VIJAY SOLVEX LIMITED, Alwar V. ACIT, Alwar

CO 12/JPR/2014

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 4107 (ITAT-JAIPUR)
• Duration Of Justice: 4 year(s) 3 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 24-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS ROSHANTA MEENA
• Assessee Lawyers: P C PARWAL CA DHK
• Keywords: Transfer pricing; International transaction; Earning of tax free income; Notional interest
• Section: 92B; 14A; 92

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 292/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2008-09 A.C.I.T., CIRCLE-2, ALWAR. CUKE VS. M/S VIJAY SOLVEX LIMITED, BHAGWATI SADAN, S.D. MARG, ALWAR-301001 LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACV 6864 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT IZR;K{KSI.K @ C.O. NO. 12/JP/2014 (ARISING OUT OF VK;DJ VIHY LA-@ ITA NO. 292/JP/2014) FU/KZKJ.K O'K Z @ ASSESSMENT YEAR 2008-09 M/S VIJAY SOLVEX LIMITED, BHAGWATI SADAN, S.D. MARG, ALWAR-301001. CUKE VS. A.C.I.T., CIRCLE-2, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA- @ PAN/GIR NO.: AAACV 6864 A IZR;K{KSID @ OBJECTOR IZR;FKHZ @ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : MRS. ROSHANTA MEENA (JCIT) FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C. PARWAL (CA). LQUOKBZ DH RKJH[K @ DATE OF HEARING: 20/08/2018 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 24/08/2018 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M.: THE APPEAL BY THE REVENUE AND CROSS OBJECTION BY TH E ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 16/01/2014 OF LD. CIT(A)-II, JAIPUR FOR THE A.Y. 2008-09. 2 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED 2. FIRST WE TAKE UP THE APPEAL FILED BY THE DEPARTM ENT WHEREIN THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT THE CIT(A)-II, JAIPUR HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS. 1,14,47,501/- MADE BY THE A.O. ON ACCOUNT OF TPO AD JUSTMENT. 2. THAT THE CIT(A)-II, JAIPUR HAS ERRED IN LAW AS W ELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS. 10,00,000/- MADE BY THE A.O. ON ACCOUNT OF TRADING ADDITION. 3. THAT THE CIT(A)-II, JAIPUR HAS ERRED IN LAW AS W ELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE DISALLOWA NCE OF RS. 29,49,629/- ON ACCOUNT OF DISALLOWANCE U/S 14A READ WITH RULE 8D. 4. THAT THE CIT(A)-II, JAIPUR HAS ERRED IN LAW AS W ELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN RESTRICTING THE DISALL OWANCE OF RS. 3,70,339/- TO RS. 56,397/- MADE BY THE A.O. ON ACCO UNT OF MISCELLANEOUS EXPENSES. 5. THAT THE CIT(A)-II, JAIPUR HAS ERRED IN LAW AS W ELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE DISALLOWA NCE OF RS. 87,534/- MADE BY THE A.O. ON ACCOUNT OF PRINTING AN D STATIONARY EXPENSES. 6. THAT THE CIT(A)-II, JAIPUR HAS ERRED IN LAW AS W ELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE DISALLOWA NCE OF RS. 5,00,000/- MADE BY THE A.O. ON ACCOUNT OF PACKAGING MATERIAL EXPENSES. 7. THAT THE CIT(A)-II, JAIPUR HAS ERRED IN LAW AS W ELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS. 1,14,47,501/- MADE BY THE A.O. ON ACCOUNT OF TPO AD JUSTMENT. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER THE GROUNDS OF APPEAL ON OR BEFORE THE DATE THE APPEAL IS FINALLY HEARD FOR DISPOSAL. 3. GROUNDS NO. 1 AND 7 OF THE APPEAL ARE SAME AND A RE REGARDING THE TP ADJUSTMENT MADE BY THE A.O./TPO WAS DELETED BY T HE LD. CIT(A). 3 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WHICH ARE REPROD UCED AS UNDER: DESCRIPTION OF TRANSACTION AE METHOD APPLIED F.Y. 2 007-08 1. PURCHASE OF BAKERY SHORTENING FOR TRADING DATA FOODS SRI LANKA RPM RS. 2,98,59,394/- 2. SALE OF CERAMIC (CROCKERY) ITEMS DATA HOUSEWARES UK PROFIT SPLIT RS. 3,75,74,192/- 3. INTEREST RECEIVED @ 9& P.A. ON GBP 66,335` DATA HOUSEWARES UK CUP GBP 5970 (RS. 4,75,258/-) SINCE THERE ARE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE, THEREFORE, THE ASSESSING OFFICER MADE REFERENCE U/S 92CA OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) TO THE TPO. DURING THE COURSE OF PROCEEDINGS BEFORE THE TPO, IT WAS NOTED THAT THE A SSESSEE HAS BENCHMARKED ITS INTERNATIONAL TRANSACTIONS OF PURCH ASE AND SALE BY ADOPTING RESALE PRICE METHOD (RPM) FOR PURCHASES OF BAKERY SHORTENING FROM AE AND PROFIT/SPLIT METHOD FOR SALE OF CERAMIC TO DIFFERENT AE AS MOST APPROPRIATE METHOD. AS REGARDS THE INTEREST RE CEIVED FROM AE ON LOAN, THE ASSESSEE BENCHMARKED THE SAME BY APPLYING CUP AS MOST APPROPRIATE METHOD. THE TPO REJECTED THE TP ANALYSI S OF THE ASSESSEE AND CARRIED OUT FRESH SEARCH BY CONSIDERING THE TNM M AS MOST APPROPRIATE METHOD IN RESPECT OF THE PURCHASES OF B AKERY SHORTENING. AS REGARDS THE SALES OF CERAMIC, THE TPO NOTED THAT SI NCE THE ASSESSEES PROFIT MARGIN IS 17.26% ACCORDINGLY THE SAID TRANSA CTION WAS ACCEPTED BY THE TPO AT ARMS LENGTH. HOWEVER, THE TPO MADE A SE PARATE ADDITION ON ACCOUNT OF NOTIONAL INTEREST FOR THE CREDIT ALLOWED BY THE ASSESSEE FOR REALIZATION OF SALE PROCEEDS FROM AE. THUS, THERE A RE THREE ADJUSTMENTS 4 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED MADE BY THE TPO REGARDING (I) INTERNATIONAL TRANSAC TION OF PURCHASES (II) NOTIONAL INTEREST ON ACCOUNT OF CREDIT ALLOWED TO T HE AE FOR REALIZATION OF SALE PROCEEDINGS & (III) THE ADJUSTMENTS IN RESPECT OF LOAN GIVEN TO THE AE BY APPLYING ARMS LENGTH INTEREST @ 17.26%. HENCE THE TPO PROPOSED A TOTAL ADJUSTMENT OF RS. 1,14,47,501/- U/S 92CA OF T HE ACT. THE ASSESSING OFFICER IN PASSING THE ASSESSMENT ORDER HAS MADE TH E ADDITION AS PROPOSED BY THE TPO. 4. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESS ING OFFICER BEFORE THE LD. CIT(A) AND GOT RELIEF IN RESPECT OF TP ADJU STMENT. 5. WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE WILL DISCUSS EACH ISSUE OF TP ADJUSTMENT SEPARATELY AS UNDER: (I) THE ADJUSTMENT IN RESPECT OF INTERNATIONAL TRA NSACTION FOR PURCHASE OF BAKERY SHORTENING: THE TPO REJECTED THE RESALE PRICE METHOD AS MOST APPROPRIATE METHOD AND ADOPTED TNMM AS MOST APPROPRIATE METHOD AND CARRIED OUT A FRESH SEARCH. THE TPO HAS SELECTED 10 COMPARABLES WITH MEAN MARGIN OF 4.75% AS UNDER: ANNUAL (ENDING MARCH 2008) RS. IN CRORES COMPANY NAME OP. INCOME OP. COST OP. PROFIT OPM ON S ALES (%) BHASKAR EXXOILS LTD. 586.92 556.61 30.31 5.16 FOODS, FATS & FERTILIZERS LTD. 456.94 421.6 35.34 7 .84 GOKUL REFOILS & SOLVENT LTD. 2053.22 1933.06 120.16 5.85 KS OILS LTD. 2045.05 1834.25 210.8 10.31 KANPUR EDIBLES PVT. LTD. 682.74 678.66 4.08 0.6 NATIONAL PROTEIN & SOLVENT LTD. 137.73 134.52 3.21 2.33 5 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED RAJ AGRO MILLS LTD. 116.95 113.27 3.68 3.15 SHARDA SOLVENT LTD. 564.89 549.4 15.49 2.74 SHIV AGREVO LTD. 150.46 143.47 6.99 4.65 SYNCO INDUSTRIES LTD. 35.09 33.38 1.71 4.87 MEAN OF 10 4.75% THE TPO ALSO RECOMPUTED THE OPERATING MARGIN OF THE ASSESSEE IN RESPECT OF THE PURCHASE MADE FROM SRI LANKA BASED AE AND AR RIVED TO THE OPERATING MARGIN AS LOSS OF RS. 15,38,636/-. HENCE, THE TPO MADE AN ADJUSTMENT OF RS. 41,51,014/- ON THIS ACCOUNT. 5.1 THE ASSESSEE CHALLENGED THIS ACTION OF THE ASSE SSING OFFICER BEFORE THE LD. CIT(A) AND CONTENDED THAT THE OPERATING MAR GIN COMPUTED BY THE TPO IS INCORRECT AS THE TPO HAS CONSIDERED THE TURN OVER OF THE ASSESSEE ONLY PROPORTIONATE TO THE PURCHASES MADE DURING THE YEAR AND EXCLUDED THE OPENING STOCK WHEREAS THE EXPORT EXPENSES HAVE BEEN CONSIDERED IN TOTO WITHOUT PROPORTIONATE ALLOCATION ON THE PURCHA SES MADE DURING THE YEAR. FURTHER THE ASSESSEE HAS ALSO CHALLENGED THE COMPARABILITY OF THE COMPANIES/ENTITIES SELECTED BY THE TPO AS NOT DOING BUSINESS IN THE SAME COMMODITY. THE LD. CIT(A) HAS ACCEPTED THE ASSESSEE S CONTENTION REGARDING THE MOST APPROPRIATE METHOD AS RPM INSTEA D OF TNMM ADOPTED BY THE TPO AND CONSEQUENTLY DELETED THE ADJUSTMENT/ ADDITION MADE BY THE TPO/AO. WE FIND THAT THE TPO WHILE COMPUTING TH E OPERATING MARGIN OF THE ASSESSEE AS CONSIDERED THE TOTAL IMPORT EXPE NSES OF RS. 51,10,877/- WHEREAS THE ASSESSEE HAS RAISED A SPECI FIC OBJECTION ON THIS ISSUE AND GIVEN DETAILS OF THE PROPORTIONATE IMPORT EXPENSES IN RESPECT OF 6 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED THE PURCHASES MADE DURING THE YEAR AT RS. 21,74,720 /-. THE LD AR OF THE ASSESSEE HAS POINTED OUT THAT THE EXPORT EXPENSES W ERE INCURRED IN RESPECT OF THE CUSTOM DUTY PAID BY THE ASSESSEE AT THE TIME OF GOODS RELEASED FROM THE PORT AND THE OPENING STOCK WHICH WAS LYING AT THE PORT WAS ALSO GOT RELEASED DURING THE YEAR UNDER CONSIDE RATION. THEREFORE, THE IMPORT EXPENSES INCURRED DURING THE YEAR UNDER CONS IDERATION PERTAINS TO THE PURCHASES MADE DURING THE YEAR AS WELL AS THE O PENING STOCK OF 866.16 MT WHICH GOT RELEASED FROM THE PORT DURING T HE YEAR WHEREAS THE PURCHASES MADE FROM THE AE DURING THE YEAR IS 642.9 3 MT. THUS, THE LD AR HAS SUBMITTED THAT THE ASSESSEE HAS WORKED OUT T HE PROPORTIONATE IMPORT EXPENSES ONLY IN RESPECT OF THE PURCHASES MA DE DURING THE YEAR AS THE TPO HAS CALCULATED THE OPERATING MARGIN ONLY IN RESPECT OF THE PURCHASES MADE DURING THE YEAR. 5.2 ON THE OTHER HAND, THE LD DR HAS RELIED UPON TH E ORDER OF THE TPO AND SUBMITTED THAT THE ASSESSEE HAS NOT MAINTAINED THE SEGMENTAL DETAILS BUT THE ENTIRE TURNOVER WAS SHOWN AS SALES FROM THE PURCHASES MADE FROM AE AS WELL AS NON AE TRANSACTIONS OF PURCHASES , THEREFORE, THE TPO UNDERTAKEN THE EXERCISE FOR WORKING OUT THE OPERATI NG MARGIN OF THE ASSESSEE ONLY IN RESPECT OF THE PURCHASES MADE FROM THE AE. 5.3 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD WE NOTE THAT THE TPO HAS CALCULA TED OPERATING MARGIN OF THE ASSESSEE AT LOSS OF RS. 15,38,636/- AS AGAIN ST THE MEAN MARGIN OF 7 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED COMPARABLES SELECTED BY THE TPO AT 4.75%. THIS COMP UTATION OF ASSESSEES MARGIN WAS ARRIVED BY THE TPO BY TAKING THE PROPORTIONATE TURNOVER RELATED TO THE PURCHASES MADE DURING THE Y EAR FROM AE WHEREAS THE TPO HAS CONSIDERED THE IMPORT EXPENSES IN TOTAL INSTEAD OF APPORTIONMENT OF THE SAME BETWEEN THE OPENING STOCK AND THE PURCHASES MADE DURING THE YEAR. THOUGH, THE ASSESSEE CLAIMED THAT THE IMPORT EXPENSES HAVE BEEN INCURRED TOWARDS THE CUSTOM DUTY PAID ON THE PURCHASES MADE DURING THE YEAR AS WELL AS THE OPENI NG STOCK WHICH WAS LYING AT THE PORT/CUSTOM HOUSE AND GOT RELEASED DUR ING THE YEAR UNDER CONSIDERATION, HOWEVER, THIS FACT IS SUBJECT TO VER IFICATION. IF THE CLAIM OF THE ASSESSEE IS ACCEPTED THAT THE IMPORT EXPENSES T O THE EXTENT OF RS. 21,74,720/- ARE ATTRIBUTABLE TO THE PURCHASES MADE DURING THE YEAR THEN THE OPERATING MARGIN OF THE ASSESSEE ON THE PURCHAS ES FROM AE COMES TO 1.64%. BY CONSIDERING THIS OPERATING MARGIN WITH TH E ARMS LENGTH PRICE/MEAN MARGIN AT 4.75%, WE FIND THAT THE PRICE OF THE INTERNATIONAL TRANSACTION OF PURCHASES OF BAKERY SHORTENING IS WI THIN THE TOLERANCE RANGE OF + 5% PROVIDED IN SECOND PROVISO TO SECTION 92CA. ACC ORDINGLY SUBJECT TO THE VERIFICATION OF THE FACT THAT THE IM PORT EXPENSES ARE INCURRED FOR BOTH PURCHASES MADE DURING THE YEAR AS WELL AS FOR OPENING STOCK SHOWN BY THE ASSESSEE IF THE CLAIM OF THE ASS ESSEE IS FOUND TO BE TRUE, THEN NO ADJUSTMENT IS CALLED FOR AS THE ALP D ETERMINED BY THE TPO 8 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED @ 4.75% IS WITHIN THE TOLERANCE RANGE OF + 5% OF THE ASSESSEES OPERATING MARGIN. 5.4 AN IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBU NAL IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08 VIDE ORDER DATED 03/4/201 8 IN ITA NO. 377/JP/2012 AND C.O. 45/JP/2012 IN PARA 3.1 TO 4 AS UNDER: 3.1 WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A/R AN D CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. D/R HAS SUBMIT TED THAT THE ASSESSEE HAS APPLIED RESALE PRICE METHOD (RPM) AS M OST APPROPRIATE METHOD WHEREAS IT IS NOT THE CASE OF THE ASSESSEE B EING A DISTRIBUTOR OR AGENT. THE RESALE PRICE METHOD IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AND, THEREFORE, THE AO IS JUSTIFIED IN APP LYING THE TNMM METHOD AS MOST APPROPRIATE FOR DETERMINATION OF ARM 'S LENGTH PRICE. HE HAS FURTHER CONTENDED THAT THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY COMPARABLE ENTITIES AS AGAINST THE COMPA RABLE CASES SELECTED BY THE TPO. HE HAS RELIED UPON THE ORDERS OF THE TPO/AO. 3.2 ON THE OTHER HAND, THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT SINCE ASSESSEE IS DOING THE TRADING IN THE BAKERY S HORTENING WITHOUT ANY VALUE ADDITION AND, THEREFORE, THE RESALE PRICE METHOD WOULD BE THE MOST APPROPRIATE METHOD FOR DETERMINATION OF AR M'S LENGTH PRICE. HE HAS FURTHER CONTENDED THAT THE ASSESSEE HAS ALSO BROUGHT ON RECORD THE COMPARABLE PRICE OF THE SAME PRODUCT AS THE AE OF THE ASSESSEE HAS SOLD THE SAME PRODUCT TO THE UNRELATED PARTIES AT A HIGHER RATE AND, THEREFORE, WHEN THERE IS A COMPARA BLE UNCONTROLLED PRICE THEN NO ADJUSTMENT IS CALLED FOR IN THE CASE OF THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT EVEN OTHERWISE THE ARM'S LENGTH PRICE DETERMINED BY THE TPO BY TAKING THE MEAN MARGIN AT 4.07% IS WITHIN THE RANGE OF (+)(-) 5% OF THE ASSESSEE'S MARG IN AND ACCORDINGLY IN VIEW OF THE SECOND PROVISO TO SECTIO N 92C(2) NO ADJUSTMENT CAN BE MADE ON ACCOUNT OF INTERNATIONAL TRANSACTION PRICE OF BAKERY SHORTENING. 4. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CARE FUL PERUSAL OF RECORD, WE NOTE THAT THE ASSESSEE'S OPERATIVE MARGIN FROM THE 9 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED TRADING OF BAKERY SHORTENING IS AT 1.63% WHEREAS TH E TPO WHILE DETERMINING THE ARM'S LENGTH PRICE BY APPLYING THE T NMM AS MOST APPROPRIATE METHOD AND OP/TOTAL COST (TC) AS PLI HA S ARRIVED AT MEAN MARGIN OF 4.07%. THEREFORE, THE PRICE OF INTER NATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE IS WITHIN TH E TOLERANCE RANGE OF (+)(-) 5% OF THE ARM'S LENGTH PRICE DETERMINED B Y THE TPO. ACCORDINGLY, AS PER THE SECOND PROVISO TO SECTION 9 2C(2) THE PRICE OF INTERNATIONAL TRANSACTION IN RESPECT OF PURCHASE OF BAKERY SHORTENING WILL BE DETERMINED AT ARM'S LENGTH PRICE AND CONSEQU ENTLY NO ADJUSTMENT IS CALLED FOR ON THIS ACCOUNT. HENCE IN VIEW OF THE FACT THAT THE PRICE OF INTERNATIONAL TRANSACTION IS WITH IN THE TOLERANCE RANGE AS PROVIDED UNDER THE SECOND PROVISO TO SECTI ON 92C(2), WE DO NOT GO INTO THE ISSUE OF MOST APPROPRIATE METHOD AP PLIED BY THE ASSESSEE AS WELL AS BY THE TPO. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT (A) Q UA THIS ISSUE. HENCE, SUBJECT TO THE VERIFICATION OF THE IMPORT EX PENSES, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. C IT(A) QUA THIS ISSUE. SINCE WE FOUND THAT EVEN AS PER THE TNMM METHOD APP LIED BY THE TPO, THE ASSESSEES INTERNATIONAL TRANSACTIONS WOULD BE AT ARMS LENGTH. 5.5 THE SECOND ADJUSTMENT ON ACCOUNT OF NOTIONAL IN TEREST ON THE RECEIVABLES FROM AE. WE HAVE HEARD THE LD DR AS WEL L AS THE LD. AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RE CORD. WE FIND THAT THE ASSESSEE HAS NOT CHARGED ANY INTEREST FROM AE AS WE LL AS FROM NON AE IN RESPECT OF SALES REALIZATION AND ALLOWED CREDIT PER IOD TO BOTH THE PARTIES. THE TPO NOTED THAT THE CREDIT PERIOD ALLOWED BY THE ASSESSEE TO THE AE IS ABNORMAL IN COMPARISON TO THE NON AE FROM THE TRANS ACTIONS AND THEREFORE, THERE IS A SUBSTANTIAL DELAY IN REALIZAT ION OF TRADE DEBTS FROM 10 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED AE. THE TPO, ACCORDINGLY, TOOK THE ARMS LENGTH INT EREST @ 17.26% AND MADE ADJUSTMENTS BY COMPUTING THE CREDIT PERIOD AFT ER ALLOWING A NORMAL PERIOD OF 60 DAYS. AT THE OUTSET, WE NOTE THAT THE ALLOWING CREDIT TO THE AE ON REALIZATION OF TRADE DEBTS IS NOT AN INDEPEND ENT TRANSACTION AS PER THE EXISTING PROVISIONS OF SECTION 92B OF THE ACT A ND AT THE MOST THE SAME WILL BE PART OF INTERNATIONAL TRANSACTION OF SALES MADE TO THE AE. THE ASSESSING OFFICER FOUND THE INTERNATIONAL TRANSACTI ON OF SALES TO THE AE AT ARMS LENGTH, THEREFORE, THERE IS NO DISPUTE THAT T HE MAIN TRANSACTION WAS FOUND TO BE AT ARMS LENGTH AND ONLY THE NOTIONAL I NTEREST ON THE REALIZATION OF TRADE DEBTS WAS TAKEN AS A SEPARATE TRANSACTION BY THE TPO FOR MAKING A SEPARATE ADJUSTMENT FOR DELAY IN REALI ZATION. THUS, ONCE THE TPO HAS CONSIDERED THE TNMM AS MOST APPROPRIATE MET HOD THEN THE DELAY IN REALIZATION OF DEBT AND CONSEQUENTIAL INTE REST INCOME WHICH WAS NOT RECEIVED OR RECOVERED BY THE ASSESSEE FROM AE C OULD HAVE BEEN FACTORED IN COMPUTING THE OPERATING MARGIN OF THE A SSESSEE IN RESPECT OF THE INTERNATIONAL TRANSACTION OF SALE MADE TO THE A E INSTEAD OF CONSIDERING THE NOTIONAL INTEREST FOR DELAY IN REALIZATION OF D EBTS AS A SEPARATE INTERNATIONAL TRANSACTION. WE FURTHER NOTE THAT THE ARMS LENGTH INTEREST IN RESPECT OF REALIZATION FROM AE BASED AT UK SHALL BE LIBOR INSTEAD OF PLR/PROFIT MARGIN TAKEN BY THE TPO. SINCE THE REALI ZATION IS FROM THE AE AND IN THE FOREIGN CURRENCY, THEREFORE, THE LIBOR W OULD BE THE APPROPRIATE COMPARABLE ARMS LENGTH RATE. HENCE, BY CONSIDERING ALL THESE 11 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED FACTS AND CIRCUMSTANCES WHEN THE ASSESSEES OPERATI NG MARGIN FROM THE INTERNATIONAL TRANSACTION OF THE SALE IS MORE THAN 17% WHICH WAS FOUND TO BE AT ARMS LENGTH THEN EVEN IF THE INTEREST ON DEL AYED REALIZATION OF TRADE DEBTS FROM AE IS GIVEN INTO EFFECT IT WILL NOT BRIN G THE INTERNATIONAL TRANSACTION FROM THE CATEGORY OF ARMS LENGTH TO SH ORT PRICE CHARGED FROM THE AE AS THE ASSESSEE WOULD GET THE BENEFIT OF SEC OND PROVISO OF SECTION 92CA OF THE ACT AND IN ANY CASE THE LIBOR RATES IS NOT EXCEEDING 2 TO 3% AND FURTHER ONLY FRICTION OF THE TOTAL SALE IS CONS IDERED AS DELAYED REALIZATION OF TRADE DEBTS. ACCORDINGLY, IN THE FAC TS AND CIRCUMSTANCES, WE DO NOT FIND ANY JUSTIFICATION IN MAKING SEPARATE AD DITION ON THIS ACCOUNT. HENCE, WE DO NOT FIND ANY MERIT IN THE GROUNDS RAIS ED BY THE REVENUE. 5.6 THE THIRD ADJUSTMENT MADE ON ACCOUNT OF INTERES T ON LOAN ADVANCED TO THE UK BASED AE. WE HAVE HEARD THE LD. DR AS WEL L AS THE LD AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RE CORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE WAS CONSIDERED BY THIS TRIB UNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08 VIDE ORDER DATED 03/4/201 8 IN PARA 6 AS UNDER: 6. WE HAVE HEARD THE ID. D/R AS WELL AS THE ID. A/R AN D CONSIDERED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE TH AT THE ASSESSEE HAS ADVANCED A LOAN IN FOREIGN CURRENCY TO ITS AE AND C HARGED INTEREST @ 10%. WE FIND THAT THE ISSUE OF CHARGING INTEREST FROM AE IN RESPECT OF THE MONEY ADVANCED IN FOREIGN CURRENCY, THE ARM'S LENGTH INTE REST IS TO BE CONSIDERED BY TAKING THE LIBOR INSTEAD OF PLR. THE ID. CIT (A) HAS CONSIDERED THIS ISSUE IN PARA 4.1 AS UNDER:- 12 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED ' 4.1 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. THE APPELLANT HAD ADVANCED THE LOAN TO ASSOCIATE ENTERPRISE (AE) NAME LY M/S DATA HOUSEWARE (P) LIMITED UK @ 10%. HOWEVER THE TPO HAD ERRONEOUSLY HELD THAT IT WAS ADVANCED AT THE RATE OF 8%. THE PROVISI ONS OF SECTION 92 OF THE INCOME-TAX ACT WHICH DEALT WITH THE COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTION HAVING REGARD TO THE ARM' S LENGTH PRICE HAD NO APPLICABILITY IN THE CASE IN VIEW OF THE PROVISIONS OF SECTION 92(3) OF THE INCOME-TAX ACT SINCE THE DETERMINATION OF ARM'S LEN GTH PRICE IN THE APPELLANT'S CASE AND COMPUTATION OF INCOME THEREOF HAD THE EFFECT OF REDUCING THE INCOME CHARGEABLE TO TAX. THE RELEVANT PROVISION OF THE STATUTE HAD LAID DOWN THE BOUNDARIES FOR DETERMININ G THE ARM'S LENGTH PRICE UNDER COMPARABLE UNCONTROLLED PRICE (CUP) MET HOD. THE POWER TO DETERMINE THE ARM'S LENGTH PRICE UNDER COMPARABLE U NCONTROLLED PRICE (CUP) METHOD WAS NOT UNABRIDGED. THE TPO HAD REFERR ED TO THE DECISION OF INCOME-TAX APPELLATE TRIBUNAL, BENCH-DELHI IN THE C ASE OF PEROT SYSTEMS TSI (INDIA) LIMITED VS DCIT (37 SOT 358) HA T, (DELHI) HOWEVER IT WAS CLEARLY DISTINGUISHABLE AS THE CHARG ING OF INTEREST FOR INTRA GROUND LOANS HAD BEEN UPHELD IN THE SAID CASE, WHEREAS, THIS WAS NOT THE ISSUE HERE. THE ASSESSEE HAD NOT DISPUTED T HE CHARGING OF INTEREST ON INTRA-GROUP LOANS. IN THE CITED CASE, THE LOAN W AS ADVANCED INTEREST FREE TO ASSOCIATE ENTERPRISE (AE), WHEREAS IN THE PRESEN T CASE, THE APPELLANT COMPANY (TESTED CASE) HAD CHARGED THE INTEREST ON T HE LOAN ADVANCED TO ASSOCIATE ENTERPRISE (AE). THE ARGUMENT OF THE TPO IN THE CITED CASE WAS THAT ONE OF THE AES WAS SITUATED IN A TAX HAVEN AND NON CHARGING OF THE INTEREST BY THE ASSESSEE FROM THE AES, HAD RESULTED IN HIGHER INCOME IN THE HANDS OF THE AES AND THE INCOME OF THE ASSESSEE IN INDIA HAD REDUCED BY THE CORRESPONDING AMOUNT. THUS IT HAD BROUGHT DOWN THE OVERALL TAX INCIDENCE OF THE GROUP BY SHIFTING PROFIT FROM INDI AN JURISDICTION TO BERMUDA WHICH WAS A TAX HAVEN COUNTRY WITH ZERO RAT E OF TAX ON CORPORATE PROFIT WHEREAS THE APPELLANT'S ASSOCIATE ENTERPRISE (AE) M/S DATE HOUSEWARE (P) LTD., U.K. WAS BASED IN UK, WHIC H WAS NOT A TAX HEAVEN COUNTRY, THEREFORE THE FACTS OF THE RELIED U PON CASE MATERIALLY DIFFERED FROM THE CASE IN HAND. THE TPO HAD STATED THAT SINCE THE TESTED PARTY WAS A TAX PAYER, THE PREVALENT INTEREST THAT COULD HAVE EARNED BY THE TAX PAYER BY ADVANCING A LOAN TO AN UNRELATED P ARTY IN INDIA WITH THE SAME WEAK FINANCIAL HEALTH AS THAT OF THE AE WOULD HAVE RESULTED IN ARM'S LENGTH INTEREST. THE TRANSACTION IN THE PRESENT CAS E WAS BETWEEN THE ASSESSEE LOCATED IN THE TWO NATIONS, I.E. IT WAS AN INTERNATIONAL TRANSACTION WHEREAS WHILE PROPOSING TO APPLY THE ARM'S LENGTH P RICE @ 14% THE TPO HAD CONSIDERED THE DOMESTIC TRANSACTIONS. SO THE IN TEREST RATE THAT WOULD HAVE BEEN CHARGED IN SIMILAR CIRCUMSTANCES OR THE I NTEREST RATE THAT THE TAX PAYER COULD HAVE GOT BY LENDING SUCH MONEY TO P RIVATE PERSONS IN INDIA OR INTEREST RATE THE COMPANY COULD HAVE GOT FROM IN DEPENDENT THIRD PART IN INDIA BY LENDING SUCH SURPLUS MONEY UNDER COMPAR ABLE CIRCUMSTANCES I.E. WITHOUT ANY SECURITY AND MARGIN MONEY WAS UNDE R COMPARABLE 13 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED CIRCUMSTANCES I.E. WITHOUT ANY SECURITY AND MARGIN MONEY WAS CONSIDERED BY THE TPO. IT WAS HELD BY TPO THAT RATE OF INTERES T OF 14% WOULD BE THE ARM'S LENGTH PRICE AND IT WAS ACCORDINGLY APPLIED. HOWEVER THE ABOVE BASIS AND GROUND WERE AGAINST THE EXPLICIT PROVISIO NS OF RULE 3 OF THE INCOME TAX RULES. THE TRANSACTION INVOLVED IN THE C ASE WAS AN INTERNATIONAL TRANSACTION WHEREAS THE TPO HAD REFER RED TO THE CIRCUMSTANCES OF DOMESTIC TRANSACTION, THEREFORE TH E SAME COULD NOT BE APPLIED UNDER THE GIVEN CIRCUMSTANCES. THE ASSESSEE COMPANY HAD LENT THE MONEY TO ASSOCIATE ENTERPRISE (AE) WHICH WAS LOCATE D IN UK, THEREFORE THE RATE OF INTEREST OBTAINED IN THE UK HAD TO BE CONSI DERED FOR THE PURPOSE OF COMPARING THE RATE ON COMPARABLE UNCONTROLLED PRICE (CUP) METHOD BASIS SINCE THE RATE OF INTEREST PREVAILING IN THE UK MAR KET GOVERNED THE SITUATION AND WAS IN CONFORMITY WITH RULE 2 AND 3 O F THE INCOME TAX RULES. THE APPLICATION OF LIBOR RATE OF INTEREST WAS UPHEL D BY HON'BLE DELHI TRIBUNAL IN THE CASE OF PEROT SYSTEMS TSI (INDIA) L IMITED VS. DCIT (37 SOT 358). THE LIBOR RATE DURING THE RELEVANT PERIOD WAS 4.31% TO 5.77 % IN THE FY 2006-07. THE TPO IN THIS CASE HAD APPLIED THE MO NTHLY LIBOR (LONDON INTERNATIONAL BANK OFFICIAL RATE) DOWNLOADED FROM T HE BRITISH BANKERS ASSOCIATION WEBSITE. DURING THE FINANCIAL YEAR 2001 -02 LIBOR FOR US DOLLAR LOAN WAS 2.39%. ON THAT LIBOR, THE ASSESSING OFFICE R ADDED AVERAGE BASIS POINT CHARGED BY OTHER COMPANIES AND FOR THIS PURPO SE HE TOOK RATE FOR 5 COMPANIES. THE ARITHMETIC MEAN CAME TO 1.64%. ACCOR DINGLY, ASSESSING OFFICER COMPUTED THE ARM'S LENGTH RATE TO BE LIBOR + 1.64% USING CUP METHOD. HOWEVER THE APPLICATION OF THE LIBOR RATES IN THE CASE OF LOANS AND ADVANCES TO ASSOCIATE ENTERPRISE (AE) LOCATED O UTSIDE THE GEOGRAPHICAL BOUNDARIES OF INDIA WAS UPHELD BY JUDI CIAL AUTHORITIES. THE LIBOR RATE DURING THE RELEVANT PERIOD RANGED FROM 5 .20% TO 5.44% AND AFTER ADDING THERETO 1.64% AVERAGE BASIS POINT AS U PHELD BY INCOME-TAX APPELLATE TRIBUNAL, BENCH-DELHI, THE EFFECTIVE ARM' S LENGTH RATE OF INTEREST WORKED OUT TO 6.84% TO 7.08% AS AGAINST THAT THE AP PELLANT COMPANY HAD CHARGED THE INTEREST @ 10%. IN THE PRESENT CASE, TH E RATE OF INTEREST ON THE BORROWING FROM SBBJ WAS 8.75% AT THE RELEVANT POINT OF TIME I.E. AT THE TIME OF GIVING OF LOAN, AS AGAINST THAT THE APPELLA NT HAD CHARGED THE RATE OF INTEREST @ 10% ON THE AMOUNT LENT THE ASSOCIATE ENTERPRISE (AE) MUCH HIGHER THAN THE COMPARABLE UNCONTROLLED PRICE (CUP) RATE. THE RATE OF INTEREST CHARGED FROM THE ASSOCIATE ENTERPRISE (AE) WAS MENTIONED ERRONEOUSLY AS 9%, WHEREAS IT WAS 10%, WHICH WAS VE RIFIABLE FROM THE CREDIT NOTE SENT BY THE M/S DATA HOUSEWARE P LTD. U .K. ASSOCIATE ENTERPRISE (AE) DATED 31.03.2007. FURTHER THE ASSOC IATE ENTERPRISE (AE) HAD UTILIZED THE LOAN IN ITS STOCK AND DEBTORS, WHI CH WAS APPARENT FROM THE BALANCE SHEET OF THE ASSOCIATE ENTERPRISE (AE). THE ASSESSEE HAD NOT INCURRED ANY BROKERAGE OR PROCESSING FEES IN ADVANC ING LOAN TO THE ASSOCIATE ENTERPRISE (AE).THE APPELLANT COMPANY HAD NOT GIVEN ANY LOAN OR ADVANCES TO DATA FOODS (P) LIMITED., SRI LANKA D URING THE FINANCIAL YEAR 2006-07. ACCORDINGLY THE ADJUSTMENT MADE ON ACCOUNT OF LOAN GIVEN TO 14 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED M/S DATA HOUSEWARE (P) LTD., U.K. WAS NOT JUSTIFIED . FURTHER THE APPELLANT WAS A SECURED CREDITOR AS IT HAD SOLD GOODS TO THE CONCERNED AE ALSO. THE POSITION OF THE APPELLANT COMPANY WAS THAT OF A UNP AID SELLER SINCE THE AE OWED TO IT AN AMOUNT COMPRISING OF LOAN AS WELL AS AMOUNT FOR GOODS PURCHASED. THEREFORE THE TPO HAD ERRONEOUSLY HELD T HAT THE POSITION OF THE APPELLANT WAS THAT OF A UNSECURED CREDITOR/LOAN EE. I ACCORDINGLY DIRECT THE AO TO DELETE THE ADDITION OF RS 2,55,929/-MADE ON ACCOUNT OF ADJUSTMENTS MADE BY THE TPO. THIS GROUND OF APPEAL IS ALLOWED.' THUS IT IS CLEAR THAT THE ID. CIT (A) HAS FOLLOWED THE DECISION OF THIS TRIBUNAL ON THIS ISSUE AND ACCORDINGLY WE DO NOT FIND ANY ER ROR OR ILLEGALITY IN THE ORDER OF ID. CIT (A) QUA THIS ISSUE. THE LD. CIT(A) HAS DELETED THE ADJUSTMENT MADE BY T HE TPO/AO BY FOLLOWING THE DECISION OF THIS TRIBUNAL, ACCORDINGL Y, IN VIEW OF THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY ERROR/ILLEGALITY IN THE IMPUGNED ORDER OF THE LD. CIT(A). HENCE, THI S GROUND OF REVENUES APPEAL STANDS DISMISSED. 6. GROUND NO. 2 OF THE APPEAL IS REGARDING THE TRAD ING ADDITION MADE BY THE A.O. OF RS. 10.00 LACS WAS DELETED BY THE LD . CIT(A). WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF THE ASSESSE E AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER NOTED THAT THE ASSESSEES G.P. RATE FOR THE YEAR UNDER CONSIDERATI ON IS 9.37% AS AGAINST 10.54% IN THE PRECEDING ASSESSMENT YEAR, ACCORDINGL Y, THE ASSESSING OFFICER PROPOSED TO REJECT THE BOOK RESULTS OF THE ASSESSEE. AFTER REJECTION OF BOOK RESULTS, THE ASSESSING OFFICER MADE AN AD H OC ADDITION OF RS. 10.00 LACS. THE LD. CIT(A) DELETED THE AD HOC TRADE ADDITION MADE BY THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN ASSESSEES 15 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED OWN CASE FOR THE A.Y. 2006-07. WE FIND THAT THE TRA DING ADDITION MADE BY THE ASSESSING OFFICER IS NOT BASED ON ANY REASONABL E BASIS AND FURTHER WHEN THE G.P. DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS 9.37% IN COMPARISON TO 10.54% FOR THE IMMEDIATE PRECEDING YEAR, WHICH IS NOT AT SIGNIFICANT VARIANCE, THEN WITHOUT HAVING A PROPER BASIS OR AT LEAST THE AVERAGE OF PAST HISTORY OF G.P. DECLAR ED BY THE ASSESSEE, THE AD HOC ADDITION MADE BY THE ASSESSING OFFICER IS NO T JUSTIFIED. THUS, IT IS CLEAR THAT THE LD. CIT(A) HAS FOLLOWED THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2006-07, WHICH HAS BEEN UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT VIDE JUDGMENT DAT ED 04/8/2017 IN D.B. INCOME TAX APPEAL NO. 169/2012 IN PARA 3 AS UNDER: 3. ISSUE NO. 1 & 2 ARE COVERED BY THE DECISION OF THIS COURT IN ITA NO. 371/2011 (CIT, ALWAR VS. M/S VIJAY SOLVEX LTD.) DEC IDED ON 03/8/2017, THEREFORE THE SAME ARE ANSWERED IN FAVOUR OF THE AS SESSEE. ACCORDINGLY, WE DO NOT FIND ANY MERIT OR SUBSTANCE IN THIS GROUND OF REVENUES APPEAL. HENCE, GROUND NO. 2 OF THE APPEAL IS DISMISSED. 7. GROUND NO. 3 OF THE APPEAL IS REGARDING THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES). THE ASSESSING OFFICER NO TED THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS. 1,44,731/- WHER EAS THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE U/S 14A OF THE ACT. ACCOR DINGLY THE ASSESSING OFFICER PROPOSED TO MAKE THE DISALLOWANCE U/S 14A R EAD WITH RULE 8D OF 16 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED THE RULES. THE ASSESSING OFFICER ACCORDINGLY, MADE DISALLOWANCE ON ACCOUNT OF INDIRECT INTEREST EXPENDITURE AS WELL AS INDIRECT ADMINISTRATIVE EXPENDITURE TOTAL AMOUNTING TO RS. 29,49,629/-. 8. ON APPEAL, THE LD CIT(A) HAS DELETED THE DISALLO WANCE MADE BY THE ASSESSING OFFICER BY FOLLOWING THE ORDER FOR THE A. Y. 2007-08. 9. WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD DR HAS SUBMITTED THAT FOR THE YEAR UNDER CONSIDERATION, RULE 8D IS APPLIC ABLE WHEREAS FOR THE EARLIER ASSESSMENT YEAR, THE DISALLOWANCE U/S 14A W AS NOT GOVERNED BY RULE 8D OF THE RULES. HENCE, THE EARLIER ORDERS OF THIS TRIBUNAL ARE NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. 9.1 ON THE OTHER HAND, THE LD AR OF THE ASSESSEE HA S SUBMITTED THAT THE ENTIRE INVESTMENT WAS MADE IN THE EARLIER YEARS AND THEREFORE, ONCE IT WAS FOUND THAT NO INTEREST BEARING FUNDS WERE USED FOR MAKING THE INVESTMENT IN THE SHARES THEN NO DISALLOWANCE IS C ALLED FOR ON ACCOUNT OF INTEREST EXPENDITURE. HE HAS FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THERE IS REDUCTION IN THE INVESTMENT MADE IN THE EARLIER YEARS AND HENCE EVEN OTHERWISE THERE IS NO INCREASE IN THE INVESTMENT AND WHEN NO DISALLOWANCE WAS IN THE EARLIER YEAR AS DELETED BY THE LD. CIT(A) AS WELL AS THIS TRIBUNAL, WHICH HAS BEEN UPH ELD BY THE HON'BLE HIGH COURT THEN THERE CANNOT BE ANY DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES. FURTHER THE ASSESSEE HAS NOT INCURRED ANY OTHER EXPENDITURE 17 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED FOR EARNING THE DIVIDEND INCOME THEN IN ABSENCE OF THE ASSESSING OFFICER IDENTIFYING SPECIFYING EXPENDITURE, NO DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. 9.2 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT FOR THE A.Y. 2007- 08,THIS TRIBUNAL HAS CONSIDERED AND DECIDED AN IDENTICAL ISSUE IN PARA 2 5 AS UNDER: 25. WE HAVE HEARD THE ID. D/R AS WELL AS THE ID. A/R AN D CONSIDERED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE TH AT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION AS IT I S APPLICABLE FOR THE ASSESSMENT YEAR 2008-09 AS HELD BY THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 32 8 ITR 81 (BOMBAY) AS WELL AS BY HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WALFORT SHARE & STOCK BROKERS PVT. LTD. 326 ITR 001 (SC). FURTHER, THE LD. A/R HAS SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO FOR THE ASSESSMENT YEAR 2006-07 AS WELL AS FOR THE ASSESSMENT YEAR 2010-11 HAS BEEN DELETED BY THIS TRIBUNAL WHICH HAS BEEN CONFIRMED BY THE HON'B LE JURISDICTIONAL HIGH COURT. THE ID. A/R HAS ALSO REFERRED TO THE DETAILS OF AVAILABILITY OF ASSESSEE'S OWN INTEREST FREE FUNDS FOR INVESTMENT A ND FURTHER CONTENDED THAT THE PROFIT OF THE ASSESSEE DURING THE YEAR IS MORE THAN THE INVESTMENT MADE DURING THE YEAR AND, THEREFORE, NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF INTEREST EXPENDITURE UNDER SECTION 14A. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE REL EVANT MATERIAL ON RECORD, WE NOTE THAT THE ID. CIT (A) HAS CONSIDERED THIS ISSUE IN PARA 6.1 AND 6.2 AS UNDER :- 6.1 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. THE APPELLANT HAS FILED A STATEMENT SHOWING THE ANNUAL INCREASE I N THE INTEREST FREE FUNDS AND INVESTMENT IN THE SHARES, INCOME THEREOF BOTH WERE TAXABLE AND NON-TAXABLE AND A STATEMENT SHOWING THE ANNUAL INCREASE IN THE INTEREST BEARING FUNDS IN THE FORM OF SECURED AND U NSECURED LOANS AND WORKING CAPITAL LIMITS AND THEIR INVESTMENT IN THE CURRENT ASSETS TO 18 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED EVIDENCE THE FACT THAT THE INVESTMENT IN THE SHARES HAD COME FROM THE NON-INTEREST BEARING FUNDS ON YEAR TO YEAR BASIS FR OM FY 1998-99 TO FY 2006-07. IN FY 2000-01, THE APPELLANT COMPANY HAD M ADE INVESTMENTS OF RS 179.1 LAKHS IN SHARES OUT OF OPENING RESERVE AND SURPLUS OF RS 2143.29 LAKHS AND INTEREST FREE FUNDS OF RS 143.33 LAKHS. I N FY 2003-04, THE APPELLANT COMPANY HAD MADE INVESTMENTS OF RS 412.02 LAKHS IN SHARES OUT OF OPENING RESERVE AND SURPLUS OF RS 3281.59 LA KHS AND INTEREST FREE FUNDS OF RS 423.01 LAKHS. IN FY 2005-06, THE APPELL ANT COMPANY HAD MADE INVESTMENTS OF RS 218.47 LAKHS IN SHARES OUT O F OPENING RESERVE AND SURPLUS OF RS 3979.39 LAKHS AND INTEREST FREE F UNDS OF RS 245.3 LAKHS. SIMILARLY IN FY 2006-07, THE APPELLANT COMPANY HAD MADE INVESTMENTS OF RS 268.24 LAKHS IN SHARES OUT OF OPENING RESERVE AN D SURPLUS OF RS 4213.43 LAKHS AND INTEREST FREE FUNDS OF RS 688.76 LAKHS. ON THE OTHER HAND, THE UNSECURED LOANS AND WORKING CAPITAL LOANS STOOD INVESTED IN THE STOCK AND CURRENT DEBTORS. 6.2 IT WAS HELD BY HON'BLE SUPREME COURT IN THE CASE OF CIT VS WALFORT SHARES & STOCK BROKERS PVT. LTD (326 ITR 1) THAT FOR ATTRACTING SECTION 14A, THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE WHICH IS ITS RELATIONSHIP WITH THE TAX EXEMPT INCOME. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CU VS HERO CYCLES LTD (323 ITR 518) HELD THAT MERELY BECAUSE THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE ON BORROWED FUNDS, IT WOULD NOT IPSO FA CTO INVITE THE DISALLOWANCE U/S 14A UNLESS THERE WAS EVIDENCE TO S HOW THAT SUCH INTEREST BEARING FUNDS HAD BEEN INVESTED IN SHARES WHICH HAD GENERATED DIVIDEND INCOME. HENCE DISALLOWANCE U/S 14A WAS NOT SUSTAINABLE. IN THE PRESENT CASE, THE INTEREST EXPENSES WERE INCURRED O N WORKING CAPITAL LIMITS AND TERM LOANS TAKEN FROM SBBJ AGAINST HYPOT HECATION OF STOCK, DEBTORS AND PLANT AND MACHINERY. THE TOTAL WORKING CAPITAL LOAN AND UNSECURED LOANS OUTSTANDING AS ON 31.03.2007 WERE O F RS 5266.48 LAKHS AS AGAINST THAT THE INVESTMENT IN STOCK AND DEBTORS WAS AT RS 10299.84 LAKHS. THUS THE ENTIRE LOAN WAS UTILIZED FOR THE PU RPOSE OF BUSINESS. THE INVESTMENTS WERE MADE IN SHARES IN THE EARLIER YEAR S OUT OF RESERVE & SURPLUS AND OUT OF INTEREST FREE FUNDS. THE APPELLA NT WAS HAVING SHARE CAPITAL OF RS 320.19 LAKHS & RESERVE AND SURPLUS OF RS 4902.19 LAKHS WHEREAS THE INVESTMENT IN SHARES WAS AT RS 1097.34 LAKHS. THUS INTEREST FREE FUNDS OF RS 5222.38 LAKHS AVAILABLE WITH THE A PPELLANT COMPANY WERE MUCH MORE THAN THE INVESTMENT OF RS 1097.34 LAKHS I N THE SHARES. UNDER THESE CIRCUMSTANCES, THE AO WAS NOT JUSTIFIED IN MA KING THE IMPUGNED DISALLOWANCE U/S 14A OF THE IT ACT. I THEREFORE DIR ECT THE AO TO DELETE THE ADDITION OF RS 27,53,062/-U/S 14A OF THE I T ACT. T HIS GROUND OF APPEAL IS ALLOWED.' THUS THE ID. CIT (A) HAS CONSIDERED THE AVAILABILIT Y OF INTEREST FREE FUNDS OF ASSESSEE BEING SHARE CAPITAL, RESERVE AND SURPLU S WHICH IS MUCH MORE 19 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED THAN THE INVESTMENT IN THE SHARES. FURTHER, WHEN RU LE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION, THE DI SALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES HAS TO BE MADE ON SOME R EASONABLE BASIS. ACCORDINGLY, IN VIEW OF THE ABOVE FACTS AND CIRCUMS TANCES OF THE CASE, WHEN THE ASSESSEE IS HAVING ITS OWN SUFFICIENT FUND S THEN NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF INTEREST E XPENDITURE. AS REGARDS THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPEN SES, WE ARE OF THE VIEW THAT 10% OF THE DIVIDEND INCOME WILL BE A REAS ONABLE AND PROPER ESTIMATE FOR DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF COMMON INDIRECT ADMINISTRATIVE EXPENSES FOR EARNING THE EXEMPT INCO ME UNDER SECTION 14A. HENCE THIS GROUND OF THE REVENUE'S APPEAL IS P ARTLY ALLOWED. THUS, IT IS CLEAR THAT AS FAR AS THE AVAILABILITY O F INTEREST FREE FUNDS FOR INVESTMENT IN SHARES, THE TRIBUNAL HAS ACCEPTED THE FACT THAT THE ASSESSEE WAS HAVING ITS OWN SUFFICIENT FUND AND NO DISALLOWA NCE IS CALLED FOR U/S 14A ON ACCOUNT OF INTEREST EXPENDITURE. AS REGARDS THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES, 10% OF DIVIDEND INCOME WAS CONSIDERED AS REASONABLE AND PROPER ESTIMATE FOR AL LOCATION OF THE EXPENDITURE ON ACCOUNT OF ANY INDIRECT ADMINISTRATI VE EXPENSES FOR EARNING THE EXEMPT INCOME. THERE IS NO DISPUTE THAT DURING THE YEAR UNDER CONSIDERATION, THE INVESTMENT IN SHARES HAS R EDUCED FROM 5.33 CRORES TO 3.79 CRORES. THEREFORE, AS FAR AS THE INT EREST EXPENDITURE TO BE DISALLOWED U/S 14A READ WITH RULE 8D IS CONCERNED W HEN IT WAS ALREADY FOUND THAT THE ASSESSEE WAS HAVING SUFFICIENT FUNDS OF ITS OWN AND FURTHER THERE IS REDUCTION IN THE INVESTMENT DURING THE YEA R THEN NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF INTEREST EXPENDITURE. A S REGARDS THE 20 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED DISALLOWANCE ON ACCOUNT OF INDIRECT ADMINISTRATIVE EXPENSES, WE FIND THAT FOR THE YEAR UNDER CONSIDERATION, RULE 8D IS APPLIC ABLE. HOWEVER, THE EXPENDITURE ALLOCABLE FOR EARNING EXEMPT INCOME CAN NOT BE MORE THAT THE EXEMPT INCOME EARNED DURING THE YEAR UNDER CONSIDER ATION. ACCORDINGLY, WE RESTRICT THE DISALLOWANCE MADE U/S 14A OF THE AC T TO THE EXTENT OF THE DIVIDEND INCOME OF RS. 1,44,730/-. HENCE, THIS GROU ND OF REVENUES APPEAL IS PARTLY ALLOWED. 10. GROUND NO. 4 OF THE REVENUES APPEAL AND GROUND NO. 1 OF THE C.O. OF THE ASSESSEE RAISED A COMMON ISSUE REGARDING DIS ALLOWANCE OF MISCELLANEOUS EXPENDITURE OF RS. 3,70,339/- MADE BY THE ASSESSING OFFICER, WHICH WAS RESTRICTED BY THE LD. CIT(A) TO RS. 56,397/-. 11. WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08 IN PARA 7.2 TO 8 AS UNDER: 7.2 WE HAVE HEARD THE ID. D/R AS WELL AS THE ID. A/R AN D CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ID. D/R HAS SUBMIT TED THAT THE AO HAS CLEARLY MADE OUT THE CASE THAT THE ASSESSEE HAS NOT FULLY VOUCHED THE EXPENSES AND SUPPORTED BY SELF MADE VOUCHERS AND, T HEREFORE, THE AO WAS JUSTIFIED IN MAKING THE DISALLOWANCE OF 10% OF THE EXPENSES. HE HAS RELIED UPON THE ORDER OF THE AO. 7.3 ON THE OTHER HAND, THE A/R OF THE ASSESSEE HAS SUBMITTED THAT WHEN THE ASSESSEE HAS DULY EXPLAINED THE NATURE OF EXPENSES WHICH HAVE BEEN 21 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED INCURRED FULLY AND FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE, THEN SUSTAINING THE DISALLOWANCE TO THE EXTENT OF 10% OF THE EXPENSES INCURRED IN CASH IS NOT JUSTIFIED. 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE ID. CIT (A) HAS CONSIDE RED THIS ISSUE IN PARA 5.1 AS UNDER :- '5.1 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE COUNSEL OF APP ELLANT HAS BROUGHT TO MY ATTENTION THAT MISC. EXPENSES INCLUDED PAYMENTS OF RS 20,93,568/- MADE FOR TEA, REFRESHMENTS, COLD DRINKS AND SWEETS TO EMPLOYEES AND CUSTOMERS AND FBT HAD BEEN PAID ON THE PORTION RELA TING TO EMPLOYEES. IT IS EVIDENT THAT THE AO WAS UNDER ERRONEOUS BELIEF THAT THE ENTIRE AMOUNT HAD BEEN INCURRED ON THE CUSTOMERS. MOREOVER IT ALSO IN CLUDED LICENCE AND INSPECTION FEES OF RS 2,28,680/-, SUBSCRIPTION FEES OF RS. 1,32,110/-, ELECTRICITY CHARGES OF RS. 92,190/-, ANNUAL LISTING FEES OF RS 14,590/- AND BOOKS AND PERIODICALS. FURTHER THESE EXPENSES WERE FULLY VOUCHED AND THE AO HAD NOT CITED ANY SPECIFIC INSTANCE WHERE THE EX PENDITURE WAS UNVOUCHED. ON GOING THROUGH THE LEDGER ACCOUNT, IT IS SEEN THAT OUT OF TOTAL EXPENSES OF RS 25,03,119/-, AN AMOUNT OF RS 7,41,32 2/- HAD BEEN PAID IN CASH AND REMAINING AMOUNT OF RS. 17,61,797/- HAD BE EN PAID THROUGH ACCOUNT PAYEE CHEQUES. IN VIEW OF THE ABOVE FACTS, THE DISALLOWANCE OF RS 2,50,312/- MADE BY THE AO WAS ON THE HIGHER SIDE. I T IS AN UNDISPUTED FACT THAT SMALL TIME VENDORS DO NOT ISSUE PROPER BILLS/M EMOS AND IN SUCH CASES, THE PAYMENTS ARE MADE THROUGH INTERNAL VOUCHERS. TH E APPELLANT CANNOT BE PENALIZED SO HEAVILY FOR SUCH A FAILURE. CONSIDERIN G THE FACTS OF THE PRESENT CASE, I AM OF THE OPINION THAT DISALLOWANCE TO THE EXTENT OF 10% OUT OF EXPENSES OF RS 7,41,322/- INCURRED IN CASH, WOULD M EET THE ENDS OF JUSTICE. I THEREFORE DIRECT THE AO TO RESTRICT THE ADDITION ON THIS ACCOUNT TO RS 74,132/- INSTEAD OF RS 2,50,312/- MADE BY HER THIS GROUND OF APPEAL IS PARTLY ALLOWED.' IT IS CLEAR THAT OUT OF EXPENDITURE OF RS. 25,03,11 9/-, THE ASSESSEE HAS PAID FBT IN RESPECT OF THE EXPENDITURE INCURRED FOR TEA, REFRESHMENTS, COLD DRINKS, SWEETS TO THE EMPLOYEES AND CUSTOMERS TOTAL AMOUNTING TO RS. 20,93,568/-. FURTHER, THE REMAINING EXPENDITURE WAS INCURRED ON ACCOUNT OF LICENCE AND INSPECTION FEES, SUBSCRIPTIO N FEE, ELECTRICITY CHARGES, ANNUAL LISTING FEES, BOOKS & PERIODICALS. T HEREFORE, THOUGH THE ASSESSEE HAS INCURRED THE EXPENDITURE IN CASH TO TH E EXTENT OF RS. 22 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED 7,41,322/-, HOWEVER, MAJORITY OF THE SAID AMOUNT OF RS. 7,41,322/- HAS BEEN INCURRED FOR TEA, REFRESHMENTS, COLD DRINKS AN D SWEETS TO THE EMPLOYEES AND CUSTOMERS. SO FAR AS THE EXPENDITURE INCURRED TOWARDS FRINGE BENEFITS TO EMPLOYEES, THE ASSESSEE HAS ALRE ADY PAID THE FBT AND ACCORDINGLY BY CONSIDERING THIS FACT, WE RESTRICT T HE DISALLOWANCE OF THE EXPENDITURE INCURRED IN CASH TO 5% INSTEAD OF 10% S USTAINED BY ID. CIT (A). IN THE RESULT, GROUND NO. 2 OF THE REVENUE'S A PPEAL IS DISMISSED AND GROUND NO. 2 OF THE CROSS OBJECTION IS PARTLY ALLOW ED. THUS, THE TRIBUNAL FOR THE A.Y. 2007-08 HAS RESTRIC TED THE DISALLOWANCE OF MISC. EXPENSES INCURRED IN CASH TO 5%. FOR THE YEAR UNDER CONSIDERATION, THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE ONLY IN RESPECT OF CASH EXPENSES TO 10%. FOLLOWING THE EARLIER ORDER OF THI S TRIBUNAL WE RESTRICT THE DISALLOWANCE MADE BY THE LD. CIT(A) TO 5% AND C ONSEQUENTLY GROUND NO. 1 OF THE C.O. IS PARTLY ALLOWED THE GROUND NO. 4 OF THE REVENUES APPEAL STANDS DISMISSED. 12. GROUND NO. 5 OF THE REVENUES APPEAL IS REGARDI NG THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PRINTIN G AND STATIONARY EXPENSES, WHICH WAS RESTRICTED BY THE LD. CIT(A) TO 10%. 13. WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08 IN PARA 9.2 AS UNDER: 23 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED 9.2 WE HAVE HEARD THE ID. D/R AS WELL AS THE ID. A /R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ID. CIT (A) HAS DE ALT WITH THIS ISSUE IN PARA 5.2 AS UNDER :- '5.2 ON GOING THROUGH THE LEDGER ACCOUNT OF PRINTIN G AND STATIONERY EXPENSES, IT IS SEEN THAT OUT OF TOTAL EXPENSES OF RS 8,99,252/-, A MEAGER AMOUNT OF RS 34,670/- ONLY WAS PAID IN CASH. THE MA JORITY OF THE EXPENDITURE WAS SETTLED THROUGH ACCOUNT PAYEE CHEQU ES. IT WAS NOT THE CASE OF THE AO THAT THE EXPENSES WERE UNREASONABLE OR EXCESSIVE LOOKING TO THE TURNOVER OF THE APPELLANT COMPANY. THE APPELLAN T HAD MAINTAINED COMPLETE BILLS/SUPPORTING FOR THE PRINTING & STATIO NERY EXPENSES OF RS 8,99,252/-. THE EXPENDITURE WAS INCURRED OUT OF BUS INESS EXPEDIENCY AND THE AO HAD FAILED TO POINT OUT ANY DISCREPANCY IN T HE VOUCHERS MAINTAINED BY THE APPELLANT. THE DISALLOWANCE HAD BEEN MADE IN A ROUTINE MANNER AND WAS THEREFORE NOT SUSTAINABLE. I THEREFORE DIRECT T HE AO TO DELETE THE ADDITION OF RS 1,00,000/- ON ACCOUNT OF PRINTING & STATIONERY EXPENSES MADE BY HER. THIS GROUND OF APPEAL IS ALLOWED.' THE ID. CIT (A) HAS DELETED THE DISALLOWANCE BY CON SIDERING THE FACT THAT THE ASSESSEE HAS MAINTAINED COMPLETE BILLS/SUPPORTI NG VOUCHERS FOR THE EXPENDITURE INCURRED ON ACCOUNT OF PRINTING AND STA TIONARY. FURTHER, THE EXPENDITURE WAS INCURRED OUT OF BUSINESS EXPEDIENCY AND IN THE ABSENCE OF ANY DISCREPANCY IN THE VOUCHERS MAINTAINED BY TH E ASSESSEE, THE DISALLOWANCE IS UNCALLED FOR. WE DO NOT FIND ANY ER ROR OR ILLEGALITY IN THE ORDER OF ID. CIT (A) IN DELETING THE DISALLOWANCE M ADE BY THE A.O. IN VIEW OF THE EARLIER ORDER OF THIS TRIBUNAL, WE D O NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LD. CIT(A) QUA THIS ISSUE. HENCE, THIS GROUND OF REVENUES APPEAL STANDS DISMISSED. 14. GROUND NO. 6 OF THE REVENUES APPEAL IS REGARDI NG DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PACKAGI NG EXPENSES. WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF THE AS SESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT AN ID ENTICAL ISSUE WAS 24 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08 IN PARA 19 AS UNDER: 19. WE HAVE HEARD ID. D/R AS WELL AS THE ID. A/R A ND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ID. CIT (A) HAS CONSIDERED THIS ISSUE IN PARA 5.7 AS UNDER:- '5.7 THE AO HAD ALSO DISALLOWED AN AMOUNT OF RS 50, 00,000/- OUT OF PACKING MATERIAL EXPENSES ON THE GROUND THAT THE AP PELLANT COMPANY DID NOT MAINTAIN THE QUANTITATIVE DETAILS OF PACKING MA TERIAL. HOWEVER IT WAS AN UNDISPUTED FACT THAT THE APPELLANT HAD MAINTAINE D RECORDS FOR QUANTITATIVE DETAILS OF PACKING MATERIAL. FURTHER T HE PERCENTAGE OF PACKING MATERIAL EXPENSES VIS-A-VIS TURNOVER WAS AT 4.32% I N THE YEAR UNDER REFERENCE. THE SAME WAS LOWER IN COMPARISON TO 4.96 % IN AY 2006-07 AND 4.37% IN AY 2005-06. I FURTHER FIND THAT SIMILAR AD DITION ON ACCOUNT OF DISALLOWANCE OUT OF PACKING MATERIAL EXPENSES FOR A Y 2005-06 HAD BEEN DELETED BY MY PREDECESSOR AND HON'BLE JAIPUR TRIBUN AL IN ORDER ITA NO 599/JP/2011 DATED 25.02.2011. THE AO HAS NOT POINTE D OUT ANY MATERIAL DISCREPANCY IN THE RECORDS MAINTAINED BY THE APPELL ANT BEFORE MAKING SUCH A HUGE ADDITION OF RS 50,00,000/-. NO INQUIRIES OF ANY SORT WERE MADE FROM THE SUPPLIERS OF PACKAGING MATERIAL. THE APPELLANT HAD MADE THE PAYMENTS THROUGH BANKING CHANNELS AND COMPLETE BILLS/SUPPORT ING WERE AVAILABLE. IT WAS HELD BY HONOURABLE MUMBAI TRIBUNAL IN THE CASE OF ARTHUR & ANDERSON & CO. VS ADDL. CIT (2010-TIOL-416-ITAT) THAT THE VERY CONCEPT OF TOKEN DISALLOWANCE WAS BAD IN LAW, BECAUSE SUCH A DISALLOWANCE WAS INHERENTLY BASED ON SURMISES AND C ONJECTURES AND DEVOID OF A LEGALLY SUSTAINABLE FOUNDATION. IT WAS A CASE WHERE ONE ACCEPTED ALL THE CONTENTIONS BUT NOT THE CONSEQUENCES FLOWING FR OM ACCEPTING THE SAME. THIS COULD NOT MEET APPROVAL. NO PARTICULAR INFORMA TION HAD BEEN CALLED FOR BY THE AO NOR HAD THE AO POINTED OUT ANY DEFICIENCY IN THE DETAILS FURNISHED BY THE ASSESSEE. THE AO HAD NOT GIVEN ANY JUSTIFIAB LE REASONS FOR MAKING ADHOC DISALLOWANCES WITHOUT SOUND BASIS OR REASON. THIS COULD NOT BE PERMITTED. THE CIT(A) HAD ALSO NOT JUDICIOUSLY DEAL T WITH THE MATTER. NO DISALLOWANCE COULD BE MADE JUST FOR THE SAKE OF DIS ALLOWANCE. IN VIEW OF THE LACK OF PROPER APPRECIATION OF THE FACTS AND LACK O F INVESTIGATION AND PROPER REASONING, THE DISALLOWANCE WAS DELETED. IN THE PRE SENT CASE ALSO, IT IS CLEAR THAT THE AO HAD MADE THE IMPUGNED DISALLOWANCE ON C ONJECTURES AND SURMISES. THE ADDITION MADE BY THE AO HAS NO LEGS T O STAND AND SAME IS ACCORDINGLY DELETED. THIS GROUND OF APPEAL IS ALLOW ED.' THUS THE ID. CIT (A) HAS TAKEN NOTE OF THE FACT THA T THE EXPENDITURE FOR THE YEAR UNDER CONSIDERATION IS AT 4.32% OF THE TUR NOVER IN COMPARISON TO 25 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED 4.96% FOR THE ASSESSMENT YEAR 2006-07 AND 4.37% FOR THE ASSESSMENT YEAR 2005-06. FURTHER, THE ADDITION MADE BY THE AO IN THIS RESPECT FOR THE ASSESSMENT YEAR 2005-06 WAS DELETED BY THE TRIB UNAL IN ASSESSEE'S OWN CASE. THE FACTUAL DETAILS GIVEN BY ID. CIT (A) HAVE NOT BEEN CONTROVERTED BEFORE US. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF ID. CIT (A) QUA THIS ISSUE. IN VIEW OF THE EARLIER ORDER OF THIS TRIBUNAL, WE D O NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LD. CIT(A) QUA THIS ISSUE. HENCE, THIS GROUND OF REVENUES APPEAL STANDS DISMISSED. 15. NOW WE TAKE UP THE C.O. OF THE ASSESSEE, WHEREI N THE FOLLOWING GROUNDS HAVE BEEN RAISED. 01. THAT LD. CIT(A) HAS ERRED ON THE FACTS AND CIR CUMSTANCES OF THE CASE IN SUSTAINING A DISALLOWANCE OF RS. 56397.00 O UT OF MISC. EXP. 02. THAT THE LD. CIT(A) HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN SUSTAINING THE DISALLOWANCE OF RS. 8250.00 ON ACCOUNT OF DONATION. 03. THAT THE ASSESSEE RESERVES ITS RIGHTS TO ADD, A LTER, AMEND AND MODIFY ALL OR ANY OF THE CROSS OBJECTION BEFORE OR AT THE TIME OF HEARING OF APPEAL. 16. GROUND NO. 1 OF THE C.O. STANDS DISPOSED OFF AL ONGWITH GROUND NO. 4 OF THE REVENUES APPEAL AND ACCORDINGLY PARTLY AL LOWED. 17. GROUND NO. 2 OF THE C.O. IS REGARDING THE DISAL LOWANCE MADE ON ACCOUNT OF DONATION. AT THE TIME OF HEARING, THE LD AR OF THE ASSESSEE HAS SUBMITTED AT BAR THAT THE ASSESSEE DOES NOT PRESS G ROUND NO. 2 OF THE C.O. AND THE SAME MAY BE DISMISSED AS NOT PRESSED. 26 ITA NO. 292/JP/2014 & CO 12/JP/2014 ACIT VS. M/S VIJAY SOLVEX LIMITED 18. THE LD DR HAS NOT RAISED ANY OBJECTION IF THE G ROUND NO. 2 OF THE C.O. IS NOT PRESSED. ACCORDINGLY, GROUND NO. 2 OF T HE C.O. IS DISMISSED BEING NOT PRESSED. 19. IN THE RESULT, REVENUES APPEAL AS WELL AS THE C.O. OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/08/2018. SD/- SD/- FOE FLAG ;KNO FOT; IKY JKO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 24 TH AUGUST, 2018 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE A.C.I.T., CIRCLE-2, ALWAR. 2. IZR;FKHZ@ THE RESPONDENT- M/S VIJAY SOLVEX LIMITED, ALWAR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K]T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 292/JP/2014 & C.O. 12/JP/2014 ) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR