TMI Blog2010 (9) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. Thus ,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. - SHRI MUKUL SHRAWAT, JM AND SHRI A.N. PAHUJA, AM For the Petitioner : Shri Sudhansu S Jha, DR. For the Respondent : Shri S.N. Soparkar and Shri Bandish Soparkar, Ars. ORDER AN PAHUJA: These five appeals by Revenue against three separate orders dated 2.7.2002 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance to Mr. Maherchand Dadha. 5 The Ld. CIT(A) has erred in law and on facts in allowing Rs. 95,076/being interest on advance to Pradeep Dadha Agency. 6 The Ld. CIT(A) has erred in law and on facts in allowing Rs. 81,807/-, being interest on advance to Dadha Co. 7 The Ld. CIT(A) has erred in law and on facts in allowing Rs. 25,90,363/-, being interest on advance to Virtuous Finance Ltd. 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.1353/Ahd/2005 [AY 2001-2002] 1 On the facts and circumstances of the case, the CIT(A) erred in deleting the disallowance of Rs. 3,26,683/- out of interest made u/s 36(1)(iii). The assessee paid higher interest to the banks whereas charged less interest from the Finance Companies belonging to its own group s companies. 2 On the facts and circumstances of the case CIT(A) erred in deleting the addition of Rs. 8,38,036/-. The assessee advanced loans to M/s Virtuous Finance Ltd. @ 12% whereas paid higher inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... differential amount of interest paid @ 13% on the borrowings and that charged @ 10% on the advances to associate concerns, M/s Virtuous Finance Ltd. others. 1(b) The Id CIT(A) failed to take note of the ratio of CIT vs. H.R. Sugar Factory Pvt. Ltd. 187 ITR 363(AII) decided on identical facts, holding that the differential amount of interest paid @ 8% on the funds borrowed for carrying on business but advanced to directors @ 5% was not allowable as deduction. 1(c) The CIT(A) failed to appreciate the legal principle that, the affairs of the assessee being in his special knowledge in terms of section 106 of the Evidence Act, the onus u/s.36(1)(iii) lies on the assessee to prove that each loan is used for the purposes of the business and there is no presumption in law that it is own capital or surplus funds that were diverted for non-business purposes, as settled in the case of Kishanchand Chellaram vs. CIT 114 ITR 654 (Bom), R.Dalmia vs CIT 133 ITR 169 (Del), CIT vs. M.S. Venkateshwaran 222 ITR 163 (Mad), K. Somasundaram Brothers vs. CIT 238 ITR 939 (Mad) and CIT vs. Motor General Finance Ltd. 254 ITR 449 (Del), which was confirmed in principle by the Supreme Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sun Petrochemicals Private Limited 4. Lakshdeep Investment Finance Private Limited 5. Deeparadhana Investment Finance Private Limited 6. Bridgestone Investment Finance Private Limited 7. MacKinon Investment Finance Private Limited 8. 8. Sholapur Organics Limited 2.1 Since the aforesaid concerns were finance and investment companies of the assessee's own group while in the preceding AY 98-99, the assessee was charging interest @ 18% to 20% pa from outsiders and as concluded in assessment order of the earlier year that charging of interest at a lower rate was not an action arising out of commercial expediency but more of a planning measure, the AO asked the assessee to explain the reasons for charging lower rate of interest from the aforesaid companies in the years under consideration. The assessee replied vide letter dated 18-2-2002 that the interest was charged at a lower rate @ 11/12% on account of the fact that the advances were for short and temporary period. The assessee explained that they had huge interest free own funds at its disposal and the average cost of funds was more than covered even by charging interest at 11/12% pa from these parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed are mainly short term advances basically in the nature of current account obviously fetching lesser rate of interest than the long term advances on which interest rate is normally higher. Further, it is not necessary to have recorded the terms and conditions for charging a particular rate of interest as the loans and advances are admittedly given by the assessee company to the group concerns in the course of normal commercial practice and with mutual understanding between the parties. 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 have been diverted to the group concerns interest free or on lower charge of interest or for the purpose other than the business. The decisions relied upon by the appellant duly support the case of the appellant. The disallowance of Rs. 9,36,240/- is therefore ordered to be deleted. 5. Following his own findings in the AY 1999-2000, the ld. CIT(A) deleted the disallowance in the AYs 2000-01 to 2003-04 also. 6. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). At the outset, both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT in the assessee s own case for AY 1998-99. Therefore, ground no.1 in these appeals for the AY 1999-2000 to 2003-04 is dismissed. 8. Ground no.2 in the appeals for the AY 1999-2000, AY 2001-02 AY 2002-03 as also ground no. 7 in the appeal for the AY 2000-01 relate to disallowance of an amount of Rs. Rs. 66,96,373/-in AY 1999-2000, Rs. 25,90,363/- in the AY 2000-01, Rs. 8,38,036 in the AY 2001-02 Rs. 12,23,482/- in the AY 2002-03 on account of interest on advances to Virtuous Finance Limited. The AO noticed during the course of assessment proceedings for the AY 1999-2000 that the assessee charged interest @ 14% pa on the amount advanced to one of its sister concerns M/s Virtuous Finance Ltd. [VFL] while their own borrowings were at the minimum bank rate of 17.85% pa during the period relevant to the assessment year under consideration. While referring to his findings in the block assessment order , the AO asked the assessee to explain the reasons for charging lesser rate of interest vis- -vis market rate revealed by assessee s own borrowings during the previous year. The assessee replied vide its letter dated 7-2-2002 that they had granted advances to Virtuous Finance L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wth track record produced before me also supports this fact. I cannot agree with the contention of the Assessing Officer that the benefits to the Appellant would be third party benefits. It is not necessary that any action on the part of an assessee should not result in benefits to any other person Rather, what is to be seen is whether the action was taken keeping in mind the benefits to flow to the assessee and whether such benefits have flown. The fact that it may have benefited some other person more than the assessee is not that relevant and certainly cannot be a basis for making the disallowance It cannot also be denied that due to its inter-linked business interest with SPIL, the Appellant may also not be in a position to deny any such request made at the behest of SPIL. Due to these facts, VFL would not be in a position to earn commercial rates of return on the funds blocked for such purposes. It cannot be expected that VFL blocks huge funds to further the business interests of the Appellant while on the other hand continuing to pay interest on commercial terms to the Appellant. Charging of interest at lower rate of interest of 14% is according to me, under the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were being acquired or targetted for acquisition and thus charging interest at lower rate of interest can be adjusted as commercial expediency. We also find force in the contention of the A.R. that SPIL being the Flagship company of the group has power to dictate terms to the Assessee and so the Assessee has no option but to follow SPIL in its business decisions. Thus, in our view said reduction can be solely for the purpose of business and no other purpose can be assigned to it. In our view the Assessing Officer has placed heavy reliance on the notings found during the search. The said loose notings do not in any way establish the case of the department that the interest for the year had accrued and the same was subsequently reduced. In our opinion the assessing officer cannot enter into the shoes of the assessee and it is the businessman who knows better about the business decision. 34 In view of the above, we find no reason to interfere with the order of the CIT(A) and accordingly dismiss this ground raised by the Revenue. Thus, this ground stands dismissed. 11.1 Since the facts obtaining in the years under consideration are undisputedly similar to the facts obtaining in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72,521/-. 13.1 Following his own findings in the AY 1999-2000, the ld. CIT(A) deleted the disallowance in the AY 2000-01. 14. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). At the outset, both the parties agreed that issue is squarely covered in favour of the assessee by the decision dated 31-05-2007 of the ITAT in the assessee s own case in IT(SS)A No. 95/Ahd/2001 for the block period. 15. 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, the Tribunal held as under:- 16 The facts relating to ground No. 2, and Ground No. 3 are that Tamilnadu Dadha Pharmaceuticals Ltd. (TDPL) had amalgamated with Sun Pharmaceutical Industries Limited (SPIL). TDPL was jointly promoted by DADHA family_of Chennai and Tamilnadu Industrial Development Corporation Ltd. (TIDCO) with equity holdings of 25% and 26% respectively. In the beginning, it was proposed that SPIL would purchase he shares in TDPL from the Dadhas. The Dadhas would also purchase he shares held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of 12 months. The Assessing Officer held that no refund of any part of the deposit of Rs. 3 crores had been made. The lessor was also liable to pay interest at 18% per annum on the deposit amount for the delay involved. However, neither the godown has been constructed as per the terms of the deed nor refund of the amount was made. Inquiries made by the Assessing Officer revealed that the property on which the godown was to be constructed was an encumbered one, in that the entire property consisting of superstructure and land measuring about 12 grounds had been offered as collateral security to the State Bank of India, Guindy, Chenai - 32, - against loans which were sanctioned to another sister concern viz., M/s Pradeep Drug Co. Ltd. of which Shri Mohanchand Dadha was the Managing Director. This was a sick company as certified by Board for Industrial and Financial Reconstruction in order No. 175/97 dated 5-12-97. The company suffered accumulated losses of Rs. 11.70 crores. The title deeds of the property were in the custody of State Bank of India who would release it only on discharge of debts due to them. For want of these title deeds, the lessor was unable to get approval o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as possible. Amount was given by cheque and it is seen that the appellant has not debited any rent towards these premises as the rent was to start after taking possession of the godown. Considering that about 10,000 sq.ft. was to be constructed and given on lease to the appellant, a deposit of Rs. 3 crore with rent of Rs. 8,000/- per month only appears to be a reasonable arrangement. 47. It is observed that the Assessing Officer has disallowed the interest on borrowed capital to the extent of Rs. 3 crore being interest free deposit claimed to be advanced by the appellant to Dadha Pharma Pvt. Ltd. as security against construction and hiring of go down on the reasoning that the said amount of Rs. 3 crore was advanced by the appellant not on account of the said purpose but was advanced on account of different purposes through a colorable device for the purpose other than stated in the lease agreement dated 1.1.1998. The Assessing Officer has stated in the last lines of page 39 of the assessment order that the seized material clearly prove that the amount of Rs. 3 crore was appropriated by the Dadha's against the receivable consideration for their share holding. The issue now ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares in distress were for the purpose of business of the appellant. It is noted that though the Assessing Officer has not disputed the purpose of advances given by the appellant to individuals of Dadha group (whether the advance was given for sale proceeds or to create liquidity to Dadha's and to keep them in good humuor), he has accepted the contentions of the appellant that the increased capacity through acquisition of TDPL benefited the appellant by way of increased turnover and profit. The advances given by the appellant to the individual members of Dadha group were treated by the Assessing Officer as given for the purpose of business as no colorable device was used in such advances. According to the Assessing Officer, such advances were utilized by Dadha's for acquisition of TIDCO's holding in TDPL therefore may be treated as used for the purpose of business on account of commercial expediency. The Assessing Officer distinguished the advances of Rs. 3 crores given by the appellant to Dadha Pharma Pvt. Ltd. with the advances given by it to the individual members of Dadha group on the reasoning that the first type of transaction was a colorable device where as the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of Rs. 2.5 crore came back to the appellant immediately after the advance of Rs. 3 crore. It is noted that the advance of Rs. 2.5 crore earlier given by the appellant to Shri Mohanchand Dadha (HUF) has been treated by the Assessing Officer as advance given for the purpose of business. However, the advance of the same amount of Rs. 2.5 crore which was given by the appellant to Dadha Pharma Pvt. Ltd in order to enable it to give this amount to Mohanchand Dadha (HUF) who in turn repaid the advance of Rs. 2.5 crore to the appellant has not been treated as for the purpose of business. The net effect of the said advance by the appellant is that the said advance of Rs. 2.5 crore is transferred from the account of Shri Mohanchand Dadha (HUF) to the account of Dadha Pharma Pvt. Ltd a company owned by Dadhas. Thus, as far as the advance of Rs. 2.5 crore is concerned there cannot be any deviation of borrowed funds which came back to the appellant on same day. Besides the application of advance of Rs. 2.5 crore continued to be the same as it was before the said advance was given to Dadha Pharma Pvt. Ltd. In respect of balance amount of Rs. 50 lakhs, the Assessing Officer stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the funds were 'given out of a common pool, it is not possible to establish any direct nexus. The appellant relied on the following decisions in which it has been held that in the absence of direct nexus between the interest free advances and interest bearing 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. ITO v'Assandas Sons 18 TTJ 199 (Bom.) 49. I have considered the submissions of the Assessing Officer and the appellant. In my view the appellant has sufficient interest free funds like share capital and reserve to give the said advance. On such facts, before disallowance of any interest on borrowed capital, the burden is on the Assessing Officer to establish the nexus between the borrowed capital and interest free advances. In thepresent case, the Assessing Officer has not brought out any material to show that borrowed money was used for the purpose of giving advance and therefore even if the advance was not used for the purpose of business, no interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was never intended to be carried out and hence was a sham and the entire arrangement was colourable device to the revenue. 22 A.R. strongly relied on the order of the Hon'ble Commissioner of Income Tax (Appeals) and submitted that the lease agreement entered into stated that a godown of approximately floor area of 10000 sq. feet was to be constructed. In the feasibility report regarding the construction of the godown, it was realized that it would not be possible to construct a godown of 10,000 sq. ft. on the ground floor without disturbing the main block. Accordingly, Dadha Pharma Pvt. Ltd. proposed to construct a godown of ground plus one storey each admeasuring five thousand square feet. However, this was not acceptable to the Assessee, who accordingly asked for a refund of the deposit. Dadha Pharma P. Ltd, expressed its inability to refund the entire deposit in 1 lump sum but agreed to do so over a phased period of time. Accordingly, from December'99 they started refunding the deposit which was completed by March'2000. 23 The Id A.R. strongly contended that the Assessee had entered into the agreement with the Dadha Pharma Pvt. Ltd. for valid business and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency. He argued that in the present case the transactions were with third parties and for valid business and commercial reasons. He further stated that commercial expediency has to be looked at from the businessman's point of view. 25 We have carefully considered the submissions of the parties. It is seen that the main reason for carrying out the disallowance was that the godown was not constructed and thus the terms of the agreement were not fulfilled. The D.R. has not disputed the business needs pursuant to which the godown was taken on lease. It cannot be disputed that pursuant to the amalgamation of TDPL with SPIL, the operations of the Assessee increase greatly. Accordingly, the action of the Assessee for taking a godown on lease to meet its growing requirements cannot be ruled out. In a normal business environment, it is not rare that contracts and agreements cannot be executed or fulfilled. The contract could not be carried out on account of the regulations prescribed for the construction. Further, the said deposit has subsequently been recovered by the Assessee. Even otherwise, it is seen that the Assessing Officer has considered trade advances given by the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing terms: 21. 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 appellant has contended that it has been considerably benefited, as the appointment of the said concerns had increased appellant s turnover and consequently its profits. The appellant has further contended that it has been entirely dependent on SPIL as its total purchases are from SPIL directly or through the said concerns and therefore the advances were given for the purpose of business. I am inclined to accept the said contentions of the appellant as it had little option than to follow the advice of SPIL and therefore in my view the advances given to the said concerns were for the purpose of business. The Appellant has also produced the arbitration award under which interest was charged to M/s. Antariksh Pharma. The Assessing Officer has merely brushed aside this stating that it is post facto agreement done with the sole purpose of negating the findings of the search. I am also not inclined t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated in the same manner as the interest free security deposit for godown to Dadha Pharma Pvt. Ltd. The Assessing Officer granted partial relief to the Assessee to the extent of its gaining a comparative advantage in turnover tax as a result of use of M/s. Antriksh for the purpose of trading in Tamilnadu territory. Accordingly only the net amount was disallowed. The Assessing Officer thus held that interest bearing funds had been diverted for non business purposes and interest on outstandings with these two parties was disallowed on proportionate basis from interest expenditure claimed in books of accounts after giving due credit of the notional advantage of turnover tax. Accordingly net addition of Rs. 89,64,458/- (Rs.,15,53,458/- interest - Rs. 25,89,000/- notional benefit) was made to the total undisclosed income of the Assessee. The Assessee went in appeal against the above disallowance of interest and the Commissioner of Income Tax (Appeals) deleted addition on the above ground by making the following observations: (pages 44 and 45) 56. I have considered the submissions of the Assessing Officer and the appellant. The appellant has contended that it has been considerably ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances. There can be objection to colorable device, if it is adopted to evade the tax but there cannot be any objection to the Assessing Officer if a colorable device is adopted by the assessee in the interest of business provided that such device does not violate the law. the end use of the advance is the same as in the case of advances to individual members of the Dadha group and as the Assessing Officer treated the advances given to the members of Dadha group as for the purpose of business, the advances given by the appellant to M/s. Antariksh Pharma and M/s. Dukan are required to be treated as -used for the purpose of business. Therefore, the Assessing Officer cannot disallow any interest on borrowed capital attributable to the said advance. In respect of the alternate contentions of the surplus fund being available to the appellant on account of sufficient capital and reserve and also in respect of the issue of disallowance of interest to be considered in the block assessment proceedings, for the same reasons as given by me in respect of advances of Rs. 3 crores, I accept appellant's ground in respect of surplus available and reject the appellant's ground in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has clearly stated that if the business considerations require, interest free funds can be advanced. Since the commercial expediency cannot be doubted in the case of the Assessee. We find no reason to interfere with the order of the CIT(A) and accordingly we confirm the order of the CT1'( A) on this ground. : : Thus, the ground no. 3 also stand dismissed. 19.1 Since the facts obtaining in the year under consideration are undisputedly similar to the facts obtaining in the block assessment period, we have no hesitation in upholding the findings of the learned CIT(A) in the light of the aforesaid decision of the ITAT in the assessee s own casein IT(SS)A No.95/Ahd/2001. Therefore, ground no.4 in the appeal for the AY 1999-2000 and ground no.2 in the appeal for the AY 2000-01 are dismissed 20. Ground No.5 in the appeal for the AY 1999-2000 and ground no.6 in the appeal for the AY 2000-01 relate to disallowance of Rs. 86,560/- Rs. 81,807/- respectively on account of interest on advance to Dadha Co. while ground no.6 in the appeal for the AY 1999-2000 and ground no.5 in the appeal for the AY 2000-01 relate to disallowance of Rs. 1,00,987/- Rs. 95,076/- respectively on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the interest has been received and offered for tax According to the Appellant the interest for the period 31.01.1999 to 31 3.1999 was not due and the same has been accounted subsequently. The Assessing Officer has held that subsequent recovery is of no consequence as it is merely an attempt to negate the findings of the search. I cannot agree with these observations of the Assessing Officer since in the present case the advance was given after the search and hence any question of negating the findings of the search does not arise The appeal of the Appellant succeeds on this ground. The Assessing Officer is directed to delete the addition. 22.1 Following his own order in the AY 1999-2000, the ld. CIT(A) deleted the disallowances in the AY 2000-01 also. 23. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee supported the findings of the ld. CIT(A). 24. We have heard both the parties and gone through the facts of the case. Undisputedly, the assessee charged and recovered the entire interest including for the period from 31-3-99 till the repayment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that of my predecessor regarding the facts and circumstances relating to the amalgamation of TDPL with SPII, and the need to provide liquidity to the Dadhas, I hold that the advances given to Dadhas were for business purposes. I therefore direct the Assessing Officer to delete the addition made on this count. 26.1 Following his own order in the AY 1999-2000, the ld. CIT(A) deleted the disallowance in the AY 2000-01 also. 27.. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee supported the findings of the ld. CIT(A). 28... We have heard both the parties and gone through the facts of the case. Since there is nothing to suggest that interest had been recovered from Shri M. Maharehand Dadha in cash while the ld. CIT(A) concluded that advances were given to Dadhas for business purposes , there is no apparent reason for the disallowance. The ld. DR appearing before us did not place any material controverting these facts or even the findings of the ld. CIT(A). In the absence of any material so as to enable us to take a different view in the matter, we are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.in lacs) Net profit as per Director's Report (in lacs) 2000-01 37390 0.46 1999-00 30577 37.08 1998-99 22235 34.50 29.2 The AO further observed that the financial affairs of M/s. AML were so managed so as to give the maximum benefits to M/s. SPIL by reducing the taxable profits of the latter, who were availing deduction u/s 80IA/80IB. In the light of aforesaid facts and circumstances, the AO disallowed an amount of Rs. 1,48,57,545/- in the AY 2001-02, as calculated hereunder: 1 Interest paid @21% Rs.5,67,28,810/- 2 Interest to be paid at bank rate i.e., 15.50% Rs.4,18,71,265/- Difference (1) - (2) Rs.1,48,57,545/- 30. Similarly, the AO disallowed an amount of Rs. 2,29,43,683/- in the AY 2002-03 and Rs. 4,25,44,081/- in the AY 2003-04. 31. On appeal, the ld. CIT(A) deleted the disallowance in the AY 2001-02 in the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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 against the aforesaid findings of the ld. CIT(A). Both the parties agreed that the issue is covered in favour of the assessee by the decision dated 28-03-2008 of the ITAT Ahmedabad Bench-D in the assessee s own case for AY 1997-98 in ITA No.492/Ahd/2001. 33 We have heard both the parties and gone through the facts of the case. We find that the Tribunal while adjudicating an issue relating to disallowance of excessive interest paid to SPIL, invoking the provisions of sec. 40A(2)(a) in the AY 1997-98 held in the following terms : 6. The second ground relates the disallowance effected in the sum of Rs. 56.63 of the assessee's claim for interest paid to M/s. Sun Pharmaceutical Industries Ltd. (SPIL in short) out of the total interest allowed to it at Rs. 283.17 lacs. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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. to 30% p.a. Even though no basis or material for the same stands led by the assessee, its stands to reason and normal observation, that if the interest rates from organized sources is in the range of 20% p.a., that from the general market would only be higher, so that even discounting the assessee's claim/assertion, the rate of 24% p.a. is not beyond conception, and which is the rate at which the impugned interest is allowed by the assessee. Also, the onus for the application of s. 40A(2)(a) is on the Revenue, which we find as not discharged, apart from the fact that CBDT itself has issued a Circular to the effect that the provision being an unduly harsh one is to be applied only selectively and where the tax motivation stands established. 8.2 In view of the for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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