DCIT, NEW DELHI vs. M/S HERITAGE HOSPITAL LTD.,, NEW DELHI
Facts
The Revenue appealed against the CIT(A)'s deletion of various disallowances made by the Assessing Officer (AO). These included disallowances for travelling and conveyance, repair and maintenance, general expenses, hoarding expenses, business promotion expenses, and doctor reporting fees, primarily due to alleged lack of supporting evidence, cash payments, or non-business purposes. The Revenue also challenged the deletion of an addition to income based on accrued income calculation and disallowance of interest expenses, where the AO alleged diversion of funds to Capital Work in Progress (CWIP).
Held
The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decisions for all grounds. The ITAT found that the AO made disallowances on an estimate basis without proving bogus expenses. It was held that TDS provisions were not applicable for repair and maintenance as it was for material, and for doctor fees, payments were below threshold limits. The assessee's consistent mercantile accounting method for income recognition was accepted, and for professional fees, the AO failed to conduct independent verification. Regarding interest, the ITAT concluded that funds were for day-to-day operations and internal profits were sufficient for incremental CWIP, thus not triggering Section 36(1)(iii).
Key Issues
Whether the CIT(A) was correct in deleting disallowances of various expenses (traveling, repair, general, hoarding, business promotion, doctor fees) where the AO cited self-made vouchers, lack of evidence, non-business purpose, or non-deduction of TDS; whether the CIT(A) was justified in deleting an addition to income based on an estimated accrual basis; and whether the disallowance of interest expenses due to alleged diversion of funds to Capital Work in Progress was correctly deleted by the CIT(A).
Sections Cited
40A(3), Rule 46A of Income Tax Rule, 1962, 194C, 40(a)(ia), 194C to 194J, 271(1)(c), Chapter XVII of the IT Act, 36(1)(iii), Section 28
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: MS. MADHUMITA ROY & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-
This appeal by the Revenue is preferred against the order of the
CIT(A) - 4 ,New Delhi dated 29.08.2016 pertaining to A.Y. 2012-13.
The Revenue has raised the following grounds of appeal:
“1. Whether on the facts &the circumstances of the case, ld. CIT(A) is right in deleting the disallowance of Travelling and Conveyance expenses of Rs. 39,36,330/ - by ignoring the fact that the voucher of Travelling expenses are self made and the assessee has failed to substantiate its claim by producing supporting evidence either before the AO or CIT(A)?
Whether on the facts &the circumstances of the 2. case, ld. CIT(A) is right in deleting the disallowance of repair and maintenance expenses of Rs. 11,50,596/- and by accepting the additional evidence without providing opportunity to AO against the provisions of Rule 46A of Income Tax Rule, 1962?
Whether on the facts &the circumstances of the case, ld. CIT(A) is right in deleting the disallowance of General expenses of Rs. 11,55,156/ - by ignoring the fact that no supporting evidence was filed before the AO?
Whether on the facts &the circumstances of the case, ld. CIT(A) is right in deleting the disallowance of hoarding expenses of Rs. 73,7830/ - by ignoring the fact that no supporting evidence was filed before the AO and during the assessment proceeding, the assessee Company itself admitted that the expenses are neither supported by
voucher nor incurred wholly the exclusively for business purposes?
Whether on the facts &the circumstances of the 4. case, ld. CIT(A) is right in deleting the disallowance of business promotion expenses of Rs. 10,43,117/- by ignoring the fact that no supporting evidence was filed before the AO and during the assessment proceeding, the assessee Company itself admitted that the expenses are neither supported by vouchers nor incurred wholly the exclusively for business purposes?
Whether on the facts &the circumstances of the case, ld. CIT(A) is right in deleting the disallowance of Doctor reporting fees of Rs. 2,19,625/- business promotion expenses of Rs. 10,43,117/- by ignoring the fact that no supporting evidence was filed before the AO and during the assessment proceedings, the assessee company admitted the expenses are neither supported the voucher nor incurred wholly the exclusively business purposes?
Whether on the facts &the circumstances of the case, ld. CIT(A) is right in deleting the addition of Rs. 11,65,722/ - on account of income accrued by ignoring the fact that the assessee company is practicing mercantile system of accounting and the receipts in respect of services rendered during the year should have been credited to
profit and loss account?
Whether on the facts &the circumstances of the 8. case, ld. CIT(A) is right in deleting the disallowance on account of legal and professional expenses of Rs. 5,34,000/ - by ignoring the fact that the assessee company did not furnish any proof either for providing works to Aventu consulting or any agreement or document signed for this purpose?
Whether on the facts &the circumstances of the 9. case, ld. CIT(A) is right in deleting the disallowance of interest expenses of Rs. 1,80,78,877/- ignoring the fact the total funds available in the form of share capital, reserve and surplus are far less than investment in fixed assets and the assessee company has diverted funds of Rs. 22,18,27,200/ - to capital WIP?
The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing.”
Facts relating to Ground No. 1 which pertains to disallowance of Travelling and Conveyance Expenses are that the Assessing Officer observed that the assessee has claimed travelling and conveyance
expenses during the year under consideration at Rs. 73,40,934/- paid
to four directors of the assessee and Rs. 13,73,469/- to others.
The Assessing Officer observed that most of the expenses were
siphoned off by the directors in the name of travelling and conveyance
expenses intentionally taking care that the amount remained below
monetary limit specified u/s 40A(3) of the Act. The Assessing Officer
further observed that the vouchers were not only self-made but also
prepared just for the sake of vouchers to create self-serving
documentary evidence.
The Assessing Officer further observed that the petrol bills were
prepared without giving any details of vehicles and how such huge
quantity of petrol ranging from 159 liters to 319 liters was filled up in
the vouchers. The vouchers did not bear CST No. and even no landline
number was mentioned. Therefore, the Assessing Officer came to the
conclusion that these self-serving vouchers have been stage managed
by the assessee simply to siphon off the company’s money to non-
business purposes of the company by creating a veneer of credibility by
way of stage managed self serving vouchers.
Relying upon the decision of the Hon'ble Supreme Court in the
case of CIT Vs. Durga Prasad More and decision of the Hon'ble Madras
High Court in the case of Southern Sea Foods Ltd 215 ITR 176 and
keeping in view the pragmatic functioning of the assessee’s business,
the Assessing Officer gave relief to the assessee 50% of expense and
disallowed 50% of the expenses which comes to Rs. 43,57,201/-.
Aggrieved, the assessee went in appeal before the ld. CIT(A).
The ld. CIT(A), after considering the submissions of the ld.
counsel for the assessee, limited the disallowance to Rs 4,20,871/- i.e.
20% of expenses claimed by directors amounting to Rs. 21,04,353/-.
The ld. DR argued that the amount towards travelling was paid to related parties in cash. He further argued that there was no 3rd party
bills and only self made vouchers. He drew our attention to the
Assessing Officer’s findings that petrol bills were not verifiable as it
had no suppliers names or CST No.
Per contra, the ld. counsel for the assessee relied on the orders
of the ld. CIT(A).The ld AR of the assessee further submitted that the
assessee operates in the region of the country where cash payment for
petty services like for labour payments, vehicle hire charges, tent-
wala, catering services, petrol pumps etc are a general norm. There
are cities and hundreds of surrounding villages from where the
assessee gets payment and business. He further submitted that the
socio-economic conditions of the region should not be ignored in
deciding any case.
We have heard the rival submissions and have perused the
relevant material on record. We find no infirmity in the findings of the
ld. CIT(A) who was of the view that without pointing out any specific
defect or any bogus travelling expenses, disallowance of 50% travelling
expenses due to availability of self-made vouchers as well as cash
payment which is also below the limit allowed u/s 40A(3) of the Act
was not justified. The CIT(A), however, considered that there were
self made travelling bills of directors totaling to Rs 21,04,353/- and he
was fair enough to limit the disallowance to Rs 4,20,871/- i.e. 20% of
expenses claimed by directors amounting to Rs. 21,04,353/-.Ground
No. 1 of the Revenue is therefore, is dismissed.
Facts relating to Ground No. 2 which pertains to disallowance of
repair and maintenance expenses of Rs. 11,50,596/-.
The assessee company claimed repair and maintenance expenses
at Rs. 15,93,296/-.From the perusal of the ledger of repair and
maintenance of building, the Assessing Officer noticed that the
assessee did not deduct TDS on certain expenses. The Assessing
Officer was of the view that as per section 194C of the Act, the
assessee is liable to deduct TDS on the expenses of Rs. 7,07,895/- and
since the assessee company failed to deduct TDS, the Assessing Officer
came to the conclusion that TDS is liable to be deducted u/s 40(a)(ia)
of the Act and added a sum of Rs. 7,07,895 to the income of the
assessee. The AO also disallowed Rs 4,42,701/- being 50% of Rs
9,21,908/- treating the same for non-business purposes.
When the assessee went in appeal before the ld. CIT(A), the ld.
CIT(A) deleted the both the disallowances by holding that the expense
was incurred for purchase of material and not for service. And as
provisions of section 194C to 194J are attracted only on purchase of
services, no TDS was required to be deducted from the said expense.
The CIT(A) also held on the basis of materials before him that all the
expenses was for business purposes only.
Before us, the ld. DR could not controvert the ld. CIT(A)’s finding
that provisions of section 194C to 194J are attracted only on purchase
of services and that the expenses were incurred for business purposes
only.
Having heard the rival submissions, we are in agreement with the
findings of the ld. CIT(A). The ld. CIT(A) has rightly held that
provisions of section 194C to 194J are attracted only on purchase of
services and that the expenses were incurred for business purposes
only. Accordingly, Ground No. 2 of the Revenue is dismissed.
Ground No. 3 relates to disallowance of general expense of Rs.
11,55,156/-.
The Assessing Officer observed that the assessee company has
claimed general expenses amounting to Rs. 11,55,156/-. From the
details of these expenses the Assessing Officer observed that most of
the expenses were in the nature of religious expenses, donations or
donations to political parties. The Assessing Officer was of the view
that the expenses were not wholly and exclusively incurred for the
purpose of business. Relying upon the decision of the Hon'ble Madras
High Court in the case of CIT Vs. Southern Sea Foods Ltd 215 ITR 176,
the Assessing Officer disallowed the entire claim of Rs. 11,55,156/-
and added the same to the income of the assessee. Penalty
proceedings u/s 271(1)(c) of the Act were initiated separately.
Aggrieved, the assessee went in appeal before the ld. CIT(A).
On going through the allegation of the Assessing Officer as well as
the objection raised by the assessee, the ld. CIT(A) was of the
considered view that the addition made by the Assessing Officer was
unjustified and without any specific remark and held that the expenses
were incurred for business purposes only. Accordingly, the ld. CIT(A)
deleted the addition.
After careful consideration of the facts and material available on
record and hearing both the rival submissions where similar arguments
as in Ground No. 1were presented. Having heard the submissions, we
are of the considered view that the ld. CIT(A) has rightly deleted the
addition. Accordingly, Ground No. 3 of the Revenue is dismissed.
Ground No. 4 relates to deletion of addition of Rs. 7,37,830/- on
account of hoarding expenses being 50% expenses of Rs. 14,75,661/-
incurred for advertisement and hoarding expenses.
The Assessing Officer was of the opinion that most of the
expenses have been paid in cash and money was siphoned off by
making self made vouchers and expenditure is not wholly and
exclusively for the purpose of business.
However, the ld. CIT(A) was of the view that the Assessing
Officer was not right in making disallowance on estimate basis and
without adducing any specific finding and evidence on the bogus
nature of the expenses. The ld. CIT(A) deleted the addition of Rs.
7,37,830/-.
After considering the rival submissions and perusing the orders of
the authorities below and having heard the rival submissions where
similar arguments as in Ground No. 1were presented. Having heard the
submissions, we are in agreement with the findings of the ld. CIT(A).
Accordingly, Ground No. 4 of the Revenue is dismissed.
Ground No. 5 is with regard to disallowance of Rs 10,43,117/-
claimed as business promotion expenses.
Here also, the Assessing Officer made addition relying upon the
decision of the Hon'ble Madras High Court in the case of CIT Vs.
Southern Sea Foods Ltd 215 ITR 176. The Assessing Officer disallowed
50% of these expenses of Rs. 10,43,117/- out of total business
promotion expenses of Rs. 20,86,234/- and added the same to the
income of the assessee on the ground that the expenses have been
paid in cash and money was siphoned off by making self made vouchers
and expenditure is not wholly and exclusively for the purpose of
business.
The ld. CIT(A), however, was of the view that the Assessing
Officer was not right in making disallowance on estimate basis and
without adducing any specific finding and evidence on the bogus
nature of the expenses. The ld. CIT(A) deleted the addition of Rs.
10,43,117/-.
We have heard the rival submissions where both the parties
presented similar arguments as in Ground No. 1 and have perused the
relevant material on record. After considering the rival submissions
and perusing the orders of the authorities below, we are in agreement
with the findings of the ld. CIT(A). Accordingly, Ground No. 5 of the
Revenue is dismissed.
Ground No. 6 relates to disallowance of doctor reporting fees of
Rs. 2,19,425/-.
The assessee company was asked to furnish details of doctor
reporting fees with TDS thereon. In compliance, the assessee company
furnished a detailed list of Doctor reporting expenses and on perusal of
the same the Assessing Officer observed that the amounts were not
supported by any vouchers and were paid on different dates and total
of the sum in individual cases exceeded Rs. 30,000/-.
Relying upon the decision of the Hon'ble Madras High Court in the
case of Southern Sea Foods [supra], the Assessing Officer disallowed a
sum of Rs. 2,19,625/- on the ground that it has been claimed as
miscellaneous expenses where no TDS has been deducted.
When the assessee went in appeal before the ld. CIT(A), the
CIT(A) accepted the assessee’s argument that all the amounts were
paid to small technicians and different person and that not a single
amount is paid which is more than the amount where TDS was to be
deducted. Accordingly, the ld. CIT(A) deleted the disallowance stating
that TDS is deducted only in cases where the single payment exceeds
the threshold limit as per the provision of Chapter XVII of the IT Act.
We have gone through the facts and submissions and perused the
orders of the authorities below. The ld DR could not controvert the
findings of the ld. CIT(A) that payment of doctor fees do not require
deduction of TDS as they were below threshold limit. Having heard the
rival submissions, we are of considered opinion that the ld. CIT(A) has
rightly deleted the addition made on this account. Accordingly, Ground
No. 6 of the Revenue is dismissed.
Ground No. 7 is with regard to addition of Rs 11,65,772/-on
account of income accrued.
The assessee company had shown advance payments from
patients at Rs. 18,65,156/-. The AO noticed that this amount
represented advance received from patients admitted from 26.03.2012
onwards till 31.03.2012 and taking treatment in the hospital. The AO
held that as the assessee followed mercantile system of accounting, therefore 5 days income till 31st March should have been credited in
the profit and loss account as various expense incurred on account of
electricity, doctors fees and huge infrastructure during the last 5 days
of the year, were debited by the assessee in its P&L A/c. Therefore,
the Assessing Officer took a ratio of 5:3 and calculated the income out
of the advance amount on accrual basis for the year and accordingly,
an amount of Rs. 11,65,722/- was added to the total income of the
assessee.
The assessee went in appeal before the ld. CIT(A).
After considering the facts and submissions, the ld. CIT(A) was of
the view that segregation of amount for the purpose of income
recognition is not possible. He further held that the assessee’s system
of method of accounting being adopted from last so many years of
recognizing the income from the patient on the basis of final bill
prepared till 31stMarch, being closing of the year, should be
acceptable. With this view the ld. CIT(A) deleted the addition.
The ld DR reiterated the arguments of the assessing officer. Per
contra, the ld AR of the assessee submitted that the assessee follows a
mercantile system where the bills of the patients are raised after
competition of service. As per consistent practice, patients deposit
advance at the time of admission which is adjusted at the final billing
upon competition of service. The Ld AR argued that income becomes
due only after services are rendered. The ld DR could not controvert
the argument of the AR and relied on the Assessing Officer’s order.
We have gone through the facts and submissions and perused the
orders of the authorities below. We have heard the rival submission.
Having heard the rival submissions, we are of considered opinion that
such segregation of amount of advance as income accrued on an
imaginary ratio is neither feasible nor permissible. The assessee has
adopted a practice of accounting which is being consistently followed.
The ld DR also could not dispute this fact nor show that the
Department has not accepted the assessee’s method of accounting in
earlier as well as subsequent years. Following the rule of consistency,
we are, therefore, of the considered opinion that the same need not
be disturbed and accordingly we hold that the ld. CIT(A) has rightly
deleted the addition made on this account. Accordingly, Ground No. 7
of the Revenue is dismissed.
Ground No. 8 relates to addition on account of professional
expenses of Rs. 5,34,000/-.
During the course of scrutiny assessment proceedings, the
Assessing Officer noticed that the assessee has claimed legal and
professional fees paid to M/s Aventus Consulting, New Delhi. Not
satisfied with the explanation of the assessee, the Assessing Officer
observed that the assessee company did not furnish any proof either
for providing works to M/s Aventus Consulting or any agreement or
document signed for this purpose. Accordingly, the Assessing Officer
made disallowance of Rs. 5,34,000/- and added the same to the
income of the assessee.
Aggrieved, the assessee went in appeal before the ld. CIT(A) who
deleted the disallowance.
Now the Revenue is aggrieved and is in appeal before us.
The ld DR relied on the orders of the assessing officer. Per
contra, the ld AR of the assessee submitted that the consulting job was
awarded to M/s Aventus Consulting Private Limited which is a
renowned company in the field of medical services having office in
Delhi. The job was awarded for Rs 20,00,000. But due to some issues
the job was terminated in between and only part payment was made
till the job remained with the party. The assessee deducted TDS on
part payment.
In the circumstances, the ld AR argued when the identity of party
is well established, documentary evidence in the form of Bill of Parties
were available, TDS was deducted, payment was made by cheque,
there is no reason to disallow the expense. He also submitted that if
the AO had doubts about the genuineness of the party and its work and
payment, the Assessing Officer should have made independent inquiry
with Aventus Consulting Services to arrive at his decision that the
expenses were not incurred only and exclusively for the business
purpose. The learned AR further submitted that the expenses were
genuine and was for the purpose of business. The ld DR could not
controvert the argument of the ld AR.
We have gone through the facts and submissions and perused the
orders of the authorities below. We have heard the rival submissions.
Having heard the rival submissions, we are of considered opinion that
the AO was not right in rejecting the assessee’s explanation summarily.
When the assessee is furnishing explanation and bills from the party
involved, it was incumbent upon the AO to verify the same and not
reject outrightly on the ground that no agreement was furnished. We
find therefore, that the ld. CIT(A) has rightly deleted the addition
made on this account. Accordingly, Ground No. 8 of the Revenue is
dismissed.
Ground No. 9 is with regard to disallowance of interest expenses
Rs 1,80,78,877/- u/s 36(1)(iii).
During the course of scrutiny assessment proceedings, the
Assessing Officer noticed that the assessee company has invested in
tangible assets of Rs 26,21,08,334/- and also invested Rs.
22,18,27,200/- in the form of capital work in progress (CWIP) for new
project and total investment is Rs 48,39,35,534/-. Against this
investment the available funds with assessee in the form of share
capital and Reserves and surplus were far less that investment in the
fixed assets. On the basis of this, the AO held that the working capital
loan funds were diverted by the assessee to fund CWIP and he
disallowed the interest expense of Rs. 1,80,78,877/- invoking section
36(1)(iii).
The assessee went in appeal before the ld. CIT(A). The ld. CIT(A)
was of the opinion that total funds available to the company are more
than the investment in fixed assets and payment of interest has been
made for day to day business of the company and, therefore, it cannot
be disallowed. The CIT(A), therefore, deleted the addition on account
of interest disallowed.
Now the aggrieved Revenue is in appeal before us.
The Ld DR while relying on the order of the AO argued that the
CIT(A) did not examine whether interest free funds were available with
the assessee for funding the CWIP and that the onus is on the assessee
to demonstrate from the fund flow that the interest bearing funds
have not been used for CWIP.
The ld AR of the assessee submitted that the entire amount of
finance cost relating to working capital loans from banks of Rs. 1.80
crore debited in the P&L account has been disallowed by the Assessing
officer. The ld AR of the assessee further submitted that assessee
company has been in business for 20 years and is availing bank loan
limits for its day-to-day operational needs. During last year (2010-11)
also the finance cost was Rs 1.27 Crore and in the current year it was
Rs 1.80 crore. The increase in finance cost was because of addition of
MRI machine and increase in operations. The MRI machine has been
installed and added to fixed asset. Secondly, there has been increase
in the revenue by 12% and net profit by 0.7% in the current year vis a
vis last year. As such, there is consistency with regard to the need and
utilization of bank loans. Further, he argued that as a standard
practice, the bank sanctioning the loan ensure the funds utilization
towards need for which the loan was obtained. And Banks, as lenders,
don't allow any diversion of funds.
The ld AR reiterated that the company did not borrow for
acquisition of CWIP and that the AO should have verified the facts on
the utilization of borrowings, directly from the bankers before taking
severe action of disallowance. The assumption that loan funds were
diverted towards capital work in progress is unfounded. Learned AR
submitted further that the total investment in CWIP was Rs 22.18 Crore
as on 31/3/2012 and last year it was Rs. 19.78 crore. The incremental
increase was only Rs. 2.40 crore in CWIP. The net profit of the
company post tax was Rs. 3.45 crore, which was itself sufficient
enough to fund the needs of CWIP.
The ld. counsel for the assessee further argued that even on the
overall basis, the availability of total shareholders and reserve fund is
far in excess of investment in CWIP. As such, the internal funds were
used by assessee for funding CWIP. The AR argued that the mischief of
Section 36(1)(iii)are not triggered in the instant case. On the reliance
of the AO on 8 case laws in his order, the Ld AR stated that these
relate to disallowance of interest on account of giving interest free
loan to sister concerns. The facts in instant cases are entirely different
and as such, the AO’s reliance on these case laws is misplaced.
In its rejoinder, the Ld DR could not controvert the arguments of
the AR and relied on the order of the AO.
We have gone through the facts and submissions and perused the
orders of the authorities below. We have heard the rival submissions.
The Section 36(1)(iii) reads as under.
“Other deduction. 36(1) The deductions provided for the following clauses shall be allowed in respect of matters dealt with therein in computing the income referred to in Section 28- (iii) The amount of interest paid in respect of capital borrowed for purposes of business or profession:
Provided that any amount of interest paid, in respect of capital borrowed for acquisition of an asset (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.”
From the factual matrix of the case, we find that the AO’s case
rest on the theory that the assessee has diverted its borrowings to fund
its CWIP of Rs 22.18 crore for new project and hence interest expense
debited in P&L a/c of Rs 1,80,78,877/- needs to be disallowed as
capital expense under proviso to section 36(1)(iii).
To ascertain the factual matrix of interest payment and whether
the proviso to section 36(1)(iii) can be invoked, we examined the
details of finance cost. We find that the details of finance cost for two
years are as under:
Finance cost FY 2011-12 FY 2010-11 Interest on car loan 4,05,515.88 Interest on Bank Loan 84,18,592 1,21,67,936 Interest on MRI Loan 30,92,736 Interest on cash credit 48,86,924 LC Chargers. 1,44,474 - Processing charges 5,71,130 1,86,054 Bank Charges and Commission 5,59,505.25 3,99,368.97 Total 1,80,78,877.13 1,27,53,358.97
From the above table, the assessee’s contention gets support
that the interest paid is for day to day working. The examination of the
accounts of the assessee from its audited report also supports the
argument that the balance sheet for FY 2010-11 and 2011-12 shows
that CWIP increased from Rs 19.58 crore in FY 2010-11 to Rs 22.18
crore in FY 2011-12meaning there was an incremental increase of only
Rs.2.40 crore as investment in CWIP in FY 2011-12. Therefore, there is
force in the ld AR argument that this incremental increase in CWIP
could easily be funded by the internal profit of Rs 3.45 crore of the
instant FY. We also take cognizance of the fact that the ld DR could
not point out any incidence of any such interest disallowance as capital
expense in any previous year.
The discussion above, therefore, leads us to conclude, that
merely stating that capital and reserve were less than investment in
CWIP will not establish AO’s theory of borrowed funds being diverted
towards investment in CWIP. The Assessing Officer cannot simply
disregard the assessee’s explanation that the internal funds were used
for funding the CWIP and that the interest was paid for the purposes of
meeting day to day working. The AO should have verified from the
bank as to how the borrowed fund was utilized to dispel the assessee’s
contention as once the assessee has submitted its explanation, the
onus shifts to the AO to disprove the assessee’s contention.
From the above narration it is but apparent that the interest of
Rs 1.80 crore was paid for day-to-day operational needs and the same
cannot be brought under the mischief of proviso of section 36(1)(iii).
The AO has nowhere in his order established the fact that the assessee
has diverted its interest bearing fund to its sister concern and hence
his reliance on the cases of Abhisekh Industries Ltd 286 ITR 1(P&H) and
H R Sugar Factory Pvt Ltd 187 ITR 363 (All)and other similar cases, do
not come to his aid. We therefore are of the considered opinion that
the CIT(A) decision to delete the addition needs no interference. The
ground no 9 of the Revenue is accordingly dismissed.
In the result, the appeal of the Revenue in ITA No.
5629/DEL/2016 is dismissed.
The order is pronounced in the open court on 28.05.2024.
Sd/- Sd/-
[MADHUMITA ROY] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 28th MAY, 2024.
VL/
