Navketan Pvt. Ltd., Kolkata V. DCIT, Circle - 1, Kolkata, Kolkata

CO 2/KOL/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 5766 (ITAT-KOLKATA)
• Duration Of Justice: 1 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P KOLHE
• Assessee Lawyers: D K KOTHARI
• Keywords: Capital asset; Depreciation; Business expenditure; Earning of tax free income; Capital expenditure
• Section: 14A; 32; 37

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA () BEFORE . . . . . . . . , , , , , !'# !'# !'# !'# /AND . .. . . .. .' '' ' , $ ) [BEFORE HONBLE SRI D. K. TYAGI, JM & HONBLE SRI C . D. RAO, AM] #% #% #% #% / I.T.A NO. 2111/KOL/2010 &' '() &' '() &' '() &' '()/ // / ASSESSMENT YEAR : 2007-08 DEPUTY COMMISSIONER OF INCOME-TAX, -VS- M/S. NAV KETAN PVT. LTD. CIRCLE-1, KOLKATA. (PA NO.AABCN 1262 F) ( +, /APPELLANT ) (-+,/ RESPONDENT ) & C.O. NO. 2/KOL/2011 IN #% #% #% #% / I.T.A NO. 2111/KOL/2010 &' '() &' '() &' '() &' '()/ // / ASSESSMENT YEAR : 2007-08 NAVKETAN PVT. LTD. -VS- DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLKATA. (CROSS OBJECTOR) (-+,/ RESPONDENT ) FOR THE REVENUE : SRI P. KOLHE FOR THE ASSESSEE : SRI D. K. KOTHARI . / ORDER PER D. K. TYAGI, JM ( . . . . . . . . , , , , ) THIS APPEAL AND THE CROSS OBJECTION FILED BY THE RE VENUE AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) , KOLKATA DATED 25.08.2010 FOR ASSESSMENT YEAR 2007-08. BOTH THESE APPEAL AND THE CROSS OBJECTION ARE DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE . ITA NO.2111/KOL/2010 (REVENUES APPEAL) 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL : I) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (APPEALS) HAS ERRED IN ALLOWING DEPRECIATION U/S. 32, WHEN THE FIXED A SSETS OF THE ASSESSEE WAS NOT USED DURING THE PREVIOUS YEAR AND REMAINED IDLE AND THE RE WAS NO DIRECT OR INDIRECT CONTROL OF THE ASSESSEE OVER THE ASSETS AS IT WAS UNDER THE CUSTODIAN CONTROL OF RAILWAY AUTHORITY. 2 II) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.1,16,029/- BEING E XPENDITURE RELATED TO CAPITAL ASSET BY OBSERVING THAT THE ASSET WAS PURCHASED FOR TRADING WHEN ASSESSEE ADMITTED DURING THE COURSE OF HEARING THAT THE ASSET WAS IMPORTED FOR OWN MANUFACTURING PURPOSE. III) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.8,70,807/- ON ACCO UNT OF COMMISSION UNDER IRRELEVANT CONSIDERATIONS WHEN THERE IS NO EVIDENCE BROUGHT I N RECORD TO PROVE THAT THE COMMISSION AGENTS PROVIDED GENUINE SERVICES WHICH ARE WHOLLY AND EXCLUSIVELY RELATED TO THE COMMERCIAL NEED OF THE BUSINESS. IV) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.3,48,020/- ON ACCO UNT OF ACCRUED INTEREST ON FIXED DEPOSIT BY SAYING THAT SUCH ACCRUED INTEREST IS CO NTINGENT IN NATURE WHEN ASSESSEE ITSELF IS REGULARLY SHOWING INCOME FROM FIXED DEPO SIT ON ACCRUAL BASIS. 2. IN RESPECT OF GROUND NO. (I) BRIEFLY STATED FACT S OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED DEPRECIATION OF RS.12,06,558/- O N ACCOUNT OF PLANT AND MACHINERY, TOOLS AND IMPLEMENTS AND ELECTRIC MOTOR SINCE HE FO UND FROM EXAMINATION OF THE ACCOUNTS THAT THERE WAS NO MANUFACTURING ACTIVITY O F THE ASSESSEE DURING THE PREVIOUS YEAR AND THE ASSESSEE WAS NOT ENGAGED IN ANY MANUFA CTURING, SALES OR SERVICES DURING THE YEAR. HE ALSO OBSERVED THAT DURING THE PREVIOUS YEAR NO RAW MATERIAL WAS PURCHASED. ASSETS WERE RELEASED FROM RAILWAY AUTHORITY ONLY ON 2.4.2007 I.E. FY 2007-08. THE TAX AUDITOR HAS ALSO REPORTED IN FORM 3CD THAT THER E WAS NO MANUFACTURING DURING THE YEAR. IN APPEAL, THE LD. CIT(A) DELETED THE ADDITIO N. AGGRIEVED BY THE SAID ORDER, THE REVENUE IS IN APPEAL BEFORE US. 3. AT THE TIME OF HEARING BEFORE US, THE LD. DR REL IED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE LD. CIT(A) WAS WRONG IN ALLOWING DEPRECIATION U/S. 32 OF THE I. T. ACT WHEN THE FIXED ASSETS OF THE ASSESSEE WAS NOT USED DURING THE PREVIOUS YEAR AND REMAINED IDLE AND THERE WAS NO DIRECT OR INDIRE CT CONTROL OF THE ASSESSEE OVER THE ASSETS AS IT WAS UNDER THE CUSTODIAN OF RAILWAY AUT HORITY. HE, THEREFORE, URGED BEFORE THE BENCH TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THAT THE ASSESSING OFFICER. 4. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE WHILE REITERATING HIS SAME SUBMISSIONS AS SUBMITTED BEFORE THE LOWER AUTHORITI ES RELIED ON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE ASSETS IN QUESTION FO RMED PART OF BLOCK ASSETS THROUGHOUT THE PREVIOUS YEAR. THESE ARE OLD ASSETS BROUGHT FO RWARDED FROM PREVIOUS YEAR, HELD FOR BUSINESS AND CARRIED FORWARD TO NEXT YEAR, DEPRECIA TION HAS BEEN ALLOWED IN EARLIER YEARS 3 AND ALSO IN SUBSEQUENT YEARS AND, THEREFORE, DEPREC IATION IS ALLOWABLE IN THIS YEAR ALSO WITHOUT ANY QUESTION OR DOUBT. HE ALSO CONTENDED TH AT THE ASSETS CONTINUED TO BE OWNED AND USED FOR THE PURPOSE OF BUSINESS HENCE ELIGIBLE FOR DEPRECIATION ALLOWANCE. HE ALSO CONTENDED THAT THE ASSETS CONTINUED TO BE DEPLOYED AT WORK SITE, AT PLACE PROVIDED BY CUSTOMER AND FOR DOING THEIR WORK AS AND WHEN REQUI RED. DEPLOYMENT OF ASSETS AT THE SITE OF CUSTOMER ITSELF IS ENOUGH TO ESTABLISH THAT ASSETS WERE USED FOR THE PURPOSE OF BUSINESS. IT WAS ALSO NECESSARY TO KEEP THEM AT SI TE OF CUSTOMER TO MEET WARRANTY OBLIGATIONS IN RESPECT OF CONTRACTS EXECUTED IN EAR LIER YEARS. HE ALSO CONTENDED THAT IT WAS ADMITTED BY THE ASSESSING OFFICER THAT ASSETS W ERE RELEASED BY CUSTOMER ON 2.4.2007 THAT IS AFTER THE PREVIOUS YEAR ENDED ON 3 1.3.2007. THIS IS CLEAR ENOUGH THAT THE ASSETS WERE IN CONTINUOUS USE WHILE KEPT AT PRE MISES OF CUSTOMER FOR USE. HE LASTLY URGED BEFORE THE BENCH TO CONFIRM THE ACTION OF THE LD. CIT(A). 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL AVAILABLE ON RECORD. THE LD. CIT(A) HAS RIGHTLY ALLOWED THE DEPRECIATION ON THE ASSETS AS IT IS NOT IN DISPUTE THAT THE ASSETS WERE DEPLOYED BY THE ASSESSEE AT THE SIT E OF THE CUSTOMER TO MEET WARRANTY OBLIGATION IN RESPECT OF CONTRACTS EXECUTED BY IT IN EARLIER YEARS. THUS, THE ASSETS WERE IN CONTINUOUS USE AS AND WHEN REQUIRED BY THE CUSTO MER. THE FACT THAT THE DEPRECIATION WAS ALLOWED ON THESE ASSETS IN PREVIOUS AS WELL AS IN SUBSEQUENT YEARS WAS ALSO NOT DISPUTED BY THE REVENUE AT THE TIME OF HEARING BEFO RE US. IN VIEW OF THIS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF THE REVENUE IS, THEREFORE, DISMISSED. 6. GROUND NO. 2 IS IN RESPECT OF DELETING THE ADDIT ION OF RS.1,16,029/- BEING EXPENDITURE RELATED TO CAPITAL ASSET. BRIEFLY STAT ED FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER FOUND THAT THE EXPENSES WAS DEBIT ED TO THE P & L ACCOUNT AND 4 CLAIMED DEDUCTION U/S. 37 OF THE I. T. ACT. FROM T HE SUBMISSIONS AND EVIDENCE PRODUCED BY THE ASSESSEE, THE ASSESSING OFFICER FOU ND THAT THE PAYMENT WAS MADE TO CUSTOM AUTHORITY FOR KEEPING THE IMPORTED MACHINERY IN BONDED WAREHOUSE FOR BOND PERIOD AND EXTENDED PERIOD THEREAFTER. THE PURCHAS E PRICE OF THE MACHINERY WAS NOT PAID TO THE FOREIGN SUPPLIER. IT WAS RE-EXPORTED T O THE SUPPLIERS AFTER A CONSIDERABLE TIME. FROM THE ABOVE FACTS, THE ASSESSING OFFICER HELD THAT IT IS UNDOUBTEDLY PROVED THAT THE ASSESSEE NEVER OWNED THE MACHINERY AND OR IT WAS NEVER PUT TO USE FOR BUSINESS PURPOSE OF THE ASSESSEE. THUS EXPENDITURE RELATING TO THE ASSET IS CAPITAL IN NATURE NOT ALLOWABLE U/S. 37. DEPRECIATION IS ALSO NOT ALLOWA BLE ON SUCH CAPITAL EXPENDITURE AS THE ASSET WAS NEVER OWNED AND USED BY THE ASSESSEE. IN APPEAL, THE LD. CIT(A) DELETED THE ADDITION. AGGRIEVED BY THE SAID ORDER, NOW THE REV ENUE IS IN APPEAL BEFORE US. 7. AT THE TIME OF HEARING BEFORE US, THE LD. DR REL IED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE LD. CIT(A) WAS WRONG IN DELETING THE ADDITION OF RS.1,16,029/- BEING EXPENDITURE RELATED TO CAPITAL ASSET BY OBSERVING THAT THE ASSET WAS PURCHASED FOR TRADING WHEN ASSESSEE ADMITTED DURING THE COURSE OF HEARING THAT THE ASSET WAS IMPORTED FOR OWN MANUFACTURING PURPOSE. HE, THE REFORE, URGED BEFORE THE BENCH TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE T HAT OF THE ASSESSING OFFICER. 8. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE WHILE RELYING ON THE ORDER OF THE LD. CIT(A) SUBMITTED THAT ONE MACHINE NAMELY F LASH BUTT WELDING MACHINE WAS IMPORTED FOR ITS TRADING BUSINESS. ACCORDING TO TH E ASSESSEE THE MACHINE RETURNED WAS A LARGER MACHINE. DUE TO ITS SLOWING DOWN THE IMPORT ED MACHINE, WHICH IS OF A LARGE SIZE, COULD NOT BE SOLD. FINDING NO POSSIBILITY OF SELLI NG THE MACHINE IN THE NEAR FUTURE AT REMUNERATIVE PRICES, THE MACHINE WAS RETURNED TO AV OID FURTHER LOSSES ON VARIOUS ACCOUNTS AND ALSO TO REALIZE CAPITAL. HE ALSO CONTE NDED THAT IN CASE OF A TRADER IN MACHINES ANY MACHINE OR SIMILAR ASSET IS STOCK IN T RADE, UNTIL AND UNLESS IT IS PUT TO USE FOR ITS OWN BUSINESS. AS THE ASSESSEE DID NOT FIND CUSTOMERS FOR SALE OF THE MACHINES AND THERE WAS NO IMMEDIATE OPPORTUNITY AVAILABLE TO USE THE SAME FOR ITS OWN USE OR BY HIRING THE SAME TO OTHERS DUE TO A TEMPORARY LULL/S LOW DOWN IN RAILWAYS CONTRACTS, THE MACHINE WAS RETURNED TO THE SUPPLIER TO AVOID ANY F URTHER LOSSES. HE LASTLY CONCLUDED THAT THE EXPENSES IN CONNECTION WITH IMPORT AND RET URN OF THE MACHINE ARE OF REVENUE NATURE AND ARE ALLOWABLE EXPENSES OR ALLOWABLE AS L OSS INCIDENTAL TO BUSINESS. THE LD. 5 CIT(A) HAS, THEREFORE, RIGHTLY DELETED THE ADDITION BY HOLDING THAT THE EXPENSES WERE NORMAL BUSINESS EXPENDITURE ALLOWABLE AS REVENUE EX PENSES. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT WHILE MAKING THE DISALLOWANCE THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAS DEBITED EXPENSES TO P&L ACCOUNT. THE EXPENSES WAS DIRECTLY RELATED TO MACHINERY WHICH THE ASSESEE IMPORTED FROM CANADA AND THEREFORE, CAPITAL IN NATURE, NOT ALLOWABLE U/S. 37 OF THE I. T. ACT. WHILE DELE TING THE ADDITION, THE LD. CIT(A) HAS OBSERVED AS UNDER : I HAVE GONE THROUGH THE SUBMISSION FILED BY THE A PPELLANT AND THE ORDER OF THE A.O. AND AM OF THE CONSIDERED OPINION THAT EXPENDITURE INCURRED BY THE COMPANY ON THE RETURN OF THE MACHINE WAS NOT CAPITAL EXPENDITURE . THE ASSESSEE HAD NOT CAPITALIZED THE MACHINE AS FIXED ASSETS. EVEN VIDE NOTES TO TH E ACCOUNTS AND STATUTORY DISCLOSURE UNDER THE COMPANIES ACT THE ASSESSEE DID NOT HAVE ANY COMMITMENT ON CAPITAL ACCOUNT FOR THE YEAR AND IT THE IMMEDIATELY PRECEDING YEAR , THEREFORE, IT IS SOMEWHAT OF A PRESUMPTION OF THE A.O. THAT THE MACHINE WAS IMPOR TED ONLY FOR OWN USE AND ON CAPITAL ACCOUNT. IN VIEW OF THESE FACTS I HOLD THAT THE EX PENSES WERE NORMAL BUSINESS EXPENDITURE ALLOWABLE AS REVENUE EXPENSES. THIS G ROUND IS ALLOWED AND DISALLOWANCE OF RS.1,16,029/- IS DELETED. IN VIEW OF THE ABOVE AND IN THE ABSENCE OF ANY CONT RARY MATERIAL BROUGHT ON RECORD BY THE REVENUE AUTHORITIES, WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF APPEAL O F THE REVENUE IS, THEREFORE, DISMISSED. 10. GROUND NO. 3 IS RELATING TO DELETION OF ADDITIO N OF RS.8,70,807/- ON ACCOUNT OF COMMISSION. THE FACTS OF THE CASE ARE THAT THE ASS ESSING OFFICER DISALLOWED THE EXPENSES OF RS.8,70,807/- ON ACCOUNT OF COMMISSION PAYMENT AS THE SUBMISSIONS OF THE ASSESSEE WAS FOUND TO BE NOT ACCEPTABLE AS IT WAS N OT STATED ANYTHING ABOUT THE NATURE AND EXTENT OF SERVICES RENDERED BY COMMISSION AGENT S TO EFFECT SALE OF WELDING GENERATOR SET. THERE WAS ALSO NOTHING MENTIONED IN THE SALE BILLS THAT ASSESSEE PROCURED CERTAIN SERVICES FROM THOSE AGENTS TO JUSTIFY COMMI SSION PAYMENT. IN APPEAL, THE LD. CIT(A) DELETED THE ADDITION. AGGRIEVED BY THE SAID ORDER, THE REVENUE IS IN APPEAL BEFORE US. 11. AT THE TIME OF HEARING BEFORE US, THE LD. DR PL ACED HEAVY RELIANCE ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE LD. CIT(A) WAS UNJUST IN DELETING THE ADDITION OF RS.8,70,807/- ON ACCOUNT OF COMMISSION UNDER IRRELEVANT CONSIDERATIONS WHEN THERE IS NO EVIDENCE BROUGHT IN RECORD TO PROV E THAT THE COMMISSION AGENTS 6 PROVIDED GENUINE SERVICES WHICH ARE WHOLLY AND EXCL USIVELY RELATED TO THE COMMERCIAL NEED OF THE BUSINESS. HE, THEREFORE, URGED BEFORE T HE BENCH TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICE R. 12. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE PLACED HEAVY RELIANCE ON THE ORDER OF THE LD. CIT(A) AND URGED BEFORE THE BENCH TO CONFIRM THE SAME. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSING OFFICER MADE TH E DISALLOWANCE ON ACCOUNT OF PAYMENT OF COMMISSION AS THE ASSESSEE WAS UNABLE TO JUSTIFY THE PAYMENT OF COMMISSION WHICH WAS WHOLLY AND EXCLUSIVELY RELATE D TO BUSINESS PURPOSES. WE ALSO FIND THAT WHILE ALLOWING THE ASSESSEES CLAIM THE L D. CIT(A) HAS HELD AS UNDER : I HAVE CAREFULLY GONE THROUGH THE SUBMISSION OF TH E APPELLANT AS WELL AS THE ORDER OF THE A.O. THE PAYMENTS WERE MADE AGAINST BILLS D ULY PASSED BY THE OFFICERS OF COMPANY. THE PAYEES ARE ASSESSED TO INCOME TAX. A S EXPLAINED BEFORE A.O. AND BEFORE ME DIFFERENT NOMENCLATURE IS USED AND THERE IS NO DIFFERENCE IN WELDERS, WELDING PLANT AND WELDING GENSET. ALL THESE ARE MACHINES IN WHICH THE ASSESSEE DEALS. FURTHER AS EXPLAINED BY THE APPELLANT P. V. SHARAT BABU AND DEEJAY INDUSTRIES ARE REGULAR AGENTS OF THE COMPANY FOR SEVERAL YEARS AN D COMMISSION PAID TO THEM HAD ALWAYS BEEN ALLOWED. THIS HAS NOT BEEN DISPUTED B Y THE A.O. COMMISSION OF RS.1,04,082/- PAID TO KRISHNA KUMAR MUNDRA HUF HAD BEEN PAID FOR SERVICES AS AGENT. IT APPEARS THAT THE A.O. DID NOT CONSIDER THE SUBM ISSIONS OF THE ASSESSEE AND MADE THE ADDITIONS ON CERTAIN PRESUMPTIONS. IN CASE TH E ASSESSEE (BEING A COMPANY) THE DISCRETION OF ITS OFFICERS HAVE TO BE RELIED UPON BY THE ASSESSEE. THE PAYMENT BEING MADE IN THE NORMAL COURSE OF BUSINESS AND AFTER PR OPER AUTHORIZATION BY OFFICERS OF COMPANY AND WHEN THE ACCOUNTS OF ASSESSEE COMPANY BEING APPROVED BY THE BOARD OF DIRECTORS AND SHAREHOLDERS UNDER THE COMPANIES ACT THERE SHOULD GENERALLY BE NO REASON TO DOUBT THE APPELLANT. THIS GROUND OF APPEAL IS ALLOWED AND THE DISALLOW ANCE OF THE COMMISSION PAYMENT OF RS.8,70,807/- IS DELETED. SINCE THE ABOVE FINDING OF THE LD. CIT(A) REMAINED UNCONTROVERTED BEFORE US BY ADDUCING ANY COGENT MATERIAL ON BEHALF OF THE REVEN UE AUTHORITIES, WE DO NOT FIND ANY NECESSITY TO INTERFERE WITH THE ORDER OF THE LD. CI T(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF APPEAL OF THE REVENUE ALSO FAILS. 14. GROUND NO. 4 IS IN RESPECT OF DELETING THE ADDI TION OF RS.3,48,020/- ON ACCOUNT OF ACCRUED INTEREST ON FIXED DEPOSIT. BRIEFLY STATED FACTS AS STATED BY THE ASSESSING OFFICER ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF SCRUTINY PROCEEDINGS FOUND THAT ASSESSEE HAD NOT DECLARED INTEREST INCOME FROM EARN EST MONEY OF RS.38,66,880/- 7 DEPOSITED TO RAILWAY AUTHORITIES IN THE FORM OF BAN K FIXED DEPOSITS. SINCE THE ASSESSEE IS MAINTAINING MERCANTILE SYSTEM OF ACCOUNTING REGU LARLY INTEREST ON SUCH FIXED DEPOSITS IS ASSESSABLE ON ACCRUAL BASIS. HE, THEREFORE, ASS ESSED THE INTEREST INCOME @ 9% ON RS.38,66,680/- WHICH COMES TO RS.3,48,020/- AND ADD ED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL, THE LD. CIT(A) DELETED TH E SAID ADDITION. AGGRIEVED BY THE SAID ORDER, NOW THE REVENUE IS IN APPEAL BEFORE US. 15. AT THE TIME OF HEARING BEFORE US THE LD. DR WHI LE RELYING ON THE ORDER OF THE ASSESSING OFFICER SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.3,48,020/- ON ACCOUNT OF ACCRUED INTEREST ON FIX ED DEPOSIT BY SAYING THAT SUCH ACCRUED INTEREST IS CONTINGENT IN NATURE WHEN ASSES EE ITSELF IS REGULARLY SHOWING INCOME FROM FIXED DEPOSIT ON ACCRUAL BASIS. HE ALSO CONTEN DED THAT SINCE THE ASSESSEE REGULARLY EMPLOYED MERCANTILE SYSTEM OF ACCOUNTING, INTEREST ON CONSIDERATION FDS RS.1,45,923/- WAS SHOWN IN ACCOUNTS ON ACCRUAL BASIS, INTEREST IN COME FROM OTHERS HAVE BEEN CONTINUOUSLY SHOWING ON ACCRUAL BASIS, INTEREST EXP ENSES ARE ALSO CLAIMED IN THE ACCOUNTS ON DUE BASIS, INTEREST INCOME FROM EARNEST MONEY DEPOSIT WHICH ARE NOTHING BUT BANK FIXED DEPOSITS IS ALSO REQUIRED TO BE ASSE SSED ON ACCRUAL BASIS AND NOT ON ACTUAL RECEIPT/CASH BASIS. HE, THEREFORE, URGED BEFORE TH E BENCH TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. 16. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE WHILE REITERATING HIS SAME SUBMISSIONS AS SUBMITTED BEFORE THE LOWER AUTHORITI ES RELIED ON THE ORDER OF THE LD. CIT(A) AND URGED BEFORE THE BENCH TO CONFIRM THE SA ME. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD NOT DECLARED INTEREST INCOME FROM EARNEST MONEY OF RS.38,86,880/- DEPOSIT ED TO RAILWAY AUTHORITIES IN THE FORM OF BANK FIXED DEPOSITS. ACCORDING TO THE ASSE SSING OFFICER, AS THE ASSESSEE WAS MAINTAINING MERCANTILE SYSTEM OF ACCOUNTING REGULAR LY INTEREST ON SUCH FIXED DEPOSITS IS ASSESSABLE ON ACCRUAL BASIS. HE, THEREFORE, ASSESS ED THE INTEREST INCOME @ 9% ON RS.38,66,680/- WHICH COMES TO RS.3,48,020/- AND ADD ED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE LD. CIT(A) IN APPEAL WHILE DELET ING THE ADDITION HAS OBSERVED AS UNDER : I HAVE GONE THROUGH THE SUBMISSION AND DOCUMENTS F ILED BY THE APPELLANT AND FIND THAT ALL THE THREE FDRS ARE IN THE NAME OF THE RAILWAYS AND NOT THE APPELLANT. AS NOTED IN RESPECT OF DEPRECIATION ALLOWANCE THE ASSESSEE IS ALSO UNDER A WARRANTY OBLIGATION FOR 8 ONE YEAR AFTER COMPLETION OF THE PROJECTS. THEREFO RE, REALIZATION OF MONEY AGAINST EARNEST MONEY IS TOTALLY CONTINGENT. EVEN THE PRIN CIPAL AMOUNT MAY NOT HAVE BEEN AVAILABLE TO THE ASSESSEE, IF THE CUSTOMER WAS NOT FULLY SATISFIED ABOUT THE WORK AND THE DISCHARGE OF WARRANTY OBLIGATIONS. HENCE THERE IS NO QUESTION OF ACCRUAL OF ANY INTEREST INCOME UNTIL AND UNLESS THE CUSTOMER GIVES CLEARAN CE ABOUT SATISFACTION OF WORK AFTER THE WARRANTY IS OVER AND DISCHARGES AND RELEASES T HE EARNEST MONEY IN FAVOUR OF ASSESSEE. INTEREST ACCRUED TO APPELLANT ON RELEASE OF EARNES T MONEY HAS BEEN PROPERLY ACCOUNTED FOR FROM YEAR TO YEAR AND INCOME ACCRUING HAS BEEN DISCLOSED BY APPELLANT IN EARLIER YEARS, PREVIOUS YEAR AND SUBSEQUENT YEAR AS PER TH E METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE APPELLANT. THEREFORE, THE AO WAS N OT JUSTIFIED TO DISTURB THE ACCOUNTING METHOD. FURTHERMORE IT WAS ALSO CLAIMED THAT THERE IS MISTAKE IN AMOUNT CALCULATED BY THE AO. IN VIEW OF THE FACTS NARRATED ABOVE, THE ADDITION OF RS.3,48,020/- ON ACCOUNT OF ALLEGED ACCRUED INTEREST INCOME CANNOT BE SUSTAINED AND DE SERVES DELETION. THIS GROUND SUCCEEDS. IN VIEW OF THE ABOVE AND IN ABSENCE OF ANY COGENT M ATERIAL TO CONTROVERT THE ABOVE FINDINGS OF THE LD. CIT(A) BEING BROUGHT ON RECORD BY THE REVENUE AUTHORITIES, WE DO NOT WANT TO INTERFERE WITH HIS ORDER AND THE SAME I S HEREBY UPHELD. THE REVENUE, THEREFORE, FAILS ON THIS GROUND ALSO. C.O. NO. 2/KOL/2011 (ASSESSEES CROSS OBJECTION) 18. THE SOLE GROUND OF ASSESSEES CROSS OBJECTION I S IN RESPECT OF CONFIRMING THE DISALLOWANCE U/S. 14A AMOUNTING TO RS.35,329/-. AF TER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE F IND THAT THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEEDINGS FOUND THAT DURING TH E YEAR UNDER CONSIDERATION, THE ASSESEE HAS EARNED DIVIDEND INCOME, WHICH IS EXEMPT FROM TAX BUT PROPORTIONATE DISALLOWANCE OF ADMINISTRATIVE EXPENSES WAS NOT MAD E U/S. 14A IN THE COMPUTATION. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE PR O RATA EXPENSES ON EXEMPT INCOME OF RS.5,96,160/-, WHICH WORKS OUT TO RS.35,329/- U/S. 14A OF THE I. T. ACT. IN APPEAL, THE LD. CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFIC ER. BEING AGGRIEVED, THE ASSESSEE HAS FILED THIS CROSS OBJECTION BEFORE US. WE FURTHER FIND THAT ON THE ISSUE OF DISALLOWANCE U/S. 14A, THIS BENCH OF THE TRIBUNAL H AS BEEN TAKING A CONSISTENT VIEW THAT THIS DISALLOWANCE SHOULD BE RESTRICTED TO 1% OF DIVIDEND INCOME. FOLLOWING THE SAME, IN THIS APPEAL ALSO, WE HOLD TH AT THE DISALLOWANCE U/S 14A FOR EARNING EXEMPT DIVIDEND INCOME SHOULD BE RESTRICTED TO 1% OF DIVIDEND INCOME. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO DO SO AND WORK OUT THE QUANTUM 9 OF DISALLOWANCE. THIS GROUND OF CROSS OBJECTION OF THE ASSESSEE IS ALLOWED AS DIRECTED ABOVE. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. 20. ORDER IS PRONOUNCED IN THE OPEN COURT ON 11.2.2 011 SD/- SD/- . . ' , $ . . , (C. D. RAO) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER ( $ $ $ $) )) ) DATED : 11 TH FEBRUARY, 2011 '/0 &12 3' JD.(SR.P.S.) . 4 -5 65(7- COPY OF THE ORDER FORWARDED TO: 1 . +, / APPELLANT DCIT, CIRCLE-1, KOLKATA. 2 -+, / RESPONDENT, M/S. NAVKETAN PVT. LTD., 1, A.J.C. BO SE ROAD, KOLKATA-700 020. 3 . .& / THE CIT, KOLKATA 4. .& ( )/ THE CIT(A), KOLKATA. 5 . '= -& / DR, KOLKATA BENCHES, KOLKATA 5 -/ TRUE COPY, .&>/ BY ORDER, ? #2 /ASSTT. REGISTRAR .