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TMI Blog2022 (2) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... ] has held that once the assessee establishes that there was a nexus between expenditure and the purpose of business, the Revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the Board of Directors and assume the said role to decide how much is a reasonable expenditure having regard to the circumstances of the case.- Decided in favour of assessee. - ITA No.6443/Del/2019 - - - Dated:- 22-9-2021 - Shri R.K. Panda, Accountant Member For the Assessee : Shri Gautam Jain, Advocate For the Revenue : Shri R.K. Gupta, Sr. DR ORDER This appeal filed by the assessee is directed against the order dated 30.04.2019 of the CIT(A), Hisar, relating to the assessment year 2016-17. 2. Facts of the case, in brief, are that the assessee filed his return of income on 17th October, 2016 declaring taxable income of ₹ 3,12,270/-. During the course of assessment proceedings, the AO noted that the assessee deals in wholesale trading of oil seed, cotton, guar and commission agent, etc. From the Profit Loss Account filed by the assessee, he noted that the assessee has received commission of ₹ 26,78,036/-. Further, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the appellant has made purchase of goods and sale of agricultural produce to these parties. The appellant further submitted that the interest was paid to the purchase where credit balance remained at the end of the year after setting both credit and debit balance. It is apparent that both these parties (Samjhai Nath Industries BTU Saraswati Ginning Pressing Oil Mills ] are sister concern of the appellant. The whole of arrangement of making payment of interest seems to be for the sake of diversion of income. Since the appellant is both purchasing sales selling goods to the sister concern it seems to be apparently by design that the credit balance at the end of the year remaining so as to make payment for the same. Further it is seen that the rate of interest paid is much higher then the usual rate paid in normal trade practice. The submissions of the appellant that the interest is paid at the rate decided by Vyapar Mandal Association is not supported by any documents or letter from the Vyapar Mandal Association. Considering the entirety of the case the disallowance made by the AO is confirmed. The grounds of appeal are dismissed. 4. Aggrieved with such order of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Supreme Court in the case of SA Builders Ltd. vs. CIT, reported in 288 ITR 1 and the decision of the Hon ble Supreme Court in the cased of Hero Cycles (P) Ltd. vs. CIT, 379 ITR 347, he submitted that once trading transactions were genuine and accepted as such, then, such expenditure is in accordance with the law. He accordingly submitted that the disallowance made by the AO and sustained by the CIT(A) should be deleted. 8. The ld. DR, on the other hand, relied on the orders of the AO and the CIT(A). 9. I have considered the rival arguments made by both the sides and perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find, the AO, in the instant case, disallowed an amount of ₹ 22,89,134/- on the ground that the assessee could not explain the reasons for payment of interest to the business creditors that too sister concerns whereas it is not charging any interest from the debtors. I find, the ld.CIT(A) upheld the action of the AO, the reasons of which have already been reproduced in the preceding paragraph. It is the submission of the ld. counsel that since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure and the purpose of the business, the Revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the board of directors and assume the said role to decide how much is a reasonable expenditure having regard to the circumstances of the case. We need not go into any hypothetical issue in this case in view of the accepted position that the factum of services rendered by the CDL has not been refuted by the Revenue. It needs no reiteration that the settled position in law is that no businessman can be compelled to maximise his profits. The obvious answer to the first question is in the affirmative, in favour of the assessee and against the Revenue. 11. I find, the Hon ble Supreme Court in the case of Hero Cycles (P) Ltd. (supra) has observed as under:- In so far as loans to the sister concern/subsidiary company are concerned, law in this behalf is recapitulated by this Court in the case of S.A. Builders Ltd. v. Commissioner of Income Tax (Appeals) and Another' [2007 (288) ITR 1 (SC)]. After taking note of and discussing on the scope of commercial expediency, the Court summed up the legal position in the following manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. Applying the aforesaid ratio to the facts of this case as already noted above, it is manifest that the advance to M/s Hero Fibres Limited became imperative as a business expediency in view of the undertaking given to the financial institutions by the assessee to the effect that it would provide additional margin to M/s Hero Fibres Limited to meet the working capital for meeting any cash loses. 12. Since the assessee has made purchase and sale transactions with the two sister concerns, namely, M/s Samjhai Nath Industries and Saraswati Ginning Pressing Oil Mills the details of which are at para No.5 of this order and has also charged interest from them on outstanding balances and paid interest to them on the outstanding balances, therefore, in the light of the decisions of the Hon ble Supreme Court in the case of SA Builders Ltd. (supra) and Hero Cycle (supra), I am of the considered opinion that no i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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