ACIT, C-7, Ludhiana V. M/s Franklin Laboratories (India) Pvt. Ltd., Ludhiana

ITA 1230/CHANDI/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7480 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-07-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 27-09-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure; Additional evidence; Notional interest; Commercial expediency; Revenue expenditure; TDS

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH , ! ' # $ % & ' , ' BEFORE SMT.DIVA SINGH, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.1230/CHD/2018 / ASSESSMENT YEAR : 2014-15 THE A.C.I.T., CIRCLE-7, LUDHIANA. M/S FRANKLIN LABORATORIES (INDIA) PVT. LTD., 386/1, MAHARANI JHANSI ROAD, GHUMAR MANDI, CIVIL LINES, LUDHIANA. ./PAN NO: AAACF2313C /APPELLANT /RESPONDENT /ASSESSEE BY: SHRI AJAY JAIN, CA ! / REVENUE BY : SMT.CHANDERKANTA, SR.DR ' # $ /DATE OF HEARING : 04.07.2019 %&'( $ /DATE OF PRONOUNCEMENT: 25.07.2019 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER : THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-3, LUDHIANA [(IN SHORT CIT(A)] DATED 20.7.2018, PASS ED U/S 250(6) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS ACT), RELATING TO ASSESSMENT YEAR 2014-15. 2. GROUND NO.1, 2 & 3 RAISED BY THE REVENUE RELATE TO THE SAME ISSUE OF DISALLOWANCE OF INTEREST U/S 36(1 )(III) OF THE ACT AND READ AS UNDER: 1. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.10,79,275/- MADE BY THE AO U/S 36(L)(III) OF THE I. T. ACT CONTRARY TO THE DECISIO N IN THE CASE OF ABHISHEK INDUSTRIES LTD. 286 ITR 1 ? ITA NO.1230/CHD/2018 A.Y.2014-15 2 2. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.10,79,275/- MADE BY THE AO U/S 36(L)(III) OF THE I. T. ACT PARTICULARLY WHEN THE ASSESSEE HAD CHARGED INTEREST ON SUCH ADVANCES IN A Y 2010-11 AND 2011-12 ? 3. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.10,79,275/- MADE BY THE AO U/S 36(L)(III) OF THE I. T, ACT PARTICULARLY WHEN THE PURCHASES WERE NOT DEBITED AGAINST ADVANCES FROM AY 2010-11 ? 3. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURIN G ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE HAD GIVEN ADVANCES TO HI S SISTER CONCERN AMOUNTING TO RS.2,90,12,762/-. THE ASSESSEE WAS ASKED TO EXPLAIN THE EXPEDIENCY OF THE ADVANCE MADE AND WAS FURTHER ASKED TO SHOW CAUSE AS TO WHY INTEREST MADE TO THE RELATED PARTY I.E. M/S FRANKLIN LABORATORIES (INDIA) HERBALS, BE NOT DISAL LOWED AT BANK RATE FOR DIVERSION OF BUSINESS PROFIT TO EX EMPT UNIT. DUE REPLY WAS FILED BY THE ASSESSEE STATING T HAT THE ADVANCE WAS GIVEN FOR COMMERCIAL PURPOSES FOR T HE PURPOSES OF MAKING PURCHASE OF MEDICINES USED IN TH E BUSINESS OF THE ASSESSEE. THE AO WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAD MADE HUGE BORROWINGS FROM BANK ON WHIC H INTEREST HAD BEEN PAID AND CLAIMED AS REVENUE EXPENDITURE AND THESE BORROWED FUNDS HAD BEEN DIVER TED BY THE ASSESSEE TO ITS RELATED COMPANY AS INTEREST FREE ADVANCE WHOSE INCOME WAS EXEMPT. ACCORDINGLY, THE A O DISALLOWED THE INTEREST COMPUTED @ 12% ON THE ADVAN CE OF RS.2,90,12,762/- WHICH AMOUNTED TO RS.34,81,531/ -. HE THEREAFTER WORKED OUT THE INTEREST EXPENDITURE ITA NO.1230/CHD/2018 A.Y.2014-15 3 RELATING TO THE TAXABLE UNIT OF THE ASSESSEE, ON PROPORTIONATE BASIS WHICH WORKED OUT TO RS.10,79,27 5/- AND DISALLOWED THE SAME FOR THE PURPOSE OF COMPUTAT ION OF THE INCOME OF THE ASSESSEE FOR THE YEAR. 4. AGGRIEVED BY THE SAME, THE MATTER WAS CARRIED BEFORE THE LD.CIT(A), WHERE THE ASSESSEE REITERATED THE CONTENTIONS MADE BEFORE THE AO AND STATED THAT THE ADVANCE WAS COMMERCIALLY EXPEDIENT AND RELIED UPON VARIOUS CASE LAWS FOR THE PREPOSITION THAT WHERE TH E COMMERCIAL EXPEDIENCY OF THE ADVANCE WAS ESTABLISHE D, NO INTEREST U/S 36(1)(III) OF THE ACT WAS WARRANTED . THE LD.CIT(A) FOUND, ON THE BASIS OF DOCUMENTS BEFORE H IM ,THAT THE ASSESSEE HAD ESTABLISHED THE COMMERCIAL EXPEDIENCY OF THE ADVANCES AND, THEREFORE, HELD THA T NO DISALLOWANCE OF INTEREST WAS TO BE MADE U/S 36(1)(I II) OF THE ACT. HE FURTHER NOTED THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS FOR MAKING THE ADVANCES AND TH E PRESUMPTION IN SUCH CIRCUMSTANCES WAS THAT THE ADVANCE WAS MADE OUT OF THE OWN FUNDS WARRANTING NO DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT. FOR THE AFORESAID REASONS, HE DELETED THE DISALLOWANCE OF INTEREST MADE BY THE AO. 5. BEFORE US, THE LD. DR RELIED UPON THE ORDER OF T HE AO STATING THAT UNDENIABLY, THE ASSESSEE HAD MADE H UGE BORROWINGS FROM BANK ON WHICH INTEREST HAD BEEN PAI D AND CLAIMED AS REVENUE EXPENDITURE, WHILE IT HAD DIVERTED THESE FUNDS TO ITS RELATED COMPANY AS INTE REST FREE ADVANCE AND WHOSE INCOME WAS EXEMPT. THE LD. D R ITA NO.1230/CHD/2018 A.Y.2014-15 4 RELIED UPON THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD., 286 ITR 1 FOR UPHOLDING THE DISALLOWANCE. THE LD. DR FURTHER STATED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLO WANCE OF INTEREST IN THE IMPUGNED YEAR SINCE THE ASSESSEE HAD CHARGED INTEREST ON SUCH ADVANCES IN ASSESSMENT YEA RS 2010-11 AND 2011-12. AS FAR GROUND NO.3 RAISED BY T HE REVENUE, NO ARGUMENTS MADE BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, STATED THAT IT WAS REPEATEDLY CONTENDED BY TH E ASSESSEE, BOTH BEFORE THE AO AND THE CIT(A), THAT T HE ADVANCES HAD BEEN GIVEN FOR BUSINESS PURPOSE ONLY. THAT IT WAS POINTED OUT THAT THE ADVANCES HAD BEEN GIVEN TO SISTER CONCERN OF THE ASSESSEE FOR SETTING UP IT IS MANUFACTURING UNIT FOR THE MANUFACTURE OF MEDICI NES WHICH WERE PURCHASED BY THE ASSESSEE FOR USE IN ITS BUSINESS. THAT THE ADVANCES HAD BEEN GIVEN FOR FINA NCIAL YEAR 2009-10 FOR SETTING UP OF MANUFACTURING UNIT O F THE SISTER CONCERN AND TILL THE UNIT WAS SET UP THE INT EREST HAD BEEN CHARGED ON THE ADVANCES GIVEN. THEREAFTER ONCE THE SISTER CONCERN STARTED MANUFACTURING MEDICINES, THE ADVANCE WAS FOR THE PURCHASE OF MEDI CINE FROM THE SISTER CONCERN AND NO INTEREST WAS, THEREF ORE, CHARGED. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT NECESSARY DOCUMENTS BY WAY OF AGREEMENT ENTERE D INTO BY THE ASSESSEE WITH ITS SISTER CONCERN FOR MA KING ADVANCES WAS FILED ALONGWITH COPIES OF LEDGER ACCOU NT OF ITA NO.1230/CHD/2018 A.Y.2014-15 5 THE PARTIES, DEMONSTRATING THE ABOVE FACTS. OUR ATTENTION WAS DRAWN TO THE SUBMISSIONS MADE BEFORE THE LD.CIT(A), REPRODUCED AT PARA 2.2 OF THE ORDER AS U NDER: IT IS SUBMITTED THAT THE APPELLANT IS A COMPANY RUNN ING THE BUSINESS OF PHARMACEUTICALS AND LIFE SAVING DRUGS. DURING THE ASSESSMENT PROCEEDINGS, LD. AO ASKED FOR THE DETAIL S OF LOANS AND ADVANCE OF RS. 2,90,12,762/- GIVEN BY THE APPELLANT T O ITS SISTER CONCERN M/S FRANKLIN LABORATORIES (INDIA) HERB ALS. THE APPELLANT DULY SUBMITTED THE LEDGER ACCOUNT OF THE PAR TY M/S FRANKLIN LABORATORIES (INDIA) HERBALS ALONG WITH THE FACTS AND FIGURES WHY THE AMOUNT WAS ADVANCED BY THE APPELLANT COMPANY TO THE PARTY. STILL, LD. AO IGNORING THE FACTS AND F IGURES OF THE APPELLANT COMPANY AND DOCUMENTS SUBMITTED BY THE APP ELLANT COMPANY TO LD. AO, MADE ADDITION OF NOTIONAL INTERE ST @ 12% ON THE AMOUNT OF ADVANCE OF RS. 2,90,12,762/- MADE T O PARTY M/S FRANKLIN LABORATORIES (INDIA) HERBALS BY THE APPE LLANT COMPANY. IN THIS REGARD, IT IS SUBMITTED THAT THE C HARGING OF NOTIONAL INTEREST ON THE ADVANCE OF RS. 2,90,12,762/ - AND THEREBY DISALLOWING THE INTEREST OF RS. 34,81,531/- U/S 36(1 ) (III) IS UNJUSTIFIED AND UNTENABLE ON THE FOLLOWING COUNTS:- 1) AS SUBMITTED BY THE APPELLANT COMPANY DURING THE ASSESSMENT PROCEEDINGS THAT THE ADVANCE WAS GIVEN BY THE APPELLANT COMPANY TO THE PARTY M/S FRANKLIN LABORATORIES (INDIA) HERBALS FOR THE PURPOSE OF BUS INESS ONLY. IT IS TO NOTE THAT THE PARTY M/S FRANKLIN LAB ORATORIES (INDIA) HERBALS IS A RELATED PARTY OF THE APPELLANT CO MPANY IN TERMS OF THE PROPRIETOR OF THIS PARTY IS MR. AJA Y SAREEN WHO IS THE DIRECTOR IN THE APPELLANT COMPANY. BUT, THIS THING HAD NO IMPACT ON THE TRANSACTION IN QUESTION. AS, THE AMOUNT WAS ADVANCED FOR THE PURCHASE OF MEDICINES FROM THE PARTY M/S FRANKLIN LABORATORIES (INDIA) HERBA LS BY THE APPELLANT COMPANY. THE APPELLANT COMPANY INITIALLY GAVE SOME ADVANCE TO T HE PARTY M/S FRANKLIN LABORATORIES (INDIA) HERBALS FOR THE SETTING UP MANUFACTURING PLANT IN FY 2009-10. AS PE R THE TERMS BETWEEN THE APPELLANT COMPANY AND THE PARTY, THE APPELLANT COMPANY CHARGED INTEREST OF RS. 1,78,625. 35 ON THE AMOUNT ADVANCED. THE AMOUNT WAS NEVER ADVANCED INTEREST FREE. FURTHER, IT IS IMPORTANT TO NOTE THA T THE PARTY M/S FRANKLIN LABORATORIES (INDIA) HERBALS STARTED B USINESS OPERATIONS IN FY 2009-10 ITSELF AND THE APPELLANT C OMPANY STARTED TO PURCHASE MEDICINES TOTALLY FOR THE MANUF ACTURING OF FINISHED ARTICLE OF DRUGS AND PHARMA PRODUCTS FR OM THIS MEDICINES FROM FY 2010-11 ALONG WITH THE ADVANCE IN RESPECT OF PURCHASE OF MEDICINES, IF SOME OF THE AM OUNT WAS THERE-AFTER ADVANCED FOR THE SET UP AND RUN OF THE BUSINESS TO THE PARTY M/S FRANKLIN LABORATORIES (INDIA) HERBALS B Y THE APPELLANT COMPANY, THE APPELLANT COMPANY CONTINUED T O CHARGE INTEREST ON THE AMOUNT ADVANCED BY IT TO THE PARTY. DURING THE FY 2010-11, THE APPELLANT COMPANY CHARGED INTEREST OF RS. 25,07,333/- FROM THE PARTY M/S FRAN KLIN ITA NO.1230/CHD/2018 A.Y.2014-15 6 LABORATORIES (INDIA) HERBALS. FURTHER, IT IS SUBMIT TED THAT THE BUSINESS OF THE PARTY M/S FRANKLIN LABORATORIES (IN DIA) HERBALS WAS COMPLETELY SET UP TILL FY 2010-11 AND T HEREAFTER THE APPELLANT DID NOT GIVE ANY ADVANCE TO THE PARTY M/S FRANKLIN LABORATORIES (INDIA) HERBALS BUT ONLY THE ADVANCE FOR THE PURCHASE OF MEDICINES FROM THE PARTY M/S FR ANKLIN LABORATORIES (INDIA) HERBALS WAS GIVEN BY THE APPEL LANT. ALL THESE FACTS AND FIGURES ARE VERIFIABLE AND COMPILE- ABLE FROM THE LEDGER ACCOUNT OF THE PARTY M/S FRANKLIN LABORA TORIES (INDIA) HERBALS FROM THE BOOKS OF THE APPELLANT COM PANY. LEDGER ACCOUNT OF THIS PARTY M/S FRANKLIN LABORATORIE S (INDIA) HERBALS FROM THE BOOKS OF THE APPELLANT COMPANY FOR T HE FYS 2009-10 TO FY 2013-14 I.E. YEAR IN QUESTION IS ENCL OSED. IT IS CLEAR THAT THE APPELLANT INITIALLY GAVE ADVANCE TO TH E PARTY FOR SETTING UP AND INITIAL RUNNING OF HIS BUSINESS AND D ULY CHARGED THE INTEREST ON THE ADVANCED AMOUNT FROM THE P ARTY. BUT THEREAFTER THE APPELLANT COMPANY ONLY PURCHASED MEDICINES FROM THE PARTY AND IT IS SUBMITTED THAT IN THE C OURSE OF BUSINESS I.E. TO PURCHASE SOMETHING THE ADVANCEM ENT OF AMOUNT IS INSEPARABLE AND UNAVOIDABLE. THE APPETENT COMPANY MAKES ITS ALMOST 95% PURCHASE OF MEDICINES FROM THE PARTY M/S FRANKLIN LABORATORIES (LNDIA) HE RBALS ITSELF. HENCE, ADVANCE PAYMENT FOR PURCHASE OF MEDI CINES IS INTEGRAL PART OF THE BUSINESS. IN SUCH EVENT, MAKIN G A NEGATIVE INFERENCE ABOUT THE ADVANCE GIVEN TO THE P ARTY M/S FRANKLIN LABORATORIES (INDIA) HERBALS BY THE APPELL ANT COMPANY IS NOT JUSTIFIED. 2) IT IS FURTHER SUBMITTED THAT THE FACT IS CLEAR THAT THE ADVANCE GIVEN BY THE APPELLANT COMPANY TO THE PARTY M/S FRANKLIM LABORATORIES (INDIA) HERBALS IS NOT A LOAN OR ADVANCE TO DIVERT INTEREST BEARING FUNDS TO RELATED PA RTY BUT IS SIMPLY A BUSINESS ADVANCE. THE ADVANCE WAS GIVEN IN THE COURSE OF BUSINESS AND IN THE BUSINESS EXPEDIENCY ONLY. IT IS A SETTLED LAW THAT WHEN AN ADVANCE IS GIVEN IN BUSINESS EXPEDIENCY, NO DISALLOW ANCE OF INTEREST CAN BE MADE BY DRAWING PROVISIONS OF SE CTION 36(L)(III) OF THE ACT. HENCE, CHARGING OF NOTIONAL INTEREST @12% ON AMOUNT OF BUSINESS ADVANCE/REFUNDABLE SECURITY A ND FURTHER DISALLOWING THE INTEREST CLAIMED IN P&L A/C IS UNWARRANTED. 7. THE LD. COUNSEL FOR THE ASSESSEE FURTHER POINTED OUT THAT IT WAS ALSO CONTENDED BEFORE THE LD.CIT(A) THAT NONE OF THE ADVANCES RELATED TO THE IMPUGNED YEAR. THAT THE ENTIRE ADVANCES RELATED TO THE PRECEDING YEAR A ND NO INTEREST HAD BEEN DISALLOWED IN THOSE YEARS. OUR ATTENTION WAS DRAWN TO THE SUBMISSIONS MADE IN THIS REGARD AT PAGE 6 OF THE CIT(A)S ORDER AS UNDER: ITA NO.1230/CHD/2018 A.Y.2014-15 7 3) IT IS TO SUBMIT THAT AS WE GO THROUGH THE LEDGER ACCOUNT OF THE PARTY M/S FRANKLIN LABORATORIES (INDIA) HERBAL S IN THE BOOKS OF APPELLANT COMPANY FOR THE YEAR IN QUEST ION, IT IS CLEAR THAT NO AMOUNT OF RS. 2,90,12,762/- HAD BEEN ADVANCED DURING THE YEAR IN QUESTION BY THE APPELLAN T COMPANY TO IT. IT IS THE CLOSING BALANCE OF THE LOA N AND ADVANCE IN THE NAME OF PARTY M/S FRANKLIN LABORATORIES (INDIA) HERBALS AS ON '0,3.2014 AMOUNTING TO RS. 2,90,12,76/-. THIS BALANCE OF ADVAN CE OF RS. 2,90,12,762/- IS THE RESULT OF BUSINESS ADVANC ES IN PREVIOUS YEARS INCLUDING THE YEAR IN QUESTION. DURING THE YEAR IN QUESTION, IF WE GO THROUGH THE FIGURES IN THE LEDGER ACCOUNT, ONLY AN AMOUNT OF RS. 30,08,6521- (AMOUNT ADVANCED NET OF PURCHASES) ONLY HAS BEEN PA ID TO THE PARTY M/S FRANKLIN LABORATORIES (INDIA) HERBAL S FOR THE ADVANCE PAYMENT OF PURCHASES TO BE MADE AND/OR PREVIOUS YEARS PURCHASES (IF ANY). THE CLOSING BALANC E OF THE YEAR IMMEDIATELY PRECEDING TO THE YEAR IN QUESTION OF THIS PARTY IN THE BOOKS OF APPELLANT COMPANY WAS RS. 2,60,04,110.43. SO, LD. A 0 HAS NOT APPLIED HIS MIND ANYWHERE TO DRAW A RIGHT CONCLUSION WHILE MAKING ADDITION OF NOTIONAL INTEREST ON ADVANCE O/S OF RS. 2,90,12,762/- IN RESPECT OF PARTY M/S FRANKLIN LABORATORIES (INDIA) HERBALS, BUT HAS MADE A HASTE DECISION OF ILLOGICAL ADDITION IGNORING FACTS. ADDITION MADE IS UNJUSTIFIED. FURTHER, IT IS SUBMITTED THAT WHE N NO ADVANCE HAS BEEN GIVEN DURING THE YEAR IN QUESTION, NO DISALLOWANCE OF NOTIONAL INTEREST CAN BE MADE BY TH E ASSESSING OFFICER. HERE IN THE CASE OF APPELLANT COM PANY AMOUNT ADVANCED IS MUCH LOWER THAN THE ALLEGED AMOUNT OF RS. 2,90,12,762/- AND THAT TOO IS THE AMOUNT OF ADVANCE DUE TO BUSINESS NECESSITY AND IN REGULAR COUR SE OF BUSINESS AS ADVANCE TO SUPPLIER. WE RELY ON THE FOLLOWING JUDGMENT:- CIT VS. SR1DEVENTERPRISES IN (1991) 192 ITR 0165 OFKARNATAKA HIGH COURT BUSINESS EXPENDITUREINTEREST ON BORROWED CAPITALIN PREVIOUS ASSESSMENT YEARS ASSESSEE 'S CLAIM REGARDI NG INTEREST ON BORROWED CAPITAL ALLOWED WILL NOT BE E QUITABLE FOR THE REVENUE TO TAKE A DIFFERENT STAND IN RESPEC T OF THE AMOUNTS WHICH WERE THE SUBJECT-MATTER OF PREVIOUS YE ARS' ASSESSMENTS, CONSISTENCY AND DEFINITENESS OF APPROA CH BEING NECESSARY FURTHER, AS THE ADVANCE OF RS. 2,90,12,7(527- HAS N OT BEEN GIVEN DURING THE YEAR IN QUESTION. BECAUSE, THE OPENING B ALANCE OF THE PARTY M/S FRANKLIN LABORATORIES (INDIA) HERBAL S WAS RS. 2,60,04,110.43. ONLY NET ADDITION OF RS. 30,08,651.57 HAD BEEN MADE DURING THE YEAR IN QUESTION BALANCING THE AMOUNT ADVANCED AND PURCHASES MADE FROM THE PARTY BY THE AP PELLANT COMPANY. SO, NO NOTIONAL INTEREST CAN BE CALCULATED ON THE OPENING BALANCE OF LOANS & ADVANCES AND RESULTANT DISALLOWANCE OF INTEREST EXPENSE WILL BE VOID. IT IS ALSO A WELL SETTLED LAW THAT CHARGING OF NOTIONAL INTEREST IS NOT A PROVISION ITA NO.1230/CHD/2018 A.Y.2014-15 8 OF LAW BUT IS A PROCEDURE FOLLOWED IN ASSESSMENT PRO CEEDINGS BY THE DEPARTMENT. 8. THE LD. COUNSEL FOR THE ASSSESSEE THEREAFTER POINTED OUT THAT ON CONSIDERING THE FACTUAL CONTENT ION MADE BY THE ASSESSEE, BACKED AND SUBSTANTIATED DULY WITH EVIDENCE, THE LD.CIT(A) FOUND THAT THE ADVANCE S TO BE FOR BUSINESS PURPOSE OF THE ASSESSEE AND ACCORDI NGLY DELETED THE DISALLOWANCE OF INTEREST EXPENDITURE MA DE. IT WAS ALSO POINTED OUT THAT THE LD.CIT(A) HAD ALSO NOTED THE FACT THAT THE ASSESSEE HAD SUFFICIENT OWN INTER EST FREE FUNDS FOR MAKING THE ADVANCES CALLING FOR NO DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT. OUR ATTENTION WAS ALSO DRAWN TO THE FINDINGS OF THE LD. CIT(A) AT PARAS 2.3, 3.5 & 3.6 OF THE ORDER AS UNDER: 2.3 I HAVE CAREFULLY CONSIDERED THE APPELLANT'S SUBM ISSION. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER IN DETA IL. 1 HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNCEME NTS RELIED UPON BY THE APPELLANT AS WELL AS OTHER MATERIAL PLACED BY HIM ON RECORD. ON CAREFUL CONSIDERATION OF RI VAL CONTENTION, I AM OF THE OPINION THAT THERE CONSIDERA BLE FORCE IN THE ARGUMENTS OF THE LD. A.R OF THE APPELLANT WIT H REGARD TO THE ADVANCES GIVEN FOR ONLY BUSINESS PURPOSE. LO OKING TO THE AGREEMENT, COPY OF LEDGER ACCOUNT OF FRANKLIN LABORATORIES(LNDIA) HERBALS, BILLS OF MATERIAL PURCHA SED, IT HAS BEEN NOTICED THAT THE APPELLANT HAS GIVEN ADVANC ES TO ITS SISTER CONCERN FOR BUSINESS PURPOSE. IT WAS FOU ND THAT THE APPELLANT HAS ENTERED INTO AN AGREEMENT ON 01/11/2009 FOR THE PURCHASE OF MATERIALS AND THE APPELLANT COMPANY WOULD PROVIDE THE FUNDS FOR SETTI NG UP THE MANUFACTURING UNIT. FURTHER, IT IS ALSO SEEN THAT THESE ADVANCES HAVE BEEN PROVIDED LONG BACK IN FY 2009-10 WHICH WERE ACCOUNTED FOR IN THE BOOKS OF APPELLANT COMPANY AND THE REVENUE HAS NOT DISALLOWED ANY INTEREST IN EARLIER A.Y. 2010-11, 2011-12 & AY 2012- 13. THE APPELLANT COMPANY HAS SHOWN REGULAR PURCHASE OF MATERIAL FROM ITS SISTER CONCERN. THE OPENING BA LANCE OF ADVANCES RS. 2,60,04,110/- HAS INCREASED TO RS. 2,90,12,762/- IN THE FY 2013-14 AGAINST WHICH PURCHAS E OF MEDICINES OF RS.58,12,705/- HAS TAKEN PLACE, THUS NO FRESH ADVANCES WERE GIVEN IN THE YEAR UNDER REFEREN CE. THE APPELLANT HAS MADE PAYMENT ONLY ON ACCOUNT OF PURCH ASE OF MATERIAL FROM ITS SISTER CONCERN DURING THE YEAR U NDER REFERENCE. THE LD. A.O. HAD FAILED TO CONSIDER THAT THE ITA NO.1230/CHD/2018 A.Y.2014-15 9 APPELLANT COMPANY HAS GIVEN THE ADVANCES FOR BUSINE SS PURPOSE. IT IS SEEN THAT THE AO HAS MADE ADDITION W ITHOUT GOING INTO FACTS OF THE CASE. IN MY CONSIDERED OPINI ON THE AO. HAS NOT TRIED TO CONNECT OR PROVE THE NEXUS WIT H THE BORROWED FUNDS FOR BUSINESS PURPOSE OR NON-BUSINESS PURPOSE. IN EARLIER YEARS IN THE APPELLANT'S OWN CASE , NO DISALLOWANCE WAS MADE. HENCE DISALLOWANCE MADE BY TH E A.O. IS NOT IN ACCORDANCE WITH LAW. 3.5 IN MY CONSIDERED OPINION, THERE IS CONSIDERABL E FORCE IN THE CLAIM OF APPELLANT THAT, THE APPELLANT COMPANY SUBMITTED THAT ADVANCES HAD BEEN GIVEN OUT OF COMMERCIAL EXPEDIENCY AND NO SPECIFIC BORROWING HAD BEEN MADE FOR GIVING THESE ADVANCES. THE CLAIM OF THE APPELLANT CAN NOT DENY JUST FOR THE ASSUMPTION THAT THE APPELLANT HAD DIVERTED HIS BORROWED FUNDS FOR NON-BUSINESS PURPOSE . THE ID. AO HAS NOT ADDUCED ANY EVIDENCE ON THE CONTRARY TO NEGATE THE CLAIM OF APPELLANT. IN VIEW OF THE ABOVE, I AM INCLINED TO AGREE WITH THE CONTENTIONS OF THE ID. A.R. FU RTHER, I AM OF THE OPINION THAT THERE IS CONSIDERABLE FORC E IN ARGUMENTS OF THE APPELLANT, WITH REGARD TO THE AVAILAB ILITY OF INTEREST FREE FUNDS WITH THE APPELLANT IN THE FORM OF SHARE CAPITAL AND RESERVE AND SURPLUS FOR MAKING ADV ANCE TO ITS SISTER CONCERN. LOOKING TO THE BALANCE SHEET , WHICH HAS BEEN PLACED ON RECORD, IT HAS BEEN NOTICED THAT T HE APPELLANT HAS SUFFICIENT INTEREST FREE FUNDS IN THE SHARE CAPITAL AND RESERVE AND SURPLUS TO THE EXTENT OF RS . 5,25,61,189/-. I AM ALSO OPINION THAT THAT IN THIS SITUATION WHEN THE APPELLANT IS HAVING INTEREST FREE FUNDS OF HIS OWN, TO COVER THE ADVANCES GIVEN BY THE APPELLANT TO ITS SISTER CONCERN THEN THE PRESUMPTION SHOULD BE DRAWN THAT THE ADVANCES HAVE BEEN GIVEN OUT OF INTEREST F REE FUNDS AVAILABLE WITH THE APPELLANT. AS THE APPELLANT IS HAVING SUFFICIENT INTEREST FREE FUNDS OF ITS OWN IN THE FORM OF SHARE CAPITAL AND RESERVE AND SURPLUS TO MAKE ADVAN CES UNDER REFERENCE, IT CANNOT BE SAID THAT THE APPELLA NT HAS USED BORROWED FUNDS FOR THE MAKING IMPUGNED ADDITIO N. 3.6 IN VIEW OF THE ABOVE STATED FACTS AND CIRCUMST ANCES OF THE CASE. I AM OF THE OPINION THAT THE ASSESSING OFFICE R IS NOT JUSTIFIED IN MAKING THE ADDITION OF RS. 10,79,275/- IN THIS CASE ON ACCOUNT OF DISALLOWANCE OUT OF INTEREST EXP ENSES BY INVOKING PROVISIONS OF SECTION 36(1)(III) OF THE ACT ON THE GROUND THAT THE APPELLANT HAS GIVEN THE ADVANCES OUT OF BORROWED FUNDS FOR NON-BUSINESS PURPOSE. WHEREAS TH E ADVANCES ARE GIVEN ON ACCOUNT OF COMMERCIAL EXPEDIEN CY. THE ADDITION OF RS. 10,79,275/- U/S 36(1)(III) MADE B Y THE ASSESSING OFFICER IN THIS CASE IS NOT ACCORDANCE WITH L AW AND FACTS OF THE CASE, THEREFORE, DIRECTED TO BE DELET ED. IN RESULT, GROUND NO. 3 OF APPEAL TAKEN BY THE APPELLA NT COMPANY IS ALLOWED. 9. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, CONTENDED THAT THE LD.CIT(A) HAD RIGHTLY DELETED TH E DISALLOWANCE MADE BY THE AO. ITA NO.1230/CHD/2018 A.Y.2014-15 10 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE IS SUE BEFORE US RELATES TO DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT, AS PER WHICH ONLY INTEREST P AID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSI NESS OR PROFESSION IS TO BE ALLOWED AS DEDUCTION. IN THE IMPUGNED CASE, THE INTEREST DISALLOWED RELATES TO ADVANCES MADE BY THE ASSESSEE TO ITS SISTER CONCERN M/S FRANKLIN LABORATORIES (INDIA) HERBALS AMOUNTING TO RS.2,90,12,762/- WHICH WAS ENTIRELY INTEREST FREE. THE LD.CIT(A), WE FIND, HAS AFTER CONSIDERING ALL EVIDE NCES PRODUCED BEFORE HIM RELATING TO THE IMPUGNED ADVANC E, IN THE FORM OF AGREEMENT ENTERED INTO BY THE ASSESS EE WITH SISTER CONCERN FOR MAKING THE ADVANCES, THE CO PY OF LEDGER ACCOUNT OF THE SISTER CONCERN, BILLS OF MATE RIAL PURCHASED FROM SISTER CONCERN, HAS GIVEN A FINDING OF FACT THAT THE ADVANCES ARE FOR MAKING THE PURCHASE S OF MEDICINES FROM THE SISTER CONCERN, FOR UTILIZATION IN THE BUSINESS OF THE ASSESSEE. THE REVENUE HAS BEEN UNAB LE TO CONTROVERT THIS FACTUAL FINDING OF THE CIT(A). I N THE LIGHT OF THE SAME, THE LD.CIT(A),WE HOLD HAS RIGHTL Y HELD THE ADVANCES TO BE COMMERCIALLY EXPEDIENT FOR THE ASSESSEE . THE ORDER OF THE LD.CIT(A) DELETING THE DISALLOWANCE OF INTEREST ,THEREFORE CALLS FOR NO INTERFERENCE ON OUR PART SINCE THE INTEREST IS UNDISPUTEDLY PAID FOR THE BUSINESS OF THE ASSESSEE ONLY. THE RELIANCE PLACED BY THE LD. DR ON THE DECISION O F THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ITA NO.1230/CHD/2018 A.Y.2014-15 11 ABHISHEK INDUSTRIES LTD. (SUPRA), IS WE FIND MISPLA CED SINCE THE RATIO LAID DOWN IN THAT CASE OF DISALLOW ANCE OF INTEREST EXPENSES WHERE THERE ARE MIXED FUNDS AVAIL ABLE WITH THE ASSESSEE, WAS BASED AND PROCEEDED ON THE PREMISE THAT THE ADVANCE WAS FOR NON-BUSINESS PURPO SE, WHILE IN THE PRESENT THE ADVANCES HAVE BEEN HELD T O BE FOR BUSINESS PURPOSE. AS FOR THE REVENUES CONTENT ION THAT THE DISALLOWANCE WAS WARRANTED SINCE THE ASSES SEE HAD ITSELF CHARGED INTEREST ON SUCH ADVANCES IN ASSESSMENT YEARS 2010-11 AND 2011-12, WE DO NOT FIN D ANY MERIT IN THE SAME ALSO FOR THE REASON THAT FIRS TLY THE ASSESSEE HAD EXPLAINED THE REASONS FOR CHARGING THE INTEREST IN THOSE YEARS, AS THAT THE ADVANCE IN TH OSE YEARS WAS UTILIZED FOR SETTING UP THE MANUFACTURING UNIT OF THE SISTER CONCERN AND THAT SUBSEQUENTLY ONCE WI TH THE UNIT WAS SET UP, THE ADVANCE WAS FOR THE PURPOS E OF PURCHASE OF MEDICINE FROM THE SISTER CONCERN AND NO INTEREST WAS, THEREFORE, CHARGED ON THE SAME. THE SAID EXPLANATION HAS NOT BEEN SHOWN TO BE INCORRECT BY T HE REVENUE. EVEN OTHERWISE, AS LONG AS COMMERCIAL EXPEDIENCY IS ESTABLISHED, THERE REMAINS NO REASON FOR MAKING ANY DISALLOWANCE AND IT IS ENTIRELY THE PREROGATIVE OF THE ASSESSEE TO CHARGE OR NOT TO CHA RGE INTEREST ON SUCH ADVANCES MADE. THE AO CANNOT SIT I N THE ARM CHAIR OF THE BUSINESSMAN AND DETERMINE HOW THE BUSINESS IS TO BE RUN. ITA NO.1230/CHD/2018 A.Y.2014-15 12 IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF THE LD.CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.10,79,275/-. THE GROUND OF APPEAL NOS.1, 2 & 3 RAISED BY THE REV ENUE ARE, THEREFORE, DISMISSED. 11. GROUND NO.4, 5 & 6 RAISED BY THE REVENUE RELATE TO DISALLOWANCE OF SALARY, WAGES MADE AND READ AS UNDE R: 4. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.70,20,654/- MADE OUT OF SALARY & WAGES PARTICULARLY WHEN THE ASSESSEE FAILED TO DEMONSTRATE THAT THE SERVICES IN LIEU THEREOF WERE RECEIVED BY IT ? 5. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.70,20,654/- MADE OUT OF SALARY & WAGES PARTICULARLY WHEN THERE WAS NO ESI & EPF NUMBERS OF ALL PERSONS WHOM THE SAID PAYMENTS WERE MADE ? 6. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.70,20,654/- MADE OUT OF SALARY & WAGES PARTICULARLY WHEN THE ASSESSEE FAILED TO DEMONSTRATE EITHER BEFORE THE AO OR CIT(A) THAT SUC H SUMS HAD BEEN RECEIVED BY THE CONCERNED PERSONS? 12. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO PRODUCE WAGES AND SALARY REGISTER. FROM TH E SAME, THE AO OBSERVED THAT THERE WERE NUMEROUS PAYMENTS AGAINST SALARY AND WAGES WHERE NO PAYMENT PROOF BY WAY OF SIGNATURE OR THUMB IMPRESSION OF TH E RECIPIENT WAS RECORDED. IN THE ABSENCE OF ANY EXPLANATION FILED BY THE ASSESSEE THE SAID PAYMENT S, AMOUNTING IN ALL TO RS.70,20,654/- WERE HELD TO BE ITA NO.1230/CHD/2018 A.Y.2014-15 13 BOGUS AND THE CLAIM OF THE ASSESSEE TO THIS EXTEN T DISALLOWED BY THE AO. 13. BEFORE THE LD.CIT(A), THE ASSESSEE CONTENDED TH AT THE DISALLOWANCE WAS UNJUSTIFIED BECAUSE ALL THE EMPLOYEES WHOSE SALARY AND WAGES WERE DISALLOWED WE RE REGULAR EMPLOYEES OF THE ASSESSEE TO WHOM PAYMENTS HAD BEEN MADE YEAR TO YEAR AND ESI AND PF DEDUCTED ON THE SAME AND EVEN TDS DEDUCTED. IT WAS ALSO CONTEND ED THAT THE SALARY AND WAGES PAID TO THESE EMPLOYEES O NLY FOR SOME MONTHS WAS DISALLOWED FOR WANT OF THUMB IMPRESSION OR SIGNATURE, WHILE IN OTHER MONTHS IT W AS ALLOWED, WHICH MEANT THAT THE SAID PERSONS WERE NOT BOGUS. THE ASSESSEE SUBSTANTIATED ITS SUBMISSIONS B Y FILING DOCUMENTS IN THE FORM OF SALARY AND WAGES REGISTER, VOUCHERS CONTAINING THE SIGNATURE OR THUM B IMPRESSION OF THE EMPLOYEES WHOSE SALARY AND WAGES HAD BEEN DISALLOWED, ESI AND PF RETURNS FILED DURING TH E YEAR SHOWING ESI AND PF DEDUCTED ON PAYMENTS MADE T O THESE EMPLOYEES AND TDS RETURNS SHOWING TDS DEDUCTE D ON PAYMENTS MADE TO THEM. THE ASSESSEE FURTHER FILE D AN APPLICATION UNDER RULE 46A OF THE INCOME TAX RULES,1961,FOR ADMISSION OF THE ADDITIONAL EVIDENCE IN THE FORM OF PAYMENT PROOF OF SALARY AND WAGES. THE SAME WAS FORWARDED TO THE AO FOR HIS COMMENTS, WHO OBJEC TED TO THE ADMISSION OF THE SAME. THEREAFTER THE LD.CIT (A) FORWARDED THE COMMENTS OF THE AO TO THE ASSESSEE, W HO CONTENDED THAT THE EVIDENCES SUBMITTED WERE ONLY CLARIFICATORY IN NATURE SUPPORTING THE EVIDENCES WH ICH ITA NO.1230/CHD/2018 A.Y.2014-15 14 WERE ALREADY SUBMITTED DURING ASSESSMENT PROCEEDING S. THE CIT(A) AFTER CONSIDERING THE REPLY OF THE ASSES SEE ADMITTED THE ADDITIONAL EVIDENCES HOLDING THEM TO B E CLARIFICATORY EVIDENCES ONLY AND THEREAFTER PROCEED ED TO DECIDE THE CASE ON MERITS. THE LD.CIT(A) FOUND FORC E IN THE ARGUMENTS OF THE ASSESSEE AND, THEREFORE, DELET ED THE DISALLOWANCE MADE BY THE AO. THE RELEVANT FIND INGS OF THE LD.CIT(A) AT PARAS 4.4 AND 4.5 OF THE ORDER ARE AS UNDER: 4.4 I HAVE CAREFULLY CONSIDERED THE APPELLANT'S SUBM ISSION. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER IN DETA IL. I HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNCEME NTS RELIED UPON BY THE APPELLANT AS WELL AS OTHER MATERIAL PLACED BY HIM ON RECORD. I HAVE CONSIDERED REMAND RE PORT OF AO IN PURSUANCE OF ASSESSES APPLICATION FOR ADMI SSION OF ADDITIONAL EVIDENCE U/R 46 A . UNDER THE GIVEN FACT S AND CIRCUMSTANCES I FIND THAT ADDITIONAL EVIDENCE GIVEN BY THE ASSESSING PROCEEDINGS ARE OF ONLY CLARIFACTORY NATUR E IN CONTINUATION OF THE FACTS STATED BY THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS. ACCORDINGLY AFTER CONSIDERING ALL THE FACTS OF THE REQUEST OF THE ASS ESSEE FOR ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 46 A IS HEREBY ACCEPTED. 4.5 IN VIEW OF THE ABOVE STATED FACTS AND IN THE CIRCUMSTANCES OF THE CASE. I AM OF THE OPINION THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING THE AD DITION OF RS. 70,20,654/- IN THIS CASE ON ACCOUNT OF DISALLOW ANCE OF WAGES AND SALARY EXPENSES BY INVOKING SUSPICION THAT THESE PAYMENTS ARE BOGUS JUST BECAUSE THERE WERE NO SIGNATURE OR THUMB IMPRESSION OF EMPLOYEES WITHOUT GETTING INTO DETAILED UNDERSTANDING OF THE NATURE OF EXPENDITURE. ALL THESE EMPLOYEES ARE DULY REGISTERE D WITH ESI/PF AUTHORITIES AND APPELLANT KEEP ON DEPOSITING THE ESI/PF/TDS ON REGULAR BASIS. THE SAME REGISTER WAS ALSO PRODUCED BEFORE THE A.O. IN WHICH THE PF/ESI NUMBER OF ALL EMPLOYEES WAS SPECIFICALLY WRITTEN WHICH SHOWS THAT THE EXPENDITURE CLAIMED IS COMPLETELY GENUINE IN NATURE. IN RESULT, GROUND NO. 3 OF APPEAL TAKEN BY THE APPELLAN T COMPANY IS ALLOWED. 14. BEFORE US, ONE OF THE CONTENTIONS RAISED BY THE LD. DR WAS THAT THE LD.CIT(A) HAD ERRED IN DECIDING TH E APPEAL ON MERITS BY SUO MOTO CONSIDERING THE EVIDEN CES ITA NO.1230/CHD/2018 A.Y.2014-15 15 FILED BY THE ASSESSEE WITHOUT CONFRONTING THE SAME TO THE AO. THE LD. DR CONTENDED THAT AFTER THE AO HAD OBJECTED TO THE ADMISSION OF THE ADDITIONAL EVIDENC ES, THE LD.CIT(A) AFTER OVERRULING THE OBJECTIONS OF TH E AO OUGHT TO HAVE FORWARDED THE EVIDENCES TO THE AO FOR HIS COMMENTS ON THE SAME. THE LD. DR RELIED UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT VS MANISH BUILDWELL (P) LTD.(2011) 245 CTR 0397(DEL). . IT WAS THEREFORE PLEADED THAT THE ISSU E BE RESTORED BACK TO THE CIT(A) TO GRANT OPPORTUNITY TO THE AO TO VERIFY THE EVIDENCES AND GIVE HIS COMMENTS ON THE SAME AND THEREAFTER ADJUDICATE THE ISSUE. 15. THE LD. COUNSEL CONTROVERTED BY STATING THAT TH E EVIDENCES WERE NOT IN THE NATURE OF ADDITIONAL EVID ENCES BUT WERE CLARIFICATORY EVIDENCES AND THEREFORE DID NOT REQUIRE BEING CONFRONTED TO THE AO. LD.COUNSEL POIN TED OUT THE FINDING OF THE LD.CIT(A) IN THIS REGARD AND PLEADED THAT THE SAME HAVING BEEN DULY TAKEN NOTE O F BY THE LD.CIT(A) WAS SUFFICIENT COMPLIANCE WITH THE REQUIREMENTS OF RUES/LAW. 16. WE HAVE HEARD THE RIVAL CONTENTIONS. THE ISSUE TO BE ADJUDICATED IS WHETHER THE EVIDENCES FILED BEFOR E THE LD.CIT(A) BY THE ASSESSEE WERE TO BE CONFRONTED TO THE AO AS PER RULE 46A OF THE INCOME TAX RULES,1961 AND IF SO WHETHER THE ORDER PASSED BY THE LD. CIT(A) IN CONTRAVENTION OF THE RULES ,WAS AGAINST LAW. TO APPRECIATE THE ISSUE IT IS NECESSARY TO FIRST POIN T OUT THE CONTEXT IN WHICH IT AROSE, BEING IN RELATION TO ITA NO.1230/CHD/2018 A.Y.2014-15 16 CERTAIN PAYMENTS OF SALARY AND WAGES FOUND BOGUS BY THE AO IN THE ABSENCE OF SIGNATURES BEFORE THEIR NA MES IN THE SALARY REGISTER WHERE PAYMENT WAS RECORDED. THE ASSESSEE HAD FILED SALARY REGISTER AND THE SALARY VOUCHERS BEFORE THE AO . THE EVIDENCES SUBSEQUENTL Y FILED IN APPELLATE PROCEEDINGS BEFORE THE LD.CIT(A ) WERE ESI/PF RETURNS AND TDS RETURNS SHOWING STATUTORY DEDUCTIONS MADE FROM THESE PAYMENTS AND SALARY VOUCHERS WITH SIGNATURES OF THE SPECIFIC EMPLOYEES WHOSE SALARY/ WAGES WERE FOUND BOGUS . THE ASSESSEE HAS CLAIMED THE DOCUMENTS FILED BEFORE THE AO TO BE EVIDENCES OF PROOF OF PAYMENT OF THE SPECIFIC INSTA NCES OF SALARY/WAGES DISALLOWED. THIS HAS BEEN ACCEPTED BY THE LD.CIT(A),WHO AS A CONSEQUENCE HAS HELD THE EVIDENCES SUBSEQUENTLY FILED TO BE CLARIFICATORY I N NATURE, IN CONTINUATION OF THE FACTS STATED BY THE ASSESSEE IN ASSESSMENT PROCEEDINGS. THE LD.CIT(A) THEREFORE ADMITTED THE SUBSEQUENTLY FILED EVIDENCES , DESPITE OBJECTION OF THE AO TO ADMISSION OF THE SAM E AND AFTER CONSIDERING THEM SUO MOTO ALLOWED THE ASSESSE S CLAIM OF THE EXPENSES BEING GENUINE. CLEARLY THE LD.CIT(A) FOUND THE EVIDENCES TO BE CLARIFICATORY ONLY AND THEREFORE DID NOT CONFRONT T HEM TO THE AO.AS PER THE LD.CIT(A) THEY WERE NOT IN THE NA TURE OF ADDITIONAL EVIDENCES ,SINCE EVIDENCE HAD ALREADY BEEN FILED DURING ASSESSMENT PROCEEDINGS AND THEREFORE I T WAS NOT CONFRONTED TO THE AO AS PER THE REQUIREMENTS OF RULE 46A OF THE RULES. ITA NO.1230/CHD/2018 A.Y.2014-15 17 WE ARE NOT IN AGREEMENT WITH THE LD.CIT(A) THAT T HE EVIDENCES FILED DURING APPELLATE PROCEEDINGS WERE M ERELY CLARIFICATORY. UNDISPUTEDLY THE SALARY REGISTER FI LED DURING ASSESSMENT PROCEEDINGS, AND CLAIMED AND HELD TO BE A PIECE OF EVIDENCE BY THE LD.CIT(A) ,WAS THE ONE FROM WHICH IT WAS NOTED THAT THERE WERE NO SIGNATUR ES AGAINST SALARY/WAGES PAID TO CERTAIN EMPLOYEES. THEREFORE, WE HOLD, IT CANNOT BE SAID TO BE EVIDENC E OF PAYMENT OF SALARY/WAGES AT ALL. HAVING HELD SO,THE EVIDENCES SUBSEQUENTLY FILED WERE THEREFORE NOT CLARIFICATORY EVIDENCES BUT WERE IN FACT ADDITIONA L EVIDENCES FILED . AS PER RULE 46A OF THE RULES ,THE SE EVIDENCES COULD BE TAKEN NOTE OF BY THE CIT(A) ONLY AFTER GIVING THE AO REASONABLE OPPORTUNITY TO EXAMINE AN D OR REBUT THEM.THE HONBLE DELHI HIGH COURT IN THE CASE OF MANISH BUILDWELL(SUPRA) HAS CATEGORICALLY HELD THAT ADDITIONAL EVIDENCES FILED BY ASSESSES AND ADMITTED FOR ADJUDICATION BY CIT(A) ,AS PER RULE 46A,HAVE NECESS ARILY TO BE CONFRONTED TO THE AO FOR THE PURPOSES OF TAKI NG ACCOUNT OF THE SAME. IN VIEW OF THE ABOVE, WE THEREFORE CONSIDER IT FIT TO RESTORE THE ISSUE BACK TO THE CIT(A) ,DIRECTING HIM TO CONFRONT THE ADDITIONAL EVIDENCES TO THE AO AND THEREAFTER ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW AFTER OBTAINING THE COMMENTS OF THE AO. 17. GROUND NO.4, 5 & 6 RAISED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1230/CHD/2018 A.Y.2014-15 18 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- # $ % & ' (DIVA SINGH ) (ANNAPURNA GUPTA) ! ' /JUDICIAL MEMBER () ' /ACCOUNTANT MEMBER # /DATED: 25 TH JULY, 2019 * * &) *+,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' - / CIT 4. ' - ( )/ THE CIT(A) 5. +./ 0 , $0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35# / GUARD FILE &) ' / BY ORDER, / ASSISTANT REGISTRAR