GUARDIAN NUTRITION & HEALTH SUPPLEMENTS PVT. LTD.,NEW DELHI vs. DCIT, CIRCLE- 10(2), NEW DELHI

O R D E R PER KUL BHARAT, JM:

This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax(Appeals)-18, New Delhi, dated 20.06.2017, pertaining to the assessment year 2012-13. The assessee has raised following grounds of appeal:

“1) That in the facts and circumstances of the case, the CIT(A) erred in sustaining addition to the extent of Rs. 51,67,163/- made by A.O. as disallowance of interest, bank charges etc incurred by assessee company.

2) That the appellant craves leave to add, alter, amend or drop any of the above grounds at the time of hearing.”

4. At the time of hearing, no one attended the proceedings on behalf of the assessee.

It is seen from the record that no one has been attending on behalf of the assessee.

Therefore, the appeal is taken up for hearing in the absence of the assessee and is being decided on the basis of material available on record.

5. Apropos to the ground raised by the assessee learned DR vehemently supported the orders of the authorities below and submitted that there is no infirmity into the order of the learned CIT(Appeals) as the learned CIT(Appeals) has also followed the finding of his predecessor in respect of the assessment year 2011-12.

“5.2.3 I have carefully considered the matter. A perusal of the assessment order and the contentions of the AR shows that the background of the disallowance and the arguments are same as for AY 11-12 except the following factual difference.

(1) The details of advance and the source of funds are explained the same way as in AY 11-12.(PB-26) (2) The financial expenses of (Sch 24) Rs.60,84,876 includes Rs.3,50,504 on car loan and Rs.5,67,209 on bank charge and commission. Interest on cash credit comes to Rs.5i,67,i63/-(3) The amount due from Guardian Life Care P Ltd has increased from Rs.22,13,30,415/- to Rs.25,65,22,030/-(See Sch 19) The details of increase are not given. But it appears that the amount has not been repaid. (3) There are no details given of the construction of building. It appears that there is no improvement in the situation as prevailing in AY 2011-12. 5.2.3.1 Thus there is nothing new to make me depart from my findings for AY 2011-12 since the interest is not shown to be due to any other reason than the continuing loan making the debit balance in the cash credit account of IDBI Bank continue during this period, causing the interest charge. Incidentally, the cash credit account details for this year is also not furnished. 5.2.3.2 In short, the AR has nothing new to say except repeating the same arguments as in AY 11-12. 5.2.3.3 In the circumstances, I would again hold it against the assessee following my observations and conclusions for AY 11-12, which reads as follows.

5.2.3 With the facts thus set out in their proper perspective, the legal precedents provide useful guidance for me to decide the matter as under. (a) It is well settled that the burden of proof in such type of claim of allowance u/s 36(1)(iii) is on assessee. The Burden of proof in making a claim of deduction has been well delineated by Hon’ble Orissa HC in the IMFA Ltd. vs. CIT (1992) 193 iTR 344 (Ori.) where they held:

Section 36(1)(iii) of the Act provides that, in computing the income chargeable under the head “Profits and gains of business or profession”, a deduction shall be allowed of the amount of interest paid in respect of capital borrowed for the purpose of business or profession. What is "borrowed money" has been construed by courts in England and by the Supreme Court in a number of cases. In Port of London Authority v. IRC [1922] 2 KB 599 (CA), Lord Stemdale M.R. observed that, in order that there be borrowed money, there must be a borrower and a lender. A similar view was expressed in CIT v. Bazpur Co-operative Sugar Factory Ltd. [1989] 1 77 ITR 469 (SC). The essence of interest is that it is a payment which becomes due because the creditor has not had his money at his disposal. It may be regarded either as representing the profit he might have made if he had used his own money, or conversely, the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation (see Westminster Bank Ltd. v. Riches [1947] 28 TC 159 (HL)).

The determinative question in a case of this nature is the source from which the assessee makes investments or advances. Where an assessee seeks to deduct certain items from his business profits, the onus of proving the same falls on him. The burden of proving a claim to an allowance or deduction is on an assessee. (See CIT v. Calcutta Agency Ltd. [1951] 19 ITR 1 91 (SC)). If the assessee makes a claim to deduction in terms of section 36 of the Act for the purpose of computation of income referred to in section 28 of the Act, he has to place materials in support of his claim of entitlement to the deduction.

Section 36(1)(iii) relates to the amount of interest paid on capital borrowed for the purposes of the business, profession or vocation. The assessee has to satisfy the assessing authority that he is entitled to obtain deduction in accordance with the taxing statute. The burden is on the assessee to prove that a particular class of income is exempt from taxation. (See H.E.H. Nizam's Religious Endowment Trust v. CIT [1966] 59 ITR 582 (SC).

It was held in Nizam's case [1966] 59 ITR 582 (SC), that the burden is on the Revenue authorities to show that the income is liable to tax under the statute; but the onus of showing that a particular class of income is exempt from taxation lies on the assessee.

To earn the exemption, the assessee has to establish that his case clearly

Act. The principles equally apply in cases of deductions claimed.

Therefore, the assessee was required to show that the amounts invested in or advanced to the subsidiary company came out of the assessee's own funds. The- Tribunal, with reference to the factual aspects, came to hold that the money utilised was from the borrowed funds. This essentially is an inference from factual aspects.

(b) The conditions for allowing any claim of deduction u/ s 36(l)iii) has been outlined in Marolia & Sons vs CIT [ 1981 ] 129 ITR 475 (Allahabad) (Also see Hotel Roopa vs CIT [ 2015 ] 57 taxmann.com 331 (Karnataka)) in the following manner:

It would be found from section 36(l)(iii ) that three conditions must be established by an assessee for getting the benefit under the aforesaid clause:

(1) interest should have been payable, (2) there should be a borrowing, and (3) Capital must have been borrowed or taken for business purposes. If the capital borrowed is not utilised for the purposes of the business, the assessee will not be entitled to deduction under this clause. In case, after having borrowed the capital for business purposes, the firm gives the same to its partners for their personal use or utilisation, the firm would not be entitled to claim deduction on the amount diverted for utilisation for other purposes or by other persons. It is settled that an assessee-firm cannot be entitled to claim deduction under clause (iii) of sub-section (1) of section 36 on the amount which is not used for the purposes of business but is given to the partners for their personal use.

(c) The Apex Court, in the case of S.A. Builders Ltd. v. CIT (Appeals) [2007/ 288 ITR 1/158 Taxman 74 also had an occasion to consider the provisions of Section 36(l)(iii). In that case, after a detailed examination of the provisions, the Supreme Court held that when a claim for deduction under Section 36(1 )(hi) is made, the authorities should enquire as to whether the interest free loan was given as a measure of commercial expediency and on facts if it is so found, deduction should be allowed. The court also explained that the expression "commercial expediency” is an expression of wide import and includes such expenditure that a prudent businessman incurs for the purpose of business and that such expenditure may not have been incurred under any legal obligation. After explaining what is commercial/business expediency, they observed in the said judgment as under : "To consider whether one should allow deduction under s. 36(1 Kiii) of interest paid by the assessee on amounts borrowed by it for advancing to a sister concern, the authorities and the Courts should examine the purpose for which the assessee advanced the money and what the sister concern did with the money. That the borrowed amount is not utilized by the assessee in its own business but had been advanced as interest-free loan to its sister concern is not relevant. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. (d) Thus where the assessee fails to prove that the loan advanced is not for business purpose or commercial expediency, interest attributable to that portion would call for disallowance. This judicial view is well settled in a plethora of judgments and few of these are: CIT vs H.R. Sugar Factory (P.) Ltd. [1990] 53 Taxman 63 (ALL), Milapchand R. Shah vs CIT [1965] 58 ITR 525 (Mad.), Akarshan Builders vs ITO [ 2015] 60 taxmann.com 138 (Karnataka) , Crescent Organics (P.) Ltd. vs DCIT 2014 ] 49 taxmann.com 128 (Bombay HC), C. R. Auluck and Sons (P.) Ltd. vs CIT [2014 ] 49 taxmann.com 21 (Punjab & Haryana), CIT vs Avery Cycle Inds Ltd. [2015 ] 56 taxmann.com 459 (Punjab & Haryana), CIT vs Subrata Roy [ 2013 ] 38 taxmann.com 324 (Allahabad), CIT vs Subrata Roy [ 2013 ] 38 taxmann.com 324 (Allahabad).

(e) This is all the more so when there is a finding that the loans were extended out of borrowed funds and not out of any credit balance available with the assessee-firm at that time. One may refer to the judgment of jurisdictional HC in Punjab Stainless Steel Inds. Vs CIT 324 ITR 396(Del HC), where they held,

In the instant case, there was absolutely no finding recorded by the Tribunal that the interest free advances were made by the assessee to sister concern for its business purposes. There was no such finding by the Tribunal even with respect to the advances extended in the previous years. It was not the case of the assessee that it had so much surplus cash available with it at the time of extending those advances that the same could have been extended by it out of those surplus funds available to it. In fact, the payments made to sister concern from cash credit account indicated to the contrary and showed that advances made during the financial year relevant to the assessment year 2001-02, were extended out of borrowed funds and not out of any credit balance available with the assessee-firm at that time. [Para 13]

(f) Two related aspects while considering the disallowance are that (i) notional addition for non charge of interest has been disapproved in cases like Shivnandan Buildcon (P.) Ltd. [ 2015 ] 60 taxmann.com 347 (Delhi) and Guwahati High Court, in Highways Construction Co. (P.) Ltd. v. CIT [1993] 199 ITR 702, (relied on by the AR ) on the reasoning that any provision of the Income-Tax Act empowering the income-tax authorities to include in the income on notional basis, interest which was not due or not collected. (NB:In our case, the issue of course is not interest that is not allowable u/s 36(l)(iii) when interest bearing advances have been extended as interest free/ less interest bearing loan to third parties.) (ii) There are several decisions like Reliance Utilities & Power Ltd. [2009] 313 ITR 340/1 78 Taxman 135 (Bom.), Hotel Savera [1999] 239 ITR 795/102 Taxman 247 (Mad), Tin Box Co. [2003] 260 ITR 637/[2004] 135 Taxman 145 (Delhi)) in support of the conclusion that when the assessee possesses mixed funds which include its own funds in sufficient quantity, a presumption that its own funds were utilized for the advances is to be drawn. (g) However, it is also well accepted a view that while computing disallowance the availability of non interest bearing fund and capital reserve etc ought to be considered. The logic is well brought out in some of the judgments as discussed here below.

(i) CIT vs Vijay Solvex Ltd [2015] 59 taxmann.com 294 (Rajasthan) 9. It may be that the assessee on account of business expediency advanced money to sister concerns or other concerns at a lower rate of interest or did not charge interest that by itself does not prove that the assessee diverted interest-bearing loans to the said firms. (ii) CIT vs Amod Stamping (P.) Ltd [2014 ] 45 taxmann.com 427 (Gujarat) : In the case of Reliance Utilities & Power Ltd. (supra), the Bombay High Court has held that if there are funds available both interest free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investments and, therefore, interest was deductible. (iii) CIT vs Kajal Exports [ 2014 ] 49 taxmann.com 21 7 (Gujarat) The Tribunal has rightly held that Rs. 97.26 lakhs interest-free advance were made whereas the assessee had interest-free fund to the tune of Rs. 95.80 lakhs available with it and, therefore, only for the remaining sum of Rs. 1.46 lakhs, it had confirmed the disallowance of the interest. [Paras 10 and 11]

(iv) Allahabad High Court in the case of CIT v. Radico Khaitan Ltd. [2005] 274 ITR 354/142 Taxman 681 The assessee company had sufficient fund 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 s. 36(l)(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. (v) Hutchison Essar Telecom Ltd. vs JCIT [ 2013 ] 33 taxmann.com 642 (Delhi - Trib.) There was no need to establish the nexus when it was proved that the assessee had its own funds which were much more than advances/investments made by assessee to its sister concern. Therefore, the disallowance deserved to be deleted. (vi) Venus Records & Tapes (P.) Ltd. [2013 ] 33 taxmann.com 49 (Mumbai - Trib.) Whether since assessee had its own funds in shape of share capital and share application money which was sufficient to meet amount advanced by it as interest free to its associate concerns, deduction claimed on interest paid on borrowed capital was to be allowed. (h) Even as argued by the AR of appellant, the basis of disallowance may be restricted to the loans for the instant year only, if the interest on earlier loans have already been allowed in previous years. In CIT vs Sri Dev: 192 ITR 165(Kar) (Also Escorts Ltd. [2007] 104 ITD 427 (DELHI) ; Punjab Wool Combers Ltd. [2004] 1 SOT 114 (CHD.), G.R. Agencies 1 SOT 635(Luck))), it was held that if interest is allowed as being for business purpose, a different stand could not be taken by the Department in subsequent year on the same loan. In that case, there was certain opening balance of advances made to partners during earlier years. No interest was charged from Partners of assessee who were given loan , however, assessee borrowed funds from third parties and claimed deduction of interest paid on such borrowings. It was held that since no addition had been made in earlier years, opening debit balance of partners could not be considered during year in question and enquiry had to be limited to increase in current year only.

5.2.4 I find that the AO has relied on the decision of Abhishek Industries of HC of Punjab & Haryana [2006] 156 Taxman 257 (Punjab & Haryana). The following portions of the judgment is pertinent to see.

As far as the issue of establishment of nexus of the funds borrowed vis-a-vis the funds diverted towards sister concern on interest free basis was concerned, the stand of the assessee that the onus of proving the nexus of funds available with the assessee with the funds advanced to the sister concerns without interest was on the revenue was not correct. Section 36(l)(iii) provides for deductions of interest on the loans raised for business purposes. Once the assessee claims any such deduction in the books of account, the onus will be on the assessee to satisfy the Assessing Officer that whatever loans were raised by the assessee, the same were used for business purposes. If in the process of examination of genuineness of such a deduction, it transpires that the assessee had advanced certain funds to sister concerns or any other person without any interest, there would be very heavy onus on the assessee to be discharged before the Assessing Officer to the effect that in spite of pending term loans and working capital loans on which the assessee is incurring liability to pay interest, still there was justification to advance loans to sister concerns for non-business purposes without any interest and, accordingly, the assessee should be allowed deduction of interest being paid on the loans raised by it to that extent. Even the plea of nexus of loans raised by the assessee with the funds advanced to the sister concerns on interest free basis might be pleaded to be out of sale proceeds or share capital or different account could not be accepted. [Para 14] xxxx If the plea of the assessee was accepted that the interest free advances made to the sister concerns for non-business purposes was out of its own funds in the form of capital introduced in business, that again would show a camouflage by the assessee as at the time of raising of loan, the assessee would show the figures of capital introduced by it as a margin for loans being raised and after the loans were raised, when substantial amount was diverted to sister concerns for non- business purposes without interest, a plea was sought to be raised that the amount advanced was out of its capital, which in fact stood exhausted in setting up of the unit. Such a plea may be acceptable at a stage when no loans had been raised by the assessee at the time of disbursement of funds. This would depend on facts of each case. [Para 16] 5.2.5 However, the same (P & H) HC in a later desison and in the wake of subsequent decisions of SC in S A Builders and Munjal Sales, has held as under, after considering this decision of Abhishek Industries: 4. On the other hand, counsel for the assessee while referring to the decision of the Supreme Court in A. Builders Ltd v. CIT (Appeals) [2007] 288 ITR H and Munjal Sales Corpn. v. CIT [2008] 298 ITR 2983 (SC), submitted that once a finding of fact has been recorded by the Tribunal to the effect that the interest-free loan given to the sister concern was for a business consideration, then in that situation merely on the basis of the observations made in Abhishek Industries Ltd.’s case (supra), the order of the Tribunal in deleting the disallowance of interest on the ground that there is no nexus between the borrowings and interest-free advances made to sister concern, cannot be quashed.

person in the trade to avail interest free loan and to advance interest free loan to some other persons. The assessee cannot be intermediatory for availing and granting interest free loan. Since such question has not been examined, we deem it appropriate to set aside the orders of the Commissioner of Income Tax (Appeals) and that of the Tribunal and direct the Commissioner of Income Tax (Appeals) to examine the said question and decide the appeal on merits in accordance with law. 5.2.7 Similarly in C.R. Auluck and Sons (P.) ltd. [2014] 49 taxmann.com 21 (Punjab & Haryana), the HC in a sense agreeing with the views of the authorities that the ‘commercial expediency’ for the purposes of examining the applicability of the ratio of the decision of S.A. Builders ltd. (supra), has to be seen with the reference to the loan giver and not the loan receiver, upheld the decision with the following remarks, 8. The Tribunal, while dismissing the appeal of the assessee, had also concluded that there was no commercial expediency and the interest-free borrowed funds had been advanced for non-business purposes and had accordingly disallowed interest amounting to Rs. 14,82,695 being interest attributable to the interest-free advances made by the assessee to its sister concern out of interest- bearing borrowed funds. xxx 10. Referring to the judgments relied upon by learned counsel for the assessee in Malayalam Plantation Ltd (supra) and S. A. Builders Ltd 's cases (supra), the legal proposition enunciated therein is well recognised but in view of the finding concurrently recorded by the Assessing Officer, the Commissioner of Income-tax (Appeals) and the Tribunal that commercial expediency was not involved in the transaction, the same do not help the assessee. 5.2.8 Explaining further the concept of business expediency, the same HC of P & H in yet another decision in Bright Enterprises (P) Ltd vs CIT [2015 ] 61 taxmann.com 73 (Punjab & Haryana) explained, 17. The Assessing Officer's view that the advance was not for business purposes as the appellant had no business dealings with the sister company is erroneous. Commercial expediency in advancing loans does not arise only on account of there being transactions directly between the holding company and the subsidiary company or between the group companies inter se. The two companies may even be in a different line of business. It would make no difference. It would still be commercially expedient for one group company to advance amounts to another group company, if, for instance, as a result thereof the former benefits. In the present case, as we have already demonstrated, there would be a direct benefit on account of the advance made by the appellant to its sister company if the same improves the financial health of the sister company and makes it a viable enterprise. We hasten to add that it is not necessary that the advance results in a positive tangible benefit. So long as the amount is advanced with that view in mind or with any other commercially expedient view in mind that is sufficient. 5.2.9 A distillation of all the above judgments reveal that the following broad postulates can be culled out and laid down in this matter: (a) If the assessee claims any deduction on account of interest paid on borrowed funds or claims any other deduction, then the initial burden is upon the assessee to show that borrowed funds were utilized for business purposes and thus the assessee is required to substantiate its claim; (b) If the assessee discharges the primary onus, then for disallowing its claim, the burden shifts to department which is required to establish the nexus between the borrowed funds and funds advanced free of interest or funds invested for non- business purposes, for example funds invested in shares and (c) If despite directions of the department, the assessee fails to furnish any material to substantiate its claim for deduction, then adverse inference can be drawn against the assessee.

(d) If the assessee has borrowed funds and also interest free deposits and profits etc., and keeps the same in the mixed or common account, then no presumption can be drawn that the interest free advances or investments made by the assessee were only out of borrowed funds. On the other hand, if entire profits are deposited by the assessee into the over-draft account and if such profits, surplus or reserves etc., are found to be far in excess then the amount invested in shares and bonds, the presumption has to be drawn that the investments in shares and bonds etc., were not out of borrowed funds but from such profits and surplus etc., unless contrary is established.

(e) Facts of each case and each assessment year and the relevant accounts of the assessee are to be thoroughly examined for allowing or disallowing the claim for deduction and no general presumption can be drawn in absence of specific findings recorded by the authorities. 5.2.10 However, while the law laid down by the courts leads to the principles to be followed, the matter is essentially factual. Indeed the Hon’ble Delhi HC has said in the cases of Elmer Havell Electrics vs. CIT 277 ITR 549 9Del.) and Tin box Co. 260 ITR 637 9Del.) has said that; Whether there existed any commercial expediency for the assessee to transfer the said amount to one of its sister concerns or not was primarily a question of fact. The contention that the funds were advanced from self-generated funds of the assessee and that there was a need for that purpose, was again a question of fact. 5.2.11 When the facts of our case are analysed on the anvil of principles enunciated in these decisions, I find that the appellant has not spelt out why the funds were diverted in the first place. Or what was the business expediency involved in extending the interest free loan. The only plea taken is that the loan has been given out of FDRs en-cashed and therefore no disallowance could be made. However, what is of importance is what was it used for in the hands of the recipient and whether there is any business expediency involved therein as far as the assessee is concerned. In fact a case close to ours has been decided by the Hon’ble Delhi HC in Punjab Stainless Steel Inds.vs CIT [ 2011 j 196 Taxman 404 (Delhi) : 7. A perusal of the assessment order would show that the assessee did not claim before him, that the advances to M/s. Kesho Ram Industries were actuated by way of commercial expediency. The contention before the Assessing Officer was that the interest free advances to M/s. Kesho Ram Industries were made out of interest free funds available with the assessee firm. No case of commercial expediency was set up before him. From a perusal of the order passed by the CIT(A), we find that the plea of commercial expediency was not set up before him as well. The assessee firm did not claim before him that the advances to M/s. Kesho Ram Industries were in the business interest of the assessee firm and were a measure of commercial expediency. The plea of commercial expediency in advancing the loan was set up for the first time before the Income-tax Appellate Tribunal. The assessee, however, failed to make out a case of commercial expediency before the Tribunal. During the course of arguments before us the assessee did not try to make out a case of commercial expediency in extending interest free advances to M/s. Kesho Ram Industries. The assessee did not tell the Tribunal as to what business interest of the assessee firm was sought to be achieved by making interest free advances to M/s. Kesho Ram Industries and in what manner that interest was served. The assessee was required not only to claim commercial expediency but also to establish it from the material available to the Assessing Officer. It has not even made such an attempt.

5.2.13 Our facts are similar. The appellant while unsuccessfully explaining the nature of source (which is the cash credit account in any case) has not made out any case for business expediency. Hence its case has to fail. 5.2.14 On facts also the appellant has no ground to succeed. I have examined the cash credit account submitted by the appellant as follows. Date Particulars Debit Remarks 06.07.10 Being fund transferred to ICICI Bank 75,00,000 Encashment of FDR with ICICI Bank funds of GLPL through RTGS dated 06.07.10 Rs. 88,00,000/- transferred to IDBI bank on 06.07.2010 and then advanced Rs. 75,00,000/- to Guardian Lifecare Pvt. Ltd. (GLPL) 06.08.10 Ch no. 019365, issued to Guardian 15,00,000 Encashment of FDR with ICICI Bank on Lifecare Pvt. Ltd. (GLPL) 06.08.10 and amount of Rs. 15,00,000/- advances to GLPL 06.08.10 Being RTGS issued to GLPL dated 50,00,000 Out of encashment of FDR with ICICI Bank & 06.08.10 transferred to IDBI Bank i) Rs. 40,00,000/- on 04.08.10 ii) Rs. 30,00,000 on 05.08.10

A sum of Rs. 50,00,000/- advanced to GLPL on 06.08.10 12.11.10 Amount paid to GLPL ICICI Bank 1,50,00,000 Out of encashment of FDR on 10.11.2010 through RTGS dated 12.11.10 with ICICI Bank (Rs.1,00,00,000/-) and transferred to IDBI bank alongwith Op. Balance amount (Rs.1,00,00,000/-) advanced to GLPL 06.12.10 Ch no. 021548, issued to Guardian 85,00,000 Out of encashment of FDR on 06.12.10 Lifecare Pvt. Ltd. (GLPL) with ICICI Bank & advanced to GLPL on 07.12.10 06.01.11 Ch no. 021648, issued to Guardian 85,00,000 Out of encashment of FDR on 05.1.11 Lifecare Pvt. Ltd. (GLPL) with ICICI Bank & advanced to GLPL on 07.1.11 05.02.11 Ch no. 026707 issued to Guardian 85,00,000 Out of encashment of FDR on 05.2.11 Lifecare Pvt. Ltd. (GLPL) with ICICI Bank & advanced to GLPL on 05.2.11 Rs. 85,00,000 05.03.11 Ch no. 026723 issued to Guardian 85,00,000 Out of encashment of FDR on 05.3.11 Lifecare Pvt. Ltd. (GLPL) with ICICI Bank & advanced to GLPL on 05.3.11 Rs. 85,00,000 31.03.11 Ch no. 026707 issued to Guardian 85,00,000 Out of encashment of FDR on 31.3.11 with ICICI Bank & advanced to GLPL on Lifecare Pvt. Ltd. (GLPL) 31.3.11 Rs. 85,00,000 31.03.11 Ch no. 026707 issued to Guardian 1,70,00,000 Out of encashment of FDR on 31.3.11 Lifecare Pvt. Ltd. (GLPL) with ICICI Bank & advanced to GLPL on 31.3.11 Rs. 1,70,00,000

(ii) We can see some transactions. On 12/11/10 an amount of Rs. 1.15 cr has been advanced to the sister concern claimed to be out of credit of FDR maturity of Rs. 1 cr on 10/11/10. The facts depicted in the CC account belies this. Let us see the transactions as depicted therein.

Date Description Date Ch Amount Amount Balance no. (Rs) Dr (Rs) Cr etc. 8/11/2010 1,40,89,762 Dr 10/11/2010 At Surjapur RTGS/ICI 10.11.2010 1,00,00,000 40,89,762Dr Guardian Nutrition and health Ch 10314038265 11/11/2010 At CCU-Delhi/ 11/11/2010 6438 4,95,000/- 45,84,762 Dr. MScontracter 12/11/2010 At CCU/ Delhi/Sanyog 12.11.2010 6419 2193 45,86,955 Dr 12/11/2010 At CCU/ Delhi/Lucknow 12.11.2010 6418 21088 46,08,043 Dr. Medical Agency 12/11/2010 At CCU/Delhi/ The 12/11/2010 6420 86047 46,94,090 Dr Medimorm 12/11/2010 At CCU/Delhi/ Kapb ro 12/11/2010 6417 17370 47,11,460/- Agency 13/11/2010 At CCU/Delhi/ Kapbro 13.11.2010 6391 704 47,12,164 Dr Agency 15/11/2010 At CCU/Delhi/ SBMarket 15.11.2010 6432 1680 47,64,285Dr Zone 15/11/2010 At CCU-Raj Zone serial 15/11/2010 6431 1,39,435 49,03,720 Dr 15/11/2010 At Surjapur 15/11/2010 1,25,00,00,000 1,74,03,720 RTGS/IBKLH10319004480/ Dr Guardian Water Resources Pvt. Health 15/11/2010 At Surjapur 15/11/2010 1,15,00,00 2,89,12,017Dr RTGS/IBKLH10319004503/ Guardian lifecare Pvt. health

Thus the debit balance on 15.11.2010 shows that Rs. 1 crore wa already utilized for payment of Rs. 1.25 crore to Guardian Water Resources and not available for loan to Guardian Lifecare Ltd.

5.2.15 I find that Guardian Lifecare Ltd is the holding company. The financial expenses of (Sch 19) Rs.34,81,668 includes Rs.l,98,694 on car loan and Rs.5,32,238 on bank charge and commission. Interest on cash credit comes to Rs.27,50,736/-. The details of interest charged on IDBI Bank CC Account has also been furnished. It was explained that (see submission on 5/6/17) the money was taken from maturity of FDR( No proper evidence produced not the complete ICICI bank a/c copy) then transferred to IDBI account and from there to associate concerns. However, the complete link has not been explained with corresponding documents.

5.2.16 It was further explained that the money was capital advance for the purpose of construction of a building to be shared jointly. Land was acquired but the building could not be constructed till 31.3.11.

(b) A copy of Resolution of the appellant company dated 16/6/2010 has been filed and this, inter alia, reads as under: Guardian Lifecare Private Ltd. is an owner of the property situated at Plot No. 52,

Sector-34, Gurgaon and willing to construct it corporate office. They will provide the space 12,500 sqft build up area in the said property for 15 years without any monthly rent, security and maintenance charges to Guardian Nutrition and Health Supplements Private Limited. (c) Thus the land was already in place by the time further funds was pumped in and no improvement has been made thereafter because of delay in approval. The correspondence for the construction or approval has not been furnished. The fund mainly is for construction of their corporate office with a promise that 12,500 sft of rent-free area would be provided to the appellant for 15 years .But during the year, the advance has been used for the benefit of the payee company, while loss of interest of FDR and the interest payment on CC account has been incurred by the appellant. Further from the analysis above, the continuing debit balance in the current account before and after the advance shows that the corresponding interest is attributable to this loan and it is not out of FDR per se, whose credit has not been able to wipeout the debit balance in the first place. Further I find that there are other discrepancies as well . For example on 7/6/2010 an amount of Rs.l cr has been paid to the payee company. This raises doubt as to how before the resolution dated 16/6/2010, the amount was advanced. There is also interim credits received from Guardian Life care e.g.26/ 7/2010 Rs. 20 lakh. Similarly on 6/ 8/ 2010, payment of Rs. 50 lakh made to Guardian Life care is paid back on different dates 10/8/2010, 13/08/2010, 17/8/10 and 18/8/10. The complete picture in the form of inter transactions has not been submitted. The balance sheet also shows that the amount receivable from Guardian Life care is shown at Rs. 24,04,90,620 (Sch 12) . Thus in absence of the complete information, the least that can be said is that the appellant has not been able to prove the business expediency. In the aforesaid premises, the contentions have to fail. However, the interest on cash credit being Rs. 27,50,736/-, the disallowance is limited to that extent. 5.2.17 The ground is partly allowed.”

Order pronounced in open court during the course of hearing on 21st November, 2022.