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TMI Blog2010 (9) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... from Virtuous Finance Limited. 3 The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 16,72,521/- made on account of interest on interest free godown deposit to Dadha Pharma Pvt. Ltd. 4 The Ld. CIT(A) has erred in law and on facts in allowing interest on advances to M/s Antriksh Pharma & M/s Dukan amounting to Rs. 31,18,143/-. 5 The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 86,560/- made on account of interest on advance to Dadha & Co. 6 The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,00,987/- made on account of interest free advance to Pradeep Dadha Agency. 7 The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 13,87,275/- made on account of interest in respect of advance to individual. 8 On the facts and in the circumstances of the case, the ld. CIT(A) ought to have upheld the order of the Assessing Officer 9 It is, therefore, prayed that the order of the CIT(A) be set aside and that of the Assessing Officer be restored to the above extent. ITA No. 1623/Ahd/2003 [AY 2000-2001] 1. The Ld. CIT(A) has erred in law and on facts in deleting the addition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stored to the above extent. ITA No.2180/Ahd/2005 [AY 2002-2003] 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 844/- on account (of differential interest made u/s 36(l)(iii). The assessee paid higher interest to the banks whereas charged less interest from the Finance Companies belonging to its own group companies. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of interest of Rs. 12,23,482/-. The assessee advanced loans to M/s Virtuous Finance Ltd. @ 12% whereas paid higher interest to the banks. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 2,29,43,683/-made out of interest paid on the over due bills for purchases. The assessee purchased goods from its associated concern, M/s Sun Pharmaceutical Industries Ltd., and paid interest at the rate of 21% which is much more than as per the borrowing rate. The interest payment was unreasonable excessive and not exclusively for the purpose of the business hence did not fall under Sec. 37(1). 4. On the facts and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to appreciate that it was a colourable arrangement and the AO was entitled to lift the corporate veil and pierce the arrangement as settled in the case of Mc Dowell and Co. Ltd. vs. CTO 154 ITR 148, 171 (SC) and reiterated in the case of Union of India vs. Azadi Bachao Andolan 263 ITR 706 (SC). 3. On the facts and in the circumstances of the case, the ld. CIT(A) ought to have upheld the order of the Assessing Officer 4. It is, therefore, prayed that the order of the CIT(A) be set aside and that of the Assessing Officer be restored to the above extent. Since similar grounds are involved in these five appeals, these were heard simultaneously for the sake of convenience and are being disposed of through this common order. 2. Adverting first to ground no.1 in the appeals for the AY 1999-2000 to 2003-04, facts ,in brief, as per relevant orders for the AY 1999-2000 are that return declaring income of Rs. 51,45,100/-. filed on 24-12-1999 by the assessee, distributing pharmaceuticals products apart from carrying on the business of leasing and financing as also share trading, after being processed on 10.7.2000 u/s 143(1)(a) of the Income-tax Act, 1961 [ hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o commercial expediency was involved while advancing such funds at lower rates. Accordingly, the AO concluded differential interest expense was not incurred wholly and necessarily for the purpose of assessee's own business; rather the assessee had incurred the liability for the benefit of its associate concerns. Therefore, the AO disallowed the following amount of differential interest cost: Rate of Interest Interest recovered Bank Rate Born by assessee Disallowed differential 12% Rs. 2,86,176 17.85% 4,25,687 1,39,511 11% Rs. 12,79,419 " 26,76,148 7,96,729 3. Like wise, the AO disallowed an amount of Rs. 2,03,792 /- calculated on page 6 of the assessment order for the AY 2000-01 and Rs. 3,26,683/- in the AY 2001-02 as mentioned on page 5 of the assessment order. Similarly an amount of Rs. 844/-in the AY 2002-03 & Rs. 46,28,510/- in the AY 2003-04 was also disallowed. 4. On appeal, the ld. CIT(A) deleted the disallowance in the AY 1999-2000 in the following terms:- "5 Having regard to the overall facts and circumstances of the case and the decisions relied upon by the appellant, I am of the view that the appellant has a case to succeed. In fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs recorded by the Tribunal that the assessee-company had sufficient funds other than the borrowed money for giving the amount in question as loan to its sister concern, which finding had not been specifically challenged in -the present appeal, the conditions of section 36(1)(iii) of the Act had been complied with and, therefore, the assessee-company was entitled to full allowance of the amount of interest paid by it on borrowed capital." The finding recorded by the CIT(A) that -"It is also a fact that the Assessee Company has got substantial interest free own funds out of which the advances are made. It is not a case that interest bearing borrowed funds has been diverted to the group concerns interest free or on lower charge of interest or for the purpose other than the business" has not specifically challenged by the Revenue. Therefore, considering the facts and circumstances in its entirety and following the decision of Hon'ble Allabahad High Court in the case of CIT v. Radico Khaitan Ltd (274 ITR 354), we uphold the order of the CIT(A) in deleting the impugned addition of Rs. 5,62,315/- made on account of difference in rates of interest." 7.1 Since the facts obtaining in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est rate Born by assessee Disallowed differential 14% 24350448 17.85% 31046821 66,96,373 " 8.1 Like wise an amount of Rs. 25,90,363/- was disallowed in the AY 2000-01 ,Rs. 8,38,036/- in the AY 2001-02 & Rs. 12,23,482/- in the AY 2002-03. 9. On appeal, the ld. CIT(A) deleted the disallowance in the AY 1999-2000 in the following terms: "8 This issue has been dealt with at great length by my predecessor while disposing the Appeal of the block assessment order of SPIL, I have perused the appellate order and find no reason to differ from the conclusions reached by my predecessor. I have also carefully considered the contentions of the Assessing Officer, the Appellant and the facts on record it is to be noted that VFL is a non banking finance company. VFL has in the past associated with SPIL for the acquisition of various companies like MJPL, GLOL, TDPL, ASEL etc. In such cases huge funds, have been blocked for acquisition of strategic stakes on behalf of and at the behest of SPIL. These facts are not disputed. The Appellant being the authorized distributor of SPIL for the whole of India definitely stands to gain as it would be direct beneficiary of increase in the sale result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n IT(SS)A No.95/Ahd/2001 for the block period. 11. We have heard both the parties and gone through the facts of the case as also the decision of the ITAT. We find that while adjudicating a similar issue in their order dated 31-05-2007 in the assessee's own case in IT(SS)A No.95/Ahd/2001 in appeal against block assessment, the Tribunal held as under:- "33. We have carefully considered the submissions of the parties alongwith the order of the tax authorities and the case laws cited before us. We noted that the main reason for the disallowance was that as per the Assessing Officer the" reduction in interest was carried out as an after thought with a view to reduce the income of the Assessee in view of the losses in the hands of VFL. We find that the reduction in income of VFL was due to its blocking of funds in specified companies. The revenue has not disputed that advances to VFL was for business purpose and correspondingly interest @ 12% was allowed by the Assessing Officer. VFL has played a strategic role in the amalgamation and acquisition of various companies by SPIL which has directly benefited the assessee. In providing such support VFL could not earn income out of the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AY 1999-2000 in the light of decision of his predecessor in appeal against block assessment in the following terms:- "18 I have carefully considered the submissions of the Appellant in light of the block assessment order and the order of my predecessor on this issue. I agree with the conclusion reached by my predecessor having regard to the overall facts and circumstances of the case The interest free deposit appears to have been given for the purpose of the business and has to be considered after taking into account the overall benefits accruing to the Appellant in which case it would be reasonable and for the purpose of business. 19 It is also noted that the appellant has sufficient interest free funds like share capital and reserves to give the said advance. On such facts, the AO has not established that interest bearing funds have been diverted for purposes of giving the advance. In the present case the AO has not brought on record any such material or finding to show that borrowed funds have been diverted for giving the advance. Moreover since has not been able to make a case that the advance was not for the purpose of business, the AO is directed to delete the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enable the Dadhas to purchase the shares- held by TIDCO in TDPL, a modus operandi of transferring funds on account of loans, advances, security deposits, etc. were utilized by the group concerns of Sun Pharma Group. The Assessee had given interest free security deposits in respect of the lease of godown on 20.03.1998 amounting to Rs. 2.5 crores and on 25.03.98 amounting to Rs. 50 lacs. The deposit of Rs. 2.5 crores given to the lessor was transferred on the same day to Shri Mohanchand Dadha's Account (HUF) which in turn, was 'transferred back to M/s. Aditya Medisales as repayment of advances which were given to Shri Mohanchand Dadha (HUF) for purchase of shares of TDPL. Similarly the deposit of Rs. 50 lacs was transferred to the accounts of Shri Mohanchand Dadha (Ind.) and Shri Pradeep Dadha on 25.3.98 itself. 19 The Assessing Officer during block assessment proceedings held that on physical inspection of the property it was found that none of the terms and conditions specified in the lease agreement was fulfilled by the lessor. According to the lease agreement, the lessor was liable to repay the full amount to the lessee in the event of failure to construct the godown wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on the above ground by making the following observations (pages 36 to 40) "46. / have considered the arguments advanced by the Assessing Officer as well as by the appellant. It is observed that the turn over of the appellant increased substantially. Once the turnover has increased, need to have a better & bigger warehouse cannot be ruled out. If advances are made towards this purpose, the advances may be treated as used for the purpose of the business unless contrary is proved. The appellant has filed papers reflecting appointment of consultants and developers by Dadha Pharma Pvt. Ltd. & reasons for non development. However, since such developments were for post search period, the same can not help the assessee to prove its claim. However, the title deeds given to the bank as collateral security and the company being a sick company do not stop the from earning income from that property. The case could have been different had Dadha Pharma Pvt. Ltd was not the owner of the property or that there was no scope for further construction. But this is not the case. The appellant required a huge space to meet its incremental turnover. Dadha Pharma Pvt. Ltd. owned a bigger premises wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of treatment of interest free advances. Where as the appellant alternatively contended that the advances were given to keep liquidity with the Dadha group in order to enable them to purchase the shares and after amalgamation may not sell their own shares which were converted into the shares of SPIL at the ratio of 4:1, the Assessing Officer contended that the seized material showed that the shares were sold by Dadha @ Rs. 290 per share prior to the amalgamation which was completed in February, 1998 and was with effect from 1.4.1997. It was contended by the appellant that the SPIL group kept control of the shares owned by the Dadha's as security against the amounts advanced by them and to ensure that the Dadha's do not make distress sale of holding of SPIL shares in the market. The issue of sales of shares as contended by the Assessing Officer and security against shares as contended by the appellant is not important or relevant. In my view, what is required to be examined here is whether the amounts advanced by the appellant company to the members of Dadha group for enabling them to acquire the shares of TDPL 'or to ensure that the Dadha's do not make distres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer for adoption of colorable device by the appellant for the purpose of business, if the said device does not violate the law. A device treated by the Assessing Officer as colorable may be a necessity for the appellant's business. There cannot be any grievance to the department if the appellant adopt colorable device to promote its business interest. If the Dadha's wanted to have advance from the appellant in a particular manner and that keeps them in good humour which is necessary for the appellant to promote its business, in that case if the appellant gives advances according to that requirement, no adverse view can be taken. Therefore in my view what is relevant is the real purpose of advancing money and not the device through which such money was advanced unless such device is not permissible under the law. In. the present case the amount of Rs. 2.5 crore out of the amount of Rs. 3 crores advanced to Dadha Pharma Pvt. Ltd. was transferred on the said date to Shri, S. Mohanchand Dadha (HUF) A/c which in turn came back to the appellant as repayment of advance which were earlier received by the Mohanchand Dadha (HUF) from the appellant for the purchase of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the advances of Rs. 3 crore was given for the purpose of business and no interest attributable to the said advance can be disallowed by the Assessing Officer. I direct the Assessing Officer to delete the disallowance of Rs. 38,31,637/-. 48. The appellant has taken another alternative contention that it has sufficient interest free funds at its disposal which were used to give the said deposit of Rs. 3 crore and therefore no interest on borrowed funds can be disallowed by the Assessing Officer. In the letter dated 24.4.2001 the Assessing Officer contended that the assessee may be asked to prove the nexus with money given to the Dadha came out from interest free funds only and not from interest bearing funds. He further contended that in the absence of any evidence of advance by the assessee in the block assessment proceedings, the disallowance of interest was properly made. The appellant argued that the Assessing Officer has not been able to establish whether any interest bearing funds were diverted to non business purposes. The assessee submitted that as per balance sheet for assessment year 1997-98 and 1998-99, the reserves and surplus exceeded Rs. 20 crore. It has furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d evidences in block assessment proceedings Under Chapter XIV B of the Act. Therefore this ground of appeal is rejected. However, as on merit it is held that the interest attributable to the advance of Rs. 3 crore cannot be disallowed, the Assessing Officer is directed to delete the addition of Rs. 38,31,637/-." 21 The Ld. DR relied strongly on the order of the Assessing and submitted was clearly visible that the deposit placed was used by the shareholders of TDPL to discharge the liability in respect of the loans and advances taken by r~ from the Assessee. The DR further emphasized that an assessee cannot permitted to use a colourable device to mask the transactions actually undertaken in view of the decision of The Supreme Court in the case of McDowell 154 ITR 148 (SC). Reliance was also place on the judgment of the Punjab and Haryana High Court in the case of Abhishek Industries Limited (286 ITR 1) where it was held that interest paid by the Assessee to the extent the amounts were diverted to sister concerns on interest-free basis ought to be disallowed. In the present case he argued that the funds were transferred for non business use by giving such deposits under a transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer has not been able to establish whether any interest bearing funds were diverted to non business purposes. The A.R. submitted that the balance sheets for "assessment year 1997-98 and 1998-99, the reserves and surplus exceeded Rs. 20 crore. He further submitted that since the funds were given out of a common pool, it was not possible to establish any direct nexus. The A.R. relied on the following decisions in which it has been held that in the absence of direct nexus between the interest free advances and interestbearing loan, interest on such advances cannot be disallowed. 1. Shahibag Entrepreneurs v ITO 50 ITD 113 (Ahd) 2. Rajmoti Industries v ITO 52 ITD 286 (Ahd.) 3. Cadbury Fry (India) Ltd, v ITO 2 ITD 435 (Bom.) 4. United Agencies v ITO 37 TTJ 374 (Ahd) 5. ITOv AssandasS Sons 18TTJ 199 (Bom.) 24 The A.R. also referred to the recent decision of the Supreme Court in the case of S. A. Builders (288 ITR 1) wherein it was held that if the interest free loans are given to a sister concern out of borrowed funds, the allowance of deduction u/s 36 (1) (iii) of interest on such borrowed funds would be allowed if such loan was given as a measure of commercial expedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 31,18,143/-. on advances to M/s Antriksh Pharma & M/s Dukan in the AY 1999-2000 while ground no. 2 in the appeal for the AY 2000-01 relates to disallowance of Rs. 44,96,980/- on account of interest on advances to M/s Dukan Relying upon his own findings in the block assessment order, wherein disallowance of interest in relation to advances to M/s Antriksh Pharma & M/s Dukan had been made for the period upto 7-12-98, the AO disallowed interest of Rs. 16,47,312 in relation to M/s Dukan & Rs. 14,70,831/ in relation to M/s Antriksh Pharma for the period 8-12-98 to 31-3-99 ,there being no change in the nature and purpose of these advances. 16.1 For similar reasons, the AO disallowed an amount of Rs.44,96,980/- on account of interest on advances to M/s Dukan in the AY 2000-01. 17. On appeal, the assessee, inter alia, argued that subsequent to the search they had entered on 1-2-2000 in to an agreement with M/s, Antriksh Pharma by virtue of which interest has been changed on advances and shown as income in year 99-2000. Accordingly, the ld. CIT(A) deleted the disallowance, inter alia, in the light of decision of his predecessor in appeal against block assessment in the following terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies were related to the Dadhas .ho were instrumental in the amalgamation of TDPL with SPIL. The entire scheme of amalgamation and the contentions of the Department in respect of the amalgamation have already been mentioned hereinabove. 26 During block assessment proceedings, the Assessing Officer disallowed Merest expense claimed by the Assessee u/s 36 (1) (iii) to the extent of interest free advances given by the Assessee to M/s Antariksh Pharma and M/s Dukan. The Assessing Officer contended that the arrangements of payments and outgoings had been deliberately so structured that these concerns and through them Dadha's would have interest free funds at their disposal. The Assessing Officer contended that the Assessee was on one hand paying interest on outstandings with their principal manufacturer (SPIL) but on the other hand they had made advances to the intermediary firms namely M/s Antariksh Pharma and Dukan and has not charged any interest on these outstandings. The Assessing Officer contended that the whole arrangement of routing through these two concerns was a colourable device to divert interest bearing funds for non business purposes. Accordingly it was treated in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention is accepted, in that case, the end use of the advances was the purchase of the shares of TDPL of Dadha's by SPIL which has been again in the interest of SPIL and consequently the appellant. Even, the Assessing Officer himself stated that the amounts advanced by the appellant to the individual members of Dadha group may be treated as used for the purpose of business as the same were given in order to enable SPIL to acquire the shareholding of Dadha in TDPL which benefited the appellant in the form of increased volume of business. However, according to the Assessing Officer, if any colorable device' is adopted like in the present case i.e. instead of giving the said advances directly, the advances were given through said concerns, in that case, the amount advanced cannot be treated as used for the purpose of business, irrespective of the fact that the end use of the advances given through ^colorable device is the same as the end use of advances given by the appellant to the individual members of Dadha group directly. In my view, this stand is inconsistent because what is relevant here is not the manner in which the advance is given but the use of advances. There ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . the action of the Assessee in appointing the said firms as its distributor for the southern regions, at the behest of SPIL would be governed by business expediency. The Assessee has also demonstrated by documentary evidence before the lower authorities that the distribution had in fact happened through the said firms. The said firms had the necessary trade and other registrations for carrying on the said activity. The Assessing Officer has also acknowledged that there was savings in turnover tax in the state of TamilNadu as a result of the appointment by the said firms. The Assessing Officer having accepted in part the business benefit of the appointment of the said firms, as distributors cannot in the same breadth question the other part. Even otherwise, it is seen that the Assessing Officer has considered trade advances given by the Assessee to the individual members of the Dadha family as advances in the ordinary course of business. Thus, even if the advances were given in the guise of a trade advance, the same would still be considered as for the purpose of business. Further we noted that the decision of the Supreme Court in the case of S. A. Builders (supra) has clearly stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r pleaded that since the advances given to Dadhas were wholly for the purposes of business of the assessee ,there was no question of any disallowance. Inter alia, the assessee relied upon the decision of the CIT(A) in block appeal. However, the AO did not accept the submissions of the assessee on the ground that the assessee did not adduce any evidence regarding the purpose for which these advances were made and even if these were part and parcel of transaction relating to acquisition of TDPL, even then the proportionate Interest cost of funds utilized for advances was not for business purpose. Accordingly, the AO disallowed an amount of Rs. 86,560/- on account of interest on advance to Dadha & Co. and 1,00,987/- on account of interest on advance to Pradeep Dadha Agency in the AY 1999-2000. 21. For similar reasons, the AO disallowed an amount Rs.81,807/- on account of interest on advance to Dadha & Co. and Rs.95,076/- on account of interest on advance to Pradeep Dadha Agency in the AY 2000-01 22. On appeal, the learned CIT(A) deleted the disallowance in the AY 1999-2000 in the following terms: "24 The Assessing Officer has not disputed that the interest has been received and of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company's name and even though the assessee company had charged interest (c) 18% from Shri S.M. Dadha, no interest was charged from M.Maharehand Dadha. Since the assessee did not adduce any cogent explanation, distinguishing the case of Shri. S.M Dadha from Shri M. Maherchand Dadha, the AO added amount of Rs. 13,87,275/- to the total income of assessee company. 25.1 For similar reasons, the AO disallowed an amount of Rs. 7,25,066/- in the AY 2000-01. 26. On appeal, the learned CIT(A) deleted the addition with the following observations:- "29 I find significant merit in the submissions made on behalf of the Appellant On the same facts no disallowance has been made during the pre-search period The Assessing Officer has not been able to make a case about change in circumstances that would justify the change in his stance. The observation of the Assessing Officer that the interest would have been received in cash also remains unsubstantiated in light of the fact that the during the block assessment the Assessing Officer has alleged that the Sun group has made payment to Mr. M. Meherchand Oadha. In view of my earlier findings and that of my predecessor regarding the facts and cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was concerned. d. market rate of unsecured borrowings is very high. e. the A.O cannot sit on the judgment over business decisions taken by the assessee. f. the interest expenditure of the assessee becomes the income of M/s. SPIL and there is no loss of revenue. 29.1 However , the AO did not accept the submissions of the assessee on the ground that the assessee was not able to justify payment of interest to M/s. SPIL @21% when it availed loan from bank @15.50% and had offered advances to sister finance companies @12% interest. The assessee was involved in distribution of only formulation products of M/s SPIL while the bulk drugs manufactured by M/s SPIL were distributed by them only. Moreover, out of sales of SPIL Rs. 611.43 crores in the AY 2001-02 , sales to assessee were merely Rs. 333 crores. The AO also found that it was not SPIL which was dictating the terms to the assessee rather it was other way round. Despite, voluminous increase in the turnover of M/s AML, the profitability of M/s AML was not increasing as evident from the following details. F.Y. Total Sales (Rs.in lacs) Net profit as per Director's Report (in lacs) 2000-01 37390 0.46 1999-00 30577 37. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adverse inference on this point Section 36(l)(iii) of the Act relates to deduction on account of "the amount of interest paid on capital borrowed for the purposes of the business or profession". In this case the Assessing Officer has not challenged the genuineness of business expenditure but made the above addition of differential interest on the ground of reasonableness or because the transaction is adversely interpreted by him. Similar Interest has been paid in the preceding two assessment years but no addition was made. As per facts the interest has been paid wholly and exclusively for the purposes of the business, hence, the reasonableness can not be doubted and the same can not be disallowed partly. The Assessing Officer can not act arbitrarily ignoring the valid submissions of the appellant. In the present case, having regard to the facts and circumstances of the case, I do not see any merit in the action of the AO in disallowing interest @ 5.5% of Rs. 1,48,57,545/- and is decided to delete the addition." 31.1 Following his own order in the AY 2001-02, the ld. CIT(A) deleted the disallowance in the AYs 2002-03 & 2003-04 also 32. The Revenue is now in appeal before us again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontested the applicability of s. 40A(2)(b) in its case, contending that the same is not an entity covered by the said section. It is not clear from the record whether the said contention stood raised before the AO as well, as there is no reference thereto in his Order, Even so, as such, the said contention raised before the first appellate authority for the first time, would require to be verified by the Assessing Authority, prior to its acceptance, and which we find as missing in the present case. We, therefore, proceed in the matter by assuming that the provision of s. 40A(2)(a) could be applied in the present case, as if the assessee's case merits acceptance on the basis of the undisputed facts as on record, the finding as regards the same may not be required and for which, therefore, the matter may need to be restored back to the AO's file. The AO has inferred the rate of 24% p.a. as excessive as the assessee had allowed interest at rates varying from 18% p.a. to 20% p.a. on its other borrowings, i.e., the deposits from public and loans from Financial Institutions. It has, however, contended that the market rate for capital during the relevant period stood at 24% p.a. t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties 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. In the light of view taken in the said decision, we are of the opinion that once it is found that the expenditure had been, as a matter of fact, incurred by the assessee , it is not for the Department to consider whether commercial expediency justified the expenditure. Reasonableness of the expenditure can be gone into only for the purpose of determining whether in fact, the amount was spent. There is no material to show that any part of the amount shown to have been debited under the arrangement subsequently came back. In view of the foregoing ,especially when the ld. DR appearing before us did not place any material controverting the findings of the ld. CIT(A) in these three assessment years so as to enable us to take a different view in the matter, we are not inclined to interfere with the findings of the ld. CIT(A).Therefore, ground no.3 in the appeals for the AY 2001-02 & AY 2002-03 and ground no. 2 in the appeal for the AY 2003-04 are also dismissed. 34. Ground ns. 8 & 9 in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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