Sri Nanjunda Setty B.C., Shimoga v. Addl.CIT, Shimoga

ITA 737/BANG/2009 | 2006-2007
Pronouncement Date: 26-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 73721114 RSA 2009
Assessee PAN AXACT1961U
Bench Bangalore
Appeal Number ITA 737/BANG/2009
Duration Of Justice 7 month(s) 3 day(s)
Appellant Sri Nanjunda Setty B.C., Shimoga
Respondent Addl.CIT, Shimoga
Appeal Type Income Tax Appeal
Pronouncement Date 26-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 26-02-2010
Date Of Final Hearing 06-01-2010
Next Hearing Date 06-01-2010
Assessment Year 2006-2007
Appeal Filed On 23-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO.763/BANG/2009 ASSESSMENT YEAR : 2006-07 THE DY. COMMISSIONER OF INCOME-TAX CIRCLE 1 SHIMOGA. : APPELLANT VS. SRI B.C. NANJUNDA SETTY M/S. S.G.K. INDUSTRIES INDUSTRIAL ESTATE SAGAR ROAD SHIMOGA. : RESPONDENT ITA NO.737/BANG/2009 ASSESSMENT YEAR : 2006-07 SRI B.C. NANJUNDA SETTY M/S. S.G.K. INDUSTRIES INDUSTRIAL ESTATE SAGAR ROAD SHIMOGA. : APPELLANT VS. THE ADDL. COMMISSIONER OF INCOME-TAX SHIMOGA RANGE SHIMOGA. : RESPONDENT ITA NOS.763 & 737/BANG/09 PAGE 2 OF 21 REVENUE BY : SMT. V.S. SREELEKHA ASSESSEE BY : SHRI A. SHANKAR O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THESE ARE TWO APPEALS (I) ONE BY THE ASSESSEE AND (II) ANOTHER OF THE REVENUE BOTH ARE DIRECTED AGAINST THE ORDER OF THE LD. CI T(A) HUBLI IN ITA NO: 134/CIT(A) HBL/08-09 DATED: 9.4.20 09 FOR THE ASSESSMENT YEAR 2006-2007. I. ITA NO: 737/09 - [BY THE ASSESSEE] 2. THE ASSESSEE HAS RAISED SIX GROUNDS OUT OF WHIC H GROUND NOS: 1 5 AND 6 ARE GENERAL AND NO SPECIFIC ISSUES INVOLVED A ND THEREFORE THEY ARE DISMISSED AS NON-CONSEQUENTIAL. IN THE REMAINING G ROUNDS THE THEMES OF ISSUES RAISED ARE TWO-FOLD NAMELY (I) THE AUTHORITIES BELOW ERRED IN MAKING THE ADDITION OF RS.42 LAKHS AS DEEMED DIVIDEND U/S 2 (22) (E) OF THE ACT; & (II) CHARGING OF INTEREST U/S 234B AND 234C OF THE ACT. 2.1. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GRO UND OF APPEAL WITH THE FOLLOWING NARRATION: WITHOUT PREJUDICE THE LEARNED ASSESSING OFFICER IS NOT JUSTIFIED IN LAW IN INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AS THE SUM RECEIVED BY THE APPELLANT FROM THE COMPANY IS L IABLE TO BE TAXED U/S 115-O OF THE ACT IN THE HANDS OF THE COMP ANY AND THUS NOT TAXABLE IN THE HANDS OF THE APPELLANT U/S 2(22) (E) OF THE INCOME- TAX ACT 1961 UNDER THE FACTS AND CIRCUMSTANCES OF T HE CASE. 2.2. IT WAS SUBMITTED THAT THE ASSESSEE IS CHALLENG ING THE APPLICABILITY OF S. 2(22)(E) OF THE ACT WHICH IS A PURE QUESTION OF LAW. THIS ITA NOS.763 & 737/BANG/09 PAGE 3 OF 21 DOES NOT INVOLVE ANY INVESTIGATION OF ANY FACTS OTH ERWISE ON THE RECORD OF THE REVENUE AND A PURE QUESTION OF LAW WHICH GOES I NTO THE VERY ROOT OF THE MATTER OF JURISDICTION AND VALIDITY OF THE ASSE SSMENT ITSELF. IT WAS PRAYED THAT THE ADDITIONAL GROUND RAISED MAY BE ADMITTED A ND DISPOSED OF ON MERITS. 3. AFTER DUE CONSIDERATION OF THE SUBMISSIONS OF TH E ASSESSEE THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ADMITTE D FOR ADJUDICATION. II. ITA NO: 763/09 [BY THE REVENUE] 4. THE REVENUE HAS RAISED TEN GROUNDS IN ITS APPEAL . ON A PERUSAL THE GRIEVANCES OF THE REVENUE AGAINST THE ORDER OF THE LD. CIT (A) ARE THREE-FOLDS WHICH FOR THE SAKE OF CLARITY ARE REF ORMULATED IN A CONCISE MANNER AS UNDER: THE LD. CIT(A) ERRED: (I) IN DELETING THE ADDITION OF RS.17.18 LAKHS MADE U/S 40 (A) ( IA ) OF THE ACT; (II) IN DELETING THE INTEREST OF RS.200570/- ADMITTED BY THE ASSESSEE AS INCOME AT THE RATE OF 12% ON THE MONEY ADVANCED TO THE CHILDREN; & (III) IN DELETING THE DISALLOWANCE OF RS.45920/- MADE U/S 40A(3) OF THE ACT. COMMON ORDER : 5. AS THE ISSUES RAISED BY THE RIVAL PARTIES ARE IN TER-LINKED PERTAINING TO THE SAME ASSESSEE AND THE SAME ASSESSMENT YEAR FOR THE SAKE OF CLARITY AND CONVENIENCE BOTH OF THESE APPEALS WERE HEARD CONSIDERED TOGETHER AND DISPOSED OFF IN THIS COMMON ORDER. ITA NOS.763 & 737/BANG/09 PAGE 4 OF 21 LET US NOW ADDRESS TO THE GRIEVANCE OF THE ASSESSEE . BRIEF: 6. THE ASSESSEE AN INDIVIDUAL IS THE PROPRIETOR O F SGK INDUSTRIES WHICH WAS ENGAGED IN MANUFACTURING AND MARKETING OF SUSPENSION CYLINDER HYDRAULIC AGGREGATES AND AUTOMOBILE COMPO NENTS. DURING THE AY UNDER DISPUTE WHILE CONCLUDING THE A SSESSMENT THE AO AMONG OTHERS ADDED RS.42 LAKHS AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT FOR THE REASONS THAT THE ASSESSEE HAD RECEIVED UNSECURED LOAN OF RS.42 L AKHS FROM PERFECT ALLOY COMPONENTS PVT. LTD. [PACPL] WHEREIN THE ASSE SSEE WAS A DIRECTOR HOLDING MORE THAN 10% OF VOTING POWER. THE LOAN WA S GIVEN TO THE ASSESSEE BY THE COMPANY AND S.2(22)(E) OF THE ACT S QUARELY APPLICABLE. THE DEPOSIT GIVEN BY THE ASSESSEE TO THE COMPANY OF RS.46 LAKHS WAS A DIFFERENT ENTRY ALTOGETHER AND STILL APPEARING IN T HE BALANCE SHEET OF THE COMPANY AS ON 31.3.2006. THE LOAN WAS TAKEN BY SGK INDUSTRIES THE PROPRIETARY CONCERN OF THE ASSESSEE. 7. AGGRIEVED THE ASSESSEE TOOK UP THE ISSUE WITH T HE CIT (A) FOR REDRESSAL. AFTER DULY CONSIDERING THE RIVAL SUBMI SSIONS AND ALSO ANALYZING THE VARIOUS CASE LAWS ON WHICH EITHER PARTY HAVE PL ACED THEIR STOUT RELIANCE; THE LD. CIT(A) HAS CONCLUDED THUS 5.1. (ON PAGE 7 . IT IS NECESSARY ON PART OF REVENUE TO PROVE THAT PAYMENT WAS MADE ON BEHALF OR FOR BENEFIT OF SHARE HOLDER. IN CASE OF SUBRATA ROY SAHARA DECISION OF HONBLE ITAT LUCKNOW BRANCH (SIC) BENCH HAS TAKEN INTO CONSIDERATION VARIOUS CASE LAWS ON I SSUE AND MATTER WAS ALSO REFERRED TO A THIRD MEMBER WHERE THIRD MEM BER FOLLOWING DECISION OF SUPREME COURT IN CASE OF MUKUND ROY K. SHAH IS OF OPINION THAT BURDEN OF PROOF IS ON REVENUE TO PROVE THAT ITA NOS.763 & 737/BANG/09 PAGE 5 OF 21 PRESUMPTION INCLUDED IN PROVISIONS OF SECTION 2(22) (E) LIES ON REVENUE AND BURDEN IS SAID TO BE DISCHARGED ON ESTA BLISHING FACT THAT BENEFIT GOES TO SHARE HOLDER HAVING SUBSTANTIA L INTEREST THUS MATTER HAS UNDER GONE TEST THAT BURDEN OF PROOF LIE S ON REVENUE THAT SAID SHARE-HOLDER HAS RECEIVED BENEFIT. AO HAS NOT DISCUSSED IN DETAIL IN VIEW OF JUDICIAL DECISIONS THAT AN AMOUNT OF RS.42 LAKH IS A BENEFIT AVAILABLE TO SHAR E HOLDER FROM PROFITS OF COMPANY. HOWEVER IT IS SEEN THAT APPEL LANT HAS ALSO NOT ESTABLISHED OR DISCHARGED HIS BURDEN OF PROOF TO SH IFT ONUS TO AO. AO HAS STATED THAT PAYMENT OF RS.42 LAKH FROM COMPA NY HAS NO DIRECT NEXUS MADE BY APPELLANT TO COMPANY OF RS.46 LAKH IN PAST. THUS FAILURE OF APPELLANT TO SHIFT ONUS TO REVENUE THERE IS NO REASON TO HOLD THAT AO HAS FAILED TO DISCHARGE BURDEN OF P ROOF SINCE SAME HAS NOT BEEN SHIFTED TO AO AND APPELLANT HAS FAILED INITIALLY TO SHIFT BURDEN TO AO BY ESTABLISHING FACTS THAT PAYMENTS AR E MADE BY COMPANY WITH INTENTION TO DISTRIBUTE PROFITS IN FOR M OF ADVANCES TO APPELLANT BUT NOT OUT OF ADVANCES MADE BY APPELLANT IN THE PAST TO COMPANY OF RS.46 LAKH. IN VIEW OF SAME ADDITION MA DE BY AO IS HEREBY CONFIRMED AFTER GOING INTO LEGAL ASPECT WHIC H AO SHOULD DO IN SUCH ISSUES. 8. AGITATED THE ASSESSEE HAS COME UP BEFORE US WIT H THE PRESENT APPEAL. THE ARGUMENTS OF THE LD. A R ARE SUMMARIZE D AS UNDER: (I) THE ASSESSEE HAD PAID RS.46 LAKHS IN AGGREGATE TO P ACPL WHERE THE ASSESSEE HAD HELD MORE THAN 20% OF VOTING RIGHTS DURING THE PERIOD FROM 1.4.2001 TO 31.3.2005; - PAPCL HAD RETURNED RS.42 LAKHS OUT OF RS.46 LAKHS W HICH WAS ADVANCED BY THE ASSESSEE TO PACPL; - THE ASSESSEE HAS BEEN MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR THE ADVANCES MADE TO PACPL; - WITHOUT APPRECIATING THE FACT THAT THE PACPL HAD ON LY RETURNED A PART OF THE LOAN ADVANCED BY THE ASSESSEE THE AUTH ORITIES BELOW RESORTED TO BRING THE SAID AMOUNT TO THE TAX NET BY INVOKING THE PROVISIONS OF S.2(22)(E) OF THE ACT; (II) IT IS SETTLED LAW THAT ENTRIES IN THE BOOKS OF ACCO UNT DO NOT DECIDE THE NATURE OF INCOME AND THE SAME HAS TO BE LOOKED INTO FROM THE PROVISIONS OF THE ACT. THERE ARE VAR IOUS DECISIONS WHICH SAY THAT NOMENCLATURE OF THE ENTRY WAS NOT ITA NOS.763 & 737/BANG/09 PAGE 6 OF 21 IMPORTANT BUT THE PITH AND SUBSTANCE OF THE ENTRY S HOULD BE LOOK INTO; (A) SHOORJI VALLABHDAS & CO. 46 ITR 144 (SC); (B) PRAKASH COTTON MILLS (P) LTD. 201 ITR 684; (C) GODHRA ELECTRICITY CO. LTD. 225 ITR 746 (SC) (III) S.115-O OF THE ACT STARTS WITH NOTWITHSTANDING ANY THING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT AND HENCE ALL OTHER PROVISIONS OF THE ACT HAVE TO BE IGNORED FOR THE PURPOSE OF INTERPRETATION OF THE SAID SECTION. ASS THE SEC TION COVERS DIVIDEND DECLARED DISTRIBUTED AND PAID AND THE DIV IDEND IS PAID THE DIVIDEND U/S 2(22)(E) WAS SQUARELY COVERE D U/S 115- O OF THE ACT. IN VIEW OF NON-OBSTINATE CLAUSE THE EXPLANATION TO S.115-Q CANNOT BE INVOKED BY THE ASSESSING OFFIC ER TO JUSTIFY THE TAX LIABILITY; - AS FAR AS S.115-O IS CONCERNED IT IS A STAND ALONE CODE AND IT IS CLEAR FROM THE OPENING WORDS OF THE SECTION I..E W ITH NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISIONS OF THIS ACT AND THUS THE AO WAS PRECLUDED FROM LOOK ING AT ANY OTHER SECTION AND THAT THE READING OF S.115-O DOES NOT INDICATE AS TO WHY DIVIDEND CLASSIFIED IN TERMS OF S.2(22)(E) S HOULD BE EXCLUDED FROM THE APPLICATION TO S.115-O; (A) CHANDAVARKAR SITA RAM V. ASHALATA S GURAM AIR 1987 SC 117 AT PAGE 134(PARA 68); (B) UNION OF INDIA V. G.M.KOKIL 1984 SUPP SCC 196 AT PARA 203(PARA 11) (C) CIT V. BADIANI (P.K) (1970) 76 ITR 369 (BOM) 8.1. DURING THE COURSE OF HEARING THE LD. A R FURN ISHED A PAPER BOOK CONTAINING 1 80 PAGES WHICH CONSISTS OF INTER AL IA COPIES OF (I) BALANCE SHEET OF SGK INDUSTRIES; (II) EXTRACT OF LEDGER OF SGK INDUSTRIES IN PACPL; (III) EXTRACT OF LEDGER OF ACCOUNT OF THE ASSESSEE IN PACPL ETC. 8.2. ON HER PART THE LD. D R SUBMITTED THAT THE AO S STAND WAS IN CONFORMITY WITH THE PROVISIONS OF S.2 (22) (E) OF T HE ACT WHICH HAS BEEN RIGHTLY SUSTAINED BY THE LD.CIT(A) FOR THE REASONS SET-OUT IN THE IMPUGNED ITA NOS.763 & 737/BANG/09 PAGE 7 OF 21 ORDER. IT WAS THEREFORE PLEADED THAT THE ARGUMEN T OF THE ASSESSEE DOESNT CARRY ANY CONVICTION WHICH REQUIRES TO BE REJECTED OUT-RIGHTLY. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS DULY PERUSED THE RELEVANT RECORDS AND ALSO THE DOCUMENTARY EVIDE NCES FURNISHED DURING THE COURSE OF HEARING BY EITHER PARTY. 9.1. ON A CLOSE SCRUTINY OF THE IMPUGNED ORDER OF T HE AO AS REMARKED BY THE LD. CIT (A) THE ASSESSING AUTHORITY HAD IN FACT NOT APPLIED HIS MIND AND ALSO NOT BROUGHT ON RECORD ANY DISCREET DOCUMEN TARY EVIDENCE COUPLED WITH STRONG CIRCUMSTANTIAL PROOF TO SUGGEST THAT TH E ALLEGED LOAN WAS NOT GIVEN BY THE COMPANY AGAINST THE DEPOSIT MADE BY TH E ASSESSEE IN HIS INDIVIDUAL CAPACITY. IN FACT THE AOS CRYPTIC PRESUMPTION NATURALLY THIS LOAN IS NOT GIVEN BY THE COMPANY AGAINST THE DEPOSIT GIV EN BY THE ASSESSEE IN HIS INDIVIDUAL CAPACITY TO THE COMPANY. IN OUR CONSIDERED VIEW DOESNT STAND THE TESTIMONY OF LAW. THE AOS OTHER REASONING THAT THE LOAN WAS TAKEN BY M/S. SGK INDUSTRIES THE PROPRIETARY CONCERN OF THE ASSE SSEE FOR TREATING THE SUM OF RS.42 LAKHS AS DEEMED DIVIDEND ALSO NOT ON THE SOUND FOOTING SINCE THE ASSESSEE BEING AN INDIVIDUAL WHO HAD ADVANCED RS.46 LAKHS DURING THE PERIOD FROM 30.3.2002 TO 12.11.2004 TO PACPL [SOUR CE: P 39 & 40 OF PB] AND THE LOAN OF RS.42 LAKHS RECEIVED DURING THE AY UNDER DISPUTE FROM PACPL BY THE ASSESSEE HAD PUMPED IN TO SGK INDUST RIES - A PROPRIETARY CONCERN WHEREIN THE ASSESSEE WAS THE SOLE PROPRIETO R FOR COMMERCIAL EXPEDIENCY. UNFORTUNATELY THE AO HAD NOT REBUTTED THE ASSESSEES CONTENTION WITH ANY JUSTIFIABLE REASONING [DOCUMENT ARY PROOF] THAT THE LOAN WAS NOT GIVEN BY THE COMPANY AGAINST THE DEPOSIT MA DE BY THE ASSESSEE. ITA NOS.763 & 737/BANG/09 PAGE 8 OF 21 HOW DOES THE AO AFFIRM THAT THE LOAN WAS TAKEN BY M/S. SGK INDUSTRIES THE PROPRIETARY CONCERN OF THE ASSESSEE WITHOUT ANY PROOF? ON THE CONTRARY THE ASSESSEE HAS COME UP WITH A PROOF THAT HE HAD LENT LOAN TO PACPL FROM WHICH HE HAD AVAILED A LOAN OF RS.42 LAKHS IN AN IN DIVIDUAL CAPACITY AND THE LOAN SO AVAILED FROM PACPL WAS UTILIZED IN SGK INDU STRIES A PROPRIETARY CONCERN OF THE ASSESSEE. WHILE MAKING ANY DISALLOW ANCE OR ADDING ANY CLAIM OF THE ASSESSEE THE ASSESSING AUTHORITIES SH OULD INVARIABLY RECORD THE REASON(S) AND SUCH REASONING SHOULD BE IN THE FORM OF A SPEAKING ORDER WITHIN THE PARAMETER OF LAW. 9.2. THE ASSESSEE HAD IN FACT DISCHARGED HIS ONUS THAT HE HAD ADVANCED THE LOAN FOR THE PERIOD SPREAD OVER FROM 3 0.3.2002 TO 12.11.2004 TO THE TUNE OF RS.46 LAKHS OUT OF WHICH DURING TH E YEAR UNDER DISPUTE HE HAD RECEIVED A LOAN OF RS.42 LAKHS FROM PACPL [SOUR CE: NANJUNDA SETTYS DEPOSIT A/C PAGES 39 & 40 OF PB AND SREE SGK INDUST RIES LEDGER ACCOUNT PAGE 38 OF PB]. HOW DOES THE AO SAY THAT THIS L OAN WAS NOT GIVEN BY THE COMPANY AGAINST THE DEPOSIT GIVEN BY THE ASSESS EE IN HIS INDIVIDUAL CAPACITY TO THE COMPANY? 9.3. TURNING TO THE OBSERVATION OF THE CIT (A) THAT (ON PAGE 7) HOWEVER IT IS SEEN THAT APPELLANT HAS ALSO NOT ESTABLISHED OR DISCHARGED HIS BURDEN OF PROOF TO SHIFT ONUS TO AO WE FIND NO SUBSTANCE IN THE SAID REMARK. AS A MATTER OF FACT THE ASSESSEE DID ESTABLISH THAT HE HAD ADVANCED THE MONEY TO THE EXTENT OF RS.46 LAKHS TO PACPL OUT OF WHICH THE COMPANY HAD ADVANCED AN AMOUNT OF RS.42 LAKHS TO THE ASSESSEE W HO HAD PUMPED IN SGK INDUSTRIES WHICH WAS THE PROPRIETARY CONCERN AN D THUS THE ASSESSEE ITA NOS.763 & 737/BANG/09 PAGE 9 OF 21 HAD PUT THE ONUS AT THE DOORSTEP OF THE REVENUE WHI CH HAD IN OUR VIEW FAILED TO CASH IT BY WAY DISCHARGING ITS BURDEN OF PROOF. EVEN ON CLOSE READING OF THE OBSERVATIONS OF THE LD. CIT(A) [PARA 5.1. OF THE IMPUGNED ORDER] ONE COULD INFER THAT THE AO HAD NOT BROUGHT ON ANY CLINCHING EVIDENCE TO HAMMER IT THAT THE ISSUE FALLS WITHIN T HE AMBIT OF S.2 (22)(E) OF THE ACT INSTEAD AS IN THE CIT(A)S VERSION AO HAS STATED THAT PAYMENT OF RS.42 LAKH FROM COMPANY HAS NO DIRECT NEXUS WITH AD VANCES MADE BY APPELLANT TO COMPANY OF RS.46 LAKHS IN PAST. 9.4. HOWEVER EITHER THE LD. CIT (A) OR THE AO HAD FAILED TO SUBSCRIBE/HIGHLIGHT THE REASONS WHICH DROVE THEM TO ARRIVE AT A CONCLUSION THAT THERE WAS NO DIRECT NEXUS BETWEEN WITH THE ADV ANCES MADE BY THE ASSESSEE TO COMPANY OF RS.46 LAKHS AND THE PAYMENT OF RS.42 LAKHS BY THE COMPANY TO THE ASSESSEE. 9.5. TURNING TO THE LEGAL ASPECTS THE HONBLE ITAT MUMBAI A BENCH IN THE CASE NH SECURITIES LTD. V. DCIT REPORTED IN (20 07) 11 SOT 302 (MUMBAI) WAS ARDENT IN ITS FINDING THAT WHEREVER PAYMENTS MADE BY A LIMITED COMPANY TO ITS SHAREHOLDER IS PROVED BY ITS CHARACTERISTIC AS OTHER THAN LOAN/ ADVANCE; IN OTHER WORDS THE PAYMENT IS FOR THE PURPOSES OF REPAYMENT OF LOAN OR SUCH OTHER EXISTING LIABILITY THE QUESTION OF S.2(22)(E ) APPLYING DOES NOT ARISE. THE NATURE AND CHARACTER OF THE PAYMENTS MA DE BY A COMPANY IS VERY IMPORTANT IN EXAMINING WHETHER A PA YMENT MADE BY THE COMPANY FALLS UNDER S.2(22)(E) OR NOT. WHER E A COMPANY PAYS TO ITS SHAREHOLDER ANY AMOUNT AGAINST REPAYMEN T OF AN EXISTING LOAN OR ADVANCE OR AGAINST PURCHASE OR AVAILING OF SERVICE OR PAYING ON ACCOUNT ON ANY OTHER GROUND SUCH PAYMENT S MADE IN THE ORDINARY COURSE OF CARRYING ON OF THE BUSINESS OF T HAT COMPANY CANNOT BE BROUGHT UNDER THE PURVIEW OF S.2(22)(E). THAT IS WHY S.2(22)(E)PROVIDES THAT ANY PAYMENT BY A COMPANY BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER ALONE IS TO BE CON SIDERED FOR THE ITA NOS.763 & 737/BANG/09 PAGE 10 OF 21 PURPOSE OF DEEMED DIVIDEND. PAYMENTS MADE BY A COM PANY THROUGH A RUNNING ACCOUNT IN DISCHARGE OF ITS EXISTING DEBT S OR AGAINST PURCHASES OR FOR AVAILING SERVICES SUCH PAYMENTS M ADE IN THE ORDINARY COURSE OF BUSINESS CARRIED ON BY BOTH THE PARTIES COULD NOT BE TREATED AS DEEMED DIVIDEND FOR THE PURPOSE OF S. 2(22)(E). THE DEEMING PROVISIONS OF LAW CONTAINED IN S.2(22)(E) A PPLY IN SUCH CASES WHERE THE COMPANY PAYS TO A RELATED PERSON AN AMOUNT AS ADVANCE OR A LOAN AS SUCH AND NOT IN ANY OTHER CONT EXT. THE LAW DOES NOT PROHIBIT BUSINESS TRANSACTIONS BETWEEN REL ATED CONCERNS AND THEREFORE PAYMENTS MADE IN THE ORDINARY COURSE OF IN THE FACTS BUSINESS CANNOT BE TREATED AS LOANS AND ADVANCES. THEREFORE PAYMENTS MADE BY A COMPANY IN THE COURSE OF CARRYIN G ON OF ITS REGULAR BUSINESS THROUGH A MUTUAL OPEN AND CURRENT ACCOUNT TO A RELATED PARTY DO NOT COME UNDER THE PURVIEW OF S.2(22)(E) 9.7. AS HIGHLIGHTED BY THE LD. CIT (A) [AT THE COS T OF REPETITION] - 5.1..PROVISIONS OF SECTION 2(22) (E) ARE INTRODUCED TO BRING TO TAX 3 TYPES OF PAYMENTS LIKE .(I) ANY PAYMENT OR ANY SUM BY WAY OF ADVANCE OR LOAN TO A SHARE HOLDER ; (II) ANY PAYMENT ON BEHALF OF SHARE-HOLDER AND (III) PAYMENT FOR IN DIVIDUAL BENEFIT OF A SHAREHOLDER. IT IS NECESSARY ON THE PART OF REVENUE TO PROVE THAT PAYMENT WAS MADE ON BEHALF OR FOR BENEFIT OF SHARE HOLDER. IN CASE OF SUBRATA ROY SAHARA DECISION OF HONBLE ITAT LUCKNOW BRANCH (SIC) BENC H HAS TAKEN INTO CONSIDERATION VARIOUS CASE LAWS ON ISSUE AND OF SUP REME COURT IN CASE OF MUKUND ROY K.SHAH IS OF OPINION THAT BURDEN OF P ROOF IS ON REVENUE TO PROVE THAT PRESUMPTION INCLUDED IN PROVISIONS OF SECTION 2(22)(E) LIES ON REVENUE AND BURDEN IS SAID TO BE DISCHARGED ON E STABLISHING FACT THAT BENEFIT GOES TO SHARE HOLDER HAVING SUBSTANTIAL INT EREST THUS MATTER HAS UNDERGONE TEST THAT BURDEN OF PROOF LIES ON REVENUE THAT SAID SHARE HOLDER HAS RECEIVED BENEFIT. 9.8. THUS THE REVENUE HAD PRECISELY FAILED TO DI SCHARGE THE ONUS CAST ON IT THAT THE SHARE-HOLDER (THE ASSESSEE) HAS RECE IVED THE BENEFIT. ITA NOS.763 & 737/BANG/09 PAGE 11 OF 21 9.9. THE REVENUE HAS PLACED STRONG RELIANCE ON THE FINDING OF HONBLE ITAT MUMBAI I BENCH IN THE CASE OF INCOME-TAX OF FICER V. KALYAN M. GUPTA REPORTED IN 107 ITD 34 (MUMBAI) WE HAVE DULY PERUSED THE FINDING OF THE HONBLE TRI BUNAL CITED SUPRA WHEREIN THE ISSUE BEFORE THE TRIBUNAL WAS: WHETHER THE DEEMED DIVIDEND U/S 2 (22)(E) OF THE ACT WAS ALLOWABLE AS EXEMPTIO N U/S 10(33)? HOWEVER THE ISSUE ON HAND IS WHETHER THE ALLEGED LOAN OF RS .42 LAKHS IS TO BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OR OTHERWIS E? WITH DUE RESPECTS WE ARE OF THE VIEW THAT THE CASE LAW RELIED ON BY T HE REVENUE HAS NO RELEVANCE TO THE ISSUE ON HAND. 9.10. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AND ALSO IN CONFORMITY WITH THE FINDING O F THE HONBLE ITAT MUMBAI A BENCH REFERRED SUPRA THE RATIO LAID DO WN BY THE HONBLE BOMBAY HIGH COURT IN THE CIT (CENTRAL) BOMBAY V. P. K.BADIYANI REPORTED IN (1970) 76 ITR 369 AND ALSO THE HONBLE TRIBUNAL OF LUCKNOW BENCHS FINDING IN THE CASE OF SUBRATA ROY SAHARA V. ACIT ( 2007) 294 ITR (AT) 235 WE ARE OF THE FIRM VIEW THAT THE AUTHORITIES B ELOW WERE NOT JUSTIFIED IN MAKING AN ADDITION OF RS.42 LAKHS U/S 2 (22)(E) OF THE ACT. IT IS ORDERED ACCORDINGLY. 10. THE OTHER GRIEVANCE OF THE ASSESSEE IS WITH REG ARD TO THE CHARGING OF INTEREST U/S 234B AND 234C OF THE ACT. CHARGING OF INTEREST U/S 234B AND 234C OF THE ACT ARE MANDATORY AND CONSEQUENTIAL IN NATURE; THIS GROUND IS DISMISSED AS NOT MAINTAINABLE. ITA NOS.763 & 737/BANG/09 PAGE 12 OF 21 11. THE ISSUE OF TAXABILITY OF RS.42 LAKHS U/S 2 (2 2)(E) OF THE ACT HAS SINCE BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE FORE-GOING PARAGRAPHS THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSES SEE WITH REGARD TO THE APPLICABILITY OF S.2 (22) (E) OF THE ACT HAS BECOME OBSOLETE AND AS SUCH THE SAME HAS NOT BEEN ADDRESSED TO. II. ITA NO: 763/09 [BY THE REVENUE] 12. WE SHALL NOW DEAL WITH THE GRIEVANCES OF THE RE VENUE. DELETION OF THE ADDITION OF RS.17.18 LAKHS MADE U/S 40 (A) ( IA ) OF THE ACT : THE ASSESSEE WAS MANUFACTURING MACHINERY PARTS WHIC H WERE USED IN TIPPERS DEEP DRILL EQUIPMENTS ETC. HAD SHOWN A TOT AL SALE OF RS.3.83 CRORES. RAW MATERIALS WERE MANUFACTURED OUT OF CAST IRON S G IRON SPECIAL BARS AND SEAMLESS TUBES AND THEN RAW MATERIAL UNDERGOES PROCESSING LIKE CUTTING TURNING MILLING HONING HEAT TREATMENT E TC. AS CERTAIN FACILITIES WERE NOT AVAILABLE IN THE ASSESSEES FACTORY SUCH JOBS WERE GOT DONE FROM OUTSIDE PARTIES AND PAID MACHINE CHARGES WHICH WERE DEBITED TO CONTRACT JOB WORK. HOWEVER THE AO WAS OF THE VIEW THAT 30 % OF SUCH PAYMENTS AS GOT DONE BY OUTSIDERS WHICH WAS NOTHING BUT SUB-CON TRACT AND SINCE THE ASSESSEE HAD FAILED TO DEDUCT TDS U/S 194C(2) OF TH E ACT HE HAD RESORTED TO DISALLOW A SUM OF RS.17.18 LAKHS U/S 40(A) (IA) OF THE ACT. 12.1. ON AN APPEAL BEFORE THE CIT(A) IT WAS CONT ENDED BY THE ASSESSEE THAT THE MACHINING CHARGES WERE NOTHING B UT DIRECT JOB WORK PAYMENTS BY THE ASSESSEE AND SOLD DIRECTLY TO THE C USTOMERS AND THUS THE APPLICABILITY OF TDS IN HIS CASE DOESNT ARISE. AF TER DUE CONSIDERATION OF THE ITA NOS.763 & 737/BANG/09 PAGE 13 OF 21 ASSESSEES VERSION AND ALSO THE DETAILS FURNISHED B Y HIM THE LD. CIT (A) HAD OBSERVED THUS 5.4PROVISIONS OF SUB-CONTRACT ARE APPLICABLE ON LY IN CASE OF MACHINING CHARGES PAID BY THE APPELLANT OF RS.26434 56/- BUT NOT TO THE MACHINING CHARGES RECEIVES OF RS.17807929/-. THOUG H IT IS AGREED BEFORE AO BUT REQUESTED TO CONSIDER ACTUAL FACTS AN D APPLY PROVISIONS IN RELEVANT CASE OF MACHINING CHARGES PAID BY APPEL LANT BUT NOT IN CASE OF MACHINING CHARGES RECEIVED BY THE APPELLANT WHER E PARTIES CONCERNED ARE REQUIRED TO DEDUCT THE TAX ON CONTRAC T/SUB-CONTRACT. IT IS HELD THAT PROVISIONS ARE APPLICABLE TO MACHINERI ES HIRE CHARGES PAID BY APPELLANT. AT THIS STAGE IT WAS ARGUED BY AR S INCE APPELLANT IS PAYING MACHINERY CHARGES HE IS TREATED AS CONTRACTO R BUT AS PER SECTION 194C(1) FOR THE YEAR UNDER CONSIDERATION CO NTRACTORS ARE NOT SUBJECT TO DEDUCT THE TAX BUT AS PER SECTION 194C(2 ) SUB-CONTRACTORS ARE ELIGIBLE. SINCE APPELLANT IS DIRECTLY GIVEN TH E CONTRACT HIS CASE IS TREATED AS A CONTRACTOR BUT THE PROVISIONS OF DEDUC TING THE TAX AT SOURCE WILL NOT APPLY FOR THE CURRENT YEAR. I HAVE CONSIDERED THE ARGUMENT AND SEE THAT TECHNICALLY FOR THE YEAR UNDE R CONSIDERATION APPELLANT THOUGH HE HAS PAID MACHINERY HIRE CHARGES OF RS.2643456/- IS NOT COVERED BY THE PROVISIONS OF THE ACT THEREF ORE AO IS DIRECTED TO DELETE THE ADDITION IN THIS RESPECT. 12.2. IT WAS CONTENDED BY THE LD. D R THAT THE CIT (A) HAD FAILED TO APPRECIATE THAT THE TOTAL TURNOVER OF THE ASSESSEE INCLUDES 30% OF THE CONTRACTUAL RECEIPTS AND HENCE FOR THE PURPOSE OF CONTRACTUAL PAYMENT ON THE DEBIT SIDE OF THE P & L ACCOUNT TO THE EXTENT O F 30% BECOMES SUB- CONTRACTUAL PAYMENT AND THAT THE ASSESSEE HAD ADMIT TED THE ADDITION OF RS.13.47 LAKHS UNDER THIS SECTION. IT WAS FURTHER CONTENDED THAT THE CIT(A) HAD FAILED TO APPRECIATE THE VERY FACT THAT THE ASSESSEE WAS MAKING PAYMENTS TO THE SUB-CONTRACTORS TO THE EXTENT OF 30 % OF THE MACHINING CHARGES AND CONTRACT LABOUR CHARGES AND THAT THE DE DUCTION OF TAX U/S 194C(2) OF THE ACT WAS MANDATORY. IT WAS THEREFOR E PLEADED THAT AS THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITI ON MADE BY THE AO THE ORDER OF THE AO REQUIRES TO BE SUSTAINED. ITA NOS.763 & 737/BANG/09 PAGE 14 OF 21 12.3. ON THE OTHER HAND THE LD. A R CAME UP WITH A SPIRITED ARGUMENT WHICH IS SUMMARIZED AS UNDER: (I) DURING THE YEAR UNDER DISPUTE THE ASSESSEE HAD DEB ITED IN THE P & L ACCOUNT (A) MACHINING CHARGES OF RS.26.43 LAKHS AND CONTRACT WORKERS SALARY OF RS.30.83 LAKHS. HOWEVER THE AO HAD ESTIMATED THAT 30% OF THE ABOVE SUMS I.E. RS.17.18 LAKHS BELONG TO SUB-CONTRACT WORK AND THE SAME WAS ADDED U/S 40( A)(IA) ON THE GROUND THAT NO TDS WAS EFFECTED IN RESPECT OF SUB-C ONTRACT PAYMENT. TWO VITAL POINTS HAVE NOT BEEN APPRECIATE D BY THE AO VIZ.: - (A) THE ENTIRE AMOUNT OF MACHINING CHARGES WAS IN RELATION TO ITEMS MANUFACTURED AND SOLD AND IN NO WAY RELATED TO MACH INING CHARGES RECEIVED AND CREDITED TO P & L ACCOUNT; (B) THE EXPENDITURE REFERRED TO ABOVE WERE OF THE N ATURE OF CONTRACT EXPENSES AND NOT SUB-CONTRACT EXPENDITURE; - THE ASSESSEE WAS THE PROPRIETOR OF AN INDUSTRIA L UNIT MANUFACTURING OF HYDRAULIC AGGREGATES LIKE CYLINDERS PARTS PUMP COM PONENTS ETC. WHICH WERE USED FOR TIPPERS AND DEEP DRILL HOLE SOL UTIONS LIKE PISTON WARE SLEEVE AND LOCK NUTS SPACERS WASHERS FOR HEA VY VEHICLE SUB AXLES. THE PRODUCES WERE MANUFACTURED OUT OF RAW M ATERIALS WERE PURCHASED FROM VARIOUS PARTIES FROM BHADRAVATHI PU NE KHOLAPUR ETC. - THE RAW MATERIALS WERE SUBJECTED TO VARIOUS PROC ESS IN THE MANUFACTURE OF PRODUCTS VIZ. CUTTING TURNING HO NING HEAT TREATMENT ETC. AS THE FACILITIES WERE NOT AVAILABLE WITH THE ASSESSEE THE SAME GOT DONE FROM THE OUTSIDE PARTIES AT SHIMOGA BANGA LORE ETC. ALL THESE MACHINING CHARGES WERE THE DIRECT CONTRACT BE ING JOB WORK GIVEN BY THE ASSESSEE TO VARIOUS PARTIES FOR MANUF ACTURING PRODUCTS AND SOLD THE SAME DIRECTLY TO THE CUSTOMERS AND AS SUCH THE PROVISIONS OF TDS WERE NOT APPLICABLE; ITA NOS.763 & 737/BANG/09 PAGE 15 OF 21 - THE NATURE OF JOB WORKS DONE TO VARIOUS PARTIES WERE MACHINING AND HONING CHARGES. THE MAJOR WORKS DONE WERE FOR M/S. TATA MOTORS LIMITED M/S. TAL MANUFACTURING LIMITED PUNE PACP L ETC. ALL THE JOBS ENTRUSTED TO THE ASSESSEE WAS DONE BY THE ASSESSEES UNIT ONLY AND THUS THERE WAS NO SUB-CONTRACT IN ALL TH ESE CASES; - OUT OF THE LABOUR CONTRACT SALARY DEBITED TO P& L ACCOUNT THE AO HAD DISALLOWED 30% TREATING THE SAME AS SUB-CONTRA CT PAYMENT. PART OF THE SALARY CONTRACT WORKERS SALARY WAS CONS IDERED AS SUB- CONTRACT SINCE THERE WAS MACHINING CHARGES RECEIVED AND CREDITED TO PROFIT AND LOSS ACCOUNT; - SINCE THE ASSESSEE HAD NOT GIVEN ANY SPECIFIC PO RTION OF MACHINING WORK ORDER HE HAD RECEIVED THE QUESTION OF TREATIN G A PORTION OF LABOUR CONTRACT WORK AS SUB-CONTRACT WORK DOESNT A RISE; - THE CONTRACT WORKERS WERE BASICALLY HELPERS WHO ASSIST THE SKILLED WORKERS ON THE SHOP FLOOR IE. LOADING OF PRODUCT O N MACHINE THEIR MOVEMENT TO THE OTHER MACHINE AND UNLOADING ETC. SREE GAJANANA ENTERPRISES SHIMOGA WAS PAID AS PER ITS BILL ON TH E BASIS OF NUMBER OF LABOURERS SUPPLIED AND THUS THERE WAS NO MATER IAL WHICH CONSTITUTES SUB-CONTRACT ELEMENT IN THE TRANSACTION . 13. WE HAV E CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE PROVISIONS OF ACT [194C(1) AND (2) OF THE ACT] DURING THE RELEVANT PERIOD UNDER DISPUTE. AS RIGHTLY HIGHLIGHTED BY THE LD. C IT (A) THE PROVISIONS OF SUB-CONTRACT WOULD NOT BE APPLICABLE IN THE CASE OF MACHINING CHARGES RECEIVED BY THE ASSESSEE TO THE TUNE OF RS.1.78 CRO RES SINCE THE PARTIES WHO HAD MADE THE PAYMENTS WERE REQUIRED TO DEDUCT H E TAX ON CONTRACT/SUB-CONTRACT. WITH REGARD TO THE MACHININ G CHARGES PAID BY THE ASSESSEE AS RIGHTLY POINTED OUT BY THE ASSESSEE TH AT THOUGH HE WAS TREATED AS CONTRACTOR BUT AS PER S.194C(1) FOR THE YEAR UNDER DISPUTE THE ITA NOS.763 & 737/BANG/09 PAGE 16 OF 21 CONTRACTORS WERE NOT REQUIRED TO DEDUCT TAX. SINC E THE ASSESSEE HAD GIVEN THE JOB WORK DIRECTLY HIS CASE WAS TO BE TREATED A S CONTRACTOR HOWEVER THE PROVISIONS FOR DEDUCTING THE TAX AT SOURCE HAVE NO ROLE TO PLAY AS FAR AS THE ASSESSEE WAS CONCERNED FOR THE ASSESSMENT YEAR UNDE R DISPUTE. 13.1. IN VIEW OF THE ABOVE WE ARE OF THE CONSIDERE D VIEW THAT THE FINDING OF THE LD. CIT(A) DOESNT SUFFER FROM ANY INFIRMITY WHICH REQUIRES OUR INTERFERENCE. WE ARE THEREFORE IN TOTAL AGREEMEN T WITH THE CIT(A)S STAND. IT IS ORDERED ACCORDINGLY. DELETION OF INTEREST OF RS.200570/- : 14. THE AO HAD ADDED TO THE INCOME OF THE ASSESSEE A SUM OF RS.200570/- BEING INTEREST AT 12% ACCORDING TO THE AO WITH THE CONSENT OF THE ASSESSEE FOR HAVING LENT INTEREST FREE LOAN TO THE ASSESSEES CHILDREN TO THE TUNE OF RS.18.62 LAKHS. 14.1. AFTER DUE CONSIDERATION OF THE ASSESSEES C ONTENTION THAT THE AO HAD NOT ESTABLISHED NEXUS BETWEEN INTEREST BEARING LOANS AVAILED BY HIM AND THE INTEREST FREE LOANS ADVANCED TO HIS CHILDREN THE A O CANNOT MAKE DISALLOWANCE OF INTEREST ON LOAN AMOUNT AND THAT AS PER THE DAY-TO- DAY CURRENT ACCOUNT THE CLOSING BALANCE WAS RS.2.08 CRORES AND AFTER CONSIDERING TH E NET PROFIT AND O.B IN CURRENT ACCOUNT AS ON 1.4.2005 WAS RS.1.33 CRORES WHICH WAS MORE THAN SUFFICIENT TO TAKE CARE OF THE LOAN ADVANCED TO HIS CHILDREN WITHOUT C HARGING ANY INTEREST THE CIT(A) WAS OF THE VIEW THAT SINCE THE AO HAD FAILED TO ESTABLISH ANY NEXUS BETWEEN THE INTEREST BEARING LOANS AVAILED BY THE A SSESSEE AND THE INTEREST FREE LOAN ADVANCED TO HIS CHILDREN AND ALSO THERE W AS SUFFICIENT CREDIT BALANCE IN THE CAPITAL ACCOUNT OF THE ASSESSEE THE RE WAS NO JUSTIFICATION ON ITA NOS.763 & 737/BANG/09 PAGE 17 OF 21 THE PART OF THE AO TO ADD THE SAID INTEREST AMOUNT TO THE ASSESSEES TOTAL INCOME. 14.2. BEFORE THIS BENCH IT WAS THE CASE OF THE RE VENUE THAT THE CIT(A) HAD GROSSLY ERRED IN DELETING THE SAME WHICH WAS ADMITTED BY THE ASSESSEE AS INCOME AND HE HAD ERRED IN HOLDING TH AT THE AO HAD NOT ESTABLISHED THE NEXUS BETWEEN THE INTEREST BEARING LOAN AVAILED BY THE ASSESSEE AND THE INTEREST FREE LOAN ADVANCED TO THE CHILDREN. AS THERE WAS NO JUSTIFICATION ON THE PART OF THE CIT(A) TO DELET E THE SAME IT WAS PLEADED THAT THE STAND OF THE AO BE SUSTAINED ON THIS COUNT . 14.3. ON HIS PART THE LD. A RS CONTENTION WAS RE VOLVED THAT THERE WAS NO NEXUS BETWEEN THE O.D. AVAILED AND THE LOAN( S) ADVANCED. IT WAS NOT THE CASE THAT THE ASSESSEE HAD AVAILED THE O.D FROM THE BANK AND HAD DIRECTLY ADVANCED A PART OF THE AMOUNT AS INTEREST FREE LOANS TO HIS CHILDREN. THESE LOANS WERE IN FACT ADVANCED OVER A PERIOD O F MORE THAN SIX YEARS AND DURING THE SAME PERIOD HE HAD ALSO BROUGHT IN A DDITIONAL CAPITAL. AS A MATTER OF FACT THE CREDIT BALANCE IN THE CAPITAL A CCOUNT OF THE ASSESSEE HAD FAR EXCEEDED THE LOAN ADVANCED AS ON 31.3.2006 AND THE CREDIT IN THE CAPITAL ACCOUNT WAS RS.2.33 CRORES AS AGAINST THE PALTRY ADVANCE OF RS.18.62 LAKHS. TO DRIVE HOME HIS POINT HE HAD PL ACED STRONG RELIANCE ON THE CASE LAWS REPORTED IN 285 ITR 554 (ALL) AND 260 ITR 637 (DEL). 15. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS. WE FIND FORCE IN THE ARGUMENT OF THE LD. A.R. AS CONTENDED BY THE A .R. THE LOANS WERE ADVANCED OVER A PERIOD OF YEARS AND THAT THE ASSESS EES CREDIT BALANCE IN THE CAPITAL ACCOUNT AS ON 31.3.2006 WAS RATHER ON A SOUND FOOTING [SOURCE: ITA NOS.763 & 737/BANG/09 PAGE 18 OF 21 PAGE 49 OF PB]. ON A CLOSE SCRUTINY OF THE IMPUGNE D ORDER OF THE AO WE FIND THAT THE AO HAD NOT BROUGHT ON RECORD ANY TANG IBLE PROOF WHICH WOULD JUSTIFY HIS ADDITION. 15.1. LET US NOW TURN OUR ATTENTION TO LOOK INTO T HE LEGAL PRONOUNCEMENTS: (I) CIT V. PREM HEAVY ENGINEERING WORKS PVT. LTD. ( 2006) 285 ITR 554 (ALL) : IT WAS HELD BY THE HONBLE HIGH COURT THAT WHERE THE AMOUNT OF ANY INTEREST-FREE LOAN IS SUFFICIENTLY COVERED BY THE N ON-INTEREST-BEARING FUNDS AVAILABLE WITH THE ASSESSEE THE QUESTION OF DISALLOWANCE OF INTEREST ON BORROWED FUNDS DOES NOT ARISE. IT IS ALSO NOT THE C ASE OF THE REVENUE THAT ANY AMOUNT BORROWED FROM THE BANK ON WHICH THE LIABILIT Y FOR PAYMENT OF INTEREST-FREE ADVANCE WAS THERE WITH THE RESPONDENT -ASSESSEE HAD NOT UTILIZED FOR THE PURPOSES OF BUSINESS. (II ) THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT V. TIN BOX CO. REPORTED IN (2003)260 ITR 637 CONCURRED WITH THE VI EW OF THE TRIBUNAL WHICH HAD RECORDED ITS FINDING THUS - 'WE ARE IN AGREEMENT WITH THE SUBMISSIONS MADE BY L D COUNSEL FOR THE APPELLANT BECAUSE THE FACTUAL POSITION AS SUBMITTED BEFORE US BY LD COUNSEL FOR THE APPELLANT HAS NOT BEEN CONTROVERTED BY THE LD. D R. THE ADMITTED FACTS ARE THAT THE APPELLANT FIRM HAS BEEN ENJOYING OVERDRAFT FACILITIES FROM THE SBI CHANDNI CHOWK DELHI SINCE LONG TIME PAST AGAINST THE HYPOTHECATION OF GOODS ETC. AND PLEDGE OF LAND B UILDING PLANT AND MACHINERY AND THE INTEREST PAID ON SUCH OVERDRAFT A CCOUNT HAS BEEN ALLOWED BY THE REVENUE YEAR AFTER YEAR. EVEN IN THE ASSESSM ENT YEAR 1982-83 NO SUCH DISALLOWANCE HAD BEEN MADE WHEN ADMITTEDLY SUB STANTIAL INTEREST-FREE FUNDS HAD BEEN ADVANCED TO THE SISTER CONCERN. THE APPELLANT HAS NOT PAID ANY INTEREST TO ANY OTHER PARTY EITHER IN THE PAST OR DURING THE YEAR UNDER APPEAL. FURTHER IN THE YEARS UNDER APPEAL EITHER T HE FRESH ADVANCES TO ITA NOS.763 & 737/BANG/09 PAGE 19 OF 21 PNSMPL HAVE BEEN QUITE INSIGNIFICANT OR THERE HAVE BEEN ABSOLUTELY NO FRESH ADVANCES MADE BY THE APPELLANT RATHER DURING THE ASSESSMENT YEARS 1990-91 TO 1992-93 THE APPELLANT HAD RECEIVED BACK FROM THE SISTER CONCERN MORE THAN RS. 10 LAKHS. THE CAPITAL OF THE FIRM AND INTEREST-FREE UNSECURED LOANS WITH THE APPELLANT FAR EXCEEDS THE AMOUNTS AD VANCED TO THE SISTER CONCERN IN ALL THE YEARS UNDER APPEAL A FACT NEITHE R CONTROVERTED NOR DISPROVED BY THE LD D R ALSO.' THE PRESENT ISSUE IS SIMILAR TO THAT OF THE ISSUES DEALT BY THE HONBLE HIGH COURTS CITED SUPRA. WITH RESPECTS WE ARE IN TOT AL AGREEMENT WITH THE RULINGS OF THE HONBLE COURTS. 15.2. TURNING TO THE ISSUE ON HAND AS POINTED OU T IN THE FORE-GOING PARAGRAPHS THE AO HAD NOT BROUGHT ON RECORD ANY TA NGIBLE PROOF THAT THERE WAS A NEXUS BETWEEN THE LOAN(S) AVAILED AND THE INT EREST FREE LOANS ADVANCED TO THE ASSESSEES CHILDREN WHICH JUSTIFY H IS STAND IN CHARGING OF INTEREST OF RS.200570/- . 15.3. IN VIEW OF THE ABOVE AND ALSO IN CONFORMITY WITH THE RULING OF THE HONBLE COURTS CITED SUPRA WE ARE IN AGREEMENT WITH THE CIT(A) IN DELETING THIS ADDITION. IT IS ORDERED ACCORDINGLY. (III) DELETION OF THE DISALLOWANCE OF RS.45920/- MADE U/S 40A(3) :- 16. ON A VERIFICATION OF THE BOOKS OF ACCOUNT THE AO FOUND THAT THE ASSESSEE HAD MADE CASH PAYMENTS OF RS.2.29 LAKHS TO M/S.RUBY ENTERPRISES BOMBAY WHICH IN HIS VIEW WAS IN CONT RAVENTION OF THE PROVISIONS OF S.40A(3) HE RESORTED TO DISALLOW 20% OF THE SAME. 16.1. THE ISSUE IN BRIEF IS THAT THE ASSESSEE HA D DIRECTLY CREDITED A SUM OF RS.2.29 LAKHS TO THE ACCOUNT OF M/S.RUBY ENTERPR ISES BOMBAY WHICH IN ITA NOS.763 & 737/BANG/09 PAGE 20 OF 21 THE EYES OF THE REVENUE THE ASSESSEE HAD CONTRAVEN ED THE PROVISIONS OF S.40A(3) AND THUS HE HAS BEEN PENALIZED BY WAY OF DISALLOWANCE OF RS.45920/-. 16.2. IN AN IDENTICAL ISSUE THE JURISDICTIONAL H ONBLE TRIBUNAL IN THE CASE OF SRI RENUKESHWARA RICE MILLS V. ITO REPORTED IN ( 2005) 93 TTJ 912 HAS RULED THUS - INSTEAD OF ISSUING CHEQUE/DD THE ASSESSEE PREPARE D A CHALLAN AND ALONG WITH THE CASH THE CHALLAN WAS PRESENTED TO TH E BANK OF THE PAYEE FOR THE CREDIT OF THE SAME IN THE ACCOUNT OF PAYEE. IN THE RESULT IT IS ENSURED THAT THE PAYEE AND PAYEE ALONE RECEIVES THE PAYMENT AND HE ORIGIN AND CONCLUSION OF TRANSACTION IS TRACEABLE. THUS PAYMENT OF SUM DIRECTLY IN THE BANK ACCOUNT OF PAYEE FULFILS T HE CRITERIA FOR ENSURING THE OBJECTION OF INTRODUCTION OF S.40A(3). THIS IS NOT A DIRECT PAYMENT TO THE PAYEE BUT ONLY TO THE CREDIT OF ITS BANK ACCOUNT WITHOUT THE PAYEE ACTUALLY RECEIVING THE CASH. ACCORDINGLY SUCH PAYMENT IS NOT IN VIOLATION OF THE PROVISIONS OF S.40A(3) AND HENCE NO DISALLOWANCE IS CALLED FOR-ATTAR SINGH GURMUKH SING H ETC. V. ITO (1991) 191 ITR 667 (SC) RELIED ON. 16.3. HOWEVER IN THE INSTANT CASE THERE IS NOTHING ON RECORD TO ESTABLISH GENUINENESS OF DIRECT REMITTANCE BY THE A SSESSEE TO THE PAYEES BANK ACCOUNT. FURTHER IN THE CASE REFERRED SUPRA T HE PAYMENT WAS MADE FOR PURCHASE OF AGRICULTURAL PRODUCE TO THE AGENT O PERATING IN THE MARKET YARD SET UP UNDER THE STATE RMC ACT AND ACCORDINGLY FELL WITHIN THE SCOPE OF EXCLUSIONARY CLS. (F) AND ( L ) OF R. 6DD. THEREFORE WE UPHOLD THE ORDER OF THE LD. AO ON THIS COUNT. 17. IN THE RESULT (I) THE ASSESSEES APPEAL IS PARTLY ALLOWED (II) THE REVENUES APPEAL IS ALSO PARTLY ALLOWED. ITA NOS.763 & 737/BANG/09 PAGE 21 OF 21 PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF FEBRUARY 2010. SD/- SD/- (SHAILENDRA KUMAR YADAV ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMB ER BANGALORE DATED THE 26 TH FEBRUARY 2010. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.