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TMI Blog1991 (1) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... ere immediately discounted while those of other parities were neither discounted nor was any interest charged. The Assessing Officer recast the profit and loss account to show that but for this interest the assessee would have earned a profit of Rs. 9,73,270. He also found that the assessee had incurred a loss of Rs. 47,70,285 by selling goods to RTI at the rates lower than what the assessee had paid while purchasing those goods on the very same day. On being required to explain this unusual state of affairs, the assessee stated as under: ".....As was pointed out in our above referred letter, the entire purpose of entering into transactions for the purchase and sales was to get higher banking facilities and to get additional limit.... ......The intention behind getting the additional banking facility was to make available adequate finance with the company so that the company on its own, or in association with others, can develop better and new business..... ......These transactions were purely with the object of getting the banking facility not only in our case, but also in the case of Reliance Textile Industries Ltd. Anil Fabrics Limited and Nina Textile Industries Limite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the RTI, a sister concern, was made for the purposes of business, inasmuch as the assessee's business relations with that company have been conducive to the business interest of the assessee. According to the learned counsel, an over-all view of the matter should be taken and the financial accommodation provided to the RTI has mainly benefited the assessee even though it has also incidentally benefited the RTI. The assessee's claim for interest on discounting of bills, therefore, could not be declined merely on the ground that the mutual relationship between the assessee and RTI has incidentally benefited also a sister concern. According to the learned counsel, whole of the interest on discounting of bills was paid wholly and exclusively for the purposes of the assessee's business and no disallowance out of such amount could validly be made. 7. As against the above it was urged by the learned Departmental Representative that the assessee intentionally under-invoiced the sales to RTI with a view to realise lower amounts as sale price from the RTI. Although the transaction of purchase of goods by the assessee and sale of those very goods to the RTI took place on the very same day, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision reported in 130 ITR 504 is not applicable. 8. We have considered the facts and circumstances of the case and the rulings cited at the Bar and are of the firm view that there is no merit in this appeal of the assessee. It is clear from the record, and otherwise not disputed by the assessee, that the goods purchased by the assessee were under-invoiced and sold at lower price to the RTI on the very day of purchase. It is similarly not disputed that the assessee had to pay interest on discounting of the bills relating to these transactions. Thus so far as the facts are concerned, it is not disputed that the assessee had to pay interest, which otherwise it would not have to pay had it not provided financial accommodation to the RTI by under-invoicing the sales to it. With regard to this aspect of the matter, it was submitted by the learned counsel for the assessee that this was done in larger business interest of the assessee inasmuch as the assessee by showing a higher volume of business was able to get higher banking facilities and additional financial limits, which in the long run benefited its business. In this context, the learned counsel further submitted that if an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that the major portion of the assessee's business was with Reliance Textile Industries (RTI) inasmuch as 20 per cent of the purchases and over 70 per cent of the sales were made to them. He also found that the bills of RTI were immediately discounted while those of other parties were neither discounted nor was any interest charged. The Assessing Officer recast the profit and loss account to show that but for this interest the assessee would have earned a profit of Rs. 9,32,150. He also found that the assessee had incurred a loss of Rs. 47,83,455 by selling goods to RTI at the rates lower than what the assessee had paid while purchasing those goods on the very same day. The pertinent part of the Assessing Officers observations with regard to this aspect of the matter reads as under; ".......The amount of loss was ultimately compensated by the RTI in the month of April, 1982 by issuing credit note in respect of sale of fabrics to the assessee company but the substance of the transaction was that the assessee company incurred loss of Rs. 47 lakhs, which was made good after three months and meanwhile the interest burden on this deficit amount was borne by the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the business conducted by the assessee was not speculative in nature. He further held that the assessee by under-invoicing the sales to the RTI has voluntarily charged lower than the normal prices on those sales and has thereby provided financial accommodation to the said RTI without charging interest. Since the assessee had itself paid interest on discounting of bills and has voluntarily provided accommodation to the RTI free of interest, the interest relatable to such accommodation could not be allowed. On the basis of such finding, the learned CIT(A) has disallowed an amount of Rs. 1,67,420 representing three months' interest at 14 per cent attributable to the interest-free advance of Rs. 47,83,455. It is that order of the learned CIT(A), which has been made the subject matter of this appeal by the assessee. 6. The learned counsel for the assessee, during the course of his arguments, challenged the impugned order of the learned CIT(A) on a number of grounds. His first argument was to the effect that the assessee had in fact suffered no commercial loss. The loss which has been taken into consideration by the Revenue authorities was only a notional loss, and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer, the learned Departmental Representative replied that in an appeal it is open to a respondent to support the order under appeal even on a ground different from the one on which the lower authorities orders are based. Even though the learned CIT(A) had upheld the assessee's contention with regard to the speculative nature of this part of the assessee's business, yet the learned first appellate authority was justified in disallowing the part of the interest attributable to those transactions. Moreover, the question of allowability of interest was intrinsically and essentially involved in, and was part and parcel of, the transactions of sale and purchase entered into with the RTI, the learned CIT(A) was, therefore, fully justified in making disallowance of part of the interest relatable to those transactions. In support of his contentions, the learned Departmental Representative relied upon the decisions reported in the cases of Triveni Engg. Works Ltd. vs. CIT (1987)167 ITR 742 (All); CIT vs. Dehati Co-operative Marketting-cum-Processing Society (1979) 9 CTR (P H)32 : (1981) 130 ITR 504 (P H) and S. Gopal Reddy vs. CIT (1987)65 CTR (AP) 271 : (1988) 170 ITR 660 (AP). So f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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