INDIAN COAL AGENCY,KOLKATA V. DCIT, CIRCLE-35, KOLKATA, KOLKATA

ITA 868/KOL/2018

AI Insights

The case involves multiple appeals by the Indian Coal Agency against the orders of the Pr. CIT and the CIT(A) concerning the assessment years 2013-14 and 2015-16. The primary issues revolved around the computation of income, disallowances under section 14A, and the treatment of certain expenses and commissions. The Tribunal examined the arguments related to the erroneous computation of net profit, disallowances made under section 14A, and the payments made as commission to certain individuals. The Tribunal's decision highlighted the need for proper documentation and justification for the expenses claimed, particularly in the context of commissions and disallowances under specific rules.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 360551 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2015-2016
• Other Referred Cases: Commissioner of Income-tax vs. A. Krishnaswami Mudaliar, Commissioner of Income-tax vs. Motor Credit Co. (P.) Ltd., Lachminarayan Madan Lal vs. Commissioner of Income-tax, Sanjeevi & Co. v CIT, Aruna Mill Ltd. vs CIT, CIT vs. Walchand & Co. Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Set aside; Opportunity of being heard; Revised return; Business expenditure; Bad and doubtful debts; Corroborative evidences; Depreciation; Rule of consistency; Tax effect; Commercial expediency; TDS; Earning of tax free income; Assessment record; Rule 8D; Revision of order; Bogus
• Section: 144; 143(3); 142(1); 263; 271(1)(c); 12; 10; 14A; 37(1); 40(b)

Judgement Text

"आयकर अपीलीय अधिकरण कोलकाता 'सी' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘C’ BENCH, KOLKATA श्री संजय शमाा, न्याधयक सदस्य एवं श्री राक ेश धमश्रा, लेखा सदस्य क े समक्ष Before SONJOY SARMA, JUDICIAL MEMBER & SRI RAKESH MISHRA, ACCOUNTANT MEMBER I.T.A. No.: 867/KOL/2018 Assessment Year: 2013-14 Indian Coal Agency Vs. Pr. CIT, Circle-12, Kolkata (Appellant) (Respondent) PAN: AAAFI7134H I.T.A. No.: 868/KOL/2018 Assessment Year: 2015-16 Indian Coal Agency Vs. DCIT, Circle-35, Kolkata (Appellant) (Respondent) PAN: AAAFI7134H I.T.A. No.: 1258/KOL/2018 Assessment Year: 2015-16 DCIT, Circle-35, Kolkata Vs. Indian Coal Agency (Appellant) (Respondent) PAN: AAAFI7134H Appearances: Assessee represented by : S. Jhajharia, FCA. Department represented by : Praveen Kishore, Abhijit Kundu and Rakesh Kumar Das, CsIT(DR). Page | 2 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 2 of 28 Date of concluding the hearing : February 19th, 2025 Date of pronouncing the order : May 20th, 2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: The captioned appeal for A.Y. 2013-14 and cross appeals for A.Y. 2015-16 filed by the assessee and Revenue are against separate orders of the Pr. Commissioner of Income Tax, Kolkata-12, Kolkata [hereinafter referred to Ld. 'Pr. CIT'] for AY 2013-14 and Commissioner of Income Tax (Appeals)-10, Kolkata [hereinafter referred to as ld. 'CIT(A)'] for AY 2015-16. Since the assessee in both the appeals is common, the appeals were heard together and are being decided vide this common order for the sake of convenience and brevity 2. The assessee is in appeal before the Tribunal raising the following grounds of appeal: I. I.T.A. No.: 867/KOL/2018 Assessment Year: 2013-14: “1. That the learned CIT discussed what the terms \"erroneous\" and \"prejudicial\" means but did not discuss and was unable to prove how the instances provided by him have resulted in the assessment order passed by the ld. AO erroneous and prejudicial to the interests of the Revenue. 2. That the Appellant craves leave to add, amend, alter vary and / or withdraw any or all the above grounds of Appeal on or before the date of hearings.” 2.1 The assessee has raised additional grounds of appeal for AY 2013- 14 as follows: “1. For that in view of the facts and in the circumstances, Ld. PCIT was wholly unjustified in passing direction to AO to consider the net profit as per Profit & Loss Account at Rs. 31,75,58,239/- instead of Rs. 28,58,02,415/- whereas the correct figure was only Rs. 28,58,02,415/- and the same also Page | 3 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 3 of 28 been accepted by the AO in the order u/s 143(3)/263 and hence the AO, may kindly be directed accordingly. 2. For that in view of the facts and in the circumstances, Ld. PCIT was wholly unjustified in directing the AO to compute the disallowance u/s 14A in accordance with Rule 8D(2)(ii) & 8D(2)(iii) whereas the appellant himself had considered the impugned disallowance at Rs.18,94,454/- and hence the same can only be considered for such disallowance and it may be held accordingly. 3. Without prejudice to Ground No. 2 above, the Ld. PCIT erred in not appreciating the fact that the disallowance under sec. 14A read with Rule 8D(2)(ii) could not have been invoked in the matter since the appellant was having substantial capital of its own (Rs.148,27,74,222/-) as against investment of only Rs.43,45,97,241/- and hence the presumption taken by the Ld. PCIT for such direction for disallowance towards interest is bad in law and it may be held accordingly. 4. Without prejudice to Grounds No. 2 & 3 above, the Ld. PCIT erred in directing the AO to make disallowance u/s 14A read with Rule 8D(2)(iii) and such disallowance can only be in respect exempt from the investment out of which exempt income has been earned and hence it may be held accordingly. 5. Without prejudice to Grounds No. 2 to 4 above, no disallowance towards interest has been made by revenue in A.Ys. 2009-10, 2010-11, 2011-12, 2012-13 & 2014-15 and hence following principle of consistency disallowance for interest could not have been made and Ld. PCIT's direction in such respect is bad in law and it may be held accordingly. 6. For that in view of the facts and in the circumstances, Ld. PCIT's direction in directing the AO to disallow depreciation in motor car is bad in law since Hon'ble ITAT in ITA 464/K/18 for A.Y 2013-14 has deleted disallowance towards motor car expenses and hence such direction by Ld. PCIT is bad in law and it may be held accordingly. 7. For that in view of the facts and in the circumstances, Ld. PCIT's direction for disallowance of commission being Rs. 1,96,104/- (being differential sum) is bad in law and it may be held accordingly.” 2.2 II. I.T.A. No.: 868/KOL/2018 Assessment Year: 2015-16: “1. That the learned CIT Appeal erred in confirming disallowance of payment of rent of Rs. 21,00,000/- disregarding the method of accounting regularly followed by the appellant firm. Page | 4 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 4 of 28 2. That the learned CIT Appeal erred in confirming disallowance of payment of rent of Rs. 21,00,000/- on the surmises of large and proportionate business deduction remains unexplained whereas the Ld. Assessing officer had made disallowance on the surmises of advance rent. 3. That the Ld. CIT (Appeals) erred in confirming disallowance of payment of commission paid to Ms. Udita N Koya and Shri Naresh P Ojha on the ground that services rendered by these two persons were not proved. 4. That the Ld. CIT (Appeals) erred in not considering that Ms. Udita N Koya and Shri Naresh P Ojha had been rendering services to the appellant firm since Financial Year 1995-96 and payment of such commission has accepted in assessment of earlier years. 5. That the Appellant craves leave to add, amend, alter vary and/or withdraw any or all the above grounds of Appeal on or before the date of hearings.” 2.3 The Revenue, on the other hand has raised the following grounds of appeal: III. I.T.A. No.: 1258/KOL/2018 Assessment Year: 2015-16: “1) The Ld. CIT(A) has erred in facts & circumstances of the case treating the Laboratory Sampling Charges as reimbursement in nature and hence not liable for TDS. (2) In the facts & circumstances of case the Ld. CIT(A) has erred in not considering the fact that the assessee has advanced interest free loans though the assessee firm has taken unsecured loan on which the interest has been paid. The Ld. CIT(A) deviated from its own orders dated 18.12.2017 in the assessee's own case for A.Y. 2013-14 & Α.Υ. 2014-15 wherein the disallowance was confirmed on the same issue. (3) The Ld. CIT(A) has erred in facts & circumstances of the case that the disallowance u/s 14A is to be restricted to the extent of exempt income in violation of the Hon'ble CBDT vide its Circular No. 5/2014 dated 11.02.2014 wherein it was clarified that the disallowance u/s 14A can be made even if no exempt income in earned by the assessee during the year.” 3. We will first take up the Revenue’s appeal in I.T.A. No.: 1258/KOL/2018 for the AY 2015-16. It is pertinent to note that the tax effect by virtue of relief given by the first appellate authority is less than Rs. 60,00,000/- as pointed out by the Ld. AR which was also accepted Page | 5 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 5 of 28 by the Ld. DR. The Ld. AR objected to the admission of the appeal as the tax effect is worked out at Rs. 53,92,732/- which is below Rs. 60,00,000/-. As per the CBDT’s Circular No. 9 of 2024 issued on 17th September, 2024, the CBDT has directed its subordinate authorities not to file appeal against the order of the ld. CIT(A) before the Tribunal if the tax effect by virtue of relief given by the ld. CIT(A) is less than Rs. 60,00,000/-. Such order could only be challenged if it comes within the exceptions provided in the Instruction. Ld. Sr. DR could not rebut this fact nor could he demonstrate how the appeal was covered under any of the exceptions; therefore, this appeal is not maintainable. 3.1 On due consideration of the above facts and circumstances, we dismiss this appeal of the Revenue on account of low tax effect. However, in case on re-verification of the facts at the end of the Ld. Assessing Officer, it emerges that the tax effect is more than the limit for filing the appeal or this case falls under any of the exceptions provided in the instruction, then the Revenue will be at liberty to file a Miscellaneous Application for recall of this order and revival of the appeal. Such an application should be filed within the time limit provided in the Act. 4. In the result, the appeal of the Revenue is dismissed. 5. Now we will take up the assessee’s appeal in I.T.A. No.: 868/KOL/2018 for A.Y. 2015-16. Ground Nos. 1 & 2 relate to the addition of Rs. 21,00,000/- claimed as “advance towards rent” paid to the landlady. The Ld. CIT(A) confirmed the addition and the relevant extract from the order of the Ld. CIT(A) is as under: “05. Grounds No 2 and 3 relate to the action of the Ld. A.O in disallowing advance rent paid to the landlord, being an amount of Rs. 21,00,000/-. Page | 6 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 6 of 28 The impugned matter has been dealt by the Ld. AO as under: It is noted that the assessee has paid Rent of Rs.23,07,640/- to various persons out of which a sum of Rs. 21,00,000/- was paid to Smt. Vandana Sehgal on 20.08.2014. On perusal of ledger account of Rent, it is seen from the narration of Ledger account that the amount of Rs,21,00,000/- was paid to Smt. Vandana Sehgal 'AS ADVANCE RENT DEPOSIT FOR 01.04.2015 TO 31.03.2016’. From the above narration, it is seen that the expense claimed by the assessee firm is in the nature of advance thus not allowable. In view of above, the Rent expenses amounting to Rs.21,00,000/- is disallowed and added to the total income of the assessee. [Addition: Rs. 21,00,000/-] 06. During the course of appeal proceedings, the appellant/Ld A.R for the appellant has submitted as under: Appellant follows Cash System of Accounting At the outset it is submitted that the Appellant follows cash system of accounting which is also mentioned in the Schedule \"Other Information\" of the Income tax Return filed for the Assessment year 2015-16. A copy of the said schedule is attached for your ready reference. The additions made by the Ld. Assessing Officer may please be seen in the light of this information. Rent paid to the landlord in advance Rs. 21,00,000/- At the outset, it is submitted that the Appellant firm follows cash basis of accounting and the income tax returns have also been filed all along on income earned on cash basis. Therefore, all expenses whether of previous year or subsequent year if paid in current previous year are taken into account while preparing accounts and for filing of Income Tax Returns. Since the rent payable to landlady, Smt. Vandana Sehgal of subsequent year has been paid in current previous year, it is considered as an expense in current previous year relating to AY 2015-16. Further the appellant firm had deducted TDS on the same in the year of payment as specified in the law that TDS has to be made at the time of payment or credit whichever is earlier. It is hereby submitted that cash basis of accounting is an accepted system of accounting and the basic connotation in this method of accounting is that all payments made during the year can be claimed as an expense and no expenses can be accrued. Similarly no payment can be treated as advance as expenses are to be accounted on payment. The details were submitted during the course of the hearing and the narration mentioned in the books of accounts is merely signifying the period of payment which is to be kept for record purpose. It is pertinent to submit that the assessee had claimed credit for the particular expense during the year under review and without prejudice to our submission even if the same was claimed in subsequent year the effect on taxation would have been the same. In view of the above, the payment of rent to the landlord cannot be disallowed and is liable to be deleted. Page | 7 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 7 of 28 07. FINDINGS & DECISION: 1. I have carefully examined the action of the Ld AO in making the impugned addition of Rs. 21,00,000/-, which has been claimed by the appellant as \"advance towards rent\" paid to the landlady. The Ld. AO has disallowed the same on grounds that as the payment is in the nature of an \"advance\", it ought to be disallowed. 2. On the contrary, the appellant has submitted that the advance was on account of rent, and that necessary TDS had also been effected. However, I find that that the claim of the appellant is not supported with any documents and it cannot be ascertained as to whether any TDS was made in the case. The appellant has only submitted a letter dated 20.08.2014 addressed to the landlady and forwarding certain cheques. Further, no reasons have been placed on record by the appellant as to why such a large advance was given to the landlady in question, and whether such a payment would qualify as a legitimate business deduction. The appellant has claimed that the accounts are maintained on a cash system of accounting, and that such system has been disclosed in the Schedule of \"other Information\". However, even if this were accepted to be true, it does not explain the fact that a very large advance of Rs.21,00,000/- has been given to the landlady. The appellant is required to explain the requirement and need for such a disproportionately large advance, as the total rent paid as recorded by the Ld. AO is an amount Rs.23,07,640/-. The appellant, I find has not brought the basic facts on record about the requirement to pay such a large advance, and has been merely repeating the fact of maintaining accounts on cash basis. As the basis requirement for such a large and disproportionate business deduction remains unexplained, I do not feel the requirement to interfere with the disallowance made by the Ld. AO. The same is therefore confirmed, and these grounds of appeal stands dismissed.” 6. The Ld. AR argued before us in the course of the appeal that the rent of Rs.21,00,000/- was paid to Smt. Vandana Sehgal. It was stated that the assessee follows cash system of accounting and as per the agreement, the advance rent would be adjusted against the monthly rent payable. The property was rented with effect from 01/04/2013 and is in Noida and was being used as a transit house/guesthouse for business purposes. Our attention was drawn to pages 36 to 46 of the paper book filed before us. Pages 36 to 37 contain the ledger account of Smt. Vandana Sehgal and on page 36 on 20/08/2014, a sum of Page | 8 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 8 of 28 Rs.21,00,000/- has been debited to IDBI Bank Current A/c and has been paid to Smt. Vandana Sehgal by cheque No. 221399 dated 20/08/2014. There are other payments mentioned on this page as well. From Pages 38 to 43, the copy of the lease deed between Smt. Vandana Sehgal and M/s. Indian Coal Agency has been enclosed which has been executed in 2013 with the lease commencing on the first day of April 2013 for a period of 9 years. In para 2.1, the rent is stated to be Rs.1,75,000/- per month (being Rs. 1,25,000/- for the house and Rs. 50,000 per month for furniture and fixtures). The lessee has paid to the lessor a sum of Rs. 5,25,000/- as per para 2.2 as interest free security deposit for the various amenities provided. As per para 2.3, besides the above-mentioned amount for security deposit, an advance rent of Rs. 10,50,000/- equivalent to 6 months’ rent is also to be paid at the time of signing the agreement, which would be adjusted against the rent for the initial 6 months of lease after rent-free period is over. As per para 5, the nature of use permitted is mentioned as the lessee shall be entitled and permitted to use the leased premises as a guest house for its employees, consultants, associates, partners or any other business affiliates. The document, therefore, shows that the advance rent was being paid which was being adjusted subsequently and was for a guest house. Form No. 16A has also been enclosed in which for the amount paid of Rs. 21,00,000/- on 20/08/2014, TDS of Rs. 2,10,000/- has been made in the 2nd quarter and the same has been deposited on 25/08/2014 with BSR 6910260, challan serial number 00002 on 25/08/2014. On page 46, the copy of IDBI Bank Ltd account has been filed in which on 27th August 2014, a sum of Rs. 18,90,000/- has been paid to Smt. Vandana Sehgal and a sum of Rs. 2,10,000/- is also debited on 25/08/2014, which is on account of TDS as mentioned. Page | 9 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 9 of 28 Thus, the assessee had ample evidence in support of the claim that it had paid rent in advance, which as per the system of accounting followed being cash, was liable to be allowed as a deduction. The Ld. DR relied upon the order of the Ld. CIT(A) and requested that the addition made may be upheld. 6.1 As regards the method of accounting being cash, it has been held in the case of Commissioner of Income-tax vs. A. Krishnaswami Mudaliar [1964] 53 ITR 122 (SC) as under: That the only departure made by section 13 of 1922 Act, from the tax legislation in England is that whereas under the English legislation the Commissioner is not obliged to determine the profits of a business venture, according to the method of accounting adopted by the assessee, under the Indian Income-tax Act, prima facie, the ITO has for the purpose of sections 10 and 12 of 1922 Act to compute the income, profits and gains in accordance with the method of accounting regularly employed by the assessee. If, therefore, there is a system of accounting regularly employed and by appropriate adjustments from the accounts maintained taxable profit may properly be deduced, the ITO is bound to compute the profits in accordance with the method of accounting. But where in the opinion of the ITO the profits cannot properly be deduced from the system of accounting adopted by the assessee it is open to him to adopt a more suitable basis for computation of the true profits. Among Indian businessmen, as elsewhere, there are current two principal systems of book-keeping. There is, firstly, the cash system in which a record is maintained of actual receipt and actual disbursements, entries being posted when money or money's worth is actually received, collected or disbursed. There is, secondly, the mercantile system, in which entries are posted in the books of account on the date of the transaction, i.e., on the date on which rights accrue or liabilities are incurred, irrespective of the date of payment. For example, when goods are sold on credit, a receipt entry is posted as of the date of sale, although no cash is received immediately in payment of such goods; and a debit entry is similarly posted when a liability is incurred although payment on account of such liability is not made at the time. There may have to be appropriate variations when this system is adopted by an assessee who carries, on a profession. Whereas under the cash system no account of what are called the outstandings of the business either at the commencement or at the close of the year is taken, according to the mercantile method actual cash receipts during the year and the actual cash outlays during the year are treated in the same way as under the cash system, Page | 10 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 10 of 28 but to the balance thus arising, there is added the amount of the outstandings not collected at the end of the year and from this is deducted the liabilities incurred or accrued but not discharged at the end of the year. Both the methods are somewhat rough. In some cases these methods may not give a clear picture of the true profits earned and certainly not of taxable profits. The quantum of allowances permitted to be deducted under diverse heads under section 10(2) of 1922 Act from the income, profits and gains of a business would differ according to the system adopted. This is made clear by defining in sub-section (5) the word 'paid' which is used in several clauses of sub-section (2) as meaning actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under section 10 of 1922 Act. Again where the cash system is adopted, there is no question of bad debts or outstandings at all, in the case of mercantile system against the book profits some of the bad debts may have to be set off when they are found to be irrecoverable. Besides the cash system and the mercantile system, there are innumerable other systems of accounting which may be called hybrid or heterogeneous in which certain elements and incidents of the cash and mercantile systems are combined. 6.2 Further, in Commissioner of Income-tax vs. Motor Credit Co. (P.) Ltd. [1981] 6 Taxman 63 (Madras)/[1981] 127 ITR 572 (Madras) it has been held that: Regular mode of accounting only determines the mode of computing taxable income and point of time at which the tax liability is attracted. It cannot be relied on to determine whether income has, in fact, resulted or materialised in the assessee's favour, nor can it affect the range of taxable income or the ambit of taxation. 6.3 Therefore, considering the totality of facts, since the assessee had followed cash system of accounting in which receipts as well as expenditure are accounted for on payment basis, the assessee had entered into agreement for payment of rent for guest house/transit accommodation which is an allowable business expenditure, the agreement was effective from 01.04.2013, the payment was made by cheque and the TDS as required was also made, hence the reasons for Page | 11 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 11 of 28 which the Ld. CIT(A) had upheld the addition do not survive and the addition made on account of rent paid is liable to be deleted. However, since the documents being the copy of agreement and details of TDS were not filed before the Ld. AO, the assessee is directed to file the same before the Ld. AO who is directed to verify the same that the payment relates to advance rent and thereafter, allow the deduction as the assessee follows the cash system of accounting and Ground Nos. 1 and 2 of the appeal are allowed for statistical purposes. 7. Ground Nos. 3 and 4 relate to disallowance of commission of Rs. 1,75,00,000/- paid to Smt. Udita Koya and Mr. Naresh P. Ojha. The Ld. AO made the addition which has been upheld by the Ld. CIT(A); the relevant extract from the order of the Ld. CIT(A) is as under: “11. Ground No 6 relates to the action of the Ld. A.O. in adding back Commission paid to Naresh P Ojha of Rs.1,05,00,000/- and to Ms. Udita Koya of Rs. 70,00,000/- on grounds that the services rendered by the two alleged commission agents has not been satisfactorily explained. The Impugned matter has been dealt by the Ld. Assessing Officer as under: On perusal of audited P&L account, it is seen that the assessee firm has paid commission of Rs.70,00,000/- & 1,05,00,000/- to the person named Udita G Koya and Naresh Ojha respectively. In this connection, the assessee was asked vide letter dated 15.11.2017 to furnish details of services rendered by these two persons to earn commission along with justification of payment of commission, proof of payment etc. In response to above query the assessee has status as under: \"With reference to your query raised during the course of last hearing regarding commission paid to Ms. Udita Koya and Mr. Naresh P Ojha, it is hereby submitted that Ms. Udita Koya & Mr. Naresh P Ojha are receiving service charges/commission income from the assessee, Indian Coal Agency, a partnership firm. The mother of Miss Udita Koya, Late Mrs. Dhiraj Gauri Koya was partner in the firm M/s. Indian Coal Agency for a long period. The details of the parties to whom commission has been paid since 2001 are as follows:- Page | 12 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 12 of 28 Sl. Name & Address PAN No. Assessment particulars 1 Naresh P Ojha AADPO5323K Regular Assessee with AC Circle-35, Kolkata 2 Udit G Koya AJSPK8649) Regular Assessee with AC Circle-36, Kolkata Therefore, as per the partnership deed, having regard to the rate of interest being low in comparison with other schemes, the continuing partners have agreed to pay a commission @ 2% on net profit of the firm after claiming all expenses but before allowing interest on capital of partners, to Miss Udita G. Koya one of the legal heirs of the said Mrs. Dhiraj G Koya. The requirement of the funds were very necessary for the smooth running of the business of the firm. It is hereby submitted that the mother of Udita Koya was partner of the firm and was instrumental in the development of the business of the firm. Hence as matter of goodwill of the business which was developed by the effort of her mother, the firm is paying Ms. Udita Koya 2% of the net profit since Financial Year 2001-02 (1.5% from Financial Year 1995-96 to 2000-01). After the demise of her mother, it is natural that Udita Koya should have been a partner in the firm. However, in lieu of not taking her as partner, compensation is being given as commission to her in the form of 2% of net profit and it has been agreed by the partners. It is further submitted that notwithstanding the above arguments and without prejudice to the above submission, even if it is withheld that the commission given to Udita Koya is not an allowable expenditure and the same is taxed in the hands of the assessee firm, it will be taxed 30%, hence there shall be no benefit to the revenue. This is because the commission as given by the assessee firm is already being taxed in the hands of Udita Koya as commission Income 30%. Therefore, without prejudice to the above submission, the non disallowance of above expenditure is not detrimental to the interest of the Revenue. The assessee firm has deducted TDS and deposited the same to the credit of Central Government\". 4.1 The assessee's reply is considered but not accepted as Miss Udita Koya is neither the partner nor she has rendered any services to the assessee firm in order to earn commission of Rs. 70,00,000/-. The so called assessee's plea that \"the continuing partners have agreed to pay a commission @ 2% on net profit of the firm after claiming all expenses but before allowing interest on capital of partners, to Miss Udita G. Koya one of the legal heirs of the said Mrs. Dhiraj G Koya.\" is not tenable as Page | 13 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 13 of 28 there is nothing on record in the partnership deed to this effect. Also it is not clear as how the commission paid to Ms. Udita G Koya justify the \"The requirement of the funds were very necessary for the smooth running of the business of the firm\". The assessee firm has not submitted any evidence what so ever to justify the commission payment of Rs. 70,00,000/- to Ms. Udita G Koya, hence disallowed and added to the total Income of the assessee 4.2 As regards to commission of Rs. 1,05,00,000/- paid to Shri Naresh Ojha, the assessee has stated that \"It is hereby submitted that assessee firm has also paid commission to Mr. Naresh P. Ojha as per the partnership deed. Mr. Naresh P Ojha is looking after day to day business of the firm for long period of time and the consideration paid to him is paid in form of commission. The assessee firm has deducted TDS and deposited the same to the credit of Central Government. Details of TDS has already been submitted before your goodself. It is hereby submitted that he is looking after the affairs of the firm for long period of time and the consideration is paid to him as percentage of net profit. The same has been allowed in assessment proceedings of every year\". The assessee's reply is considered but not accepted as there is no evidences furnished by the assessee as regards to services rendered by Shri Naresh P Ojha. The assessee has merely made a statement that \"Mr. Naresh P Ojha is looking after day to day business of the firm for long period of time and the consideration paid to him is paid in form of commission\". The assessee's cannot be considered satisfactory on the basis of mere statement as the assessee has failed to put forward the supporting evidences. Hence commission of Rs. 1,05,00,000/- paid to Shri Naresh P Ojha is disallowed and added to the total income of the assessee. Thus, the total disallowance of Rs.1,75,00,000/- (70,00,000 +1,05,00,000) is made on the account of commission paid. I am satisfied that the assessee has concealed and furnished inaccurate particulars of income, the penalty proceedings u/s 271(1)(c) are initiated separately. [Addition: Rs. 1,75,00,000/-] 12. During the course of the appeal proceedings, the appellant/Ld A.R for the appellant has submitted as under: ‘Commission paid to Naresh P Ojha Rs. 105,00,000/- and Ms. Udita Koya Rs. 70,00,000/- It is hereby submitted that Ms. Udita Koya & Mr. Narsh P. Ojha receive service charges/commission income from the assessee, Indian Coal Agency, a Page | 14 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 14 of 28 partnership firm. The mother of Miss Udita Koya, Late Mrs Dhiraj Gauri Koya was partner in the firm M/s Indian Coal Agency for a long period. The details of the parties to whom commission has been paid since 2001 are as follows:- S.l. Name & Address PAN No. Assessment particulars 1. Naresh P Ojha 14, Bentinck Street, Kolkata-700 001 AADPO5323K Regular Assessee with AC Circle-35, Kolkata 2. Udita G Koya 14, Bentinck Street, Kolkata-700 001 AJSPK8649J Regular Assessee with AC Circle-36, Kolkata Therefore, as per the partnership deed, having regard to the rate of interest being low in comparison with other schemes, the continuing partners had agreed to pay commission at agreed % age on net profit of the firm after claiming all expenses but before allowing interest on capital to partners, to Miss Udita G. Koya one of the legal heirs of the said Mrs. Dhiraj G. Kova. The requirement of the funds was very necessary for the smooth running of the business of the firm. It is hereby submitted that the mother of Udita Koya was partner of the firm and was instrumental in the development of the business of the firm. She is looking after the financial affairs of the appellant Firm and had been rendering such services since long period of time. Hence as matter of goodwill of the business which was developed by the effort of her mother, the firm is paying Ms. Udita Koγα, 20% of the net profit since Financial Year 2001-02 (1.5% from Financial Year 1995-96 to 2000-01). After the demise of her mother, it is natural that Udita Kaya should have been a partner in the firm. However, in lieu of not taking her as partner, compensation in the form of commission of 2% of net profit and it has been agreed by the partners apart from the fact that she would look after the financial affairs of the firm. It is further submitted that the commission is being given to Udita Koya from Financial Year 1995-96 and the same has been allowed in scrutiny assessments of the firm in earlier years. It is further submitted that notwithstanding the above arguments and without prejudice to the above submission, even if it is withheld that the commission given to Udita Koya is not an allowable expenditure and the same is taxed in the hands of the appellant firm, it will be taxed @30%, hence there shall be no benefit to the revenue. This is because the commission as given by the Appellate firm is already being taxed in the hands of Udita Koya as commission Income @30%. Therefore, without prejudice to the above submission, the non disallowance of above expenditure is not detrimental to the interest of the Revenue. Page | 15 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 15 of 28 It is hereby submitted that appellant firm had also paid commission at an agreed percentage of the net profits to Mr. Naresh P. Ojha as per the partnership deed. Mr. Naresh P. Ojha is looking after day to day business of the firm for long period of time and the consideration paid to him is paid in form of commission. Further the services of Shri Naresh P Ojha is instrumental in day to day working and expansion of the business of the appellant firm. The Appellant firm had deducted TDS and deposited the same to the credit of Central Government. Details of TDS had already been submitted before the ld. Assessing officer. It is hereby submitted that he is looking after the affairs of the firm for long period of time and the consideration has been paid to him as percentage of net profit. The same has been allowed in assessment proceedings of every year. Shri Naresh P Ojha is being paid commission @3% of the profits of the firm. It is further submitted that notwithstanding the above arguments and without prejudice to the above submission, even if it is withheld that the commission given to Naresh P Ojha is not an allowable expenditure and the same is taxed in the hands of the appellant firm, it will be taxed @ 30%, hence there shall be no benefit to the revenue. This is because the commission as given by the Appellate firm is already being taxed in the hands of Naresh P Ojha as commission income @30%. Therefore, without prejudice to the above submission, the non disallowance of above expenditure is not detrimental to the interest of the Revenue. The brokerage and commission have been paid to genuine parties. The rate of brokerage etc is based on commercial expediency and cannot be disallowed if the same is made to genuine parties. It has been held in Sanjeevi & Co. v CIT (1966) 62 ITR 156 (Mad) that the jurisdiction of the revenue authorities under these provisions in confined to deciding the reality of the expenditure, namely, whether the amount claimed for deduction was factually expended or not, and whether it was wholly and exclusively for the purpose of the business. Once that conclusion is reached in favour of the assessee, deduction of the entire amount should follow as a matter of course. The amount and extent of a particular expenditure would not determine its character. If the agreement to pay commission is otherwise for commercial expediency, it is an allowable expenditure notwithstanding a higher rate. What the appellant has done is normal trade practice whereby the persons who have rendered services to the appellant firm are being paid consideration based on the profit of the firm and it has been held in many decisions rendered by courts that the income tax authorities cannot question the trade practices. The appellant submits that deduction of tax is a strong reason that the transaction is genuine knowing fully well that the parties are identifiable and are income tax Page | 16 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 16 of 28 It is submitted that profits should be understood in the commercial sense. In Aruna Mill Ltd. vs CIT (1957) 31 ITR 153 (Bom), it was held that “What the Income tax Act purports to tax is business profits, and business profits are the true profits of a business ascertained according to commercial principles. There may be an expenditure or there may be loss which may not be admissible under any of the specific provisions of the statute and yet such an expenditure or loss would have to be allowed in order to determine what are the true profits of a business, and it is the duty of everyone who has anything to do with taxing business people to understand what are the principles of commercial expediency. Unless one understands these principles, it is difficult to make a proper assessment, on a business or on a businessman. Further, In the case of CIT vs. Walchand & Co. Ltd. (1967) 65 ITR 381(SC), the Apex Court further observed that the reasonableness of the expenditure has to be adjudged from the view point of the businessmen. Held: \"When a claim for allowance under section 10(2)(xv) of the Income-tax Act is made, the income-tax authorities have to decide whether the expenditure claimed as an allowance was incurred voluntarily and on grounds of commercial expediency. In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue. 13. FINDINGS & DECISION: 1. I have carefully considered the action of the Ld. AO in adding back Commission paid to Shri Naresh P Ojha of Rs.1,05,00,000/- and to Ms. Udita Koya of Rs. 70,00,000/- on grounds that the services rendered by the two alleged commission agents has not been satisfactorily explained. I have also carefully analyses the submissions made by the appellant both before the Ld.AO as well as in appeal. 2. From the submissions made, the, appellant has repeatedly stressed the matter that both the Commission agents are high income persons, and are getting commission as per certain arrangements with the assessee-appellant, and that TDS has also been effected in both cases. It has also been contended that as they (the agents) are paying taxes in the higher brackets, there is no loss to Revenue in the matter. In my considered view such arguments are not relevant in the matter, when the appellant has been unable to demonstrate with any evidence as to what were the services rendered by the two agents to be eligible to receive such hefty commission payments. I am unable to agree with the contentions of the appellant that \"what the appellant has done is normal trade practice whereby the persons who have rendered services to the appellant Page | 17 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 17 of 28 firm are being paid consideration based on the profit of the firm\", as in this case these are flawed arguments when the appellant has been unable to provide any iota of evidence about the actual services rendered by the commission agents. Neither before the Ld. AO not in appeal, has the appellant been able to name one single customer which was brought to the appellant by the agent, much less of placing any confirmation in the matter. On the other hand, I find that the Ld AO has every right to pierce the veil of arrangement, and try and ascertain what is the real position as against what is projected as apparent. There is no good reason, in my considered view to agree with the Ld. A.R. that deduction of tax is a strong reason that the transaction is genuine knowing full well that the parties are identifiable and are income tax assessee. Mere identification of parties is hardly the benchmark for accepting coming payouts; the all important factor is the proof regarding actual rendering of services, and the same is well missing in the case at hand. 3. In my considered view, the onus of proving any expenditure made and claimed u/s. 37(1) of the Act, is upon the assessee and it is the requirement at all times to prove that the expenditure has been incurred only for its business purpose, which can be discharged by way of proper evidence. It is seen that assessee has failed to substantiate the work done, if any, for payment of commission. It has to be proved that the alleged persons were providing some sort of service to the assessee, and that the said service would have an incremental effect on his business activities. The commission payment cannot be allowed unless it is proved to be paid for commercial consideration and expended wholly and exclusively for the purpose of business. Reliance in this matter is being drawn from the decision of ITAT Agra Berich in the case of ACIT- 3 VS m/s. Brij Bhasi Hitech Udyog Ltd, in ITA No.188/Agra/2010 dt.18.01.2013. The Hon'ble Supreme Court, long back, in the case of Lakshmi Ratan Cotton Mills Company Ltd. VS. CIT (1969) 37 ITR 634 has held that burden of proving that services were rendered by the agents to justify the payments as an expenditure incurred wholly and exclusively for the purpose of business, is on the assessee. In the instant case, there is nothing on record to establish whether any services have been rendered by the purported Brokers/Agents at all and as such the assessee's burden remains un- discharged. In the circumstances, I am not inclined to interfere in the action of the Ld AO in making the Impugned disallowance. Such action stands confirmed, and the grounds are decided against the appellant. Ground No 6 stands dismissed.” 8. Before us in the course of the appeal, the Ld. AR drew our attention to page 57 of the paper book, which is a chart showing commission allowed in earlier and subsequent years, as per which the Page | 18 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 18 of 28 commission has been allowed from A.Y. 2010-11 to A.Y. 2014-15, while the same has been disallowed from A.Y. 2015-16 to 2017-18 in the orders passed under section 143(3) for A.Ys. 2015-16 and 2016-17 and under section 144 of the Act for A.Y. 2017-18 respectively and the appeals for A.Ys. 2016-17 and 2017-18 are set to be pending before the Ld. CIT(A). He therefore requested that the same may be allowed. The Ld. DR, on the other end, submitted that the commission can be allowed only for earning the income and the argument that tax has been paid at the rate of 30% at both the places is not acceptable. The onus lies on the assessee to explain that the expenditure has been incurred for the purpose of the business. The reasons for making payment to Ms. Udita and Shri N.P. Ojha are grey and general. It was submitted that it has to be pointed out what kind of services are rendered. The Ld. DR also submitted that a sum of Rs.70,00,000/- was paid for goodwill for the partners which retired in 2011. The firm was also in existence in 2011 and no other partner had retired. Similarly, the services rendered by Shri N.P. Ojha are also not specified, who is not a partner and in both the cases, a single bill has been raised at the end of the year. It was submitted that the services were rendered without any payment throughout the year to both the persons. He vehemently argued that the addition made, which has been sustained by the Ld. CIT(A), may be upheld. 9. We have considered the submissions made by both the parties. It has been held in the case of Lachminarayan Madan Lal vs. Commissioner of Income-tax [1972] 86 ITR 439 (SC) on the issue of commission that despite an agreement in existence the question whether an amount claimed as an expenditure was laid out or expended wholly and exclusively for the purpose of the business has to be decided Page | 19 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 19 of 28 on the facts and in the light of the circumstances in each case. The relevant extract from the order is as under: “In our opinion, the facts of this case come within the rule laid down by this court in Swadeshi Cotton Mills Co. Ltd. v. Commissioner of Income-tax [1967] 63 ITR 57 (SC). The question whether an amount claimed as an expenditure was laid out or expended wholly and exclusively for the purpose of the business has to be decided on the facts and in the light of the circumstances in each case. The mere existence of an agreement between the assessee and its selling agents or payment of certain amounts as commission, assuming there was such payment, does not bind the Income-tax Officer to hold that the payment was made exclusively and wholly for the purpose of the assessee's business. Although there might be such an agreement in existence and the payments might have been made, it is still open to the Income-tax Officer to consider the relevant- factors and determine for himself whether the commission said to have been paid to the selling agents or any part thereof is properly deductible under section 37 of the Act.” 9.1. In the present case, the assessee has neither established as to what were the services rendered for which the commission was paid nor has been able to justify that the payment was for any services rendered as no such details have been furnished and only one bill at the end of the financial year has been filed in both the cases mentioning the total amount. No such agreement for the services rendered has been brought to our notice nor the factors mentioned by the Ld. CIT(A) which led to the addition being confirmed, have been addressed in the course of the appeal before us. The commission to Ms. Udita Koya has been paid in consideration of the partnership in which her mother was a partner and the same has no connection to the services rendered. Similarly, the details of services rendered by Shri. Naresh P. Ojha are not mentioned so as to justify the allowability of the commission. The assessee contends that the commission has been allowed in the past. However, it is not demonstrated that the same was subjected to any enquiry by the Ld. AO and the additions made in the subsequent years have still Page | 20 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 20 of 28 not been adjudicated. Moreover, res judicata does not apply to the income tax proceedings and for allowability of the commission paid, the details of services rendered have to be provided each year as each year’s assessment is based upon the facts prevailing in that year. The fact that tax has been paid by the recipients of the commission is also of no help to the assessee as income has to be assessed in the right hands. Hence, on considering the totality of facts and circumstances of the case, there does not appear any justification to disagree with the findings of the Ld. CIT(A) whose order in this regard is confirmed and Ground nos. 3 and 4 of the appeal are dismissed. 10. Ground no. 5 being general in nature does not require any separate adjudication. 11. In the result, the appeal of the assessee for A.Y. 2015-16 is partly allowed while the appeal of the Revenue is dismissed on account of low tax effect. 12. Now, we will take up the assessee’s appeal for AY 2013-14. 13. Brief facts of the case are that the assessee is a firm engaged in liaisoning and loading supervision of coal despatch and had filed its original return of income for AY 2013-14 on 16.09.2013 declaring total income of Rs. 27,87,02,400/-. Later on, the assessee filed a revised return showing total income of Rs. 25,99,91,840/-. The case was selected for scrutiny through CASS and statutory notices u/s 143(2) and 142(1) of the Act were issued and duly served upon the assessee. The Ld. AO treated the transactions of donation as bogus and sham transaction and added the effective amount of Rs. 2,71,25,000/- [Rs. 1,55,00,000/- (being donation) + Rs. 1,16,25,000/- (being exemption claimed)] to the total income of the assessee. Further, regarding Page | 21 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 21 of 28 expenses to the tune of Rs. 4,24,123/- under the head ‘Club Services & Facilities’ which had been claimed by the assessee in its profit and loss account under the head ‘Business Promotion’, the Ld. AO did not find the contention of the assessee satisfactory and disallowed the same u/s 37(1) of the Act and added back to the total income of the assessee. Further, on verification of the balance sheet of the assessee firm, the Ld. AO found that the assessee had made loans/advances amounting to Rs. 4,51,68,397/- to various parties with whom the assessee had no business transactions and also had not charged any interest on such loans/advances. The Ld. AO disallowed a sum of Rs. 40,65,156/- being interest @ 9% of loans/advances of Rs. 4,51,68,397/-. Further, the Ld. AO disallowed several other expenses claimed by the assessee such as travelling expenses, telephone expenses, motor car expenses and car hire charges @ 5% and added back an amount of Rs. 3,33,02,772/- to the total income of the assessee and assessed total income at Rs. 29,32,94,610/- u/s 143(3) of the Act. Subsequently, the Ld. Pr. CIT examined the assessment record and found that the Ld. AO had completed the assessment without making necessary enquiries. The relevant extract from the order of the Ld. PCIT is as under: “The facts leading to such an inference were patent from the following facts:- 1. \"The assessee firm was engaged in liasoning and loading supervision of Coal dispatch during the F.Y.2012-13. During the assessment proceedings the total income of the assessee was taken at Rs. 25,99,91,840/-in the assessment order. As per the revised computation submitted by the assessee the total income was taken at Rs. 28,58,02,415/-. Further, from P/L Account of the assessee it was seen that the Net Profit was shown as Rs. 31,75,58,239/-. Therefore, both the assessee and A.O. wrongly considered the Net Profit of the assessee. Therefore, the computation of income needs to be done afresh. 2. Similarly the assessee received a dividend income of Rs. 87,05,786/-. It was seen from the records that the assessee calculated the disallowance of expenditure related to such exempt income at Rs. 18,94,454/-, U/s.14A but the Page | 22 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 22 of 28 same was not calculated as per rule 8D of the I.T. Rules, 1962. During the assessment proceedings no further disallowance was made by the A.O. 3. As per the depreciation chart the depreciation on Motor Car including Scooter & Motor Cycle was shown as Rs. 7,65,921/-. In the assessment order dt. 19/03/2016 an amount equivalent to 5% of the Motor Car expense was disallowed by the assessee. Accordingly, an amount of RS. 38,296/-being 5% of the depreciation claimed should have been disallowed which was not done by the A.O. 4. It is seen that before the charging of remuneration of the partners, commission was paid to Miss Udita G Kya and Mr. Naresh P. Ojha @2%. Therefore 4% of commission comes to Rs. 1,32,52,264/- [4% of (Rs. 31,75,58,238/- + Rs. 1,37,48,368/-)]. An excess amount of commission amounting to Rs. 1,96,104/- (Rs. 1,37,48,368/- Rs. 1,32,52,264/-) was paid by the assessee and the same was accepted during the assessment proceedings resulting in underassessment of Rs. 1,96,104/-.\" 14. Accordingly, a show cause notice was issued to the assessee in response to which the assessee filed the written submissions that the assessment order was passed after full consideration of the details furnished by the assessee to the Ld. AO and after due application of mind, therefore, the proceeding u/s 263 of the Act did not lie in his case. The ld. Pr. CIT concluded that it is not necessary for the Commissioner to make further enquiries before cancelling the assessment order of the Ld. AO and the order must be prejudicial to the interests of the Revenue. Elaborate discussions have been made on the judicial pronouncements in this regard and he concluded that the order passed by the Ld. AO was erroneous and prejudicial to the interests of the Revenue. He therefore, set aside the order and directed the Ld. AO to take the revised return on account for computation of total income, recompute the disallowance as per Rule 8D of the Income Tax Rules, 1962 and examine the correctness of commission payment and depreciation on motor car and also directed the Ld. AO to make necessary investigation on the above issue and pass a fresh assessment Page | 23 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 23 of 28 order recomputing the assessee’s income taking into consideration the reasons leading to the action u/s 263 of the Act after providing reasonable opportunity of being heard to the assessee. He also cautioned the Ld. AO that the discretion must be exercised legally and not absolutely even though the Assessing Officer’s power is unfettered. Aggrieved with the order u/s 263 of the Act, the assessee has preferred the appeal before us. 15. Rival submissions were heard and the record and the submissions made have been examined. The only ground of appeal is that the Ld. CIT(A) discussed what the terms ‘erroneous’ and ‘prejudicial’ mean but he did not discuss and was unable to prove how the instances provided by him have resulted in the assessment order passed by the Ld. AO being erroneous insofar as it is prejudicial to the interests of the Revenue. Before us, the assessee has filed a paper book and relied upon various pages of the paper book. 16. The Ld. DR supported the order of the ld. Pr. CIT and requested that the same may be upheld. 17. We have considered the submissions made and the issues raised are being adjudicated as under: i) The issue relating to net profit as per profit and loss account being Rs. 28,58,02,414.81 while the same should be Rs. 31,75,58,239/-: As mentioned at page 20 of the order of the ld. Pr. CIT was argued by the Ld. AR as per page 31 of the paper book being a copy of the tax audit report for AY 2013-14 and it was submitted that the profit as per profit and loss account is only Rs. 28,58,02,415/- and the Ld. AO has rightly Page | 24 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 24 of 28 considered it and even in the order u/s 143(3)/263 of the Act, the Ld. AO has considered the same. Hence, there was no error in the order of the Ld. AO. The profit and loss account being the revised computation is mentioned at page 2 of the paper book in which net profit as per the profit and loss account is taken at Rs. 28,58,02,414.81 while the same was mentioned to be Rs. 31,75,58,239/- as per the profit and loss account of the assessee. The assessee drew our attention to pages 35 to 38 of the paper book being the reply of the assessee to the ld. Pr. CIT in which it is stated that the interest on fixed deposits was wrongly considered in accounts and the income in the original return was higher than the income shown in the revised return as the interest on fixed deposits was credited higher to the extent of Rs. 1,18,99,236/- in the profit and loss account. Initially Canara Bank had credited the interest on fixed deposits of M/s. Indian Chemical Minerals in the account of the assessee firm and subsequently the bank had rectified the inadvertent mistake and accordingly the assessee firm had filed the revised return. It was also submitted that the contention of the profit being considered as Rs. 31,75,58,239/- was misplaced as the profit which should be taken is the profit after allowing remuneration to the partners which has been allowed to the extent not disallowed u/s 40(b) of the Act. We have considered the submissions made and in view of the reconciliation filed in the course of appeal and the fact that the Ld. AO in the order giving effect to the order passed u/s 263 of the Act as considered a sum of Rs. 28,58,02,415/- as the net profit as per the profit and loss account showing in the revised return of income, there cannot be said to be an error on this ground. Page | 25 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 25 of 28 ii) Disallowance u/s 14A of the Act: It was submitted in the course of the appeal before us that the secured loans could not be applied for investment and the unsecured loan was of Rs. 19 Crore and the investment was of Rs. 43 Crore. It was submitted that Rule 8D(2)(ii) of the Rules was not applicable and our attention was drawn to page 31 of the paper book and the balance sheet as per page 6 of the paper book in support of the claim that the unsecured loans were only Rs. 19,25,03,614/- and the partner’s capital was Rs. 148,27,74,222/- while the investment in shares of Aryan Coal Beneficatios Pvt. Ltd. was of Rs. 36,39,15,905/-. It was submitted that Rule 8D(ii) of the Rules was not applicable as the total investment in the shares and mutual funds was Rs. 43,45,97,241/- and since the assessee had surplus interest free funds, therefore, there was no question of disallowance. During the course of hearing before us, the assessee relied upon the decision of the Coordinate Bench of the Tribunal in the case of REI Agro Limited vs. DCIT [144 ITD 141] and stated that the same has been confirmed by the Hon'ble Calcutta High Court. It was further stated that no disallowance for interest was made under Rule 8D(2)(ii) of the Rules in AY 2009-10, AY 2010-11, AY 2011-12, AY 2012-13 and AY 2014-15 by the Ld. AO. We have considered the facts of the case and as the assessee had sufficient interest free capital of partners, therefore, in the absence of direct correlation being shown with the interest bearing funds and the investment in exempted assets, Rule 8D(2)(ii) of the I.T. Rules, 1962 was not applicable and to this extent as well the order was not erroneous. As regards Rule 8D(2)(iii), the disallowance could not exceed the Page | 26 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 26 of 28 exempted income and only the dividend yielding assets could be considered. Henec, on this issue the order was partly erroneous in so far as it was prejudicial to the interest of the Revenue. iii) Depreciation on motor car of Rs. 38,296/-: Our attention was drawn to page 33 of the paper book. It was submitted that in ITA No. 464/KOL/2018 for AY 2013-14, the ITAT had deleted the disallowance on motor car expenses and therefore, there was no justification for disallowing any depreciation. We have considered the submissions made. Since the Tribunal had deleted the expenses on the motor car which were disallowed by the Ld. AO, therefore, there was no justification for disallowing any depreciation on motor car and to this extent as well, the order was neither erroneous nor prejudicial to the interests of the Revenue. 18. The other ground on which the order was erroneous was regarding the commission of Rs. 1,96,104/- paid in excess to the two persons. During the course of the appeal, the Ld. AR argued that the Ld. CIT had not conducted any enquiry on his own as to aforesaid allegation in the notice u/s 263 of the Act and inferences drawn at page 28 para 3 of his order wherein Ld. CIT states that enquiry by the Ld. PCIT is not required and hence, inadequate enquiry by the Ld. AO attracts action u/s 263 of the Act. Our attention has been drawn to the several case laws in this regard. 19. We have considered the submissions made. It is judicially held that in case the Assessing Officer conducts any enquiry, before finding the order as erroneous or prejudicial to the interests of the Revenue the Page | 27 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 27 of 28 Ld. CIT ought to conduct enquiry. However, if the Assessing Officer has not conducted any enquiry, no such enquiry is required. As regards the excess commission allowed, the Ld. AR in the course of appeal did not press this issue, therefore, only to this extent the order of the Ld. AO is found to be erroneous and prejudicial to the interests of the Revenue and, therefore, this ground of appeal is allowed. 20. Ground no. 2 being general in nature does not require any separate adjudication. 21. In the result, the appeal for AY 2013-14 is partly allowed. Order pronounced in the open Court on 20th May, 2025. Sd/- Sd/- [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 20.05.2025 Bidhan (P.S.) Page | 28 I.T.A. Nos.: 867, 868 & 1258/KOL/2018 Assessment Years: 2013-14 & 2015-16 Indian Coal Agency. Page 28 of 28 Copy of the order forwarded to: 1. Indian Coal Agency, 14, Bentinck Street, Kolkata, West Bengal, 700001. 2. Pr. CIT, Circle-12, Kolkata 3. DCIT, Circle-35, Kolkata. 4. CIT(A)-10, Kolkata. 5. CIT- 6. CIT(DR), Kolkata Benches, Kolkata. 7. Guard File. True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata "