The ITO, Ward-4(3),, Ahmedabad v. Indo Swiss Anti-Shock Ltd.,, Ahmedabad

ITA 90/AHD/2008 | 2004-2005
Pronouncement Date: 21-05-2010 | Result: Dismissed

Appeal Details

RSA Number 9020514 RSA 2008
Assessee PAN AAACI5889G
Bench Ahmedabad
Appeal Number ITA 90/AHD/2008
Duration Of Justice 2 year(s) 4 month(s) 18 day(s)
Appellant The ITO, Ward-4(3),, Ahmedabad
Respondent Indo Swiss Anti-Shock Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 21-05-2010
Date Of Final Hearing 13-05-2010
Next Hearing Date 13-05-2010
Assessment Year 2004-2005
Appeal Filed On 03-01-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI N.S. SAINI ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH JUDICIAL MEMBER DATE OF HEARING: 13.5.10 DRAFTED ON:13.05.2010 ITA NO.90/AHD/2008 ASSESSMENT YEAR : 2004-2005 INCOME TAX OFFICER WARD.4(3) AHMEDABAD. VS. INDO SWISS ANTI SHOCK LIMITED NILKAMAL HOUSE DHOBIGHAT DHDHESHWAR ROAD AHMEDABAD. PAN/GIR NO. : AAACI5889G (APPELLANT) .. (RESPONDENT) APPELLANT BY : DR.JAYANT JAVERI SR. D.R RESPONDENT BY: SHRI BANDISH SOPARKAR C.A. O R D E R PER N.S.SAINI ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF THE LD.CIT(APPEALS)-VIII AHMEDABAD DATED 03.10.200 7. 2. GROUND NO.1 OF THE APPEAL READS AS UNDER:- 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS I N DIRECTING TO DELETE THE DISALLOWANCE OF RS.1 58 822 /- BEING REIMBURSEMENT OF MEDICAL EXPENSES OF THE DIRECTORS. 3. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S DECIDED AS UNDER:- 5. THE FOURTH GROUND OF APPEAL IS AGAINST DISALLOW ANCE OF MEDICAL EXPENSES OF DIRECTOR OF RS.1 58 822/-. T HE ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE OF - 2 - RS.1 58 822/- WHICH WAS INCURRED BY THE APPELLA NT COMPANY ON ACCOUNT OF IMBURSEMENT OF MEDICAL EXPENS ES OF THE DIRECTOR. THE ASSESSING OFFICER OBSERVED THA T THE EXPENDITURE HAS NOT BEEN INCURRED BY THE APPELLANT AS PER THE TERMS OF EMPLOYMENT OF DIRECTOR AND THAT THE EXPENDITURE IS PERSONAL EXPENDITURE OF THE DIRECTOR . 5.1. DISPUTING THE SAID DISALLOWANCE THE AUTHORISED REPRESENTATIVE OF THE APPELLANT SUBMITTED THAT THE EXPENDITURE ON ACCOUNT OF MEDICAL REIMBURSEMENT AMOUNTING TO RS.1 58 822/- HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE COMP ANY. THE APPELLANT BEING A COMPANY THERE IS NO ELEMENT OF ANY PERSONAL BENEFIT DERIVED OUT OF INCURRING ANY EXPEN DITURE. FURTHER THE EXPENDITURE IN QUESTION IS FULLY ALLOW ABLE AS REVENUE OUTGOING AS REMUNERATION TO THE DIRECTORS. IT IS IMPORTANT TO MENTION HERE THAT IN THE IMMEDIATE PRE CEDING YEAR I.E. A.Y. 2003-04 THE APPELLANT INCURRED EXPEN DITURE OF RS.71 717/- ON ACCOUNT OF MEDICAL REIMBURSEMENT TO THE DIRECTOR AND NO DISALLOWANCE WAS MADE ON ACCOUNT OF EXPENDITURE OF RS.71 717/- ON MEDICAL REIMBURSEMENT . FURTHER IT WAS SUBMITTED THAT BY VIRTUE OF RESOLUTI ON OF APPOINTMENT OF DIRECTORS THE SAID AMOUNT IS DUE AN D PAYABLE TO HIM. THE LD. A.R. RELIED ON THE FOLLOWIN G JUDICIAL PRONOUNCEMENTS: (I) J.M.A. INDUSTRIES LTD. 200 ITR 210 (DEL. ) (II) GODFREY PHILIPS INDIA 206 ITR 023 (BOM.) (III) PARADEEP OXYGEN LTD. 71 TTJ 662 (CTK.) (IV) HEROCYCLES LTD. 63 TTJ 665 (CHAN.) 5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHOR ISED REPRESENTATIVE CAREFULLY SIMILAR EXPENDITURE ON MED ICAL REIMBURSEMENT HAS BEEN INCURRED IN THE EARLIER YEAR ALSO BUT NO DISALLOWANCE WAS MADE IN THE PRECEDING YEAR I.E. A.Y.2003-04. THE MEDICAL REIMBURSEMENT OF THE DIREC TORS HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS HENC E THE SAME IS DIRECTED TO BE ALLOWED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE THAT THE ASSESSEE COMPANY HAS REIMBURSED MEDICAL EXPENSES OF RS.1 58 882/- TO ITS TWO DIRECTORS FOR THE SURGERY UNDERGONE BY THEM . THE ASSESSEE HAS - 3 - CLAIMED THE ABOVE PAYMENT AS DEDUCTABLE EXPENSE WH EREAS THE LEARNED ASSESSING OFFICER DISALLOWED THE SAME BY OB SERVING THAT THE PAYMENTS WERE PERSONAL IN NATURE NOT AS PER THE TE RMS OF EMPLOYMENT AND DIRECTORS HAVE NOT SHOWN SUCH RECEIPTS AS TAXAB LE PERQUISITE IN THEIR RETURN OF INCOME. 5. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ABOVE DISALLOWANCE BY OBSERVING THAT TH E PAYMENTS WERE MADE IN PURSUANCE TO THE BOARD RESOLUTION AND SIMIL AR PAYMENTS OF RS.71 717/- INCURRED BY THE ASSESSEE COMPANY IN THE IMMEDIATELY PRECEDING YEAR WAS ALLOWED TO THE ASSESSEE COMPANY. 6. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTAT IVE RELIED UPON THE ORDER OF THE LEARNED ASSESSING OFFICER AND THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 7. WE FIND THAT THE ASSESSEE IS A COMPANY AND THE EXPENDITURE WAS REIMBURSED TO THE DIRECTORS FOR SUR GERY TO WHOM THE SALARY WAS PAID BY THE ASSESSEE COMPANY. THUS THE ASSESSEE BEING A COMPANY THE EXPENDITURE COULD NOT BE HELD AS PERSO NAL EXPENSES OF THE COMPANY AS DIRECTORS WERE APPOINTED FOR THE BUSINES S PURPOSES OF THE COMPANY. OUR ABOVE VIEW FINDS SUPPORT FROM THE DECI SION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SA YAJI IRON & ENGG. CO. VS. CIT (2002) 253 ITR 749(GUJ). FURTHER WE OB SERVE THAT NO MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT SUCH PA YMENT WAS NOT IN ACCORDANCE WITH THE TERMS OF EMPLOYMENT OF DIRECTOR S AND WAS NOT AUTHORISED BY THE BOARD SPECIALLY KEEPING IN VIEW T HAT SIMILAR REIMBURSEMENT WAS ALLOWED IN THE IMMEDIATELY PRECED ING YEAR. - 4 - FURTHER NO DISALLOWANCE IN THE HANDS OF THE ASSESS EE COMPANY CAN BE MADE ON THE GROUND THAT ANY AMOUNT OF PERQUISITE WH ICH WAS TAXABLE IN THE HANDS OF DIRECTOR EMPLOYEE WAS NOT SHOWN BY SUC H EMPLOYEE DIRECTOR IN HIS RETURN OF INCOME. IN OUR CONSIDERE D OPINION IN SUCH A SITUATION THE ACTION OF THE DEPARTMENT SHOULD BE A GAINST THE SAID EMPLOYEE DIRECTOR AND NOT IN THE HANDS OF ASSESSEE COMPANY. WE THEREFORE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IT IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 8. GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS IN NOT UPHOLDING THE PROPORTIONATE DISALLOWANCE OF INTERES T ON ACCOUNT OF INTEREST FREE ADVANCES GIVEN TO M/S. KAR NATAKA JEWELS LTD. 9. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S DECIDED AS UNDER:- 6. THE FIFTH GROUND OF APPEAL IS AGAINST DISALLOWA NCE OF INTEREST PAID ON THE BORROWED FUNDS OF RS.10 25 400 /-. THE DISALLOWANCE WAS MADE SOLELY ON THE GROUND THAT THE APPELLANT HAS GIVEN INTEREST FREE ADVANCES OF RS.1 87 38 243/- TO THE FOLLOWING PERSONS: DEPOSIT KEB RS. 5 59 792 DEPOSIT MACHINERY RS. 60 00 000 RENT ADVANCE RS. 10 50 000 KARNATAKA JEWELS LTD. RS. 1 07 77 310 WHILE DISALLOWING THE INTEREST OF RS.10 25 400/- THE ASSESSING OFFICER OBSERVED THAT THE APPELLANT COMPA NY HAS GIVEN INTEREST FREE ADVANCES OF RS.1 87 38 243/- TO THE AFORESAID PERSONS WHERE AS THE APPELLANT HAS PAID INTEREST ON BORROWED FUNDS AND THE APPELLANT HAS MADE INTERE ST FREE ADVANCES TO THESE CONCERNS FOR NON BUSINESS PURPOSE . - 5 - 6.1 BEFORE ME THE AUTHORISED REPRESENTATIVE SUBMITTED THAT THE AO HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THERE WAS ANY NEXUS BETWEEN T HE BORROWED FUNDS AND THE ADVANCES MENTIONED ABOVE. TH E APPELLANT SUBMITTED THAT THERE WAS NO NEXUS BET WEEN THE BORROWED FUNDS AND THE ADVANCES GIVEN AS ABOVE. IT WAS SUBMITTED THAT DEPOSIT OF RS.5 59 792/- WAS MADE WI TH KARANATAKA ELECTRICITY BOARD WHICH IS GOVERNME NT BODY AND SUCH DEPOSIT WAS MADE IN CONNECTION WITH T HE BUSINESS OF THE APPELLANT. THE ADVANCE OF RS.60 00 000/- WAS ON ACCOUNT OF ADVANCE MONEY PAID FOR PURCHASE O F THE MACHINERY FOR THE PURPOSE OF THE BUSINESS. ADVANC E OF RS.10 50 000/- WAS ON ACCOUNT OF RENT PAID IN ADVAN CE AS PER THE REQUIREMENT OF THE OWNER OF THE PROPERTY WH OSE BUILDING WAS USED BY THE APPELLANT COMPANY FOR ITS BUSINESS. THEREFORE THERE WAS NO QUESTION OF CHAR GING ANY INTEREST ON THE ABOVE SAID ADVANCES. WITH REGA RD TO ADVANCE OF RS.1 07 77 310/- TO KARNATAKA JEWELS LTD . IT WAS SUBMITTED THAT THERE WAS OPENING BALANCE OF RS.64 66 410/- AND ADVANCE GIVEN TO THIS PARTY DURI NG THE YEAR UNDER APPEAL WAS OF RS.43 10 900/-. OUT OF THE SAID ADVANCE OF RS.43.10 LACS GIVEN TO THE ABOVE PARTY AN AMOUNT OF RS.33 06 600/- WAS ADVANCED ON 29/3/2004 AND A FURTHER SUM OF RS.8 75 000/- WAS ADVANCED ON 29/3/2004. NO INTEREST WAS CHARGED OR RECEIVED ON THE ABOVE ADVANCES. THE BREAK UP OF EXPENDITURE OF INTE REST AND FINANCIAL CHARGES OF RS.11 47 249/- IS AS UNDER : (I) BANK CHARGES RS . 1 21 849/- (II) INTEREST ON OTHERS RS.21 465/- (III) INTEREST ON BILL DISCOUNTING RS.3 96 000/- (IV) INTEREST - EXCISE RS.2 740/- (V) INTEREST ON HIRE PURCHASE LOANS RS.1 18 329/- (VI) INTEREST ON TERM LOANS RS.4 86 866/- FROM THE ABOVE BREAK UP OF INTEREST EXPENSES IT BE COMES CLEAR THAT INTEREST OF RS.4 86 866/- WAS PAID ON TE RMS LOANS. THE TERM LOANS WERE TAKEN FROM THE BANK AND SUCH TERM LOAN HAS NOT BEEN UTILIZED FOR DIVERSION OF BO RROWED FUNDS FOR MAKING INTEREST FREE LOANS & ADVANCES. FU RTHER INTEREST OF RS.1 18 329/- RELATES TO INTEREST ON HI RE PURCHASE LOANS AND INTEREST OF RS.3 96 000/- RELATES TO BILL DISCOUNTING. THUS INTEREST ON THE OTHER BORROWINGS IS ONLY RS.21 465/-. FROM AN ANALYTICAL STUDY OF THE INTE REST AND - 6 - FINANCIAL CHARGES AS ABOVE IT WAS SUBMITTED THAT TH ERE WAS NO SHADOW OF DOUBT THAT THE EXPENDITURE INCURRED ON PAYMENT OF INTEREST WAS WHOLLY AND EXCLUSIVELY INCU RRED FOR THE PURPOSE OF BUSINESS. THE APPELLANT HAS NOT DIVERTED ANY INTEREST-BEARING FUNDS FOR MAKING INTEREST FREE ADVANCES AS ERRONEOUSLY PRESUMED BY THE ASSESSING OFFICER. MOREOVER OUT OF THE FOUR PERSONS MENTIO NED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER KA RNATAKA JEWELS IS THE ONLY PARTY TO WHOM THE APPELLANT COMP ANY HAS GIVEN INTEREST FREE ADVANCE THE OTHER THREE AD VANCES I.E. DEPOSIT WITH KARNATAKA ELECTRICITY BOARD (RS.5 59 792) ADVANCE GIVEN FOR PURCHASE OF MACHIN ERY (RS.60 00 000/-) AND ADVANCE RENT GIVEN (RS.10 50 0 00/-) ARE NOT IN THE NATURE OF LOANS. THESE ADVANCES WERE GIVEN FOR SPECIFIC BUSINESS PURPOSE AND DID NOT B EAR ANY INTEREST. DURING THE YEAR UNDER CONSIDERATION ADVA NCE OF RS.43 10 900/- ONLY WAS GIVEN TO KARNATAKA JEWELS L TD. AT THE FAG END OF THE YEAR I.E. 29/3/2004. AGAIN TH IS ADVANCE WAS NOT RELATABLE TO THE INTEREST BEARIN G BORROWED FUNDS. THE INTEREST BEARING BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF THE BUSINESS NAMELY FOR GIVING ADVANCE FOR PURCHASE OF MACHINERY ETC. IT WAS SUBMI TTED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. A.Y. 2003-04 IN THE SCRUTINY ASSESSMENT MADE U/S. 143(3) THE ASSESSING OFFICER HAS EXAMINED THE ISSUE AND NO ADDITION WAS MADE ON ACCOUNT OF INTEREST FREE LOAN GIVEN TO KARNATAKA JEWELS LTD AND THAT THERE WAS NO CHANG E IN THE FACTS FROM A.Y. 2003-04. THE FACTS REMAINING TH E SAME AND IN THE ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD TO SHOW THAT INTEREST BEARING BORROWED FUND HAVE BEEN DIVERTED TO MAKE INTEREST FREE ADVANCE TO KARN ATAKA JEWELS LTD. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE APPELLANT'S CLAIM FOR DEDUCTION OF INTEREST OF RS.10 25 400/- UNDER SECTION 36 (1) (III) OF THE INCOME TAX ACT. THE LD. A.R. SUBMITTED THAT INTEREST OF RS.4 86 000/- WAS PAID ON TERM LOAN FROM VYSHA CO.O P. BANK LTD. TUMKUR WHICH HAS BEEN EXCLUSIVELY USED F OR THE PURPOSE OF BUSINESS. INTEREST OF RS.1 18 329/- IS PAID ON HIRE PURCHASE LOANS I.E. VEHICLE LOANS. INTEREST OF RS.3 96 000/- IS PAID ON BILL DISCOUNTING AND AMOUN T OF RS.1 21 849/- RELATES TO BANK CHARGES. ONLY AN AMOU NT OF RS.21 465/- PERTAINS TO OTHER INTEREST. THUS THE E NTIRE AMOUNT OF EXPENDITURE UNDER THE HEAD INTEREST AND - 7 - FINANCIAL CHARGES HAS BEEN INCURRED WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF BUSINESS AND NO INTEREST BEARING BORROWED FUND HAS BEEN DIVERTED FOR NON BUSINESS PURPOSES. THEREFORE IT WAS SUBMITTED THAT THE DISALLOWANCE OF RS.10 25 400/- MADE BY THE AO BE DELETED. THE A.R RELIED UPON THE FOLLOWING DECISIO NS:- (1) MALWA COTTON SPINNING MILLS VS. ACIT (89ITD 65) (CHD) (2) SHREE DIGVIJAY CEMENT CO. LTD. VS. CIT -138ITR 45(GUJ) (3) CIT VS. SOUTH INDIA CORP. AGENCIES LTD.-290 ITR219(MAD) (4) CIT VS. PREM HEAVY ENGG. WORKS PVT. LTD.(285 ITR 554)(A11) (5) TORRENT FINANCIERS VS. ACIT (73 TTJ 624) (AHMEDABAD) 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL. THE APPELLANT HAS MADE DEPOSIT WITH KARNATAKA ELECT RICITY BOARD FOR GETTING POWER CONNECTION SO IT IS FOR THE PURPOSE OF BUSINESS. SIMILARLY DEPOSIT OF RS.60 LACS HAS BE EN MADE FOR USE OF MACHINERY TAKEN ON HIRE FOR WHICH NO REN T HAS BEEN PAID. SIMILARLY RS.10 50 000/- HAS BEEN GIVEN AS RENT ADVANCE. THUS THESE THREE ADVANCES ARE FOR THE PURP OSE OF BUSINESS THEREFORE NO DISALLOWANCE OF INTEREST SHO ULD BE MADE CORRESPONDING TO DEPOSIT WITH KEB AND DEPOSIT FOR MACHINERY AND RENT ADVANCE. AS REGARDS THE ADVANCE TO KARNATAKA JEWELS LTD. THE LD. COUNSEL HAS SUBMITTE D THAT THE BALANCE ADVANCE AS ON 31-3-2002 WAS OF RS.67.62 LACS. THE LD. A.R. HAS FURNISHED COPY OF BALANCE SHEET AS ON 31- 3-2002 TO SHOW THAT THERE ARE NO UNSECURED LOANS. THE APPELLANT HAS SECURED LOAN OF RS.52 90 000/- AS ON 31.03.2002 WHICH IS TERM LOAN FROM VYASA CO.OP. B ANK WHICH WAS TAKEN FOR SPECIFIC MACHINERY AND THE APPE LLANT HAS TAKEN HIRE PURCHASE LOAN OF RS.11.03 LACS WHICH WAS FOR PURCHASE OF VEHICLES. FURTHER DURING THE YEAR THE APPELLANT HAD ADVANCED RS.8.25 LACS AND RS.33.07 LA CS TO KARNATAKA JEWELS LTD. ONLY ON 29-3-2004. THIS WAS SUPPORTED BY COPY OF ACCOUNT OF KARNATAKA JEWELS LT D. SUBMITTED BY THE LD. COUNSEL. THEREFORE AS THE NE XUS OF THE ADVANCES WITH THE BORROWED FUNDS IS NOT ESTABLI SHED ACCORDING TO LD. COUNSEL DISALLOWANCE OF INTEREST IS NOT JUSTIFIED. FURTHER THE LD. COUNSEL HAS GIVEN BREAK UP OF THE - 8 - INTEREST OF RS.11 47 249/- OUT OF WHICH RS.1 21 849 /- IS BANK CHARGES AND RS.4 86 866/- IS THE INTEREST ON T ERM LOAN WHICH HAS BEEN UTILIZED FOR SPECIFIC PURPOSE AND NO PART OF INTEREST ON THIS LOAN IS ATTRIBUTABLE TO ADVANCES G IVEN. SIMILARLY RS.1 18 329/-IS INTEREST ON HIRE PURCHASE LOANS FOR CAR. RS.21 465/- IS THE INTEREST CHARGED BY TH E PARTIES WHICH HAS NOTHING TO DO WITH THE BORROWINGS. SIMILA RLY INTEREST OF RS.3 96 000/- WAS INTEREST ON BILL DISC OUNTING WHICH WAS FOR SUPPLY OF GOODS TO SPECIFIC PARTIES A ND THIS BORROWING HAS NO NEXUS WITH INTEREST FREE ADVANCES GIVEN. FURTHER IT HAS BEEN SUBMITTED THAT THE APPELLANT HA D INTEREST FREE FUNDS OF RS.4 91 86 835/- CONSISTING OF CAPITAL RESERVES DEFERRED TAX DEPRECIATION AND C REDITORS. FURTHER THE ADVANCE WAS GIVEN TO KARNATAKA JEWELS F OR COMMERCIAL CONSIDERATION BECAUSE THE SAID COMPANY BECAME SICK AND ADVANCES EARLIER GIVEN HAD NO CHANC E OF RECOVERY AND TO RECOVER THE BAD RECOVERY THE APPELL ANT HAD TO MAKE FURTHER ADVANCE OF GOOD MONEY AND THIS WAS FOR COMMERCIAL EXPEDIENCY TO ENABLE THE SAID COMPANY TO START GIVING BACK THE APPELLANT'S FUNDS. THUS RELY ING ON THE DECISION OF HON'BLE S.C. IN S.A. BUILDERS VS. CIT 2 88 ITR 1 (SC) AS THERE WAS COMMERCIAL EXPEDIENCY NO PART O F INTEREST NEEDS TO BE DISALLOWED. ACCORDINGLY THE IN TEREST DISALLOWANCE IS DELETED. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE LEARNED ASSESSING OFFICER DISALLOWED OUT OF INTEREST EXPENDITURE RS.1 0 25 400/- BY OBSERVING THAT INTEREST FREE ADVANCE WAS GIVEN BY T HE ASSESSEE TO THE FOLLOWING PERSONS:- DEPOSIT KEB RS. 5 59 792 DEPOSIT MACHINERY RS. 60 00 000 RENT ADVANCE RS. 10 50 000 KARNATAKA JEWELS LTD. RS. 1 07 77 310 ACCORDING TO THE LEARNED ASSESSING OFFICER THE ABO VE ADVANCES WERE NOT FOR THE BUSINESS PURPOSES AND ASSESSEE COMPANY WAS INCURRING - 9 - INTEREST EXPENDITURE FROM BORROWED CAPITAL AND THER EFORE HE DISALLOWED PROPORTIONATE INTEREST EXPENDITURE OF RS.10 25 400/ -. 11. OUT OF THE ABOVE ADVANCE ALL THE ADVANCES ACC EPT TO KARNATAKA JEWELS LTD. WERE FOR BUSINESS OF THE ASS ESSEE COMPANY. FURTHER IN RESPECT OF KARNATAKA JEWELS LTD. HE OB SERVED THAT THE TOTAL ADVANCE OF RS.1 07 77 310/- CONSTITUTED OF RS.64 66 410/- AS BROUGHT FORWARD BALANCE FROM EARLIER YEARS AND ONLY RS.43 1 0 900/- WAS ADVANCED IN THE YEAR UNDER CONSIDERATION AND THE EN TIRE FRESH ADVANCE WAS GIVEN ON 29.03.2004 I.E. AT THE FAG END OF THE RELEVANT PREVIOUS YEAR. IN RESPECT OF OPENING BALANCE OF RS.64 66 41 0/- THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER GOING THR OUGH THE DETAILS OF LOAN AS APPEARING IN THE BALANCE SHEET OF THE AS SESSEE COMPANY AS AT 31.03.2002 OBSERVED THAT THOUGH THE ADVANCE TO KARN ATAKA JEWELS LTD. WAS RS.64 66 410/- NO INTEREST BEARING FUND WAS UTI LISED FOR SUCH ADVANCES. FURTHER LEARNED COMMISSIONER OF INCOME T AX(APPEALS) OBSERVING THAT INTEREST FREE FUNDS AVAILABLE WITH T HE ASSESSEE WAS TO THE TUNE OF RS.4 91 86 835/- AND THE LEARNED ASSESSING OFFICER HAS BROUGHT NO MATERIAL TO ESTABLISH NEXUS BETWEEN THE INTEREST FREE ADVANCE OF RS.43 10 900/- ADVANCED DURING THE YEAR AND INTERES T BEARING LOAN DELETED THE DISALLOWANCE OF RS. 10 25 400/- MADE BY THE LEARNED ASSESSING OFFICER. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPOR TED THE ORDER OF THE LEARNED ASSESSING OFFICER AND LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). - 10 - 13. WE FIND THAT THE LEARNED DEPARTMENTAL REPRESEN TATIVE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THE LEARNED DE PARTMENTAL REPRESENTATIVE COULD NOT POINT OUT HOW THE ADVANCE GIVEN TO KARNATAKA ELECTRICITY BOARD FOR ELECTRIC SUPPLY ADVANCE GIVE N FOR PURCHASE OF MACHINERY AND ADVANCE RENT PAID WERE NOT BUSINESS A DVANCES OF THE ASSESSEE. IN ABSENCE OF ANY SUCH MATERIAL BROUGHT O N RECORD WE CONFIRM THE FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THAT THE ABOVE ADVANCES WERE FOR THE B USINESS PURPOSE OF THE ASSESSEE AND NO DISALLOWANCE OF INTEREST IN RES PECT OF SUCH INTEREST FREE BUSINESS ADVANCES CAN LEGALLY BE MADE. FURTHE R IN RESPECT OF ADVANCE OF RS.64 66 410/- TO KARNATAKA JEWELS LTD. NO ERROR IN THE FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS) WHICH WAS AFTER GOING THROUGH THE BALANCE SHEET OF THE AS SESSEE AS ON 31.03.2002 COULD BE POINTED OUT BY THE LEARNED DEPA RTMENTAL REPRESENTATIVE. THUS IT IS OBSERVED THAT NO PART OF INTEREST BEARING FUND WAS UTILISED FOR GIVING ADVANCE RS.64 66 410/- TO KARNATAKA JEWELS LTD.. IN RESPECT OF BALANCE ADVANCE OF RS.43 10 900/- TO KARNATAKA JEWELS LTD. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER GOING THROUGH THE LEDGER ACCOUNT OF THE SAID PARTY FOUND THAT ADVANCE WAS GIVEN ON 29.3.2004 ONLY. NO ERROR IN THIS FINDING OF HT LEARNED COMMISSIONER OF INCOME TAX(AP PEALS)ALSO COULD BE BROUGHT ON RECORD BY THE LEARNED DEPARTMENTAL RE PRESENTATIVE. FURTHER IT IS NOT IN DISPUTE THAT INTEREST FREE FU NDS AVAILABLE WITH THE ASSESSEE COMPANY WAS MUCH MORE THAN INTEREST FREE A DVANCE GIVEN TO KARNATAKA JEWELS LTD. AND IN ABSENCE OF ANY MATERIA L ON RECORD TO SHOW THAT THERE WAS A NEXUS BETWEEN INTEREST BEARING FUN DS AND INTEREST FREE ADVANCE TO THE SAID KARNATAKA JEWELS LTD. WE DO NO T FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED C OMMISSIONER OF - 11 - INCOME TAX(APPEALS) IN RESPECT OF THIS PART OF THE ISSUE ALSO. WE THEREFORE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE AND THE SAME IS DISMISSED. 14. IN THE RESULT THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON THIS 21 ST DAY OF MAY 2010. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOU NTANT MEMBER AHMEDABAD; ON THIS 21 ST DAY OF MAY 2010. PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XIX AHMEDABAD. 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 13.05.2010 ---------------- --- 2. DRAFT PLACED BEFORE AUTHORITY 17.05.2010 ----- -------------- 3. DRAFT PROPOSED & PLACED 17.05.2010 ----------- -------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 17.05.2010 ---------- --------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 18.05.2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 21.05.2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 21.05.2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- -- -------------------