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TMI Blog2019 (7) TMI 1438X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Jurisdictional High Court in the case of Abhishek Industries Ltd. [ 2006 (8) TMI 123 - PUNJAB AND HARYANA HIGH COURT] is we find misplaced since the ratio laid down in that case of disallowance of interest expenses where there are mixed funds available with the assessee, was based and proceeded on the premise that the advance was for non-business purpose, while in the present the advances have been held to be for business purpose. As for the Revenues contention that the disallowance was warranted since the assessee had itself charged interest on such advances in assessment years 2010-11 and 2011-12, we do not find any merit in the same also for the reason that firstly the assessee had explained the reasons for charging the interest in those years, as that the advance in those years was utilized for setting up the manufacturing unit of the sister concern and that subsequently once with the unit was set up, the advance was for the purpose of purchase of medicine from the sister concern and no interest was, therefore, charged on the same. The said explanation has not been shown to be incorrect by the Revenue. Even otherwise, as long as commercial expediency is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to assessment year 2014-15. 2. Ground No.1, 2 3 raised by the Revenue relate to the same issue of disallowance of interest u/s 36(1)(iii) of the Act and read as under: 1. Whether on the facts circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of ₹ 10,79,275/- made by the AO u/s 36(l)(iii) of the I. T. Act contrary to the decision in the case of Abhishek Industries Ltd. 286 ITR 1 ? 2. Whether on the facts circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of ₹ 10,79,275/- made by the AO u/s 36(l)(iii) of the I. T. Act particularly when the assessee had charged interest on such advances in AY 2010-11 and 2011-12 ? 3. Whether on the facts circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of ₹ 10,79,275/- made by the AO u/s 36(l)(iii) of the I. T, Act particularly when the purchases were not debited against advances from AY 2010-11 ? 3. Brief facts relating to the issue are that during assessment proceedings the Assessing Officer (AO) obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been paid and claimed as revenue expenditure, while it had diverted these funds to its related company as interest free advance and whose income was exempt. The Ld. DR relied upon the decision of the Hon'ble Punjab Haryana High Court in the case of CIT Vs. Abhishek Industries Ltd., 286 ITR 1 for upholding the disallowance. The Ld. DR further stated that the Ld.CIT(A) was not justified in deleting the disallowance of interest in the impugned year since the assessee had charged interest on such advances in assessment years 2010-11 and 2011-12. As far ground No.3 raised by the Revenue, no arguments made before us. 6. The Ld. Counsel for the assessee, on the other hand, stated that it was repeatedly contended by the assessee, both before the AO and the CIT(A), that the advances had been given for business purpose only. That it was pointed out that the advances had been given to sister concern of the assessee for setting up it is manufacturing unit for the manufacture of medicines which were purchased by the assessee for use in its business. That the advances had been given for financial year 2009-10 for setting up of manufacturing unit of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant company initially gave some advance to the party M/s Franklin Laboratories (India) Herbals for the setting up manufacturing plant in FY 2009-10. As per the terms between the appellant company and the party, the appellant company charged interest of ₹ 1,78,625.35 on the amount advanced. The amount was never advanced interest free. Further, it is important to note that the party M/s Franklin Laboratories (India) Herbals started business operations in FY 2009-10 itself and the appellant company started to purchase Medicines totally for the manufacturing of finished article of drugs and pharma products from this medicines from FY 2010-11 along with the advance in respect of purchase of medicines, if some of the amount was there-after advanced for the set up and run of the business to the party M/s Franklin Laboratories (India) Herbals by the appellant company, the appellant company continued to charge interest on the amount advanced by it to the party. During the FY 2010-11, the appellant company charged interest of ₹ 25,07,333/- from the party M/s Franklin Laboratories (India) Herbals. Further, it is submitted that the business of the party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces related to the preceding year and no interest had been disallowed in those years. Our attention was drawn to the submissions made in this regard at page 6 of the CIT(A) s order as under: 3) It is to submit that as we go through the ledger account of the party M/s Franklin Laboratories (India) Herbals in the books of appellant company for the year in question, it is clear that no amount of ₹ 2,90,12,762/- had been advanced during the year in question by the appellant company to it. It is the closing balance of the loan and advance in the name of party M/s Franklin Laboratories (India) Herbals as on ^'0,3.2014 amounting to ₹ 2,90,12,76/-. This balance of advance of ₹ 2,90,12,762/- is the result of business advances in previous years including the year in question. During the year in question, if we go through the figures in the ledger account, only an amount of ₹ 30,08,6521- (amount advanced net of purchases) only has been paid to the party M/s Franklin Laboratories (India) Herbals for the advance payment of purchases to be made and/or previous years purchases (if any). The closing balance of the year immediately preceding to the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso pointed out that the Ld.CIT(A) had also noted the fact that the assessee had sufficient own interest free funds for making the advances calling for no disallowance of interest u/s 36(1)(iii) of the Act. Our attention was also drawn to the findings of the Ld.CIT(A) at paras 2.3, 3.5 3.6 of the order as under: 2.3 I have carefully considered the appellant's submission. I have also gone through the assessment order in detail. 1 have further considered various judicial pronouncements relied upon by the appellant as well as other material placed by him on record. On careful consideration of rival contention, I am of the opinion that there considerable force in the arguments of the Ld. A.R of the appellant with regard to the advances given for only business purpose. Looking to the agreement, copy of ledger account of Franklin Laboratories(lndia) Herbals, Bills of material purchased, it has been noticed that the appellant has given advances to its sister concern for business purpose. It was found that the appellant has entered into an agreement on 01/11/2009 for the purchase of materials and the appellant company would provide the funds for setting up the manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant to its sister concern then the presumption should be drawn that the advances have been given out of interest free funds available with the appellant. As the appellant is having sufficient interest free funds of its own in the form of share capital and reserve and surplus to make advances under reference, it cannot be said that the appellant has used borrowed funds for the making impugned addition. 3.6 In view of the above stated facts and circumstances of the case. I am of the opinion that the assessing officer is not justified in making the addition of ₹ 10,79,275/- in this case on account of disallowance out of interest expenses by invoking provisions of section 36(1)(iii) of the Act on the ground that the appellant has given the advances out of borrowed funds for non-business purpose. Whereas the advances are given on account of commercial expediency. The addition of ₹ 10,79,275/- u/s 36(1)(iii) made by the assessing officer in this case is not accordance with law and facts of the case, therefore, directed to be deleted. In result, ground no. 3 of appeal taken by the appellant company is allowed. 9. The Ld. Counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he manufacturing unit of the sister concern and that subsequently once with the unit was set up, the advance was for the purpose of purchase of medicine from the sister concern and no interest was, therefore, charged on the same. The said explanation has not been shown to be incorrect by the Revenue. Even otherwise, as long as commercial expediency is established, there remains no reason for making any disallowance and it is entirely the prerogative of the assessee to charge or not to charge interest on such advances made. The AO cannot sit in the arm chair of the businessman and determine how the business is to be run. In view of the above, we uphold the order of the Ld.CIT(A) in deleting the disallowance of interest amounting to ₹ 10,79,275/-. The ground of appeal Nos.1, 2 3 raised by the Revenue are, therefore, dismissed. 11. Ground No.4, 5 6 raised by the Revenue relate to disallowance of salary, wages made and read as under: 4. Whether on the facts circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of ₹ 70,20,654/- made out of salary wages particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as forwarded to the AO for his comments, who objected to the admission of the same. Thereafter the Ld.CIT(A) forwarded the comments of the AO to the assessee, who contended that the evidences submitted were only clarificatory in nature supporting the evidences which were already submitted during assessment proceedings. The CIT(A) after considering the reply of the assessee admitted the additional evidences holding them to be clarificatory evidences only and thereafter proceeded to decide the case on merits. The Ld.CIT(A) found force in the arguments of the assessee and, therefore, deleted the disallowance made by the AO. The relevant findings of the Ld.CIT(A) at paras 4.4 and 4.5 of the order are as under: 4.4 I have carefully considered the appellant's submission. I have also gone through the assessment order in detail. I have further considered various judicial pronouncements relied upon by the appellant as well as other material placed by him on record. I have considered remand report of AO in pursuance of assesses application for admission of additional evidence U/r 46 A . Under the given facts and circumstances I find that additional evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirements of Rues/Law. 16. We have heard the rival contentions. The issue to be adjudicated is whether the evidences filed before the Ld.CIT(A) by the assessee were to be confronted to the AO as per Rule 46A of the Income Tax Rules,1961 and if so whether the order passed by the Ld. CIT(A) in contravention of the Rules ,was against law. To appreciate the issue it is necessary to first point out the context in which it arose, being in relation to certain payments of salary and wages found bogus by the AO in the absence of signatures before their names in the salary register where payment was recorded. The assessee had filed salary register and the salary vouchers before the AO . The evidences subsequently filed in appellate proceedings before the Ld.CIT(A) were ESI/PF returns and TDS returns showing statutory deductions made from these payments and salary vouchers with signatures of the specific employees whose salary/ wages were found bogus . The assessee has claimed the documents filed before the AO to be evidences of proof of payment of the specific instances of salary/wages disallowed. This has been accepted by the Ld.CIT(A),who as a consequence has held the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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