Case Law Details

Case Name : DCIT Vs Narayani Ispat (P) Ltd. (ITAT Kolkata)
Appeal Number : ITA No. 2127/Kol/2014
Date of Judgement/Order : 30/08/2014
Related Assessment Year : 30/08/2017
Courts : All ITAT (5168) ITAT Kolkata (403)

DCIT Vs Narayani Ispat (P) Ltd. (ITAT Kolkata)

Interest was paid for delayed payment of service tax & TDS. The interest for the delay in making the payment of service tax & TDS is compensatory in nature. As such the interest on delayed payment is not in the nature of penalty in the instant case on hand.

Hon’ble Supreme Court in the case of Lachmandas Mathura (supra) has allowed the deduction on account of interest on late deposit of sales tax under section 37(1) of the Act. In view of the above, we conclude that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses under section 37(1) of the Act. As such interest on delayed payment of service tax and TDS was compensatory and not in the nature of penalty and was, therefore, deductible.

Addition of notional interest to be charged from sundry debtors outstanding for a longer period 

In the case before hand, the assessing officer has worked out the interest income on the amount of sundry debtors which were outstanding for more than 6 months. Such interest was added to the total income of the assessee by the assessing officer. The amount of Sundry Debtors represents the amount of sales of goods or services rendered to the customers on credit. The sundry debtors are supposed to make the payment to the assessee on a particular time. Selling the goods or providing services on credit is a common business practice and sometime without the providing the credit to the customers, it is difficult to survive in the competitive markets. On the perusal of assessment order, we find that no date for the payment from the sundry debtor was brought on record. There was no information available suggesting that the assessee was entitled for interest on the outstanding amount of sundry debtors. Thus, it cannot be said that the income from interest had actually accrued to the assessee during the year under consideration. The decision for the charging the interest from the sundry debtors totally depends upon the assessee. The assessing officer cannot sit on the arm-chair of the assessee and direct for the recovery of interest on the amount of sundry debtors which are due for payment. The assessee has to consider business expediency for charging interest from the sundry debtors which are outstanding in the books. Thus, in our considered view, we hold that the addition made by the assessing officer for the interest on the amount of sundry debtors outstanding in the books of account is not sustainable. In the light of above reasoning, we hold that the order of the learned Commissioner (Appeals) is correct and in accordance with law and no interference is called for. We hold accordingly. Hence, this ground of Revenue’ appeal is dismissed.

No disallowance of interest claimed under section 36(1)(iii) warranted for interest free advances made out of interest free own fund of assessee

The assessing officer in the instant case was of the view that the interest bearing fund has been diverted for non-business activities and accordingly, he disallowed the interest @ 9% per annum on the amount of advance.

On perusal of appellate order, we find that assessee was having its own capital for Rs. 8,84,73,905 at the end of financial year under consideration. We note that the own fund of assessee was sufficient enough to make the advance of Rs. 48,13,023 only. In this regard, learned Departmental Representative has not brought anything contrary to the finding of learned Commissioner (Appeals) suggesting that the borrowed has been diverted in non-business activity. Hence, we hold that there was no diversion of interest bearing fund to the non-business activities of the assessee.

Full Text of the ITAT Order is as follows:-

This appeal by the Revenue is directed against the order of Commissioner (Appeals)-XX, Kolkata dated 28-8-2014. Assessment was framed by ACIT, Range-3, Kolkata under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 11-1-2013 for assessment year 2007-08. The grounds raised by the Revenue per its appeal are as under :–

“1. On the facts and circumstances of the case, the learned Commissioner (Appeals) is not justified in deleting disallowance of interest of Rs. 15,880 on service tax and Rs. 70,000 on TDS because of the fact that the assessee failed to deposit the taxes of other parties to the other parties to the Central Government account within due time.

2. On the facts and circumstances of the case, the learned Commissioner (Appeals) is not justified in deleting addition of Rs. 45,71,900 as unexplained expenditure on account of freight payments to M/s. Balajee Roadways, after admitting fresh evidence in contravention to rule 46A of the Income Tax Rules.

3. On the facts and circumstances of the case, the learned Commissioner (Appeals) is not justified in deleting addition of Rs. 13,13,396 on account of interest on sundry debtors.

4. On the facts and circumstances of the case, the learned Commissioner (Appeals) is not justified in deleting addition of Rs. 4,33,172 on account of interest on loans and advances.

5. That the appellant craves leave to amend, modify or alter any grounds of appeal during the course of hearing of this case.”

Shri Arindam Bhattacharjee, learned Departmental Representative represented on behalf of Revenue and Shri Manish Tiwari, learned Authorised Representative appeared on behalf of assessee.

2. First issue raised by Revenue in this appeal is that learned Commissioner (Appeals) erred in deleting the addition made by the assessing officer for Rs. 15,880 and Rs. 70,777 on account of interest expenses on the late deposit of service tax and Tax Deducted at Source (TDS) respectively.

3. Briefly, stated facts are that assessee is a private limited company and engaged in manufacturing / trading business of iron and steel products. The assessee during the year has claimed the interest & finance expenses in its profit and loss account for Rs. 3,48,00,349.00 which includes the following expenses :–

Account head Amount (Rs) Remarks
Interest paid on service tax 15,880 The expenses include interest paid for late payment of service tax dues
Interest paid on TDS 70,777 The expenses include interest paid for late payment of TDS

However, assessing officer was of the view that the late payment of service tax and TDS is not allowable for the deduction from the income. Accordingly, assessing officer after having reliance on the judgment of Hon’ble Supreme Court in the case of Bharat Commerce Industries Ltd. v. CIT (1998) 230 ITR 733 has disallowed the claim of interest expenses and added the interest of Rs. 86,657 to the total income of assessee.

4. Aggrieved, assessee preferred an appeal before learned Commissioner (Appeals). The assessee before learned Commissioner (Appeals) submitted that the interest expense was incurred on account of late deposit of service tax and TDS which is allowable expense us 37(1) of the Act.

5. The ratio laid down by the Hon’ble Supreme Court in the case of Bharat Commerce Industries Ltd. (supra) has been misunderstood by the assessing officer as the disallowance was made on account of interest under section 215 of the Act due to the delay in the payment of income tax on the income disclosed under Voluntary Disclosure of income and Wealth Act, 1976. However, in the instant case, the issue relates to the interest charged on account of late deposit of service tax and TDS. The assessee in this regard has relied on the judgment of Hon’ble Courts :–

Citation Issue involved
CIT v. Mysore Electrical Industries Ltd. 196 ITR 884 (Kar) Interest for failure to pay PF contribution was held deductible under section 37(1)
Lachmandas Mathura v. CIT 254 ITR 799 (SC) Interest paid on sales tax arrear is deductible under section 37(1)

Learnd Commissioner (Appeals) after considering the submission of assessee has deleted the addition made by the assessing officer by observing as under :–

“4-. Ground No. (i) relates to disallowance of Rs. 86,657 made by the assessing officer The total amount of Rs. 86,657 includes Rs. 15,880 towards interest paid on service tax and Rs. 70,777 towards interest disallowed the same following the decision of Hon’ble Supreme Court in the case of Bharat Commerce Industries Ltd. v. CIT 230 ITR 733(SC). However, in that case the dispute was related to allowability of interest under section 139 & 215 of the Income Tax Act, 1961 whereas in the present case the expenditure related to interest paid on service tax and interest paid on TDS. In view of the facts and submission of the appellant, I find that the expenses are allowable under section 37 of the IT ct, 1961 as the same were incurred wholly and exclusively for the purpose of business. Therefore, the assessing officer was not justified to disallow the same. Hence, he is directed to delete the addition.”

The Revenue, being aggrieved, is in appeal before us.

6. Learned Departmental Representative before us vehemently relied on the order of assessing officer whereas learned Authorised Representative for the assessee relied on the order of learned Commissioner (Appeals).

7. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, assessing officer has disallowed the interest expenses incurred by the assessee on account of late deposit of service tax and TDS after having reliance on the judgment of Hon’ble Supreme Court in the case ofBharat Commerce Industries Ltd. v. CIT (1998) (supra). The relevant extract of the judgment reads as under :–

Facts

During the year under consideration, the assessee failed to pay advance tax equivalent to 75 per cent of estimated tax. The assessing officer levied interest under section 215 as well as under section 139. The assessee claimed that since taxes which were payable were delayed, the assessee’s financial resources increased which were available for business purposes. Hence, the interest which was paid to the Government was interest on capital that would be borrowed by the assessee otherwise. Hence, the amounts should be allowed as deduction. The revenue did not allow such deduction. The High Court affirmed the view.

On appeal to the Supreme Court :–

Held

When interest is paid for committing a default in respect of a statutory liability to pay advance tax, the amount paid and the expenditure incurred in that connection is in no way connected with preserving or promoting the business of the assessee. This is not expenditure which is incurred and which has to be taken into account before the profits of the business are calculated. The liability in the case of payment of income-tax and interest for delayed payment of income-tax or advance tax arises on the computation of the profits and gains of business. The tax which is payable is on the assessee’s income after the income is determined. This cannot, therefore, be considered as an expenditure for the purpose of earning any income or profits. Interest which is paid for delayed payment of advance tax on such income cannot be considered as expenditure wholly and exclusively for the purpose of business. Under the Act, the payment of such interest is inextricably connected with the assessee’s tax liability. If income-tax itself is not permissible deduction under section 37, any interest payable for default committed by the assessee in discharging his statutory objection under the Act, which is calculated with reference to the tax on income, cannot be allowed as a deduction.

Therefore, it was to be held that deduction of interest levied under sections 139 and 215 would not be allowable under section 37.

In the above judgment, the claim of the assessee for interest expenses was denied as it defaulted to make the payment of advance tax as per the provisions of the Act. The advance tax is nothing but income tax only which the assessee has to pay on his income. In the instant case the default relates to the delay in the payment of advance tax and consequently interest was charged on the delayed payment of advance tax. In the above judgment the Hon’ble Apex Court held that as Income Tax paid by the assessee is not allowable deduction and therefore interest emanating from the delayed payment of income tax (advance tax) is also not allowable deduction.

However the facts of the instant case before us are distinguishable as in the case before us the interest was paid for delayed payment of service tax & TDS. The interest for the delay in making the payment of service tax & TDS is compensatory in nature. As such the interest on delayed payment is not in the nature of penalty in the instant case on hand.

The issue of delay in the payment of service tax is directly covered by the judgment of Hon’ble Apex Court in the case of Lachmandas Mathura v. CIT 254 ITR 799 in favour of assessee. The relevant extract of the judgment is reproduced below :–

“The High Court has proceeded on the basis that the interest on arrears of sales tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Court has placed reliance on its Full Bench’s decision in Saraya Sugar Mills (P) Ltd. v. CIT (1979) 116 ITR 387 (All.) The learned counsel appearing for the appellant-assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT (1983) 144 ITR 732 (All.) (FB), wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills (P) Ltd. v. CIT decided on 29-2-1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue.”

In view of the above judgment, there remains no doubt that the interest expense on the delayed payment of service tax is allowable deduction.

The above principles can be applied to the interest expenses levied on account of delayed payment of TDS as it relates to the expenses claimed by the assessee which are subject to the TDS provisions. The assessee claims the specified expenses of certain amount in its profit & loss account and thereafter the assessee from the payment to the party deducts certain percentage as specified under the Act as TDS and pays to the Government Exchequer. The amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted & paid to the Government Exchequer. Thus the TDS amount does not represent the tax of the assessee but it is the tax of the party which has been paid by the assessee. Thus any delay in the payment of TDS by the assessee cannot be linked to the income tax of the assessee and consequently the principles laid down by the Hon’ble Apex Court in the case of Bharat Commerce Industries Ltd. v. CIT (1998) 230 ITR 733 cannot be applied to the case on hand.

Thus, in our considered view, the principle laid down by the Hon’ble Supreme Court in the case of Bharat Commerce Industries Ltd. (supra) is not applicable in the instant facts of the case. Thus, we hold that the assessing officer in the instant case has wrongly applied the principle laid down by the Hon’ble Supreme Court in the case of Bharat Commerce Industries Ltd. (supra). We also find that the Hon’ble Supreme Court in the case of Lachmandas Mathura (supra) has allowed the deduction on account of interest on late deposit of sales tax under section 37(1) of the Act. In view of the above, we conclude that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses under section 37(1) of the Act. In this view of the matter, we find no reason to interfere in the order of learned Commissioner (Appeals) and we uphold the same. Hence, this ground of Revenue is dismissed.

8. Next issue raised by Revenue in ground No. 2 is that learned Commissioner (Appeals) erred in deleting the addition made by the assessing officer for Rs. 45,71,900 on account of unexplained freight expenditure after admitting fresh evidences in contravention to the provisions of rule 46A of Income Tax Rules 1962.

9. The assessing officer during assessment proceeding observed the difference in amount of freight expenses shown by the assessee as detailed under :–

(i) Amount shown in the profit & loss account for Rs. 6,95,20,359.00
(ii) Amount shown in the tax audit report for Rs. 8,62,73,035.00
(iii) Amount shown as per section 40A(2)(b) in tax audit Rs. 8,68,95,895.00

The assessing officer accordingly in view of the above differences called the assessee to explain the above difference. In compliance thereto the assessee filed the reconciliation statement before the assessing officer at the time of assessment which is recorded on pages 3 to 5 of the assessing officer order. However the assessing officer disregarded the claim and made the addition by observing as under :–

“8.6 On 18-12-2012 on being queried regarding non production of books of account being subsidiary ledger account vendor regarding freight payment to Shrere Balajee Roadways the A/R stated that there is no such subsidiary ledger vendor account for freight payment to Shreee Blajee Roadways. The A/R stated that only a reconciliation of freight actually paid and reported to related party in Tax Audit Report in section 40A(212)(b) is the only submission that he could file. The order sheet noting dtd 18-12-2012 regarding non production of books of account being subsidiary ledger vendor account has been admitted by the A/R and he has signed on the order sheet on 18-12-2012 admitting the same. Accordingly it is held that the payment of Rs. 45,71,900 to Shree Balajee Roways on account of freight remains unexplained as per books of account and therefore the same is added to the assessee’s total Income. (Disallowance Rs. 45,71,900)

Penalty proceedings under section 271(1)(c) of the Income Tax Act 1961 for furnishing inaccurate particulars of income is separately initiated.”

10. Aggrieved, assessee preferred an appeal before learned Commissioner (Appeals) who has deleted the addition made by the assessing officer by observing as under :–

“I have gone through the submissions of the Authorised Representative and also documents relied upon by them and also perused the assessment order, I find that the impugned additions were made for non-production of subsidiary ledger account of the vendor regarding payment made to M/s. Shree Balaji Roadways. This amount was not claimed as expenditure by the appellant. There is force in the argument of the appellant that there was no occasion for maintaining subsidiary ledger account of the vendor and as such addition for this reason is not maintainable. The difference between freight payment to the sister concern under section 40A(2)(b) as reported in tax audit report and freight charges debited to profit & loss account in the name of the said sister concern was because of the reason of lorry advance freight in-out account. Similarly, the discrepancy of the amount paid to the said party under section 40A(2)(b) as reported in tax audit report and such figures appearing as per notes on account of did not call for any adverse inference as the reconciliation of the said was filed before the assessing officer which has been mentioned at page of the assessment order. In view of the facts and circumstances of the case, I find that it was not an unexplained expenditure as held by the assessing officer. The difference in figures was satisfactorily reconciled before the assessing officer as appearing in the assessment order itself. Under these circumstances, neither the amount remained unexplained nor it was debited to the profit & loss account. Further, this is not a case where the appellant had made an such payment to M/s. Shreee Balaji Roadways. Therefore, the addition made by the assessing officer of Rs. 45,71,900 is directed to be deleted.”

The Revenue, being aggrieved, is in appeal before us.

11. Learned Departmental Representative before us assailed that learned Commissioner (Appeals) has deleted the addition made by the assessing officer after admitting the additional evidence in contravention to the provision of rule 46A of the Income Tax Rules, 1962. He further submitted that the freight expenses to the tune of Rs. 45,71,900 was remained unexplained by the assessee at the time of assessment proceedings, therefore the addition was made. He requested the Bench to confirm the order of assessing officer.

On the other hand, learned Authorised Representative submitted that all the necessary documents were submitted to the assessing officer for necessary verification. No additional evidence was submitted at the appellate stage. Learned Authorised Representative in support of assessee’s claimed relied on the order of learned Commissioner (Appeals).

12. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, it was observed that Revenue has assailed that the relief has been granted by the learned Commissioner (Appeals) on the basis of additional evidences which have accepted against the provision of rule 46A of Income Tax rule. In this connection the Revenue has raised the following ground of appeal.

“2. On the facts and circumstances of the case, the learned Commissioner (Appeals) is not justified in deleting addition of Rs. 45,71,900 as unexplained expenditure on account of freight payments to M/s. Balajee Roadways, after admitting fresh evidence in contravention to rule 46A of the Income Tax Rules.”

From the above ground of appeal, it is clear that the grievance of the Revenue is that the additional documents/ evidences have been accepted by the learned Commissioner (Appeals) against the provision of rule 46A of Income Tax rule. In this regard on specific query from the Bench, the learned Departmental Representative has not pointed out any specific document amounting to as an additional evidence which was admitted by the learned Commissioner (Appeals) in contravention to the provision of rule 46A of the Income Tax Rule, 1962.

On the contrary, we find that all the necessary reconciliation in support of freight expenses were produced by the assessee before the assessing officer at the time of assessment proceedings. There is clear finding of the learned Commissioner (Appeals) that no subsidiary ledger in respect to freight charges was maintained by the assessee though the assessing officer made the addition on the basis of non-production of subsidiary ledger. In the absence of any additional evidence, we do not find any reason to interfere in the order of learned Commissioner (Appeals). Hence, this ground of Revenue’s appeal is dismissed.

13. Next issue raised by Revenue in ground No. 3 is that learned Commissioner (Appeals) erred in deleting the addition made by the assessing officer for Rs. 13,13,396 on account of interest on sundry debtors.

14. During the course of assessment proceedings, assessing officer observed that assessee has shown certain sundry debtors which were outstanding for a period of exceeding six months and there was no business dealing with them. Therefore the assessing officer was of the view that the interest bearing fund of the assessee got blocked in the debtors from whom no interest income is being charged. On question by the assessing officer, the assessee submitted as detailed under :–

(i) The dispute in respect to eight (8) debtors for Rs. 99,11,880.00 is pending in the court of law and therefore as a matter of prudent business policy no interest is being charged.

(ii) There is another dispute in respect to Sundry Debtors amounting to Rs. 10,37,608.00 with regard to the rate of the goods and accordingly no interest is being charged.

(iii) Similarly no interest is being charged from the remaining debtors amounting to Rs. 57,72,348.00 only on the ground that the assessee has regular business dealing with such debtors. Any charge of interest from them will affect the business dealing with them.

However, the assessee failed to submit any documentary in respect of sundry debtors amounting to Rs. 99,11,880.00 only. Therefore the assessing officer following the earlier year assessment order for the year 2009-10 charged interest @ 12% on the outstanding sundry debtors of Rs. 1,09,49,488 (9911880 + 1037608) only. Thus, the assessing officer worked out the amount of interest for Rs. 13,13,938 and added to the total income of assessee.

15. Aggrieved, assessee preferred an appeal before learned Commissioner (Appeals). The assessee before learned Commissioner (Appeals) submitted that there is no provision under the Act for charging the interest on the debtors and accordingly pleaded for the deletion of addition made by the assessing officer. The learned Commissioner (Appeals) after considering the submission of the assessee deleted the addition as under :–

“7- Ground no. (iv) relates to disallowance of Rs. 13,13,938 made by the assessing officer out of interest debited to profit & loss account. The fact of the case is that the assessing officer found that there were sundry debtors appearing in the balance sheet on which no interest was being charged by the appellant. However, the appellant submitted that there were three categories of the sundry creditors i.e., Rs. 99,11,88 where recovery was subjudice before the Court of Law, Rs. 10,37,608 where parties have raised dispute for rate difference and Rs. 57,72,348 where there was regular transactions with the parties. Further, all the debtors are related to the trade debit. After going through the fact and circumstances of the case, I find that the assessing officer has not brought any material on record to establish that the funds which were taken for the purpose of business on which interest was being paid, were diverted for the non-business purpose. Under these circumstances, disallowance out of claim of interest without any basis is not sustainable.”

The Revenue, being aggrieved, is in appeal before us.

16. Before us both parties relied on the order of Authorities Below as favorable to them.

17. We have heard the rival contentions of both the parties and perused the material available on record. In the case before hand, the assessing officer has worked out the interest income on the amount of sundry debtors which were outstanding for more than 6 months. Such interest was added to the total income of the assessee by the assessing officer. The amount of Sundry Debtors represents the amount of sales of goods or services rendered to the customers on credit. The sundry debtors are supposed to make the payment to the assessee on a particular time. Selling the goods or providing services on credit is a common business practice and sometime without the providing the credit to the customers, it is difficult to survive in the competitive markets. On the perusal of assessment order, we find that no date for the payment from the sundry debtor was brought on record. There was no information available suggesting that the assessee was entitled for interest on the outstanding amount of sundry debtors. Thus, it cannot be said that the income from interest had actually accrued to the assessee during the year under consideration. The decision for the charging the interest from the sundry debtors totally depends upon the assessee. The assessing officer cannot sit on the arm-chair of the assessee and direct for the recovery of interest on the amount of sundry debtors which are due for payment. The assessee has to consider business expediency for charging interest from the sundry debtors which are outstanding in the books. Thus, in our considered view, we hold that the addition made by the assessing officer for the interest on the amount of sundry debtors outstanding in the books of account is not sustainable. In the light of above reasoning, we hold that the order of the learned Commissioner (Appeals) is correct and in accordance with law and no interference is called for. We hold accordingly. Hence, this ground of Revenue’ appeal is dismissed.

18. Next issue raised by Revenue in ground No. 4 is that learned Commissioner (Appeals) erred in deleting the addition made by the assessing officer for Rs. 4,33,172 on account of interest on loans and advances.

19. The assessee in its balance-sheet has shown advances for Rs. 48,13,023 which were outstanding for more than six months. Accordingly, the assessing officer as of the view that interest bearing borrowed fund has been diverted without any interest. Accordingly, the assessing officer disallowed the interest @ 9% of Rs. 48,13,023 and made a disallowance of Rs. 4,33,192 by adding to the total income of assessee.

20. Aggrieved, assessee preferred an appeal before learned Commissioner (Appeals). The assessee before learned Commissioner (Appeals) submitted that most of the advances were given for the purpose of its business therefore, no interest of whatsoever on such advance is warranted. Besides the above, the assessee also submitted that the advances were made out of its owned capital and no borrowed fund has been utilized for proving such interest free advance. The assessee in support of his claim also submitted the details of share capital and borrowed fund as detailed as under :–

31-3-2010 31-3-2009
Share capital (including reserve) 88,473,905 60,299,141
Borrowed fund 313,339,764 140,793,000

The learned Commissioner (Appeals) after considering the submission of the assessee deleted the addition made by the assessing officer by observing as under :–

“8. Ground no. (v) relates to disallowance of interest of Rs. 4,33,172. The fact of the case is that the assessing officer found that there were advances of Rs. 48,13,023 given to 8 persons. Since, there was no business connection with these advances, he calculated interest on the same and to that extent a claim of interest was disallowed. However, on the submission filed before the assessing officer by the appellant. I find that Rs. 3,00,000 was given to Aryana Mining & Trading Corpn (P) Ltd. Rs. 23,333,500 was given to Jagnnath Traders, Rs. 8,59,636 was given to Nimit Steel & Alloys P Ltd. Rs. 1,69,673 was given to Sri Krishna Traders, Rs. 3,73,814 was given to Thambi Shop, all these advances were given for the purpose to purchase material. Rs. 1,00,000 was given to Matrix Infosystems Ltd. a advance for security equipment installation. Rs. 2,10,000 was given to Light House system and the amount represents ERP package advance. Rs. 4,66,400 was an opening balance shown in the name of Singhal Enterprises. The same was explained to be the amount under dispute. After going through the nature and purpose of the advances/balances, I find that it was not a case where the loan funds on which interest was being paid were diverted for nonbusiness purpose. All the advances are related for the purpose of business only. Under these circumstances, calculation of interest thereon and disallowing the claim of interest of the appellant was not justified.”

The Revenue, being aggrieved, is in appeal before us.

21. Before us learned Departmental Representative vehemently relied on the order of assessing officer and he left the issue to the discretion of the Bench whereas learned Authorised Representative for the assessee relied on the order of learned Commissioner (Appeals) and stated that issue may be decided on merit.

22. We have heard the rival contentions of both the parties and perused the material available on record. The assessing officer in the instant case was of the view that the interest bearing fund has been diverted for non-business activities and accordingly, he disallowed the interest @ 9% per annum on the amount of advance.

22.1 On perusal of appellate order, we find that assessee was having its own capital for Rs. 8,84,73,905 at the end of financial year under consideration. We note that the own fund of assessee was sufficient enough to make the advance of Rs. 48,13,023 only. In this regard, learned Departmental Representative has not brought anything contrary to the finding of learned Commissioner (Appeals) suggesting that the borrowed has been diverted in non-business activity. Hence, we hold that there was no diversion of interest bearing fund to the non-business activities of the assessee. Accordingly we find no reason to interfere in the finding arrived by the learned Commissioner (Appeals). Under the circumstances, this issue of Revenue’s appeal is dismissed. 23. Last issue raised by Revenue in Ground No. 5 is general in nature and does not call for any separate adjudication.

24. In the result, Revenue’s appeal stands dismissed.

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