Income Tax Appellate Tribunal - JaipurLakhani Shoee Co. Pvt. Ltd, vs Assessee on 15 September, 2016vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj
 IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR

    Jh ,-Mh- tSu U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k
BEFORE: SHRI A.D. JAIN, JM & SHRI VIKRAM SINGH YADAV, AM

                   vk;dj vihy la-@ITA No. 38/JP/2016
                 fu/kZkj.k o"kZ@Assessment Years : 2011-12

M/s Lakhani Shoe Co. Pvt. Ltd.,           cuke       Assistant Commissioner
Plot      No.     130,      Sector-24,     Vs.       of Income Tax,
Faridabad.                                           Circle-2, Alwar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACL   2991 A
vihykFkhZ@Appellant                                 izR;FkhZ@Respondent

             fu/kZkfjrh dh vksj l@
                                 s Assessee by : Shri S.C. Vasudeva (CA)
             jktLo dh vksj ls@ Revenue by: Shri R.A. Verma (Addl.CIT)

              lquokbZ dh rkjh[k@ Date of Hearing : 14/09/2016
      mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 15/09/2016

                                vkns'k@ ORDERPER: A.D. JAIN, J.M.

      This is assessee's appeal for A.Y. 2011-12 filed against the order

dated 13/10/2015 passed by the ld. CIT(A), Alwar. The sole ground taken

by the assessee is as under:-"1 (a) That the learned CIT(A) had misdirected himself in
                       confirming the addition made by the learned
                       Assessing Officer amounting to Rs. 50,93,997/- out
                       of interest payment on loans on the alleged
                       contention that interest bearing funds have been
                                      2                               ITA 38/JP/2016_
                                                 M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


                      used for investment in M/s Mascot Footcare and
                      M/s Mascot Udyog.(b)    Without prejudice to above, the ld. CIT(A) was not
                      justified in stating that the investment made in M/s
                      Mascot Footcare and M/s Mascot Udyog was Rs.3,34,80,424/- and Rs. 1,45,76,154/- respectively,
                      which is in actual the capital balance of the
                      appellant in the said concerns as on 31/3/2011.
                      The actual amount of investment was Rs.60,00,000/- and Rs. 45,00,000/- respectively and
                      the difference is on account of share of profit and
                      interest amount from the said concerns."2.    While making the disallowance, the Assessing Officer observed as

follows:-"4.1   On perusal of the Audited balance sheet of the assessee
             company, it was gathered that the assessee company has
             invested Rs. 3,34,80,424/- in M/s Mascot Footcare, Noida
             and Rs. 1,45,76,154/- in M/s Mascot Udhyog, Noida. The
             assessee had shown a profit of Rs. 6,72,343/- from the
             above two firms under the head other income in Schedule-8
             of the profit and loss account.4.2    The directors of the assessee company are Mrs. Kamlesh
             Lakhani, Mr. K.C. Lakhani and Mr. Gunjan Lakhani. The
             Directors of the assessee company are also partners in the
             above mentioned two firms i.e. M/s Mascot Footcare, Noida
             and M/s Mascot Udhyog, Noida.3                                 ITA 38/JP/2016_
                                           M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


4.3   The aggregate rate of return from the investment of the
      assessee company in the above two firms is 1.40%. On the
      other hand, the assessee is paying interest to Punjab
      National Bank (PNB) and ICICI bank @ 12%. Hence on one
      side the assessee had invested huge amounts in the firms
      (in which directors of the firm are partners) at a very low
      rate of return, on the other hand, the assessee company is
      having loans on which it is paying interest @ 12% which is
      very much higher than the rate of return from these
      investments.4.4   If the assessee would not have made the above investment
      he would have saved the amount of interest paid on
      unsecured loan and Bank Loan to the extent of 10.60% i.e.
      12%-1.40% of the investment made which comes to Rs.
      50,93,997/- (10.40% of Rs. 4,80,56,578/-). Hence the
      investment made by the assessee company was not
      reasonable and it was detoriating to the interest of
      company, therefore, it is not allowable.4.5   The assessee company vide order sheet entry dated
      20.01.2014 was asked to show cause as under:-"As per schedule-5 of balance Sheet you have invested an
      amount of Rs.33480424/- in M/s. Mascot Foot care, Noida and
      Rs.14575154/- in M/s. Mascot Udhyog, Noida as capital
      contribution out of interest bearing funds. The rate of return
      from above two investments is below 2% and the rate of
      payment of interest on Bank loans is 12%. Show cause as to why
                               4                                 ITA 38/JP/2016_
                                            M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


      the difference amount of interest should not be disallowed and
      added to the income of the assessee as the same has not been
      used for the purpose of the business of the company resulting in
      mis-utilization of interest bearing funds of company."4.6   The assessee company filed its reply on 30.01.2014 on this
      issue which is produced as under:-"In connection with the above assessment year and queries
      raised at the time of last hearing, we beg to reply as under:-Please note that the investment in capital of M/s. Mascot
      Foot care was made as under:-1.    1988-1989                 Rs.5,00,000/-2.    1998-1999                 Rs.25,00,000/-3.    1999-2000                 Rs.30,00,000/-Similarly investment in capital of M/s. Mascot Udhyog was
      made as under:-a)    1988-1999                 Rs.5,00,000/-
      b)    1999-2000                 Rs.40,00,000/-After adding the profit year by year and interest, the capital
      in M/s. Mascot Footcare become Rs.33480423.56 and in
      M/s. Mascot Udhyog Rs.14576154.59 so it is incorrect that
      the company has invested Rs.33480423.56 in M/s. Mascot
      Footcate and Rs.14576154.59 in M/s. Mascot Udhyog. This
      is the outstanding figure appearing as on 31.03.2011 which
      comprises original investment upto date. Share of profit and
      interest.Investment in the above firms were made not out of
      borrowed funds but only out of internal accruals. The
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                                        M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


internal accruals of M/s. Lakhani Shoe Co.(P) Limited when
the investment was made in M/s. Mascot Footcare was as
under:-Year       Net Profit   Depreciation Total Internal        Investment
                                      accruals              made in M.F.
 1988-1989 2109885       638684       2748569               500000
 1998-1999 12322055      2546355      14868410              2500000
 1999-2000 8232621       2796978      11029599              3000000

The assessment of the company is being made almost
regularlyu/s 143(3)of the Income Tax Act and based on
the above facts the department has never made addition on
this account. You are, therefore, requested not to make any
addition on this account.Similarly when the investment was made in M/s. Mascot
Udyog, Internal accruals of the company were as under:-Year       Net profit   Depreciation Total Internal       Investment
                                      accruals             made in M.U.
 1988-1989 2109885       638684       2748569              500000/-
 1999-2000 8232621       2796978      11029599             4000000/-Moreover the assessment of the company is being made
almost regularlyu/s 143(3)of the Income Tax Act and
based on the above facts the department has never made
addition on this account. You are, therefore, requested not
to make any addition on this account on the basis of wrong
facts.We are also enclosing details of investment made by the
company and status of capital in each year will show that6                                  ITA 38/JP/2016_
                                           M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


      the present outstanding is on account of apart from original
      investment share of profit in each year and interest
      whenever the company received."4.7   The reply of the assessee was carefully considered and not
      found to be acceptable due to the following reasons:-4.7.1   The   business    of   the   assessee         company           is
              manufacturing of "Hawai Chappal" to earn profit
              from such activities. Investment in some other firm
              is not the part of business of the assessee, and
              there is no profit to the business of the assessee
              from such investment. Therefore, the amount of
              capital of the assessee company remained invested
              in the above partnership firms is not reasonable
              and it should have been withdrawn.4.7.2   During the year under consideration the assessee
              company has taken loan from PNB which has been
              shown in the balance sheet under secured loans.The loan was sanctioned on 03.02.2010 and the
              rate of interest on this loan is 12%. The assets of
              the      assessee       company             were            also
              hypothecated/Mortgaged for the aforementioned
              loan. If the assessee would have withdrawan its
              capital for the firms M/s. Mascot Footcare, Noida
              and M/s Mascot Udhyog, Noida the need of taking
              loan in the company would not have rised, and
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                                     M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


         liability of interest to bank would have been
         avoided.4.7.3    On perusal of the partnership deeds it was found
         that the assessee company is having 10% share in
         the profits of both the firms i.e. M/s. Mascot
         Footcare, Noida and M/s Mascot Udhyog, Noida but
         the capital contribution of the assessee company in
         both the firms is very high as compared to other
         partners who are having larger share in the profits
         of the firms.4.7.4.   Most of the capital in M/s. Mascot Footcare and M/s
         Mascot Udhyog is from the assessee company.
         Furthermore, during the year under consideration
         there was no business at all in M/s. Mascot Udhyog,
         therefore, it is not justifiable as to why the
         assessee company is keeping it funda idle and
         taking interest bearing funds from the banks, even
         the assessee is not receiving interest on capital
         from the aforementioned two firms.4.7.5    It is also worthwhile to mention here that the
         partners having less capital are taking most of the
         profits as their profit sharing ratio is more. Even
         few partners have debit balances of the capital
         account are taking the major part of share of profit,
         which clearly indicates that the modus operandi of
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                                                   M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


                      the company is such that it is intentionally causing
                      loss to itself.4.8     In view of above discussion and carefully considering the
              reply of the assessee. An amount of Rs.5093997/- is added
              to the income of by way of disallowance of interest on
              unneeded loans, as it is clear that if the assessee would not
              have kept the capital invested there would have no
              requirement of the loans.4.9     Since the assessee has furnished inaccurate particulars of
              income penaltyu/s 271 (1)(c)of the act will be initiated
              separately."3.    The ld. CIT(A) confirmed the assessment order by holding as

follows:"4.3   I have perused the assessment order as well as submissions
             made by the appellant and find that a disallowance of
             Rs.5093997/- out of the interest payments made by the appellant
             on loans has been made by the AO on the ground that interest
             bearing funds have not been used for the purpose of the
             business. The AO has stated that an amount of Rs.3.34 Crores
             stands invested as capital in M/s. Mascot Footcare and amount of
             Rs.1.45 Crores stands invested as capital in M/s. Mascot
             Footcare and amount of Rs.1.45 crores stands invested as capital
             in M/s. Mascot Udhyog. The profits earned on the investment
             made by the company is only 1.40% and the rate of interest paid
             by the appellant at 12% is much higher and therefore a
             disallowance @ 10.60% on the interest paid on unsecured and
                                 9                                  ITA 38/JP/2016_
                                               M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


      bank loan has been made by the AO which comes to
      Rs.5093997/- (10.60% of Rs.48056578/-).4.4   The appellant has stated that an investment of Rs.60 lacs has
      been made in M/s. Mascot Footcare and an investment of Rs.45
      lacs was made in M/s. Mascot Udhyog by the appellant during
      1998-2000. The remaining balance represents investments out of
      internal accrual and not out of borrowed funds. Therefore, there is
      no justification in making the disallowance out of interest
      payments made by the company.4.5   Having considered the submissions made by the appellant and
      evidence available on record, I find that the concerns in which the
      appellant company has made substantial investment fall within the
      ambit of specified persons as defined in the provisions ofsection
      40A(2)(b)of the IT Act. The Directors/Share holders of the
      company are having substantial interest in the above mentioned
      firms, in which the appellant company has invested substantial
      amounts as capital + accumulated profits over the years.4.6   The appellant has merely reiterated the submissions filed before
      the AO and has not been able to produce any evidence so as to
      controvert the findings given by the AO. Further, on examination
      of these facts, I do not find any argument or justification being
      given by the appellant for obtaining huge loans and their utilization
      for the purposes of the business of the company. Moreover, there
      is no justification for payment of interest on loans, whereas the
      funds of the company have been parked in other concerns where
      related persons are holding substantial interest. Hon'ble Kerala
      High Court has held in the case ofCIT v/s Accelerated Freeze
      Drying Pvt. Ltd.324 ITR 316 that interest paid is not deductible-as
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                                                        M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


            money was given to sister concern without interest.Further,
            Hon'ble Allahabad High Court has in the case ofCIT v/s Sahu
            Enterprises Pvt. Ltd.352 ITR 008 has held that onus is on
            assessee to prove utilization of borrowed funds for the purposes
            of business. Interest was held not allowableu/s 36(1)(iii)of the IT
            Act.4.7   It is not denied by the appellant that the percentage of share of
            profits being given to the company is disproportionate to the
            amount of investment made vis-a-vis the percentage of share of
            profits and the investment made by other persons (who are share
            holders/ directors of the appellant company). The appellant has
            not been able to controvert that the interest payments made are
            justifiable in view of the utilization of the funds. Further, I find that
            this issue has already been considered by the undersigned in the
            case of the appellant for A.Y. 2010-11 in appeal No.51/2013-14
            vide order dated 14.08.2014.4.8   Since there is no change in the facts of the case, therefore,
            following the order passed for the preceding year, I uphold the
            action of the AO in making the disallowance and confirm the
            addition of Rs.50,93,997/- out of the interest payments on loans
            claimed by the company."4.    The ld. Counsel for the assessee has contended that the issue

under consideration stands decided in favour of the assessee by the

order dated 18/03/2016 (APB 54 to 65) passed by the Tribunal in the

assessee's own case for the immediately preceding assessment year, i.e.,

A.Y. 2010-11, in ITA No. 724/JP/2014.11                                ITA 38/JP/2016_
                                                  M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT5.    Per contra, the ld. Sr. DR has placed strong reliance on the

impugned order.6.    Having considered the rival contentions of both the parties in the

light of the material placed on the record, it is seen that for the

immediately preceding assessment year, i.e., A.Y. 2010-11, this very

issue of disallowance of interest was before the Tribunal. The Tribunal,

vide order dated 18/3/2016, has decided the matter in favour of the

assessee as follows:-"4.1. We have heard the rival contentions of both the parties and
             perused the material available on the record. The only point
             raised in the appeal in the aforesaid matter is with regard to
             the disallowance of    Rs 48,85,314/-out of interest of Rs
             1,91,99648/-paid by the appellant to the bank as well as to
             the other parties. It was contended by the ld AR for the
             assessee that the investments in the partnership firm were
             not made in the year under consideration and were made in
             earlier years. In fact the detail has been provided to the
             assessing officer in the following manner:M/s Mascot Footcare            M/s Mascot Udyog
              Year         Amount            Year          Amount
              1988-89      500000/*          1988-89*      500,000
              1998-99      25,00,000         1999-2000     40,00,000
              1999-2000    30,00,000
                              12                                ITA 38/JP/2016_
                                           M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


                       *As      per   *As per the
                       assessee       assessee  it
                       Should be Rs   should have
                       125000/ 89     been1989-90
                       and       Rs
                       375000/ in
                       1989-90It was thereafter submitted that the capital initially
       contributed has increased on account of the share profit and
       interest accruing to the assessee. It was submitted that no
       borrowed funds were utilized during those years for making
       the investment in the above said concerns.4.2.   The ld. D/R for the revenue has submitted that the
       investment in these concerns were not part of the business
       of the assessee company and there is no profit to the
       business of that the assessee from such investment. It was
       further submitted that the assessee company has taken a
       loan from the Punjab National Bank at the rate of 12% and
       it was submitted that if the assessee company has
       withdrawn the investment from these concerns then there
       was no necessity to take the loan from the Punjab National
       bank. It was also highlighted that the share in the profit of
       the assessee is only 10% whereas a capital consideration is
       very high in comparison to the other partners of the firm.4.3.   The ld D/R further submitted that M/s Mascot Udyog is not
       doing any business and the capital of the assessee is lying
       blocked and no steps have been taken by the assessee to
                              13                                ITA 38/JP/2016_
                                           M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


       recall the capital investment made by it. The assessee not
       recalling the investment from M/s Mascot Udyog and taking
       loan from Punjab National bank, clearly shows that the
       commercial interest of the assessee has been compromised
       by the assessee. It was submitted on behalf of the revenue
       that the M/s Mascot Udyog had invested the major amount
       in equity shares of M/S Lakhani India Ltd. Thus                ld DR,
       emphasised that the money of the assessee has been
       rooted for the purchase of equity shares of M/S Lakhani
       India Ltd . Thereafter it was submitted that there was no
       justification for payment of interest on loans taken from the
       related persons and banks.4.4.   In our view, the admitted position as emerges from the
       record is that the assessee has made investments in M/s
       Mascot Footcare and M/s Mascot           Udyog prior to the
       assessment year 1999-2000 and the said investment made
       by the assessee in those years have increased many folds
       on account of the profit, interest etc. to the tune of Rs
       47,38,4234/-. Moreover it is also an admitted position that
       out of the said available funds, the said concerns had
       invested in Ms Lakhani India Ltd. The assessment year in
       which the investments were made in the equity share of
       M/s Lakhani India Ltd, by M/s Mascot Udyog were as under:-1995-96         Rs 24378150
                        1996-97         Rs 351110
                              14                                  ITA 38/JP/2016_
                                             M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


                        2001-02         Rs 237144
                        Total           Rs 24966404Thus it is clear that no investment were made in M/s
       Lakhani India Ltd in the year under consideration. The
       assessing officer had failed to prove the nexus between the
       interest paid to the related parties and bankers and the
       investment made by the assessee in the current assessment
       year. No new investments were made by the assessee in
       the year under consideration.4.5.   In our view the assessee was able to establish that he had
       incurred the expenditure wholly and exclusively for the
       purpose of business and therefore there is no justification
       for the revenue to disallowance the interest component. The
       revenue cannot claim to put itself in the armchair of the
       businessman    and   decide     how     much        is     reasonable
       expenditure. The revenue is required to examine the issue
       from the perspective of the prudent businessmen rather
       from its own angle. Revenue authorities have failed to bring
       on record any cogent evidence and material to show that
       the borrowed funds have been utilized for the purposes of
       investment and were not used for the business purposes. It
       would be relevant to reproduce below the finding recorded
       by the assessing officer in paragraph 4.3 to the following
       effect:"4.3 the aggregate rate of return from the investment of
       the assessee company in the above two firms is 1.69%. On
                                 15                                 ITA 38/JP/2016_
                                               M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


       the other than the assessee is paying the interest on
       unsecured loan from Shri Gunjan Lakhani @12% and interest
       to Punjab National bank @ 12%. Hence on one side the
       assessee had invested huge amounts in the firms ( in which
       directors of the firms are partners) at the very low rate of
       return, on the other hand the assessee company is having
       loans on which it is paying interest@ 12% which is very
       much higher than the rate of return from these investment ""In our view the authorities below have failed to bring on
       record any material which shows that the borrowed funds
       have not been used for the purposes of business. In the light
       of the above the appeal of the assessee is required to be
       allowed as no fresh investment has been made in the year
       under consideration and further no loan amount was used
       for that purposes.4.6.   Our view is also supported by the judgment of Hon'ble
       Supreme Court in the matter ofHero Cycle Ltd. vs. CIT, 63
       Taxman.com 308 wherein it is held as under :-12.Insofar as loans to the sister concern/subsidiary company are
       concerned, law in this behalf is recapitulated by this Court in the
       case ofS.A. Builders Ltd. v. CIT (Appeals) [2007 (288) ITR 1/158
       Taxman 74]. After taking note of and discussing on the scope of
       commercial expediency, the Court summed up the legal position in
       the following manner:--'26. The expression "commercial expediency" is an
             expression of wide import and includes such expenditure as
             a prudent businessman incurs for the purpose of business.
             The expenditure may not have been incurred under any legal
             obligation, but yet it is allowable as a business expenditure
             if it was incurred on grounds of commercial expediency.16                                  ITA 38/JP/2016_
                                         M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT27. No doubt, as held inMadhav Prasad Jatia v. CIT[1979
      (118) ITR 200 (SC)], if the borrowed amount was donated
      for some sentimental or personal reasons and not on the
      ground of commercial expediency, the interest thereon could
      not have been allowed undersection 36(1)(iii)of the Act.InMadhav Prasad's case [1979 (118) ITR 200 (SC)], the
      borrowed amount was donated to a college with a view to
      commemorate the memory of the assessee's deceased
      husband after whom the college was to be named, it was
      held by this court that the interest on the borrowed fund in
      such a case could not be allowed, as it could not be said that
      it was for commercial expediency.28. Thus, the ratio ofMadhav Prasad Jatia's case [1979
      (118) ITR 200 (SC)] is that the borrowed fund advanced to a
      third party should be for commercial expediency if it is
      sought to be allowed undersection 36(1)(iii)of the Act.29. In the present case, neither the High Court nor the
      Tribunal nor other authorities have examined whether the
      amount advanced to the sister concern was by way of
      commercial expediency.30. It has been repeatedly held by this court that the
      expression "for the purpose of business" is wider in scope
      than the expression "for the purpose of earning profits" videCIT v. Malayalam Plantations Ltd.[1964 53ITR 140 (SC),
      CIT v. Birla Cotton Spinning and Weaving Mills Ltd.[1971
      82 ITR 166 (SC)], etc.'13.In the process, the Court also agreed that the view taken by the
Delhi High Court inCIT v. Dalmia Cement (P.) Ltd. [2002] 254
ITR 377/121 Taxman 706 wherein the High Court had held that
once it is established that there is nexus between the expenditure
and the purpose of business (which need not necessarily be the
business of the assessee itself), the Revenue cannot justifiably
claim to put itself in the arm-chair of the businessman or in the
position of the Board of Directors and assume the role to decide
how much is reasonable expenditure having regard to the
circumstances of the case. It further held that no businessman can
be compelled to maximize his profit and that the income tax
authorities must put themselves in the shoes of the assessee and see
how a prudent businessman would act.The authorities must not
                           17                                 ITA 38/JP/2016_
                                         M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


look at the matter from their own view point but that of a prudent
businessman."Further, the Hon'ble Jurisdictional High Court in the matter ofCIT vs. Ram Kishan Vermahas held as under :-13. Taking into consideration the fact as noticed hereinabove, in
our view as well, when there was no agreement to charge interest
from the persons, to whom the assessee advanced short term
loan/advance, the AO could not disallow part of the interest. It is
also an admitted fact, as observed by the Tribunal, that the AO .vas
not able to pin pointedly come to a definite conclusion that how
interest bearing loans had been diverted towards interest free
advances and since the AO was not able to prove nexus between
interest bearing loans vis-a-vis interest free loans/advances,
therefore, in our view as well, once the AO was not able to come to
a definite conclusion as to nexus having been established about
interest bearing loans having been diverted towards interest free
loans/advances, and such being a finding of fact based on
appreciation of evidence, in our view no substantial question of law
arise on this question as well. It can be observed that this court in
similar circumstances and on identical facts, when the capital of the
partners/proprietor being more than the interest free short term
advances, has in the case of CIT v. Vijay Solvex Ltd. [2015] 59
taxmann.com 294 (Raj.) while relying on the judgment rendered in(a) S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1/158
Taxman 74 (SC); (b), Munjal Sales Corpn. v. CIT[2008] 298 ITR
298/168 Taxman 43 (SC); (c), CIT v. Radico Khaitan Ltd.[2005]
274 ITR 354/142 Taxman 681 (All.); (d), CIT v. Dalmia Cement
(P.)Ltd. [2002] 254 ITR 377/121 Taxman 706 (Delhi); (e), CIT v.Britannia Industries Ltd. [2006] 280 ITR 525/[2005] 148 Taxman
654 (Cal.) and (f) CIT v. Motor Sales Ltd.[2008] 304 ITR 123
(All.), held as under:--"16. In view of the authoritative pronouncement of the Apex
       Court and other judgments referred supra, in our view, the
       assessee admittedly had its own funds, as referred to earlier,
       and admittedly such funds/reserves being substantially
       higher than, even otherwise, the advances to the debtors, no
       notional interest or hypothetical interest could have been
       disallowed on such facts. The revenue has failed to prove
                                      18                                ITA 38/JP/2016_
                                                   M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


                   nexus. In our view, the ITAT has correctly appreciated the
                   facts and law."Similar views have been expressed by Hon'ble Madras High
            Court in the matter ofCIT vs. Premier Poly Sacks Pvt. Ltd.,
            321 ITR 450 (Mad).5.    In the result, appeal of assessee is allowed."7.    The facts in the year under consideration are not any different

from those in A.Y. 2010-11. Even the ld. CIT(A) has observed in the

impugned order, inter alia, that the issue had been considered by him in

his order dated 14/8/2014, in the assessee's case for A.Y. 2010-11. It

was the said order of the ld. CIT(A) for A.Y. 2010-11, against which the

assessee's appeal was allowed by the Tribunal vide its aforesaid order

dated 18/3/2016.8.    Therefore, respectfully following the Tribunal order (supra), in the

assessee own case for A.Y. 2010-11, the disallowance made for the year

under consideration is deleted.9.    We hold that no nexus between the borrowed funds in the

investments made having been proved and the borrowel having been

made for business purposes, the interest thereon is allowable U/s

36(1)(iii) of the Act. Too, as per record, the assessee is a partner in M/s
                                      19                               ITA 38/JP/2016_
                                                  M/s Lakhani Shoe Co. Pvt. Ltd. Vs ACIT


Mascot Footcare, Noida and M/s Mascot Udhyog, Noida, where the

assessee made capital contribution out of its own internal accruals, which

contributions have grown over time due to share of profit and interest

on capital.10.   In view of the above, the grievance of the assessee is found to be

justified and is accepted as such and the order under appeal is cancelled.11.   In the result, the appeal of the assessee is allowed.Order pronounced in the open court on 15/09/2016.Sd/-                                         Sd/-
  ¼foØe flag ;kno½                                 ¼,-Mh tSu ½
(Vikram Singh Yadav)                               (A.D. Jain)
ys[kk lnL;@Accountant Member              U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur
fnukad@Dated:- 15th September, 2016

*Ranjanvkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:1.      vihykFkhZ@The Appellant- M/s Lakhani Shoe Co. Pvt. Ltd., Faridabad.2.      izR;FkhZ@ The Respondent- The ACIT, Circle-2, Alwar.3.      vk;dj vk;qDr@ CIT4.      vk;dj vk;qDr@ CIT(A)5.      foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur6.      xkMZ QkbZy@ Guard File (ITA No. 38/JP/2016)
                                               vkns'kkuqlkj@ By order,


                                     lgk;d iathdkj@Asst. Registrar