High Court Of Delhi
CIT vs. Motor General Finance Ltd.
Section 36(1)(iii)
S.B. Sinha, C.J. & A.K. Sikri, J.
IT Appeal No. 168 of 2001
21st December, 2001
Counsel Appeared
Sanjiv Khanna with Ajay Jha, for the Petitioner : A.K. Rai & B.B. Khare, for the Respondent
JUDGMENT
S.B. SINHA, C.J. :
The substantial question of law, which has been raised in this appeal under s. 260A of the IT Act, 1961 (hereinafter referred to as the ‘Act’) rotates around the question as to whether the Income-tax Appellate Tribunal (hereinafter referred to as the “Tribunal”) was right in deleting the addition of Rs. 10 lacs made on account of interest-free loan/advance of Rs. 47,67,740 given by the assessee to a sister concern.
2. The relevant fact of the matter, in a nutshell, is as follows : The assessee, namely, M/s Motor General Finance Ltd. filed its return of income on 26th Dec., 1990, declaring income under s. 115J of the Act at Rs. 1,74,88,930. The AO noticed that the assessee had advanced interest-free loan/advance of Rs. 47,67,740 during the relevant assessment year, i.e., 1990-91 to its sister concern, namely, M/s National Air Products Ltd. The said transaction increased the total interest-free loan/advance given to its sister concern from Rs. 154.40 lacs to Rs. 202.27 lacs. The AO further noticed that the assessee itself had from time to time borrowed money and taken loans and had paid interest on the said loans. Thus, the AO disallowed the interest liability to the extent of Rs. 10 lacs on the aforesaid grounds and held that the interest should be charged under s. 234B of the Act and assessed’ the total income of the assessee at Rs. 6,74,56,380. The assessee preferred an appeal against the said order before the Commissioner of Income-tax (Appeals) [in short, the CIT(A)]. The CIT(A) remanded the matter back to the AO to collect details of cash flow in order to examine whether the loan of Rs. 47,67,740 was given out of borrowed fund or out of profit earned during the year. The assessee was asked to furnish bank statement clearly showing as to whether the assessee had credit balance or debit balance on the dates when the loan/advances were given by the assessee. In spite of the aforesaid direction, the assessee did not furnish any information before the AO. Thus, adverse inference was drawn by the AO and held that the loans taken by the assessee were utilized for giving advances to its sister concern. The AO also held that the assessee is liable to pay interest under s. 234B of the Act as the advance tax paid was less than 90 per cent of the assessed tax. The assessee again filed an appeal before the CIT(A). However, the CIT(A) vide order dt. 11th March, 1994, upheld the order of the AO. It was also held that the interest has been rightly charged under s. 234B of the Act. Thereafter, the assessee preferred an appeal before the Tribunal. The Tribunal vide its order dt. 26th March, 2000, held that the AO was not right in making addition of Rs. 10 lacs on account of disallowance of interest for fresh advances made to the sister concern and also held that the interest under s. 234B of the Act has been wrongly charged and deleted the same. The said order dt. 26th March, 2000, passed by the Tribunal is in dispute in this appeal.
3. Mr. Sanjiv Khanna, the learned counsel appearing on behalf of the appellant/Revenue submitted that the learned Tribunal wrongly allowed deduction of the sum, which was advanced by way of a loan in favour of a sister concern. It was further submitted that the Tribunal wrongly placed reliance on its earlier decision. The learned counsel also raised a contention that the assessee, itself having taken loan, was not supposed to grant an interest- free loan in favour of a sister concern. The learned counsel contended that despite several opportunities granted to the assessee, as no record was produced, the same would clearly show that the assessee did not make any advance to its sister concern out of the profit earned by it. Strong reliance in this connection has been placed on CIT vs. Anjum M.H. Ghaswala & Ors. (2001) 171 CTR (SC) 1 : JT 2001 (9) SC 61.
4. The learned counsel appearing on behalf of the respondent/assessee, on the other hand, submitted that the findings arrived at by the learned Tribunal being findings of fact, the question of law raised before this Court is not required to be answered.
5. Before adverting to the question involved in this appeal, we may notice the finding of the ITO, which is in the following term : “The assessee-company, during the year made a further interest-free advance to its sister concern, namely, National Air Product Ltd. At the end of the accounting period, the amount of interest-free loan stood at Rs. 202.27 lacs (previous year Rs. 154.50 lacs). In this regard, it may be noted that assessee from time to time is raising loan and during the year has paid interest to various parties amounting to Rs. 13.57 crores. On the interest- free loan advanced to the sister concern the Department has consistently taken the stand that in fact the interest- bearing loans in a way has been utilized to make the interest-free advance to the sister concern, and which is not for the purpose of business. The interest expenditure referable to the amount advanced to the sister concern has been to be not allowable while giving deduction for the interest expenditure.”
6. The CIT(A), however, was of the view that the AO should correct the details of cash flow with a view to ascertain as to whether the loan was given out of the borrowed sum or not. Pursuant to and in furtherance of the aforesaid direction, an opportunity was given to the assessee to place additional material. The assessee merely furnished the statement of the deposits made in the bank account on those dates, on which the advance amounting to Rs. 50 lacs was made to sister concern. It, however, despite the direction did not furnish the copy of the bank statement to show as to whether there had been a credit balance or a debit balance in the bank accounts on those dates. In this situation, it was observed: “If there was a debit balance, then it could safely be inferred that interest bearing overdraft facility of the bank was utilized to make those advances. But the assessee till date has not furnished any such statement. In view of this fact, the disallowance of Rs. 10 lacs is to be sustained.” The aforesaid order was upheld by the CIT(A).
The Tribunal, however, without going into the aforementioned question proceeded on the basis that the assessee had earned profit after tax at Rs. 4,86,96,416 and had also reserves in its account, the loan of Rs. 47,67,740 to its sister concern was entitled out of the profit of the year.
The character of interest payable in terms of the provisions of ss. 234A, 234B and 234C of the Act are required to be noticed. “234A. Interest for defaults in furnishing return of income.—(1) Where the return of income for any assessment year under sub-s. (1) or sub-s. (4) of s. 139, or in response to a notice under sub-s. (1) of s. 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of (one and one-half per cent) w.e.f. 1st June, 2001 one and one-fourth per cent for every month or part of a month comprised in the period commencing on the date immediately following the due date, and,— (a) where the return is furnished after the due date, ending on the date of furnishing of the return; or (b) where no return has been furnished, ending on the date of completion of the assessment under s. 144, on the amount of the tax on the total income as determined under sub-s. (1) of s. 143 or on regular assessment as reduced by the advance tax, if any paid and any tax deducted or collected at source. Explanation 1 : In this section, ‘due date’ means the date specified in sub-s. (1) of s. 139 as applicable in the case of the assessee. Explanation 2. In this sub-section, ‘tax on the total income as determined under sub-s. (1) of s. 143’ shall not include the additional income-tax, if any, payable under s. 143. Explanation 3. Where, in relation to an assessment year, an assessment is made for the first time under s. 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section. (2) The interest payable under sub-s. (1) shall be reduced by the interest, if any, paid under s. 140A towards the interest chargeable under this section. (3) Where the return of income for any assessment year, required by a notice under s. 148 issued after the determination of income under sub-s. (1) of s. 143 or after the completion of an assessment under sub-s. (3) of s. 143 or s. 144 or s. 147, is furnished after the expiry of the time allowed under such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent w.e.f. 1st June, 2001, one and one-fourth per cent for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time allowed as aforesaid, and : (a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or (b) where no return has been furnished, ending on the date of completion of the reassessment or re-computation under s. 147, on the amount by which the tax on the total income determined on the basis of such reassessment or recomputation exceeds the tax on the total income determined under sub-s. (1) of s. 143 or on the basis of the earlier assessment aforesaid. Explanation [inserted by Direct Taxes Law(Amendment) Act, 1987, and omitted by Direct Taxes Law (Amendment) Act, 1989, w.e.f. 1st April, 1989]. (4) Where as a result of an order under s. 154 or s. 155 or s. 250 or s. 254 or s. 260 or s. 262 or s. 263 or s. 264 or an order of the Settlement Commission under sub-s. (4) of s. 245D, the amount of tax on which interest was payable under sub-s. (1) or sub-s. (3) of this section has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and— (i) in a case where the interest is increased, the AO shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice under s. 156 and the provisions of this Act shall apply accordingly; (ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded. (5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989, and subsequent assessment years. Sec. 234B. Interest for defaults in payment of advance tax.—(1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under s. 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of s. 210 is less than ninety percent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent (w.e.f. 1st June, 2001 one and one-fourth per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-s. (1) of s. 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. Explanation 1.—In this section, “assessed tax” means the tax on the total income determined under sub-s. (1) of s. 143 or on regular assessment a reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income. Explanation 2.—Where in relation to an assessment year, an assessment is made for the first time under s. 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section. Explanation 3.—In Expln. 1 and in sub-s. (3), ‘tax on the total income determined under sub-s. (1) of s. 143’ shall not include the additional income-tax, if any, payable under s. 143. (2) Where, before the date of determination of total income under sub-s. (1) of s. 143 or completion of a regular assessment, tax is paid by the assessee under s. 140A or otherwise.— (i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under s. 140A towards the interest chargeable under this section; (ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax. (3) Where, as a result of an order of reassessment or recomputation under s. 147, the amount on which interest was payable under sub-s. (1) is increased, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent (w.e.f. 1st June, 2001 one and one-fourth per cent) for every month or part of a month comprised in the period commencing on the day following the date of determination of total income under sub-s. (1) of s. 143 and where a regular assessment is made as is referred to in sub-s. (1) following the date of such regular assessment and ending on the date of the reassessment or recomputation under s. 147, on the amount by which the tax on the total income determined on the basis of the reassessment or re-computation exceeds the tax on the total income determined under sub-s. (1) of s. 143 or on the basis of the regular assessment aforesaid. (4) Where, as a result of an order under s. 154 or s. 155 or s. 250 or 254 or s. 260 or s. 262 or s. 263 or s. 264 or an order of the Settlement Commission under sub-s. (4) of s. 245D, the amount on which interest was payable under sub-s. (1) or sub-s. (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and (i) in a case, where the interest is increased, the AO shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under s. 156 and the provisions of this Act shall apply accordingly; (ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded. (5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989, and subsequent assessment years. Sec. 234C. Interest for deferment of advance tax.—(1) Where in any financial year,— (a) the company which is liable to pay advance tax under s. 208 has failed to pay such tax; or— (i) the advance tax paid by the company on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of September, is less than forty-five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent of the tax due on the returned income, then, the company shall be liable to pay simple interest at the rate of one and one-half per cent, (w.e.f. 1st June, 2001 one and one-fourth per cent) per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income;
(ii) the advance tax paid by the company on its current income on or before the 15th day of March is less than the tax due on the returned income, then, the company shall be liable to pay simple interest at the rate of one and one- half per cent (w.e.f. 1st June, 2001 one and one-fourth per cent) on the amount of the shortfall from the tax due on the returned income : Provided that if the advance tax paid by the company on its current income on or before the 15th day of June or the 15th day of September, is not less than twelve per cent, or, as the case may be, thirty-six per cent of the tax due on the returned income, then, it shall not be liable to pay any interest on the amount of the shortfall on those dates; (b) the assessee, other than a company, who is liable to pay advance tax under s. 208 has failed to pay such tax or, (i) the advance tax paid by the assessee on his current income on or before the 15th day of September, is less than thirty per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than sixty per cent of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent (w.e.f. 1st June, 2001, one and one-fourth per cent) per month for a period for three months on the amount of the shortfall from thirty per cent, or, as the case may be, sixty per cent, of the tax due on the returned income; (ii) the advance tax paid by the assessee on his current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent (w.e.f. 1st June, 2001 one and one-fourth per cent) on the amount of the shortfall from the tax due on the returned income : Provided that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of underestimate or failure to estimate,— (a) the amount of capital gains; or (b) income of the nature referred in sub-cl. (ix) of cl. (24) of s. 2, and the assessee has paid the whole of the amount of tax payable in respect of income referred to in cl. (a) or cl. (b), as the case may be, had such income been a part of the total income, as part of the remaining instalments of advance tax which are due or where on such instalments are due, by the 31st day of March of the financial year : Provided further that nothing contained in this sub-clause shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of increase in the rate of surcharge under s. 2 of the Finance Act, 2000 (10 of 2000), as amended by the Taxation Laws (Amendment) Act, 2000, and the assessee has paid the amount of shortfall on or before the 15th day of March, 2001, in respect of the instalment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000, and the 15th day of December, 2000 : Provided also that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of increase in the rate of surcharge under s. 2 of the Finance Act, 2000 (10 of 2000), as amended by the Taxation Laws (Amendment) Act, 2001 and the assessee has paid the amount of shortfall on or before the 15th day of March, 2001, in respect of the instalment of advance tax due on the 15th day of June, 2000, the 15th day of Sept., 2000 and 15th day of Dec., 2000. Explanation.—In this section, “tax due on the returned income means the tax chargeable on the total income declared in the return of income furnished by the assessee for the assessment year commencing on the 1st day of April immediately following the financial year in which the advance tax is paid or payable as reduced by the amount of tax deductible or collectible at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income. (2) The provisions of this section shall apply in respect of assessments for the year commencing on the 1st day of April, 1989, and subsequent assessment years. The apex Court in Anjum M.H. Ghaswala (supra) held that the interest payable, therein is mandatory in nature. It was held that the Settlement Commission does not have any power to refund or waive interest statutorily payable under ss. 234A, 234B and 234C of the Act except to the extent of granting relief under circulars issued by the Board under s. 119 of the Act. The assessee is a financing company. Whether it borrows a huge sum of money, cash balance in its own account may show a huge account and the same may not be determinative of the question as to whether the said amount was earned by way of profit or not. Normally a financing company would not grant any interest free loan.
9. In the instant case, the assessee despite several opportunities are granted, did not produce the relevant documents. An adverse inference, therefore, should have been drawn against the assessee. In CIT vs. H.R. Sugar Factory (P) Ltd. (1990) 87 CTR (All) 132 : (1991) 187 ITR 363 (All) : TC 15R.1153, it was held at p. 370:
“The approach adopted by Sri S.N. Verma, learned counsel for the assessee, namely, that you must look only to the particular assessment year, and not beyond, looks attractive at first flush, but does not stand scrutiny in depth. It is true that, for the purposes of income-tax, each assessment year is a separate unit. It may be equally true that the amounts of loans to the directors are not substantial in each of the years. But, this approach would have been valid if the assessee had been paying interest only on the amounts lent during a particular assessment year. As a matter of fact, the difference of interest, which the assessee is made to bear on account of loans to the directors, is more than rupees two lakhs in the asst. yr. 1968-69. With respect to the asst. yr. 1967-68 it is Rs. 1,85,858. The Court cannot shut its eyes to realities. What has actually happened is visible to the naked eye. The assessee, a private limited company closely held by three family groups, is made to lend huge amounts (up to 23 lakhs of rupees as per the compromise arrived at between the assessee and the directors/shareholders in the civil suits referred to above) at a very low rate of interest and the entire difference of interest is being charged to the assessee. The assessee is not a finance company. It is engaged in the manufacture of sugar. No business purpose of the assessee-company is served by such lendings to its directors/shareholders. It cannot be said that it is expedient in the interest of business or is laid out for the purpose of the business of the assessee. It is not even a case where employees of the company are being lent some small amounts at a lower rate of interest with a view to keep them happy and satisfied. The amount of interest paid each year payable on account of the loans to directors is very substantial and this fact cannot be glossed over by saying that the amount is not substantial in each of the years. It must be remembered that, in pursuance of the compromise referred to above, the limit of amounts to be lent to the directors/shareholders was substantially raised while, at the same time, drastically reducing the rate of interest to be charged to them. It is clear that the directors/shareholders are taking unfair advantage of their control over the assessee and that they are exploiting it for their private ends. We are not saying that it is a device, we need not go that far. What has happened in this case is self-evident, viz., the assessee is made to pay huge amounts by way of interest on account of heavy amounts advanced to its directors, bearing no relation whatsoever with the business purpose of the assessee. A look at the figures mentioned in the questions referred clearly shows that huge amounts are being paid by the assessee on account of interest. May be that the company borrows large amounts for the purpose of its business every year, but that does not explain the huge advances to the directors/shareholders. Had this money been not advanced to the directors, it would have been available to the assessee for its business purposes and to that extent it may not have been necessary to borrow from the banks. We are, therefore, of the opinion that the ITO was right in disallowing the difference of interest under s. 36(1)(iii) of the IT Act and that the Tribunal’s approach is not only superficial but too naïve.” We may notice that the Orissa High Court in Indian Metals & Ferro Alloys Ltd. vs. CIT (1992) 193 ITR 344 (Ori) : TC 15R.1119 has held : “……it may be pointed out that, in a hypothetical case, an assessee can earn profits only after the date of investment and advance. It cannot be said that because, in the concerned assessment year, the profit was more than the investment and advance, those came only out of the profit. The actual financial liquidity position on the relevant date has to be established by the assessee.” Furthermore, the Bombay High Court in Phaltan Sugar Works Ltd. vs. CWT (1995) 127 CTR (Bom) 359 : (1994) 208 ITR 989 (Bom) : TC 15R.524 has held : “…….The business of the subsidiary company cannot be considered in law as the business of the assessee. The finding of the Tribunal based on commercial expediency appears to us to be incorrect. The fact remains that the moneys borrowed were utilized for business of the subsidiary company and not for the business of the assessee as such. In this view of the matter, we hold that the Tribunal was not justified in holding that the interest on loans borrowed for advancing to its subsidiary company, was allowable under s. 36(1)(iii) of the IT Act, 1961. The plain language of s. 36(1)(iii) of the IT Act, 1961, militates against the submissions urged on behalf of the assessee.” Yet again in Regal Theatre vs. CIT (1997) 143 CTR (Del)81 : (1997) 225 ITR 205 (Del) : TC S15.1581, it has been held : “……..The learned Judges held that the view taken by the ITO was unsustainable, that as had been pointed out by the Madhya Pradesh High Court in Ram Kishan Oil Mills vs. CIT (1965) 56 ITR 186 (MP) : TC 15R.838, the only conditions required to be satisfied in order to enable the assessee to claim a deduction in respect of the interest under s. 10(2)(iii) were, firstly, that the money must have been borrowed by the assessee; secondly, it must have been borrowed for the purpose of business, and, thirdly, the assessee must have paid interest on the said amount and claimed it as a deduction. It is not the requirement of the law that the assessee must further show that the borrowing of the capital was necessary for the business, so that if at the time of borrowing the assessee had sufficient amount of its own, the deduction could not be allowed. The learned Judges also relied upon a judgment of the Madras High Court in Amna Bai Hajee Issa vs. CIT (1964) 51 ITR 835 (Mad) : TC 15R.1008, which held that in deciding whether a claim for interest on borrowing could be allowed, the fact that the assessee had ample resources at its disposal and need not have borrowed, was not a relevant matter for consideration. The question to be decided was whether the amount of interest was paid in fact on the capital borrowed for the business.
It may also be noticed that in the Supreme Court decision in Madhav Prasad Jatia vs. CIT (1979) 10 CTR (SC) 375 : (1979) 118 ITR 200 (SC) : TC 15R.823, already referred to, their Lordships distinguished the decision of the Bombay High Court in CIT vs. Bombay Samachar (1969) 74 ITR 723 (Bom) : TC 15R.843, on the ground that that case did not touch the issue raised before them but did not think that the Bombay case was wrongly decided.
The above principles of law do not, in our opinion, go against the principle that the net profit must be calculated after giving allowance to the depreciation. Nor do they contradict the view that interest can be disallowed if the borrowed funds are used for non-business purposes.
Learned counsel for the respondent has contended that the High Court cannot go against the opinion of the Tribunal, nor go behind the facts mentioned by the Tribunal, nor disturb any findings of fact arrived at by the Tribunal. We are of the view that the question is one purely of law as to the conditions required by s. 36(1)(iii) of the IT Act and has been referred to us for a decision by the Tribunal. While dealing with the question, we have not disturbed any findings of fact arrived at by the Tribunal. The contention that the Tribunal had given a finding of fact that a part of the borrowings had been diverted by the assessee to its non-business purposes is in our opinion not a finding of fact, but was an inference drawn by the Tribunal on the basis that the interest paid on the capital borrowed was not in law an allowable deduction from the profit, in case the profit minus depreciation was in excess of the withdrawals made by the partners and in such a case, the withdrawals made by the partners and in such a case, the withdrawals should be deemed to be in part from the capital account and would mean that the original borrowing was utilised for other purposes and not for business purposes. The finding of the Tribunal in this behalf is surely an inference in law. It ignores the law laid down by the Supreme Court in Madhav Prasad Jatia vs. CIT (supra), and in the Bombay High Court case CIT vs. Bombay Samachar Ltd. (supra), that once the three conditions laid down are satisfied, the deduction under s. 36(1)(iii) must be given. Again, the contention that the correct amount of debit balance to the account of the partners should be taken as Rs. 1,73,643 instead of Rs.
1,93,049 as calculated by the ITO is again a figure arrived at as a matter of law.”
10. From the conspectus of the decisions as noticed hereinbefore, there cannot be any doubt whatsoever that the nexus between the amount paid by way of advance to a sister concern and the fund available at the relevant time in assessee’s hands must be found out from the advances taken by the assessee. The onus to prove that it is entitled to in this regard was on the assessee. It was to be proved that a bona fide loan had been granted in favour of a sister concern. It was, therefore, its duty to place requisite materials on record.
11. The apex Court in East India Pharmaceutical Works Ltd. vs. CIT (1997) 139 CTR (SC) 372 : (1997) 224 ITR 627 (SC) : TC S56.4385 has held : “In the aforesaid premises and in view of the question that arose out of the order of the Tribunal and which was referred by the Tribunal to the High Court for being answered, we find no error in the answer given by the High Court. It may further be stated that even before the High Court the assessee had not taken any step to get the question referred in the light of the contentions, which were advanced in this Court by filing an application under s. 256(2) of the Act. In this view of the matter, notwithstanding the fact that we find considerable force in the question of law urged by Mr. Bhattacharyya, learned counsel appearing for the appellant, but, on the materials on record and on the amplitude of the question, which had been referred to the High Court, we find it difficult to entertain and decide the contention raised by learned counsel, for the appellant. Further, we do not find any error in the answer given by the High Court to the question posed before it and, therefore, the appeal is devoid of merit and the same is accordingly dismissed. But, in the circumstances, there will be no order as to costs.”
12. We may also notice that retrospective effect has been given to ss. 234A, 234B and 234C of the Act. Keeping in view the fact that the assessee had not produced materials, despite opportunities having been granted to it, by the AO, we are of the opinion that the purported finding of fact arrived at by the learned Tribunal must be held to be perverse.
13. The learned counsel for the assessee contended that neither in the previous years nor in the later years such transactions had been questioned, but in absence of any material having been placed either before the AO and CIT(A) or the Tribunal to show that in those years also the assessee had despite opportunities being given did not produce documents, we are of the opinion that the same by itself would not deter this Court from examining the said question.
14. The learned counsel for the assessee has pointed that in case H.R. Sugar Factory (supra), the assessee was an industry for manufacturing of sugar and it was not a finance company and as such in the case of finance company, such decision would not be applicable. However, we are of the opinion that such an observation is not of much significance, as indeed, the said observation would counter to the submission of the learned counsel for the assessee. As the assessee was a finance company, it could show a huge amount at its hands at any point of time, but the bank accounts of the assessee during the relevant period having not been produced, it was for the AO to ascertain as to whether the advance had been paid out of the loan taken by it or not. At the cost of repetition, we may reiterate that it is also not expected that a financing company would advance an interest-free loan to another, when it itself takes loan and pays interest upon the principal sum. As the assessee could not produce any document in this regard, an adverse inference in terms of s. 114 of the Evidence Act should be drawn to the effect that had those documents been produced, the same would have gone against the interest of the assessee, we are of the opinion that the questions of law involved in the instant case should be answered in negative, i.e., in favour of Revenue and against the assessee.
15. This appeal is disposed accordingly.
[Citation : 254 ITR 449]