Khandelia Oil & General Mills Ltd., Chandigarh V. Addl. CIT, Chandigarh

ITA 1126/CHANDI/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8429 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 02-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS CHANDER KANTA
• Keywords: Business expenditure; Opportunity of being heard; Maximum Marginal Rate; Earning of tax free income; Proportionate interest; Additional evidence; Onus to prove
• Section: 14A; 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.1144/CHD/2012 ASSESSMENT YEAR:2009-10 THE ACIT VS. KHANDELIA OIL & GENERAL MILLS PVT. LTD., RANGE 1 PLOT NO. 23. CHANDIGARH INDUSTRIAL AREA PHASE II CHANDIGARH PAN NO. AAACK6655N ITA NO.1126/CHD/2012 ASSESSMENT YEAR:2009-10 KHANDELIA OIL & GENERAL MILLS PVT. LTD., VS. THE A CIT PLOT NO. 23. RANGE1, INDUSTRIAL AREA PHASE II CHANDIGARH CHANDIGARH PAN NO. AAACK6655N (APPELLANT) (RESPONDENT) DEPARTMENT BY : MRS. CHANDER KANTA ASSESSEE BY : SH. ANIL KHANNA DATE OF HEARING : 08/12/2015 DATE OF PRONOUNCEMENT : 26/02/2016 ORDER PER ANNAPURNA MEHROTRA A.M. THE PRESENT APPEAL AND CROSS APPEAL HAS BEEN FILED AGAINST THE ORDER OF LD. CIT(A), CHANDIGARH, DATED 29.08.2012. 2. WE SHALL FIRST DEAL WITH THE APPEAL FILED BY THE REVENUE IN ITA NO. 1144/CHD/2012 IN WHICH THE FOLLOWING GROUNDS HAVE R AISED:- 1. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS. 7,63,110/- MADE BY THE AO ON ACCOUNT OF INTEREST PAID IN EXCESS OF BAN K RATE U/S 40A(2)(B) OF THE ACT. 2 2. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS. 40,30,557/- MADE BY THE AO ON ACCOUNT OF DIVERSION OF FUNDS BY THE A SSESSEE TO ITS SISTER CONCERN WHICH WAS NOT RELATED TO ITS BUSINESS ACTIVITIES. 3. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIONS OF RS. 3,15,197/- MADE BY THE AO ON ACCOUNT OF SUPPRESSION OF SALES AS THE AS SESSEE HAD MADE SALES TO ITS ASSOCIATES AT LOWER RATES AS COMPARED TO THE SALES MADE TO INDEPENDENT PARTIES. 3. THE FIRST GROUND IN THIS APPEAL IS IN REGARD TO THE DISALLOWANCE OF RS. 7,63,110/- MADE BY A.O. ON ACCOUNT OF INTEREST PAID TO THE RELATED PARTIES IN EXCESS OF THE BANK RATE BY INVOKING SECTION 40A(2)( B), WHICH WAS DELETED BY LD.CIT(A). 4. BRIEF FACTS RELATING TO THE ISSUE ARE THAT OUT O F TOTAL INTEREST ON LOAN, THE ASSESSEE HAD PAID INTEREST OF RS. 91,57,327/- ON UN SECURED LOANS TO PERSONS COVERED U/S 40A(2)(B) @ 12% PER ANNUM. THE A.O. OBS ERVED THAT THE INTEREST RATE ON BANK LOAN, WAS 11%. IN THE ABSENCE OF ANY P LAUSIBLE EXPLANATION COMING FROM THE ASSESSEE REGARDING SUCH EXCESSIVE I NTEREST PAID, THE DISALLOWANCE WAS WORKED OUT BY THE A.O. BY TAKING T HE RATE OF INTEREST @ 11% AS ADMISSIBLE/REASONABLE RATE OF INTEREST AND THE AMOU NT DISALLOWED THUS WAS RS. 7,63,110/-. 5. ON FIRST APPEAL, LD. CIT(A) DELETED THE DISALLOW ANCE SO MADE BY HOLDING THAT INTEREST RATE @ 12% ON UNSECURED LOANS IS NOT UNREASONABLE AND BORROWING FROM THE BANK ARE AVAILABLE ONLY AGAINST SECURITY A ND WITH HIGHLY RESTRICTIVE CONDITIONS. LD. CIT(A) HELD AS UNDER:- 3.2 I HAVE CONSIDERED THE SUBMISSION OF THE LD. COU NSEL FOR THE APPELLANT FILED IN THE APPELLATE PROCEEDINGS. THE APPELLANT HAS MAI NLY SUBMITTED THAT SOME OF THE PERSONS IN RESPECT OF WHOM INTEREST AT HIGHER R ATE HAS BEEN RESTRICTED ARE NOT COVERED BY SECTION 40A(2)(B) AND THAT IN ANY CASE T HE RATE AT WHICH INTEREST WAS PAID CANNOT BE CONSIDERED EXCESSIVE IF ONE TAKES IN TO ACCOUNT THE CONDITIONS OF BORROWING. I THINK THE PAYMENT OF INTEREST @ 12% ON ' UNSECURED LOANS IS, IN ANY CASE, NOT UNREASONABLE. WE HAVE TO BEAR IN MIND THA T THE BORROWINGS FROM THE BANK ARE AVAILABLE ONLY AGAINST SECURITY AND HIGHLY RESTRICTIVE CONDITIONS. THE BANKS TAKE THEIR OWN TIME TO PROCESS THE CASES OF B ORROWING AND THE ENTIRE AMOUNT ONE REQUIRES FOR BUSINESS MAY NOT BE MADE AV AILABLE BY THE BANKS. THEREFORE, FOR BORROWINGS FROM PRIVATE PARTIES, A H IGHER AMOUNT OF INTEREST HAS TO BE PAID. THE FACT THAT BORROWINGS COULD BE MADE WIT HOUT ANY WAITING TIME FOR PROCESSING IS ANOTHER ADVANTAGE IN CASE OF PRIVATE BORROWINGS. TAKING INTO ACCOUNT ALL THESE FACTORS, IN MY CONSIDERED VIEW, T HERE IS NO GROUND FOR ANY DISALLOWANCE IN THIS CASE. THE ADDITION MADE ON THI S ACCOUNT IS ACCORDINGLY DELETED. GROUND OF APPEAL NO. 2 IS ALLOWED. 6. BEFORE US, LD. DR RELIED ON THE ASSESSMENT ORDER WHEREAS LD. COUNSEL FOR THE ASSESSEE STATED THAT SIMILAR DISALLOWANCE MADE IN THE CASE OF THE ASSESSEE 3 IN EARLIER YEAR WAS DELETED BY THE HONBLE ITAT CHA NDIGARH BENCH VIDE ITS ORDER DT. 06.11.2015. LD. AR ALSO PLACED RELIANCE ON THE ORDER OF THE LD. CIT(A). 7. HAVING HEARD THE RIVAL SUBMISSIONS, WE FIND THAT THIS GROUND OF THE REVENUE DESERVES TO BE REJECTED. LD. CIT(A) HAS RIGHTLY REC ORDED THAT 12% INTEREST RATE CANNOT BE SAID TO BE EXCESSIVE OR UNREASONABLE EVEN IF WHEN IT IS TAKEN THAT THE RATE OF INTEREST ON THE BANK LOAN WAS 11%. BANK LOA NS MONEY BY TAKING ON SECURITY AND BY IMPOSING SEVERAL CONDITIONS WHICH A RE NOT THERE IN CASE OF UNSECURED LOANS. FURTHER WE FIND THAT THIS ISSUE HA S BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEAR 2008-09 BY THE HON BLE TRIBUNAL CHANDIGARH BENCH IN ITA NO. 775 & 778/CHD/2012 DT. 06.11.2015 WHEREIN IT WAS HELD AS UNDER: 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERE D THE MATERIAL AVAILABLE ON RECORD. SECTION 40A(2)(B) OF THE ACT IS MEANT TO CO VER CASES WHERE INTEREST PAID TO THE RELATED PARTIES AS DEFINED IN THIS SECTION I S IN EXCESS OF THE INTEREST PAID TO UNRELATED PARTIES. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAS PAID 15% INTEREST ON UNSECURED LOAN TO PERSONS COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THIS IS ALSO UNDISPUTED THAT THE RATE OF BANK LOANS ARE AT AROUND 10.5% BUT THIS IS ALSO A FACT THAT THE LOANS FROM BANKS ARE TAKEN AGAIST THE CHARGE ON THE PROPERTY AND THERE ARE OTHER OPPORTUNITY COSTS INVOLVED IN RAISI NG THE LOANS FROM THE BANKS, WHICH ARE NOT THERE IN THE CASES OF THESE UNSECURED LOANS AND THE LOANS FROM THESE RELATED PERSONS ARE INSTANTLY AVAILABLE ALSO. FURTHER, SINCE THE RATE OF INTEREST CHARGED BY MARKET COMMITTEE ITSELF IS 18%, WE ARE I N AGREEMENT WITH THE FINDINGS RECORDED BY THE LEARNED CIT(APPEALS) THAT THE RATE OF INTEREST AT 15% IS QUITE REASONABLE. SINCE THE BORROWINGS FROM PRIVATE PARTI ES ARE ALWAYS AT HIGHER RATE OF INTEREST THAN THE BANKS AND THESE MARKET COMMITTEES . IN VIEW OF THIS, ORDER OF THE LEARNED CIT(APPEALS) IN THIS REGARD IS CONFIRMED. T HE GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. IN VIEW OF THE ABOVE AND FURTHER IN VIEW OF THE CAT EGORICAL AND THE FACTUAL FINDINGS RECORDED BY CIT(A) WHICH HAVE NOT BEEN SHO WN BY THE REVENUE TO BE PERVERSE OR UNJUSTIFIED, WE UPHOLD THE ORDER OF LD. CIT(A) AND DISMISS THE GROUND OF THE REVENUE. 8. GROUND NO. 2 RAISED BY THE REVENUE IS IN REGARD TO THE ADDITION OF RS. 40,30,557/- MADE BY THE A.O. ON ACCOUNT OF INTEREST DUE TO DIVERSION OF FUNDS BY THE ASSESSEE TO ITS SISTER CONCERNS BY HOLDING THE SAME AS NOT RELATED TO ITS BUSINESS WHICH WAS DELETED BY LD. CIT(A). 9. BRIEF FACTS OF THE ISSUE ARE THAT THE A.O. NOTIC ED THAT DEBIT BALANCES WERE OUTSTANDING IN THE ACCOUNT OF ASSESSEES SISTER CON CERN M/S KHANDELIA UDYOG PVT. LTD. ON THE OTHER HAND, ACCORDING TO THE A.O., THE ASSESSEE HAS BORROWED SECURED AND UNSECURED LOANS AND PAID INTEREST TO TH E TUNE OF RS. 1,40,08,376/- IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER FURTHER NOTED THAT THE DEBIT BALANCES STANDING IN THE ACCOUNTS OF THE SISTER CON CERNS SHOULD ATTRACT DISALLOWANCE OUT OF DEDUCTION OF INTEREST EXPENSE A T THE RATE OF 11% IN VIEW OF 4 THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH C OURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. 286 ITR 1 AND ON ACCOUNT O F THE PLAIN PROVISION OF SECTION 36(1)(III) OF THE ACT. 10. ON FIRST APPEAL, LD. CIT(A) DELETED THE DISALLO WANCE BY RELYING UPON THE DECISION OF HONBLE TRIBUNAL IN THE ASSESSEES OWN CASE IN A.Y. 2006-07 AND OTHER DECISIONS IN THE CASE OF SISTER CONCERN NAMELY M/S GAURI SHANKER & CO. BY FINDING THAT THE FACTS IN THE YEAR UNDER APPEAL WER E IDENTICAL WITH THAT CASE. 11. BEFORE US, LD. DR RELIED ON THE EXTENSIVE DISCU SSION MADE BY THE A.O. IN THE ASSESSMENT ORDER AND CONTENDED THAT ON THE ONE HAND INTEREST IS BEING PAID AND ON THE OTHER HAND, THERE ARE HUGE DEBIT BA LANCES APPEARING IN THE ACCOUNTS OF THE SISTER CONCERNS YEAR AFTER YEAR. LD . DR MADE A PRAYER THAT THE ORDER OF A.O. BE RESTORED IN THIS REGARD. ON THE OT HER HAND, LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF CIT(A) AND THE ORDE R OF HONBLE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 AND A.Y. 2008- 09. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND IT IS N OTED THAT THERE IS NO CASE FOR ANY DISALLOWANCE AND LD. CIT(A) WAS JUSTIFIED I N DELETING THE DISALLOWANCE. NOTHING HAS BEEN SHOWN TO US TO ESTABLISH THAT INTE REST BEARING FUNDS HAVE BEEN USED FOR THE SAID DEBIT BALANCES. USE OF INTEREST B EARING BORROWED FUNDS HAS SIMPLY BEEN ASSUMED WHICH IN OUR CONSIDERED OPINION CANNOT FURNISH THE BASIS OF DISALLOWANCE OF INTEREST. FURTHER WE FIND THAT T HIS ISSUE CAME UP FOR CONSIDERATION BEFORE THE HONBLE ITAT IN AY 2008-09 , WHEREIN IT WAS DECIDED IN ASSESSEES FAVOUR BY HOLDING AS FOLLOWS : 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERE D THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE ORDER OF THE I.T.A. T, CHANDIGARH BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 (SU PRA), WE SEE THAT THE ADDITIONS IN THAT YEAR WERE ALSO MADE ON ACCOUNT OF PROPORTIONATE INTEREST ON THE ADVANCES MADE TO THE SISTER CONCERN M/S GAURI S HANKER & CO., CHANDIGARH AND TRANSACTIONS WITH SOME OTHER PARTIES TO WHOM SA LES WERE MADE. SINCE IN THIS YEAR ALSO THE TRANSACTION HAS BEEN MADE WITH M/S G AURI SHANKER & CO., CHANDIGARH AND THE FACTS HAVE NOT BEEN DISTINGUISHE D BY ANY OF THE LOWER AUTHOIRITIES AND EVEN BEFORE US, THE LEARNED D.R. C OULD NOT CONTROVERT THE FINDINGS GIVEN BY THE LEARNED CIT(APPEALS). WITH REGARD TO M /S KHANDELIA UDYOG PVT. LTD., IN THE PAPER BOOK FILED BY THE ASSESSE DETAILED LED GER ACCOUNT OF THE SAID PARTY HAS BEEN FILED AND ON PERUSAL OF WHICH, WE FIND THA T THE REGULAR SALES AND PURCHASES ARE BEING MADE FROM THIS PARTY THROUGH OU T THE YEAR. THEREFORE THE PROPOSITION LAID DOWN BY THE I.T.A.T., CHANDIGARH B ENCH M/S GAURI SHANKER & CO. , CHANDIGARH CAN ALSO BE APPLIED TO M/S KHANDELIA UDY OG PVT. LTD. IN VIEW OF THIS, WE UPHOLD THE ORDER OF THE LEANED CIT(APPEALS) IN T HIS REGARD. THE GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. IT HAS NOT BEEN SHOWN TO US BY THE REVENUE THAT THE FACTS IN A.Y. 2006-07 & 2008- 09 IN ASSESSEES OWN CASE WERE NOT IDENTICAL WITH T HE FACTS IN THE PRESENT YEAR. THEREFORE, WE FIND THAT CIT(A) HAS RIGHTLY RELIED U PON THE DECISION OF THE TRIBUNAL 5 IN ASSESSEES OWN CASE FOR A.Y. 2006-07 AND FOLLOWI NG THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2008-09, WE DISMISS THIS GROUND OF APPEAL. 13. REGARDING THE THIRD GROUND OF APPEAL, THE SAME RELATES TO ADDITION OF RS. 3,15,197/- MADE BY A.O. ON ACCOUNT OF SUPPRESSION O F SALES MADE TO ITS ASSOCIATES AT LOWER SALE RATE WHICH WAS HOWEVER DEL ETED BY THE LD. CIT(A). 14. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE A.O. NOTED IN THE ASSESSMENT ORDER THAT HUGE SALES HAD BEEN MADE TO THE RELATED PARTIES AT A LOWER SALE RATE AS COMPARED TO THE SALE RATE MADE TO THE INDEPENDEN T PARTIES. A FEW INSTANCES ACCORDING TO THE ASSESSMENT ORDER WERE IDENTIFIED A ND ASSESSEE WAS ASKED TO GIVE A DETAILED REPLY ON THIS ACCOUNT. ACCORDING TO THE A.O., ON THE BASIS OF THIS WORKING, SUPPRESSION OF SALES CAME TO RS. 3,15,597- WHICH WAS ADDED BACK AS SUPPRESSED SALE PROCEEDS. ON FIRST APPEAL LD. CIT(A ) FOUND THAT ASSESSEE HAD CITED MANY COGENT REASONS SUCH AS HIGH VOLUME OF SA LES TO JUSTIFY THE SALE TO SISTER CONCERN AT LOWER RATE AND FURTHER THAT ADD ITION ON ACCOUNT OF INFLATED PURCHASES MADE TO THE SISTER CONCERNS COULD BE MADE U/S 40A(2) BUT THERE IS NO CORRESPONDING PROVISION IN RESPECT OF THE SALE MADE TO SISTER CONCERNS AT LOWER RATE. IT WAS FURTHER NOTED BY THE LD. CIT(A) THAT T HE RELATED ENTITIES TO WHOM SALES WERE MADE AT LOWER RATES WERE PAYING TAX AT MAXIMUM MARGINAL RATE SINCE THEY WERE IN THE HIGHEST TAX BRACKET. LD. CIT(A) DE LETED THE ADDITION BY HOLDING AT PARA 5.3 OF HIS ORDER AS FOLLOWS: 5.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. LD. COUNSEL FOR THE ASSESSEE FOR THE APPELLANT. THE BASIC POINT IS THAT AN ASSES SEE CANNOT BE EXPECTED, MUCH LESS BE COMPELLED, TO MAKE PROFIT IN EVERY TRANSACT ION OF SALE HE MAKES. HOWEVER, IF THE TRANSACTION IS WITH A RELATED PARTY AND THE TRANSACTION RESULTS IN A LOSS, THE ONUS WILL BE ON THE ASSESSEE TO ESTABLISH THAT IT W AS A BONAFIDE TRANSACTION AND WAS NOT ENTERED INTO WITH THE MOTIVE OF BENEFITTING THE RELATED PARTY. IN THE ABSENCE OF SUCH EVIDENCE BEING LED BY THE ASSESSEE, THE REVENUE WILL BE ENTITLED TO DISALLOW/IGNORE THE LOSS WHILE COMPUTING THE TAX ABLE INCOME. HOWEVER, IF THE SALES TO THE RELATED PARTY RESULT IN A PROFIT TO TH E ASSESSEE, EVEN THOUGH THE SALES ARE MADE AT A RATE, LOWER THAN AT WHICH THE SALES A RE MADE TO OTHER PARTIES, THE REVENUE CANNOT BRING TO TAX THE NOTIONAL PROFIT WHI CH THE ASSESSEE WOULD OR COULD HAVE EARNED, HAD THE SALES BEEN MADE AT THE RATES C HARGED FROM UNRELATED PARTIES. HAVING SAID THAT, I MAY ADD THAT THE APPEL LANT HAS CITED MANY COGENT REASONS LIKE HUGE VOLUME OF SALES TO THESE CONCERNS ETC. TO JUSTIFY THE SALES TO THE SISTER CONCERNS AT LOWER RATES. IT MAY BE CLARIFIED THAT WHILE THE ADDITION FOR INFLATED PURCHASES IN RESPECT OF PURCHASES MADE FRO M SISTER CONCERNS COULD BE MADE U/S 40A(2)(A), BUT THERE IS NO CORRESPONDING P ROVISION IN RESPECT OF SALES MADE TO SISTER CONCERNS. THE DEPARTMENT CANNOT COMP EL A PERSON TO MAKE PROFIT OUT OF EVERY TRANSACTION SINCE THE DEPARTMENT DOS N OT HAVE ANY AUTHORITY TO ASK A PERSON TO MAXIMIZE ITS PROFITS. IF THE ASSESSEE C HOOSES TO GIVE DISCOUNT TO SOMEONE, HE IS FREE TO DO IT. THE ONLY CRITERIA /CO NDITION IS THAT THE TRANSACTION (SALE) SHOULD NOT RESULT IN LOSS THIS PRINCIPLE WAS ENUMERATED BY THE HONBLE SUPREME COURT IN THE CASE OF M/S CALCUTTA DISCOUNT COMPANY LTD. (91 ITR 8), IN WHICH THEIR LORDSHIPS HAVE HELD THAT WHEN A TRADER TRANSFERS HIS GOODS TO ANOTHER TRADER AT A PRICE WHICH IS LESS THAN THE MARKET PRI CE, SO LONG AS THE TRANSACTION IS BONAFIDE, THE REVENUE AUTHORITIES CANNOT CONSIDER T HE MARKET PRICE IGNORING THE REAL PRICE FETCHED TO COMPUTE PROFITS FROM THE TRAN SACTION. IT WAS ALSO HELD BY THE APEX COURT IN THIS CASE THAT AN ASSESSEE WAS AT LIB ERTY TO ARRANGE HIS AFFAIRS SO AS TO MINIMIZE HIS TAX BURDEN. IN THE INSTANT CASE, TH E PERSONS TO WHOM SALES ARE MADE AT LOWER RATES ARE TAX PAYERS IN THE HIGHEST M ARGINAL TAX BRACKET AND SO IT 6 CAN NOT EVEN BE VIEWED AS A SCHEME FOR TAX REDUCTIO N. IN VIEW OF THIS DISCUSSION, IT IS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTI FIED IN MAKING ADDITION OF RS. 3,15,197/- ON ACCOUNT OF SALES MADE TO ASSOCIATED C ONCERNS AT LOWER RATE AND THE SAME IS DELETED. GROUND OF APPEAL NO. 4 IS ALLO WED. 15. BEFORE US LD. DR RELIED ON THE ASSESSMENT ORDER WHEREAS LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF THE LD. CIT(A ) AND ALSO STATED THAT SIMILAR ADDITION MADE IN ASSESSMENT YEAR 2008-09, HAD BEEN DELETED BY THE HONBLE ITAT VIDE ITS ORDER DT. 06.11.2015 IN ITAT NO. 775 & 778/CHD/2012. 16. HAVING HEARD THE RIVAL SUBMISSIONS, WE FIND THA T IT IS NOT THE CASE OF REVENUE, MUCH LESS WITH THE HELP OF ANY EVIDENCE TH AT SALE HAS BEEN MADE TO THE RELATED PARTIES AT HIGHER PRICE YET ENTERED IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE AT LOWER RATES. THEREFORE, THERE IS NO CAS E FOR ANY ADDITION WHATSOEVER AND LD. CIT(A) HAS CORRECTLY APPRECIATED THE FACTS AND LAW CONTAINED IN THIS REGARD AND HAS RIGHTLY DELETED THE ADDITION. MOREOV ER WE FIND THAT THE HONBLE ITAT HAS IN ASSESSMENT YEAR 2008-09, DEALT WITH AN IDENTICAL ISSUE AND DELETED THE ADDITION. IT HAS NOT BEEN SHOWN TO US BY THE RE VENUE THAT THE FACTS IN ASSESSMENT YEAR 2008-09 WERE NOT IDENTICAL WITH TH E FACTS IN THE PRESENT CASE. 17. WE THEREFORE FIND NO INFIRMITY IN THE ORDER PAS SED BY LD. CIT(A) AND DISMISS THIS GROUND RAISED BY THE REVENUE. 18. THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO.1126/CHD/2012 19. IN THE APPEAL FILED BY THE ASSESSEE THE FOLLOWI NG GROUNDS WERE RAISED:- 1. AS PER THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER THE PROVISIONS OF LAW, THE LEARNED CIT(A) HAS ERRED UPHOLDING THE ADDITION OF RS. 2,99,999/- MADE BY THE ASSESSING OFFICER U/S 14A. THE DISALLOWANCE MADE BE DELETED. 2. AS PER FACTS AND CIRCUMSTANCES OF THE CASE AND PROV ISIONS OF LAW, THE LEARNED CIT(A) HAS ERRED IN MAKING DISALLOWANCE OF RS. 10,53,642/- OUT OF THE COMMISSION EXPENSES U/S 37(1). THE DISALLOWANCE BE DELETED. 20. GROUND NO. 2 WAS MODIFIED AT THE TIME OF HEARIN G IN AS MUCH AS NON ADMISSION OF ADDITIONAL EVIDENCE WAS ALSO AGITATED IN THE MODIFIED GROUND OF APPEAL. 21. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSING OFFICER NOTED IN THE ASSESSMENT ORDER THAT ASSESSEE HAD MADE INVESTMENTS TO THE TUNE OF RS. 74,75,551/- IN THE EQUITY SHARES OF VARIOUS COMPANI ES AND MUTUAL FUNDS AND THAT THE ASSESSEE HAS EARNED DIVIDEND OF RS. 52,239/-. A CCORDINGLY, THE A.O. INVOKED 7 SECTION 14A R.W. RULE 8D AND HELD THAT EXPENDITURE INCURRED TO EARN TAX EXEMPT DIVIDEND INCOME CANNOT BE ALLOWED AS DEDUCTION. THE REFORE, A.O. COMPUTED DISALLOWANCE EQUAL TO RS. 2,99,999/- U/S 14A R.W. R ULE 8D AS PER THE FOLLOWING WORKING:- TOTAL INTEREST EXPENDITURE RS. 14008376.A INVESTMENT AS ON 01.04.2008 RS. 6662696 INVESTMENT AS ON 31.03.2009 RS. 7475551/- AVERAGE INVESTMENT RS. 7069123.B TOTAL ASSETS AS ON 01.04.2008 RS. 4400339713 TOTAL ASSETS AS ON 31.03.2009 RS. 308009297/- AVERAGE OF TOTAL ASSETS RS. 374174505.C AMOUNT DISALLOWABLE ON ACCOUNT OF = A*B/C =14008376*7069123/374174505 = RS. 2,64,654/- OTHER AMOUNT DISALLOWABLE = 0.5% OF 7069123 (RULE 8D (2)(III) = RS. 35345 TOTAL AMOUNT DISALLOWABLE UNDER = RS. 2,99,999/- RULE 8D 22. ON FIRST APPEAL THE DISALLOWANCE WAS UPHELD BY LD. CIT(A) AND ASSESSEE HAS COME UP IN APPEAL BEFORE US. 23. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASS ESSEE REITERATED THE SUBMISSION MADE BEFORE THE LD. CIT(A) AND STATED TH AT THE ENTIRE INVESTMENTS HAD BEEN MADE OUT OF SURPLUS FUNDS AND MOREOVER STA TED THAT IDENTICAL DISALLOWANCE WAS DELETED BY THE HONBLE ITAT CHANDI GARH BENCH IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008-09. ON THE OTHER HAND LD. DR CONTENDED THAT SECTION 14A IS MANDATORY AND SO IS R ULE8D AND THEREFORE, THE DISALLOWANCE MADE BY A.O. AND CONFIRMED BY LD. CIT( A) IS IN ORDER AND NO INTERFERENCE IS CALLED FOR. 24. HAVING HEARD THE RIVAL SUBMISSIONS, WE FIND THA T THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DECISION OF T HE TRIBUNAL IN ASSESSEES CASE IN ASSESSMENT YEAR 2008-09 WHEREIN ON IDENTICAL SET O F FACTS IT WAS HELD AS UNDER: 27. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERE D THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE LEDGER ACCOUNT OF INVESTMENTS AS WELL AS THE CASH FLOW STATEMENT FILED BY THE ASSESSEE, AS STATE D HEREINABOVE, WE OBSERVE THAT THE AMOUNT OF INVESTMENTS IS MINISCULE IN COMP ARISON TO THE OWNED FUNDS ASSESSEE HAD. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE FIRM USED INTEREST BEARING FUNDS FOR THE PURPOSES OF MAKING INVESTMENT S. THE CONTENTION OF THE LEARNED D.R. AS REGARDS AVAILABILITY OF MIXED FUNDS IS ALSO NOT TENABLE IN VIEW OF THE LATEST JUDGMENT OF THE HONBLE JURISDICTIONAL P UNJAB & HARYANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT, I TA 224 OF 2013(O&M) DATED 27/07/2015, WHEREBY IT HAS BEEN HELD IN VERY CLEAR TERMS THAT IN CASE OF AVAILABILITY OF MIXED FUNDS PRESUMPTION TO THE EFFE CT THAT INVESTMENTS ARE MADE OUT OF OWNED FUNDS HAS TO BE TAKEN, AS THE MONEY HA S NOT COLOUR. MOREOVER IN THE PRESENT CASE, THE LEARNED COUNSEL FOR THE ASSES SEE HAS BEEN ABLE TO 8 DEMONSTRATE THAT AT THE TIME OF MAKING INVESTMENTS, THE ASSESSEE WAS HAVING HUGE AMOUNT OF OWNED FUNDS. IN VIEW OF THIS, THE AS SESSING OFFICER CANNOT MAKE DISALLOWANCE OF INTEREST FOR THE PURPOSES OF SECTIO N 14A OF THE ACT AS PER RULE 8D. AS REGARDS THE EXPENDITURE PART OF THE DISALLOWANCE , WE AGREE WITH THE SUBMISSION OF THE ASSESSEE THAT NOWHERE IN HIS ORDE R THE ASSESSING OFFICER HAS RECORDED ANY SATISFACTION DIRECTLY OR INDIRECTLY TO THE EFFECT WHY THE AMOUNT OF EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME AS S TATED BY ASSESSEE IS NOT CORRECT. AS PER THE PROPOSITION LAID DOWN BY THE HO NBBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF DEEPAK MITTAL (SUPRA), IN THE ABSENCE OF SUCH SATISFACTION, NO DISALLOWANCE OF EXPENSES CAN BE MADE UNDER SECTION 14A OF THE ACT AS PER RULE 8D. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 25. IN THE PRESENT CASE WE FIND THAT THE INVESTMENT HAVE INCREASED FROM RS. 66,61,556/- IN ASSESSMENT YEAR 2008-09 TO 74,75,55 1/- IN THE IMPUGNED YEAR I.E; ASSESSMENT YEAR 2009-10. FOR INVESTMENTS UPTO RS. 66,61,656/- THE HONBLE TRIBUNAL HAS GIVEN A CATEGORICAL FINDING THAT THE S AME COULD BE ATTRIBUTED TO BE OUT OF OWN FUNDS. AS FOR THE BALANCE INVESTMENT MAD E THE SAME COULD ALSO BE ATTRIBUTED TO OWN FUNDS OF THE ASSESSEE SINCE THE A SSESSEE HAS SHOWN PROFITS OF AROUND 3.8 CRORES BEING 2.25% OF THE GROSS SALES TU RNOVER OF RS. 171.58 CRORES AS STATED IN PARA 1.4 OF THE A.O. THEREFORE IN VIEW OF THE DECISION RENDERED IN THE PRECEDING YEAR AND IN FEW OF THE FACTS OF THE CASE, THE DISALLOWANCE MADE OF RS. 2,99,999/- IS DIRECTED TO BE DELETED. 8. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREFO RE ALLOWED. 9. COMING TO THE SECOND GROUND WHICH IS IN RESPECT OF DISALLOWANCE OF RS. 10,53,643/- OUT OF COMMISSION EXPENSES, THE ASSESSI NG OFFICER NOTED THAT THE TOTAL COMMISSION PAID AMOUNTED TO RS. 20,67,677/- W HICH INCLUDED COMMISSION PAID AGGREGATING TO RS. 10,53,643/- PAID TO THREE P ARTIES AS UNDER:- (I) DINESH RASTOGI, DELHI RS. 6,53,555/- (II) SUNIL RASTOGI RS. 1,62,976/- (III) BABU RAM SINGHAL RS. 2,37,112/- ------------------- TOTAL:- RS. 10,53,643/- ============== 26. ACCORDING TO THE A.O. THE ASSESSEE HAD NOT FURN ISHED ANY DETAILS REGARDING THE SERVICES RENDERED BY THESE PERSONS AN D THEREFORE, COMMISSION TO THE EXTENT OF RS. 10,53,643/- HAD NOT BEEN ESTABLIS HED AS AN EXPENSE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEE S BUSINESS. THEREFORE, THE AO MADE DISALLOWANCE OF THE ABOVE SAID AMOUNT. 27. ON FIRST APPEAL, THE ASSESSEE FILED CONFIRMATIO NS IN THE FORM AFFIDAVITS OF THE COMMISSION AGENTS AND SUBMITTED THAT THESE CONF IRMATIONS COULD NOT BE FILED BEFORE THE A.O. DUE TO PAUCITY OF TIME. BUT L D. CIT(A) REJECTED THESE CONFIRMATIONS ON THE GROUND THAT THESE HAVE BEEN FI LED AS ADDITIONAL EVIDENCES 9 BUT NO REASON EXCEPT THAT THESE COULD NOT BE FILED DUE TO PAUCITY OF TIME HAS BEEN GIVEN FOR NOT SUBMITTING THE SAME BEFORE A.O. LD CIT(A) FURTHER NOTED THAT THE A.O. IS RIGHT IN DISALLOWING THE COMMISSION AS EVEN THE NATURE OF SERVICES RENDERED WERE NOT SUBMITTED. THE DISALLOWANCE WAS T HUS UPHELD BY LD. CIT(A). 28. LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE U S THAT IDENTICAL ISSUE AROSE IN ASSESSMENT YEAR 2008-09 IN WHICH HONBLE TRIBUNA L RESTORED THE ISSUE BACK TO THE FILE OF LD. CIT(A) TO CONSIDER AFRESH BY GIVING LIBERTY TO THE ASSESSEE TO PRODUCE THE EVIDENCE AND MATERIAL TO DEFEND ITS CAS E. IT WAS THUS PLEADED THAT THE ORDER OF THE TRIBUNAL MAY BE FOLLOWED IN THIS Y EAR ALSO. 29. ON THE OTHER HAND, LD. DR SUBMITTED THAT ASSESS EE HAS NOT DISCHARGED HIS BURDEN TO PROVE THAT COMMISSION WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS AND THUS PRAYER WAS MADE TH AT NO RELIEF BE GRANTED TO THE APPELLANT. 30. HAVING HEARD THE RIVAL SUBMISSIONS, WE FIND THA T THE DISALLOWANCE OF COMMISSION WAS MADE IN A.Y. 2008-09 ALSO BUT IN THA T YEAR COMMISSION WAS PAID TO THREE DIFFERENT PARTIES. THIS YEAR, COMMISSION H AS BEEN PAID TO ABOVE MENTIONED THREE PARTIES WHICH ARE DIFFERENT THAN TH E THREE PARTIES INVOLVED IN A.Y. 2008-09. WHETHER EXPENDITURE OF COMMISSION IS BONAFIDE BUSINESS EXPENDITURE OR NOT IS A QUESTION OF FACT AND MERELY BECAUSE THE ISSUE OF COMMISSION WAS THERE IN A.Y. 2008-09 DOES NOT MEAN THAT THE APPEAL OF THE ASSESSEE SHOULD MEET THE SAME FATE IN SUCCEEDING YE ARS CLAIM OF THE ASSESSEE. IN THE PRESENT YEAR THOUGH IT HAS CLAIMED TO HAVE P AID COMMISSION TO THREE PARTIES BUT BEFORE A.O. IT HAS NOT FILED EVEN AN IO TA OF EVIDENCE. HOWEVER, IT HAS FILED AFFIDAVITS AND CONFIRMATION FOR THE FIRST TIM E BEFORE CIT(A) BY GIVING THE REASON THAT THESE COULD NOT BE SUBMITTED DUE TO PAU CITY OF TIME. WHEN THIS WAS SO PLEADED BEFORE CIT(A), IT WAS INCUMBENT FOR LD. CIT(A) TO HAVE RECORDED A FINDING AS TO WHETHER THE CONTENTION RAISED BY THE ASSESSEE WAS CORRECT OR NOT. PLAIN READING OF THE ORDER OF CIT(A) IN PARA 7.3 ME NTIONS THAT REASON GIVEN BY THE ASSESSEE IS NOT SUFFICIENT FOR ADMISSION OF THE ADDITIONAL EVIDENCE. OBVIOUSLY, IT IS NOT HIS CASE THAT CONTENTION OF THE ASSESSEE ABOUT THE PAUCITY OF TIME IS NOT CORRECT. HAVING ACCEPTED THAT THERE WAS PAUCITY OF TIME DUE TO WHICH THESE CONFIRMATIONS COULD NOT FILED, THE APPELLANT BROUGH T ITS CASE UNDER RULE 46A OF INCOME TAX RULES, 1962. THEREFORE, THE FINDING OF L D. CIT(A) THAT REASON GIVEN IS NOT COVERED UNDER RULE 46A IS MISPLACED IN LAW. IF ASSESSEE IS PREVENTED BY SUFFICIENT CAUSE IN FILING EVIDENCE, ADDITIONAL EVI DENCE IS LIABLE TO BE ADMITTED AS PER THE CONDITIONS GIVEN IN RULE 46A. PAUCITY OF TIME ADVANCED BY THE 10 APPELLANT WAS THE REASON PREVENTED THE ASSESSEE FRO M ADDUCING THESE EVIDENCES BEFORE AO. THEREFORE, WE DIRECT TO LD. CI T(A) TO ADMIT THESE EVIDENCES IN QUESTION AND AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, DECIDE THE ISSUE AFRESH IN ACCORDANCE WIT H LAW. 31. THIS GROUND OF APPEAL OF THE ASSESSEE STANDS AL LOWED FOR STATISTICAL PURPOSES. 32. THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATI STICAL PURPOSES. 33. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26/02/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR