLOW AND OUTFLOW OF FUNDS IN ORDER TO SUPPORT ITS CLAIM THAT THE ADVANCES CAME ONLY OUT OF OWN FU NDS. 30. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVA L CONTENTIONS. WE TAKE UP FIRST THE INTEREST REFERAB LE TO THE AMOUNT ADVANCED TO TPI ALLEGEDLY FOR THE PURCHASE OF LAND NEAR AAREY COLONY BORIVALI. THE ASSESSEE HAS FILED A COPY OF THE RES OLUTION OF ITS BOARD OF DIRECTORS PASSED ON 27.07.2002 AND THE SAME IS A T PAGE 104 OF THE PAPER BOOK. THE RESOLUTION SAYS THAT THE COMPANY M AY ENTER INTO A MEMORANDUM OF UNDERSTANDING WITH TPI WHO HAVE AGREE D TO RENDER THEIR SERVICES FOR THE PURPOSE OF NEGOTIATING THE P URCHASE OF THE PROPERTY AFTER VACATING THE PRESENT TENANTS OCCUPYI NG THE SAME ON 31 PAYMENT OF SERVICE CHARGES AT 1% OF THE VALUE OF PR OPERTY. IT WAS FURTHER RESOLVED THAT TPI MAY BE PAID AN ADVANCE OF RS.115.00 CRORES FOR THE PURPOSE OF NEGOTIATING AND VACATING THE EXI STING TENANTS OCCUPYING THE PROPERTY WHICH WAS PROPOSED TO BE PUR CHASED BY THE ASSESSEE. THE RESOLUTION WENT ON TO SAY THAT IN CA SE TPI IS UNABLE TO VACATE THE TENANTS OR THAT THE TRANSACTION WITH THE OWNER OF THE PROPERTY DOES NOT MATERIALIZE FOR ANY REASON THE E NTIRE ADVANCE SHALL BE RETURNED BY TPI TO THE ASSESSEE AND IN THAT CASE NO SERVICE CHARGES WILL BE PAID TO TPI. THE ASSESSEE HAS ALSO FILED COPIES OF THE MEMORANDUM OF UNDERSTANDING DATED 01.08.2002 WITH T PI COPIES OF THE CORRESPONDENCE BETWEEN TPI AND WONDERLAND ESTAT E DEVELOPERS PVT. LTD. AND SOME CORRESPONDENCE BETWEEN BMRDA AND WONDERLAND ESTATE DEVELOPERS PVT. LTD. A PERUSAL OF THE MEMOR ANDUM OF UNDERSTANDING SHOWS THAT THE ASSESSEE WAS PREPARED TO PAY RS.150.00 CRORES FOR THE PROPERTY. IF THAT IS SO THE SERVICE CHARGES PAYABLE TO TPI CAN BE A MAXIMUM OF RS.1.5 CRORES ON LY. IT IS NOT CLEAR FROM THE PAPERS FILED IN THE PAPER BOOK AS TO WHY T HE ASSESSEE REQUIRED THE LAND AND AS TO WHY TPI SHOULD BE GIVEN AN ADVANCE OF RS.115.00 CRORES WHICH IS MANY TIMES MORE THAN THE SERVICE CHARGES PAYABLE TO IT ON FINALIZATION OF THE DEAL. IT IS C OMMON GROUND THAT TPI IS NOT THE OWNER OF THE PROPERTY AND IT IS UNUSUAL THA T DESPITE THAT THE ASSESSEE WAS PREPARED TO GIVE AN ADVANCE OF RS.115. 00 CRORES TO IT AND ACTUALLY ADVANCED RS.110.07 CRORES. WE HAVE AL SO GONE THROUGH THE CORRESPONDENCE BETWEEN TPI AND WONDERLAND ESTAT E DEVELOPERS PVT. LTD. KEPT AT PAGES 107 TO 109 OF THE PAPER BOO K. THE LETTER DATED 32 12.03.2002 WRITTEN BY TPI TO WONDERLAND ESTATE DEVE LOPERS PVT. LTD. THE OWNERS OF THE PROPERTY IS QUITE BALD AND CRYPT IC FOR A TRANSACTION WHICH APPARENTLY IS WORTH SEVERAL CRORES OF RUPEES. EVEN THE LETTER DATED 03.03.2002 WRITTEN BY WONDERLAND ESTATE DEVEL OPERS PVT. LTD. TO TPI IS JUST A THREE LINE LETTER ASKING TPI TO FI ND SUITABLE BUYERS FOR THE PROPERTY. BY LETTER DATED 28.03.2002 WONDERLAND ES TATE DEVELOPERS PVT. LTD. INFORMED TPI THAT THEY HAD 15 BUNGALOW PL OTS FOR WHICH ALL APPROVALS ARE IN PLACE AND THE INTENDING PURCHASER CAN GO AHEAD WITH CONSTRUCTION ACTIVITY IMMEDIATELY. COPIES OF THE C ORRESPONDENCE BETWEEN BMRDA AND WONDERLAND ESTATE DEVELOPERS PVT. LTD. ARE ALSO AVAILABLE IN THE PAPER BOOK BUT THESE ARE NOT RELEVANT FOR THE PURPOSE OF FINDING OUT WHETHER THE ADVANCE GIVEN BY THE ASSESSEE TO TPI IS FOR THE PURPOSES OF ITS BUSINESS. THERE IS NO INDICATION IN THE ASSESSMENT ORDER THAT THE ASSESSEE WAS ENGAGED IN R EAL ESTATE BUSINESS OR AS BUILDERS OF PROPERTIES NOR WAS IT C LAIMED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THE ASSE SSEE PROPOSED TO COMMENCE ANY SUCH BUSINESS BY ACQUIRING THE LAND. EVEN BEFORE US THERE WAS NO ATTEMPT TO SHOW WITH REFERENCE TO THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY THAT IT WAS PAR T OF ITS BUSINESS TO DEAL IN REAL ESTATE OR AS BUILDERS. ON THE WHOLE IT IS NOT CLEAR AT ALL AS TO WHY THE ASSESSEE REQUIRED THE PROPERTY. WE HAVE ALSO PERUSED THE WRITTEN SUBMISSIONS DATED 21.02.2007 FILED BEFORE T HE CIT(A) [PAGES 1 TO 45 OF THE PAPER BOOK]. THE ASSESSEE HAS DEALT W ITH THIS ISSUE IN PARAGRAPH 6.6.1 OF THE WRITTEN SUBMISSIONS BUT DO N OT FIND ANYTHING THEREIN TO SHOW THAT THE PURCHASE OF LAND WAS FOR T HE PURPOSE OF THE 33 ASSESSEES BUSINESS. THE PURPOSE FOR WHICH THE LAN D WAS PROPOSED TO BE ACQUIRED HAS NOT BEEN STATED THEREIN. IT WAS NE CESSARY FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHOW THAT THE LAND W AS BEING ACQUIRED FOR THE PURPOSE OF ITS BUSINESS. THIS IS SO PARTICULARLY HAVING REGARD TO THE FACT THAT PURCHASE OF LAND CAN ALSO B E BY WAY OF INVESTMENT. THERE ARE ONLY ASSERTIONS IN THE WRITT EN SUBMISSIONS TO THE EFFECT THAT THE PURCHASE OF THE LAND WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS BUT THE SAME IS NOT SUPPORTED BY ANY EVIDENCE. THE CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON THE BASIS THAT THE GENUINENESS OF THE D OCUMENTS FILED BY THE ASSESSEE WAS NOT IN DOUBT. HE HAS ALSO HELD TH AT IT IS THE CASE OF THE APPELLANT THAT IT WANTED TO PURCHASE PROPERTIES FOR SMOOTH AND EFFICIENT RUNNING OF ITS EXISTING BUSINESS (PARAGRAPH 8.15 OF THE IMPUGNED ORDER). IN OUR OPINION THE GENUINENESS O F THE DOCUMENTS HAS NOTHING TO DO WITH THE CORRECTNESS OF THE ASSES SEES CLAIM. NOTWITHSTANDING THAT THE DOCUMENTARY EVIDENCE IS GE NUINE IT IS STILL NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE LA ND WAS PROPOSED TO BE ACQUIRED FOR THE PURPOSE OF ITS BUSINESS. ON TH IS ASPECT THE ASSESSEE HAS FAILED. WE ARE UNABLE TO APPRECIATE T HE BASIS FOR THE OBSERVATION OF THE CIT(A) THAT THE ASSESSEE WANTED TO PURCHASE THE LAND FOR SMOOTH AND EFFICIENT RUNNING OF ITS EXISTI NG BUSINESS. THERE IS HARDLY ANY MATERIAL OR EVIDENCE TO SUPPORT THIS OBS ERVATION. WE ARE THEREFORE UNABLE TO APPROVE THE DECISION OF THE CIT (A) THAT THE PROPOSED ACQUISITION OF THE LAND WAS FOR THE PURPOS E OF THE ASSESSEES BUSINESS. 34 31. AS REGARDS THE AMOUNTS ADVANCED TO THE SUBSIDIA RIES THE FINDING OF THE CIT(A) IS THAT THE ASSESSEE WAS IN R ECEIPT OF INTEREST FROM PARAMOUNT GLOBAL LTD. TO WHICH IT HAD ADVANCED RS.3 5.68 CRORES. IN PARAGRAPH 8.17 OF HIS ORDER HE HAS FOUND THAT THE A SSESSEE HAS CHARGED AND EARNED INTEREST INCOME OF RS.2 87 24 41 5/- FROM THIS COMPANY. HE HAS ALSO FOUND THAT THE RECEIPT OF THE INTEREST BY THE ASSESSEE IS CORRESPONDINGLY REFLECTED IN THE BALANC E SHEET OF PARAMOUNT GLOBAL LTD. FOR THE FINANCIAL YEAR 2002-0 3. THE LEARNED DR HAD ALSO NOT DISPUTED THIS FINDING OF THE CIT(A). SINCE INTEREST HAS BEEN RECEIVED ON THE ADVANCE OF PARAMOUNT GLOBAL LT D. WE DO NOT SEE ANY JUSTIFICATION FOR THE DISALLOWANCE OF THE P ROPORTIONATE INTEREST OF RS.1 42 87 435/- ON THE ADVANCE TO THE SAID COMPANY . WE AGREE WITH THE DECISION OF THE CIT(A) AND CONFIRM THE SAME. A S REGARDS THE AMOUNT ADVANCED TO VIDEOCON INDUSTRIAL FINANCE LTD. THE TOTAL ADVANCE IS ONLY RS.13 70 304/- AND IT HAS BEEN FOUN D BY THE CIT(A) THAT THIS COMPANY HAS DONE BUSINESS OF TRADING IN E LECTRONIC GOODS AND THE RELATIONSHIP BETWEEN THE ASSESSEE AND THIS COMP ANY IS A BUSINESS RELATIONSHIP AND THE BALANCE REPRESENTS THE NET AMO UNT RECEIVABLE FROM THE SAID COMPANY. OBVIOUSLY NO INTEREST CAN B E CHARGED AS IT REPRESENTS A TRADE OUTSTANDING. WE AGREE WITH THE DECISION OF THE CIT(A) THAT THE PROPORTIONATE INTEREST OF RS.54 858 /- ON THE ADVANCE TO VIDEOCON INDUSTRIAL FINANCE LTD. CANNOT BE DISALLOW ED. AS REGARDS THE ADVANCE OF RS.1 29 88 926/- IS CONCERNED THE SAME HAS BEEN MADE TO VIDEOCON CAYMAN LTD. THE ADVANCES WERE GIVEN IN 19 99 AND WERE CONTINUING IN THE ASSESSEES BOOKS. THE MAJOR ADVA NCE OF 35 RS.1 25 91 800/- WAS MADE ON 26.11.2002 WHICH FALL S WITHIN THE YEAR UNDER APPEAL AND THIS WAS CLAIMED BEFORE THE ASSES SING OFFICER TO REPRESENT MANAGEMENT FEES PAYABLE TO THAT COMPANY. THE CLAIM WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THA T THERE WAS NO DOCUMENTARY EVIDENCE TO SUPPORT IT. HOWEVER BEFOR E THE CIT(A) THE ASSESSEE ADDUCED ADDITIONAL EVIDENCE IN THE FORM OF A LETTER FROM ICICI BANK IN SUPPORT OF THE CLAIM AND THE SAME WAS ADMIT TED BY THE CIT(A). ON THE BASIS OF THE LETTER HE DELETED THE ADDITION OF THE PROPORTIONATE INTEREST OF RS.5 19 985/-. A COPY OF THE SAID LETT ER IS AT PAGES 173 TO 176 OF THE PAPER BOOK. WE FIND FROM THE LETTER THA T THE DEBITING OF THE MANAGEMENT FEE IN THE ACCOUNT OF VIDEOCON CAYMAN LT D. WAS A RESULT OF AN ARRANGEMENT BETWEEN THE TWO COMPANIES PUT THR OUGH BY ICICI BANK. APPARENTLY THE ASSESSEE DEBITED THE FEES PAY ABLE TO ICICI BANK TO THE ACCOUNT OF VIDEOCON CAYMAN LTD. THE COPY OF THE CHEQUE PLACED AT PAGE 176 OF THE PAPER BOOK ISSUED BY THE ASSESSEE IN FAVOUR OF THE BANK FOR RS.1 23 55 200/- SUPPORTS TH E ASSESSEES CLAIM. IN THE LIGHT OF THE EVIDENCE WE AGREE WITH THE CIT (A) THAT THERE CAN BE NO PROPORTIONATE DISALLOWANCE OF THE INTEREST TO TH E EXTENT OF THE AMOUNTS ADVANCED TO VIDEOCON CAYMAN LTD. ACCORDING LY THE DELETION OF THE DISALLOWANCE OF RS.5 19 985/- IS UPHELD. 32. WE NOW TURN TO THE INTER CORPORATE DEPOSITS / L OANS. THE MAIN GROUND ON WHICH THE CIT(A) HAS DELETED THE PROPORTI ONATE INTEREST IS THAT THE ASSESSEE WAS IN RECEIPT OF INTEREST ON THE DEPOSITS DURING THE INITIAL PERIOD BUT LATER THE DEPOSITS BECAME NON P ERFORMING ASSETS AND THEREAFTER THE ASSESSEE DID NOT CHARGE ANY INTEREST . THE CIT(A) HAS 36 FURTHER FOUND THAT THE ASSESSEE WAS RIGHT IN NOT CH ARGING ANY INTEREST BECAUSE CHARGING OF INTEREST ON NON PERFORMING ASSE TS WOULD BE CONTRARY TO THE AS-9 ISSUED IN RESPECT OF RECOGNITI ON OF REVENUE. THE CIT(A) ALSO HELD THAT THE INTER CORPORATE DEPOSITS WERE GIVEN BY THE ASSESSEE IN THE NORMAL COURSE OF ITS FINANCING BUSI NESS AND THE INTEREST THEREON HAS BEEN ASSESSED TO TAX UNDER THE HEAD BUSINESS. THE OBJECTION OF THE DEPARTMENT IS THAT THIS IS A N EW CONTENTION ACCEPTED BY THE CIT(A) WITHOUT DUE VERIFICATION. W E HAVE PERUSED THE REMAND REPORT DATED 08.03.2007 FILED BY THE ASSESSI NG OFFICER BEFORE THE CIT(A). IN PARAGRAPH XIII. OF THE SAID REPORT THE ASSESSING OFFICER HAS STATED THAT THE CLAIM OF THE ASSESSEE THAT IT I S CARRYING ON FINANCING ACTIVITY IS INCONSISTENT WITH ITS CONTENTION THAT N O INTEREST WAS CHARGED ON THE INTER CORPORATE DEPOSITS / LOANS BECAUSE THE Y HAD BECOME NON PERFORMING ASSETS. IN PARAGRAPH XIV. THE ASSESSING OFFICER HAS DISPUTED THE ASSESSEES CLAIM AGAIN POINTING OUT TH AT EXCLUDING THE INTEREST ON THE ICDS GIVEN IN THE COURSE OF FINANCI NG BUSINESS OR OTHERWISE IS AGAINST THE ACCOUNTING PRINCIPLES AND ALSO THAT IF THE DEPOSITS ARE NOT ULTIMATELY RECOVERED THEY COULD HAVE BEEN INCLUDED IN THE CLAIM OF BAD DEBTS MADE BY THE ASSESSEE IN I TS ACCOUNTS AND THE RETURN FILED . THESE STATEMENTS MADE BY THE ASSESSING OFFICER IN THE REMAND REPORT SHOW THAT HE HAD NOT SERIOUSLY OBJECT ED OR DISPUTED THE CLAIM OF THE ASSESSEE THAT THE INTEREST ON THE ICDS WAS CHARGED AND ASSESSED UNDER THE HEAD BUSINESS SINCE THE ASSESS EE WAS CARRYING ON THE BUSINESS OF FINANCING. WE ARE THEREFORE UNA BLE TO UPHOLD THE OBJECTION OF THE SENIOR DR BEFORE US THAT THIS IS A NEW ANGLE ADOPTED 37 BY THE CIT(A) AND REQUIRES TO BE EXAMINED AFRESH. WE THEREFORE UPHOLD THE FINDING OF THE CIT(A) THAT THE INTER COR PORATE DEPOSITS / LOANS WERE ADVANCED IN THE COURSE OF THE FINANCING BUSINE SS CARRIED ON BY THE ASSESSEE AND THAT THE ASSESSEE WAS JUSTIFIED IN NOT CHARGING INTEREST WHEN THE DEPOSITS OR LOANS THEMSELVES BECA ME DOUBTFUL OF RECOVERY WHICH CONDUCT IS IN CONFORMITY WITH AS-9 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA REGARDI NG RECOGNITION OF REVENUES. WE THEREFORE UPHOLD THE DECISION OF THE CIT(A) THAT THERE IS NO JUSTIFICATION FOR DISALLOWING THE PROPORTIONATE INTEREST OF RS.32 99 322/-. 33. TURNING NOW TO THE ADVANCES RECOVERABLE IN CASH OR KIND WE HAVE ALREADY NOTED THAT AFTER SETTING OUT THE RELEV ANT DETAILS IN THE ASSESSMENT ORDER IN PARAGRAPH 13 THE ASSESSING OFF ICER MERELY WORKED OUT THE INTEREST TO BE DISALLOWED AT RS.5 77 869/- WITHOUT FURNISHING ANY REASONS. BE THAT AS IT MAY THE FAC TS SHOW THAT THE AMOUNT OF RS.18 13 80 000/- WAS ADVANCED TO FOUR DI FFERENT COMPANIES AS SHARE APPLICATION MONIES. THREE OF THE COMPANIE S WERE PRIVATE LIMITED COMPANIES. APPARENTLY THE ASSESSING OFFIC ER THOUGHT THAT ADVANCING MONEY AS SHARE APPLICATION MONIES AMOUNTE D TO INVESTMENT AND THUS DIVERSION OF BORROWED FUNDS. HE ALSO NOTE D THAT THE AMOUNTS SO ADVANCED WERE RECEIVED BACK BY THE ASSESSEE ON V ARIOUS DATES IN THE ACCOUNTING YEAR ITSELF. THE AMOUNTS THUS REMAI NED ADVANCED AS SHARE APPLICATION MONIES ONLY FOR SHORT PERIODS FO R ABOUT TWO MONTHS AT THE MOST. THE CIT(A) HAS FOUND THAT THE INVESTM ENTS WERE AUTHORIZED BY BOARD RESOLUTIONS AND THE INVESTMENT ACTIVITY WAS ALSO 38 DONE IN ACCORDANCE WITH THE OBJECTS STATED IN THE M EMORANDUM OF ASSOCIATION. THESE FINDINGS HAVE NOT BEEN CONTROVE RTED BEFORE US. FURTHER THE CIT(A) HAS HELD THAT THE ASSESSEE COULD NOT CHARGE ANY INTEREST ON THE AMOUNTS ADVANCED AS SHARE APPLICATI ON MONIES BECAUSE THERE IS NO PROVISION TO DO SO. IN ADDITIO N TO THESE FINDINGS THE CIT(A) HAS ALSO HELD THAT THE ASSESSEES OWN FU NDS WERE AVAILABLE TO COVER THE INVESTMENT. ULTIMATELY THE QUESTION I S WHETHER THE SHARE APPLICATION MONIES WERE DEFRAYED PURSUANT TO THE OB JECTS CLAUSE OF THE ASSESSEE COMPANY SO THAT IT CAN BE SAID THAT THEY W ERE ADVANCED FOR THE PURPOSE OF ASSESSEES BUSINESS. THE UTILIZATIO N OF THE FUNDS HAS BEEN FOUND TO BE IN ACCORDANCE WITH THE OBJECTS CLA USE IN THE MEMORANDUM OF ASSOCIATION AND IF THAT IS SO THE INT EREST CANNOT BE DISALLOWED BECAUSE EVEN IF BORROWED FUNDS WERE USED FOR MAKING SHARE APPLICATION MONIES THE SHARE APPLICATION MON IES HAVING BEEN PAID FOR THE PURPOSE OF THE ASSESSEES BUSINESS TH ERE IS NO DIVERSION OF BORROWED FUNDS TO JUSTIFY THE DISALLOWANCE OF TH E INTEREST. THIS IN EFFECT IS THE REASONING OF THE CIT(A) IN PARAGRAPH 8.21 OF HIS ORDER AND WE AGREE WITH THE SAME AND UPHOLD THE DELETION OF T HE DISALLOWANCE OF RS.5 77 869/- BEING INTEREST PROPORTIONATE TO THE S HARE APPLICATION MONIES. 34. WE NOW TURN BACK TO THE DISALLOWANCE OF THE INT EREST PROPORTIONATE TO THE ADVANCE OF RS.110.07 CRORES TO TPI ALLEGEDLY FOR THE PURCHASE OF A PROPERTY IN ROYAL PALMS AAREY CO LONY BORIVALI. WE HAVE ALREADY HELD THAT THE AMOUNT WAS NOT ADVANCED FOR THE PURPOSE OF ASSESSEES BUSINESS. THE QUESTION NOW WILL BE A S TO THE SOURCE OF 39 THE FUNDS WHETHER THE ADVANCE CAME OUT OF THE OWN FUNDS OF THE ASSESSEE OR THE BORROWED FUNDS. IT MAY BE RECALLED THAT THE SUBMISSION OF THE ASSESSEE ON THIS ASPECT WAS THAT EVEN ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAD THE BENEFIT OF OWN FUNDS OF RS.1996.42 CRORES IN THE BEGINNING OF THE YEAR WHIC H IS SUFFICIENT TO COVER THE ADVANCE TO TPI. IN THE COURSE OF THE ARG UMENTS ON BEHALF OF THE ASSESSEE WE WERE REFERRED TO THE JUDGMENT OF TH E HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM). IN THIS CASE RELYING ON THE JUDGMENT O F THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT (19 97) 224 ITR 627 (SC) AND THE JUDGMENT OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. VS. CIT (1982) 134 ITR 219 (CAL) THAT I F THERE WERE FUNDS AVAILABLE TO THE ASSESSEE BOTH INTEREST FREE AND OV ERDRAFT AS WELL AS LOANS THEN A PRESUMPTION WOULD ARISE THAT THE INVE STMENTS NOT RELATING TO THE BUSINESS WOULD BE OUT OF THE INTEREST FREE F UNDS GENERATED OR AVAILABLE WITH THE COMPANY PROVIDED SUCH INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THE PRESENT CASE AS RIGHTLY POINTED OUT ON BEHALF OF THE ASSESSEE THE ASSESSIN G OFFICER HIMSELF HAS STATED IN PARAGRAPH 9.3 OF THE ASSESSMENT ORDER AT PAGE 8 THEREOF THAT OUT OF THE TOTAL FUNDS OF RS.4294.87 CRORES AV AILABLE TO THE ASSESSEE ITS OWN FUNDS AMOUNT TO RS.1996.42 CRORES WHICH CONSTITUTED 46.48% OF THE TOTAL CAPITAL. HE HAS AL SO HELD IN PARAGRAPH 9.11 THAT THE FUNDS ARE MIXED BUT HAS OBSERVED THA T THE ADVANCE COULD NOT HAVE COME OUT OF ASSESSEES OWN FUNDS AND INTEREST WOULD HAVE COME OUT OF THE MIX OF BORROWED AND OWN FUNDS IN EQUAL RATIO. 40 THIS OBSERVATION IS CONTRARY TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT CITED SUPRA WHERE IT HAS BEEN CLEARLY H ELD THAT IN THE CASE OF MIXED FUNDS THE PRESUMPTION IS THAT THE AMOUNTS ADVANCED FOR NON BUSINESS PURPOSES CAME OUT OF THE ASSESSEES OWN FU NDS PROVIDED THE OWN FUNDS ARE SUFFICIENT TO COVER SUCH ADVANCES . RESPECTFULLY FOLLOWING THE SAID JUDGMENT WE FIND THAT THE OWN F UNDS OF RS.1996.42 CRORES WHICH WERE AVAILABLE TO THE ASSESSEE EVEN AC CORDING TO THE ASSESSING OFFICER ARE SUFFICIENT TO COVER THE ADVAN CE OF RS.110.07 CRORES MADE TO TPI. IN THIS VIEW OF THE MATTER WE HOLD THAT EVEN THOUGH THE ADVANCE TO TPI WAS NOT FOR THE PURPOSE O F ASSESSEES BUSINESS BUT SINCE THE ADVANCE MUST BE PRESUMED TO HAVE COME OUT OF THE ASSESSEES OWN FUNDS WHICH WERE MUCH MORE TH AN THE ADVANCE NO DISALLOWANCE OF THE PROPORTIONATE INTEREST CAN B E MADE. WE THUS AGREE WITH THE ULTIMATE CONCLUSION OF THE CIT(A) TH AT THE INTEREST OF RS.4 40 39 344/- PROPORTIONATE TO THE ADVANCE TO TP I CANNOT BE DISALLOWED. 35. FOR THE ABOVE REASONS WE UPHOLD THE DECISION OF THE CIT(A) THAT THERE IS NO JUSTIFICATION FOR THE DISALLOWANCE OF T HE INTEREST OF RS.6 27 68 813/- AND DISMISS THE GROUND NO.4. 36. GROUND NO.5 AND 6 ARE GENERAL AND REQUIRE NO DE CISION. 37. IN THE RESULT THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. ORDER PRONOUNCED ON 13 TH APRIL 2010. SD/- SD/- (RAJENDRA SINGH) (R V EASWAR) ACCOUNTANT MEMBER SENIOR VICE PRESI DENT MUMBAI DATED 13 TH APRIL 2010 SALDANHA 41 COPY TO: 1. M/S VIDEOCON INTERNATIONAL LTD. 17 TH FLOOR C WING MITTAL COURT NARIMAN POINT MUMBAI 400 021 2. DCIT CIRCLE 3(3) 3. CIT-3 4. CIT(A)-XXXII 5. DR FBENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI